PGDM (3rd Semester) Dated: 5th Jan 2018

Notes (Module-I)
1. Marketing concepts
2. Definition of marketing
3. Market, marketers
4. Customer need, wants
5. The production, product, selling
6. Holistic marketing, Internal and Integrated marketing
concepts.
MARKETING MANAGEMENT-DM 205
REVISION NOTES FOR IST TERM

Introduction to marketing Concepts; Broadly defined, marketing is a social and managerial

process by which individuals and organizations obtain what they need and want through creating
and exchanging value with others.

Hence, we define marketing as the process by which companies create value for customers and
build strong customer relationships in order to capture value from customers in return.

Customer Needs, Wants, and Demands

Human needs are states of felt deprivation. They include basic physical needs for food, clothing,
warmth, and safety; social needs for belonging and affection; and individual needs for knowledge
and self-expression.

Wants are the form human needs take as they are shaped by culture and individual personality.
An American needs food but wants a Big Mac, French fries, and a soft drink. A person in Papua
New Guinea needs food but wants taro, rice, yams, and pork. Wants are shaped by one’s society
and are described in terms of objects that will satisfy those needs.

When backed by buying power, wants become demands. Given their wants and resources,
people demand products with benefits that add up to the most value and satisfaction.

Market Offerings—Products, Services, and Experiences

Consumers’ needs and wants are fulfilled through market offerings—some combination of
products, services, information, or experiences offered to a market to satisfy a need or a want.
Market offerings are not limited to physical products. They also include services— activities or
benefits offered for sale that are essentially intangible and do not result in the ownership of
anything. Examples include banking, airline, hotel, tax preparation, and home repair services.

More broadly, market offerings also include other entities, such as persons, places, organizations,
information, and ideas. World Disney Land sells an experience to the customers as they spend
time at Disney Land. They carry the pleasant memories of their experience which is no product
or service.

Customer Value and Satisfaction

Consumers usually face a broad array of products and services that might satisfy a given need.
Customers form expectations about the value and satisfaction that various market offerings will
deliver and buy accordingly. Satisfied customers buy again and tell others about their good
experiences. Dissatisfied customers often switch to competitors and disparage the product to

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others. Customer value and customer satisfaction are key building blocks for developing and
managing customer relationships.

Markets
A market is the set of actual and potential buyers of a product or service. These buyers share a
particular need or want that can be satisfied through exchange relationships. Marketing means
managing markets to bring about profitable customer relationships.

Marketing Management Orientations

There are five alternative concepts under which organizations design and carry out their
marketing strategies: the production, product, selling, marketing, and societal marketing
concepts.

The production concept holds that consumers will favour products that are available and highly
affordable. Therefore, management should focus on improving production and distribution
efficiency.

The production concept is still a useful philosophy in some situations. For example, computer
maker Lenovo dominates the highly competitive, price-sensitive Chinese PC market through low
labour costs, high production efficiency, and mass distribution.

However, although useful in some situations, the production concept can lead to marketing
myopia. Companies adopting this orientation run a major risk of focusing too narrowly on their
own operations and losing sight of the real objective—satisfying customer needs and building
customer relationships.

The product concept holds that consumers will favour products that offer the most in quality,
performance, and innovative features. Under this concept, marketing strategy focuses on making
continuous product improvements. Product quality and improvement are important parts of
most marketing strategies. However, focusing only on the company’s products can also lead to
marketing myopia.

The Selling concept, which holds that consumers will not buy enough of the firm’s products
unless it undertakes a large-scale selling and promotion effort. The selling concept is typically
practiced with unsought goods—those that buyers do not normally think of buying, such as
insurance or blood donations. These industries must be good at tracking down prospects and
selling them on a product’s benefits.

The marketing concept holds that achieving organizational goals depends on knowing the needs
and wants of target markets and delivering the desired satisfactions better than competitors do.
Under the marketing concept, customer focus and value are the paths to sales and profits.

The societal marketing concept holds that marketing strategy should deliver value to customers
in a way that maintains or improves both the consumer’s and society’s well-being. It calls for
sustainable marketing, socially and environmentally responsible marketing that meets the

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present needs of consumers and businesses while also preserving or enhancing the ability of
future generations to meet their needs.

Consider today’s bottled water industry. You may view bottled water companies as offering a
convenient, tasty, and healthy product. Yet making, filling, and shipping billions of plastic bottles
generates huge amounts of carbon dioxide emissions that contribute substantially to global
warming. Further, the plastic bottles pose a substantial recycling and solid waste disposal
problem. Thus, in satisfying short-term consumer wants, the bottled water industry may be
causing environmental problems that run against society’s long-run interests.

Delivering Customer Value and Satisfaction

Customer Value. Attracting and retaining customers can be a difficult task. Customers often face
a bewildering array of products and services from which to choose. A customer buys from the
firm that offers the highest customer-perceived value (CPV)—the customer’s evaluation of the
difference between all the benefits and all the costs of a market offering relative to those of
competing offers. Importantly, customers often do not judge values and costs “accurately” or
“objectively.” They act on perceived value.

Customer Satisfaction. Customer satisfaction depends on the product’s perceived performance

relative to a buyer’s expectations. If the product’s performance falls short of expectations, the
customer is dissatisfied. If performance matches expectations, the customer is satisfied. If
performance exceeds expectations, the customer is highly satisfied or delighted.

customer lifetime value the entire stream of purchases that the customer would make over a
lifetime of patronage.

Customer equity is the total combined customer lifetime values of all of the company’s current
and potential customers. As such, it’s a measure of the future value of the company’s customer
base. Clearly, the more loyal the firm’s profitable customers, the higher its customer equity.
Customer equity may be a better measure of a firm’s performance than current sales or market
share.

Value chain

Every firm consists of a collection of activities performed to design, produce, market, deliver
and support the firm's products. The value chain breaks the firm into nine value-creating
activities in an effort to understand the behaviour of costs in the specific business and the
potential sources of competitive differentiation.
The nine value-creating activities include five activities primary and four support activities.
The primary activities involve the -sequence of bringing materials into the business (inbound
logistics), operating on them (operations), sending them out (outbound logistics), marketing
them (marketing and sales) and servicing them (service).
For a long time, firms have focused on the product as the primary means of adding value, but
customer satisfaction also depends upon the other stages of the value chain.

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 The support activities occur within each of these primary activities. For example, procurement
involves obtaining the various inputs for each procurement is done by the purchasing
department.
Under the value-chain concept, the firm should examine its costs and performance
in each value-creating activity to look for improvements. It should also
estimate its competitors' costs and performances as benchmarks. To the extent
that the firm can perform certain activities better than its competitors, it can
achieve a competitive advantage.

strategic planning—the process of developing and maintaining a strategic fit between the
organization’s goals and capabilities and its changing marketing opportunities. The strategic plan
involves adapting the firm to take advantage of opportunities in its constantly changing
environment.

Defining a Market-Oriented Mission

A mission statement is a statement of the organization’s purpose—what it wants to accomplish
in the larger environment. A clear mission statement acts as an “invisible hand” that guides
people in the organization. Mission statements should be meaningful and specific yet motivating.
They should emphasize the company’s strengths in the marketplace.

Google’s mission statement, it’s “To organize the world’s information and make it universally
accessible and useful.” That’s simultaneously inspirational, achievable, and completely graspable.
Finally, a company’s mission should not be stated as making more sales or profits; profits are only
a reward for creating value for customers. Instead, the mission should focus on customers and
the customer experience the company seeks to create. Thus, McDonald’s mission, it’s “to
be our customers’ favourite place and way to eat.” If McDonald’s accomplishes this customer
focused mission, profits will follow.

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Setting Company Objectives and Goals
The company needs to turn its mission into detailed supporting objectives for each level of
management. Each manager should have objectives and be responsible for reaching them. For
example, Kohler makes and markets familiar kitchen and bathroom fixtures—everything from
bathtubs and toilets to kitchen sinks. But Kohler also offers a breadth of other products and
services, including furniture, tile and stone, and even small engines and backup power systems.
It also owns resorts and spas in the United States and Scotland. Kohler ties this diverse product
portfolio together under the mission of “contributing to a higher level of gracious living for those
who are touched by our products and services.”

This broad mission leads to a hierarchy of objectives, including business objectives and marketing
objectives. Kohler’s overall objective is to build profitable customer relationships by developing
efficient yet beautiful products that embrace the “essence of gracious living” mission. It does this
by investing heavily in research and design.

Designing the Business Portfolio

Guided by the company’s mission statement and objectives, management now must plan its
business portfolio—the collection of businesses and products that make up the company. The
best business portfolio is the one that best fits the company’s strengths and weaknesses to
opportunities in the environment. Business portfolio planning involves two steps.
First, the company must analyse its current business portfolio and determine which businesses
should receive more, less, or no investment. Second, it must shape the future portfolio by
developing strategies for growth and downsizing.

Analysing the Current Business Portfolio

The major activity in strategic planning is business portfolio analysis, whereby management
evaluates the products and businesses that make up the company. The company will want to put
strong resources into its more profitable businesses and phase down or drop its weaker ones.

Management’s first step is to identify the key businesses that make up the company, called
strategic business units (SBUs). An SBU can be a company division, a product line within a division,
or sometimes a single product or brand.

The company next assesses the attractiveness of its various SBUs and decides how much support
each deserves. When designing a business portfolio, it’s a good idea to add and support products
and businesses that fit closely with the firm’s core philosophy and competencies.

The purpose of strategic planning is to find ways in which the company can best use its strengths
to take advantage of attractive opportunities in the environment. So most standard portfolio
analysis methods evaluate SBUs on two important dimensions: the attractiveness of the SBU’s
market or industry and the strength of the SBU’s position in that market or industry.

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The best-known portfolio-planning method was developed by the Boston Consulting Group (BCG),
a leading management consulting firm.

The Boston Consulting Group Approach. Using the now-classic Boston Consulting Group (BCG)
approach, a company classifies all its SBUs according to the growth-share matrix, as shown in
Figure 2.2. On the vertical axis, market growth rate provides a measure of market attractiveness.
On the horizontal axis, relative market share serves as a measure of company strength in the
market. The growth-share matrix defines four types of SBUs

1. Stars. Stars are high-growth, high-share businesses or products. They often need heavy
investments to finance their rapid growth. Eventually their growth will slow down, and they will
turn into cash cows.

2. Cash Cows. Cash cows are low-growth, high-share businesses or products. These established
and successful SBUs need less investment to hold their market share. Thus, they produce a lot of
the cash that the company uses to pay its bills and support other SBUs that need investment.

3. Question Marks. Question marks are low-share business units in high-growth markets. They
require a lot of cash to hold their share, let alone increase it. Management has to think hard
about which question marks it should try to build into stars and which should be phased out.

4. Dogs. Dogs are low-growth, low-share businesses and products. They may generate enough
cash to maintain themselves but do not promise to be large sources of cash.

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Once it has classified its SBUs, the company must determine what role each will play in the future.
It can pursue one of four strategies for each SBU. It can invest more in the business unit to build
its share. Or it can invest just enough to hold the SBU’s share at the current level. It can harvest
the SBU, milking its short-term cash flow regardless of the long-term effect. Finally, it can divest
the SBU by selling it or phasing it out and using the resources elsewhere.

Developing Strategies for Growth and Downsizing

Beyond evaluating current businesses, designing the business portfolio involves finding
businesses and products the company should consider in the future. Companies need growth if
they are to compete more effectively, satisfy their stakeholders, and attract top talent. At the
same time, a firm must be careful not to make growth itself an objective. The company’s
objective must be to manage “profitable growth.” Marketing has the main responsibility for
achieving profitable growth for the company. Marketing needs to identify, evaluate, and select
market opportunities and establish strategies for capturing them.

One useful device for identifying growth opportunities is the product/market expansion grid,
shown in Figure 2.3.7

Product/market expansion grid; A portfolio-planning tool for identifying company growth

current products to current market segments without changing the product.

1. Market penetration—making more sales without changing its original product. It can spur
growth.
2. Market development—identifying and developing new markets for its current products.
3. Product development—offering modified or new products to current markets.
4. Diversification—starting up or buying businesses beyond its current products
and markets.

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Companies must not only develop strategies for growing their business portfolios but also
strategies for downsizing them. There are many reasons that a firm might want to abandon
products or markets. The firm may have grown too fast or entered areas where it lacks
experience. This can occur when a firm enters too many international markets without the proper
research or when a company introduces new products that do not offer superior customer value.
The market environment might change, making some products or markets less profitable. For
example, in difficult economic times, many firms prune out weaker, less profitable products and
markets to focus their more limited resources on the strongest ones. Finally, some products or
business units simply age and die.

Customer-Driven Marketing Strategy

Companies know that they cannot profitably serve all consumers in a given market—at least not
all consumers in the same way. There are too many different kinds of consumers with too many
different kinds of needs. Most companies are in a position to serve some segments better than
others. Thus, each company must divide up the total market, choose the best segments, and
design strategies for profitably serving chosen segments. This process involves market
segmentation, market targeting, differentiation, and positioning.

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Market Segmentation The market consists of many types of customers, products, and needs.
The marketer must determine which segments offer the best opportunities. Consumers can be
grouped and served in various ways based on geographic, demographic, psychographic, and
behavioural factors. The process of dividing a market into distinct groups of buyers who have
different needs, characteristics, or behaviours, and who might require separate products or
marketing programs is called market segmentation.

A market segment consists of consumers who respond in a similar way to a given set of marketing
efforts. In the car market, for example, consumers who want the biggest, most comfortable car
regardless of price make up one market segment. Consumers who care mainly about price and
operating economy make up another segment.

Demographic segmentation divides the market into segments based on variables such as age,
gender, family size, family life cycle, income, occupation, education, religion, race, generation,
and nationality.

Age and Life-Cycle Stage. Consumer needs and wants change with age. Some companies use
age and life-cycle segmentation, offering different products or using different marketing
approaches for different age and life-cycle groups. For example, for children, designed with
parents and their children in mind.

Market Targeting; After a company has defined its market segments, it can enter one or many
of these segments. Market targeting involves evaluating each market segment’s attractiveness
one or more segments to enter. A company should target segments in which it can profitably
generate the greatest customer value and sustain it over time.

A company with limited resources might decide to serve only one or a few special segments or
market niches. Such nichers specialize in serving customer segments that major competitors
overlook or ignore. although Logitech is only a fraction the size of giant Microsoft, through skilful
niching, it dominates the PC mouse market, with Microsoft as its runner up.

Market Differentiation and Positioning

After a company has decided which market segments to enter, it must decide how it will
differentiate its market offering for each targeted segment and what positions it wants to occupy
in those segments. A product’s position is the place it occupies relative to competitors’ products
in consumers’ minds. Marketers want to develop unique market positions for their products. If a
product is perceived to be exactly like others on the market, consumers would have no reason to
buy it.

Positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative
to competing products in the minds of target consumers. Marketers plan positions that
distinguish their products from competing brands and give them the greatest advantage in their
target markets. In positioning its product(s), the company first identifies possible customer value
differences that provide competitive advantages on which to build the position. The company

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can offer greater customer value by either charging lower prices than competitors or offering
more benefits to justify higher prices. But if the company promises greater value, it must then
deliver that greater value. Thus, effective positioning begins with differentiation—actually
differentiating the company’s market offering so that it gives consumers more value.

Developing an Integrated Marketing Mix

After determining its overall marketing strategy, the company is ready to begin planning the
details of the marketing mix, one of the major concepts in modern marketing. The marketing mix
is the set of tactical marketing tools that the firm blends to produce the response it wants in the
target market. The marketing mix consists of everything the firm can do to influence the demand
for its product. The many possibilities can be collected into four groups of variables—the four Ps.

• Product means the goods-and-services combination the company offers to the target market.
Thus, a Ford Escape consists of nuts and bolts, spark plugs, pistons, headlights, and thousands of
other parts. Ford offers several Escape models and dozens of optional features. The car comes
fully serviced and with a comprehensive warranty that is as much a part of the product as the
tailpipe.

•Price is the amount of money customers must pay to obtain the product. Ford calculates
suggested retail prices that its dealers might charge for each Escape. But Ford dealers rarely
charge the full sticker price. Instead, they negotiate the price with each customer, offering
discounts, trade-in allowances, and credit terms. These actions adjust prices for the current
competitive and economic situations and bring them into line with the buyer’s perception of the
car’s value.

• Place includes company activities that make the product available to target consumers. Ford
partners with a large body of independently owned dealerships that sell the company’s many
different models. Ford selects its dealers carefully and strongly supports them. The dealers keep
an inventory of Ford automobiles, demonstrate them to potential buyers, negotiate prices, close
sales, and service the cars after the sale.

• Promotion means activities that communicate the merits of the product and persuade target
customers to buy it. Ford spends more than $1.5 billion each year on U.S. advertising to tell
consumers about the company and its many products. Dealership salespeople assist potential
buyers and persuade them that Ford is the best car for them. Ford and its dealers offer special
promotions—sales, cash rebates, and low financing rates—as added purchase incentives

Differentiation and Positioning Strategy

The differentiation and positioning task consists of three steps: 1) identifying a set of
differentiating competitive advantages on which to build a position, 2) choosing the right
competitive advantages, and 3) selecting an overall positioning strategy. The company must then
effectively communicate and deliver the chosen position to the market.

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But in many cases, two or more firms will go after the same position. Then each will have to find
other ways to set itself apart. Each firm must differentiate its offer by building a unique bundle
of benefits that appeals to a substantial group within the segment. Above all else, a brand’s
positioning must serve the needs and preferences of well-defined target markets. For example,
although both Dunkin’ Donuts and Starbucks are coffee shops, they offer very different product
assortments and store atmospheres. Yet each succeeds because it creates just the right value
proposition for its unique mix of customers.

Positioning Map: Large Luxury SUVs

The firm can differentiate itself along the lines of product, services, channels, people, or image.
Through product differentiation, brands can be differentiated on features, performance, or style
and design. Thus, Bose positions its speakers on their striking design and sound characteristics.

Some companies gain services differentiation through speedy, convenient, or careful delivery.
For example, First Convenience Bank of Texas offers “Real Hours for Real People”; it is open seven
days a week, including evenings.

Firms that practice channel differentiation gain competitive advantage through the way they
design their channel’s coverage, expertise, and performance. Amazon.com and GEICO
themselves apart with their smooth-functioning direct channels.

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Companies can also gain a strong competitive advantage through people differentiation—hiring
and training better people than their competitors do. Disney World people are known to be
friendly and upbeat. People differentiation requires that a company select its customer-contact
people carefully and train them well.

Even when competing offers look the same, buyers may perceive a difference based on company
or brand image differentiation. A company or brand image should convey a product’s distinctive
benefits and positioning.

Symbols, such as the McDonald’s golden arches, the red Travelers umbrella, the Nike swoosh, or
Apple’s “bite mark” logo, can provide strong company or brand recognition and differentiation.

The Four Ps of the Marketing Mix

Product
Price
Variety List price
Quality Discounts
Design Allowances
Features Payment period
Brand name Credit terms
Packaging
Services

Target
customers

Intended
positioning
Promotion Place
Channels
Coverage
Advertising Locations
Personal selling Inventory
Sales promotion Transportation
Public relations Logistics

Marketing Analysis
Managing the marketing function begins with a complete analysis of the company’s situation.
The marketer should conduct a SWOT analysis (pronounced “swat” analysis), by which it

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evaluates the company’s overall strengths (S), weaknesses (W), opportunities (O), and threats (T)
Strengths include internal capabilities, resources, and positive situational factors that may help
the company serve its customers and achieve its objectives. Weaknesses include internal
limitations and negative situational factors that may interfere with the company’s performance.
Opportunities are favourable factors or trends in the external environment that the company
may be able to exploit to its advantage. And threats are unfavourable external factors or trends
that may present challenges to performance. The company should analyse its markets and
marketing environment to find attractive opportunities and identify environmental threats. It
should analyse company strengths and weaknesses as well as current and possible marketing
actions to determine which opportunities it can best pursue. The goal is to match the company’s
strengths to attractive opportunities in the environment, while eliminating or overcoming the
weaknesses and minimizing the threats.

Strength
Internal capabilities that
Internal may help the company reach
its objectives
Opportunities
External External factors that the
company may be able to
exploit to its advantage
Weakness
internal limitations that
may interfere with the
company’s objectives.
ability to achieve its
Threats
Current and emerging
external factors that may
challenge the company’s
performance.

Positive Negative

Marketing environment
A company’s marketing environment consists of the actors and forces outside marketing that
affect marketing management’s ability to build and maintain successful relationships with target
customers. Like Xerox, companies constantly watch and adapt to the changing environment.

The marketing environment consists of a microenvironment and a macroenvironment. The

microenvironment consists of the actors close to the company that affect its ability to serve its
customers—the company, suppliers, marketing intermediaries, customer markets, competitors,
and publics.

The macroenvironment consists of the larger societal forces that affect the microenvironment—
demographic, economic, natural, technological, political, and cultural forces. We look first at the
company’s microenvironment.

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The Microenvironment

Marketing management’s job is to build relationships with customers by creating customer value
and satisfaction. However, marketing managers cannot do this alone. Marketing success requires
building relationships with other company departments, suppliers, marketing intermediaries,
competitors, various publics, and customers, which combine to make up the company’s value
delivery network.

The Company
In designing marketing plans, marketing management takes other company groups into
account—groups such as top management, finance, research and development (R&D),
purchasing, operations, and accounting. All of these interrelated groups form the internal
environment.
Top management sets the company’s mission, objectives, broad strategies, and policies.
Marketing managers make decisions within the strategies and plans made by top management.

Suppliers
Suppliers form an important link in the company’s overall customer value delivery network.
They provide the resources needed by the company to produce its goods and services. Supplier
problems can seriously affect marketing. Marketing managers must watch supply availability and
costs. Supply shortages or delays, labour strikes, and other events can cost sales in the short run
and damage customer satisfaction in the long run. Rising supply costs may force price increases
that can harm the company’s sales volume.

Marketing intermediaries help the company promote, sell, and distribute its products to
final buyers. They include resellers, physical distribution firms, marketing services agencies, and
financial intermediaries. Resellers are distribution channel firms that help the company find
customers or make sales to them. These include wholesalers and retailers who as Marketing
intermediaries help the company promote, sell, and distribute its products to final buyers.
Physical distribution firms help the company stock and move goods from their points of origin to
their destinations.
Marketing services agencies are the marketing research firms, advertising agencies, media firms,
and marketing consulting firms that help the company target and promote its products to the
right markets.
Financial intermediaries include banks, credit companies, insurance companies, and other
businesses that help finance transactions or insure against the risks associated with the buying
and selling of goods. Like suppliers, marketing intermediaries form an important component of
the company’s overall value delivery network.
Thus, today’s marketers recognize the importance of working with their intermediaries as
partners rather than simply as channels through which they sell their products. For example,
when Coca-Cola signs on as the exclusive beverage provider for a fast-food chain, such as
McDonald’s, Wendy’s, or Subway, it provides much more than just soft drinks. It also
pledges powerful marketing support.

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Competitors
The marketing concept states that, to be successful, a company must provide greater customer
value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt
to the needs of target consumers. They also must gain strategic advantage by positioning their
offerings strongly against competitors’ offerings in the minds of consumers.

Publics
The company’s marketing environment also includes various publics. A public is any group that
has an actual or potential interest in or impact on an organization’s ability to achieve its
objectives. We can identify seven types of publics:
• Financial publics
• Media publics
• Government publics.
• Citizen-action publics.
• Local publics.
• General public.
• Internal publics.

Customers
Consumer markets consist of individuals and households that buy goods and services for
personal consumption. Business markets buy goods and services for further processing or use in
their production processes, whereas reseller markets buy goods and services to resell at a
profit. Government markets consist of government agencies that buy goods and services to
produce public services or transfer the goods and services to others who need them. Finally,
international markets consist of these buyers in other countries, including consumers,
producers, resellers, and governments. Each market type has special characteristics that call for
careful study by the seller.

Public
Any group that has an actual or potential interest in or impact on an organization’s ability to
achieve its objectives.

The Macroenvironment
The company and all of the other actors operate in a larger macroenvironment of forces that
shape opportunities and pose threats to the company. There are six major forces in the
macroenvironment and these are;

The Demographic Environment

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Demography is the study of human populations in terms of size, density, location, age, gender,
race, occupation, and other statistics. The demographic environment is of major interest
to marketers because it involves people, and people make up markets.
Generation X
The Generation Xers are defined as much by their shared experiences as by their age. Although
they seek success, they are less materialistic; they prize experience, not acquisition. For many
of the Gen Xers who are parents, family comes first—both children and their aging parents—
and career second. From a marketing standpoint, the Gen Xers are a more skeptical bunch.
They tend to research products before they consider a purchase, prefer quality to quantity, and
tend to be less receptive to overt marketing pitches.

Generation Y
Born between 1977 and 2000 these children of the baby boomers (Gen X). This group includes
several age cohorts: tweens (ages 10–12), teens (13–18), and young adults (19–33). One thing
that all the Millennials have in common is their utter fluency and comfort with digital technology.
They don’t just embrace technology; it’s a way of life. The Millennials were the first generation
to grow up in a world filled with computers, cell phones, satellite TV, iPods, and online social
networks. However, rather than having mass marketing messages pushed at them, they prefer
to seek out information and engage in two-way brand conversations. Thus, reaching these
message-saturated consumers effectively require creative marketing approaches.

The economic environment consists of economic factors that affect consumer

purchasing power and spending patterns. Marketers must pay close attention to major trends
and consumer spending patterns both across and within their world markets.

The natural environment involves the natural resources that are needed as inputs by
marketers or that are affected by marketing activities. Environmental concerns have grown
steadily over the past three decades. In many cities around the world, air and water pollution
have reached dangerous levels. World concern continues to mount about the possibilities of
global warming, and many environmentalists fear that we soon will be buried in our own trash.
Marketers should be aware of several trends in the natural environment.

The technological environment: New technologies can offer exciting opportunities for
marketers. For example, what would you think about having tiny little transmitters implanted in
all the products you buy, which would allow tracking of the products from their point of
production through use and disposal? On the one hand, it would provide many advantages to
both buyers and sellers. On the other hand, it could be a bit scary. Either way, it’s already
happening:

The political environment consists of laws, government agencies, and pressure groups
that influence or limit various organizations and individuals in a given society.

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The cultural environment consists of institutions and other forces that affect a society’s
basic values, perceptions, preferences, and behaviours. People grow up in a particular society
that shapes their basic beliefs and values. They absorb a worldview that defines their
relationships with others.

Marketing information system

A marketing information system (MIS) consists of people and procedures for assessing
information needs, developing the needed information, and helping decision makers use the
information to generate and validate actionable customer and market insights.

Marketing research is the systematic design, collection, analysis, and reporting of data
relevant to a specific marketing situation facing an organization. Companies use marketing
research in a wide variety of situations. For example, marketing research gives marketers insights
into customer motivations, purchase behaviour, and satisfaction. It can help them to assess
market potential and market share or measure the effectiveness of pricing, product, distribution,
and promotion activities.
The marketing research process has four steps (see Figure 4.2): defining the problem and
research objectives, developing the research plan, implementing the research plan, and
interpreting and reporting the findings.

1. Defining the Problem and Research Objectives

2. Developing the Research Plan.

Once the research problem and objectives have been defined, researchers must
determine the exact information needed, develop a plan for gathering it efficiently, and

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 present the plan to management. The research plan outlines sources of existing data and
spells out the specific research approaches, contact methods, sampling plans, and
instruments that researchers will use to gather new data.
Gathering Secondary Data
Researchers usually start by gathering secondary data. The company’s internal database
provides a good starting point. However, the company can also tap into a wide assortment
of external information sources, including commercial data services and government
sources.
Sampling Plan Marketing researchers usually draw conclusions about large groups of
consumers by studying a small sample of the total consumer population. A sample is a
segment of the population selected for marketing research to represent the population
as a whole. Ideally, the sample should be representative so that the researcher can make
accurate estimates of the thoughts and behaviours of the larger population.
3. Implementing the Research Plan:
The researcher next puts the marketing research plan into action. This involves collecting,
processing, and analysing the information. Data collection can be carried out by the
company’s marketing research staff or outside firms. Researchers should watch closely to
make.
4. Interpreting and Reporting the Findings:
The market researcher must now interpret the findings, draw conclusions, and report
them to management. The researcher should not try to overwhelm managers with
numbers and fancy statistical techniques. Rather, the researcher should present
important findings and insights that are useful in the major decisions faced by
management.

Characteristics Affecting Consumer Behaviour

Consumer purchases are influenced strongly by cultural, social, personal, and psychological
characteristics,

Cultural Factors: Cultural factors exert a broad and deep influence on consumer behaviour.
Marketers need to understand the role played by the buyer’s culture, subculture, and social class.

Culture is the most basic cause of a person’s wants and behaviour. Human behaviour is largely
learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviours
from his or her family and other important institutions.

Subculture: Each culture contains smaller subcultures, or groups of people with shared value
systems based on common life experiences and situations. Subcultures include nationalities,
religions, racial groups, and geographic regions. Many subcultures make up important market
segments, and marketers often design products and marketing programs tailored to their needs.

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Social Factors

A consumer’s behaviour also is influenced by social factors, such as the consumer’s small groups,
family, and social roles and status.

Psychological Factors:
A person’s buying choices are further influenced by four major psychological factors: motivation,
perception, learning, and beliefs and attitudes.

Personal Factors
A buyer’s decisions also are influenced by personal characteristics such as the buyer’s age and
life-cycle stage, occupation, economic situation, lifestyle, and personality and self-concept.

Module – VI
What Is a Price?
In the narrowest sense, price is the amount of money charged for a product or a service. More
broadly, price is the sum of all the values that customers give up to gain the benefits of having or
using a product or service. Price is the only element in the marketing mix that produces revenue;
all other elements represent costs. Price is also one of the most flexible marketing mix elements.
Unlike product features and channel commitments, prices can be changed quickly.

Prices have a direct impact on a firm’s bottom line. A small percentage improvement in price can
generate a large percentage increase in profitability. More importantly, as part of a company’s
overall value proposition, price plays a key role in creating customer value and building customer
relationships.

Objectives of price setting;

A firm must set a price for the first time when it develops a new product, or introduces its regular
product into new distribution channel or geographical area, and when it enters bids on new
contracts. The firm must decide where to position its product on quality and price.

The five major objectives are:

1. Survival- companies facing overcapacity, intense competition, or changing consumer

wants pursue survival objective. As long as price covers their variable cost and some fixed

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 cost companies stay in business Survival is short run objective, in long run the firms must
learn to how to add value or face extinction.

2. Maximum current profit: estimate the demand and cost associated with alternate price
and chooses the price that produces the maximum current profit.

3. Maximum market share: Many firms want to maximize the market share as they believe
higher sales volume will result into lower costs and higher margins. This is the case for
price sensitive markets and is called market penetration pricing. (Example Texas
Instruments).

4. Maximum market skimming: Companies unveil new technology, set a higher price to
maximize market skimming. Sony is a frequent practitioner of market- skimming pricing.

5. Product quality Leadership: A firm may aim to be Product quality leader in the market.
Example, BMW, Mercedes, Rolls Royce etc.

6. Other objectives: Non-profit and other public organizations may have other pricing
objectives. A university aims for partial cost recovery, knowing well it must rely on garnts
and private donations to recover the remaining cost.

Factors to Consider When Setting Prices:

A company’s pricing decisions are affected by both internal and external environmental
factors.
Internal Factors Affecting Pricing Decisions:
Internal factors affecting pricing include the company’s marketing objectives, marketing
strategy, costs and organizational considerations.
1. Marketing Objectives:
Before setting a price, the company must decide on its strategy for the product. If the
company has selected its target market and positioning carefully, then its marketing mix
strategy, including price, will be fairly straightforward. For example, when Honda and
Toyota decided to develop their Acura and Lexus brands to compete with European
luxury-performance cars in the higher income segment, this required charging a high
price. Pricing strategy, thus, largely determined by decisions on market positioning.
At the same time, the company may seek additional objectives. Common objectives
include survival, current profit maximization, market share leadership, and product
quality leadership. Companies set survival as their major objectives if they are troubled
by too much capacity, heavy competition, or changing consumer wants. To keep a plant
going, a company may set a low price, hoping to increase demand. In the long run,

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 however, the firm must learn how to add value that consumers will pay for or face
extinction.
Many companies use current profit maximization as their pricing goal. They estimate
demand and costs will be at different prices and choose the price that will produce the
maximum current profit, cash flow, or return on investment. Other companies want to
obtain market share leadership. To become the market share leader, these firms set
prices as low as possible.
2. Marketing Mix Strategy:
Price is only one of the marketing mix tools that a company uses to achieve its marketing
objectives. Price decisions must be coordinated with product design, distribution, and
promotion decisions to form a consistent and effective marketing program. Decisions
made for other marketing mix variables may affect pricing decisions. For example,
producers using many resellers who are expected to support and promote their products
may have to build larger reseller margins into their prices. The decision to position the
product on high-performance quality will mean that the seller must charge a higher price
to cover higher cost.
3. Costs:
Costs set the floor for the price that the company can charge. The company wants to
charge a price that both covers all its cost for producing, distributing, and selling the
product and delivers a fair rate of return for its effort and risk. A company’s costs may
be an important element in its pricing strategy. Many companies, such as Southwest
Airlines, Wal-Mart, and Union Carbide, work to become the “low-cost producers” in
their industries. Companies with lower costs can set lower price that result in greater
sales and profits.

External Factors Affecting Pricing Decisions:

External factors that affect pricing decisions include the nature of market and demand,
competition, and other environmental factors.
1. The Market and Demand:
2. Consumer Perception of Price and Value:
3. Competitors’ Costs, Prices, and offers:
4. Other External Factors:

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Pricing Methods: The three major considerations for price setting by the firms are

1. The cost sets the floor price

2. Competitor’s price and price of substitute items
3. Customer’s assessment of unique features establishes the price ceiling.
4. Companies select a pricing method that includes one or more of these three
considerations.
1. Mark up price: Add a standard mark up to the product’s cost. Construction companies
submit job quote by estimating the total project cost and adding a standard mark up for
the profit
Shortcomings of this method; It does not take into account current demand, perceived
demand and competition, hence will not lead to optimal price. It will only work if mark up
sealed price results into desired volume of sales.

2. Target -Return price: In target-return pricing, the firm determines the price that yields
its target rate of return on investment. Public utilities use this method for pricing their
product.

3. Perceived value pricing: In this method of pricing is based on the customer’s

perceived value. (Based on customer’s image of the product performance, the channel
deliverables, the warranty, quality, customer support and firm’s reputation and brand.

4. Value Pricing: Value Pricing is a process by which companies charge its customers fairly
low price for a high quality offering by re-engineering the company’s operations to
reduce its production cost without sacrificing quality.

5. Going rate pricing: The price of firm is based largely on competitor’s pricing. Applicable
in Oligopolistic industries like Steel, Cement, Paper, Fertilizer.

6. Auction type Pricing: English auction (ascending bids), Dutch auction (descending
bids) and Sealed bid.

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 Adapting the price
1. Geographical Pricing (Cash, Countertrade, Barter), the company decides how
to price its product to different customers in different locations and countries.

Countertrade may take many forms i.e Barter (exchange of goods), Compensation
deal (part in cash and rest in products),Offset(The seller receives full payment and agrees
to spend substantial amount of the money in the country within stated period of time.

2.Price discounts and Allowances – most companies would adjust their list
price and offer discount and allowances for early payment, vol purchase, and off season
buying.

3. Promotional Pricing- These are the techniques to stimulate early purchase:

Loss leader pricing – The price of well known brands are dropped by supermarket to
stimulate additional store traffic.

Special event pricing- Deepavali sale , New year sale etc

Special customer pricing- Special prices to certain customers only. SBI card holders get
additional discount on certain purchases.

Cash rebate- Auto companies/ other consumer good companies offer cash rebate to
encourage purchase of these products with in a certain period of time.

Low interest rate financing- Offer low rate financing instead of price cut.

Longer payment terms-

Warranties and service contracts- by offering additional or low-cost warranty or service.

Psychological discounting- Artificially sets higher price and offers at discount.

4.Differentiating Pricing- Companies often adjust their basic price to

accommodate difference in customers, products, locations and so on. Price discrimination
occurs when a company charges two or more prices that do not reflect a proportionate
cost difference. Ist degree , 2nd degree and 3rd degree price discrimination.

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 Initiating and Responding to price change-
1. Initiating price cut may be required due to the following reasons;

i) Excess plant capacity.

ii) To attempt to dominate market through low cost.

2. Initiating Price Increase- Reasons – cost inflation , over demand , anticipatory pricing.

Responding to Competitors price changes. The company before

responding to competitor’s price changes must consider the following;

1.Products stage in product life cycle

2. Its importance in firm’s portfolio.

3. Competitors intentions and financial strength

4.Market’s price quality sensitivity

5. Behaviour of cost with volume.

6. Company’s alternate opportunities.

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