MARKETING MANAGEMENT

Unit II

GGS IPU Part time/Weekend MBA Program Batch

Product ConceptA product is a ‘bundle of utilities’ that can be

offered to a market to satisfy a need or want.

It could be:

Physical Good (e.g. a computer)

Services (e.g. computer assembling or repair)

Idea (e.g. ‘eliminates manual work’, cloud computing)

Persons (e.g. Amitabh Bacchan endorsing Gujarat)

Places (e.g. Taj Mahal)

Organisations (e.g. Sony)

Levels of a Product5 Levels:

Core Benefit

Basic Product

Expected Product

Augmented Product

Potential Product

Core Benefit:

The fundamental service/ benefit that the consumer is really buying.

E.g. Transport / Entertainment

Basic Product:

Core benefit turned into basic product.

E.g. Bus / Movie

Expected Product:

A set of attributes & conditions that buyers normally expect.

E.g. Seats, AC, Curtains / Story, Songs, Dialogues, Romance, Action

Augmented Product:

Meeting customer’s desires beyond their expectations.

E.g. Comfortable seats, Video coach, Noise-proof chamber in case of Bus / Good acting, Nice songs, Great story-line in case of Movie.

Mainly competition takes place at the ‘Augmentation’ level.

Each augmentation costs the company money. The marketer has to ask whether the customer will pay enough to cover the extra cost.

Augmentation benefits soon become expected benefits.

Potential Product:

Evolution of new ways to satisfy customers & distinguish their offer.

E.g. More leg space, distance between the seats, option to stretch-out, Welcome drinks/ newspaper on arrival, pillows and blanket in case of Bus/ 3-D, special effects, no advertisements in between, Dolby sound (sound effects) in case of movie.

Core benefit: Transport

Basis product: Bus

Expected product: Seats

Augmented product: Comfortable seats, more leg room

Potential product: sleeper coach, option to stretch out, drinks, newspaper (or any new way to attract customer)

E.g. Apple iPhone 4s“siri experience”

E.g. Coca Cola“sharing happiness”

Classification of Products:Durability & Tangibility: 3 types

Non-Durables:

Consumer quickly (one or few uses) & purchased frequently; available at many locations; Small mark-up; Heavy advertisement

Durables:

Survive many uses, Require personal selling, High margins

Services

Intangible – can’t be seen

Inseparable – can’t be separated from personnel

Variable – changes every time delivered

Perishable – e.g. seats remained vacant on a bus

Consumer Goods Classification: 4 types

Convenience Goods:

Staples: goods that consumers purchase on a regular basis.

Impulse goods: goods purchased without planning/ search effort.

Emergency goods: like umbrella during rainy season/ summers.

Shopping Goods:

goods that the customer compares on such basis as: suitability, quality, price, style. E.g. furniture, clothing, appliances etc.

Specialty Goods:

goods with unique characteristics for which a significant group of buyers is habitually willing to make a special purchase effort. E.g. cigarette to smokers.

Unsought Goods:

are goods that consumer does not know about or knows about but does not normally think of buying. E.g. encyclopedia.

Industrial Goods: 3 types

Material & Parts:

Raw Material: farm products (e.g. wheat, cotton, fruits, vegetables) & natural products (e.g. fish, eggs, iron-ore, crude oil)

Manufactured materials & parts: component materials (e.g. steel, yarn, cement) & component parts (e.g. spares, castings)

Capital items: goods that facilitate in developing or managing the finished product.

Installations: e.g. factories & offices; bought directly from the producer; includes long negotiation period for sales (personal selling).

Equipment: machinery & tools (e.g. Earth movers, trolley, cranes)

Supplies & Business Services:

Supplies:

Operating: e.g. lubricants, coal

Maintenance & repair items: e.g. painting, nailing

Business Services:

Maintenance & repair: e.g. window cleaning, computer repair

Business Advisory Services: legal, advertising, consulting services

Product Life CycleComprises of 4 stages:

Introduction

Growth

Maturity

Decline

Introduction Stage:

A new kind of a product or a modified product that has few competitors enters the market.

Initial costs are high & profits are low since sales is just building up.

Target market mainly comprises the innovators & early adopter categories.

Growth Stage:

Sales start climbing up & the profits start rising.

Consumer trials pick-up & product gains wider acceptance.

Cost per customer increases due to high promotional costs.

Competition starts picking up.

Maturity Stage:

A product is mature when it has become a familiar offering.

Consumer base is large.

Sales growth plateaus & profits begin to stabilize since the peak has been achieved.

Cost per customer is low (due to less spent on promotion).

Competition is high.

Decline Stage:

Profits & product sales fall as technologically superior substitutes enter the market or customer needs change.

Customer base reduces.

Competition becomes less.

BCG Growth Share Matrix (as PLC)

Strategies as regards to PLC

Introduction Growth Maturity Decline

Objective Increase awareness

& trial

Increase market share

Defend market share

Cut costs, Revive or Terminate

Product Basic offering

Wider product-mix

Expanded/ maintained product-mix

Phased out, Renewed

Price Cost plus pricing

Competitive or

Penetrative

Competitive Cut prices

Promotion Awareness Persuasive Competitive reminder

Liquidate stocks

Placement Selective Intensive Intensive & Extensive

Selective

New Product Development (NPD)Product Development means altogether a

new product or modification in an existing product for e.g. – quality, price, size, shape, feature, colour, packing etc.

STAGES ARE:

Idea Generation

Idea Screening

Concept Development & testing

Market Strategy Development

Business Analysis

Product Development

Market Testing

Commercialization

Importance of Product Development:

Offer temporary monopoly to the firm to widen their profit margins.

Continuous production planning makes it hard for its competitors to imitate the product because by the time they learn to imitate, the innovator introduces new product.

Stages of NPDIdea Generation:

The NPD process starts with search for ideas. It should define the products and markets, & should state new product’s objectives. Also state – how much effort should be devoted to developing breakthrough products, modifying existing products, and copying competitor’s products.

NPD ideas can come from customers, researchers, employees, competitors, channel members and management.

Idea Screening:

It involves review of ideas to arrive at best suitable idea. Each promising idea is looked upon as an opportunity to widen margins or market shares.

Concept Development & Testing:

Attractive ideas must be refined into testable product concepts. Any product idea can be turned into several product concepts. E.g. a powder added to milk to increases its nutritional value or taste. Idea leads to concept development like for e.g. an instant drink for adults who want a quick nutritious breakfast, or a health supplement for older people to drink before they go to bed.

Testing with appropriate TG helps in getting consumer’s reactions.

Market Strategy Development:

It chalks out a plan to introduce new product in market.

Generally consists of 3 parts:

First part describes the target market’s size, structure & behaviour, then planned product positioning and the sales, market share and profit goals sought in few years.

Second part outlines the product’s planned price, distribution strategy, and marketing budget for first year.

Third part of the marketing strategy plan describes the long term sales & profit goals and marketing-mix strategy over time.

Business Analysis:

Mgmt. needs to prepare sales, cost & profit projections to determine whether they satisfy the company’s objectives. If they do, the product concept can move to the product development stage.

Product Development:

After business analysis, the product concept moves to R&D and / or engineering to be developed into a physical product. Few versions of the product concept that can be produced within the budgeted manufacturing costs are prepared.

Market Testing:

The goals are to test the new product to learn how large the market is & how consumers and dealers react to handling, using and re-purchasing the actual product. The feedback is derived through surveys, interviews and observational methods.

Commercialization:

Market testing gives mgmt. enough info to decide whether to launch the new product or not. This stage is characterized by heavy expenditure on placement and promotion of the product.

Challenges in NPD

Risky (e.g. what if TATA NANO failed)

Shortage of important new product ideas

Fragmented Markets – Small market segments means lower sales and profits for each product (e.g. cola versus local lemon-soda)

Social & Govt. constraints – consumer safety & ecological compatibility

Cost – rising R & D, manufacturing & marketing costs

Time – longer development time

Shorter PLC

Product Mix

Is the set of all products and items that a particular seller offers for sale to buyers.

E.g. UnileverProduct

Line Detergents Soaps Shampoos Toothpaste

ProductLine

Length

Arial Breeze Clinic Plus Close-Up

Surf Lux Clinic Active

Wheel Pears Sunsilk

Dove Halo

Lifebuoy

Product Line A product line is a group of products that are

closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same channels, or fall within given price ranges.

E.g. small size or mid-size car segment

A company can enlarge the length of its product line in 2 ways by: Line Stretching & Line Filling.

Line Stretching

Line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch:

Downward

Upward

Both ways

Downward Stretch:

When companies initially locate at the upper end of the market and subsequently stretch their line downward.

Companies add models to end of their line in order to advertise their brand starting at a low price.

Risk is low-end item might cannibalize the high-end.

Downward Stretch: Reasons

The company is attacked by a competitor at high-end and decides to counterattack by invading the competitors low-end.

The company finds that slower growth is taking place at the high-end.

The company initially entered the high-end to establish a quality image and intended to roll downward.

Upward Stretch:

When companies in the lower-end locate at the upper end of the market.

Reasons:

Companies might be attracted by:

Higher growth rate, or

Higher margins

Risky: Why?

Customer may not believe that the low-end targeting company can produce high quality product. E.g. T-Series DVD Player, TV etc.

Two way or Both way stretch

E.g. : Hindustan Unilever

Dove: High-end

Pears/ Lux: Medium-end

Lifebuoy: Low-end

Major Product Decision

Branding

BrandingA brand is a name, term, sign, symbol or

design, or a combination of them, intended to identify the goods or services of one seller and to differentiate him from competitors.

Brand conveys a warranty of ‘quality’ called Brand Equity. (E.g. Mercedes in premium cars, Levi’s for Jeans, Amul for milk-based products)

Brand Equity

It is related with the degree of brand name recognition, perceived brand quality & strong mental and emotional associations.

Advantages are:

Reduced mktg. costs because of brand awareness and loyalty.

More trade leverage in bargaining with distributors.

High price for higher perceived quality.

Easy launch / extensions

Increases purchase preference through brand loyalty.

Significance of Branding

Brand identifies the seller or maker of the product. (E.g. Tata Steel, Bajaj Pulsar, Nestle Maggi)

Easier for seller to process orders & track problems.

Legal protection to seller through registered patent or trademark.

Brand loyalty gives seller some protection from competition.

Strong brands help build the corporate image.

Brands make the product easier to handle, hold protection, signify quality standards, reduces competition and strengthen buyer preferences.

Levels of Branding

A brand can convey up to 6 levels of meaning:

Attributes

Benefits

Values

Culture

Personality

User

Given the 6 levels of a brand’s meanings, the marketers should decide at which level to deeply anchor the brand’s identity.

Attributes: like - Premium, Expensive, Well-built, Durable, Well engineered & High Re-sale Value. E.g. Mercedes-Benz.

Benefits: Attributes need to be translated into functional & emotional benefits. E.g. High pick-up, Good mileage and Speed for Mercedes cars.

Value: High performance, Safety, Prestige

Culture: German Engineering that represent efficiency, quality and standard.

Personality: High Net worth Individuals, Executives / Business owners. Like choosing cosmetics based on masculinity.

User: The brand suggests the kind of consumer who buys or uses the product. CEO / Executives / President in case of Mercedes.

Branding

Brand Name Decision: How to name the Brand?

Individual Name

Blanket Family Name

Separate Family Name

Company Individual Name

Brand Strategy Decision: What strategy to adopt to promote a Brand?

Line extension

Brand extension

Multi Brands

New Brands

Co-Brands

Brand Name Decision:Individual Name:

E.g. Wheel, Arial, Surf –Detergents by Unilever have individual names. Advantage is if the company’s product fails, the company’s image or name is not badly hurt.

Blanket Family Name:

E.g. Maggi Noodles, Maggi Soups, Maggi Tomato Ketchup of Nestle under the name of ‘Maggi’. Advantage is no need for heavy advertising expenditures to create brand name recognition. Usually groups alike products.

Separate Family Name:

Nestle has separate family name for all products – like Polo, Nescafe, Maggi, Powder Milk, Curd etc. Where a company produces different products, it is not desirable to use one blanket family name (like say, Maggi Polo, or Maggi Coffee).

Company Individual Name:

Company trade name is combined with individual product names like for e.g. Tata Nano, Tata Steel, Tata Voltas, Taj Hotels by Tata, Tata Salt. Manufacturer tie their company name to an individual brand name for each product to enhance product’s reputation (equity).

Brand Strategy DecisionLine Extension:

consist of introducing additional items in the same product category under same brand name. E.g. Coke, Diet Coke. Maggi Noodles, Maggi Atta Noodles, Maggi Soupy Noodles etc.

Brand Extension:

A company may use its existing name to launch new products in other categories. E.g. Maggi Noodles, Maggi Soups, Maggi Ketchup/ Sauce.

Multi Brands:

Different brands for different segments like Unilever’s detergents, soaps and shampoos. The motive is to appeal to different TGs. A major pitfall in introducing multi-brands is that each might obtain only a small market share and none may be particularly profitable.

New Brands:

When a company launches products in a new category, it may find that none of its current brand names are appropriate. E.g. Nirma Detergent & Nirma Salt. If Bata decides to make ‘bread’, it is not likely to call it – ‘Bata Bread’.

Co-brands:

Two or more well-known brands are combined in an offer. Also called as ‘dual branding’. TATA-AIG in Insurance.

Challenges in building a brandTo promote only the brand’s attributes would

be a mistake. First, the buyer is not interested in the brand attributes as much as in its benefits. Second, competitors can easily copy the attributes. Third, the current attributes may become less valuable later hurting a brand that is too tied to a specific attribute.

The most enduring meaning of a brand are its value, culture, and personality. Therefore branding should not dilute the value and personality. For e.g. it would be a mistake for Mercedes to market an inexpensive car bearing the name Mercedes.

Pricing

Pricing:

Price is the ‘P’ that produces revenue; the other 3 Ps produce costs.

Price can be changed quickly, unlike product features and channels of distribution.

Pricing Objectives:

Profit maximization (long-run, short-run, growth, stabilize market - prevent violent fluctuations in prices, discourage new entrants).

Target ROI

Market Share

Meet or prevent competition

Resource mobilisation (to make available necessary resources for its own purpose & development)

Procedure for Price Setting:Steps are;

Selecting the price setting

Determining the demand

Estimating costs

Analyzing competitors

Selecting a pricing method

Selecting a final price

Selecting the pricing objective – it could be: survival, maximum profits, maximum sales growth, product-quality leadership (like Mercedes-Benz).

Determining the demand – estimating the demand curve, probable quantities that it will sell at each possible price.

high-price low-demand (for normal goods)

high-price high demand (for prestige goods)

Estimating costs – at different levels of output, at different levels of accumulated production experience.

Analyzing competitors – for their costs, prices and offers.

Selecting pricing method – markup pricing, target-return pricing, perceived value pricing etc.

Selecting a final price – depending upon pricing policies / strategies.

Factors affecting price determination

Demand – economic circumstances (like gold, oil)

Profit Objective

Competitors

Quality

Factors affecting price:

Uniqueness of product (e.g. Apple’s i-pod)

Substitute awareness (monopoly, monopolistic competition)

Difficulty in comparing substitutes

Total income

End benefit

Price-Quality relationship

Inventory / storage (like low shelf life product have to be sold fast)

Pricing Policies: Mark-Up or Cost Plus Pricing

Target-Return Pricing

Perceived Value Pricing

Value Pricing

Going-Rate Pricing

5 Pricing PoliciesMarkup Pricing – also known as ‘cost-plus’

pricing.

Variable Cost per unit Rs. 10

Fixed Cost Rs. 30, 000

Expected Unit Sales50,000 units

Unit cost = Variable Cost + Fixed Costs/ Unit Sales

= 10 + 30,000/ 50,000 = Rs. 16

Mark up is, say, 20% on Sales.

Mark up Price = Unit Cost/ 1 – desired return on sales)

= 16/ 1 - 0.2 = Rs. 20

Here price will be Rs. 20 per unit including Rs. 4 as profit.

Break-even point:

BEP = Fixed Cost / Price – Variable Cost

= 30,000 / 20 – 10 = Rs. 30, 000 is break-even point

Target-Return Pricing – firm determines the price that would yield its target ROI.

Investment = Rs. 10,00000

ROI expected = 20% or 2,00000

Target Return = unit cost + desired return x capital/ unit sales

= 16 + 0.20 x 10,00000 / 50,000 = Rs. 20

Here, the manufacturer estimates that the market will buy 50,000 units at Rs. 20, in which case it earns 2,00000 on its 10,00000 investment.

Perceived Value Pricing – such method is based on the product’s perceived value. Manufacturer see the buyer’s perceptions of value, not the sellers cost, as the key to pricing.

Value Pricing – in such method, manufacturer charge a fairly low price for a high quality offering. Value pricing says that the price should represent a high value offer to consumers.

Going-rate Pricing – Firm pays less attention to its own costs or demand, and bases its price largely on competitors prices. The firm might charge the same, more or less than its major competitors.

Pricing Strategies

Penetration Pricing Strategy

Skimming Pricing Strategy

Survival Pricing Strategy

Psychological Pricing Strategy

Geographical Pricing Strategy

Flexible Pricing Strategy

Penetration Pricing Strategy –

where initially low prices are set to capture mass markets by encouraging rapid adoption of the product.

this helps in capturing significant market shares even though the profit margins are often low and it takes longer to recover costs.

Skimming Pricing Strategy –

where prices are kept high in order to capture that market which focuses on quality, uniqueness and status.

primary focus is to recover the investments in a short span of time.

Once the sales at a given high price drops, the price is further dropped to attract the next lower level of customers through product modifications, economy packs etc.

Survival Pricing Strategy –

is a short term strategy, implemented when companies face over production, or changing customer needs.

focus is to keep the company going and as a result profits take a back seat.

Psychological Pricing Strategy –

Where pricing is intended to appeal to buyer’s emotion rather than logic

this is why products may have an odd-even pricing or a prestige pricing to add status value.

in odd-even pricing, prices are set below or above a round number

Geographical Pricing Strategy –

where pricing is differentiated on the basis of the geographic area the product is sold in.

impact of freight charges, local taxes, levies, state tax, transport charges etc. are included in costing.

Flexible Pricing Strategy –

where prices are adjusted based on the customer’s ability to pay or negotiate.

this also helps in gaining more customers and increasing market shares.

End of Unit II

All contents are copyright protected and largely display the work of Philip Kotler for his book Marketing Management: Planning, Analysis, Implementation & Control.

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