Marktng management

fundamentals
What is mrktg all about?

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 Industrial marketing
• Ch1.nature of IM
• What is industrial or institutional or B2B
marketing?
• How do industrial mrkts differ from
consumer mrkts?
• Why is demand for industrial goods is
called ‘derived demand’?

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 Nature of industrial mrktng
• Industrial or business or b2b mrktg is mrktng of
products and services to business mrkts, or
organisations
• Business organisations include
• 1.Manufacturing Cos
• 2.Govt undertakings
• 3.PVT sector organisations
• 4.Educational institutions,
• 5.Hospitals
• 6.Distributors/dealers

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 Objectives of business
organisations
• BO’s buy products /services for
• 1.Prodn of goods and services
• 2.Making profits
• 3.Reducing costs
• On the contrary ,consumer mrktng is
mrktng of products/services to
individuals,families and house holds.They
buy them for their own consumption
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 Focus of industrial/business
marketer
• Selling organisations that sell
steel,machinetools,computers,courier servicesand other
goods/services to buying organisations need to
understand
• 1.The buyers’ needs, resources,policies and buying
procedures
• 2.And create value(benefits) for the buying organisation
or CUSTOMERS with products/services that focus on
buying organisations’ needs/objectives
• Ex.Industrial manufacturer and marketer of prcision steel
tubes to bicycle manufacturers must know the needs of
Hero Cycles and Atlas Cycles in terms of
• A)Quality B)Application of tubes,C)Delivery on daily or
weekly basis and so on.
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 Industrial vs consumer marktng
• AREAS INDUSTRIAL • Consumer mrkts
• 1,mrkt characteristics- • Geographically disbursed
geographically • Mass markets
concentrated and
relatively fewer buyers
• 2.Product characteristics-
• Standardised
Technical complexity and
customised
• 3.Service characteristics- • Service,delivery,availabilit
Service,timely delivery y somewhat imp.
,availability very imp.

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 Industrial vs Consumer---
• 4.Buyer behaviour- • Involvement of family
Involvement of various members
functional areas in both
buyer and supplier firms
• Purchase decisions are
• Purchase decisions are
mainly made on
mostly made on
rational/performance
physiological/social/psych
basis
ological needs
• Technical expertise
• Less technical expertise
• Stable interpersonal
• Non-personal relationship
relationship bet
buyers/sellers

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 Industrial vs consumer---
• Channels-more direct Indirect
• Fewer intermediates/ Multiple layers
• Middlemen

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 Ind vs cons ----
• 6Promotional • Emphasis on
characteristics— advertising
emphsis on personal
selling
• 7.Price • List prices or MRP
characteristics-
competitive bidding
and negotiated prices

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 Sheet steel supply co(SSS co)
• Dave Jones was Director,Marktng for SSS Co and
was responsible for establishing the mrktng strategy
for the Co and had done so.
• There was a group of customers for the Co’s
product-manufactured steel cabinets for the
computer industry.Jones’s strategy for obtaining
sales from this group was to offer the best Quality
product at competitive price,which he was prepared
to negitiate,and to place it before the customers
,primarily thro metal product distributors,supported
by trade journal advertising.

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 Sss co ---
• With the campaign well under way,he expected
a healthy growth in sales.When the growth didn’t
materialise,Jones hired a mrktng consultantto
investigate and find out what was going wrong.
• One of the largest members of the target group
was Infinity manufacturing Inc..The consultant
visited Infinity as well as several other significant
a/cs to survey customer attitudes.
• He discovered that SSS’s competitors called on
these A/cs atleast once a month, using a
substantial direct sales force for this effort.
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 Sss co---
• The salesmen did considerable amount of
customer entertaining and had large travel
expenses to prove it.
• Jones and his President couldn’t
understand this ‘extravagance’ and
objected that if SSS adopted the tactic,it
would greatly increase selling costs,thus
perhaps leading to price increases to
maitain satisfactory prifit margins.

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Q’s for discussion-SSS case---
• 1What is the problem?
• 2.Is SSS co’s strategy wrong?
• 3.How do competitors sell despite higher
selling costs?
• What is the moral?

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 Sss company case soln.
• Obviously SSs co magmnt missed the point.
• In this TMS, having the best product at a good price was not
enough,becaude personal selling was customary.
• The buyer has developed knowledge of relationships with the salesmen who
called on them and had therfore developed a high degree of confidence in
SSS co’s competitors.They know their personnel and whar could be
expected of them.
• IS selling thro metal distributors right for Computer cabinets?Culture
problemsexist as well as communication on availability of product.
• Total costs for Competition may be less since they save on intermediate
costs.
• Purely economically rational behaviour discounts such factors.But such is
not the case.
• The moral;Economic rationality may be a myth so far as controlling the
buyers’behavour and even in industrial goods! Therfore not surprising if
infinity is buying from SSS competitors even at a higher price the same or
even slightly inferior quality!

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 Industrial demand
• D for ind goods/services doesn’t exist by itself.
• It is derived from ultimate demand for consumer goods/services.Ind
d is therefore called derived d.D for precision steel tubes depends
on prodn of cycles,motorcycles,scooters and furniture that are
consumed by consumers.D for precision steel tubes is derived from
forecast of D for consumer D for bicycles.MC’s,Scooters and
furniture.
• D for capital goods /Equipment (M/C tools,Textile/Leather M/c)
depends on D for other goods and purchases are made not only for
current consumption but also in anticipation of profits from future
usage.
• If business suspects recession in near future,their purchases will be
drastically curtailed.But if the attitude is favorable,(upswing in
business)Investment in capital goods and ind products increase.
• Sometimes the demand for ind goods is called joint D ,when the D
for a product depends uponits use alongwith existence of other
product/products.
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 Joint demand
• JD occurs when one ind product is useful if other
products also exist.Ex.A pump set wd not be
useful for pumping water if electric motor or
diesel engine is not available.DOT that requires
a complete kit of 12 items for joining
underground telecom cables can not buy only
somne of the items from a supplier as it doesn’t
complete the kit.
• Thus some ind products don’t have individual D
but are demanded only if ‘other’ products are
available.
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 Cross elasticity of D
• Elasticity is change in D from a change in price.
%’s are used to measure the relative changes.D
is inelastic if % change in Q demanded is less
than % change in price.D is unitary if the %
changes are matched.D is elastic if % change in
Q demanded is more than % change in price.
• This concept is useful to understand relationship
bet price and D as shown in Fig.

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 Cross elasticity of D
• It is the responsiveness of the sales of one product to a price
change in another product.
• This concept prevails in both cons and Ind mrktng but has a far
more iompact on ind mrktng strategy.Eg.The D for aluminium is
related to prices of wood and steel for doors and window frames as
they are close substitutes.
• Other ex.prices of steel impact use of plastics as alt packing
materials in ind mrkts. Purchase decisions in construction of
houses,commercial offices,factories,hotels,hospitals,etc.get
influenced by cost comparison of Al with steel and wooden door and
window frames,alongwith other advs of Al.
• So,Al extrusion Co’s regularly keep following costs of steel & wood
& advertise benefits of Al use in lower maintenance cost,elegant
looks,environ friendliness etc.Therefore imp of cross elasticity

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Mrktng implications of derived D of
ind goods
• 1.Understand changes in prices of substitute
products and how it influences their D
• 2.Anticipate increase or decrease in D for their
products based on changes in D for their
customers’ products.
• 3.Ind mrktng is more complex than consumer
mrktng and success depends on understanding
complexities involved.
• 4.Ind mrktng stategy has Co wide implications
and is therefore more of a general mgmnt
function affecting various functions and DMU
comes into play and Group decisions imp.
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 Ch 2.Understand ind mrkts &
environ
• 1.Types of ind customers as well as goods
& services
• 2.Mrktng implications of diff types of
customers & products
• 3.Understand purchasing practices of ind
customers.
• 4.Know types of environ.their influence on
ind orgnsn and its strategies available to
manage the environ.
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 Types of ind customers
• 1.commercial enterprises
• 2.Govt customers
• 3.Institutional customers
• 4.cooperative societies
• See ex in TP

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Chapter 3 nature of ind buying and
buy behaviour
• Learning objectives
• 1.understand organisational buying objectives
• 2.to gain knowledge of organisational buying
activities,including different phases in the buying
decision process and the types of buying
situations
• 3.to identify members of DMU or buy center
• 4.to understand some of the models of org
buying behaviour
• 5.to know how org buyers choose and evaluate
suppliers
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 Purchasing objectives
• Purchase/matla mgmnt objective is “buying the right items in the
right quantity,at the right price,for delivery at the right time and
place”.What is right is to be decided by the buyer.
• Objectives
• 1,delivery/availability-reliability in delivery very critical
• 2.product quality-consistent with specification and use of product. It
reduces cost of inspection,interruptions in production process due to
rejectionsand arranging replacement of rejected materials
• 3.Lowest price consistent with quality and availability
• 4,Services-Includes prompt and accurate info,application or
technical assistance,spare parts availability.repairs and
maintenance capabilityand training if required.
• 5.Supplier relationship

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 Personal objectives of members of
dmu
• Higher status
• Job security
• Salary increments
• Promotions
• Social considerations like friendship,mutually
beneficial relationships,and personal favors
• All these also need to be fulfilled by industrial
marketers in addition to org onjectives.

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 Buy phases in ind buying decision
process-logical sequence
• 1.Recognition of a problem or need
• 2.determination of the applicationor characteristics and quantity of
needed product
• 3,development of specificationsor description of needed product
• 4.Search for and qualification of potential suppliers
• 5.Obtaining and analysing supplier proposals
• 6.Evaluation of proposals and selection of suppliers
• 7.selection of an order routine
• 8.Performance feedback and post putchase evaluation
• In consumer mrkts, consumers make buy decisions based on
mental stages such as problem or need recognition,information
search,evaluation,purchase decisi

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Chapter4-buyer-seller relationship-
learning objectives
• 1.To understand various aspects of buyer and
sales rep interaction including perceptions and
roles played by them.
• 2.To know the major factors which influence
buyer-deller relationship
• 3.to know the methods used by ind mrkters or
sellers to in fluence ind customers or buyers
such as sales presentation and negotiation
• 4.To understand the special dealings bet buyers
and sellers such as reciprocity,and dealing with
customers’ customers ,importance of customr
service .
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 Buying situations-a case study
• A professional purchasing agent’s decision
process is more elaborate when greater risk is
involved.How would a purchasing agent be likely
to behave in each of the following buying
situations?
• For each situation,how likely is the buyer to get
other people in the organisation involved?
• Which situation is likely to take the most time for
the buyer to reach a decision?
• Which situation is a new task,which is a modified
rebuy,and which is a straight rebuy?

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 Buying situation case----
• A, The agent needs to purchase a custom-
designed machine to manufacture steering
columns for vehicles
• B.The agent is purchasing brake systems from a
regular supplier.The buyer has bought brake
systems from this supplier before.
• C.The agent is purchasing improved and
updated mother boards for PC’s from a
recognised and well-respected supplier.
However this supplier did not supply the current
mother boards.
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Dealing with a buying center-a case
study
• You are the leader of a sales team for an industrial seller of rubber
hoses.Next week, you are scheduled to meet with the buying team for
Maruti –suzuki ltd.
• You have observed the following buyer behaviour on the part of the
members of the buying team.
• Ajay kulkarni,the production manager-
CRITICAL,PICKY,SERIOUS,ORDERLY,EXACTING,PERSISTENT.
• Sunil Deshmukh-the finance manager—
• PUSHY,TOUGH,DOMINATING,EFFICIENT,DECISIVE,PRACTICAL
• Dimple jones,the engineering manager—
• SUPPORTIVE,RESPECTFUL,DEPENDABLE,AGREEABLE,CONFERRING
,PLIABLE.
• Anand Mehta,the managing director-
• ENTHUSIASTIC,EGOTISTICAL,AMBITIOUS,EXCITABLE,DRAMATIC,UN
DISCIPLINED.
• Prepare a sales strategy for dealing with each member of maruti’s buying
team.Make nrcessary assumptions.

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Buyer-seller relationship-based on
2 factors-content of info and style
of exchange
• Successful interaction is said to take place when
buyer and seller are compatible both in content
and style.
• Content include;product features,prices,services
• Style of interaction includes mannerisms and the
format used by a buyer and the seller in their
interaction.
• 3 styles of interaction-1,task
oriented,2.interaction oriented(social ,personal
interactions),3.self oriented (pre occupied with
one’s self interest)
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 Buyer-seller interactions---
• It is a dyadic (two persons) interaction consisting
of interaction bet buyer and seller.
• The transaction oriented buyer-seller interaction
focuses on pre-sales activities and during sales
activities and not on post-sales activities,The
personal and organizational needs of both
become the starting point of their interaction.
• Transaction based buyer-seller interactions help
in creating new customers. Relationship
marketing helps in retaining customers which is
very important today.
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 Relationship mrktng -Barry and
Parasuram’s 3 approaches for
strong bond
• Is the task of creating strong customer bond or loyalty
• 1.Add financial benefits to the customer relationship.Ex give volume
discounts,reward with free spare part kit .These benefits can be copied and
can’t become permanent differentiators
• 2.Give social benefits in addition to financial benefits. Learn buyers’
individual needs and wants and then individualise the services offered. eg.
Use problem-solving language, include personal problem solving like travel
and hotel booking needs etc.
• 3.Add structural ties to financial and social benefits like supplying special
equipment or service ,offering training to customers’ maintenance engineers
etc.
• Transaction mrktng focuses on closing a sale with a customer by a single
sales person while relationship mrktng ,for large customrs Co’s move to
team selling or relationship mrktng.to solve product or process related
problems.
• RM focuses on managing customers. This is effective only with imp and
high sales potential Acs who value good service. Decide whom to give TM
and whom RM.

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 Methods used to influence ind
customers
• 1sales presentation 2 negotiation
• 1 sales presentation-plan to find (a),who are potential Acs, (b),get
info on buying center members and © identify needs or problems of
potential Acs.
• Tailor sales presentation to fit needs and expectations of Ac
• Present first positive points of product,service and Co,Keep difficult
or negative points and price,payment terms etc towards the end.
• Two-sided discussions effective to anticipate and negate the effects
of counter arguments.
• In a competitive situation, show the buyer how our product is of
greater value than competitors.
• At the end conclude and point out advantages and how they meet
customer needs to help buyer make-up his mind .
• Make many sales calls over a long period to convince.
• Use emotional appeals where useful;”be Indian,buy Indian”to
counter multi nationals
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 2.negotiation-a process to maximise
the benefit to both buyer and seller with
a long term relationship
• How to negotiate with ind buyers?
• PURPOSE
• collect relevant info
• build an environment of trust and confidence
before.
• styles of negotiation- win-win, win- lose, lose-
win, and lose-lose.are 4 styles.

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 To handle “I win –u
lose”customer.objective is to
increase mutual respect,change to
w-w
• Tough • Take up equally
demands/ridiculous offers tough/strong position and
• No authority to make present a clear but
concessions unemotional opposition to
• Raise voices/emotional their demand
outbursts • Seek info on why they
• Don’t reciprocate hold their position,explain
concessions/stingy why u hold ur position
• Ignore deadlines/act as if • Stress the consequences
time is of no significance of failure to resolve the
to them. issue
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Win-win style for long term healthy
relations & mutual satisfaction
• Build trust & confidence,Be humble& polite
• Identify problem initially rather than solution,
Agree on general statement of problem.
• Emphasise on “end-results” or needs rather
than “means”
• Work together, pool resources, ideas and
share info to solve the problem stated earlier.

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 Win-win----
• Regular frequency of concessions (and
not the size of concessions) that is
conducive to this style.
• Avoid defensive posture. Be amenable
(that is responsive to correction).
• If possible avoid legalistic or contractual
approach.

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To handle “I win u lose” customers
• Marketing persons sometimes use this style of “I
lose u win” with highly demanding cost-
conscious Acs. who feel satisfied if they have
driven the buyer to lose in the bargain.
• Once such approach of ind customer is known,
seller creates an environment, at final stage of
negotiation, that he has lost in the deal (though
actually he gained) but he is accepting the terms
in view of long term business relation.
• Actual situation is “both of us win” though
impression given is “u win ,I lose”
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 Both of us lose—adopted by
unskilled negotiators or have
philosophy of war
• To avoid, maintain an adult mental attitude
which in TA language means-a well-
balanced, unemotional, factual attitude to
other party if other party provokes u with a
“child-like” emotional & immature behavior
or parental, judgemental and bossy
behavior.

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 Important points in negotiation
• PREPARE AND PLAN FOR NEGOTIATION
• OPENING-BE WARM AND POSITIVE
• EXPLORING
• BIDDING-remember only proposals can be negotiated, If want to
argue against customer proposal, do so logically and calmly,
• Aim high with ur proposal and make concessions slowly and in
small amounts.
• Listen carefully, the weakest party will usually make the first
concession
• If in doubt, use the power of ‘recess’. Search as many variables as u
can and use these to get more concessions
• When u conclude, check what u have both agreed and ratify or
confirm by signing it.

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 Ch 6.ind mrkt segmentation,target
mrktng and positioning
• STP decision is an imp strategic or long term mrktng
decision.
• It is a strategy used by ind mrktr to achieve objectives.
• LEARNING OBJECTIVES
• 1,to know segmentation, benefits, limitations
requirements and methods of effective S.
• 2To identify bases or variables used in segmenting ind
mrkts.
• 3.To evaluate the potential segments
• 4.to learn to select the TMS and target market strategies
• To learn to develop effective positioning strategies.

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 Stp frame work see TP
• Procedure followed for mrkt segmentation-
3 steps
• 1.Marketing research
• 2.Analysis to identify segments
• 3.Profile or outline of segments

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Segmentation procedure-1.marktng
research
• 1.secondary research first-info on mrkts from Co’s past data,on-line
data bases,data available on CD-ROMs,diskettes and magnetic
tapes,library scanning,or the industry association
• 2.No need to do prmary data collection if secondary data enough to
analyse and identify mrkt segments.
• 3.Do descriptive research or mrkt survey for collecting info on
existing and potential ind buyers,on---MAJOR PURCHASING
ATTRIBUTES OR FACTORS CONSIDERED BY
BUYERS,BUYERS’PRESENT & FUTUREREQUIREMENTS AND
PURCHASING POLICIES,COMPETITORS’ INFO SUCH AS
CUSTOMERS’ PERCEPTION OF COMPETITORS’ RATING ON
MAJOR PURCHASING ATTRIBUTES ,NO OF
COMPETITORS,THEIR MRKT SHARE,POLICIES ON
PRICING,PAYMENT TERMS,AFTER SALES
SERVICE,DISTRIBUTION AND PROMOTION,BUY BEHAVIOUR
OF BUYERS,BUYING PHASES AND BUYING SITUATIONS.

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 2,ANALYSIS-FOR MRKT
SEGMENTATION
• ANALYSE THE PRIMARY AND SECONDARY
DATA USING STATISTICAL TECHNIQUES
SUCH AS FACTOR ANALYSIS AND CLUSTER
ANALYSIS-Factor analysis is used to remove
highly correlated variables.
• Do cluster analysis then to identify different
segments that are mutually exclusive and at the
same time each segment is homogeneous.
• A part of this analysis is later used to evaluate
the segments and for positioning.

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 3-profiling for segmentation---
• Each segment is now profiled or outlined by its
specific characteristics such as application of the
product,volume of requirement(large,medium or
low),location,type of industry,purchasing
policies,major purchasing attributes,buyers’
personal characteristics,and buying behaviour.
• Do STP periodically once in 2-3 yrs since
customer needs and evnviron both change with
time.

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 Criteria used for selecting
segmentation variables
• 1,measurable—ex for steel tubes variable used
is END USERS,such as bicycles,2
wheelers,furniture,boilers,bus-body builders
etc.Info on sales potential,product needs,type of
buying situation,and buying practices is
available for the diff end user industries-info both
by desk and primary research.
• 2.Differentiable.Segments should be different
and respond differently to separate mrktng
plansor strategies
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 Criteria for segmenting---
3substantial
• The segment should be large enough in sales
potential and profits.To make a separate
marktng plan or strategy justified.
• If u use Co size as segmentation variable,an
electric motor Co can select large and medium
sized customers as target mrkts.
• Purpose of segmenting is to optimally utilise
available resources to maximise ROI.
• IDENTIFYING BASES-MACRO &MICRO –SEE
TP

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 TARGET MARKETING-
EVALUATING AND SELECTING
THE TARGETS
• 4 CRITERIA
• 1SIZE AND GROWTH-by demand forecasting methods long
term.usually by customer by customer analysis,taking into account
competition
• 2.PROFITABILITY ANALYSIS-(a)quantity and value of mrkt
potential during a period,(b),sales forecast based on Co’s share out
of the mrkt potential during the same period,and ©,profitability-the
diff bet the revenue and the total cost of servicing and maintaining
the customers in the same period.
• 3.COMPETITIVE ANALYSIS4.Co objectives and resources carryout
SWOT analysis of all current and potential competitors-both
domestic and foreign.-on each segment in
Mnfng,R&D,Finance,Tech Service,Product Q,Dely ,Sales forc
e,Adsvtng,Distrbn,Technology,and Org/mgmnt reputation.
• 4.Co objectives and Resources.Segment selected should be in line
with Co’s long term objectives.Key success factors of each segment
to becompared with Co’s ability to create SDA.
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 Simple matrix system for selecting
markt segments--seeTP
• SELECTING THE TARGET SEGMENTS
• Use either advanced computerised systems
called DSS(decision Support Systems)or simple
matrix systems(SMS)
• The mrktng manager of precision steel tube co
selected 2 segment-automotive 2,3 and 4
wheelers and bicycle manufacturers,These 2
have large size,average to high growth
rate,good profitability,less competition,and
compatibility with co’s long term product-mrkt
strategy.
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 Target –market strategy-select out
of 3 broad strategies-
• 1focussed or concentrated marketing-all mrktng efforts
on a single or a few carefully defined segments.Result is
a somewhat narrow range of product/service
accompanied by high quality,high price,and highly
selective promotional and distribution strategies.Usually
done by a Co with limited resources,Slowly reputation
and share of business increases
• Ex.A matl handling equipment mafrer concentrated on
customers close to mfg unit to give superior pre and post
sale service than competitors
• Risks—mrkt potential in chosen segment may decline,a
large competitor may invade the selected
segment,Therfore good to concentrate on more than one
segment.

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 2 differentiated mrktng
• Here the ind firm decides to target several mrkt segments whose
needs,product usages,or mrkt responses are different from each
other.
• Serve some and avoid other segments.
• Develops separate mrktng strategies/plans for each chosen
segment
• All costs increase ,but objective is to achieve higher sales volume
and a stronger position in each chosen segment.
• Differentiated strategy leads to higher sales and higher costs. But
avoid over segmentation.
• EX.Electric motor division of a large multi product Co decided to
enter 3 segments-OEM’s,large users and dealers for small
users.Different pricing promotion and distribution strategies were
developed for each.The previously used undifferentiated strategy
was giving lower sales and profits and hence this change for
improvement.

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 Ex of 3 strategies
• 1.Undifferentiated strategy
• CMS---------WHOLE MARKET
• 2.Differentiated strategy
• CMS1-------MS1;CMS2-----MS2;-------
CMS3----MS3 etc.
• 3.Concentrated marketing strategy
• CMS-----MS2

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 3.Undifferentiated marketing
• Means lack of effective markt segmentation since the co
ignores segment differences and develops a single
mrktg plan for all segments.
• Reason ;either lack of analysis or a conscious strategic
decision due to standardised products or services sold to
a mrkt where there is a lack of meaningful differentiation
among customers.
• ADVANTAGES
• TOTAL COST LOW;ADV MR, INVENTORY ,PRODN.
• But in competitive mrkts,if competitors follow
differentiated strategies,,even if products are similar,ind
mrkertr should use other elements of marketing mix such
as price,distrbn and promotion to differentiate them from
competition..
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 Criteria in choosing target market
strategy
• 1.If the Co ‘s resources are limited,choose concentrated
marketing strategy,
• 2.if a new product is in the introduction stage of the
PLC,a firm can follow either concentrated or
undifferentiated marketing strategy.for growth and
maturity stages of PLC,differentiated mrktng is sensible,
• 3.If major competitors follow differentiated strategy,the
ind marketer must also follow the same strategy. If
competitors use undifferentiated strategy,a co will gain
by using either differentiated or concentrated marketing
strategy.

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 Niche marketing strategy

• Mrkt segments are large customer groups in a mrkt.

• A niche is a more narrowly defined customer group,that seeks
products or services tailored specially to the individual needs and
preferences
• To succeed in a competitive mrkt, Niching is increasingly practiced
• Objective is to reach potentially unsatisfied mrkts more effectively
and profitably than competitors.
• It is a selective approach to markets to find a niche where co’s
strengths are best matched with customers’ needs.
• Ex.an ad agency concentrating on ads for public issues.to meet its
profitability objective in a highly competitive advertising field.
• Another ex is a co focussing its services on tailoring its training
programs to suit the needs of each of its industrial customers.

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 Pre requisites for niche mrktng
• Do MR to identify the different and complex set
of needs of small customer group
• Niche acs are willing to pay a premium price for
satisfying spl needs.therefore profitable.
• Competition finds it difficult to attack a nicher.
• In a mature mrkt,a firm should be in TOP 3 in the
industry with high volume and low cost or be a
nicher to achieve profits.
• The key idea in niche mrktng is
‘specialisation’that can be achieved in several
ways

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 Several ways of achieving
specialisation in niche strategies
• 1.geographic specialisation-some UPS makers market products
locally.
• 2,end-user specialisation-IIM’s giving high Q mgmnt education to
students interested in mgmnt post graduation.
• 3.customer size specialisation-small firms prefer small size
customers and large firms choosing to serve large customers.
• 4.product line specialisation-a co produces only one product line.Ex
in lighting industry,a small scale firm specialises in producing fittings
for fluorescent tubes required by commercial firms.
• 5.customer specialisation-to one or a few major customers, auto
component vendors sell their entire production to either TVS
SUZUKI or HERO HONDA or escorts –Yamaha 2 wheeler
manufacturers.

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Pros and cons of niche strategy
• Major adv is high profits.
• Major disadv is the demand of niche mrkt
may decline or a large competitor may
attack the niche market
• Generally smaller firms follow
niche(small)mrkt strategy
• Larger and new firms increasingly adopt
niching strategy by concentrating on
multiple niche mrkts.
58
 Positioning-after selecting target
mrkt,decide PS for each TM
• Ps should clearly differentiate the Co and its products or
services from that of the competitors.
• Positioning is defined as the distinct place a product or
service occupies in the minds of the target customers
relative to competing products or services.
• Positioning is how the firm wants its products or services
to be percieved by the target customers on important
attributes or benefits.
• exInfosis technologies positioned as a leading software
co in india, L&T as a leading engineering Co in India,and
Tata positioned with bassociations of quality in the minds
of customers.

59
 Developing a positioning strategy-
steps to follow
• 1.Identify target customers’ needs in terms
of major attributes or benefits while buying
a product or service.By conducting MR to
find out differentiating attributes.
• 2.Select one or more major attributes or
benefits for differentiation ,based on Co’s
strengths or distinctive competencies
• 3.Communicate the Co’s positioning to the
target mrkt.
60
 Identifying major attributes for
differentiating
• 1what major factors or attributes target
customers consider imp while making buying
decisions?
• 2.Find out customers’ perceptions regarding the
various competing products with respect to the
major or imp attributes.
• 3 variables used by ind mrkter to differentiate
are---(1)product variables,(2)Service variables,
(3) Personnel variables and (4) Image variables

61
 Product and service variables
• 1,product;For ind products variations in features
can be very little,but product Q or Performance
can be used to differentiate;Ex ISO
9000certification is useful tool to differentiate on
superior Q,
• Std features and optional features .Offer where
possible optional features in addn to std as
differentiators.Ex.A matl handling equipment
sulplier in addn to std pallet trucks,can offer
extra attachment for stacking matl upto 8-10
feet.This is a spl design and hence a
differentiator since others don’t.
62
• Service variables;Offer superior pre-
sales(solving customer problems),During-sales
services(on-time dely),and after-sales
services(repair service).Service variables
become key competitive adv when products
offered arte similar.
• Personnel variables.Recruiting better people and
training them at various levels is a key
differentiators in Cos like Infosis,TISCO etc.

63
 Image variables-image is the
buyers percieve a co.
• A Co designs its identity building programs
to build or shape the buyers’ image.
• When competing offers from various firms
are similar,buying firm responds favorably
to supplier with a good image.eg Tata
Group.

64
 Selecting the differentiating
attributes –how many and which?
• 1.many Co’s select one benefit or attribute—”best
Q’’,”best service”,”most advanced technology”
• 2.Some Co’s believe in double benefit positioning and a
few in triple benefits.
• J&KTyres positioned itself by promoting multiple
variables such as “no 1 in car radial Tyres”, “No 1 in
Quality” “No 1 in R&D”, “No 1 in Technology”, “No 1 in
Rallies”and “No 1 in Exports”
• Compaq had promoted single-benefit positioning,viz.
“Better answers”It positioned that it can develop better
solutions to business problems than any other Co and
gave several examples as a proof of ots claim.

65
3 imp considerations in developing
PS thro MR
• 1which are the most imp attributes ,in the order of priority
that target customers consider while deciding to place
orders for a product or service?
• 2.How do the target customers percieve the Co’s product
or service WRT the imp attributes?
• 3.How do the target costomers perceive the competitors’
products or services WRT the same attributes?
• Then conduct a statistical analysis leading to a technique
called ‘perceptual map’that helps the ind marketer to
decide on the PS.---
• See TP

66
2-dimensional perceptual map for
Co A vis a vis Cos B , C and D see
TP,

67
 Communicating the Co’s
positioning
• Not only develop a PS but also need to communicate same to TMS
• In consumer mrkts,PS is communicated thro advertising.
• In ind mrkts,Ps is communicated thro (a)personal selling(by sales
force), (b),sales promotion(exhibition or trade shows) and ©
advertising(in technical or trade journals)
• If a business firm chooses “best quality “or “world class quality” as
the PS,all elements of mrktg should communicate quality.
• Implementation of TQM is imp so that all activities such as
submission of quotes,sales presentations,negotiations,packing,
despatch,installations and after sales service display a superior
quality in comparison to that of competitors.

68
 Ch7-product strategy and new
product development
• Learning objectives
• 1 to define an industrial product
• 2.to understand changes in the product strategy
• 3.to know PLC theory and its application to
mrktng strategy
• 4.to learn how to develop product strategies for
existing products
• 5.to learn managing innovation and new ind
product development.
• 6.to understand mrktng strategies for ind or
business services.
69
 2 major objectives for developing
product strategies
• 1. to ensure that the product mix ie various products
marketed by the co is in line with overall co & mrktng
objectives
• 2.to evolve guidelines for reviewing the performance of
the existing products by using factors such as
sales,profits,competition and customer acceptance.
• 3.decide product strategies based on the above,
• (a)Which of the existing products should be continued,or
modified or dropped
• (b) Which new products need to be developed
• Let us first define an industrial product

70
 Definition of an ind product
• It is not only a phisical entity but also a complex set of
economic(price),technical(product specs),legal(if supplier delays
delivery) and (d) personal relationships(trust) between the customer
and the supplier.
• What is a product from customer pt of view? Basic plus enhanced
plus augmented properties
• Basic product is properties included in the generic product with
fundamental benefits sought by customers
• Generic products are made differentiable by adding tangible
enhanced properties such as product features ,styling and quality .
• The augmented properties include intangible benefits such as
technical assistance,availability of spare parts,maintenance and
repair services ,warranties,training,timely delivery ,attractive
commercial/ payment terms.
• AN IND PRODUCT IS A TOTAL PACKAGE-EX CUMMINS LTD.

71
 CUMMINS LTD –TOTAL
PACKAGE
• In addition to excellent quality diesel engines,Co gives its
customers intangible benefits like
• Availability of spare parts
• Technical assistance
• Training and so on
• These are all augmented properties in addn ro tangible
enhanced properties likeless noise level,simple or easy
operation etc.
• Cummins’s product strategy is successful because it
understood customers’ perceptions and offered both
tangible and intangible benefits superior to competitors.

72
 Changes in product strategy
product strategy is flexible &
dynamic
• In ind mrktng product is a variable because of changes
in
• Customer needs—increasing cost of land used for
storing raw and finished goods lead to vertical stacking
of materials from 2 meters to 6 meters height to save
space and money.
• Technology—jelly-filled telecom cables replaced by fiber
optic telecom cables.Many firms changed from main
frame to personal computers.
• Govt policies or laws—liberalisation and globalisation in
1991 opened up new opportunities.
• PLC-drop,modify or develop new products when existing
products reach maturity or decline stages.

73
 Ind product PLC used to
determine maktng strategy
• See TP
• At the dividing line bet growth and maturity
profit is at its peak.at maturity stage profits
fall.
• Behaviour of PLC depends on 3 factors
over which firm has no control.(1)changing
needs of customers (2)changes in
technology (3)changing competition
74
 Understanding mrkts
and
managing markts
effectively,efficiently to be
successful
how to do this?

75
What are markets?

76
• Mrkts are prospects,customers and
consumers with unfulfilled needs,with a
desire to fulfill the same and
• An ability to buy and willingness to buy,
• An ability to pay& willingness to pay and a
willingness to be loyal as long as the
marketer’s offer is perceived to be of far
higher value than those of all substitute
and competitive offers
77
What is mrktng?

78
• Marktg is a continuous and proactive
process of creating, nurturing and
retaining a loyal customer base and
helping them perceive that the co’s offer is
far superior to those of all current and
future substitute and competitive offers

79
Purpose of any business-what is it?

80
• Because it’s purpose is to create a customer,a business
has two and only two basic functions; marktg and
innovation. Mrktg and innovation produce results; all the
rest are costs.
• Mrktng is too important to leave to a mrktng department.
Mrktng is so basic that it cannot be considered to be a
separate function.it is the whole business seen from the
point of view of its final result, that is ,from the
customer’s point of view,

• Peter F Drucker’

• Concept of internal and external customers

81
 Types of business orientations-
what philosophy guides your
business?
• The producttion concept or orientation
• The product concept or orientation
• The selling concept or orientation
• The marketing concept or orientation

• What are the differences?what are the implications?

• The elephantine electronics co case

82
 Elephantine case
• The engineering manager of this co one day
concieved of a new computer terminal that
would do every thing but peel potatoes- a slight
exaggeration perhaps ,but the concept was a
widely applicable, broadly compatible device.
• Since the manager enjoyed excellent rapport
with the firm’s general manager,who was also an
engineer,it was easy to convince the GM of the
merit of the idea, and a product development
program was vigorously undertaken.
83
 Elephantine-----
• When the prototype was complete and functionally proven,a
production line was set up and manufacturing was begun.
About this time,the sales manager and his sales force were
called in for a product presentation. After the new device was
explained and demonstrated, they were told to ”go,sell it”.

• SInce the new production line was capable of producing 500

units a month, this was established as average sales goal
.The sales manager and the sales force went optimistically
forth into the market, but 6 months later reported back to the
general management that they were unable to move this
wonderful new product in any thing approaching the target
volume.

84
 Ele---contd
• After firing the sales manager, the gm and the engg mgr
commisserated with one another about the
incompetence of sales people who couldn’t sell a product
that is obviously superior to anything else available and
right for the markt.
• Neither of them knew quite where the mrkt was or who it
was,and unforttunately even the ex sales mngr hadn’t
known either.Since the mountain wouldn’t come to
Mohemmad and Mohemmad didn’t know where the
mountain was, so he could go to it, a lot of time and
money were wasted for practically nothing.
• It was certainly too bad Elephantine was so unlucky,
because,when the product design was eventually sold to
Whiz-Bang computer co, it was a roaring success.

85
 Elephantine----Discussion
questions
• 1.Does ur group think Elephantine was really unlucky?
Why? Why not?
• 2.What do u think whiz-bang did to make it a roaring
success? Step by step process or activities?
• 3.What is wrong with Elephantine?What is right, If any?
• 4.What concept or philosophy drove Elephantine
mngmnt? Whiz-bang mngmnt?
• 5.Do u think Ele– learnt any mrktng lessons? What
mrktng lessons did u learn? What is the moral of the
story?

86
 Mrktng fundamentals
• Mrktng is ---
• A rouge function---
• Salesmen are cheats---they push you into buying things that
you don’t want
• Advertising is a bunch of lies
• Mrktng is a sheer waste. Goods cost us much less if we don’t
promote them and advertise.
• Inshort, life wd be better off without this function.

• Do we agree with this? If so why? If not why not?

87
 Finally what is mrktg?
• It is a function
• It is a process
• It is a concept
• It deals with understanding mrkts,effectively and
efficiently managing the same and continuously
measuring the success through monitoring continuous
profitable growth in sales volume,markt
share,profit,customer nos and brand loyltycompared to
all competitors.

• What attitudes,knowledge,skills and behaviour does

mrktg need to be effective?
88
 Characteristics of market-oriented
companies
• 1.have clear market objectives
• strategic intent
• Ambitious mrkt share,positioning goals

• 2.segment their mrkts

• Identify growth opportunities
• Tailor strategies to segments

• 3.understand customers’existing and potential needs

• Get close to customers
• Focus on solutions, not products

• 4create competencies to match opportunities

• Develop capabilities
• Integrate functions and resoutces around this task.

• 5.build competitive advantage

• Beating competition
• Sustainable advantages via branding and continuous improvement

89
• Beating competition
• Sustainable advantages via branding and continuous improvement

• 6.recognise environment changes

• Existing strategies erode
• Priorities to change and innovation

• 7.customer-focussed organisation
• Inverting and flattening the pyramid
• Prioritising service providers
• Lower costs-faster response—greater motivation

• 8.monitor and bench mark customer satisfaction

• Quantitative research systems
• Indepth research.

90
 Formulating a mrktng plan
• 1.situational assessment
• Current performance
• Background analysis
• Trends and projections
• Opportunity and issue analysis

• 2.objectives
• Marketing
• Financial
• Human

• 3.positioning strategy
• A.tarjet market segment(s)
• B.differential advantage

91
 Mrktng plan
• 4.marketing mix
• A.product
• B.price
• C.promotion
• D.place

• 5 action programs

• 6.organisation and control & Recruitment of talent

• 7,budjet & Control systems in implementation.

92
 Key tasks of mrktg mgmt
• 1.Understand broad mrkts&segment
• 2.Carry out environment analysis
• 3.Set goals and objectives
• 4.Develop positioning strategies
• A)select target mrkt segments—a.broad market b.identify bases for
segmentation c.develop profiles of segments d.measure
segments’attractiveness
• B).create a differential advantage a.identify benefits sought
b.measure competitor positioning c.create reason for preference
• 5.Develop appropriate mrktg mix a.product b.price c.place
d.promotion
• 6.Action programs
• 7.Create organisation structure &Recruit Appropriate talent
• 8.Budjets and controls and implementation
• 9.Learnings

93
 The essence Of marketing
Customer Wants Marketing MIX Variables

Functional Product

Value Price

Self image Advertising

TMS DA
Availability Distribution

Service Servicing

Risk Avers ness Guarantees

94
 Marketing Mix

• 1product
Product
• Quality-features—options—style—brand name—packaging—sizes
—services—warranties—returns
• 2price
• List price—discounts—allowances—payment period—credit terms
• 3place
• Channels—coverage—locations—inventory—transport
• 4.promotion
• Advertising—personal selling—sales promotion—public relations

95
• All addressed at target market segment
Characteristics of mrkt –
oriented co’s
1have clear mrkt objectives-----
have strategic intent------
have ambitious markt share and positioning
goals

2segment their markets---------------

identify growth opportunities-------
tailor strategiesto segments
3understand customers’existing and
potentialneeds
Get close to customres
96
Focus on solutions,not products
 Characteristics of mrkt oriented
co’s
• 4.Create competencies to match
opportunities
• Develop capabilities
• Integrate functions and resources around
this task
• 5.Build competitive advantage
• Beating competition
• Sustainable advantages via branding and
continuous improvement
97
 Charactiristics of---
• 6.Recognise environment changes
• Existing strategies erode
• Priorities to change and innovation

• 7. Customer-focussed organisation
• Inverting and flattening the pyramid
• Prioritising service providers

• 8.Monitor and bench mark customer satisfaction

• Quantitative research systems
• In-depth research
98
 The strategy of a modern airlines
• In the olden days, airlines didn’t segment their markets.It
soon became clear that passengers differ in their
expectations. Business travellers value convenience,
comfort and service,while,leisure travellers were more
interested in lower price,
• A carrier flying from London to New York, using a 300
seater plane and anticipating an average load factor of
80%, if it pursues an un-differentiated strategy-one class
plane-the management can charge a highest price of
$250 TO AChIEVE A 80% OCCUPANCY RATE.The
variable cost for the airlines was $20 per passenger and
the fixed cost is $50,000per flight.

99
 Airlines----contd
• However to the mrktng mgmnt,it is obvious that while a price of
$250 already begins to lose the business of low budget
travellers,business people and the more affluent people would be
willing to pay much more for superior service and comfort.
• The result was that the airlines moved to the differentiated strategy
whereby they offered 3 levels of service on the
plane;economy,business and first class at very different price levels.
• To get the same 80%occupancy level,the prices are respectively
$250,500,and 1000 per passenger while the variable costs
are$20,40 and 100 per passenger. It is estimated that the fixed cost
would go up by 10% to accommodate the changes in the aircraft to
provide the desired comfort to the upper 2 classes, each of them
taking 50% of the additional amount.It is also estimated that the
business class pssengers wd be 3 times the number of first class
and economy passengers wd be double the business class
occupants at 80% plane loading factor.

100
 Airline---contd.
• The consequences are to massively enhance the revenue and the profitability for the
airlines.In addition,the strategy better meets the needs of all customers by offering
the values that the particular type of passenger prioritises
• And this example of airline segmentationis exactly analogous to the strategies
pursued by most of the sophisticated cos of today!
• You are requested to calculate the profits,the profitability, the revenues and the costs
incurred in both the strategies,for the full plane,for each class and per passenger in
each class, assuming in both cases the plane is 80%loaded.Pl find the break even
point in both.

• Discussion q’s
• 1List all benefits of segmentation to all stakeholders of the airlines
• 2Who all could be the beneficiaries
• 3Do u think any segment is subsidising for any other segment? If so who to whom? If
not,why not?What do u understand by absolute satisfaction and relative satisfaction?
Do u think that there is a possibility that any cass may feel relatively dissatisfied
although absolutely satisfied, When wd that happen? How wd mgmnt prevent it?
• 4When can segmentation go wrong?How to avoid segmentation from going wrong?
What precautions to take?

101
 What is your position?are we
positioned correctly?
• A manufacturer of industrial cutting equipment
was concerned about its poor market share and
wondered whether its prices were the problem.
• It undertook a markt research study which
identified the product and service attributes most
desired by customers and evaluated how its
product “ X “ & its key competitors were rated in
tablebelow on a 1to 6 scale where 1 is lowest
and 6 is highest.

102
Table assessing price & value
competitiveness
Importa Quality Competi
nce wt dimensio tors
ns
abcx
35% Precision 6 5 4 6

25% reliability 6 6 3 4

15% durability 5 3 2 5

20% service 5351

5% Delivery 2 5 5 5 103
weigh A B C X
tedsc
ore
5.5 4.6 3.7 4,3
Actual
prices
29 K 21 K 15 K 22 K

Mrkt
share 27 45 20 8
% 104
 1.What is the problem of x In
marktng jargon?
• 2.how do you solve? What srategy do u
recommend? Why?
• 3. What alternates can be considered by
X? Why should they be dropped?

105
 How to take positions? - 2 ways
based on Quality&price conscious
•
markets
QUALITY-CONSCIOUS MARKTS-steps
• 1.find out quality dimensions,relative importance
between them and assess performance of all current
players on each dimension
• 2.If there is a gap between expectations and
performance tae a position
• 3. fill the position by offering the highest value than the
average value provider as well as the best value provider
so that no one will find a gap in value to replace u in
future.
• 4 constantly monitor and defend this position thro
innovation.

106
 Price conscious
customers/markts---how to take
positions
• 1.find out what price are the markets willing to
pay?
• 2.find out what quality are they willing to accept
for the price they are willing to pay
• 3.find put a gap if any where u can offer a higher
value for the price they are willing to pay –better
than the average value privider as well as the
highest value provider in the markt.
• 4defend and protect .

107
 Concepts of
cost,price,revenue,value &
quality.how are they connected?
• Adi godrej said,when asked what is important,top line or
bottom line?
• REVENUE IS (read sales) vanity,PROFIT IS SANITY
and cash is reality.Cost is a fact & Value is a perception.
• Value is benefit divided by price
• Customer delivered value=total customer benefits(TCB)-
total customer costs(TCC).
• TCB=Product benefits+Service benefits+personnel
benefits +image benefits
• TCC=monetory cost+Time cost+energy cost+psychic
cost

108
 Quality is 2 types –Quality of
conformance & quality of
•
performance
QUALITY OF CONFORMANCE-consistently meeting specifications
laid down batch after batch/supply after supply.—at any agreed
level of quality
• Performance as per promise.supplier commits to buyer a certain
level of quality features,prices and performance and delivers in
practice what was promised.
• QUALITY OF PERFORMANCE-this has got to do with the level of
quality Certain products promise and perform at higher level of
quality and certain other products promise and perform at a lower
level of quality.
• EXAMPLE.Which product has a higher quality of
performance,Mercedes Benz? Or Maruti 800? Answer is the former.
• Which of the above 2 products has a higher quality of conformance/
Answer is both can have the same level or one can have a higher or
loer level than the other depending on the actual percetved
performance over a period of time.

109
 Cdv=tcb-tcc
• Compare the customer deliverd value of
any 2 brands fighting with each other in
the same TMS/
• Compare cdv of kinetic Honda to ladies
with cdv of Hero Honda to male Youth.
Which one is greater?

110
 Caterpiller VS komatsu how to
price caterpiller’s buldozer?
• Cost to make =$30k
• Perceived worth of customers=$100k
• Added value=$70k
• Pricing options—A.Share equally,P=$65k.
—B.take a higher share,P=$80k—C.Take
a smaller share,
• P=$50k.
• How to decide what strategy to follow.?
111
 Caterpiller ‘s price strategy
depends on
• 1.the Co’s goals/ambitions
• 2.the competitive factors and
• 3. the customers value perceptions
• If the co wanta a short run high return,and
doesn’t mind losing competitive entry, price it
high.
• If the co’s interest is to gain a high markt share
quickly and protect it over a long term,go for a
low price but a longer pay-back.
112
 Cdv concept of buyer decision
making and its use for seller
• 3ways
• 1.Caterpiller can increase total customer
value.By improving P,S,P,or I benefits
• 2,Caterpiller can reduce the buyers non-
mo0netary costs By lessening the buyer’s
time,energy and psychic costs.
• 3.Caterpiller can reduce buyer’s monetory
cost,by lowering its price,providing easier
terms,of sale,or in the longer term lowering its
bulldozer’s operating or maintenance costs.

113
 Customer value assessment of
bulldozer
• Cost of prdn to Caterpiller-$140k
• Customer perception of its worth-$200k
• Total added value-$60k
• PRICING OPTIS
• <140k—costs not covered for Caterpiller.
• >200k—Customer value exceeded
• $160k-20k to
• $190k-50k to Caterpiller and 10k to customer.
• The lower the caterpiller price,the higher the delivered
value to customer. caterpiller and 40k to customer.

114
Total customer satisfaction concept
• Customer satisfaction depends on the product’s performance
relative to a buyers’ expectations-
• Short of expectations-dissatisfied
• Matches expectations-satisfied
• Exceeds expectations-highly satisfied or delighted.
• How are expectations formed?
• 1,past buying experiences
• 2.opinions of friends and associates
• 3.marketer and competitors’info and promises
• Marketers should set the right level of expectations. Holiday Inn
campaign of ‘NO SURPRISES”ran into hot weather and was
withdrawn.Consistent and trouble-free services.”if u aren’t satisfied
ur night’s stauy wd be free.Can u defend this ?How do u measure?
Can u argue with ur customer? And still maintain a good relation?

115
 Implementing total quality
marketing
• PIMS-Correlation between Relative product
quality and profitability
• QUALITY-Fitness for use
• Conformance to requirements
• Freedom from variation
• The tottality of characteristics and features of a
product/service that bear on its ability to satisfy
stated or implied needs.Customer-centered def
of Q as per American soc for QC.
116
 Performance q vs conformance Q
• Performance q-Refers to level at which a product
peforms its function.Ex Mercedes provides higher
performance Q than Volkswagen.Gives a smoother
ride,handles better and lasts longer.It is more expensive
and sells to upper segment.
• Conformance Q-Refers to freedom from defects and the
consistency with which a product delivers a specified
level of performance.
• A Mercedes and a Volkswagen offer equivalent
conformance Q (each delivers consistently what it
promises).
• A $ 50k car that meets all its requirements is a Q car. So
is a $15k car that meets all of its requirements.

117
 Marketing’s role in total Q
• 2 roles-
• 1.Formulate strategies/policiesto win total Q excellence
• 2.Must deliver marketing Q as well as Production Q .Must perform
each mrktng activity –MR,sales training, advertising, customer
service and others to high standards.
• ROLES
• 1.Correctly identify customer needs & communicate correctly
product design dept.
• 2.Fill customer orders correctly on time and ensure customers
receive training in product application
• 3.stay in touch with customers after sales to ensure they remain
satisfied.
• 4,Gather and convey customer ideas for product and service
improvement to Co departments.

118
 Ironic research study.
• Marketing people responsible for more customer complaints than
any other dept.(35%)
• Marketing mistakes;
• 1.Sales force orderd spl product features for customers but failed to
notify manufacturing of the same changes
• 2.Incorrect order processing resulted in wrong product being made
& shipped
• 3,.Customer complaints aren’t properly handled.
• Marketers must be
• 1. customers’ watch dogs complaining for the customer when
service is not right.
• 2.spend time and effort for both external and internal marketing
• 3,uphold the std of “giving the customer the best solution”

119
 The malcolm balridge national
quality qward-Q principles applied
by MR firmCRI-custom researchinc
• 1.focus on building major customer relationships
• 2 organise into cross-functional client-centered
teams to get every one working toward customer
satisfaction.
• 3,Develop high Q processes& procedures to get
the work done ,then measure the results
• 4.Explicitly ask customers what they expect from
a partnering relationship.
• 5.seek customer feed back on individual projects
and overall relationship.
120
 Malcolm---
• 6.Hire the best people and invest ti their
development
• 7.Stay flexible,agile fast moving-empower
every one in the Co to ‘just do it’
• 8.Have fun with hoopla and recognition
• 9.Build Q continuously
• 10.Never be satisfied.

121
 Essentials for total Q marketing
strategy-W.Edward Deming
• 1.Q is the eyes of the customer.
• 2.Q must be reflected not just in the Co’s products but in every Co
activity.
• 3.Q requires total employee commitment.
• 4.Q requires high Q partners (suppliers)
• 5.A Q program can not save a poor product.
• 6.Q can always be improved.
• 7.Q improvement sometimes in quantum leaps.
• 8.Q does not cost more-’do things right the first time’-’Q is not
inspected in; it must be designed in’.These reduce the cost of
salvage ,repare and redesign,not to mention losses in customer
good will’
• 9.Q may be necessary but may not be sufficient.eg Singapore Air
lines-Competitors reduced the percieved Q gap ,so MS reduced for
SA.

122
 Customer
loyalty,retention,relationship
marketing
• The case of lost customers
• Pay attention to ‘customer defection rate’-rate at which they lose
customers—and the steps to reduce it.
• 4 ways of doing this
• 1.Define and measure its retention rate. For a magazine renewal
rate is a good measure of retention .For a college it could be the 1st
to 2nd year retention rate.
• 2.Distinguish causes of customer attrition & identify those that can
be managed better .Do something about customers who leave due
to poor service ,shoddy products, high prices etc., while nothing
could be done about who leave the region or go out of business.
• 3.Estimate how much profit the Co loses when it loses customers. In
case of an individual customer, the lost profit is equal to the
customer’s life time value (CLTV)-that is the present value of the
profit stream if the customer hadn’t defected prematurely.

123
 Cost of a lost customer
• For a group of lost customers ,one transportation carrier estimated
its profit loss as follows.
• 1.Co’s accounts-64k
• 2.Lost 5% due to poor service this year.
• 3.The average lost A/c represented a $40k in revenue per annum.
• 4. The Co’s profit margin is 10%.how much is the loss for the Co
this year? How much would it be if the average no. of loyal years is
5 and the inflation in prices is just same as discounting rate for NPV
calculation?
• 5.Fgure out how much would it cost to reduce the defectrion rate ?
As long as the cost is less than the lost profit the Co should spend
the amount to reduce the defection tate.

124
 Lost custom---
• The cost of attracting a new customer is
estimated to be 5 times the cost of keeping a
current customer happy.Traditionally we all
make sales rather than build relationships,
selling and pre selling becoming more important
than after sales.
• Today, more Co’s recognise importance of
satisfying and retaining current customers . One
study indicates co’s can increase profits
between 25-85% by reducing customer attrition
by 5%.
125
 Should thios Co add new
customers?
• 1.cost of an average sales call-incuding
salary,commission,benefits,expenses,incentives etc.--$300
• 2.Av no. of sales calls to convert an average prospect into a customer-4. In
fact this doesn’t include advert,promoting,operations,planning etc.
• 3.Co’s estimate of Av customer life time value
• Annual customer revenue--$5k
• Av no. of loyal years—2
• Co profit margin-10%.
• Q.Is customer’s LTV higher or lower than the cost of attracting a new
customer?
• Q.How will u recommend this Co should do to add new customers?
• The Co is clearly spending more than they are worth to attract new
customers.Unless the Co is signing up costomers with (a) fewer calls,
(b)spend less per sales call,©stimulate higher new customer annual
spending,(d) retain customers longer,(e)sell them higher profit products,the
Co is headed for bankruptsy.

126
 2 ways to strengthen customer
retention
• 1.To erect high switching barriers. Switching
involves high capital cost, high search cost, the
loss of loyal customer discounts and so on.
• 2.Better approach is to deliver high customer
satisfaction .Due to this, Lower prices/switching
inducements of competitors won’t be attractive
enough.
• The task of creating “strong customer loyalty”is
called “relationship marketing’—”To know and to
serve better” all valued customers.

127
 The key of relationship marketing
• The customer development process
• SUSPECTS----PROSPECTS----DISQUALIFIED PROSPECTS
• PROSPECTS
• First time customers-may buy from competitors
• Repeat costomers-may buy from competitors
• Clients-buy only from Co.
• Advocates-word of mouth
• Partners-work actively together
• Every stage of customer can become inactive or EX customer due
to bakruptcy,moving out to other locations,dissatisfaction etc.
• Reactivation is a challenge thro customer win back strategies.
• It is easier to re attract ex customers than to win new ones.

128
Social actions affecting buyer-seller
relations-good things
• 1.Initiate +ve phone calls
• 2.Make recommendations
• 3.Candor in language
• 4.Use phone
• 5.Show appreciation
• 6.Make service suggessions
• 7.Use ‘we’ problem-solving language
• 8.Get to problems
• 9.Use jargon/shorthand
• 10.personality problems aired
• 11.Talk of our-future together
• 12.Routinise responses
• 13.Accept responsibility
• 14.Plan the future

129
 Bad things-affecting buyer-seller
relation
• 1.Make only call-backs
• 2.Make justifications
• 3.Accommodative langusge
• 4.Use correspondence
• 5.Wait for misunderstandings
• 6.Wait for service requests
• 7.Use ‘owe-us’ legal language
• 8.Only respond to problems
• 9.Use long-winded comments
• 10.Personality problems hidden
• 11.Talk about making good on the past
• 12.Fire-drill/emergency responsiveness
• 13.Shift blame
• 14.rehash the past.

130
 Retaining customers-CRM
• Only attract new customers? Don’t want to retain
existing ones? Look at the statistics.
• !.Competition increasing vand so cost of
attracting new customer is increasing.
• 2.5 times costlier to attract new customers
• 3.Offensive marketing costs more than
defensive marketing. Coaxing satisfied
customers away from competition is expensive.
• 4.By reducing customer defections by 5%,Co’s
can improve profits from 25-85%.
131
 Relationship marketing
• The process of creating ,maintaining and
enhancing strong, value-laden relationships with
customers and other stake holders.
• All of Co’s departments work together with
marketing as a team to serve the customer.
• Involves building relationships at many levels-
economic,social,technical and legal-resulting in
high customer loyalty.

132
5 different levels of relationship as
a function of profit margin and no.
of customers
• 1.Basic. Sell but don’t follow up.H.J.Heinzdon’t call every ketch-up
buyer to thank.(large no. of customers and low margins)
• 2.Reactive; Sell and encourage to call if any question or problem.
• 3.Accountable;Check after sale if product meets expectations.Solicit
improvements, suggessions,and any specific disappointments
• 4.Proactive;Sales persons and others in the Co phone customer
often with info on improved product use or new products.
• 5.Partnership;Continuously work with customers to discover ways to
deliver better value.Boeing does partnership matng with United
airlines to work closely in design of aeroplanes and satisfying
customer requirements.

133
 Profit margin vs no of customers-
relationship levels as a function of
profit margin & no of customers
• Proft- HIGH MEDIUM lOW
• No.of Customers
• Many Accountable Reactive Basic

• Medium Proactive Accountable Basic

• FEW Partnership Accountable Reactive

134
Develop strong customer bonding
& satisfaction-3 value building
• Financial, socialapproaches
and structural
• 1.Financial; Adding financial benefits to relationship
.Ex.Frequent flier programs of airlines ; *room
upgradesto frequent guests in hotels *P&G’s money-
back guaranteeon Crest tooth paste(cavities and tartar
build up ion 6 months).P&G builds up data base .Dentist
certificates.
• 2,Social;Individualise and personalise the products and
services ,Ritz hotels offers financial and social
benefits.Refer to guests by name& give each guest a
warm welcome!.Record specific guest preferences &
maintain data base accessible to all hotels in chain.
• A guest wanting a foam pillow –Ritz in Montreal first and
Atlanta later.
135
 3 value building approaches
• 3.structural ties; A business marketer helps
costomers with spl equipment or computer
linkages to help them manage orders ,pay roll or
inventory. Ex.Mc Kesson Corp.a leading pharma
wholesaler built financial,social and structural
ties with customers by spending $millions in EDI
to help small pharmacies manage their
inventory,order entry and shelf space.Fedex has
computer linkages with its customers.

136
Customer profitability –the ultimate
test-how to attract and keep
profitable customers?
• 1.Usually 20-40% of customers are unprofitable.
• 2.Most profitable A/cs aren’t the largest a/cs; but
mid-size a/cs.
• 3.Largest a/cs demand high services and high
discounts,so low profits.
• 4.Smallest a/cs pay full price and receive less
service ;but cost of handling high and so low
profit.
• 5.Mid size a/cs paying good price and receiving
good service are the most profitable. Therfore
invade the middle not only the largest a/cs!
137
 Choose ur customer-CRM-What
not to do
• 1.don’t pursue and satisfy every a/c.
• 2.Don’t try to satisfy every whim.
• 3,don’t provide any thing and every thing an a/c
suggests.
• 4.Market focus doesn’t mean “blindly following all
suggessions that can’t be profitably undertaken”
• 5.Market focus means “making disciplined choices of
which customers to serve and which specific benefits to
deliver or deny”
• If PRESIDENT customers want Taj service President
should say ’no’.Because providing confuses positioning
of TAj and President systems.
138
 What makes a customer
profitable?-concept of CLV
• CLV is the amount by which revenues from a
given customer overtime will exceed the Co’s
cost of attracting,selling and serving that
customer.
• Emphasis is on life time revenues and costs –
not profits from a single transaction!
• Life time profit of Tom Peters to Fedex.Tom
spends $1500/month in fedex service.=12
*1500*10 years =$180k for 10 yrs
@10%profit=$18k on Tom’s life time
business.So can Fedex risk poor service from a
driver to Tom?
139
 Customer/product profitability
analysis
• Customers with varying profitability
• C1(high) C2(mixed) C3(losing)
• Products at varying profitability
• P1(high) ++ +crosssell +
• P2(ok) + +
• P3(mixed) + -crosssell -
• P4(losing) +crosssell - -
• high p custom Mixed bag Losing a/c

140
 Customer-product profitability
analysis
• Co’s should actively measure individual customer value &
profitability.
• 1.customer c1 buys 3 profit making products P1,p2,P3.
• 2.Customer C2 gives mixed profitability buying one profitable
product P2 and one un profitable product P4
• 3.Customer C3 generates losses by buying one profitable product
P1 and 2 unprofitable products P3 and P4..loss leaders.
• What should the Co do about C3? 1.Rise the prices of less
profitable products or consider elimination.
• 2.try to cross-sell profit making products to its unprofitable
customers
• 3.If customers like C3 defect ,it may be for the good!
• 4.in fact Co may benefit from encouraging its unprofotable a/cs to
switch to competitors.

141
Satisfaction,value and quality (tools
for building customer relationship)
• Simple and effective competitive marketing strategies of
successful companies.
• Steps To consistently offer the best value to customers
• STEP 1.Study and listen to customer
• STEP2.Learn about consumer problems and needs;
likes and dislikes; trends, through demographic and
lifestyle analysis,focus group interviews,indepth
interviews and product tests.
• STEP 3.Give consumers what they want-a continuous
flow of useful and high quality products.

142
How to gain reputation of value and
quality
• 1.Well designed and well made products
• 2.Obsession for quality
• 3.Innovative or new ways of serving customers
• 4.New product development a religion-PERPETUITY
FACTOR 33% from products developed and launched in
the last 5 years.
• 5.Base executive compensation on new product share of
sales.
• 6.New product teams or venture teams-Experts from
marketing,manufacturing,finance and design-live,
breathe and sleep new products from idea to commercial
launch.
143
 7.Ordinary products offer simple
but elegant improvements.
• 8.strong relationship with ‘other customers’-retailers and
suppliers who appreciate the Co’s high quality,larger
margins,outstanding service,and strong consumer
appeal.
• 9.Grab ‘vendors of the year’awards, or ‘the most reputed
marketing Co’award or ‘oustanding co’ award.
• 10.Open ‘supershoppees’ or ‘rubber maid botiques’-
whole sections stocking Co’s products and offering
‘complete solutions approach’to customer problems.
• 11.Competence to execute the strategy flawlessly-
uncopiable by competitors.
• 12.They never run out of ideaswhen it comes to fresh
and saleable new ways to serve customers.

144
 Being a customer-centered
company
• 1.Be adept in building customers-not just
building products.
• 2.The key is ‘CUSTOMER-VALUE DELIVERY
SYSTEM’-EX.
• Mc Donald’s—Consumers flock to the
McDonald’s system which supplies a high
standard of QSCV-
QUALITY,SERVICE,CLEANLINESS AND
VALUE.
• Not just for the taste of hamburgers ,several
others make better-tasting ones!

145
 Value-delivery system
• System made of value chains of the Co and its
suppliers ,distributors and ultimately customers who
work together to deliver value to customers.EX.
• HONDA chose DONNELLEY Corporation for supply of
car mirrors for US made cars.
• Honda engineers work together with Donnelly in
improving products/operations.Donnelly could reduce
costs by 2% in first year.And its sales to Honda improved
from 5mn $ a year to $ 60 mn in less than 10yrs.
• Honda benefited from nan efficient low cost supplier in
Donnelly for quality materials
• Honda’s customers benefited from lower cost and high
quality cars resulting from Honda’s partnerships with
donnelly and others.
146
 Levi Strauss’s value-delivery
system.
• ORDER FLOW-
• CUSTOMER(buyer)—SEARS(Retailer)—LEVI(jeans supplier)—
MILLIKEN(fabric supplier)---DUPONT(fiber supplier)
• DELIVERY FLOW---
• In the opposite direction
• LEVI’s Quick Response System(QRS)
• 1.Every night Levi’s knows thro EDI –Electronic Data Interchange-
the sizes and styles of its blue jeans that sold thro SEARS
• 2.Levi’s orders electronically more fabric from Milliken
• 3.Milliken relaysan order for more fiber from Dupont.
• Most current sales info is used to make what is selling.In
QRS,goods are pulled by demand –not pushed by sales/supplier!

147
 Traditional vs modern value-
delivery processes
• Traditional process
• Make product---Sell the product
• Design product-Procure—make-----Price-sell-Advertise
and promote—Distribute-service

• Modern value creation and delivery sequence—

CHOOSE THE VALUE-PRIVIDE THE VALUE-
COMMUNICATETNHE VALUE.
• Customer segmentation-market selection focus-value
position----Product development-service development-
pricing-sourcingand making-distributing and servicing----
personal selling-sales promos-advertising-PR-Publicity
148
 positionings
• Usp development—an attribute to tout as
number 1—common no1 positions—best
quality ----lowest price—safest---best
service—best value---fastest—most
customised—most convenient—most
advanced technology etc.
• Examples of value propositions

149
Co/prod Target 1 uniquePercvd Value Remark
uct custome benefit benefit propositi s—
rs’ to price on compact
profile ratio stateme ,artistic,
nt punchy-
--

Hll/lux Geo- The Just

Demo- best andright
the price for
Psycho
firstbeauthe
Tcchno ty soap benefit

150
 4 positioning errors to avoid
• 1.Under positioning; buyers have only a vague
idea of the brand.Nothing special is seen. Pepsi-
Cola’s clear ‘Crystal Pepsi”, was introduced in
1993. Costomers didn’t see ‘clarity’ as important
benefit in a soft drink.
• 2.Over positioning. Buyers have too narrow an
‘image’ of the brand. Consumers think ‘diamond
rings’ at Tiffany’s start at $5000 while Tiffany’s
now offers affordable diamond rings $900
upwards Unsuccessfully.
151
 Positioning errors--contd
• 3.Confused positioning; Too many changes in brand’s
positioning too frequently.eg.stephen job’s sleek and
powerful NeXT computer positioned first for students,
then for engineers and then for business people all
unsuccessfully.
• 4.Doubtful positioning; Buyers find it hard to believe the
brand features.GM’s Cadillac division launched Cimarron
as a luxury competitor with BMW, Mercedes and Audi.
While the car featured leather seats, a large luggage
rack,lots of chrome and Cadillac logo stamped on the
chassis, customers saw the car as a dolled-up version of
Chevy’s Cavalier and Oldsmobile’s Firenza. While the
car was positioned as “more for more” customers saw
“less for more”.

152
 Factors affecting positioning
strategies
• A.Attractiveness of market
• 1.Market size
• 2.Mrkt growth
• 3.Competitive structure
• 4.Profitability
• 5.Socio-political constraints

• B.Ability of Co to create a relative strength.

• 1.Mrkt share & position
• 2.Cost competitiveness
• 3.Technical capability
• 4.Mrktng and distrbn capability
• 5.Future cash requirements
• 6.Commncn & Branding capabilitry.

153
 6 key analyses for developing
positioning strategies
• 1.Mrkt analysis
• 2.Customer analysis
• 3.Competitor analysis
• 4.Trade analysis
• 5.Economic analysis
• 6.Environmental analysis

154
 1.Market analysis
• A.How attractive are alternate mrkts?
• 1.Size
• 2.Growth
• 3.Competition
• 4.Profitability.
• 5.Socio-political issues
• B.Do we have the capability to compete effectively?
• 1.Mrkt share &position
• 2.Cost competitiveness
• 3.Technical capability
• 4. Mrktg & distribution
• 5.Future cash requirements.
155
 2.Customer analysis
• 1.How is the mrkt segmented?
• 2 What are the needs of each segment?
• 3.How are purchasing decisions made?
• 4.Who makes the key decisions?
• 5.Are there any new segments to appear
or be created?

156
 3.competitor analysis
• 1.Who are the key competitors?intra-type?---
Inter-type?---Innovative?
• 2.What are the strategies of competitors?---
Aggressive?---Me-too?---Segmentation?
• 3.How are we positioned as competitors?----
Where are they vulnerable?---Where are we
vulnerable?
• 4.Are there any srategic windows?---New markt
segmentation?----New technologies?---Market
redefinition?----Channel changes?

157
 4.Trade analysis
• 1.What are the key channels?
• 2.Are new channel opportunities likely to
develop?
• 3.What are the needs of our dealers?
• 4.Do we have an effective partnership to
develop our mrkt opportunities?
• 5.How are we perceived relative to our
competitors?
• 6.What can we add to enhanceour dealer
business?
158
 5.Economic analysis
• 1.Can “ROI” and “share holder value”be
enhanced ?
• 2.Can costs be reduced?
• 3.Can prices be revised ?up and down wards?
• 4. Can the product mix be improved?
• 5. Can volume be improved by investing in new
mrkts or brand enhancements?
• 6. Can investment in fixed and current assets be
rationalised?
• 7. Can time be taken out of the production and
marktng processes?
159
 6.Environmental analysis
• 1 How are we likely to be affected by trends in
the environment?----------------------
Demographic?--------------------------------------
Economic?------------------------------------
• Pollution and environmental protection controls
• Technology? Political? Cultural?
• 2.what contingency and crisis mngmnt plans
exist? For key vulnerabilities?

160
 Developing the “value proposition”
USP,UBP,VP CONCEPTS
• USP—unique selling proposition
• UBP—unique buying proposition
• VP—value proposition
• USP is an attribute to tout as No.1.
Common No.1 positions—Best Quality—
Lowest Price—Safest—Best Service—
Best Value—fastest—Most Customised—
most Convenient—Most Advanced
Technology.
161
 Examples of value propositions-
Step by step process
• 1. Co name? and Product name?
• 2.What is target customer profile In
Geographic,Demographic,Psychographic including life
style and Technosavviness parameters?
• 3.What is one unique benefit that is distinctly different
from others? And a couple of other normal benefits?
• 4. What is customers perception of Benefit to price ratio?
Expressed as—Too high a price for the benefit?---
Moderately high price for the benefit?—Just right price
for the benefit?—Moderately low price for the brenefit
• 5.Make a value proposition statement—An artistic
statemennt, compact, unambiguous’ and easily
understood—Neither too long nor too short- but covering
the salient aspects of all the above 4 points.
162
 3definitions of positioning strategy
• 1 Positioning strategy is choice of target mrkt
segment(TMS), which determines where the
business competes and the choice of “DA” which
dictates how it competes.
• 2.Positioning strategy is deciding which game to
play and how better to play so that the co
continues to win the game for ever
• 3.Positioning is not so much what the product
actually is, but rather how the Co wants it’s
target customers to perceive it. A Co can choose
from a No. of different strategies.
• Match the strategy with the example.
163
 Match strategy with example
• Positioning strategy
• 1.Positioning by
attribute;Associating a
product with a particular
feature
• 2.Positioning by
benefit;Associating a
product with a spl customer
benefit
• 3.positioning by use or
application
• Example
• A.”Master card is
accepted at more
restaurants than any
other card”
• B.”Head & Shoulders” is
the best shampoo for
people with dandruff.
• C.”Chevy trucks out-
perform Ford trucks”
164
 Matching------
• 4.Positioning by • D.“Timex watches take a
user;Associating a licking but keep on
product with a user or ticking”
class of users. • E“Preference by
• 5.Positioning by L’Oreal.It costs a little
competitorIdentifying a more, but I am worth it”
product by using a • F.”7-UP is the Un-
competitor as reference Cola.It’s lighter& more
• 6.Positioning by product refreshing.”
category; • G.”A box of
• 7.Positioning by quality& Arm&Hammer baking
price soda in your refrigerator
will keep it clean-
smelling”
165
 How do Co’s add superior value?
In 3 ways

• 1By strategies adding value

• 2,by strategies reducing cost &
• 3.by developing more effective
positionings.
• Let us get into details of each.

166
 Drivers of utility
drivers of cost &repositionings
• 1.Drivers of utility.
Utility,usefulness,perceived value
orcustomer satisfaction is a combination of
rational, economic factors and subjective
image dimensions—4 drivers
-----.Product,Service,Personal &Image
drivers
• A,Product drivers

167
 Product drivers & service
drivers
• Product drivers; • Service drivers;Become
• 1,Performance important as competition
• 2.Features narrows down product
differences.
• 3.Reliability • 1Credit&Finance
• 4.Conformance to specs • 2.Ordering facility
expected
• 3delivery
• 5.Durability
• 4Installation
• 6.Seviceability
• 5Training&consultancy
• 7.Operating costs
• 6 Aftersales-service
• 8.Aesthetics.
• 7 Gaurantee
• 8Operating support

168
 Personal & image drivers
• Personal drivers. In service- oriented Co’s,
personnel become a valuable source of “DA”-
since difficult to copy high quality person or
service. Important traits;
• 1.Professional skill, knowledge,talent
• 2.Courtesy
• 3.Trustworthiness,reliability,Positive attitude
• 4.Initiative
• 5.Communicability etc.
169
 Image drivers
• Image drivers give customers the
confidence in the product.This confidence
value is in socio-psychological utility of the
brand or it’s economic performance or
both.
• Ex.Youngsters see Coke, Levi’s
jeans,Sony Walkman,Nike shoes as
consistent with their life styles.

170
 2 drivers of cost
Michael Porter’s 5 force theory&
•
value chain
Typical P&L of a Co
• Revenue---100
• Materials-----25
• Manfacture---15
• R&D-----------o5
• Sales&Distrbn15
• Corp.OHS-----20
• Mrktng OHS---15
• TOTAL COST—95
• --------------------------
• Margin-----------05
171
 Cost drivers
• It is cost drivers that decide if a Co’s costs are
lower or higher than it’s competitors.Eg.
• 1.Economies of scale
• 2.Learning curve or Experience curve
• 3.Capacity utilisation
• 4.Sharing of costs with group Co’s
• 5.Vertical/horizontal integration
• 6,First/leader in mrkt
• 7.Location,Marktng strategy advantage.

172
Value chain

173
5 forces of porter

174
 3.Repositioning strategies
are you positioned adequately?
• Product X is positioned wrongly in between mass & premium mrkts-
where the economy and luxury segments are at the 2 extremes of
the markt.
• On the Quality VS Cost or price map, there could be 3 reasons of
inadequate positioning of X.
• 1.Un-attractive segment-too small in size,declining,too
competitive,or unprofitable.
• 2.Quality & features don’t match the target segment.
• 3.The product costs too high to allow it to be priced competitively.
• IN OTHER WORDS.PRODUCT X IS TOO COSTLY FOR THE
MASS MRKT AND HAS INSUFFICIENT QUALITY TO APPEAL TO
THE PREMIUM SEGMENT.
• Therefore it has TO REPOSITIOn itself

175
 7 repositioning options
real & psychological options
• 1.Introduce a new brand. In 1990,IBM , in the PC mrkt,
introduced it’s own cheap clone under AMBRA brand
name to have a foot - hold in the emerging mass or
economy mrkt.
• 2. Change existing brand. In contrast to IBM,Compaq
solved the problem by cutting price & simplifying features
offered to hold on to position in mass mrkt.
• 3.Alter beliefs about brand.; Chivas Regal scotch
repositioned itself from the mass mrkt to the premium
segment thus rationalising it’s higher price and quality.
• 4. Alter beliefs about competing brands; The BODY
SHOP retail group has communicated that the beauty&
personal care products of competitors are not
environmentally friendly.
176
 Repositions--contd
• 5. Alter attribute importance rates; VOLVO
raised importance of safety as an attribute
in choosing a car thus enhancing the
value of it’s differentiation.
• 6. Introduce new or neglected
attributes;Unilever successfully introduced
“RADION”, a new detergent that
eliminated odour-a benefit previously
considered not important.

177
 Repositions—contd.
• 7. Find a new mrkt segment; DUNHIL
diversified from smoking accessories into
mens’ clothing. Instead of getting into the
crowded segments,created a new luxury
segment of expensive high quality ready-
to-wear suits. As the only typically British
competitor in the segment,it brought a
unique brand with a strong appeal to
affluent executives—especially the
Japanese.
178
 Creating brands & nurturing them

• Why brand technology products?

• Purpose of any business?
• How do we measure success?

179
The 3 secrets of business success
& survival?

180
 Secrets of----
• Product image

• Service image

• Corporate image

• Channel image

181
 Right Business orientation needed
for success?
• Production orientation

• Product orientation

• Selling orientation

• Marketing orientation

• Customer focus/orientation

• The role of engineering/R&D in success

182
 The elephantine electronics case
• What moral can we engineers draw from
this story?

183
 Differences between products
&brands?
• Benefits of brands-
• to customers ?

• to company ?
• to society?

184
Purpose driven R&D-in commercial
firms
• What goals should we have?
• Market goals
• Financial goals
• People goals

185
 Segmenting markts-how will we be
different & better?
• “all skills are subsidiary to the master skill of concentrated focus”
• FOCUS ON THE MARKT FOR SUCCESS
• 2 stages to undertake segmentation—Definition of potential
segments & selection of target segments
• DEFINITION-in a lot of different ways;
• FOR INDUSTRIAL MARKETS,
• Geographic; ,Industry,Type of application,Customer size,Markt
served,Channels of distribution,
• Demographic,Psychographic,Technographic, Behavioural etc.
• FOR CONSUMER
MARKTS;_GEO,DEMO.ECONOMIC,Psyco,Techno,Behavioural—
all can be used.
• When >2or3 variables are used, the process becomes complex.
• SELECTION—Is easier based on MA & DA.

186
A practical approach to segmenting
markts-cascade method
• Step1;what is our definable markt?
Questions to ASK;POTENTIAL
BENEFITS?—MAIN OVERALL NEED?—
KEY CUSTOMER PROBLEMS?—KEY
BUSINESS PROCESS?
• STEP2;BREAKING THE CASCADE OUT
THROUGH SUPPLEMENTARY
QUESTIONS
• EG:HARD COPY PRINTING
187
 Cascade---
• 1.HOW MUCH?—v low—low—med—high
• 2.WHAT QUALITY?—
• LOW Q—LETTER QUALITY—DRAFT GRAPHICS—
BUSiness GRAPHICS
• 3.HOW OFTEN?—SPORADIC NON_URGENT—
SPORADIC URGENT—UNIFORM NON-URGENT—
UNIFORM URGENT
• 4.WHERE?—PERSONAL—WORK GROUP—
DEPARTMENT—SITE
• 5.WHAT PRICE?--<5k--5K-25K—25K-100K-->100k

188
 Step3.Defining segments by
sentence
• EG.;DEPARTMENTS PRINTING LETTER
QUALITYOUTPUTS SPORADICALLY &URGENTLYIN
VOLUMES UPTO100K PAGES PER MONTH
• STEP4;make as many segment statements as possible.
• STEP5;FIND WHICH SEGMENTS ARE CURRENTLY
OCCUPIED BY WHOM?
• STEP6;FIND NICHE.
• STEP7;MEASURE ATTRACTIVENESS OF THE NICHE
& OUR CO’S CAPABILITY TO CREATE “DA”

189
 Guidelines for cascading
• 1.AVOID TOO NARROW/BROAD DEFINITION AT STEP1
• 2.DON’T LET PRODUCTS APPEAR ON THE CASCADE.IT IS
NEED /SITUATION ANALYSIS
• 3.DEFINE “Q” TERMS WHEREVER POSSIBLE.
• 4.KEEP A MAX OF 5-6 LAYERS.
• 5.QUANTIFY ACROSS EACH LEVEL.RESEARCH IF
REQIUIRED DATA NOT AVAILABLE.

190
 Cascade--
• 6.ANALYSE OBJECTIVELY.DON’T BE BIASED.
• 7.SEPARATE SEGMENTS FROM
SELECTION.SELECTION IS NEXT STEP.
• 8.ALTERNATE THE “Q”s.ELIMINATE NON_USEFUL
LREVELS.

• MYTHS OF SEGMENTATION
• “we segment our mrkts”
• ‘THERE IS ONE IDEAL SEGMENTATION VARIABLE”
• “segments are technologies or products”
• “Segments are forever”
• “WE want to be in all segments” ETC.

191
Assignment on cascade method of
segmenting markts
• Tke any markt u like and do follow the above
swtep by step process of cascade method,
• Divide into segments,
• Mention at least 3-4 segment statements,find out
if thjose sedgments were already occupied by
current players,if so who and if not check
attractiveness of the niche u have just
discovered.
• HOW DID U DISCOVER THENICHE?

192
Plc strategies. ch- fig--

193
 Product strategies-Ansoff diagram
or directional policy matrix.
• 4 types of product strategies
• BCG matrix –ch fig
• GE or McKinsey matrix

194
 Product strategies.HLL
• 1.product mix width strategy
• 2.product mix consistency satrategy
• 3.product line length strategy
• 4.product depth strategy
• PRODUCT MIX WIDTH measures the no of
individual(INDEPENDENT) lines of products the co
carries in its product portfolio.
• For ex,HLL has roughly 3 dozens of lines of products—
say,soaps,detergents,tooth
pstes,toiletries,cosmetics,personal care products,ice
creams,bread,shampoos,atta,salt,jams,jellies,tea,coffee
etc,
195
 Product stra----
• Advantages;wide mix helps
• 1,growyth in bad times for some lines
• 2.good customer coverage
• 3.prevent competitor entry
• 4develop trade interest
• 5reduce overall cost
• 6synergy etc.
• DISADVANTAGES
• 1.resources scarcely distributed
• 2.lack of focus
• 3.Confusion if overlap
• 4.too much inventories.
196
 What is optimum width?
• If mix is too narrow,vulnerability, competitors get
strong if they discover & enter into new niches,
and stake holders growth expectations not met,
• Optimum width depends on
• 1,co’s resource capability
• 2.co’s ambitions for growth with matching
capability
• 3.ability to start a new line when the existing
lines can survive & grow on their own merits,
197
 2.Product mix consistency strategy
• This measures how well each line is related to every other line in
terms of
• 1,technical capability
• 2.manufacturing skill& capability,
• 3.distribution capability,4,employee talent and skills,5branding&
commncn skills
• 6,customer mix etc.
• Advantages of high mix consistency
• 1.lower costs
• 2.quicker growth
• 3higher profit
• Disadvantages;1inability to venture into unrelated but high
opportunity areas.ex reliance.

198
 Product line length strategy
• Line length measures the no of
independent products in a line.
• For example,HLL’s soaps line has a
dozen different soaps
• Jay Lux Hamam
• Breeze Liril Dove
• Lifebuoy Fair&lovely
• Rexona Pears
199
 Long lines-advantages
• 1different segments
• 2high sale,MS & profit
• 3.prevent competition
• 4.be first to open a swegment
• 5overal markt leadership
• 6.More satisfied customer
groups7.synergies in marktng costs
• 7.satisfied trade
200
 Long line-disadvantages
• Too long –unnecessary-wasted inventory
• Slow non-moving stocks
• Low ROI
• Confuse customer choice if overlap.
• Lack of focus
• Resources too thinly distributed.

201
 product depth-no. of variants of
same product-by
sige,packing,colors,styles etc.
• Lux is available in 2 formulations,3 siges,3
colors and 2 skin types
• Therefore lux’s product depth is 2.3.3.2=36
• Why product depth?
• To cater to subsegmental needs
• To retain customers
• To meet needc fragmentation in evolving
markts

202
Plc strategies. ch- fig--

203
Branding strategies

204
 Brands
Creating & Nurturing Them

205
The Agenda Today

• Why brand technology products?

• Purpose of any business?

• How do we measure success?

206
 The 3 secrets of business success &
survival?

• Product image

• Service image

• Corporate image

• Channel image

207
 Right Business orientation needed for
success?
• Production orientation

• Product orientation

• Selling orientation

• Marketing orientation
• Customer
focus/orientation
The role of engineering/R&D in success 208
 The elephantine electronics case

What moral can we engineers draw from this story?

209
 Differences between products
&brands?

Benefits of brands

To customers
To company
To society

210
 Purpose driven R&D-in commercial
firms

What goals should we have?

1. Market goals
2. Financial goals
3. People goals

211
 The Kano Model
Delighting Features
+

Insufficient Sufficient
Product features

Expected
Features

-
Assumed Features 212
 From Commodities to Brands
Low High

Strong Brands
High
Relationship
Cognitive

d
ran
g B
i n
r od
E
Low

Commodity
Emotional
Relationship
213
 Perceived
Name quality Brand
Awareness Associations

Proprietary
Brand Equity
Brand Assets
Name
Loyalty
Symbol
Provides value to firm by
enhancing:
•Efficiency and effectiveness
Provides value to customer by
of marketing programs.
enhancing Customer’s
•Brand loyalty
•Interpretation/processing of
information •Prices/margin
•Confidence in the decision •Brand Extension
•Use satisfaction •Trade leverage
214
•Competitive Advantage
 Product
Unique Me - Too
Well Known

80% Depends
Supplying company

Buy Decision On
Whisper Sales Efforts

Depends
80%
Un known

On
Not – Buy
Sales Efforts
Decision

“LIKELIHOOD TO BUY MATRIX” 215

 Price Differentiation
Low High
High

Branded
markets
Differentiation
Product Image

Whisper

Commodity
Low

Market

“BEHAVIOUR OF NEGLECTED BRANDS” 216

 Productivity
Low High

Outstanding
Niche
High

Success
Marketing
Innovation

Commodity Cost
Low

Marketing Leadership

“Developing Competitive Position Through Innovation and Or 217

Productivity”
 Productivity
Low High

SWISS SWATCH
High

Luxury Fashion Based

Watches Low cost
Innovation
Marketing

Production

SEIKO
Low

Low cost
Volume
Production

218
“In Watch Industry”
 Awareness / Familiarity
with Brand

Information on Brand
Attributes or benefits

Creation of Brand
Ad Image / Personality Brand Purchase
Exposure Attitude Behavior
Association of Feelings
with Brand

Linkage of Brands with Peers

& Experts & Group Norms

Reminder or Inducement
to Brand Trial
219
Awareness / Familiarity with the Brand

“I am Chevrolet”

“I am Chevrolet Optra” 220

Information on Brand Attributes
• Brand of General Motors
• Brochures containing comparison with
competitors
• India Specific Customization
• E-Brochures
• Online booking for Test Drive
• Advertisement showing Features

221
 Creation of Brand Image
• To make the brand culturally relevant to the
need of the Indian market.
• To project a warm, approachable and likeable
image of Chevrolet
• An Image of trust and dependability
• Leverage the emotional aspects by creating
empathy for Chevrolet

Brand Personality
• A Business Professional who cares for his family
• If “Optra” were to be a human being:
It could be: Sachin Tendulkar 222
Association of Feelings with Brand
• Luxury (“The New Name for Luxury”)
• Power
• Style

Linkage of Brand with Peers/Experts &

Group Norms
• Luxury Seekers
• Value-for-money Seekers

223
 Reminder or Inducement about
Brand Trial
• Online registration for Test Drives
• Invitations to Film Premieres
• Freebies like:
– Car Polishing, Invitations to Rallies
– Insurance
– Stereo System
• Lucky Draw
224
 Brand Attitude

• More Approachable
• Dependable
• Symbol of Luxury
• Great Value for Money
• Satisfaction

225
 Purchase Behavior
• Great Value for Money
• The purchasing behavior of the customers is
reflected thru the ever-increasing sales
• GM’s Sales growth increased 73% because of
the “Optra” & now the positive image of Optra
is rubbing off on the “Tavera” too.

226
“I am Chevrolet Optra”

227
 Awareness: A B-SEGMENT
FAMILY CAR.

Information on Brand Attributes: TALL

BOY DESIGN , INTERNATIONAL BRAND
ATTITUDE
SAFERY STANDARDS.

Creation of Brand Image: MPFI PURCHASE

ENGINE , TECHNO SAVY VEHICLE. BEHAVIOUR
AD EXPOSURE

Developing feelings with the Brand: STYLISH AND

RELIABLE CAR

Linkage of Brands with Personalities:

SHAHRUKH KHAN , PRIETY ZINTA

Reminder of inducement about Brand trial: INNOVATIVE –

SANTRO ZIP AND THEN ZIP PLUS. ALSO XING , SUNSHINE 228
CAR…..
 What is a successful brand?

3 Acid Tests & 1 Decisive Test

1. Leading share in it’s segment and

distribution channel?

2. Commanding prices sufficient tp provide a

high profit?

229
 What is a successful brand?

Contd...
3. Will it sustain its strong share of profit against
emerging competition?

4. Will it induce customers to pay

preferentially compared to other brands
available?

230
 Brand equity
Brand Create Provides value to
loyalty Reduced marketing costs
Awareness customers:
Trade leverage
*Interpretation/
Attracting new customers Reassurance
*Processing of info
Mation
Anchor to which other associations can be attached *Confidence in
Familiarity –Liking purchase
Signal of substance/commitment * Use satisfaction
Brand Brand to be considered
Aware
ness
Reason to buy
Differentiate/position
Perceived Price
Provide value to firm
quality Channel member interest
Extensions By enhancing:
*Efficiency/effectiveness
Brand Help process/retrieve information Of marketing programs
Associ
Differentiation/position *Brand loyalty
Reason-to-buy *Prices/margins
ations Create +ve attitude/feelings *Brand extns
Extensions *Trade leverage
proprietary *Competitive advantage
asstes 231
Competitive advantage
 Levitt’s Model
Potential
•F
lex
Augmented ibi
lity
on

•G
ti
lla

ua
t a
Ins

ra
• Basi

nt
ee
•Payback
c

•Re
•Styling
Approach
•Sensitivity

•System

Core •Package

sp o
Benefit

ns
•Brand

iv
•Operational

e
name

ness
•Quality efficiency ing
n
rai
d

T
an

•Consultancy •
• N me
e
m
fa
a

•Maintenance

•Credibility
•Reliability 232
 In a Project Sales

20% of Sales impacct

The Core Product

80% of price

80% of Sales impacct

The other three levels

20% of price

233
 The essence Of marketing
Customer Wants Marketing MIX Variables

Functional Product

Value Price

Self image Advertising

TMS DA
Availability Distribution

Service Servicing

Risk Avers ness Guarantees

234
 Definition of a brand
• A brand is a differentiated product with a name,a logo,a
symbol,a trade mark and usually a combination of some
or all of these used in communicating the superior value
to the TMS and helping them percieve how the offer is
more in value and why they should be preferring this
product to all other substitute / competitive products.
• A brand is a trust-mark which helps customers meet
some of their self-image needs by rubbing off their
images on to the users of the brand-thanks to the
images they acqured over a period of time due to the
brand builing investment and efforts put in by the mgnt.

235
 4 branding strategies
• 1.Line extensions-product category same,brand
name same with a suffix or prefix.ex.lUX,LUX
INTERNATIONAL soaps
• 2.BRAND EXTENSIONS-Product category
different,brand name same with a suffix or
prefix.ex.LUX SOAP,LUX SHAMPOO.
• 3.MULTI BRANDS-product category same,brand
name different.LUX,LIRIL,LIFEBUOY soaps
• 4.NEW UNIQUE BRANDS-product category
different brand name different.ex.LUX
SOAP,KNORR ANNAPURNA SALT.

236
 4 Branding strategies based on
product category/brand name
existing or new?
• 1.line extensions-product category existing and
brand name existing.ex.LUX soap and LUX
international soap
• 2.brand extensions-product category new,brand
name existing.ex.LUX soap,LUX shampoo
• 3.multi brands-product category existing,brand
name new.exLUX soap,LIRIL soap.
• 4.new unique brands.-product category
new,brand name new.ex.lux soap,kn orr
annapurna salt.

237
 Pros and cons of branding
strategies
• Line extensions • Brand extensions
• Pros-possible when both • Pros and cons similar to
products have3 similar line extensions
image and are tasrgeted to
similar and close
markets/segments
• Synergy in cost
• Rub off effect
• Quick success
• Cons-failure also rubs
• Confusing range
• Overlap
• Non moving stocks

238
 Pros cons of multi brands/new
unique brands
• Multi brands
• Advs-possible when new product in same category meant for
dissimilar or distant mrkts and images dissimilar.diff features appeal
to diff markts.can protect major brands thro fighter or flanking
brands
• 1.create new segments and enter first,
• 2.pre-empt competition
• 3.segmen t leadership& overall market leadership
• 4.costomer loyalty &CRM 5.failure no bad effect 6.net profits larger
even if some cannibalism occurs.
• Disadvs-1.costly
• 2.Risky-high failure rate
• 3..line and brand extn possibilities4.resources too thinly spread.
• Newbrands pros &cons similar to MBS.

239
 Multi branding and brand
extensions
• Involve in mb to progress beyond being a narrow niche player.MB
occurrs when a Co plans to target several brands into the same
broad mrkt.by extending same name over the brand family or by
using independent brand names
• 2 reasons for growthof mb’s—1,increasing segmentation of mrkts.in
early stages od dev of mrkt,demand is homogeneous and single
brand suffices,As mrkt develops,new segments are
added,opportunity for MB arise.—2,As costomer needs
diverge,differentiated distribution channels evolve,providing stimulus
to separate branding.
• New flexible mfg techniques that lower cost of product variety and
new ad media that provide access to specialised customer
segments also gave momentum to MB.

240
2 types of MB.-horizontal & vertical
• Horizontal—is aimed at differentiating distrbn channels
rather than consumers.Increase in distrbn and MS
possible by giving diff retailers or distributors specific
brands.this is often low cost because brands have only
cosmetic differences
• Vertical—targets diff customer groups and differentiated
branding strategies.Distrbn channels may or may not be
same.
• In highly segmented mrkts,single brand strategyies
rarely work.Eg.Amstrad with its leading position in home
computer mrkt found its image a handicap in efforts to
penetrate business segment.A separate brand with an
image,sales and service system geared to the corporate
mrkt is a more effecctive means

241
• VMB is more powerful than HMB although cost
is high due to building distinct brand
identities.Ford paid $2.5bn to buy jaguar brand
to provide entry into executive car mrkt.Toyota
invested even more to develop Lexus.
• VMB generates higher revenues but offers
lesser economies of scale and shared
purchasing.mrktng,distrbn and service costs.
• In serving different customr segments and
channels,firm can use same or diff names.

242
 Growth of brand extensions &
corporate brands
• 3 reasons—1.high failure rate of new products.Same name reduces ,
buyers percieved risk.
• 2.Building a complete new brand is expensive.Ingrocery,$30 mn required for
a new product to be successful.Extension costs much less.
• 3.Cos look for economies of scale & scope in focussing resources around
one umbrella brand.With too many brand names promotional resources can
be fragmented and brands can be out-gunned by competitors able to
concentrate support around one name.
• HLL calling 501 detergent cake as Rin advanced,Tajmahal tea sold as
BRookebond Tajmakhal.Electrolux operates 5 brand names in the UK white
goods mrkt-Electrolux,Janussi,Thorn,Hoover and Husquvarna .
• Together these give electrolux largest MS but, rival Hotpoint with only one
brand outspends each of E’s 5 brands and is growing faster.
• In India,LG is growing faster than E although E sells refrigerators under 5
brand names.

243
 Umbrella brand is no panacea .
• Failure of brand extensions are common.A product will fail even if backed by
a strong umbrella brand,if it offers no differential adv over existing brands.
• It will fail if it doesn’t get sufficient support during launch to generate
awareness and trial.
• Many extns fail because they are launched into a diff TMS from the original
brand.In the new mrkt,the brand’s associations may not be valued.
• EG..Levi,a brilliant brand in jeans attempted high Q formal suits to middle
class males under Levi name but failed since TMS didn’t see the informal
denim associations of Levi as adding value in this sector.
• A sharp brand position gets weakened by new category brands,Particularly
with brand names that became almost generic,such as Kleenex,
Perrier,Tampax
• A traditional beer brand may get weakened by associations brought by a
low-alcohol brand extension.
• Cadbury’s assocn with high Q chocolate was certainly weakened by its
extnsion into mashed potato and dried milk.

244
 Failure of brand extensions---
• Excessive extensions can lower the
brand’s Q image. Use of Lacoste alligator
on a wide range of clothing of varying Q
eroded its image in 80’s.
• Pharma Cos are wary of umbrella
branding due to danger of bad publicity
arising from one brand area spilling over
into other fields.

245
 Principles for deciding bet brand
extensions & individual brands
• Based on DA----SIMILAR-----DIFFERENT
• And TMS—SIMILAR---DIFFERENT
• S_S---Use CO or range name---IBM etc
• S_D---Use CO plus grade ID—Mercedes E class,S class
etc.
• D—S---Use CO plus Brands---Maruti800,Maruti Esteem
etc.
• D_D—Use Unique brand names(P&G’STide,Bold,Dreft
etc.)
• The righy approach depends upon similarity of
positioning strategiesof brands.4 brand extension
options are identified,
246
 4 brand extension options
• 1,If the brands appeal to the same TMS and have same
DA,safely share same Co or range name.since there is
consistency in positioning
strategy.eg.IBM,SONY,DUNHILL-same name applied to
diff products.
• 2.If DA is same and TMS differs,Co name can be
extended because the benefit is similar.but it is imp to
identify grade.Both merc 200 and 500 series offer DA’s
based on Q ,but the more expensive 500 marque appeals
to a much more prestige-conscious segment of
mrkt.Supplemental grade ID acts to preserve the prestige
positioning of the latter nmarque.

247
 BE principles----
• 3.If a Co has diff DA’s ,then it should use diff brand
names .It can find some synergy if brands are appealing
to same TMS,by using Co name with separate brand
names.Eg.different Maruti brands may be selected within
the same family unit.
• 4.If both TMS and DA’s are diff,unique names are
appropriate.P&G believes worth losing out on adv of
common corporate name to position brands in mrkt
separately-to give each brand a distinct positioning
alppeal to a separate benefit segment.Eg.Toyota
positioned Lexus separately.Because it wishes to
position it uniquely away from its existing models.

248
 Brand extns ---principles
• related

249
 Revitalising,repositioning,and
rationalisation
• Improving brand performance-2 ways.Explore I first.
• 1Raise volumes 2.Improve productivity
• 1 Raise volume by brand revitalisation (Expanding the
mrkt for the brand)or brand repositioning(Enhancing its
competitive position in the mrkt.)
• 2.Improve productivity by raising prices or cutting costs.!
• Over time,it is necessary to revitalise and reposition the
brand.Many factors erode a brand’s franchise and
profitability---1market decline.2,New
technology.3,Changing tastes.4,rising costs.5,New
competition

250
4 directions for brand revitalisation
• 1.Find new mrkts.McDonald’s,Coca Cola etc
compensated saturation of domestic mrkt thro
geographic expansion.as engine for growth.
• 2.enter new segments.Falling prices and increasing
awareness facilitates identifying new
segments.Texas instruments’s growth in electronic
calculator mrkt came by successively pioneering
technical users,then office segment,then general
public,finally school’s segment.J&J’s baby shampoo
was languishing until Co looked towards adults who
wash their hair frequently and need a mild
shampoo.

251
• 3. Find new uses or applications;
• Eg;make a chocolate not only tasty and fun-loving but
also nutrient therefore skip lunch and eat a chocolate’
baking soda launched as a deodorant fior
refrigerators.wash basins as well as pet animalls
• 4.increase consumption rates’-
• Increase lid size of a tooth paste
• Incentives/awrds for higher cosumption-loyalty rewards
frequent flyer programs.’reduce prices.change
packsixe ,make the use easier dip,dip, dip tea
bags,instant coffee Maggie 2 min noodles brush ur teeth
3 times a day for best results!wash ur hair 3 times with
shampoo in every bath for best results.

252
 Brand repositioning
• This focuses on increasing volume ,not by expanding the
mrkt but by winning share from competitors.7 avenues to
do are
• 1Real repositioning—Update by latest
technology,functions or design.Hond continuously
repositioned its best selling Accord to maintain its
position at the forefront of quality and value.and fashion.
• 2.Psychological repositioning.Change buyers beliefs
about competitiveness of brand.Sainsbury supermarket
group in early 90’s used its advertising to emphasise that
it had competitive prices as well as high Q
merchandise.this works only if buyers truly
underestimate the value of the brand.
253
 Repositioning----
• 3.Competitive depositioning.Comparative advtng is frequently used
to seek to alter customers’ beliefs about competitors’brands and to
suggest that they represent poor value.Volkswagen sed this
strategy against Ford in its advertising.
• 4.Reweighing values.sometimes buyers can be persuaded to attach
greater importance to certain values in which the brand excels.Volvo
emphasised safety as a criterion for selecting cars.
• 5.Neglected values.Sometimes new choice criteria can be
introduced to buyers.Unilever’s new Radion detergent was
positioned on the claim that it removes odours as well as dirt-a
value not previously thought salient in this mrkt .The Body Shop
brand was founded on the then unique value that its products were
not tested on animals.

254
 Repositions---
• 6,Change preferences.It may be possible to switch
the preferences of buyers.Buyers may be convinced
to switch from low-price products to brands offering
higher Q and economic value.Eg.Santro in preference
to maruti 800.
• 7.Augment the brand.A brand’s competitive position
may be enhanced by offering additional products and
services alongside the core product.Guarantees,after-
sales-service and advice can all add value.

255
Brand productivity improvement
• 1.Focuses on profit rather than volume as the brand
objective.Such focus is appropriate when the brand has
limited mrkt potential.
• 3 ways of squeezing more profit from a static or declining
brand.
• 1.costs-fixed and variable-can be cut.If this means
disinvesting in the brand it will have long term
consequences for the brand’s MS.
• 2.prices can be increased.In the short term this will
almost always boost prifitability,even if volume declines.
• For ex,if a typical brand has a gross contbn of 50% and
a net profit margin of 8%,of the selling price, then putting
up prices by 10%,will it boost net profit? Or decline it?
Even if volumes drop by 1o%?
256
 Improving brand prifitability---

• Net profit is increased by half.

• 3.finally,profits will be boosted normally by
range rationalisation.By eliminating
marginal lines,costs and investments are
likely to be cut by more than the volume
lost.

257
 Finally brand elimination
• May be the final answer when the brand is no longer profitable.
• Other reasons for elimination
• A.If a Co has grown by acquisition,it ends up with too many brands
and portfolio may become too big to allow brand overlap and
cannibalisation.
• B.Some brands may be too small to be worth supporting.
• C.The Co may need to focus its resources around one or two
brands to avoid being out-gunned by competitors.
• D.Globalisation may be another motive for brand rationalisation.Cos
such as Mars,Nissan,and Unilever .that have previously supported
national brands ,increasingly want to standardise around regional or
global brand names.

258
 Problems of brand elimination.
• 1.difficult to prevent many customers switching to competitors’
brands .It is also expensive to manage the switch.For ex,in
US,Black& Deckeracquired GE’s small appliance business and
quickly dropped the Ge brand name,4 yrs later,after spending $150
MN,promoting Black& Decker name,it was found the old GE name
was still preferred by 2 out of 3 buyers.
• 2.If one needs to focus resources around fewer core brands,3
options can be explored.
• A.Look for economies that wd reduce cost of minor brand.Ex,its
mnfrng,distrbn,and overheads could be merged and its mrkt identity
be limited to a badging operation
• B.Instead of killing harvest the brand.by allowing the brand franchise
to erode gradually rather than dropping it
• C.Amalgamate the brands under a shared brand name.Ex.When
Whirlpool acquired Philips’ white goods business,the brands were
marketed under a dual identity for several yrs.

259
 Local,national,regional and global
brands.
• 1.In the past mrkts were dominated by local brands.Big MNC’s
allowed local subsudiaries greater autonomy in developing brands
to suit local environ.
• 2.3 reasons for search for global or atleasr refgional brands these
days.
• A.pressure to reduce costs.Many western Cos were hard hit in 70’s
and 80’s by Japanese competitors ruthlessly exploiting economies
of scale in research,development,mfg and mrktng to build high Q
low price global brands
• B.need to acclerate the speed of innovation internationally.Cos such
as GEC in telecom,and Unilever in groceries proved too slow in
recent yrs in rolling out breakthrough brands and were often leap-
frogged by faster competitors
• C.Growing internationalisation of tastes and buying patterns made
the development of global and regional brands more feasible.

260
 Advantages of global and regional
brands
• 1.lower dev,prodn and mrktg costs.
• 2.Facilitate professionalism of brand-planning
and decision-making.
• 3.Result in faster innovation by reducing delays
caused by local adaptation and policy making.
• 4.They offer spin-offs in international brand
leverage. Increasingly mobile customers see the
same brands in diff countries

261
 Constraints of global brands
• 1.May fail to match local requirements
• 2.By taking key decisions out of hands of local managers they can
severely affect motivation and commitment of personnel in host
countries.
• GLOBALOR LOCAL? In reality,it is not whether or not brands can
be global,but rather which functions and tasks should be centralised
and which should be left to managers in the local mrkt.
• A brand is a core product upon which basic mrktg features , and
then augmented attributes are superimposed to differentiate and
add value to it. Some of these features and attributes are more
amenable for standardisation across mrkts than others.The core
product and the R&D that generates new products can be usually
centralised

262
 Global vs local
• Product functionality and use (how people
listen to music and drive a bulldozer ) tend
to be universal characteristics.Further,scale
economies tend to be imp here as these
are high investment areas.Basic brand
features (design,packaging.logo and
name)can also generally be standardised
across countries if planned systematically.

263
 Global---
• At the next layer of branding, -positioning and
advertising-difficulties begin to become greater
as culture,attitudes,economics and language
impinge on brand’s values and make
standardisation more difficult..
• The degree of standardisation possible depends
on the product and the mrkt.National values and
traditions are still very imp in food,but much less
so in electronics.Cultural values are less imp in
youth and more affluent mrkts than they are in
mature and low-income ones.
264
 Global---
• Moving further down the mrktg chain to
selling,promotion and distrbn,these decisions
are locally specified because of sharp
differences that normally occur in mrkt and
institutional characteristics.
• To summarise,global branding is a matter of
degree.Few ,if any ,brands are marketed in an
identical way across the world,or even across a
region.But more brands have characteristics that
are staNDARDISED ACROSS REGIONS-WITH
THE PRODUCT FORMULATION AND THE
BRAND NAME BEING TOWARDS THE FORE.
265
 GLOBAL---DOES GLOBAL
BRANDING IMPLY GREATER
HOMOGENEITY AND
STANDARDISATION?
• It doesn’t.In future mrkts wd be more segmented than today.But the
basis of segmentation will change .While in the past geographical
boundaries were a major way of distinguishing customer
groups,today segments cross goegraphical boundaries.Consumers
living in london’s Knight’s bridgeor Kensington have more in
common with those in midtown Manhattan or the seventh
arindissement of Paris than they do with those living in London’s
Hackney or Bethnal Green.
• Across both industrial and consumer mrkts,the broad economic
,social and culotural trends favoring first regional and then global
brands are clear.yet there will be no simple answers.For the
forseeable future, management will need to achieve a balance bet
the opportunities to be had from global brands with the need to
recognise and adapt to local mrkt differences.

266
267
From inter to intra segmentation
• countryA B C D

• SegmentA
• SegmentB
• segmentC
• SegmentD
• segmentE

268
 Buying vs building brands
• 2 routes for a Co to obtain brands-Build and develop them or
acquire them or rather acquire Cos that possess them.
• Former a high risk,slow and expensive route.extra ordinarily high
failure rate in new brand dev.Less than one in 100 new product
ideas make satisfactory profit in the mrkt.Also very expensive and
time consuming.
• In contrst,acquisitions are a deceptively quick route to obtaining a
brand portfolio.Uni lever’s acquisition of Chesebrough-Ponds made
it become a leading player from nowhere in the global cosmetics
mrkt.
• Accounting conventions in most countries also make perceived
attractiveness of acquisitions high.While internal brand dev
expenditures are treated as coststhat reduce current
profitability,acquisition expenditures are not normally immediately or
fully written off against profits.Instead, they are written off directly on
the balance sheet.

269
 Buying vs---
• While cash flow implications of internal dev and
acquisitions may be identical ,the former will
appear to reduce the return on shreholder funds
and the latter to increase it.These adv of speed
and benevolent accounting conventions have
made acquisitions an increasingly popular
route ,especially for British and American Cos.
• Despite attractiveness of acquisitions,evidence
exists that most such acquisitions fail to
generate long-term value for acquirer’s
shareholders or to build lasting brand portfolios.
270
4 problems why acquisitions fail
• 1.Excessive gearing; Many Cos finance
acquisitions thro high levels of borrowings. later
they become vulnerable when profits fail to
reach their overoptimistic expectations,leaving
them unable to meet interest and debt
repayment obligations.
• 2.Incoherent brand portfolios. Often acquisitions
leave the Co with a rag bag of brands ,with diff
brand names in diff countries ,conflicting
positioning strategies and no synergies with
existing business.
271
 4 problems----
• 3.Inadequate expertise. Frequently the acquirer lacks the
knowledge or capability to appraise the real value of the
acquisition in advance or subsequently to add value to it.
• 4.Pay too much. Acquirers often pay too much to obtain
business. Stock mrkts value fairly most Cos. However to
purchase a Co, the acquirer usually ends up paying a
premium of 30-50% above the pre-bid valuation to win the
acceptance of target Co shareholders. Such premiums
can only be justified by quite exceptional synergies bet the
2 Cos.
• Of course ,sometimes, acquiring brands rather than
building them makes sense.

272
 Buying vs building brands
BUILD BUY
• 1Mrkt attractiveness
• A.mrkt growth –high • Low
• B.strength of competitors----
weak • Strong
• C.retailer power-weak • Strong
• 2.relative cost of acquisition-
• A.industry attractiveness—high • Low
• B.valuation of Co-full • Undervalued
• C.restructuring potential-low • High
• D.brand’s potential-realised • unrealised

273
 Build vs buy---
• 3.acquisition’s
potential synergy
• A,cost redn potential-
low
• High
• B.mrktg competence-
unchanged
• C.complementarity- • Increased
low
• D.relevent mgmnt • High
expertise-low • transfers
274
 Build vs buy---
• 4.brand’s strategic
opportunity
• A.product performance-
• Me-too
breakthrough
• B.positioning concept-
new • Mature
• C.mrkt opportunity-high • Low
• 5.corporate situation
• A.growth potential-high • Low
• B.cash situation-average
• Mrktng R&D capability- • Abundant
strong • weak

275
 Build vs buy---
• 1.acquisitions are likely to pay off if
• A.it is a low growth ,unattractive mrkt,building a new brand may cost
too much
• B.it is generally cheaper to buy competition and a competitor’s
distributive space than to beat out well entrenched brands.that is
why Cos focus their acquisition strategies on dull,mature mrkts
• C.the relative cost of acquisition is low often stock mrkts under
value these apparently boring Cos and there is substantial
restructuring potential in selling parts after acquisition
• D.Acquisitions work when the acquirer can reduce joint costs or
improve mrktng competence by coming together
• E.If the Co’s current products are me-too,if it has limited skills,but
abundant cash spun off from its portfolio of mature products.

276
 Building brand is attractive when
• It is better to develop and build on the co’s
own brands
• 1,if these are operating in growth mrkts,
• 2,if the co possesses potentially strong
brands,
• 3 and if there are strong mrktng and
development skills within the co.

277
Are u an effective brand manager?
be a 8/8 B M not a 3/8
• A true BM concentrates on all 8 elements of
mrktng.He/she should have his/her feet on the ground
and be humble and learn new things
• EffectiveBMs are those who have workedphysically in
the mrkt place along with sales people and regularly visit
mrkt place as well.
• Good BMs are those who are in touch with their
consumers and understand their needs and aspirations
aswell as their joys and despairs.
• An effective BM looks at the mrkt place not from the Co’s
point of view but also from the consumers’ point of view.
• Finally a good BM should be professional in his
approach not only thro systems but also thro attitude!

278
 8/8 BM
• A BRAND MGMT MODULE;
• Availability X Affordability X Acceptance X
Awareness = Effective brand mrktng plan
• Emphasis here is given not only to product
but to acceptance,not only to price but to
affordability and finally not onlt to
promotion and advertising but also to
awareness and image which are relevent.
279
 8/8 BM
• Young sters aspire to grow from a mgmt trainee to brand
executive and on to brand mgr in due course.
• A BM is responsible for a product or brand and the
position is similar to that of a corporate planner-who is
not a line executive but an expert in BM.
• The task is to advise and assist the line sales and mrktg
colleagues to be more effective in brands profitable
growth consistently.
• The 8 elements of MM that need to be handled
are:1,Product & its
ingredients,2.Packaging,3.Advertising,4.Sales
promotion,5.Costing,6.Pricing,7.Sales and 8,Distribution

280
 8/8 BM
• Out of the 8 elements of the mix(clubbed as 4 P’s of
MM),unfortunately,today’s Bm is good and keen on only
3 of the functions.-thereby the BM’s function doesn’t
receive the justice that it deserves.
• 1.THE PRODUCT & IT’s INGREDIENTS:Interested in
the overall aesthetic appeal of the product,Bm may not
go into the depth of understanding of the composition of
ingredients.May be imp specially in case of import
substitution,higher effectiveness and even lower RM
cost.The BM leaves it to PRODN or R&D incharge to
work these out.than take interest in it himself.

281
 8/8 BM----
• 2.Packaging. The BM is deeply interested in the design,
color and aesthetics and spends lot of time with AD
agency on shades of colors that should appear on the
packaging. He is also reasonably good in researching
the consumer and this element is well handled.
• 3.Advertising. Spends a major time in advertising,
segmenting , positioning,as well as in production of
artworks and POS materials. He enjoys this element
,loves coordinating with agency and printers He also
handles research function of advertising in coordination
with MR agency.

282
 8/8 BM---
• 4.Sales promotion. The BM is keen on
development schemes, trade promos,consumer
promos and incentives to sales to help his brand
sell more!
• 5.Costing. Reduction of cost is responsibility of
every BM, without compromising on quality or
perceived value-change of RM base, or
improved technology or merely due to an
increase in volumes. But very little emphasis is
given to this function. He prefers to leave this to
the cost accounting dept to handle.
283
 8’8 BM---
• 6.Pricing.Here too BM is weak in understanding
and implementing the pricing practices. He
leaves it to the finance dept as his mind is more
on advertising, packing and promos!
• 7.Mrktg vs sales.Today’s BM considers sales
function downscale compared to mrktg function.
MBA’s are reluctant to work in sales because
mrktng people are considered to be superior
people to sales people. Strong sales
background is infact necessary to BMs.
284
 8’8 BM---
• 8.Distribution.In terms of visibility,width
and depth in distrbn, BM hesitates to work
in mrkt place on a regular basis,
understand stockist administration,
motivation or to work out distrbn strategies
by physically moving in the mrkt. BM feels
this is best left to the sales and depot in-
charge to handle and hence there is lack
of genuine knowledge and ‘feel’ of mrkt.
285
 BM8/8------
• Of the 8 elements of MM,BM is totally involved
only in 3-packaging and design,sales promos
and advertising.The other 5 are considered to be
responsibility of finance,production and sales
depts and hence avoided by BM.
• In a few well managed Co’s a BM has well
rounded personality with all 8 elements under
his control.These are exceptions ,
• Unfortunate today’s BM has reduced himself to
just 3/8 of what he should be ideally capable of
achieving.
286
Brand valuation—buying a stock-at
what price should we buy a stock?-
a million $ question!
• 4 important parameters
• Current market value(cmv)
• *Present value(PV)
• *Future value(FP)
• *Rate of return(IRR)
• An investor wanting higher returns than another
wd like to purchase the security at a lower price
than the other
• So, investor wd like to know PV of the security to
compare it with the current market value (CMV)
287
 Buying a stock---
• If CMV is less than PV, buy it ; Since the investment wd
give a higher return than the one used to discount,
Otherwise,No.
• So,understand the rate of return!
• Say,an investor expects a 14% RR per annum
• 100 today=Expected 114 after I year100x1.14
• =130 after 2 years 100x1.14x1.14
• =148 after3 yrs100x1.14x1.14x1.14
• This process is called compounding
• The opposite is called discounting
•

288
 Buying a stock---
• PV, the present value of initial invest of 100,r is
the required rate of return in % terms,,and n is
the no of yrs of investment,and FV is future
value of initial investment.
• FV=PV x (1+r) to the power of n.
• Discounting is the method of working out the PV
which one should invest, from the future value
,which is realisable after a particular period of
time,to get his required rate of return.

289
 Buying a stock---
• If a particular security is known to hit Rs
129.96(130) after 2 yrs,at what price
should he buy the security today to get a
RR of 14%?

290
 Answer is 100.
• Compounding is a series of multiplications
.Discounting is a series of divisions.
• If one knows the FV, PV can be worked
out from formula PV=FV divided by
(1+r)to the power of n.Where ‘r’ is the
required rate of return,and ‘n’ is the no. of
yrs after which FV will be realised.

291
 Equity valuations
• Dividend capitalisation method is a sound one
conceptually.
• PV of the share is worked out by discounting the
stream of dividends and the selling price at the
end of holding period ,with the required rate of
return.
• If expected next 3 yr dividends are D1,D2,D3,&
P the expected selling price at end of 3 yrs,the
price at which the share could be bought to get r
return is
• Purchase price=D1/(1+r) + D2/(i+r) square
+D3/(1+r)cube +P/(1+r)cube
292
 Buying a stock---
• But the difficulty in practice is how to
estimate future dividend and the price
after 3 yrs.
• This involves lots of subjectivity though not
impossible.

293
 Can I buy a HLL stock today at Rs
140?
• Let us say in HLL,our holding period is 3 yrs,and required return is
20% per annum.
• HLL’s dividends have been growing at 20% per annum.The final
dividend of HLL for the latest financial year is rs 1.5 per share of
face value re1.U can safely assume a growth rate of 20% per yr for
dividend for next 3 yrs.

• The EPS average growth rate has been 5% per annum latest yr
EPS for HLL was Rs 4 for a re1 share.

• The analysis of HLL’s P/E ratio historical shows an average P/E of

30.You know mrkt price P can be worked out by P = P/E x EPS

• Should we buy HLL share at the current mrkt price of rs 140 a

share?

294
 HLL share---
• EPS after 3 yrs is 4(1.05) to the power 3
• Expected HLL’s share price after 3 yrs is 30x EPS
• Dividends D1,D2 and D3 can be calculated from current
dividend of rs 1.5 knowing the expected dividend growth
rate for next 3 yrs.

• PV=FV/1.2 to the power of n =D1/1.2 + D2 /1.2square

+D3/1.2cube +P/1.2cube where P is expected share
price after 3 yrs.
• DECISION—If PV>Rs140.Buy the stock otherwise NO!

295
 Future forecasts for dividend,EPS
and FV depend on factors many
• 1.SWOT of HLL & key competitors
• 2.New products of HLL & their strength in mrkt
• 3.Tech leadership of HLL
• 4.Service capability of HLL vs competition
• 5.Brand strength of HLL’s products vs competition
• 6.general stock mrkt health in India
• 7.general stock mrkt health global mrkts
• 8.political, religious and environmental threats any
where.etc,
• 9substitutes and tech obsolescence.
• 10.projected B/S for next 3 yrs.
• Acquisitions and sell off if any in next 3 yrs

296
 Valuing brands-why?
• Some cos want to place brand values on their
balance sheets to emphasise the co’s asset
strength
• 2.if prices are not put to brands, then a co can
easily be undervalued by the stock mrkt and
become a takeover target
• 3.brands are also sold or licensed ,so buyers
and sellers need to place a value on them
• 4.if cos are to invest in brands, it is imp to see
how their values change over time in order to
judge whether the investment pays off.

297
 5 main methods of valuing brands
• 1,price premium valuation.Where successful brands obtain price
premium over unbranded products ,then discounted value of these
future premiums can be the basis of brand valuation
• 2.incremental sales valuation.if the value of the brand appears in
higher mrkt shares rather than premium prices,incremental sales
over an unbranded product can be used to estimate the value of the
brand.
• 3.replacement cost value.the estimated cost of developing a brand
with comparable statureto the current brand can be used for
valuation
• 4.stock market valuation.for some cos it is possible to break down
stock mrkt valuation into its components;physical assets,industry
factors,and other intangible assets.the value of this brand can then
be estimated as the residual.

298
 Valuing brands---
• 5.future earnings valuation.the most satisfactory
approach is to estimate the discounted present
value of future earnings attributable to the
brand.essentially this amounts to determining
the multiple to be applied to current brand
earnings-stronger brands achieving higher
multiples.RHM,one of the first Cos to value
brands on the balance sheet ,estimated brand
strength from an analysis of brand’s rankings
interms of leadership,brand support,mrkt
attractiveness,international appeal and brand
protection.

299
 Valuation methods-inaccuracy
• All methods are approximate.because
• 1future mrkt conditions and hence long-term brand
earnings are difficult to predict.
• 2.brands are often stand-alone.Where brands are
marketed under corporate names,it is virtually impossible
to separate the specific earnings attributable a single
brand.
• 3.brand values are entangled with other intangible
assetseg staff,patents,mrkt entry barriers etc.the value of
an ad agency brand can be substantially changed by a
walk-out of senior personnel.these and other factors
make all such estimates of value hazardous.

300
 Buying a stock
• Which firm’s stock •
would u buy? prefer?
• GM • COCA COLA
• SALES----166BN $ • 19BN$
• ASSETS---229BN$ • 17BN$
• PROFITS—7BN$ • 4BN$

301
 Coke vs GM
• In Jan 98,Coke had >4 times market value
of GM partly because Coke’s brand value
is twice that of the value of entire GM firm.

302
 Grand metropolitan
• At Grand Metropolitan,we believe our brands
• 1,to be our most valuable assets
• 2,are all about our businessin foods,drinks and retailing
• 3,are used to add value to our food and drinks products and to our
retail outlets.
• 4,encourage consumer loyalty and confidence.
• 5,allow us to earn enhanced profits with benefits to share holders
and staff alike.
• 6,are the core of our business,
• 7,provide the profits of today & gaurantee profits of tomorrow and
future
• 8,provide us a combination of premium prices ,significant and
reliable volume & a low cost base –translating into substantial and
predictable profits and cash flow.

303
 Grand metropolitan
• “We believe that the cost of purchased
brands ,which does not go through the
P&L A/c,should also appear on the B/S—
provided it is below market value.This is in
line with the way in which we treat other
substantial assets.Each year we verify that
the value of those purchased brand
assets is above the cost shown in our
B/S.”Sir Allen Sheppard.Chairman &
group CE,GM plc.
304
 American definition of an asset
• (a).It involves a probable future benefit that provides a
capacity,singly or in combination with other assets,to
contribute directly or indirectly to future net cash flows
• (b)It requires that a particular entity can obtain the
benefit and control others’ access to it.
• (c)It specifies that the transaction or other event giving
rise to the enterprise’s right to or or control of the benefit
must already have occurred.
• In short an asset must be likely to earn money & should
be owned by you.
• Therefore there is little doubt that a brand is an asset.But
how to represent that value on the B/S?

305
 By considering the factors in the
order given below
• 1. The position of the brand in the market
• 2,The position of competitors in the market
• 3,the finantial strength and commitment of competition
• 4.The diversity of the products covered by the brand
• 5,The volatility of the market
• 6,the degree of technological change associated with the product
• 7,The level of public awareness of the brand
• 8,The level of recent marketing support for the brand(to indicate any
future downturn in demand)
• 9,The impact of Govt & other regulatory & pressure groups on the
brand
• 10. The internationality of the brand

306
 Chris macrae’s method of brand
valuation-a world class brand
classification system
• 1.Is brand world class?
• A=Global; B=International with limits to
expansion; C=Local
• 2.Is the brand expandable? A=Above average;
B=average; C=Below average
• 3.does brand have dependable marketing edge?
A=Pre-Emptive; B=Average; C=Below average
• *chris Macrae rates Disney,Hilton,Sony,Lacoste
& Benetton As brands AAA
• He views BCB & BCC brands as being difficult
for MNC’s to manage
307
 Principles of brand evaluation
• According to Farquhar,Han and Ijiri,
• 1,Define that which is to be evaluated.Key
questions to be asked for the valuation analysis
are (a)what exactly is the brand? (b)what is the
target market? (c)what are the intended uses of
the brand? (d) what is the context of ownership
of the brand?
• 2,Establish the value premise.The basis for
value might be incremental profitability,total
value,discounted cash flow,royalty rate,income
momentum or some other measure.
308
309
 Principles of brand---
• 3.Separate the brand from other sources of value.The
brand’s value can be intertwined both with the tangible
product and related physical resources and with other
intangible assets,such as human resources,know-
how,Co image and soforth.
• 4.Forecast the brand’s future uses and value.A brand’s
value depends not only on its existing uses but also on a
forecast of possible extensions,portfolio effects,new
markets,licensing activities and other future uses.This
forecast must make explicit assumptions of the level of
future marketing support and ownership.

310
 Principles of ---
• 5.Assure reliability of brand valuation .The subjective
judgements made/used in brand valuation must be
consistent across different individuals,assets ,companies
and time.
• 6. Check for validity and auditability.The brand valuation
method must provide both checks on the validity of its
assumptions and a process that can be audited for
reasonable certainity.
• Allen Sheppard.”when people ask me whether I look for
long term or immediate profits,I simply say ‘yes”because
clearly I must look for both.What other answer is there?
Grand Met is not a short term business.But we do not
forsake the profits we can make today for profits in the
future.”

311
 Brand valuatio-2 stages
• 1.To calculate after-tax profit or cash flow attributable
brand
• 2. To roll this up in some way into a capital sum .In
practice these 2 stages may be intertwined as one
affects the other.
• 3 methods of establishing annual benefits brought to
brand owners by brands
• (A) Premium earnings
• (B) Equivalent or notional royalties
• (C) Brand earnings/alternative return on assets

312
 3 methods of establishing annual
benefits brought by brands
• 1, premium earnings approach
• Focusses on the differences between the brand and the
equivalent unbranded cash flows. Price,volumes
,steadiness of volumes and resultant cost savings,
However sometimes it is difficult to establish the
difference. Unlike Smirnoff and other lesser vodkas!
• 2. Notional Royalties approach.Simple.Smirnoff-in drinks
division ,IDV was paying royalties to Hublein,before
GM’s acquisition.GM had access to data and could
easily calculate /valuate brands.
• Problems;(a) As Co’s become global,they are less willing
to license 3rd parties ,so no data will be available. (b)
many countries resist royalties for exchange control and
tax teasons.
313
 3 methods of ---
• 3.Brand earnings/Alternate return on investments.
• 1.Cash flow is isolated from the brand and then separatd from the generic
equivalent.
• 2.The above is in turn calculated as the opportunity rate of return on the
capital (that is the assets excluding the brand itself) employed in producing
the product.The reminder is the cash flow that can be attributed to the brand
asset.
• In all cases once the annual benefit is established, brand valuation is done
either by
• (A) discounting future cash flows or (B) applying an earnings multiplier to
average historic cash flows or to the first year estimated figure. And some
do both.
• Discounted cash flows are sensitive to interest and growth rates and
terminal values.
• Earnings multiplier ;Can be found in market place as Co’s brands change
hands.-Most familiar to investors, corporate finance people and share
holders.

314
 The interbrand method
• They feel market place multipliers are
inadequate and too rarely available to be used
as bench marks.
• So felt better to create a theoretical model and
assign multiples to brand cash flows according
to an analysis of RELATIVE BRAND
STRENGTH. Calculated applying 7 key factors
—1,leadership,2.brand stability, 3.market
stability,4.internationality,5.trend.6.marketing
support,7.protection(trade mark security)
315
 Interbrand--
• The brand is assessed on each of thease factors
and an overall brand strength score is
calculated.
• It is this that determines the discount rates for
future cash flows.
• A brand should only be valued when its
name/TM are protected by law or other similar
means in atleast its major markets.
• If the above is done,the brand strength and and
hence an appropriate multiple should be decided

316
 Infosis corporate brand valuation
and how they place on B/S
• Valuing the brand by infosis; “ A brand is much
more than a logo.It is a trust mark-a promise of
quality and authenticity that clients can rely on.
Brand equity is the value addition provided to a
product or company by its brand name.It is the
financial premium a buyer is willing to pay for
the brand over a generic or less worthy brand.

317
 Infosis---
• Brand equity is not created overnight.It is the
result of relentless pursuit of quality in
manufacturing,selling,service,advertising and
marketing.It is the integral of client experiences
in dealing with the Co and its services over a
sustained period.”
• The most widely used method for estimating
brand value is the earnings multiple method.
Financial World magazine used a variant of this
method in July 96 issue and evaluated the
Microsoft brand at $5.63 Bn while its market cap
was $60 Bn on the date of brand valuation.
318
Infosis brand valuation--goodwill
• Goodwill is a nebulous accounting concept that
is defined as the premium paid to tangible
assets of a company It is an umbrella concxept
that transcends components like brand equity
and human resources and is the result of many
corporate attributes including core
competency,market leadership,,copy rights,trade
marks,brands,superior earning power,excellence
in management,outstanding work-
force,competition,longevity and so on.
319
 Michael birkin’s brand valuation
method –book ‘brand
•
valuation”edited
3 steps
by John Murphy
• 1.determine brand earnings.To do this,
• (a) determine brand profits by eliminating the non-brand profits from
the total profits of the Co.
• (b) Restate the historical profits at present day values
• (c)provide for the remuneration of capital to be used for purposes
other than promotion of the brand
• (d) adjust for taxes.
• 2.determine the brand –strength or brand –earning multiple.It is a
function of a multitude of factors like
leadership,stability,market,internationality,trend,support and
protection.these factors have been evaluated on ascale of 1 to 100
internally by MGMT based on info available within Co.

320
 Infosis valuation---
• Compute the brand value by multiplying the brand earnings with the multiple derived in step 2
above. RS.CRORES
• YR ended Mar 31 2000 99 98
• PBIT 325 156 66
• Less nonB income 35 4 2
• Adj profit 290 152 64
• Inflation Comp factor at 8%-1 1.087 1.18
• PV of profits for brand290 166 75
• Weightage factor 3 2 1
• Weighted profits 872 331 75
• 3 yr Av weighted profit 213
• Remuneration of capital
• (55 of Av capital employed)
• 35
• Brand related profits 178
• Tax @38,5% 69
• Brand earnings 109
• Multiple applied 48
• Brand value 5246

321
 Infosis brand value
• Assumptions
• 1.total revenue excluding the other income after adjusting for cost of
earning such income is brand revenue ,since this is an exercise to
determine the brand value of Infosis as a Co and not for any of its
products or services.
• 2.Inflation is assumed at 8% per annum
• 3.5% of the average capital employed is used for purposes other
than promotion of the brand.
• 4,Tax rate is at 38.55.
• 5.The earnings multiple is based on the ranking of Infosis against
the industry average based on certain parameters .(exercise
undertaken internally and based on available information.
• 6.the figs above are based on Indian GAAP financial
statements.MCap of Infosis as on 31-3-00 was Rs 59,338 Crs.while
brand value alone was Rs 5246 crs.

322
 Infosis data
• 1.EPS rs 5 each-01 02 03 04
• 95 121 145 164
• 2.P/E . 00 --90 60 40 16
• Brand value5246-5400-7250-7488-8185
• Net FA 207---560 720
• People value2237-5100-9500
• Sales 921—1960—2603
• MCap 59340-26900-24654-26847-32909
• Entprse value58830-26320-23624
• Entpre value=mcap-cash+debt
• BSTR multiple48---22 ----18---- ----14—
• EVA 129---389---510---

• VA 723---1563—2239
• Brand earnings109-- --- ---535
• BV as % of MCAP10—20---30—29—25--

323
The myth of market share --buy the
way-4 situations-same MS

324
 MYTH OF ms---

• Major strategic implications for future

• Case1-get repeat buyers
• Case2-increase trials
• Case3-increase repeat buyers
• Case4-increase usage by repeaters
• All cases-increase frequency of purchases

325
 Myth of MS
• Traditional approach to MS ignores these Q’s
• 1.Consider the 4 competitors each with a 10% MS. Who
gets higher profit?Whose sale is more assured? Who is
to grow more?
• To give MS figure any meaning,one needs to look at
• (A) trial pattern
• (B)repeat buying
• © and consumption pattern decided by frequency of
buying and quantity bought and consumed in each
buying visit.
• SOME MORE DETAILS NEEDED
• 1How is the market divided?
• 2.Where is the market headed?
326
 Where is the mrkt headed?
• Coca-cola today looks at the potential of the total global
mrkt for beverages-including coffee,tea,and water.
• Instead of looking at ways of competing with pepsi,it
should now ask how it can replace British ‘tea-time’ with
a ‘coke-time’ or substitute a ‘coke-break’ for a ‘coffee-
break’.
• Should we follow or lead markets?
• Should we challenge,follow or lead competitors?
• Who is our competition?
• Who are our markets?
• REDEFINE OUR STRATEGY<OUR COMPETITORS
AND OUR MARKETS.
327
 Crm and brand mgmnt
• The core of CRM-NOT OLY BE CUSTOMER-CENTRIC but also be
PROFIT-CENTRIC
• Therefore develop strong value propositions in terms of better
products/servicesso that strategies are both customer and profit
centric.
• BRAND SHARE,BRAND PROFIT and CRM
• Crm extends itself from customer acquisition to customer retention.It
is a 4 step process
• 1,Target customer identification-who is my target customer?
• 2.Customer attraction-Who is coming to my store?
• 3.Customer acquisition-who is buying at my store?
• 4.customer retention-Who is buying again at my store?
• Most Co’s CRM efforts are limited to steps 3 and 4.So they lose
significantly on lost customer opportunity.

328
 Lost custom opportunity How to
gain?
• 1.Retailers in India make a wrong estimate in identifying right
customers. Only about 15-20 %of so called target customers walk
into the store. 80-90 % do not even enter the store.
• 2.Among those who go to store only 1/3rd end up buying and 2/3rd go
to shop next door! A case pf poor merchandise and service. So
target customer base of 100 got reduced to a buyer base of 5.
• 3. Of these 5 ,2 or 3 come to buy again.
• WALK-INS-15; CUSTOMERS-5 ; REPEAT-2 or 3.
• STEP 1 LOSS—80-90%--target customer stage1 loss; only 15%
enter.
• STEP 2 LOSS—60-70%--FOOT FALL BASE- 15.-5 out of 15 buy.
• STEP 3 LOSS—40-50%--CUSTOMER BASE -5.—2 of 5 repeat
buy.
• STEP 4 LOSS—50%--REPEAT CUSTOMER BASE—2 or 3.

329
 Repeat customer base is low--
• Many retailers miss the big picture.Instead
of looking at target customer base of
100,they look at maximising their share
out of 5.
• THERE FORE MINIMISE LOSS AT EACH
STEP.
• Look at gains and efforts at each step.The
gain/effort ratio reduces exponentially from
step 1 to step 4.
330
 Gain and effort index---
• 1.Efforts are minimal and unusually low and
one time in step 1 and 2 and gains are much
higher.
• 2.In step 3 and 4,it takes a lot of effort on
almost an ongoing basis and gains are
disproportionately low.
• 3.Therefore it is important to get act right in
step 1.

331
 Gain/effort index
-GI,EI and G/E in each step
• Step 1 2 • Step 3 4
• Ta identify cust.attract • Cust acqui custretain
• GI 100 80 • 30 10
• EI 20 50 • 80 100
• G/E 5 1.6 • 0.4 0.1

332
Reinforce brand loyalty-no longer 0
defects-0defections!
• Financial value of a brand-amount of future expected
returns+ degree of risk on these returns.
• Strong brand assures strong supply of loyal
customers ,with assurance and client satisfaction.
• From offence to defence;abundance of offers makes
clients jump from offer to offer,from one manufacturer to
another.
• The value of life-time client; Loyal clients are
• 1,more profitable2,large business-5 times more than
next best
• 3,less sensitive to price,4.spend more and more
• 5,give positive word of mouth,6.5 times less costly.
333
 Reinforce brand loyalty--
• Lowering defection rate of clients by 5% leads to
benefit increase of 25-85%
• 97% of French ‘Canal plus’pay TV channel’s 6
mn clients are loyal .Yearly subscription costs
2028 Francs .If loyalty drops by 1%,revenue loss
75 mn Francs.
• Strong brands have loyalty programs;1.service is
adapted to clients.2,defensive actions give
customer no reason to defect from brand or Co.
3,offensive –to create a personalised
relationship with client-more intimate therefore
more involved bond.
334
 Concept of costomer bond
• Defensive side—Identify cause of dissatisfactionor
disloyalty.Have as many dissatisfied voices as
possible.A silent dissatisfied customer is much worse.
• Offensive side—A brand must become land mark of
personal attention. Become ‘a loving Co’-interested not
in the client but the person.
• That is end of anonymous mrktng’attention has to be
customised if it is to be efficient.
• Divide customers into big,med and small and develop
programs for big customers –who also are
loyal.Recognise loyal customers & focus attention on
them.this is RELATIONSHIP MARKETING.

335
 From brand equity to customer
equity
• Brand loyalty -3 facets
• 1.potential loyals,2.pseudo loyals and 3.active committed loyals
• Managing customer equity;(a).many customers have favorable
attitudes vis-à-vis particular brands .Their loyalty is insufficient to
inhibit switching within a repertoire of brands.
• These customers are potential loyals only if a tailor-made program
is devised to increase the rate of purchase of a particular brand.
• (b) Some repeat buyers are actually pseudo loyals. They don’t have
strong attitudes reg the brand .They buy the brand because of price
or availability .To increase their brand preference,they require
reinforcement of their choice and an increased perception of the
brand’s superiority .
• ( C).Active and committed loyals should be induced to to try more
and more new products –both line and brand extensions

336
 3 facets of brand loyalty
• Y axis---brand preference9ATTITUDE0
• X ---Axis----product repeat purchase
• Z Axis---Trial of line extensions or brand extensions
• Potential loyals have an attitude but insufficient to prevent switching
,therefore increase thre rate of purchase of a particular brand.
• Pseudoloyals are repeat buyers but without any strong preference or
attitude ,therefore their choice to be reinforced with an increased
perception of its superiority
• That means both potential and pseudo loyals can be converted to active
committed loyal thro appropriate sytrategies.
• Active committed loyals should be taken thro Z axis by inducing trial of
more and more new products-line and brand extensions.
• POTENTIAL LOYALS TO BE TAKEN THRO X-AXIS; PSEUDO
LOYALS TO TAKEN THRO Y-AXIS. And ACTIVECOMMITTED
LOYALS THRO Z AXIS.

337
 Potential,pseudo and active
committed loyals--
• Look at Sony’s situation.
• Committed loyals are 19% of Sony’s entire
customer franchise
• Potential loyals-4%
• Pseudo loyals-35%
• Each group needs a specific marketing
proposition.

338
 Brand capital vs customer capital-
matching preferences and
•
purchase behavior
Brand capital is percieved superiority
• Customer capital is USAGE
• Brand capital and customer capital—both ‘yes’---19% for
Sony.they are committed loyals
• Potential loyals are 4 %-costomer capital ‘no’ but brand
capital ‘yes’
• Pseudo loyals are 35%-customer capital ‘yes’,but brand
capital “no”
• Balance 42% customers of sony are having neither
customer nor brand capital—that is they are at the
origin.theyneed to be taken thro all 3 axes.

339
 Myth of MS--
• Managements must ask the right strategic questions.
• When measuring MS Cos should ask questions such as
• 1 what is the market?
• 2.What is MS by units? Value?
• 3.should Co look at the share of total market?or the
share of mind,body and heart and wallet?
• 4.should the Co compete with intra-competitors?or inter-
competitors? Or innovative competitors?
• 5.is there a fight amongst categories?If so how to tackle?

340
 Interbrand valuation of global
brands---tp
• India’s biggest wealth creators---tp
• Pat VS eva----tp
• Beyond the asset test ---tp

341
 Fournier’s 15 relations that brands
establish with users
• Fournier is a psycho analyst and studied the various relations that
brands maintain with their users.
• All relations can be broadly classified under (1)LOVE (2)hate and
(3)in-between
• 1.committed partnership.Long term and voluntary relationship like
the one between a man and his bicycle
• 2.marriage of convenience.long term bond springing from a chance
encounter.A woman Fournier studied became fan of a brand of
salad dressing after a friend of her left a sample of it with her.
• 3.arranged marriage.Long term commitment arising out of
intervention of a 3rd party.Ex expert recommendation
• 4.casual friendship.Purely temporary,low in intimacy,occassional
interraction,and few expectations.ex breakfast cereals
•

342
 Fournier----
• 5.close friendship.Voluntary union based on a
sense of shared intimacy and rewards.A
consumer believes a brand of sneakers is a
comrade in hand in daily sports activities.
• 6.compartmentalised friendship.A highly
specialised friendship often dependent on the
situation ,characterised by low intimacy.A
woman, Fournier examined, used different
brands of perfumes for different activities.and
different dresses for different occassions.
343
 Fournier---
• 7.kinship.This is an involuntary union of the sort
associated with a family. A cook feels obligated to use
the same kind of flour that his mother was using .
• 8.rebound relationship.A union based on desire to
replace prior partner.Eg,Enemy’s enemy is a friend. A
woman, Fournier had interviewed, has stopped using
a particular brand of mayonnaise because she did not
want to use the brand her ex husband was using.

344
 Fournier---
• 9.childhood friendship. Affectionate relation of
infrequent interaction dating back to childhood. A
man buys a brand of instant dessert because he
remembers eating it in his childhood.
• 10.courtship. Period of testing before deciding on a
committed partnership. Fournier saw a woman
experimenting with 2 brands of perfumes before
deciding on one.
• 11.dependency.Obsessive attraction that results in
suffering when the partner is unavailable. A
consumer is upset when her favourite brand of butter
is out of stock. eg Amul butter.

345
 Fournier---
• 12.fling.A short term engagement with great
emotional reward. A man tastes another brand
of coffee out of compulsion at a friend’s place,
but feels guilty (although enjoys it) because of
attachment with and loyalty to his favorite brand
of coffee.
• 13.adversarial relationship. Intense relation
characterised by negative feelings and a desire
to inflict pain. A man refuses to buy a brand of
computer he hates,buying another computer out
of spite.
346
 Fournier---
• 14.enslavement.Involuntary relationship
governed exclusively by the partner’s wishes or
desires. Eg Ambassador during 70’s .
• 15.secret affair. Highly emotional private affair.
Relationship is considered risky. A consumer
hides his favorite brand of frozen dessert in a
refrigerator and sneaks some late at night when
nobody observes him.

347
 Thinking small
why wd a consumer select smaller,
newer brand?
• Top 10 Co’s By growth of sales-
2003of Co’s >100 cr
• COMPANY
• YOY GROWTH RATE
• !.Parakh foods—
• 32.4%
• 2.Haldiram
• 26.9%
• 3.Anchor Health
• 21.4%
• 4.Dhara Veg Oils&foods
• 14.5%
• 5.Perfetti India
• 14.1%
• Kanpur Detergents
• 14.5%
• CavinKare
• 13.3%
• Marico Industries
• 11.6%
• Godrej Hicare
• 7.9%
• Cadbury’s
• 6.5%
• sourceAc Nielsen Connect2003

348
Why wd a consumer select a small
Co over an old established brand?
• According to CAN’s Winning brand
research,there are 3 reasons for this
• 1Consumers discern between brands based on
a few general criteria rather than specific rational
comparisons between brands
• 2.The 2 biggest factors that account for 66% of
variance in brand equity accounted by brand
associations tend to be a,assessment of product
Q and or b,general affirmations of brand
reliability
• 3.More specific imagery attributes account for
less variation in brand equity.
349
 Asia pacific –distribution of brand
equity indices-as on Sep 2002
• 1710cases in 14 countries were studied by AC
Nielsen.The winning brand normative data base
demonstrate that the mean brand equity across
asia pacific is 1.87 on a 0-10 scale where 0 is
effectively a generic product or service with no
brand value.
• 1.5% of FMCG brands have BEI’s (BRAND
EQUITY INDEXES) above 5 and 9% between 3
and 5.
• Many brands are little better than generic via-a
vis FMCG brands across Asia- Pacific
350
Secrets of small brand success
• 1,SOV(share of voice) low but firmer handshake
with retailers and consumers
• 2.Retailers act as brand endorsers.Give
personal gaurantee to take back.
• 3.Small town consumers not as individualistic as
in big town.Go by peer endorsement.
• 4.WOM.Housewives discuss these.
• 5.Small brands look at simple consumer need
gaps.EG,Anchor—vegetarian: Ghadi—works in
hard water.
351
 4 directions---
• 3.Find new applicationsArm and Hammer baking
soda sale increased from $15mn in 70 to
$400mn in 90 by finding new uses primarily as a
deodoriser for fridges,sinks.animals etc.
• 4.Increase brand usage rate.Raise frequency of
consumption.---Make it easy to use(instant
tea),provide incentives to use(Frequent flier
discounts),Reducing disincentives to
use(Decaffeinated coffee)or finding new ways to
increase the quantity used(large bottles)
352
 Brand extensions and brand
stretching
• Brand extns.using a brand name successfully
established for one segment or channel to enter
another one within the same broad mrkt.eg.Coca
Cola added Classic Coke,Coke Lite,Cherry Coke
etc to Coke,
• Brand stretching means transferring the
successful brand name to quite diff mrkts.eg
Successful Porsche name extended to
sunglasses. Yamaha was extended to pianos,hi-
fi products and skis
353
 Glow case
• Sri Krishna Ranganathan,the VP-sales &maktng at Angar limited is
fighting a losing battle.His R&D has developed a soap with an anti-
infection ingredient ,which Mr Ranganathan felt, had a potential
niche mrkt at that point of time and that it could easily outperform
the Co’s mother brand GLOW.in terms of sales volume
• Confronted with severe resourse constraints in finance and faced
with an organisation structure ill-suited for launch of an altogether
new brand,Ranganathan found himself in a dilemma.His CEO Mr
Manubhai Shah strongly felt that extension of a brand that is
synonimous with beauty & complexion care into health soap
segment would do more harm than good.However,Mr R wouldn’t
like to let go of this wonderful opportunity, come whatever
constraints may!Aren’t they solvable? If only he could get a
solution?

354
 Glow contd
• “Glow! It cares for you” became a catchy
campaign making Glow another name for
beauty & complexion care. Since inception
in 1984, Glow has had 6 brand extensions
on the beauty and complexion care
platform, all put together, accounting to a
leading MS of 45% in the segments with a
total sale value of Rs 250 crores per
annum.
355
 Glow –discussion Q’s
• 1.Why does R have a dilemma while his boss doesn’t
have one?
• 2.What is R’s dilemma?
• 3.Do u agree with R’s decision of launching Glow
extension? Why? Why not? Justify?
• 4.Should R go ahead with line or brand extension,how
do u help him convince his boss and minimise/eliminate
the risk of brand erosion? What positioning strategy wd u
recommend?
• 5.In case R wants to go ahead and launch as a multi
brand, how can he get over the resourse constraints?
• 6.What is the moral of this story? In terms of brand
mgmnt?

356
 Sugandha mouth freshners
• SMF Ltd.has been a major player in the national market.Theit
tobacco based product by name “Khushboo”is very popular and
enjoys a leading 505 share of the mrkt for the last 5 yrs,
• Recently,they introduced a non-tobacco mouth freshner ,by name
“SUGANDHA”.This is being received well,especially by the youth
segment.
• Recently the Govt has launched an Ad campaign asking the people
to give up tobacco consumption.The Co is at present facing 2
problems.1,fear of drop in sales of tobacco based Khushboo and
2,people’s growing belief that even Sugandha has some tobacco.
• Pl advise the Co on1,product positioning of Sugandha and
khushboo and 2,customer education and awareness building.
• If u were to be the MD of this Co, What would u do to put the Co on
an assured growth path simultaneouslybeing socially responsible
corporate citizen.

357
 Product mix decisions
• 1.add new product lines&widen the product mix
,new lines build on Co’s reputation in other lines.
• 2.lengthen existing product line to become a more
full-line Co.
• 3.add more product versions of each
product&deepen it’s product mix.
• 4.pursue more product line consistency or less
depending on whether it wants a strong reputation
in a single field or in several fields.

358
 Pricing decisions-why is price p is
the most imp of all p’s of M.MIX?
Price
higher lower

Premium strategy Good value strategy

higher

quality Over charging Economy strategy

strategy
lower

359
 Price is the only p that gets
revenue all others add to cost!
• Prem strategy—High Q,High P—ROLEX
• Economy Strategy—Low Q, LowP-Timex
• Usually coexist,since markt consists of atleast 2
groups of buyers—Those seeking Q and those
seeking P.
• Good Value strategy---A way to attack premium
pricer.”we have high Q but at a low P.If really
true,and Q sensitive buyers believe this,they buy
and save money.---Un less the premium product
offers more status or snob appeal.

360
 Over charging strategy
• Over price the product in relation to Q.In long
run, customers may feel “taken”,will stop buying
& may complain to others.So avoid this strategy.
• PRICING AN INNOVATIVE PATENT
PROTECTED PRODUCT.How to price first
time? Choose between 1,Market-skimming
pricing and 2,Market-penetration pricing.
• MARKET SKIMMING PRICING
• 1.Set a high price to skim maximum profit from
the segment willing to pay the high price.Fewer
but,more potential sales

361
 Pricing an innovative patent
protected product first time
• Choose between
• A.market skimming pricing
• B.market penetration pricing
• 1.market skimming pricing.---set a high price to get a
high profit per unit from the segment willing to pay a high
price---fewer but more profitable sale.
• Conditions for success
• 1.quality & image must match the high price.
• 2.cost of production of small volume can not be so high
as to cancel out the high price.
• 3.competitive entry barriers should be high—not to enter
& under-cut.

362
 2market penetration pricing
• Set a small price in order to attract a large
number of buyers and a large market share
deeply & quickly.Ex
• 1.Dell & Gatreway used penetration pricing for
high quality computers through lower cost mail-
order channel.Their sales increased
substantially when IBM,COMPAQ & APPLE sold
thro retail stores & could not match their prices.
• HOME-DEPOT & WALLMART & other discount
retailers charge low prices for high volumes
leading to low costs to allow keep prices low!
363
 Conditions for setting low price
• 1.markt to be highly price-sensitive.so,low price
leads to more sales and growth.
• 2. production & distribution costs fall as sales
volume increases.
• 3.low price must help keep out competition-
otherwise price advantage may be purely
temporary.Dell & Gateway faced problems when
IBM & Compaq established their own direct
distribution channels.

364
 3.skimming layer by layer
• Some firms that are highly innovative use a hybrid
strategy whereby they set a high price to begin with to
skim maximum profit from the top most segment and
then reduce price continuously to skim profit layer by
layer from the segments willing to pay the high price.Ex.
• Intel charges the highest price for the computer chip
“pentium”.When it first brought it out,they charged $1000
each so that computer producers priced first pentium
computer at $3500,attracting innovative & serious first
buyers
• Later, Intel cut pentium prices by 30% per year to
eventually allow the pentium PC prices to drop into the
price range of home buyers. ..
365
 Choice between penetration and
skimming strategies.
• Penetration • Skimming-
• 1.Objective-long run markt • Short run profit
share;risk taking • Risk-avert
• 2.demand-price elastic;few
markt segments • Price elastic,multiple markt
• 3.competition-deter new segments
competitors;few barriers to
entry
• Accept new competitors,high
• 4.product.-image seen as
barriers to entry
unimportant,long product life
cycle • Seeks prestige and
• image,short PLC
5.price-pressure for prices to
fall,need to move fast • Prices can be sustained,fewer
pressures in markt.

366
 Skim-penetrate-------
• Penetration • Skim strategy
• Promotion-customers • Unfamiliar product
understand product
• Distribution-existing • Unfamiliar channel
system
• Production-high scale • Few scale economies
economies,experienc and experience curve
e curve effects effects.

367
 Price problem
• Case 1. A toaster marketer has the cost and pricing structure as
below.
• Fixed cost;$300,000
• Price/unit;$20
• Variable cost/unit;$10
• Q1.What is the break-even volume in units and value in $
• Q2.The Co invested $10,00,000 and wants a 20% return on
investment (ROI).How much should the Co sell in units and value?
• Q3.At an expected unit sale of 50’000 what is the total
manufacturing cost per unit?
• Q4.At the above manufacturing cost per unit,what should be the
selling price
• A,to earn a mark-up of 20% on cost?
• B,to earn a margin of 20% on selling price?

368
 Price problem case-2
• Setting a price to Government A’c is quite
tough.In a sealed-bid pricing,the firm
needs to set a price based on how it
thinks competitors will price rather than on
its costs or demand.Both “high price “ &
“low price”setting strategies are
undesirable.One needs to strike a
balance.Suggest your pricing strategy with
following data.
369
 What is the best price?
• Co’s bid & profit in $ • Assumed probability
of winning
• 9,500 &100 • 0.81

• 10,000 &600 • 0.36

• 10,500 &1100 • 0.09

• 11,000 &1600 • 0.01

370
EVC-Economic value To Customer
central concept in pricing in
industrial products
• The markt leader is selling a machine tool
(product X) at a price of Rs.30,000.The
customer will also have to cover start-up costs of
rs.20,000-(installation,initial training etc.)and
post-purchase costs over the life of the machine
with a present value of rs.50,000-
(labor,maintainance,power and other operating
costs).Thus the total LIFE CYCLE COST of the
m/c is Rs100,000.In other words,the price is
under 1/3rd of the total cost of employing the m/c.

371
 By developing an offer with high
EVC ,a Co can charge significantly
•
higher prices and stll offer its
Customers a superior value.The higher vpriced
product may offer value because (a),it generates
more output thanits competitor or
• (b),because the operating costs associated with
it (mint,labor,depreciation etc)are lower over its
economic life.
• If a competitor wants to dislodge the markt
leader ,it must offer superior EVC.One way is
simply to price-cut.But this is not likely to be a
decisive strategy here,because,even if the m/c
price is cut by 20%,the savings to customer of
Rs.6000 is only 6% of total cost.
372
 There are 2 other better ways.For
ex,a new product Yis shown as
reducing the start-up cost
• By Rs.10,000 and post-purchase cost by
Rs 20,000.What do u think is the highest
price the customer will be willing to pay for
product Y,assuming both X & Y would
have the same life cycle cost and
productivity?This represents the EVC that
Y offers to the customer and below the
EVC it would be rational for the buyer to
switch to Y ,provided that all other things
were equal between the 2 suppliers.
373
 Assume a new product Z is
available which ,besides lowering
• The customer’s cost ,may enhance its revenues
also.Z actually turns out more finished product for the
customer or products with superior quality Product Z
has the same start-up cost as X ,but post-purchase
costs are Rs 10,000 lower and offers a NPV of Rs
30,000 extra contribution margin,arising from
enhanced output of higher quality for which demand
exists.Find out the EVC or the maximum price
customers are willing to pay for Z?

374
 Questions on evc case
• If you are the market leader with X and
developed Y and Z for the first time what
marketing strategy would u adopt for
success?
• If u are the unsuccessful competitor for the
leader X and fortunately developed both Y
and Z,what marketing strategy wd u adopt
to challenge the leader and displace him?

375
 Evc case solution
• Using the EVC concept, the firm can target
those mrkt segments where the evc is the
highest.
• In such segments the product is more attractive
and so here the firm can get the highest prices.
• In this eg, it may pay the firm to launch 2 new
products.
• A high price brand Zto the quality-oriented
customersand a low priced Y brand to the cost-
oriented segment of the brand mrkt.

376
 Firm’s pricing policy setting
• 1.selecting pricing objectives
• Survival
• Max current profit
• Max current service
• Max sales grwth
• Max markt skimming
• Product-quality leadership
• Other pricing objectives
377
2.Determining demand-price elastic
demand & price-inelastic demand
• 3.estimating costs;Demand sets the sealing & cost sets
the floor for product pricing
• 4.analysing competitors’costs prices &offers
• 5.selecting aq pricing method.select the price based on 3
C’s---Customers’ demand schedule,cost function &
competitive prices.
• LOW PRICE costs
• competitors prices/substitutes
• Customers assessmnt of unique product features
• HIGH PRICES
• If price is lower than cost, no profit
• If price higher than customers’assessment of value,no
possible demand exists.
378
 Various pricing methods
• A.mark-up pricing
• B.target-return pricing
• C.perceived value pricing---value in use
price
• D.value-pricing---fairly low price for a high
quality product ex.Toyota LEXUS
• E.going rate pricing
• F.sealed-bid pricing
379
Perceived value pricing or value-in-
use pricing
• Increasingly companies are basing prices on
buyers’ perception of quality and value,not on
the seller’s cost.
• They use other marketing mix elements,such as
advertising,packing,sales force,and promotion to
build-up perceived value in buyer’s mind.
• Eg.Dupont,when it developed its new synthetic
fiber for carpets,it demonstrated to carpet
makersthat they could afford to pay Dupont as
much as $1.4 per pound for the new fiber and
still make their target profit.
380
Dupont calls this $1.4 the value-in-
use price.
• Dupont sets a price lower than $1.4 to induce carpet
makersto adopt the new fiber,since at &1.4,the
customers are indifferent.
• Dupont didn’t use its manfng cost to set the price,but
only to judge whether there was enough profit to go
ahead in the first place.The key to perceived value
pricing is to determine the markt’s perception of the
offer’s value accuraely.
• Sellers with an inflated view of their offer’s value will
over-price their product.Sellers with an under estimated
view will charge less than they could both are
undesirable,

381
Perceived value pricing contd.
• When a customer asks Caterpiller’s dealer why he
should pay$10000 more,the dealer answers;
• $90k is the tractor’s price if it is only equivalent to the
competitor
• $7k is the price premium for Caterpiller’s superior
durability.
• &6k is the price premium for Caterpiller’s superior
reliability
• $5k is the premium for superior service
• $2k is premium for larger variety on parts.
• $110k is the normal price to cover Caterpiller’s superior
value.
• Minus $10k discount is equal to final price.
382
 Value pricing
• Here sellers chargea fairly low price for a high quality offering,such
that the price should represent a high value offer to the consumers.
• Value pricing is not a matter of simply setting lower prices on one’s
products compared to competitors.
• It is a matterof reengineering the co’s operations to become a low
cost producer without sacrificing quality and lowering prices
significantly to attract a large no of value-conscious customers.
• An imp type of value pricing is every day low pricing(EDLP) at the
retail level.High-low pricing is resorted to by promotion oriented
competitors. Here the retailer charges higher prices on every day
basis but then runs frequent promos in which prices are temporarily
lowered to below EDLP levels.
• As super mrkts face increasing compttn,from counterparts and
alternate channels,the key to success is using a combination of high
low and EDLP strategies with increased ad promos!

383
 6.Selecting the final price
consider addnl factors
• A.psychological pricing
• B.influence of other MM elements on
price.
• C.company pricing policies
• D.impct of price on other parties.

384
Adapting the price.Co’s don’t set a
single price,they follow a pricing
structure that reflects
• A variations in geographical
demands/costs
• B.markt segment requirements
• C.purchase timing
• D.order levels
• E.delivery frequency
• F.guarantees
• G.service contracts
385
 Price discounts & allowances
• Cash discounts-prepayment
• Quantity discounts
• Functional discounts
• Seasonal discounts
• Allownces-trade-in allowances

386
Promotional pricing stimulates early
purchases
• Loss-leader pricing
• Spl-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties & service contracts
• Psychological discounting-was $359, now $299 only.
• Promotional strategies are usually a zero-sum game!
• if they work,competitors copy easily.
• If they don’t work,waste of money!

387
 Discriminatory pricing
same product at diff prices
• Customer segment pricing-eg.museums-
low price for students&sr citizens
• Product form pricing-diff pack sizes
• Image pricing-diff names,diff prices,diff
images
• Location pricing-Tagj charges differently at
diff cities.
• Time pricing-season,day or hour.
388
 Product mix pricing
• Product line pricing-price steps one sneaker to
another
• Optional feature pricing
• Captive product pricing-camera & films
• 2-part pricing-fixed fee plus variable usage fee
• Bye-product pricing
• Product bundling pricing-season tickets. Total
cost less than sum of individual products

389
 Initiating & responding to price
changes
initiating price cuts
• Ex; excess plant capacity
• Declining markt share
• Drive to dominate markt thro lower costs
• Risks of price cuts
• Low-quality trap
• Fragile-merkt share trap-high priced
competitors may cut prices& can
withstand due to deep pockets
390
 Initiating price changes
• Normally pressure exists on co’s to reduce
prices.Experience curve,competition and rising
customer price sensitivity as markets evolve,all
encourage falling real price levels.
• Inflation,stock markets expectations of growing
profits and possibility of new and improved
products/brands encourage enterprising
managers to consider ways of increasing prices
and margins.
• Cost reduction is another obvious way of rising
margins.But price increase has a better impact.
•
391
 Techniques to reduce customer
sensitivity to price rise
• 1.TRADING-UP
• 2.LINE EXTENSIONS
• 3.UNBUNDLING
• 4.MULTIPLE BRANDING
• 5.OPPORTUNISTIC PRICING
• 6.REPOSITIONING
• 7.ESCALATOR CLAUSES
• 8.REDUCTION IN DISCOUNT
• 9.COST PLUS FORMULAS

392
1.trading-up.Quality improvement is
the basis.alongwith commncn to
customers.a better Q for high P

393
 6.REPOSITIONINg.Reposition a
product to get higher
•
prices.Eg.Chivas regal scotch.
In early 80’s, scotch whiskey was increasingly sold on price to boost
flagging volumesGuinness succeeded well in in repositioning many
of the brands as premium products taking advantage of increasin g
affluence and snob appeal of these established brand names.
• 7.Escalator clauses.with long term contracts and long gestation
periods,escalation clauses will allow producers pass on cost
increases to buyers.
• 8.Reduction in discount.Most Co’s erode their basic price with bcash
discounts for pre payment,quantity trade discounts,seasonal and
pomo allowances,or trade-in.Many of them can be dropped or
reduced without significant customer dissatisfaction.
• 9.Cost plus price formuylas.Offer to meet new customer needs on
basis of cost plus pricing.thus introduce enhanced products with the
buyer guaranteeing the margin.

394
 Product mix pricing
• 1.Product line pricing-a range of products at various
prices for buyers to choose from.Castrol GTX at low
price to more expensive GTX2,GTX3 so on uptoGTX7
to exploit different price elasticities amongst consumers
and distributors and encourage customers to trade up to
higher margin brands
• Select price points to signal clear quality differences
between the brands.
• 2.FOLLOW ON PRODUCTS.Some products require
subsequent purchases.eg.cmera and film. Computer and
software.Initial product might be priced low to stimulate
demand and make profit on subsequent products.
• Supplier needs to be dominant or specialist to prevent
competitor to enter wirh lower priced substitutes.
395
 3.BLOCKING PRODUCTS.Sell at
an economic price to block
competitive entry.
• Eg.cross-subsidise sales in one segment or geographical area to
dissuade competition.
• 4.BUNDLED AND OPTION PRicing.Advertise the product at a low
stripped-down price and at POP,encourage to add high margin
features.merc price Rs 20 lacs and Rs 5 lacs on options.
• In contrast Japanese competitors bundle a comprehensive range of
features into the sticker price to offer superior value proposition.
• 5.PARALLEL IMPORTS.Increasingly pricing is becoming
international problem with differences in living stds and distribution
systems.countries differ in price responsiveness and therefore set
prices differently in diff countries but legl restrictions and parallel
imports are making such strategies difficult .

396
 Product mix pricing strategies
• Product line pricing-diff products at diff prices in a range
each offering more features than previous one.Kodak
royal gold and kodak fun time –high and low price
versions.
• 2optional product pricing-Basic price+accessories
• 3.Captive product pricing—In products razors,cameras
and computers, in services,the strategy is 2 part pricing-
a fixed fee plus charges for the calls made beyond a
numberas a variable vusage rate.
• 4.By-product pricing.Set a price for byproduct to make
the main product’s proice more competitive.

397
Customer types based on price and
perceived value.VALUE OF
MONEY vs VALUE OF DIFFRNCN.
• 1.PRICE BUYERS OR CREDIT BUYERS OR
COMMODITY BUYERS-diff low and vom high.Suppliers
develop multiple vendors and encourage them into
kamikaze price wars.Scream loudest and dictate
price,credit and selling strategies.Profits so low attn
unjustified but provide volume sale.
• 2.VALUE BUYERS OR VALUE LOVERS
• Best position to be as customers.Want lower
prices,longer credit where possible,more efficient
operations,superior features or services
• And wd pay faster for superior value where justified.
• From marktg pt of view,firms that attract value customers
get the loyal buyers as part of the bargainand sell to the
price buyer only when profitable and reasonable,
398
• LOYAL BUYERS_lovers of the care from
suppliers.
• Less concerned about price or credit.Often have
a single supplier and don’t intend to qualify
others.
• COMFORT BUYERS –lovers of convenience
• Don’t care who is supplying,what price,what
credit,as long as readily available.Most profitable
segment,but unfortunately have little brand
loyaltyand offer no SDA.

399
Cost based vs value based pricing
• COST BASED PRICING-setting price
based on buyers’perception of value.
• Product---cost---price---value---customer

• VALUE BASED PRICING-Setting price

based on seller’s cost
• Customers—value---price---cost---product

400
 Place-the 3rd p of mmix
physical distribution & channel
mgmt
• Physical distribution/marktg logistics-Physical distribution
is process of delivering product to marktng channels
&consumers.Logistics has a higher scope –covers PD
plus part of task of mrktg channels
• PD takes care of transportation,ware housing and
inventory mgmt to facilitate flow of product while
channels connect the firm with its customers and thus
bring in greater value addition in delivery chain
• SCM has even higher scope encompassing the
materials mgmt task as well. Has all 5 primary activities
of value chain-both front end and back end of the
process to spread value and develop competitive edge.

401
Physical distribution-importance
• Ensures physical flow of product
• Confers place &time utility on products
• Helps build clientele
• Where production locations and markets
are distanced,PD becomes crucial
• A promising area of cost reduction.PD
costs are high and second only to
materials-a neglected area of cost control.
402
 Component functions of
PD/logistics
• Planning the overall PD • Secondarytransportation,
system secondary handling
• In-plant warehousing &subdistribition
• Transportation • Inventory mgmt at each
• Field warehousing level in chain
• Order
• Receiving
processing/execution
• handling
• Accounting/record
keeping
• communication

403
 Designing a physical distribution
system-5 steps
• 1.articulate distrbn objectives,specify the minimum
desirable service level in product delivery
• 2.find out what customers want in product delivery
• 3.Find out what competitors do
• 4.Keep the costs of the system as low as
possible,without sacrificing the guaranteed
minimum service level
• 5.keep the system sufficiently flexible.

404
 Main tasks in transportation mgmt
• 1.Assessment of transportation
requirement
• 2.Choosing the mix of transportation
modes
• 3.Decide the routing
• 4.Develop operational plans
• 5.Implement/Review
• 6.control transportation costs
405
 Role &importance of warehousing
• 1.Like transportation,warehousing too vests the product with time
and place utility
• 2.In some commoddities,warehousing vests the product with form
utility as well
• 3.A certain level of storage is inescapable in marketing of most
products.Storage needed in large scale for seasonal products.
• 4.sub-distribution realities also necessitate extra storage.
• 5.Storage reduces the need for instant transportation which is
difficult 7 costly.
• 6.storage is a competitive adv ,since better storage leads to better
servicing of channel and consumer.
• 7.Storage also helps in balancing demand and supply and ion
stabilising prices
• 8In some products storage by itself acts as a stimulant of demand.

406
 Elements of inventory costs
• 1.Interest on capital tied up in the inventory
• 2.Warehouse rent,3.Staff salaries
• 4.Insurance,Rates and taxes,5.Stationery
• 6.Postage& cmmncn charges,7.Administrative OH’S
• 7,costs of handling,unloading & stacking
• 8.Loss of damages &deterioration on storage 9.Cost
of order processing /record leeping/accounting
• Optimum inventory is a compromisebetween cost &
service.

407
 Outsourcing logistics
• Volvo-GM outsourcesmarktg logistics tying up
withFedEx. Dealers when requre spares in an
emergency call FedEx on a toll fgree no and
FedEx supplies parts by air the same night
either at dealer’s shop or at roadside at the
breakdown site.A central warehouse was set up
andsome of traditionalregional
warehouses&reduced overall inventory csotsby
15%.
• In India AFL, Elbee,& Bluedart are some of the
Airexpress Cos collaborating with manufacturers
for outsourcing
408
 Marketing channel magmt.
Functions performed
• 1.Facilitate selling by being physically close to
customers.
• 2.Provide distribution efficiency by bridging the
manufacturer with the user,efficiently and economically
• 3.Break the bulk and cater to the tiny requirements of
buyers
• 4.Assemble products into assortments to meet buyers
needs;match ‘segments of supply ‘ with ‘segments of
demand’
• 5.look after a part of physical distribution/marktg
logistics;subdistribution—a.Reselling,b,Retransport.
C,Handling and d,Accounting---STOCK HOLDING-
a,Providing warehouse space. B,Storing the stocks.
C,bearing risks and d,Transforming static stocks
intooperational stocks,thereby aiding the sales process
409
 Channel functions----
• 6.Share the financial burden of the
principal;Provide deposits;Finance the
stocks till they are sold to the ultimate
consumers;Extend credit to
retailers/consumers
• 7.Provide salesmanship
• 8.Provide pre and after sales service
• 9.assist in sales promos
• 10.Assist in merchandising
410
 Channel functions---
• 11.Assist in introducing new products
• 12.Assist in implementing the price
mechanism;assist in price negigotations
• 13.Assist in developing sales forecasts/sales
plans for the territory.
• 14.provide markt intelligence & feedback.
• 15.Maintain records,16,take care of laison
needs17.Helpdiffuse innovationsamong
consumers,act as ‘change agents’and generate
demand
411
 Alternative channel patteens
• 1Manf----M’s salesmen---User
• 2.Manf—M’s showrooms/Depots—User
• 3.Manf—Retailer—User
• 4.Manf—Franchisees—User
• 5.M—Wholesaler(stockist)/Distributor—R—User
• 6.M—W(s)/D—Semi-wholesaler—R—U
• 7.Manf—Markter—W(S)/D—SW—R---U
• 8.M—Soleselling agent—W(S)/D---SW---R--U

412
Steps in designing channel system
• 1.Formulating channel objectives
• 2.Identifying fubctions to be performedby the channel
• 3.Analysing the product & linking the channeldesign to
the product characteristics
• 4,evaluatingthe distribution environment,including legal
aspects
• 5Evaluating competitor’s channel design
• 6.Evaluating Co resourcesand matching channel design
to resources
• 7.Generating alternate designs,evaluating and selecting
the one that suits the firm best.

413
 Objectives firms seek from
channels
• 1.Effective coverage of the target market
• 2.Efficient & cost effective distribution
• 3.ensuring that consumers incur minimum
exertion in procuring the product.
• 4.Helping the firm to carry on
manufacvturing uninterrupted ,confident
that channels will take care of sales
• 5.Partnering the firm in financing and sub
distribution tasks.
414
 Types of marketing intermediates
• 1.Sole selling agent
• 2.Marketer
• 3.C&F Agent(CFA’s)
• 4.Redistribution stockists
• 5.Stockist/Whole saler/Distributor
• 6.Semi wholesaler
• 7.retailer/dealer 8.Broker 9.Franchisees
• 10Authorised reps 11Commission agents
• 12.jobbers

415
 Linkage bet channel objectives &
channel design
• Channel objectives • Channel design
• 1.Castrol india-Locational • Vast net work of outlets—
convenience,Choice of backed by
product &Strong CFA’s/Stockists/warehou
reach;Speedy dely;Fill ses/delivery facility,1800
orders from outlets in 24 SKU’s,variety,packsizes.-
hrs. --Multi-tier design .
• 2.reliance • 2.Exclusive showrooms-
textiles(VIMAL)-Create 200nos-in all cities and
exclusive image for jumbo showrooms in
VIMAL,Cater to urban metros.outlet
markts,as per communicates.—
position.Build barriers to
comptn.

416
 Channel design---
• 4.Archies gifts • 4.Outlets close to
&greetings— upper echelons of
Proximity to society,the TMS.Go
customers,convert for exclusive
low involvement shops/shop-in-
purchase inti shops;Trendy interior
HighIP,Make design and peppy
purchase an ambience.—Wide
enjoyable experience. range of appealing
merchandise
417
 Channel design----
• 5,BBLIL(premerger with • 5.embrace all types
HLL)—Strong
reach,Provide choice of
brand,place&time utility—
Fresh stocks to
consumers always.
ofshops,super
mrkts,grocery
stores&kirana shops.A 3-
tier channel with
CFA’s,RS’s and
R’s.Provide for proper
inventory/dely backup.At
each level minimise
distance bet issuing &
receiving points.
418
 Channel obj’s & design----
• 3.Philips(appliances ,Pers
care )—Cover mrkts
intensively<extensively;Af
ter sales servoice integral
part of channels--,Build
barriers to competitors.
• 3.Have a 3-tier channel of
CFA’s,distributors&
retailers(22ooR’s).Authris
ed Philips Service
Centers(100 APSC’s) and
4 CRC’s(consumer
response centers).60
engineers laise with
APSC’s.—Motivate
channel with guaranteed
30%ROI toAPSC’s.—
Make all strong dealers
philips dealers.
419
 Channel design-----
• 6.Louis Philippe—
Promote as a complete &
premium wardrobe
line,with
shirts,trousers,ties,socks,
blazers,belts etc.
• Cover the TMS(well-to-do
gents) adequately.
• Maintain an edge over
comptn by competing on
quality,service,image &
value.
• 6.Go for exclusive show
rooms,ensure full line at
all outlets.Go for multi
brand outlets and for
shop-in-shop in super
stores like Akbar alis
where spl areas are
provided as shop in
shops.
420
 Channel design--
• 7.ITC tobacco division,-
ensure easy availability of
cigarettes.
• Build brands through
advertising.
• Go for CFA’s and
wholesalers who
distribute resell to
retailers(8000)
• Go for different types
ofretailers,branded,traditi
onal and non traditional.
• Have branded retailers
and franchisee retailers
who sell only ITC
cigarettes and not other
brands
421
 The promotion P—marketing
communication
• The mrktng commncn mix
• Product communicates
• Price communicates
• Place,point of sale communicates
• Promotion communicates
• -----advertising communicates
• -----personal selling communicates
• -----sales promotion communicates
• ------publicity communicates

422
 Product communicates
• Product personality as a whole
communicates.produc t personality constitutes
various elements such as
• The physical features,the material,the
size,shape,design,the finish etc
• The package,its color,size,design &labeling
• The brand name,the co name.
• IN SHORT,THE PRODUCT SENDS OUT
MULTI-PRONGED MESSAGES
423
 Mrktng commncn through price
cues
• Price conveys something more than price
• Price-quality equation
• Price-status equation
• Price,an indicator of technological
superiority
• Consumers’ concept of a ‘reasonable
price”

424
 Place as a component in marktng
commncn.
• “I buy only from X store” Why?---”they have a big
choice”: “It is a lovely place to shop in”;”the service is
good”;”it is cheap”;It has a good location”;”they sell
quality products”.
• THE STORE IMAGE
• STORE LEVEL MERCHANDISING-display &
service;store is a display unit attracting high consumer
traffic.
• STORE,A POWERFUL COMMNCN
INSTRUMENT;particularly for image-led products and
brands—aesthetic display of Baccarose Cosmetics in an
aristocratic store environment –the color of the wood,the
glass fittings.etc imp.
• STORE CHOICE IS LINKED TO STORE IMAGE.
425
 Promotion as a component in
mrktng commncn.
• PS,ADV,SP AND PUBLICITY and DM
• PERSONAL SELLING & its communicative role
• Sales man and his qualities in his role as a
communicator---
• Product knowledge &technical expertise
• Customer-salesman relatability in
age,culture,language,dress style etc.
• One who listens,communicates better
• Right sa;les message leads to effective
commncn.
426
 Publicity-a potential tool of mrktng
commncn.
• Oversee & influence the stories/news that appear in media and
conduct publicity campaignsaround some innovations within co or
some topics of public interest like environment,health,social welfare
etc.
• SPONSORSHIP & EVENT MANGMNT are 2 most sought after tools
for creating wide publicity.
• Sponsorship-when news worthy events take place,firms associate
with such events as sponsors
• DIVERSE WAYS OF SPONSORING EVENTS
• Title sponsorship,cosponsorship,official supplier status for getting a
host of benefits & rights. Such as signage,tickets,hospitality,product
category exclusivity and the right to advertising,promotion &
publicity.Intention is to remain part of the news –creating eventand
reap the best of exposure to the firm.

427
Event management-a new addition
to publicity tools
• Making an event spectacular through a variety of
commncn and display techniquesis crux of event
mangmnt.
• The event can be product launch,an exhibition,a contest,
a stage show,or a sport event.idea is to capitalise on the
opportunity by converting the event itself into a grand
display.
• Event mngmnt firms do conceptualisation,program
design,logistics planning,technical planning 7 venue
mngmnt.
• To make the event spectacular,lighting,sound and spl
effects arte creatively used.to nleave a lasting
impression on the audience.

428
 Pr-management of reputation
• Pr accomplishes the task of explaining to the
outside world about the issues that are going on
within the co.
• Good corporate reputation makes selling easier
& cheaper.It saves on advertising,and renders
every activity easier.
• Pr is more vigorous in in bad times ;for ex,in
recession,large cos often cut the ad budjet and
spend part of it on PR.

429
 Advertising mangmnt
• “advertising” originates from the latin “adverto”which
means to turn round.
• Therefore advertising denotes the means used to draw
attention to to any object or purpose.
• In marktng, advertising is defined as “any paid form of
non-personal presentation and promotion of
ideas,goods,or services by an identified sponsor”
• Popularisation of products is basic aim of advertising and
hence rests on a thorough understanding of the buying
process-and influencing the purchase behaviour of
consumers in a way favorable to the advertiser.---
• ATTENTION<AWARENESS<INTEREST<DESIRE<ACT
ION<SATISFACTION <LOYALTY.

430
 How does advertising influence
/persuade the buyer?
• 1.Should be of interest to the buyer
• 2.The audience should interpret the message
in the intended manner
• 3.the advertisement should influence the
audience/ buyer.eg.attitude change is a
central theme in advertising.
• Traditional theories of attitude suggest that it
is made up of 3 interrelated components-
cognitive,affective and conative.

431
 Attitudes created by advertising---
• 1cognitive component of attitude deals with
cognition or knowledge.It is the faculty of
knowing,or percieving or concieving ideas.It is
the sphere dealing with knowledge.
• 2.The affective component deals with
affections /emotions.For ex feelings of likes and
dislikes towards objects are dealt on the
affective plane.
• 3.The conative component deals with behavior
or action.these 3 components together shape
what is known as attitude.
432
 Theories of attitude
• Consistency theory.Man seeks consistency
,balance or harmony in his belief system.He tries
to resolve inconsistencies or imbalances
because he cannot tolerate them for long.
• When inconsistencies occur between existing
belief system and new information,to which he
gets exposed,the given attitude will tend to
change, so that the inconsistency will get
resolved.

433
 Factors in advtng that accomplish
audience persuasion
• 1.Source/endorser of message
• 2The message structure and the message
appeal
• 1.THE SOURCE or THE ENDORSER
• A)the credibility of source
• B)Likability or attractiveness of source
• C)The source’s approach to the views and
disposition of audience.
434
 2.The message in the ad.the
message structure and the appeal
• 1.Message structure
• A)the message sidedness
• B).order of presentation
• C)climax order,anti-climax order,pyramidal order
• D)message conclusion.
• 2.Message appeal-rational and emotional
• RATIONAL APPEALS.
• Physical feature-oriented,Function oriented,Brand to brand
comparisons
• EMOTIONAL APPEALS
• LOVE,AFFECTION,ENJOYMENT<FUN &HUMOR<SENSE OF
PRESTIGE<YEARNING FOR DISTINCTIVENESS
&LUXURY<FEELING OF ENVY,FEAR OF UNCERTAINITIES etc.

435
Advertisements using celebrities as
source/endorsers
• Amitab bachhan-icici bank campaign,for its retail banking.”makes
life easier”
• Mansoor AliKhan Pataudi for Gwalior suitings-well known cricketer
• Sachin Tendulkar for visa,Pepsi,and Philips
• Sunil Shetty endorses Colgate dental powder
• Sharukh Khan for Mayur suitings
• LUX uses film stars
• THE intention is to win over audience thro prestige and
attractiveness of endorser.
• MRF uses names of famous cars that are users of its tyres.The
copy showed Opel Astra,Ford Escort,and Fiat Uno.The
message”These cars ride only on MRF radials,” MRF radials-India’s
answer to world class cars.”

436
 Rational appeal –ITC sundrop and
Zodiac shirts
• SUN DROP;”New Sundrop super refined oil offers not
just one but 4 imp health benefits-easy food
absorption,energy,heart care and vitamins.Food cooked
in Sundrop retains its natural flavour’.Copy highlighted
each of the 4 benefits
• Energy-9 k cals per gram
• Food absorption-helps the body absorb food faster as
the free fatty acid content is below 0.2%.
• Heart care-Keeps the heart strong as it contains over
60%poly unsaturated fats.
• Vitamins-Contains A, D and E.

437
 Rational appeal-zodiac shirts.
• Why Zodiac makes the best shirts in india?
• 1.Fabrics-best,including,soft,light,long staple european 7 Egyptian
cottons,in Chambrays,Oxfords and Twills
• 2.Stitching-computerised M/cs create an almost invisible 21 stitches
per inch for max strength,others stop ay 16
• 3.Buttons-Genuine mother-of pearl,hand picked & matched.Others
use plastic buttons.
• 4.Collars use imported lining for durability.State-of –the-art fusing
eliminates warping & creasing
• 5.Style & comfort,6.collar/cuffs,7Button holes
• 8.Customer satisfactionEach Zodiac shirt reflects our chairman’s
obsession with quality and carries his personal guarantee.AMONG
THE BEST IN THE WORLD_ZODIAC.

438
 Examples of rational appeal
• Sun drop,Zodiac
• 2.Brand to brand comparisons to convince
audience.highlight specialities,claiming superiority,name
of competing brand may be specified or implied.Eg.New
Pepsodent compared with Colgate.The claim is it is
102% SUPERIOR TO CDC.HLL compares its product
with the “leading tooth paste”Colgate Ad jingle in the
background sufficient to relate it to Colgate.
• ASCI specifies that comparative advertising –direct and
indirect, is permissible if 1.the aspects compared are
clear,2.comparisons do not confer artificial advantages
on the advertiser,3.it is factual,can be
substantiated,4.consumer is unlikely to be mislead and5.
there is no unfair denigration of the competing products.

439
 Examples of emotional appeal
• Jenson & Nicholson ad creates a romantic setting to
drive home the elegance of J&N paints----Love at first
sight,Love ever after,Colors are like love,----J&N
colors---excitingly---beautifully---Give your home this
wonderful romance through J&N colors—
• Humour appeals-very common today,certainly attract
attention.an imp clutter breaker.Pause,read,capture the
current of fun and enjoythe message.Whether it brings
about an attitude change is debatable.It may sometimes
even distract from the central theme of message.In
addn, people tend to take such messages too lightly.But
many copywriters do use humour in their messages

440
 Emotional appeal in ads
• Newsweek;Headline of a TIME magazine Ad reads .”If ur
ad in TIME magazine,change your ad agency”.Headline
of a subsequent Ad for NEWSWEEK;”if ur advertising
doesn’t work in TIME magazine,don”t change ur
agency,place it in NEWSWEEK”
• FORD;Subtly takes a dig at Japanese car
makers,highlighting the superiority of its
cars.s.es,ofcourse,Japanese cars are excellent—
AfterallFord motor Co taught them to make cars.In
1927,Ford started operations in Japan and installed the
first conveyors assembly line in all Asia.In fact for many
years,the Japanese word for automobiles is FORDO---”

441
 Fear appeal in advertising
• Failure to use the advertised product might result in great
loss/damages in terms of money,health ,prestige etc.
• This fear appeal serves as stimulus for the receiver,creating a
favorable attitude towards the product.
• It may also induce the receiver to learn more about the product and
encourage him to get more info about the issue.May also create a
feeling of hostility in receiver .
• Be careful of 3 things;!Understand nature of product advertised
2,Understand attitudinal frame of target audience and 3,extent of
fear in hidden in the copy,
• Banks and insurance cos use fear appeal to evoke concern.UNITED
INDIA INSURANCE;”Today—a picture of safety---tomorrow---an
invitation to disaster.UR protection is our concern,take cover under
United India; Tonight—sleep better thsan ur neighbor.It costs so
little to insure ur household belongings”

442
 Ad objectives—models that link
buyers attitude change and
purchase with advertising
• Some useful models;
• 1.AIDA-the 4 stage model proposed in 1920’s for any impersonal sales
presentation
• 2.5-stage & 6-stage models;proposed in 1930’s by rural socialogists
studying the process of innovation-adoption.There are 5 stages in any
adoption process-Awareness,Interest,Evaluation,trial and Adoption.Then
came 6-stage model;Awareness,Knowledge,Liking,Preference,Conviction
and Purchase.—divided into 3 main components;cognitive
component(Knowledge component-First two),Affec tive
component(emotions component-next two), and lastly conative
component(Action component-last two)
• All these mod.els belong to a class called “hierarchy of effect”models
• 3.DAGMAR..Looks at advertising as performing a commncn task and not a
sales task.
• What is required is a balancing act-advtng can not be loaded with the sales
task making it totally responsible for bringing in sales; nor can it be totally
exempted from a sales-related responsibility.

443
 4 broad themes ad objectives
revolve around
• 1.The behavioural constructs-generating
trial purchase and store visits
• 2.Attitude-ATTITUDE CHANGE AND
ATTITUDE MEASUREMENT
• 3.Awareness-Creating awareness of new
products/brands/new ideas
• 4.Product positioning and brand building

444
 Main decision areas in
advertising
1 deciding the advertising objectives
2.deciding the budget
3.deciding the copy
4.deciding the media.
Deciding objectives—Should they include sales growth? Or should it
have only commncn goals because ad is essentially a commncn
task?

445
 Areas where ad objectives can be
set
• 1.introduction of new products
• 2.expansion of mrkt for existing & new products
• 3.building a long term consumer franchise for
the firm
• 4.countering competition
• 5.reminding customers
• 6.reassring customers by removing post-
purchase dissonance.
• 7.building up brand image and co image
446
 Ad obj’s
• 8.aiding total selling function by taking customer
thro steps in purchase process-from awareness
to purchase
• 9.closing an immediate sale-’clincher ads’
• 10.supporting other sales promotion activities
• 11.stimulating ‘impulse buying’
• 12.enthusing the channel to stock the product
• 13.supporting &supplementing sale’s selling
effort and dealers’ selling effort.
447
 Deciding ad budget
• 1.Competitive parity
• 2.Affordability
• 3.A fixed % of turnover
• 4.Budget based on functions to be performed
• 5.Regression analysis;An advanced quantitative technique to arrive
at budget.Done based on Historical data-either time series data or
cross-se4ctional data
• Time series data are records of past ad expenditures and sales over
time.Cross-sectional data are records of ad expenditure and sales
for a specific period over different markets.The aim is to predict the
dependent variable –sale or market share.Advertising expenditure
level would be one of the independent variables.The regression
coefficient crresponding to the advertising variable serves as a
measure of the short-term response to advertising.

448
 Ad budget-the adaptive control
modeladds sophistication to budget
decision
• Ad budget decisions need updating because the relation
between advertising and sales changes over time with
the changes in makt conditions.
• The adaptive control model starts with a sales response
curve and locates an optimum level of ad
expenditure.The firm will now experiment advertising at
non –optimum levels in selected test mrktsto get more
knowledge about the sales response curve originally
set.The new info coming out of the experimental marktng
is added to the sales response function for arriving at the
current optimal advertising expenditure rate.

449
 The compromise in ad budget
setting.consider basic q’s like
• 1.Which is the audience intended to be reached by advertising?
• 2.What is its size,location etc?
• 3.What are the media available for delivering the ad message?
• 4.Of the available media,which combination of media is likely to be
most cost effective?
• 5.To meet the given objectives,What kind of campaign is required?
What are its features?What type of endorsers are required?What is
the cost there of?
• 6.Does the campaigninvolve single release of an ad or repeat
releases?What is the frequency of releases proposed?IN OTHER
WORDS<BUDGET DECISION IS CLOSELY LINKED TO AD OBJS
<MEDIA AND COPY DECISIONS.THESE 4 INTERACT AMONST
THEM AND INFLUENCE EACH OTHER.One gets modified and
reshaped by the other.

450
Deciding the copy-copy refers to all
that appear in an ad –written
matter,pictures,labels,logo,and
designs
• To decide ‘copy platform’or a precise
statement of the ‘ad story’,
• 1,close interaction between advertiser and
ad agency
• 2,clear-cut ad objectives by advertiser
• 3,knowledge of market & consumer
characteristics,
• 4,nature of competition
• 5,profile of competing brands/products. 451
Major tasks in copy development-
1.fact finding stage and 2,idea
finding stage –alex osborn
• ‘the big idea’ in Advertising
• 1.All effective commercials have a ‘big
idea’.Says Roser reeves;The big idea in itself is
a USP.Get a big idea and say it in a simple style.
• 2.David Ogilvy says;Unless ur campaign
contains a big idea,it will pass like a ship in the
night.
• 3.Says Leo Burnett;Not only is great copy
deceptively simple,so are great ideas.And if it
takes a rationale to explain an ad,then it is too
complicated---
452
Ad copy-keep message simple and
short.Jack Trout
• POSITIONING-How does the mind work as it takes in,stores or
rejects ur message? The 5 elements to positioning process are
• 1.Minds are limited—too much info indigestion
• 2.Minds hate confusion.Best way to enter minds is to oversimplify ur
message,so it can slice thro all noise.Powerful mrktng commncns
focus on a single word;Crest-Cavities;Volvo-Safety.
• 3.Minds are insecure; So,use testimonials.Polls and panels create a
‘bandwagon effect’eg.Honda Accord advertises’In the 8 yrs Car &
Driver magazine has presented its 10 best list,only one car has
been chosen every time.’
• 4.Think simple..Focus on onme idea and drive into the
mind.Eliminate anything that others could claim as well as u
can.Forget anything that requires a complex analysis to prove.
• 5.Never ignore the obvious;Obvious ideas tend to be powerful
ideas,because they will be obvious to the markets as well.

453
 Testing the ad copy-2 types
–post tests;after product
launch and pre-tests before
• 3 copy testing methods-1,lab tests,2,tests that
attempt to simulatethe natural reading or viewing
environment and3,tests done in the real/natural
environment,called market tests.
• 1.lab tests-use phisiological measuring
techniques with aids like eye-camera,polygraphs
etc.
• 2.simulated environment tests include intercept
research,mobile trailers,fixed facility
research,and in-home interviewing. 454
 Ad copy testing-markt tests
• Markt tests also utilise several techniques.The
folio test is normally used in print media.TV
commercials are tested thro the in-home
projector vtest ,or live telecasts/on-the-air-
techniques
• The DAR test for TV commercials-The Day-after
Recall technique.The day after a TVC goes on
air,in a normal viewing situation,a sample of thre
viewers of the program is made.Those who saw
the test commercial are interviewed to find out
their ability to recall the commercial..Based on
certain steps,a ‘recall score‘is also made
455
 Testing criteria in copy tests
• When a copy is put to test what is actually
tested?It’s ability to ensure a recall? Or its ablity
to ensure ‘recognition? Or its ability to ensure
‘persuasion’? Or someother factors?
• Same conflicts arise here as in ad objective
setting.
• A majority of tests centre on
‘attention’,’recognition’and ‘recall’ factors.The
tests are mostly concerned with commncn
effectiveness of the copy.

456
Deciding media-major ad media
• 1.print media
• News papers,magazines,trade
journals,direct mail
• 2.audio/visual/audio-visual/electronic
media
• Radio,television,internet,cinema,cassettes
-audio and video,outdoor.

457
 Commonly used outdoor media
vehicles
• Hoardings ,posters
• Neon signs and other illuminations,
• Transit advertising(railways ,Other transport
• Fairs and exhibitions
• Amusement parks
• Dance,drama and puppet shows
• Loud speaker announcements
• Ballooons and sky writings

458
 Internet advertising-unilever,revlon
&pond’s
• Unilever-had a 3yr vdeal with america Online Incto advertise scores
of its brands online.It also signed a separate deal with microsoft
Corp to advertise on Microsoft’s online servicesand to develop new
interactive soft ware for advertising,
• Revlon;Its website has an interactive page;’Virtual faces-Try A new
Look’where a customer can try out different shades(from Revlon’s
latest Laven Dare and Fleshtones collections)on virtual faces on the
screen and choose suitable shades.The person is then given a
personal color consultation,a print out of which can be taken to the
retail store and pick up the products recommended.
• Another web page is ;Revlon Give Aways.Customers fill in a
questionnaire and offers coupons for select products.Revlon also
offers self-care tips (on manicure etc )and info on fragrances.

459
 Pond’s website
• Pond’s interactive site is positioned as a
one-stop site for skin-care tips and Pond’s
products.While other sites concentrate on
co-specific product oriented info,pond’s
attempted to give general info and advice
on common skin-care problems to make it
universal.
• Pond’s took 1 yr and invested more than
Rs 1 crore in the project to start with.

460
 Advertising thro cassettes-
electrolux’s venture with Venus
Tapes
• The co tied up with music & film producing co Venus
Tapes & Records for promoting its brands
• Alwyn,Voltas,Maxclean,& Kelvinator.
• The Rs 2.5 crore deal enables the co to advertise its
brands thro audio,video cassettes & CD’s produced by
VENUS
• The tie-up will ensure insertion of E’s audiojingles in
each and every Venus cassette..Venus will also insert
E’s TVC in its video cassette and VCD’s for a total
duration of 5 minutes
• Scope wide since e’s Ads can be carried on a minimum
of 40 mn cassettes & CD’s during the contract.
461
 Measuring TV viewership(TRP)
• Television Rating Point (TRP) is ca measure of the
viewership level of the program.It reveals % of audience
tuned to a program.
• TRP system involves collection of viewership data on a
weekly basis from a panel of TV viewers in select market
territories,Viewership figs are presented as % of total tv
audience with 1 TRp representing 1% of audience.
• EG.A serial on ZEE TV has a viewership of 11.5%among
a sample of men of age 25 plus in Mumbai’s C&S homes
While Zee News had just 0.2%viewership.That means
the serial has a TRP of 11.5 and Zee News has a TRP of
0.2.

462
 GRP=TRP*No of times the spot is
aired
• $ spots on a program with a TRP of 20 yield a GRP of 80.Programs are
compared on basis of cost per rating point=ad tariff divided by TRP.
• TRP measurement; Diary system,people meter and Laser meter.
• Diary system is the most common,It is a system of program recall by panel
members who are supposed to keep a diary on what they watch.
• The people meter is a mechanical device ,which records when the tV set is
on and which member of the family is watching at a particular point.The
viewer has to clock in by pressing a button.
• The Laser meter is a more advanced device.It automatically records the no
of people present in aroom thro heat sensors
• Laser meter overcomes the limitations of both the previous devices.which
demand the active and timely participation of panel members.If the viewer
forgets to clock in or make timely notingsin the diary,then projections
become unreliable in case of people meter and diary system respectively.

463
 Competitive strategies-building
competitive advantage/edge or
differential advantage
• CA or CE is an advantage over
competitors gained by offering consumers
greater value,either through lower prices
or by providing more benefits that justify
higher prices.
• Marketing strategies must consider (1) not
only the needs of target consumers (2) but
also the strategies of competitors
464
 2 steps for building CA
• 1.competitor analysis-identifying and assessing
key competitors
• 2,developing competitive marketing strategies
that strongly position the Co against competitors
and give it the greatest possible competitive
advantage.
• COMPETITOR ANALYSIS-the process of
identifying key competitors,assessing their
objectives,strategies,strengthe and weaknesses
and reaction patterns and selecting which
competitors to select or avoid.
465
 Steps in analysing competitors
• 1,identifying the Co’s competitors
• 2,determining competitors’ objectives
• 3,identifying competitors’ strategies
• 4,assessing competitors strengths and
weaknesses
• 5,estimating competitors’ reactions
• 6,selecting competitors to attack and
avoid.
466
 1.Identifying Co’s competitors
• A.Co’s offering similar products and services to same
customers at same places and similar prices—Eg,Coca
Cola vs Pepsi Cola; For Buick Ford is a major
competitor not Mercedes
• B.competition at a wider level-All firms making the same
product or class of products.Eg.Buick competes with all
other auto makers
• C. competition at a more broader level—Even co’s that
supply same service such as makers of trucks,motor
cycles,even bicycles
• D.Even more broadly,Competitors might include all Co’s
that compete for the same consumer dollars.Eg Buick’s
competitors can include all Co’s that sell major
consumer durables ,new homes et
467
 Well-behaved or disruptive
competitors
• Benefits of competition-1.Increase total demand ,
2.Share costs of market and product development
3,Legitimise new technology 4,May serve less
attractive segments 5,lead to more product
differentiation 6,Improve bargaining power against
labor.
• WELL –BEHAVED COMPETITORS—1,Play by rules
2,Favor a stable and healthy industry,3.Set
reasonable prices in relation to costs 4,motivate
others to lower costs & improve differentiation
5,Accept reasonable levels of MS & profits.

468
 Disruptive competitors
• 1.break the rules
• 2.buy shre rather than earn3.take large risks
• 4,in general shake-up the industry
• Eg.American Airlines finds Delta & United to be
well-behaved,but finds TWA,Continental &
America westdisruptive since they de stabilise
airline industry thro continued heavy price
discounting and wild promotional schemes.

469
Competirive strategies-M Porter’s 3
winning competitive strategies
• Over-all cost leadership-Texas Instruments & Wall Mart
• 2.Differentiation-Highly different product line-IBM and Caterpiller
• 3.Focus.Serve a few markt segments well.Glass maker
AFGIndustries makes 70% of glass for microwave oven doors,and
75% of glass for shower doors(TEMPERED AND COLORED
GLASS)
• Cos pursuing a clear strategy (one of the above) perform
well.Middle-of –the-roaders like Sears,Chrysler,& International
Harvester suffered the worst as they didn’t stand out as 1,the lowest
in cost,or 2,highest in percieved value
• Or 3,best in serving some market segments.
• Middle-of –the-roaders try to be good on all strategic counts but end
up not being very good at anything.

470
 Disruptive competitors
• 1,Break the rules
• 2,Buy share rather than earn
• 3,take large risks
• 4.In general shake-up the industry.
• EG,American Airlines finds Delta & United to be
well-behaved,but finds TWA,Continental &
america West disruptive since they destabilise
airline industry through continued heavy price
discounting & wild promotional schemes
471
 Competitive strategies-michael
Porter’s 3 winning comp strategies
• 1.Over all cost leader ship-Texas
Instruments and Wall mart
• 2,Differentiation-highly differentiated
product lines –IBM,Caterpiller,Lever etc.
• 3,Focus-Serve few market segments
well.Glass maker AFG Industries makes
70% of glass for micro wave oven
doors,and 75% of glass for shower
doors(tempered and colored glass)
472
 Comp strategies---
• Co’s persuing a clear strategy (one of the
above) perform well.Middle-of-the-roaders like
sears,Chrysler & International harvester suffered
the worst because they didn’t stand out as the
• Lowest in cost
• Or highest in perceived value
• Or best in serving some market segments.
• Middle-of-the-roaders try to be good on all
stategic counts but end up being not very good
at anything.
473
 Competitor myopia
• Kodak was worried of Fuji. But real competition was from
film less cameras sold by Cannon & Sony that take video
still pictures that can be shown on a TV set turned into
hard copy
• IDENTIFY COMPETITORS
• BY linking industry
• And by market analysis by mapping out product/maket
segments
• 1.From industry point of view-Coke’s competitors are
Pepsi,7-Up,Dr pepper
• 2.From market point of view-Coke’s competitors are
“thirst quenchers” such as iced tea,friit juice,bottled water
etc,

474
 Customer segmentation
• children/teens • Age19-35 36+
• Plain tooth paste • CP&P&G CP&P&G
CP,P&G
• Tp with fluoride-CP,PG
• CP&PG CP,PG
• GEL-CP,PG,LEVER

• CP,PG,LEVER
• STRIPED-Beecham andcp,pg,lever
• Smoker’s TP---------- • Beecham beecham
• Topol topol

475
 Identifying competitors---
• P&G with several versions of Crest & Gleam and
CP with Colgate occupy 9 of the segments
• Lever Bros with Aim occupy 3
segments,Beecham one(AquaFresh) and Topol
two.
• If Topol wants to enter other seg bments it must
estimate the market size of each segment,the
shares of current competitors,and their current
capabilities,objectives and strategies.
• Each product/Markt segment poses different
competitive problems and opportunities.

476
2.Determine competitors’ objectives
• What drives each competitor’s behaviour?
A,short term vs long term profits? B,satisfactory
profits or maximise profits?
• C what goals beyond profits?
• Know relative impotance of each competitor for
a,current profitability,b.MS growth c.cash
flow,d.tech leadership.f.service leadership and
other goals.
• Judge competitive actions-Likely to pursue Low-
cost production strategy?or Ad promotion
strategy?

477
 3.Identify competitors’ sytrategies
• Strategic group-A group of firms in an industry following
same or similar strategy.Ex.GE,Whirlpool,Maytag in
home appliances industry form a strategic group offering
a full line of medium price appliances plus good sevices.
• Sub-Zero and Kitchen Aid belong to a different group-
offering a narrow line of higher quality at a higher
price.but with a higher level service.
• If a Co enters one of the groups, it becomes a member
of others key competitors,
• It can succeed conly if it develops some strategic
advantage over these competitors.GE now offers a
premium quality premium price line to compete with
Kitche Aid and Sub-Zero.

478
 Look at all dimensions of
competitors’ strengths
• Know each competitors’
• Product quality
• Features & mix.
• Customer services
• Pricing policy,
• Distrbution coverage
• Sales force strategy,
• Ad &sales promo programs.Also study each
competitor’s
R&D,Manufacturing,Purchasing,Financial,Manpo
wer & other strategies.
479
 4 assessing competitors’strengths
& weaknesses
• What can our competitors do? Find their
goals,strategies,& performance over last few
years
• Collect info from secondary data,personal
experience & hearsay.
• Bench mark compare vyr Co’s products
,services and processes to those of competitors
or leading firms in other industries to find ways
to improve Q and performance.
• BENCH MARKING iS A POWERFULTOOL FOR
INCREASING A CO’S COMPETITIVENESS.

480
5 estimating competitors’ reactions
• What will our competitors do? SWOT analysis can help
us know their recations or actions.
• Each has a philosophy,a culture,guiding principles and
beliefs
• Each competitor reacts differently
• Some don’t react quickly/strongly.Some react only to
price-cuts,others only to Ad promos!
• Some competitors don’t show any predictable reaction
pattern.
• P&G is a fierce reactor.No new competitor wd like to
fight directly with P&G,who doesn’t let a new comer into
the detergent mrkt.
481
 6,selecting competitors to attack
and avoid.(A).Strong or weak
(B)Close or distant competitors
• 1.Strong or weak.Assess strength by “customer
value analysis”-what benefits target customers
value and how they rate the relative valueof
various competitors ‘offers.
• The key to gaining competitive adv is to take
each customer segment and examine how the
the Co’s offer compares with that of its major
competitor.If Co’s offer exceeds that of major
competitor,on all key attributes,Co can charge
higher prices and earn higher profits or charge
same prices and get higher share,
482
 2.Close or distant competitors
• Most want to compete with competitors who
resemble them most.Eg.Chevrolet competes
more with Ford than Jaguar
• A Co may also want to avoid trying to destroy a
close competitor.Eg. Bausch7 Lomb attacked
othersoft lens manufacturers but these were
forced to sell out to larger ones such as Revlon
& Johnson& Johnson.B&L now faced larger
competitors like J&J and faced the
consequences.
483
 Hypothetical market structure
• Mrkt leader-40%
• Challenger-30%
• Follower-20%
• Nicher-10%
• MARKET LEADER STRATEGIES
• Competitors focus on the leader as a Co to
challenge,imitate or avoid.
• Leaders keep
• A constant watch

484
 Leaders’ strategies
• A product innovation may come along and hurt the
leader .Ex.Tylenol’s non-aspirin pain killer took the lead
from baeyer”s aspirin .
• The leading firm might grow fat & slow ,losing against
new & peppier rivals.Xerox’s share came down from
80% to 35%,when Japanese producers challenged with
cheaper & more reliable copiers.
• SOME BEST KNOWN LEADERS ARE
• GM in autos,Kodak in photography,IBM in
computers,COCA Cola in soft drinks,WaLL MART in
retailing,Mc Donald’s in fast food,And Gillette in razors
and blades.

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3 actions for leader to remain no 1-
• 1.Expand total market
• 2.Protect MS thro defensive and offensive actions
• 3.Expand MS further even if mrkt size remains same or even
declines.
• 1.EXPANDING THE TOTAL MARKET
• A.Find new users.Some customers are still unaware and some
resist on price or features.Ex Revlon’s perfume.Opened virgin mrkt
by convincing women who don’t use perfumes, and also looked at
other demographics by producing cologne for men,and
geographically by selling perfumes in other countries.
• Johnson’s baby shampoo Ad campaign aimed at adults and it soon
became a leading brand total shampoo market.

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 Leader’s actions---
• B.Find new uses.Eg.Dupont’s Nylon
• Fiber for parachutes
• Womens’ stockings
• Major matl in shirts/blouses
• Automobile tyres
• Upholstery and carpeting
• ARM&HAMMER baking soda as refrigerator
deodorant-by heavily advertising to put an open
box of baking soda in Fridge,
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 Leader’s 3 actions
• C.more usage;Convince people to use more
often or more per occasion.Eg.Colgate tooth
paste.Head & Shoulders shampoo;more effective
with 2 applications instead of one per shampoo.
• Michelin began rating French restaurants on a 3
star system .Many of the best restaurants are in
south of France leading many Parisians to take
week end drives to South.It encouraged car
qwners to drive more miles per year.

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Leader’s 3 actions---2,protecting
MS thro defensive & offensive
actions
• Coke against Pepsi,Gillette against Bic,Mc
Donald’s against Wendy’s,GM VS Ford.HOW?
• 1.Prevent weaknesses that provide opportunities
to competitors :keep costs down and price
proportional to value customers see in the
brand.
• 2.Plug holes so competitors don’t jump in.
• 3.The best defense is a good offense & the best
response is a continuous innovation.
• It takes the offensive and sets the pace and
exploits competitors’weaknesses
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 3 actions of leaders----6 defense
strastegies that mrkt leaders use
• 1.position defense.the most basic
defense-builds fortifications around its
current poszition.But it rarely works.You
must continuously improve and adapt to
changing customer needs –and develop
new brands.Coca-Cola,despite its
dominant 40 % MS in US,aggressively
extends its beverage lines and has
diversified into desalination equipment and
plastics.
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 Actions of leaders----2.flanking
defense
• Smart competitors attack
leaders’weaknesses-like the Japanese
entered the US small car mrkt.Since US
auto makers left a gaping hole in that sub
markt.
• Using a flanking defense,the Co carefully
checks its flanks and protects the weaker
ones.

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• 3.pre emptive defense-By contrast, the leader
may employ a more aggressive preemptive
defense striking competitors before they can
move against the Co.
• Ex when threatened in mid 80’s,by the
impending entry of the Japanese into
US,Cummins slashed its prices by 1/3 rd to save
its No 1 position in the 2 bn $ heavy duty truck
engine mrkt.
• Ex cummins now has a 50% MS in North
America .Not a single Us built Tractor-trailer
Truck has a Japanese engine.
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• 4.counter offensive defense.When a leader is
attacked despite its flanking or preemptive
efforts,it can launch a counter offensive defense.
• Ex.When Fuji attacked Kodak,in the Us film
makt,Kodak counteracted by greatly increasing
its promotion and introducing several innovative
film products.
• Ex.When Clorox’s detergent with bleach
attacked it,P&G responded with tide with bleach
which enabled it capture a 17% share of all Us
detergent sale!
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 Leader strategies---5.Mobile
defense
• Involves more than aggressively defending a
current mrkt position
• The leader stretches to new mrkts that can be
serving as future bases for defense and
offense.Ex Armstrong Cork redefined its focus
from “floor covering” to “decorative room
covering”(including walls and ceiling) and
expanded into related businesses that were
balanced for growty and defense.
• Ex Wall mart is mustling its way into grocery
business with new “Wall Mart Super Centres-
huge combo grocery &discount stores
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 Compttve ---6 contraction defense

• If a large Co finds that its resourses are spread too thin

and competitors atre nibbling away on several fronts,it
prunes its portfolios to concentrate its forces or
resourses
• Ex.ITT,Georgia pacific,and General Mills,now serve
fewer mrkts ,but serve them much better.
• 3.EXPANDING MARKET SHARE
• Usually industry break-up is:One or a few highly
profitable large firms,several profitable and focussed
firms,and a large no of medium –sized firms with poorer
profit performance.
• On an average,MS increase leads to profit increase.
(PIMS).But this is not automatic.

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• MS increase leading to profit increase depends
on the share increase strategy.There are many
high share Cos with low profit and low share Cos
with high profit.THE COST OF BUYING HIGH
SHARE MAY EXCEED THE RETURNS.
• Highe shares tend to produce higher profits only
when unit costs fall with increased share, or
when the Co offers a superior quality product
and charges a premium price that more than
covers the cost of offering higher quality!
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 Leader strategies---
• Profitability increases as business gains shre relative to
competitors in “its served markt”preferably at a highr
price,
• Not surprising why Cos like GE want to be atleast NO1
or2 in each of its mrkts or get out!It shed its
computer,AC,& TV businesses sinse it couldn’t achieve
“the top dog position here.
• Mercedes has a small share of total car mrkt,but earns
high profit because it is a high share Co in its luxury car
segment.
• And it achieved a high share because it does many
things right such as producing high Q,giving good
service,and holding down its costs!

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 Markt challenger strategies
• Firms that are No 2 or 3 or lower such as
Colgate,Ford,Avis,Westinghouse,and Pepsico which are
quite large, can opt one out of 2 strategies-
• Challenge in an aggressive bid to increase MS,
(MARKET CHALLENGER) or
• Play along with competitors and not rock the boat.
(MRKT FOLLOWER)
• Competitive strategies of mrkt cghallenger
• First define the the strategic objective—Profit increase
by increase in MS
• Second decide which competitors the Co will challenge
before deciding first.
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 Challenger stra----
• 2 options
• 1.Attack the mrkt leader-obj being not to topple
but just wrest a certain mrkt share increase as in
BIC vs GILLETTE; OR take over on leader as
IBM in PC’s
• Or2,to avoid the leader and challenge firms its
own size or smaller local and regional firms
• 1.Attacking the market leader---High risk but
potentially high gain strategy;Makes sense if
leader not serving mrkt well and attacker has
some SDA-a cost adv leading to lower prices or
ability to prov
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 Attacking leader
• In construction equipment industry, komatsu challenged
Caterpiller by offering same quality at much lower
prices .Kimberly Clark’s Huggies grabbed from P&G a
big share of disposable diaper mrkt by offering a better
fitting diaper with reusable fasteners
• UJAAlA vs RobinBlue;MOOV vs IOdex
• ATTACING THE SMALLER FIRMS
• Either under-financed Cos or those that are not serving
their customers well.Several big Cos of today grew to
their present size not by challenging large competitors
but by gobbling up small local or regional
competitors.The obj being to put the small player out of
business!

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 Choosing an attack strategy for
mrkt challenger-5 possible
strategies
• Full frontal attack.Challenger matches all 4 P’s of competitor
• Attacks competitors’ strengths rather than weaknesses.Outcome depends
on who has greater strength and endurance
• If challenger has fewer resourses than the competitor,a frontal attack makes
little sense.
• Lever Bros in US trail behind P&G in detergent mrkt.Great size and strength
may not be to challenge a resourseful competitor successfully.Unilever has
twice the worldwide sales of P&G and 5 times sales of Colgate Polmolive!
• Lever launched a full frontal attack on P&Gin detergent mrkt.Lever’s WISK
was already the leading liquid detergent.In quick succession, it added a
barrage of new products-SunLight dish washing detergent,Snuggle fabric
softener,Surf laundry powder and backed them with aggressive promotion&
distribution efforts.
• P&G spent heavily to defend its brands and held on to most of its business.
And it counter attacked with liquid Tide which came from nowhere in just 17
months to run neck and neck with Wisk.LEVER did gain MS but most of it
came from smaller competitors.

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Attacker strategy—2.flanking attack
• Rather than attacking head-on,concentrate yr strength
on competritor’s weaker flanksor on gaps in in
competitors’ markt coverage.
• Flank attacks make good sense when the co has fewer
resourses than competitors.
• For Ex during 60’s and 70’s when German &Japanese
auto makers didn’t directly compete with US auto makers
in producing large,flashly gas-guzzling autos.
• They found an unserved consumer segment that
wanted small fuel-efficient cars and moved to fill this
hole.
• To their satisfaction and Detroit’s surprise,the segment
grew to be a large part of the mrkt.

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 Attacker stra—4.encirclement
attack.
• Involves attacking from the front ,sides and the
rare at the same time
• Makes sense when the challenger has superior
resourses and believes that it can break the
competitor’s holdon the mrkt quickly.
• Ex,Seiko attacked 1,by gaining distribution in
every major watch out let and 2,constantly
changing variety.In US alone,it offers 400
models but makes and sells 2300 models
worldwide.

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 Attacker –4bypass attack
• The challenger bypasses the competitor and targets
easier mrkts.
• It might diversify into unrelated products ,move into new
geographic mrkts or leap-frog into new technologiesto
replace existing products.
• Ex MiNOLTA toppled Cannon from the lead in the 35
mm SLR camera mrkt with its technologically advanced
auto-focussing Maxxum camera,Cannon’s MS came
down 20% while Minolta’s went up 30%It took Cannon 3
yrs to introduce matching tech.of course in digital
cameras story is different and Cannon took the lead.

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 Attacker str---5.Guerilla attacks
• 1.Smaller or poorly financed challengers mount
these attacks
• 2.these are small periodic attacksto harass and
demoralise the competitorwith the goal of
eventually establishing permanent footholds.
• 3.The challenger uses(a) price cuts selectively,
(b)goes on executive raids, and (c) engages in
intense promotional outbursts,(d)takes assorted
legal actions

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 Mrkt follower strategies
• 1.challengers never taken lightly by leader
• 2.leader has more staying power than others in an all-out battle for
customersA hard fight might leave both worse-off.
• 3.If challenger’s lure is lower prices,improved service,or additional
product features,the leader can quickly match these to diffuse the
attack.
• A FOLLOWER’S ADVANTAGES
• 1.Leader bears huge expenses of developing new
products,mrkts,expanding distribution.and educating the mrkt.A
follower can copy or improve on leader’s performance with much
less investment Ex Dial corp. makers of Dial,Tone,Pure and Natural
hand soaps ,Armour Star canned meats,Purex laundry
products(1/3rd in price of Tide of P&G.)

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 Follower’s adv
• 4Following isn’t the same as being passive or a
carbon copy of the leader .Each follower brings
in distinctive adantages to its target mrkt –
location,services,financing etc.
• 5.The follower is often the major target of attack
by challengers.Therefore folloer must keep mfg
cost lowand product and service Q high.It must
also enter new mrkts as they emerge.

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 Mrkt nicher strategies
• Insread of pursuing the whole mrkt or even large
segments,these firms target subsegments or niches
• 2.Nichers are often smaller firms with limited resourses
• 3.Smaller divisions of larger firms also may pursue
niching strategies
• 4.Firms with low shares of total mrkt can be highly
profitablethro smart niching
• 5.All highly successful mid-sized Cos niched within a
larger mrkt rather than going after the whole mrkt.Ex AT
CROSS which niches in the high priced pen and pencil
mrkt makes famous gold writing instruments that many
executives own or want to own.CROSS made high
growth and profit thro this niche.

508
 Why is niching profitable?
• 1.Knows TMS better & meets their needs better than
other casual sellers
• 2.Chances are they charge a high price (mark up over
cost high)for added value
• 3.Mass mrkter acheives high volumes,nicher high profit.
• 4.Nichers try 7 find one or more mrkt niches that are safe
& profitable.
• 5.An ideal niche is big enough to be profitable and has a
growth potential and is one the firm can serve effectively.
• 6.the niche is of little interest to major competitors & firm
to be able to build skills and custiomer goodwill to defend
itself against a major competitor a(s the niche grows and
beccomes more attractive.

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 Nicher
• Ex.A law firm specialises in civil,criminal or business law
mrkts-particularly those neglected by majors.
• ---selling their entire output to a single Co such as
TATAMOTORS,WalMart Or GM.
• ---Sell in a certain locality ,region of the world.
• --operate at the low or high end of the mrkt.eg,HP
specialises in high Q-high Price end of hand calculator
mrkt
• --offers services not available from other firms.eg,a bank
taking loan request over phone and hand deliver the
money to customers.RTC reservations.

510
 nichemanship
• The key idea in nichemanship is specialisation
• A mrkt nicher can specialise along any of several
mrkt,customer,productor marketing mix lines.
• For ex,
• ONE TYPE OF END USER—law firm
• Custm size groups—small,med
• One or a few specific costomers—telco,walmart etc.
• Geographical nichers---
• Q-P nichers---low or high end
• Service nichers—bank ex prev slide.

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 Risks of niching
• The mrkt niche may dry-up.
• 2.may grow to the point that attracts larger
competition
• 3.So,practise multiple niching by developing 2 or
more niches ,the co improves chances of
survival.
• 4,Even some large firms prefera multiple niche
strategy to serving the total mrkt.HLL.One large
law firm developed national reputation in the
3areas of Mergers & acquisitions,Bankruptsies,&
Prospectus development and little else!

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