ARPAN's Marketing Management Notes

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MARKETING MANAGEMENT

For MBA I Semester Students

ARPAN ANAND, MBA

Assistant Professor


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UNIT I

Definition: Marketing Management

The American Marketing Association offers this managerial definition: Marketing(management) is the process of planning and executing the conception, pricing, promotion, and

distribution of ideas, goods, and services to create exchanges that satisfy individual andorganizational goals

Definition: Marketing

Marketing is a societal process by which individuals and groups obtain what they need and wantthrough creating, offering, and exchanging products and services of value freely with others.

Marketing Tasks

A recent book, Radical Marketing,praises companies such as Harley-Davidson for succeedingby breaking all of the rules of marketing. Instead of commissioning expensive marketingresearch, spending huge sums on advertising, and operating large marketing departments, these

companies stretch their limited resources, live close to their customers, and create moresatisfying solutions to customers needs. They form buyers clubs, use creative public relations,and focus on delivering quality products to win long-term customer loyalty. It seems that not allmarketing must follow the P&G model.In fact, we can distinguish three stages through which marketing practice might pass:

1. Entrepreneurial marketing: Most companies are started by individuals who visualize anopportunity and knock on every door to gain attention. Jim Koch, founder of Boston BeerCompany, whose Samuel Adams beer has become a top-selling craft beer, started outin 1984 carrying bottles of Samuel Adams from bar to bar to persuade bartenders to carryit. For 10 years, he sold his beer through direct selling and grassroots public relations.Today his business pulls in nearly $200 million, making it the leader in the U.S. craftbeer market.

2. Formulated marketing: As small companies achieve success, they inevitably movetoward more formulated marketing. Boston Beer recently began a $15 million televisionadvertising campaign. The company now employs more that 175 salespeople and has amarketing department that carries on market research, adopting some of the tools used inprofessionally run marketing companies.

3. Intrepreneurial marketing: Many large companies get stuck in formulated marketing,poring over the latest ratings, scanning research reports, trying to fine-tune dealerrelations and advertising messages. These companies lack the creativity and passion ofthe guerrilla marketers in the entrepreneurial stage. Their brand and product managersneed to start living with their customers and visualizing new ways to add value to theircustomers lives.

The bottom line is that effective marketing can take many forms. Although it is easier to learnthe formulated side (which will occupy most of our attention in this book), we will also see howcreativity and passion can be used by todays and tomorrows marketing managers.

1 | P a g e M a r k e t i n g M a n a g e m e n t


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A Broadened View of Marketing Tasks

Marketers are skilled in stimulating demand for their products. However, this is too limited aview of the tasks that marketers perform. Just as production and logistics professionals areresponsible for supply management, marketers are responsible for demand management. Theymay have to manage negative demand (avoidance of a product), no demand (lack of awareness

or interest in a product), latent demand (a strong need that cannot be satisfied by existingproducts), declining demand (lower demand), irregular demand (demand varying by season, day,or hour), full demand (a satisfying level of demand), overfull demand (more demand than can behandled), or unwholesome demand (demand for unhealthy or dangerous products). To meet theorganizations objectives, marketing managers seek to influence the level, timing, andcomposition of these various demand states.

The Decisions That Marketers Make

Marketing managers face a host of decisions in handling marketing tasks. These range frommajor decisions such as what product features to design into a new product, how manysalespeople to hire, or how much to spend on advertising, to minor decisions such as the wording

or color for new packaging.Among the questions that marketers ask (and will be addressed in this text) are:

How can we spot and choose the right market segment(s)? How can we differentiate ouroffering?

How should we respond to customers who press for a lower price?How can we compete against lower-cost, lower-price rivals? Howfar can we go in customizing our offering for each customer?How can we grow our business? How can we build stronger brands?How can we reduce the cost of customer acquisition and keep customers loyal?

How can we tell which customers are more important? How can we measure the payback frommarketing communications?How can we improve sales-force productivity?

How can we manage channel conflict? How can we get other departments to be more customer-oriented?

MARKETING PHILOSOPHIES

The Production Concept

The production concept,one of the oldest in business, holds that consumers prefer products thatare widely available and inexpensive. Managers of production-oriented businesses concentrateon achieving high production efficiency, low costs, and mass distribution. This orientation makessense in developing countries, where consumers are more interested in obtaining the product thanin its features. It is also used when a company wants to expand the market. Texas Instruments isa leading exponent of this concept. It concentrates on building production volume and upgradingtechnology in order to bring costs down, leading to lower prices and expansion of the market.This orientation has also been a key strategy of many Japanese companies.



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The Product Concept

Other businesses are guided by the product concept,which holds that consumers favor thoseproducts that offer the most quality, performance, or innovative features. Managers in theseorganizations focus on making superior products and improving them over time, assuming thatbuyers can appraise quality and performance. Product-oriented companies often design their

products with little or no customer input, trusting that their engineers can design exceptionalproducts. A General Motors executive said years ago: How can the public know what kind ofcar they want until they see what is available? GM today asks customers what they value in acar and includes marketing people in the very beginning stages of design.

However, the product concept can lead to marketing myopia.16 Railroad management thoughtthat travelers wanted trains rather than transportation and overlooked the growing competitionfrom airlines, buses, trucks, and automobiles. Colleges, department stores, and the post office allassume that they are offering the public the right product and wonder why their sales slip. Theseorganizations too often are looking into a mirror when they should be looking out of the window.

The Selling Concept

The selling concept,another common business orientation, holds that consumers and businesses,if left alone, will ordinarily not buy enough of the organizations products. The organizationmust, therefore, undertake an aggressive selling and promotion effort. This concept assumes thatconsumers must be coaxed into buying, so the company has a battery of selling and promotiontools to stimulate buying. The selling concept is practiced most aggressively with unsoughtgoodsgoodsthat buyers normally do not think of buying, such as insurance and funeral plots.The selling concept is also practiced in the nonprofit area by fund-raisers, college admissionsoffices, and political parties.

Most firms practice the selling concept when they have overcapacity. Their aim is to sell whatthey make rather than make what the market wants. In modern industrial economies, productivecapacity has been built up to a point where most markets are buyer markets (the buyers are

dominant) and sellers have to scramble for customers. Prospects are bombarded with salesmessages. As a result, the public often identifies marketing with hard selling and advertising. Butmarketing based on hard selling carries high risks. It assumes that customers who are coaxed intobuying a product will like it; and if they dont, that they wont bad-mouth it or complain toconsumer organizations and will forget their disappointment and buy it again. These areindefensible assumptions. In fact, one study showed that dissatisfied customers may bad-mouththe product to 10 or more acquaintances; bad news travels fast, something marketers that usehard selling should bear in mind.

The Marketing Concept

The marketing concept, based on central tenets crystallized in the mid-1950s, challenges thethree business orientations we just discussed.18 The marketing conceptholds that the key toachieving organizational goals consists of the company being more effective than its competitorsin creating, delivering, and communicating customer value to its chosen target markets.

Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketingconcepts: Selling focuses on the needs of the seller; marketing on the needs of the buyer.Selling is preoccupied with the sellers need to convert his product into cash; marketing with theidea of satisfying the needs of the customer by means of the product and the whole cluster ofthings associated with creating, delivering and finally consuming it.



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The marketing concept rests on four pillars: target market, customer needs, integratedmarketing, andprofitability. The selling concept takes an inside-out perspective. It starts with thefactory, focuses on existing products, and calls for heavy selling and promoting to produceprofitable sales. The marketing concept takes an outside-in perspective. It starts with a well-defined market, focuses on customer needs,

coordinates activities that affect customers, and produces profits by satisfying customers

The Societal Marketing Concept

Societal marketing concept, holds that the organizations task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively andefficiently than competitors in a way that preserves or enhances the consumers and the societyswell-being.

The societal marketing concept calls upon marketers to build social and ethical considerationsinto their marketing practices. They must balance and juggle the often conflicting criteria ofcompany profits, consumer want satisfaction, and public interest. Yet a number of companieshave achieved notable sales and profit gains by adopting and practicing the societal marketing

concept. Some companies practice a form of the societal marketing concept called cause relatedmarketing. Pringle and Thompson define this as activity by which a company with an image, product, or service to market builds a relationship or partnership with a cause, or a number ofcauses, for mutual benefit.

Marketing Mix

Marketers use numerous tools to elicit the desired responses from their target markets. Thesetools constitute a marketing mix: Marketing mixis the set of marketing tools that the firm usesto pursue its marketing objectives in the target market. As shown in Figure 1-3, McCarthyclassified these tools into four broad groups that he called the four Ps of marketing: product,

price, place, and promotion. Marketing-mix decisions must be made to influence the tradechannels as well as the final consumers. Typically, the firm can change its price, sales-force size,and advertising expenditures in the short run. However, it can develop new products and modifyits distribution channels only in the long run. Thus, the firm typically makes fewer period-to-period marketing-mix changes in the short run than the number of marketing-mix decisionvariables might suggest.

Robert Lauterborn suggested that the sellers four Ps correspond to the customersfour Cs.

Four Ps Four CsProduct Customer solutionPrice Customer costPlace ConveniencePromotion Communication

Winning companies are those that meet customer needs economically and conveniently and witheffective communication



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PRODUCT

A productis anything that can be offered to a market to satisfy a want or need. Products includephysical goods, services, experiences, events, persons, places, properties, organizations,information, and ideas. The customer will judge the offering by three basic elements: productfeatures and quality, services mix and quality, and price appropriateness (Figure 4-1). As a result,marketers must carefully think through the level at which they set each products features,

benefits, and quality.

Product Mix

A product mix (also called product assortment) is the set of all products and items that aparticular marketer offers for sale. At Kodak, the product mix consists of two strong productlines: information products and image products. At NEC (Japan), the product mix consists ofcommunication products and computer products. The product mix of an individual company canbe described in terms of width, length, depth, and consistency. The widthrefers to how many



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different product lines the company carries. The lengthrefers to the total number of items in themix. The depthof a product mix refers to how many variants of each product are offered. Theconsistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.

These four product-mix dimensions permit the company to expand its business by (1) adding

new product lines, thus widening its product mix; (2) lengthening each product line; (3)deepening the product mix by adding more variants; and (4) pursuing more product-lineconsistency.

PRICE

Price is the only one of the four Ps that produces revenue. In setting prices, a company follows asix-step procedure: (1) Select the pricing objective, (2) determine demand, (3) estimate costs, (4)analyze competitors costs, prices, and offers, (5) select a pricing method, and(6) select the finalprice.

Companies do not usually set a single price, but rather a pricing structure that reflects variations

in geographical demand and costs, market-segment requirements, purchase timing, order levels,and other factors. Several price-adaptation strategies are available: (1) geographical pricing; (2)price discounts and allowances; (3) promotional pricing; (4) discriminatory pricing, in which thecompany sells a product at different prices to different market segments; and (5) product-mixpricing, which includes setting prices for product lines, optional features, captive products, two-part items, by-products, and product bundles.

After developing pricing strategies, firms often face situations in which they need to changeprices by initiating price cuts or price increases. In these situations, companies need to considerhow stakeholders will react to price changes. In addition, marketers must develop strategies forresponding to competitors price changes. The firms strategy often depends on whether it isproducing homogeneous or non homogeneous products. Market leaders who are attacked bylower-priced competitors can choose to maintain price, raise the perceived quality of theirproduct, reduce price, increase price and improve quality, or launch a low-price fighter line.

PROMOTION MIXEach promotional tool has its own unique characteristics and costs.12

_2Advertising.Advertising can be used to build up a long-term image for a product (Coca-Colaads) or trigger quick sales (a Sears ad for a weekend sale). Advertising can reach geographicallydispersed buyers efficiently. Certain forms of advertising (TV advertising) typically require alarge budget, whereas other forms (newspaper advertising) can be done on a small budget. Wediscuss advertising in more detail later in this chapter.

_2 Sales promotion. Although sales-promotion toolscoupons, contests, premiums, and thelikeare highly diverse, they offer three distinctive benefits: (1) communication (they gainattention and usually provide information that may lead the consumer to the product); (2)incentive (they incorporate some concession or inducement that gives value to the consumer); and (3) invitation (they include a distinct invitation to engage in the transaction now). Salespromotion can be used for short-run effects such as dramatizing product offers and boostingsales. Later in this chapter wediscuss sales promotion in more detail.



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_2Public relations and publicity.The appeal of public relations and publicity is based on threedistinctive qualities: (1) high credibility (news stories and features are more authentic andcredible than ads); (2) ability to catch buyers off guard (reach prospects who prefer to avoidsalespeople and advertisements); and (3) dramatization(the potential for dramatizing a companyor product). This underused technique is examined later in this chapter.

_2 Personal selling.Personal selling has three distinctive qualities: (1)personal confrontation(it involves an immediate and interactive relationship between two or more persons); (2)cultivation (it permits all kinds of relationships to spring up, ranging from a matter-of-fact sellingrelationship to a deep personal friendship);

and (3) response(it makes the buyer feel under some obligation for having listenedto the sales talk).

_2 Direct marketing. All forms of direct marketingdirect mail, telemarketing, Internetmarketingshare four distinctive characteristics: They are (1) nonpublic (the message isnormally addressed to a specific person); (2) customized(the message can be prepared to appealto the addressed individual); (3) up-to-date (a message can be prepared very quickly); and (4)interactive (the message can be changed depending on the persons response).

PLACE/DISTRIBUTION:

Marketing channels are sets of interdependent organizations involved in the process of makinga product or service available for use or consumption. Why would a producer delegate some ofthe selling job to intermediaries? Although delegation means relinquishing some control overhow and to whom the products are sold, producers gain several advantages by using channelintermediaries:

_2 Many producers lack the financial resources to carry out direct marketing. For example,General Motors sells its cars through more than 8,100 dealer outlets in North America alone.Even General Motors would be hard-pressed to raise the cash to buy out its dealers.

_2 Direct marketing simply is not feasible for some products. The William Wrigley Jr.Companywould not find it practical to establish retail gum shops or sell gum by mail order. It would haveto sell gum along with many other small products, and would end up in the drugstore and grocerystore business. Wrigley finds it easier to work through a network of privately owned distributionorganizations.

_2 Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business. If a company earns a 20 percent rate of return onmanufacturing and only a 10 percent return on retailing, it does not make sense to undertake itsown retailing.

PEOPLE

In Booms and Bitners 7Ps services marketing framework, people are all people directly orindirectly involved in the service encounter, namely the firm's contact employees, personnel andother customers. Due to the inseparability of production and consumption for services whichinvolves the simultaneous production and consumption of services, service firms depend heavilyon the ability of contact employees to deliver the service. Contact employees contribute toservice quality by creating a favorable image for the firm, and by providing better service thanthe competitions. Service providers (such as hair stylists, personal trainers, nurses, counselorsand call centre personnel) are involved in real time production of the service. They are theservice. Much of what makes a service



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special derives from the fact that it is a lived-through event.

Service firms must find ways in which they can effectively manage the contact employees toensure that their attitudes and behaviors are conducive to the delivery of service quality. This isespecially important in services because employees tend to be variable in their performance,

which can lead to variable quality i.e. heterogeneity in the performance of services. The qualityof a service (a visit to a hospital for medical check-up, having a meal at the restaurant,accountancy and consulting services) can vary from service providers and customers amongmany other factors. This lack of homogeneity in services creates difficulties for the service firms.As delivery of services occurs during interaction between contact employees and customers,attitudes and behaviors of the service providers can significantly affect customers' perceptions ofthe service. This is important, because customers' perceptions of service quality and its value caninfluence customer satisfaction, and in turn, purchase intentions.

PROCESS

Process is referred to the procedures, mechanisms and flow of activities by which the service is

delivered i.e. the service delivery and operating systems. The process of travelling with a budgetairline, is very different from that with a full-fledged premium airline. Because services areperformances or actions done for or with the customers, they typically involve a sequence ofsteps and activities. The combination of these steps consitute a service process which isevaluated by the customers.

Furthermore, in a service situation customers are likely to have to queue before they can beserved and the service delivery itself is likely to take a certain length of waiting time. It helps ifmarketers ensure that customers understand the process of acquiring a service and the acceptabledelivery times. Creating and managing effective service processes are essential tasks for servicefirms.

PHYSICAL EVIDENCE

Physical evidence refers to the environment in which the service is assembled and in which theseller and customer interact, combined with tangible commodities that facilitate performance orcommunication of the service. The physical evidence of service includes all the tangiblerepresentations of service such as brochures, letterhead, business cards, reports, signage, internetpresence and equipment. For example, in the hotel industry, the design, furnishing, lighting,layout and decoration of the hotel as well as the appearance and attitudes of its employees willinfluence customer perceptions of the service quality and experiences. Because of thesimultaneous production and consumption of most services, the physical facility i.e. itsservicescape can play an important role in the service experience. For theme park, restaurant,health club, hospital or school, its servicescape is critical in communicating about the service andmaking the entire customer experience positive.



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UNIT II

LEVELS OF MARKET SEGMENTATION

Segment Marketing

A market segment consists of a large identifiable group within a market, with similar wants,purchasing power, geographical location, buying attitudes, or buying habits. For example, anautomaker may identify four broad segments in the car market: buyers who are primarily seeking(1) basic transportation, (2) high performance, (3) luxury, or (4) safety.

Niche Marketing

A nicheis a more narrowly defined group, typically a small market whose needs are not beingwell served. Marketers usually identify niches by dividing a segment into subseg tobaccocompany might identify two subsegments of heavy smokers: those who are trying to stopsmoking, and those who dont care.

Local MarketingTarget marketing is leading to some marketing programs that are tailored to the needs and wantsof local customer groups (trading areas, neighborhoods, even individual stores). Citibank, forinstance, adjusts its banking services in each branch depending on neighborhood demographics;Kraft helps supermarket chains identify the cheese assortment and shelf positioning that willoptimize cheese sales in low-, middle-, and high-income stores and in different ethnicneighborhoods.

Individual Marketing

The ultimate level of segmentation leads to segments of one, customized marketing, or one-to-one marketing.6 For centuries, consumers were served as individuals: The tailor made thesuit and the cobbler designed shoes for the individual. Much business-to-business marketing

today is customized, in that a manufacturer will customize the offer, logistics, communications,and financial terms for each major account. Now technologies such as computers, databases,robotic production, intranets and extranets, e-mail, and fax communication are permittingcompanies to return to customized marketing, also called mass customization.7 Masscustomization is the ability to prepare individually designed products and communications on amass basis to meet each customers requirements

Bases for Segmenting Consumer Markets

Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as

nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or afew geographic areas or operate in all but pay attention to local variations. Some marketers evensegment down to a specific zip code. Consider Blockbuster, which has databases to track thevideo preferences of its 85 million members and buys additional demographic data about eachstores local area. As a result of this segmentation, it stocks its San Francisco stores with moregay-oriented videos, reflecting the citys large gay population, while it stocks Chicago storeswith more family-oriented videos. Blockbuster can even distinguish between patterns of EastDallas and South Dallas customers



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Demographic segmentation

The market is divided into groups on the basis of age and the other variables in Table 3.5. Onereason this is the most popular consumer segmentation method is that consumer wants,preferences, and usage rates are often associated with demographic variables. Another reason isthat demographic variables are

easier to measure. Even when the target market is described in non-demographic terms (say, apersonality type), the link back to demographic characteristics is needed in order to estimate thesize of the target market and the media that should be used to reach it efficiently. Here is howcertain demographic variables have been used to segment consumer markets:

MAge and life-cycle stage.Consumer wants and abilities change with age, as Gerber realizedwhen it decided to expand beyond its traditional baby foods line because the market was growingmore slowly due to lower birthrates, babies staying on formula longer, and children moving tosolid foods sooner. The company hopes that parents who buy its baby food will go on to buy itsGraduates foods for 1- to 3-year olds.13 However, age and life cycle can be tricky variables. Forexample, Ford originally designed its Mustang automobile to appeal to young people who

wanted an inexpensive sport car. But when Ford found that the car was being purchased by allage groups, it recognized that the target market was not the chronologically young, but thepsychologically young.

_2 Gender.Gender segmentation has long been applied in clothing, hairstyling, cosmetics, andmagazines. Occasionally other marketers notice an opportunity for gender segmentation. TheInternet portal iVillage.com reaped the benefits of gender segmentation after initially trying toappeal to a broader market of baby boomers. Noticing that Parent Soup and other offerings forwomen were the most popular, iVillage soon evolved into the leading womens on-linecommunity. Its home page entreats visitors to Join our community of smart, compassionate, real

women.

_2 Income.Income segmentation is a long-standing practice in such categories as automobiles,boats, clothing, cosmetics, and travel. However, income does not always predict the bestcustomers for a given product. The most economical cars are not bought by the really poor, butrather by those who think of themselves as poor relative to their status aspirations; medium-priceand expensive cars tend to be purchased by the overprivileged segments of each social class.

_2 Generation.Each generation is profoundly influenced by the times in which it grows upthemusic, movies, politics, and events of that period. Some marketers target Generation Xers (thoseborn between 1964 and 1984), while others target Baby Boomers (those born between 1946 and1964).15 Meredith and Schewe have proposed a more focused concept they call cohortsegmentation.16 Cohortsare groups of people who share experiences of major external events(such as World War II) that have deeply affected their attitudes and preferences. Becausemembers of a cohort group feel a bond with each other for having shared these experiences,effective marketing appeals use the icons and images that are prominent in the targeted cohortgroups experience.

_2 Social class.Social class strongly influences preference in cars, clothing, home furnishings, leisure activities, reading habits, and retailers, which is why many firms design products forspecific social classes. However, the tastes of social classes can change over time. The 1980swere about greed and ostentation for the upper classes, but the 1990s were more about values



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and self-fulfillment. Affluent tastes now run toward more utilitarian rather than ostentatiousproducts

Psychographic Segmentation

Inpsychographic segmentation,buyers are divided into different groups on the basis of lifestyle

or personality and values. People within the same demographic group can exhibit very differentpsychographic profiles.

_2Lifestyle.People exhibit many more lifestyles than are suggested by the seven social classes,and the goods they consume express their lifestyles. Meat seems an unlikely product for lifestylesegmentation, but one Kroger supermarket in Nashville found that segmenting self-service meatproducts by lifestyle, not by type of meat, had a big

payoff. This store grouped meats by lifestyle, creating such sections as Meals in Minutes andKids Love This Stuff (hot dogs, hamburger patties, and the like). By focusing on lifestyleneeds, not protein categories, Krogers encouraged habitual beef and pork buyers to considerlamb and veal as wellboosting sales and profits.18 But lifestyle segmentation does not alwayswork: Nestl introduced a special brand of decaffeinated coffee for late nighters, and it failed,

presumably because people saw no need for such a specialized product._2Personality.Marketers can endow their products withbrand personalitiesthat correspond toconsumer personalities. Apple Computers iMac computers, for example, have a friendly, stylishpersonality that appeals to buyers who do not want boring, ordinary personal computers.

_2 Values.Core values are the belief systems that underlie consumer attitudes and behaviors.Core values go much deeper than behavior or attitude, and determine, at a basic level, peopleschoices and desires over the long term. Marketers who use this segmentation variable believethat by appealing to peoples inner selves, it is possible to influence purchase behavior. Althoughvalues often differ from culture to culture, Roper Reports has identified six values segmentsstretching across countries: strivers (who focus more on material and professional goals),devouts (who consider tradition and duty very important), altruists (who are interested in socialissues), intimates (who value close personal relationships and family highly), fun seekers (whotend to be younger and usually male), and creatives (who are interested in education, knowledge,and technology).

Behavioral Segmentation

In behavioral segmentation,buyers are divided into groups on the basis of their knowledge of,attitude toward, use of, or response to a product. Many marketers believe that behavioralvariablesoccasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, andattitudeare the best starting points for constructing market segments.

_2 Occasions.Buyers can be distinguished according to the occasions on which they develop aneed, purchase a product, or use a product. For example, air travel is triggered by occasionsrelated to business, vacation, or family, so an airline can specialize in one of these occasions.Thus, charter airlines serve groups of people who fly to a vacation destination. Occasionsegmentation can help firms expand product usage, as the Curtis Candy Company did when itpromoted trick-or-treating at Halloween and urged consumers to buy candy for the eager littlecallers. A company can also consider critical life events to see whether they are accompanied bycertain needs. This kind of analysis has led to service providers such as marriage, employment,and bereavement counselors.



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_2Benefits.Buyers can be classified according to the benefits they seek. One study of travelers uncovered three benefit segments: those who travel to be with family, those who travel foradventure or education, and those who enjoy the gambling and fun aspects of travel.

_2 User status.Markets can be segmented into nonusers, ex-users, potential users, first timeusers, and regular users of a product. The companys market position also influences its focus.

Market leaders (such as America Online) focus on attracting potential users, whereas smallerfirms (such as Earthlink, a fast-growing Internet service provider) try to lure users away from theleader.

_2 Usage rate.Markets can be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of totalconsumption. Marketers usually prefer to attract one heavy user rather than several light users,and they vary their promotional efforts accordingly.

Repps Big & Tall Stores, which operates 200 stores and a catalog business, has identified 12segments by analyzing customer response rates, average sales, and so on. Some segments get upto eight mailings a year, while some get only one to three mailings. The chain tries to steer low-volume catalog shoppers into nearby stores, and it offers infrequent customers an incentive such

as 15 percent off to buy during a particular period. Repp gets a 6 percent response to thesesegmented mailings, far more than the typical 0.5 response rate for nonsegmented mailings.

_2 Loyalty status.Buyers can be divided into four groups according to brand loyalty status: (1)hard-core loyals (who always buy one brand), (2) split loyals (who are loyal to two or threebrands), (3) shifting loyals (who shift from one brand to another, and (4) switchers (who show noloyalty to any brand).23 Each market consists of different numbers of these four types of buyers;thus, a brand-loyal markethas a high percentage of hard-core loyals. Companies that sell in sucha market have a hard time gaining more market share, and new competitors have a hard timebreaking in. One caution: What appears to be brand loyalty may actually reflect habit,indifference, a low price, a high switching cost, or the nonavailability of other brands. For thisreason, marketers must carefully interpret what is behind observed purchasing patterns.

_2 Buyer-readiness stage.A market consists of people in different stages of readiness to buy a product: Some are unaware of the product, some are aware, some are informed, some areinterested, some desire the product, and some intend to buy. The relative numbers make a bigdifference in designing the marketing program.

_2 Attitude.Five attitude groups can be found in a market: (1) enthusiastic, (2) positive, (3)indifferent, (4) negative, and (5) hostile. So, for example, workers in a political campaign use thevoters attitude to determine how much time to spend with that voter. They may thankenthusiastic voters and remind them to vote, reinforce those who are positively disposed, try towin the votes of indifferent voters, and spend no time trying to change the attitudes of negativeand hostile voters.

MARKET TARGETING

Evaluating Market Segments

In evaluating different market segments, the firm must look at two factors: (1) the segmentsoverall attractiveness, and (2) the companys objectives and resources. First, the firm must askwhether a potential segment has the characteristics that make it generally attractive, such as size,growth, profitability, scale economies, and low risk. Second, the firm must consider whether



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investing in the segment makes sense given the firms objectives and resources. Some attractivesegments could be dismissed because they do not mesh with the companys long-run objectives;some should be dismissed

if the company lacks one or more of the competences needed to offersuperior value.

Selecting and Entering Market SegmentsHaving evaluated different segments, the company can consider five patterns of target marketselection, as shown in Figure 3-7.

Single-Segment Concentration

Many companies concentrate on a single segment: Volkswagen, for example, concentrates on thesmall-car market, while Porsche concentrates on the sports car market. Through concentratedmarketing, the firm gains a thorough understanding of the segments needs and achieves a strongmarket presence. Furthermore, the firm enjoys operating economies by specializing itsproduction, distribution, and promotion; if it attains segment leadership, it can earn a high returnon its investment. However, concentrated marketing involves higher than normal risks if thesegment turns sour because of changes in buying patterns or new competition. For these reasons,

many companies prefer to operate in more than one segment.Selective Specialization

Here the firm selects a number of segments, each objectively attractive and appropriate. Theremay be little or no synergy among the segments, but each segment promises to be amoneymaker. This multi-segment coverage strategy has the advantage of diversifying the firmsrisk. Consider a radio broadcaster that wants to appeal to both younger and older listeners usingselective specialization. Emmis Communications owns New Yorks WRKSRM, which describesitself as smooth R&B [rhythm and blues] and classic soul and appeals to older listeners, aswell as WQHT-FM, which plays hip-hop (urban streetmusic) for under-25 listeners.



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PRODUCT DIFFERENTIATION

Product Form

Products can be differentiated based on their form i.e. size, shape and other physical attributes ofthe product. Product form is the sum total of the physical attributes of a product. For example, a

medicine can be in the form of a tablet or a syrup or an injection. Marketers differentiate theirproducts by changing the forms of products. HLL changed the form of its Lux toilet soap frombar form to a liquid form and marketed it as a separate product. Similarly, Godrejs Fair Glowcream, which used to come in the form of a cream, is now offered in the form of a bar.

Design

A good product design takes care of the aspect of functionality or usefulness. Customersusually look for functionality, apart from the design or shape of the product. For example, Sonyproducts are known for their excellent design. They incorporate new features; they are easy touse; and require little or no maintenance. Sony revolutionized the audio equipment marketwhen it designed the Walkman in 1979. The design of a product should be functional and

aesthetically pleasing. Apple Computers differentiated its PC line, iMac, on the basis of itsaesthetically appealing design.

Features

Product features are the characteristics that allow a product to perform certain functions. A firmcan differentiate its product from that of the competitor by adding or removing certain features. Itis generally found that adding new features enhances the value of the product and helps acompany gain competitive advantage. For example, when Tata Engineering and LocomotiveCompany launched Tata Indigo, it added a number of features to the product like independentthree-link suspension shock absorbers, new front seats that gave additional lumbar and thighsupport, 14-inch wheels, fire preventing inertia switch to minimize fuel leakage and a steel

monochrome frame that met the European standards of full frontal and offset frontal crash testsas well as endurance safety tests. A company that offers more features often charges a higherprice, which consumers are willing to pay as they perceive the product as being of a superiorquality.

Size of Package

Firms also differentiate their products on the basis of the size and weight of the pack. e.g., Pepsicaptured a major part of Cola market in India by bringing about a change in the packaging of itsproduct. Through market research, Pepsi discovered that customers purchase only the amount ofthe product that they find convenient to carry. So Pepsi introduced a new style of packagingtheplastic bottle. The plastic bottle held more of the beverage, but was light to carry. Though the

cost of producing plastic bottles was fairly high at that time, the move worked to Pepsisadvantage and the company captured a sizable market share, as Coke was not able to enter themarket immediately with its own version of the product.

Product Quality

Quality of a product refers to the characteristics of the product that enable it to performaccording to the expectations of customers and meet customers needs. According to the findingsof The Strategic Planning Institute, there is a positive correlation between product quality and a



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firms return on investment. Firms that produce premium quality products, such as Sony Corp,often charge premium prices for their offerings. For example, Sony Corporation enjoys acompetitive edge over its rival firms because it is reputed for manufacturing products ofexcellent quality. Companies spend huge amounts of money to maintain the quality of theproducts. Many of them are trying to achieve the six sigma level in quality so that product

defects can be totally eliminated. They are also encouraging their employees to identify problemsor defects in the product and rewarding them suitably.

Durability

Products are expected to perform satisfactorily during their useful life. If a product is durable,customers are ready to pay a premium. However, the extra amount customers will pay for thedurability of a product is not known with certainty. If the technology used in a product becomesobsolete fast, the advantage derived by the marketer from its durability also gets reduced. In sucha case, customers do not pay a premium for the durability of the product.

SERVICE DIFFERENTIATION

In order to differentiate itself from its competitors on the basis of the service related with itsproduct, a company must segment its customers on the basis of how they prefer to make thepurchase. In such cases, both the tangible and the intangible attributes of the product form asource of differentiation for the company.

Customer service can include anything from ease of ordering, delivery, installation, ease ofpayment, financial arrangements, customer training, guarantees, maintenance, repair anddisposal. These aspects of customer service are discussed in detail below:

Ordering ease: Ordering ease refers to the ease with which the customer canplace the order for the product. Dell Computers has made the ordering of computers sosimple that customers who are not aware of new developments in the field can find

various options (which include the latest components) to select from, and the computersystem will be delivered at the place they want. Similarly, ordering books has becomeso simple after Amazon.com introduced the concept of ordering online. Earlier, it wasdifficult for customers to know which were the latest books on a topic and where theycould obtain them. But, now, they can obtain all this information at the click of themouse and order them as well.

Delivery: This refers to how well the product has been delivered to thecustomer. It includes speed and care in delivering the products, e.g., the courierservices, Federal Express Corporation (FedEx) and United Parcel Service (UPS) areknown worldwide for their speed and efficiency in delivering and handling the products.Dominos Pizza had been known for the fastest and the most reliable delivery of pizza

in the world.

Installation: Differentiation on the basis of installation plays a vital role inindustrial markets in which heavy equipment is purchased. Customers prefer thecompany to send its personnel to install the equipment. Ease of installation can help acompany capture a significant share of the market, especially when the target market isnew to the technology.



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Guarantees: Guarantees can often be used as a differentiator and can be leveraged as acompetitive advantage. Guarantees are most often given for products such as householdappliances, automobiles, electronic devices, etc. How can a company differentiate itselfon the basis of guarantees?

Financial arrangement: Some companies tie up with financial institutions that offer loans to help

customers purchase new products through easy installment schemes, e.g. Maruti Udyog Ltd. has

tied up with eight financial institutions, Citicorp Maruti, Maruti Countrywide, ICICI, HDFC

Bank, Standard Chartered, ABN-AMRO, Kotak Mahindra and Sundaram Finance to help its

customers with car finance.

Customer training: Some companies also train their customers or the customer's employees to

use the equipment. For example, HPCL trains its dealers employees regarding handling of the

equipment and in the necessary soft skills to serve customers more efficiently. Some firms also

provide a hot line or a toll-free number for customer assistance and for further information about

new products and services.

Maintenance and repair: Companies provide after-sales maintenance and repair services for their

products. Subsequent business from the customer depends to a large extent on whether his

experience of maintenance and repair services from the company has been good or bad. For

example, LG provides free service and replacement of accessories for its hand sets up to one year

to customers of Reliance India Mobile.

Disposal: Companies can also differentiate their products on the basis of disposability of the

product after use. For instance, some companies use plastic containers or wrappers to pack their

product. They invite the customer to return the empty packs to the company in exchange foranother pack of the same product. This strategy helps the firm in increasing its sales as well as

establishing itself as an environment-friendly organization. For example, Hewlett Packard asks

its customers to send back empty cartridges, which it claims it will reuse.

PERSONNEL DIFFERENTIATION

In a market of cutthroat competition, companies try to identify unique differentiation platforms

and strategies to differentiate themselves against their competitors. Companies have realized that

technology cannot provide much competitive advantage because the cost of acquiring it has

reduced significantly. They need to depend on innovation in products, strategies, processes, etc.People are an integral part of an innovation. Without them, innovation is simply not possible.

Therefore, it is the people or employees in an organization alone who can provide sustainable

advantage. For example, British Airways differentiates itself from other airways on the basis of

its personnel. In a service business, the people are the product, and the people at BA have made a

significant contribution to the airline's success. Its customer service has been the backbone of its



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success. And its people provide high quality services. Its staff knows the job. Its peopleunderstand the responsibility for customer satisfaction.

CHANNEL DIFFERENTIATION

Companies can achieve a distinct differentiation for their products on the basis of thedistribution channels they use. A firms choice of distribution channel, its coverage, expertiseand performance helps it to differentiate itself from its competitors. A firm can add value to itsproduct on the basis of the channels that carry its product. Differentiating through the channelsof distribution involves making the product available to customers in places where competitorshave not entered. The availability of the product everywhere makes the customers searchprocess less complicated, less expensive and more habitual. Thus, by managing its distributionchannels, a firm can bring about a significant improvement in its business. Many firms haverealized this and are focusing on managing their distribution channels effectively, e.g., Indiaslargest car maker, Maruti Udyog Limited (MUL), makes its cars available to customers throughseveral different distribution channels. The company realized that there is a huge market forsecond hand cars and that this market has been dominated by unorganized players. To cater tothis need, it established a separate distribution channel. MUL opened True Value outletswhere the company acts an intermediary to bring sellers and buyers together.

IMAGE DIFFERENTIATION

The brand and image of a company evokes different reactions in different customers. Some

customers base their purchase decision on the brand name whereas some base the decision on the

image of the company. Over the years, firms have shifted their strategy from overemphasizing

cost management to creating and promoting features that foster a unique image or value for their

products. Image is an important aspect not only to large companies but to smaller companies tooas the latter may eventually grow and even go public or may be sold to another companies later

at higher prices. Thus, creating a positive image in market is important for every company.

Symbols: A firm can enhance its image or the image of its product by associating it with some

symbol. The symbol helps differentiate the company from its competitors on the basis of its

image and may be in the form of (a) a physical symbol like the Alsatian dog which represents

Syndicate bank, Apple which represents Apple Computers, Gattu (a small kid) for Asian Paints,

and the symbol of a sailor for Captain Cook salt. (b) a famous personality like Michael Jordan

for Nike, Liz Taylor for Passion brand of perfume, Cindy Crawford for Omega watches, Pierce

Brosnan for Reid & Taylor suitings, etc. (c) a color like yellow for Kodak, navy blue for HDFCBank, or (d) a musical piece which acts as a signature tune, for example, Britannia biscuits, Titan

and Airtel tunes.

Logos: A logo is an emblem, a graphic picture or a sign that represents and conveys an image of

a company. By displaying its logo widely on its brochures, annual reports, letterheads, business

cards, as well as advertisements in the audio-visual or print media, a company projects a certain

public image.



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Atmosphere: A company also creates the desired image by creating the right atmosphere at its

premises or headquarters in terms of ambience, color and lighting, material and furnishings, and

the building architecture. Companies have come to realize the importance of creating an

atmosphere that is consistent with the image they wish to portray to their customers. This has

resulted in an emphasis on the use of the physical space or atmosphere in the premises

appropriately. The physical space or atmosphere thus acts as an image generator for a company.

Events: A firm can also build its image based on the type of events it sponsors. For example, the

United Breweries group and The Hindu newspaper group sponsor many horse races and motor

sports, the ITC Group and the Taj Group usually sponsor tourism and food festivals. Beverage

companies such as Pepsi and Coca Cola sponsor cultural programs and other youth-centered

events to convey a youthful image. Samsung recently sponsored the cricket series between India

and Pakistan in Pakistan.

POSITIONING

The word positioning dates back to 1972, and was coined by Al Ries and Jack Trout.

According to them, positioning is not what you do to a product; rather it is what you do to the

mind of the customer. In other words, product positioning refers to all the activities undertaken

by a marketer to create and maintain the concept of value regarding its brand in the minds of

customers as against competitors brands. This concept soon caught the attention of market ers

and advertisers who began developing positioning strategies for their products and services.

Exhibit 12.2 describes how positioning effects the sale of products in a retail scenario. Marketers

try to position the product in such a manner, that it seems to possess all the desired

characteristics.

Creating a position for its products in the market helps a company develop a competitive

advantage. Al Ries and Jack Trout, in their book Positioning: The Battle for your Mind, have

elaborated upon the positioning strategies that need to be devised by companies to reach the

target customers in a marketplace that is swamped by competitors. Various positioning strategies

suggested by Al Ries and Jack Trout are discussed below.

Getting into the mind of the consumer

Getting into the mind of the customer is easier if the product or service happens to be the first in

the market. It is very easy to remember who is first but very difficult to remember who is second.

For instance, if you were asked to name the first man to land on moon, you would immediately

say "Neil Armstrong" but if you were asked to name the second person to land on the moon,

would you be able to confidently give the right answer Buzz Aldrin. Similarly, in the

marketplace, customers find it easy to remember products that were introduced first in the

market. Subsequent products in that category, however good they may be, are difficult to bring to

mind.



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Positioning of a leader

It is traditionally believed that the number one brand in the market occupies twice the market

share of number two brand. Likewise, the number two brand occupies twice the market share of

number three brand. The success of a company is not just due to its successful marketing

strategies, but a major reason is that it was first in the market. For instance, Xerox being the firstin the plain-paper copier market was able to attain market leadership. However, the company

failed several times to introduce products in other categories where it did not have market

leadership. Another example is IBM, the market leader in manufacturing computers. When IBM

tried to compete with Xerox in the copier market where it did not have first mover advantage, it

failed. It is therefore important for a market leader to maintain its position by positioning its

products intelligently. Most important of all, a market leader should not boast about its being

number one in the market. The danger is that customers may believe that the insecurity of being

number one in the market is forcing the company to do so.

Positioning of a follower

As already mentioned, if a brand is not the first that comes to mind, then it is better to identify an

unoccupied position where the brand can be the first. For example, when large cars like

Ambassador and Fiat were popular in India in the 80s, Maruti introduced a smaller car with an

800 cc capacity and it turned out to be immensely successful because it was the first in the small

car segment.

Repositioning the competition

Marketers sometimes try to reposition their products. The reasons might be that competitors are

also positioning for the same segment or that the market has become overcrowded or that the

target segments do not turn out to be as attractive as forecasted. For example, When Tata Sumo

of TELCO was introduced in the market, it was positioned on the takes the rough with the

smooth and the tough one ideas. However, when Toyotas Qualis was introduced in the

market much earlier than expected and the rural market did not turn out to be as attractive as

forecasted due to poor harvests in several states, TELCO had to reposition Sumo as a multi

utility vehicle (MUV) suitable for the urban market. Before repositioning, it modified the design

of Sumo. It redesigned the exterior, giving it a more urban look, took better care to soundproof

the cabin, and added power steering and central locking to make the Sumo attractive for the

urban segment. To communicate the change in the positioning, Tata Sumo came out with a teasercampaign in August 2001. Its advertisement in the leading newspapers said, If you can identify

the family vehicle shown here, dont bother paying us for it. Readers had to call a toll -free

number to register their responses. Readers responses varied widely. In September 2001, the

new look Sumo was unveiled and it received a favorable response in the market.



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The power of a name

Creating a unique position for the brand in the mind of the customer becomes easy if the brand

has a suitable name. Names like Uncle Chipps, Pepsodent, Close Up, Head & Shoulders, Clinic

All Clear, Timex, Speed (branded petrol), etc reveal something about the product's utility and

therefore have a large recall value for customers. These examples indicate the power of a namein positioning a product suitably. At the same time, condensing the company name into a series

of initials may not help significantly because it tends to confuse the customer as to what business

the company is involved in. This strategy may benefit large companies, but not small companies.

DEMAND MEASUREMENT AND FORECAST

A company conducts marketing research to find out the credibility of the product in the market,

its sales patterns, buyer acceptance levels and, most importantly, to forecast future sales. Proper

sales forecast results give the company an idea of various resource requirements such as finance

to be acquired, the plant capacity, the human resource base, inventory levels, etc., which can thenbe planned for. Most of the time, sales forecasts are estimated on the basis of the market demand.

Market demand may mean different things to different marketers, but the marketer needs to have

a clear idea what it means to his company, and estimate it accordingly

Market Classification

The number of customers who are likely to become customers and buy a product represents the

size of the market for a product. The concept of the market is understood in differing senses such

as the potential market, the available market, the qualified available market, the target market

and the penetrated market.

A market, which represents the set of buyers interested in buying a product, constitutes a

potential market. For example, all men aged above 18 years who shave regularly are potential

customers for razors and other shaving accessories. The available market refers to the number of

buyers who have an interest in the product as well as purchasing capacity and access to the

market.

When access to a product or a service is restricted to a certain group of customers, even though

others have an interest in the product, purchasing capacity and access to the market, this

restricted market is referred to as the qualified available market. For example, the government

does not permit people below 21 years of age to enter pubs and bars. So, for bars or pubs, peopleabove 21 constitute the qualified available market.

The target market is the part of the available qualified market that a company is focusing its sales

and promotional activities on. For example, if an educational institute starts a postgraduate

program in Civil Engineering in Andhra Pradesh, all civil engineering graduates are the qualified

available market. If the institute targets only civil engineers from Andhra Pradesh, they are its



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target customers. Similarly, when NIIT launched a computer course for housewives, all educatedhousewives became the target market for NIIT.

The penetrated market is the market that comprises of customers who have already purchased theproduct.

The Concept of Market Demand for Marketing

The market demand for a product under a specified marketing activity is the sales volume of theproduct in the target market for a specified time period in a particular region.

Market Potential

The market potential refers to the optimum sales volume that can be reached where any further

increase in marketing efforts will not have any significant impact in further increasing the sales

in the given environment. A manager can assess the worldwide and countrywide market potential

for pagers, for example, by using secondary and historical data on wireless telephone and pagingservice diffusion. To get an idea of the market potential for both paging and a related new

service, he can use information such as the number of current subscribers, telephone

infrastructure, population, gross national product, income distribution, travel patterns,

occupations, and so forth. Company Demand

Company demand is measured on the basis of its marketing efforts with respect to its

competitors. The company's efforts such as effective promotional and advertising strategies,

pricing patterns, distribution of the product and effective after sales service determine the

company's market share of the product. If other factors remain constant, the market share of a

company's product depends on the amount of expenditure spent on marketing relative to thecompetitors.

Company Sales Forecast

After determining the company demand, the firm must determine the level of marketing effort

that is needed to generate an expected sales volume. The sales forecast refers to the amount of

sales a firm expects to generate with a chosen marketing plan, in a given marketing environment.

Here it is important to understand the interdependence between a companys sales forecast and

the marketing effort. It is often cited that a firm should develop its marketing plan on the basis of

its sales forecast. However, this approach is effective only when company demand is non

expansible i.e. market demand is not very much affected by the level of marketing expenditure.

This method of developing a marketing plan should not be followed when the market demand is

expansible or when the term forecast implies company sales. A company sales forecast as we

have seen does not form a basis for determining the marketing expenditure. On the other hand,

the company sales forecast is the result of a marketing plan.



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Sales Quota and Sales Budget

The sales quota is the target that has been set for a particular marketing parameter; e.g. the

parameter could be the marketing manager's sales in a region and/or the sales of a product range.

The sales quota is normally defined in order to encourage efforts to push sales to the maximum

possible limit. The sales budget is prepared on the basis of the estimations of sales forecasts andin general, a conservative estimate is used so that the expenditure involved in processing, sales

and other related activities does not go out of control.

Current Demand Estimation

The current market demand can be estimated using environmental factors such as total market

potential, area market potential, total industry sales, etc. The total market potential is the

maximum market available to an industry under a given set of conditions. For example, the total

market potential for a premium automobile product such as Mercedes Benz is the number of

people in the highest income group not yet possessing the same car or any other equivalent car.We will look at examples of estimation of the current demand in consumer and industrial

markets in the following paragraphs.

For estimating the industrial market demand, let us take an example where we have to estimate

the market potential of a product called SKO (Superior Kerosene Oil), which can be used as a

substitute in large scale industrial generators. We have to first find out the list of all the

industries, which are currently using diesel generators, then find out the potential customers who

are willing to shift to a low cost substitute, then estimate the monthly or weekly requirement of

the SKO in liters, and then finally analyze the capacity of the company to supply that quantity.

Consumer markets are difficult to analyze, since the size of the market is huge compared to the

industrial markets. Therefore, usually a marketer estimates the sales of a particular product in a

specific region and then extrapolates it in proportion to the population of that area. For example,

a laptop manufacturer wants to estimate the sales potential of laptops in India. He has the data for

the sales potential of laptops in Karnataka. If this figure is 4% of the total population of

Karnataka, he can extrapolate that the total market for laptops in India is around 4% of the total

population of India. But unfortunately, we cannot estimate sales in this manner, as there are lots

of other factors, which influence the sales of laptops. For instance, the maximum sales of laptops

in India are in Bangalore, the capital city of Karnataka. Therefore, factors like computer literacy,

number of technology savvy persons, etc. are some of the factors that affect the sales of suchproducts.

Future Demand Estimation

Estimation of future demand is an essential part of any business activity. A good estimation gives

a fair idea of the sales in the near future and helps in taking effective steps to realize the sales.

Estimation for products which have fairly consistent sales, or which are frequently used



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products, is relatively easy compared to estimation for products whose sales keep fluctuating.

The demand estimation techniques used for products with fluctuating sales should be highly

effective and accurate, as estimating the future demand for such products carries immense

significance to the marketer.

The demand estimation process is generally carried out by research agencies, which observeenvironmental factors such as the effects of government regulations, population trends, etc. and

then estimate the demand depending on the industry patterns for sales in the particular product

range. Following this, the estimation depends on the firms performance on various parameters.

These forecasts are made with the help of techniques such as the composite sales force opinion,

survey of buyer intentions, expert opinions, etc.

Composite sales force opinion

Using the composite sales force opinion, the sales team is involved in estimating future demand

patterns. The company asks its salespeople to estimate sales patterns in the near future dependingupon their experience in the market. This method is reliable and advantageous, but does have

certain inherent fallacies. A sales representative might underestimate demand, perhaps relying on

some bad experiences he may have had in the immediate past. On the other hand, he/she might

project the sales excessively high on the basis of positive experiences in the recent past. Different

sales people project sales very differently on the basis of their intuition.

However, the company must take measures to deal with this possibility by providing all the

relevant and essential data about the market, competition and customers to the sales people.

Providing incentives for proper projections also help motivate sales people, and make them more

responsible. They will realize the importance of accurate estimation since the sales projectionsand targets that they have to achieve are being determined on this basis.

Survey of buyer intentions

Consumer behavior patterns are generally the most critical part of demand estimation.

Consumers behave differently at different times, and therefore to forecast sales, it is essential to

conduct consumer research surveys. These surveys are aimed at eliciting the factors, which will

give an idea of the consumers demand patterns in the near future. For the launch of New Coke

in 1985, Coca Cola conducted a customer survey as detailed in Exhibit 7.4. Though buyers

reacted negatively to the new product it, Coca Cola went ahead with the launch, but it later had

to withdraw the product from the market.

Expert opinion

The companies also sometimes seek the help of experts in the field to estimate sales on the basis

of their experience and knowledge. These experts may be dealers, suppliers and consultants who

can share their expertise in the projection of the future sales.



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Past sales analysis

Companies also use past sales information for projecting future sales patterns. There are severaltechniques for this like time series projections.

Exponential smoothing: This method looks at the weighted average of past sales giving a higher weightage to more recent sales.

Statistical demand analysis: This method determines the effect of factors such as marketing expenditure and the price of the product on its sales.

Econometric analysis: This type of analysis determines the sales system using statistical tools by developing sets of equations.

Test marketing method

Test marketing is nothing but testing the sales of the product in the market for a few days. Testmarketing is employed for products where effective estimation is not possible, or where

forecasting is not suitable for the products. For such products, directly testing the product in the

market is preferred.



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UNIT III

Product Levels

Marketers plan their market offering at five levels, as shown in Figure 4-2. Each level adds morecustomer value, and together the five levels constitute a customer value hierarchy. The most

fundamental level is the core benefit: the fundamental service or benefit that the customer isreally buying. A hotel guest is buying rest and sleep; the purchaser of a drill is buying holes.Effective marketers therefore see themselves as providers of product benefits,not merely productfeatures. At the second level, the marketer has to turn the core benefit into a basic product.Thus,a hotel room includes a bed, bathroom, towels, and closet. At the third level, the marketerprepares an expected product,a set of attributes and conditions that buyers normally expect whenthey buy the product. Hotel guests expect a clean bed, fresh towels, and so on. Because mosthotels can meet this minimum expectation, the traveler normally will settle for whichever hotel ismost convenient or least expensive. At the fourth level, the marketer prepares an augmentedproduct that exceeds customer expectations. A hotel might include a remote-control

television set, fresh flowers, and express check-in and checkout. Todays competition essentially

takes place at the product-augmentation level. (In less developed countries, competition takesplace mostly at the expected product level.) Product augmentation leads the marketer to look atthe users total consumption system:the way the user performs the tasks of getting, using, fixing,and disposing of the product. As Levitt notes: The new competition is not between whatcompanies produce in their factories, but between what they add to their factory output in theform of packaging, services, advertising, customer advice, financing, delivery arrangements,warehousing, and other things that people value.

Product Classifications

In addition to understanding a products position in the hierarchy, the marketer also mustunderstand how to classify the product on the basis of three characteristics: durability,



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tangibility, and consumer or industrial use. Each product classification is associated with adifferent marketing-mix strategy

Durability and tangibility. Non-durable goodsare tangible goods that are normally consumedin one or a few uses (such as beer and soap). Because these goods are consumed quickly and

purchased frequently, the appropriate strategy is to make them available in many locations,charge only a small markup, and advertise heavily to induce trial and build preference. Durablegoods are tangible goods that normally survive many uses (such as refrigerators). These products normally require more personal selling and service, command a higher margin, and require moreseller guarantees. Services are intangible, inseparable, variable, and perishable products (such ashaircuts or cell phone service), so they normally require more quality control, suppliercredibility, and adaptability.

_2 Consumer-goods classification. Classified according to consumer shopping habits, these products include: convenience goods that are usually purchased frequently, immediately, andwith a minimum of effort, such as newspapers; shopping goodsthat the customer, in the processof selection and purchase, characteristically

compares on the basis of suitability, quality, price, and style, such as furniture; specialty goodswith unique characteristics or brand identification, such as cars, for which a sufficient number ofbuyers are willing to make a special purchasing effort; and unsought goodsthat consumers donot know about or do not normally think of buying, such as smoke detectors. Dealers that sellspecialty goods need not be conveniently located but must communicate their locations tobuyers; unsought goods require more advertising and personal sales support.

_2Industrial-goods classification.Materialsandpartsare goods that enter the manufacturersproduct completely. Raw materialscan be either farm products(e.g. wheat) or natural products(e.g., lumber).Farm products are sold through intermediaries; natural products are generally soldthrough long-term supply contracts, for which price and delivery reliability are key purchasefactors. Manufactured materials and parts fall into two categories: component materials (iron)and component parts (small motors); again, price and supplier reliability are importantconsiderations. Capital itemsare long-lasting goods that facilitate developing or managing thefinished product. They include two groups: installations (such as factories) and equipment (suchas trucks and computers), both sold through personal selling. Suppliesand business servicesareshort-lasting goods and services that facilitate developing or managing the finished product.

Decisions involved in Branding

Selection of a Brand Name

Selection of a brand name is crucial for the success of a brand. There are several factors thathave to be considered before the brand name is selected. It is necessary to ensure that the brand

name is easy to remember. It should have an easy recall value and people should be able tospell and pronounce it easily. The brand name should be such that it arouses curiosity whenheard. A brand name, which arouses curiosity, will attract the attention of the target audience.

Brand Strategy Decision

A brand signifies some value to the customers and a brand strategy decision involves thenecessary steps that have to be taken to deliver this value to the customers.



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Steps: identification of the availability of resources for allocating budgets for brand building,the commitment of the company, and its capability to take an initiative that is required. Thesesteps form part of a brand building exercise and if an organization is unable to take such steps,the brand becomes a liability to the organization rather than an asset. The strategic implicationof building a brand is that it should help improve the business of the organization.

Line Extension

A line extension is the development of a product that is closely related to one or more productsin the existing product line but is designed specifically to meet the somewhat different needs ofcustomers. For example, Godrej had a face cream with the name Fair Glow Fairness cream andcame out with the Fair Glow toilet soaps to cater to the people who wished to use soap barsrather than cream.

Brand Extension

Brand extensions are brand names extended to new product categories. Market dynamics throwup opportunities for extending a brand in three forms:

Extending the brand to another form of the same product: The primary benefit derivedfrom both the products is the same. For instance, the benefit derived from brushing the teethwith either Colgate toothpaste or toothpowder is the same. The efficacy levels of both forms areassumed to be similar. Several brands have grown in value through this route. For example,Colgate is available both as a toothpaste and toothpowder. Similarly 'Vim bar' has beenextended to a powder form. In the pharma sector, a branded anti-allergy medication from DrReddy's Laboratories sells both in syrup as well as tablet form. By offering the same brand indifferent forms, the marketer enhances the scope of application of a brand and reaches a largeraudience.

Product line extensions: Adding related products to a brand that is well established. Amarketer resorts to this when he wants a brand to cover different sub-segments within the sameproduct category. HLL extended its Flora brand of sunflower oil to the gingelly oil sub-segmentof the edible oils category. Such a move is common in very competitive markets.

Reaching out to a new category: When the brand has the potential of providing benefits inanother categoryeither through a carefully chosen name or through its wide acceptance in acategory, this form of extension is followed. Godrej Consumer Products extended its Fair Glowbrand, having a presence in fairness creams, to soaps. By extending the brand to soaps, theassurance that Fair Glow promoted fairness was expected to easily flow to soaps as well. Thebrand enables this extension conveniently by standing for a product that promises fairness.

Packaging Decisions

PackagingPackaging is the process of developing a design and a container for a product. Packaging addsvalue to the product in the form of easier handling and secured usage. Packaging plays aprominent role in the sales of a product since a properly packaged product will result in repeatpurchases by the customers. A secured, transparent and easy-to-use packaging will have bettersales. A clear transparent packaging will help the customers view the contents of the productand will help them in their purchase decision-making.



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Labelling

Labelling is the process of exhibiting important information on the product's package.Labelling has become increasingly important and legally essential. Manufacturers have todisplay the ingredients of the product on the package, with warnings and safety precautionsalong with instructions about the best possible utilisation of the product.

The Government of India encourages the manufacture of products that are eco-friendly. Onesuch step in this direction is to provide a labelling with the name 'ECOMARK' for thoseproducts that meet certain criteria. Such criteria could lead to effective reduction in the harmcaused to the environment, when such products are disposed of. The Government of Indiaissues this ECOMARK, when the products meet the set standards along with the requirementsof the Indian Standards Institute. This process has been started to encourage the industries inIndia to contribute to the protection of the environment.

Universal Product Codes

Labelling many products is done by attaching a universal product code which consists of aunique sequence of lines that identifies a product with the help of an electronic scanner usually

placed at the retail checkout counters. In India, the usage of the bar code started in the 1990'swith the Indian Institutes of Technologies (IITs) using it for coding their library books. Theconcept was later introduced in retail outlets like Food World. Most of the logistics firms areincreasingly using the bar coding technology in India. Bar codes, however cannot help a firm ineffectively tackling piracy or imitations. But it has advantages like reducing the amount of dataentry work. EAN (European Article Number), a Delhi-based organization, is responsible forissuing bar codes for products. The Government of India has made it compulsory for exportersto bar code their products.

Product Mix Decisions

The product mix is the set of all the products that an organization offers to its customers. Forinstance HLL offers detergents, shampoos, hair care products, cosmetics, beverages, health careproducts, ice creams, etc. A product mix consists of all the product mix lines and categories. Ithas a certain characteristic features like product width, length, depth and consistency.

Width: This is the total number of product lines a company carries. In Table 11.1 we see thatHLL's product mix width consists of 10 lines.

Length: The length of the product mix is the total number of items in that mix. In our example of HLL (Table 11.1), it is 46. The average length of a line is obtained by dividing the totallength by the number of lines i.e. 46/10 = 4.6

Depth: The depth of a product mix is the assortment of sizes, colors and variations offered for

each product in the product line, for example, Lifebuoy Active Red comes in three sizes:125gm, 100gm and 60gm cakes.

Consistency: Consistency refers to the closeness exhibited by the products lines in productionrequirements, distribution, end usage, etc. For instance, most of the HLL product lines areconsistent as they are consumer goods, distributed by the same channels of distribution and areproduced in similar manufacturing facilities.



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Product Mix Strategies

Manufacturers and middlemen use several strategies to manage their product mix effectively.We will discuss a few of these strategies here.

Expansion of product mix: An organization may opt to expand its existing product mix byincreasing its product lines and/or the depth within the line. New product lines may be eitherrelated or unrelated to the existing product lines.

Table 11.1: Product Mix of HUL

Contraction of product mix: It has been noted that companies contract their product mix during

economic slumps, and when the competition is intense. Organizations contract their product mix

either by eliminating the entire product line or by simplifying the assortments within the lines.

The product mix is contracted to eliminate low profit yielding products and to get a better profit

margin from fewer products.

Altering existing products: Companies should consider altering the existing products instead of

adding new products to their product mix. Redesigning or adding new features to the existing

product can prove to be less risky and more lucrative. Packaging is an equally important tool in

altering the look and the usage of the product. Creative packaging has been found to increase the

attractiveness of even mundane products like cheese, paper napkins, eggs, etc. For example, the

tetra pack of milk/juices increases the ease of handling and storage. Colgate toothpaste's plastic

packaging makes it easy to use and dispense the product.



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STAGES OF NEW PRODUCT DEVELOPMENT

Before the introduction of a product into the market it goes through several stages of

development. These stages of

Documents

ARPAN's Marketing Management Notes