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MARKETING MANAGEMENT

Topic Title
1. Marketing Concepts
2. Approaches to the Study of Marketing
3. Market Segmentation
4. Marketing Environment
5. Consumer urchase rocess
!. Consumer "ehaviour
#. Marketing $nformation System and Marketing %esearch
&. roduct Mi'
(. )e* roduct +anning and ,eve+opment
1-. roduct . Market $ntegration Strategies
11. "randing and ackaging ,ecisions
12. ricing ,ecisions
13. Channe+ ,ecisions
14. Advertising
15. Sa+e romotion
1!. ersona+ Se++ing
LESSON - 1
MARKETING CONCEPTS
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand 1
Meaning and importance of marketing2
3he different concept of marketing2
3he modern marketing concept.
3he socia+ marketing concept.
Marketing has 0een deferent 0y different authors different+y. A popu+ar definition
is that 4marketing is the performance of 0usiness activities that direct the f+o* of goods
and services from producer to consumer or user5. Another nota0+e definition is that
4marketing is getting the right goods and services to the right peop+e at the right p+ace at
the right time at the right price *ith the right communication and promotion5. 6et
another definition is that 7marketing is a socia+ process 0y *hich individua+s and groups
o0tain *hat they need and *ant through creating and e'changing products and va+ues
*ith others8. 3his definition of marketing rests on the fo++o*ing concepts9
:i; )eeds/ *ants and demands2
:ii; roducts2
:iii; <a+ue and satisfaction2
:iv; E'change
:v; Markets.
NEE!S" #ANTS AN! !EMAN!S
A human need is a state of fe+t deprivation of some 0asic satisfaction. eop+e
re=uire foods/ c+othing/ she+ter/ safety/ 0e+onging/ esteem etc. these needs e'ist in the
very nature of human 0eings.
>uman *ants are desires for specific satisfiers of these needs. ?or e'amp+e/ c+oth
is a needs 0ut %aymonds suiting may 0e *ant. @hi+e peop+e8s needs are fe*/ their *ants
are many.
,emands are *ants for specific products that are 0acked up 0y an a0i+ity and
*i++ingness to 0uy them. @ants 0ecome demands *hen 0acked up 0y purchasing po*er$
Pro%&ct
roducts are defined as anything that can 0e offered to some one to satisfy a need
or *ant.
'al&e an% Sati(action
Consumers choose among the products/ a particu+ar product that give them
ma'imum va+ue and satisfaction.
<a+ue is the consumer8s estimate of the product8s capacity to satisfy their
re=uirements.
E)c*ange an% Tranaction
E'change is the act of o0taining a desired product from someone 0y offering
something in return. A transaction invo+ves at +east t*o thing of va+ue/ conditions that are
agreed to/ a time of agreement and a p+ace of agreement.
Mar+et
A market consist of a++ the e'isting and potentia+ consumers sharing a particu+ar
need or *ant *ho might 0e *i++ing and a0+e to engage in e'change to satisfy that need or
*ant.
3hus/ a++ the a0ove concepts fina++y 0rings us fu++ circ+e to the concept of
marketing.
$MA%3A)CE A? MA%BE3$)C
1. Marketing process 0rings goods and services to satisfy the needs and *ants of the
peop+e.
2. $t he+ps to 0ring ne* varieties and =ua+ity goods to consumers.
3. "y making goods avai+a0+e at a+ p+aces/ it 0rings e=uipment distri0ution.
4. Marketing converts +atent demand into effective demand.
5. $t gives *ide emp+oyment opportunities.
!. $t creates time/ p+ace and possession uti+ities to the products.
#. Efficient marketing resu+ts in +o*er cost of marketing and u+timate+y +o*er prices
to consumers.
&. $t is vita+ +ink 0et*een production and consumption and primari+y responsi0+e to
keep the *hee+ of production and consumption constant+y moving.
(. $t creates to keep the standard of +iving of the society.
MARKETING MANAGEMENT
Marketing management is defined as 4the ana+ysis/ p+anning/ imp+ementation and
contro+ of programmes designed to create 0ui+d and purpose of achieving organiDationa+
o0Eectives5.
Marketing manages have to carry marketing research/ marketing p+anning/
marketing imp+ementation and marketing contro+. @ithin marketing p+anning/ marketer
must make decisions on target markets/ market postphoning product deve+opment/
pricing channe+s of distri0ution/ physica+ distri0ution/ communication and promotion.
3hus/ the marketing managers must ac=uire severa+ ski++s to 0e effective in market p+ace.
CONCEPTS O, MARKETING
3here are five distinct concepts under *hich 0usiness organisation can conduct their
marketing activity.
roduction Concept
roduct Concept
Se++ing Concept
Marketing Concept
Societa+ Marketing Concept
PRO!-CTION CONCEPT
$n this approach/ a firm is considered as the centra+ point and a++ goods and commodities
produced *ere so+d in the market. 3he maEor emphasis *as on the production process
and contro+ on the technica+ perfections *hi+e producing the goods.
3he production concept ho+ds that consumers *i++ favour those products that are *ide+y
avai+a0+e and +o* in cost. Management in production oriented organisation concentrates
on achieving high production efficiency and *ide distri0ution coverage.
Marketing is a native form in this orientation and it *as assumed that a good product se++s
0y itse+f. An+y distri0ution and se++ing *ere considered to 0e 7marketing8. 3he
techno+ogists thoughts that amena0i+ity and +o* cost of the products due to the +arge
sca+es of production *ou+d 0e the right 7Marketing Mi'8 for the consumers.
"ut/ they do not the 0est of customer patronage. Customers are in fact motivated 0y a
variety of considerations in their purchase. As a resu+t/ the production concept fai+s to
serve as the right marketing phi+osophy for the enterprise.
PRO!-CT CONCEPT
3he product concept is some*hat different from the production concept.
3he product concept ho+ds that consumer8s *i++ favour those products that offer
the most =ua+ity/ performance and features. Management in these product1oriented
organiDations focus their energy on making good products and improving them over time.
6et/ in many cases/ these organiDations fai+ in the market. 3hey do not 0other to study the
market and the consumer in1depth. 3hey get tota++y engrossed *ith the product and
a+most forget the consumer for *hom the product is actua++y meant2 they fai+ to find our
*hat the consumers actua++y need and *hat they *ou+d accept.
Mar+eting M.opia
At this stage/ it *ou+d 0e appropriate to e'p+ain the phenomenon of 7marketing
myopia8. 3he term 7marketing myopia8 is to 0e credited to rofessor 3heodore Fevitt. $n
one of his c+assic artic+es 0earing the same tit+e/ in the >arvard "usiness %evie*/
rofessor Fevitt has e'p+ained 7marketing myopia8 as a co+oured or crooked perception of
marketing and a short1sightedness a0out 0usiness. E'cessive attention to production or
product or se++ing aspects at the cost of the customer and his actua+ needs/ creates this
myopia. $t +eads to a *rong or inade=uate understanding of the market and hence fai+ure
in the market p+ace. 3he myopia even +eads to a *rong or inade=uate understanding of
the very nature of the 0usiness in *hich a given organisation is engaged and there0y
affects the future of the 0usiness. >e further e'p+ained that *hi+e 0usiness keep changing
*ith the times/ there is some fundamenta+ characteristic in each 0usiness that maintains
itse+f through the changing times/ *hich invaria0+y re+ates to the 0asic human need *hich
the 0usiness seeks to serve and satisfy through its products. A *ise marketer shou+d
understand this important fact and define his 0usiness in terms of this fundamenta+
characteristic of the 0usiness rather than in terms of the products and services
manufactured and marketed 0y him. ?or instance/ the Air*ays shou+d define their
0usiness as transportation the Movie makers shou+d define their 0usiness as
entertainment/ etc.
SALES CONCEPT
3he sa+es concept maintains that a company cannot e'pect its products to get picked up
automatica++y 0y the customers. 3he company has to conscious+y push its products.
Aggressive advertising/ high1po*er persona+ se++ing/ +arge sca+e sa+es promotion/ heavy
price discounts and strong pu0+icity and pu0+ic re+ations are the norma+ too+s used 0y
organisation that re+y on this concept. $n actua+ practice/ these organiDations too do not
enEoy the 0est of customer patronage.
3he se++ing concept is thus undertaken most aggressive+y *ith 7unsought goods8/
i.e. those goods that 0uyers norma++y do not think of 0uying/ such as insurance/
encyc+opedias. 3hese industries have perfected various techni=ues to +ocate prospects and
*ith great difficu+ty se++ them as the 0enefits of their products.
Evident+y/ the sa+es concept too suffers from marketing myopia.
!i((erence bet/een Selling an% Mar+eting
3he marketing and se++ing are considered synonymous+y. "ut there is great of
difference 0et*een the t*o. 3heodore Fevitt in his sensationa+ artic+es 7Marketing
Myopia8 dra*s the fo++o*ing contrast 0et*een marketing and se++ing.
Se++ing focuses on the needs of the se++er2 marketing on the needs of the 0uyer.
Se++ing is preoccupied *ith the se++er8s need to convert his product into cash2 marketing
*ith the idea of satisfying the needs of the customer 0y mean of the product and the
*ho+e c+uster of thing associated *ith creating de+ivering and fina++y consuming it.
Se++ing Marketing
1 Se++ing starts *ith the se++er/ Se++ing
focuses *ith the needs of the se++er.
Se++er is the center of the 0usiness
universe. Activities start *ith se++er8s
e'isting products.
Marketing starts *ith the 0uyers.
Marketing focuses on the needs of the
0uyer. "uyer is the centre of the 0usiness
universe. Activities fo++o* the 0uyer and
his needs.
2 Se++ing emphasiDes on profit. $t seeks
to =uick+y convert 7products8 into
7cash82 concerns itse+f *ith the tricks
and techni=ues of pushing the
product to the 0uyers.
Marketing emphasiDes on identification of
a market opportunity. $t seeks to convert
customer 7needs8 into 7products8 and
emphasiDes on fu+fi++ing the needs of the
customers.
3 Se++ing vie*s 0usiness as a 7goods Marketing vie*s 0usiness as a 7customer
producing processes8. satisfying process8.
4 $t over emphasiDes the 7e'change8
aspect *ithout caring for the 7va+ue
satisfactions8 to the 0uyers.
$t concerns primari+y *ith the 7va+e
satisfactions8 that shou+d f+o* to the
customer from the e'change
5 Se++er8s convenience dominates the
formu+ation of the 7marketing mi'8.
"uyer determines the shape of the
7marketing mi'8.
!. 3he firm makes the product first the
then decides ho* to se++ it and make
profit.
3he customer determines *hat is to 0e
offered as a 7product8 and the firm makes a
7tota+ product offering8 that *ou+d match
the needs of the customers.
# EmphasiDes accepting the e'isting
techno+ogy and reducing the cost of
production.
Emphasis8s on innovation of adopting the
most innovative techno+ogy.
&. Se++er8s motives dominate marketing
communications.
Marketing communications acts as the too+
for communicating the 0enefitsG
satisfactions of the product to the
consumers
( Costs determine price. Consumer determines price.
1- 3ransportation/ storage and other
distri0ution functions are perceived
as mere e'tensions of the production
function.
3hey are seen as vita+ services to provide
convenience to customers.
11 3here is no coordination among the
different functions of the tota+
marketing task.
Emphasis is on integrated marketing
approach.
12 ,ifferent departments of the 0usiness
operate separate+y.
A++ departments of the 0usiness operate in
a high+y integrated manner *ith vie* to
satisfy consumers.
13 3he firms *hich practice 7se++ing
concept8/ production is the centra+
function.
3he firms *hich practice 7marketing
concept8/ marketing is the centra+ function.
14. 7Se++ing8 vie*s the customer as the
+ast +ink in the 0usiness.
7Marketing8 vie*s the customer as the very
purpose of the 0usiness.
MARKETING CONCEPT
3he Marketing concept *as 0orn out of the a*areness that marketing starts *ith
the determination of consumer *ants and ends *ith the satisfaction of those *ants. 3he
concept puts the consumer 0oth at the 0eginning and at the end of the 0usiness cyc+e. 3he
0usiness firms recogniDe that 4there is on+y one va+id definition of 0usiness purpose9 to
create a customer5. $t proc+aims that 4the entire 0usiness has to 0e seen from the point of
vie* of the customer5. $n a company practicing this concept/ a++ departments *i++
recogniDe that their actions have a profound impact on the company8s to create and retain
a customer. Every department and every *orker and manager *i++ 7think customer8 and
7act customer8.
3he marketing concept ho+ds that the key to achieving organiDationa+ goa+s
consists in determining the needs and *ants of the target markets and de+ivering the
desired satisfactions efficient+y/ than competitors. $n other *ords/ marketing concept is a
integrated marketing effort aimed at generating customer satisfaction as the key to
satisfying organiDationa+ goa+s.
$t is o0vious that the marketing concept represents a radica++y ne* approach to
0usiness and is the most advanced of a++ ideas on marketing that have emerged through
the years. An+y the marketing concept is capa0+e of keeping the organisation free from
7marketing myopia8.
3he sa+ient features of the marketing concept are9
1; Consumer orientation
2; $ntegrated marketing
3; Consumer satisfaction
4; %ea+iDation of organiDationa+ goa+s.
1. Consumer Arientation
3he most distinguishing feature of the marketing concept is the importance
assigned to the consumer. 3he determination of *hat is to 0e produced shou+d not
0e in the hands of the firms 0ut in the hands of the consumers. 3he firms shou+d
produce *hat consumers *ant. A++ activities of the marketer such as identifying
needs and *ants/ deve+oping appropriate products and pricing/ distri0uting and
promoting then shou+d 0e consumer oriented. $f these things are done effective+y/
products *i++ 0e automatica++y 0ought 0y the consumers.
2. $ntegrated Marketing
3he second feature of the marketing concept is integrated marketing i.e.
integrated management action. Marketing can never 0e an iso+ated management
function. Every activity on the marketing side *i++ have some 0earing on the other
functiona+ areas of management such as production/ personne+ or finance.
Simi+ar+y any action in a particu+ar area of operation in production on finance *i++
certain+y have an impact on marketing and u+timate+y in consumer. 3herefore/ in
an integrated marketing set1up/ the various functiona+ areas of management get
integrated *ith the marketing function. $ntegrated marketing presupposes a proper
communication among the different management areas/ *ith marketing
inf+uencing the corporate decision making process. 3hus/ *hen the firms
o0Eective is to make profit . 0y providing consumer satisfaction/ natura++y it
fo++o*s that the different departments of he company are fair+y integrated *ith
each other and their efforts are channe+iDed through the principa+ marketing
department to*ards the o0Eectives of consumer satisfaction.
3. Consumer Satisfaction
3hird feature of the marketing is consumer satisfaction. 3he marketing concept
emphasiDes that it is not enough if a firm ahs consumer orientation2 it is essentia+
that such an orientation +eads to consumer satisfaction.
?or e'amp+e/ *hen a consumer 0uys a tin of coffee/ he e'pects a purpose to 0e
served/ a need to 0e satisfied. $f the coffee does not provide him the e'pected
fiavour/ the taste and the refreshments his purchase has not served the purpose2 or
more precise+y/ the marketer *ho so+d the coffee has fai+ed to satisfy his
consumer. 3hus/ 7satisfaction8 is the proper foundation on *hich a+one any
0usiness can 0ui+d its future.
4. %ea+iDation of ArganiDationa+ Coa+s inc+uding rofit
$f a firm has succeeded in generating consumer satisfaction/ is imp+ies that the
firm has given a =ua+ity product/ offered competitive price and prompt service
and has succeeded in creating good image. $t is =uite o0vious that for achieving
these resu+ts/ the firm *ou+d have tried its ma'imum to contro+ costs and
simu+taneous+y ensure =ua+ity/ optimiDe productivity and maintain a good
organiDationa+ c+imate. And in this process/ the organiDationa+ goa+s inc+uding
profit are automatica++y rea+iDed. 3he marketing concept never suggests that profit
is unimportant to the firm. 3he concept is against profiteering on+y/ 0ut not
against profits.
0ene(it o( Mar+eting Concept
3he concept 0enefits the organisation that practices it/ the consumer at *hom it is
aimed and the society at the society at +arge.
1. Benefits to the organisation: $n the first p+ace/ of the practice of the concept
0rings su0stantia+ 0enefits to the organisation that practices it. ?or e'amp+e/ the
concept ena0+e the organisation to keep a0reast of changes. An organisatoin
prHcising the concept keeps fee+ing the pu+se of the market through continuous
marketing audit/ market research and consumer testing. $t is =uick to respond to
changes in 0uyer 0ehaviour/ it rectifies any dra*0ack in its these products/ it
gives great importance to p+anning/ research and innovation. A++ these response/
in the +ong run/ prove e'treme+y 0eneficia+ to the firm. Another maEor 0enefits is
that profits 0ecome more and certain/ as it is no +onger o0tained at the cost of the
consumer 0ut on+y through satisfying him. 3he 0ase of consumer satisfaction
guarantees +ong . term financia+ success.
2. Benefits to Consumers: 3he consumers are in fact the maEor 0eneficiary of the
marketing concept. 3he attempts of various competing firms to satisfy the
consumer put him an envia0+e position. 3he concept prompts to produces to
constant+y improve their products and to +aunch ne* products. A++ these resu+ts in
0enefits to the consumer such as9 +o* price/ 0etter =ua+ity/ improvedGne*
products and ready stock at convenient +ocations. 3he consumer can choose/ he
can 0argain/ he can comp+ain and his comp+aint *i++ a+so 0e attended to. >e can
even return the goods if not satisfied. $n short/ *hen organiDations adopt
marketing concept/ as natura+ coro++ary/ their 0usiness practices change in favour
of the consumer.
3. Benefits to the society: 3he 0enefit from the marketing concept is not +imited to
the individua+ consumer of products. @hen more and more organiDations resort to
the marketing concept/ the society in 3oto 0enefits. 3he concept guarantees that
on+y products that are re=uired 0y the consumers are produced2 there0y it ensures
that the society8s economic resources are channe+iDed in the right direction. $t a+so
creates entrepreneurs and managers in the given society. Moreover/ it acts as a
7change agent8 and a 7va+ue adder82 improves the standard of +iving of the peop+e2
and acce+erates the pace of economic deve+opment of the society as a *ho+e. $t
a+so makes economic p+anning more meaningfu+ and more re+evant to the +ife of
the peop+e.
$n fact/ the practice of consumer oriented marketing 0enefits society in yet
another *ay 0y ena0+ing 0usiness organiDations to appreciate the societa+ content
inherent in any 0usiness. @hen the organisations move c+oser to the customers/
they see c+ear+y the va+idity of the fo++o*ing o0servation of ,rucker/ 43he
purpose of any 0usiness +ies outside the 0usiness . in society.5 And this
a*areness of the societa+ content of 0usiness often enthuses organiDations to make
a nota0+e contri0ution to the enrichment of society.
Societal Mar+eting concept
)o* the =uestion is *hether the marketing concept is an appropriate
organiDationa+ goa+ in an age of environmenta+ deterioration/ resource shortages/
e'p+osive popu+ation gro*th etc. and *hether the firm is necessari+y acting in the 0est
+ong run interests of consumers and society. ?or e'amp+e/ many modern disposa0+e
packing materia+s create pro0+em of environmenta+ degradation Situations +ike this/ ca++
for a ne* concept/ *hich is ca++ed 7Socia+ Marketing Concept8.
3he societa+ marketing concept ho+ds that the organiDation8s task is to determine
the needs/ *ants and interests of target markets and to de+iver the desired satisfaction
more effective+y and efficient+y than competitors in a way that preserves or enhances the
consumers and the societys well being.
A1fe* magaDines such as Ba+ki/ Ananda <ikadan/ do not accept any
advertisements for Cigarettes or a+coho+ic +i=uors though it is +oss of revenue for them.
3his is a typica+ e'amp+e of societa+ marketing concept.
3he societa+ marketing concept ca++s upon marketers to 0a+ance three
considerations in setting their marketing po+icies name+y firm8s profits/ consumer *ant
satisfaction and society interest.
META 1 MARKETING
Fike societa+ marketing/ the concept of meta1marketing is a+so of recent origin. $t
has considera0+y he+ped to deve+op ne* insight into this e'citing fie+d of +earning. 3he
+itera+ meaning of the term 7meta8 is 4more comprehensive5 and is 4used *ith the name
of a discip+ine to designate a ne* 0ut re+ated discip+ine designed to dea+ critica++y *ith
the origina+ one5. $n marketing/ this term *as origina++y coined 0y Be++y *hi+e discussing
the issues of ethics and science of marketing. Bot+er gave the 0roadened app+ication of
marketing nations to non10usiness organisations/ persons/ causes etc. $n 0roadening the
concept of marketing/ marketing *as assigned a more comprehensive ro+e. >e used the
term meta1marketing to descri0e the processes invo+ved in attempting to deve+op or
maintain e'change re+ations invo+ving productsG services organiDations/ persons/ p+aces
or causes.
3he e'amp+es of non10usiness marketing or meta1marketing may inc+ude ?ami+y
@e+fare rogrammes and the idea of prohi0ition.
!EMARKETING
3he demarketing concept is a+so of recent origin. $t is a concept *hich is of great
re+evance to deve+oping economies *here demands for productsG services e'ceed
supp+ies.
,emarketing has 0een defined as 4that aspect of marketing that dea+s *ith
discouraging customer/ in genera+/ or a certain c+ass of customers in particu+ar on either a
temporary or permanent 0asis. 3he demarketing concept espouses that management of
e'cess demand is as much a marketing pro0+em as that of e'cess supp+y and can 0e
achieved 0y the use of simi+ar marketing techno+ogy as used in the case of managing
e'cess supp+y. $t may 0e emp+oyed 0y a company to reduce the +eve+ of tota+ demand
*ithout a+ienating +oya+ customers :Cenera+ ,emarketing;/ to discourage the demand
coming from certain segments of the market that are either unprofita0+e or possess the
potentia+ of inEuring +oya+ 0uyers :Se+ective ,emarketing;/ to appear to *ant +ess demand
for the sake of actua++y increasing it :Astensi0+e ,emarketing;. @hatever may 0e the
o0Eective/ there is a+*ays a danger of damaging customer re+ations in any demarekting
strategy. 3herefore/ to 0e creative/ every company has to ensure that its +ong1run
customer re+ations remain undamaged.
RE'IE# 2-ESTIONS3
1. ,efine marketing. "ring out its importance
2. "rief+y discuss the various concept of marketing.
3. ,iscuss in detai+ the modern marketing concept.
IIIIIIIIIIIIIIIII
LESSON 1 4
APPROAC5ES TO T5E ST-!6 O, MARKETING
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
3he approaches to the study of marketing.
3he significance of different approaches.
3here are different approaches s to the study of marketing. 3hese approaches have
immense+y contri0uted to the evo+ution of the modern approach and the concept of
marketing. 3o faci+itate the study/ these approaches may 0e 0road+y c+assified as fo++o*s9
:i; Commodity approach
:ii; ?unctiona+ approach
:iii; $nstitutiona+ approach
:iv; Manageria+ approach2 and
:v; Systems approach
Co77o%it. Approac*
3he first approach is the commodity approach under *hich a specific commodity
is se+ected and then its marketing methods and environments are studied in the course of
its movement from producer to consumer. $n this approach/ the su0Eect matter of
discussion centres around the specific commodity se+ected for the study and inc+udes the
sources and conditions of supp+y/ nature and e'tent of demand/ the distri0ution channe+s
used/ promotiona+ methods adopted etc.
,&nctional Approac*
3he second approach is the functiona+ approach under *hich the study
concentrates on the specia+iDed functions or services performed 0y the marketers and the
pro0+ems faced 0y them in performing those functions. Such marketing functions inc+ude
0uying/ se++ing/ storage/ standardiDing/ transport/ finance/ risk10earing/ market
information etc. 3his approach certain+y ena0+es one to gain detai+ed kno*+edge on
various functions of marketing.
Intit&tional Approac*
3he third approach is the institutiona+ approach under *hich the main interest
centres around the institutions or agencies that perform marketing functions. Such
agencies inc+ude *ho+esa+ers/ retai+ers/ mercanti+e agents and faci+itating institutions +ike
transport undertakings/ 0anks/ insurance companies etc. 3his approach he+ps one to find
out the operating methods adopted 0y these institutions and the various pro0+ems faced
0y them and to kno* ho* they *ork together in fu+fi++ing their o0Eectives.
Managerial Approac*
$n the manageria+ approach/ the focus of marketing study is on the decision1
making process invo+ved in the performance of marketing functions at the +eve+ of a firm.
3he study encompasses discussion of the different under+ying concepts/ decision
inf+uencing factors2 a+ternative strategies . their re+ative importance/ strengths and
*eaknesses/ ad techni=ues and methods of pro0+em1so+ving. 3his approach entai+s the
study of marketing at the micro1+eve+ of a 0usiness firm . of the manageria+ functions of
ana+ysis/ p+anning/ imp+ementation/ coordination and contro+ in re+ation to the marketing
functions or creating/ stimu+ating/ faci+itating and va+uing transactions.
S.te7 Approac*
Modern marketing is comp+e'/ vast and sophisticated and it inf+uences the entire
economy and standard of +iving of peop+e. >ence marketing e'perts have deve+oped one
more approach name+y 7System approach8. Jnder this approach/ marketing itse+f is
considered as a su01system of economic/ +ega+ and competitive marketing system. 3he
marketing system operates in an environment of 0oth contro++a0+e and uncontro++a0+e
forces of the organisation. 3he contro++a0+e forces inc+ude a++ aspects of products/ price/
physica+ distri0ution and promotion. 3he uncontro++a0+e forces inc+ude economic/
socio+ogica+/ psycho+ogica+ and po+itica+ forces. 3he organisation has to deve+op a
suita0+e marketing programme 0y taking into consideration 0oth these contro++a0+e and
uncontro++a0+e forces to meet the changing demands of the society. 3he systems
approach/ in fact/ e'amines this aspect and a+so integrates commodity/ functiona+
institutiona+ and manageria+ approaches. ?urther/ this approach emphasis the importance
of the use of 7market information8 in marketing programmes.
3hus/ from the foregoing discussion/ one cou+d easi+y understand that the
marketing cou+d 0e studied in any of the a0ove approach and the systems approach is
considered to 0e the 0est approach as it provides a strong 0ase for +ogica+ and order+y
ana+ysis and p+anning of marketing activities.
RE'IE# 2-ESTIONS
1. ,iscuss the various approaches to the study of marketing.
2. E'p+ain 7Systems Approach8 to the study of marketing.
LESSON 1 8
MARKET SEGMENTATION
Learning Objective
After reading this +esson/ you shou+d to a0+e to understand1
3he meaning/ 0ases and 0enefits of the concept of market segmentation2
3he concept of target market2
Meaning and types of positioning and its imp+ications
A++ firms must formu+ate a strategy for approaching their markets. An the one hand/ the
firm may choose to provide one product to a++ of its customer2 on the other hand/ it may
determine that the market is so heterogeneous that it has no choice 0ut to divide or
segment potentia+ users into su0markets.
Segmentation is the key to the marketing strategy of many companies. Segmentation is a
demand1oriented approach that invo+ves modifying the firm8s product andGor marketing
strategies to fit the needs of individua+ market segments rather than those of the aggregate
market.
According to @i++iam Stanton/ 4Market segmentation is the process of dividing the tota+
heterogeneous market for a product into severa+ su01markets or segments each of *hich
tend to 0e homogeneous in a++ significant aspects.
Market segmentation is 0asica++y a strategy of 7divide and ru+e8. 3he strategy invo+ves the
deve+opment of t*o or more different marketing programmes for a given product or
service/ *ith each marketing programme aiming at each segment. A strategy of market
segmentation re=uires that the marketer first c+ear+y define the num0er and nature of the
customer groupings to *hich he intends to offer his product or service. 3his is a
necessary condition for optimiDing efficiency of marketing effort.
RATIONALE ,OR MARKET SEGMENTATION
3here are three reasons *hy firms use market segmentations9
"ecause some markets are heterogeneous
"ecause market segments respond different+y to different promotiona+ appea+s2
and
"ecause market segmentation consider *ith the marketing concept.
5eterogeneo& Mar+et3
Market is heterogeneous 0oth in the supp+y and demand side. An supp+y side/
many factors +ike differences in production e=uipments/ processing techni=ues/ nature of
resources or inputs avai+a0+e to different manufactures/ une=ua+ capacity among the
competitors in terms of design and improvement and de+i0erate efforts to remain different
from other account for the heterogeneity. Simi+ar+y/ the demand side/ *hich constitute
consumers . is a+so different due to differences in physica+ and psycho+ogica+ traits of
consumer. Modern 0usiness managers rea+iDe that under norma+ circumstances they
cannot attract a++ of the firm8s potentia+ customers to one product/ 0ecause different
0uyers simp+y have different needs and *ants. 3o accommodate this heterogeneity/ the
se++er must provide different products. ?or e'amp+e/ in t*o *hee+ers/ the 3<S Company
first introduced 3<S5- Moped/ 0ut +ater on introduced a variety of t*o *hee+ers/ such as
3<S KF/ 3<S o*erport/ 3<S Champ/ 3<S Sport/ 3<S Scooty/ 3<S SuDuki/ 3<S
<ictor/ to suit the re=uirements of different c+asses of customers.
4$ 'arie% Pro7otional Appeal3
A strategy of market segmentation does not necessari+y mean that the firm must
produce different products for each market segment. $f certain promotiona+ appea+s are
+ike+y to affect each market segment different+y/ the firm may decide to 0ui+d f+e'i0i+ity
into its promotiona+ strategy rather than to e'pand its product +ine. ?or e'amp+e/ many
po+itica+ candidates have tried to se++ themse+ves to the e+ectorate 0y emphasiDing one
message to +a0our/ another to 0usiness/ and a third to farmers.
As another e'amp+e/ the Sheraton >ote+ serves different district market segments/
such as conventioneers/ 0usiness peop+e and tourists. Each segments has different reasons
for using the hote+. Conse=uent+y/ Sheraton uses different media and different messages
to communicate *ith the various segments.
8$ Conitenc. /it* t*e Mar+eting Concept
A third reason for using market segmentation is that it is consistent *ith the
marketing concept. Market segmentation recogniDes the e'istence of distinct market
groups/ each *ith a distinct set of needs. 3hrough segmentation/ the firm directs its
product and promotiona+ efforts at those markets that *i++ 0enefit most from or that *i++
get the greatest enEoyment from its merchandise. 3his is the heart of the marketing
concept.
Aver the years/ market segmentation has 0ecome an increasing+y popu+ar strategic
techni=ue as more and more firms have adopted the marketing concept. Ather historica+
forces 0eing the rise of market segmentation inc+ude ne* economies of sca+e/ increased
education and aff+uence/ greater competition/ and the advent of ne* segmentation
techno+ogy.
"ases of Market Segmentation
3here are a num0er of 0ases on *hich a firm may segment its market
1. Ceographic 0asis
a. )ations
0. States
c. %egions
2. ,emographic 0asis
a. Age
0. Se'
c. $ncome
d. Socia+ C+ass
e. Materia+ Status
f. ?ami+y SiDe
g. Education
h. Accupation
3. sychographic 0asis
a. Fife sty+e
0. ersona+ities
c. Foya+ty status
d. "enefits sought
e. Jsage rate :vo+ume segmentation;
f. "uyer readiness stages :una*are/ a*are/ informed/ interested/ desired/
intend to 0uy;
g. Attitude stage :Enthusiastic/ positive/ indifferent/ negative/ hosti+e;
MET5O!S O, SEGMENTATION
An the 0asis of the 0ases used for the market segmentation/ various characteristics
of the customers and geographica+ characteristics etc./ common methods of market
segmentations cou+d 0e done. Common methods used are9
Geograp*ical Seg7entation
@hen the market is divided into different geographica+ unit as region/ continent/
country/ state/ district/ cities/ ur0an and rura+ areas/ it is ca++ed as geographica+
segmentation. Even on the geographic needs and preference products cou+d 0e made.
Even through 3ata 3ea is so+d on a nationa+ +eve+/ it is f+avoured according+y in different
regions. 3he strength of the tea differs in each regions of the country. "aEaE has su01
divided the entire country into t*o distinct markets. A*ing to the 0etter road conditions
in the north/ the super ?E Sector is promoted 0etter *ith sma++ *hee+s2 *hereas in the
case of south/ "aEaE promotes Chetak ?E *ith +arge *hee+s 0ecause of the 0ad road
conditions.
!e7ograp*ic Seg7entation
,emographics is the most common+y used 0asis for market segmentation.
,emographic varia0+es are re+ative+y easy to understand and measure/ and they have
proven to 0e e'ce++ent segmentation criteria for many markets. $nformation in severa+
demographic categories is particu+ar+y usefu+ to marketers.
,emographic segmentation refers to dividing the market into groups on the 0asis
of age/ se'/ fami+y siDe cyc+e/ income/ education/ occupation/ re+igion/ race/ cast and
nationa+ity. $n 0etter distinctions among the customer groups this segmentation he+ps.
3he a0ove demographic varia0+es are direct+y re+ated *ith the consumer needs/ *ants and
preferences.
Age9 Market segments 0ased on age are a+so important to many organiDations.
Some aspects of age as a segmentation varia0+e are =uite o0vious. ?or e'amp+e/ chi+dren
constitute the primary market for toys and peop+e !5 years and o+der are maEor users of
medica+ services. Age and +ife cyc+e are important factors. ?or instance in t*o *hee+er
market/ as "aEaE has 7Sunny8 for the co++ege gir+s2 7"aEaE Chetak8 for youngsters2 7"aEaE
Chetak8 for the office going peop+e and "aEaE M&- for rura+ peop+e.
$n appea+ing to teenagers/ for e'amp+e/ the marketing e'ecutive must continua++y
monitor their ever1changing 0e+iefs/ po+itica+ and socia+ attitudes/ as *e++s as the
entertainers and c+othing that are most popu+ar *ith young peop+e at a particu+ar time.
Such factors are important in deve+oping effective advertising copy and i++ustrations for a
product directed to the youth market.
Se' segmentation is app+ied to c+othing/ cosmetics/ magaDines and hair dressing.
3he magaDines +ike @omen8s Era/ ?emina/ :in Ma+aya+am;/ Mangaiyar Ma+ar :in 3ami+;
are main+y segmented for *omen. %ecent+y even a cigarette e'c+usive+y for *omen *as
0rought out. "eauty ar+ours are not synonyms for the +adies.
$ncome segmentation9 $t has +ong 0een considered a good varia0+e for segmenting
markets. @ea+thy peop+e/ for e'amp+e/ are more +ike+y to 0uy e'pensive c+othes/
Ee*e++eries/ cars/ and to +ive in +arge houses. $n addition/ income has 0een sho*n to 0e an
e'ce++ent segmentation corre+ate for an even *ider range of commodity purchased
products/ inc+uding househo+d toi+etries/ paper and p+astic items/ furniture/ etc.
Socia+ C+ass segmentation9 3his is a significant market segment. ?or e'amp+e/
mem0ers of different socia+ c+asses vary dramatica++y in their use of 0ank credit cards.
eop+e in +o*e4r socia+ c+asses tend to use 0ank credit cards as insta++ment +oans/ *hi+e
those in higher socia+ c+asses use them for convenience purposes. 3hese differences in
0ehaviour can 0e significant *hen segmenting a market and deve+oping a marketing
program to serve each segment.
P.c*ograp*ic Seg7entation
An the 0asis of the +ife sty+e/ persona+ity characteristics/ 0uyers are divided and
this segmentation is kno*n as psychographics segmentation. Certain group of peop+e
reacts in a particu+ar manner for an appea+ proEected in the advertisements and e'hi0it
common 0ehavioura+ patterns. Marketers have a+so used the persona+ity varia0+es as
independent/ impu+sive/ mascu+ine/ aggressive/ confident/ naLve/ shy etc. for marketing
their products. A+d spice promotes their after shave +otion for the peop+e *ho are se+f
confident and are very conscious of their dress code. 3hese advertisements focus main+y
on the persona+ity varia0+es associated *ith the product.
0e*avio&ral Seg7entation
"uyer 0ehavioura+ segmentation is s+ight+y different from psychographic
segmentation. >ere 0uyers are divided into groups on the 0asis of their kno*+edge/
attitude/ use or response to a product.
Benefit segmentation: 3he assumption under+ying the 0enefit segmentation is
that markets can 0e defined on the 0asis of the 0enefits that peop+e seek from the product.
A+though research indicates that most peop+e *ou+d +ike to receive as many 0enefits as
possi0+e from a product/ it has a+so 0een sho*n that the re+ative importance that peop+e
attach to particu+ar 0enefits varies su0stantia++y. 3hese differences can then 0e sued to
segment markets.
Ance the key 0enefits for a particu+ar productG market situation are determined/
the ana+yst must compare each 0enefit segment *ith the rest of the market to determine
*hether that segment has uni=ue and identifia0+e demographic characteristics/
consumption patterns/ or media ha0its. ?or e'amp+e/ the market for toothpaste can 0e
segmented in terms of four distinct product 0enefits2 f+avour and product appearance/
0rightness of teeth/ decay prevention and price.
3he maEor advantage of 0enefit segmentation is that it is designed to fit the
precise needs of the market. %ather than trying to create markets/ the firm indentifies the
0enefit or set of 0enefits that prospective customers *ant from their purchases and then
designs products and promotiona+ strategies to meet those needs. A second and re+ated
advantage is that 0enefit segmentation he+ps the firm avoid canni0a+iDing its e'isting
products *hen it introduces ne* ones.
"uyers can 0e divided 0ased on their needs/ to purchase product for an occasion.
3he num0er of times a product is used cou+d 0e a+so considered as a segmentation
possi0i+ity. A tooth paste manufacturer urges the peop+e to 0rush the teeth t*ice a day for
avoiding tooth decay and freshness. Either a company can position in sing+e 0enefit or
dou0+e 0enefit *hich the product offers. 3he status of the 0uyers using the product and
the num0er of times they use the product can a+so revea+ that 0ehavioura+ patterns of
consumers vary on a +arge sca+e.
Li(e-St.le Seg7entation
Fife1sty+e segmentation is a re+ative+y ne* techni=ue that invo+ves +ooking at the
customer as a 4*ho+e5 person rather than as a set of iso+ated parts. $t attempts to c+assify
peop+e into segments on the 0asis of a 0road set of criteria5.
3he most *ide+y used +ife1sty+e dimensions in market segmentation are an
individua+8s activities/ interests/ opinions/ and demographic characteristics. $ndividua+s
are ana+yDed in terms of :i; ho* they spend their time/ :ii; *hat areas of interest they see
as most important/ :iii; their opinions on themse+ves and of the environment around them/
and :iv; 0asic demographics such as income/ socia+ c+ass and education.
Jnfortunate+y/ there is no one 0est *ay to segment markets. 3his facts has caused
a great dea+ of frustration for some marketing e'ecutives *ho insist that a segmentation
varia0+e that has proven effective in one marketGproduct conte't shou+d 0e e=ua++y
effective in other situations. 3he truth is that a varia0+e such as socia+ c+ass may descri0e
the types of peop+e *ho shop in particu+ar stores/ 0ut prove use+ess in defining the market
for a particu+ar product. 3herefore/ in using a segmentation criteria in order to identify
those that *i++ 0e most effective in defining their markets.
-N!ERSTAN!ING MARKETING
>ere the company operates in most of the segments of the market 0y designing
separate programmes for each different segment. "aEaE/ 3<S1SuDuki/ >ero Cyc+e are
those companies fo++o*ing this strategy. Jsua++y differentia+ted marketing creaters mreo
sa+es than undifferentiated marketing/ 0ut the production costs/ product modification and
administrative costs/ inventory costs/ and product promotiona+ 0udgets and costs *ou+d
0e very high. 3he main aim of this type of marketing is the +arge vo+ume turnover for a
particu+ar 0rand.
Requirements for effective segmentations
1. Measurability the degree to *hich the siDe and purchasing po*er of the
segments can 0e measured.
2. Accessibility the degree to *hich the segments can 0e effective+y reached and
served.
3. Substantiality the degree to *hich the segments are +arge andGor profita0+e
enough.
4. Actionability . the degree to *hich effective programmes can 0e formu+ated for
attracting and serving the segments.
0ENE,ITS O, MARKET SEGMENTATION
Market segmentation gives a 0etter understanding of consumer needs/ 0ehaviour and
e'pectations to the marketers. 3he information gathered *i++ 0e precise and definite. $t
he+ps for formu+ating effective marketing mi' capa0+e of attaining o0Eectives. 3he
marketer need not *aste his marketing effort over the entire area. 3he product
deve+opment is compati0+e *ith consumer needs/ pricing matches consumer e'pectations
and promotiona+ programmes are in tune *ith consumer *i++ingness to receive/ assimi+ate
and positive+y react to communications. Specifica++y/ segmentation ana+ysis he+ps the
marketing manager.
3o design product +ines that are consistent *ith the demands of the market and
that do not ignore important segments.
3o spot the first signs of maEor trends in rapid+y changing markets.
3o direct the appropriate promotiona+ attention and funds to the most profita0+e
market segments.
3o determine the appea+s that *i++ 0e most effective *ith each market segments.
3o se+ect the advertising media that 0est matches the communication patterns of
each market segment.
3o modify the timing of advertising and other promotiona+ efforts so that they
coincide *ith the periods of greatest market response.
$n short/ the strength of market segmentation +ies in matching products to consumer needs
that augment consumer satisfaction and firm8s profit position. >o*ever/ the maEor
+imitation of market segmentation is the ina0i+ity of a firm to take care of a++
segmentation 0ases and their innumerous varia0+es. Sti++/ the strengths of market
segmentation out*eigh its +imits and offers considera0+e opportunities for market
e'p+oitation.
,EAT-RES O, CONS-MER MARKETING
Consumer goods are destined for use 0y u+timate consumers or house1ho+ds and in such
form that they can 0e used *ithout commercia+ processing.
Consumer goods and services are purchased for persona+ consumption.
,emand for consumer goods and services are direct demand.
Consumer 0uyers are individua+s and househo+ds.
$mpu+se 0uying is common in consumer market.
Many consumer purchases are inf+uenced 0y emotiona+ factors.
3he num0er of consumer 0uyers is re+ative+y very +arge.
3he num0er of factors inf+uencing 0uying decision1making is re+ative+y sma++.
,ecision1making process is informa+ and often simp+e.
%e+ationship marketing is +ess significant.
3echnica+ specifications are +ess important.
Arder siDe is very sma++.
Service aspects are genera++y +ess important.
,irect marketing and persona+ se++ing are +ess important.
Consumer marketing depends heavi+y on mass media advertising.
Sa+es promotion is very common.
Supp+y efficiency/ is not as critica+ as in industria+ marketing.
,istri0ution channe+s are genera++y +engthy and the num0ers of rese++ers are very
+arge.
Systems se++ing is not important.
3he scope for reciprocity is very +imited.
<endor +oya+ty is re+ative+y +ess important.
Fine e'tensions are very common.
"randing p+ays a great ro+e.
ackaging a+so p+ays a promotiona+ ro+e.
Consumers are dispersed geographica++y.
,emand for consumer goods is price e+astic.
,EAT-RES O, IN!-STRIAL MARKETING
$n industria+ marketing/ the markets is concerned *ith the marketing of industria+
goods to industria+ users. 3he industria+ goods are those intended for use in producing of
other goods roe rendering of some service in 0usiness. 3he industria+ users are those
individua+s and organiDations *ho 0uy the industria+ goods for use in their o*n 0usiness.
3he segments for industria+ goods inc+ude manufacturing/ mining and =uarrying/
transportation/ communication/ agricu+ture/ forestry/ finance/ insurance/ rea+ estate etc.
$ndustria+ goods are services are 0ought for production of other goods and
services.
,emand for industria+ goods and services is derived demand
$ndustria+ 0uyers are most+y firms and other organiDations.
$mpu+se 0uying is a+most a0sent in industria+ market.
$ndustria+ 0uying decisions are 0ased on rationa+/ economic factors.
3he num0er of 0usiness 0uyers is re+ative+y sma++.
3he num0er of factors inf+uencing 0uying decision1making is re+ative+y +arge.
,ecision1making process tends to 0e comp+e' and forma+.
%e+ationship marketing is more re+evant and significant.
3echnica+ specifications are more important.
Arder siDe is often very +arge.
Service aspects and performance guarantees are very important.
,irect marketing and persona+ se++ing are high+y important.
Specific media +ike trade Eourna+s are more important for industria+ marketing.
Sa+es promotion is not common.
Supp+y efficiency is very critica+ 0ecause supp+y pro0+em can even cause
suspension of the entire 0usiness.
,istri0ution channe+s are genera++y tend to 0e direct or short and the num0er of
rese++ers are sma++.
Systems se++ing is very important.
3he scope for reciprocity is very +arge.
<endor +oya+ty tends to 0e high.
Fine e'tension is +imited 0y Eustification of c+ear 0enefit to the 0uyer.
Conformity to product specifications and reputation of the manufacturer supp+ier
are more important.
ackaging hard+y has a promotiona+ ro+e.
"usiness 0uyers in many cases are geographica++y concentrated.
rice sensitivity of demand for industria+ goods is +o*.
,EAT-RES O, SER'ICES MARKETING
Service market is represented 0y activities/ 0enefits and satisfactions offered for
sa+e 0y providers of services. 3hese services may 0e +a0our services/ persona+ services/
professiona+ services or institutiona+ services. 3he pecu+iar characteristics of services
create cha++enges and opportunities to the service markets. 3hese are given 0e+o*9
INTANGI0ILIT6
Services are essentia++y intangi0+e. "ecause services are performance or actions
rather than o0Eects/ they cannot 0e seen/ fe+t/ tasted/ or touched in the same manner that
*e can see sense tangi0+e goods. ?or e'amp+e/ hea+th1care services are actions :e.g.
surgery/ diagnosis/ e'aminations/ treatment; performed 0y providers and directed to*ard
patients and their fami+ies. 3hese services cannot actua++y 0e seen or touched 0y the
patient may 0e a0+e to seen and touch certain tangi0+e/ components of the services :e.g.
e=uipment/ hospita+ room;. $n fact/ many services such as hea+th care are difficu+t for the
consumer to grasp even menta++y. Even after a diagnosis or surgery has 0een comp+eted
the patient may not fu++y comprehend the service performed.
INSEPARA0ILIT6
Services are created and consumed simu+taneous+y and genera++y they cannot 0e
separated from the provider of the service. 3hus the service provider . customer
interaction is a specia+ feature of services marketing.
Jn+ike the tangi0+e goods/ services cannot 0e distri0uted using conventiona+
channe+s. $nsepara0i+ity makes direct sa+es as the on+y possi0+e channe+ of distri0ution
and thus de+imits the markets for the se++er8s services. 3his characteristics a+so +imits the
sca+e of operation of the service provider. ?or e'amp+e/ a doctor can give treatment to
+imited num0er of patients on+y in a day.
3his characteristic a+so emphasiDes the importance of the =ua+ity of provider .
c+ient interaction in services. 3his poses another management cha++enge to the service
marketer. @hi+e a consumer8s satisfaction depends on the functiona+ aspects in the
purchase of goods/ in the case of services the a0ove mentioned interaction p+ays an
important ro+e in determining the =ua+ity of services and customer satisfaction. ?or
e'amp+e/ an air+ine company may provide e'ce++ent f+ight service/ 0ut a discourteous
on0oard staff may keep off the customer permanent+y from that company.
3here are e'emptions a+so to the insepara0i+ity characteristic. A te+evision
coverage/ trave+ agency or stock 0roker may represent and he+p marketing the service
provided 0y another service firm.
5ETEROGENEIT6
3his characteristic is referred to as varia0i+ity 0y Bot+er. @e have a+ready seen
that services cannot 0e standardiDed. 3hey are high+y varia0+e depending upon the
provider and the time and p+ace *here they are provided. A service provided on other
occasions. A+so the standard of =ua+ity perceived 0y different consumers may differ
according to the order of preference given 0y them to the various attri0ute of service
actua+ity. ?or e'amp+e/ the treatments given 0y a hospita+ to different persons on different
occasion cannot 0e of the same =ua+ity. Consumers of services are a*are of this
varia0i+ity and 0y their interaction *ith other consumers they a+so essenef+unced or
inf+uence others in the se+ection of service provider.
PERIS5A0ILIT6 AN! ,L-CT-ATING !EMAN!
eris0a0i+aty refers to the fact that services cannot 0e saved/ stored/ reso+d or
returned. A seat on an airp+ane or in a restaurant/ an hour or a +a*yer8s time/ or te+ephone
+ine capacity not used cannot 0e rec+aimed and used or reso+d at +ater time. 3his is in
contract to goods that can 0e stored in inventory or reso+d another day/ or even returned if
the consumer is unhappy.
TARGET MARKETING
3arget marketing refers to se+ection of one or more of many market segments and
deve+oping products and marketing mi'es suited to each segments.
STEPS IN TARGET MARKETING
3arget marketing essentia++y consist of the fo++o*ing steps9
1$ !e(ine t*e relevant 7ar+et
3he market has to 0e defined in terms of product category/ the product form and the
specific 0rand.
4$ Anal.9e c*aracteritic an% /ant o( potential c&to7er
3he customers *ants and needs are to 0e ana+yDed in terms of geographic +ocation/
demographics/ psychographics and product re+ated varia0+e.
8$ I%enti(. bae (or eg7enting t*e 7ar+et
?rom the profi+es avai+a0+e identify those has strength ade=uate to a segment and
ref+ection the *ants to kEdfgkEsdfgEsdkgEsfdkgEsf
:$ !e(ine an% %ecribe 7ar+et eg7ent
As any one 0asis/ say income is meaning+ess 0y itse+f/ a com0ination of various 0ases
has to 0e arrived as such that each segment is distinct+y different from other segments
in 0uying 0ehaviour and *ants.
;$ Anal.9e co7petitor< poition
$n such segment gdfkgE'fkgnfdkg d'ngmdf gkdfEgkdfEdfkEgdfk 0y the consumers are
to found our kEgfksEdfgds fgs consumers and the +ist of attri0utes *hich they consider
important is determined.
=$ Eval&ate 7ar+et eg7ent
3he market segments have to 0e eva+uated in terms of revenue potentia+ and cost
of the marketing effort. 3he former invo+ves estimating the demand for the product
*hi+e the +atter is an estimate of costs invo+ved in reaching each segment.
>$ Select t*e 7ar+et eg7ent
Choosing dfkEgdfkEgfd the avai+a0+e segments in the market one has to 0ear in mind
the ksdfEgksEgkEd and resources/ the presence or a0sence of competitors in the
sdkEgksEdf and the capacity of the gro* in siDe.
?$ ,inalie t*e 7ar+eting 7i)
3his invo+ves decisions on product/ distri0ution/ promotions and price. roduct
decisions *i++ gkEsdf into account product attri0uted fdgkdEf *anted 0y consumers/
choice of appropriate 0rand name and image *i++ he+p in promoting the product to the
chosen segment and pricing can 0e done keeping the purchase 0ehaviour in mind.
>ence/ it can 0e seen that targeted marketing consists of segmenting the market/
choosing *hich segments to serve and designing the marketing mi' in such a *ay
that it is attractive to the chosen segments. 3he third step takes into account the
uni=ueness of a company8s marketing mi' in a re+ation to that of competitors. 3he
uni=ueness or differentiation may 0e tangi0+e or intangi0+e depending upon the
physica+ attri0utes or the psycho+ogica+ attri0utes of the product. Esta0+ishing and
communicating these distinctive aspects is termed positioning.
MARKETING MI@
Marketing mi' is one of the maEor concepts in modern marketing. $t is the
com0ination of various e+ements *hich constitutes the company8s marketing system.
$t is set of contro++a0+e marketing varia0+es that the firm 0+ends to produce the
response it *ants in the target market. 3hough there are many 0asic marketing
varia0+es/ it is McCarthy/ *ho popu+ariDed a four1factor c+assification ca++ed the four
s9 Product, Price, Place and Promotion. Each consists of a +ist of particu+ar
marketing varia0+es.
T*e (irt P 1 Pro%&ct conit o(
:i; roduct p+anning and deve+opment2
:ii; roduct mi' po+icies and strategies2 and
:iii; "randing and packaging strategies.
3he second . rice consists of
:i; ricing po+icies and o0Eectives2 and
:ii; Methods of setting prices.
3he third . +ace consists of
:i; ,ifferent types of marketing channe+s2
:ii; %etai+ing and *ho+esa+ing institutions2 and
:iii; Management of physica+ distri0ution systems.
3he fourth . romotion consists of
:i; Advertising2
:ii; Sa+es promotion2 and
:iii; ersona+ se++ing.
A detai+ed discussion on each of the a0ove four 8s fo++o*s no*9
PRO!-CT
roduct stands for various activities of the company such as p+anning and
deve+oping the right product andGor services/ changing the e'isting products/ adding ne*
ones and taking other actions that affect the assortments of products. ,ecisions are a+so
re=uired in the areas such as =ua+ity/ features/ sty+es/ 0rand name and packaging.
A product is something that must 0e capa0+e of satisfying a need or *ant/ it
inc+udes physica+ o0Eects/ services/ persona+ities p+aces/ organisation and ideas. 3hus/ a
transport service/ as it satisfiers human need is a product. Simi+ar+y/ p+aces +ike Bashmir
and Bodaikana+/ as they satisfy need to enEoy the coo+ c+imate are a+so products.
3he second aspect of product is product p+anning and deve+opment. roduct
p+anning em0races a++ activities that determine a company8s +ike of products. $t inc+ude1
a; +anning and deve+oping a ne* product2
0; Modification of e'isting product +ines2 and
c; E+imination of unprofita0+e items.
roduct deve+opment encompasses the technica+ activities of product research/
engineering and decision.
3he third aspect of product is product mi' po+icies and strategies.
roduct mi' refers to the composite of products offered for sa+e 0y a company. ?or
e'amp+e CodreE company offers cosmetics/ stee+ furnitures/ office e=uipments/ +ocks etc.
*ith many items in each category.
3he product mi' is four dimensiona+. $t has 0readth/ +ength/ depth and
consistency.
6et another integra+ part of product is packaging.
PRICE
3he second e+ement of marketing mi' is price. rice stands for the monetary va+ue
that customers pay to o0tain the product. $n pricing/ the company must determine the
right price for its products and then decide on strategies concerning retai+ and *ho+esa+e
prices/ discounts/ a++o*ances and credit terms.
"efore fi'ing prices for the product/ the company shou+d 0e c+ear a0out its pricing
o0Eectives and strategies. 3he o0Eectives may 0e set +o* initia+ price and raising it
gradua++y or o set high initia+ price and reducing it gradua++y or fi'ing a target rate of
return or setting prices to meet the competition etc. "ut the actua+ price setting is 0ased
on three factors name+y cost of production/ +eve+ of demand and competition.
%egarding retai+ pricing/ the company may adopt t*o po+icies. Ane po+icy is that
he may a++o* the retai+ers to fi' any price *ithout interfering in his right. Another po+icy
is that he may *ant to e'ercise contro+ over the products. ,iscounts and a++o*ances resu+t
in a deduction from the 0ase price.
PLACE
3he third e+ement of marketing mi' is p+ace or physica+ distri0ution. +ace stands
for the various activities undertaken 0y the company to make the product accessi0+e and
avai+a0+e to target customers. 3here are four different +eve+ channe+s of distri0ution. 3he
first is Dero1+eve+ channe+ *hich means manufacture direct+y se++ing the goods to the
consumers.
3he second is one1+eve+ channe+ *hich means supp+ying the goods to the
consumer through the retai+er. 3he third is t*o1+eve+ channe+ *hich means supp+ying the
goods to the consumer through *ho+esa+er and retai+er. 3he fourth is three1+eve+ channe+
*hich means supp+ying goods to the consumers through *ho+esa+er1Eo00er1retai+er and
consumer.
3here are +arge1sca+e institutions such as departmenta+ stores/ chain stores/ mai+
order 0usiness/ super1market etc. and sma++1sca+e retai+ institutions such as sma++ retai+
shop/ automatic vending/ franchising etc. 3he company must chose to distri0ute their
products through any of the a0ove retai+ing institutions depending upon the nature of the
products/ area of the market/ vo+ume of sca+e and cost invo+ved.
3he actua+ operation of physica+ distri0ution system re=uired company8s attention
and decision1making in the areas of inventory/ +ocation of *arehousing/ materia+s
hand+ing/ order processing and transportation.
PROMOTION
3he fourth e+ement of the marketing mi' is promotion. romotion stands for the
various activities undertaken 0y the company to communicate the merits of its products
and to persuade target customers to 0uy them. Advertising/ sa+es promotion and persona+
se++ing are the maEor promotiona+ activities. A perfect coordination among these three
activities can secure ma'imum effectiveness of promotiona+ strategy.
?or successfu+ marketing/ the marketing manager ahs to deve+op a 0est marketing mi' for
his product.
RE'IE# 2-ESTIONS3
1. @hat is market segmentationM @hat are its 0asesM
2. @hat are the 0enefits of market segmentationM
3. ,efine marketing mi'. "rief+y e'p+ain different e+ements of marketing mi'.
LESSON 1 :
MARKETING EN'IRONMENT
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
3he various micro environmenta+ factors that affect the marketing system2
3he various macro environmenta+ forces that affect the system2 and
3he strategies to 0e adopted 0y the marketing e'ecutives on the face of
cha++enges posed 0y these environmenta+ forces.
Ane of the maEor responsi0i+ities of marketing e'ecutives is to monitor and search
the environment *hich is constant+y spinning out ne* opportunities. 3he
marketing environment a+so spins out ne* threats such as financia+/ economic
po+itica+ and energy crisis and firms find their markets co++apsing. %ecent times
have 0een marked 0y sudden changes in the marketing environment/ +eading
,rucker to du0 it an 7Age of ,iscontinuity and 3off+er to descri0e it as a time of
7?eature Shock8.
Company marketers need to constant+y monitor the changing environment more
c+ose+y so that they *i++ 0e a0+e to a+ter their marketing strategies to meet ne*
cha++enges and opportunities in the environment.
3he marketing environment comprises the 7non contro++a0+e8 actors and forces in
response to *hich organiDations design their marketing strategies Specifica++y/
7A company8s marketing environment consists of the actors and forces
e'terna+ to the marketing management function of the firm that impinge on the
marketing management8s a0i+ity to deve+op and maintain successfu+ transactions
*ith its target customers8.
3he company8s marketing environment consists of micro environment and macro
environment. 3he micro environment consists of the actors in the company8s
immediate environment that affects its a0i+ity to serve the markets9 the company/
supp+iers/ market intermediaries/ customers/ competitors and pu0+ics. 3he macro
environment consists of the +arger societa+ forces that affect a++ of the actors in the
company8s micro environment the demographic/ economic/ physica+/
techno+ogica+/ po+itica+/ +ega+ and socio1cu+tura+ forces.
ACTORS IN T5E COMPAN6<S MICRO EN'IRONMENT
Every company8s primary goa+ is to serve and satisfy a specified set of needs of a
chosen target market. 3o carry out this task/ the company +inks itse+f *ith a set of
supp+iers and a set of marketing intermediaries to reach its target customers. 3he
supp+iers . company . marketing intermediaries . customers chain comprises the core
marketing system of the company. 3he company8s success *i++ 0e affected 0y t*o
additiona+ groups name+y/ a set of competitors and a set of pu0+ics. Company
management has to *atch and p+an for a++ these factors.
S-PPLIERS
Supp+iers are 0usiness firms *ho provide the needed resource to the company and
its competitors to produce the particu+ar goods and services. ?or e'amp+e "akery ,esotta
must o0tain sugar/ *heat/ ce++ophane paper and other materia+s to produce and package
its 0reads. Fa0our/ e=uipment/ fue+ e+ectreicity and other factors of production are a+so to
0e o0tained. )o* the company must decide *hether to purchase or make its o*n. @hen
the company decides to 0uy some of the inputs/ it must make certain specification ca++ for
tender etc. and then it segregates the +ist of supp+iers. Jsua++y company choose the
supp+iers *ho offer the 0est mi' of =ua+ity/ de+ivery schedu+e credit/ guarantee and +o*
cost.
Any sudden change in the 7supp+iers8 environment *i++ have a su0stance impact
on the company8s marketing operations. Sometimes some of the inputs to the company
might cost more and hence managers have continuous+y monitored the f+uctuations in the
supp+iers side. Marketing manager is e=ua++y concerned *ith supp+y avai+a0i+ity. Sudden
supp+y shortage +a0our strikes and other events can interfere *ith the fu+fi++ment of
de+ivery promise customers and +ose sa+es in the short run and damage customer good*i++
in +ong run. >ence many companies prefer to 0uy from mu+tip+e sources to avoid
overdependence on any one supp+ier. Some times even for the appendage services to
marketing +ike marketing research/ advertising/ sa+es training etc. the company use
service from outside. 3his dependency may a+so create some 0ott+enecks/ at times/ due to
the 0ehaviour of these agencies and conse=uent+y affect the marketing operations of the
company.
COMPAN6
Marketing management at any organisation/ *hi+e formu+ating marketing p+ans
have to take into consideration other groups in the company/ such as top management/
finance/ %N,/ purchasing/ manufacturing and accounting. ?inance department has to 0e
consu+ted for the funds avai+a0+e for carrying out the marketing p+an apart from others.
%N, has to 0e continuous+y doing ne* product deve+opment. Manufacturing has to 0e
coordinated 0ased on the market demand and supp+y of the products. According has to
measure revenues and costs to he+p marketing in achieving its o0Eectives. Jsua++y
marketing department has to face the 0ott+enecks put up 0y the sister departments *hi+e
designing and imp+ementing their marketing p+ans.
MARKETING INTERME!IARIES
Channe+ mem0ers are the vanguard of the marketing imp+ementation part. 3hey
are the peop+e *ho connect the company *ith the customers. 3here are num0er of midd+e
men *ho operate in this cyc+e. Agent midd+e men +ike 0rokers and agents find customers
and esta0+ish contacts/ merchant midd+emen are the *ho+esa+ers/ retai+ers/ *ho take tit+e
to and rese++ the merchandise. Apart from these channe+ mem0ers/ there are physica+
distri0ution firms *ho assist in stocking and moving goods from the origina+ +ocations to
their destinations. @arehouse firms store and protect goods 0efore they move to the ne't
destinations. 3here are num0er of transporting firms consists of rai+/ road/ truckers/ ship/
air+ine etc. that mover goods from one +ocation to another. Every company has to decide
on the most cost . effective means of transport considering the costs/ de+ivery/ safety and
speed. 3here are financia+ intermediaries +ike 0anks/ insurance companies/ *ho support
the company 0y providing finance insurance cover etc.
3he 0ehaviour and performance of a++ these intermediaries *i++ affect the
marketing operations of the company and the marketing e'ecutives have to prudent+y
dea+ *ith them.
COMPETITORS
$f one company p+ans a marketing strategy at one side/ there are num0er of other
companies in the same industry doing such other ca+cu+ations. Coke has competitors in
epsi. Maruti has competitions from 3ata $ndica/ Santro etc. )ot on+y that the
competition comes from the 0randed segment 0ut a+so from the generic market/ *here
there are on+y fe* 0randed products of rice 0ut there are numerous generic variety of rice
according to the +oca+ tastes in each region the country. Sometimes competition comes
from different forms. Air+ines have to overcome competitions not on+y from the other
Air+ines 0ut a+so from %ai+*ays and Ships. "asica++y every company has to identify the
competitor/ monitor their activities and capture their moves and maintain customer
+oya+ty. >ence every company comes out *ith their o*n marketing strategies.
P-0LICS
A pu0+ic can faci+itate or serious+y affect the functioning of the company/ hi+ip
Bot+er defines pu0+ic as any group that has an actua+ or potentia+ interest or impact on a
company8s a0i+ity to achieve its o0Eectives. Bot+er notes that there are different types of
pu0+ics/ Covernment pu0+ics/ citiDen action pu0+ics/ +oca+ pu0+ics/ genera+ pu0+ic and
interna+ pu0+ics. Since/ the success of the company *i++ 0e affected 0y ho* various
pu0+ics vie* their activity/ the companies have to monitor these pu0+ics/ anticipate their
moves dea+ing *ith them in constructive *ays.
C-STOMERS
Customers are the fu+crum around *hom the marketing activities of the
organisation revo+ve. 3he marketer has to face the fo++o*ing types of customers.
Customer Markets: Markets for persona+ consumption.
Industrial Markets: Coods and services that cou+d 0ecome the part of a product in
those industry.
Institutional uyers: $nstitutions +ike schoo+s/ hospita+/ *hich 0uy in 0u+k.
!eseller Markets: 3he organiDations 0uy goods for rese++ing their products.
"overnment Markets: 3hey purchase the products to provide pu0+ic services.
International Markets: Consists of ?oreign 0uyers and Covernments.
MACRO EN'IRONMENT
Macro environment consists of si' maEor forces viD/ demographic, economic,
physical, technological, political# legal and socio$cultural. 3he trends in each macro
environment components and their imp+ications on marketing are discussed 0e+o*9
!EMOGRAP5IC EN'IRONMENT
,emography is the study of human popu+ation in terms of siDe/ density/ +ocation/
age/ gender/ occupation etc. 3he demographic environment is of maEor interest to
marketers 0ecause it invo+ves peop+e the peop+e make up markets.
3he *or+d popu+ation and the $ndian popu+ation in particu+ar is gro*ing at an
e'p+osive rate. 3his has maEor imp+ications for 0usiness. A gro*ing popu+ation means
gro*ing human needs. ,epending on purchasing po*ers/ it may a+so mean gro*ing
market opportunities. An the other hand/ dec+ine in popu+ation is a threat so some
industria+ and the 0oon to others. 3he marketing e'ecutives of toy1making industry spend
a +ot of energy and efforts and deve+oped fashiona0+e toys/ and even advertise 4"a0ies
are our 0usiness1our on+y 0usiness5/ 0ut =uiet+y dropped this s+ogan *hen chi+dren
popu+ation gone do*n due to dec+ining 0irth rate and +ater shifted their 0usiness to +ife
insurance for o+d peop+e and changed their advertisement s+ogan as 4the company has not
0a0ies the over 5-s5.
3he increased divorce rate sha++ a+so have the impact on marketing decisions. 3he
higher divorce rate resu+ts in additiona+ housing units/ furniture/ app+iances and other
house1ho+d app+iances. Simi+ar+y/ *hen spouses *ork at t*o different p+aces/ that a+so
resu+ts in additiona+ re=uirement for housing/ furniture/ 0etter c+othing/ and so on.
3hus/ marketers keep c+ose tract of demographic trends deve+opments in their
markets and according+y evo+ve a suita0+e marketing programme.
ECONOMIC EN'IRONMENT
Markets re=uire purchasing po*er as *e++ as peop+e. 3ota+ purchasing po*er is
functions of current income/ prices/ savings and credit avai+a0i+ity. Marketers shou+d 0e
a*are of four main trends in the economic environment.
AiB !ecreae in Real Inco7e Gro/t*
A+though money incomer per capita keeps raising/ rea+ income per capita has
decreased due to higher inf+ation rate e'ceeding the money income gro*th rate/
unemp+oyment rate and increase in the ta' 0urden.
3hese deve+opments had reduced disposa0+e persona+ income2 *hich is the
amount peop+e have +eft after ta'es. ?urther/ many peop+e have found their
discretionary income reduced after meeting the e'penditure for necessaries.
Avai+a0i+ity of discretionary income sha++ have the impact on purchasing
0ehaviour of the peop+e.
AiiB Contin&e% In(lationar. Pre&re
3he continued inf+ationary pressure 0rought a0out a su0stantia+ increase in the
prices of severa+ commodities. $nf+ation +eads consumers to research for
opportunities to save money/ inc+uding 0uying cheaper 0rands/ economy siDes/
etc.
AiiiB Lo/ Saving an% 5ig* !ebt
Consumer e'penditures are a+so affected 0y consumers savings and de0t patterns.
3he +eve+ of savings and 0orro*ings among consumers affect the marketing.
@hen marketers make avai+a0+e high consumer credit/ it increases market
opportunities.
AivB C*anging Con&7er E)pen%it&re Pattern
Consumption e'penditure patters in maEor goods and services categories have
0een changing over the years. ?or instance/ *hen fami+y income rises/ the
percentage spent on food dec+ines/ the percentage spent on housing and house
ho+d operations remain constant/ and the percentage spent on other categories
such as transportation and education increase.
3hese changing consumer e'penditure patterns has an impact on marketing and
the marketing e'ecutives need to kno* such changes in economic environment
for their marketing decisions.
P56SICAL EN'IRONMENT
3here are certain finite rene*a0+e resources such as *ood and other forest
materia+s *hich are no* dearth in certain parts of *or+d. Simi+ar+y there are finite non1
rene*a0+e resources +ike oi+ coa+ and various minera+s/ *hich are a+so not short in supp+y.
$n such cases/ the marketers have to find out some a+ternative resources. ?or instance/ the
marketers of *ooden chairs/ due to shortage and high cost of *ood shifted to stee+ and
+ater on fi0er chairs. Simi+ar+y scientists a++ over the *or+d are constant+y trying to find
out a+ternative sources of energy for oi+ due to dearth in supp+y.
3here has 0een increase in the po++ution +eve+s in the country due to certain
chemica+s. $n Mum0ai1Surat1Ahemeda0ed area/ are facing increased po++ution due to the
presence of different industries.
Marketers shou+d 0e a*are of the threats and opportunities associated *ith the
physica+ environment and have to find our a+ternative sources of physica+ resources.
SOCIO C-LT-RAL EN'IRONMENT
3he socio1cu+tura+ environment comprises of the 0asic 0e+iefs/ va+ues and norms
*hich shapes the peop+e. Some of the main cu+tura+ characteristics and trends *hich are
of interest to the marketers are9
AiB Core C&lt&ral 'al&e
eop+e in a given society ho+d many core 0e+iefs and va+ues/ that *i++ tend to
persist. eop+e8s secondary 0e+iefs and va+ues are more open to change. Marketers
have more chances of changing secondary va+ues 0ut +itt+e chance of changing
core va+ues.
AiiB Eac* C&lt&re Conit o( S&b-C&lt&re
Each society contains su01cu+tures/ i.e. groups of peop+e *ith shared va+ue
systems emerging out of their common +ife e'periences/ 0e+iefs/ preferences and
0ehaviors. 3o the e'tent that su01cu+tura+ groups e'hi0it different *ants and
consumption 0ehaviour/ marketers can choose su01cu+tures as their target
markets.
Secondary cu+tura+ va+ues undergo changes over time. ?or e'amp+e 7video1
games8/ 7p+ay0oy magaDines8 and other cu+tura+ phenomena have a maEor impact
on chi+dren ho00ies/ c+othing and +ife goa+s. Marketers have a keen interest in
anticipating cu+tura+ shifts in order to identify ne* marketing opportunities and
threats.
TEC5NOLOGICAL EN'IRONMENT
3echno+ogy advancement has 0enefited the society and a+so caused damages.
Apen heart surgery/ sate++ites a++ *ere marve+s of techno+ogy/ 0ut hydrogen 0om0 *as on
the 0itter side of techno+ogy. 3echno+ogy is acce+erating at a pace the many products seen
yester1years have 0ecome o0so+ete no*. A+vin 3off+er in his 0ook 73he ?uture Shock8
has made a remark on the acce+erative thrust in the invention/ e'p+oitation and diffusion
of ne* techno+ogies. 3here cou+d 0e a ne* range of products and systems due to the
innovations in techno+ogy.
3his techno+ogy deve+opments has tremendous impact on marketing and un+ess
the marketing manager cope up *ith this deve+opment 0e cannot survive in the
competitive market.
POLITICAL AN! LEGAL EN'IRONMENT
Marketing decisions are high+y affected 0y changes in the po+itica+G +ega+
environment. 3he environment is made up of +a*s and government agencies that
inf+uence and constraint various organiDations and individua+s in society.
Fegis+ations affecting 0usiness has steadi+y increased over the years. 3he product
the consumes and the society against unethica+ 0usiness 0ehaviour and regu+ates the
functioning of the 0usiness organiDations. %emova+ of restrictions to the e'isting
capa0i+ities/ en+argement of the spheres open to M%3 and ?EMA companies and 0road
0anding of industria+ +icenses *ere some of the schemes evo+ved 0y the government. 3he
+ega+ enactments and ru+es and regu+ations e'ercise a specific impact on the marketing
practices/ systems and institutions in the country. Some of the acts *hich have direct
0earing on the marketing of the company inc+ude/ the revention of ?ood Adu+teration
Act :1(54;/ 3he ,rugs and Cosmetics Act :1(4-;/ 3he Standard @eights and Measures
Act :1(5!; etc. 3he ackaged Commodities :%egu+ative; Arder :1(#5; provides for
c+ear+y making the prices on a++ packaged goods so+d in retai+ e'c+uding certain items.
Simi+ar+y/ *hen the government changes/ the po+icy re+ating to commerce/ trade/
economy and finance a+so changes resu+ting in changes in 0usiness. <ery often it
0ecomes a po+itica+ decisions. ?or instance/ one Covernment introduce prohi0ition/ and
another government +ifts the prohi0ition. A+so/ one Covernment adopts restrictive po+icy
and another Covernment adopts +i0era+ economic po+icies. A++ these *i++ have impact on
0usiness.
>ence/ the marketing e'ecutives needs a good *orking kno*+edge of the maEor
+a*s affecting 0usiness and have to adapt themse+ves to changing +ega+ and po+itica+
decisions.
A++ the a0ove micro environmenta+ actors and macro environmenta+ forces affect
the marketing systems individua++y and co++ective+y. 3he marketing e'ecutives need to
understand the opportunities and threats caused 0y these forces and according+y they
must 0e a0+e to evo+ve appropriate marketing strategies.
RE'IE# 2-ESTIONS3
1. E'p+ain the impact of micro environmenta+ actors on marketing management of a
firm.
2. ,iscuss ho* the macro environment forces affect the opportunities of a firm.
LESSON 1 ;
CONS-MERS P-RC5ASE PROCESS
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand1
3he different stages invo+ved in purchased process2
3he suita0+e strategy to 0e evo+ved 0y the market at each stage of purchase
process.
$n order to understand consumer 0ehaviour/ it is essentia+ to understand the 0uying
process. )umerous mode+s of consumer 0ehaviour depicting the 0uying process *ere
deve+op over the years. Among a++ these mode+s the one given 0y >o*ard and Sheth
is the most comprehensive and +arge+y approved mode+. >o*ever/ as the >o*ard1
Sheth mode+ is a very sophisticated mode+ 0ased on it a simp+ified is given 0e+o*9
A simp+e mode+ of consumer decision1making given the figure ref+ects the notion
of the cognate or pro0+em1so+ving consumer. 3his mode+ has three components9
$nput/ rocess and Autput.
Inp&t3
3he input component of consumer decision1making mode+ comprises of
marketing1mi' activities and socio1cu+tura+ inf+uences.
Proce
3he process component of mode+ is concerned *ith 7ho*8 consumer make
decisions. 3his invo+ves understanding of the inf+uences of psycho+ogica+ factors on
consumer 0ehaviors. 3he process component of a consumer decision1making mode+
consists of three stages9 )eed recognition/ information search and eva+uation of
a+ternatives.
A Model of Consumer Decision-Making
Input Process Output
External Influences Consumer Decision-making Post-decision Behaviour
O&tp&t3
3he output component of the consumer decision1making mode+ concerns t*o
more stages of purchase process activity9 urchase 0ehaviour and post1purchase
0ehaviour.
3he 0uying process thus/ is composed of a num0er of stages and is inf+uenced 0y
a individua+8s psycho+ogica+ frame*ork composed of the individua+8s persona+ity/
motivations/ perceptions and attitudes. 3he various stages of the 0uying process are9
1. )eed %ecognition
2. $nformation Search
3. Eva+uation of A+ternatives
4. urchase "ehaviour
5. ost1urchaser Eva+uation
1$ Nee% Recognition
3he recognition of need its +ike+y to occur *hen a consumer is faced *ith a pro0+em/
and if the pro0+em is not so+ved or need satisfied/ the consumer 0ui+ds up tension.
E'amp+e9 A need for a cooking gas for 0usy house *ife. 3he needs can 0e triggered
0y interna+ :hunger/ thirst/ se'; and e'terna+ stimu+i :neigh0or8s ne* Car or 3<;. 3he
marketers need is to identify the circumstance that trigger the particu+ar need or
interest in consumers. 3he marketers shou+d reach consumers to find out *hat kinds
of fe+t needs or pro0+em arose/ *hat 0rought them a0out ho* they +ed to this
particu+ar product.
4$ In(or7ation Searc*
3he consumer *i++ search for re=uired information a0out the product to make a right
choice. >o* much search he undertakes depends upon the strength of his drive/ the
amount of information he initia++y has/ the ease of o0taining additiona+ information/
the va+ue he p+aces on additiona+ information and the satisfaction he gets from search.
3he fo++o*ing are the sources of consumer information9
ersona+ Sources 9 ?ami+y/ friends/ neigh0ours/ past e'perience.
Commercia+ Sources9 Advertising/ sa+es peop+e/ dea+ers/ disp+ays
u0+ic Sources 9 Mass media/ consumer *e+fare organisation.
3he practica+ imp+ication is that a company design its marketing mi' to get its
0rand into the prospect8s a*areness set/ consideration set and choice set. $f the 0rand
fai+s to get into these sets/ the company +osses its opportunity to se++ to the consumer.
As for the sources of the information used 0y the consumer/ the marketer shou+d
identify them carefu++y and eva+uate their respective importance as source of
information.
8$ Eval&ation o( Alternative
@hen eva+uating potentia+ a+ternatives/ consumers tend to use t*o types of
information :i; a +ist of 0rands from *hich they p+an to make their se+ection :the
evoke set; and :ii; the criteria they *i++ use to eva+uate each 0rand. 3he evoke set is
genera++y on+y a part . a su0Eect of a++ the 0rands of *hich the consumer is a*ares.
3he criteria used 0y the consumers in eva+uating the 0rands are usua++y e'pressed
in terms of product attri0utes that are important to them. 3he attri0utes of interest to
0uyers in some fami+iar products are9
3*o1*hee+er 9 ?ue+ economy/ pu++ing capacity/ price
Computers 9 Memory capacity/ graphic capa0i+ity/ soft*are
avai+a0i+ity
Mouth*ash 9 Co+our/ effectiveness/ germ1ki++ing/ capacity/ price/
tasteGf+avour
Consumers *i++ pay the most attention to those attri0utes that are concerned *ith their
needs.
:$ P&rc*ae 0e*avio&r
Consumers make t*o types of purchases tria+ purchases and repeat purchases. $f
he product is found satisfactory during tria+/ consumers are +ike+y to repeat the
purchase. %epeat purchase 0ehaviour is c+ose+y re+ated to the concept of 0rand
+oya+ty. ?or certain products such as *ashing machine or refrigerator/ tria+ is not
feasi0+e and the consumer usua++y moves direct+y from eva+uation to actua+
purchase. A consumer *ho decides to purchase *i++ make 0rand decision/
=uantity decision/ dea+er decision/ timing decision and payment method decision.
;$ Pot-P&rc*ae Eval&ation
3he consumer8s satisfaction or dissatisfaction *ith the product *i++ inf+uence
su0se=uent 0ehaviour. 3here are three possi0+e outcomes of post1purchase
eva+uations 0y consumers in +ight of their e'perience *ith the product tria+ purchase.
that the actua+ performance matches the standard +eading to neutra+ fee+ing2
that the performance e'ceeds the standards +eading to positive
disconfirmation/ i.e. satisfaction2 and
that the performance is 0e+o* the standard/ causing negative disconfirmation/
i.e. dissatisfaction.
$f the product +ives up to e'pectations of the consumers/ they *i++ pro0a0+y 0uy it
again. $f the products performance is disappointing/ the *i++ search for more
suita0+e a+ternative 0rand. @hether satisfied or dissatisfied *ith the product/ the
consumer *i++ pass on their opinion on others.
3he marketers can send a +etter congratua+ating the consumers for having
se+ected a fine product. 3hey can p+ace advertisements sho*ing satisfied o*ners.
3hey can so+icit customers suggestions for improvements. At +ast/ the marketers
can a+so he+p the consumers to dispose of the used 0rand/ for e'amp+e/ 0y "uy1
0ack1method.
%n illustration:
3o i++ustrate the consumer8s purchase decision process/ consider the stages
of a ne* car purchase. 3he decision process 0egins *hen the consumer e'periences a
need or desire for ne* car. 3his problem recognition phase may 0e initiated for any one
of severa+ reasons . 0ecause recent repair 0i++s have 0een high/ 0ecause the present car
needs a ne* set of tires/ 0ecause the present car has 0een in an accident/ or 0ecause the
neigh0or has Eust 0rought a ne* car. @hatever the stimu+us/ the individua+ perceives a
differences or conf+ict/ 0et*een the idea+ and the actua+ sa+e of affairs.
@hen he decided to go in for a ne* car/ he starts searching for information. 3he
consumer may co++ect information through various sources such as/ automo0i+e
magaDine/ fiends/ fami+y mem0ers/ automo0i+e companies/ automo0i+e advertisements
and so on.
After co++ecting the information a0out different automo0i+es/ he evaluates the alternative
brands and mode+s of cars. At this point/ the consumer must decide on the criteria that
*i++ govern the se+ection of the car. 3hese criteria may inc+ude price/ ki+ometer per +iter/
options avai+a0+e/ avai+a0i+ity of service net*ork/ and fina++y/ option of fami+y and
friends.
,uring the purchase decision stage/ the consumer actua++y makes the purchase decision .
*hether to 0uy or not to 0uy. $f the consumer decides to 0uy the car/ then additiona+
decisions must 0e made regarding types or mode+ of car/ *hen the form *hom the car
shou+d 0e purchased and ho* the car cou+d 0e paid for. >opefu++y the outcome is positive
and the consumer fee+s that the right decisions have 0een made.
,uring the post1purchase stage/ a satisfied customer is more +ike+y to take a0out the Eoys
of a ne* car purchase. An the other hand/ pro0+ems may deve+op or the consumer may
0egin to fee+ a *rong decision has 0een made. A dissatisfied consumer *i++ pro0a0+y
attempt to dissuade friends and associates from 0uying a ne* car/ or at +east *i++ caution
them against making the same mistake.
P&rc*ae !eciion Proce Activitie o( Car
ro0+em %ecognition
Stage
)eed for a )e* Car
6es
)o
$nformation Search
Stage
$nformation Co++ection
a0out the Cars
Automo0i+e magaDines
Automo0i+e companies
romotion +iterature and
advertisements friends
and fami+y
A+ternative
Eva+uation Stage
Criteria for Se+ection
rice
Co+our and appearance
Bi+ometers per +itre
E'pert opinion
urchase ,ecision
Stage
urchase ,ecision
"uy
,o not 0uy
@hat 3ype of Car
Economy
,e+u'e version
Fu'ury versions
3iming of urchase
)o*
Fater
@hich Car
Mode+ A
Mode+ "
Mode+ C
Ather ,ecisions @here to urchase
,ea+er A
,ea+er "
>o* to ?inance
A*n funds
Foan a0+e funds
,egree of Satisfaction
Satisfied
dissatisfied
RE'IE# 2-ESTIONS3
1. E'p+ain the various steps invo+ved in purchase process.
2. >o* does an understanding of purchase process he+p the marketer to formu+ate
marketing strategyM
LESSON 1 =
CONS-MER 0E5A'IO-RS
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
3he factors inf+uencing consumer 0ehaviour2
3heir imp+ications on marketing decisions1making.
CONS-MER 0E5A'IO-R
Jnder the modern marketing 7Consumer8 is the fu+crum2 he is the +ife 0+ood2 he is
very purpose of the 0usiness and hence the 0usiness firms have to +isten consumer voices/
OO. Jnderstand his concerns. >is needs have to 0e focused and his respect has to 0e
earned. >e has to 0e c+ose+y fo++o*ed . *hat he *antsOO. *hen/ *here and ho*. 3he
ne* 0usiness phi+osophy is that the economic and socia+ Eustification of firm8s e'istence
+ies in satisfaction of consumer *ants. Char+es C Mortimer has right+y pointed our that/
7instead of trying *hat is easiest for us to make/ *e must find our much more a0out *hat
the consumer is *i++ing to 0uyOO. *e must app+y our creativeness more inte++igent+y to
peop+e and their *ants and needs rather than to products5. 3o achieve consumer
satisfactions/ the marketer shou+d kno*/ understand consumer 0ehaviour . their
characteristics/ needs/ attitudes and so on. "ut/ the study of consumers 0ehaviour is not
an easy task as to invo+ves comp+e' system of interaction of various factors name+y
socio+ogica+/ cu+tura+/ economica+ and psycho+ogica+.
,ACTORS IN,L-ENCING CONS-MER 0E5A'IO-R
Consumers are stimu+ated 0y t*o types of stimu+i . interna+ and environmenta+.
3he interna+ inf+uences comprise of motivation/ perception/ +earning and attitudes . a++
concepts dra*n from the fie+d of psycho+ogy. 3he environmenta+ inf+uences inc+ude
cu+tura+/ socia+ and economica+. E'perts in these areas attempts to e'p+ain *hy peop+e
0ehave as they do as 0uyers. A++ these inf+uences interact in high+y comp+e' *ays/
affecting the individua+8s tota+ patterns of 0ehaviour as *e++ as his 0uying 0ehaviour.
C&lt&ral ,actor
Cu+ture is the most fundamenta+ determinant of a person8s *ants and 0ehaviour. $t
encompasses set of va+ues/ ideas/ customs/ traditions and any other capa0i+ities and ha0its
ac=uired 0y an individua+ as a mem0er of the society. Each cu+ture contains sma++er
groups of su0cu+tures such as nationa+ cu+ture/ re+igious cu+ture and socia+ c+ass cu+ture
that provides more specific identification and socia+iDation for its mem0ers. A su0cu+ture
is a distinct cu+tura+ group e'isting as an identifia0+e segment *ithin a +arger cu+ture. 3he
mem0ers of a su0cu+ture tend to adhere too many of the cu+tura+ mores of the overa++
society/ yet they a+so profess 0e+iefs/ va+ues and customers *hich set them apart. An
understanding of su0cu+ture is important to marketing managers 0ecause the mem0ers of
each su0cu+ture tend to sho* different purchase 0ehaviour patterns.
3hus/ the Papanese cu+ture provides for certain manners of dressing *hi+e the
$ndian cu+ture provides for different patterns. $n the same *ay one8s re+igious affi+iation
may inf+uence one8s market 0ehaviour.
3he re+igious groups such as >indus/ Christians and Mus+ims posses distinct
cu+tura+ preferences. ?or instance/ >indus consider *hite and 0+ack co+ours inauspicious
for 0rides during marriage2 *hereas for Christians *hite is a auspicious 0rida+ dress and
0+ack is auspicious for Mus+ims.
Socia+ c+ass may 0e 0rought of as a rather permanent and homogenous group of
individua+s *ho have simi+ar 0ehaviour/ interests and +ife1sty+es. Since peop+e norma++y
choose their friends and associate on the 0asis of commona+ity of interests/ socia+ c+asses
have a tendency to restrict interactions/ especia++y *ith regard to socia+ functions. $n
addition/ socia+ c+asses are hierarchica+ in nature2 thus peop+e usua++y position their socia+
functions. $n addition/ socia+ c+asses are hierarchica+ in nature2 thus peop+e usua++y
position their socia+ group either a0ove or 0e+o* other groups. Jsua++y socia+ c+asses are
divided into si' . upper/ +o*er1upper/ upper1midd+e/ +o*er1midd+e/ upper1+o*er and
+o*er1+o*er.
Severa+ research studies have pointed out that differences in consumer 0ehaviour
are +arge+y an function of socia+ c+ass. 3he differences in 0ehaviours can 0e traces in
communication ski++s/ shopping 0ehaviours/ +eisure activities/ saving and spending ha0its.
Each cu+ture evo+ves uni=ue pattern of socia+ conduct. 3he prudent marketer has
to ana+yDe these patterns to understand their 0ehaviour to evo+ve a suita0+e marketing
programme.
Sociological ,actor
3he socio+ogica+ factors are another group of factors that affect the 0ehaviour of
the 0uyers. 3hese inc+ude reference groups/ fami+y and the ro+e and status of the 0uyers.
3he reference group are those groups that have a direct or indirect inf+uence on the
person8s attitudes/ opinions and va+ues. 3hese groups inc+ude peer group/ friends and
opinion +eaders. ?or instance/ an individua+8s 0uying 0ehaviour for a foot*ear cou+d 0e
inf+uenced 0y his friend/ co++eague or neigh0ours. Simi+ar+y/ Cine stars and Sports heroes
are a+so acting as reference groups to inf+uence 0uyers. @hi+e Cine stars are used to
advertise toi+et soaps/ soft drinks etc./ Sports heroes are focused to recommended the
products of t*o *hee+ers and four *hee+ers to inf+uence consumers. A+so the physicians
are used as referees for inf+uencing the consumers of toothpaste.
A more direct inf+uence on 0uying 0ehaviour is one8s fami+y mem0ers name+y/
spouse and chi+dren. 3he person *i++ have certain position in his fami+y/ that is ca++ed a
status and has a duty assigned . that is ro+e and this status and ro+e a+so determine 0uying
0ehaviour. ?or instance/ *hi+e 0uying 3.<./ c+othing and other house1ho+d app+iances/
fami+y mem0ers have a tremendous ro+e in inf+uencing the 0uyer 0ehaviour. ?or e'amp+e/
*hi+e 0uying c+othing materia+s/ chi+dren may inf+uence parents and parents may
inf+uence chi+dren.
3he marketers/ therefore/ aim their marketing efforts to reach reference groups
and through them reach the potentia+ 0uyers. 3he marketer needs to determine *hich
mem0er of a fami+y has the greater inf+uence on the purchase of a particu+ar product and
shou+d try to reach to the customer to market his product.
Peronal C*aracteritic
An individua+8s 0uying is a+so inf+uenced 0y his persona+ characteristics such as
his age and +ife cyc+e stage/ occupation/ invome and persona+ity. ?or e'amp+e/ if the
target market is kids/ their food and other re=uirements *i++ certain+y 0e different from
aged peop+e. Simi+ar+y/ 0ehaviour and need differs depending on the nature of occupation
of the 0uyers. ?or e'amp+e/ factory *orkers and other defence peop+e re=uire foot*ear of
main+y dura0+e type that cou+d *ithstand serve strain/ *hereas peop+e *ith *hite co+or
Eo0s re=uire foot*ear of +ight and fashiona0+e type. >ence/ marketers shou+d 0y to
identify the occupationa+ groups that have interest in their products and services. An
organisatoin can even specia+iDe in manufacturing products needed 0y a particu+ar
occupationa+ group.
"asica++y it is the +eve+ of income/ its distri0ution and the conse=uent purchasing
po*er that determines one8s 0uying 0ehaviour. Aut of the one8s tota+ income/ a part may
0e saved and the remaining part is avai+a0+e for spending. Again out of this/ a siDa0+e part
has to 0e reserved for meeting essentia+ e'penses and it is on+y the 0a+ance . the
individua+ has the discretion to spend. An inte++igent marketer has to *atch the income .
saving trend of his consumer and 0asing on that evo+ve a marketing programme.
Each person has a distinct persona+ity that *i++ inf+uence his 0uying 0ehaviour. A
person8s persona+ity is usua++y descri0ed in terms of such traits as se+f1confidence/
dominance/ autonomy and adapta0i+ity. ersona+ity can 0e a usefu+ varia0+e in ana+yDing
consumer 0ehaviour.
P.c*ological ,actor
sycho+ogica+ characteristics p+ay the +argest and most enduring ri+e in
inf+uencing the 0uyer 0ehaviour. A person8s 0uying choices re inf+uenced 0y four maEor
psycho+ogica+ processes . motivation/ perception/ +earning and attitudes.
Motivation is the 7*hy8 of 0ehaviour. According to one *riter/ 4motivations
refers to the drives/ urges/ *ishes or desire *hich initiate the se=uence of the events
kno*s as 0ehaviour5. Motivation may 0e conscious or su0conscious . a force that
under+ines a 0ehaviour. $t is the comp+e' net*ork of psycho+ogica+ and physio+ogica+
mechanism. Motives can 0e instinctive or +earned2 conscious or unconscious/ rationa+ or
irrationa+. 3he most popu+ar human motivation theories are profounded 0y Mas+o*8s/
?reuds and >erD0erg.
Maslow has c+assified human needs into five types in the order of importance .
0asic/ safety/ socia+/ esteem and se+f actua+iDation needs. 3he most urgent motive is acted
upon first. $f this is fu+fi++ed/ the individua+ proceeds to fu+fi++ the ne't higher need. $t is
important for the marketer to understand the motives that +ead consumers to make
purchases and he must 0e a0+e to e'p+ain the prospective 0uyers ho* 0est his product can
satisfy a particu+ar need. "ut he must 0e sure that the target consumers have a+ready
fu+fi++ed the previous need.
&reuds 'heory dea+s *ith su01conscious factors. >e asserts that peop+e are not
+eaky to 0e conscious of the rea+ motive guiding their 0ehaviour 0ecause these motives
are often repressed from their o*n consciousness. 3he most important imp+ication of he
?reudian mode+ of marketing is that human 0eings the motivated 0y sym0o+ic as *e++ as
0y economic and functiona+ concerns. At times/ the marketing ana+yst must +ook 0eyond
the apparent reason *hy an individua+ purchased a product in order to find the rea+
reason. An+y through specia+ methods of pro0ing such as in1depth intervie*s/ proEective
techni=ues their motives can rea++y 0e discovered and understood. 3he marketer shou+d
0e a*are of the ro+e of visua+ and tacti+e e+ements in triggering deeper emotions that can
stimu+ate or inhi0it purchase.
&rederick (er)berg deve+oped a t*o theory of motivation *hich distinguishes
0et*een dissatisfiers and satisfies. 3he imp+ication of this theory is that the marketers
shou+d do their 0est to prevent dissatifiers from affecting the 0uyers and then he shou+d
carefu++y identify the maEor satisfiers or motivators of purchase.
erception is the process 0y *hich individua+s 0ecome a*are of :though any of
the five senses; and give meaning to their environment.
Severa+ technica+ factors affect the *ay an o0Eect is perceived. 3hese factors do
not refer to the product8s techno+ogy itse+f/ 0ut rather to ho* the individua+ sees the
o0Eects. %esearch studies/ for e'amp+e/ have indicated that a +arge and mu+tico+oured
advertisement is perceived more =uick+y and remem0ered +onger than a sma++ 0+ack1and1
*hite advertisement.
A second important factor is the individua+8s menta+ readiness to perceive a
product. %esearch has sho*n that 0uyers tend to 0ecome 4fi'ed5 on a menta+ image. ?or
e'amp+e/ a consumer may continue to purchase a particu+ar 0rand even after the
consumer kno*s that a 0etter product can 0e 0ought at a +o*er price. Menta+ readiness is
a+so affected 0y the 0uyer8s +eve+ of attention. Cenera++y speaking/ peop+e have a +imited
attention span. 3hat is/ human 0eings on+y comprehend a +imited num0er of o0Eects or
messages in a given amount of time. A+so/ peop+e8s attention tends to shift =uick+y form
one o0Eect to another. 3hese aspects of perception suggest the importance of keeping
commercia+s simp+e and 0rief.
Socia+ and cu+tura+ factors a+so shape perception. As a+ready mentioned/ cu+ture
and socia+ c+ass have a significant effect on ho* and *hat consumers purchase. As an
i++ustration/ consumers differ as to ho* important 4up*ard mo0i+ity5 is to them. ersons
interested in c+im0ing the socia+ +adders *i++ perceive certain products as inferior if they
fee+ the mem0ers of the upper c+ass do not purchase those products.
ast e'perience is a fourth factor inf+uencing perception. 3o i++ustrate/ a person
may perceive a 0rand of toothpaste of high =ua+ity simp+y 0ecause of past favoura0+e
e'perience *ith the product. ?ina++y/ the mood of the individua+ is an important
determinant of perception2 a person *ho is unhappy or depressed may find it difficu+t to
see the positive side of a product.
erception has three 0asic characteristics9 it is su0Eective/ se+ective and
summative. $t is su0Eective 0ecause no t*o individua+s perceive the same o0Eect in the
same *ay. eop+e tend to see *hat they *ant to seen and to hear *hat they *ant to hear.
erception is se+ective in that on+y a fe* of the signa+s that peop+e receive each
day are converted into messages. @e receive 0et*een 1/5-- and 2/--- advertising signa+s
per day through e'posure to 0i++0oards/ store signs. And other forms of mass media.
Since it is not possi0+e to dea+ menta++y *ith so many messages/ our minds e+iminate
most of them from conscious a*areness. "ecause of se+ective perception/ advertising
managers must carefu++y choose their media and the timing and p+acement of
advertise4ments in order to ma'imiDe e'posure. $n addition/ if the advertisement is
c+uttered *ith many messages/ prospective 0uyers *i++ pro0a0+y not 0e a0+e to remem0er
any of them.
erception is summative in the sense that the reception and recognition of a signa+
is fre=uent+y a function of the cumu+ative effect of mu+tip+e signa+s. 3he more often a
signa+ is received/ the greater the chance that it *i++ 0e understood.
A+so/ t he pro0a0i+ity that a receiver *i++ correct+y interpret a signa+ is enhanced if
the signa+ is sent through t*o or more channe+s. 3hese t*o points suggest *hy te+evision
advertisers repeat their commercia+s fre=uent+y. A+so the sa+es person *ho *ants to
ensure that a message is understood may send the customer a direct1mai+ promotion and
then visit the customer persona++y to demonstrate the product.
Fearning is the changes that occur in an individua+8s 0ehaviour arising from
e'perience. Fearning is produced through the interp+ay of drives/ stimu+i/ cues/ responses
and reinforcement. A drive is a strong interna+ stimu+us impe++ing actions and its 0ecomes
a motive *hen it8s directed to*ard a particu+ar drive1reducing stimu+us o0Eects. Cues are
minor stimu+i the determine *hen/ *here and ho* the person responds. Advertisements
fre=uent+y serve as cues. $f a person is thirty :drive;/ a soft drink advertisement may
encourage the vie*er to reduce the dive 0y taking a soft drink either from the fridge/ or
visiting near0y coo+1drink 0ar. 3hese cues can inf+uence response/ and if the response if
positive/ the consumer +earns a0out the product and 0uys it/ *hich means his response is
reinforced.
Fearning is 0est studied from the perspective of stimu+us1response theory and
cognitive theory.
*timulus$!esponse 'heory9 Stimu+us response theory had its 0eginning *ith the
%ussian psycho+ogist av+ov. $n his famous e'periment/ av+ov range a 0e++ immediate+y
0efore feeding a dog. Eventua++y/ the dog/ associating the sound of the 0e++ *ith the
arriva+ of dinner/ +earned to sa+ivate *hen the 0e++ *as rung regard+ess of *hether food
*as supp+ied. As resu+t/ av+ov conc+uded that +earning *as +arge+y an associative
process.
3he stimu+us1response mode+ has t*o important imp+ications for marketing. ?irst/
*hen a ne* product is introduced/ the firm shou+d rea+iDe that if may have to e'tinguish
0rand ha0its and preferences 0efore attempting to form ne* 0uying ha0its. $n this +ight/
the firm *i++ *ish to serious+y consider the strength of its cues.
3he second imp+ications for marketing is that 0ecause peop+e are conditioned
through repetition and reinforcement/ a sing+e cue/ such as a te+evision advertisement/
may not 0e sufficient to penetrate an individua+8s consciousness. 3herefore/ it is often
necessary to repeat at advertisement a num0er of times.
Cognitive Theory: Cognitive theorists 0e+ieve that ha0its are ac=uired 0y insight/
thinking and pro0+em so+ving as *e++ as through a stimu+us1response mechanism. ?rom
this perspective/ the centra+ nervous system and the 0rain 0ecome very important
intermediatries in the +earning process.
Cognitive theory has severa+ imp+ications for marketing. ?or e'amp+e/ *hen the
firm is designing a sa+es strategy/ it cannot assume that the consumer is going to 0uy the
product simp+y 0ecause of previous satisfaction *ith the firm. $f the consumer has had
successfu+ transactions in the past. 3his *i++ he+p the se++er/ 0ut the 0uyer can a+so 0e
e'pected to eva+uate the firm8s product *ith respect to its merits as *e++ as compare it to
competitor8s offerings. 3herefore/ in situations *here cognitive +earning is +ike+y to take
p+ace/ the se++er must deve+op +ogica+ presentations *hich he+p the potentia+ 0uyer to
eva+uate the product in a favoura0+e +ight.
3he practica+ importance of +earning theory for marketers is that they can 0ui+d up
demand for a product 0y associating it *ith strong/ drives/ using motivating cues and
providing positive reinforcement.
A brie( is a descriptive thought that a person hgksdE fEghdkf something. 3hese
0e+iefs may 0e 0ased on kno*+edge/ fghE fghddgd dfgdfgdf dgdfgd very much interested
in the 0e+iefs of peop+e a0out their frgdgdf fgd service 0ecause they inf+uence their
0uying 0ehaviour. $ some of the fgdfgdf are *rong and inhi0it purchase/ the marketer
shou+d +aunch a campaign to correct these 0e+iefs.
An attit&%e descri0es a person8s enduring favoura0+e or unfavora0+e cognitive
eva+uations/ emotiona+ fee+ings and actions tendencies to*ard some o0Eect or idea.
Attitudes put them into a frame of mind of +iking and dis+iking an o0Eect/ moving to*ard
or a*ay from it. 3his +eads peop+e to 0ehave in fair+y consistent *ay to*ards simi+ar
o0Eects. >ence/ the marketer shou+d try to fir his product into e'isting attitudes rather
than to try to change peop+e attitudes.
?rom the a0ove discussions/ it 0ecomes o0vious that consumer 0ehaviour is
inf+uenced 0y economic/ socio+ogica+ and psycho+ogica+ factors. "ut it is *rong to
assume that consumer 0ehaviour is inf+uenced 0y any 7one8 of these factors. 3he fact is
that at a point of time and in a given set of situations/ it is inf+uenced 0y a sum tota+ of
these diverse yet interre+ated factors. @hen a consumer is in the process of taking a
purchase decision/ a++ these factors are prove to *ork simu+taneous+y and inf+uence his
choice. "ut it is possi0+e that the re+ative importance of these factors vary in a given
situation. $t is the inte++igence of the marketer to find out the nature and intensity of the
inf+uence e'erted 0y these factors and to formu+ate appropriate marketing programme.
RE'IE# 2-ESTIONS3
1. "ring out the important of studying consumer 0ehaviour.
2. ,iscuss the inf+uence of socio1cu+tura+ factors in determining consumer
0ehaviour.
3. @hat are the psycho+ogica+ factors that inf+uence 0uyers 0ehaviourM
LESSON >
MARKETING IN,ORMATION S6STEM AN!
MARKETING RESEARC5
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
3he meaning and the need for marketing information system2
3he components of the marketing information system2
3he meaning and importance of marketing research2
3he scope of marketing research2
3he procedure of doing marketing research.
3o carry out marketing ana+ysis/ p+anning/ imp+ementation and contro+/ the
marketing manager needs to monitor and ana+yDe the 0ehaviour of customers/
competitors/ dea+ers and their o*n sa+es and cost data. $n order to pursue market
opportunities as *e++ as anticipate marketing pro0+ems/ they need to co++ect
comprehensive and re+ia0+e information. Marion >arper put it this *ay9 43o manage a
0usiness *e++ is to manage its future2 and to manage the future is to manage information.
Many companies are studying the information needs of their e'ecutives and
design their Marketing $nformation System :MB$S; to meet those needs. Marketing
$nformation Systems is defined as fo++o*s9
4A marketing information system is a continuing and interacting structure of
peop+e/ e=uipment and procedures to gather/ sort/ ana+yDe/ eva+uate/ and distri0ute
pertinent/ time+y and accurate information for use 0y marketing decision makers to
improve their marketing p+anning/ imp+ementation and contro+.
ASSESSING IN,ORMATION NEE!S
3he company 0egins to find out *hat informant the mangers *ou+d +ike to have.
"ut managers do not a+*ays need a++ the information they ask for and they may not ask
for a++ they rea++y need.
!E'ELOPING IN,ORMATION
3he information needed 0y marketing managers can 0e o0tained from interna+
company records/ marketing inte++igence and marketing research. 3he information
ana+ysis system processes this information to make it more usefu+ to managers.
INTERNAL RECOR!S S6STEM
Most marketing managers use interna+ records and reports regu+ar+y especia++y for
making day1to1day p+anning/ imp+ementation and contro+ decisions. $nterna+ records
information consists of information gathered from sources *ithin the company to
eva+uate marketing performance and to detect marketing pro0+ems and opportunities.
MARKETING INTELLIGENCE
Marketing inte++igence is every day information a0out deve+opments in the
marketing environment. 3he marketing inte++igence system determines *hat inte++igence
is needed/ co++ects it 0y searching the environment and de+ivers it to marketing managers
*ho need it. Marketing inte++igence can 0e gathered from company e'ecutives/ dea+ers/
sa+es force/ competitors/ the accounts and annua+ reports of other organiDations etc. that
he+ps managers prepare and adEust marketing p+ans.
MARKETING RESEARC5
Marketing %esearch is used to identify and define marketing opportunities and
pro0+ems9 to generate/ refine and eva+uate marketing actions2 to monitor marketing
performance and to improve understanding of the marketing process.
IN,ORMATION ANAL6SIS
$nformation gathered 0y the company8s marketing inte++igence and marketing
research systems re=uire detai+ed ana+ysis. 3his inc+ude use of advanced statistica+
ana+ysis. $nformation ana+ysis might a+so invo+ve a co++ection of mathematica+ mode+s
that *i++ he+p marketers make 0etter decisions. Each mode+ represents some rea+ system/
process/ or outcome. 3hese mode+s can he+p ans*er the =uestions of *hat/ if and *hich is
0est.
!ISTRI0-TING IN,ORMATION
3he information gathered through marketing inte++igence and marketing research
must 0e distri0uted to the marketing managers at the right time. Most companies have
centra+iDed marketing information systems that provide managers *ith regu+ar
performance reports/ inte++igence updates/ and reports of research studies. Mangers need
these routine reports for making regu+ar p+anning/ imp+ementation/ and contro+ decisions.
,eve+opments in information techno+ogy have caused a revo+ution in information
distri0ution. @ith recent advances in computers/ soft*are and te+ecommunication/ most
companies are decentra+iDing their marketing information systems. $n many companies
marketing managers have direct access to the information net*ork through persona+
computers and other means. ?rom any +ocation/ they can o0tain information from interna+
records or outside information services/ ana+yDe the information using statistica+ packages
and mode+s/ prepare reports on a *ork processor or desk1top pu0+ishing system/ and
communicate *ith orders in the net*ork through e+ectronic communications.
Such systems offers e'citing prospects. 3hey a++o* the managers to get the
information they needed direct+y and =uick+y and to tai+or it to their o*n needs.
MARKETING RESEARC5
Marketing 0asica++y consists of identifying the consumers and satisfying them in
the 0est possi0+e *ay. Marketing research p+ays a key ro+e in this process. Marketing
research he+ps the firm to ac=uire a 0etter understanding of the consumer/ the competition
and the marketing environment. $t a+so he+ps the formu+ation of right marketing mi'/
*hich inc+ude decisions on product/ price/ p+ace and promotion.
3he conduct of marketing research has 0ecome so comp+e' due to increasing
comp+e'ity of marketing and hence re=uires specia+iDed ski++s and sophisticated
techni=ues.
Marketing research has 0een various+y defined 0y marketing researches.
%ichard Crisp defined marketing research 4as the systematic/ o0Eective and
e'haustive search for and study of the facts re+ating to any pro0kem in the fie+d of
marketing5.
According to Creen and 3u++/ marketing research is 4the systematic and o0Eective
search for and ana+ysis of information re+evant to the identification and so+ution of any
pro0+em in the fie+d of marketing8.
America Marketing Association defined marketing research/ 4as the systematic
gathering/ recording and ana+yDing of data a0out pro0+ems re+ating to the marketing of
goods and services.
An ana+ysis of a0ove definitions c+ear+y high+ights the sa+ient features of
marketing research9
$t is a search for data *hich are re+evant to marketing pro0+ems2
$t is carried out in a systematic and o0Eectives manner2
$t invo+ves a process of gathering/ recording and ana+ysis of data.
)one of the definitions is e'p+icit a0out the manageria+ purposes of marketing
research/ e'cept saying that data are re=uired for so+ving marketing pro0+em.
A 0etter definition of marketing research is/ that it is an o0Eective/ and systematic
co++ections/ recording and ana+ysis of data/ re+evant to marketing pro0+ems of a 0usiness
in order to deve+op an appropriate information 0ase for decision making in the marketing
area.
MARKET RESEARC5
Market research is different from marking research. Market research is a
systematic study of 7facts a0out market on+y . *ho/ *hat/ *here/ *hen/ *hy/ and ho* of
actua+ and potentia+ 0uyers.
An the other hand the scope of marketing research is to *ide that it inc+udes a++
functiona+ areas of marketing inc+uding market.
IMPORTANCE O, MARKETING RESEARC5
3he emergence of 0uyer8s market re=uires continuous need of marketing research
to identify consumer8 need and ensure their satisfaction.
3he ever e'panding markets re=uire +arge num0er of midd+emen and intensive
distri0ution. Marketing research shou+d he+p identify and so+ve the pro0+ems of
midd+emen and distri0ution.
3here is a+*ays a change in the market conditions and the re=uirements of
consumers. Marketing research ena0+es to anticipate and meet any such changes.
Marketing research can he+p 0ring a0out prompt adEustments in product design
and packaging.
$t can he+p find out effectiveness of pricing.
$t can he+p find out the effectiveness of sa+es promotion and advertisement.
$t can he+p identify the strength and *eakness of sa+es force.
3he impact of economic and ta'ation po+icies on marketing cou+d a+so 0e kno*n
through marketing research.
$n short/ marketing research ena0+es the management to identify and so+ve any
pro0+em in the area of marketing and he+p 0etter marketing decisions.
SCOPE O, MARKETING RESEARC5
3he scope of marketing research stretches from the identification of consumer
*ants and needs to the eva+uation of consumer satisfaction. $t comprises of research
re+ating to consumer/ products/ sa+es/ distri0ution/ advertising/ pricing and sa+es
forecasting. A c+ear vie* of the scope of marketing research may 0e o0tained 0y the
fo++o*ing c+assification of marketing research activity.
Mar+et Reearc*
3he purpose of market research is to gather facts a0out markets and the forces
operating therein. 3he areas of market research 0road+y inc+ude9
Study of the market siDeG potentia+
Study of the market profi+e
Market share ana+ysis
Study of market segments
Market trends
Sa+es forecasting
Study of seasona+ trends
Con&7er Reearc*
3he aim of this research is to deve+op an understanding a0out present and
potentia+ consumers and the +eve+ of satisfaction e'pected and derived 0y them from
company8s products. 3he 0road areas of consumer research are9
Study of consumer profi+e
Study of consumer 0rand preferences/ tastes and reactions
Study of consumer satisfactionG dissatisfaction/ reasons/ etc.
Study of shifts in consumption patterns.
Pro%&ct Reearc*
%evie*ing product +ine/ product =ua+ity/ product features/ product design etc.
Study on the actua+ uses of a given product
Study on ne* uses of an e'isting product
3esting of ne* products
Study of re+ated products
Study of packing/ packaging design
Study of 0rand nameG 0rand markG its impact
!itrib&tion Reearc*
3he purpose of this research is to identify the appropriate distri0ution channe+s for
intermediaries/ storage/ transport pro0+ems etc. 3he 0oard areas inc+ude9
Assessing the genera+ pattern of pricing fo++o*ed 0y the industry
Measuring price e+asticity of demand
Eva+uating the pricing strategy of the firm
A%vertiing an% Pro7otion Reearc*
3he purpose of this research is to deve+op most appropriate advertising and
promotion schemes and eva+uate their effectiveness. 3he 0road areas inc+ude9
Advertising copy research
Media research
Assessing the effectiveness of advertising
Assessing the efficacy of sa+es promotiona+ measures.
Sale Reearc*
3he purpose is to find out the sa+es potentia+ and appraise sa+es performance of
company8s products. 3he 0road areas inc+ude9
3esting ne* sa+es techni=ues
Ana+yDing of sa+esmen8s training
Measuring sa+esman8s effectiveness
Study of sa+es compensation
Ana+yDing methods of setting sa+es =uota and sa+es territories.
Reearc* on Co7petition
3he purpose of this research is to find out the intensity and effect of competition
to the firm. 3he 0road areas inc+ude9
Study of competitive structure of the industry and individua+ competitors.
Study of competitors marketing strategies.
3he scope of marketing research descri0ed a0ove is on+y indicative and not
e'haustive. ?urther/ the a0ove research areas are not *atertight compartments. 3hey are
c+ose+y interre+ated. 3he actua+ scope depends on the needs of a company and the
marketing situations.
0ENE,ITS O, MARKETING RESEARC5
$t is apparent that the scope of marketing research activity is very *ide. $t covers
a+most a++ aspects of marketing. 3he maEor contri0ution of marketing research is that it
augments the effectiveness of marketing decisions. Marketing research uncovers facts
from 0oth outside and *ithin the company re+evant to marketing decisions and provides a
sustaina0+e and +ogica+ 0ase for making decisions.
3he specific contri0utions of marketing research to the effectiveness of the
marketing programme of a firm are as fo++o*s9
1. @ith the guidance of research/ products shou+d 0e 0etter suited to the demand and
prices reasona0+y.
2. Specific markets having the greatest sa+es potentia+ities cou+d 0e identified.
3. %esearch can he+p to identify the 0est sa+es appea+ of the products/ the 0est *ay of
reaching the potentia+ 0uyers and the most suita0+e timing of promotion etc.
4. %esearch can a+so he+p minimiDe marketing costs 0y making marketing efforts
more efficient and effective.
5. %esearch can a+so find out the effectiveness of sa+es force management such as
right se+ection procedure/ effective training programmes/ scientific compensation
schemes and effective contro+ mechanisms.
3he contri0utions of marketing research are considera0+e. $t faci+itates 0oth the
decision1making and the operationa+ tasks of marketing management effective and
efficient and there0y contri0utes to consumers satisfaction and organiDation8s
efficiency.
LIMITATIONS O, MARKETING RESEARC5
3he marketing research is not *ithout its share of +imitations.
1. Marketing %esearch cannot provide comp+ete ans*er to the pro0+ems 0ecause
there are many intervening varia0+es *hich are difficu+t to 0e contro++ed.
2. Some marketing pro0+ems do not +end themse+ves to va+id research conc+usions
due to +imitations of too+s and techni=ues invo+ved. 3here are many intangi0+e and
varia0+es operating *hich are difficu+t to 0e measured.
3. $n a fast changing environment/ the data co++ected 0ecome o0so+ete soon and the
research findings 0ased on them *i++ 0ecome +itt+e use.
4. $t on+y provides a 0ase for predicting future events2 it cannot guarantee *ith any
certainty their happening.
5. Marketing research invo+ves more time/ effort and high cost. "ut it is very often
said that marketing research is cheaper than cost+y marketing mistakes.
PROCE!-RE IN CON!-CTING MARKETING RESEARC5
$n marketing research/ the fo++o*ing procedure is genera++y adopted.
1. ,efining the pro0+em and its o0Eectives
2. ,etermine the information needed and the sources of information
3. ,eciding on research methods
4. Ana+ysis and $nterpretation of data
5. reparing research report
!. ?o++o*1up
1$ !eter7ine t*e Proble7
3he first 0asic step is to define the marketing pro0+em in specific terms. An+y if
the marketing researcher kno*s *hat pro0+em management is trying to so+ve/ he cannot
do an effective Eo0 in p+anning and designing a research proEect that *i++ provide the
needed information.
After the pro0+em has 0een defined/ the researcher8s task is to +earn as much
a0out it as the time permits. 3his invo+ves getting ac=uainted *ith the company/ its
0usiness/ its products and market environment/ advertising 0y means of +i0rary
consu+tation and e'tensive intervie*ing of company8s officia+s. 3he researcher tries to
get a 4fee+5 of the situation surrounding the pro0+em. >e ana+yses the company/ its
markets/ its competitions and the industry in genera+. 3his phase of pre+iminary
e'p+oration is kno*n as situation ana+ysis. 3his ana+ysis ena0+es the researcher to arrive
at a hypothesis or a tentative presumption on the 0asis of *hich further investigations
may 0e done.
@hen a pro0+em has 0een identified/ o0Eectives of the research have to 0e
determined. 3he o0Eectives of the proEect may 0e to determine e'act+y *hat the pro0+em
is and ho* it can 0e so+ved.
4$ !eter7ine t*e Speci(ic In(or7ation Nee%e% an% So&rce o( In(or7ation
3he researcher shou+d then determine the specific information needed to so+ve the
research pro0+ems. ?or successfu+ operations of production and sa+es departments/ *hat
information is re=uired depends to a +arge e'tent on the nature of goods and the method
used for p+acing it in the hands of the consumers.
3he investigator must identify the sources from *hich the different items of
information are o0taina0+e and se+ect those that he *i++ use. >e may co++ect information
through primary data/ secondary data or 0oth.
rimary data are those *hich are gathered specifica++y for the proEect at hand/
direct+y e.g. through =uestionnaires and intervie*s. rimary data sources inc+ude9
Company sa+esmen/ midd+emen/ consumers/ 0uyers/ trade associations e'ecutives/ and
other 0usinessmen and even competitors.
Secondary data are genera++y pu0+ished sources/ *hich have 0een co++ected
origina++y for some other purpose. 3hey are not gathered specifica++y to achieve the
o0Eectives of the particu+ar research proEect at hand/ 0ut are a+ready assem0+ed. Such
sources are interna+ company records2 government pu0+iscations2 reports and Eourna+s/
trade/ professiona+ and 0usiness associations8 pu0+ications and reports/ private 0usiness
firms8 records/ advertising media/ Jniversity research organiDations/ and +i0raries.
8$ !eci%ing on Reearc* Met*o%
$f it is found that the secondary data cannot 0e of much use/ co++ection of primary
data 0ecome necessary. 3hese *ide+y used methods of gathering primary data are9 :i;
Survey/ :ii; A0servation/ and :iii; E'perimentation. @hich method is to 0e used *i++
depend upon the o0Eectives/ cost/ time/ personne+ and faci+ities avai+a0+e.
:i; *urvey Method: $n this method/ information is gathered direct+y from
individua+ respondents/ either through persona+ intervie*s or through mai+/
=uestionnaires or te+ephone intervie*s. 3he =uestions are used either to o0tain
specific responses to direct =uestions or to secure more genera+ response to
4open end5 =uestions.
:ii; +bservational Method: 3he research data are not gathered through direct
=uestioning of respondents 0ut rather 0y o0serving and recording their actions
in a marketing situation. 3he customer is una*are that heGshe is 0eing
o0served/ so presuma0+y heGshe acts in hisGher usua+ fashion. $nformation
may 0e gathered 0y persona+ or mechanica+ o0servation. 3his techni=ue is
usefu+ in getting information a0out the ca+i0er of the sa+esman or in
determining *hat 0rands he pushes. $n another situation/ a customer may 0e
*atched at a distance and noticed/ *hat motivates him to purchase
:iii; ,-perimental Method: 3his method invo+ves carrying out a sma++1sca+e tria+
so+ution to a pro0+em/ *hi+e/ at the same time/ attempting to contro+ a++ factors
re+evant to the pro0+ems. 3he main assumption here is that the test conditions
are essentia++y the same as those that *i++ 0e encountered +ater *hen
conc+usion derived from the e'periment are app+ied to a 0roader marketing
area. 3he techni=ue consist of esta0+ishing a contro+ market in *hich a++
factors remain constant and one or more test markets in *hich one factor is
varied.
:$ Anal.i an% Interpretation o( !ata
After the necessary data have 0een co++ected/ they are ta0u+ated and ana+yDed *ith
appropriate statistica+ techni=ues to dra* conc+usions and findings. 3his stage is regarded
as the end product.
;$ Preparation o( Report
3he conc+usions and recommendations/ supported 0y a detai+ed ana+ysis of the
findings shou+d 0e su0mitted in a *ritten report. 3he report shou+d 0e *ritten in c+ear
+anguage/ proper+y paragraphed/ and shou+d present the facts and findings *ith necessary
evidence.
3he choice of the *ords/ ade=uate emphasis/ correct statistica+ presentation/
avoidance of f+o*ery +anguage and a0i+ity to e'press ideas direct+y and simp+y in an
organiDed frame*ork are essentia+ for a good report.
RE'IE# 2-ESTIONS3
1. @hat do you understand 0y marketing information systemM
2. ,iscuss the components and uses of marketing information system.
3. ,efine marketing research and distinguish it from market research.
4. ,iscuss the scope of marketing research.
5. "ring our the 0enefits and +imitations of marketing research.
!. ,iscuss the procedure of doing marketing research.
IIIIIIIIIIIII
LESSON 1 ?
PRO!-CT MI@
Learning objective
After reading this unit/ you shou+d 0e a0+e to understand .
3he meaning and types of products2
3he product mi' and +ine decisions2
3he strategies invo+ved in product modification and product e+imination.
roduct/ the first of the four s of marketing mi' has a uni=ue positions as it
constitutes the most su0stantive e+ement in any marketing offer. 3he other e+ements .
price/ p+ace and promotion . are norma++y emp+oyed to make the product offering
uni=ue and distinct. roduct is/ thus/ the num0er one *eapon in the marketer8s
arsena+.
roduct is comp+e' concept *hich has to 0e carefu++y defined. $n common
par+ance/ any tangi0+e items such as te'ti+es/ 0ooks/ te+evision and many others are
ca++ed as products. "ut an individua+8s decision to 0uy an item is 0ased on not on+y on
its tangi0+e attri0utes 0ut a+so on a variety of associated non1tangi0+e and
psycho+ogica+ attri0utes such as services/ 0rand/ package/ *arranty/ image etc.
3herefore/ to crysta++iDe the understanding of the term 7product8/ it *ou+d 0e
appropriate to take recourse to different definitions of 7product8 given 0y marketing
practioners.
According to A+derson/ 4roduct is a 0und+e of uti+ities consisting of various
product features and accompanying service5. 3he 0und+e of uti+ities is composed of
those physica+ and psycho+ogica+ attri0utes that the 0uyer receiver *hen the 0uys the
product and *hich the marketer provides a particu+ar com0ination of product features
and associated services.
According to Sch*arD/ 4a product is something a firm markets that *i++ satisfy a
persona+ *ant or fi++ a 0usiness need5/ and inc+udes 4a++ the periphera+ factors that
may inc+ude reputation of the manufacturer/ the *arranty/ credit and de+ivery terms/
the 0rand name and the courtesy sho*n 0y the sa+es and service personne+.5
hi+ip Bot+er defines product 7as anything that can 0e offered to a marketer for
attention/ ac=uisition/ use of consumption that might satisfy a *ant or need. $t
inc+udes physica+ o0Eect/ services persons/ p+aces organiDations and ideas.
3he perusa+ of a0ove definitions it is revea+ed that a product is not on+y an
tangi0+e entity/ 0ut a+so the intangi0+e services such as prestige/ image etc. form an
integra+ part of the product.
recise+y/ the ans*ers to the fo++o*ing =uestions the product po+icy of a firm9
@hat products shou+d the company makeM
@here e'act+y are these products to 0e offeredM
3o *hich market or market segmentM
@hat shou+d 0e the re+ationship among the various mem0ers of a product
+ineM
@hat shou+d 0e the *idth of the product mi'M
>o* many different product +ines can the company accommodateM
>o* shou+d the products 0e positioned in the marketM
@hat shou+d 0e the 0rand po+icyM
Shou+d there 0e individua+ 0rands/ fami+y 0rands andGor mu+tip+e 0randsM
A product po+icy serves the fo++o*ing three main functions9
1. A product po+icy guides and directs the activities of *ho+e organisation to*ard a
sing+e goa+. An+y rare+y/ product decisions are made so+e+y 0y top e'ecutives.
More often such decisions re=uire the specia+iDed kno*+edge of e'perts in many
fie+ds . research/ deve+opment/ engineering/ manufacturing/ marketing/ +a*/
finance and even personne+.
2. A product po+icy he+ps to provide the information re=uired for decisions on the
product +ine.
3. A product po+icy gives e'ecutives a supp+ementary check on the usua+ estimates
of profit and +oss.
A sound product po+icy is thus an important too+ for coordination and directions.
$t app+ies not on+y to those maEor decisions *hich are u+timate responsi0i+ity of
genera+ managers a+so to the many +o*er +eve+ emp+oyees *ho a+so take day to
day decisions.
PRO!-CT CLASSI,ICATION
Marketers have deve+oped severa+ product c+assification schemes 0ased on
product characteristics as an aid to deve+oping appropriate marketing strategies.
roduct can 0e c+assified into three groups according to their dura0i+ity9
.urable "oods: ,ura0+e goods are tangi0+e goods that norma++y survive many
users. E'amp+es inc+ude refrigerators/ tape recorders/ te+evisions etc.
/on$.urable "oods: 3hese are tangi0+e goods that norma++y are consumed for
short period. E'amp+e inc+ude soap/ match 0o' etc.
*ervices: Services are activities/ 0enefits or satisfactions that are offered for sa+e.
E'amp+es inc+ude 0anking/ transport/ insurance service etc.
Another method of c+assifying products is on the 0asis of consumer shopping ha0its
0ecause they have imp+ications for marketing strategy. "asing on this/ goods may 0e
c+assified into three9
Convenience "oods: Coods that the customer usua++y purchases fre=uent+y/
immediate+y and *ith the minimum effort. 3he price per unit is +o*/ E'amp+e9
soaps/ match 0o' etc.
*hopping "oods: 3hese goods are purchased infre=uent+y. 3he price per unit is
comparative+y higher. 3he customer/ in the process of se+ection and purchase of
these goods compares the suita0i+ity/ =ua+ity/ price and sty+e. E'amp+e inc+ude
furniture/ c+othing/ foot*ear etc.
*peciality "oods: Coods *ith uni=ue characteristics andGor 0rand identification
for *hich a significant group of 0uyers are *i++ing to make a specia+ purchasing
effort. 3he goods are e'pensive and purchased rare+y. E'amp+es inc+ude persona+
computers/ cars/ hi1fi components etc.
In%&trial Pro%&ct
Ane of the *ays of c+assification of industria+ products invo+ves t*o 0road
categories viD./ :1; products that are used in the production of other goods and 0ecome a
physica+ part of another product/ and :2; products necessary to conduct 0usiness that do
not 0ecome part of another product. 3he products that 0ecome part of another product are
ra* materia+s/ semi1manufactured goods/ compeonets and su0contracted production
services. 3he products that are needed to conduct the 0usiness inc+ude9 Capita+ goods/
operating supp+ies/ contracted industria+ services/ contracted professiona+ services and
uti+ities.
%a* materia+ inc+ude crude oi+/ coa+/ iron ore/ other mined minera+s/ +um0er/
forestry product/ agricu+tura+ products/ +ivestock/ pou+try and diary products and the
products of fisheries.
Semi1manufacturing goods are products/ that *hen purchased/ have a+ready
undergone some processing 0ut are incomp+ete in themse+ves. E'amp+es are cotton fi0er/
castings/ p+ate g+ass and p+astics.
Components are comp+eted products meant to 0ecome part of another +arger/ more
comp+icated product. E'amp+es inc+ude automo0i+e 0atteries/ head+ights/ tyres etc.
Su0contracted production services are in sue in +arge products. E'amp+es are/
su0contracting for insta++ation of e+ectrica+/ heating/ air1conditioning and p+um0ing
faci+ities to others.
Capita+ goods are manufacturing p+ants and insta++ations/ too+s/ machines/ trucks
etc. Aperating supp+ies are industria+ products used to keep a 0usiness operating
norma++y. 3hese inc+ude +u0ricating oi+s/ paper c+ips/ cash registers etc. 3he operating
supp+ies usua++y have a re+ative+y +o* unit va+ue/ and are consumed =uick+y.
Contracted industria+ services inc+ude such items as machine servicing and repair/
c+eaning/ remode+ing/ *aste disposa+ and the operation of the emp+oyees8 canteens.
Contracted professiona+ services inc+ude printing e'ecutive recruitment/ advertisement/
advertising/ +ega+ advice/ professiona+ accounting/ data processing and engineering
studies.
3he industria+ products in the category of uti+ities consists of energy/ te+ephone/
and *ater.
Analog&e Ter7
$n order to faci+ities further understanding it *i++ 0e appropriate to kno* the
meaning of some other terms a+so *hich often recur in any discussion a0out product.
Some of these terms are discussed 0e+o*9
Need amily: 3he core need that actua+iDes the product fami+y. E'amp+e9 Safety.
!roduct amily: A++ the product c+asses that can satisfy a core need *ith more or
+ess effectiveness.
!roduct "ine: A group of products *ithin a product c+ass that are c+ose+y re+ated/
0ecause they function in a simi+ar manner or so+d to the same customer groups or
are marketed through the same types of out+ets or fa++ *ithin given price ranges.
E'amp+e9 Cosmetics.
!roduct #tem: A distinct unit *ithin a 0rand or product +ine that is
distinguisha0+e 0y siDe/ price/ appearance or some other attri0ute. E'amp+e9
3a+cum po*der.
PRO!-CT MI@ !ECISIONS
Pro%&ct Mi)
A product mi' :a+so ca++ed product assortment; is the set of a++ product +ines and
items that a particu+ar se++er offers to sa+e.
A company8s product mi' can 0e descri0ed as having a certain width, length,
depth, and consistency.
3he *idth of the product mi' refers to ho* many product +ines the company
carries.
3he +ength of product mi' refers to the tota+ num0er of items in its product mi'.
3he depth of product mi' refers to ho* many product variants are offered of each
product item in the +ine.
3he consistency of the product mi' refers to ho* c+ose+y re+ated the various
product +ines are in end use/ product re=uirements/ distri0ution channe+s or some
other *ay.
3hese four dimensions of the product mi' provide the 0ases for defining the
company8s product strategy. 3he company can gro* its 0usiness in four *ays. 3he
company can add ne* product +ines/ thus *idening its product mi' to capita+iDe the
company8s reputation or the company can +engthen its e'isting product +ines to 0ecome a
more fu++ +ine company or the company can add more product variants to each product
and thus deepen its product mi'. ?ina++y the company can pursue more product1+ine
consistency or +ess/ depending upon *hether it *ants to ac=uire a strong reputation in a
sing+e fie+d or participate in severa+ fie+ds.
PRO!-CT LINE !ECISIONS
Pro%&ct Line
A product +ine is a group of products that are c+ose+y re+ated/ 0ecause they
function in a simi+ar manner/ are so+d to the same customer groups/ are marketed through
the same types of out+ets/ or fa++ *ithin given price ranges.
roduct +ine managers have t*o important information needs. ?irst they must
kno* the sa+es and profits of each item in the +ine. Second/ they must kno* ho* the
product +ine compares to competitor8s product +ines in the same markets :roduct
ositioning;.
Ane of the maEor issues facing product1+ine managers is the optima+ +ength of the
product +ine. 3he manager can increase the profits either 0y adding the product items if
the +ine is too short or 0y dropping the items if the +ine is too +ong.
3he issue of product1+ine +ength is inf+uence 0y company o0Eectives. GCompanies
that *ant to 0e positioned as fu++1+ines companies andGor are seeking high market share
and market gro*th *i++ carry +onger +ines. 3hey are +ess concerned *hen some items fai+
to contri0ute to profit. Companies that are keen on high profita0i+ity *i++ carry shorter
+ines consisting of se+ected items.
roduct +ines tend to increase over time. E'cess manufacturing capacity *i++ put
pressure on the product1+ine managers to deve+op ne* items. 3he sa+es force and
distri0utors *i++ a+so pressure for a more comp+ete product +ien to satisfy their customers.
LINE-STRETC5ING !ECISION
Every company8s product1+ine covers a certain pair of the tota+ range offered 0y
the industry as a *ho+e. ?or e'amp+e/ Maruti Jdyog automo0i+es are +ocated in the +o*1
medium price range of the automo0i+e market. Fine stretching occurs *hen a company
+engthens its product1+ine 0eyond its current range. 3he company can stretch its +ine
do*n*ard/ up*ard or 0oth *ays.
!o/n/ar% Stretc*
Many companies initia++y +ocate at the high end of the market and su0se=uent+y
stretch their +ine do*n*ard. ?or instance/ 3A3A *ho are the producers of medium and
high priceG0ig car segment/ no* have stretched do*n*ard 0y entering into sma++ car
segment 0y re+easing 3A3A $ndica.
3he company is attached at the high end and decides to counter attach 0y
invading the +o* end.
3he company finds that s+o*er gro*th is taking p+ace at the high end.
3he company initia++y entered the high end to esta0+ish a =ua+ity image and
intended to ro++ do*n*ard.
3he company adds a +o*1end unit to p+ug a market ho+e that *ou+d other*ise
attract a ne* competitor.
$n making a do*n*ard stretch the company faces some risks. 3he ne* +o*1end item
may canni0a+iDe higher1end items. Ar the +o*1end items might provoke competitors
to counteract 0y moving into the higher end. Ar the company8s dea+ers may not 0e
*i++ing or a0+e to hand+e the +o*er end products/ 0ecause they are +ess profita0+e or
di+ute their image. ?or instance/ Cenera+ Motors resisted 0ui+ding sme++ers cars and
Papanese companies spotted a maEor opening and moved in =uick+y. $t is interesting
that after seeing the success of SuDuki in sma++ car segment/ the other +eading
companies such as >onda and 3oyota are ne* entering into the market.
-p/ar% Stretc*
Companies in the +o*er end of the market might contemp+ate entering the higher
end. 3hey may 0e attracted 0y a higher gro*th rate/ higher margins or simp+y the
chance to position themse+ves as fu++1+ine manufacturers. Again/ it is Maruti *ho
initia++y entered in the sma++ car segment entered higher end 0y production Maruti
1--- and Maruti Esteem.
An up*ard decision can 0e risky. )ot on+y the higher end competitor *e++
entrenched 0ut they may counter attack 0y entering the +o*er end of the market. 3he
company8s sa+es representatives and distri0utors may +ack the ta+ent and training to
serve the higher end of the market.
T/o-/a. Stretc*
Companies in the midd+e range of the market may decide to stretch their +ine in 0oth
directions.
Line-,illing !eciion
A product +ine can a+so 0e +engthened 0y adding more items *ithin the present
range of the +ine. 3here are severa+ motives for +ine1fi++ing such as reaching for
incrementa+ profits2 trying to satisfy dea+ers to comp+ain a0out +ost sa+es 0ecause of
missing items in the +ine2 trying to uti+iDe e'cess capacity2 trying to 0e the +eading fu++1
+ine company and trying to p+ug ho+es to keep on competitors. $f +ine1fi++ing is overdone it
may resu+t in canni0a+iDation and customer confusion. 3he company needs to
differentative each item in the consumer8s mind. Each item shou+d possess a Eust
noticea0+e difference. 3he company shou+d check that the proposed items enEoys more
market demand as is not 0eing added simp+y to satisfy an interna+ need.
RE'IE# 2-ESTIONS
1. @hat are the different components of product mi'M
2. @hat are different types of productsM
3. E'p+ain product1+ine decisions.
LESSON 1 C
NE# PRO!-CT PLANNING AN! !E'ELOPMENT
Learning Objective
After reading the +esson/ you shou+d 0e a0+e to understand .
,efine the ne* product and understand the need for ne* product deve+opment.
3he steps in the ne* product deve+opment process2
3he product modification and e+imination process2
3he concept and various stages of roduct Fife Cyc+e :FC;.
3he products and services are the most visi0+e assets of the organiDations and the ne*
products are/ hence considered to 0e the corner stone of the +ong term surviva+ and
prosperity of many organiDations. 3he rapid techno+ogica+ changes/ shifting patterns
of *or+d market opportunities and the intense competition compe+ the 0usiness firms
to continuous+y deve+op ne* products and services for their surviva+. "ut fai+ure too
in ne* product deve+opment is not uncommon. Apparent+y/ ne* product deve+opment
is an unsta0+e activity/ inherent in most organiDations. "ut *hen market conditions
pressuriDe there is no other go e'cept to take the risk of introducing ne* products.
NE# PRO!-CTS !E,INITION
,efining a ne* product is not a simp+e task. $n an a0so+ute sense/ it is something
ne* *hich has not e'isted 0efore. @hen considered in a re+ative sense/ it is something
ne* *hich has not 0een e'perience 0efore and perceived as ne*. $n defining ne*
products/ the re+ative vie* is considered more usefu+ 0ecause *hether or not something is
a0so+ute+y ne*/ the interested persons *ho have not yet e'perienced it may represent
opportunities or pro0+ems for consideration.
3hus/ a ne* product is a mu+ti1dimensiona+ concept that has need satisfying
capa0i+ities for the stockho+ders interested in it and *hich has not 0een e'perienced 0y a
significant num0er of them2 0ut capa0+e of offering a strategic competitive advantage. $t
means a maEor opportunity for an organiDation to create va+ue. A+though there is
numerous perspective from *hich one cou+d define a ne* product/ the fo++o*ing
definitions are *orth to 0e noted.
Musse+man and Packson states that a product is said to 0e a )e* roduct *hen it
serves an entire+y ne* function or makes a maEor improvement in a present function.
According to Stanton/ ne* products are those *hich are rea++y innovative and
tru+y uni=ue rep+acements for e'isting products that are significant+y different from the
e'isting goods and inc+udes initiative products that are ne* to a company 0ut not ne* to
the market. $f the 0uyers perceive that a given item is significant+y different from
competitive goods 0eing rep+aced *ith some ne* features/ +ike appearance or
performance/ then it is a ne* product.
?or Bot+er/ ne* product mean origina+ products/ improved products/ modified
products and ne* 0rands *hich are deve+oped 0y the firm through its o*n research and
deve+opment efforts and inc+udes those products *hich the consumers see as ne*.
A ne* product is thus perceived different+y 0y different peop+e. $t is a need
satisfying concept *ith 0enefit for 0uyers 0und+e of need satisfying features2 for
marketers/ a *ay to add va+ue2 for intermediaries/ an opportunity to design2 for %N, and
to assem0+e and process for production department.
)e* product deve+opment is one for the most important components of product
po+icy and product management. $t is not enough if the e'isting product +ines and
products are appraised proper+y/ positioned effective+y and 0rand decisions taken *ise+y.
@hat is re=uired/ 0esides a++ these things/ is that the organisation has to consider ne*
product deve+op(eEmnt for the organiDation8s gro*th/ 7$nnovate or die8/ thus goes and o+d
saying. 3his is especia++y true in marketing. Jn+ess the organisatoins innovate and
introduce ne* products/ it cannot survive in the competitive market. $n many cases the
entire 0usiness strategies defining an organiDation8s future are 0ui+t upon the portfo+io of
ne* products. )e* products are/ therefore/ the 0asis for fo++o*ing strategic reasons9
NEE! ,OR NE# PRO!-CT !E'ELOPMENT
3he fo++o*ing are the strategic reasons for +aunching ne* products9
)e* products meet the changes in consumer demands.
)e* products are the source of competitive advantage.
3hey provide +ing1term financia+ return on investment.
3hey uti+iDe the e'isting production and operation resources to an optimum +eve+.
3hey capita+iDe on research and deve+opment.
3hey provide opportunities for reinforcing or changing strategic direction.
3hey +everage marketingG0rand e=uity.
3hey enhance corporate image
3hey affect human resources.
3hey meet environmenta+ threats.
,ig&re3 Ne/ Pro%&ct !evelop7ent Proce
STEPS IN T5E NE# PRO!-CT !E'ELOPMENT PROCESS
1. Ceneration of )e* roduct $deas
2. Screening of $deas
3. Concept ,eve+opment and 3esting
4. Marketing Strategy ,eve+opment
5. "usiness Ana+ysis
!. ,eve+opment of the roduct
#. Market 3esting
&. Commercia+iDation
1$ GENERATION O, NE# PRO!-CT I!EAS
3he ne* product deve+opment process starts *ith the search for ideas. An idea Qis the
highest form of a0straction of a ne* product. $t is usua++y represented as a descriptive
statement/ *ritten or ver0a+iDed. Cenera++y/ more the num0er of ideas/ the 0etter.
3he o0Eective of this stage is to o0tain :a; ideas for ne* products/ :0; ne*
attri0ute for the e'isting products/ and :c; ne* uses of the e'isting products.
So&rce o( Ne/ Pro%&ct I%ea
MaEor sources of ne* product ideas inc+ude sources/ customer competitors/
distri0utors and supp+iers/ and others.
Internal So&rce3
Ane study found that more than 55 percent of a++ ne*1product ideas come from
*ithin the company. 3he company can find ne* ideas through forma+ research and
deve+opment. $t can get ideas from its scientists/ engineers and manufacturing peop+e.
3he company8s sa+es peop+e are anther good source 0ecause they are in dai+y contact
*ith customers.
C&to7er3
A+most 2& percent of a++ ne*1product ideas come from *atching and +istening to
customers. 3he company can duct surveys or focus groups to +earn a0out consumer
needs and *ants. 3he company can ana+yses customer pro0+ems. Companies can
+earn a great dea+ from o0serving and +istening to customers. ?ina++y/ consumers often
create ne* products on their o*n2 and companies can 0enefits 0y finding these
products and putting them on to the market.
Co7petitor3
A0ort 3- percent of ne*1product ideas come from ana+yDing competitor8s
products. 3he company can *atch competitors8 advertisements and other and other
communications to get c+ues a0out their ne* products. Companies 0uy competing
ne* products/ take them apart to see ho* they *ork/ ana+yDe their sa+es/ and decide
*hether the company shou+d 0ring out a ne* product of its o*n.
!itrib&tor" S&pplier an% Ot*er3
%ese++er are c+ose to the market and can pass a+ong information a0out consumer
pro0+ems and ne*1product possi0i+ities. Supp+iers can te++ the company a0out ne*
concepts/ techni=ues and materia+s that can 0e used to deve+op ne* products. Ather
idea sources inc+ude trade magaDines/ sho*s and seminars2 government agencies2
ne*1product consu+tants2 advertising agencies2 marketing research firms2 university
and commercia+ +a0ouratories.
I%ea Generating Tec*niD&e
S$%T Analysis9 $t is the ana+ysis of the strength/ *eakness/ opportunities and
threats. 3hrough S@A3 ana+ysis a company can make a conscious/ de+i0erate/ and
systematic effort to identify opportunities that can 0e profita0i+ity e'p+oited. %egu+ar
S@A3 ana+ysis faci+itators the generations of ideas.
Clear Articulating of %b&ectives9 3op management shou+d define the products and
markets to emphasiDe and 0y stating the operationa+ o0Eectives c+ear+y/ it can
channe+iDe the efforts of emp+oyees and induce them to think more imaginative+y.
3here shou+d 0e c+ear articu+ation and prioritiDation of o0Eectives to faci+itate this.
orced Relationshi's9 "y this techni=ue severa+ o0Eects are +isted and considered in
re+ation to each other. ?or e'amp+e/ a sofa and a 0ed/ t*o separate products are
com0ined into one/ 0y removing the arms of a sofa and making the 0ack co++apsi0+e/
to form a sofa1cum10ed/ fu+fi++ing a fe+t need of using furniture in a +imited space.
Mor'hological Analysis2 3he morpho+ogica+ ana+ysis *i++ systematica++y e'p+ore the
structura+ dimensions of a pro0+em its 0asic parameters and a++ the kno*n a+ternative
means of fu+fi++ing them.
Need(!roblem Analysis9 3his techni=ue differ from the preceding ones in that they
re=uire consumer input to generate ideas. >ere/ the consumers are approached to find
out their needs/ pro0+ems and ideas *ith reference to a particu+ar product or proEect
category.
Brainstorming9 "rainstorming is an activity designed to provide ma'imum
opportunity for the emergence of ne* and creative ides/ approaches and so+utions to
particu+ar pro0+ems.
Synetics9 $t is an operationa+ theory for the conscious use of preconscious
psycho+ogica+ mechanisms present in man8s creative activity and is particu+ar+y usefu+
in the idea generation stage for ne* product deve+opment.
"ateral Thin)ing9 According to ,e "ono/ +atera+ thinking is a *ay of using he mind/
a de+i0erate process/ a genera+ attitude *hich may make use of certain techni=ues on
occasion. 3he most 0asic princip+e of +atera+ thinking is that nay particu+ar *ay of
+ooking at things in on+y one form among many other possi0+e *ays. Fatera+ thinking
is considered *ith e'p+oring other *ays 0y restructuring and re1arranging the
information that is avai+a0+e.
Chec) "ists9 Fitera++y/ it is a +ist of factors or actins *hich shou+d 0e considered or
imp+emented in performing a predefined task such as +aunching a ne* product.
4$ SCREENING I!EAS
3he purpose of idea generation is to create a +arge num0er of ideas. 3he purpose
of screening is to reduce that num0er. 3he first idea1reducing stage is ideas
screening. 3he purpose of screening is to spot good ideas and drop poor ones as
soon as possi0+e.
$n this stage managers use their kno*+edge and e'perience to *eed out the poor
ideas and *i++ e+iminate those ideas *hich are inconsistent *ith the firm8s product
po+icies and o0Eectives/ e'isting ski++s and resources and so on. $n he same *ay/
ideas *hich are incompati0+e *ith the firm8s e'isting markets and customers are
+ike+y to 0e screened out.
3o reduce the num0er of such ideas to an attractive/ practica0+e +eve+/ some kind
of pre+iminary screening is re=uired. 3o*ards this/ the fo++o*ing aspects have to
0e +ooked into9
Compati0i+ity *ith the promoter
Consistency *ith governmenta+ priorities
Avai+a0i+ity of inputs
Ade=uacy of markets
%easona0+eness of cost
Accepta0i+ity of risk +eve+
Co7patibilit. /it* t*e Pro7oter
3he idea 0eing revie*ed must 0e consonant *ith the interest/ persona+ity and
resources of the firm. $t shou+d conform to the o0Eectives and goa+s of the firm and shou+d
0e accessi0+e. "esides/ it shou+d offer the prospect of rapid gro*th and high return on
invested capita+.
Conitenc. /it* Govern7ental Prioritie
3he operationa+iDations of the idea must 0e feasi0+e *ithin the government
po+icies and regu+atory frame*ork. $t shou+d 0e ascertained that the idea does not
contravene the environmenta+ efforts or the government and that the idea can 0e pursued
0y o0taining necessary +icense and that the foreign e'change re=uirements/ if any/ can 0e
met *ith.
Availabilit. o( inp&t
3he firm must 0e reasona0+y assured of the avai+a0i+ity of resources and inputs
re=uired. 3he organisation must assess *hether the capita+ re=uirements are *ithin
managea0+e +imits and that the technica+ kno*1ho* re=uired for the pursuance of the idea
is o0taina0+e. 3he organiDation shou+d a+so assess the avai+a0i+ity of ra* materia+s
domestica++y or if it is to 0e imported/ *i++ there 0e any pro0+ems. Avai+a0i+ity of re=uired
po*er supp+y a+so has to 0e ascertained.
A%eD&ac. o( t*e 7ar+et
3he organiDation must decide *hether the present market siDe offers the prospect
of ade=uate sa+e vo+ume. 3here must 0e a potentia+ for gro*th and a reasona0+e return on
investment.
Reaonablene o( Cot
3he cost structure of the proposa+ product must ena0+e to rea+iDe an accepta0+e
profit *ith a competitive price. $n this regard/ the organisation shou+d e'amine the costs
of materia+ inputs/ +a0our costs/ factory overheads/ genera+ administration e'penses/
se++ing and distri0ution costs/ service costs and economics of sca+e.
Acceptabilit. o( Ri+ Level
3he desira0i+ity of an ideas is critica++y dependent on the risk characteriDing it.
@hi+e assessing the risk/ the organiDation shou+d consider the vu+nera0i+ity to 0usiness
cyc+es/ techno+ogica+ changes/ competition from su0stitutes/ competition from imports
and Covernmenta+ contro+ over price and distri0ution.
8$ CONCEPT !E'ELOPMENT AN! TESTING
Concept !evelop7ent
An attri0ute idea must 0e deve+op d into a product concept. A product concept is
distinguished form a product idea and product image. @hi+e a product idea is a possi0+e
product that the company might offer to the market/ its e+a0orated version e'pressed in
meaningfu+ customer terms is a product concept. roduct image is the particu+ar picture
of an actua+ or potentia+ product perceived 0y the consumers.
At this stage/ it is important to define the 0oundaries of the concept rather than the
detai+s. 3he target market/ customers/ their app+ications/ maEor technica+ re=uirement etc.
have to 0e defined and issues +ike these are addressed in a concept +eve+ 0usiness p+an.
3he ne* product concept/ more specific in description than an idea/ shou+d inc+ude the
customer/ the maEor consumer 0enefits and features defining the ne* product.
3he manger8s task is to deve+op the ne* product into a+ternative product
concepts/ find out ho* attractive each concept is to customers/ and choose the 0est one.
3he ne* product concept can 0e ver0a+ or *ritten description. $t may 0e in the form of a
picture/ diagram/ mode+/ or appear in another suita0+e presentation format *hich depicts
the idea. $deas and concepts are often com0ined and are considered to 0e part of one
creative process.
Concept Teting3
Concept testing ca++s for testing ne*1product concepts *ith groups of target
consumers. 3he concept may0e presented to consuer sym0o+ica++y or physica++y. ?or
some concept tests/ a *ord or picture description might 0e sufficient. >o*ever/ a more
concrete and physica+ presentation of the concept *i++ increase the re+ia0i+ity of the
concept.
Objective o( Concept Teting
3he maEor o0Eectives of concept testing are9
:1; 3o get the reaction of consumer8s vie*s of the ne* product idea.
:2; 3o give direction regarding the deve+opment of the proEect.
:3; 3o choose the most promising concepts for deve+opment and
:4; 3o ascertain *hether the product in =uestion has ade=uate potentia+ for its
commercia+iDation.
3oday/ marketers are finding innovative *ays to make product concepts more rea+
to concept1test su0Eects. Customer feed 0ack can 0e critica+ in providing insights
into ho* potentia+ customers *i++ use and eva+uate the ne* product.
:$ Mar+eting trateg. %evelop7ent
After deve+oping and testing the ne* product concept/ a ne* product manager
shou+d proceed to deve+op a marketing strategy p+an for introducing the product
into the market.
3he marketing strategy statement consists of three parts9
3he first part descri0es the siDe/ structure and 0ehaviour of the target
market/ the p+anned product positioning and the sa+es/ market share and
profit goa+s sought in the first three years.
3he second part out+ines the product8s p+anned price/ distri0ution strategy
and marketing 0udget for the first year.
3he third part descri0es the p+anned +ong1run sa+es and profit goa+s and
marketing1mi' strategy over time.
;$ 0-SINESS ANAL6SIS
"usiness ana+ysis is a stage *here a ne* product idea is su0Eected to more
sophisticated and detai+ed ana+ysis. $t invo+ves a revie* of the sa+es/ costs and profit
proEections for a ne* product to find out *hether they satisfy the co-mpany8s
o0Eectives. $f they do/ the product can move to the product1deve+opment stage.
$n a maEority of ne* product deve+opment processes/ three maEor interre+ated
=uestions emerge. 3hey are regarding.
1. 3he estimate siDe and gro*th rate of the market segment/ that is/ the market
opportunity for the ne* product concept.
2. 3he estimate sa+es and market share for the ne* product concept in the se+ected
market or market segment.
3. 3he va+ues of the ne* product program in terms of its e'pected financia+
performance.
Apparent+y these imp+y three types of ne* product forecasting/ viD./ market opportunity
forecasting/ sa+es forecasting and financia+ forecasting. 3hese forecasting processes
address different sets of pro0+ems and their forecasts must 0e integrated to provide a
comp+ete picture of the commercia+ via0i+ity of the ne* product.
Market opportunity forecasting assesses market siDe and gro*th for a ne* product in a
potentia+ market under various assumptions. Specific marketing research and mode+ing
techni=ues are emp+oyer to measure sa+es response to a+ternative product concepts/
prototypes and products and a+so price/ distri0ution/ promotion etc. it ensures that key
product design decisions are made interactive+y *ith the market.
?or Sa+es forecasting the company shou+d +ook at the sa+es history of simi+ar
products and shou+d survey market opinion. $t shou+d estimate minimum and ma'imum
sa+es to assess the range of risk. After preparing the sa+es forecast/ management can
estimate the e'pected product cost and profits/ inc+uding marketing/ %N,/ manufacturing
accounting/ and finance costs.
?inancia+ forecasting addresses the important =uestion a0out the va+ue of the ne*
product and its +aunch program. $t reconci+es market potentia+/ market penetration/ sa+es
costs and investment forecasts to support decision making. Estimates of profita0i+ity/
cash f+o*/ and other proforma financia+ measures over a p+anning period can 0e
esta0+ished.
3he ne* product forecasting address maEor decision pro0+ems and in effect/
provide a frame*ork for a contro+ system to track ne* product +unch and make necessary
revisions and modifications to achieve desired resu+ts.
=$ PRO!-CT !E'ELOPMENT
roduct deve+opment is done after forecasted sa+es and 0udgeted costs promise a
satisfactory return on investment and after the company is satisfied that it can gain
access to the target market. At this Euncture/ the o0Eective is to esta0+ish if it is
physica++y possi0+e to product an o0Eect *ith the desired performance characteristics
*ithin the cost constraints indicated 0y the forecast demand schedu+e. Jsua++y this
phase is the +ongest in the *ho+e process/ and it is vita++y important that/ throughout
deve+opment/ the innovator shou+d continue critica++y to o0serve events and changes
in the proposed target markets. $n addition to updating the product concept to ref+ect
changes in the market. $n addition to updating the product concept to ref+ect changes
in the market/ the deve+opment phase shou+d a+so provide for testing the product
under rea+ usage condition to ensure that it *i++ de+iver the promise satisfactions. 3he
more comp+e' the product and the more radica+ the 0ehaviora+ change re=uired of the
end user/ the more important this stage 0ecomes. $n the case of many capita+ materia+
and consumer dura0+e innovation/ the deve+opment stage fre=uent+y continues *e++
into the market +aunch stage on the ground that deficiencies and defects in the fina+
product *i++ on+y 0ecome apparent once it is e'posed to a 0road spectrum of usage
situation.
Protot.pe
3he %N, department *i++ deve+op one or more physica+ versions of the product
concept to find out a prototype that *i++ 0e seen 0y the consumers as em0odying the
key attri0utes descri0ed in the product concept statement. A prototype is a *orking
mode+ or pre+iminary version of the fina+ product/ achieved through an
imp+ementation of the product concept. ?or many products the prototype is the first
fu++1sca+e +ikeness of the product2 for other/ it is a sca+ed1do*n mode+. ?or some
products a prototype is not possi0+e *ithout at+east a sma++1sca+e product +aunch. $n
such cases/ prototyping and product deve+opment proceed simu+taneous+y in market.
Scientist/ engineers/ designers/ marketers and other responsi0+e for product design
and creativity *i++ 0e heavi+y invo+ved in prototype deve+opment. Some prototype
may 0e re+ative+y easy to deve+op/ especia++y for organiDation a+ready in 0usiness/ for
e'amp+e/ a ne* soap. ?or other it may 0e more difficu+t.
$t is not sufficient to design the re=uired functions characteristics a+one. "ut the
ne* product deve+oped team shou+d a+so kno* ho* to communicate the
psycho+ogica+ aspects through physica+ cues on the 0asis of an understanding as to
ho* consumer react to different co+ours/ siDes/ *eights/ and other physica+ cues.
>$ MARKET TESTING
After deve+oping a prototype/ they must 0e put through vigorous functiona+ and
consumer tests. 3he functiona+ tests are conducted in order to make sure that the
product performs safe+y and effective+y and they are conducted under +a0oratory and
fie+d conditions. Consumer testing is done in a variety of *ays. 3hey may 0e done 0y
0ringing consumers into +a0oratory or they may 0e given samp+es to use in their
homes. $n1home product p+acement tests are common in products +ike ne* home
app+iances/ Consumer preference testing dra*s on variety of techni=ues/ +ike simp+e
ranking/ paired comparisons/ and rating sca+es/ each *ith its o*n advantages and
disadvantages.
Market testing methods differ in testing different types of goods. @hi+e testing
consumer products/ four varia0+es are sought to 0e estimated. 3hey are/ tria+/ first
repeat/ adoption and purchase fre=uency. $n testing the trade/ a company seeks to
+earn ho* many and *hat types of retai+ers *i++ hand+e the product/ under *hat terms/
and *ith *hat she+f position commitments.
A+though test marketing can take a variety of forms/ the three popu+ar types used
in practice in consumer goods markets are simu+ated/ contro++ed and conventiona+ test
marketing. Bot+er c+assifies them according to the cost testing/ from the +east to the
most cost+y/ are :1; Sa+es1*ave research/ :2; Simu+ated test marketing/ :3; Contro++ed
test marketing/ and :4; conventiona+ test marketing.
Sale #ave Reearc*
$n this method the consumers are initia++y offered to try the product at no cost and
su0se=uent+y they are reoffered the product/ or a competitor8s product/ at s+ight+y reduced
prices. 3hese reoffering/ referred to as sa+es *aves/ may 0e restored to for as many as
three to five times in order to find out ho* many customer se+ected the product again and
their reported +eve+ of satisfaction. 3his method may a+so inc+ude e'posing customers to
one or more advertising concept in rough form to ascertain its effects on repeat purchase.
3he sa+es *ave research can 0e imp+emented =uick+y.
Si7&late% Tet Mar+eting ASTMB
$t is a research method that faci+itates the measurement of market response to a
ne* product and its marketing program among potentia+ 0uyers in a pseudo market
environment. $t can 0e imp+emented in a +a0oratory setting/ n the homes or p+aces of
0usiness of potentia+ 0uyers or in other p+aces that *i++ simu+ate the 0uying process as
c+ose+y as possi0+e.
3he va+ue of S3Ms is re+ative+y +o* cost/ =uick e'ecution/ and secrecy from
competitors. $n many cases they are used to decide *hether or not it is feasi0+e to conduct
a test market/ and in other cases they are used to 0ypass test markets a+together and more
direct+y to +aunch.
Controlle% Tet Mar+eting
Ane of the gro*ing sources of data for ne* product test marketing is the
contro++ed or e+ectronic test markets that provide sing+e1source data. 3ypica++y these are
commercia+ services that are conducted in se+ected cities for test marketing. Se+ected
retai+ out+ets in these cities are e=uipped *ith e+ectronic checkout scanners to record
sa+es. A recruited pane+ of customers agrees to shop in these stores/ and the individua+
order and a specia+ identification care are scanned every time/ a pane+ mem0er makes a
purchase. Each card code is associated *ith a profi+e of a customer kept in a data 0ase
:containing demo1graphics/ psychographics/ and preferences and so on;. 3he impact of
+oca+ advertising and promotions during the test are a+so eva+uated. "ringing these data
sources together on a *eek+y or even dai+y 0asis can provide a po*erfu+ and high+y
contro++ed testing environment.
Conventional Tet Mar+eting
$t provides an opportunity to understand market response to the ne* product and
its proposed marketing program in a more rea+istic market environment that in simu+ated
and contro++ed test marketing. $t is especia++y usefu+ for measuring response to the
product from a 0roader set of stakeho+ders/ inc+uding competitors/ the trade/ media/
regu+ator and others. $t is a+so very he+pfu+ for discovering organiDationa+ and other
market pro0+ems in imp+ementing the ne* product program. 3he rea+ 0enefits to
conventiona+ test marketing are the +earning and su0se=uent adEustments that he+p ensure
a successfu+ +aunch/ especia++y for ne* product situations *ith high stakes and high
environment and market uncertainty. >o*ever/ these 0enefits must often 0e traded off
against cost and demands to speed market entry.
$ndustria+ or 0usiness good can 0e tested in a num0er of *ays/ inc+uding trade
sho*s/ in1use situations/ and sa+es presentations. 3he first method consists of disp+aying
and demonstrating the product to o0tain measures of interest and possi0+e 0uying
intentions. $n1use test p+ace the product *ith samp+e of potentia+ 0uyers *ho agree to try
it and to provide an eva+uation of its performance. Sa+es demonstrations simp+y present
the product to a samp+e of prospective customer sin an effort to +earn ho* many *ou+d
purchase it.
?$ COMMERCIALIEATION
Commercia+iDation can 0e considered as a fina+ phase in the ne* product
deve+opment *hen the product is +aunched into the market p+ace/ thus initiating its +ife
cyc+e. Supp+ies can 0e made avai+a0+e to the distri0ution channe+/ intensive se++ing must
take p+ace to ensure *idespread avai+a0i+ity at the point of sa+e or to canvass order from
prospective 0uyers. Maintenance and servicing faci+ities *i++ 0e necessary and a +arge
promotiona+ investment *i++ 0e needed to create a*areness of the ne* product8s
e'istence.
@hi+e commercia+iDing a product/ market entry decisions can 0e critica+ Market
entry tends to 0e a high+y situation specific decision. 3he dynamics of the environment/
the market/ the organiDation/ and its ne* product deve+opments process must 0e assessed
0y the decision maker. 3hrough ru+es are +acking/ the fo++o*ing guide+ines *i++ he+p to
make a sound decision.
:1; %ecogniDe the situationa+ aspects of market entry2
:2; C+arify the strategic importance of the market entry decision2 and
:3; ?ormu+ate the market entry decision pro0+em.
3he +aunch marketing program at market entry represents the point of e'ecution
of a 0usiness strategy. 3he company +aunching a ne* product must first decide on
introduction timing. )e't/ the company must decide where to +aunch the ne*
product . in a sing+e +ocation/ a region / the nationa+ market/ or the internationa+
market. ?e* companies have the confidence/ capita+/ and capacity to +aunch ne*
products into fu++ nationa+ or internationa+ distri0ution. 3hey *i++ deve+op a
panned market rollout over time. $n particu+ar/ sma++ companies may enter
attractive cities or regions one at a time. Farger companies/ ho*ever/ may =uick+y
introduce ne* mode+s into severa+ regions or into the fu++ nationa+ market.
PRO!-CT MO!I,ICATION !ECISION
A product modification is may de+i0erate a+teration in the physica+
attri0utes of a product or its packaging.
Nee% (or Pro%&ct Mo%i(ication
A num0er of factors may prompt the manufacturer to modify his product.
3o make advantage of a ne* techno+ogica+ deve+opment.
3o modify the product out of competitive necessity.
3o regenerate a product suffering from dec+ining sa+es.
3he attri0utes of the product such as taste/ co+our/ siDe/ materia+/ functiona+
features/ sty+ing and engineering/ etc. or com0ination of these attri0utes cou+d 0e
considered for modification.
3hree important and contrasting product modification strategies are9
Rua+ity improvement
?eature improvement
Sty+ing improvement
A strategy of =ua+ity improvement aims at increasing the functiona+
performance of the product . its dura0i+ity/ re+ia0i+ity/ speed/ taste etc. A
manufacturer can often overtake competition 0y +aunching the ne* and improved
automo0i+es/ te+evision set etc.
A strategy of feature improvement aims at adding ne* features such as
siDe/ *eight/ materia+/ accessories that e'pand the products versati+ity/ safety or
convenience. 3he advantages of feature improvement are9
)e* features 0ui+d a company image of progressiveness and +eadership2
)e* features can 0e adapted =uick+y/ dropped =uick+y and often made
optiona+ at +itt+e e'pense2
)e* features can *in the +oya+ty of certain market segments2
)e* features can 0ring the company free pu0+icity2
)e* features can generate sa+es1force and distri0utor8s enthusiasm.
A strategy of sty+e improvement aims a increasing the aesthetic appea+ of the
product. 3he periodic introduction of ne* car mode+s amounts to sty+e
competition rather than =ua+ity or features competition. $n the case of house1ho+d
products/ companies introduce co+our and te'ture variations and often resty+e the
package. 3he advantage of a sty+e strategy is that it might confer a uni=ue market
identity. 6et sty+e competitiosn has some pro0+ems. ?irst it is difficu+t to predict
*hether peop+e . *hich peop+e . *i++ +ike a ne* sty+e. Second/ sty+e changes
usua++y/ an discounting the o+d sty+e/ and the company risks +osing some
customers *ho +iked the o+d sty+e.
3he three stages of product modification *ere contrasted as if they *ere
mutua++y e'c+usive. $n practice/ a firm genera++y pursues some mi'ture of a++ three
strategies. Pust to maintain its competitive position/ the firm must incorporate the
+atest deve+opment in =ua+ity/ sty+ing and functiona+ features.
PRO!-CT ELIMINATION !ECISIONS
roduct e+iminations is an act of discontinuing or dropping the e'isting
product. Many sick or margina+ products never die2 they are a++o*ed to continue
in the company8s product unti+ they 7fade a*ay8. As a resu+t/ these margina+
products +essen the firm8s profita0i+ity and reduce its a0i+ity to take advantage of
ne* opportunities.
Reaon (or Pro%&ct Eli7ination
3he *eak product tends to consume a disproportionate amount of management8s
time
$f often re=uires fre=uent price and inventory adEustments
$f genera++y invo+ves short production runs in spite of e'pensive set up times.
$t re=uires 0oth advertising and sa+es1force attention that might 0etter 0e diverted
to making the 7hea+thy8 products more profita0+e.
$ts very unfitness can cause customer misgivings and cast a shado* on the
company8s image.
$n vie* of the costs of carrying *eak products/ *hy does management shy a*ay from
product1pruning programs due to +ogica+ as *e++ as sentimenta+ reasons. Sometimes/ it
is e'pected that product sa+es *i++ pick up in the course of time *hen economic or
market factors 0ecome more propitious. Sometime/ the fau+t is thought to +ie in the
marketing programme *hich the company p+ans to revita+iDe. $t may 0e fe+t that the
so+ution +ies in revie*ing dea+er enthusiasm/ increasing the advertising 0udget/
changing the advertising theme or modifying some other marketing factor.
Management may fee+ that the so+ution +ies in product modification through =ua+ity/
sty+ing or features.
3he foregoing are a++ +ogica+ arguments for retaining *eak products in the mi'.
"ut there are a+so situation such as management sentiment or Eust corporate inertia or
presence of vested interests in retaining *eak products.
3he maEority companies have not esta0+ished order+y procedures for pruning their
products. Such action is usua++y undertaken either on a piece1mea+ 0asis or on a crisis
0asis/ such as dec+ine in tota+ sa+es/ pi+ing inventories or rising costs. "ut neither
piecemea+ running nor crisis pruning is rea++y a satisfactory practice.
A some*hat more systematic approach is for the manufacturer to revie*
periodica++y a++ products *hose profita0i+ity is +ess than the corporate average for
each such product/ the manager is re=uested to recommended action for improving
earning or e+imination of the product.
A company that *ishes ot maintain a strong product mi' must commit itse+f to the
idea of periodic product revie*/ prefera0+y 0y a product revie* committee. 3he
product revie* process 0egins *ith co++ecting and ana+yDing the data for each product
sho*ing industry sa+es/ company sa+es/ unit cost/ prices and other information over
the +ast severa+ years/ *hich may revea+ the most du0ious products.
3he du0ious products are then rated 0asing on the criteria such as9
@hat is the future market potentia+ for this productM
>o* much cou+d 0e gained 0y product modificationM
>o* much cou+d 0e gained 0y marketing strategy modificationM
>o* much e'ecutive time/ cou+d 0e re+eased 0y a0andoning the productM
>o* good are the firm8s a+ternative opportunitiesM
>o* much is the product contri0uting 0eyond the direct costs.
>o* much is the product contri0uting to the sa+e of the other products.
3he Committee then decides *hich products to drop and then decides strategies
for phasing our each of them.
?or each product to 0e e+iminated/ management must determine its o0+igations to
the various parties affected 0y the decisions. Management may *ant to provide a
stock of rep+acement parts and service to stretch over the e'pected +ife of most
recent+y so+d units. Some of the products can 0e dropped =uite easi+y *ith +itt+e
repercussion *hi+e other product e+iminations *i++ re=uire an e+a0orate phasing1
out p+an. Some of the factors that *i++ inf+uence phasing1our tactics and timing
are9
>o* much finished and semi1finished stock remains in our inventory2 ho*
much finished goods are in distri0utor8s inventoriesM
@hat kinds of guarantees and compensations shou+d 0e offered to
distri0utors and consumers.
>o* soon cou+d the e'ecutive and emp+oyees 0e shifted to other usefu+
assignmentsM
>o* much sa+vage va+ue *ou+d company get for its machinery and
unfinished stockM
Pro%&ct ,ail&re
3he ne* product deve+opment can 0e very risky. Ane study found that the ne*
product fai+ure rate *as 4- percent for consumer products/ 2- percent for industria+
products and 1& percent for services. 3he fai+ure rate for consumer ne* products is
specia++y distur0ing.
Reaon (or Ne/ Pro%&ct ,ail&re
:1; A senior e'ecutive might push a favourit idea through in spite of negative
markting research findings.
:2; 3he idea may 0e good/ 0ut the market siDe is over estimated.
:3; 3he actua+ product is not designed.
:4; 3he product may 0e incorrect+y positioned in the market.
:5; 3he product may not 0e advertises effective+y.
:!; 3he product may 0e over priced.
:#; 3he cost of product deve+opment may 0e higher than e'pected.
:&; 3he competitions may 0e severe than e'pected.
:(; 3he product might fai+ due to governmenta+ regu+ation.
:1-; 3he product might fai+ due to inade=uate marketing research
:11; 3he product may fai+ due to de+ays in decision1making or poor timing.
:12; Fack of managers attention to comp+aints
:13; $t may fai+ due to poor after1sa+es1service.
3hus/ the main reasons for the fai+ure of ne* products are9
oor marketing research2
3echnica+ pro0+ems in the ne* products design or in its production2
oor timing in product introduction or ineffective +aunching/ and
Ather poor management practices.
T.pe o( Pro%&ct ,ail&re
1. An a0so+ute product fai+ure9 it +osses money and its sa+es do not cover varia0+e
costs.
2. A partia+ product fai+ure9 it +oses money 0ut its sa+e cover a++ the varia0+e costs
and some of the fi'ed costs.
3. A re+ative product fai+ure9 it yie+ds a profit that is +ess than the company8s norma+
rate of return.
PRO!-CT LI,E C6CLE
Fike human 0eings/ every product has a +ife span. @hen a ne* product is
+aunched din the market/ its +ife starts and the product passes thorough various distinct
stages and after the e'piration of its +ife span dies . dies in terms of its capacity to
generate sa+es and profit. 3his is ca++ed roduct Fife Cyc+e :FC;.
3he roduct Fife Cyc+e is an attempt to recogniDe 7distinct stages8 in the 7sa+es
history8 of the product. $n each stage/ there are distinct opportunities and pro0+ems *ith
respect to marketing strategy and profit potentia+. >ence/ products re=uire different
marketing/ financing/ manufacturing/ purchasing and personne+ strategies in the different
stages of their +ife cyc+e. 3he FC concept provides a usefu+ frame*ork for deve+oping
effective marketing strategies in different stages of the roduct Fife Cyc+e.
3here are four stages in the roduct Fife Cyc+e . introduction, growth, maturity
and decline.
?igure
Intro%&ction Stage
3he introduction stage starts *hen the ne* product is first +aunched. $n this stage
on+y a fe* consumers *i++ 0uy the product. ?urther/ it takes time to fi++ the dea+er pipe+ine
and to make avai+a0+e the product in severa+ markets. >ence/ sa+es *i++ 0e +o* a profit
*i++ 0e negative or +o*. 3he distri0ution and promotion e'penses *i++ 0e very high. 3here
are on+y a fe* competitors. %egarding pricing/ the management can pursue either
skimming strategy i.e. fi'ing a high price or penetration strategy i.e. fi'ing a +o* price.
3he company might adopt one of severa+ marketing strategies for introducing a
ne* product. $t can set a high or +o* +eve+ for each marketing varia0+e/ such as price/
promotion/ distri0utions and product =ua+ity. Considering on+y price and promotion/ for
e'amp+e/ management might +aunch the ne* product *ith a high price and +ose
promotion spending. 3he high price he+ps recover as much gross profit per unit as
possi0+e *hich the +o* promotions spending keeps marketing spending do*n. Such a
strategy makes sense *hen the market is +imited in siDe/ *hen most consumers in the
market kno* a0out the product and are *i++ing to pay a high price/ and *hen there is
+itt+ie immediate potentia+ competition.
An the other hand/ a company might introduce its ne* product *ith a +o* price
and heavy promotion spending. 3his strategy promises to 0ring the fastest market
penetration and the +argest market share. $t makes sense *hen the market is +arge/
potentia+ 0uyers are price sensitive and una*are of the product/ there is strong potentia+
competition and the company8s unit manufacturing costs fa++ *ith the sca+e of production
and accumu+ated manufacturing e'perience.
Gro/t* Stage
$f the ne* product satisfies the market/ it *i++ enter a gro*th stage. 3his stage is
market 0y =uick increase in sa+es and profits. 3he ear+y adopters *i++ continue to 0uy/ and
+ater 0uyers *i++ start fo++o*ing their +ead/ especia++y if they hear favoura0+e *ord of
mouth. )e* competitors enter the market/ attracted 0y the opportunities for high profit.
3he market *i++ e'pand. rices remain the same. Companies maintain their promotiona+
e'penditure at the same +eve+ or s+ight+y higher +eve+ to meet competition and continue
educating the market.
,uring this stage/ the company uses the fo++o*ing marketing strategies9
3he company improves product =ua+ity and adds ne*1product features and
mode+s.
$t enters ne* market segments.
$t enters ne* distri0ution channe+.
$t changes the price at the right time to attract more 0uyers.
$n the gro*th stage/ the firm faces a trade1off 0et*een high market share and high
current profit. "y spending a +ot of money on product improvement/ promotion and
distri0ution/ the company can capture a dominant position. $n doing so/ it gives up
ma'imum current profit/ *hich it hopes to make up in the ne't stage.
Mat&rit. Stage
3his stage norma++y +asts +onger than the previous stages and it poses strong
cha++enges to marketing management. At this stage/ sa+es *i++ s+o* do*n. 3his stage can
0e divided into three phases. . gro*th maturity/ sta0+e maturity and decaying maturity.
$n the gro*th maturity phase/ the sa+es start to dec+ine 0ecause of distri0ution
saturation. $n the sta0+e maturity phase/ sa+es 0ecome static 0ecause of market saturation.
$n the decaying maturity phase/ the a0so+ute +eve+ of sa+es no* starts to dec+ine and
customers starts moving to*ard other products and su0stitutes. Competitions 0ecome
acute.
A+though many product in the mature stage appear to remain unchanged for +ong
periods/ most successfu+ ones are actua++y evo+ving to meet changing consumer needs.
roduct managers shou+d do more than simp+y ride a+ong *ith or defend their mature
products . a good offense is the 0est defense. 3hey shou+d consider modifying the
market/ product and marketing mi'.
Mar)eting Modification: 3he company shou+d seek to e'pand the market and
enters into ne* markets. $t +ooks for ne* users and find *ays to increase usage
among present customers.
!roduct Modificaiton: the company shou+d modify the product8s characteristics
such as =ua+ity improvement/ features improvement/ sty+e improvement to attract
ne* users andGor usage from current users. ?or gfdfgdsg dgdf gdf gdf gdf g df gdf
gd fg df gdf g df gdf gfd g dg df gdf g d gdf gd fg d gdf gdf g dfg dg g dfg dfg df
gdf g dfg gd fg dg d gd g dg df gdf gd fg dfg fd g g g df .
Mar)eting*mi+ Modification9 3he company shou+d a+so try to stimu+ate sa+es
through modifying one or more marketing1mi' e+ements such as price cut/ step1up
sa+es promotion/ change advertisement copy/ e'tending credit etc.
A maEor pro0+em *ith marketing1mi' modification is that they high+y
imita0+e 0y competitors. 3he firm may not gain as much as e'pected and
in fact a++ firms my e'perience profit erosion as they comp+ete each other.
!ecline Stage
$n this stage/ sa+es dec+ine and eventua++y dip due to num0er of reasons inc+uding
techno+ogica+ advances/ consumer changes in tastes and acute competitions. As sa+es and
profit dec+ine some firms *ithdra* from the market. 3hose remaining may reduce the
num0er of product offerings.
3hey may drop sma++er market segments and margina+ trade channe+s. 3hey may
reduce the promotion 0udget and prices further.
>ence/ companies need to pay more attention to their aging products. 3he firm
has to identify those products in the dec+ine stage 0y regu+ar8s revie*ing sa+es/ market
shares/ costs and profit trends. 3hen/ management must decide *hether to maintain/
harvest/ or drop each of these dec+aiming products.
Mar+eting Strategie %&ring t*e !ecline Stage
$dentify the *eak products 0y appointing a product1revie* committee *ith
representatives from marketing/ manufacturing and finance.
3he firms may adopt the fo++o*ing strategies.
i; Management may decide to maintain its 0rand *ithout change in
the hope that competitors *i++ +eave the industry.
ii; Management may harvest 0y se++ing *hatever is possi0+e in the
market.
iii; Management may decide to drop the product from the +ine.
@hen a company decides to drop a product/ the firm can se++ or transfer the
product to someone e+se or drop it comp+ete+y. $t must decide to drop the product
=uick+y or s+o*+y. $t must decide on ho* much parts in inventory and service
re=uired to maintain service to past consumers.
-SES O, !"C CONCEPT
FC concept8s usefu+ness varies in different decision1making situations. As a
p+anning too+/ the FC concept characteristics the main marketing cha++enges in each
stage and suggests maEor a+ternative marketing strategies the firm might pursue. As a
contro+ too+/ it a++o*s the company to compare product performance against simi+ar
products in the past.
CRITICISM O, !"C CONCEPT
1. FC stages do not have predicta0+e duration. $t may very from product to product.
2. 3he marketer cannot te++ at *hat stage the product is in as there is no definite +ine
of demarcation 0et*een one stage to another stage.
3. )ot a++ products pass through a++ the stages. $t is possi0+e that the product may
trave+ to the first and second stage and die out.
4. A product may not 0e in an identica+ stage in a++ the market segments2 it may 0e in
the second stage in one segment/ *hereas in the third stage in another segment at
a particu+ar point of time.
)ot a++ products pass through a++ the stages of its +ife cyc+e. Some products are introduced
and die =uick+y2 others stay in the nature stage for a +ong/ +ing time. Some enter the
dec+ine stage and re then cyc+ed 0ack into the gro*th stage through strong promotion or
repositioning.
%evie* =uestions9
1. ,iscuss the various steps invo+ved in ne* product deve+opment process.
2. @hat are causes and methods of product modification and product e+iminationM
3. @hat are the reasons for ne* product fai+ureM
4. @hat is roduct Fife Cyc+e conceptM @hat are the stages of FC conceptM
E'p+ain their marketing imp+icationsM
IIIIIIIIII
LESSON 1 1F
PRO!-CT-MARKET INTEGRATION STRATEGIES
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
roduct1market integration strategies2
roduct positioning and its significance2
3he meaning and the need for product diversification2
roduct1+ine simp+ification2
+anned product o0so+escence2
roduct/ a component of the marketing1mi'/ can he+p achieve the marketing
o0Eectives on+y *hen there is integration 0et*een the product and market.
roduct1market integration may 0e defined as a state *herein 0oth product image
and consumer se+f1image are in focus2 there is a match 0et*een product attri0utes
and consumer e'pectations . 0oth economic and non1economic. Such matching is
cru' of the modern marketing concept/ 0ecause it is essentia+ for every marketer
to deve+op such a product image *hich is compati0+e *ith the se+f1image of his
consumers. 3his shou+d 0e the essence and o0Eective of a++ product management
e'ercises.
INTEGRATION PRO0LEMS
)everthe+ess/ there are a+*ays pro0+ems associated *ith such e'ercises. 3he
pro0+ems steam from the fact that *hi+e product is one or +imited in num0er/ consumers
are numerous and their se+f1images many and varied. Jnder this situation/ if a company
attempts to meet consumer8 individua+ se+f1images then it *ou+d have to introduce as
many products as there are *rink+es on an o+d man8s face . possi0+y even more. Such an
attempt *ou+d 0e high+y uneconomica+ from the standpoint of cost of production.
As such/ a marketer is faced *ith di+emma *hether to meet consumer se+f1images
or to avoid pena+ties of product economics. $f the former is to 0e opted/ then product1time
pro+iferation and cost esca+ation are inevita0+e2 in the +atter case/ the product +ine *i++ 0e
narro* and the cost structure 0a+anced. >o*ever/ 0oth options are not inescapa0+e and
*ithout pro0+ems. $t is/ therefore/ a+*ays advisa0+e to deve+op in Aptimum Matching
Strategy :AMS; 0et*een the company8s products and markets.
Opti7&7 Matc*ing Strateg. AOMSB
Aptimum matching strategy may 0e defined as the method of matching product
and consumer se+f1images in such a *ay that in some market segments there is fu++
matching *hereas in others not so/ so that the cost1revenue e=ui+i0rium is maintained.
3he strategy comprises market segmentation/ product offering and product
differentiation.
3he *ho+e market is divided into three segments/ viD. core/ fringe and Done of
indifference. $n the core market/ the company attempts to attain a fu++ match 0et*een the
product and the se+f1image of the groups of consumers. $n the fringe market/ the match
0et*een the product image and the se+f1image of consumers may 0e on+y partia+. 3his
partia+ match may 0e in terms of +ess than fu++ ocmpati0a+ity in respect of the product
image and a++ the varia0+es of consumer se+f1image/ name+y/ economic and non1economic
. psycho+ogica+/ socio+ogica+ and cu+tura+ . or a+ternative+y/ fu++ matching in respect of
others. $n the Done of indifference/ there is a0so+ute+y no attempted matching 0et*een
product image and consumer se+f1image. @hatever matching that may emerge is on+y
random.
@here the strategy of fu++ matching is emp+oyed/ a higher make1up may 0e
attempted re+ative to partia+ and no matching strategies in order to earn +arger profits
from the core market and to compensate for the +oss of consumer satisfaction in the fringe
market and Done of indifference arising out of the non1-fu+fi+ment of the non1economic
e'pectations.
$n the fringe market and the Done of indifference/ since there is on+y partia+ and
random matching respective+y/ the company may attempt product differentiation so as to
convey an impression of matching. 3his may 0e attained *ith the effective use of
advertisement and sa+es promotion. 3hrough this strategy/ consumer may 0e made to
perceive products in such a *ay that sem0+ance of matching is attained and products are
0ought. $n rea+ity/ in this *ay/ a company attempts to reshape consumer se+f1images so as
to fit *ith the product image.
3he other strategies through *hich product1market integration may 0e attained
inc+ude product positioning/ diversification/ simp+ification/ p+anned o0so+escence and
0randing and packaging.
PRO!-CT POSITIONING
ositioning is the set of activities *hich he+p create a percepti0+e difference
0et*een a 0rand and its competitors in the mind of the consumer. ositioning goes
0eyond the physica+ or functiona+ characteristics of a 0rand. $t inc+udes a+so the non1
functiona+ or psycho+ogica+ characteristics of a 0rand. $n the consumer8s mind1space/ a
0rand occupies a 7position8 in re+ation to competitive 0rands. Surf and Arie+ are perceived
to 0e c+oser to each other *hi+e @hee+ and )irma are 7ositioned8 in =uite another space.
3he perceived image of a 0rand is the property of the consumer8s mind. 3*o 0rands of a
product may 0e identica+ in terms of physica+ attri0utes 0ut cou+d 0e perceived different+y
0y the consumer. ositioning invo+ves p+acing a 0rand in certain distinct and prefera0+y
uni=ue *ay in the consumer8s mind. "asica++y/ one may take either the 7information
route8 or the 7imaginary route8 to 0ui+d a position. $n the 1--cc motor0ikes category/
3.<.S. SuDuki took the information route/ Ba*asaki "aEaE took the imagery route and
>ero >onda used a ski+fu+ com0ination of 0oth . and it is easy to recogniDe that these
0rands are perceived different+y 0y the consumer a+though they may not 0e generica++y
very different.
$f one consider a consumer8s mind space as a++otting specific positions for various
0rand of a product/ the e'tent of competitions a 0rand faces can 0e studied depending
upon the distance 0et*een the 0rand and other 0rands in the space. Such a graphica+
representation is ca++ed a perceptua+ map. CA%E/ the marketing research division of
C+arion Advertising conducted a positioning study of some toi+et soap 0rand and found
the resu+ts to 0e as depicted in this figure9
>ere the 6 a'is represents the cosmetic 0enefit or 4fee+s good5 factors and the
>ea+th re+ated 0enefits or the 4does good5 factors. 3he K a'is represents popu+ar pricing
versus high or premium pricing. As the figure sho*s/ there are hard+y any 0rands in the
+u'ury . cosmetic segment/ *hi+e the uti+ity . cosmetic segment is cro*ded. Margo is the
so+e purveyor of the >ea+th re+ated . uti+ity segment. 3his study *as conducted in 1(&(/
among *omen in @est "enga+. $t *ou+d 0e interesting to inc+ude Camay/ Medimi'/
Fesancy/ ears/ %e'ona/ Evita/ a+mo+ive/ Fife0uoy/ )irma "ath/ Moti/ Santoor/ ,ove/
Canga/ ,etto+ . the +ist is e'haustingS ?urther/ the men8s toi+et soap category has a+so
opened up/ the 0a0y soaps category 0oasts of a fe* 0rands and the +i=uid soaps category
presents its internationa+ appea+. ositioning a+one can determine the 0rands that *i++
keep going and the gonersS
T6PES O, POSITIONING
A product8s image is created among the consumers 0ased on the fo++o*ing
aspects9
1$ Pro%&ct Attrib&te I7age
Since some of the 0rands have e'ce++ent product features they direct+y appea+ to
consumers. E'ide is considered to 0e the 0atter *hich has no trou0+es at a++.
romotion message/ each time/ concentrates on the consumer gains resu+ting from
product performance. hi+ip emphasiDes the =ua+ity p+ank and "F audios
emphasis on the fide+ity p+atform.
4$ S.7bolic Projection
$n those products *ith not much differentiation *ith other competitors/ position
arises from 0road sym0o+iDations rather than the product performance. "eer
advertising is one such. Since the product does not differ in many 0rands/ the
emotiona+ moods are used as product attri0utes. A)$,A has used the devi+ to se++
its products as depicted in their advertisements/ on seeing a devi+ one immediate+y
recogniDe A)$,A te+evision.
8$ !irect Co7petitive Poitioning
$n this approach/ a products8 position use the competitor8s position as a reference
point. C+assic e'amp+e is that of pepsi and coke. #1up position itse+f as an unco+a.
<ideocon uses the sa+es figures of competitors as se++ing point. $ndian Air+ines
have a+so started advertising *ith response to the private air+ines advertisement.
REPOSITIONING
A 0rand does not have to 0e stuck *ith the image it has o-nc created. Since the
competitive environment and nature of the product changes it is imperative to reposition
the product among the consumers. %epositioning *i++ sometime give ne* +ife to the sa+es
of the 0rand. 3his is done a+so in the cases of dec+ining market share. Any change in
market share provide a direct indication of competitive standing market potentia+ data
may ref+ect on the e'pansion/ contraction or sta0i+ity of industry vo+ume. $n the case of
dec+ining market share it is advisa0+e to reposition the product into ne* market. An
e'panding or gro*ing market represents additiona+ opportunities in the +ong term.
%epositioning may 0e necessary *hen share in a gro*ing market dec+ines. Such a dec+ine
suggests that the 0rand in not getting additiona+ sa+es in proportion to *hat it had in the
past. $n the case of increasing share is an e'panding market/ repositioning is not re=uired.
PRO!-CT !I'ERSI,ICATION
$n the pursuit of product1market integration/ a num0er of po+icy and strategy
option are avai+a0+e to a company. Ane among them is product diversification.
4,iversification is a po+icy or management phi+osophy of operating a company so that its
0usiness and profits come from a num0er of sources/ usua++y from diverse products that
differ in market or production characteristics5.
Jn+ike other product po+icies and strategies/ the distinguishing feature of the
po+icy of diversification is 4to increase the num0er of products in the product portfo+io of
the company5. $t invo+ves fundamenta+ change in the o+d product/ say/ in its modu+ar
construction/ 0ut not mere+y a tactica+ adEustment in the design/ sty+e/ co+our of siDe of the
product to gain temporary market advantage.
Reaon (or !iveri(ication
A study of the 0usiness +iterature and ana+ysis of the company histories revea+ that
the =uestions of corporate surviva+/ sta0i+ity and gro*th are the prime movers of
diversification.
3he fo++o*ing are the specific reasons for diversification9
*urvival
3o offset dec+ining or vanishing markets.
3o compensate for techno+ogica+ o0so+escence.
3o offset o0so+ete faci+ities.
3o arrest dec+ining profit margins.
3o offset an unfavoura0+e geographic +ocation 0rought a0out 0y changing
economic factors.
*tability
3o e+iminate of offset s+umps.
3o offset cyc+ica+ f+uctuations.
3o maintain emp+oyment of +a0our force.
3o provide a 0a+ance 0et*een high and +o* margin products.
3o provide a 0a+ance 0et*een o+d and ne* products.
3o maintain market share.
3o meet ne* products of competitors.
3o maintain an assumed source of supp+y.
3o reduce dependence on e'isting products.
Kin% o( !iveri(ication3
(ori)ontal diversification may 0e descri0ed as introduction to ne* products
*hich are akin to the industry8s product1+ine. 3hey ne* products so introduced may not
contri0ute anything to the present products in any *ay 0ut may cater to the mission
*hich +ie *ithin the rea+m of the industry of *hich the company is a mem0er.
0ertical diversification may 0e descri0ed as inc+usion of ne* products such as
components/ parts/ and materia+s in the current product portfo+io of the company. 3hese
ne* products perform distinct and different missions from that of the origina+ products.
1ateral diversification may 0e descri0ed as a move to e'pand product +ine 0eyond
the confines of the industry. $t may inc+ude may kind of product *hich may 0e tota++y
different. ?or instande/ the "ata *hich are primari+y in foot*ear 0usiness have diversified
their 0usiness into readymade garments. Simi+ar+y/ the %aymonds *ho are 0asica++y in
te'ti+e 0usiness have diversified their 0usiness into foot*ear.
PRO!-CT-LINE SIMPLI,ICATION
Simp+ification may 0e defined as/ de+eting or e+iminating from the product1+ine
those product items *hich no more satisfy the criteria +aid do*n 0y a company for
retaining products in the +ine. $t is the opposite of product diversification and invo+ves a++
those manageria+ e'ercises *hich aim at product1+ine rationa+iDation.
Nee% (or Pro%&ct Si7pli(ication
,ec+ining a0so+ute sa+es vo+ume.
Sa+es vo+ume decreasing as a percentage of the firm8s tota+ sa+es.
,ecreasing market share.
ast sa+es vo+ume not up to proEected amounts.
E'pected future sa+es disappointing.
?uture market potentia+ not favoura0+e.
%eturn on investment 0e+o* minima++y accepta0+e +eve+.
<aria0+e cost e'ceeds revenues.
<arious costs as percentage of sa+es consistent+y increasing.
$ncreasing+y greater percentage of e'ecutive time re=uired.
rice must 0e consistent+y +o*ered to maintain sa+es.
romotiona+ 0udgeted must 0e consistent+y increased to maintain sa+es.
Ance a decision to a0andon a product is taken/ company must formu+ate a programme
for its smooth de+etion so that it is imp+emented *ith minimum of pro0+ems.
PLANNE! O0SOLESCENCE
3he *ord 7o0so+escence8 means to 7*ear out8 or 7fa++ into disuse8. @hen app+ied
to products/ o0so+escence means *earing our or fa++ing into disuse of products in
terms of consumer acceptance.
@hen it is kno*n that every product is +ia0+e to get out of use/ there are t*o
options avai+a0+e to a marketer. 3he first option is to a++o* the product to die out in a
natura+ *ay. $n this/ marketers/ accept product death as fait accompli after having
suffered sufficient cost pressures and +ost profit opportunities.
3he second option is to p+an its death in advance so that it =uits at a time desired
0y the management. $t *ears out and fa++ into disse on the e'piry of a fi'ed time
period. 3his is ca++ed the strategy of Planned +bsolescence and has 0een defined as/
4a purposefu+ programme of vendors to shorten the time span or num0er of
performance over *hich a product continues to satisfy customers . thus presuma0+ey
encouraging an ear+y purchase for rep+acement.
3he o0so+escence of a product may 0e due to fo++o*ing factors.9
hysica+ incapacity of the product to continue performance of he intended
service or function due to 0reakage/ *ear or corrosion.
Avai+a0i+ity of c+ose and 0etter su0stitutes of current +ia0i+ities.
Changes in consumer perception a0out products8 accepta0+e usefu+ness.
RE'IE# 2-ESTIONS3
1. Suggest product1market integration strategy.
2. @hat do you understand 0y 7product positioning5M *hat are the o0Eectives of
positioningM
3. @hat is product diversificationM Specify the reasons.
4. @hat do you understand 0y product1+ine simp+ificationM @hat is the need for such
simp+ificationM
5. @hat is p+anned product o0so+escenceM
IIIIIIIIIII
LESSON 1 11
0RAN!ING AN! PACKAGING !ECISIONS
Learning Objective3
After reading this +esson/ you shou+d 0e a0+e to understand1
3he meaning and reasons for 0randing
3he different and 0randing decisions
3he meaning/ types of packaging
3he functions and decisions areas of packaging
0RAN!ING
3he se+ection of a proper 0rand name is the maEor step in managing a product.
3he 0randing of a product is +ike naming a ne*10orn chi+d. $t 0asica++y serves to identify
the offering. "randing can add va+ue to a product and is therefore an intrinsic aspect of
product strategy. Essentia++y/ a 0rand is a promise of the se++er o de+ivers a specific set of
0enefits or attri0utes or services to the 0uyer. Each 0rand represents a +eve+ of =ua+ity.
Some key definitions of 0randing are9
Brand: "rand is a name/ term/ sign/ sym0o+ or design or a com0ination of them/
*hich is intended to identify the goods or services of one se++er or group of se++ers and to
differentiate them from those of competitors. 3hus a 0rand identifies the maker or se++er
of a product.
Brand Name: $t is that part *hich can 0e voca+iDed . the uttera0+e E'amp+e9
<ideocon/ ,a+da.
Brand Mar): it is that part of a 0rand *hich can 0e recogniDed such as a sym0o+/
design or distinctive co+ouring or +ettering. E'amp+e9 7"utterf+y8 of Co1opte'8/
7MaharaEa8 of Air $ndia or 7%ed $ndia or 7%ed co+our inverted triang+e8 for ?ami+y
p+anning.
Trade Name ( Mar): it is 0rand name of sym0o+ that is given 7+ega+ protection8
0ecause it is capa0+e of e'c+usive appropriation 0y the se++er.
0RAN!ING !ECISION
3he first decisions is *hether the company shou+d put a 0rand name for its
product. >istorica++y/ most products *ent un0randed. "ut to1day/ 0randing has 0ecome
such a strong force that nothing goes un0randed. ?or instances/ sa+t is a+so no* marketed
in distinctive manufacturer8s 0rand.
REASONS ,OR 0RAN!ING
1. 3he 0rand name makes is easier for identification of the product 0oth for the
marketer and consumer.
2. $t makes easier to process orders and track do*n pro0+ems.
3. 3he 0rand name and trade mark provide +ega+ protection of uni=ue product
features *hich *ou+d other*ise 0e copied 0y competitors.
4. "randing gives the marketer the opportunity to attract +oya+ and profita0+e set of
customers 0y creating 0rand image and 0rand +oya+ty.
5. Cood 0rand he+ps 0ui+d the corporate image.
!. "randing he+ps the marketer to markets.
"rand names he+p making the product easier to hand+e/ identifying supp+iers/ ho+ding
production to certain =ua+ity standards and increasing 0uyer preference. "rand names
a+so he+p consumers to identify =ua+ity differences and to make efficient purchase.
SELECTION O, 0RAN! NAME
3he 0rand name shou+d 0e carefu++y chosen. A good name can add great+y to a
product8s success. Most +arge marketing companies have deve+oped a forma+ 0rand
name se+ection process. ?inding the 0est 0rand name is a difficu+t task. $t 0egins *ith
a carefu+ revie* of the product and its 0enefits/ the target market/ and proposed
marketing strategies.
A good 0rand name shou+d 0asica++y posses the fo++o*ing =ua+ities9
$t shou+d 0e short/ simp+e and easy to pronounce. ?or e'amp+e/ Jsha/ Fu'/ %in
etc.
3he 0rand name shou+d 0e distinctive.
$t shou+d 0e easy to recogniDe and remem0er. E'amp+e9 $ndica
$t shou+d 0e p+easing *hen pronounced. E'amp+e9 MatiD.
$t shou+d 0e capa0+e of registration and +ega+ protection.
$t shou+d not 0e offensive/ o0scene negative.
$t shou+d 0e adapta0+e to packaging and +a0e+ing re=uirements and to any
advertising media.
$t shou+d suggest something a0out the product8s 0enefits and =ua+ities.
E'amp+e9 Co+dspot
0ran%-Sponor !eciion
$n deciding to 0rand a product/ the manufacturer has severa+ options *ith respect
to 0rand sponsorship.
3he product may 0e +aunched as a manufacturer1o*ned. Ar it may 0e +aunched 0y
the manufacturer as a +icensed name 0rand. Ar the manufacturer may se++ the product to
midd+emen/ *ho put on a private 0rand . *ho ca++ed midd+emen 0rand/ distri0utor 0rand
of dea+er 0rand.
0ran% Na7e Strategie
Companies fo++o* different strategies in choosing 0rand names for the *ide range
of products they market.
In%ivi%&al 0ran% Na7e
Some companies choose distinct names for each of their offering. ?or instance/
>industan Fever/ rocter and Cam0+e favour individua+ 0rand names for their products.
3here are many reasons for doing this9
roducts marketed 0y a company may 0ecome diverse and hence re=uire distinct
names.
Companies may *ish to market their com0ination of products to different market
segments.
Sometimes companies may have/ mu+tip+e 0rand of a product/ *hich compete
*ith each other.
3he company does not tie its reputation to the product8s acceptance. $f the product
fai+s/ it does not compromise the manufacturer8s name.
A ne* name permits the 0ui+ding up of ne* e'citement and conviction.
,a7il. 0ran% Na7e
Some companies use a common or successfu+ fami+y name/ a+so kno*n as
um0re++a 0randing/ for its severa+ products. E'amp+e9 "aEaE/ CodreE/ onds etc. Jsing a
0+anket fami+y name for a++ products has some advantages9
1; 3he cost of introducing the product *i++ 0e +ess 0ecause there is no need for
7name8 research or for heavy advertising e'penditures to create 0rand1name
recognition and preference.
2; Sa+es *i++ 0e more if the manufacturer8s name has a reputation. ?or instance/
3<S @ashing Machine/ 4>itachi5 Air conditioners etc.
3he use of the fami+y 0randing strategy does not a+*ays guarantee success. 3here
are many instances *here this strategy has fai+ed. onds +aunched its tooth paste/
using the distinctive f+o*ered pint packaging *hich it associated *ith its ta+cum
po*der *ith the same fami+y 0rand name. Market survey revea+ed that this tooth
paste had fai+ed despite name. it is a+so risky to +aunch a ne* product under the
0rand name of another high+y successfu+ product/ if successive products under a
fami+y 0rand name do not perform *e++/ the esta0+ished good*i++ or image may
suffer. 3he strategy of using a common fami+y 0rand name *i++ 0e perhaps more
effective in marketing ne* variations of the 0asic product. ?or this reason Firi+/
Cintho+ Soap *ith an improved perfume *ere *e++ accepted in the market.
0RAN! IMAGE
3he term brand image signifies the reputation and the sym0o+ic meaning
attached to a 0rand. $mage is an a0stract concept incorporating the inf+uences of
past promotions/ reputations and peer eva+uation of that 0rand.
"road+y speaking/ the tota++y of any 0rand is made up of three types of appea+s.
A''eal to Reason: it 0asica++y consists fo many o0Eective factors of eva+uation.
?or e'amp+e/ *hat dies the 0rand doM @hat does it containM >o* does it performM
@hat 0enefits or functisn does it serveM
A''eal to Senses: >o* does the 0rand +ook/ taste/ sme++/ sound etc. >ere 0rand
attempt to satisfy the consumer8s =uest for sensory gratification/ convenience/
aesthetic p+easure/ inte++ectua+ satisfaction etc.
A''eal to ,motions: it refers to the 0rand8s sty+e/ the mood it evokes and the
psycho+ogica+ re*ards it gives. A+though these are most+y intangi0+e factors they
create significant impressions on the consumer.
3he a0ove appea+s co++ective+y produce the 0rand image. >o*ever/ the image of
0rand may vary from one consumer to another. 3he core of the 0rand image is
created 0y the advertising and other marketing programmes initiated 0y the
company. J+timate+y/ the typica+ consumer *i++ fi+ter various communications
a0out the 0rand and *i++ deve+op an image on the 0asis of his e'isting 0e+iefs/
preEudices and predispositions.
Many firms strive to 0ui+d uni=ue 0rand name that *i++ eventua++y 0ecome
identified *ith the product category. ?or instance/ though 7,a+da8 is the 0rand
name/ it has identified *ith the product category . <anaspathi.
0RAN! I!ENTI,6
"rand image/ as a+ready o0served/ is perceptiona+ *hereas 0rand identity is
aspirationa+. $t means 0rand identity covers even those perceptions *hich a 0rand
managers *ou+d +ike to 0e associated *ith the 0rand. $t means a 0rand manager *ou+d
+ike a 0rand image to trave+ to 0rand identity *hich is the goa+.
"rand identity has t*o dimensions structura++y . an inner core identity and
e'tended identity.
0ran% I%entit. in Mar&ti Car3
Maruti8s core identity is identity is that it is a sma++/ economica+/ fue+ efficient car
*ith proven techno+ogy. $ts e'tended identity inc+udes its +argest market share and
avai+a0i+ity of cares for every need. $ts proven Papanese techno+ogy adapted to $ndian
conditions is a+so an important e+ement of e'tended identity.
"%A), E%SA)AF$36
A simp+e method to descri0e 0rand persona+ity is to state in terms of demographic
characteristics . +ife sty+e and persona+ity traits. 3here are five persona+ity factors name+y
sincerity/ E'citement/ competence/ sophistication and ruggedness.
Pust +ike human 0eings/ a 0rand a+so has a persona+ity *ith a set of characteristics.
3hese characteristics are demographic such as a se'/ age and socio1economic c+ass. ?or
e'amp+e/ moped are feminine *hereas mo0ikes are mascu+ine. %in is upper c+ass *hereas
7$dea+ Soap8/ 7o*er Soap8 are midd+e c+ass. arag and Apoorva Sarees are for the
sophisticated modern *omen/ *hereas oonam Sarees are for common *omen.
"rand have certain physica+ characteristics i.e. ho* they +ook and sound have
certain ski++s and a0i+ities i.e. *hat they can do and ho* they can person and certain
associations and attitudes. 3he 0rand therefore appea+s to senses/ to reason and to
emotions. Each 0rand has its has o*n persona+ity.
3hus/ 0rand persona+ity is a sum tota+ of +ook/ an attitude/ a pattern of 0ehaviour
and sty+e.
"oth product1re+ated factors such as 7%uf and 3uf8/ 7Peans8 for young men and
non1product re+ated factors such as fi+m1stars using Fu'/ to make them g+amorous
inf+uence the formation of 0rand persona+ity.
"rand persona+ity provides an added insight1into the 0rand. 3he consumers
associate their persona+ity to the products and that decide their attitudes to*ards the
product. $t he+ps to differentiate the 0rand and he+ps in position strategy. ?urther it makes
promotion easier. 3he 0rand persona+ity and product attri0ute and comp+ement to each
other.
0RAN! POSITIONING
"rand positioning is the resu+t of consumer8s perception a0out the 0rand re+ative
to the competing 0rands. "rand positioning is a part of 0rand identity and va+ue
composition that is to 0e active+y communicated to the target audience and that
demonstrates an advantage over competing 0rands. According to Bot+er positioning is the
act of designing the company8s offer so that it occupies a distinct and va+ued p+ace in the
mind of the target customers.
0RAN! E2-IT6
"rand vary in the amount of po*er and va+ue they have in the marketp+ace. Some
0rands are +arge+y unkno*n to most 0uyers. Athers 0rands/ have high degree of consumer
brand awareness. Sti++ others enEoy brand preference 2 0uyers se+ect them over the
others. ?ina++y/ some 0rands command a high degree of brand loyalty. "rand e=uity is the
process of 0rand 0ui+ding.
A+0ar defines 0rand e=uity as a set of assets associated *ith a 0rand and *hich
add to the va+ue provided 0y the productGservice to its customers. A 0rand e=uity is in
effect the aggregate of potentia+ customer8s 0e+iefs that it *i++ de+iver on its promise.
3hus the term 0rand e=uity refers to the va+ue inherent in a *e++ kno*n 0rand name.
A po*erfu+ 0rand has high brand e3uity. "rands have higher 0rand e=uity to the
e'tent that they have higher 0rand +oya+ty/ name a*areness/ perceived =ua+ity/ strong
0rand association/ and other assets such as patents/ trademarks and channe+ re+ationships.
A 0rand *ith strong 0rand e=uity is a va+ua0+e asset. $n fact it can even 0e 0ought or so+d
a price. 3he *or+d8s top 0rands inc+ude Coca1Co+a/ Bodak/ Sony and Mercedes1"enD.
3he 0est e'amp+e fo 0rand e=uity is Fife0uoy *hich has consistent+y fo++o*ed a strategy
of a 7Soap for >ea+th8 and simi+ar+y as 7>er0a+ Soap8. 7"rand heritage8 means 0rands
*hich have a g+orious past and a carefu++y nurtured image 0ui+d over a period of time.
>igh 0rand e=uity provides a company *ith many competitive advantage.
A po*erfu+ 0rand enEoys high +eve+ of consumer 0rand a*areness and +oya+ty.
Consumers accept and *i++ing to pay more fore the po*erfu+ 0rand.
3he company *i++ incur +o*er marketing cost re+ative to revenues.
3he company has more +everage in 0argaining *ith rese++ers/ and
3he 0rand name carries high credi0i+ity/ the company can more easi+y +aunch
0rand e'tensions.
A po*erfu+ 0rand offers the company some defense against fierce price
competition.
Measuring the actua+ e=uity of 0and name is difficu+t. "ecause it is so hard to
measure/ companies usua++y do not +ist 0rand e=uity on their 0a+ance sheets. Sti++/
they pay handsome+y for it. According to one estimate/ the 0rand e=uity of Coca1
Co+a is T3! 0i++ion/ Bodak fi+m T1- 0i++ion.
3o 0ui+d 0rand e=uity/ the manager has to create and enhance 0rand
a*areness/ 0rand +oya+ity and perceived =ua+ity of 0rand and 0rand associations
:i.e. associating *ith certain tangi0+e and intangi0+e attri0utes;. $t shou+d 0e
understood that a 0rand is an inte++ectua+ property and thence patents form a 0rand
asset. 3his re=uires continuous %N, investment/ ski++fu+ advertising and e'ce++ent
trade and consumer service. Some companies appoint 40rand e=uity managers5 to
guard their 0rands8 images/ association and =ua+ity.
Some ana+ysis see 0rands as the maEor enduring asset of company/ or +asting the
company8s specific products and faci+ities. 6et/ 0ehind every po*erfu+ 0rand
stands a set of +oya+ customer. 3herefore/ the 0asic gdgdsfg under+ying 0rand
e=uity is customer e3uity. 3his suggests that marketing strategy shou+d focus on
e'tending loyal customer lifetime value, *ith 0rand management serving as a
maEor marketing too+.
0ran% E)tenion !eciion
A 0rand1e'tensions strategy is any effort to use a successfu+ 0rand name to +aunch
product modification or ne* products. "rand e'tension a+so covers the introduction of
ne* package siDes/ f+avours and mode+s.
"rand e'tension saves the manufacturer the high cost of promoting ne* names
and creates instant 0rand recognition of the ne* product. At the same time/ if the ne*
product fai+s to satisfy/ it might hurt consumer8s attitude to*ard the other products
carrying the same 0rand name.
M&lti-0ran% !eciion
$n mu+ti10rand strategy/ the se++er deve+ops t*o or more 0rands in the same
product category. Manufacturer adopt mu+ti10rand strategies for severa+ reasons9
Manufacturers can gain more she+f space/ thus increasing the retai+er8s
dependence on their 0rands.
A fe* consumers are to +oya+ to a 0and that they *i++ not try another. 3he
on+y *ay to capture the 70rand s*itchers8 is to offer severa+ 0rands.
Creating ne* 0rands deve+ops e'citements and efficiency *ithin the
manufacturer8s organisation.
A mu+ti10rand strategy positions the different 0enefits and appea+s and
each 0rand can attract a separate fo++o*ing. ?or e'amp+e/ a+mo+ive
Shaving Cream is offered in Fime/ Favender and Antiseptic c+asses.
3o* or more 0rands common+y capture more sa+es and profits 0ecause
they cater to more segments.
$t he+ps to se++ ne* product variations in terms of co+our/ f+avour/ taste etc.
?or e'amp+e/ Campa1Arange and Campa1Co+a.
$n deciding *hether to introduce another 0rand/ the manufacturer shou+d consider such
=uestions as9
Can a uni=ue story 0e 0ui+t for the ne* 0randM
@i++ the uni=ue story 0e 0e+ieva0+eM
>o* much *i++ the ne* 0rand conni0a+ise the manufacturer8s other 0rands versus
competitor8s 0randsM
@i++ the cost of product deve+opment and promotion 0e covered 0y the sa+es of
the ne* 0randM
A maEor +imitation in introducing a num0er of mu+ti10rand entries is that each may o0tain
on+y a sma++ share of the market and none may 0e particu+ar+y profita0+e. 3hese
companies shou+d *eed out the *eaker 0rands and esta0+ish tighter screening procedures
for choosing ne* 0rands. $dea++y/ a company8s 0rand shou+d canni0a+iDe the competitor8s
0rands and not each other.
0RAN! RE-POSITIONING !ECISION
>o*ever/ *e++ a 0rand is initia++y positioned in a market/ the company may have
to reposition it +ater. A competitor may have +aunched a 0rand ne't to the company8s
0rand and cut into its market share. Ar customer preferences may have shifted/ +eaving
the company8s 0rand *ith +ess demand.
Management must *eigh t*o factors in making its choice of re1positioning. 3he
first is the cost of shifting the 0rand to the ne* segment. 3he cost inc+udes changing the
product8s =ua+ities/ packaging/ advertising and so on. $n genera+/ the repositioning cost
rises *ith the repositioning distances. 3he more radica++y the 0rand image has to 0e
modified/ the greater the re=uired investment. 3he other factor is the revenue that *ou+d
0e earned 0y the 0rand in the ne* position. 3he revenue depends upon the num0er of
consumers in the preference segment/ their average purchase rate/ the num0er and
strength of competitors in that segment and the price charged 0y 0rands in that segment.
Marketing research firms have e+a0orate name . research procedures inc+uding
association tests :*hat images come to mindM;/ +earning tests :ho* easi+y is the name
pronouncedM;/ memory tests :ho* *e++ is the name remem0eredM; and preference tests
:*hich names are preferredM;.
>or+icks *as re+aunched as a )e* >or+icks in an attractive ne* Ear. 3he ne*
>or+icks c+aimed more nourishment through additiona+ protein and ca+cium/ eight
essentia+ vitamins and iron nutrients. )o* 7Punior >or+icks8 has 0een introduced
targeting youngsters.
Fife0uoy is pro0a0+y the o+dest toi+ed soap avai+a0+e today. ?rom its sma++
0eginnings in Eng+and in 1&(4/ Fife0uoy has come a +ong *ay to 0ecome one of the most
popu+ar and +arges se++ing soaps in the *or+d.
@hen Fife0uoy *as introduced in the $ndian market 1-- years ago/ its positioning
*as c+ear. Fife0uoy *as the soap that *ou+d destroy germs and keep the 0ody hea+thy.
3hough the properties *ere c+ear/ the 0rand found the going tough in rura+ markets.
3herefore >industan Fever Fimited decided to +aunch Fife0uoy as soap for hand *ash in
1(--. 3he 0rand 0egan to deve+op and at this stage/ Fife0uoy *as repositioned as a 0ath
soap. 4@here there is Fife0uoy/ there is hea+th5 0ecame a very popu+ar s+ogan. $n 1(!4/
the 0rand *as re+aunched *ith a s+ight change in its shape and *rapper design 0acked 0y
po*erfu+ advertisement and intensification in rura+ markets. @ith intensification of
competition in 1(#-/ >industan Fever Fimited +aunched 7Fife0uoy a ersona+8 . a
perfumed/ pink1co+oured/ #5 gm soap. "ut the 0rand suffered 0ecause it did not carry the
JS8s hea+th and va+ue for money. $n 1(&-/ the >industan Fever Fimited +aunched
7Fife0uoy +us8 *ith a ne* perfume. "y this time/ Fi=uid Fife0uoy a+so stages its entry
to strengthen ur0an market. $n the rura+ markets/ Fife0uoy continued its dominance. Even
today !- per cent of Fife0uoy sa+es are from rura+ areas. 3he 0rand remains the +arges
se++ing 0rand and a Cash Co* for >industan Fever Fimited.
PACKAGING !ECISIONS
ackaging has 0ecome a very important part of product management. @ith
competition increasing/ marketers are turning to innovative packaging to esta0+ish a
distinctive edge. Marketers are providing va+ue addition to products and greater 0enefits
to consumers through packaging/ there0y attempting to increase the 0rand va+ue.
ackaging inc+udes the activities of designing and producing the container or
*rapper for a product. 3he package may inc+ude the product8s primary container2 a
secondary package that is thro*n a*ay *hen the product is a0out to 0e used. Fa0e+ing is
a+so part of packaging and consists of printed information appearing on or *ith the
package.
,&nction o( Pac+aging
$t contains and protects the product.
$t attracts the attention of the consumers.
$t descri0es the product
$t he+ps for easi+y hand+ing
$t he+ps for se+f1services
3he fo++o*ing are the main decision areas in packaging9
ackage Materia+
ackage aesthetics
ackage SiDe and Convenience
PACKAGING MATERIALS
Aver the years/ great changes have taken p+ace in package materia+s. $n the ear+ier
days/ *ood *as the main materia+ for packaging. 3his s+o*+y gave p+ace to paper and
paper 0oards. )o*/ in addition to paper 0oard/ po+ythene carry 0ags. +astic and
meta+iDed po+yester +aminate materia+s are *ide+y used for packaging
3hey a+so +end themse+ves to attractive printingG0randing on them. Consumer
products +ike 3ata 3ea/ )escafe/ ,a+da/ S*eets have a++ gone in for p+astic package
materia+s. 3he rend genera++y is to*ards f+e'i0+e packaging *herever the products +end
themse+ves to such packaging. 3here are dura0+e ru00er containers . tanks and drums
made from high tenacity po+yamide fa0ric matri' and coated *ith compati0+e po+ymers.
3hey a+so save transportation and hand+ing cost considera0+y.
PACKAGING AEST5ETICS
@ith the increasing need for enhancing the sa+es appea+ of packaging/ increased
attention is no* 0eing given to package aesthetics. "usiness firms are a+*ays in search of
ne* package materia+s/ designs/ siDes and shapes that *i++ enhance the sa+es appea+ of
their products. $t has 0ecome a common practice for marketers/ especia++y in consumer
product +ines/ to re+y heavi+y on package aesthetics as a po*erfu+ too+ for sa+es appea+/
0rand identification and product differentiation. $n some cases packaging a+so faci+itates
merchandising. 3he package aesthetics p+ays the ro+e of a 7si+ent sa+esmen8 in proEecting
the right image of the product.
ackaging is a po*erfu+ communication too+. $t communicates a +ot2 the package
provides the first appea+ to the consumer. 3he actua+ product comes on+y +ater. $ts co+our/
its shape and siDe/ its +a0e+ and +ettering/ the 0rand name/ the materia+ used . they a++
carry some communication.
A+ong *ith package aesthetics/ package siDe and convenience a+so contri0ute to
the tota+ product appea+. Ear+ier/ ond8s Co+d Cream *as coming in a 0ott+e1shaped
container. Su0se=uent+y/ ond8s introduced the Co+d Cream in a Candy tu0e. 3he ne*
package changed the very concept of the product. ?rom a dressing1ta0+e item/ is a+so
0ecome a carry1+ong product.
>arpic +i=uid toi+et c+eaner is another product that has successfu++y e'p+oited the
concept of consumer convenience in packaging. 3he container/ fitted *ith a noDD+e for
c+eaning the toi+et/ given >arpic an advantage over other simi+ar products.
roviding sma++ unit package is a+so a method of going *ith customer preference
and convenience. 3ooth paste/ Shampoo and Coconut oi+ are a++ avai+a0+e no* in sma++
=uantities and sachets. 3he use of sachets gained popu+arity for inducing product tria+s
and for the convenience of fre=uent trave+ers. $n shampoo/ 0rands +ike 7Sunsi+k8 and
7C+inic +us8 have gained a +ot of penetration in the rura+ markets through sachets. 3he
+o* unit price of sachets makes them afforda0+e even to the +o*er end of he market and
he+ps in tria+ and adoption.
roviding reusa0+e container in another *ay of enhancing product appea+.
7)escafe8/ comes in a g+ass Ear *hich cou+d 0e +ater 0e used as a g+ass. 7"ournvita8 and
7>or+icks8 introduced 1 kg hand+e Ear *hich *as much sought 0y the consumers.
%efi++ packaging is a+so re+ated to consumer convenience and economy. Severa+
products +ike "ru/ "ournvita/ >or+icks/ arachute/ Coconut oi+ are not coming refi++
packs. 3he refi++ packs are so+d at a s+ight+y +o*er price than the regu+ar package and that
itse+f serves as a sa+es promotion effort.
!E'ELOPING PACKAGING
,eve+oping an effective package for a ne* products re=uires a +arge num0er of
decisions.
3he first task is to esta0+ish the 7packaging concept8. 3he packaging concept is a
definition of *hat the package shou+d 0asica++y be or do for the particu+ar product.
,ecisions must 0e made on further e+ements of package design . siDe/ shape/
materia+s/ co+our/ te't and 0rand mark.
After the packaging is designed/ it must 0e put through a num0er of tests.
7Engineering tests8 are conducted to ensure that the package stands up under norma+
conditions/ 7<isua+ tests8 to ensure that the script is +egi0+e and the co+our harmonious2
7,ea+er tests8 to ensure that dea+ers find the packages attractive and easy to hand+e/ and
7Consumer tests8 to ensure favoura0+e consumer response.
Marketers must grasp through systematic research/ consumer preferences on the
one hand and the cost and avai+a0i+ity aspects on the other and provide the consumers
*ith the 0est possi0+e packaging. 3hey shou+d a+so remem0er that any change in
packaging must 0e hand+ed carefu++y. ?irms must pay attention/ ho*ever/ to the gro*ing
societa+ concerns a0out po++ution caused 0y packing materia+s and make decisions that
serve society8s interest as *e++ as immediate customer and company o0Eectives.
LA0ELING
Fa0e+ s a sma++ s+ip p+aced on or near the product to denote its nature/ contents/
o*nership etc. $t may range from simp+e tags attached to products to comp+e' graphics
that are part of the package.
Fa0e+ perform severa+ functions9
3he +a0e+ he+ps identify the product or 0rand.
3he +a0e+ might describe severa+ things a0out the product . *ho made it/
*here *as made/ *hen it *as made/ its contents/ ho* t is to 0e used and
ho* to use it safety etc.
$t might promote the product through its attractive design.
KIN!S O, LA0ELS
1. Brand "abels: 3hese +a0e+s are e'c+usive+y meant for popu+ariDing the 0rand
name of the product/ E'amp+e9 Soaps/ Cigarettes.
2. -rade "abels: these +a0e+ give emphasis to standards or grades/ E'amp+e9 ,ust
tea/ C+oth etc.
3. .escri'tive "abels: the +a0e+s *hich are descriptive in nature are ca++ed
descriptive +a0e+s. 3hey descri0e product features/ contents/ method of using it
etc. E'amp+e9 Mi+k/ food products and medicines.
4. !romotional "abels: 3hese +a0e+s aim at attaching the attention/ arousing desire
and creating among the consumers to 0uy the product.
3he marketers shou+d make sure that their +a0e+s contain a++ the re=uired information
0efore +aunching the product.
PRO!-CT-S-PPORT SER'ICES
Customer service is another e+ement of product strategy. More and more
companies are using product1support services as a maEor too+ in gaining competitive
advantage.
Cood customer service is good for 0usiness. $t costs +ess to keep the good*i++ of
e'isting customers that it does to attract ne* customers or *oo 0ack +ost customers.
?irms that provide high1=ua+ity service usua++y outperform their +ess service1oriented
competitors. A study comparing he performance of 0usinesses that had high and +o*
customer ratings of service =ua+ity found that the high1service 0usinesses managed to
charge more/ gro* faster/ and make more profit. C+ear+y/ marketers need to thing
carefu++y a0out their service strategies.
A company shou+d design its product and support services to meet the needs to target
customer. 3he first step in deciding *hich product1support services to offer is to
determine 0oth the services va+ued 0y target consumers and the re+ative importance of
these. Second+y/ the companies has to design the product that rare+y 0reak do*n and are
easi+y f+e'i0+e *ith +itt+e service e'pense.
Civen the importance of customer service as a marketing too+/ may companies
have set up strong customer service operation to hand+e comp+aints and adEustments/
credit service/ maintenance service/ technica+ service and consumer informationM An
active customer service operation coordinates a++ the company8s services/ creates
consumer satisfaction and +oya+ty/ and he+ps the company to further set itse+f apart from
competitors.
RE'IE# 2-ESTIONS3
1. @hat is 0randingM @hat are the reasons for 0randingM
2. @hat do you understand 0y 70rand e=uity8M
3. @hat re the functions of packagingM @hat are the maEor decision areas in
packagingM
4. @hat is +a0e+ingM @hat are the usua+ contents of +e0e+ingM
IIIIIIIIII
LESSON 1 14
PRICING !ECISIONS
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand1
3he meaning for pricing and factors affecting pricing/
3he various pricing o0Eectives2
,ifferent pricing methods2
3he pricing of ne* proEect.
Among the different components of the marketing1mi'/ price p+ays an important
ro+e to 0ring a0out product1market integration. rice is the on+y e+ement in the
marketing1mi' that products revenue.
$n the narro*est sense/ price is the amount of money charges for a product or
service. More 0road+y/ price is the sum of a++ the va+ues that customer e'change
for the 0enefits of having or using the product or service. rice may 0e defined as
the va+ue of product attri0utes e'pressed in monetary terms *hich a customer
pays or is e'pected to pay in e'change and anticipation of the e'pected or offered
uti+ity.
ricing he+ps to esta0+ish mutua++y advantageous economic re+ationship and
faci+ities the transfer of o*nership of goods and services from the company to
0uyers. 3he manageria+ tasks invo+ved in product pricing inc+ude esta0+ishing the
pricing o0Eectives/ identifying the price governing factors/ ascertaining their
re+evance and re+ative importance/ determining product va+ue in monetary terms
and formu+ation of price po+icies and strategies. 3hus/ pricing p+ay a far greater
ro+e in the marketing1mi' of a company and significant+y contri0utes to the
effectiveness and success of the marketing strategy and success of the firm.
,ACTORS IN,L-ENCING PRICING
rice is inf+uenced 0y 0oth interna+ and e'terna+ factors. $n each of these
categories some may 0e econo-mic factors and some psycho+ogica+ factors2 again/ some
factors may 0e =uantitative and yet others =ua+itative.
Internal ,actor in(l&encing pricing$
Corporate and marketing o0Eectives of the firm. 3he common o0 Eectives
are surviva+/ current profit ma'imiDaitn/ market1share +eadership and
product1=ua+ity +eadership.
3he image sough 0y the firm through pricing.
3he desira0+e market positioning of the firm.
3he characteristics of the product.
rice e+asticity of demand of the product.
3he satge of the product on the product +ife cyc+e.
3urn around rate of the product.
Costs of manufacturing and marketing.
roduct differentiation practiced 0y the firm.
Ather e+ements of marketing mi' of the firm and their interaction *ith
pricing.
Consumption of the product +ine of the firm.
E)ternal ,actor In(l&ence Pricing
Market characteristics
"uyers 0ehaviors in respect to the given product.
"argaining po*er of the customer.
"argaining po*er of the maEor supp+iers.
Competitor8s pricing po+icy.
Covernment contro+sG regu+ation on pricing.
Ather re+evant +ega+ aspects
Socia+ considerations.
Jnderstanding/ if any/ reached *ith price carte+s.
PRICING PROCE!-RE
3he pricing procedure usua++y invo+ves the fo++o*ing steps9
1$ !evelop7ent o( In(or7ation 0ae
3he first step in determining the 0asic price of a company8s product:s; is to deve+op
an ade=uate and up1to1date information 0ase on *hich price decisions can 0e 0ased. $t
is composed of decision1inputs such as cost of production/ consumer demand/
industry/ prices and practices/ government regu+ations.
4$ Eti7ating Sale an% Pro(it
>aving deve+oped the information 0ase/ management shou+d deve+op a profi+e of
sa+es and profit at different price +eve+s in order to ascertain the +eve+ assuring
ma'imum sa+es and profits in a given set of situation. @hen this information is
matched against pricing o0Eectives/ management gets the previe* of the possi0+e
range of the achievement of o0Eectives through price component in the marketing1
mi'.
8$ Anticipation o( Co7petitive Reaction
ricing in the competitive environment necessitates anticipation of competitive
reaction to the price 0eing set. 3he co-mpetition for company8s product:s; may arise
from simi+ar products/ c+ose su0stitutes. 3he competitor8s reaction may 0e vio+ent or
su0dued or even none. Simi+ar+y/ the reaction may 0e instant or de+ay. $n order to
anticipate such a variety of reactions/ it is necessary to co++ect information a0out
competitors in respect of their production capacity/ cost structure/ market share and
target consumers.
:$ Scanning T*e Internal Environ7ent
"efore determining the product price it is a+so necessary to scan and understand
the interna+ environment of the company. $n re+ation to price the important factors
to 0e considered re+ate to the production capacity sanctioned/ insta++ed and used/
the ease of e'pansion/ contracting faci+ities/ input supp+ies/ and the state of +a0our
re+ations. A++ these factors inf+uence pricing decisions.
;$ Coni%eration o( Mar+eting-7i) Co7ponent
Another step in the pricing procedure is to consider the ro+e of other components
of the marketing1mi' and *eigh them in re+ation to price. $n respect of product
the degree of perisha0i+ity and she+f1+ife/ shape the price and its structure2 faster
the perisha0i+ity +o*er is +ike+y to 0e the price.
=$ Selection o( Price Policie an% Strategie
3he ne't important step in the pricing procedure is the se+ection of re+evant
pricing po+icies and strategies. 3hese po+icies and strategies provide consistent
guide+ines and frame*ork for setting as *e++ as varying prices to suit specific
market and customer needs.
>$ Price !eter7ination
>aving taken the a0ove referred steps/ management may no* 0e poised for the
task of price determination. ?or determination of price/ the management shou+d
consider the decisions inputs provided 0y the information 0ase and deve+op
minimum and ma'imum price +eve+s. 3hese prices shou+d 0e matched against the
pricing o0Eectives/ competitive reactions/ government regu+ations/ marketing1mi'
re=uirements and the pricing po+icing and strategies to arrive at a price. >o*ever/
it is a+*ays advisa0+e to test the market va+idity of its price during test marketing
to ascertain its match *ith consumer e'pectations.
GENERAL PRICING APPROAC5ES
Companies set prices 0y se+ecting a genera+ pricing approach that inc+udes one or
more of the fo++o*ing three approaches9
:1; 3he cost10ased approach
Cost1+us ricing
"reak1Even Ana+ysis and 3arget1rofit ricing
:2; 3he "uyer10ased approach
erceive1<a+ue ricing
:3; 3he Competition 0ased approach
Coing1%ate ricing
Sea+ed1"id ricing
1$ Cot-Pl& Pricing
3his is the easiest and the most common method of price setting. $n this method/ a
standard mark up is added to the cost of a product to arrive at its price. ?or
e'amp+e/ the cost of manufacturing a fan is %s. 1---G1 adds 25 per cent mark up
and sets the price to the retai+er at %s. 125-G1. 3he retai+er in turn/ may mark it up
to se++ at %s. 135-G1 *hich is 35 per cent market up on cost. 3he retai+er8s gross
margin in %s. 15--G1.
"ut this method is not +ogica+ as it ignores current demand and competition and is
not +ike+y to +ead to the optimum price. Sti++ mark up price is =uite popu+ar for
three reasons9
i; Se++er have more certainty a0out costs than a0out demand and 0y tying the
price to cost/ they simp+ify their pricing task and need not fre=uent+y
adEust price *ith change in demand.
ii; @here a++ firms in the industry use this pricing method/ their prices *i++
simi+ar and price competition *i++ 0e minimiDed to the 0enefit of a+ of
them2
iii; $t is usua++y fe+t 0y many peop+e that cost p+us pricing is fairer to 0uyers as
*e++ as to se++er.
4$ 0rea+-Even Pricing an% Target-Pro(it Pricing
An important cost1oriented pricing method is *hat is ca++ed target1profit pricing
under *hich the company tries to determine the price that *ou+d product the profit it
*ants to earn. 3his pricing method uses the popu+ar 70reak1even ana+ysis8. According
to it/ price is determined *ith the he+p of a 0reak1even chart. 3he 0reak1even charge
depicts the tota+ cost and tota+ revenue e'pected at different sa+es vo+ume. 3he 0reak1
even point on the chart if that *hen the tota+ revenue e=ua+s tota+ cost and the se++er
neither makes a profit nor incurs any +oss. @ith the he+p of the 0reak1even chart/ a
marketer can find out the sa+es vo+ume that he has to achieve. $n order to earn the
targeted profit/ as a+so the price that he has to charge for his product.
0&.er-bae% Approac*
Perceive-'al&e Pricing
Many companies 0ase their price on the products perceived va+ue. 3hey take
0uyer8s perception of va+ue of a product/ and not the se++er8s cost/ as the key to
pricing. As a resu+t/ pricing 0egins *ith ana+yDing consumer needs and va+ue
perceptions/ and price is set to match consumers8 perceived va+ue.
Such companies use the non1price varia0+es in their marketing mi' to 0ui+d up
perceived va+ue in the 0uyer8s minds/ e.g. heavy advertising and promotion to
enhance the va+ue of a product in the minds of the 0uyers. 3hen they set a high price
to capture the perceived va+ue. 3he success of this pricing method depends on and
determination of the market8s perception of the product8s va+ue.
Co7petition-bae% Approac*
1$ Going Rate Pricing
Jnder this method/ the company 0ases its prices +arge+y on competitor8s prices
paying +ess attention to its o*n costs or demand. 3he company might charge the
same prices as charged 0y its main competitors/ or a s+ight+y higher or +o*er price
than that. 3he sma++er firms in an industry fo++o* the +eading firm in the industry
and change their prices *hen the market +eader8s prices changes. 3he marketer
thinks that the going price ref+ects the co++ective *isdom of the industry.
2. Sea+ed1"id ricing
3his is a competitive oriented pricing/ very common in contract 0usinesses *here
firms 0id for Eo0s. Jnder it/ a contractor 0ases his price on e'pectations of ho*
competitors *i++ price rather than on a strict re+ation to his cost or demand. As the
contractor *ants to *in the contract/ he has to price the contract +o*er than the
other contractors. "ut a 0idding firm cannot set its price 0e+o* costs. $f it sets the
price much higher than the cost/ its chance of getting the contract *i++ 0e +esser.
PRICING O0GECTI'ES
A 0usinesses firm *i++ have a num0er of pricing o0Eectives. Some of them are
primary2 some of them are secondary2 some of them are +ong1term *hi+e others are short1
term. >o*ever/ a++ pricing o0Eectives emanate from the corporate and marketing
o0Eectives of the firm.
Some of the pricing o0Eectives are discussed 0e+o*9
1. ricing for a target return.
2. ricing for market penetration.
3. ricing for market skimming.
4. ,iscriminatory pricing
5. Sta0i+iDing pricing.
1. Pricing (or a target ret&rn.
3his is a common o0Eectives found *ith most of the esta0+ished 0usiness firms.
>ere/ the o0Eective is to earn a certain rate of %eturn An $nvestment :%A$; and the
actua+ price po+icy is *orked out to earn that rate of return. 3he target is in terms
of 7return on investment8. 3here are companies *hich set the target at/ for
e'amp+e/ 2-U return on investment after ta'es. 3he target may 0e for a short1term
or a +ong1term. A firm a+so may have different targets for its different products
0ut such targets are re+ated to a sing+e overa++ rate of return target.
4$ Pricing (or 7ar+et penetration$
@hen companies set a re+ative+y 7+o* price8 on their ne* product in initia+ stages
hoping to attract a +arge num0er of 0uyers and *in a +arge market1share it is
ca++ed penetration pricing po+icy. 3hey are more concerned a0out gro*th in sa+es
than in profits. 3heir main aim is capturing and to gain a strong footho+d in the
market. 3his o0Eect can *ork in a high+y price sensitive market. $t is a+so done
*ith the presumption that unit cost *i++ decrease *hen the +eve+ of sa+es reach a
certain target. "esides/ the +o*er price may make competitors to stay our. @hen
market share increases considera0+y/ the firm may gradua++y increase the price.
8$ Pricing (or 7ar+et +i77ing$
Many companies that +aunch a ne* product set 7high prices8 initia++y to skim the
market. 3hey set the highest price they can charge given the comparative 0enefits
of their product and the avai+a0+e su0stitutes. After the initia+ sa+es s+o* do*n/
they +o*er the price to attract the ne't price1sensitive +ayer of customer.
:$ !icri7inator. pricing
Some companies may fo++o* a differentia+ or a discriminatory pricing po+icy1
charging different prices for different customers or a++o*ing different discounts to
different 0uyers.
,iscrimination may 0e practices on the 0asis or product or p+ace or time. ?or
e'amp+e/ doctors may charge different fees for different patients2 rai+*ays charge
different fares for usua+ passengers and regu+ar passengersG students.
Manufacturers may offer =uantity discounts or =uote different +ist prices to 0u+k1
0uyers/ institutiona+ 0uyers and sma++ 0uyers.
;$ Stabili9ing pricing$
3he o0Eective of this pricing po+icy is to prevent fre=uent f+uctuations in pricing
and to fi' uniform or sta0+e price for a reasona0+e period. @hen price is revised/
the ne* price *i++ 0e a++o*ed to remain for sufficient+y a +ong period. 3his pricing
po+icy is adopted/ for e'amp+e/ 0y ne*spapers and magaDines.
NE# PRO!-CT PRICING
ricing a ne* product is an art. $t is one of the most important and daDD+ing
marketing pro0+ems faced 0y a firm. 3he introduction of a ne* product may invo+ve
some pro0+ems in as much as there neither an esta0+ished market for the product nor a
demonstrated demand for it. 3he firm may e'pect a su0stantia+ demand for the product
though it is yet to 0e esta0+ished. Even if there are some near su0stitutes the actua+ degree
of su0stitution has to 0e estimated. Again/ there may 0e no re+ia0+e estimate of the direct
costs of marketing and manufacturing the product.
Moreover/ the cost patterns are +ike+y to change *ith greater kno*+edge and
increasing vo+ume of production. 6et the 0asic pricing po+icy for a ne* product is the
same as for esta0+ished product . it must cover fu++ in the +ong run and direct costs in the
short run. Af course/ there is greater uncertainty ao0ut 0oth the demand and costs of the
product.
Apart from the pro0+em of estimating the demand for an entire+y ne* product/
certain other initia+ pro0+ems +ike+y to 0e faced are9
1; ,iscovering a competitive range of price.
2; $nvestigating pro0a0+e sa+es at severa+ possi0+e prices/ and
3; Considering the possi0i+ity of re+ation from products su0stituted 0y itG
$n addition/ decisions have to 0e taken on market targets/ design/ the promotiona+ strategy
and the channe+s of distri0ution.
3est marketing can 0e he+pfu+ in deciding the suita0+e pricing po+icy. Jnder test
marketing/ the product is introduced in se+ected areas/ often at different prices in deferent
areas. 3hese tests *i++ provide the management an idea of he amount and e+asticity of the
demand for the product/ the competition it is +ike+y to face/ and the e'pected sa+es vo+ume
and profits simu+ation of fu++1sca+e production and distri0ution. 6et it may provide very
usefu+ information for 0etter p+anning of the fu++1sca+e effort. $t a+so permits initia+ pricing
mistakes to 0e made on sma++ rather than on a +arge sca+e.
3he ne't important =uestion is 4*hether to charge high initia+ price or a +o*
penetration price5.
A *ig* Initial Price AS+i77ing PriceB
A high initia+ price/ together *ith heavy promotiona+ e'penditure/ may 0e used to
+aunch a ne* product if conditions are appropriate. ?or e'amp+e9
:a; ,emand is +ike+y to 0e +ess price e+astic in the ear+y stages than +ater/ since high
prices are un+ike+y to deter pioneering consumers. A ne* product 0eing a nove+ty
commands a 0etter price.
:0; $s the +ife of the products promises to 0e a short one/ a high initia+ price he+ps in
getting as much of it and as fast as possi0+e.
:c; Such a po+icy can provide the 0asis for dividing the market into segments to
differing e+asticities. "ound edition of a 0ook is usua++y fo++o*ed 0y a paper 0ack.
:d; A high initia+ price may 0e use4fu+ if a high degree of production ski++ is needed
to make the product so that it is difficu+t and time consuming for competitors to
enter on an economica+ 0asis.
:e; $t is a safe po+icy *here e+asticity is not kno*s and the product not yet accepted.
>igh initia+ price may finance the heavy costs of introducing a ne* product *hen
uncertainties 0+ock the usua+ sources of capita+.
A Lo/ Penetration Price
$n certain conditions/ it can 0e successfu+ in e'panding market rapid+y there0y
o0taining +arger sa+es vo+ume and +o*er unit costs. $t is appropriate *here9
:a; there is high short1run price e+asticity2
:0; there are su0stantia+ cost savings from vo+ume production2
:c; the product is accepta0+e to the mass of consumers2
:d; there is no strong patent protection2 and
:e; there is a threat of potentia+ competition so that a 0ig share of the market must
0e captured =uick+y.
3he o0vEective of +o* penetratioEn price is to raise 0arriers against the entry of
prospective competitors. Stay1out pricing is appropriate9
i; *here are tota+ demand is e'pected to 0e sma++. $f the most
efficient siDe of the p+ant is 0ig enough to supp+y a maEor portion
of the demand/ a +o*1price po+icy can capture the 0u+k of the
market and successfu++y ho+d 0ack +o*1cost competition.
ii; @hen potentia+ of sa+es appears to 0e great/ prices must 0e set as
their +ong1run +eve+. $n such cases/ the important potentia+
competitor in a +arge mu+ti1product firm for *hom the product in
=uestion is pro0a0+y margina+. 3hey are norma++y confident that
they can get their costs do*n to competitor8s +eve+ if the vo+ume of
product is +arge.
PRO!-CT-MI@ PRICING STRATEGIES
3he strategy for setting a proEect8s price often has to 0e changed *hen the product
is apart of a product mi'. $n this case/ the firm +ooks for a set of prices that ma'imiDes the
profits on the tota+ product mi'. ricing is difficu+t 0ecause the various products have
re+ated demand and costs and face different degrees of comp+etion.
Pro%&ct-7i) Pricing Sit&ation
Pro%&ct Line Pricing
Companies usua++y deve+op product +ines rather than sing+e products. $n product
+ine pricing/ management must decide on the price steps to 0e set 0et*een the various
products in a +ine.
3he price steps shou+d take into account cost differences 0et*een the products in
the +ine/ customer eva+uations of their different features/ and competitor8s prices. if the
price difference 0et*een t*o successive products is sma++/ 0uyers usua++y *i++ 0uy the
more advanced product. 3his *i++ increase company profits if the cost difference is
sma++er that the price difference. $f the price difference is +arge/ ho*ever/ customers *i++
genera++y 0uy the +ess advanced products.
Optional-Pro%&ct Pricing
Many companies use optiona+1product pricing . offering to se++ optiona+ or
accessory products a+ong *ith their main product. ?or e'amp+e/ a car 0uyer may
choose to order po*er *ido*s/ centra+ +ocking system/ and *ith a C, p+ayer.
ricing these options is a sticky pro0+em. Automo0i+e companies have to decide
*hich items to inc+ude in the 0ase price and *hich to offer as options. 3he
economy mode+ *as stripped of so many comforts and conveniences that most
0uyers reEected it. More recent+y/ ho*ever/ Cenera+ Motors has fo++o*ed the
e'amp+e of he Papanese auto makers and inc+uded in the sticker price many usefu+
items previous+y so+d on+y as options. 3he advertised price no* often represents a
*e++1e=uipped car.
Captive-Pro%&ct Pricing3
Companies that make products that must 0e used a+ong *ith a man product are
using captive1product pricing. E'amp+es of captive products are raDor 0+ades/ camera
fi+m/ and computer soft*are. roducers of the main products :raDors/ cameras/ and
computers; often price them +o* and set high markups on the supp+ies. 3hus/ Bodak
prices its cameras +o* 0ecause it makes its money on the fi+m it se++s.
$n the case of services/ this strategy is ca++ed two$part pricing. 3he price of the
service is 0roken into a fi-ed fee p+us a variable usage rate. 3hus/ a te+ephone company
charges a month+y rate . the fi'ed fee . p+us charges for ca++s 0eyond some minimum
num0er . the varia0+e usage rate. 3he service firm must decide ho* much to charge for
the 0asic service and ho* much for the varia0+e usage. 3he fi'ed amount shou+d 0e +o*
enough to induce usage of the service/ and profit can 0e made on the varia0+e fees.
0.-Pro%&ct Pricing3
$n producing petro+eum products/ chemica+s and other products/ there are often
0y1products. $f the 0y1products have not va+ue and if getting rid of them is cost+y/ this
*i++ affect the pricing of the main product. Jsing 0y1product pricing/ the manufacturer
*i++ seek a market for these 0y1products and shou+d accept any price that covers more
than the cost of storing and de+ivering them. 3his practice a++o*s the se++er to reduce the
main product8s price to make it more competitive. "y products can even turn out to 0e
profita0+e.
Pro%&ct-0&n%le Pricing3
Jsing product10und+e pricing/ se++ers often com0ine severa+ of their products and
offer the 0und+e at a reduced price. 3hus computer makers inc+ude attractive soft*are
packages *ith their persona+ computers. rice 0und+ing can promote the sa+es of products
consumers might not other*ise 0uy/ 0ut the com0ined price must 0e +o* enough to get
them to 0uy the 0und+e.
PRICE-A!G-STMENT STRATEGIES
Companies usua++y adEust their 0asic price for various customer differences and
changing situations.
T.pe o( Price-A%j&t7ent Strategie
:1; .iscount and %llowance Pricing: %educing prices to re*ard customer response
such as paying ear+y or promoting the product.
:2; *egment Pricing: AdEustment prices to a++o* for differnecs in customers/ product/
or +ocating.
:3; Psychological Pricing: AdEusting prices for psycho+ogica+ effort.
:4; Promotional Pricing: 3emporari+y reducing prices to increase short1run sa+es.
:5; 0alue Pricing: AdEusting prices to offer the right com0ination of =ua+ity and
service at a fair price.
:!; "eographical Pricing: AdEusting prices to account for the geographic +ocation of
customers.
:#; International Pricing: AdEustment prices for internationa+ markets.
!ico&nt an% Allo/ance Pricing3
Most companies adEust their 0asic price to re*ard customers for certain responses/
such as ear+y payment of 0i++s/ vo+ume purchases and off1season 0uying. 3hese price
adEustments . ca++ed discounts and a++o*ances . can take many forms.
A cash discount is a price reduction to 0uyers *ho pay their 0i++s prompt+y. A
3uantity discount is a price reductions to 0uyers *ho 0uy +arge vo+umes. A seasonal
discount is a price reduction to 0uyers *ho 0uy merchandise or services out of season.
A trade discount is offered 0yt eh se++er to trade channe+ mem0ers *ho perform
certain functions/ such as se++ing/ storing and record1keeping. Manufacturers may offer
different functiona+ discounts to different trade channe+s 0ecause of the varying services
they perform.
%llowances are another type of reduction from the +ist price. 3rade a++o*ance is
given/ for e'amp+e/ or e'change offers. Promotional allowances are payment or price
reductions to re*ard dea+ers for participating in advertising and sa+es1support programs.
Seg7ente% Pricing
Companies often adEust their 0asic prices to a++o* for differences in customers/
products and +ocations. $n segmented pricing/ the company se++s a product or service at
t*o or more prices/ even though the difference in prices is not 0ased on differences in
costs. Segmented pricing takes severa+ forms.
Customer$segment pricing 9 ,ifferent customers pay different prices for the same
product or service. %ai+*ays/ for e'amp+e/ charge a concessiona+ fare to chi+dren and
senior citiDens.
Product$form pricing: ,ifferent version of the product are period different+y/ 0ut
not according to differences in their costs.
1ocation pricing: ,ifferent +ocations are priced different+y/ even though the cost
of offering each +ocation is the same. ?or instance/ theaters vary their seat prices 0ecause
of audience preferences for certain +ocations/ and state universities charge high tuition fee
for foreign students.
'ime pricing: rices vary 0y the season/ the month/ the day/ and even the hour.
u0+ic uti+ities vary their prices to commercia+ users 0y time of day and *eekend versus
*eekday. 3he te+ephone company offers +o*er 4off1peak5 charges.
P.c*ological Pricing3
rice says something a0out the product. ?or e'amp+e/ many consumers use price
to Eudge =ua+ity. $n using psycho+ogica+ pricing/ se++ers consider the psycho+ogy of prices
and not simp+y the economics. ?or e'amp+e/ one study of the re+ationship 0et*een price
and =ua+ity perceptions of cards found that consumers perceive higher1priced card as
having higher =ua+ity. "y the same token/ higher =ua+ity cars are perceived to 0e even
higher priced than they actua++y are.
Another aspect of psycho+ogica+ pricing is reference prices . prices that 0uyers
carry in their minds and refer to *hen +ooking at a given product. 3he reference price
might 0e formed 0y noting current prices/ remem0ering past prices/ or assessing the
0uying situation. Se++ers can inf+uence of use these consumers8 reference prices *hen
setting price. ?or e'amp+e/ a company cou+d disp+ay its product ne't to more e'pensive
ones in order to imp+y that it 0e+ongs in the same c+ass.
Pro7otional Pricing3
@ith promotiona+ pricing/ companies *i++ temporari+y price their products 0e+o*
+ist price and sometimes even 0e+o* cost. romotiona+ pricing takes severa+ forms.
Supermarkets and departments stores *i++ price a fe* products as loss leaders to attach
customers to the store in the hope that they *i++ 0uy other items at norma+ markups.
Se++ers *i++ a+so use special event pricing in certain seasons to dra* more customers.
'al&e Pricing
Marketers adopt va+ue pricing strategies . offering Eust the right com0ination to
=ua+ity and good service at a fair price. $n many cases/ this has invo+ved the introduction
of +ess e'pensive versions of esta0+ished/ 0rand name products.
Geograp*ical Pricing
A company must a+so decide ho* to price its products to customers +ocate in
different parts of the country or *or+d. 3here are five geographica+ pricing strategies.
1; &+ Pricing: 3his means the goods are p+aced free on board a carrier.
2; 4niform .elivered Pricing: 3he Company charges the same price p+us freight
to a++ customers/ regard+ess of their +ocation.
3; 5one Pricing: A++ customers *ithin a given Done pay a sing+e tota+ price2 the
more distant the Done/ the higher the price.
4; asing$point pricing: 3he se++er se+ects a given city as a 40asing point5 and
charges a++ customers the freight cost from that city to the customer +ocation/
regard+ess of the city from *hich the goods actua++y are shipped.
5; &reight$absorption Pricing: 3he se++ers a0sor0s a++ or part of the actua+ freight
charges in order to get the desired 0usiness.
International Pricing3
Companies that market their products internationa++y must decide *hat prices to
charge in the different countries in *hich they operate. $n some cases/ a company can set
a uniform *or+d*ide price.
A!MINISTERE! PRICE
$n rea+ +ive 0usiness situations/ product price is nto determined as envisaged in the
price theory/ 0ut is administered 0y the company8s management. An administered or
administrative price is set 0y a company officia+ in contrast to the competitive market
prices descri0ed in theory. Administered price may/ therefore/ 0e defined as the price
resu+ting from manageria+ decisions of the company. ?rom this/ the fo++o*ing
characteristics of the administrated price emerge9
:1; rice determination is a conscious and de+i0erate administrative action rather
than a resu+t of the demand and supp+y interaction.
:2; Administered price is fi'ed for a period of time or for a series of sa+e
transactions2 it does not fre=uent+y change.
:3; 3his price is usua++y not su0Eect to negotiation2 price structure incorporating
differentiation2 price structure incorporating different variations may/
ho*ever/ 0e deve+oped to meet specific consumer needs.
3he administrative price is set 0y management after considering a++ re+evant factors
impinging on it/ viD/ cost/ demand and competitors8 reactions. Since a++ companies set
administrative prices on more or +ess identica+ considerations/ the prices in respect of
simi+ar products avai+a0+e in the market tend to 0e uniform. 3he competition/ therefore/ is
0ased on non1price differentiation through 0randing/ packaging and advertising/ etc. $t is
*ith this administrative price that marketers are concerned *ith and/ as natura+ coro++ary/
our *on concern throughout the su0se=uent pages *i++ 0e *ith the administrative price.
REG-LATE! PRICE
3he concept of administrative price may possi0+y impart a notion that a company
is free to fi' *hatever price if deems fit and 0uyer have 0ut one choice . either to 0uy or
not to 0uy. "ut in rea+ +ife situation it is not +ike this. ?or fear of damages to consumer
and nationa+ interests/ administered prices are su0Eect to state regu+ation. 3herefore/
*henever the administered price is et and managed *ithin the state regu+ation it is termed
as regu+ated price. $t may assume t*o forms. ?irst/ the price may 0e set 0y some State
agency/ say/ the "ureau of $ndustria+ Cost a and rices or the 3ariff Commission and the
company Eust accepts it as given. Second/ the price may 0e set 0y a company *ithin the
frame*ork or on the 0asis of the formu+a given 0y the State. $n $ndia companies/ for
e'amp+e/ the ferti+iDer/ a+uminium and stee+ industries se++ their products at prices fi'ed
0y the government/ *hi+e companies/ for e'amp+e/ the cotton te'ti+e industry se++
products at the price fi'ed on the 0asis of a given formu+a.
$n conc+usion/ it may 0e said that in the rea+ +ife $ndian 0usiness situation it is the
7regu+ated administrative price8 that is re+evant for companies and at *hich products are
offered for sa+e to target consumers.
PRICING O'ER T5E PRO!-CT LI,E C6CLE
3he price po+icy can 0e considered in terms of product +ife cyc+e. A ne* product/
*ith no competitors has an advantage/ and therefore/ market skimming po+icy may 0e
app+ied. 3his po+icy is aimed at getting the 7cream8 of the market :the top of the demand
curve; at a high 0efore catering to the more price1sensitive segments of the market. $n
the initia+ stages the skimming po+icy can 0e usefu+ for getting a 0etter understanding of
the e'tent of demand or consumer response as *e++ as to earn ade=uate+y to cover the
product deve+opment costs. 3he po+icy may then +ead to s+o* reduction of the price *ith
a vie* to e'pand the market. ?or the ne* company :as compared *ith the ne* product;
producting a product in the maturity stage/ the preferred o0Eect *ou+d 0e penetration
pricing . the opposite of skimming. 3his is unavoida0+e *hen the *ho+e demand is
e+astic and the ne* entrant company8s first aim is to gain entry/ a standing or recognition
in the market even at a +oss for a short period. 3his po+icy may a+so 0e app+ied for ne*
product/ if the firms e'pects serious competition very soon after introduction.
?ina++y/ it may 0e said 7there is not *ay in *hich the various factors ana+yDed
ear+ier can 0e fed into a computing machine to determine the 7right8 price. $ndividua+
factors assume varying importance at different times. "asica++y it is the Eudgment of the
price marker *hich is the cata+ytic agent that fuses these various factors into a fina+
decision concerning price. ricing is an art/ not a science. 3he 7fee+8 of the market of the
price market is far more significant than his adeptness *ith a ca+cu+ating machine.
GO'ERNMENT CONTROL ON PRICING
rice contro+s refer to the Covernmenta+ regu+ations in respect of price fi'ation.
Jsua++y statutory price contro+ entai+s imposition of price cei+ing so that it does
nto e'ceeds consumer capacity to pay. Current+y for e'amp+e/ the price of petro+ in under
statutory price contro+s. 3he firs manufacturing these products are assured retention
prices *hich are 0ased on costs/ and ensure fair return on investment.
$n case of sugar/ a dua+ pricing system has 0een introduced. Jnder this system/ a
manufacturer is re=uired to compu+sori+y se++ a part of its production to the Covernment
at su0stantia++y +o* prices/ ca++ed +evy price.
3he rest of production may 0e so+d in the open market as a price the firm deems
fit. 3he statutory price contro+ a+so envisages the announcement of 7support price8 for
certain agricu+tura+ products +ike cotton/ food grains etc/ so as to protect cu+tivators from
price f+unctuation.
<o+untary price contro+ envisages formu+ation of price contro+ measures 0y the
respective industry association under the direction of and according to the guide+ines 0y
the Covernment.
Revie/ 2&etion3
1. @hat are the factors affecting pricingM
2. ,iscuss the various pricing o0Eectives.
3. @hat are the methods of pricing the ne* productsM
Fesson . 13
Channe+ ,ecisions
Fearning A0Eectives
After reading this +esson/ you shou+d 0e a0+e to understand .
3he types and functions of the marketing intermediaries2
3he factors affecting the choice of distri0ution channe+s2
3he channe+s conf+ict and cooperation2
3he channe+ design decision2
hysica+ distri0ution and +ogistics management2
%etai+ing esta0+ishment2
Channe+s of ,istri0ution are the most po*erfu+ e+ement among marketing mi'
e+ements. 3he main function of this e+ement is to find out appropriate *ays
through *hich goods are made avai+a0+e to the market. $t is a manageria+ function
and hence proper decisions are to 0e taken in this matter.
@hen the product is fina++y ready for the market/ it has to 0e determined *hat
methods and routes *i++ 0e used to 0ring the product to the market/ i.e. to u+timate
consumers and industria+ users. 3his process invo+ves esta0+ishing distri0ution
and providing for physica+ hand+ing a distri0ution. ,istri0ution is concerned *ith
various activities invo+ved in the transfer of o*nership from the producer to the
consumer.
A channe+ of distri0ution for a product is the route taken 0y the goods as they
move from the organisation to the u+timate consumer or user.
!E,INITION
Cundiff E.@. and Sti++ %.S. define a marketing channe+ as 4a path traced
in the direct or indirect transfer of tit+e to a product/ as it move from a producer to
u+timate consumes or industria+ users5.
According to American Marketing Association/ 4A channe+ of
distri0ution/ or marketing channe+ is the structure of intra1company organisation
units and e'tra1company agents and dea+ers *ho+esa+e and retai+/ through *hich a
commodity/ product or service is marketed.5
hi+ip Bot+er difines a marketing channe+ as 4the set of firms and
individua+s/ that take tit+e/ or assist in transferring tit+e/ to the particu+ar goods or
services as it moves from the producer to the consumers.5
A distri0ution channe+ is 4a set of interdependent organiDations invo+ved
in the process of making a product or service avai+a0+e for use ro consumption 0y
the consumer of 0usiness user.5
3hus/ it may 0e noted that every marketing channe+ contains one or more
of the 7transfer points8 at each of *hich there is either an institution or a fina+
0uyer of the product. ?rom the vie* point of the producer/ such a net*ork of
institutions used for reaching a market is kno*n as a marketing channe+.
A channe+ a+*ays inc+udes 0oth the producer and the fina+ customer of the
product/ as *e++ as agents and midd+emen invo+ved in the transfer of tit+e.
>o*ever/ the channe+ does not inc+ude firms such a 0ank/ rai+*ays and other
institutions *hich render a marketing service/ 0ut p+ay no maEor ro+e in purchase
and sa+es. $f a consumer 0uys rice from the cu+tivator/ or if the pu0+isher se++s a
0ook 0y main direct to a +ecturer/ the channe+ is from producer to consumer. An
the other hand/ if the pu0+isher se++s 0ooks to 0ookse++ers *ho in turn se++ to the
students and teachers are channe+ is from producer1retai+er1consumer.
C5ANNEL ,-NCTIONS
3he primary purpose of a distri0utive channe+ is to 0ridge the gap 0et*een
producers and users 0y removing differences 0et*een supp+y and demand. ?or
this/ certain essentia+ functions need to 0e performed. 3hey are9
1. Information: gathering and distri0uting marketing research and inte++igence
information a0out actors and forces in the marketing environment needed for
p+anning and aiding e'change.
2. Promotion: deve+oping and spreading persuasive communications a0out an offer.
3. Contact: finding and communicating *ith prospective 0uyers
4. Matching: shaping and fitting the offer to the 0uyer8s needs/ inc+uding such
activities as manufacturing/ grading/ assem0+ing and packaging.
5. /egotiation: reaching an agreement on price and other terms of the offer so that
o*nership or possession can 0e transferred.
Athers he+p to fu+fi++ the comp+eted transactions.
!. Physical distribution: transporting an storing goods.
#. &inancing: ac=uiring and using funds to cover the costs of the channe+ *ork.
&. !isk taking: assuming the risks of carrying our the channe+ *ork.
3he importance of these functions varies depending upon the nature of the goods
themse+ves. ?or e'amp+e9 transportation and storage tend to predominate in the
case of 0u+ky ra* materia+s such as coa+/ petro+eum products and iron one/ *here
price and specification are standardiDed and the market comprises a +imited
num0er of 0uyers and se++ers. As the comp+e'ity of the product increases/ the
provision of information and product service 0ecomes predominant2 for e'amp+e/
computers/ automo0i+es etc. 3herefore/ it is necessary to consider the precise
nature of the product and the se++er10uyer re+ationship to determine their re+ative
importance.
MAGOR C5ANNELS O, !ISTRI0-TIONS
3here are a num0er of channe+s of distri0ution avai+a0+e to the producer
*hich may 0e emp+oyed 0y him to 0ring his products to the market.
!itrib&tion o( Con&7er Goo%
Consumer goods may 0e distri0uted genera++y through various channe+s. 3he
channe+s used are9
i; roducer to Consumer
ii; roducer1%etai+er1Consumer
iii; roducer1@ho+esa+er1%etai+er1Consumer.
iv; roducer1@ho+esa+er1Po00er1%etai+er1Consumer.
!itrib&tion o( In%&trial Goo%
$ndustria+ goods are distri0uted 0y manufacturer/ through four important channe+s/
a+though he may a+so use his sa+es 0rand or sa+es office for the purpose.
i; Producer$Industrial 4ser: 3hrough this direct channe+ are so+d/ +arge
insta++ations +ike generators/ p+ants etc. to users.
ii; Producer$Industrial distributor$4ser: 3hrough this channe+ are so+d
operating supp+ies and sma++ accessory e=uipment/ such as 0ui+ding
materia+/ construction e=uipment/ air1conditioning e=uipment.
iii; Producer$%gent$ 4ser: 3his channe+ is often used *hen a ne* product is
introduced/ or a ne* market is entered.
iv6 Producer$%gent$Industrial distributor$4ser
,ACTORS A,,ECTING T5E C5ANNELS O, !ISTRI0-TION
A +arge num0er of channe+s of distri0ution are avai+a0+e to the manufacturer for
0ringing his product to the u+timate consumer. ?rom this vast num0er of potentia+
distri0ution arrangements/ the marketing e'ecutive must screen those that may 0e
appropriate for distri0ution of the product at +east e'pense per unit of merchandise and
*hich secure the desired vo+ume of sa+es.
Efficient distri0ution at the +east cost and attaining the desired vo+ume of sa+e can
0e secured on+y after e'perience/ study and ana+ysis. 3he notice of the product/ its unit
va+ue/ its technica+ features/ its degree of differentiation from competitive products etc./
are the factors *hich may +imit the num0er of potentia+ channe+ a+ternatives.
3he 0est channe+ is one that *orks 0est in the marketing strategy se+ected 0y the
company. 3he channe+ chosen shou+d achieve idea+ market e'posure and shou+d meet
target customer8s needs and preferences.
3he channe+ choice is inf+uenced 0y1
,istri0ution o+icy
roduct Characteristics
Supp+y Characteristics
Customer Characteristics
Midd+emen Characteristics
Company Characteristics
Environmenta+ Characteristics
Cost of Channe+
!itrib&tion Polic.
A firm8s distri0ution po+icy may 0e of intensive distri0ution se+ective distri0ution
or e'c+usive distri0ution.
$ntensive distri0ution refers to ma'imum distri0ution though every possi0+e type
of out+et. 3his po+icy re=uires the use of more thant one channe+ to reach the target
market *ith many intermediaries.
Se+ective distri0ution is the sa+e of product through on+y those out+ets *hich *i++
0e a0+e to se++ more products.
E'c+usive distri0ution invo+ves granting of e'c+usive rights to the channe+
mem0er to distri0ute the products. 3hus the distri0ution po+icy of the firm decides the
choice of a channe+.
Pro%&ct C*aracteritic
3he product Characteristics such as the use of the product/ its fre=uency of
purpose/ perisha0i+ity/ va+ue/ the service re=uired etc. decide the channe+.
?or e'amp+e/ perisha0+e products re=uire more direct marketing2 convenience
goods such as soaps/ match 0o' *hich are fre=uent+y purchased and +o* unit va+ue
re=uire +ong channe+. Shopping goods such as refrigerator re=uire se+ective channe+.
S&ppl. C*aracteritic
Sma++ num0er of producers/ geographica++y concentrated use short channe+. $f the
num0er of products are +arge/ and geographica++y dispersed/ they use +ong channe+.
C&to7er C*aracteritic
Customer characteristics such as their num0er/ geographica+ dispersion/ fre=uency
and regu+arity of purchase great+y inf+uence the channe+ se+ection.
Mi%%le7en C*aracteritic
3he choice of channe+ is a+so depends on the strengths and *eaknesses of various
types of midd+emen performing various marketing functions. 3heir 0ehavioura+
differences/ product +ines/ the num0er and +ocations affect the choice of the channe+.
Co7pan. C*aracteritic
3he choice of channe+ is a+so inf+uenced 0y company charachericsits such as its
financia+ position/ siDe/ product mi'/ past channe+ e'perience etc. 3he company
marketing po+icies such as speedy de+ivery/ after1sa+es services etc. a+so inf+uence the
choice of channe+s.
Environ7ental c*aracteritic
Environmenta+ characteristics such as economic conditions and +a* a+so inf+uence
the channe+ se+ection. ?or e'amp+e/ *hen economic conditions are depressed the products
prefer shorter channe+s to reduce cost.
Cot o( C*annel
As each channe+ *i++ 0e doing some of the marketing functions/ the cost of
performing such marketing functions at each distri0ution +eve+ and the tota+ cost of
performing the entire marketing task has an inf+uence in the choice of the channe+. 3hose
channe+s *hich ensure efficient distri0ution at +east e'pense and *hich secure the desired
vo+ume of sa+es shou+d 0e chosen.
,-NCTIONS O, MI!!LEMEN
3he midd+emen main+y/ comprised of *ho+esa+ers and retai+ers. 3he *ord
7*ho+esa+er8 means 7to market goods in re+ative+y +arger =uantities and *ho usua++y does
not se++ to u+timate consumers8.
Service Ren%ere% b. t*e #*olealer to t*e Man&(act&rer
1. Securing orders from +arge num0er of retai+ers.
2. %educing the manufacturer8s need for carrying +arge stocks and incurring
*arehousing e'penses.
3. Saving the manufacturer from the risk of credit sa+es *ith numerous customers.
4. articipation in sa+es promotion and advertising tasks of the manufacturers.
5. Acting as the interpreter of consumer needs and opinions.
!. >e+ping the manufacturers for continuous production.
#. 3aking over the marketing functions from the manufacturer/ thus ena0+ing him to
concentrate on production.
Service to t*e Retailer
1. %e+ieving the retai+ers to ho+d +arge stocks.
2. rompt de+ivery of goods to the retai+ers
3. 3he *ho+esa+er *ho specia+ists in one +ine of goods can offer 0etter advise to the
retai+er regarding the =ua+ity of goods.
4. Crant credit to the retai+ers.
5. $nforming and inf+uencing the retai+ers to 0uy ne* products.
!. Sharing the risk invo+ved in marketing.
Retailer
%etai+er is the +ast +ink in the channe+ of distri0ution. >e se++s the commodities to
the u+timate customer. As an intermediary 0et*een the manufacturerG *ho+esa+er and the
consumer he is performing the fo++o*ing services.
1. >e makes avai+a0+e *ide assortment of goods to give consumers.
2. >e keeps ready stock to meet the day to day demands of the customers.
3. >e 0rings ne* products and ne* varieties to the consumers.
4. >e offers e'pert advice to the consumers regarding suita0i+ity of product.
5. >e is a0+e to ascertain first hand needs and re=uirements and reactions of
consumers.
!. >e undertakes sa+es promotion activities.
#. >e e'tends credit faci+ities.
&. >e maintain persona+ contact *ith consumers and e'ercises considera0+e
inf+uence on their 0uying decisions.
Eli7ination o( Mi%%le7en
Midd+emen are use 0y the manufacturers 0ecause they can perform the market functions
more economica++y and more effective+y than the manufacturer as a give cost.
?urther the manufacturer does not have the a0i+ity to perform those functions and or
0ecause he does not posses ade=uate financia+ resources to perform them defective+y.
Even those producers *ho have re=uired financia+ resources to se++ direct+y to fina+
consumers often can earn a greater return 0y increasing their investment in other aspects
of 0usiness. 3he e+ement of risk a+so arises here. ,irect se++ing invo+ves o*ning
*arehouses/ de+ivery e=uipments and sa+es personne+. 3hese invo+ve fi'ed costs and
increase the risk. "ut if midd+emen are used/ these risks are 0orne 0y the midd+emen.
3hese midd+emen 0y virtue of their specia+iDation and e'perience may do the Eo0 0etter
than the producer.
$t is a *rong notion to 0e+ieve that goods are marketed cheap+y *here midd+emen
are not used. 3he e+imination of midd+emen does not mean the e+imination of the
marketing functions. 3he functions are to 0e performed and the issue is *ho shou+d
perform it is +arge+y one of re+ative efficiency and effectiveness. 3herefore/ one of the
reasons the producer does not choose to perform a num0er of specific marketing
functions is that the midd+emen through their specia+iDation may perform it at +ess cost.
>ence it is not possi0+e to e+iminate the midd+emen from the channe+ and it is *rong to
0+ame them as parasites on the society 0y pointing to the difference 0et*een the fina+
price and the producers8 price. $t is on+y *hen the midd+emen take advantage of shortage
and consumer ignorance and e'p+oit them2 they can 0e termed as parasites.
C5ANNEL MANAGEMENT
C5ANNEL 0E5A'IO-RS AN! ORGANISATOIN
A distri0ution channe+ consists of firms that have 0anded together for their
common good. Each channe+ mem0er p+ays a ro+e in the channe+ and specia+iDes in
performing one or more functions. $dea++y/ 0ecause the success individua+ channe+
mem0ers depends on overa++ channe+ success/ a++ channe+ firms shou+d *ork together
smooth+y. 3hey shou+d understand and accept their ro+es/ coordinate their goa+s and
activities/ and cooperate to attain overa++ channe+s goa+s. "y cooperating/ they can more
effective+y sense/ serve and satisfy the target market.
>o*ever/ individua+ channe+ mem0ers rare+y take such a 0road vie*. 3hey are
usua++y more concerned *ith their o*n short1run goa+s. 3hey often disagree on the ro+es
each shou+d p+ay . on *ho shou+d do *hat and for *hat re*ards. Such disagreements
over goa+s and ro+es generate channel conflict.
(ori)ontal conflict occurs among firms at the same +eve+ of the channe+ 0ertical
conflict is even more common and refers to conf+icts 0et*een different +eve+s of the same
channe+.
Some conf+ict in the channe+ takes the form of hea+thy competition. Such
competition can 0e good for the channe+ . *ithout it/ the channe+ cou+d 0ecome passive
and non1innovative. "ut sometimes conf+ict can damage the channe+. ?or the channe+ as a
*ho+e to perform *e++/ each channe+ mem0er8s ro+e must 0e specified and channe+
conf+ict must 0e managed. Cooperation/ ro+e assignment and conf+ict management in the
channe+ are attained through strong channe+ +eadership.
CON,LICT MANAGEMENT STRATEGIES
$n recent years ne* types of channe+ organiDations have appeared that provide
stronger +eadership and improved performance.
'ertical Mar+eting S.te7
A <ertica+ Marketing System :<MS; consists of producers/ *ho+esa+ers and
retai+ers acting as a unified system. Ane channe+ mem0er o*ns the others/ has contracts
*ith them and *ie+ds so much po*er that they a++ cooperate. 3he <MS can 0e dominated
0y the producer/ *ho+esa+er or retai+er. <ertica+ Marketing Systems came into 0eing to
contro+ channe+ 0ehaviour and manage channe+ conf+ict. 3hey achieve economies through
siDe/ 0argaining po*er and e+imination of dup+icated services.
3here are three types of <MS. Each type uses a different means for setting up
+eadership and po*er in the channe+. $n a corporate <MS/ coordination and conf+ict
management are attained through common o*nership and different +eve+ of the channe+.
$n a contractua+ <MS/ they are attained through contractua+ agreements among channe+
mem0ers. $n an administrated <MS/ +eadership is assumed 0y one or a fe* dominant
channe+ mem0ers.
5ori9ontal Mar+eting S.te7
Another channe+ deve+opment is the >oriDonta+ Marketing System/ in *hich t*o
or more companies at one +eve+ Eoin together to fo++o* a ne* marketing opportunity. "y
*orking together/ companies can com0ine their capita+/ production capa0i+ities or
marketing resources to accomp+ish more than any one company cou+d *orking a+one.
Companies might Eoint forces *ith competitors or non1competitors. 3hey might *ork
*ith each other on a temporary 0asis.
5.bri% Mar+eting S.te7
$n the past/ many companies used a sing+e channe+ to se++ to a sing+e market or
market segment. 3oday/ *ith the pro+iferation customer segments and channe+
possi0i+ities/ more and more companies have adopted mu+tichanne+ distri0ution systems .
often ca++ed hy0rid marketing channe+s. Such mu+tichanne+ marketing occurs *hen a
sing+e firm sets up t*o or more marketing channe+s to reach one or more customer
segments.
$"M provides a good e'amp+e of a company that users such a hy0rid channe+
effective+y. ?or years/ $"M so+d computers on+y through its o*n sa+es force. >o*ever/
*hen the market for sma++/ +o*1cost computers e'p+oded/ this sing+e channe+ *as no
+onger ade=uate. 3o serve the diverse needs of the many segments of the computer
market/ $"M added 1& ne* channe+s in +ess than 1- years.
>y0rid channe+s offer many advantages to companies facing +arge and comp+e'
markets. @ith each ne* channe+/ the company e'pands its sa+es and market coverage and
gains opportunities to tai+or its products and services to the specific needs to diverse
customer segments. "ut such hy0rid channe+ systems are harder to contro+/ and they
generate conf+icts as more channe+s compete for customers and sa+es.
$n some cases/ the mu+tichanne+ marketer8s channe+ are a++ under its o*nership
and contro+. Such arrangement e+iminate conf+ict *ith outside channe+s/ 0ut the marketer
might fact interna+ conf+ict over ho* much financia+ support each channe+ deserves.
C5ANNEL !ESIGN !ECISIONS
,esigning a channe+ system ca++s for ana+yDing consumer service needs/ setting
the channe+ o0Eectives and constraints/ identifying the maEor channe+ a+ternative and
eva+uating them.
Anal.9ing Con&7er Service Nee%
Fike most marketing decisions/ designing a channe+ 0egins *ith the customer.
Marketing channe+s can 0e thought of as customer va+ue de+ivery systems in *hich each
channe+ mem0er adds va+ue for the customer. 3hus/ designing the distri0ution channe+
starts *ith finding out *hat va+ues consumers in various target segments *ant from the
channe+.
,o consumers *ant to 0uy from near0y +ocations or are they *i++ing to
trave+ to more distant centra+iDed +ocationsM
@ou+d they rather 0uy over the phone or through the mai+M
,o they *ant immediate de+ivery or are they *i++ing to *aitM
,o consumers va+ue 0readth of assortment or do they prefer
specia+iDationM
,o consumers *ant may add1on services :de+iver/ credit/ repairs
insta++ation; or *i++ they o0tain these e+se*hereM
3he more decentra+iDed the channe+/ the faster the de+ivery/ the greater the
assortment period/ and the more add1on services supp+ied/ the greater the
channe+8s services +eve+.
Setting t*e C*annel Objective an% Contraint
Channe+ o0Eectives shou+d 0e stated in terms of the desired services +eve+ of target
consumers. Jsua++y/ a company can identify severa+ segments *anting different +eve+s of
channe+ services. 3he company shou+d decide *hich segments to serve and the 0est
channe+s to use in each case. $n each segment/ the company *ants to minimiDe the tota+
channe+ cost of meeting customer service re=uirements.
3he company8s channe+ o0Eectives a+so are inf+uenced 0y the nature of its
products/ company po+icies/ marketing intermediaries/ competitors and the environment.
I%enti(.ing Major Alternative
@hen the company has defined its channe+ o0Eectives/ it shou+d ne't identify its
maEor channe+ a+ternatives in terms of types of intermediaries/ number of intermediaries
and the responsibilities of each channe+ mem0er.
Eval&ating t*e Major Alternative
Suppose a company has identified severa+ channe+ a+ternatives and *ants to se+ect
the one that *i++ 0est satisfy its +ong1run o0Eectives. 3he firm must eva+uate each
a+ternative against economic/ contro+ and adaptive criteria.
C5ANNEL MANAGEMENT !ECISIONS
Ance the company has revie*ed its channe+ a+ternatives and decided on the 0est
channe+ design/ it must imp+ement and manage the chosen channe+. Channe+ management
ca++s for se+ecting and motivating individua+ channe+ mem0ers and eva+uating their
performance over time.
Selecting C*annel Me7ber
@hen se+ecting intermediaries/ the company shou+d determine *hat
characteristics distinguish the 0etter ones. $t *i++ *ant to eva+uate the channe+ mem0er8s
years in 0usiness/ other +ines carried/ gro*th and profit record/ cooperativeness and
reputation.
Motivating C*annel Me7ber
Ance se+ected/ channe+ mem0ers must 0e continuous+y motivated to do their 0est.
3he company must se++ not on+y through the intermediaries/ 0ut to them. At ties the
companies offer positive motivators such as higher margins/ specia+ dea+s/ premiums/
cooperative advertising a++o*ances/ disp+ay a++o*ances/ and sa+es contests. At other times
they sue negative motivators/ such as threatening to reduce margins/ to s+o* do*n
de+ivery/ or to end the re+ationship a+together.
Eval&ating C*annel Me7ber
3he producer must regu+ar+y check each channe+ mem0er8s performance against
standards such as sa+es average inventory +eve+s/ customer de+ivery time/ treatment of
damaged and +ost goods/ cooperation in company promotion and training programs/ and
services to the customer. 3he company shou+d recogniDe and re*ard intermediaries *ho
are performing *e++. 3hose *ho are performing poor+y shou+d 0e he+ped or/ as a +ast
resort/ rep+aced.
?ina++y/ manufacturers need to 0e sensitive to their dea+ers. 3hose *ho treat their
dea+ers +ight+y risk on+y +osing their support 0ut a+so causing some +ega+ pro0+ems.
P56SICAL !ISTRI0-TION AN! LOGISTICS MANAGEMENT
$n today8s g+o0a+ marketp+ace/ se++ing a product is sometimes easier than getting it
to customers. Companies must decide on the 0est *ay to store/ hand+e/ and mover their
products and services so that are avai+a0+e to customer in the right assortments/ at the
right time/ and in the right p+ace. Fogistics effectiveness *i++ have a maEor impact on 0oth
customer satisfaction and company costs.
NAT-RE AN! IMPORTANCE
3o some managers/ physica+ distri0ution means on+y trucks and *arehouses. "ut
modern +ogistics is much more than this. hysica+ distri0ution . or marketing +ogistics .
invo+ves p+anning/ imp+ementing and contro++ing the physica+ f+o* of materia+s/ fina+
goods and re+ated information from points of origin to points of consumption to meet
customer re=uirements at a profit.
3he +ogistics manager8s tasks is to coordinate the *ho+e1channe+ physica+
distri0ution system . the activities of supp+iers/ purchasing agents/ marketers/ channe+
mem0ers and customers. 3hese activities inc+ude forecasting/ information systems/
purchasing/ production p+anning/ order possessing/ inventory/ *arehousing and
transportation p+anning.
Companies today are p+acing greater emphasis on +ogistics for severa+ reasons9
1; Effective +ogistics is 0ecoming a key to *ining and keeping customers.
Companies are finding that they can attract more customers 0y giving 0etter
service or +o*er prices through 0etter physica+ distri0ution.
2; Fogistics is a maEor cost e+ement for most companies. oor physica+ distri0ution
decisions resu+t in high costs. even +arge companies sometimes make too +itt+e use
of modern decision too+s for coordinating inventory +eve+s2 transportation modes/
and p+ant/ *arehouse/ and store +ocations. $mprovements in physica+ distri0ution
efficiency can yie+d tremendous cost savings for 0oth the company and its
customers.
3; 3he e'p+osion in product variety has created a need for improved +ogistics
management.
4; ?ina++y/ improvements in information techno+ogy have created opportunities for
maEor gains in distri0ution efficiency. 3he increased use of computer/ point1of1
sa+e scanners/ uniform product codes/ sate++ite tracking/ e+ectronic data
interchange :E,$; and e+ectronic funds transfer :E?3; has a++o*ed companies to
create advanced systems for order processing/ inventory contro+ and hand+ing/ and
transportation routing and schedu+ing.
GOALS O, LOGISTICS S6STEMS
3he goa+ of the marketing +ogistics system shou+d 0e to provide a targeted +eve+ of
customer service at the +east cost. A company must first research the importance of
various distri0ution services to its customers/ and then set desired service +eve+s for each
segments.
MAGOR LOGISTICS ,-NCTIONS
Civen a set of +ogistics o0Eectives/ the company is ready to design a +ogistics
system that *i++ minimiDe the cost of attaining these o0Eectives. 3he maEor +ogistics
functions inc+ude order processing, warehousing, inventory management and
transportation.
Or%er Proceing
3he orders once received/ must 0e processed =uick+y and accurate+y. 3he order
processing system prepares invoices nd sends order information to those *ho need it. 3he
appropriate *arehouse receives instruction to pack and ship the ordered items. Shipped
itesm are accompanied 0y shipping and 0i++ing documents/ *ith copies going to various
departments. "oth the company and its customers 0enefits *hen the order1processing
steps are carried out efficient+y.
#are*o&e
Every company must store its goods *hi+e they *ait to 0e so+e. A storage function
is needed 0ecause production and consumption cyc+es rare+y match. A company must
decide on how many and what types of *arehouse it needs/ and where they *i++ 0e
+ocated. 3he more *arehouse the company uses/ the more =uick+y goods can 0e de+ivered
to customers. >o*ever/ more +ocations mean higher *arehousing costs. 3he company/
therefore/ must 0a+ance the +eve+ of customer service against distri0ution costs.
Inventor.
$nventory +eve+s a+so affect customer satisfaction. 3he maEor pro0+ems to maintain
the de+icate 0a+ance 0et*een carrying too much inventory and carrying too +itt+e.
Carrying too much inventory resu+ts in higher1than necessary inventory carrying costs
and stock o0so+escence. Carrying too +itt+e may resu+t in stock1outs/ cost+y emergency
shipments or production/ and customer dissatisfaction. $n making inventory decisions/
management must 0a+ance that costs of carrying +arger inventories against resu+ting sa+es
and profit.
$nventory decisions invo+ve kno*ing 0oth when to order and how much to order.
$n deciding *hen to order/ the company 0a+ances the risks of running our of stock against
the cost of carrying too much. $n deciding ho* much to order/ the company needs to
0a+ance order1processing costs against inventory carrying costs. Farger average1order
siDe resu+ts in fe*er orders and +o*er order1processing costs/ 0ut it a+so means +arger
inventory carrying costs.
Tranportation
Marketers need to take an interest in their company8s transportation decisions.
3he choice of transportation carries affects the pricing of products/ de+ivery performance/
and condition of the goods *hen they arrive . a++ of *hich *i++ affect customer
satisfaction.
3he company can choose among five transportation modes9 road/ rai+/ sea/ air and
pipe+ine. $n choosing a transportation mode for a product/ senders consider as many as
five criteria/ viD. speed/ dependa0i+ity/ capa0i+ity/ avai+a0i+ity and cost.
INTEGRATE! LOGISTICS MANAGEMENT
3oday/ more companies are adopting the concept of integrated logistics
management. 3his concept recogniDes that providing 0etter customer service and
trimming distri0ution costs teamwork, 0oth inside the company and among a++ the
marketing channe+ organiDations. $nside the company/ the various functiona+ departments
must *ork c+ose+y together to ma'imiDe the company8s o*n +ogistics performance. 3he
company must a+so integrate its +ogistics system *ith those of its supp+iers and customers
to ma'imiDe the performance of the entire distri0ution system. 3hus the goa+ of integrated
+ogistics management is to harmoniDe a++ of the company8s distri0ution decisions.
RETAILING ESTA0LIS5MENT
Aver the years/ *e have seen a mushroom gro*th of retai+ing esta0+ishment.
Ear+ier/ the retai+ers used to operate on a sma++ sca+e. >o*ever/ *ith the en+argement of
the sca+e of production/ no* severa+ types of +arge1sca+e of production/ no* severa+ types
of +arge sca+e retai+ers have come into e'istence.
5o&e-to-5o&e Selling
>ouse1to1>ouse se++ing is a+so kno*n as 7>ome se++ing8 or 7,oor1to1door
se++ing8. Jnder this method/ sa+esperson direct+y meets the customers in their homes to
promote the ne* products and to popu+ariDe e'isting products e'tensive+y as *e++ a
intensive+y. $t is f+e'i0+e method and no fi'ed investment is invo+ved for a retai+ store at a
specific p+ace. $t is convenient method of 0uying to customers/ in many cases after
demonstration.
Mar+eting b. Mail Or%er
Mai+ order marketing a+so kno*n as Mai+ Arder "usiness is one of the popu+ar
methods. Jnder this method/ the prospective consumers 0ecome a*are of the product
through information furnished 0y the products through the print media or through
0roadcast or through direct mai+. $nterested consumers respond 0y p+acing order through
mai+ to the supp+iers. 3he products are supp+ied to the consumer 0y mai+ and payment
made either 0y < or 0y che=ue.
A%vantage
@ide market.
Fo*er overhead e'penses
Convenience for customers +iving in far1off p+aces
Sma++ capita+ investment and +o* risk
)o risk of 0ad de0ts
Li7itation
Fack of persona+ contact 0et*een the se++er and 0uyer.
)o opportunity for customers to inspect goods
)o faci+ity of credit purchase
More time for e'ecuting orders
Jnsuita0+e for products *hich are not mai+a0+e.
'en%ing Mac*ine
<ending machines ena0+es the producers to supp+y the products to the consumers
through machine *ithout emp+oying sa+esmen. Jsua++y products *hich 0e+ong to the
70uy on impu+se8 category +ike soft drinks/ ice creams/ cigarette etc. are marketed through
this method.
In%epen%ent Store
$mndependent stores are retai+ shops marketing the products to the consumes.
3hey have the fo++o*ing advantages.
ersona+ re+ationship *ith customers.
Focation at convenient p+aces to the customers.
Creater f+e'i0i+ity in *orking.
Catering for more individua+istic need.
ersona+ supervision.
rompt and =uick decisions.
"etter services.
!epart7ent Store
A department store is defined as 7a retai+ institution that hand+es a *ide variety of
merchandise grouped into *e++ defined department for purposes of promotion/ service/
accounting and contro+8. $t is capa0+e of supp+ying a++ the re=uirements of the customer
under a sing+e roof.
Main features of department stores are9
a; A *ide variety of goods9
0; ,epartmenta+ organisation2
c; Farge siDe2
A%vantage
Centra+iDed +ocation
Avai+a0i+ity of a *ide range of goods in one +ocation
Convenience of shopping for consumers
"eing a +arge organisatoin it can get the economies of +arge1sca+e procurement.
$t can afford to have effective advertisement and can derive economies of +arge
sca+e advertisement.
$f can offer 0etter sa+es services.
!ra/bac+
>igh cost of doing 0usiness
Fimited persona+ attention to customers
)eed for higher capita+
>igher mark1up in prices
,ependence on hired emp+oyees.
C*ain Store or M&ltiple S*op
A chain store system consists of a num0er of retai+ stores *hich se++ simi+ar
products/ are centra++y o*ned and area operated under one management. 3he various
stores may 0e +ocated in the various +oca+ities of a city or may 0e spread over a num0er
of cities in the country.
Advantages to the Manufacturer or A*ner of the Chain
Fo* operationa+ e'penses
Fo* cost of goods
Jniformity in prices
StandardiDed methods of operation
Mu+tip+ication of se++ing points
Fo* investments in inventory
ro'imity to customers
A%vantage to C&to7er
Easy accessi0i+ity
E+imination of midd+emen8s profits
Assured =ua+ity
Jninterrupted supp+y
,irect contact
!ia%vantage
ro0+ems re+ating to personne+ and supervision
$nf+e'i0i+ity in operations
%ise in distri0ution cost
Fimited varieties
S&per Mar+et
A supermarket is defined as 7a +arge retai+ing 0usiness unit *ith *ide variety and
assortments/ se+f1services and heavy emphasis on merchandise appea+8
A%vantage
Supermarket stocks a *ide variety of assortments of goods.
rice are norma++y +o*.
$t operates on the princip+e of se+f1services
$t is a +o* cost retai+ institution
Li7itation
$t can operate in the area of concentration of 0uyers
$t has to fact the pro0+em of personne+ and supervisions.
RE'IE# 2-ESTIONS
1. @hat are the factors that decide the choice of a channe+M
2. 7Midd+emen can 0e e+iminated8 . ,iscuss.
3. @hat do you understand 0y 7channe+ conf+ict8M >o* do you manage such
conf+ictsM
4. @hat are the factors that determine channe+ designM
5. "ring out the nature and importance of physica+ distri0ution and marketing
+ogistics.
!. State the maEor +ogistics functions
#. @hat are the services rendered 0y the *ho+esa+ers and retai+ersM
&. Eva+uate the merits and demerits of departments stores and chain stores.
(. @rite not on :i; automatic vending :ii; mai+ order 0usiness :iii; house1to1house
se++ing.
Fesson . 14
Advertising
Fearning A0Eectives
After reading this +esson/ you shou+d 0e a0+e to understand .
3he components of promotiona+ mi'2
3he advertising o0Eectives/ copy/ 0udget/ media and eva+uation of effectiveness of
advertisement
3he meaning and need for pu0+ic re+ations
3he too+s of pu0+ic re+ations
3he main purpose of promotin is to attract customers and stimu+ate them to act in the
desired manner. 3he need for promotiona+ activities has 0een recogniDed 0y the marketer
for the fo++o*ing reasons9
i; 3he physica+ separation of the consumers and producers and an increase in the
num0er of potentia+ customers.
ii; $mproments in physica+ distri0ution faci+ities have e'panded the area +imits of
the markets
iii; Avai+a0i+ity of a +arge num0er of *ho+esa+ing and retai+ing midd+emen in the
market
iv; 3o restore the demand for the e'isting product *hen sa+e 0egin to dec+ine.
A company8s promotiona+ program . ca++ed promotion mi-$ consists of the specific 0+end
of advertising/ persona+ se++ing and sa+es promotion.
MEANING
3he term 7advertising8 originates from the Fatin *ord 7adverto8/ *hich means to
7turn around8. Advertising/ thus/ denotes the means emp+oyed to dra* attention to*ards
any o0Eect or purpose. $n the marketing conte't/ advertising has 0een defined as 4an paid
form of non1persona+ presentation and promotion of ideas/ goods or services 0y an
identified sponsor5. $t is a component of firm8s promotiona+ mi'. $t is a common
techni=ue of mass se++ing. u0+icity is different from advertising. u0+icity is not
norma++y paid for and sponsor cou+d not 0e identified. $t is not easi+y contro++ed 0y the
firm. Advertising can have 0oth +ong1term and short1term o0Eectives.
O0GECTI'ES O, A!'ERTISEMENT
1. 3o inform and inf+uence the 0uyers to 0uy the product and there0y increase the
sa+es.
2. 3o introduce a ne* product to potentia+ customers
3. 3o inf+uence the midd+emen to store and hand+e the product.
4. $t he+ps 0ui+d up 0rand image and 0rand +oya+ty to the products
5. Advertising may 0e necessary to pu0+iciDe the changes made in prices/ channe+s
of distri0ution/ any improvement made in the =ua+ity/ siDe/ *eight and packing of
the product.
!. $t may 0e issued/ sometimes/ to compete *ith or neutra+iDe competitor8s
advertising.
#. $t he+ps 0ui+d up corporate image.
&. $n the case of mai+ order 0usiness/ advertising does the se++ing Eo0 0y itse+f.
(. "y supp+ementing persona+ se++ing/ advertising makes the Eo0 of sa+es force
easier.
1-. $t he+ps increase the effectiveness of sa+es promotion campaign.
11. ?ina++y/ it encourages the creative arts and the artists.
!eciion Area in A%vertiing
3he decision areas in advertising comprises of9
1. $dentifying the target audience
2. ,etermining the response sought
3. ,eciding the advertising o0Eectives
4. ,eciding the advertising 0udget
5. ,eciding on the advertisement copy
!. ,eciding the media
#. Eva+uating the effectiveness of advertisement
I!ENTI,6ING TARGET A-!IENCE
A marketing communicator starts *ith a c+ear target audience in mind. 3he
audience may 0e potentia+ 0uyers or current users/ those *ho make the 0uying decision
or those *ho inf+uence it. 3he audience may 0e individua+s/ groups/ specia+ pu0+ics or the
genera+ pu0+ic. 3he target audience *i++ heavi+y affect the communicator8s decisions on
what *i++ 0e said/ how it *i++ 0e said/ when it *i++ 0e said/ where it *i++ 0e said/ and who
*i++ say it.
!ETERMINING T5E RESPONSE SO-G5T
3he stages invo+ved in purchase1processes are a*areness/ knowledge, linking,
preference, conviction or purchase. 3he target audience may 0e in any of the si' stages
and the marketing communicator needs to kno* *here the target audience no* stands
and to *hat stage he needs to 0e moved. 3his he+ps the marketer to deve+op a suita0+e
promotiona+ programmes.
!ECI!ING T5E A!'ERTISING O0GECTI'ES
Advertising o0Eectives are essentia+ 0ecause it he+ps the marketer kno* in
fkgEdfkEgdf that they *ant to achieve and he+ps ensure effective deve+opment of
fgEdsgdsf programems and guides and contro+s decision1making in each area fgdgE
dfgEdkgEdEgdd dEkgEd.
!ECI!ING T5E A!'ERTISING 0-!GET
,eciding ho* much money to 0e spent on advertising is not an easy task. 3he
type of products invo+ved the competitive structure of the industry/ +ega+ constraints/
environmenta+ conditions etc. inf+uence advertising e'penditure. 3he decision cannot 0e
taken a standard formu+a. 3he ans*er varies from industry to industry and from company
to company *ithin the same industry. 3he same company8s advertisement e'penditure
may differ from time to time.
Met*o% o( A%vertiing 0&%get
:1; Afforda0+e method
:2; Competitive parity method
:3; ercentage of sa+es method
:4; A0Eective and task method
A((or%able Met*o%
3his method as the name indicates rests on the princip+e that a firm *i++ a++ocate
for *hatever it can afford. Jsua++y sma++ firms fo++o* this method. Even the +imited funds
provided for advertising may get rea++ocated for other items depending upon the emergent
re=uirements.
Co7petitive Parit. Met*o%
Jnder this method/ the firms make their advertising 0udget compara0+e to that of
their competitors. 3hey simp+y do *hat others are doing.
Percentage on Sale Met*o%
Jnder this method/ the advertising 0udget is set in terms of a specified percentage
of past year sa+es anticipated. 3he fact that different products 0rands at different stages of
their +ife cyc+e *i++ re=uire varying +eve+s advertisings support *hich is not taken into
account 0y this method.
Another +imitation is that the +eve+ of sa+es determined the +eve+ of advertising
0udget 0ut the actua+ 7functiona+ re+ationship8 *ou+d seem to 0e reserve. >ence it is
advisa0+e that percentage of proEected sa+es 0e a++ocated rather than percentage of
previous year8s sa+es.
Objective an% Ta+ Met*o%
$n actua+ practice/ marketers usua++y 0+end some of the *e++ accepted methods to
afgEhk at a compromise 0udget *hich is +ogica+. $n other *ords/ the 0udget decision is
c+ose+y +inked up *ith the advertising o0Eectives/ the media decisions and copy decisions.
3hese four decisions areas in advertising interact among themse+ves and inf+uence each
other. 3he decision1making is an integrated process/ *hich takes into account the tota+
task of advertising to 0e performed.
!ECI!ING ON T5E A!'ERTISEMENT COP6
3he term 7copy8 inc+udes every sing+e feature that appears in the 0ody of
advertisement such as the *ritten matter/ picture/ +ogo/ +a0e+/ and designs.
,eve+oping the copy is a creative process. $t is an area *here not rigid ru+es can
0e app+ied. Some essentia+ =ua+ities that must 0e present in a good advertisement are that
it must 0e a0+e to :i; attract the attention of audience :ii; afggfsd interest :iii; create desire
and :iv; stimu+ate the actions of 0uying. 3his is kno*n as A$,A :Attention/ $nterest/
,esire and Action;.
?ormu+ating the copy re=uires the consideration of the fo++o*ing9
:1; Message content . *hat to sayM
:2; Message structure . ho* to say it +ogica++yM
:3; Message format . ho* to say it sym0o+ica++yM
:4; Message source . *ho shou+d say itG
Meage Content
3he advertiser has to decide 7*hat do say8 to the target audience to produce the
desired response. 3he 0asis is 7advertising o0Eectives8. ,epending on the nature of the
product and the target market/ the message can have rationa+ va+ue/ emotiona+ va+ue/
mora+ va+ue/ educationa+ va+ue/ attention va+ue/ humour va+ue/ etc.
Meage Str&ct&re
3he structure dea+s *ith the organisatoin and arrangement of the various e+ements
of a message. 3he communicator must decide ho* to hand+e three message1structure
issues. 3he first is *hether to dra* a conc+usion of +eave it to the audience. 3he
advertiser is 0etter off asking =uestion and +etting 0uyers come to their o*n conc+usion.
3he second message structure issue is *hether to present a one1sided argument/ or to
t*o1sided argument. Jsua++y one1sided arguments are more effective in sa+e
presentations . e'cept *hen audiences are high+y educated. 3he third message1structure
issue is *hether to present the strongest arguments first or +ast. )orma++y presenting them
first gets strong attention.
Meage ,or7at
3he marketing communicator a+so needs a strong format for the message. $n a
print advertisements/ the communicator has to decide on the head+ines/ copy/ i++ustration/
and co+or. 3o attract attention/ advertisers can use nove+ty and contrast2 eye1catching
pictures and head+ines2 distinctive formats2 message siDe and position2 and co+or/ shape
and movement. $f the message is to 0e carried over the radio/ the communicator has to
choose *ords/ sounds and voices.
$f the message is to 0e carried on te+evision or in person/ then a++ these e+ements
p+us 0ody +anguage have to 0e p+anned. resenters p+an their facia+ e'pressions/ gestures/
dress/ posture and hair sty+e. $f the message is carried on the product or its package/ the
communicator has to *atch te'ture/ scent/ co+or/ siDe/ and shape.
Meage So&rce
3he source of the message has great dea+ of persuasive inf+uence on the 0uyers.
3he persuasive inf+uence depends main+y on the credi0i+ity of the source.
Source factors such as a +eve+ of e'pertise/ trust *orthiness and +ika0i+ity usua++y
decide the source8s credi0i+ity *ith audience. ,-pertise is the degree to *hich the
communicator has the authority to 0ack the c+aim. ,octors/ Scientists/ and rofessors
rank high on e'pertise in their fie+ds. ?or e'amp+e/ *hen a doctor is seen to render a
message a0out a paid re+iever/ the receiver of a message is tempted to accept it as
authentic information. 'rustworthiness is re+ated to ho* o0Eective and honest the source
appears to 0e. $f an audience perceives the source as sincere/ honest and trust *orthy/ the
source *i++ 0e effective in communicating the message. 1ikability is ho* attractive the
source is to the audience2 peop+e +ike open humorous and natura+ sources. 3he most
high+y credi0+e source is a person *ho source high on a++ three factors.
!ECI!ING ON ME!IA
3he communicator no* must se+ect channe+ of communication. 3here are t*o
0road types of communication channe+s . persona+ and nonpersona+.
$n 'ersonal communication channels/ t*o or more peop+e communicate direct+y
*ith each other. 3hey might communicate face to face/ over the te+ephone/ or even
through the mai+. ersona+ communication channe+s are effective 0ecause they a++o* for
persona+ addressing and feed0ack.
Non'ersonal communication channels are media that carry messages *ithout
persona+ contract or feed0ack. 3hey inc+ude maEor media/ atmosphere and events. MaEor
media inc+ude print media :ne*spapers/ magaDines/ direct mai+;2 0roadcast media :radio/
te+evision;2 and disp+ay media :0i++0oards/ signs/ posters;.
Events are stages occurrences that communicate messages to target audiences. ?or
e'amp+e/ pu0+ic re+ations departments arrange press conferences/ grand openings/ sho*s
and e'hi0its/ pu0+ic tours and other events.
,ACTORS TO 0E CONSI!ERE! #5ILE C5OOSING ME!IA
!eci%ing on Reac*" ,reD&enc. an% I7pact
3o se+ect media/ the advertiser must decide *hat reach and fre=uency are needed
to achieve advertising o0Eectives. %each is a measure of the percentage of peop+e in the
target market *ho are e'posed to the advertisement campaign during a given period of
time. &re3uency is a measure of ho* many times the average person in the target market
is e'posed to the message. 3he advertiser a+so must decide on the desired media impact .
the =ua+itative va+ue of a message e'posure through a given medium.
C*ooing a7ong Major Me%ia T.pe
Media p+anners consider many factors *hen making their media choices. 3he
media habits of target consumers *i++ affect media choice . for e'amp+e/ radio and
te+evision are the 0est media for reaching teenagers. So *i++ the nature of the product 2
fashions are 0est advertised in co+or magaDines/ and o+aroid cameras are 0est
demonstrated on te+evision. ,ifferent types of messages may re=uire different media. A
message announcing a maEor sa+e tomorro* *i++ re=uire radio or ne*spapers2 a message
*ith a +ot of technica+ data might re=uire magaDines or direct mai+ings. Cost is a+so a
maEor factor in media choice. @hereas te+evision is very e'pensive/ for e'amp+e/
ne*spaper advertising cost much +ess. 3he media p+anner +ooks at 0oth the tota+ cost of
using a medium and at the cost per thousand e'posures . the cost of reaching 1/---
peop+e using the medium. Media impact and cost must 0e ree'amined regu+ar+y.
Selecting Speci(ic Me%ia 'e*icle
3he media p+anner no* must choose the 0est media vehicle . specific media
*ithin each genera+ media type. ?or e'amp+e/ ne*spapers is the media and 43he >indu5/
43imes of $ndia5 are vehic+es. $f advertising is p+aced in magaDines/ the media p+anner
must +ook up circu+ation figures and the costs of different advertisement siDes/ co+or
options and positions and fre=uencies for specific magaDines. 3hen the p+anner must
eva+uate each magaDine of factors such as credi0i+ity/ status/ reproduction =ua+ity/
editoria+ focus and advertising su0mission dead+ines. 3he media p+anner u+timate+y
decides *hich vehic+es give the 0est reach/ fre=uency and impact for the money.
Media p+anners a+so compute the cost per thousand persona reached 0y a vehic+e.
3hey *ou+d rank each magaDine 0y cost per thousand and favour those magaDines *ith
the +o*er cost per thousand for reaching target consumers.
3he media p+anner a+so must consider the costs of producing advertisements for
different media. @hereas ne*spapers advertisements may cost very +itt+e to produce/
f+ashy te+evision advertisements may cost mi++ions.
3hus/ the media p+anner must 0a+ance media cast measure against severa+ media
impact factors. ?irst/ the p+anner shou+d 0a+ance costs against that media vehic+e8s
audience 3uality. Second/ the media p+anner shou+d consider audience attention. 3hird/
the p+anner shou+d assess the vehic+e8s editorial 3uality.
!eci%ing on Me%ia Ti7ing
3he advertiser a+so must decide ho* to schedu+e the advertising over the course
of a year. Suppose sa+es of a product peak in ,ecem0er and drop in March. 3he firm can
vary its advertising to fo++o* the seasona+ pattern.
?ina++y/ the advertiser has to choose the pattern of the advertisements/ either
continuous or pu+sing. Continuity must schedu+ing advertisements even+y *ithin a given
period. Pulsing means schedu+es advertisements uneven+y over a given time period.
E'AL-ATING A!'ERTISING E,,ECTI'ENESS
After sending the message/ the communicator must research its effect on the
target audience. 3his invo+ves taking the target audience mem0ers *hether they
remem0er the message/ ho* many times they sa* it/ *hat points they reca++/ ho* they
fe+t a0out the message/ and their past and present attitudes to*ard the product and
company. 3he communicator a+so *ou+d +ike to measure 0ehaviour resu+ting from the
message . ho* many peop+e 0ought a product/ ta+ked to others a0out it/ or visited the
store. ?eed0ack on marketing communications may suggest changes in the promotion
programs or in the product offer itse+f.
Eva+uating advertising effectiveness is not easy. $n spite of the difficu+ty/ firms
resort to eva+uation of advertising resu+ts. 3hey try to assess ho* far the sa+es task and
the communication task have 0een accomp+ished 0y advertising.
Copy tests are conducted during deve+opment process/ at the end of actua+
production process :pre1test; and after the campaign in +aunched :post1testing; to find out
the effectiveness.
Methods of Advertising !re*testing:
.irect rating: Jnder this test/ advertiser e'poses a consumer pane+ to a+ternative
advertisements and asks them to rate the advertisements. 3hese direct rating
indicate ho* *e++ the advertisements get attention and ho* they affect consumers.
A high rating indicates a potentia++y more effective advertisement.
Portfolio tests: Jnder this method/ consumers vie* or +isten to a portfo+io of
advertisements/ taking as much time as they need. 3hey then are asked to reca++
a++ the advertisements and their content/ aided or unaided 0y the intervie*er.
3heir reca++ +eve+ indicates the a0i+ity of an advertisement to stand out and its
message to 0e understood and remem0ered
1aboratory tests: 3hese tests use e=uipment to measure consumer8s physio+ogica+
reactions to an advertisement . heart0eat/ 0+ood pressure/ pupi+ di+ation/
perspiration. 3hese test measure an advertisements attention getting po*er/ 0ut
revea+ +itt+e a0out its impact on 0e+iefs/ attitudes or intentions.
Methods of Advertising !ost*testing:
Recall tests: Jnder this the advertiser asks peop+e *ho have 0een e'posed to
magaDines or te+evision programmes to reca++ everything they can a0out the
advertisers and product they sa*. %eca++ score indicates the advertisement8s
po*er to 0e noticed and retained.
Recognition rests: Jnder this test the researcher asks readers of a given magaDine
to point our *hat they recogniDe as having seen 0efore. %ecognition scores can 0e
used to assess the advertisement8s impact in different market segments and to
compare the company8s advertisements *ith competitor8s advertisements.
P-0LIC RELATIONS
Another maEor mass1promotion too+ is 'ublic relations * 0ui+ding good re+ations
*ith the company8s various pu0+ics 0y o0taining favoura0+e pu0+icity/ 0ui+ding up a good
4corporate image5/ and hand+ing or heading off unfavora0+e rumours/ stories and events.
3he o+d name for marketing pu0+ic re+ations *as pu0+icity/ *hich *as seen simp+y as
activities to promote a company or its products 0y p+anting ne*s a0out it in media not
paid for 0y the sponsor. u0+ic re+ations is a much 0roader concept that inc+udes pu0+icity
as *e++ as many other activities. u0+ic re+ations departments may perform any or a++ of
the fo++o*ing functions.
Press relations or press agency: Creating and +acing ne*s*orth+y information in
the media to attract attention to a person/ product/ or serice.
Product publicity: u0+iciDing specific products.
Public affairs: "ui+ding and maintaining nationa+ or +oca+ community re+ations.
1obbying: "ui+ding and maintaining re+ations *ith +egis+ators and government
officia+s to inf+uence +egis+ation and regu+ations.
Investor relations: Maintaining re+ationships *ith shareho+ders and others in the
financia+ community.
.evelopment: u0+ic re+ations *ith donors or mem0ers of nonprofit organisation
to gain financia+ or vo+unteer support.
u0+ic re+ations are used to promote products/ peop+e/ p+aces/ ideas/ activities/
organiDation and even nations. u0+ic re+ations can have a strong impact on pu0+ic
a*areness at a much +o*er cost than advertising. 3he company does not pay for the
space or time in the media. %ather/ it pays for a staff to deve+op and circu+ate
information and to manage events. $f the company deve+ops an interesting story/ it
cou+d 0e picked up 0y severa+ different media/ having he same effect as advertising
that *ou+d cost mi++ions of do++ars. And it *ou+d have more credi0i+ity than
advertising. u0+ic re+ations resu+ts can sometimes 0e spectacu+ar.
Some companies are setting up specia+ units ca++ed marketing public relations to
support corporate and product promotion and image making direct+y. Many
companies hire marketing pu0+ic re+ations firms to hand+e their % programmes or to
assist the company pu0+ic re+ations team.
MAGOR P-0LIC RELATIONS TOOLS
u0+ic re+ations professiona+ use severa+ too+s. Ane of the maEor too+s is news. %
professiona+ find or create favoura0+e ne*s a0out the company and in its products or
peop+e. Sometimes ne*s stories occur natura++y/ and sometimes the % person can
suggest events or activities that *ou+d create ne*s. *peeches can a+so create product and
company pu0+icity. $ncreasing+y/ company e'ecutive must fie+d =uestions form the media
or give ta+ks at trade associations or sa+es meetings. And these events can either 0ui+d or
hurt the company8s image. Another common % too+ is special events, ranging from
ne*s conferences/ press tours/ grand openings and fire*orks disp+ays to +ater sho*s/ hot1
air 0a++oon re+eases/ mu+timedia presentations and star1studded spectacu+ars designed to
reach and interest target pu0+ics.
u0+ic re+ations peop+e a+so prepare written materials to reach and inf+uence their
target markets. 3hese materia+s inc+ude annua+ reports/ 0rochures/ artic+es/ and company
ne*s+etters and magaDines. %udiovisual materials/ such a fi+ms/ s+ide1and1sound
programmes/ and video a audio cassettes/ are 0eing used increasing+y as communications
too+s. Corporate 2 identity materials a+so can he+p create a corporate identity that the
pu0+ic immediate+y recogniDes. Fogos/ stationery/ 0rouchers/ signs/ 0usiness forms/
0usiness cards/ 0ui+dings/ uniforms and company cars and trucks . a++ 0ecome marketing
too+s *hen they are attractive/ distinctive and memora0+e.
Companies a+so can improve pu0+ic good*i++ 0y contri0uting money and time to
public$service activities.
$n considering *hen and ho* to use product pu0+ic re+ations/ management shou+d
set % o0Eectives/ choose the % messages and vehic+es/ imp+ement the % p+an and
eva+uate the resu+ts.
RE'IE# 2-ESTIONS3
1. ,efine advertising. @hat are its o0EectivesM
2. @hat are the different methods of advertising 0udgetM
3. @hat are the types of advertising mediaM @hat are the factors to 0e considered in
choosing the media.
4. >o* to eva+uate the 7effectiveness of advertisement5.
5. "ring out the importance of pu0+ic re+ations in marketing.
!. ,iscuss the various methods of pu0+ic re+ations.
IIIIIIIIIIIIIIIII
LESSON 1 1;
SALES PROMOTION
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
3he meaning and o0Eectives of sa+es promotion2
Methods of sa+es promotion aimed at consumers/ dea+ers and sa+es force.
Eva+uating the effectiveness of sa+es promotion.
Sa+es promotion is essentia++y a direct and immediate inducement that adds an
e'tra va+ue to the product/ so that it induces the dea+ers and u+timate consumers to 0uy
the product. $t is defined as 4those sa+es activities that supp+ement 0oth persona+ se++ing
and advertising and coordinate them and he+p to make them/ effective/ such s disp+ay/
sho*s and e'positions/ demonstrations and offer non1recurrent se++ing efforts not in the
ordinary routine5.
Sa+es promotion measures are temporary promotion methods. $t is practiced as a
cata+yst and as supporting faci+ity to advertising and persona+ se++ing.
NEE! ,OR SALES PROMOTION
Marketers resort to sa+es promotion to meet the fo++o*ing needs9
:1; 3o introduce ne* product.
:2; 3o overcome a uni=ue competitive situation.
:3; 3o e'haust accumu+ated inventory
:4; 3o overcome seasona+ s+umps
:5; 3o get additiona+ customers
:!; 3o retain the e'isting customers
:#; 3o supp+ement to the advertising effort
:&; 3o supp+ement to the sa+esmen8s effort
:(; 3o persuade the sa+esmen to se++ the fu++ +ine of products
:1-; 3o persuade dea+ers to procure more.
3he sa+es promotion effort may 0e aimed at consumers/ traders dea+ers and sa+esmen.
Met*o% o( Sale Pro7otion
3he sa+es promotiona+ methods aimed at consumers inc+ude9
:1; Samp+es
:2; Coupons
:3; remiums
:4; Contest/ S*eepstakes and Cames
:5; oint and urchase romotion
:!; ,iscounts G %e0ates
:#; Advertising Specia+ties
:&; ,emonstrations
:(; 3rade fairs and e'hi0itions
Sa7ple
Samp+es are offers of a tria+ amount of a product. Some samp+es are free/ for
others/ the company charges and sma++ amount to offset its cost. 3he samp+e might 0e
de+ivered door to door/ sent 0y mai+/ handed out in a store/ attached to another product/ or
featured in an advertisement. Samp+ing is most effective . 0ut most e'pensive . *ay to
introduce a ne* product.
Co&pon
Coupons are certificates *hich offer price reductions to consumers during the
su0se=uent purchase of same items. Coupons are distri0uted through ne*spapers and
magaDines/ advertisements or even 0y direct mai+. 3hese are usefu+ for introducing ne*
product and to increase the sa+e of e'isting product.
Pre7i&7 or 0on& O((er
An offer of a certain amount of product at free of cost to 0uyers *ho 0uy a
specified amount of product is ca++ed premium offer or 0onus offer. ?or e'amp+e one
si+ver spoon *ith >or+icks or p+astic 0ucket *ith 1 kg. of Surf po*der. A premium may
come inside the package or outside the package. $f reusa0+e/ the package itse+f may serve
as a premium.
Contet" S/eepta+e an% Ga7e
$n contest/ an opportunity is provided for consumers to participate in a contest
*ith chances of *inning cash priDes/ goods/ free air tickets/ cricket match tickets etc.
Contests take variety of forms such as =uiD contest/ 0eauty contest/ car ra++ies/ +ucky
dra*s etc. A sweepstake invo+ve mere+y inc+usion of the customer8s name of his 0i++
num0er *ho 0uy more than the specific va+ue of productgs in the dra*ing of priDes
*inners. A game presents consumers *ith something . missing +etters or comp+eting a
s+ogan . every time they 0uy/ *hich may or may not he+p them *in a priDe.
Point o( P&rc*ae APOPB Pro7otion
oint of urchase promotions inc+ude disp+ay and demonstrations that take p+ace
at the point of purchase or sa+e. Attractive disp+ays of products in the she+f space to
induce the consumers to 0uy the product.
!ico&nt H Rebate
$t is giving discount on certain products to induce 0uyers to 0uy the products. Ane
cou+d see grand discount sa+es during festiva+ seasons on te'ti+es/ home app+iances etc. to
stimu+ate sa+es.
$nsta++ment offer and credit sa+es are other popu+ar methods of sa+es promotion.
A%vertiing Specialtie
Companies a+so distri0ute gifts to customers such as pen/ ca+endars/ diaries/ ta0+e
decorations etc. *hich *i++ carry companies name and +ogo.
!e7ontration
?irms resort to product demonstrations *hen they introduce ne* products.
<acuum C+eaners is a 0est e'amp+e. ,emonstrations may 0e done at retai+ stores/
schoo+s/ homes and in trade fairs and e'hi0itions.
Tra%e ,air an% E)*ibition
?irms can introduce their products 0y disp+aying them in trade fairs and
e'hi0itions to induce the 0uyers to 0uy the product. Especia++y in internationa+ marketing
internationa+ trade fairs p+ay a vita+ ro+e.
!EALER SALES PROMOTIONS
3rade promotion can persuade retai+ers or *ho+esa+ers to carry a 0rand/ give it
she+f space/ promote it in advertising/ and push it to customers. She+f space is so scarce
these days that manufacturers often have to offer price1offs/ a++o*ances/ 0uy10ack
guarantees/ or free goods to retai+ers and *ho+esa+ers to get on the she+f and/ once
thereon/ to stay on it.
,ea+ers sa+es promotions inc+ude9
:1; "uying a++o*ance
:2; romotiona+ a++o*ance
:3; Sa+es contest
0&.ing Allo/ance
$t invo+ves an offer to percentage off/ on each minimum =uantity of product
purchased during a stated period of time 0y the dea+er. 3he 0uying a++o*ance is usua++y
given in the form of cash discount or =uantity discount.
Pro7otion Allo/ance
3his is given to compensate the dea+ers for promotion e'penses incurred 0y them.
3hese inc+ude advertising a++o*ance/ disp+ay a++o*ance etc.
3he manufacturers may a+so issue advertisement or other pu0+icity materia+s +ike
ca+endars/ key chains *hich carry the names of retai+ers *ho stock the product.
Sale Contet
$t is a contest among the dea+ers in se++ing the product. 3he *inners *i++ 0e given
priDes 0y the manufacturers. 3his is done to stimu+ate the distri0utions G dea+ers.
SALES ,ORCE PROMOTIONS
3he too+s at sa+es force for sa+es promotion inc+ude9
i; "onus
ii; Sa+es force contest
iii; Sa+es meetings
0on&
A =uota is set for sa+es force for a specific period. "onus is offered to sa+es force
on sa+es e'cess of the =uota.
Sale ,orce Contet
3he contests are conducted among the sa+es force to stimu+ate se++ing and priDes
are a*arded to the top performers.
Sale Meeting
Sa+es meetings/ conventions and conferences are conducted for the purpose of
educating/ inspiring and re*arded the sa+esmen. )e* products and ne* se++ing
techni=ues are a+so descri0ed and discussed.
?AC3A%S 3A "E CA)S$,E%E, $) A%CA)$S$)C SAFES %AMA3$A)
CAMA$C)
1$ I%enti(.ing an% !e(ining Sale Pro7otional Objective
$s it to enhance dea+er8s off1take of the productM
$s it to 0ring e'tra sa+esM
$s it to c+ear accumu+ated stockM
$s it to supp+ement advertisementM
4$ I%enti(. t*e Rig*t Pro7otional Progra77e
3he firm has to se+ect the right promotiona+ programme suita0+e to the current
need and the current situation.
8$ Enlit t*e S&pport an% Involve7ent o( Sale7en
?or success/ it is essentia+ that sa+esmen are 0riefed on the conte't and content of
the promotion programme/ informed their ro+es and given detai+ed information G
guides regarding *hat they to do during different stages of the campaign.
:$ Enliting t*e S&pport o( !ealer
Since maEor part of the activity has to take p+ace around the dea+er/ it is essentia+
to en+ist their support and motivate them.
;$ Ti7ing o( t*e Ca7paign
3he programme has to 0e +aunched at the appropriate time.
=$ La&nc*ing an% ,ollo/-&p
3he programme has to 0e perfect+y +aunched and tempo shou+d 0e maintained ti++
end *ith proper fo++o*1up.
E'AL-ATION O, SALES PROMOTION
After spending a siDea0+e amount on sa+es promotion/ it is very much essentia+
that the company has to eva+uate their sa+es promotiona+ programmes. Companies can use
one of many eva+uation methods. 3he most common method is to compare sales 0efore/
during and after a promotion. Consumer research a+so *ou+d sho* the kinds of peop+e
*ho responded to the promotion and *hat they did after it ended. *urveys can provide
information on ho* many consumers reca++ the promotion/ *hat they thought of it/ ho*
many took advantage of it/ and ho* it affected their 0uying. Sa+es promotions a+so can 0e
eva+uated through e-periments that vary factors such as incentive va+ue/ +ength and
distri0ution method.
C+ear+y/ sa+es promotion p+ay an important ro+e in the tota+ promotion mi'. 3o use
it *e++/ the marketer must define the sa+es1promotion o0Eectives/ se+ect the 0est too+s/
design the sa+es1promotion program/ pretest and imp+ement the program/ and eva+uate the
resu+ts.
RE'IE# 2-ESTIONS3
1. ,efine sa+es promotion. @hat are its o0EectivesM
2. ,iscuss the various methods of sa+es promotions.
3. @hat are the factors to 0e considered *hi+e organiDing sa+es promotion
campaignM
4. >o* *ou+d you eva+uate the effectiveness of sa+es promotionM
IIIIIIIIIIIIII
LESSON 1 1=
PERSONAL SELLING
Learning Objective
After reading this +esson/ you shou+d 0e a0+e to understand .
Meaning and importance of persona+ se++ing2
Steps invo+ved in the se++ing process2
3he =ua+ities re=uired for a successfu+ sa+esmen
Management of sa+es force
%ecruitment/ 3raining and Se+ections of sa+es force
Compensation of sa+es force
Eva+uating performance of sa+es force
3he peop+e *ho do the se++ing go 0y many name9 sa+espeop+e/ sa+es
representatives/ sa+es consu+tants/ sa+es engineers/ marketing representatives and sa+es
force/ to name Eust a fe*.
ersona+ Se++ing is the on+y promotiona+ too+ *hich invo+ves the persona+
communication 0et*een 0uyers and the se++er. ersona+ se++ing is specific and tai+or made
for the re=uirements of each customer. romotiona+ message cou+d 0y easi+y made in
consonance *ith the comp+e' situations at the 0uyer8s p+ace. $n other *ords/ persona+
se++ing creates a c+imate for interaction 0et*een the parties that +eads to an effective and
time+y reso+ution of the perceived 0uying need. $n effect persona+ se++ing gives a =uick
response to the pro0+em and the purchase actions is carried out immediate+y in most of
the occasions *ith an e'ception to industria+ marketing. ersona+ se++ing is an active
effort to communicate *ith high1potentia+ 0uyers on a direct and face to face 0asis.
Sa+es peop+e form the vita+ part of the persona+ se++ing measures. 3hey provide
key information to assist the companies in making purchase decisions. $n this intense
market driven competition/ a 0uyer *i++ not 0e satisfied un+ess he has had a conversation
*ith the sa+es peop+e 0efore 0uying *ashing machines cars/ refrigeration etc. ,epending
on the type of industry and the company/ the ro+e of persona+ se++ing varies in
promotiona+ strategy adopted 0y the company. 3hose products *hich are comp+e'/
technica+/ etc. the ro+e of persona+ se++ing 0ecomes more important. $n the case of mass
0ased products/ the promotiona+ strategies invo+ves main+y advertising. 3hey a+so re+y on
persona+ se++ing since every time they 0ring out ne* products and hence introducing the
ne* product to the dea+er/ customer etc. is taken care part+y 0y the sa+es force.
3he sa+es force serves as a critica+ +ink 0et*een a company and its customers. $n
many cases/ sa+espeop+e serve 0oth masters . the se++er and the 0uyer. ?irst/ they
represent the company to customers. 3hey find and deve+op ne* customers and
communicate information a0out the company8s products and services. 3hey se++ products
0y approaching customers/ presenting their products/ ans*ering o0Eections/ negotiating
prices and terms/ and c+osing sa+es. $n addition/ sa+espeop+e provide services to customers
carry out market research and inte++igence *ork and fi++ our sa+es ca++ reports.
At the same time/ sa+espeop+e represent customers to the company, acting inside
the firm as 4champions5 of customer8s interests. Sa+espeop+e peop+e dfgdfgdf concerns
a0out company products and actions 0ack to those *ho can gdEgfds them. 3hey +earn
a0out customer needs/ and *ork *ith others in the company to deve+op greater customer
va+ue. 3hus/ the sa+esperson often acts as an account manager5/ *ho manages the
re+ationship 0et*een the se++er and 0uyer.
As companies move to*ard a stronger market orientation/ their sa+es forces are
0ecoming more market focused and customer oriented. 3he o+d vie* *as that sa+espeop+e
shou+d *orry a0out sa+es and the company shou+d *orry a0out profit. >o*ever/ the
current vie* ho+ds that sa+espeop+e shou+d 0e concerned *ith more than Eust producing
sales 2 they a+so must kno* ho* to at sa+es data/ measure market potentia+/ gather market
inte++igence/ and deve+op efforts to*ard de+ivering customer va+ue and satisfaction. A
market1oriented rather than a sa+es1oriented sa+es force *i++ 0e more effective in the +ong
run. "eyond *inning ne* customers and makes sa+es/ it *i++ he+p the company to create
+ong term profita0+e re+ationships *ith customers.
PERSONAL SELLING PROCESS
3he sa+es process is a series of interre+ated steps 0eginning *ith +ocating =ua+ified
prospective customers. ?rom there on the sa+es person p+ans the sa+es presentation/ makes
appointment to see the customer/ comp+etes the sa+e and does post sa+es activities. 3his
process is sho*n in the fo++o*ing figure
rospecting re1approach Sa+es resentation +an
>and+ing A0Eectives Sa+es resentation Approac
h
C+osing Sa+es ?o++o*1
up
1$ Propecting
$nitia++y the sa+es person has to +ocate the +ist of prospective and potentia+ customers. 3he
sa+es person/ may use e'terna+ sources +ike reference concerts community contracts/ c+u0s
etc and interna+ sources +ike the records maintained 0y the company/ in=uires/ persona+
contracts and other sa+es seminars. After identifying the customers they have to 0e
screened for +ocating the e'act 7prospects8. $f the prospect is *orth ca++ing irrespective of
immediate grains or for the future purposes/ heGshe may 0e inc+uded in the +ist of
prospective customers.
4$ Pre-Approac*
Sa+es person co++ects information a0out the prospect that *i++ 0e used to formu+ate the
sa+es presentation. Sa+es person understands the 0uyers needs/ 0uyer motives and other
detai+s re+evant for making the sa+es presentation. Care shou+d 0e taken to avoid invasion
of privacy and detai+s shou+d 0e on+y to the kno*ing of intensity of purchase 0y the
customers.
8$ Sale Preentation Planning
3he sa+es person must 0egin specifica++y stated o0Eective for each sa+es
presentation. 3he o0Eectives cou+d 0e order =uantities/ va+ue of purchase/ communication
or agreements *ith the 0uyer. Sa+es person shou+d 0e a0+e to identify the 0enefits to 0e
offered to the 0uyer for c+inching the sa+e. ?ormats shou+d 0e used for p+anning the sa+es
presentation. A sa+es proposa+ may 0e deve+oped after carefu+ investigation of the
prospect8s needs. 3his is often com0ined *ith fact to face presentations and =uestion and
ans*er periods. 3he sa+es person shou+d draft the appropriate pace for presentation and
identification of 0enefits and terms of sa+e to 0e discussed. >e shou+d a+so understand the
e'tent of in=uiry into the prospect8s needs and decision making a0i+ity. 3he degree of
interaction *ith the prospect must 0e *e++ thought of. $f need 0e/ sa+es aids may 0e used.
3he actua+ se++ing 0egins as sa+es person seeks an intervie* *ith the prospect.
:$ Approac*
Approaching the customer is done in t*o phases9 3he first phase is getting an
appointment for the sa+es intervie*. 3his *i++ give a fee+ing of prospect8s time
importance. Appoints may 0e made over phone/ mai+ or persona+ contact.
$n the second phase/ the first fe* minutes of sa+es ca++ harmonious atmosphere
must 0e made +ike norma+ eti=uette and courtesy *ith the prospect8s
understanding the prospect8s signa+s and informing a0out the 0enefit through the
purchase of the product etc.
;$ Sele Preentation
3he sa+es person e'pands on the 0asic theme esta0+ished in the first fe* minutes of
the sa+es ca++ or during the previous sa+es ca++s. $n order to reduce the perception of
risk in the prospect/ the sa+es person shou+d present himse+f or herse+f as the credi0+e
source of information. "y dressing appropriate+y sho*ing the traits of honesty and
integrity and a0+e to +isten to the prospect8s vie*s are considered to 0e a credi0+e
source of information. Even =uoting a third party for evidence/ guarantees/ *arranties
etc./ *ou+d a+so add to the prospect8s +istening. 3he presentation shou+d 0e having
c+arity of thought and the sa+es person shou+d 0e a0+e to hand+e o0Eections and
=uestion.
=$ 5an%ling Objection
Customers a+most a+*ays have o0Eections during the presentation or *hen asked to
p+ace an order. 3he pro0+em can 0e either +ogica+ or psycho+ogica+ and o0Eections are
often unspoken. $n handling ob7ections/ the sa+esperson shou+d use a positive
approach/ seek out hidden o0Eections. Ask the 0uyer to c+arify any o0Eections/ take
o0Eections as opportunities to provide more information/ and turn the o0Eections into
reasons for 0uying. Every sa+esperson needs training in the ski++s of hand+ing
o0Eections.
>$ Cloing t*e Sale
3he sa+es person must 0e a0+e to faci+itate the prospect8s decision making process
to*ards making the purchase and to furnish the stimu+us for the decision at the
appropriate time. Severa+ techni=ues +ike direct c+ose/ summary c+ose/ choice c+ose etc./
are avai+a0+e for the sa+es person to choose for c+osing the sa+e. Some sa+es peop+e fear
reEection and may hence avoid the stimu+us for the purchase decision. 3he =uestion of
*hen to seek the comp+etion of the sa+e is a Eudgment 0y the sa+es person *ith the
assistance of the prospect. $n this stage once the sa+e is c+osed the 7prospect8 0ecomes the
7customer8.
?$ ,ollo/ -p
$n order to ascertain the de+ivery of the 0enefits and satisfaction guaranteed 0y the
product and to esta0+ish a mutua++y satisfying +ong term re+ationship *ith the customers
fo++o* up is important. "y e'pediting the orders/ insta++ing the product and after sa+es
service may 0e the fo++o* up activities. "ui+ding trust *ith the customer is important as it
is achieved *hen the sa+es person is perceived as dependa0+e/ honest/ competent/
customer1oriented and +ika0+e. 3hese customer e'pectations are reasona0+e and are
contro++a0+e through recruitment/ se+ection training and supervision of sa+es personne+.
2-ALITIES O, A E,,ECTI'E SALESPERSON
Cood sa+esmanship is not a matter of some rare/ persuasive/ inherited ski++/ *hich/
*hen/ 7turned on8/ magica++y gets the order. An the contrary good sa+esmanship is the
resu+t of carefu+ ana+ysis of the 0uyer8s pro0+em com0ined *ith some articu+ateness in
e'p+aining to the 0uyer ho* the se++er can so+ve his pro0+em. 3his siDe1up of
sa+esmanship may *e++ emphasiDe the persona+ =ua+ities re=uired of good sa+esman.
Most companies desire that certain essentia+ persona+ity traits/ =ua+ities/
characteristics/ aptitudes/ attitudes and a0i+ities shou+d 0e possessed 0y the peop+e *hom
they *ant to recruit to the sa+e force. >o*ever there is no standardiDed formu+a for +isting
the essentia+ =ua+ities such thing as the idea+ sa+es persona+ity. 3here are many kind of
se++ing Eo0s re=uiring different types of sa+esman. So/ the characteristics of sa+esmen
usua++y vary from one sa+es position to another and a+so form company to company. 3his
means/ each company shou+d make its o*n study of its se++ing Eo0 and decide the
characteristics of its o*n sa+es force.
>o*ever/ a num0er of +ists of essentia+ characteristics are avai+a0+e Mayer and
>er0ert conc+ude/ 7it is enough if a good sa+esmen has t*o 0asic =ua+ities . empathy and
ego drive8. Empathy is the a0i+ity to fee+ as the customer does. Ego drive refers to a
strong persona+ need to make the sa+e for its o*n sake and not mere+y for the money to 0e
gained. "ut these are rare+y enough. 3he maEority of scho+ars fee+ that the fo++o*ing
shou+d 0e the essentia+ characteristics of successfu+ sa+esman.
1. Am0ition
2. Enthusiasm
3. Cheerfu+ness
4. Sympathy
5. atience and persistence
!. 3act
#. >ard *ork
&. ,etermination
(. ,ependa0i+ity
1-. $ntegrity
11. A0i+ity to ask =uestions
12. A0i+ity to make =uick and accurate spot Eudgments
13. A0i+ity to provoke ans*er
14. Mode+s and confident ans*ers to =uestions
15. A+ertness
1!. Sense of humour
1#. Story te++ing a0i+ity
1&. A0i+ity of smi+e
1(. Aptimism
2-. %ight facia+ e'pression
21. A0i+ity to mi' easi+y *ith other peop+e
22. Memory
23. Feadership
24. o*er of o0servation
25. Acceptance of criticism
2!. >a0it of asking for the order
2#. Bno*+edge of the company
2&. Bno*+edge of the product
2(. Bno*+edge of the prospect
3-. ersona+ appearance
As pointed our a+ready/ the a0ove are the common =ua+ities re=uired of a good
sa+esman. $n practice it is difficu+t to find from a sing+e individua+ a++ the a0ove
=ua+ities. "ut sti++/ the individua+ cou+d deve+op the a0ove =ua+ities to 0ecome a 0etter
sa+esman.
MANAGEMENT O, SALES ,ORCE
Management has 0een defined as the art of 7getting things done through peop+e8.
$t is a+so 7the deve+opment of peop+e and not the direction of things8. Sa+es management
is no e'ception to this. Effective imp+ementation of the sa+es po+icies depends +arge+y on
the efficiency and num0er of sa+esmen at the sa+es management8s disposa+. Sa+es force
management is defined as the ana+ysis/ p+anning/ imp+ementation and contro+ of sa+es
force activities. $t inc+udes designing sa+es force strategy and structure and recruiting/
se+ecting/ training/ compensating/ supervising and eva+uating sa+es force.
!ESIGNING SALES ,ORCE STRATEG6 AN! STR-CT-RE
A company can divide sa+es responsi0i+ities a+ong any of severa+ +ines. 3he
decision is simp+e if the company se++s on+y one product1+ine *ith customers in many
+ocations. $n that case/ the company *ou+d use a territorial sales force structure.
>o*ever/ if the company se++s many products to many types of customers/ it might need
a product sa+es force structure/ a customer sa+es force structure or a com0ination of the
t*o.
$n the territorial sales force structure each sa+esperson is assigned to an e'c+usion
geographic territory and se++s the company8s fu++1+ine of products or services to a++
customers in that territory. 3his has many advantages. $t c+ear+y defines sa+es persons Eo0
and it a+so increases the sa+espersons desire to 0ui+d +oca+ 0usiness re+ationship that/ in
turn/ improve se++ing effectiveness. ?ina++y/ 0ecause each sa+esperson trave+s *ithin a
+imited geographic area/ trave+ e'penses are re+ative+y sma++.
$n product sales force structure/ the sa+es force se++s a portion of the company8s
products or +ines. 3his means the sa+espeop+e trave+ over the same route and *ait to see
the same customers. 3hese e'tra costs must 0e compared *ith the 0enefits of 0etter
product kno*+edge and attention to individua+ product.
$n customer sales force structure, the companies organiDe the sa+es force a+ong
customer or industry +ines. Separate sa+es forces may 0e set up for different industries/ for
serving different customers. ArganiDing the sa+es force around customers can he+p a
company 0ecome more customer focused and 0ui+d c+oser re+ationship *ith important
customers.
Comple- sales force structure: @hen a company se++s a *ide variety of products
to many types of customers over a 0road geographica+ area/ it often com0ines severa+
types of sa+es force structure. Sa+espeop+e can 0e specia+iDed 0y customer and territory/
0y product and territory/ 0y product and customer/ or 0y territory/ product/ and customer.
)o sing+e structure is 0est for a++ companies and situations. Each company shou+d
se+ect a sa+es force structure that 0est serves the needs of its customers and fits its overa++
marketing strategy.
SALES ,ORCE SIEE
Many company use some form of workload approach to set sa+es force siDe.
Jsing this approach/ a company first groups accounts into different c+asses according to
siDe/ account status/ or other factors re+ated to the amount of effort re=uired to maintain
them. $t then determines the num0er of sa+espeop+e needed to ca++ on each c+ass of
accounts the desired num0er of times. 3he company might think as fo++o*s9
Suppose *e have 1/--- 3ype1A accounts and 2/--- 3ype1" accounts 3ype1A
accounts re=uire 3! ca++s a year and 3ype1" accounts re=uire 12 ca++s a year. $n this case/
the sa+es force8s *ork+oad . the num0er of ca++s it must make per year/ is !-/--- ca++s
V:1/--- ' 3!; W :2/--- ' 1; X.
Suppose our average sa+esperson can make 1/--- ca++s a year. 3hus/ the company
needs !- sa+espeop+e :!-/--- G 1/---;
RECR-ITMENT AN! SELECTION
A sa+esman is an important cornerstone upon *hich a sa+es organisation is 0ui+t.
Conse=uent+y/ sa+es managers are confronted *ith the task of p+anning a sound se+ection
programme of sa+esmen. 3raining/ motivation etc. are other prime factors in deve+oping
an effective sa+es organisation. "ut the degree of success depends/ to a +arge e'tent/ on
the a0i+ity of a sa+es manager to 4attract/ discover/ and hire the right kind of man5.
Se+ecting a proper man is important due to fo++o*ing reasons.
:a; Se++ing Eo0s have 0ecome more difficu+t 0ecause of the greater comp+e'ity of
product or service/ the mu+tip+icity of channe+s of distri0ution etc.
:0; Markets today are high+y competitive
:c; Se++ing as a 7career8 or profession has not 0een fu++y accepted/ and hence there is
on+y a +imited num0er of sa+esman *ho cou+d rea++y =ua+ify for this Eo0.
:d; 3here is *ide varia0i+ity in the sa+es effectiveness of sa+espeop+e.
:e; Sa+espeop+e are very cost+y. $f a company decides to emp+oy e'tra sa+es
personne+/ the cost *i++ 0e much higher than Eust 0asic sa+ary :and commission;.
:f; Ather important determinants of success/ +ike training and motivation are heavi+y
dependent on the intrinsic =ua+ities of the recruit.
%ecruitment is an act of inducing =ua+ified and appropriate peop+e to get interested in
and app+y for a sa+esman8s position *ith the company. $t invo+ves the identification/
+ocation and stimu+ation of Eo0 aspirants. Since it is an ongoing process/ usua++y
companies maintain and continuous+y update the prospect fi+es and deve+op contact
*ith educationa+ and training institutions and emp+oyment e'change so as to get
appropriate +eads for +ocating candidates. $n 0rief/ recruitment means making peop+e
to aspire for a Eo0 *ith the company.
Se+ection is a conse=uence of recruitment activities and imp+ies choosing the
desired num0er of app+icants for emp+oyment *ith the company from amongst those
*ho have app+ied. $t invo+ves the process of matching education/ aptitudina+ and
persona+ity attri0utes of the app+icants *ith the man1specifications/ +aid do*n 0y the
company.
3here are a num0er of stages in the recruitment and se+ection process9
1. reparation of the Eo0 description and personne+ specification.
2. $dentification of sources of recruitment.
3. ,esigning an effective app+ication form.
4. 3est and $ntervie*ing.
5. %eference checking and Medica+ fitness.
!. +acement
1$ Gob !ecription an% Peronal Speci(ication
Po0 description is a statement defining the nature and content of the Eo0 and
specifies the duties and responsi0i+ities of the incum0ent for the Eo0. Cenera++y a
Eo0 description *i++ cover the fo++o*ing factors9
3he tit+e of the Eo0.
,uties and responsi0i+ities
3he organiDationa+ re+ationship *ith peers/ supervisors/ and other
management personne+.
3he conditions under *hich Eo0 is typica++y invo+ved.
,egree of autonomy.
Ance generated/ the Eo0 description *i++ act as a 0+ueprint for the personne+ specification
*hich out+ines the type of app+icant the company is seeking. ersonne+ specification is a
statement specifying the kind of person re=uiring for the Eo0 descri0ed. A persona+
specification may contain a++ or some of the fo++o*ing factors9
1; hysica+ re=uirements/ e.g. speech/ appearance.
2; Attainments/ e.g. standard of education and =ua+ifications/ e'perience and
successes.
3; Aptitudes and =ua+ities/ e.g. a0i+ity to communicate/ se+f1motivation.
4; ,isposition/ e.g. maturity/ sense of responsi0i+ity.
5; $nterests/ e.g. degree to *hich interests are socia+/ active/ inactive.
!; ersona+ circumstances/ e.g. married/ sing+e/ etc.
3he factors chosen to define the persona+ specification *i++ 0e used as criteria of
se+ection in the intervie* itse+f.
4$ I%enti(ication o( So&rce o( Recr&it7ent
3here are si' main sources of recruitment9
1; ?rom inside . the company8s o*n staff
2; Emp+oyment agencies
3; Educationa+ esta0+ishment
4; Competitors
5; ress advertisements
!; Causa+ app+icants
8$ !eigning an E((ective Application ,or7
3he app+ication form is a =uick and in e'pensive method of screening out app+icants
in order to product a short1+ist of candidate for intervie*. 3he =uestion on the form
shou+d ena0+e the sa+es manager to check if the app+icant is =ua+ified vis1Y1vis the
personne+ specification. Ruestions re+ating to age/ education/ previous *ork
e'perience and +eisure interests are often inc+uded. "esides giving such factua+
information/ the app+ication form a+so revea+s defects such as an ina0i+ity to spe++/
poor grammar or care+essness in fo++o*ing instructions.
@hatever the criteria/ the app+ications form *i++ often 0e the initia+ screening
device used to produce a short1+ist. $ts carefu+ design shou+d/ therefore/ 0e a high
priority for those invo+ved in se+ection.
?our categories of information are usua+ on app+ication forms.
1. ersona+
2. )ame
3. Address and te+ephone num0er
4. Se'
5. Marita+ status
!. Chi+dren
#. ,ate of 0irth and age
2. Education
Schoo+s 9 rimary G Secondary
?urther and higher education 9 $ntuitions/ courses taken
Rua+ifications
Specia+iDed training. E.g. apprenticeships/ sa+es training
Mem0ership of professiona+ 0odies
3. Emp+oyment >istory
Companies *orked for
,ates of emp+oyment
ositions/ duties and responsi0i+ities he+d
Mi+itary services
4. Ather interests
Sports
>o00ies
Mem0ership of societies G c+u0s
Such an app+ication form *i++ achieve a num0er of purposes.
3o give a common 0asis for dra*ing up a short +ist.
3o provide a foundation of kno*+edge *hich can 0e used as the starting point for
the intervie*
3o aid in the post1intervie* decision1making stage.
>aving e+iminated a num0er of app+icants on the 0asis of the app+ication form/ an initia+
or fina+ short1+ist *i++ 0e dra*n up depending on *hether the intervie*ing procedure
invo+ves t*o stages or on+y one stage.
:$ Tet an% Intervie/
$n order to deve+op an in1depth understanding of the candidates/ the company may
administer himGher a num0er of psycho+ogica+ and other tests. 3he psycho+ogica+ test
attempt to identify and =uantify more accurate+y the various persona+ity traits and
attri0utes that are not usua++y measured 0y the screening of app+ication 0+anks or even
intervie*s. 3hree types of psycho+ogica+ test are used in the se+ection system of sa+es
personne+ tests of a0i+ity/ tests of ha0itua+ characteristics/ and tests of achievement 9 'ests
of ability attempt to measure ho* *e++ a person can perform a particu+ar task *ith
ma'imum motivations. 3hey are tests of 0est performance and inc+ude tests of menta+
a0i+ity :inte++igence tests; and test of specia+ a0i+ities/ or aptitude tests. 'ests of habitual
characteristics attempt to gauge ho* prospective emp+oyees *ou+d act in their dai+y
*ork norma++y/ i.e. not *hen they are on their 0est 0ehaviour. 3hese are tests of typica+
performance and they inc+ude attitude/ persona+ity/ and interest tests. %chievement tests
are designed to measure 4ho* much individua+s have +earnt from their training or
education5. "esides/ a company may a+so administer physica+G medica+ tests to ascertain
the physica+ fitness of the candidate for a hard and strenuous se++ing Eo0.
$ntervie*s may precede or fo++o* the administration of tests depending on the
convenience of the company. $ntervie*ing invo+ves persona+ interaction 0et*een the
candidate and intervie*er:s; in either a forma+G patterned or informa+ setting. $n these
intervie*s a candidate is asked a num0er of =uestions originating our of app+ication
0+anks so as to verify and interpret the facts contained therein as a+so to gather
supp+ementary re+evant information.
;$ Me%ical C*ec+-&p an% Re(erence C*ec+ing
3he institution may ask the candidates to undergo medica+ check1up to find out
their physica+ fitness for performing the Eo0.
3he organisation may ask the app+icant to furnish a fe* names *ho cou+d 0e
contacted 0y the emp+oyer to verify the va+idity of the information provided 0y the
app+icant and his persona+ 0ehaviour.
=$ Place7ent
@hen a ne* recruit is forma++y assigned his duties and educated a0out his *ork/
the se+ection process comes to an end. 3he genera+ tradition is such that supervisor or the
immediate 0oss of the ne* recruit takes him to the p+ace of *ork/ e'p+ains him his *ork/
and a+so informs him a0out the history/ deve+opment and traditions of the company.
3he se+ected emp+oyee on 0eing p+aced in inducted in the industry 0y ac=uainting
him *ith the overa++ organisation structure/ aims and o0Eectives/ his p+ace in the
organiDationa+ set1up his reporting authority/ his responsi0i+ities etc. >e is given a fee+ of
the organisation. >e is introduced to his superiors/ peers and su0ordinates. 3his makes
him comforta0+e and puts him at ease.
3he se+ection procedure differs from one organisation to another and a+so *ithin
the same organisatoin depending on the situation and needs of the organisatoin as *e++ as
the +eve+ for *hich se+ection is done. Moreover/ the se+ection process to se+ect +o*er1
+eve+ *orkers is +east e'pensive2 *hi+e the se+ection of top1+eve+ emp+oyees *ou+d 0e
much more e'pensive 0ecause it re=uires the use of comp+icated se+ection too+s.
TRAINING
3he essence of a++ training is the 0e+ief that performance of peop+e can 0e
improved through training. 3he same 0asic approach shou+d govern sa+es training as
*e++. $t shou+d rest on the conviction that every sa+esman can 0e improved through
carefu++y designed training.
3he need for training arises due to the fo++o*ing reasons9
:a; 3raining he+ps recruits to adEust to ne* methods and procedure of the firm.
:0; $t ena0+es the recruit to meet standards of performance e'pected of him *hich
*i++ increase his va+ue to the firm.
:c; $n the case of e'perience hands and present emp+oyees/ training ena0+es them
to ac=uire more and greater ski++s.
:d; Cood training reduces dissatisfaction among sa+esmen and reduces the rate of
sa+esmen turnover.
CONTENTS O, TRAINING
,eciding the content of training is a+so a very important task in organiDing sa+es
force training. Some of the common topics on *hich sa+esmen are given training are
+isted 0e+o*9
Bno*+edge a0out market
Bno*+edge a0out customers
Bno*+edge a0out products
Bno*+edge a0out competitions
Bno*+edge a0out the company
Bno*+edge a0out se++ing techni=ues
TRAINING MET5O!S
?or imparting training to sa+esmen a variety of training methods are avai+a0+e to
companies ranging form simp+e +ecturing to comp+e' sensitivity training.
Se+f Study
Fecture Method
,iscussion
%o+e +aying
Sensitivity 3raining
Case Study
An1the1Po0 3raining
Eval&ation o( Training
>aving trained the sa+esmen/ marketing management shou+d eva+uate the
effectiveness of the training sessions and the overa++ impact of the training programme on
the sa+esman8s performance. 3he overa++ impact of the programme/ on the other hand/
may 0e eva+uated 0y comparing sa+esman8s performance in terms of sa+es vo+ume/ sa+es
profita0i+ity/ order siDe/ e'penses etc. 0et*een pre1and post1training periods. >o*ever/
*hen sa+esmen are ne* recruit such comparisons may not 0e possi0+e. $n such a case
therefore/ Eudgment may 0e formed on the 0asis of a0so+ute tota+ performance.
COMPENSATION
Sa+esmen8s compensation means monetary re*ard given 0y a company to its
sa+esmen in consideration of the services rendered 0y them. $t genera++y inc+udes
contractua+ payments 0ut may a+so inc+ude non1contractua+ and adhoc payments.
Since every compensation p+an in respect of sa+esmen attempts to re*ard them for
their services to a company/ it serves as an important vehic+e for inducing them to
continue to serve it. $t not on+y keeps sa+esmen on the company ro++s 0ut a+so motivates
them to contri0ute to the gro*th of the company and there0y get gro*n individua++y.
"esides/ compensation is an important manageria+ too+ to contro+ and direct sa+es force to
attain the sa+es o0Eectives. $t a+so inf+uences customer re+ations and good*i++. 3herefore/
in the management of sa+es force/ the compensation p+an p+ays a very important ro+e.
ReD&ire7ent o( Goo% Co7penation Plan
$t shou+d 0e simp+e to understand 0y sa+esman.
$t shou+d 0e fair to 0oth the sa+esman and the company.
$t shou+d ensure a +iving *age to sa+esmen.
$t shou+d a+so 0e f+e'i0+e to provide scope for adEustment.
$t shou+d 0e easy and economica+ for administration.
Met*o% o( Co7penation
3here are 0asica++y three types of compensation p+an9
?i'ed sa+ary
Commission on+y
Sa+ary p+us commission
1$ Straig*t Salar.
$t is a very common method of compensating sa+esmen. $t is composed of on+y a fi'ed
component *hich they receive in the form of sa+ary paid in terms of a unit of time/
usua++y a month. $t is fi'ed and guaranteed and does and not vary *ith any measure of
productivity.
4$ Straig*t Co77iion
$t this method/ compensation is composed of on+y a varia0+e component *hich is
re+ated to some measure of productivity +ike sa+e vo+ume/ co++ection of outstanding
trade de0ts/ invoicing/ net profits/ etc. >o*ever/ usua++y/ sa+es vo+ume is the 0asis on
*hich sa+esmen8s commission in computed.
8$ Salar. Pl& Co77iion
@hen straight sa+ary and straight commission methods of compensation are com0ined
in some accepta0+e form/ the com0ination method of compensation emerges. $n this
method usua++y a mi' of sa+ary :fi'ed component; and commission :varia0+e
component; is deve+oped in such a *ay that sa+esmen are assured of a secured steady
income and a+so ade=uate incentive to *ork harder.
,ringe 0ene(it
"esides the a0ove/ sa+esmen are entit+ed to most of the fringe 0enefits given to other
company emp+oyees.
E'AL-ATION O, PER,ORMANCE O, SALES ,ORCE
3he +ast phase in sa+es force management/ 0ut in no *ay +ess significant than
others/ is the contro+ of sa+es force operations. $n the conte't of sa+es force
management/ contro+ means appraisa+ of sa+esman8s performance 0oth periodica++y
and on a continuing 0asis in order to determine the comp+iance of po+icies and
achievement of p+an targets in respect of their Eo0.
3he o0Eectives of sa+es force contro+ are to9
:i; ,etermine the performance +eve+s of sa+esmen.
:ii; Enforce the comp+iance of po+icy directives and achievement of targeted
performance +eve+s/ and
:iii; $dentify the areas *here corrective action is re=uired
Contro+ is a+so intended to deve+op a 0ase on *hich to consider sa+esmen for various
kinds of re*ards and pena+ties.
Met*o% o( Controlling Sale7en
1. ?i'ing sa+es =uota
2. Esta0+ishing sa+es territories
3. Esta0+ishing contro+ through reports and records
1. &i-ing *ales 8uota: Sa+es =uotas are =uantitative measures of the effectiveness of
sa+es peop+e. 3he =uota may 0e set in terms of va+ue or in terms of unit or sa+es.
Ruotas may a+so 0e set for ne* customers o0tained/ for orders taken for particu+ar
products or for a+most any type of marketing activity.
2. ,stablishing *ales 'erritorles: A sa+es territory is 4the 0asic unit of sa+es p+anning
and sa+es contro+/ representing a certain segment of the future sa+es and profits of
the company5. $t means the division of the market of the company into sma++
segments. 3his is not on+y means for contro++ing the sa+esmen 0ut from the
management point of vie* it has important 0earings on their sa+es p+anning.
3. ,stablishing Control 'hrough !eports and !ecords: Company records are a
varia0+e source of a variety of information pertaining to sa+esmen8s performance.
3his information is contained in sa+es invoices/ orders/ credit notes/ +edger
accounts etc. *hich are +ocated in the accounts and sa+es departments of a
company. An ana+ysis of these revea+s sa+esmen8s performance as regards sa+es
vo+ume/ gross margins/ average order siDe/ market share etc.
!eports sent 0y sa+esmen a0out their operations a+so provide considera0+e
information *hich *hen ana+yDed provide the re=uired inputs to measure performance.
3he reports may give information a0out ca++s made/ e'penses/ *ork p+an/ ne* 0usiness
0ooked/ +ost1sa+e etc.
Additiona+ information comes from persona+ o0servation/ consumer8s +etters and
comp+aints/ customer and ta+ks *ith other sa+espeop+e.
?orma+ eva+uation produces the fo++o*ing 0enefits9
Management must deve+op and communicate c+ear standards for Eudging
performance.
Management must gather *e++1rounded information a0out each sa+esperson.
Sa+espeop+e receive constructive feed0ack that he+ps them to improve future
performance.
Sa+espeop+e are motivated to perform *e++ 0ecause they kno* they are
ans*era0+e.
A fo++o*1up action is necessari+y re=uired after eva+uation of performance. @hen
appraisa+ is not fo++o*ed 0y any action is +oses much of its re+evance. 3herefore/ in order
to secure the effectiveness of the contro+ system/ management must trigger appropriate
action necessitated as a resu+t of appraisa+.
%evie* Ruestions9
1. ,iscuss the steps invo+ved in se++ing process.
2. Enumerate the =ua+ities re=uired for a successfu+ sa+esman.
3. @hat are the steps invo+ved in recruitment and se+ections of sa+esmenM
4. @hat is the need for training sa+es forceM "rief+y e'p+ain various training method.
5. @hat are the characteristics of a good compensation p+anM Specify different
methods of compensation of sa+es man.
!. @hat are the different methods of eva+uation of performance of sa+es forceM
IIIIIIIIIIIIIIII
CASE ANAL6SIS
A case is a description of situation invo+ving pro0+ems to 0e so+ved. >o*ever/ the
case may not have as comp+ete information a0out the pro0+em as reader *ishes. 3he
amount of detai+ re=uired *ou+d make the case too +ong to read to too detai+ed to ana+yDe.
A case may 0e presented either in structured form or in unstructured form. $n a high+y
structured case/ there are +eading =uestions at the end that indicate a focus and
predetermine the directions in *hich the discussion *i++ go.
3he case method of +earning has the fo++o*ing o0Eectives9
3he description of rea+ 0usiness situation to ac=uaint the +earner *ith the
princip+es and practices o0tained in *ork setting2
$ntroduction of rea+ism into forma+ instruction2
,emonstration of various types of goa+s/ pro0+ems/ facts/ conditions/ conf+icts and
persona+ities o0tained in organiDationa+ settings2
,eve+opment of decision1making a0i+ity2 and
,eve+opment of independent thinking 0ut cooperative approach to *ork in team
situations.
G&i%eline (or Cae Anal.i
3he 0asic approach in a case ana+ysis shou+d 0e to get on the pro0+em and provide
its so+ution. >o*ever/ this can 0e achieved on+y *hen the participants go through a
num0er of se=uentia+ activities. ?or e'amp+e/ a case ana+yst can put fo++o*ing =uestions
in se=uence to find the pro0+em and its +ike+y so+utions9
:i; @hat are the actua+ pro0+ems invo+ved in the caseM
:ii; @hat are the re+evant factsM
:iii; @hat are the crucia+ unkno*n aspects of the sceneM
:iv; @hat are the maEor critica+ =uestions re+ated to each specific eventM
:v; $n *hat *ays/ can +ogic and reasoning 0e used to determine crucia+ inference/
connections and re+ationshipsM
:vi; $n *hat manners contradictory facts and arguments can 0e *eighted in
making decisionsM
:vii; $n *hat *ays can 0e decisions 0e imp+ementedM
3he ans*ers of these =uestions *i++ +ead to define the pro0+em/ identify the
a+ternatives for pro0+em so+ution/ ana+ysis of those a+ternatives/ and fina++y to choose
the suita0+e a+ternative.
0&.er an% Retailer 0e*avio&r (or Matc*bo)e
1$ Lig*t/el Matc* Co7pan.
Mr. ankaE Cos*ami/ the Marketing Manager of Fight*e+ Match Company
+ooked at the report p+aced 0efore him entit+ed 4@hy are peop+e Striking ?e*er
Fight*e+ MatchesM5
3he performance of Fight*e+ in re+ation to the tota+ match industry had not 0een
very satisfactory in the +ast coup+e of years. 3he norms *hich Fight*e+ had
deve+oped for average amount of stock for different c+asses of retai+ers *ere no
+onger accepta0+e to the retai+ channe+.
3he "oard of ,irectors of the company had asked Mr. Cos*ami to report *hy the
sa+es *ere dec+ining/ *hy the seasona+ variations had 0ecome so +arge/ and to suggest
actions *hich shou+d 0e taken to sta0i+iDe the sa+es.
Mr. Cos*ami conducted a market research/ he 0egan to *onder a0out the options
open to Fight*e+. $t *as c+ear to him that the consumers *ere 0ecoming price
sensitive and 0rand +oya+ty *as +o*. Assau+ts 0y cheaper and reasona0+y good =ua+ity
sma++ sca+e 0rands had *eakened the customers8 as *e++ as retai+ers8 +oya+ty for
Fight*e+ 0rands. 3he retai+er 0ehaviour *as particu+ar+y *orrying 0ecause he *as
instrumenta+ in making 0rand choice decisions in a maEority of cases.
Mr. Cos*ami kne* that 0ecause of high overheads/ Fight*e+ cou+d i++ afford to
+o*er the prices of e'isting 0rands. A cheaper and some*hat +o*er =ua+ity 7fighting
0rand8 cou+d 0e introduced 0ut there *as a risk of hurting Fight*e+8s image. 3he
research report and indicated many p+us points in terms of =ua+ity image of Fight*e+
0rands. 3he consumers 0ehaviour in monsoon season confirmed this. Mr. Cos*ami
*ondered *hether he cou+d capita+iDe on his su0stantia+ image advantage to increase
the sa+es of Fight*e+ matches.
2&etion3
1. @hy is Fight*e+ finding its market positions s+ippingM @hat is the decision issues
0efore Fight*e+ E'ecutives at this stagesM
2. @hat marketing strategy options are avai+a0+e to Fight*e+M @hat shou+d it do any
*hyM
IIIIIII
Intro%&cing a Ne/ Pro%&ct
4$ 5o&e*ol% Pro%&ct AIn%iaB Lt%$
Mr. %ahu+/ the marketing Manager for 3oi+et soaps/ *as e'amining the draft 73est
Market roposa+8 for a ne* toi+et soap/ *hich *as prepared 0y the roduct Manager.
3he Marketing Manager and the roduct Manager had 0een discussing the need
for test marketing the product to get some feed 0ack on the effectiveness of the
marketing mi' as *e++ as to get some indication on the share that the 0rand cou+d
achieve nationa+ity. 3hey *ere not very keen on committing +arge resources at this
stage and *ere therefore thinking of recommending a to*n test. >o*ever/ 0ecause of
the uni=ue promise of 7ure Soap made from ure <egeta0+e Ai+s8/ they fe+t it *as
a+so necessary to test it in a market *hich *as not +ike+y to 0e particu+ar+y responsive
to this 0enefit. 3he roduct Manager suggested that $ndore and >ydera0ad cou+d 0e
se+ected as the test to*s. $ndore 0eing a market *hich is +ike+y to respond to this
uni=ue 0enefit of purity and >ydera0ad representing markets *hich may not va+ue
such 0enefit so much. 3hese *ere +arge enough to*ns for dra*ing conc+usions from
e'perience there. $t *as thus decided to run the test in these to*ns for a period of ( .
12 months.
2&etion3
1. ,id the company have ade=uate information at various stages of the ne* product
introduction effortM
2. @hat information *ou+d you need to eva+uate the test market and recommend a
decision on e'tension of this productM
3. @hat research *ou+d you suggest for this purposeG
IIIIIIIIIIII
Poitioning a Pro%&ct
8$ A7baa%or Torc*lig*t
Am0assador 3orch+ights he+d the second +argest share of the market for dry ce++
0atteries and a++ied products. 3he company *anted to uti+iDe their distri0ution strength
and *ere toying *ith the idea of taking over the distri0ution of some consumer items.
@ith a vie* to e'p+ore the possi0i+ity of taking up distri0utions of 0+ades/ Mr. M.A.
>a0i0/ Sa+es Manager of Am0assador 3orch+ights/ contracted Mr. <ikram ate+/
Managing ,irector of Centra+ $ndustries/ apart from manufacturing 0+ades for other
organiDations/ has its o*n +ine of 0+ades. Some of the 0rands had 0een +aunched recent+y.
Encouraged 0y the initia+ response/ Centra+ $ndustries had opened %egiona+ Sa+es
Affices in a++ the four metro to*ns and had recruited a +arge num0er of sa+es staff for
each of these offices. Averheads for each of these offices *ere considera0+e. At the time
Mr. >a0i0 ca++ed on Mr. ate+/ the marketing department at the >ead Affice of Centra+
$ndustries *as p+anning a nationa+ promotiona+ campaign to encourage repeat purchasing
for t*o of its prestige 0rands. 3he cost of this promotion *as estimated to 0e a0out %s.
1- +akhs.
,uring the meeting it transpired that Mr. ate+ *as very keen that Am0assador
3orch+ights shou+d take over the distri0ution of his o*n 0rands/ 7Sp+ash8 and
7A*ake8. 3his/ he fe+t/ *ou+d ena0+e him to c+ose do*n the %egiona+ Affices. >e
*as/ ho*ever/ *i++ing to maintain the centra+ marketing department to advise
Am0assador 3orch+ights/ as +ong a they fe+t it *as necessary agreea0+e 0asis. >e/
ho*ever/ insisted on maintaining the right to terminate Am0assador 3orch+ights as
se++ing agents if he *as not satisfied *ith their performance.
A7baa%or Co7pan.< Proble73
@hen Mr. >a0i0 reported the resu+ts of his meeting. Am0assador8s top
management *ere faced *ith the fo++o*ing pro0+ems9
1. @hether to opt for their o*n private 0rand or to take over distri0ution of 7Sp+ash8
and 7A*ake8M $n case they chose the +etter/ they cou+d definite+y cash in on the
a*areness the 0rand had a+ready created. 3he pro0+em *as/ even if they did a
good Eo0 and achieved some success/ there *as not guarantee that Mr. ate+
*ou+d not one day e'press dissatisfactions *ith their performance/ terminate them
and cash in on their 7fruits of +a0our8.
2. $f they preferred to market their o*n 0rand/ ho* shou+d the product 0e
positionedM Shou+d they go for a car0on stee+ or stain+ess stee+ 0+adeM @hat
segment of the popu+ation shou+d they cater toM @hat shou+d the price 0eM @hat
shou+d 0e the advertising and promotiona+ strategyM
3. $f they opted for Centra+8s 0rands 7Sp+ash8 and 7A*ake8/ they needed to kno* shy
the repurchase rate *as +o*M @hat advertising and promotiona+ strategyM
?ee+ing that the issues *ere =uite comp+e'/ they ca++ed in a consu+tant. $n vie* of the
urgency of the pro0+em they re=uested him to su0mit his recommendations *ithin a
*eek.
2&etion3
1. Shou+d Am0assador 3orch+ights take up the distri0utions of 0+adesM $f yes/ shou+d
they go in for their o*n :private; 0rand or shou+d they up one or more of Centra+
$ndustries 0randsM
2. @hat are the product positions of the maEor 0randsM $s there an attractive product
position avai+a0+e *here Am0assador cou+d introduce its 0randM
3. @hat marketing strategy shou+d 0e re=uired if Am0assador *ants to create and
sustain a successfu+ 0rand position in the high+y competitive 0+ade marketM
IIIIIIIIIII
MARKETING MANAGEMENT
SECTION 1 A
Ans*er and ive =uestions
A++ =uestions carry e=ua+ marks
1. @hat is modern marketing conceptM @hat are its e+ementsM @hat is societa+
marketing conceptM
2. @hat is market segmentationM @hat are its 0ases and 0enefitsM
3. @hat are the e'terna+ environmenta+ factors affecting marketing decisionsM
4. @hat is marketing researchM "rief+y e'p+ain the procedure of conducting
marketing researchM
5. @hat is FC conceptM >o* does it he+ps the marketing manager in his decision1
makingM
!. @hat do you understand 0y channe+ conf+ictM >o* *ou+d you manage such
conf+ictM
#. @hat are the steps invo+ved in se++ing processM
&. >o* *ou+d you eva+uate effectiveness of advertisingM
Section 1 0
Ans*er and our =uestions
Ruestion No$ 1; is compu+sory.
(. @hat are the factors that determine process.
1-. E'p+ain ne* product deve+opment process.
11. @hat are the genera+ approaches to pricingM @hat are the pricing methods
adopted in practiceM
12. @hat are the factors that decide the choice of a distri0utions channe+sM
13. @hat are the decision areas in advertisingM
14. @hat are the o0Eectives of sa+es promotionM E'p+ain the methods of sa+es
promotion.
15. Attempt the fo++o*ing Case9
,ecision %egarding )e* Sa+es 3raining rogramme
S&nrie 0ic&it I 0everage Co7pan.
Mr. .<. Brishnamoorthy *as the ,irector of Sa+es and Marketing of Sunrise
"iscuit N "everage Company. >e gave +ectuires at the sa+esmen training programme at
the Company8s "anga+ore Done in *hich a group of sa+esmen from his region
participated. Mr. .<. Brishnamoorthy had to make a decision as to *hether to continue
the training programme or not. >e reca++ed that in the training programme *hich had Eust
ended/ an e'perienced sa+esman of the company/ Mr. B. %aEagopa+ *ho participated in
the training said that the he had enEoyed the programme and found the topics discussed
=uite stimu+ating.
Jnti+ recent+y/ the on+y type of the training done in the company *as in the fie+d.
3he ne* recruits *ere attached to an e'perienced sa+esman. 3he training period *as !
*eeks. At the end *ritten test *as conducted and assessment *as made.
Af +ate/ he company had 0egan some rethinging on sa+esmen training 0ecause of
changes in se++ing environment. ,ea+ers *ere 0ecoming more critica+. Competition
0ecome acute. A++ these environmenta+ changes made to difficu+t for the company to
operate in the same manner that they had 0een kkEk+2E+k to. 3here *as a+so a concern/
*hether the o+der sa+esmen *ere adapta0+e kEEhh Ekhk to. 3here *as a+so a concern/
*hether the o+der sa+esmen *ere adapta0+i0kEh ne* methods of se++ing.
3he sa+es training manager Mr. Cos*ami fe+t further training *as dEhdfgsd in the
area of se++ing techni=ue/ consumer 0ehariour etc. to 0e effective iEkhgfd ne* competitive
environment.
>ence/ Mr. .<. Brishnamoorthy instructed Mr. Cos*ami to p+an a ne* training
programme on an e'perimenta+ 0asis. 3he training programmes *ere conducted at
different Zona+ offices.
Mr. .<. Brishnamoorthy *anted to assess the impact of training conducted
kgEdgd e'perimenta+ 0asis. According Mr. Cos*ami deve+oped a rkghEsdfkgEdsf
eva+ution 0ased on the fo++o*ing.
A su0Eective on the spot eva+uation *as made 0y the participants immediate+y
after the programme.
3he sa+esmen *ere encouraged to send feed0ack of specific instances of the
e+ements of the training programme/ *hich *ere imp+emented.
3he sa+es supervisors and the area sa+es managers *ere a+so gave their opinion
a0out the impact of training.
$t *as a+so decided to carry out an o0Eective eva+uating using an e'perimenta+
design.
3he genera+ reaction regareding the training programme from sa+esmen and the area sa+es
managers *ere =uite favoura0+e. Mr. .<. Brishnamoorthy *as p+eased a0out this and
asked Mr. Cos*ami to find out the tota+ coast of training programme. >e a+so asked him
to think a0out a+ternatives *ays of uti+iDing the same money in deve+oping the sa+esmen.
Mr. .<. Brishnamoorthy a+so *ondered *hether it may not 0e a 0etter idea to direct+y
recruit sa+esmen *ho a+ready had some professiona+ training in sa+esmanship. >e a+so
suggested that it might 0e *orth*hi+e idea to train the sa+es supervisors *ho cou+d then
direct+y train the sa+esmen in the fie+d.
2&etion3
1. Shou+d the company go for the ne* training programmeM
2. Shou+d the entire sa+es force 0e coveredM
3. @hat shou+d 0e the content and form of the training programmeM
4. Can the se++ing efficiency 0e improved in some other *ayM
5. @hat is the ro+e of training in the overa++ deve+opment of the sa+es forceM