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MB0046-Unit-01-Introduction to Marketing

Unit-01-Introduction to Marketing

Structure:

1.1 Introduction

Learning Objectives

1.2 Market and Marketing

1.3 The Exchange Process

1.4 Core Concepts of Marketing

1.5 Functions of Marketing

1.6 Importance of Marketing

1.7 Marketing Orientations

1.8 Summary

1.9 Terminal Questions

1.10 Answers

1.11 Mini-case

1.1 Introduction

Marketing is one activity which all of us seem to observe around us. Any time you try to buy something, marketing has a role to play. It is often viewed by many as being advertising or sales promotion or marketing research. But it is a concept much larger than any of them or all of them

put together. Marketing consists of all those activities designed to create exchanges which satisfy human or organizational needs or wants in a way that brings profit for the firm. It performs the task of both identifying and satisfying customer needs. This helps business enterprises in anticipating customer demand and creating satisfied customers through conception, production, promotion and physical distribution of goods and services. No example can better illustrate this than the popular mobile phone. The need to communicate from anywhere to anywhere gave way to a portable device without the requirement of wires.

This unit deals with the meaning, importance and functions of marketing. You will be able to read in some detail the earlier concepts of marketing under which companies have been conducting marketing activities and the modern concepts which are now being used are explained in detail.

Learning Objectives

This introductory unit will help you get familiar with important concepts in marketing. After reading this unit you should be able to

· Define market and marketing.

· Understand the concepts and functions of marketing.

· Explain the importance of marketing.

· Differentiate between types of marketing orientations.

· Evaluate how marketing function has changed over a period of time.

1.2 Market and Marketing

What is Market?

Originally, a “Market” was a public place in a town or village, where household provisions and other objects were available for sale. The definition of market has expanded in this globalized world. The traders may be spread across a whole town, or city or region or a country and yet form a market. For example, stock market, Oil & Oilseeds market, Steel or Metals market etc. where people across the countries can participate in the business without being face to face.

The essential features of a market are (i) existence of a commodity / item which is to be dealt with, (ii) the existence of buyers and sellers, (iii) a place; be it a certain region, a country or the entire world and even a virtual place like the internet and (iv) interactions between buyers and sellers to facilitate transactions.

1. On the basis of Geographic Area

Local Market is the place where the purchase and sale of goods / services involve buyers and sellers of a small local area. The example of local market is a village or a town market. In this market, day to day requirements like vegetables, fruits, meat and fish are sold.

National Market

When the trading involves both buyers and sellers of the entire nation then it is called as a national market. The Cotton & Textiles Market located in Mumbai, Tea and Jute Markets located in Kolkata are examples of this. .

Global or World Market

Many manufactured products and specialized services are also sold across the globe by many companies. Producers of Coca-cola and Sony brand sell their products in the global market in almost all countries. Indian companies like TCS, Infosys, and WIPRO sell and provide their IT enabled services to many companies in different parts of the world. They operate in a Global Market.

2. On the basis of Nature of Competition in the market

Perfect Market

It refers to a market or market situation where there is perfect competition. Competition is said to be perfect when (a) the sellers & buyers of a particular product are so many that none of them have to sell or buy at a single uniform price. (b) Price is determined by the market forces of supply & demand. This could be an ideal situation for all marketers. It may not happen in its pure form. But we can see that there would a large number of small traders and even manufactures in specific area dealing in similar products and following more or less the characteristics mentioned above. You may have seen traders of plastic products or warm clothes or hardware in a specific local area.

Imperfect Market

In contrast to the perfect competition, the imperfect market will have imbalance between number of buyers and sellers. This market is further divided into three parts. They are Monopoly, Monopolistic and oligopoly. In case of monopoly, single seller dominates the entire market where as in oligopoly few sellers dominate the market. The details of these types of markets will be discussed in the pricing unit.

3. On the basis of Nature of Goods Sold

Consumer Goods Market

Definition: A Consumer Goods Market is defined as a market where the final output of the firm goes for the consumption by individuals or institutions.

Consumer Goods Market

This is a market, where the buyers who are individuals and institutions purchase a variety of products and services to satisfy their needs and wants. For example, an individual buys a chocolate for his personal consumption whereas a family buys a refrigerator for household or family consumption. Products sold in consumer goods market are classified as non-durables, which are frequently purchased such as bathing soap, detergent etc. and durables such as refrigerator, TV set, washing machine, car, clothing etc. Non-durables are also known as FMCG – Fast Moving Consumer Goods, e.g. soap, detergent etc.

Industrial Goods Market

Definition: A business market is defined as a market where output of one firm goes either as raw material, goods in process or as consumables of another industry.

This market is also known as organizational or B2B market. It is made up of organizations including manufacturing units, service firms, government departments and other business enterprise. The products which are sold in the industrial goods market are typically, raw materials, machines, machine tools, equipments, components and spares etc. Generally, the buyers of industrial goods, purchase products and services either for producing other products and services which can be sold in the consumer markets or for using them to facilitate the operation of business enterprise. In many such cases, the buyer is an organization whose consumption will depend on how the end user’s demand will change. Hence, in business markets, the demand is a derived demand. Demand for steel will depend on the consumption of steel equipments, rods and other accessories in the construction and real estate sector.

Non-Profit and Government Markets

This market which consists of Non-Profit organizations such as social-service agencies, educational organizations, charitable organizations and Government Departments and agencies needs special skills to sell to them. These buyers have limited purchasing power which is why pricing for this market needs to be planned carefully. The Government, which is a large buyer, makes purchases on the basis of tenders, bids and negotiation.

What is Marketing?

Simply seen marketing is a set of business activities that facilitate movement of goods and services from producers to consumers. It is an ongoing process of 1. Discovering and translating consumer needs into products and services, 2. Creating demands for them, serving the customer and his demand through a marketing programme of promotion and

3. Distribution to fulfill the company’s marketing goals in a competitive environment.

It is evident that the customer, needs and wants are very important aspects of marketing as of today. Customer focus is the very essence of marketing.

In this era of rapid changes, it is marketing which keeps the business in close contact with its economic, political, social and technological environment, as it informs the business of events and changes that take place in the environment.

American Marketing Association (AMA) offers the following definition of Marketing. (AMA 2004)

Definition: Marketing is an organization function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders.

The Chartered Institute of Marketing defines Marketing as:

Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements, profitably.

Having understood what a Market is and what is Marketing, we will now look at what is an exchange and also the exchange process.

1.3 The Exchange Process

Today’s marketing system has evolved from the time of a simple barter of goods through the stage of a money economy to today’s complex marketing. Throughout all these stages, exchanges have been taking place. In small town and villages there were artisans such as carpenters, weavers, potters blacksmiths, barbers and others such service providers who produced goods and services not only for their own consumption but also for exchanging with others what they could not produce but needed. This was barter system of exchange. For a transaction to take place between two parties, it was necessary that there be needs and wants on both sides. The development of money came to act as a common medium, and the exchange process became very easy and convenient. Fig.1.1. below shows the exchange process under money economy in which products and services flow to the market from the producers and sellers and money, the value of the products and services, flow from the buyers to the sellers.

[pic]

Figure 1.1

Thus, exchange is an act of obtaining a desired product or service from someone by offering something in return. This exchange process will continue as long as human society exists because satisfying one’s needs is the basic instinct of human beings and no one can produce everything that he /she needs. For an exchange process to take place, between two or more parties, few conditions have to be met. They are:

1. Each party has something that could be of value to other party.

2. Each party has desire, willingness and ability to exchange.

3. Each party is capable of communicating and delivering.

4. Each party has the freedom to accept or reject the offer.

|Activity 1: |

|Identify all the elements in the exchange process that were involved when you visited a new restaurant to |

|have your food. Compare the same with any of the previous restaurants that you visited. Which factors did you|

|find unique or similar in the exchange process? |

Self Assessment Questions

1. Marketing is often considered to be synonymous with _____________.

2. In perfect competition, price is determined by the market forces of ____________ and ______________.

3. In the case of ______________, a few sellers dominate the market.

4. The industrial goods market is also known as _____________market.

5. ______________________ is the very essence of marketing.

1.4 Core Concepts of Marketing

There are certain fundamental concepts and tasks which one needs to know to fully understand the marketing function. These concepts provide foundation for a marketing orientation and to manage the marketing function.

1. Needs and Wants

The marketer’s task lies in satisfying human needs and wants through the exchange process. It is alleged that “marketing creates needs” and makes people buy things they do not actually need. In reality, marketing or marketers do not create “needs”, but they create “wants”. Some needs are the basic human requirements of food, clothing, shelter, water and air. There are other needs such as social needs, esteem needs etc. When we desire certain specific objects or items to fulfill these needs, they are called wants. For example, when a person is hungry, he can satisfy his hunger by taking a simple meal at home. Instead, if he wants to eat a Pizza or a Hamburger or a 5-Star Hotel meal, it is not a ‘need’ but a ‘want’. This difference between wants and needs is not the same as understood in the subject matter of ‘economics’. The marketer identifies the need which may lie unexpressed by the customer.

The task of a marketer is to influence our wants rather than needs. He does so along with other influential factors such as socio-cultural forces and institutions such as family, religion, and different reference groups.

Marketers, suggest to consumers that a particular car would satisfy the person’s need for esteem. They do not create the need for esteem, but try to point out how a particular product would satisfy that need.

2. Demand

Human wants are unlimited, but their resources are limited. When a want for an object is backed or supported by buying ability, willingness to spend and desire to acquire a product / service, it becomes a potential demand. The task of assessing or estimating demand is very crucial for a marketer. He should understand the relationship of the demand for his product with its price. Demand forecasting is essential for allocation of resources in a company. This is the reason why marketers segment consumers on the basis of their earning capacity. The income of the consumer indicates the potential to buy.

3. Product and Services

‘Product is a generic term used to describe what is being offered by a seller or marketer. It may be a good, a service or idea, which can be marketed by offering a set of benefits it offers to customers to satisfy their needs. However, there is a distinction between products and services. When we say ‘product’, we mean a physical or a tangible product such as a tooth paste, a refrigerator or a mobile phone, whereas ‘service’ refers to an act, performance, a benefit and indicates intangibility and absence of ownership or possession. Services can include banking service, hospitality service, airlines service, health service, entertainment service etc. Thus, a product can be defined as anything that can be offered to market to satisfy a need or want. Today, many types of entities such as goods, services, experiences, events, persons, places and ideas are being marketed.

4. Target Market

Very few products can satisfy everyone in the market. Therefore, marketers divide the market into distinct groups of buyers who have similar preferences. These groups are called segments with their own specific demographic, psychographic and behavioral characteristics. The marketer decides as to which of these segment or segments offer highest opportunity for his company. For each of these target markets, the firm develops a product / service suited to their needs. TATA group has recently designed an economy car called ‘NANO’ which is priced around Rs. 1 Lakh. The target market for this car is all aspirants who dream of owning a car but cannot afford cars, which are currently available for minimum Rs. 2.5 Lakh. A Target Market is the group of people at whom a marketer targets his marketing efforts to sell his goods and services.

5. Marketing Management

Marketing Management which is also the title of this course refers to all the activities which the marketing managers, executives and personnel have to undertake to carry out the marketing function of the firm. It involves

(i) analyzing the market opportunities by undertaking consumer needs and changes taking place in the marketing environment, (ii) planning the marketing activities, and (iii) implementing marketing plans and settings control mechanism to ensure smooth and successful accomplishment of the organizations goals. Marketing Management is a critical function, especially in highly competitive markets. It provides competitive edge to an organization through strategic analysis and planning.

6. Values and Satisfaction

In developed and developing economies, consumers have several products or brands to choose to satisfy his/her need. Consumers’ perceptions about value which they can expect from different products or services depend upon several factors. Sources that build the customer expectations include, own experience with products, friends, family members, consumers’ reports and marketing communications. Customer value is the difference between total benefits received and total costs incurred by him in acquiring the product or services. The types of benefits could be product’s functional value, or its brand related image value and any accompanying service value. The types of costs a customer can incur may be monetary cost and energy cost.

Value is primarily a function of quality, service and cost. Value increases with increase in quality and service and decreases with increase in cost. Value is an important marketing concept and the task of marketing is to identify, create, communicate, deliver and monitor customer value.

Customers generally experience satisfaction when the performance level meets minimum performance expectations of a product or service. When the performance as perceived exceeds the expected performance level, the customer will be not just satisfied, but delighted. Thus customer satisfaction or delight with respect to a product or service encourages customers to come back and repurchase the product or service in future. Satisfied customers can be an asset to the marketing company over a period of time, as they will spread favorable word-of-mouth information or opinions.

Self Assessment Questions

Are the following statements true or false?

6. The task of a marketer is to influence needs.

7. A want becomes a demand when it is backed by purchasing power.

8. A group of people to whom a marketer targets his marketing efforts is known as a market segment.

9. The difference between total benefits received and the total costs incurred by a customer is known as customer satisfaction.

1.5 Functions of Marketing

The delivery of goods and services from producers to their ultimate consumers or users includes many different activities. These different activities are known as marketing functions. Different thinkers have described these functions in different ways. Some of the most important functions of marketing are briefly discussed below:-

1. Marketing Research and Information Management

Marketers need to take decisions scientifically. Marketing research function is concerned with gathering, analyzing and interpreting data in a systematic and scientific manner. The types of market information could be analysis of market size and characteristics, consumer tastes and preferences and changes in them from time to time, channels of distribution and communication and their effectiveness, economic, social, political and technological environment and changes therein. A company can procure such information from specialized market research agencies, government or can decide to collect themselves.

2. Advertising and Sales Promotion – Advertising is a mass media tool used to inform, persuade or remind customers about products or services. It is an impersonal form of communication targeted at a chosen group through paid space or time.

Sales Promotion is a short-term incentive given to customers or intermediaries to promote sales. It supplements advertising and personal selling and can be used at the time of launching a new product or even during its maturity period.

3. Product Planning and Management – A Marketer should identify the needs and wants of consumers, develop suitable products / services and make them available. Marketer is also required to maintain the product and its variations in size, weight, package and price range according to the changing needs and requirements of his customers. Information available through Market Research helps product management in taking appropriate decisions while planning the marketing efforts.

4. Selling – This function of marketing is concerned with transferring of products to the customer. An important part of this function is organizing sales force and managing their activities. Sales force management includes recruitment, training, supervision, compensation and evaluation of salesmen. They need to be assigned targets and territories where they can operate. The salesmen interact with prospective purchasers face-to-face in order to sell the goods. The purchaser may be end customer or an intermediary, such as a retailer or a dealer.

5. Physical Distribution – Moving and handling of products from factory to consumers come under this function. Order processing, inventory, management, warehousing and transportation are the key activities in the physical distribution system.

6. Pricing – This is perhaps the most important decision taken by marketer, as it is the only revenue fetching function and success and failure of the product may depend upon this decision. Therefore, the decision regarding how much to charge should be taken such that the price is acceptable to the prospective buyers and at the same time fetches profits for the company. While deciding on the price, the factors to be considered are competition, competitive prices, company’s marketing policy, government policy, and the buying capacity of target market etc.

|Activity 2: |

|Take a nearby departmental store and list out the various marketing schemes (old and new) undertaken by the |

|store to promote its products and services. Did you find any drastic changes in the marketing efforts or is |

|the store continuously improving its marketing? |

1.6 Importance of Marketing

Peter Drucker, the famous management thinker in one of his classic articles has said “Marketing is everything”. All other activities in the organization are support services to the marketing strategy that the company pursues. Marketing is important not only to the company but to the consumers and society and to the economy.

Consumer stands to benefit from marketing activities. He has more alternatives to choose from, improved and better quality products are available and he is able to buy goods at convenient locations. Thanks to much improved customer service, a consumer is able to complain and expects his complaint to be attended in reasonable time. He can now buy with credit or debit card or cash or on installments.

For the society as a whole, marketing is important because it acts as a change agent making people use latest products and improves the standard of living of the people. As we know, the main objective of marketing is to produce products and services for the society as per their needs and tastes, and while doing so it creates demand for these goods and services, encourages using them, thus leading to higher demand and sales. This higher demand allows the company to achieve economies of scale in both production and distribution, resulting in decrease in production and distribution costs which can be used to reduce prices to consumers.

For a company in any business, marketing is considered to be the most important activity. It helps an organization to keep abreast of changes taking place in the market and consumer tastes and preferences through market research. Based on this reliable data, it responds to these changes by rectifying any drawbacks in its products or changing its competitive strategy. Thus the company’s decision- making and planning are not based on just hunches but on sound market information. The firm that follows such practices is sure to prosper under all conditions. Marketing provides an effective channel of communication to the company with its consumers by way of advertising and sales promotion. Marketing thus brings revenue and earns goodwill for the company.

Successful operation of marketing activities creates, maintains and increases the demand for goods and services in the economy. It results in the increased level of production. This, in turn, increases the national income, which is beneficial to the economy. Marketing operations require the services of intermediaries such as wholesalers, retailers, transporters, and service provides for storage, finance, insurance and advertising. These services provide employment in large numbers.

1.7 Marketing Orientations

Companies adopt different philosophies to market their products and services. An analysis of evolution of marketing thought over last several decades and reliance of marketing managers on specific marketing orientations, leads us to classify marketing concepts into several categories. These categories reflect the philosophies guiding the company’s marketing efforts. The philosophy adopted by a company should strike a balance between the interests of the company, customers, society and public. There are five competing concepts and an organization can choose any one of them for conducting marketing activities.

1. The Production Concept – This is one of the oldest concepts of marketing and assumes that consumers will prefer those products and services that are easily available and affordable. Companies which adopt this philosophy for their marketing should focus on improving production and distribution efficiency.

Production concept is a useful philosophy under situations where demand is more than supply and the companies are trying to increase production and when production costs are high. Companies are trying to achieve economies of scale. Under such conditions, it is likely that quality of products is neglected and service to customers is very impersonal.

2. The Product Concept – Assumes that consumers will prefer those products that offer quality, performance or innovative features. Managers in such companies focus on developing superior products and improving the existing product lines by devoting time to innovations. The problem with this orientation is that managers forget to read the customer’s mind and launch products based on their own technological research and scientific innovations. Very often it is observed that innovations enter the market before the market is ready for the product, or is aware or clear about its benefits.

This product-oriented management with excessive attention to product rather than customer leads to short-sightedness about business. This was termed as “Marketing Myopia” by Prof. Theodore Levitt of Harvard Business School. He recommended that companies should have a clearer and broader vision of business they are in and should adapt to the changes in the needs of the customers and in the environment. For example, a company like KODAK should not think they are only in the business of selling cameras and photographic films. They should believe that they are in the business of preserving memories for customers and photography in general.

3. The Selling Concept – The Selling concept assumes that consumers generally, will not buy a company’s products unless aggressive selling and promotion efforts are undertaken. It also holds that consumers typically do not think of buying these products which are non-essential goods without persuasion or aggressive selling action. Use of this concept leads people to believe that marketing is all about selling. The problem with this approach is the belief that the customer will certainly buy the product after persuasion and will not complain even if dissatisfied. In reality, this does not happen and companies pursuing this concept fail in business. This approach is applicable in the cases of unsought goods such as life insurance and vacuum cleaners, that buyers normally do not think of buying.

4. The Marketing Concept – The Marketing Concept proposes that a company’s task is to create, communicate and deliver a better value proposition through its marketing offer, in comparison to its competitors; to its target segment and that this customer oriented approach only can lead to success in the market place.

Today, marketing function is seen as one of the most important functions in the organization. Many marketers put the customers at the centre of the company and argue in favor of such a customer orientation, where all functions work together to respond, serve and satisfy the customer.

Many successful and well known multinational companies have adopted marketing concept as their business and marketing philosophies. Many Indian companies in the banking and other service sectors follow customer orientation and service as their motto. According to this concept, a company’s marketing effort must start right from identifying, through Market Research, exact needs and wants of the target market.

Table 1.1: Differences between Selling and Marketing Concepts

|Selling Concept |Marketing Concept |

|1. Emphasis on Product |Emphasis on Customer needs and wants |

|2. Goal is to sell what is produced |Goal is to produce what is needed by the customers |

|3. Aggressive Sales and Promotion used |All the departments of the company work together for serving |

| |the customers |

|4. Objective is profits through Sales |Objective is profit through customer Satisfaction |

|volume | |

5. The Societal Marketing Concept – This marketing concept emphasizes that the key task of the company is not only to determine the needs and wants of the target markets and deliver the desired satisfaction, but also to preserve and enhance the consumers’ and society’s overall well being.

This concept calls upon marketers to build social, ethical and environmental considerations into their marketing practices. It seems to be an appropriate philosophy for marketing at this time when there is environmental degradation and social services have been neglected in India. In the recent years, we have been witnessing a lot of complaints about products and packaging that are harmful to health and ecology. Marketers must come forward to protect the interest of both the customers and the environment and this they can achieve by adopting or following the societal marketing concept.

|Activity 3: |

|Make a note on the selling strategies of a vegetable vendor near to your locality and then compare his |

|selling strategies with another vendor in the same area. |

Self Assessment Questions

Match the following sets –

Set A

10. Product concept

11. Production concept

12. Marketing concept

13. Societal Marketing concept

14. Selling concept

Set B

a) Mass production and distribution

b) Marketing Myopia

c) Aggressive promotion

d) Customer satisfaction

e) Ethical marketing practices

1.8 Summary

• Marketing is a dynamic and all pervasive area in business

• The main functions of Marketing are Marketing Research and Information Management, Product Planning, Advertising and Sales Promotion, Selling, Physical Distribution and Pricing.

• Marketing plays an important role in the economic development of a country like India. It is also very important from the customer and societal point of view as it helps improve the standard of living of people through better product and service offers.

• Marketing as a concept has evolved over a period of time and has witnessed changes and modifications in its philosophy. There are five concepts which describe this development and offer ways to companies on how to conduct their business – Production Concept, Product Concept, Selling Concept, Marketing Concept and Societal Marketing Concept. However, the first three are of limited use today.

List of Key Terms

Market

Perfect market

Consumer Goods market

Satisfaction

Marketing concepts

Societal marketing concept

Marketing Management

1.9 Terminal Questions

1. What are the major differences between consumer and industrial markets?

2. Explain the core concepts of marketing with suitable examples.

3. List out the relative advantages and disadvantages of the different marketing orientations.

4. Marketing is more than just selling. Explain.

1.10 Answers

Answers to Self Assessment Questions:

1. Selling/Advertising/Sales Promotion/Marketing Research

2. Supply and Demand

3. Oligopoly

4. Organizational/B2B

5. Customer focus

6. True

7. False

8. False

9. Marketing Research

10. 10b

11. 11a

12. 12d

13. 13e

14. 14c

Answers to Terminal Questions:

1. Refer to 1.2

2. Refer to 1.4

3. Refer to 1.7

4. Refer to 1.5

 

1.11 Mini-Case

How Euro Airlines became a Marketing Oriented Company?

When Tom Carlton became president of Euro Airlines, the company was making losses. The earlier management had tried to counter this problem by cutting costs. Carlton felt this was not the correct solution. According to him, the company needed to find ways of increasing business and revenues. At this point, the airline catered to all classes of travelers and did not offer any special advantages to any one class. Therefore, the first task was to identify the target market. Carlton decided to focus on businessmen who fly frequently. This was a segment which was being targeted by many other airlines. They were offering various services like free drinks, wider seats and so on. Market research was done to find out what the customers wanted. The findings revealed that punctuality was the most important consideration for business flyers. They also wanted to be able to check in quickly and retrieve their luggage quickly on arrival at their destination.

Several groups were formed to come up with different ideas on how these goals could be achieved. Hundreds of proposals were submitted, of which 150 were adopted. One of the most important was to make all employees more customer-oriented. Carlton figured that the average passenger comes into contact with 5 employees on an average flight. Each contact could contribute to customer satisfaction or dissatisfaction with the airline. To create the right attitude, the front line staff was sent to two day service seminars. The managers were sent on three week courses. Carlton regarded the front-line staff, who interacted with passengers daily as the most important people in the company. The managers’ job was to provide support to the front line people, to help them do their job better. His job as President was to help the managers in this task.

As a result of these measures, Euro Airlines became the most punctual airline in Europe within six months. A special service was introduced where travelers who were staying in Euro Airlines hotels could have their luggage sent directly to the airport for check in. The speed with which luggage was unloaded on landing was also improved. Thus the airline was able to improve its reputation with the business flyers, which in turn resulted in a significant increase in full fare travel with them.

From the above case, identify the different concepts in marketing.

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MB0046-Unit-02-The Marketing Process

Unit-02-The Marketing Process

Structure:

2.1 Introduction

Learning Objectives

2.2 Marketing mix the traditional 4Ps

2.3 Modern components of the mix -additional 3Ps

2.4 Developing an effective marketing mix

2.5 Marketing Planning, Control and Implementation

2.5.1 Marketing Planning

2.5.2 Marketing Implementation and Control

2.6 Summary

2.7 Terminal Questions

2.8 Answers

2.9 Mini-case

2.1 Introduction

The earlier unit introduced you to the meaning of markets and marketing. In the process you were also conversant with the evolution of the term marketing. We will take it further to understand what constitutes marketing. Considering marketing as process, what are the components of this process? When you land up in a market, to buy something, you find there are many ‘makes’ of the same product. You examine several of them, enquire of their prices, you may find out whether any discount or free item is available and also how you can take delivery of the product you may finally purchase. On the other hand had you been looking for a tourist services provider, you would have been interested to know what facilities it provides and whether the people involved are nice to you. In short you are considering the marketing mix of product, price, promotion and place or to go further, people and processes.

Learning Objectives

After studying this chapter you should be able to:

· Understand marketing mix

· Understand the implication of each component of the marketing mix.

· Identify how these components are being applied in the marketplace

· Judge the various marketing mix prevailing in the market

2.2 Marketing mix the traditional 4 Ps

The marketing mix has been engaging the minds of practitioners and academicians alike for a very long period. The 4Ps as the mix was known has been the bulk of marketing literature for a very long period. They still occupy a major portion of any basic understanding of the subject with several modifications and extensions. From 4 the mix has become 7now. While each P can be understood individually at great depth, it can hardly exist in isolation.

The 4 Ps are: The product, its price, promotion and distribution/place

We shall see each of these in brief detail.

1. Product: It is a good, service, idea that is offered to a customer to satisfy his/her need. The attributes of a product are variety, quality, warranty, design, packaging, after sale-service etc.

For example, Marico, a FMCG company offers hair oil in two brand names i.e. Parachute and Nihar. The brand Nihar, offered in two types of packaging i.e. Sachets and bottles and are also offered in two qualities i.e. coconut oil and perfumed hair oil. Sita Traves offer tourism packages. VLCC offers weight reduction services. Oglivy and Mather offer ideas on advertising to clients. Competing firms or enterprises making similar offer would like to differentiate the product on some basis or the other. The differentiation may be small but they could register in the mind of the consumer. Products also need to be modified over time to retain the interest of the consumer. This is where innovation comes into the picture. This is the reason why you are able to witness the various models of cell phone from the same company. Have you noticed how frequently new models are introduced in the market?

A lot of work goes behind the scene before a product is brought to the market. We will come to it later.

2. Price: the value at which a marketer offers the product/service/idea to a customer. The actual price at which the exchange may take place between the offerer and the customer may be different than the initial offer. The final exchange price may be determined by the interaction between the supplier and the customer. The supplier may have determined the offer price by a mechanism of cost determination and adding a profit margin, there are several other ways by which costs are determined. There are professional cost accountants who do this. Their effort is also to find out ways by which costs can be reduced so that the price offered can be competitive. Sometimes the same company may offer one product at a price lower than the cost and compensate this loss by pricing another product much than the cost.

You must have experienced how the Indian railways fixes the price for sleeper class as compared to the A/C; similarly the Post and Telegraph charges a low price for the post card but a higher price for the envelope.

You must also have noticed that there are customers who are willing to quote their own price for paintings during an auction.

For example, BSNL offers prepaid service recharge coupons in

Rs. 110/-, Rs. 331/-, Rs. 551/-, etc.

The Marketing Mix

[pic]

Figure 2.4

3. Place: The term place in marketing has a specific meaning. It refers to the distribution of goods from the point of production to the target customer. It may include distributors/wholesalers, stockiest/C&F agents and retailers who are together referred to as middlemen or as ‘channel partners in modern parlance. There are others too like franchisees, branches, depots etc. A most recent version made popular by Amway is known as network marketing although a similar version was adopted by chit funds. The aspect of distribution involves logistical support like transportation, warehousing, loading unloading services etc. of the product often determines the type of logistical support. While the distribution of milk would require refrigerated vehicles, for the distribution of liquefied petroleum would require pipelines.

Zenith computers uses authorized distributor to sell laptops and desktops to the target customers.

4. Promotion: Communicating product features and its benefits to target customers through different mediums is known as promotion. Advertising, personal selling, public relations, sales promotion, sponsorship are some of the promotional tools being used. How quickly are products brought to the notice of the consumer or end-user, how persistently and how the differentiations in the products are highlighted, are some of the questions that the exercise of promotion answers. Companies run promotional campaigns for a long duration which may include various components of promotion. These are designed by specialized agencies like Rediffusion, Everest, Oglivy and Mather, Thomson, etc. you would be able to recall the famous campaign by Vodafone in the electronic media where the ‘Zoozoos’ were used or the popular Hutch campaign with the dog Chika or Pug and the little girl were involved. The mediums used in such campaigns are the electronic, print, outdoors, graffiti etc. For example, Bharati group promotes its cellular services (AIRTEL) through TV, Radio and news paper.

2.3 Modern Components of the Mix: Additional 3P’s

Modern authors on marketing have added few more Ps namely People, Processes and Physical evidence to the traditional 4Ps. These have assumed significance with the offering of ‘services’ like hospitality, health etc becoming more professional and specialized. A brief introduction of each of them is given below-

People: The front office staffs of a hotel are the most important decision making catalyst to the visitors stepping into the hotel. Similarly the staff in a wellness care center would be crucial to the customer who walks in to have a check up. For services such as these, people become the real differentiator for the marketer. No doubt that services marketing has emerged as a separate branch of study in management.

Processes: Many enterprises today are process driven. The term has been commonly used for manufacturing concerns where the products would go through processes. Today we talk about quality processes, office processes, information processes and so on. Since the adoption of total quality management, marketers are not merely satisfied with quality in the final product but are deeply involved in the entire processes that an enterprise puts into practice throughout the organization. Carpet vendors in Germany were equally concerned with the processes that a carpet manufacturer would follow in the organization as much as they were particular with the quality of the carpets. The details in the processes would indicate the work behind the end product. It has become easier to work out minute details as these are monitored by computer systems and software solutions like SAP, ERP etc. In many cases the line between the process and the product is so thin that the words are being used interchangeably. Some fine examples are the e-learning programs offered by institutes, the e-library solutions like Proquest, or EBSCO. The features of these offerings are in the processes inbuilt to navigate through the software easily.

Physical evidence: About a decade back, you would visit a hotel or a restaurant on word of mouth evidence and order by the menu. Today many of these eateries display photographs of their dishes on display boards. Similarly marketers are offering experiential learning on their products as a test use before a purchase decision is taken. Similarly a specifically attired attendant is the evidence of the quality of the service that may be expected from the service provider.

2.4 Developing an effective marketing mix:

Following example shows how Big Bazaar has worked out on its marketing mix in India after doing a SWOT analysis:

SWOT analysis indicates the 4 specific and crucial areas by which an organization can know its position in the market. SWOT analysis can be done by any kind of organization, dealing with any kind of products or services, at any point of time and whenever it feels the need to do so. SWOT analysis is an analysis showing the Company’s

a) Strengths – i.e. areas where it has got advantage, its core processes, its unique or successful brands, key people etc. If the company has a good reputation in the consumer market then it becomes strength of that company.

b) Weaknesses – i.e. areas where the company is weak or having drawbacks and which needs to be improvised or eliminated from the existing system. If the company is feeling that its sales force has too many inefficient people then it becomes the weakness of the company.

c) Opportunities – i.e. areas where company can establish itself and the challenges that it can accept to its benefit as well as the consumers. Suppose a company knows that there are consumers all over the world who consume company’s products then there presents opportunity of expanding its activities globally.

d) Threats – i.e. areas where the company feels that it might be subject to pressure situations or where it is unable to pull itself from a possible crises or the threat may simply come from competitive forces or other external factors such as Recession.

[pic]

Exhibit 1

|7P Analysis of Big Bazaar |

|7P Marketing Mix is more useful for services industries and knowledge intensive industries. Successful |

|marketing depends on number of key issues. The seven keys issues are explained as: - |

|Product |

|Big Bazaar offers a wide range of products which range from apparels, food, farm products, furniture, child |

|care, toys, etc. Products of all the major brands are available at Big Bazaar. Also, there are many in house |

|brands promoted by Big Bazaar. Big Bazaar sold over 300,000 pairs of jeans, 50,000 DVD-players and 25,000 |

|microwave-ovens. In all, the fashion, electronics and travel segments made up about 70% of sales. Last year, |

|these categories made up only about 60%. |

|Big Bazaar offers the maximum variety for each category of product and this is cited by the customers as one |

|of the main reasons why they like shopping at the hypermarket. The product is the same in every store in the |

|city but the brand options are more in Big Bazaar. Also, the quantity for each product is not limited to |

|large packs only. Observations also revealed that local brands of popular commodities, like diapers, sugar, |

|wheat flour garments etc, are very popular in Big Bazaar stores. These products are never advertised but |

|offer huge margin on sales. In this way lower middle class customers are targeted well. The commodities sold |

|by the retail chain also includes its “own products” which get a ready distribution network. The own products|

|of Big Bazaar include My World fashion magazine which is not available anywhere else. So costs are low for |

|such products. |

|Price |

|The tag-line is “Is se sasta aur accha aur kahin nahi”. They work on the model of economics of scale. There |

|pricing objective is to get “Maximum Market Share”. The various techniques used at Big Bazaar are: - |

|( Value Pricing (EDLP – Every Day Low Pricing): Big Bazaar promises consumers the lowest available price |

|without coupon clipping, waiting for discount promotions, or comparison shopping. |

|( Promotional Pricing: Big Bazaar offers financing at low interest rate. The concept of psychological |

|discounting (Rs. 99, Rs. 49, etc.) is used as promotional tool. Big Bazaar also caters on Special Event |

|Pricing (Close to Diwali, Gudi Padva, and Durga Pooja). |

|( Differentiated Pricing: Time pricing, i.e., difference in rate based on peak and non-peak hours or days of |

|shopping is also a pricing technique used in Indian retail, which is aggressively used by Big Bazaar. |

|( Bundling: Selling combo-packs and offering discount to customers. The combo-packs add value to customer. |

|Price is the critical point in a competitive industry. Big Bazaar works on a low cost model. It considers its|

|discounted price as its USP. There is an average discount of 7-8% on all items in respect to their MRP. |

|Prices of products are low because it is able to secure stock directly from the manufacturer. There are huge |

|synergies in terms of bulk purchasing, central warehousing and transportation. These all factors help the |

|retailer to keep low prices. Survey indicated that low prices were the biggest factor in customers’ mind |

|while coming to Big Bazaar. It has never focused on giving great services, but laid emphasis only on low |

|prices to attract crowd. |

|Place |

|Big Bazaar stores are located in 50 cities with 75 outlets. Big Bazaar has presence in almost all the major |

|Indian cities. They are aggressive on their expansion plans. |

|Place means the location of the business. Big Bazaar has always worked on low-cost locations. It targets |

|semi-urban population with its placement. Its strategy is to find a cheap location and it never goes for hot |

|spots in the city. The talk with the manager revealed that the Teghoria store was opened when it was scarcely|

|populated. Even in Gurgaon, Big Bazaar chose Sahara Mall instead of Metropolitan or City Centre, which are |

|more popular than Sahara Mall. It relied on promotional activities to make up for unattractive locations. The|

|channel of place is company owned stores to have complete control. Another strategy used by Big Bazaar to |

|overcome location disadvantage is use of internet. It has launched a merchandise retailing website |

| which targets high-end customers ready to use credit cards. Therefore Big Bazaar has |

|made headway into a potentially high-yielding sector of online trade. Internet as place has put them in a |

|profitable position because there is minimal expense of maintaining a website. The promotion of this website |

|is done through advertisement on Google. |

|Promotion |

|Big Bazaar started many new and innovative cross-sell and up-sell strategies in Indian retail market. The |

|various promotion techniques used at Big Bazaar include “saal ke sabse saste teen din”, Future Card (the |

|cardoffers 3% discount), Shakti Card, Endorsement by M. S. Dhoni, Exchange Offer – ‘Junk Swap Offer’, |

|Point-of-Purchase Promotions. |

|Advertising has played a crucial role in building of the brand. Big Bazaar advertisements are seen in print |

|media, TV, Radio (FM) and road-side bill-boards. Big Bazaar has got celebrities like Cricketer MS Dhoni and |

|Film actress Asin to endorse its products as well. |

|Big Bazaar has huge promotion budgets. The biggest idea behind all advertisements is to make people do bulk |

|shopping. After talking to the store manager it was found out that there are 2 types of promotional |

|strategies. One is the holistic advertisement which promotes the brand and creates awareness among people. It|

|is not targeted at promoting each store but only creates an image of Big Bazaar as low-cost shopping option. |

|The store has advertised through TV, road shows and also started reality show-typed promotional campaign “The|

|Big Bazaar Challenge.” Promotions like “Sabse Sasta Din” are a very successful strategy to get footfall. |

|Other type of promotion is the particular store oriented promotion which includes speaking on the loudspeaker|

|in nearby blocks. Leaflets are given in local newspaper. There are promotional efforts even inside the store.|

|During the survey, it was noticed that Buy 2 Get 1 Free type of promotions are very common. Original prices |

|are cut down and new prices are shown, of which customer takes quick notice. There are loyalty schemes which |

|reward the regular clients. Promotion is also done through co-branded credit cards with ICICI bank. |

|People |

|They are one of the key assets for any organization. The salient features of staff of Big Bazaar are: - |

|Well-trained staff – the staff employed by Big-Bazaar are well-suited for modern retail. |

|Well-dressed staff improves the overall appearance of store. |

|Employees are motivated to think out-of-the-box. Retail sector is in growth stage, so staff is empowered to |

|take innovative steps. |

|Employs close to 10,000 people and recruits nearly 500 people every month. |

|Use of technology like scenario planning for decision making. |

|Multiple counters for payment, staff at store to keep baggage and security guards at every gate, makes for a |

|customer-friendly atmosphere. |

|Process |

|The goods’ dispatch and purchasing area has certain salient features which include: - |

|· Multiple counters with trolleys to carry the items purchased. |

|· Proper display / posters of the place like (DAL, SOAP, etc.). |

|· Home delivery counters also started at many places. |

|Physical Evidence |

|It deals with the final deliverable or the display of written facts. This includes the current system and |

|available facilities. The billing system, the storage or carry bags, the labels put across the products all |

|display the physical evidence of the Big Bazaar products. |

|For The Great Indian Middle Class |

|It is a unit of Pantaloon Retail (India) Ltd and caters to the Great Indian Middle Class. It was started as a|

|hypermarket format in Mumbai with approx. 50,000 sqft of space. Its values and missions are to be the best in|

|Value Retailing by providing the cheapest prices and hence goes the tag-line |

|“Is se sasta aur achcha kahin nahin” |

|It sells variety of merchandise at affordable rates, the prices of which it claims are lowest in the city but|

|the level of services offered is also very low. Usually the items are clubbed together for offers as on the |

|lines of Wal-mart and Carrefour and it also offers weekend discounts. It currently operates out of 64 stores |

|and top 15 stores register a cumulative footfall of 27 lakhs a month on an average. |

|The retail life cycle:  we can say that Big Bazaar is currently at the Growth Stage. |

|(Source: ) |

Self Assessment Questions

Are the following statements true or false?

1. Marketing of services is based only on the traditional 4 Ps

2. Cellophane wrapped glasses in hotel rooms are an example of physical evidence in services

3. Services are people intensive

4. Logistics includes all the physical aspects of distribution

5. The final exchange price is usually the same as the initial offer price.

|Activity 1: |

|Identify the promotion mix (i.e. 7 P’s) of a fast food joint near your place and list out the features |

|associated with each of the 7 P’s of modern Marketing. |

2.5 Marketing Planning, Implementation and Control

2.5.1 Marketing planning:

Though strategic plan exists in the organization but it is very essential to have functional plans to coordinate departmental activities. For example, the marketing plan guides the sales and distribution activities of the organization. Therefore it is essential to know what the contents of a marketing plan are.

Contents of marketing plan

Executive summary: Brief summary of plan, which help busy executives to go through the points very quickly.

a. Analyzing the current market situation: The following factors should be answered in this section.

1. What is the intended market and market segment?

2. What is the consumer buying behavior process for particular category of products?

3. How conducive is the marketing environment to do the business?

4. Whether company got right marketing mix for intended target customer?

5. Who are major competitors and what are their marketing strategies?

b. PEST analysis: In this section, the external environment of the company is analyzed to find opportunities and threats. (for detail see UNIT 3)

c. Objectives and issues: This part of the marketing plan should discuss marketing objectives that company would like to achieve in particular period and issues that may affect them.

d. Marketing strategy: This section should highlight on

1. Identifying the segmentation, target customer and positioning strategy

2. 4P’s of marketing

3. Planned activities: the following factors should be discussed in this section

a) What are the programs that company plans to undertake?

b) Who are responsible to monitor these programs?

c) How much time it takes to complete the program?

d) How much will it cost?

e. Marketing Budget: a budget has to be prepared periodically to estimate the funds and expenses to be incurred on the marketing activities such as advertising, research, sales promotions etc. The budgets will act as a reference point when actual figures are accounted.

f. Control: Any program implemented need to be controlled to check its performance. Hence organization should take periodic auditing by a review committee. The control process for the plan should be discussed in this section.

2.5.2 Marketing Implementation and control

Marketing implementation: The process in which marketing strategies and plans are converted in to proper marketing actions to achieve the objectives.

Marketing implementation depends on the following factors:

1. Organization structure

2. Organization culture

Marketing control: The process of evaluating marketing performance and taking corrective actions.

Marketing control involves four steps. They are

a. Set specific marketing goals.

b. Measure the marketing performance

c. Evaluate the market performance against objectives

d. Take corrective actions

Marketing control is divided into two parts. They are operation control and strategic control. Operation control involves assessing the current activities against annual plan and taking corrective actions. Strategic control is used to assess whether existing strategic plans of the company meets the opportunities exist for it. Marketing audit is used as a strategic control tool.

According to Philip Kotler “marketing audit is comprehensive, systematic, independent and periodic examination of a company’s environment, objectives, strategies and activities to determine problem areas and opportunities and to recommend a plan of action to improve the company’s marketing performance”.

Characteristics of marketing audit:

1. Comprehensive.

2. Systematic

3. Independent

4. periodic

Components of marketing audit:

1. Marketing environment audit

2. Marketing strategy audit

3. Marketing organization audit

4. Marketing systems audit

5. Marketing productivity audit.

6. Marketing function audit

Self Assessment Questions

Fill in the blanks

6. A Marketing audit is used as a __________________ tool.

7. Marketing implementation depends on _____________________.

8. PEST analysis helps to identify a company’s ________________ and ___________________

9. Segmentation, targeting and positioning is part of a _______________

10. A marketing audit is _____________________ because it examines all aspects of a company’s marketing performance.

2.6 Summary

§ Marketing mix or 4Ps of marketing comprises of product, place, price and promotion.

§ The three additional P’s of marketing include people, processes and the physical evidence.

§ SWOT Analysis is basis for organizations to determine their strengths, weaknesses, opportunities and threats.

§ Marketing planning, implementation and control is necessary in order to estimate or determine future marketing strategies/activities, implement them and then exercise control so as to meet the marketing/company objectives.

§ Marketing Audit is used as a strategic control tool.

List of Key Terms

Marketing mix

Product

Price

Place

Promotion

People

Physical Evidence

Processes

Marketing plan

PEST analysis

Segmentation

Positioning

Marketing control

Marketing audit

2.7 Terminal Questions

1. Briefly explain the contents of a marketing plan.

2. Identify a consumer goods company of your choice and describe its marketing mix.

3. Identify any organization in the service industry and describe its marketing mix in terms of the 3 Ps of services marketing.

2.8 Answers 

Answers to Self Assessment Questions:

1. F

2. T

3. T

4. T

5. F

6. Strategic control tool

7. Organizational structure/Organizational culture

8. Opportunities and threats

9. Marketing plan/Marketing strategy

10. Comprehensive

Answers to Terminal Questions:

1. Refer 2.5.1

2. Refer 2.4.3

3. Refer 2.4

2.9 Mini-Case

The Kellogg’s story

At Kellogg Company, we promote eating well and healthy living. Our legacy is based on the philosophy that people can improve their health by eating a balanced diet and engaging in regular physical activity. Living a healthy lifestyle begins with a good understanding of nutrition. We believe in providing high-quality, nutritious food and helping educate consumers about the benefits of a healthy diet.

Kellogg’s has in place a global marketing code and a longstanding commitment to advertising in a responsible manner.

This means:

· We don’t encourage over-consumption of our foods when consumers take part in promotions.

· We always present Kellogg’s breakfast cereals as part of a balanced breakfast.

· We run balanced promotional calendars featuring a good mix of fun, education and wellbeing based activities. Two of our most successful promotions involved offering consumer pedometers. (Pedometer is a small device that records/counts the no. of steps a person takes)

The Kellogg’s story starts way back in Battle Creek Sanatorium, Michigan USA, in the 1870s.

Set up by brothers Will Keith Kellogg and Dr John Harvey Kellogg, it was founded on a deep belief that ‘you are what you eat…’ Oh, and plenty of fresh air, exercise and a strict ban on caffeine, alcohol, tobacco and meat.

In 1876, in pursuit of a breakfast food that was at once wholesome and half-way pleasant to eat (a rarity in those days); Dr John had a ‘Eureka’ moment!

While experimenting with different ways to cook and crush wheat to make it more palatable without losing its goodness, he inadvertently ran a batch of cooked wheat through the rollers that had been standing around for a day or so.

And out of the other side came… Kellogg’s Corn Flakes! (Or at least, a prototype version)

Testing their new discovery on their patients confirmed that here indeed was the delicious, nutritious breakfast the brothers had been seeking.

When orders starting coming for the new flakes from former patients, they knew they were onto a good thing and set up a separate company to manufacture their cereal under the name Sanitas.

But it wasn’t until 1898 that Kellogg’s Corn Flakes as we know them appeared, and in 1902 Will Keith made the momentous decision to leave the ‘San’ and set up full time in cereal production.

In 1906, W.K. decided to risk a portion of his hard earned capital on his first advertising campaign, with spectacular results.

Among many innovations W.K. made that were later to be accepted wholesale by the food industry was an insistence on consistency and quality control.

Not just that, he also led a relentless campaign for improvement and innovation in his products.

Drawing on previous experience as a nutritionist, he printed healthy eating advice on his packs as well as recipe ideas and product information. Seems nothing out of the ordinary now, but in its day it was revolutionary.

Going one step further in 1923, he hired a full time home economist to develop recipes and spread the word about healthy eating to consumers and schools – the start of a company tradition of providing the latest information about diet, nutrition and health that persists to this today.

By 1930, almost 60 years after his initial, accidental discovery that led to Kellogg’s Corn Flakes, W.K. decided it was time to ‘put something back’ and set up the W.K. Kellogg Foundation.

Dedicated to the principle of guidance and self-help, the foundation is still going strong today. In fact, it is one of the world’s largest philanthropic institutions, funding projects in health, education, agriculture, leadership and youth worldwide.

Kellogg’s in Indian market:

Kellogg’s came to India with the promise that it will change the breakfast habits of Indians. Till then, regional staples were the norm at the Indian breakfast table – paranthas in the North, idli or dosa in the South, for example. People would give up all the greasy and fatty stuff and eat healthy cornflakes, Kellogg’s had thought. It saw no reason why its global success could not be replicated in India, especially with the growing awareness amongst its large middle-class population.

Over the years, it would seem Kellogg’s has covered all its flanks. It has products in three distinct segments. There is the kids’ category with products like Chocos, Chocos Duet, Planet and Stars and Fruit Loops. Next is the all-family segment which includes corn flakes and its six variants. And finally, up the chronological ladder in the adult space are products like Special K (for weight loss), wheat flakes, Extra muesli and oats.

The market for breakfast cereals is growing at a fast clip – 30 per cent per annum. But Kellogg’s is outgrowing it. Its share of the market stands at 48 per cent. Perfect?

Too small, too many

Not really. There is a fly in the ointment. The market for breakfast cereals is still very small. While the packaged food market is valued at Rs 33,234 crore, the organised breakfast cereal market is just Rs 250 crore. “The unorganised breakfast market,” says Technopak Advisors Vice-president (food and agriculture) Sanjay Sethi, “is far bigger than the organised one. Milk and fruit are the preferred choice.” The import is clear: Kellogg’s will have to work really hard to grow the market.

That the breakfast market holds great potential is beyond doubt. The clearest indication is the growing interest of multinational food companies. PepsiCo has already entered with its bestseller brand, Quaker Oates. Heinz India, which has a hugely strong bond with households because of its Complan health drinks, too has joined the bandwagon.

Even a value-for-money fast-food chain like McDonald’s wants a share of the pie. According to McDonald’s, more and more people are grabbing a quick bite on their way to work. A study carried out by the company threw up some interesting numbers: 18 per cent people in cities prefer eating out of home because of the convenience and variety it offers. Further details reveal that out-of-home breakfast in Mumbai is high during the whole week and in Delhi it peaks during weekends. So, it is carrying out pilots of its breakfast menu across locations in Mumbai and Delhi. The initial response, claims the company, are encouraging.

Clearly, it is not an easy market for Kellogg’s. So, it has decided to take the food safety and nutrition plank for growth. A cue that it perhaps took from its 1999 success story with Iron Shakti, which aimed to address iron deficiencies in children and boosted sales by 17 per cent.

New initiatives

The Company recently conducted a study of breakfast habits on more than 1,000 people in Mumbai. The revelations were startling: One in three people does not eat breakfast, young girls skip breakfast regularly (probably linked to weight-control issues) and many children go to school without breakfast or inadequate breakfast resulting in nutritional inadequacy.

Communicating this idea, Kellogg’s hopes, will do the trick. “It’s important for us because we are in the breakfast space and our food provides the micronutrients that are deficient and that’s the message we are going to send out to consumers,” says Kellogg’s India Managing Director Anupam Dutta. The new initiative therefore doesn’t require rolling out new products. “All Kellogg’s cereals are fortified with essential vitamins and minerals according to the daily requirements of nutrients for Indians and therefore are excellent breakfast choices,” adds Dutta. Not surprisingly, even its communication has begun to highlight this with ads emphasising better cognitive performance and academic performance.

Sethi of Technopak Advisors views this positively: “Consumers are getting more health conscious and there is an emerging market for cereals. Going forward, even packed forms of breakfast will gain prominence as people don’t have the time in the morning.”

The problem for Dutta is that rivals are likely to take the same route. Heinz India in March launched its first breakfast cereal, Complan Nutri Bowl Muesli. “Health and wellness is a significant emerging trend and that is our rationale for entering this segment. Breakfast time offers a huge opportunity as the health-conscious consumer is looking for something healthy and convenient,” says Heinz India General Manager (new business) Sundip Shah.

Flavours and pricing

Breakfast cereal players may have a healthy strategy backing them, but their battle with the palate rages on. Experts feel that Indians find it hard to move away from their quintessential hot, cooked meals. During its launch, Kellogg’s emphasised on the crispiness of its flakes without considering Indians’ aversion to cold milk. When mixed with hot milk, Kellogg’s corn flakes were no different from local brands, while they were priced far above.

To tackle that, the company bet big on flavours. So, when the chocolate-covered flakes, Chocos, became a huge success, the company was quick to follow it up with ethnic flavours like coconut, mango and so on. In October 2008, Kellogg’s Extra muesli was launched in four different variants — extra nut delight, extra fruit magic, extra crunchy fruit and nut and extra tropical bonanza. Dutta feels variety is a key need of the Indian consumers and flavours are the best way to provide that.

The company experiments mainly with fruit tastes like mango, strawberry, banana and universally favourite flavours like honey. “Kellogg’s got it right when it started launching flavours,” Sethi points out. “People have begun to take a shine to our products,” smiles Dutta. Quick on the uptake, however, is Heinz which has also come out with three variants of its cereal: Mixed fruit, crunchy and crunchy with saffron.

Kellogg’s may have made the right moves with flavours and variants. What has played spoilsport is its premium pricing. For instance, 250 grams of Kellogg’s cornflakes is priced at Rs 75 while Mohan Meakin’s 200 grams is Rs-32 lighter on the purse. With heavy down trading visible across all consumable categories, this could hurt the company in the current scenario.

Dutta on his part counters that Kellogg’s has not taken a price increase in any of its products since 2005. “This is despite significant increase in all input costs and inflationary pressure. We have so far absorbed the cost increase and delivered the benefit to the consumer,” he says. Alternatively, its Kpak initiative offers a range of Kellogg’s products at Rs 10. “Health and convenience are the two things we offer. As long as consumers have these two things in mind, we’ll be a part of their breakfast choice,” Dutta says. (Source: Company information; The Times100 companies)

After reading the above case, a very young marketing analyst is keen to identify 7 P’s of Kellogg’s and the ways in which Kellogg’s has replaced the traditional breakfast in a typical Indian family household. He is also aware that Kellogg’s faced a big challenge in the Indian market.

Help the young marketing analyst and what according to you are the challenges faced by Kellogg’s in India?

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MB0046-Unit-03-Marketing Environment

Unit-03-Marketing Environment

Structure:

3.1 Introduction

Learning Objectives

3.2 Environmental Scanning

3.3 Analyzing the Organization’s Micro Environment

3.3.1 The company

3.3.2 Intermediaries

3.3.3 Publics

3.3.4 Competitors

3.3.5 Suppliers

3.3.6 Customers

3.4 Company’s Macro Environment

3.4.1 Demographic environment

3.4.2 Political and Legal environment

3.4.3 Economic, Monetary and Natural environment

3.4.4 Social and Cultural environment

3.4.5 Technological environment

3.4.6 Differences between Micro Environment and Macro Environment

3.5 Techniques of Environmental scanning

3.6 Summary

3.7 Terminal questions

3.8 Answers

3.9 Mini-Case

3.1 Introduction

The earlier unit explained the marketing process and the components which constitute the process namely the marketing mix; each of the 4Ps or 7Ps is affected by the environment surrounding it. .The environment consists of the government regulations both national and foreign, the competition, the suppliers, and the technological development taking place and so on. Imagine a cell phone manufacturing company which is unable to sense the change in the embedded software or a mobile service provider which has not followed the new licensing requirement of the 3rd generation announced by the government or a shipping company unaware of the pirates near Somalia.

A marketing oriented company always keeps tab on its external environment carefully to analyze opportunities and threats. This external environment influences company’s strategies in two levels i.e. l macro and micro level. The macro environment involves political and legal, economic and natural, social and cultural and technology elements. The micro environment consists of supply chain, customer and competitor. These factors are uncontrollable by the organization. Even the best of companies faces threat if one of the external environments is adverse. Hence marketing companies should monitor the external environment carefully and continuously.

Learning Objectives

After studying this chapter you should be able to:

· Understand the need for environmental scanning.

· Understand how external micro environment affects the company’s strategies and influences organizational plans.

· Differentiate between the external macro and micro environment.

· Assess the role of an organization’s internal environment in dealing with opportunities and threats.

3.2 Environmental Scanning

This is the process of gathering, analyzing and forecasting information related to the external environment in order to identify opportunities and threats that a company may be facing.

Environmental scanning refers to assessing the various aspects of the external and internal environment such that the knowledge may provide information with which to make some predictions for the future. If a mobile service provider is aware that the government is opening up the 3G spectrum it would be able to make a forecast on the demand for cell phones with these facilities.

Need for environmental scanning:

It helps in

1. Identifying the opportunities that company has in immediate future.

2. Identifying the threats faced by the company.

3. Demand forecasting

4. Developing appropriate business plans.

5. Adjusting the company strategy in changing competitive environment.

3.3 Analyzing the Micro Environment of the Organization

Marketing department alone cannot satisfy all the needs of customer. Therefore it is essential to integrate the functions of suppliers, publics, internal departments and intermediaries in creating the value to the customer. These forces are known as organization’s micro environment.

Microenvironment: The forces which are very close to company and have impact on value creation and customer service.

Forces in the micro environment

[pic]

Figure 3.1

3.3.1 The Company

Remember, in the previous unit we discussed about marketing mix and marketing plan. Safe Express, a leader in the supply chain management solution wants to hold its number one position in the US $ 90 billion Indian logistics market. The company plans to expand its service areas in the coming months. To meet the targets of the marketing plan, other departments of safe express also expanding their horizon. The Company is coming out with logistics parks in different cities; plans to hold seven million square feet of warehousing capacity in the next three years and invest Rs 10 billion in three years to meet those targets. The above example shows that the company’s marketing plan should be supported by the other functional departments also.

3.3.2 Intermediaries

Marketing intermediaries: These are firms which distribute and sell the goods of the company to the consumer.

Marketing intermediaries play an important role in the distribution, selling and promoting the goods and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer are some of the major functions carried out by the middlemen. Retailers, wholesalers, agents, brokers, jobbers and carry forward agents are few of the intermediaries. Retailers are final link between the company and the customers. Their role in the marketing of product is increasing every day.

3.3.3 Publics

These are microenvironment groups, which help a company to generate the financial resources, creating the image, examining the companies’ policy and developing the attitude towards the product.

We can identify six types of publics

1. Financial publics influence the company’s ability to obtain funds. For example, Banks, investment houses and stockholders are the major financial publics.

2. Media publics carry news and features about the company e.g. Deccan Herald

3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insurance regulation agency(IRDA) of the government

4. Citizen action groups: Formed by the consumer or environmental groups. For example, people for ethical treatment of animals (PETA) or Greenpeace.

5. General publics: a company should be concerned towards general publics’ attitude towards its products and services.

6. Internal publics: Employees who help in creating proper image for the company through word of mouth.

3.3.4 Competitors

A company should monitor its immediate competitors as its sale will be affected by the nature and intensity of the competitors. The sale of Coca cola will be affected by Pepsi cola, or Britannia cheese by Amul cheese. Michael Porter, the author of Competitive Advantage of Nations suggested that, in addition to direct competition, companies should also consider competition from substitutes. In addition to existing competitors, the potential competitors should also be anticipated. Competition may arise from

a. Small firms with low overheads producing duplicates.

b. Firms which diversify into certain products by merely being in the particular industry for e.g. Pepsi entered the snacks sector competing with pure snack producers like Haldiram.

c. Firms which expand in the same vertical for e.g. Godrej which manufactured office furniture and steel cupboards went on to the entire range of home furniture thereby giving competition to pure home furniture makers.

How do companies or enterprises survive and grow under the above circumstances. While we shall study this in detail later, a simple step could be that the product should be positioned differently and the company should be able to provide better services.

3.3.5 Suppliers

There are many kinds of suppliers to an enterprise or an institution. There are typically, raw material suppliers, energy and fuel suppliers, labour suppliers, office item suppliers and so on.

Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relation management system to manage them well. Suppliers are a source of competition to firms today. For a large retail store like Reliance Retail or Big Bazaar the suppliers play the most significant role in both cost and time. Timely supplies reduce stocking of goods and blocking of space, at the same time meet customer requirements.

In a globalised scenario suppliers are even more important as competition goes up manifold! The Tamil Nadu State Electricity Board imports coal from New Zealand despite huge coal reserves in India. For Volvo, India is a manufacturing hub.

3.3.6 Customers

A company may sell their products directly to the customer or use marketing intermediaries to reach them. Direct or indirect marketing depends on what type of markets Company serves. Generally we can divide the markets into five different categories. They are

a. Consumer market.

b. Business market

c. Reseller market

d. Government market and

e. International market

You will come to know about these five different markets from the following example.

MRF, a tyre company sells its product directly to consumer (in case of urgency, customer purchases directly from showroom) i.e. operates in consumer market. It operates in business markets by selling tyres to companies like Maruti Udyog limited. MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyres in African or American countries then it is operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumer at a profit then company is operating in the reseller market.

|Activity 1 |

|Analyze the micro environment of a nearby book store and point out how it has integrated the micro |

|environmental factors. |

Self Assessment Questions

1. A jobber is an example of a __________________

2. Banks are a part of _______________________

3. Business markets are part of the company’s ___________________

4. Today, companies have to manage relations with their ______________

in order to ensure timely supplies and meet customer’s requirements.

5. A company’s competition arises from its __________________ also

3.4 Company’s Macro Environment

Forces in the macro environment

[pic]

Figure 3.2

3.4.1 Demographic Environment

Demography: The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion.

Demography statistics helps companies to forecast demand. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors.

1. Age structure of the population

2. Marital status of the population

3. Geographic distribution of the population

4. Education level

5. Migration

6. Occupation.

Age structure of the population: from the following table you can generalize that 48% of the population in India are aged below 21yrs and 28% of the population are in the bracket of 21-25yrs. Many marketing companies are focusing on these two segments. For example, Radio Indigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music. Radio indigo targets youth segment who like western music.

TABLE 3.1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PERCENTAGE OF TOTAL POPULATION

[pic]

Marital status of the population:

TABLE 3.2: POPULATION BY MARITAL STATUS AND SEX: INDIA – 2001

[pic]

Half of the Indian population falls into the never married category. This could provide an opportunity for the organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. There are companies offering end to end solution to the customers who are looking for lavish weddings or designer wedding in exotic locations both in domestic and abroad.

Geographical distribution of the population

Table 3.3: Rural – urban distribution of the population

|  |Population |

|Persons |1,028,737,436 |

|Males |532,223,090 |

|Females |496,514,346 |

|Rural |742,617,747 |

|Urban |286,119,689 |

|% Urban population |27.8% |

Rural India with approximately 74 crore population is the biggest market. Companies are trying to grab a pie of this untapped market. For example, ITC with their e choupals in Haryana, have set up a market for agricultural products and other offerings. Such information provides insights for marketers to venture into hitherto green fields. The statistics thrown up helps marketers design products suitable to such markets.

Education level: More than 3 crore people in India either are graduates or post graduates. This has led to the growth of many sunrise sectors. This educated population fuelled the growth of information technology (IT), information technology enabled services (ITES), and biotechnology industries.

TABLE 3.4: NUMBER AND PERCENT LITERATES BY LEVEL OF EDUCATION: INDIA 2001

[pic]

Migration: Geographical shift in the population is becoming an interesting area in demographic studies. Table 6, lists out the various reasons for migration.

TABLE 3.5: NUMBER OF MIGRANTS BY PLACE OF BIRTH – INDIA 2001

[pic]

TABLE 3.6: REASONS FOR MIGRATION BY LAST RESIDENCE WITH DURATION (0-9 YEARS) INDIA 2001

[pic]

Marketers started identifying the niches in the migrated communities and offered their goods and services. For example, Nandhini, an Andhra restaurant in Bangalore cater to the needs of the Andhra community. Patrika, a Rajasthan based daily is now available throughout the country.

Occupation:

TABLE 3.7: DISTRIBUTION OF MAIN WORKERS BY DIFFERENT INDUSTRIAL CATEGORIES, INDIA 2001

[pic]

Agriculture is the main occupation of the people in India but the share of other services is growing rapidly. The other service category includes IT and ITES. Employees of these categories have high disposable income. This has led to the opening of specialty stores and manufacturing of luxury items in the country.

3.4.2 Political and Legal Environment

Government policies, legislations, regulations, and stability will directly affect the business. Therefore it is inevitable for the firm to closely monitor this environment. The political and legal forces are grouped into the following four categories.

Monetary and fiscal policies: These policies regulate government spending, money supply and tax legislations.

1. Social legislations and regulations. For e.g. Environmental Protection Act which specifies the emission level etc.

2. Legislations, Policies and regulations relating to industries: labour Acts, Factories Act and policies regarding subsidies and change in tariff rate will have direct impact on a particular company.

3. Legislations related to manufacturing, trading, marketing etc: Following are the list of legislations which affect the various activities of the company.

Table 3.8

|· Companies Act 1956 |· Industrial Dispute Act 1957 |

|· Consumer protection act |· Minimum wages act |

|· Payment of bonus act. |· Environmental protection act |

|· Industries development and regulation act. |· Trade union act |

|· Contract law |· Factories act 1948 |

|· The contract labor (regulation and abolition) act1970. |· Sales promotion employees’ act1976 |

|· Shops and establishment act 1953 |· Copyright act 1957 |

|· Trade marks act 1999 |· Patents act 1970 |

|· Designs act 2000 |· Foreign exchange management act 1999 |

3.4.3 Economic, Monetary and Natural Environment

These constitute a large number of variables which cannot be examined here in detail. The economic environment includes consumption patterns, productivity patterns, spending patterns, and sectored growth and so on. The monetary environment consists of inflation, interest rate, exchange rate, money supply etc. These provide vital clues for marketers to decide on product offering, incentive offerings, promotional decisions and pricing decisions. If the consumption pattern or expenditure behavior of the middle class shifts towards higher levels, marketers sees great opportunities for exchange offers, buy back offers etc. The middle class may like to upgrade and at the same time would like to get some value for their old goods.

If the government decides to offer loans to farmers at a low interest rate, marketers see opportunities to sell more farm equipments.

Consumer spending pattern

According to National sample survey 2005-06,

1. Monthly per capita consumption in rural area: Rs625.

2. Monthly per capita consumption in urban area: Rs1, 171.

3. Food expenditure in monthly per capita consumption: 53 %(Rural area)

4. Food expenditure in monthly per capita consumption: 40%(Urban Area)

The data above shows that a significant percent of the monthly per capita income is on food expenditure. Marketers in the non food category may have to come up with new ideas in promotion in order to change this spending pattern.

Interest rate: when interest rates are high, consumer tend not to make long term purchase like housing. If the interest rate is low people park their money in alternative financial options where they get better return. Marketers of financial products could seize this opportunity to promote new products. On the other hand the housing sector would do well to promote budget houses.

Inflation: Higher the inflation rate lesser will be the purchasing power of the consumer. Hence government always tries to control inflation within a limit. In situations of rising inflation marketers may not be able to avoid the increase in prices. They sometimes try to cover this fact by offering clever incentives to buyers. They may also arrange to offer EMIs to consumers. In recent times (September 2009) LEVI’s tried to woo middle income consumers to their store by offering EMI payments on their high priced apparels.

Changes in income: The rise in the salaries of the employees, improved performance of stock market and better industrial growth led to the change in the income pattern in India. Many Indians entered the millionaires and billionaires categories. This provided great opportunity for luxury brands to set shop in India. The advent of Gucci, Armani and others with exclusive outlets in metros is a sign of changing income patterns and affordability. A similar trend is noticeable in the tourism sector. Indian are a significant percentage of the tourist population in destinations like Singapore, Ireland, New Zealand and other European countries… Travel companies are targeting high net worth Indians to market their packages and also designing appropriate packages.

Natural Environment:

Environmental concerns are growing over the years. Governments are bringing in stringent regulations to conserve and manage natural resources. Marketers should beware of such trends in the environment. Some of the aspects/factors on which organizations should keep a vigil are;

a. Inadequate raw materials arising out of strict mining regulations

b. Global warming and pollution levels which have ushered in new legislations

a. A case in point is the conversion of three wheelers and city buses to CNG fuel. This provided great opportunity for manufacturers of such engines in New Delhi during the later part of 20th Century. On the other hand, manufacturers of low-end passenger cars had to attune their facilities to Bharat-I, Bharat-II and subsequent norms. The ban on smoking in public places forced tobacco manufacturers to tone down their marketing efforts.

3.4.4 Social and cultural environment

Growing urbanization, increasing participation of women in livelihood activities, advent of global cultural practices, greater exposure to life styles practiced world wide etc has altered marketing efforts remarkably. A club house and a swimming pool is an essential part of purchase decision for a flat in a metro. Marketers have encased this trend during the nineteen nineties and later too. Festivals have gained an urban color and marketers are packaging festivals offers accordingly. On the other hand the rural populace has been exposed to urban life style thanks to the electronic media. Companies like Hindustan Lever have successfully marketed their low priced offerings of toiletries and cosmetics in the rural areas. While this transformation is over a wide canvas, we mention below some of the major changes which have affected the marketing efforts.

1. Working women and the rise of metro sexual man.: The number of working women in India is ever increasing. This segment is looking towards products which help them in bringing better work life balance. MTR a fast food giant in South India started offering ready to eat products to this segment. Metro sexuality is another new phenomenon, wherein a man also assumes the role of women and plays a role in purchasing household items and helping kids’ chose products. It has made the marketers’ task more difficult in positioning their products. The shift in decision making is a challenge to marketers who till now focused on mothers to promote household items of daily use and also items relating to kids.

2. Jet set people: This segment involves people who work long hours and have less personal time. These are also working people who hop in and hop out of their house at a phone call. These people are looking for products and services which consume less time and are convenient. For example, Easy bill, from Hero group offers one stop solution to consumer to pay their utility bills and do other financial transactions.

3.4.5 Technological environment

There are several tumultuous changes being wrought in the technological from which is transforming the way business is conducted. The changes are so rapid and sweeping those enterprises have found it difficult to keep pace. Several have fallen by the wayside for failing to keep with the changes. Major public sector undertakings in India which did not upgrade in time and closed their shutters are, ITI, HMT, and HTIF. On the other hand in the private sector, Hindustan Motors, LML etc are examples who were known as flag bearers, collapsed once they fell behind in the race for technology. Some of the major changes are as follows:-…

1. Growth of information technology and biotechnology industries: Information technology has revolutionized the lives of the people. It bought dramatic changes in the way organizations operates. It helped in cost reduction, automation, better communication and efficiency in the organizations. New business platforms emerged, popularly know as e-commerce, e-business, and e-marketing. There were synergies among widely different fields such as informatics and life sciences which opened up new streams of business as bioinformatics, clinical research, biotechnology, medical technology etc. The marketing opportunities thrown up by these new entrants, in turn, helped management institutes to design MBA programs in these new streams.

In the field of marketing, the virtual space provided new challenges to use the marketing mix, specially the issue of advertising and logistics which are important parts of ‘promotion’.

2. Nano technology: Another development which has shaken the world of electronic products is nano technology. On the one hand it has miniaturized products and combined multi-product features and on the other it has given marketers sleepless nights to maintain pace with their marketing efforts. The challenge has been in differentiating the offers and providing visibility at a rapid pace with increasing numbers of variety being rolled out in great frequency. Just imagine how thinner and smaller the cell phone is becoming with each passing day! And the number of players in the market??? Add to them the features!!

|Activity 2: |

|Identify the macro environment of a local furniture maker and how it influences his business. |

3.4.6 Difference between Micro Environment and Macro Environment

Table 3.9

[pic]

Self Assessment Questions

Are the following questions true or false?

6. Demographic factors include social class.

7. The Factories Act is an example of social legislation

8. Consumer spending pattern is a part of the economic environment

9. The economic environment includes inflation, interest rate and exchange rate

10. Metro sexuality is a part of the socio-cultural environment

3.5 Techniques of Environmental Scanning

The knowledge of the environment is useful as long as the marketer is able to make a forecast based on the information derived. The techniques of environmental scanning include the sources of information and the system developed to collate and sift information so as to provide a data base for adequate forecasting. Mere collection of information serves little purpose. Today there are specialized agencies providing customized information to marketers.

PEST (Political and legal, economic and natural, social and cultural, and technology environment) Analysis:

Table 3.10

|Factors |Opportunity |Threat |

|1. Political and legal environment |  |  |

|a. Monetary policy |  |  |

|b. Fiscal policy |  |  |

|c. Environmental policy |  |  |

|d. Lobby groups |  |  |

|2. Social and cultural environment |  |  |

|a. Gender |  |  |

|b. demographics |  |  |

|c. work culture |  |  |

|3. Economic and natural environment |  |  |

|a. Income |  |  |

|b. Spending power |  |  |

|c. Inflation |  |  |

|d. Interest rate |  |  |

|e. Raw materials |  |  |

|f. Taxation |  |  |

|4. Technology environment |  |  |

|a. Entry barriers |  |  |

|b. Growth of technology |  |  |

|c. Transfer of technology |  |  |

3.6 Summary

· Environment scanning is necessary to understand opportunities and threats faced by the company.

· Micro environment factors like marketing intermediaries, suppliers, competitors, publics and customers influences company’s strategies. These are controllable to some extent.

· Population variables like age, gender, marital status and occupation helps the company to assess the market and change or develop their offerings

· Micro environment is more controllable by the company than its Macro or external environment. Since macro environment is large, it can include circumstances that are uncontrollable by the company.

· PEST analysis is a method by which organizations can examine their macro environment and know the opportunities or threats.

· Micro and macro environment are differentiated on the basis of size, complexity and uncertainty.

List of Key Terms

Macro environment

Micro environment

Environmental scanning

Supply chain

Intermediaries

Suppliers

Publics

Competitors

Customers

Demographic environment

Political and legal environment

Social and cultural environment

Economic and natural environment

Technological environment

Metro sexuality

3.7 Terminal Questions

1. Explain the need for environment scanning.

2. Select any company of your choice and briefly describe its micro Environment

3. Name any two major forces in the Indian macro environment and Describe its implications for marketing strategy.

3.8 Answers

Answers to Self Assessment Questions:

1. Intermediary

2. Financial publics

3. Micro environment

4. Suppliers

5. Substitutes

6. F

7. F

8. T

9. T

10. T

Answer to Terminal Questions:

1. Refer 3.2

2. Refer 3.3

3. Refer 3.4

3.9 Mini-Case:

Challenges of Maya Footwear business

Maya Footwear was a well-established and well recognized retail outlet in Lucknow. Mr. Mayachand, the proprietor had seen it grow from strength to strength in the last 20 years. The store prided itself on its quality products and enjoyed a good reputation in the market. In recent times, many departmental stores came up in the city and competition was getting intense. Mr. Mayachand’s major concern was about losing patronage to the bigger stores as they were offering products at lower prices. He knew he could not compete on prices even though he considered his business to provide excellent customer service and offer extensive product range to many segments.

When Mr. Mayachand analyses the strengths of his outlet he notes down the following points:

a) A strong supply chain

b) Large group of loyal customers

c) Well designed interiors inside the outlet

d) Good commercial location

e) Another outlet in the creation process at the eastern part of Lucknow

He also anticipates the probable drawbacks and lists them:

a) Suppliers demanding higher rates for the goods supplied

b) Suppliers not being committed enough to deliver goods on time

c) Suppliers integrating their business with the departmental stores

d) Customers drifting on account of few other customers moving out

e) Competitors making an offer to combine or integrate the outlet with their stores, in the due course eliminating Maya Footwear as a brand

Mr. Mayachand is concerned about the competition and the threat of declining sales. But in the given situation, Mr. Mayachand is determined to survive or even surpass the competition. Presently, he is wondering what kind of actions he could possibly implement to maintain the sales as well as the outlet’s reputation. Advise him.

(Source: Modified case based on original case study in Cases and Simulations in Marketing Management edited by Prof. M.K. Rampal and Dr. S.L. Gupta)

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MB0046-Unit-04-Understanding the Marketing Information Systems (MIS)

Unit-04-Understanding the Marketing  Information Systems (MIS) 

Structure:

4.1 Introduction

Learning Objectives

4.2 Characteristics of MIS

4.3 Benefits of MIS

4.4 Types of Marketing Information

4.5 Components of MIS

4.6 Marketing Research

4.7 Features of Marketing Research

4.8 Objectives of Marketing Research

4.9 Marketing Research Process

4.10 Importance of Marketing Research

4.11 Advantages and Limitations of Marketing Research

4.12 Summary

4.13 Terminal Questions

4.14 Answers

4.1 Introduction

In the earlier chapter, we saw how marketing environment is changing and presenting new opportunities and threats to an organization. The main responsibility for identifying significant changes in the market place falls on the marketing department. They are better placed and have advantages in undertaking this task because they are regularly interacting with customers and observing competition.

The Marketing Departments need to develop Marketing Information Systems that provide them information about buyer wants, preferences, behavior and also about competition. They are able to do this by setting up systems and marketing related research methods to collect this valuable information which is ultimately used to make marketing decisions.

A Marketing Information System is a set of procedures to collect, analyze and distribute accurate, prompt and appropriate information to different levels of marketing decision makers.

Learning Objectives

After studying this unit, you will be able to:

· Understand the concept of Marketing Information System, as well as its characteristics & benefits.

· Outline different components of a Marketing Information system and classify different types of Marketing Information that are being used.

· Understand the role and scope of Marketing Research in making Marketing decisions.

· Frame the objectives of a typical marketing research study,

· Work out the steps involved in Marketing Research process and arrive at the findings and observations

4.2 Characteristics of MIS

Philip Kotler defines MIS as “a system that consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers.

Its characteristics are as follows:

1. It is a planned system developed to facilitate smooth and continuous flow of information.

2. It provides pertinent information, collected from sources both internal and external to the company, for use as the basis of marketing decision making.

3. It provides right information at the right time to the right person.

A well designed MIS serves as a company’s nerve centre, continuously monitoring the market environment both inside and outside the organization. In the process, it collects lot of data and stores in the form of a database which is maintained in an organized manner. Marketers classify and analyze this data from the database as needed.

With the advent of Computer Technology, MIS has taken a step further to provide managers direct access to the databases. This system called Marketing Decision Support System (MDSS) links a decision maker to relevant databases and analysis tools, thereby allowing him to gain deep insights into needs and trends of customers with the help of sophisticated statistical analysis.

Today companies organize the information in databases such as customer database, product database, and field sales database and combine them to be stored in a huge database called Data Warehouse. The process of searching through information in data warehouse to identify meaningful patterns that guide decision making is called Data Mining.

4.3 Benefits of MIS

Various benefits of having a MIS and resultant flow of marketing information are given below:

1. It allows marketing managers to carry out their analysis, planning implementation and control responsibilities more effectively.

2. It ensures effective tapping of marketing opportunities and enables the company to develop effective safeguard against emerging marketing threats.

3. It provides marketing intelligence to the firm and helps in early spotting of changing trends.

4. It helps the firm adapt its products and services to the needs and tastes of the customers.

5. By providing quality marketing information to the decision maker, MIS helps in improving the quality of decision making.

4.4 Types of Marketing Information

A Marketing Information System supplies three types of information.

1. Recurrent Information is the data that MIS supplies periodically at a weekly, monthly, quarterly, or annual interval. This includes data such as sales, Market Share, sales call reports, inventory levels, payables, and receivables etc. which are made available regularly. Information on customer awareness of company’s brands, advertising campaigns and similar data on close competitors can also be provided.

2. Monitoring Information is the data obtained from regular scanning of certain sources such as trade journals and other publications. Here relevant data from external environment is captured to monitor changes and trends related to marketing situation. Data about competitors can also be part of this category. Some of these data can be purchased at a price from commercial sources such as Market Research agencies or from Government sources.

3. Problem related or customized information is developed in response to some specific requirement related to a marketing problem or any particular data requested by a manager. Primary Data or Secondary Data (or both) are collected through survey Research in response to specific need. For example, if the company has developed a new product, the marketing manager may want to find out the opinion of the target customers before launching the product in the market. Such data is generated by conducting a market research study with adequate sample size, and the findings obtained are used to help decide whether the product is accepted and can be launched.

4.5 Components of MIS

The following diagram shows a typical Marketing Information System with its components. Which are?

1. Internal Records System

2. Marketing Intelligence System

3. Marketing Research System

4. Analytical Marketing System

The Marketing Information System

[pic]

Marketing decisions and Communications

Figure 4.1

Source: Philip Kotler, Marketing Management: Analysis, Planning and Control, 5th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1984), p. 189

Internal Records System

This includes information on (i) Order to payment cycle and (ii) sales information systems.

Order to payment cycle has a system which records, the timing and size of orders placed by consumers, the payment cycle followed by consumers and the time taken to fulfill the orders, in the shortest possible time. Customers place order through sales people and companies dispatch the goods and receive payments directly or through bank. A proper record system pertaining to order – to – payment cycle management helps mangers to decide on production and dispatch schedule, inventory and accounts receivable schedule and also logistics and distribution management schedules,

Sales Information Systems records everything in the sales department, starting from Sales Call Reports to prospects history to Sales territory and quota information for better sales planning and forecasting purpose.

Marketing Intelligence System

This is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. This system supplies ‘happenings’ data unlike Internal Records System which supplies ‘results’data. Marketing managers collect data from publishedsources like books, magazines and journals; by talking to customers, intermediaries and sales personnel. Some companies appoint specialists to gather consumer and competitor information, who does mystery shopping to monitor the performance of their own or competitor’s dealers. Competitor information can also be obtained by buying their product, attending their press conferences, trade shows and reading their annual reports. Companies purchase commercial information from outside suppliers and market research agencies like IMRB, ORG – MARG to obtain competitive data on their sales, advertising expenditures etc., besides their own.

Marketing Research System

This is the third component of MIS. Marketing Research provides information to marketing manager when he/she encounters marketing problems. This may involve conducting Marketing Research survey by collecting primary data. These surveys may be conducted by the marketing department itself or it can hire services of an external marketing research agency.

Analytical Marketing Systems

Also known as Marketing Decision Support systems (MDSS), this is a co-ordinate collection of data, systems, tools and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action. All the data which is generated through the other three systems described above are stored in a data base. The storage and retrieval capability of decision support system allows the collection and use of a wide variety of data throughout the company. Senior managers can access the data base and continually and monitor sales, markets, performance of the sales people and other marketing systems as well.

Self Assessment Questions

1. A Marketing Information System (MIS) caters to the needs of ______________

2. MIS enables a company to develop effective ______________ against emerging marketing threats.

3. _____________ Information is the data that MIS supplies periodically.

4. ____________ Information is developed and provided in response to any specific data requested by a marketing manager.

5. In Marketing Decision support systems, the manger is provided direct access to _______________

4.6 Marketing Research

Earlier we saw that Marketing Research is an important component of the Marketing Information System. Marketers need to acquire good understanding of their own markets to monitor the changing environment. They need information to assess their own past performance as well as to prepare future marketing plans. Hence they require timely and accurate information on their consumers and competitors as well as on the performance of their products. In today’s highly competitive and complex environment consumer needs are changing at a fast pace. Hence decision making is very challenging.

Marketing Research performs the task of collecting, recording and analyzing relevant data. Thus, it has emerged as one of the important activities of the marketing function.

American Marketing Association (AMA) defines Marketing Research as –

Definition: Marketing Research is the function which links the consumer, customers and public to the marketer through information – information used to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process.

Philip Kotler defines Marketing Research as – the systematic design, collection, analysis and reporting of data findings relevant to a specific marketing situation facing the company.

4.7 Features of Marketing Research

1. It is a systematic process – It has to be carried out in a stepwise and systematic manner and the whole process needs to be planned with a clear objective.

2. It should be objective – It is important that the methods employed and interpretations are objective. The research should not be carried out to establish an opinion nor should it be intentionally suited towards predetermined results.

3. It is multi-disciplinary – Marketing Research draws concepts from other disciplines such as Statistics for obtaining reliable data and from Economics, Psychology and sociology for better understanding of buyers.

4.8 Objectives of Marketing Research

Marketing Research may be conducted for different purposes. Based on how organizations use Marketing Research, objectives of Marketing Research can be summarized as follows:

1. To understand why customers buy a product

2. To forecast the probable volume of future sales or expected market share

3. To assess competitive strengths and strategies

4. To evaluate the effectiveness of marketing action already taken

5. To assess customer satisfaction of company’s products/services

Exhibit 1

|Following is the example of TATA Nano: |

|Management decision problem |

|Will the conversion of ‘Nano’ to a taxi affect brand image |

|and consequently sales? Will initial demand may lead to stock out. |

|Whether the prices of ‘Nano’ will be sustained over a |

|period of time with the economic changes in raw material |

|price rise? With the hike in sales of ‘Nano’, whether the infrastructure |

|of the country will be able to sustain the volume of traffic? |

|Will the Protest of farmers against Nano plant in Singur will |

|affect the sale? Will General Perception of brand “TATA” in small car |

|segment affect the sale? |

|Marketing research problem |

|As price of Nano is around One Lakh rupees, possibility of car being used as taxi cannot be avoided. Time to |

|convert raw material into Nano |

|Determining the trends in steel, rubber and other raw material prices |

|The focus of India in building infrastructure and spending trends |

|They thought that they are cheated by the government. |

|Tata is known for heavy commercial vehicle. This common perception can affect the sale of Nano. |

4.9 Marketing Research Process

Every marketing research problem is different requiring a special approach or emphasis. Still there is a sequence of steps, called the research process which can be followed in all the marketing research studies and projects. Each step in this research process in independent but it is closely related to other steps, because the result of the preceding step is the basis for the succeeding step.

[pic]

Fig. 4.2: Marketing Research Process

Step I – Define the problem and research objectives

It is said that ‘a problem well – defined is a problem half – solved’. A careful and precise definition of the marketing problem will lead to useful and relevant results which can solve the marketing problem.

Each research project should have one or more objectives which form the broad frame within which research has to be conducted.

It is very important to formulate the problem properly as being the first step in the process; any error in this can mislead the entire study towards incorrect and erroneous results.

Step II – Develop the Research Plan and Design

A Research plan is simply the framework within which collection and analysis of data is undertaken. This step involves decisions on the data sources, research approaches, research instruments, sampling plan and contact methods.

1. Data sources – The researcher has to decide which data sources to use – Secondary Data or Primary Data or both.

Secondary Data are data which collected for some other purpose or for commercial purpose of selling.

Primary Data are freshly gathered for a specific purpose or a specific research project. Researchers usually look for Secondary Data to see whether the research problem can be partly or fully solved without collecting primary data. Secondary Data, when available, should be checked for reliability, accuracy and relevance to specific situation. If so, it is a much better option as it is cheaper and is immediately available. If such needed data is not available, primary data will have to be collected.

2. Research Approaches – Primary Data can be collected using any of the five approaches. They are:

1. Observational Research – Fresh data can be collected by observing the situation and the people in the situation.

2. Focus Group Research is a method of discussion in which a team of eight to twelve persons invited for a group discussion in presence of a skilled moderator to discuss a product, service, a firm or any marketing related activity. The proceedings are observed and recorded on videotape and subsequently analyzed to understand consumer attitudes, beliefs and behavior.

3. Survey Research – This is the most common of the approaches wherein surveys are undertaken with the help of a questionnaire to learn about people’s knowledge, beliefs and preferences.

4. Behavioral Research – Customer’s actual behavior in terms of actual purchases reflect their preferences and are more reliable than responses provided in surveys which are memory based.

5. Experimental Research – The most scientific method of research is experimental research which tries to capture cause and affect relationships.

Experiments are conducted by selecting matched groups of subjects, which are subjected to different treatments. Extraneous variables (The external variable that affect the research process) are controlled and then responses of the two groups are observed and checked for statistically significant differences, if any. Since the extraneous factors are eliminated or controlled, the observed effects are related to the variations in the treatments.

3. Research Instruments – There are mainly two types of research instruments: questionnaires and mechanical devices

i Questionnaire – This consists of a set of questions logically arranged and presented to the respondents to answer. Questionnaire is the most commonly used instrument for collection of primary data due to its flexibility. It needs to be carefully prepared and pre – tested before being used for actual data collection.

ii Mechanical Devices – Mechanical Devices such as galvanometers are used to measure the interest or emotions aroused by exposure to an ad. Eye Cameras study respondent’s eye movement to see which part of an ad attracted attention first and how long they pay attention to a single item. These days Television audience ratings are measured using Audiometers which can be attached to TV’s in a set of sample households. These devices record when the set is on and to which channel it is tuned. The data collected by mechanical devices are generally found to be more accurate than by human observation.

4. Sampling Plan – Now the researcher must prepare a sampling plan which outlines who should be surveyed (Sampling Unit), How many should be surveyed (Sample Size) and how should they be selected for the survey (Sampling Procedure).

i Sampling Unit – Researcher must define the element of the target population by whom information shall be collected. For example, housewife or a youth between 16 – 25 years or an office located on M. G. Road.

ii Sample Size – Large samples provide more reliable results than smaller samples. But normally sample size is decided based on nature of the study and variance in the population, level of accuracy desired and above all money available for research.

iii Sampling procedure – Two types of methods are available for selecting the samples – Probability Sampling and Non– Probability Sampling.

Probability sampling method requires that each element of the population has an equal or known chance of getting selected. It also allows the calculation of confidence limits for Sampling Error. Three commonly used Probability sampling methods are Simple Random Sampling, Stratified Random Sampling and Cluster Sampling.

In Non Probability Sampling method, respondents are chosen on the basis of researcher’s judgment or convenience and this method does not allow sampling error to be measured. In spite of these limitations, many researchers take Non – probability samples due to time and cost constraints. Three commonly used Non – Probability sampling methods are Convenience Sampling, Judgment Sampling and Quota Sampling.

5. Contact Methods – Now the researcher has to decide how the respondent should be contacted. The choices of methods available are mail, telephone, personal interview or online interview.

Mail Questionnaire – This is the best way to reach people who may not give personal interview or if the subject of the study is of a personal nature. This questionnaire should be simple and clearly worded so that respondent can fill up the answers without any assistance. The response rate in this method is usually low and responses come slowly.

Telephone Interview – This method is very quick way for gathering information. The method is interactive, in case any clarification is required, but such an interview typically should be short. Only few questions can be asked through this method. In India, Telephone interviewing is difficult as people do not like to answer questions coming from strangers.

Personal Interview – This is the most versatile method which can be adapted to any kind of research subject. By face to face interaction researcher will be able to make personal observations. It is the most expensive and also time consuming method. Personal Interviews can be undertaken after arranging interviews at the respondent’s premises or at Shopping Malls by stopping people and requesting interview. The latter method is called Mall Intercept Method. This method is necessarily a non – probability method but is less expensive and does not take too much time.

Online Interviews – There are many ways to collect information through the internet. A Company can put a questionnaire on its web site and offer incentive to people to answer; a banner can be kept on a popular site like Yahoo!, inviting people to answer some questions and win a prize. Every day new methods are being evolved to start a new way to collect data. Advantages of online Interview are that it is very inexpensive and can be very fast, whereas disadvantage is that it has limited reach and results can be skewed.

Step III – Collect the Information – After designing the research instrument, the researcher should now actually contact the respondent and collect the information. At this stage, it is very important to keep the quality of the data under control by ensuring accurate unbiased answers and by seeking the entire respondent’s co – operation. In case the researcher has to appoint data collectors to collect the information from respondents, they must be well trained and motivated.

Step IV- Analyze the information –In this stage researcher collects the data and codify it. Nowadays, many questionnaires are pre coded which makes the task of data entry very easy. The coded data is then tabulated to provide frequency distributions. Tabulated data is now analyzed. Averages and measures of dispersion are computed for the major variables. Advanced Statistical Techniques are used to discover findings. Here the data is converted to information which may be used in decision – making.

Step V – Present the findings – At this last step, the researcher should present findings to the decision makers or users of the information.

Normally, the findings are presented in the form of a report which should present the following aspects of the research undertaken.

General Format of a Report

1. Introduction – An introduction to background of the marketing problem and the firm.

2. Statement of Purpose – Statement of purpose and objectives of the study including hypothesis/hypotheses is/ are proposed.

3. Research Methodology – Methodology of data collection used and tools used, Sampling Procedure used and Sample Size, Limitations of the study if any.

4. Analysis of Data – Includes tables /graphs and statistical analysis used along with data interpretation.

5. Findings and Conclusions – Major findings and conclusions.

6. Recommendations – Recommendations for action.

7. Appendix and Bibliography.

Exhibit 2

|Continuing the example of TATA Nano, the analysis is as follows: |

|Hypothesis (or assumptions) |

|Conversion of ‘NANO’ to a taxi do not affect the brand image and consequently sales. |

|NANO is safe for driving. |

|Hike in price of NANO will not affect the sale. |

|People prefer to purchase the NANO instead of two wheeler. |

|People can wait for NANO for few months. |

|Focus group |

|Group Size-10 |

|Time Duration-1 hour |

|Characteristics of Respondents:- All have driving experience |

|Between age group 18-25 |

|All have a Good Knowledge of Nano |

|Results of Focus Group |

|Survey |

|Sample Size-330 |

|Sample groups Location |

|Data collection involves a field force and electronically |

|Age Groups-20-25 |

|26-35 |

|36-45 |

|45+ |

|Both Males and Females |

|Result withdrawn from survey |

|The first thing about NANO, which comes in the mind of all age group (male and female) is- “compact”, |

|“affordable”, “choti si” (small) and “economic”. |

|Most of the respondents both male and female of all age groups want to purchase NANO instead of a two |

|wheeler. But the females (70%) between age group 36-45 are highest among all the age |

|groups. |

|From the finding it came out that most of the respondents both male and female of all age group consider |

|price as the major purchasing factor while on the other hand there are many who consider all the factors- |

|price, mileage, design, and interior space. But there is a degree of variation in these preferences. |

|In the colour preference there is a wide difference in their choices. |

|This is as follows- |

|Females love to see their NANO mostly in white and silver colour. |

|Males in the age group 20-25yrs give weightages to silver and red, and the remaining age groups prefer white |

|and silver only .Yellow is found to be the least preferred colour, while there is a significant likeliness |

|for the black colour also. |

|Females in the age group 20-25 explores a shocking preference for NANO to offer it to their children, also |

|age group 26-35 want to offer NANO to their children, and the age group 36-45 want to use it as a |

|“Family Car” for shopping and travel and 46+ want to offer NANO as a “gift”. |

|Males in the age group 20-25 and 26-35 want to use it as a family car for shopping and travelling. And the |

|age group of 36-45 gives their preference for NANO to offer it to their children. And 45+ want to offer |

|NANO as a gift. |

|Promotion of Tata NANO in the “Delhi’s Auto Expo” proved to be a great success for NANO. And with the time |

|before its launch on the roads it (NANO) emerged as the people’s car. All the age groups would like to |

|recommend NANO to their relatives once they have a good driving experience of NANO after its launch. |

|Most of the Females can’t wait for NANO after placing the order but females in the age group 26-35 are ready |

|to wait for NANO from 4-6 months. |

|Most of the Males in the age group 20-25 and 36-45 are ready to wait for 2-6 months while others in the age |

|group 26- 35 can wait for 4-6 months but 45+ are not ready to wait for NANO. |

|Females of all age groups and males of 20-25 and 36-45 age groups do not favour the increase in price. While |

|the people below 35yrs do not believe that “Tata will be able to maintain the price” |

|Most of the people of all age group do not care about NANO being used as a taxi, as they feel that this will |

|not hurt their feelings regarding NANO. |

|But females of age group 20-25 do not favour NANO being used as a taxi as this will embarrass them. All the |

|people believe that there will be a huge traffic problem withthe increasing number of NANO running on the |

|roads. |

|Females of age group 20-25 and 36-45 can’t trust NANO for safety while the age group 26-35 and 45+ do believe|

|in NANO for safety. In case of the males, the age group between 20-25 and 26-35 can’t |

|trust NANO for safety, while the others do believe NANO for safety. |

|Suggestion |

|Tata should increase the production of NANO so that customers don’t have to wait much for their car, as they |

|feel urgency for NANO. As people believes that NANO is people’s car, and will be affordable by common men |

|which was a dream earlier for them. So the price should be kept stable in future with the increase in price |

|of raw material. Otherwise it will be out of their reach and people believe in Mr. Ratan Tata’s statement of-|

|“Promise is a promise”. |

|Tata should give exchange offer against a two/four wheeler so that those consumers can be easily converted to|

|NANO users. Safety measures can be enhanced, because people consider it as their prime concern while |

|purchasing. An option for customization should be available. |

|Analysis |

|Project on marketing research was a learning experience and brought us close to NANO and provided us depth |

|knowledge through focus group and survey. Focus group ended up with innovative findings, which helped us in |

|going further on the research. But some time in between the focus group was leading to group discussion Which|

|was handled carefully without hurting the feelings of the respondents. |

|Survey highlighted some futuristic facts about NANO, i.e. Females in the age group 20-25yrs want to offer |

|NANO to their children. Respondents understood this question with their own interpretations. Which tells us |

|that questions asked to the respondents should be more simplified? Because the respondents are diversified. |

|(Source: ) |

4.10 Importance of Marketing Research

With the increase in customer orientation, it has become necessary to acquire information on consumers’ needs, preferences and opinions. This will help the marketers to make changes in the marketing mix. Thus marketing research is a very important and useful tool in enhancing the decision – making ability of the marketer in today’s dynamic environment.

|Activity 1: |

|You are appointed as a marketing executive in a company manufacturing multi-purpose ayurvedic cream. The |

|company wants to know their market position in the state of Rajasthan. You are expected to carry out a market |

|survey. The objective is to get the results as early as possible and which involves less expenditure. So, list |

|out the steps you will take to achieve the above objective. As a marketing executive, mention the types of |

|information that you seek in order to get the accurate market position of the company. |

Self Assessment Questions

6. ___________ involves collection of information from a group of 8 – 12 persons who are invited to discuss matters related to a product or service.

7. ____________ Data are data collected for some other purpose.

8. _______________ Research tries to capture cause and effect relationships.

9. In _____________ sampling method, respondents are chosen based on researcher’s judgment or

10. ______________ Method involves stopping people while they are shopping and requesting an interview.

4.11 Advantages and Limitations of Marketing Research

Advantages:

1. It uses a scientific approach in designing the problem and finding out alternative solutions through use of statistical and mathematical techniques.

2. It helps to make better marketing decisions as they are based on authentic information, rather than pure judgment or guess work.

3. It helps in evaluating the effectiveness of various marketing actions and draws attention to likely problem areas.

4. It is helpful in ascertaining the reputation of the firm and its products.

5. It helps the firm in knowing the marketing and pricing strategies of its competitors.

6. It is helpful to a firm in making sales forecasts for its products and thereby, establishes a harmonious match between demand and supply of its products.

Limitations:

Like any other managerial tool, marketing research is not free from flaws. It is seen that in many cases, wrongly executed marketing research project or improperly interpreted findings, has had to disasters in business. Following are some of the limitations of marketing research.

1) Not an exact Science: Though marketing research uses scientific methods but it is not an exact science. It deals with human behavior and many controllable and uncontrollable factors, which influence marketing forces, play their role.

2) It is not a panacea: Marketing Research can only provide accurate information, based on which marketers have to take their decision using their experience and judgment as well. Marketing Research is only an aid, it does not provide solutions.

3) Human Tendencies – Consumers, dealers, wholesalers etc are the basic constituents on whom marketing research is carried out. Human beings behave artificially when targeted for research information. These aspects of human behavior affect the quality of marketing research data.

4) Inexperienced research staff: It needs well trained and experienced researcher, interviewer and investigator, otherwise quality of data will be adversely affected.

5) Involves high cost: It is considered a luxury or a wasteful activity in India, as it involves high cost.

6) Limitations of tools and techniques: The validity of marketing research is also limited by the limitation of tools and techniques involved.

4.12 Summary

· Marketing Research is the systematic gathering recording and analyzing of data about problems relating to marketing of goods and services.

· Marketing managers need a Marketing Information System (MIS) to carry out their tasks of analysis, planning, implementation and control related to the marketing function, effectively.

· By providing timely and accurate information, MIS helps in improving the quality of decision – making.

· An MIS has four Components (I) Internal Records System (II) Marketing Intelligence System (III) Marketing Research System (IV) Analytical Marketing System.

· Marketing Research Process refers to a set of sequential steps to be followed to conduct a marketing research study.

· The main features of Marketing Research are that it is a systematic process; it should be objective and it is multidisciplinary in nature.

· With the changing character of markets, increase in Customer needs and wants and increasing competition, it is important that marketers acquire information about consumer, the markets and the competition. So, Marketing Research becomes an important tool for marketers as an aid in decision making.

List of Key Terms

Information system

Data warehousing

Data Mining

Marketing Intelligence system

Marketing research

Report

4.13 Terminal Questions

1. Explain the benefits of MIS?

2. Discuss briefly the process of Marketing Research?

3. What are the features of Marketing Research?

4. What is the usefulness of Marketing Decision support system?

5. Write a short note on limitations of Marketing Research?

4.14 Answers

Answers to Self Assessment Questions:

1. Marketing Decision – Makers

2. Safeguard / Defuse

3. Recurrent

4. Customized

5. Databases

6. Focus Group Research

7. Secondary

8. Experimental

9. Non – Probability

10. Mall Intercept

Answers to Terminal Questions:

1. Refer to 4.3

2. Refer to 4.9

3. Refer to 4.7

4. Refer to 4.5

5. Refer to 4.11

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MB0046-Unit-05-Consumer Buying Behavior

Unit-05-Consumer Buying Behavior

Structure:

5.1 Introduction

Learning Objectives

5.2 Characteristics affecting Consumer Behavior

5.3 Types of Buying Decision Behavior: Henry Assael Model

5.4 Consumer Buying Decision Process

5.5 Buyer Decision Process for New Products

5.6 Buying Motives

5.7 Buyer Behavior Models

5.8 Summary

5.9 Terminal Questions

5.10 Answers

5.1 Introduction

Consumers are individuals, households or businesses who use the products. In this unit we are limiting our study to individual and households’ use of products for personal consumption. Consumer characteristics vary from country to country. Therefore it has become challenging task for marketer to understand the need, buying behavior of consumer before developing product and marketing program. In this section we will discuss consumer buying behavior and his/her decision making process. We will also look into the decision process of buyer for new product. Consumer motives and behavior models are analyzed to identify buying environment.

Learning Objectives

After studying this unit you will be able to

· Identify the characteristics those affect consumer behavior.

· Explain different types of buyer behavior.

· Analyze the consumer decision making process

· Discuss consumer decision process for new products.

· Examine the buying motives and behavioral models.

5.2 Characteristics affecting Consumer Behavior

Cultural, Social, Personal and Psychological factors influence the consumer behavior. These are external to the company and cannot be controlled. Marketer would like to understand the impact of these factors on his/her organization

I. Cultural factors:

1. Culture is the combination of customs, beliefs and values of consumers in a particular nation. Majority Indians are vegetarians and a company which sells non vegetarian items should analyze these values of the consumer. For example, KFC which sells chicken dishes all over the world added vegetarian burgers in their menu to serve vegetarian consumers. Another multinational McDonald, whose majority of sales comes form selling beef lets, didn’t include in the Indian menu as cow is a sacred animal.

2. Subcultures are part of culture comprising, geographic regions, religions, nationalities and racial groups. The value system of these groups differs from others. For example, Hindus in north India eat special vegetarian food during the Navaratra festival. They prefer to spend their time with their family. During this time restaurants will have lesser traffic. To attract the customers, restaurants started offering the authentic Navaratra dish. This helped the restaurant to attract the family who don’t have time, bachelors and people want to spend their time with family without allotting much time for food preparation and so on.

3. Social class – these are permanent groups in the society whose members have common likings. According to Mckinsey consumer report, Indian consumers can be classifies into five different categories. They are,

a. Deprived

b. Aspires

c. Seekers

d. Strivers and

e. Global Indians.

1. Deprived are the people who earn less than Rs 90,000 annually. This group is also known as below poverty line. They are the poorest people in the country. They won’t get continuous employment and they earn their lively hood from seasonal work. People in this category will do less skilled or semi skilled work.

2. Aspires belongs to the families who earn between Rs90, 000 to Rs 2, 00,000. This group consist small shop keepers, industrial workers, and small land holding farmers. Though they earn more than deprived class, but half of their money goes for basic amenities and food.

3. Seekers earn between Rs 200,000 to 500,000. This class varies largely. The group contains fresh workers, middle level employees, government employees and business people. The class varies widely on the age, attitude and other factors.

4. Strivers belong to the group who earn between Rs 500,000 to 1,000,000. People in this category are considered very successful. The group contains business people, large farmers, senior government officials and professionals. Their earnings are enough to fill their apatite of materials. They are leading the consumption led growth in India.

5. Global Indians are earning more than Rs 1,000,000. This group is comprised of senior government officials, professionals, business people and top business executives. India is witnessing the growth in this class. They are truly global; they purchase international brands and have international cuisine.

II. Social factors

Human beings are social animals. They live and interact with other people. Therefore there is a chance of influence by others on their opinions. Marketers like to identify such influential persons or groups of consumer. Generally such groups are classified into two major groups namely reference groups and family.

Reference groups are used in order to evaluate and determine the nature of a given individual or other group’s characteristics and sociological attributes. Reference groups provide the benchmarks and contrast needed for comparison and evaluation of group and personal characteristics. “Reference groups are groups that people refer to when evaluating their own qualities, circumstances, attitudes, values and behaviors." – William Thompson & Joseph Hickey, Society in Focus, 2005” Reference groups act as a frame of reference to which people always refer to evaluate their achievements, their role performance, aspirations and ambitions

Family: Indian culture gives utmost importance to the family. People discuss with their family before purchasing the valuable items. Wife, children and parents influence the decisions of the family. Therefore many companies use either whole family or kids in their promotional programs.

[pic]

Godrej introduced memory back up auto washing machine. They have shown the family in the advertisement who are enjoying without any problems of washing clothes. In the second advertisement Dabur chyavanprash uses kids in their advertisements. The target customers are used with celebrity to provide necessary image and convey the attributes of the product.

III. Personal factors

Individual factors like age, occupation, lifestyle and personality influence the consumer decision making. We discussed age and occupation factors and their application earlier in the marketing environment unit. We will discuss lifestyle and its influence on the consumer in the segmentation unit. In this section we will focus on the personality and its influence on the consumer decision making process. Personality is the image of people’s traits. Traits include Self confidence, Dominance, autonomy, defensiveness, adaptability and aggressiveness. Many companies used these concepts in their marketing communications. Bajaj pulsar used muscularity to highlight its image (definitely male). Fair and lovely and stay free tried to highlight 21st century Indian girl and their aspirations in their communications.

IV. Psychological factors:

Motivation:

Abraham Maslow’s “Need Hierarchy Theory”:

One of the most widely mentioned theories of motivation is the hierarchy of needs put forth by psychologist Abraham Maslow. Maslow saw human needs in the form of a hierarchy, ascending from the lowest to the highest, and he concluded that when one set of needs is satisfied, this kind of need ceases to be a motivator. As per his theory these needs are:

[pic]

i Physiological needs: These are important needs for sustaining the human life. Food, water, warmth, shelter, sleep, medicine and education are the basic physiological needs which fall in the primary list of need satisfaction. Maslow was of an opinion that until these needs were satisfied to a degree to maintain life, no other motivating factors will work.

ii Security or Safety needs: These are the needs to be free of physical danger and of the fear of losing a job, property, food or shelter. It also includes protection against any emotional harm.

iii Social needs: Human beings are social animals. They strive to be in the society. In this type of needs people will try to satisfy their needs for affection, acceptance and friendship.

iv Esteem needs: According to Maslow, once the people satisfied with social needs. They would like to have esteem needs. This category includes power, prestige status and self-confidence needs. It includes both internal esteem factors like self-respect, autonomy and achievements and external esteem factors such as states, recognition and attention.

v Need for self-actualization: Maslow regards this as the highest need in his hierarchy. It is the drive to become what one is capable of becoming; it includes growth, achieving one’s potential and self-fulfillment. It is to maximize one’s potential and to accomplish something

Marketer is interested in finding what state of need hierarchy the consumer is in and what type of product to be developed to suit his or her needs. If person needs security for his car than the mileage then auto companies should highlight that benefit in their marketing communications.

|Activity 1: |

|You are asked to book a hotel in your city for a period of 2 weeks by your friend who is an American citizen.|

|What are the various cultural, social and personal factors that you think will affect your friend in his |

|choice of hotel? |

Perception:

It is the process of acquiring, interpreting, selecting and organizing sensory information.

Explanation of the definition: stimulus is generated by hearing, smelling, seeing, touching, and tasting. People develop stimulus about product or services through any of the above themes and creates an image in the mind.

The marketing implication of the definition; Marketer researches his consumer profile and communicates the product or service messages either through radio, demo, or television. By seeing, hearing or experiencing the product or service consumer will develop an image in the mind. The message given by company may pass through three different selection procedures.

a) Selective attention: The habit of the people to analyze the information completely and interpreting it. They develop the perception about the product or service only after complete analysis. This is very difficult group to handle as they request for more information.

b) Selective distortion: the phenomena in which consumer will have predispositions and interpret the organizations information as they like it. This type of perception is both effective and non effective for the company. If consumer understands the wrong message in a right way it is advantageous but if he understand right message in wrong way then company will be under trouble.

c) Selective retention: consumer will not remember all the points informed by the company. He/she may remember the good points of company and forget the negative points of the company.

5.3 Types of Buying Decision Behavior: Henry Assael Model

Figure 5.3

| |High Involvement |Low involvement |

|Significant difference between brands|Complex buying behavior |Variety seeking buying behavior |

|Few differences between brands |Dissonance reducing buying |Habitual buying behavior. |

| |behavior | |

Complex buying behavior: Customers who are representing this behavior are highly involved in the purchase of the product or service. The process became complex as difference between brands are very high. For example, customer who wants to purchase refrigerator would like to know the meanings of defrosting, door lock, digital temperature control etc. The price of the product usually high let me show you the comparison of three brands and significant difference between them.

Table 5.1

| |LG GR T-282 GV/GE |Akai D186 TT DX |Electrolux Kelvinator 386 |

|Defrost system |[pic] |[pic] |[pic] |

|Door Lock |[pic] |[pic] |[pic] |

|Adjustable Shelves |[pic] |[pic] |[pic] |

|Moisture and Humidity Control|[pic] |[pic] |[pic] |

|Deodorizing Ability |[pic] |[pic] |[pic] |

|Water Dispenser |[pic] |[pic] |[pic] |

|Defrost system |[pic] |[pic] |[pic] |

From the above example it is clear that marketer should first develop the belief about the brand, provide the information and differentiate the company brand from others. In the above example you can see both Akai and LG don’t have water dispenser while Electrolux have. Both LG and Electrolux have moisture and humidity control while Akai lacks it. Customer would like to know what these features are and how they add value to the product.

Dissonance reducing buying behavior:

The behavior exhibited by the customer when product purchase requires high involvement but only few differences exist. For example, customers who want to purchase CTV will not find many differences between the brands but the price of the product and its technicality makes customer to involve more. One of the major disadvantages of this type of behavior is customer will show post purchase dissonance which is very difficult to control.

Variety – seeking buying behavior

When there are significant difference between the brands existing but customer will not involve more while purchasing, marketer identify this behavior as variety seeking buying behavior. Let us discuss the purchasing behavior of customer for biscuits. There are many varieties of biscuits available. One can purchase salt biscuits, cream biscuits, Marie biscuits, and milk biscuits of Britannia, Parle, ITC sun feast and others. The customer who purchased Britannia tiger earlier may purchase Sun feast cream biscuit next time. This doesn’t mean that quality of Britannia tiger is inferior to other brands but customer would like to try the varieties available in the market. In this situations marketer should undertake following steps

a. The market leader should encourage customers to buy repeatedly.

b. Make the product available and visible to the customer in the shopping places.

c. The firm who are not market leader should come out with sales promotion techniques to encourage customer to purchase the product.

Habitual buying behavior:

The low involvement between the brands and few differences between the brands leads to the habitual buying behavior. For example spice powder marketed by MDH, Everest or MTR have very few difference between them and customer do not search the information to purchase particular product. Marketers whose customer represents this category should follow below listed strategies

a. Use price and sales promotions to stimulate product trial.

b. Use more visual aspects than the wordings in the advertisements

c. Television is the better media for this type of products.

d. Use classical conditioning theory to create advertisements.

|Activity 2: |

|When you have to buy toothpaste, what factors do you consider before making a decision to buy a particular |

|brand? What kind of perception do you have about the particular toothpaste? |

Self Assessment Questions

1. Religion is one of the __________ factor that influence consumer behavior

a. Cultural

b. Social

c. Personal

d. Psychological

2. Seekers income varies between

a. 90,000 to 200,000

b. 200,000 to 500,000

c. 500,000 to 1,000,000

d. None of these

3. The habit of the people to analyze the information completely and interpreting it is called as _____________

4. Dissonance reducing behavior is

a. Significant difference between brands and high involvement

b. Significant difference between brands and low involvement

c. Few difference between the brands and high involvement

d. Few difference between the brands and low involvement

5. The process of acquiring, interpreting, selecting and organizing sensory information is called as _____________

5.4 Consumer Buying Decision Process

After discussing the factors those influence the buying behavior, now, we will discuss the consumer decision making process. Consumer passes through five different stages while purchasing the product.

[pic]

Figure 5.4

1. Need recognition: customer posses two type of stimuli’ at this juncture. One is driven by the internal stimuli and another is external stimuli. The examples of internal stimuli are customer’s desire, attitude or perception and external stimuli are advertising etc. From both stimuli customers understand the need for the product. Here marketer should understand what customers needs have that drew customers towards the product and should highlight those in the communication strategy.

2. Information search: In this stage customer wants to find out the information about the product, place, price and point of purchase. Customer collects the information from different sources like

a. Personal sources: Family, friends and neighbors

b. Commercial sources: Advertising, sales people, dealers, packaging and displays.

c. Public sources: mass media and consumer rating agencies.

d. Experiential sources: Demonstration, examining the product.

In this stage marketer should give detailed information about the product. The communication should highlight the attributes and advantages of the product in this stage so that he created the positive image about the product.

3. Evaluation of alternatives: After collecting the information, consumers arrive at some conclusion about the product. In this stage he will compare different brands on set parameters which he or she thinks required in the product. The evaluation process varies from person to person. In general Indian consumer evaluate on the following parameters

a. Price

b. Features

c. Availability

d. Quality

e. Durability

At this stage marketer should provide comparative advertisements to evaluate the different brands. The advertisement should be different for different segments and highlight the attribute according to the segment.

4. Purchase decision

In this stage consumer buy the most preferred brand. In India affordability plays an important role at this stage. Organizations’ bring many varieties of the products to cater to the needs of customers.

5. Post purchase behavior

After purchasing the product the consumer will experience some level of satisfaction and dissatisfaction. The consumer will also engage in post purchase actions and product uses of interest to the marketer. The marketer’s job does not end when the product is bought but continues into the post purchase period. Customer would like to see the performance of the product as he perceived before purchase. If the performance of the product is not as he expected then he develops dissatisfactions. Marketer should keep an eye on how consumer uses and disposes the product. In some durable goods Indian consumer want resale value also. Many automobile brands that were not able to get resale value lost their market positions.

5.5 Buyer Decision Process for New Products

The buyer’s decision for existing products and new products varies. You already seen in the existing product buying decision process consumers have the option to search for the information and evaluate them. In the new product such options don’t exist. Therefore we should understand how consumer comes to know about the product. Kotler defined this process as adoption process. According to Philip Kotler Adoption is ‘The mental process through which an individual passes from first hearing about an innovation to final adoption’.

Adoption process

[pic]

Figure 5.5

1. Awareness: the consumer became aware of the product but lacks information about it.

2. Interest: By this stage previous information is available, consumer shows interest to get the information about the product.

3. Evaluation: After receiving the information consumer analyzes the benefits of new products over any existing products or substitutes and decides whether to buy or not.

4. Trial: The consumer tries the new product on a small scale to improve his or her estimate of its value.

5. Adoption: In this stage consumer decides to make full and regular use of the product.

Adoption rate:

[pic]

Figure 5.6

The adoption of new product varies from individual to individual.

1. 2.5% of the consumers adopt any new product that enters to the market. These consumers are status conscious people. Marketer should highlight how the new product will bring the esteem to the consumer.

2. 13.5% of the customers fall into the early adopter categories. In this categories customer observed the advantage of the new product and the moment the price of the product falls into the affordable category they buy the product.

3. The next group is the biggest one in the adoption process. These group customers are attracted towards the benefits of the product. They make sure that there are no technical or general problems associated with the product. This group contains 34% of the total customers.

4. This group consist 34% of customers. The group looks for the quality product at the affordable prices.

5. The final group is called as laggards. These are traditional and price conscious people. They often take lot of time to adoption of the product.

|Activity 3: |

|List out the factors that would make you or your neighbors to watch movies in multiplexes rather than go to |

|cinema theaters. |

Self Assessment Questions

6. Sales people are _______________sources of information

a. Public

b. Personal

c. Commercial

d. Experiential

7. The third stage in the adoption process is

a. Awareness

b. Interest

c. Evaluation

d. Trial.

8. The customer group who adopt the new product at the end are called as_______________

9. ________________% of consumers belongs to early adopter category

10. Customer satisfaction or dissatisfaction is determined in _______ stage of consumer decision process

a. Information search

b. Evaluation of alternative

c. Purchase

d. Post purchase.

5.6 Buying Motives

‘The thoughts, feelings, emotions and instincts that induces customer to buy a product are called as buying motives’

According to Prof D.J. Duncan ‘buying motives are those influences or considerations which provide the impulse to buy, induce action and determine choice in the purchase of goods and services’.

Classification of buying motives:

[pic][pic]

Figure 5.7

1. Product buying motives are those influences and reasons which prompt a buyer to choose a particular product in preference to others. It may be design, shape, dimension, size, color, package etc…

Product buying motives are further classified as

a. Emotional product buying motive and

b. Rational product buying motive

a. Emotional product buying motives in which buyer decides to purchase a product without thinking over the matter logically and carefully. Buyer takes the decisions on the emotions. Following factors provides the list that influence the emotional product buying motives

1. Customer attaches the pride with the product.

2. Customer try to imitate form others

3. Purchase d the goods for affection on any family member.

4. Products that provide comfort are usually purchased on the emotions.

5. Sexual appeal products are brought on emotional product motives

6. The product those used as recreation, hunger or habit products are usually bought emotionally.

7. Products those provide distinctiveness or individuality.

b. Rational product buying motives: When buyer examines pros and cons of purchasing a product and takes decisions then the behavior is called as rational product buying motives. Buyers will be looking for any of the following factors before taking rational decisions

1. The safety or security features provided by the product.

2. The value for money provided by the product.

3. Suitability and utility of the product.

4. Durability of the product.

5. Convenience of the product.

2. Patronage buying motives are those considerations or reasons that make a buyer patronage a particular shop in preference to other shops while buying a product.

Patronage buying motives are classified into two categories. They are

a. Emotional patronage buying motives.

b. Rational patronage buying motives.

a. Emotional patronage buying motives are patronizing a particular

shop without logical thinking or reasoning. Emotional patronize

buying motives include the following decisions

1. Appearance of the shop

2. Visual merchandising in the shop.

3. Reference groups influence about one particular shop.

4. Shopping in a big mall is a prestige issue.

5. Imitating the other reference groups’ members.

b. Rational patronage buying motive will arises after buyer analyzing the shop carefully and providing the information to reference group members. Rational patronage buying motives include the following

1. Convenience of the shop to the buyers.

2. Value for money provided by the shops.

3. Financial schemes and facilities provided by the shop.

4. Availability of wide range of goods.

5. Reputation of the shop in the area.

6. Sales force efficiency to convince the customer.

7. Services provided by the sales executives.

|Activity 4: |

|Point out the buying motives of a person known to you who is interested to purchase a mobile phone or has |

|recently purchased one. |

5.7 Buyer Behavior Models

The influence of social sciences on buyer behavior has prompted marketing experts to propound certain models for explaining buyer behavior. Broadly, they include the economic model, the learning model, the psychoanalytical model and the sociological model.

1) The Economic Model: According to the economic model of buyer behavior, the buyer is a rational man and his buying decisions are totally governed by the concept of utility. If he has a certain amount of purchasing power, a set of needs to be met and a set of products to choose from, he will allocate the amount over the set of products in a very rational manner with the intention of maximizing the utility or benefits.

2) The Learning Model: According to the learning model which takes its cue from the Pavlovian stimulus response theory, buyer behavior can be influenced by manipulating the drives, stimuli and responses of the buyer. The model rests on man’s ability at learning, forgetting and discriminating. The stimulus response learning theory states that there develops a bond between behavior producing stimulus and a behavior response (S. R. Bond) on account of the conditioning of behavior and formation of habits. This theory may be traced to Pavlov and his experiments on salivating dogs. Pavlov’s experiments brought out associations by conditioning.

In his well known research with dogs, a bell was rung every time food was served to a dog. Eventually, the dog started salivating each time upon hearing the bell though no food was served. The dog’s behavior is conditioned; it is related to behavior-producing stimulus (bell ringing) and behavior response (salivation). The S.R. bond so established causes a set pattern of behavior learnt by the object – dog. In terms of consumer behavior, an advertisement would be a stimulus whereas purchase would be a response.

Learning Process: According to the stimulus-response theory, learning is dependent on drive, cue (stimulus), response and reinforcement.

Drive: Drive may be defined as any strong stimulus that impels action. It arouses an individual and keeps him prepared to respond. The drives may be classified as primary drives and secondary drives. Primary drives are based upon innate physiological needs such as thirst, hunger, pain avoidance, and sex. The secondary drives are based upon learning. They are not innate and are derived from the primary drives. These include the desire for money, fear, pride, rivalry, etc.

Cue: Cue or stimulus may be defined as any object in the environment perceived by the individual. The aim of the marketing man is to find out or create the cue of sufficient importance that it becomes the drive stimulus or elicits other responses appropriate to his objective. Here, the objective is to find out those conditions under which a stimulus will enhance the chances of eliciting a particular kind of response.

Response: Response is an answer to a given drive or cue. When a man feels thirsty, he attempts to get water at any cost. Here attempt to get water is a response to the primary drive of thirst. “Response also includes attitudes, familiarity, perception and other complex phenomena.” Responses may be generalized or discriminatory. Generalized response refers to a uniform response to similar though not identical stimuli. Discriminatory response refers to the selective response to similar stimuli. Undifferentiated products such as cigarettes and detergents normally elicit generalized consumer responses but by huge advertising outlays companies try to induce consumers to perceive differences in brands and to make discriminatory responses.

Reinforcement: Reinforcement or reward means reduction in drive and stimulus. It has been defined as “environmental events exhibiting the property of increasing the probability of occurrence of responses they accompany.” Thus, when consumption of a product or a brand of product leads to satisfaction of the initiating need (drive/stimulus) there is reinforcement. If at some later date the same needs are aroused, the individual will tend to repeat the process of selecting and getting the same product or brand of product. Each succeeding time that product or brand brings satisfaction, further reinforcement takes place, thus, further increasing the possibility that in future also, the same product or brand will be bought. This type of behavioral change, increasing possibility that an act will be repeated, is called learning; reinforcement increases the rapidity and vigor of learning.

3) The Psychoanalytical Model: The psychoanalytical model draws from Freudian Psychology. According to this model, the individual consumer has a complex set of deep-seated motives which drive him towards certain buying decisions. The buyer has a private world with all his hidden fears, suppressed desires and totally subjective longings. His buying action can be influenced by appealing to these desires and longings. The psychoanalytical theory is attributed to the work of eminent psychologist Sigmund Freud. Freud introduced personality as a motivating force in human behavior. According to this theory, the mental framework of a human being is composed of three elements, namely,

1. The id or the instinctive, pleasure-seeking element. It is the reservoir of the instinctive impulses that a man is born with and whose processes are entirely subconscious. It includes the aggressive, destructive and sexual impulses of man.

2. The superego or the internal filter that presents to the individual the behavioral expectations of society. It develops out of the id, dominates the ego and represents the inhibitions of instinct which is characteristic of man. It represents the moral and ethical elements, the conscience.

3. The ego or the control device that maintains a balance between the id and the superego. It is the most superficial portion of the id. It is modified by the influence of the outside world. Its processes are entirely conscious because it is concerned with the perception of the outside world.

The basic theme of the theory is the belief that a person is unable to satisfy all his needs within the bounds of society. Consequently, such unsatisfied needs create tension within an individual which have to be repressed. Such repressed tension is always said to exist in the sub-conscious and continues to influence consumer behavior.

4. The Sociological Model: According to the sociological model, the individual buyer is influenced by society or intimate groups as well as social classes. His buying decisions are not totally governed by utility; he has a desire to emulate, follow and fit in with his immediate environment.

5. The Nicosia Model: In recent years, some efforts have been made by marketing scholars to build buyer behavior models totally from the marketing man’s standpoint. The Nicosia model and the Howard and Sheth model are two important models in this category. Both of them belong to the category called the systems model, where the human being is analyzed as a system with stimuli as the input to the system and behavior as the output of the system. Francesco Nicosia, an expert in consumer motivation and behavior put forward his model of buyer behavior in 1966. The model tries to establish the linkages between a firm and its consumer – how the activities of the firm influence the consumer and result in his decision to buy. The messages from the firm first influence the pre-disposition of the consumer towards the product. Depending on the situation, he develops a certain attitude towards the product. It may lead to a search for the product or an evaluation of the product. If these steps have a positive impact on him, it may result in a decision to buy. This is the sum and substance of the ‘activity explanations’ in the Nicosia Model. The Nicosia Model groups these activities into four basic fields. Field one has two sub-fields the firm’s attributes and the consumer’s attributes. An advertising message from the firm reaches the consumer’s attributes. Depending on the way the message is received by the consumer, a certain attribute may develop, and this becomes the input for Field Two. Field Two is the area of search and evaluation of the advertised product and other alternatives. If this process results in a motivation to buy, it becomes the input for Field Three. Field Three consists of the act of purchase. And Field Four consists of the use of the purchased item.

5.8 Summary

· Mckinsey consultancy classified Indian consumers into five categories namely deprived, aspires, seekers, strivers and global Indians.

· Individual factors like age, occupation, lifestyle and personality influence the consumer decision making.

· People have two types of buying motives – rational buying motives and patronage buying motives.

· There are five important Consumer behavior models namely the Economic model, the Learning model, the Psychoanalytic model, Sociological model and Nicosia model.

List of Key Terms

Buyer behavior

Need hierarchy

Consumer dissonance

Buying motives

Consumer decision-making process

Adoption rate

Buyer behavior models

5.9 Terminal Questions

1. Explain the characteristics that affect consumer behavior.

2. Discuss the types of consumer buyer behavior with the help of Henry Assael model.

3. Explain the consumer decision making process.

4. Discuss the buyer decision strategies for new products.

5. Write a note on buying motives

5.10 Answers

Answers to Self Assessment Questions:

1. Cultural

2. 200,000 to 500,000

3. Selective attention

4. Few difference between the brands and high involvement

5. Perception

6. Commercial

7. Evaluation

8. Laggards

9. 13.5%

10. Post purchase

Answer to Terminal Questions:

1. Refer 5.2

2. Refer 5.3

3. Refer 5.4

4. Refer 5.5

5. Refer 5.6

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MB0046-Unit-06-Business Buyer Behavior

Unit-06-Business Buyer Behavior

Structure:

6.1 Introduction

Learnaing Objectives

6.2. Characteristics of Business Markets

6.3 Differences between Consumer and Business Buyer Behavior

6.4 Buying situations in Industrial/Business Market

6.5 Buying roles in the Industrial Marketing

6.6 Factors that influence Business Buyers

6.7 Steps in Business Buying Process

6.8 Summary

6.9 Terminal Questions

6.10 Answers

6.11 Mini-Case

6.1 Introduction

On one side is the market for the final consumer whose behavior we discussed in the previous unit. It will be interesting to find out the difference in behavioral characteristics between the final consumer and what is known as the ‘business consumer.’ In case of a business to business marketing, the marketing mix is applied differently.

This market includes organizational buying, institutional buying and government buying. The buying may involve materials as final consumption and materials for intermediate consumption. A company may buy stationary for personal use and buy iron ore for making steel. Compared to the retail consumer market t this market consists of fewer buyers but they purchase in a much larger quantities-. These customers are concentrated in industrial towns, tech parks and industrial area other than other business or commercial center. The demand for the intermediate product in this market is known as derived demand. For example, demand for car engines will depend on the demand for cars. If the number of people who purchase car declines in a particular month then demand for the engines also goes down. This shows how engine companies are dependent on the final consumption of cars. In case of a business opting for a purchase, the decision has to go through several processes and people. This is where the behavior of people as a group needs to be understood. In an organizational context, both, the individual and the group leave their affect during the process of procurement or purchase. This unit deals in depth the various aspects of ‘buyer behavior’ in the B2B market space.

Learning Objectives

After studying this unit, you will be able to:

· Differentiate between consumer behavior and organization behavior.

· Understand the nature of business markets

· Discuss the different types of buying situations involved in the organizational buying.

· Understand the buying roles and their importance in industrial marketing.

· Analyze the factors that influence the organization buying process.

6.2 Features or Characteristics of Business Markets

Following are some of the unique features of business markets where large establishments purchase the required goods and services from other businesses. Such B2B operations determine the organizations as buyers and those organizations who supply the various requirements will be the sellers or suppliers or service providers.

1. Few but bulk Buyers: The no. of buyers is few but they buy in large quantity. For example, major airlines buy the necessary equipments from the aircraft manufacturers

2. Geographical concentration of buyers: Buyers are geographically concentrated. For example, shipping industries are located on the east and west coasts of India than in any other places.

3. Variable demand: The nature of demand is fluctuating because the demand is basically a derived one. Based on the requirements of the consumer markets, organizations buy the goods and make the finished goods available in the market for final consumption. Larger the consumer demand, larger will be the organizational buying. For example, mobiles are being used by a large population and so cellular companies have to meet this rising demand.

4. Inelastic demand: The demand is also inelastic because organizations cannot make rapid changes in the production structure and so prices remain constant in the short-term. For example, Shoe manufacturers will not buy much leather if the price of leather is less neither will they buy less leather if the price increases.

5. Systematic purchasing: The purchasing activity is directly between the buyer and supplier organization which means there are no or very few middlemen involved. Purchasing activity is usually undertaken by purchase departments based on a proper structure and through various mechanisms like having purchase requisitions from other sections, inviting tenders and sending invoices from the suppliers, purchasing agreements or contracts with the key suppliers, renewing agreements etc. For example, Reliance Fresh has regular contracts with the agricultural producers for smooth supply of fresh fruits and vegetables.

6. Multiple buying influences: there will be several parties involved in deciding about the purchases because organizations will have several departments and units functioning under it with different requirements. So, unless they have the proper resources to work with there will be problems in the departments. For example, purchase department in a Hospital must be aware about the specific requirements in the clinical wards, operation theaters, labs, etc.

7. Reciprocation: This means that when an organization buys goods from another organization then the supplier organization also might need certain other goods that are produced by the buyer organization. For example, a stationery supplier will supply the necessary stationeries to the paper manufacturer who in turn provides papers to the supplier.

8. Lease agreements: Most organizations take on lease the expensive equipments required by them rather than buy it. So, in this way, they reduce cost, get better service and the lessor or one who provides the equipments will also profit from the rent or lease charges. For example, TATA provides the transport trucks to other organizations on lease.

6.3 Difference between Consumer and Business Buyer Market

Table 6.1

[pic]

The differences stated above may not exacting and water tight divisions. Even in case of a business making a purchase for a regular stationary item, the responsible employee may adopt an individualistic and direct approach. Similarly industrial advertising may be effective. The differences lead to behavior patterns which are also different. As an example, emotion plays a major role in a purchase decision for an individual in a consumer market but will hardly come into play in the business market.

6.4 Buying Situations in the Industrial/Business Market

Buying situations varies to a large extent in the industrial market as compared to the consumer markets. Industrial marketing has to be understood in the larger context of B2B marketing. We may ponder here that ‘will the explanation be different in case of institutions which are not businesses?’ What about a government department or a voluntary organization? We may consider all these under B2B markets. The differences cited above induce some of the behavioral changes as compared to the retail consumer market. The negotiation process and vendor evaluation stages will change as per buying situation. It means for each set of situation the buying process changes. Therefore in this section we are discussing different situations involved in business buying. Industrial marketing usually involves three different types of buying situations. They are

1. New Task

2. Straight re-buy and

3. Modified re-buy

1. New task: This is the stage in which an organization is purchasing a major product for the first time. Therefore the company may have a larger number of people involved in the decision making. In this situation the seller tries to meet as many of these decision makers in the organization and convince them. This may result in higher uncertainty and cost for the seller. It may also happen that the promoter/s may be involved directly in the decision making process for reasons of control and execution.

2. Straight re-buy: In this situation an organization follows the routine step of informing sellers about their requirements and supply specifications. This is the simplest situation in the organization buying process. This provides lot of flexibility to both buyers and sellers. The company may already have a list of suppliers. It gets the information from the departments/shop-floors about their requirements and the same is conveyed to the supplier. After the advent of ERP software things have become simpler and easier. An enterprise resource planning software has a data base on vendors, materials, prices, and the channel of approval for any procurement. At the front end it has requisition forms, etc which the requisitionist fills up on line through the intranet and within a given time frame the work is executed. The seller has to ensure that it figures in the data base of the software of the procuring enterprise.

3. Modified re-buy: In this stage the buyers want either product modification, price modification, terms modification or suppliers’ modifications. For example, a company X is buying Rs 100,000 worth of iron ore from company Y every month. Company would like to reduce the cost of iron ore. It may negotiate with its suppliers on the new terms and conditions.

6.5 Buying Roles in the Industrial/Business Marketing

Compared to the decision making process in the consumer market the number of people involved in the decision making are more in industrial or business marketing. Therefore many business organizations constitute an exclusive buying center or buying committee. The buying center/committee may have the following characteristics depending on size and nature of the organization;

1. Several individuals can entrusted with a given role (e.g. many users / influencers) and one individual can assume multiple roles.

2. The buying center may include people outside the organization such as government officials, consultants, technical advisors and other members of the marketing channel.

3. Different members of the buying centre have different influences, for e.g. the engineering department may be concerned with actual performance of the product, whereas production floor may be more interested in the ease of use and reliability of supply of materials.

4. Members of the buying centre have different personal motivations, perceptions and preferences which in turn are dependent on – age, income, education, job position, personality, attitudes towards risk and culture.

Different buying roles played during buying process could be classified as follows:

a. Actual users are people who actually use the product or the material procured. Raw materials may be used by the production supervisor and his team. Lathe machine is used by the shop floor employee. These individuals can be a better judge of the specifications of the purchase requirement than any other.

b. Influencers are people who provide the information required to evaluate the vendor and his products. To purchase computers for the finance department the staff from the IT department may be better decision makers.

c. Buyers are individuals or groups who finally procure by placing the order with necessary specification. These people also evaluate the vendor and select him.

d. Deciders are those who finally give consent on the chosen supplier/s.

e. Gatekeepers acts as an agent between buying committee (i.e. the Business Organization) and sellers (i.e. the service providers or suppliers). The gatekeeper may facilitate the flow of information in the process of buying and can be played by an office assistant.

Self Assessment Questions

1. Any market in which customer buys the product for other than personal consumption is called __________.

2. Common method used in promoting the product in the business marketing is___________.

3. Derived demand exists in ________________ market.

4. ____________ plays the role of an agent between the buyer Organization and the suppliers.

5. Business organizations are dispersed in many locations

a. True b. False.

[pic]

6.6 Factors that influence Business Buyers

1. Economic developments: Purchasing of materials depend upon the country’s economic conditions. If the economy is growing rapidly usually the consumption also grows proportionately then company should source materials accordingly. The economic health of the nation provides a mirror image for the organization too. In case the economy is undergoing a recession as during the year 2008, businesses typically tone down their own procurement. A government introduced scheme like NREGA in India may provide opportunities for a business linked to such a scheme.

2. Demand conditions: Raw materials required should be matched with the demand position of the company’s products or services. If there is an irregular or seasonal demand the company should adjust its supplies. Any shortage of the raw materials will force the company to go out of the Market. A sugar manufacturing company has to procure cane which is a seasonal crop. The company has to anticipate demand for sugar and accordingly arrange for the supply of sugar cane much before the harvest.

3. Political and Legal environment: An unstable government will have unpredictable policies. Any change in the government policy will have direct or indirect impact on a business. For example, When the Indian government introduced the emission norms for automobiles, automobile manufacturers like Marathi Dog Ltd had a difficult time as they had to change engine specification accordingly and the previous stock of components had to be discarded or had to undergo modifications. Similarly when the Delhi government introduced CNG norms, providers of CNG equipment had to suddenly scale up their operation.

4. Competitive environment: Business buying is very complex. The numbers of buyers are fewer. Thus any technological change adopted by a competitor should be carefully observed. If the company is unable to do so, survival in the market place may prove to be difficult. As supply chain management is increasingly being adopted by businesses, the advantage of time, cost and flexibility is being reaped. Not keeping pace with such adoption could prove costly for an enterprise.

5. Culture and customs: Every country has its own culture, sub-culture, and customs. While in India we have right hand driving device, it is the opposite in the US. The suppliers of items relating to this have to keep this in mind.

6. Organizational objectives: Purchasing objectives are derived from the organization objectives. For example, an organization objective is to reduce the overall cost of 20%. Its purchasing objectives take this as benchmark and try to reduce the cost by 20%. The enterprise may have a branding objective of catering to high net worth individuals and thus the stationary in use would also have to be of a similar standard.

7. Organizational policies and procedures: Companies’ policies like centralization versus decentralization of buying and selling will have direct impact on the company’s procurement. A purchase decision may be assigned to specific managerial levels based on value. A store supervisor may be allowed to procure directly for say a value of Rs.100, 000 whereas the same decision for a value of Rs 100,000-Rs. 500,000 may be taken directly by the production manager. A supplier may sometime have to be aware of such procedures.

8. Organization structure and systems: Lesser the hierarchy the more will be the flexibility in the organization. Companies with more number of hierarchies will have plenty of problems to be addressed. The approval of hierarchies may be a long winding process. Government departments in India are typical examples of this kind of hierarchy. The purchase behavior exhibited by each approver in the group may be at cross purposes or in conflict, for whatever reason. The purchase process may not be able to eliminate subjective behavioral affectation.

9. Interpersonal factors: business buying will have different outcome on the basis of authority, status, empathy and persuasiveness that customers and organizations possess. A superior may not like to be bypassed even if the subordinate has the authority to take decision. A supplier may not be aware of such delicate situations and may get into trouble.

10. Individual factors: Age, education, job position, personality, risk attitudes of individual will determine the buying behavior of each individual and in turn these changes will have direct impact on the organization buying.

Exhibit 1

Retail Chains and Future of Business to Business (B2B) Trade in India

|Author : Dr. Amit K. Chatterjee [pic] |

|(Amit worked in blue-chip Indian and MNCs for 15 years in various capacities like Research and Information Analysis, Market Development, |

|MIS, R&D Information Systems etc. before starting his e-commerce venture in 1997. The views expressed in this column are his own. He may be|

|reached at amit@ ) |

|Govt of India has decided to allow 51 percent FDI in retail chains. This will certainly make the sector more attractive to foreign |

|retailers who want a controlling stake in their Indian ventures. Retailers who are comfortable with ownership rather than franchises may |

|look at the Indian market with greater interest. |

|Entry of large foreign retail chains like Wal-Mart will have profound effect not just on small retailers and Indian retail chains but also |

|on business to business (b2b) trade. Introduction of b2b cash-and-carry outlets by Wal-Mart, Metro and possibly other retailers will bring |

|significant changes in large and fragmented Indian supply chain. Middlemen like wholesalers and stockiest will increasingly be under |

|pressure. Where do small and medium manufacturers/exporters stand in this changing scenario? |

|What is Cash-and-Carry Scheme? |

|Targeted at and open only to business customers – cash and carry scheme focuses on small-wholesale customers who buy in bulk and pay in |

|cash. Unlike hypermarkets where any consumer can walk-in and buy goods, cash-and-carry outlets allow only authenticated bulk buyers to |

|transact business. Medium-sized businesses such as retail stores, hotels, restaurants, caterers, exporters etc can buy from cash-and-carry |

|outlets at prices much cheaper than market rate. |

|In its original form, owners of cash and carry outlets (i.e. large retail chains) buy from producers directly at very high volume, |

|dispensing with middlemen like wholesalers and stockiest. They also establish their own brands – asking producers to manufacture as per |

|their product and packaging specifications. Volume purchase and removal of middlemen result in substantial cost reduction – a part of which|

|is passed on to b2b customers. So, b2b customers get products of assured quality throughout the year at less than market price. |

|How Does Cash-and-Carry Outlets Affect your Business? |

|Large scale introduction of Cash-and-Carry outlets will definitely affect and influence various players in Indian b2b supply chain. While |

|it may prove to be a boon for business buyers, manufacturers and producers such as small-scale units and agricultural producers’ |

|cooperatives which are not big or savvy enough to be able to dictate terms to established supply chains – it may adversely affect |

|wholesalers and other middlemen. |

|De-layering of Indian distribution system may pose threat to middlemen, many of whom may be rendered redundant in the supply chain. |

|Increase in competition and cost cutting will bring more efficiency in the market place – benefiting businesses. |

|Where does Small Scale Manufacturers and Exporters Stand? |

|Though it’s too early to predict possible changes – large retail chains may bring new opportunities for Indian manufacturers and exporters.|

|While small scale manufacturers may enter into collaboration with retails chains – allowing them the chance to join a modern procurement |

|chain that thrives on efficient suppliers, it may have interesting influence on Indian exporters. |

|Fragmented and largely un-organized sourcing channels pose a formidable challenge to small and medium exporters in Indian sub continent. |

|Some of the major hurdles in any export transaction are – lack of assured and uniform quality standard, uncertainty about round the year |

|availability and wide fluctuation in market price. Exporters lose lucrative overseas orders because of deficiency in supply chains – |

|factors completely out of their control. Organized supply chains such as Cash-and-Carry outlets may bring new opportunities for small |

|business owners. |

|Conclusion |

|Exporters sourcing from organized channels such as Cash-and-Carry outlets will benefit from more predictability in business, reducing |

|inventory levels and competitive price. The resultant cost benefit, if passed on to buyers, can make Indian exports that much competitive. |

6.7 Steps in Business Buying Process

[pic]

Figure 6.1

Stage 1: Problem recognition

1. Problem can be identified from either internal stimuli or external stimuli. Company would like to launch new product hence it searches for the suppliers who can supply the material and equipments required for the new product. A large printing company may find that it can set up an exclusive design section as a profit center. For this it may want high end design software and systems. It is possible that the system requirement s can only be provided by Apple Macintosh.

2. External stimuli like trade show, conference also helps the company to identify the problem.

Stage 2: Need description:

After finalizing the problem, companies will define need description. The need description includes

1. Characteristics and quantity of the needed item.

2. For the complex products team assessment is required.

3. The required items are assessed on the basis of reliability, durability, price, and other attributes needed in the item.

Stage 3: Product specification:

Organizations develop detailed product specification with value analysis. In the value Analysis Company analyzes the components and their production process. Here emphasis is given to find the alternative methods of producing the components and finding the optimum method that suits the company.

Stage 4: Supplier search

The buyer now tries to identify the most appropriate suppliers. The buyer can examine trade directories, do a computer search, phone other companies for recommendations, watch trade advertisements, and attend trade shows. The supplier’s task is to get listed in major business directories, develop a strong advertising and promotion program, and build a good reputation in the marketplace. Suppliers who lack the required production capacity or suffer from a poor reputation will be rejected. Those who qualify may be visited to examine their manufacturing facilities and meet their personnel. Qualified suppliers are shortlisted for further process.

Stage 5: Proposal solicitation

The buyer will now invite qualified suppliers to submit proposals. Some suppliers will send only a catalog or a sales representative. Where the item is complex or expensive, the buyer requires a detailed written proposal from each qualified supplier. The buyer will invite qualified suppliers to make formal presentations.

Thus business marketers must be skilled in researching, writing and presenting proposals. Their proposals should be marketing documents, not just technical documents. Their oral presentations should inspire confidence. They should position their company’s capabilities and resources so that they stand but from the competition.

Stage 6: Supplier selection

This stage is also known as vendor selection. During this stage companies will prepare the checklist. Weightages are assigned against each checklist point and evaluated. Some of the important attributes those commonly found in the vendor evaluations are

a. Quality

b. Delivery

c. Communication

d. Competitive prices.

e. Servicing

f. Technical advice

g. Performance history

h. Reputation

Stage 7: Order routine specifications:

The buyer now negotiates the final order with the chosen supplier(s), listing the technical specifications; the quantity needed, the expected time of delivery, return policies, warranties and so on. In case of MRO items (Maintenance, Repair and Operating items), buyers are increasingly moving towards blanket contracts rather than periodic purchase orders. Writing a new purchase order each time stock is needed, is expensive. Nor does the buyer want to write fewer and larger purchase orders because that means carrying more inventories. A blanket contract establishes a long-term relationship where the supplier promises to re-supply the buyer as needed on agreed price terms over a specified period of time. The stock is held by the seller, hence the name stockless purchase plan. The buyer’s computer automatically sends an order to the seller when stock is needed. This locks the supplier with the buyer and makes it difficult for out-suppliers to break in unless the buyer becomes dissatisfied with the in-supplier’s prices, quality or service.

Stage 8: Performance review

In this stage organization review the performance of the suppliers. This will help it to decide whether to continue with existing suppliers or should search for the new vendor.

These eight stages are very much essential for new task but not necessary for straight re-buy or modified re-buy. To know which stages are important in the new task, a straight re-buy or modified re-buy we will study Buy- grid Model

Buy Grid model

Buy grid model is developed to understand the business buying process in three different business buying situations:

Table 6.2

[pic]

|Activity 1: |

|Select any nearby industry or business establishment and with the authorized permission of the concerned |

|people in the organization, find out: |

|a) What kind of supplies it needs to do business? |

|b) How often they need supplies? |

|c) From whom they get their supplies? |

|d) Buying procedure |

|e) People involved in the buying decision making process |

|f) Who makes the final decision to buy the goods? |

|g) Transport and storage facilities |

|h) The demand and supply gap |

|i) Problems (if any) recently faced by the business |

|j) Solutions or strategies |

Self Assessment Questions

6. Trade show is an internal stimulus

a) True b) False

7. Problem recognition is required in straight re-buy situation

a) True b) False

8. ___________ is also known as vendor selection stage.

9. In ___________ stage qualified suppliers are invited to make formal presentations

10. The full form of MRO is __________________________.

6.8 Summary

· Since business markets differ from consumer markets, there are several differences between the organizational buying process/activity and consumer buying process/behavior.

· There are three buying situations in business buying – New task, Straight re-buy and Modified re-buy.

· The different buying roles in a business buying process include Actual users, Influencers, Buyers, Deciders and Gate-keepers.

· There are several stages or steps in business buying process – they are Problem recognition, Need recognition, Product specification, Supplier search, Proposal solicitation, Supplier selection, Order routine specification and Performance review.

List of Key terms

Business market Purchase requisition Gate-keeper Supplier search Routine order

6.9 Terminal Questions

1. Differentiate between consumer and business buyer behavior.

2. Explain the buying situations.

3. Discuss the buying roles in the industrial marketing.

4. Write a note on factors that influence business buying.

5. Describe the stages of business buying process.

6.10 Answers

Answers to Self Assessment Questions:

1. Business market or industrial market

2. Personal selling

3. Business

4. Gatekeeper

5. False

6. False

7. False

8. Supplier selection

9. Proposal solicitation.

10. Maintenance, Repair and Operating items.

Answers to Terminal Questions:

1. Refer 6.2

2. Refer 6.3

3. Refer 6.4

4. Refer 6.5

5. Refer 6.6

6.11 Mini-Case:

Demand-Supply mismatch:

Autoville’s ‘Parts’ Handicap – Auto-parts makers unable to sustain supply after last year’s demand crunch:

The country’s top carmakers are struggling to meet an unexpected spurt in year-end demand with component-makers failing to match a sustained surge in sales since August. Efforts by companies such as M&M, General Motors India, Ford India and Tata Motors to step up production have been throttled by a components shortage, resulting from capacity cuts by auto parts makers that resorted to lay-offs during the demand slump last year.

“Our sales grew 49% in September and 15% in October. We would have done much better if it wasn’t for a serious parts supply constraint because of which we couldn’t ramp up quicker to meet the increase in demand,” said Karl Slym, President and MD of General Motors India.

The problem has been building up since late August when the car and SUV sales went into an overdrive. The industry had already prepared itself for single digit growth numbers, when the April-October period saw demand growing at over 16% on the back of nearly 21% growth in September and 34% surge in October. Car sales in India grew just 0.31% in the financial year ended March 2009.

“There’s parts shortage and it has nothing to do with the recent labour problems in Gurgaon. This has affected local companies like us,” Said Michael Boneham, Chief Executive of Ford India.

A demand-supply mismatch is at the root of the problem. The slowdown in demand that kicked off in October 2008 turned around so quickly that it took everyone by surprise. “The uptick happened in just 3 months. Both the vehicle makers and component manufacturers were caught unawares after cutting back on capacity not so long back,” said Baba Kalyani of Bharat Forge, the largest maker of automotive forgings in the world. In some cases the cutback was in terms of investment, while in others it was more of a question of manpower to run the extra shift.

Rajiv Dube, President – passenger vehicles at Tata Motors – the country’s largest maker of cars and trucks, attributes the components shortage to cuts in manpower. “There’s enough capacity build-up in the components industry, but most suppliers had laid-off temporary workers during the slowdown. So ramping up quickly by adding a shift can’t happen overnight,” he said. Not that all component makers resorted to lay-offs during the downturn. Those who decided to take a hit rather than cutting manpower benefited form the uptick in demand.

This explains the fact that car market leader Maruti Suzuki, which makes every second sold in India, remains unaffected by the components shortage. The demand-supply gap is not an easy one to fill as some component makers will need to invest heavily to increase capacity. Nearly all major players posted more than 20% sales growth in the festive season.

“That is not something the component industry was ready for. It will take some time to catch up with the demand,” said Rajesh Jejurikar, Chief of Operations at the automotive division of M&M. The lag can range from just a couple of months for those who simply need extra hands to a couple of years for those who need serious capacity expansion. Component makers admit that there is a problem. “We are adding new capacities and hiring is also back in full swing. But it is difficult to put an estimate to that,” said Jayant Davar, President of Automotive Component Manufacturers Association of India (ACMA).

Henceforth, car-makers and component manufacturers are determined to plan appropriate business strategies in order to avoid such crisis situations.

Can you suggest some of the business strategies?

(Source: The Economic Times – 16th November 2009)

Copyright © 2009 SMU

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MB0046-Unit-07- Segmentation, Targeting and Positioning

Unit-07- Segmentation, Targeting and Positioning

Structure:

7.1 Introduction

Learning Objectives

7.2 Concept of Market Segmentation (S)

7.3 Benefits of Market Segmentation

7.4 Requisites of Effective Segmentation

7.5 The process of Market Segmentation

7.6 Bases for Segmenting Consumer Markets

7.7 Targeting (T)

7.8 Market Positioning (P)

7.9 Summary

7.10 Terminal Questions

7.11 Answers

7.12 Mini-Case

7.1 Introduction

Market segmentation is the first step in applying the marketing strategy. In this process the marketers divide the market into homogeneous

sub-markets. On the basis of segmentation, the company will prepare and follow different marketing programs for different segments to ensure better customer relationship. This unit deals with the bases of market segmentation, targeting and positioning in the minds of consumers.

Learning Objectives

After studying this unit, you will be able to

· Explain the bases of market segmentation

· Explain the concepts and benefits of market segmentation.

· Mention the requisites of effective segmentation.

· Describe the process of evaluating market segments.

· Identify appropriate target market for given segment.

· Develop positioning strategies and analyze the same on the basis of the companies’ product differentiation.

7.2 Concept of Market Segmentation

Market Segmentation is the process of dividing a potential market into distinct sub-markets of consumers with common needs and characteristics.

Exhibit 1

|Why Segmentation? |

|In India, majority of the Hindu married women, contrary of the part of the country they belong to, sport a |

|mangalasutra. But it’s the design of the pendant that differentiates Mrs. Sharma from New Delhi and a |

|Mrs. Venkataraman from Chennai. |

|In America, consumer marketers such as P&G and Unilever have created different kinds of utensil cleaners, |

|laundry care products for Hispanics and African-Americans. The reason being that they have different cleaning|

|needs depending on the way they cook and the kind of clothes they wear. One would have imagined given the |

|famed Indian diversity that marketers here would have produced a host of products and product variants to |

|cater to large differences that exist regionally, religiously and not to mention by caste. |

|So why have marketers shied away from creating products specifically for them – despite large grouping that |

|have completely different needs. Or for that matter how many companies have actually devised products that |

|are specific to a particular community? Traditionally large Indian companies concentrated or cared only about|

|the urban consumers giving importance to metros and other important cities. Many marketing experts believe |

|that product designers and marketers in India have traditionally been careful of not courting specific |

|communities, in the fear of distancing themselves from others- a case of what might well be labeled as pseudo|

|secular marketing. However, in not Targeting the specific ethnicities of the Indian society, national |

|companies are possibly losing a huge opportunity to take their products to the next level of popularity. “A |

|Niche market only implies that it is focused, it need not necessarily mean small,” says Anand Halve who runs |

|Chlorophyll, a brand consulting firm. He feels national brands have a mental block when it comes to thinking |

|regionally, as they are constantly searching for the lowest common denominator. Parvati Mahadev, a consumer |

|insights consultant with Brandscapes puts it well when she says that by standardizing products, one may end |

|up meaning something to everybody, but fall short of meaning “a lot to some people”. |

|Some marketing experts say catering to various social segments can take place at several levels. First if the|

|preferences are starkly different, companies will have to design altogether different products (say Beef |

|products for Muslims). Second is where a difference in habit calls for a change in design like a spicier |

|wafer variant in Tamilians or Andhraites. Another important aspect is communication and marketing for a |

|product to cater to various cultures. Ironically marketers who have chosen to walk this path have been |

|rewarded. Anchor Toothpaste, for example, changed the paradigm for social targeting by introducing 100% |

|vegetarian toothpaste in early 2000’s. The Gujarati based Anchor originally had in mind only Gujaratis and |

|Marwaris as the key communities for the product. Similarly, Big Bazaar has been actively mapping tastes of |

|its customers and uses it for better assortment of products. Rajan Malhotra CEO Big Bazaar points out that |

|the chain actively stocks sticky dal in places where there is a dominance of Gujaratis and spices where it |

|sees Tamilians. |

|Pizza hut, an international brand that believes in uniformity of its products has chosen to do things |

|differently in India. It has special vegetarian outlets in Gujarat whereas in Hyderabad it does not serve |

|pepperoni items. |

|Asian Paints pushed the envelope the most. In the 1990’s it put out a series of ads – each of them targeted a|

|specific community like Punjabis or Tamilians. They were mainly aired in the run-up to a festival, like |

|Pongal (Tamil New Year) or Gudi Padwa (celebrated widely in Maharashtra). It helped the brand build a “strong|

|emotional connect” as Amit Syngle, VP – Sales and Marketing, Asian Paints puts it. |

|According to Shiv Vishvanathan, a noted social scientist, uniform product design is more a matter of |

|pragmatism than hypocrisy. “Ethnicity or customs cannot be core value for a large brand, as much as |

|competency,” he says. |

|But market watchers say food, media and certain daily utility articles are objects where companies can gain |

|the most by nuanced ethnic targeting. Islamic experts say there is tremendous opportunity in items like |

|alcohol-free perfumes, special toothpastes, halal cosmetics, toiletries, customized housing and even Islamic |

|dolls. |

|Increasingly brands are trying to iron out the lovely and interesting kinks (in their target audience) and |

|making it one smooth landscape,” says Mahadev, “while the net result is beautiful, I wonder whether this |

|helps in creating a more clear identity,” she added. |

|Most experts say in these days of media explosion, it is relatively easy to reach out to various ethnicities |

|of the country, Regional channels and newspapers are dime a dozen. All it would make a different (and a |

|special) commercial in Bengali or Urdu. Nobody can complain anymore that the costs of popularizing a new |

|ethnic product are inhibiting. HUL and its ad agency Lowe broke new ground here when they launched a |

|different set of ads for Surf Excel in the South, where the water is hard and lather limited, quite contrary |

|to the usual detergent ad with images of frothing detergent. Clearly here was the case of recognizing that |

|different consumers have different needs. |

|Perhaps like in detergents, when parity or uniform products grow and marketers are faced with stagnating |

|volumes, they will take advantage of the diversity that exists in India. |

|(Source: Brand Equity, The Economic Times, 25th November 2009) |

7.3 Benefits of Market Segmentation

1. Understanding the needs of Consumers

2. To adopt better positioning strategies

3. Proper allocation of marketing budget

4. Helps in preparing a better competitive strategy

5. Provides guidelines in preparing media plan of the company

6. Different offerings in different segments enhance the sales

7. Customer gets more customized product

8. Helps Company to identify niche markets

9. Provides opportunities to expand market

10. Encourages innovation

7.4 Requisites of Effective Segmentation

To be useful, market segmentation must exhibit some characteristics that are as follows:

1. Measurable and Obtainable: The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data. If the information is not obtainable, no segmentation can be carried out. For example, Census of India provides the data on migration and education level, but does not specify how many of the migrated employees are educated and if educated how many are in white collared jobs. If a company wants to target white color collared employees who are migrated to particular city, it will not able to measure the same. .

2. Substantial: The segment should be large enough to be profitable. For consumer markets, the small segment might disproportionably increase the cost and hence products are priced too high. For example, when the cellular services started in India cost of the incoming calls and outgoing calls were charged at Rs 12/minute. As the number of subscribers grew, incoming calls became free. Further growth of subscribers resulted in lowering tariffs for outgoing calls to the lowest level in the world.

3. Accessible: The segment should be accessible through existing network of people at an affordable cost. For example, Majority of the rural population is still not able to access the internet due to the high cost and non-availability of connections and bandwidth.

4. Differentiable: The segments should be different from each other and may require different 4Ps and programs. For example, Life Insurance Corporation of India needs separate marketing programs to sell their insurance plans, unit plans, pension plans and group schemes

5. Actionable: The segments which a company wishes to pursue must be actionable in the sense that there should be sufficient finance, personnel, and capability to take them all.

|Activity 1: |

|Mention how a nearby hospital has segmented its customers and how segmentation has helped the hospital in |

|providing more services. |

7.5 The Process of Market Segmentation

[pic]

Figure 7.2

1. Identify existing and future wants in the current market

Marketers must examine the changing needs of the customer. This process provides opportunity to examine whether customers are satisfied with the existing products or not. If they are not satisfied what are the features they are not happy with or what kind of features they would like to have in the product at. It also helps to test the innovative concepts that company has, commercially viable or not. For example, Titan, wrist watch manufacturer from Tata group should analyze whether customers are satisfied with the time accuracy in the watch. It should also analyze what are the other features customers are looking for in their watch. It may be style, calculator, voice recorder, jewels studded or pulse monitor. In this case, time accuracy becomes the existing want and other features become future wants.

2. Examine the attributes that distinguish segments.

In this process marketers should segregate different types of wants into homogeneous categories. This may be on the basis of product features, lifestyle or behavior. For example, Titan should analyze how style, calculator, voice recorder, jewels studded and pulse monitor attributes are different. Is there any possibility of bringing some of these features together? If yes what are the attributes that makes it homogeneous. To illustrate, student community may be interested in style and also want calculator in their watch.

3. Evaluate the proposed segment attractiveness on the basis of measurability, accessibility, and size.

Segments selected in the above steps should be evaluated against the requisites i.e. measurability, accessibility, substantial, actionable and differentiability. Company’s further programs will depend on the outcome of this process.

Titan should examine

a. How large is the student segment is, who like style and also want calculator?

b. How to get the data pertaining to these students?

c. Whether this segment is accessible to existing Titan showrooms?

d. How this segment is different from current segments? If selected, what value this proposed segment adds to the company?

Self Assessment Questions

1. ____________is the process of dividing a potential market into distinct sub-markets of consumers with common needs and characteristics.

2. Measurability of the segment is assessed on

a. Size

b. Profitability

c. Required resources

d. All the above.

3. The requisite of segmentation which specify on 4Ps and programs is

a. Action

b. Substantial

c. Differentiability

d. All the above.

4. Future wants of the customer should be analyzed before identifying the segments.

a. Yes

b. No

5. Segmentation encourages innovation

a. True

b. False

7.6 Bases for Segmenting Consumer Markets

[pic]

1) Geographic segmentation: In this type of segmentation, the market is divided into different geographical units such as nations, states, regions, cities or neighborhoods. The company can operate in one or a few Geographic areas or operate in all but pay attention to local variations. For example, Bennett, Coleman and Co. Ltd divided markets according to geographical units for their tabloids. In Bangalore, the tabloid is known as Bangalore Mirror where as it is Mumbai Mirror in Mumbai.

2) Demographic Segmentation: In demographic segmentation the market is divided into groups based on variables such as age, family size, family life-cycle, gender, income, occupation, education, religion, race, generation, nationality and social class. Demographic variables are the most popular bases for distinguishing customer groups. One reason is that consumers’ wants, preferences and usage rates are often associated with demographic variables. Demographic variables are easy to measure. Even when the target market is described in non-demographic terms, the link back to demographic characteristics is needed in order to estimate the size of the target market and appropriate media that should be used to reach it efficiently. Some of the demographic variables used are :

a) Age and Life-Cycle Stage: Consumers’ wants and abilities change with age. On the basis of age, a market can be divided into four parts viz., children, young, adults and old. For the consumers belonging to the different age groups, different types of products are produced. For instance, different types of ready-made garments are produced for consumers of different age groups. A successful marketing manager should understand the age group for which the product would be most suited and determine a suitable marketing policy, pricing policy, advertising policy etc…

For example, HUL launched ‘Pepsodent kids’ toothpaste for small children.

b) Gender: Gender segmentation has long been applied in clothing, hair-styling, cosmetics and magazines. For example, Emami segmented its personal care products on the basis of gender i.e. Emami Naturally Fair for women and Fair and Handsome for men.

c) Income: Segmentation based on Income is a traditional practice followed in product categories such as automobiles, clothing, cosmetics and travel. However, income does not always determine the best customers for a given product.

For example, Baja Auto limited, a leading automobile company, manufactures different bikes for different commuters on the basis of the Income levels. For entry level (income less than Rs 35000) it is Bajaj CT 100, for mid segment (income greater than Rs 35000 but less than Rs. 60000) it is Pulsar and for the upper segment (income greater than Rs 60000) Avenger and Eliminator are positioned respectively.

3) Psychographic Segmentation: In Psychographic segmentation, buyers are classified into different groups on the basis of life-style or personality and values. People within the same demographic group can exhibit very different psychographic profiles.

a) Life-style: People have different life-styles and products they consume express their life-styles. Many companies seek opportunities in life-style segmentation. But life-style segmentation does not always work.

[pic]

Figure 7.4

One of the most used psychographic profiling schemes is called VALSTM. Developed by SRI International, Inc., its first version, groups the entire U.S. population into eight groups, based on the identities they seek and implement via marketplace behaviors.

The Eight VALSTM Group: Using the self-orientation and resources dimensions, VALS defines eight segments of adult consumers who have different attitudes, exhibit distinctive behavior and decision making patterns. These segments are Innovators Thinkers, Achievers, Experiencers, Believers, Strivers, Makers and Survivors

Innovators are successful, sophisticated, active, take-charge people with high self-esteem and abundant resources. They are leaders in business and government and are interested in growth, innovation, and change. They seek to develop, explore and express themselves in a variety of ways, sometimes guided by principles and sometimes by a desire to have an effect or to make a change. They seek to develop, explore and express themselves in a variety of ways. Image is important to them, not as evidence of status or power but as an expression of their taste, independence, and character. They possess a wide range of interests, are concerned with social issues, and show a cultivated taste for the finer things in life. For example, CEO’s of MNC’s, Entrepreneurs belong to this category.

Thinkers are mature, satisfied, comfortable, reflective people who value order, knowledge, and responsibility. Most are well educated and in (or recently retired from) professional occupations, content with their career, families, and tend to center around the home. Thinkers have a moderate respect for the status quo institution, but they are open minded to new ideas and social changes. They tend to base their decision on firmly held principles and consequently appear calm and self-assured. Thinkers are conservative, practical consumers who value performance, service, and price more than personal values (e.g., social and emotional values). For example: Senior professionals, Politicians can make up this segment.

Achievers are successful career or work oriented people who like to feel that they are in control of their lives. They value predictability and stability over risk. They are deeply committed to work and family. Work provides them with a sense of duty, material rewards, and prestige. Their social lives are centered on family, religion and career. Achievers follow conventional lives, are conservative in nature, and respect authority and status quo. Image is important to them. They favor established prestige products and services that show success to their peers. For example, Successful professionals like Doctors, Lawyers belong to this segment.

Experiencers are young, enthusiastic, impulsive, and rebellious. They seek variety and excitement, savoring the new, the offsets, and the risky. They are still in the process of formulating life values and behavior patterns and quickly become enthusiastic about new possibilities but are equally cool also. At this stage in their lives they are politically uncommitted, uninformed, and highly unsure about what they believe. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiences are avid consumers and spend much of their income on clothing, fast food, music and movies For example; Young IT professionals belong in this category.

Believers are conservative, conventional people with commitment to family, religion, community, and the nation. Living by a moral code is very important to them. As consumers, Believers are conservative and predictable and favor domestic products and established brands. Their income, education, and energy levels are modest but sufficient to meet their needs. For example, Middle income groups belong to this category.

Strivers seek motivation, self-definition and approval from the world around them. They strive to find a secure place in life, and may lack economic, social, and psychological resources. Strivers are concerned about the opinions and approval of others. Money defines success for them and they often feel that life has given them a raw deal as they find they don’t have enough money. Strivers are impressed by possessions, but what they wish to obtain is often beyond their reach. For example, low income groups are a part of this market segment.

Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work and physical recreation and have little interest in what lies outside that context. Makers experience the world by working in it, building a house, raising children, fixing a car, or canning vegetables and have enough skills, income and energy to carry out their projects successfully. Makers are politically conservative, suspicious of new ideas, respectful of government authority and organized labor, but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose such as tools, utility vehicles, and fishing equipment. For example, Trade Union leaders, Human activists may belong in this segment.

Survivors tend to be chronically poor, ill-educated, low skilled, elderly and concerned about their health. Preoccupied with the urgent needs of the present moment, they do not show a strong self-orientation. Their chief concerns are security and safety. Survivors are cautious consumers. They represent a very modest market for most products and services but they are loyal to favorite brands. For example, Retired employees, senior citizens can easily belong to this segment.

b) Personality: When Marketers use personality variables to segment the markets, they endow their products with brand personality that corresponds to consumer personalities. For example, Raymond advertises its fabrics with the tag ‘The Complete Man.’

c) Social Class: It has a strong influence on the consumer preferences and the products they buy or consume. For example, when buying cars, clothing, home furnishings, leisure activities, reading habits etc., Social class becomes the key factor. Many companies design products and services for specific social classes. For example, TATA Nano was introduced in the market as a One-Lakh Car that could be affordable by middle and lower income groups.

4) Behavioral Segmentation or Consumer Response Segmentation:

In behavioral segmentation, buyers are divided into groups on the basis of their knowledge or attitude towards the use of, or response to a product. Some marketers believe that behavioral variables are the ideal primary factors for creating market segments. Some of the behavioral factors are:

a) Occasions: According to the occasions, buyers develop a need, purchase a product or use a product. It can help firms expand product usage. A company can consider critical life events to see whether they are accompanied by certain needs. For example, Tanishq a TATA enterprise offers gold schemes and promotions for Akshaya Thrutiya

(auspicious day to purchase jewellery)

b) Benefits: Buyers can be classified according to the benefits they seek from the products. For example, Peter England, a Madhura garment brand positioned its wrinkle free trousers on the basis of benefits.

c) User Status: Markets can be segmented into non-users, potential users, first time users and regular users of a product. Each market segment requires a different marketing strategy. The company’s market position will also influence its focus. Market leaders will focus on attracting potential users, whereas smaller firms will try to attract current users away from the market leader. For example, Kishkinda resort near Hampi classifies its customers according to this characteristic. Resort believes that locals falls into non- user category, affluent class come to Hampi as potential users, foreigners as first time users, rich people near Hampi who frequently come there as regular users.

d) 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 total consumption. Marketers prefer to attract one heavy user rather than several light users and so, they vary their promotional efforts accordingly.

For example, Alan Paine textile brand, offered 4 cotton trousers for

Rs. 999. Here, the Company is interested in getting profits from sales volume rather than its selling price.

e) Loyal Status: Consumers have varying degrees of loyalty to specific brands, stores and other entities. Buyers can be divided into four groups according to brand loyalty status.

a) Hard-core Loyals: Consumers who buy one brand all the time. For example, customer may be using only BSNL cellular services though there are different options available.

b) Split Loyals: Consumers who are loyal to two or three brands. For example, consumer may go for tax savings schemes of post offices and Life Insurance Corporation of India

c) Shifting Loyals: Consumers who shift from one brand to another. For example, consumer who used Nokia cell phones starts buying Sony- Ericsson mobiles.

d) Switchers: Consumers who show no loyalty to any brand. When there is a low involvement and few significant perceived brand differences consumer try to purchase different brands in the category. For example, a customer who bought Cinthol wants to try Medimix, Mysore Sandal, Himalaya, Santoor, Chandrika etc…

A company can identify its product’s strengths by studying its Hard-core Loyal. By studying its Split Loyal, the company can pinpoint which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and attempt to correct them.

f) 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 are interested, some desire the product and some intend to buy. The relative number makes a big difference in designing a marketing program. For example, People may be aware of Aqua guard but don’t know much about it.

|Activity 2: |

|Identify the bases by which companies have segmented their markets for these products (taking help from the |

|television ads and other advertisements): Nakshatra diamonds, Cinthol soaps, Domex toilet cleaner and Parker |

|pen. |

7.7 Targeting

Targeting is defined as a group of people or organizations for which an organization designs, implements and maintains the marketing mix.

Once the bases for segmentation are selected, the marketer has to identify the people or organization to whom the product is meant. Organizations may not differentiate their customer or it may have different customer for different products. In the next section we will study how to identify the target customers.

Selecting Target Market Segments

Depending upon the emerging patterns of market segmentation, homogeneous preference (showing no natural segments as in case of soft drinks sale by Pepsi and Coca-Cola), diffused preference (showing clear preferences as in case of automobile market), and clustered preference (market showing natural segments as in case of occupation having impact on the types of clothes worn), a company chooses its market segmentation strategy.

A) Undifferentiated Marketing: It is a market coverage strategy in which the company treats the target market as one and does not consider that there are market segments that exhibit uncommon needs. The company focuses on the centre of the target market to get maximum advantage. The feature of ‘one product-all segments’ calls for presenting one marketing-mix for the target market. For example, the Coca-Cola Company sells Coke, Limca, Thums-up etc., and does not distinguish the target audience.

B) Differentiated Marketing: It is a market coverage strategy in which the company goes for proper market segmentation as depicted by its analysis of the total market. The company, therefore, goes for several products or several segment approach which calls for preparing different marketing mixes for each of the market segment. This strategy is followed by Hindustan Unilever Limited which sells different soaps (Life Buoy, Lux, Rexona, Liril, Pears etc.) and each of them has its own market. Thus, the company creates segments in the soap market and not in toiletries market (including soaps, detergents, toothpaste, etc.)

C) Concentrated Marketing: It is a market coverage strategy in which company follows ‘one product-one segment’ principle. For example, Ashok Leyland produces large chassis of machine which can be used for buses and trucks. The manufacturer gets maximum knowledge about the segment’s needs and therefore acquires special reputation. This strategy can also help small companies to stand against a large corporation because small companies can create niches in its one-product one-segment approach by providing maximum varieties.

Choosing a Market Coverage Strategy: The following table depicts an overview of the three market coverage strategies: Table 7.1 provides a snap-shot view.

Table 7.1: Comparison of Market Coverage Strategies

|Focus |Undifferentiated Marketing |Differentiating Marketing |Concentrated Marketing |

|Product |One/Few |Many |One/Few |

|Segment |All |Many |One/Few |

|Marketing-Mix |One |Many |One/Few |

Given the comparison of different coverage strategies, it is easy to identify the relevant strategies as shown in Table 7.2.

Table 7.2: Choosing a Market Coverage Strategy

|  |Undifferentiated |Differentiating |Concentrated |

| |Marketing |Marketing |Marketing |

|Constrained |More suitable |Least suitable |Most suitable |

|Firm Resources | | | |

|Common usage |Most suitable |More suitable |Least suitable |

|Products | | | |

|Different need |Least suitable |Most suitable |More suitable |

|Satisfying products | | | |

Given the above table, the firm’s resources and the product’s requirement in its present form (by all or few) would decide the choice of a particular market- coverage strategy. Finally, the competitor’s adaptation of a particular strategy should be considered for deciding the company’s own strategy. For example, Coca-Cola starts segmenting soft drinks market and targets family, Pepsi cannot ignore it because it would be suicidal for them (segmentation would provide differentiation of products more easily).

7.8 Market Positioning

Each firm needs to develop a distinctive positioning for its market offering.

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target market’s mind. Many marketers advocate promoting only one central benefit and Rosser Reeves called it as “a unique selling proposition”. Some of the USPs includes “best quality”, “best service”, “Lowest price”, “best value”, “safest”, “more advanced technology” etc. If a company hammers away at one of these positioning and delivers on it, it will probably be best known and recalled for its strengths.

Not everyone agrees that single-benefit positioning is always best. Double-benefit positioning may be necessary if two or more firms claim to be best on the same attribute. There are even cases of successful triple-benefit positioning.

As the companies increase the number of claims for their brand, they risk disbelief and a loss of clear positioning. In general, a company must avoid four major positioning errors.

1) Under positioning: Some companies discover that buyers have only a vague idea of the brand. The brand is seen as just another entry in a crowded marketplace.

2) Over-positioning: Buyers may have too narrow image of the brand.

3) Confused Positioning: Buyers might have a confused image of the brand resulting from the company’s too many claims or changing the brand’s positioning too frequently.

4) Doubtful Positioning: Buyers may find it hard to believe the brand claims in view of the product’s features, price or manufacturer.

Positioning maps:

Two dimensional graphs of how a product, brand or company is perceived versus competition.

Before identifying the positioning strategies for the product, marketer prepares its perceptual maps. These maps are drawn on important buying dimensions of consumer for company products as well as competitor products.

How to construct Position maps?

1. Evaluate the buying dimensions of customer

2. Select two buying dimensions of consumer; for example price and quality.

3. Identify the relative market share: relative market share is the ratio of company’s market share to its largest competitors’ share.

4. Draw the circles according to relative market share on two dimension graph

Position map for Toilet soaps

[pic]

Figure 7.3

Bases for positioning the product

Overcoming the positioning difficulties enables the company to solve the marketing-mix problem. Thus seizing the “high-quality position” requires the firm to produce high quality products, charge a high price, distribute through high-class dealers and advertise in high-quality media vehicles.

The bases for positioning strategies are:

1. Attribute Positioning: A company positions itself on an attribute such as size or number of years in existence. For example, Sunfeast positions its snacky brand as bigger lighter and crisper. (Figure 7.5)

[pic]

2. Benefit Positioning: The product is positioned as the leader in a certain benefit.

Automotive: Hyundai Santro

Headline: India’s best-loved family car is now also India’s simplest car to drive.

Subhead: Hyundai introduces Santro Zip plus Automatic.

No shifting gears, no clutch, no problems.

Baseline: The simplest car to drive. (Positioning)

3. Use or Application Positioning: Positioning the product as best for some use and application. For Example, Kenstar positioned its product as unexpectedly cold. (Figure 7.7)

[pic]

4. User Positioning: Positioning the product as best for some user group.

In this advertisement (Figure 7.8) of Parle –G, the boy was positioned as rock star. This advertisement basically targets the kids and boys.

5. Competitor Positioning: The product claims to be better in some way than a particular competitor. In this advertisement (Figure 7.9) Mathrubhumi base line says ‘In the wake of ABC results, Mathrubhumi celebrates the addition of 33,960 copies while nearest competitor laments the loss of 7,258 copies. Planners, take note’. It is directly mentioning its and competitor’s newspaper sales figures.

[pic]

Figure 7.9 Figure 7.10

6. Product Category Positioning: The product is positioned as the leader in a certain product category. Bajaj CT 100 was positioned as leader in the entry segment bikes. (Figure 7.10)

7. Quality or Price Positioning: The product is positioned as offering the best value.

[pic]

Figure 7.11

The vegetable oil brand Dhara positions itself as ‘anokhi shuddata, anokha asar’. This means, company offers unique purity and unique effect.

|Activity 3: |

|Are you able to note down the targeting and positioning strategies of the particular brand of shampoo (or |

|soap) that you use. Suggest how your shampoo (or soap) can be effectively positioned in the market so that |

|more people will buy it. |

Self Assessment Questions

6. In _____________segmentation, buyers are divided into different groups on the basis of life-style or personality and values.

7. By studying its _________________ a company can pinpoint which brands are most competitive with its own.

8. _______________ is a market coverage strategy in which company follows ‘one product-one segment’ principle.

9. ______________ is the act of designing the company’s offering and image to occupy a distinctive place in the target market’s mind.

10. __________ are consumers who buy one brand all the time.

7.9 Summary

• Market Segmentation is the process of dividing a potential market into distinct sub-markets that is, having consumers segments with common needs and characteristics.

• The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data.

• Target marketing helps the marketer to identify the markets – the group of customers for whom the product is designed.

· Buyers can be classified into four groups based on brand loyalty status:

-‘Hard-core Loyals’ are those consumers who buy one brand all the time.

-‘Split Loyals’ is those consumers who are loyal to two or three brands.

-‘Shifting Loyals’ are those consumers who shift from one brand to another.

-‘Switchers’ are those consumers who show no loyalty to any brand.

· Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target customers’ mind.

List of Key terms

Segmentation Target markets Market positioning Segmentation Bases Differentiation Concentrated Marketing

7.10 Terminal Questions

1. What do you mean by segmentation? What are its benefits?

2. Discuss the various bases for segmenting consumer markets.

3. Explain the methods of selecting target market segments.

4. Write a note on positioning of the product.

5. What are the requisites of effective segmentation?

7.11 Answers

Answers to Self Assessment Questions:

1. Market segmentation

2. Size

3. Differentiability

4. Yes

5. True

6. Psychographic

7. Split Loyals

8. Concentrated Marketing

9. Positioning

10. Hard-core Loyal

Answers to Terminal Questions:

1. Refer to 7.2 & 7.3

2. Refer to 7.6

3. Refer to 7.7

4. Refer to 7.8

5. Refer to 7.4

7.12 Mini-Case

Business profile of Dabur Foods Ltd.

"There are a lot of juicewalaas in city markets, so juice is not something Indian consumers had not seen before. And, we felt if we give them juices in a packaged form, which is more hygienic, it should do well" – Amit Burman, CEO, Dabur Food Ltd.

Dabur has launched Dabur Amla Flower magic hair oil. It is targeted at college-going girls. It contains Amla and the scents of white flowers such rajnigandha, mogra and jasmine. It costs Rs. 38 for a 100 ml pack and Rs. 20 for a 50 ml pack – Brand line, The Hindu November 19th 2009

Dabur India Ltd (Dabur India), a part of the Dabur Group, was incorporated in 1975 for manufacturing and marketing FMCG, ayurvedic and pharmaceutical products. The pharmaceutical division of the company was demerged in 2003. In Apr 2006, three entities, Balsara Hygiene Products Ltd, Balsara Home Products Ltd and Best Cosmetics Ltd were merged with Dabur India.

Business Profile: Dabur India operates with four divisions namely, consumer care, consumer healthcare, foods and international business division. The consumer care caters to six FMCG segments of hair care, oral care, health supplements, digestives, home care and skin and baby care. Some of its major brands include, Vatika, Meswak, Hajmola, Babool and Odomos among others. Consumer healthcare deals in ayurvedic products under the brands Honitus, Nature Care and Shankpushpi among others. Dabur India operates its food business through Dabur Foods Ltd that offers juices, nectars, drinks and food additives under the brand names Real, Active and Coolers among others.

Here is an extract of the interview:

|In Brand Speak, Amit Burman, Chief Executive Officer, Dabur Foods Ltd., speaks to exchange4media’s Nikhil |

|Gupta, on its brand strategy, psyche of Indian housewife and buying patterns in the processed food category. |

|Q. How is your brand ‘Real’ fruit juice doing in the market? |

|A. We launched it in the year 1999, and over the years it has shown us very good growth. From last year to |

|this year, it grew at about 30%. I believe its good growth but then we are starting from a very small base, |

|for a category, which is at a very nascent stage as compared to its potential today. |

|Q. What kind of background research you had done before launching your products – ‘Real’ fruit juice and |

|‘Homemade’ cooking pastes? |

|A. When we launched ‘Real’, we didn’t do much of market research, as we clearly saw there was a gap in the |

|market. And looking at the Indian consumers, and there are so many juicewalahas in the market, so juice was |

|not something Indian consumers had not seen before. So, we felt if we give them juices in a packaged form, |

|which is more hygienic, it should do well. In other categories, ‘yes,’ before launching ‘Homemade,’ we did a |

|lot of research. What we found was that in a typical Indian household, cooking as an activity could be split |

|to two parts. One is the negative activity, which involves preparation of right mix of spices and pastes for |

|the food. The other one being the positive activity, which consists of what an Indian housewife ads on top |

|which makes the final food different in your house than my house. That is where she gets the pride from |

|serving guests, husband, her family, that’s something she doesn’t wants to loose. So, we decided rather than |

|if we focus on the positive labour, we would be taking away this feeling of pride from her, so we focused on |

|the negative labour, where ginger paste from my house and your house is crushed the same way, garlic paste in|

|my house and your house is crushed the same way. So, we are focusing on what is around the main meal and we |

|are not focusing on the main meal. |

|Q. How did the market react to ‘Homemade’ pastes? |

|A. Most of the products that we have launched actually try to create a category. Even today there is no |

|national level player except us present in the market. |

|Q. How fast is the ‘Homemade’ range growing sales wise? |

|A. Sales are not growing that fast. In India, there is an inherent problem in the processed food category; |

|they compare the commodity with the market prices. If they were to go out and buy 200g of ginger, it should |

|be equal to so many grams of paste. They don’t look at the processing part, that processing is free in their |

|minds. Similarly, what happens is when the commodity prices are going high our product starts selling more. |

|Also, what we have seen is that a housewife usually keeps a bottle of Ginger paste of a garlic paste in the |

|refrigerator and it’s only used as an emergency. But in regular use, that is something we are trying to |

|create, it should be a regular use item. |

|Q. What is the USP of Homemade? |

|A. The USP as I explained, one insight that we got from the consumer, that the taste of spices grinded on |

|Silbatta (grinding stone) is different from the taste we get from the mixer. We incorporated that in our |

|manufacturing process, we actually use stone grinding to give the same taste to the consumers. We also ran an|

|ad campaign, which has a tagline, saying, "Homemade Ka Paste, Swad Silbatte Wala." |

|Q. Going further, how do you maintain a check at the retailers level that the products are being displayed |

|properly at the point-of-purchase (pop) since the bottles are usually not clean, which creates a perception |

|that it might be very old? |

|A. See, the manufacturing date is printed over there, but in terms of cleaning the bottles and all, when our |

|sales officers visit the stores; his first job is to check that the products are displayed properly and the |

|bottles are kept clean. |

|Q. Just exploring one thought, wont it be better if the "Homemade" pastes are delivered to the housewife at |

|home, since a lot many times she would feel awkward picking it up from the shop shelves? |

|A. That’s a good suggestion, but rather shying away from sending it to their house; we have to build a brand |

|to tell that consumer that it as good as fresh. It’s an inherent problem; people in India will never agree |

|that something that is packaged is fresh. Thus, the onus is on every player in the processed food industry to|

|change the perception to- whatever is on the shelf is fresh. |

|Q. Going back to ‘Real’ fruit juice. Who is the typical target consumer? And are you trying to compete with |

|Softy Drinks as category? |

|A. In ‘Real’, we have two range of juices one is Real fruit juice other is Real Active juice. The Real fruit |

|juice is targeted towards the housewife and kids, and the Real Active juice is targeted towards the young |

|adults between the ages of 24 to 35. We are very clearly focused on the in-home segment and soft drink is |

|more out- of- home impulse purchase. |

|Q. How do you maintain the balance in availability of product on the counter as well as the freshness of the |

|product? |

|A. I think it has been a learning experience, in terms of distribution. Very clearly, in processed foods as a|

|category, the date of manufacturing is very critical to the consumer. So, we worked on our products, and now |

|our products are about 35 days from date of manufacture. |

|(Source: ) |

A MBA student after reading the above business profile of Dabur Foods Ltd., and the excerpts from the interview wants to identify the bases for segmenting consumer markets for Dabur’s different products. She needs help in knowing the strategies that were adopted by Dabur in targeting these segments and how products were positioned in the Indian market. She is also curious to know the global opportunities that Dabur may have with its variety of products.

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MB0046-Unit-08-Product Management: Decisions,Development and Lifecycle Strategies

Unit-08-Product Management: Decisions,Development and Lifecycle Strategies

Structure:

8.1 Introduction

Learning Objectives

8.2 Levels of Product

8.3 Classification of Products

8.3.1 Consumer products

8.3.2 Business products

8.4 Product Hierarchy

8.5 Product Line Strategies

8.6 Product Mix Strategies

8.7 Packaging and Labeling

8.8 New Product Development

8.9 Product Life Cycle (PLC)

8.10 Summary

8.11 Terminal Questions

8.12 Answers

8.1 Introduction

Product: A good, service, person, place, event or organization offered to consumers to satisfy his need or want.

A good is a tangible product, which can be seen and touched. These tangible items can be produced in bulk and inventoried. For example, switches from Bajaj Electricals are goods.

A service is an intangible product, which requires simultaneous consumption and production. These are also perishable in nature. For example, Wockhart hospital offers heart surgery, which consumers cannot see but need to undergo when there is a pain in the heart. Hence surgery a service, is perishable in nature, needs to be produced and consumed simultaneously.

Differences between goods and services:

Table 8.1

|Goods |Services |

|1. Tangible |Intangible. |

|2. Inventoried |Simultaneous production and consumption |

|3. Non perishable |Perishable |

|4. Homogeneous |Heterogeneous |

A product may be a person also. Here marketer tries to buy and sell the celebrities or sports persons of a league or club etc… For, example, Board of Cricket Control in India (BCCI) asks its Indian premier league (IPL) teams to buy iconic players and foreign players for certain price.

An event is also considered as product. Many event management companies earn their revenue by selling tickets and advertisement space at the event. The following example explains how an event can be marketed.

[pic]

Figure 8.1

An organization is also considered as a product. It can be bought and sold on the basis of value of the firm. To make it more clear Tata’s bought Tetley for £271mn on 27th February 2000.

Many state governments and central governments sell their places to get the pie in the tourism market. Here governments provide advertisements of a place to attract tourists from India and abroad. For example, Karnataka Government under ‘one state many world’ campaign highlighted historical places, wildlife, waterfalls etc… In the following advertisement it provides the inputs on Hampi , a historical place in Karnataka to the tourists.

[pic]

Figure 8.2

Learning Objectives

After studying this unit, you will be able to

· Analyze how products are classified.

· Discuss the product line and product mix strategies.

· Describe the product life cycle.

· Assess the stages involved in the new product development.

8.2 Levels of Product

1. Core product: This is the fundamental good or service offered to the consumer. E.g. Hospital services

2. Generic product: This is the basic version of the product. E.g. Hospital having doctors, nurses, beds and laboratories.

3. Expected product: The minimum attributes that consumer expects in the product. E.g. Hospital should have qualified doctors, good service and proper amenities.

4. Augmented product: Inclusion of value added services to the expected product to distinguish it from competitors. E.g. Online or tele medicine facilities, expert knowledge sharing, 24 hour ambulance service etc…

5. Potential product: These are the future products provided by the company which customer didn’t anticipate. Ultimately consumer will be delighted by this product. E.g. Medical insurance from the hospital, after service care etc…

8.3 Classification of Products

Table 8.3

[pic]

Products are classified into two broad categories. They are consumer products and business products.

Consumer products are purchased by the consumer for his personal consumption.

Business products: These products are purchased by business concerns for further product development

8.3.1 Consumer Products

As these products are purchased by the final consumer for his own consumption, the market is very big. The large market needs to serve different needs of consumer. Therefore company should create different types of products. Hence consumer products are classified into four different categories. They are

a. Convenience goods.

b. Shopping goods

c. Specialty goods

d. Unsought goods.

a. Convenience goods: These are the fast moving consumer goods that are purchased regularly with less amount of effort.

1. These are purchased frequently.

2. Customer involvement is very low.

3. Price of the product is very low.

4. Intensive distribution is used to reach the consumer.

5. The stock turnover is high.

6. Aggressive promotion is required

i. Example: soaps and detergents, groceries etc.

b. Shopping goods: These goods require high consumer involvement and before buying such products consumer processes the information of product suitability, quality and price.

Compared to convenience goods, shopping goods are purchased less frequently. Consumer takes lot of time to search and evaluate the information. These products are available in selected outlets. The price of the product is very high. For example, a consumer who wants to purchase the washing machine will collect the information on type of washing machine, type of control, loading, wash method, pre wash, delicate wash, cycle time, after sales service, sensors, water consumption, etc.

c. Specialty goods: These are the products for which a consumer shows high brand loyalty and is ready to wait, or spend time

i. Consumers are having strong brand loyalty.

ii. Usually companies adopt premium pricing strategy.

iii. Exclusive distribution and selective communication strategies are adopted.

To illustrate, a consumer is willing to pay Rs 32000 for Bose Digital Home Theater though competitors’ products are available at Rs 15,000 to Rs 25000.

d. Unsought goods: These products are called unsought because consumer is usually unaware or ignorant about the products to purchase it. Marketers need heavy promotion activities to educate and sell their products.

For example, Insurance is the product which most of the consumers are aware of but very few are willing to purchase. Life Insurance Corporation trains its agents to promote and sell aggressively. These agents provide lot of inputs regarding insurance to consumers.

|Activity 1: |

|Find out the various types of products purchased in your house in the last 3 months and classify them into |

|the 4 consumer product categories. |

8.3.2 Business or Industrial Products

Business products are purchased by the Organizational consumers who use these products as a material, part, capital item or service in producing his/her final product. For example, CET offers range of services to Birla copper, Jindal Vijayanagar Steel and Mukund Limited. These services are used to develop the final products of these companies.

Exhibit 1

|Centre for Engineering & Technology |

|Center for Engineering & Technology (CET), an ISO: 9001 certified organization is the design, engineering & |

|consultancy unit of SAIL. It has its Head Office at Ranchi, Sub Centers at Bhilai, Durgapur, Rourkela, |

|Bokaro, Burnpur & Bhadravati, Unit Offices at Bangalore, and New Delhi for formulation of Interplant |

|Standards for Steel Industry. As a solution provider for all project needs, CET had been rendering complete |

|range of services not only to the Steel Plants under SAIL but also to various clients other than SAIL – both |

|within and outside the country. Some of the important clients other than SAIL include EGITALEC (Egypt), Ashok|

|Steel (Nepal), Chittagong Steel Mills (Bangladesh), Birla Copper, Mukand Ltd., Jindal Vijayanagar Steels |

|Ltd., National Iron & Steel Co., Hindustan Zinc Ltd., National Mineral Development Corporation and Romelt- |

|SAIL (India) Ltd., CET is also the nodal agency for acquisition and lateral transfer of technologies within |

|SAIL plants. |

|The range of services includes conceptualization, project evaluation & appraisal, project consultancy, design|

|& engineering and project management in the areas of iron and steel making. Apart from this, CET has been |

|providing its services in the related areas like mine planning and development, infrastructure development, |

|industrial piping, industrial warehousing, material handling system, industrial pollution control and |

|environment management systems, water supply and sanitation, town planning, power projects, etc |

|(Source: sail.co.in) |

Business products are classified into three categories. They are:

a. Materials and parts.

b. Capital items

c. Supplies and services.

a. Materials and parts: These products are further classified as raw materials and manufactured material and parts.

[pic]

Materials are classified into raw materials and manufactured materials and parts.

Raw materials are of two types namely, Natural products and secondly, Farm products.

1. Natural products are extracted and used for further product development. For example, Orex Minerals Private Limited supplies iron ore to Adani exports limited, Nobel Resources and Trading Private Limited and Sino Steel India Private Limited.

2. Farm products are also used in further product development. For example, Parle agro division supplies required wheat for the production of biscuits.

Manufactured materials are further classified into two types. They are component parts and component materials.

1. Component parts. For example, Melco Precisions Private Limited supplies heat resistant steel to Grasim, NTPC and NFL for further product development.

2. Component materials These are also called original equipment manufacturer products. These companies’ products are directly fitted in the final product. For example, MRF tyres are directly fitted in Maruti Udyog Limited cars.

b. Capital items include developing the building( for example, L & T and Siemens developing Bangalore International Airport) Fixed equipments

(for example, Lenovo supplying computers to Manipal university) Accessory equipments( for example, Hindustan Everest Tools Limited sells its spanners and pliers to industrial customers) and office equipments ( HP supplying fax machine to Shristi Automation Private Limited)

c. Suppliers and services: Supplies includes operating supplies( Castrol sells its lubricants to VRL limited) maintenance and repair services (Eagle Securities Service to corporate clients)

8.4 Product Hierarchy

The different stages in the product and their attributes are listed below

Table 8.3

|1. Need family : |The core need that underlies the product family |

|2. Product family |All the product classes that can satisfy a core need with reasonable |

| |effectiveness. |

|3. Product class : |A group of products within the product family recognized as having a certain |

| |functional coherence |

|4. Product line : |A group of products within a product class that are closely related because they|

| |function in a similar manner or are sold to the same   customer groups or are |

| |marketed through the same types of outlets or fall within given price ranges.  |

|5. Product type : |Those items within a product line that share one of several possible forms of |

| |the products. |

|6. Brand : |The name associated with one or more items in the product line that is used to |

| |identify the source or character of the item |

|7. Item : |A distinct unit within a brand or product line that is distinguishable by size, |

| |price, appearance, or some other attribute. |

(Adapted from Kotler Philip, Marketing Management)

8.5 Product Line Strategies

Product line: The group of related products which uses same marketing efforts to reach the consumer.

The product line identifies profitable and unprofitable products and helps in allocation of resources according to that. The product line understanding helps the marketer to take line extension, line pruning and line filling strategies of the company.

Pidilite Industries, the adhesives and chemical company, have the following group of related products (or product lines) in consumer and business markets.

Consumer market.

1. Adhesives and sealants.

2. Art materials and stationeries.

3. Construction chemicals.

4. Automotive chemicals

5. Fabric care

Business market

1. Industrial adhesives.

2. Textile chemicals.

3. Organic pigment powders.

4. Industrial resins and

5. Leather chemicals.

Product Line Decisions:

The major product line decisions are

a. Product line length

b. Product line stretching

c. Product line filling

d. Product line pruning

a. Product line length: The number of items in the product line is called the product line length. Company should decide whether it requires longer chain or shorter length. The decision depends upon the objective of the company, competitive environment and profitability. If the chain is short company can add new products and if it is lengthy company can reduce the number of products. For example, Pidilite’s adhesives and sealants line has following 11 items in the product line. Hence the length of product line is 11

|1. White Glue |2. Paper Glue |

|3. Glue Stick |4. Instant Adhesive |

|5. Epoxy Putty |6. Epoxy Adhesive |

|7. PVC Insulation Tape |8. Silicone Sealants |

|9. Contact Glue |10. All Purpose Glue |

|11. Maintenance Spray |  |

b. Product line stretching: Company lengthens its product line either by stretching upwards or downwards or both ways. Line stretching decision depends on three situations -

i. Company which operates in high end market may come up with mid class or low class targeted products.

ii. The company which operates in lower end of market may come up with high end market products.

iii. If the company operates in mid segment and comes out with low end product as well as high end product then it is stretching both ways.

For example, Maruti Suzuki Limited launched its first product, Maruti 800 in the year 1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than Maruti 800 and targeted for higher segment. This shows that the company extended its product line upwards or in short, upward stretch.

Tata Motors launched their Rs 1 lakh car NANO in the year 2008. The company which was targeting upper class and middle class with their products SUMO and Indica respectively, has stretched downwards to reach the lower level segment. This illustrates the downward stretch.

Toyota Kirloskar Limited which extended their line from Qualis and Corolla to Innova and Camry is planning to come out with small car in India. This clearly illustrates the two way stretch of the product line.

c. Product line filling: Adding more items in the present product line. For example, in the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800 and Maruti Zen. Here company was trying to fill the gap existing in the segment by introducing ALTO, i.e. line filling.

d. Product line pruning: Removing the unprofitable products form the product line. Toyota Kirloskar phased out their well known brand Qualis when they thought the brand was not adding value to the product line.

8.6 Product Mix

Product mix: The number of product lines and items offered by marketer to the consumers

A company’s product mix has four different dimensions. They are product mix width, product mix length, product mix depth and product mix consistency.

The following (Table 8.4) shows the product mix of Jyothy Laboratories.

Table 8.5

|Fabric care |House hold |Utensil |Fragrances |Personal care |Allied business |

| |insecticide |cleaners | | | |

|Ujala supreme |Maxo cyclothrin coil |Exo dish wash |Maya |Jeeva Natural |Continental |

|(9ml, 30ml, 75ml, |(8hr, 10hr, 12hr) |bar |(8, 15, 20, 40 |(Coconut Milk with|special |

|125ml,250ml) | |(100g, 200g |and 100 sticks.) |Milk Protein, | |

| | |380g) | |Coconut Milk with | |

| | | | |Jasmine and | |

| | | | |Coconut Milk with | |

| | | | |Kasturi Manjal, | |

| | | | |and is presented | |

| | | | |in 75gm packs. ) | |

|Ujala washing powder|Max vaporizer |Exo dish wash |  |  |Marketing of |

|(25g, 500g, 1Kg) |(30ml, 45ml) |liquid | | |godrej Tea |

| | |(500ml, 125ml) | | | |

|Stiff & shine |Max aerosol |  |  |  |Marketing of |

|(20gm sachets, 100ml|(150ml,300ml) | | | |Ekta dhoop |

|and 200ml bottles) | | | | | |

Product mix width: The total number of product lines that company offers to the consumers.

For example, Jyothy Laboratories’ product mix has six lines. Hence the width is 6

[pic]

Product mix length: The total number of items that company carries within its product line.

For example, Jyothy Laboratories fabric care division has three items

[pic]

Product line depth: The number of versions offered of each product in the line.

For example, Jyothy Laboratories’ Jeeva Natural is offered in three versions i.e. Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in 75gm packs.

Product mix consistency: If company’s product lines usage, production and marketing are related, then product mix is consistent, else it is unrelated.

In the case of Jyothy Laboratories, all six product lines are FMCGs. Hence it is having consistent product mix. But ITC Company’s cigarette and cloth product lines are totally unrelated.

8.7 Packaging and Labeling

Packaging: The process of designing and producing the container or wrapper for a product.

Packaging plays a vital role in marketing a product. Some rural consumers identify with the design or cover of the product and then they buy it. Packaging has other benefits to the consumers also. They are

1. It gives proper protection to the product.

2. It helps in bulk breaking.

3. It entices the customer to buy the product.

Companies not giving much importance to packaging face severe problems in the market.

Exhibit 2

|Worm turns for Cadbury |

|Hyderabad: The worms in the chocolate bars controversy has hit Cadbury India where it hurts most and that is |

|in sales. The company today faces tough times ahead as the business environment for its chocolates becomes |

|increasingly negative with rising raw material prices and low consumer sentiments, post the worms controversy|

|in October this year. While the sales of chocolates (institutional and retail) fell by 3 to 4 per cent last |

|month and are predicted to be down by 10 per cent in November by the trade, Cadbury India has had to incur |

|additional costs in upgrading packaging and damage control promotional efforts. To add to all this, prices of|

|milk and cocoa have been on the upward path in recent months, adding further to the costs. The largest impact|

|on sales has been in Maharashtra, and specifically in Mumbai, which is where the whole controversy arose as |

|worms were found in Cadbury chocolates in allegedly eight outlets across the state. If it weren’t bad enough |

|that the controversy blew up at the festival season when the chocolates sales are at their peak, the company |

|may also just have to shelve plans of becoming a major sourcing hub for British chocolates and beverages |

|giant Cadbury Schweppes. As part of a global realignment of its supply chain management, the company was |

|giving finishing touches to a plan that might have seen Cadbury India emerge as a major supplier of |

|chocolates to the Asia-Pacific region and the Middle East. The outsourcing model could have resulted in |

|significant revenue generation for Cadbury India. Initially the company blamed retailers for not storing the |

|products properly but is now engaged in putting in place a regular monitoring and checking system of the |

|storage of the chocolates. |

|Cadbury India managing director Bharat Puri says the company has made substantial investments in packaging in|

|order to maintain product quality from the manufacturer to the customer. And now it is making all attempts to|

|reassure the consumer and win back their confidence and interest in the category. It has initiated Project |

|Vishwas, a three-step programme involving wholesalers and retailers in which the company partners with the |

|traders on a war-footing to build awareness about storage requirements for Cadbury products. In Maharashtra |

|where the maximum damage has been done the company has involved a team of quality-control managers along with|

|300 salespeople to carry out checks of over 50,000 retail outlets which retail Cadbury products. The products|

|in upgraded packaging are expected to hit retail stores early next year. Analysts say in the past couple of |

|years in the face of increasing competition from Swiss chocolates major Nestle India and the home-grown Amul,|

|Cadbury has been pushing its products aggressively and targeting the adult audience especially to expand the |

|market. |

|(Source: domain_; Author Mohini Bhatnagar) |

Packaging strategies:

1. Adopting the same package for entire product line.

2. Multiple packs for multiple products

3. Changing the packages continuously.

Labeling:

Labeling: it carries the information about the product and the seller and this information is presented on the package as well as on the product..

Types of labels:

a. Brand label: Only brand name is mentioned on the packaging. For example, on Dharawad mangoes pack, only brand name is highlighted.

b. Grade label: Identifies the products judged quality with a letter, number or word. For example, fertilizers 19-19-0-19, 17-19-19-19 etc…

c. A descriptive label: Gives the entire information about the product, use, and care. For example, Vasemol hair dye packet contains brochure in which it tells how to use product, what are the precautions one should take etc…

|Activity 2: |

|Take any 2 similar kinds of products like for example 2 different brands of toothpaste or soaps and then |

|identify the differences in their packaging and labeling. |

Self Assessment Questions

1. A place can also be marketed as a product

a. True b. False

2. Insurance is __________________ type of consumer good

3. Phasing out of the brand from the product line is called as ___________

4. The number of versions offered of each product in the line is known as ________________

5. ____________ are called as original equipment manufacturer products.

8.8 New Product Development

New products are essential for existing firms to keep the momentum and for new firms they provide the differentiation. New product doesn’t mean that it is absolutely new to the world. It may be a modification, or offered in a new market, or differentiated from existing products. Therefore it is necessary to understand the concept of new products.

Meaning of New Products:

a. They are really innovative. For example, Google’s Orkut, a networking site which revolutionized social networking. In this site people can meet like minded people; they can form their own groups, share photos, comments and many more.

b. They are very different from the others: Haier launches path-breaking 4-Door Refrigerators first time in India

c. They are imitative; these products are not new to the market but new to the company. For example, Cavin Kare launched Ruchi pickles. This product is new to Cavin Kare but not to the market.

New product development process:

Stage 1 – Idea generation: New product idea can be generated either from the internal sources or external sources. The internal sources include employees of the organization and data collected from the market. The external source includes customers, competitors and supply chain members. For example, Ingersoll Rand welcomes new ideas from the General public

.[pic]

Stage 2-Idea screening: Organization may have various ideas but it should find out which of these ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata, chairman TATA group discussed how his idea saw many changes from the basic version. He told that he wanted to develop car with scooter engine, plastic doors etc… But when he unveiled the car, there were many changes in the product. This shows that initial idea will be changed on the basis of market requirements.

Stage 3 – Concept development: the main feature or the specific desire that it caters to or the basic appeal of the product is created or designed in the concept development.

Concepts used for Tata Nano car are -

Concept I: Low-end ‘rural car,’ probably without doors or windows and with plastic curtains that rolled down, a four-wheel version of the auto-rickshaw

Concept II: A car made by engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding.

Concept III: Indigenous, in-house car which meets all the environment standards

Stage 4 – Concept testing: At this stage concept is tested with the group of target customers. If any changes are required in the concept or the message it will be done during this stage. Also the effectiveness is tested on a minor scale. If the concept meets the specific requirements, then it will be accepted.

Stage 5 Marketing strategy development: The marketing strategy development involves three parts. The first part focuses on target market, sales, market share and profit goals. TATA’s initial business plan consisted sales of 2 lakhs cars per annum. The second part involves product price, distribution and marketing budget strategies. TATA’s fixed Rs 1 lakhs as the car price, and finding self employed persons who work like agent to distribute the cars. The final part contains marketing mix strategy and profit goals.

Stage 6 – Business analysis: it is the analysis of sales, costs and profits estimated for a new product and to find out whether these align with the company mission and objectives.

Stage 7 – Product development: during this stage, product is made to undergo further improvements, new features or improvised versions are added to the product. There is also scope for innovation and using the latest technology into the product.

TATA Nano car development (Source: business world nanolution)

– Tried to outsource the product from all over the world.

– Development of ‘mule’ or prototype with 20bhp.

– Designing the small engine

– Thermodynamic simulations and final engine

– Development of MPFI with help of Bosch.

– Cost reduction and negotiating with vendors.

– Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cutting weight. Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres to bear extra weight on rear wheels.

Stage 8 – Test marketing: is the most crucial stage for the testing product’s performance and its future in the market. There are certain cases where product has failed in the test marketing and had to be withdrawn.

– The product is introduced into the realistic market

– The 4P’s of marketing are tested.

– The cost of test marketing varies with the type of product.

Stage 9 – Commercialization: In this stage product is completely placed in the open market and aggressive communication program accompanied with promotion activities is carried out to support it.

8.9 Product Life Cycle (PLC)

Meaning of Product Life Cycle: It means a product has to go through the various stages since its inception and till it completely fades out from the market.

The following graph represents the PLC curve and the 5 stages that it has to undergo

[pic]

The product which is introduced into the market will undergo some modifications over the period. Its sales also fluctuate. Therefore a marketer will be interested in finding out how sales changes over a period and what strategies are best suited at that point. A product life cycle can be graphed by plotting aggregate sales volume for a product category over time. Generally the curve resembles a bell shaped curve. We can obtain style, fashion or fad style of product life cycles also.

[pic]

Product life cycle (bell shaped curve)

According to PLC, a product passes through five stages which are as follows:

1. Product development stage: In this stage company identifies the viable idea and develops it. Even if sales in this stage are nil it requires huge research and development budget. Therefore company incurs losses at this stage. For example, TATA Docomo before entering the cellular services market had done research and found that calls were charged for minutes rather than seconds.

2. Introduction stage: Company introduces the product into the market. As the product is new to the market, consumer awareness is usually very low. Here company adopts heavy sales promotion and product awareness programs. The cost of product is very high and sales are very low. At this juncture the company charges high price to the customers. For example, TATA Docomo has entered into cellular services initially through the Billboards.

3. Growth stage: Company gets experience over the period and now tries to get the maximum market share (takes ‘first mover’ advantage). Sales will grow rapidly, resulting in lesser cost and better profit. Company reduces the price of the product and offers varieties and values in it. It focuses on building better distribution network and pushes the product through it. Therefore company needs less sales promotion. There will be increase in Competition and the company is forced to keep a tab on its competitors. For example, TATA Docomo has entered into the growth stage by aggressively advertising on Television and other mediums and at the same time giving competition to the existing players.

4. Maturity stage: In this stage, the product has already established itself in the market. These are the characteristics of this stage –

a. Peak sales.

b. Low cost per customer.

c. High profits.

d. Competition based pricing

e. Communicating the product differentiation (or USP) to consumers.

f. Improving supply chain efficiency.

g. Defend the market share

h. Industry experiences consolidation.

For example, Airtel in its advertising is clearly stating its subscriber base as 1, 10,000 indicating that it has entered into a mature stage.

5. Decline stage: In this stage, product sales and profit decline. Company should phase out weak items from their product mix and may even lower the prices of the existing products. The advertisement budget of the company also comes down and the company may struggle to meet its costs. For example, VCR’s have been replaced with DVD players and so VCR entered into the decline stage and is almost out of the market.

|Activity 3: |

|Find out the life cycle stage about a product that you recently bought and suggest some techniques on how it |

|can do better in that particular stage. |

Other product life cycles:

1. Style: A style is a basic and distinctive mode of expression that appears in the study of human behavior. For example, style is evident in homes, art, accessories and clothing. Once the style is invented it will be there for a longer period.

2. Fashion: Currently accepted or popular style in a given field. For example, cargo jeans are now the fashion with college going students. Fashion changes with time.

3. Fad: A fashion that enters quickly is adopted with great zeal, peaks early, and declines very fast. For example, when pager was introduced, everybody wanted to have the product. But when people found mobiles as alternative, the demand for pager went down drastically.

Self Assessment Questions

6. In _____________ life cycle, product sales reach peak very quickly and decline very quickly.

7. Maximizing the market share is the objective of company in ______________stage of product life cycle.

8. In product development stage of product life cycle sales are_________

9. Imitative products are also considered as a new product

a. True b. False.

10. In _____________ stage, a product is well established in the market.

8.10 Summary

· Product: A good, service, person, place, event or organization that are offered to consumers to satisfy his/her needs or wants.

· A product has five levels, i.e. core product, generic product, expected product, augmented product, and potential product.

· A product can be classified as consumer products and industrial products.

· Product line length: The number of items in the product line is called the product line length.

· Product mix width: The total number of product lines that company offers to the consumers.

· New products may be really innovative, different from others or imitative one.

· In the growth stage of PLC, sales and profits of the company increase because product is recognized and accepted in the market.

List of Key terms

Core product

Consumer products

Product mix

Product hierarchy

Product life cycle

New product development

8.11 Terminal Questions

1. How do you classify consumer products?

2. Bring out the difference between goods and services.

3. Describe the new product development process.

4. Discuss the different strategies adopted by marketer in product life cycle.

5. Write a note on product mix strategies.

8.12 Answers

Answers to Self Assessment Questions:

1. True

2. Unsought

3. Line pruning

4. Product line depth.

5. Component material

6. Fad

7. Growth

8. Zero

9. True

10. Maturity

Answer to Terminal Questions:

1. Refer 8.3.1

2. Refer 8.1

3. Refer 8.8

4. Refer 8.9

5. Refer 8.6

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MB0046-Unit-09-Product Management: Brand and Branding Strategy

Unit-09-Product Management: Brand and  Branding Strategy

Structure:

9.1 Introduction

Learning Objectives

9.2 Brand and Branding

9.2.1 Advantages and Disadvantages of Branding

9.3 Brand Equity

9.3.1 Brand Loyalty

9.3.2 Brand Awareness

9.3.3 Perceived Quality

9.3.4 Brand Associations

9.4 Brand Positioning

9.5 Brand Name Selection

9.6 Brand Sponsorship

9.7 Brand Development

9.8 Summary

9.9 Terminal Questions

9.10 Answers

9.11 Mini-case

9.1 Introduction

Products or services which are offered products and services by one company would face stiff competition from similar/related products offered by others. The extent of competition has only kept rising with time. Over a period of time several tactics, strategies have been developed and adopted to maintain market share and also grow. Some of these efforts have got integrated with the products or services themselves and most have remained in the domain of ‘promotional’ function. In the last unit you were able to get an insight into the various dimensions of the product. This unit shall take you through the concept and working of brand and branding and how this is an exercise in meeting competition.

A brand is a name (Pears, Dove, Cadbury, Colgate), logo (the sign of Reebok or Nike or TATA), or trade mark ( like the term TM ™ seen at the end of a name as in case of Raymond, or a specific design of a package as in the case of coke bottles. Branding is the process of assigning one or more of the above to the organization, its products along with establishing the reasons of doing so throughout the company and communicating it to all concerned.

Learning Objectives

After studying this unit, you will be able to

· Understand the constituents of brand and brand equity.

· Analyze the techniques of brand development

· Evaluate the brand name selection strategies.

· learn to develop a branding exercise

· Evaluate strategies of branding

9.2 Brand and Branding

American Marketing Association defines the brand as

|‘A name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct |

|from those of other sellers’. |

|The legal term for brand is trademark. A brand may identify one item, a family of items, or all items of that|

|seller. If used for the firm as a whole, the preferred term is trade name |

Explanation of the definition:

Brand is a name: TVS, Infosys, Santoor, Chandrika, and Mysore Sandal.

Brand is a term: Victor means the person who won. TVS Company can protect this name from being copied by any other automobile company.

Brand is a design: The exteriors of a retail outlet which help the customer to identify it very quickly. The Raymond outlets are designed by the company.

Brand is a symbol: Mercedes is recognized by its symbol.

Characteristics of a brand

· Consistency: you may have noticed that ‘TATA’ has represented a consistent ‘attribute’ of durability in whichever product they offer to the public. Consistency can relate to any activity of the company with reference to the product/s it offers. ‘Lifebuoy’ has always meant long lasting and healthy soap. The cigarette ‘Goldflake King’ has maintained a consistent feeling of honey-smoothness and color in its packets. In order to meet the standards of consistency, a company has to ensure that this is delivered in the entire production process which eventually will lead to the product delivering the feel of consistency. A Coffee Café Day outlet is recognized by the consistency in its color scheme of its interiors and exteriors, as well as the menu on offer, to a large extent.

· Security: Normally, whenever we as consumers ask for a branded product, we are confident that it will meet some of our expectations. We feel secure that it will not be risky or that the term ‘by chance’ is not attached to the product. If we buy a consumable item from ‘Khadi Gram Udyog’ we feel that it would be safe from the health point of view. Similarly if we think of buying a branded garment from ‘Allen Solley’ we are convinced that the colors will not fade, the stitching will be strong and so on. The elimination or reduction of risk from the mind of the customer and providing a feeling of security, is one of the purposes of a brand.

· Offering functional and emotional attributes: Marketers have used both the functional attributes and emotional attributes while undertaking the branding exercise. A brand can assume a personality of its own like Raymond has the personality of a ‘sauve gentleman’. The personality may be projected by the way the message is communicated or by a brand ambassador. Vishawanathan Anand has given NIIT a personality of ‘high intellect’. There are several studies to find out what does a brand signify. It is not necessary that an advertisement for a product or service may always carry the brand message. Most of the studies have shown that

9.2.1 Advantages and Disadvantages of Branding

Advantages

1. Helps in identifying the goods and services.

2. It stimulates the purchase decision of the consumer.

3. It helps in creating customer loyalty.

4. It helps the company to maintain the leadership position in the market( if they are already market leader)

Disadvantages

1. Requires huge investment.

2. An unsuccessful brand will bring negative image to the company.

3. Customer may not be willing to pay extra just because it is branded.

9.3 Brand Equity

Brand equity is set of assets linked to a brand‘s name and symbol that adds value to the product or service and/or that firm’s customer.

Components of brand equity:

1. Brand loyalty

2. Brand awareness

3. Perceived quality

4. Brand associations

9.3.1 Brand Loyalty

Is consumer’s commitment to repurchase the brand and can be demonstrated by repeated buying of a product or service or other positive behaviors such as word of mouth advocacy. True brand loyalty implies that the consumer is willing, occasionally at least, to put aside their own desires in the interest of the brand. This will help organization to reduce the promotion cost. For example, many girls in India use only Ponds products, though competitors’ products like Fa, Spinz, Cuticura, and Mysore Sandal are present in the market and vice versa.

9.3.2 Brand Awareness

The number of customers exposed to the brand name. Higher the brand awareness, higher will be the brand equity. Organizations put all the effort in the introduction stage of the product to create awareness among the customers. For example, Xerox Company has huge brand awareness since photocopier machines were introduced by this company and even today photocopies are referred as Xerox copies.

9.3.3 Perceived Quality

The customer perception about the actual quality level of the product. For example, when a customer purchases Levis jeans he knows that it indicates quality even though there are several cheaper brands of jeans available in the market.

9.3.4 Brand Associations

The attribute of the brand that customer associates with his/ her belief. A person may associate the brand for power, strength or protectiveness. For example, a customer may associate Nike brand not just for sports shoes but also any accessory associated with sports. So, for him, Nike represents sports.

Self Assessment Questions

1. A brand name can include a symbol also.

a) True b) False

2. Brand loyalty indicates customer’s ______________towards the brand

3. The quality as seen by the customers is called as _____________

4. When customers relate to specific attributes of the brand it is called as _____________________

5. Value addition to a brand name is also called as ______________

[pic]9.4 Brand Positioning

As we discussed in the Segmentation, Targeting and Positioning unit, the image of the product should be created or positioned in the minds of consumers. Brand managers use three levels of positioning strategies to get the mind share of the customer.

Table 9.2

|Level |Character |Illustration |

|Product attributes |Ingredients: the product speaks about the |[pic] |

| |innovative ingredients that company offers|Figure 9.1 |

| |in the product. In the Godrej example the | |

| |com-pany explains the four way water | |

| |pressure technology in the advertisement | |

| |Taste: Kiss an sauce explains how their |[pic] |

| |product is different from others and how |Figure 9.2 |

| |the target customer likes it | |

|Benefit |Safety |ICICI Lombard |

| |Caring |ITC Ashrivad |

| |Adventure |Mountain dew: Do the dew |

| |On time delivery |Dominos: 30 minutes nahi to free. |

| |Performance |Sharp guarantee offer |

|Beliefs and values |Peaceful |Bharti AXA |

| |Happy |Nestle Kitkat |

9.5 Brand Name Selection

Brand provides the image to the product. Brand manager should be careful in selecting a proper name for the brand. There are six suggestions from Philip Kotler to create a successful brand name. They are

1. It should suggest something about the product benefits and qualities; e.g. Frooti or Appy Fizz

2. It should be easy to pronounce, recognize, and remember: e.g. Amul, Kissan, Ruchi

3. The brand name should be distinctive: e.g. Cello, VIP

4. It should be extendable: Aashirwad, Wills

5. The name should be easily translated into a foreign language: e.g., Mr. White.

6. It should be capable of registration and legal protection e.g. Pepsi is a registered brand and other brands cannot compete with it using any similar sounding name.

|Activity 1: |

|Mention the various points that has made Maggi noodles a household name or a very popular brand. Do you think|

|Brand name has a role? |

9.6 Brand Sponsorship

Brand managers have four options of sponsoring the brand. They are

1. Manufacturer brand

2. Private brand

3. Licensing

4. Co- branding

· Manufacturer brand: The brand owned by manufacturer and promoted either directly or indirectly. This type of strategy has been followed for many years. Pillsbury atta is a manufacturer brand. In the image below, you can see that Pillsbury is launching the Punjabi atta in the market.

(figure 9.4)

[pic]

• Private Brand:

Private brands are also called store brands. These brands bear the store name or store selected vendor name. Basic ingredients of private labels are:

1. It must be a unit package: It is difficult to assign a Private Label character to say, rice sold loose from a 100 kg bag. Even though it may enhance consumer loyalty for whatever reason, it does not qualify as a Private Label product.

2. Relabeling: The unit pack must bear only the brand name of the particular store or any other party the store may choose for its Private Label programme.

Private labels will enhance the category profitability; increase the negotiation power of the retailer and better value creates better consumer loyalty. All retailers cannot go for the private labeling. Private labels can be introduced if and only if

a. The consumer is not getting the tangible value.

b. The retailer is not making enough returns from the sale of the branded goods.

Emerging issues in private labeling:

|1. The private label strategy is effective, profitable and realistic. |

|2. The retailer must understand the price, quality and willingness to pay. |

|3. The retailer must have a sufficiently large base of loyal customers in the store before introducing the |

|private label. |

|4. The focus must be on consumer needs and not any private agenda of the retailers |

|5. There must be a stringent system for the private label production. Quality control is a must since there |

|is no one else to blame. |

|6. Private label must work to fill in gaps in the category and not target the brand leader |

|7. Smart manufacturers may take a private label initiative of the retailer seriously and avoid value gaps in |

|the categories as an impediment to growing private labels. |

|(Source: Praxis – Business line) |

· Brand licensing: It is the legal authorization by the trade marked brand owner to allow another company to use its brand for a fee. For example, Hugo Boss, Tommy Hilfiger, Lovable, Lacoste, and Nike are some of the textile brands which have licensed their brands in the Indian market. The major benefits of brand licensing are low cost, free publicity and revenue from royalty fees. Brand licensing also suffers from serious limitations like lack of manufacturing control, and failure of licensing arrangements.

· Co- Branding: According to Kotler, co- branding is ‘the practice of using the established brand names of two different companies on the same product. For example, ICICI and HPCL came together to sell ICICI-HPCL petro cards to the customer. Here card is the co- branding between the two companies. Co-branding helps ICICI to utilize their financial resources well. It adds another banking facility to the bank while HPCL can lock the customer from buying the petroleum products from competitors. HPCL also gets the benefit of financial power which it didn’t have earlier. Both companies promote these products. Hence they can leverage brand image and can reduce the cost. Other similar examples will include Maruthi Suzuki, Hero Honda, Bajaj Allianz – though these companies have come together in terms of joint venture agreements, the brand is put across the market as co-brands. All companies will not get benefit from co-branding. Some times company may lose the brand image if the product fails.

Exhibit 1

|Why Onida as a brand is ailing? |

|Internal management Problems: One of the main reasons for this is the fight between the brothers : Gulu and |

|Sonu Mirchandani and their brother -in- law Vijay Mansukhani over the control of the Onida group. The fight |

|has severely eroded the share of the brand and even the marketing of Onida. Onida was staging a recovery |

|after the successful re-launch of the brand and the return of the Devil. But the family feud has made things |

|difficult for the brand. |

|Frequent change in Advertising: What is interesting about Onida is the branding. The creative duty of the |

|brand has partly moved from one marketing agency to another i.e. from Rediffusion to McCann Erickson. But as |

|usual, when the agency changes, the entire brand elements changes. For Onida, the change till now |

|unfortunately is always for the worse. When O&M took the brand from Avenues, the famous tagline “Neighbor’s |

|Envy, Owner’s Pride” and the Devil was taken off. The brand suffered for almost 10 years and has never |

|recovered since .The change of agency from O&M to Reinfusion again changed things and Devil returned in a new|

|avatar and a new tagline “Nothing but the truth” has now come into existence. The new arrangement is not |

|making things better. In 2007, Onida launched a new campaign for its A/C and with a new tagline “It can |

|change your life”. Now the new campaign for the air conditioner features a new Devil and the tagline has |

|again changed to “Experience the desire”. Onida which already is in deep trouble is moving on to further |

|confusion with an unnecessary change in the positioning strategy. The brand has not been able to consolidate |

|the earlier theme based on ‘truth’. Even before establishing it, the brand has repositioned again. |

|Aging customer base: The customers of Onida have grown older with times and the brand has failed to connect |

|itself to the current generation. The “devil” in the advertisements in not helping it either. Even the old |

|tag line “Neighbor’s envy, owner’s pride” is losing its significance. |

|The following factors have diluted Onida’s Brand Equity: |

|Brand amnesia: For old brands, as for old people, memory becomes an increasing issue. When a brand forgets |

|what it is supposed to stand for, it runs into trouble. The most obvious case of brand amnesia occurs when a |

|venerable, long-standing brand tries to create a radical new identity, such as when Onida tried to replace |

|its original tagline with new one. The results were disastrous. |

|Brand fatigue: Some companies get bored with their own brands. This can happen to products which have been on|

|the shelves for many years, collecting dust. When brand fatigue sets in creativity suffers, and so do a sale |

|which was and is the case with Onida. |

|Brand paranoia: This is the opposite of brand ego and is most likely to occur when a brand faces increased |

|competition. Typical symptoms include: a tendency to file lawsuits against rival companies, a willingness to |

|reinvent the brand every six months, and a longing to imitate competitors. |

|COMPARISON WITH COMPETITORS |

|Market characteristics |

|· The consumer goods market in India is of USD 4.87 Billion. |

|· Around 45 companies cater to this market. Onida is having a very small share of this market. |

|· In the Indian market space, Brand loyalty is giving way to “value-for-price” contest. |

|· There is an intense competition on price. |

|· The companies are Companies focusing on product differentiation, value added offerings and exchange offers.|

|The MNCs like LG, Sony, Samsung, Phillips and Videocon command a high market share. These brands score high |

|on following factors: |

|Product Line: These companies (LG, Sony, Samsung, Phillips and Videocon) have a wider product range compared |

|to Onida to target customers from all segment. |

|Positioning: Their Image of a multinational company in the minds of consumer helped them to grab market share|

|instantly. It gave a perception that these companies have better technology. Videocon on the other hand |

|leveraged its MNC image by it tagline of “Indian MNC”. |

|Advertisements: LG has Abhishek Bachhan, Samsung Has Aamir Khan, Videocon had Amithabh Bachhan and now |

|Sharukh Khan, and All these players have used celebrity to a good effect to endorse their brands. On the |

|other hand Onida is stuck with its old “Devil” which isn’t helping. |

|Visibility: The companies are associated with events and sponsorships. Like LG and Videocon are associated |

|with cricket. This has resulted in better brand visibility. |

|STRATEGIES TO REVITALIZE BRAND ONIDA |

|In order to revamp its position and brand value in the market Onida should use the following strategies: |

|Better positioning: Onida should stick with a uniform positioning strategy rather than changing it with time |

|as they did. |

|Celebrity Endorsement: The Company should go for a better adverting. The company can rope in a celebrity to |

|endorse its brand. This way the brand can be benefited from celebrities brand equity. We suggest rope in |

|Saurav Ganguly. Ganguly’s image of a fighter and a class player will help Onida’s brand image. |

|Association with events: The Company has lost its place in the minds of customers. Also, the loyal customers |

|of Onida have grown older. To regain old customers and to regain visibility, Association with events can |

|help. Onida’s problem of low visibility will be solved with its sponsorship of event like rock shows, games, |

|marathons etc. |

|Line Extension: The Company should go for line extension in value segment so as to target more customers in |

|the lower segment. They should introduce more variants in 14”, 20” and 21” segment. These products will |

|target the young and first time buyers. These buyers will have an emotional attachment with the brand and as |

|they graduate to the high end segment, Onida can target them with its high end products. |

|(Source: ) |

9.7 Brand Development

Company can develop the brand on the basis of product category and brand name. Some of the different strategies adopted by companies to develop the brands are as follows:

[pic]

1. Line extension: Company uses its well known brand name to introduce additional items in a given product category such as new forms, flavors, ingredients or package sizes.

For example, Karnataka Milk Federation, uses its top brand name Nandini, to introduce new items like toned milk, full cream milk , curd and milk powder.

[pic]

It is less risky and requires fewer investments to introduce the product. In the above example Nandini used the extension to meet the excess capacity that it has. The milk procurement was more than the demand from the customer. Hence it started producing the milk powder. But all the products introduced need not to be successful in the market. In case of KMF, Nandini ice creams didn’t click in the market. Another risk of line extension is brand cannibalization, i.e. company’s brand/items compete with each other.

2. Brand extension: A strategy in which company uses one of its familiar brand names for new product category’s items. For example, United Breweries (UB) Limited group used its flagship brand Kingfisher to different categories. Kingfisher was originally a beer brand extended to airlines.

[pic]

Brand extension gives instant recognition to the brand. In the above example, people required very little time to know Kingfisher airline brand, because parent brand was very well known. Brand extension may hurt the parent brand reputation in the market if it fails.

3. Multi brands: The technique of introducing the product or items in existing product category with a new brand name.

[pic]

Figure 9.8

For example, Hindustan Unilever uses different brand names for their home and personal care category. The above example shows us that HUL have Breeze, Dove, Liril, Lux, Lifebuoy and Pears in the bath soap segment itself. It helps the company to come out with new features in the product or product category. Organizations adopt this strategy to avoid brand cannibalization in the given category. The major disadvantage of this strategy is that none of the brands will enjoy major market share and result in lesser profitability. In case of Hindustan Unilever, company had more than 100 brands and was forced to reduce it to 30 power brands. Other brands were not adding enough profit for the company.

4. New brands: The strategy indicates coming out with new brands for new category products. In this strategy, company believes that existing brands cannot be extended to the new category. The new brand strategy requires huge resources to build it. The new category, if it already has some brands of other companies, investment requirement will go up. For example, Hindustan Unilever launched Pure-It in the water purifier category. The category and brand are new to the company.

Exhibit 2

|Defining Brand Failures |

|A Brand is a failure when its presence in the market leads to: – |

|• The withdrawal of the product/brand from the market for any reason; |

|• The inability of a product/brand to realize the required market share to sustain its presence in the |

|market; • The inability of a product/brand to achieve the anticipated life cycle as defined by the |

|organization due to any reason; or, |

|• The ultimate failure of a product to achieve profitability. |

|Failures are not necessarily the result of sub-standard engineering, design or marketing. Based on this |

|critical definition, there are hundreds of bad movies that have reached â cult status and financial success |

|while many a good movies have been box office bombs. Other premier products fail because of competitive |

|actions. Sony Beta format was a clearly superior product to VHS, but their decision to not enable the format |

|to be standardized negatively impacted distribution and availability, which resulted in a product failure. |

|Common Reasons for Product/Brand Failures |

|In addition to a faulty concept or product design, some of the most common reasons for brand/product failures|

|typically fall into one or more of these categories: – |

|• High level executive push of an idea that does not fit the targeted market. |

|• Over-estimated market size |

|• Incorrectly positioned product. |

|• Ineffective promotion, including packaging message, which may have used misleading or confusing marketing |

|message about the product, its features, or its use. |

|• Not understanding the target market segment and the branding process that would provide the most value for |

|that segment. |

|• Incorrectly priced too high or too low. |

|• Excessive research and/or product development costs. |

|• Underestimating or not correctly understanding competitive activity or retaliatory response. |

|• Company obsession with the brand or reluctance on the part of the management to discontinue with the brand |

|. |

|• Poor timing of distribution. |

|• Misleading market research that did not accurately reflect the actual consumer behavior for the targeted |

|segment. |

|• Conducted marketing research and ignoring those findings. |

|• Key channel partners were not involved, informed, or both. |

|• Lower than anticipated margins. |

|Thus, Brand Failure cannot just be attributed to poor product not being able to sell in the market but the |

|reasons others than that. |

|(Source: ) |

|Activity 2: |

|Identify the strengths and weaknesses of the toothpaste brand that you use |

Self Assessment Questions

6. The number of customers exposed to the brand is called _________

7. Positioning the product on safety belongs to

a) Product attributes

b) Beliefs and values

c) Benefits

d) All the above

8. The practice of using the established brand names of two different companies on the same product

a) Manufacturer brand

b) Private brand

c) Brand licensing

d) Co- branding

9. Line extension strategy is used in which of the following situations?

a) New product category and new brand name

b) New brand name and existing product category

c) Existing product category and existing brand name

d) New product category and existing brand name

10. The technique of introducing the product or items in existing product category with a new brand name is called ___________.

9.8 Summary

· A brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers.

· Components of brand equity are brand loyalty, brand awareness, brand association and perceived quality

· Brand licensing: It is the legal authorization by the trade marked brand owner to allow another company to use its brand for a fee.

· Companies use line extension, brand extension, multi brands and new brand strategies to develop the brand

List of Key terms

Brand Brand positioning Branding strategies Brand Loyalty Brand development

9.9 Terminal Questions

1. What is brand sponsorship? Explain how organizations maintain their sponsorship positions.

2. Explain the important characteristics of a good brand name

3. Discuss the different strategies used in the brand development.

4. Make a note of successful and well established Indian brands

5. Write a note on brand equity.

9.10 Answers

Answers to Self Assessment Questions:

1. True

2. Commitment

3. Perceived quality

4. Brand association

5. Brand equity

6. Brand awareness

7. Benefits

8. Co-branding

9. Existing product category and existing brand name.

10. Multi brands

Answer to Terminal Questions:

1. Refer 9.6

2. Refer 9.5

3. Refer 9.7

4. Refer 9.8

5. Refer 9.3

9.11 Mini-Case

Sachin Tendulkar: The chosen brand ambassador of many or few?

The list of companies which believe that Brand Tendulkar doesn’t work for them anymore has grown further. After Fiat and Airtel beverages and snack food maker PepsiCo has decided to end its long relationship with the 35-year-old cricketer.

Tendulkar, still has an impressive list of brands like Adidas, Aviva, Britannia, Boost, Sunfeast, Canon and Visa. But the list is getting shorter. Earlier in his career, Sachin was seen endorsing several product brands like Action shoes, Reynolds, Philips, Sanyo, BPL, MRF tyres, Colgate toothpaste and even Sports channel like ESPN-STAR (Source: Business Standard 20th November 2009)

Two decades ago, when Sachin Tendulkar walked into bat at the Karachi Test match, no one could have predicted that he would become not just an enormous run machine, but also a man paid crores by firms for endorsing their products. According to industry estimates, BCCI if they had a choice they would have created an extra category for the master blaster, but for now he belongs in Grade ‘A’ (Rs. 80 lakhs – Rs 1 crore).

Sachin Tendulkar’s tryst with advertising started with Band-Aid and since then he has endorsed every thing from health supplements to cars faring about 3 to 6 Crores.

Sachin is a fantastic cricketer. So he was probably going to do well as a cricketer anyway. But how can his commercial success be explained? One clue can be found in economics which talks of necessary and sufficient conditions that must be fulfilled for an outcome to emerge. Thus while it was necessary for Sachin to be fantastic cricketer, was it also sufficient? The answer has to be No, because there have been other fantastic cricketers in the past who have not achieved such striking commercial success. Being a fantastic cricketer is necessary but not sufficient. Something else was also needed.

That something else was modern television. True, live broadcasts of cricket in India began in the mid-1970. But that was one by Doordarshan through terrestrial telecast via microwave stations, in black and white with one fixed camera on the roof of the pavilion and it had radio commentators doubling up as commentator on TV. Had Sachin played in that era, he would not have been such a huge advertising hit.

But then again only Television was not enough. Something more was needed and that something came with the economic reforms of July 1991 – just 18 months (and less than a dozen matches) after Sachin’s debut. The reforms set in motion the process that led to the explosive growth of consumerism from about 1995 onwards, just six years into his career.

As product competition grew, the need for product differentiation grew; as product differentiation grew, the need for advertising grew. As these grew, the need for a cheap way reaching audiences grew, which is where TV came in. For an advertiser, the cost of getting his message across to a viewer is less than 15 message paisa per viewer during big matches and never exceeds 25 paisa. It goes up when the ad is played during non –cricket programming but not by much. But to make sure that people watch, a Sachin or a Hrithik or Amitabh is needed.

It was this combination – his cricketing prowess, modern TV and the economic reforms – that propelled Sachin forward as one of the top three product endorsers in the country the top being film actor Amitabh Bacchhan. Today nearly 60% – 70% TV ads have in them famous people or celebrities.

There is another point as well. Sachin does not always perform well. He went through a very lean patch which hurt Indian team because he was not helping India win. Some firms even dropped him thinking that Sachin was a liability to the side but the public could not see that.

Finally, we don’t really know if people buy products Sachin endorsed or merely contented themselves with watching him with the brands. Perhaps brands use celebrity endorsement as a habit or would there be any other reason? After all, where is the evidence that a Boost did better than Bournvita in terms of sales growth because it used Sachin? There is also another question here whether Boost is the real secret behind Sachin Tendulkar’s energy? Or is it the other way round? What are your views?

(Source: Brand Line, Business Line – November 19th 2009)

Copyright © 2009 SMU

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MB0046-Unit-10-Pricing

Unit-10-Pricing

Structure:

10.1 Introduction

Learning Objectives

10.2 Factors affecting Price Determination

10.3 Cost based pricing

10.4 Value based and competition based pricing

10.5 Product mix pricing strategies

10.6 Adjusting the price of the product

10.7 Initiating and responding to the price change

10.8 Summary

10.9 Terminal Questions

10.10 Answers

10.11 Mini-case

10.1 Introduction

Price determination is very important aspect of strategic planning. Marketers fix the price of the product on the basis of cost, demand or competition. Dell, which allows customers to customize the product adopted flexible pricing methods. In contrast, Indian Oil companies’ product prices are fixed by the Government where company does not have any control. Retailers like Big Bazaar, Fair Price and Subhiksha target price conscious consumers. Manufacturers and service providers all over the world outsourced some of their functions to the developing countries to get cost advantage which help them in reducing their final price. Internet has become an alternative tool for shopping to the consumers. It offers a wide range of products at lesser price.

Learning Objectives

After studying this unit, you will be able to

· Find out the factors that influence the pricing strategies.

· Understand various approaches to pricing

· Analyze the pricing strategies adopted by marketers

· Know the situations when marketer should initiate the price cuts.

10.2 Factors affecting Price Decisions:

1. Marketing objectives: There are four major objectives on which prices are determined. They are survival, current profit maximization, market share leadership and product quality leadership. Survival strategy is adopted when company is facing stiff competition from the competitors and it wants quick reaction and recovery. Current profit maximization strategy is used to defend the market position. For example, assume a company is operating in the lubricants business. Its sales and market share are very high. It always tries to hold their current position. To do this, it increases the price of the product. The next objective is market share leadership. Here, company strives to achieve the leadership position in the market. It reduces the price of the product so that more number of customers buy the product. Through volume generation, company gets the market leadership position. Product quality leadership objective is used when company decides to come with high quality product and premium price. The intention of the company is to cater to the needs of the niche segment.

2. Costs: The cost of marketing and promoting the product will have direct impact on the price. For example, When airline fuel cost went up all airline companies increased the ticket prices Company will be incurring fixed cost (plant, machinery etc…) as well as variable cost (raw material, labor etc…) The fixed cost will go down if the number of products produced increases. The variable cost of the product decreases if the product is produced up to an optimal level and then once again it goes up. Hence the total cost (fixed cost plus variable cost) varies according to both costs. Marketer is interested in knowing the break even analysis when he introduces the product in the market. The break even point for a product is the point where total revenue (TR) received equals the total costs (TC) associated with the sale of the product (TR=TC). A break even point is typically calculated for businesses to determine whether it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead, so it can be made lucrative. Break-even Analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business.

3. 4Ps of marketing: The price of the product is determined by the other marketing mix elements also. Product influences the price level, i.e. if the product quality is very high company would like to price it high and vice versa. The new product requires aggressive promotion and results in higher promotion cost and higher price. Supply chain management also plays an important role in the price determination. If the organization is able to integrate their supply chain well, then it will be having a distribution advantage over others. For example, Nokia when it introduced 1100 handset in Indian market priced it at Rs. 5200. It did so to get back its R&D and promotion cost. When the sales picked up, the price of the product has come down to Rs 3800. Cavin Care introduced sachets and priced at 50 paisa. HUL was forced to come out with sachets at the same price.

4. Nature of the market and demand: The price determination depends on the nature of the market also. The nature of the market is classified into following categories.

a. Perfect competition

b. Monopolistic competition

c. Oligopolistic competition

d. Monopoly

a. Perfect competition: The nature of the market where many buyers and sellers exist. Both the buyers and sellers exhibit the switching habit. If the seller charges more for the product, then buyer will shift to another seller. Usually in these types of markets, companies set their prices according to the competition. For example, in a stock market, prices of shares are frequently affected due to the large number of buyers and sellers.

b. Monopolistic competition: The nature of the market where many buyers and sellers exist but no particular buyer or seller has total control over the market. The difference between perfect competition and monopolistic competition is that in case of the latter, prices for the products vary according to product differentiation, whereas in case of the former, there is a single price. In case of monopolistic competition, prices are fixed by the gap in the product line of all competitors and on the level of differentiation. For example, food suppliers, footwear manufacturers and various service providers exist in monopolistic competitive market.

c.  Oligopolistic competition: The market consists of few suppliers who dominate a large portion of the market. They do not allow new players to enter the market. They are price sensitive to each other and so are dependent on each other For example, automobile manufacturers, pharmaceutical companies do business in oligopolistic market.

d. Monopoly: In a monopolistic market there is only one seller due to regulatory, technical or economic entry barriers. Indian Railways has monopoly over the railway industry in India. It is able to sell its products and services at the determined rates. Prices are economical in the monopoly markets that are usually controlled by the government.

Demands for the product vary according to the price set. The general customer belief is that higher the prices better the quality of the product and lower the price, lower the quality. Marketer should understand this perception because this perception will determine the demand for the product. For example, a customer thinks of Mercedes as a high quality product and Chik shampoo which costs less than other shampoos as low quality. After analyzing the perception about the price, marketer has to find out the price elasticity of demand.

The price elasticity of demand is defined as a percentage change in the quantity demanded to a percentage change in the price. Assuming that the price of a product is Rs 12 and market is perfect, Company is able to sell 1000 units per month. If the price is revised to Rs 13 then company expects 900 units to be sold in the particular month. Then the price elasticity of demand for the product is

Price elasticity of demand= % change in quantity demanded/ % change in price.

= -10%/ 8.33%

=-1.2%

This means company is having negative price elasticity of demand.

The marketing implication is lower the price elasticity of demand, easier it is for the marketer to change the price. Marketers who are interested in sales and when products have inelasticity of demand, then they will go for lowering the prices of the products.

5. Competition: Price is also determined by how intense the competition is in the particular industry. Cellular industry and airline industry in India are involved in such type of price wars. The price war between Hutch (Now Vodafone) and Airtel is exemplary. Air Deccan which started a no frill airline made other airliners like Go Air, Spice Jet and Paramount to reduce their prices.

6. Environmental factors. These external factors are very crucial for the company’s price decisions. We discussed the impact of macro and micro environment on the company’s strategies. For example, in the union budget, tax on cigarette is increased. Hence company that manufactures cigarette should increase the price. The increase in the price is determined by the government environment which the company cannot control.

|Activity 1: |

|Highlight the factors that affect the prices of the local shoe shop that you go to. Find out, how often |

|discounts are offered and when they offer? Are there any competitors to this shoe shop? |

10.3 Cost based pricing

I. Cost plus pricing: The method of adding markup to the total cost of the product.

Procedure for calculating cost plus pricing:

[pic]

Problem: Company X would like to sell 75,000 units in the year 2008. The fixed cost of the company is Rs 2 lakhs and variable cost is Rs 5 per unit. Company wants 30 % profit after sales. Calculate the price of the product to achieve desired sales and profit.

Solution:

Unit cost = VC+ (FC/ unit sales)

= 5+ (200,000/75000)

= 7.67

Price = Unit cost/ (1- desired return on sale)

= 7.67/ (1-0.3)

= 10.85

Approx Rs 11/unit.

Advantages of cost plus pricing:

1. Sellers are more certain about the cost than the demand.

2. If all the companies in the industry use this method, price becomes standard.

3. It is fair to both buyers and sellers.

Disadvantages of cost plus pricing:

1. It ignores the demand and competition

2. If fewer units are sold, then fixed cost will be spread to less number of units. This leads to higher unit cost and higher final price.

II. Break even pricing:

The firm determines the price at which it will make the target profit.

Procedure to calculate the break even volume:

1. Find out the total fixed cost of the company.

2. Determine the price at which company would like to sell

3. Calculate the variable cost per unit.

4. Determine the break even volume by the following formula

Break even volume= Fixed cost/ (Price- variable cost)

Procedure to identify breakeven price

1. Determine the unit demand needed to break even at a given price.

2. Find out the expected unit demand at given price.

3. Find out the total revenue at a given price.

4. Calculate the total cost ( assuming fixed cost and total of variable cost)

5. Determine the profit from the following formula

Profit= Total revenue – total cost.

Assume:

Fixed cost: Rs 1,000,000

Price: Rs 20

Variable cost: Rs 12

BEV = 1,000,000/ (20-12)

= 125,000.

|Price |Unit demand |Expected unit |Total revenue iii |Total cost iv( assumed fixed |Profit |

| |needed to break|demand at given|= Price* |cost Rs 10 Lakh and constant |v = iii – iv |

| |even (i) |price (ii) |(ii) |variable cost Rs 12) (iv) | |

|Rs 16 |250,000 |340,000 |4,800,000 |5,080,000 |-280,000 |

|Rs 18 |166,667 |180,000 |3,240,000 |3,160,000 |80,000 |

|Rs 20 |125,000 |140,000 |2,800,000 |2,680,000 |120,000 |

|Rs 22 |100,000 |90,000 |1,980,000 |2,080,000 |-100,000 |

|Rs 24 |83,333 |60,000 |1,440,000 |1,720,000 |-280,000 |

Rs. 20 is the ideal price to break even.

10.4 Value Based and Competition Based Pricing

1. Value based pricing: Setting the price of a product on the basis of consumers’ perceived value of the product rather than manufacturers’ cost.

Difference between value based and competition based pricing

[pic]

Cost based pricing starts with the development of product and prices are fixed later. In case of value based pricing customers are given utmost importance. In value based pricing method, the product is developed only after the price and cost estimation. For example Company X that manufactures electric switches develops the product and sets the price on the basis of total cost and target return required. Company Y that manufactures food products researches the consumer need and prepares customer values. Then the company sets the price on the basis of customer values.

Every day low pricing:

In this strategy, organization charges constant low prices and no temporary discounts. This method is popularized by Wal-Mart.

High Low pricing:

Charging higher prices everyday but running frequent sales promotions to lower the prices on temporary basis. For example, Products such as deodorants, body sprays and other cosmetics are priced high but from time to time there are offers like buy one get one free on such products.

2. Competition Based pricing: In this method a seller uses prices of competing products as a benchmark instead of considering own costs or the customer demand. Some techniques of competition based pricing are as follows -

a) Destroyer Pricing

This strategy is used as an attempt to eliminate competition. It involves lowering the prices of the company’s products to an extent where competition cannot compete and consequently they go out of business. It is therefore important that one has to recognize how threatening the competition is and research how competitive they can be with their prices They may be able to compete with organization’s price cuts and consequently both, or just competitor may go out of business.

b) Price Matching or Going Rate Pricing

Many businesses feel that lowering prices to become more competitive can be disastrous for them (and often very true!) and so instead, they settle for a price that is close to their competitors. Any price movements made by competition is then mirrored by the organization so long that one can compensate for any reductions if they lower their price.

c) Price Bidding or Close Bid Pricing

Price bidding is a strategy most common with manufacturing, building and construction services. In this strategy, companies submit the quotation according to the tender stipulations

|Activity 2: |

|Select any local supplier who is dealing with a specific type of product and find out his pricing strategies |

|under situations: a) when competition is more; b) when there is no competition; c) when demand is more than |

|supply; d) when there is no demand |

Self Assessment Questions

1. Current profit maximization strategy is used to defend the ___________

2. Break even point occurs when

a. Total cost equals fixed cost

b. Total cost equals total revenue

c. Total cost equals variable cost

d. All the above

3. ______________ market consists of few number of sellers

a. Perfect market

b. Monopolistic

c. Oligopolistic

d. Monopoly

4. Unit cost equals to

a. Variable cost+ ( fixed cost/unit sales)

b. Fixed cost + ( variable cost/ unit sales)

c. (Variable cost+ fixed cost)/unit sales

d. All the above

5. Every day low pricing is

a. Value based pricing

b. Competition based pricing

c. Cost based pricing

d. All the above.

10.5 Product Mix Pricing Strategies

1. Product Line pricing: Strategy of setting the price for entire product line. Marketer differentiates the price according to the range of products, i.e. suppose the company is having three products in low, middle and high end segment and prices the three products say at Rs 10 Rs 20 and

Rs 30 respectively.

Figure 10.1

[pic]

In the above example of Nokia mobile phones Nokia 1110 is priced

@ Rs 1349, Nokia 7610 priced @ Rs 6249 and Nokia E90 priced

@ Rs 34599. All the three products cater to the different segments – low, middle and high income group respectively. The three levels of differentiation create three price points in the mind of consumer. The task of marketer is to establish the perceived quality among the three segments. If the customers do not find much difference between the three brands, he/she may opt for low end products.

2. Optional Product pricing: this strategy is used to set the price of optional or accessory products along with a main product.

Figure 10.2

|[pic] |[pic] |[pic] |[pic] |

|Body cover |Slide Molding |Rear underbody |Roof End |

|Rs 1521 |Rs 1123 |Rs 8883 |Rs 6396 |

Maruti Suzuki will not add above accessories to its product Swift but all these are optional. Customer has to pay different prices as mentioned in the picture for different products. Organizations separate these products from main product so that customer should not perceive products are costly. Once the customer comes to the show room, organization explains the advantages of buying these accessory products.

3. Captive product pricing: Setting a price for a product that must be used along with a main product. For example, Gillette sells low priced razors but make money on the replacement cartridges.

4. By-product pricing: It is determining the price for by-products in order to make the main product’s price more attractive. For example, L.T. Overseas, manufacturers of Dawaat basmati rice, found that processing of rice results in two by-products i.e. rice husk and rice brain oil. If the company sells husk and brain oil to other consumers, then company is adopting by-product pricing.

5. Product bundle pricing: It is offering companies several products together as a bundle at the reduced price. This strategy helps companies to generate more volume, get rid of the unused products and attract the price conscious consumer. This also helps in locking the customer from purchasing the competitors’ products. For example, Anchor toothpaste and brush are offered together at lower prices.

10.6 Adjusting the Price of the Product

Competition has forced companies to adjust their base prices according to the situations. There are basically five different types of pricing strategies that companies adopt. They are

1. Discounts and allowances

2. Location pricing

3. Psychological pricing

4. Geographical pricing

5. International pricing

1. Discounts and allowances

Companies offer price reduction for the customers on the following basis:

a. Cash discount is given when the customer makes early payment before the due date. To explain, a manufacturer gave 21 days credit to a grocery store person. If the customer pays the bill within 7 days, company may ask him to pay 2% less than the actual amount.

b. Quantity discount is a price reduction to buyers who buy the products in large quantities. Suppose a manufacture sells submersible pumps for Rs 20,000, and if customer buys three motors at one go, then he will reduce the price of the product to Rs 18,000.

c. Functional discount is offered when customer carries the promotion or other marketing activities. To illustrate, a chemist will be paid a nominal amount for displaying the company products or promoting the company products.

d. Seasonal discount is usually offered when customer purchases the product in the off season. For example, if customers purchase the winter cloth in rainy season, then he/she will get discount on the total products produced.

2. Location pricing is the method of setting the price of the product according to the locations. Here company changes the price from one location to another location though other cost remains the same. To make it more clearer, company X is having two stores, one in a market area and another in suburban area. It charges more in the market area and less in the suburban area.

3. Psychological pricing: According to Kotler, psychological pricing is ‘a pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product. For example, V. K. export sets Rs 299 and Rs 399 for their leather product which in turn creates the impression that the price is in the range of 200 rather than 300. Similar pricing strategy is observed in Jeans and shoes.

Promotional pricing: Organizations set the price of their product below the list price and sometimes even below cost. The objective of such pricing is to achieve immediate sales, increase the customer footfall, avoid the competition and introduce the product. Big Bazaar annual clearance sale etc… is an example of this type of pricing.

4. Geographical pricing: setting the price on the basis of geographies they are selling and freight charges. In this strategy, different options exist for the company. They are

a. Freight charges to be paid by the customer (FOB or Free on Board pricing) For example, when delivering a equipment from another country or state, company will charge according to FOB price

b. Different zones have different prices, i.e. company may charge different prices in south and north zone. (Zone pricing). For example, MTR sells its products at different prices in different states.

c. Same price plus freight charges for all the customers (Uniform delivered pricing). For example, when you place an order for Books, its prices are fixed and also the freight charges.

5. International pricing: Organizations should consider the different external factors and customer profiles in different countries before arriving at a pricing strategy. It should adopt their products and their prices according to that. For example, CIPLA sells its AIDS medicines in Africa and America with different prices.

Apart from the above price adjustment strategies, companies also adopt promotional pricing where prices of the products are lowered to a major extent so as to attract sales. These price offers are given during off-seasons, to clear old stocks, to balance over-production of goods or whenever the market conditions demand for such strategy. For example, Shoes, Dress materials, crockery items are sometimes sold at direct sale or at factory rate. Even offers such as Buy one, get one free are regarded as promotional pricing where at the price of one, consumer gets one more item.

10.7 Initiating and responding to the price changes

1. Initiating the price changes

· Initiating the price cuts: Below certain situations are discussed when organizations think of initiating the price cuts

a. Companies reduce their price when they have excess capacity.

b. Falling market share in the face of strong market competition

c. Dominate the market through lower costs.

· Initiating price increases

a. Rising cost of raw materials.

b. Demand for the product exceeds the supply.

· Buyer reactions to price changes

a. Reduced price means reduced quality

b. Reduced price means company is not selling the product as expected.

c. Prices may go down further.

d. May avoid buying the product for some time

2. Responding to price changes

In the competitive world, other manufacturers sometimes initiate the price changes. In such case the company should analyze two situations

· If the price cut of other company is not affecting our company, then hold current price and monitor the market. This situation helps to keep the profitability of the company.

· If the price change of other company affects the company, then it should take any one of the following steps

a. Reduce the price of the product on par with competition or below the competition.

b. Increase the perceived quality of company and product.

c. Improve the quality of the product and then increase the price.

d. Launch different brand which can fight in the lower end.

Self Assessment Questions

6. ____________ Strategy is used to set a price for a product that must be used along with a main product.

7. The pricing strategy in which company sells its several products at reduced price

a. Bundle pricing

b. By product pricing

c. Captive pricing

d. Options pricing

8. Razor and cartridge example indicates

a. Bundle pricing

b. By product pricing

c. Captive pricing

d. Options pricing

9. FOB pricing is an example of

a. Promotion pricing

b. International pricing

c. Discounts and allowances

d. None of these

10. ___________ is given when the customer makes early payment before the due date.

10.8 Summary

• There are four major objectives on which prices are determined. They are survival, current profit maximization

• The break even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC).

• The price elasticity of demand is defined as percentage change in quantity demanded to the percentage change in the price.

• Optional Product pricing strategy is used to set the price of optional or accessory products along with a main product.

• By product pricing is determining the price for by products in order to make the main product’s price more attractive

• Product bundle pricing is offering companies several products together at the reduced price.

List of Key terms

Monopoly Perfect competition

Oligopolistic competition

Break-even pricing

Pricing strategies

Total cost

10.9 Terminal Questions

1. Discuss the factors that influence price decisions

2. Write a note on cost based pricing.

3. Explain value based and competition based pricing.

4. How should organizations adjust their prices of the product?

5. Write a note on product mix pricing strategies.

10.10 Answers

Answers to Self Assessment Questions:

1. Market position.

2. Total cost equals total revenue.

3. Oligopolistic

4. Variable cost+ ( fixed cost/unit sales)

5. Value based pricing

6. Optional product pricing

7. Bundle pricing

8. Captive pricing

9. None of these

10. Cash discount

Answer to Terminal Questions:

1. Refer 10.2

2. Refer 10.3

3. Refer 10.4

4. Refer 10.6

5. Refer 10.5

10.11 Mini-Case:

Price Plus

No exchange, No bond or post-dated cheque. Simple redemption. Bonus profit, announced the tag-line of a full-page ad in one of the capital’s leading English language dailies. No, the ad is not there to sell fixed deposit coupons for some non-banking financial company or even the much maligned ‘teak bonds’ for some obscure plantation company. Instead it spells out in vivid details; now hold your breath, on how good money can be made almost six years down the line by buying an Akai color television today!

Flip a few pages, and there is yet another one of them, this time from Videocon, which announces it as the “Greatest Money Back Offer”. The superlative here, it seems, is only an age-old advertiser’s tendency to exaggerate.

But get the subtle drift. It is no longer your television against mine. Or even your technology against mine. Or even your brand against mine. But my ‘financial offer’ against everyone else’s! For that is what marketing, or whatever we understood of it, in the consumer durable market has been reduced to. Simply, and some would add sadly, an act of ‘financial drudgery’, re-engineering if you like.

Well, we should see it coming. First, it was the bundling. Don’t just sell a television set alone-throw in the CD video and audio player, high-wattage speakers and call it a ‘home theater’ or something of the sort. Never mind, if the consumer is completely flummoxed (or stumped) on the individual value of the respective elements.

Then came, bundling by any other name, brand associations. So you had a hotchpotch of refrigerators, washing machines and television brands peddled as the home-maker of sort. Akai initiated ‘exchange mania’ – your old television for new-almost became marketing currency with durable marketers across the board.

But, what takes the cake, is the latest ‘money back’ salvo from Akai and Videocon? Amidst all these ‘innovative approaches’, whatever happened to good old classical marketing and branding?

“To justify the blatant disregard for accepted consumer marketing, these durable marketers are terming it as redefinition in consumer value. In fact, their version of it is essentially a function of just price. They have thrown all concepts of branding to the wind,” adds Suhel Seth, CEO, Equus Advertising. Simply put, consumer value cannot be on mere price corollary; it has other elements to it.

“You need to look at this phenomenon from the category’s lifecycle-I have seen it happening with all sorts of categories, tyres for instance, “opines Vinayaka Chatterjee, Chairman, Feedback Ventures Private Ltd.

“Ultimately, two things will happen. One, some people may not find it worthwhile to operate in such a market, and then some degree of shake-out may happen. Plus, demand perk up in the future will somewhat restore demand supply imbalance. And then back to old classical marketing games.

However, there is another school of thought which is more charitable.“ Marketing looks at making sure to create consumers in the short, medium and in the long run. Akai is doing fine on the short and the medium levels. I think it will be a player in the long run as well,” adds Shumu Sen of Quadra Consultants.

Even others agree on the fact that such ‘innovative offers’ have managed to attract a very basic need oriented consumer. But what beyond that? “In the long run, brands have to be built,” adds Seth. The moot question, however, remains whether or not brands such as Akai are able to sustain themselves on any ‘offer’?

Such offers may bring relevance (price-related) and even salience (schemes advertising related) to the brand. But, what about consumer empathy and esteem, that’s so very essential for the survival of the brand in the long run? That can be only built working around the entire spectrum of the marketing rainbow, and not just on price,” adds Rajeev Karwal, Vice-President, Marketing and Sales, LG India Electronics Pvt. Ltd.

“My hypothesis is that you can turn a brand into a commodity and sell it on price sensitivity, the way Akai is doing. But over the time the game perforce has come back to the brand,” adds Gautam Bhattacharya, professor of marketing at a New Delhi-based management institute.

“Marketing is about creating consumer empathy with the brand. When the consumer feels that ‘this is my brand’, adds Karwal, where is that quintessential quality of marketing in today’s consumer durable market? Or are we to live forever with age-old adage, “There’s no brand loyalty which two cents off can’t overtake.”

In the era of price-war the questionable issue is whether marketers formulate their strategies on price or value for money and secondly whether consumers end up paying more than they bargained for. Analyze this issue in the current scenario of price wars.

(Source: ‘Price Plus’ – case study; Cases and Simulations in Marketing Management edited by Prof. M.K. Rampal and Dr. S.L. Gupta)

Copyright © 2009 SMU

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MB0046-Unit-11-Distribution Management

Unit-11-Distribution Management

Structure:

11.1 Introduction

Learning Objectives

11.2 Need for Marketing Channels

11.2.1 Functions of marketing channels

11.3 Decisions involved in setting up the Channel

11.4 Channel Management Strategies

11.4.1 Managing and motivating channel members

11.4.2 Evaluating channel members

11.5 Introduction to Logistics Management

11.5.1 Major logistics functions

11.6 Introduction to Retailing

11.6.1 Characteristics of retailing

11.6.2 Functions of retailing

11.6.3 Types of retailing

11.7 Wholesaling

11.7.1 Functions of wholesalers

11.7.2 Types of wholesalers

11.8 Summary

11.9 Terminal Questions

11.10 Answers

11.11 Mini-Case

11.1 Introduction

Distribution of goods or services from the factory or the manufacturing unit to the consumer provides strategic advantage to the company in the highly competitive environment. Earlier people used to wait to get the products but now companies make them available as and when the customer demands. This is an opportunity as well as a challenge to the organizations to provide the right product at the right place in the right time. Companies are also emphasizing on how to reduce the cost in the supply chain. To meet the cost reduction objectives, they are integrating their system with information technology, outsourcing the distribution functions and streamlining the supply chain. Use of technology and corporate interest in the distribution management resulted in the evolution of professional retailing and wholesaling in India. These above factors made distribution one of the important components in planning the marketing strategies

Learning Objectives

After studying this unit, you will be able to

· Explain the nature and functions of marketing channels.

· Analyze the decisions involved in the distribution management.

· Evaluate the different distribution strategies adopted by the company.

· Understand the importance of logistics management.

· Discuss the growth and scope of retailing and wholesaling.

11.2 Need for Marketing Channels

Marketing channels are a set of independent organizations comprising of the marketing intermediaries who are involved in the distribution of the goods or services from the factory to the consumption points at the right time or even before the time.

For example, Haldiram, a company which produces snacks, chats and sweets have two manufacturing locations at Delhi and Nagpur. The products from Delhi will be sent to 25 C&F agents. These C&F agents distribute the goods to 700 distributors, who in turn sell to 0.4 million retail outlets. In the same way, goods reaches to 0.2 million retailers from Nagpur plant via 25 C&F’s and 375 distributors. Consumer buys Haldiram snacks throughout India through these 0.6 million retailers.

Marketing channels will have marketing intermediaries such as the retailers, wholesalers, agents, brokers, travelling agents, etc. Some companies do not use these channels. They directly market their products to consumers. For example, Dell computers ask its customers to login to the website, configure their product, and order the same on the internet. Then a general question arises as to why many companies use marketing channels and some do not. In order to answer this question, we need to understand the functions of marketing channels and how they are more beneficial than direct marketing.

11.2.1 Functions of marketing channels

1. Helps in Physical distribution: Transporting goods and storing them in the assigned warehouses or godowns.

2. Promotes Communication: Marketing intermediaries promote the company’s products. Here channel member provides the information regarding the products and pushes it to the customers.

3. Provides Information: Retailers and wholesalers collect the information or feedbacks from the customers and provide the same to the company or manufacturer.

4. Plays a key role in Title transforming: Marketing intermediaries purchase the goods from the company and transform the title of goods or ownership to the next channel intermediary or customer.

5. Supports Relationship management: Here marketing intermediaries try to understand the needs of consumers, try to match his needs and satisfy them.

|Activity 1: |

|Visit a nearby retail shop and find out the functions it performs as a part of the distribution channel. |

11.3 Decisions involved in setting up a Channel

Marketers should consider various factors before deciding the particular type of channel. It may be organizational or competitive factors. The type of goods to be transported and stored will decide the length and intensity of channel. To decide on the particular channels, marketer will have to take into account the following factors.

1. Understanding the customer profile: Purchasing habits differ from individual to individual. Individuals who face shortage of time would like to purchase on the net (direct channel) and those who have abundant time would like to go through the shopping experience. Some of them would like to have variety of goods, while others want unique or specialized products. Hence marketers should understand who are his customers? How do they purchase and how often they purchase? For example, customers don’t like to travel half a kilometer to purchase a shampoo sachet, but they don’t mind travelling two kilometers while purchasing durable goods.

2. Determine the objectives on which channel is to be developed.

a. Reach: Company would like to make the goods available in most of the retail outlets. So it, will adopt intensive distribution channel.

b. Profitability: Company wants to reduce the cost in the channels and enhance their profitability. It will restructure the channel to optimum level so that it can reduce the cost and increase the profit.

c. Differentiation: Company positions their products differently. When most of the industry players follow conventional system, company goes with new format of channels. For example, all computer manufacturers were adopting dealer-retailer channel to sell their products, but Dell started selling its product on the internet.

3. Identify type of channel members: Once the objectives are set on the basis of company’s policies, it will analyze which types of channels are most suitable. Merchants, agents and resellers are some intermediaries involved in the distribution. Merchants are those who buy the product, take title and resell the merchandise. Agents will find the customers, negotiate with them, but do not take the title of the product. Facilitators are the people who aid the distribution but do not negotiate or take the title of the product.

4. Determining intensity of distribution: Intensity of distribution means how many middlemen will be used at the wholesale and retail levels in a particular territory. If the number of intermediaries is more, then the cost of the channel will increase. However, if the number of intermediaries is less, then company will not be able to meet all target customers. Therefore company should adopt optimum number of intermediaries. On the basis of how many intermediaries are required, company can adopt any one of the following strategies.

a. Intensive distribution: A strategy in which company stocks goods in more number of outlets. The intention is to make the goods available near to the customer. For example, you can find Parle-G glucose biscuits available in almost all the retail outlets in rural and urban areas.

b. Selective distribution: A strategy in which company stocks goods in limited number of retail outlets. For example, televisions are sold only in selected retail outlets. TVs cannot be sold like toothpaste. Onida TVs are available in electronic retail shops like Viveks, Girias, Next, E-zone etc…

c. Exclusive distribution: In this type of channel format, marketer gives only a limited number of dealers the exclusive right to distribute its products in their territories. For example, a Kaya skin care solution of Marico is marketed through exclusive distribution.

5. Assigning the responsibilities to channel members. Company should define the territory in which the channel member should operate, at what price he should sell, services he should perform, and how he should sell.

6. Selecting the criteria to evaluate the channel member: Company may have different types of channel alternatives. It would like to choose any one of the alternatives, which meets its objectives. Channels can be evaluated in the design phase by the method called SCPCA.

a. Sales(S): The ability of each channel member to generate the sales for company in a given period.

b. Cost(C): How much cost each channel alternative incurs? Which one of the alternatives provides the optimum solution?

c. Profitability (P): Various channel alternatives available to the company and their profitability shall be compared. Channel with better profitability shall be selected.

d. Control (C): Every company would like to have better control over its channel members. Alternative channels can be evaluated on the basis of how much control each channel member desires. And how much control the company is willing to provide.

e. Adaptability (A): Marketing is a dynamic world. Competition exerts pressure on companies to relook at their practices and supply chain continuously. The channel alternatives should be flexible enough to meet the changing requirements. Whichever channel alternative meets such objectives shall be selected.

11.4 Channel Management Strategies

In the previous section we discussed channel alternatives and identification of proper channel for the organization. The proper channel which is selected should be managed properly, motivated and evaluated against set standards. Now we shall discuss what are the strategies companies are following to meet their objectives.

11.4.1 Managing and motivating channel member

Nowadays companies are considering their channel members as partners. These companies are asking its intermediaries to integrate their business with them. Integrated business reduces the cost, increases the efficiency, and helps in better customer service. Companies are adopting partner relationship management (PRM) software to add value to their supply chain.

Partner relationship management @ AIRTEL

Partner Relationship Management

Bharti Airtel’s requirements with respect to Partner Relationship Management; Bharti Airtel partner engagement strategies focus on selecting the most capable partners worldwide and continuously working with them to enhance their capabilities in providing conforming goods or services, on time. The fundamental criterion for selecting and developing a long-term relationship with our partners is Best Value. Best Value applies not only to product cost, but also to costs and risks of acquisition and materials handling. Best Value, therefore includes the partner’s service level, contribution to initiatives, and conformance to quality on all the requirements outlined in this manual.

Bharti Airtel’s PRM Process comprises of the following steps

· Categorization

· Rewards & recognition

· Satisfaction level

· Communication

· Grievances

· Categorization

Partner categorization is done on the following parameters

· Business Size

· Business Impact

· Business Model

· Type of product/item/service

· Type of Technology & Domain knowledge

· Performance status

Partner Categories are

· Privileged Partners – Registered, approved, have contracts, currently supplying and delightful in every aspect of business engagement.

· Preferred Partners – Registered, approved, have contracts, supplying with satisfactory performance

· Present Partners – Registered, approved, have contracts and currently supplying

· Potential Partners – Registered & Approved but no contract with them. Partner categorization is decided by the panel of experts from costing and pricing vertical of SCM function. Based on the category type, following privileges are given to partners

|Parameters |Privileged Partners |Preferred Partners |Present Partners |Potential Partner| |

| |Strategic Partnership can done |– |–- |– | |

|Strategic Partner | | | | | |

|Airtel Facilities |Office space, Canteen, Parking |–- |– |– | |

|for Partners | | | | | |

|Risk |Risk Sharing |– |– |– | |

|Advances |Max. 5% of the buying within a fiscal and recovery in |requirement |– |– | |

| |12 equal installments |justification | | | |

|Engagement Meetings |High |Medium |Need Based |– | |

|New Business |Preferred |Preferred |Considered over |Considered over | |

|opportunities | | |potential |non registered | |

·

Rewards and Recognition

Consistent performance is the basis for rewarding and recognizing Partners. The reward and recognition criterion is partner performance score card. The performance is analyzed for different partner categories.

· Parameters

The list of parameters and their weightages are

|Sl. No. |Ranking Parameters |Weightages |

|1 |Cost |25 |

|2 |Quality |15 |

|3 |Delivery |15 |

|4 |Development / Innovation / New Technology |10 |

|5 |After Sales service / SLA |15 |

|6 |Responsiveness / Flexibility |10 |

|7 |BACKWARD Compatibility / Scalability |5 |

|8 |Systems and Processes |5 |

Differentiators

Key differentiators for the parameters are

|SN |Parameter |Key Differentiators |

|1 |Cost |Beating Inflation |

| | |Alternate Sourcing |

| | |Value Engineering |

| | |Continuous Cost Reduction Y-on-Y |

|2 |Quality |Minimum Failure on Receipt |

| | |No infant Failure |

| | |First time Acceptance |

| | |Quality Certification |

| | |Consistent Quality in long run |

| | |Quality Culture initiatives |

| | |Minimum Outage |

| | |Eco Friendliness |

|3 |Delivery |On Time, as required |

| | |Consistency |

| | |Handling Challenges |

| | |Delivery in Exigency |

|4 |Development / |Value Engineering |

| |Innovation / New | |

| |Technology | |

| | |Time to Market |

| | |Competitive advantage |

| | |Value for Money / Value Added |

| | |Focus on R & D |

| | |Additional Revenue Stream |

| | |Go to Market |

|5 |After Sales service / |No Outage |

| |SLA | |

| | |Spares Availability |

| | |Meeting TAT |

| | |Preventive Maintenance |

| | |Response Time |

| | |Resolution within SLA |

| | |Detect ability of the defects – online monitoring |

| | |24 X 7 Support |

|6 |Responsiveness / |Meeting Challenges |

| |Flexibility | |

| | |Speed of Response |

| | |Willingness to raise the bar |

| | |Understanding Customer needs |

|7 |BACKWARD Compatibility |Product Life Cycle – integration with Technology |

| |/ Scalability | |

| | |Timely Investments |

| | |Breadth & Depth |

| | |Alignment with Airtel ’s Strategy |

|8 |Systems and Processes |Proactive Regulatory Compliance |

| | |Innovative Business Models implementation |

| | |Improvement Focus |

Partners are selected based on the following criteria

· Covers all major categories

· Major share of business in the category

The scoring of each partner is carried by an evaluation team consisting of key users. Scores are compiled and ranking is carried out.

· Award Categories

The award categories are dynamic and primarily depend on Airtel’s Key thrust areas for the fiscal.

· Product

· Services

· Special

· Award Announcement

Awards are announced and presented during the annual partnership meets. Consistent & good performers are recognized whereas bad performances are warned and punitive actions taken, as required, from time to time.

· Partner Satisfaction

Partner Satisfaction is considered as an important tool by Bharti Airtel to improve and further develop its internal processes and external processes with partners in the supply chain network. Partner Satisfaction is considered

· As an element of supply chain management including partnership, supply management and collaboration, quality management and reverse marketing

· As an analogical element with customer satisfaction including marketing research

· As analogical approach with 360° methodology.

In order to obtain an unbiased feedback, the survey is conducted by an independent external agency. Survey parameters are jointly decided by partner approval team and the agency. These surveys are conducted once a year for selected Partners.

The confidentiality of the survey data is maintained by the agency and is not disclosed to Bharti Airtel.

The outcome of the survey would include

· Area of improvements

· Internal Benchmarks

· Competition Benchmarking

· Best Practices

The results and feedback received from the partner satisfaction survey would be used to improve partner engagement processes at all levels of the organization. Partner touch-points would also be given feedbacks on their interaction & support effectiveness.

· Partner Grievances

Bharti Airtel recognizes Partners as one of the key stakeholders of its business and hence it is important to address their grievances in a transparent and structured manner. Issues related to ethics and integrity is handled by Ombudsman Process as per the Bharti Airtel Code of Conduct policy.

All other grievances are monitored, reviewed and resolved by Supply Chain Council. This council comprises of senior members of the supply chain function.

Partner identity is kept confidential in case of sensitive grievances like integrity issues.

· Types of grievances

Grievances are broadly classified into the following categories

· Payments

· Dispute/Disagreement in business

· Unethical/Integrity/Code of Conduct violations

There are different channels through which Partners can register their grievances

· Partner Portal (to be activated soon)

· E-mails to helpdesk

Overview of Partner grievances handling process is given below

Partner Grievance Handling Stages

Partner registers grievance through available channels

Receive the grievance and forward to respective teams.

Analyse the grievance and come out with action plan and then implementation of the action plan.

Partners are communicated on the action taken.

· Partner Communication

This section outlines Bharti Airtel requirements with respect to Partner Communication. Bharti Airtel believes that Communication is the nerve line for any partnership and focuses on establishing a transparent, two-way and trusting relationship with all partners.

Communication with partners is done at different levels

· Functional Directors – Conceptualization of requirement, delivery timing and KPI’s

· User Owner – Delivery as per specification, timeline and usage requirement

· Supply Chain Team – Commercial and Contractual Agreements

· Governance Team – Code of Conduct, Contractual Obligations and Ethical Issues

Three types of communications are considered

· Strategic

· Operational

· Need Based

11.4.2 Evaluating Channel Members

The channel members need to be evaluated on a regular basis to assess their performance. In case of Airtel, cellular service provider channel members are evaluated on the basis of -

SN Ranking Parameters Weightages

1 Cost 25

2 Quality 15

3 Delivery 15

4 Development / Innovation / New Technology 10

5 After Sales service / SLA 15

6 Responsiveness / Flexibility 10

7 BACKWARD Compatibility / Scalability 5

8 Systems and Processes 5

11.5 Introduction to Logistics Management

Providing the right product at the right place in the right time is a challenging task. Marketing managers are developing or outsourcing the better storage and transportation facilities to make goods available to customers at the right time. Therefore in the modern marketing, the study of movement of goods (Logistics management) becomes prominent.

According to Philip Kotler, logistics management is

‘The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods and related information from points of origin to points of consumption to meet customer requirements at a profit’.

The above definition clearly shows that logistics management involves moving of the products and materials from suppliers to the factory (Inbound logistics), and moving the product from the factory to resellers and to customers (Out bound logistics). This stream of study involving the suppliers and reverse distribution (returning products to factory) in the logistics management is nowadays considered as supply chain management.

Supply chain management is the process of flow of goods, information and fund from supplier’s supplier to consumer (supplier’s supplier- supplier- factory- intermediaries- consumers) effectively and efficiently.

Supply chain management@ Airtel (adopted from airtel.in )

Bharti Airtel understands the importance of partners to remain competitive in a dynamic business environment. As a step in that direction, the Supply Chain (SCM) function has been created with a mandate to develop partner relationships to maximize mutual opportunities for growth and profitability. The SCM organization has a central core team of supply chain subject matter experts and execution teams operating under different business divisions across the country.

|Supply Chain Characteristics |Bharti Airtel Approach |

|Number & Structure |Fewer; Clustered |

|Procurement personnel |Limited |

|Outsourcing |Strategic |

|Nature of Interactions |Cooperative, positive-sum |

|Relationship focus |Mutually-beneficial |

|Relationship focus |Performance |

|Contract length |Long-term |

|Pricing practices |Target costing |

|Price Changes |Downward |

|Quality |Designed-in |

|Delivery |Smaller Quantities (JIT) |

|Inventory buffers |Minimized, eliminated |

|Communication |Extensive; multi-level |

|Communication |Collaborative; two-way |

|Role in development |Substantial |

|Production flexibility |High |

|Technology sharing |Extensive |

|Dedicated investments |Substantial |

|Mutual commitment |High |

|Governance |Self-governing |

|Future Expectations |Considerable |

11.5.1 Major logistics functions

a. Warehousing: Goods produced at the factory may not be consumed simultaneously. Therefore companies need to store the goods for future consumption to take place. Companies able to use proper warehousing facilities enhance their operation efficiency. Warehousing can also be used as hub where goods come to the facility and cross docked. Nowadays many companies are assigning this work to specialized players in ware housing. Hence warehousing itself grew like separate industry. Below is an example of how Barista, a coffee chain company used the services of Safe Express (Logistics Company) to improve their competitiveness.

b. Inventory management: Organizations need to store the goods required for day to day operation. They cannot store high inventory as stock piles up and cost also increases. They are not sure of demand fluctuation and its impact on the inventory, so they do not want take risk by carrying little inventory. For example, Safe Express which provides inventory solution to Barista replenishes the goods on daily basis so that Barista can maintain zero inventory space in their outlets.

c. Transportation: The goods need to be carried from one place to another. Transporters ship the goods from supplier location to factory and from factory to customer. They use different modes to perform the function. The different modes are

i. Air transportation.

ii. Water transportation.

iii. Surface transportation.

iv. Pipelines and

v. Internet carriers.

i. Air transportation: This mode of transportation is used to transport perishable goods thorough airplanes or helicopters. The dominant characteristics of this mode are quick delivery, premium pricing and limited quantity transportation. For example, fruits, vegetables, fish etc. are the products that are transported using air transport.

ii. Water transportation: This is the slowest but most cost efficient mode of transportation which involves ocean liners and ships. It can carry wide varieties of goods but it can reach only limited places. This mode is usually suited for bulky, low value non perishable goods. For example, furniture, automobiles etc. will have to be transported through water ways.

iii. Surface transportation: This mode is again divided as highway transportation and rail transportation. It can carry wide variety of assortments. In case of rail transportation it can carry bulky products while in highway transportation it is of high value goods. For example, rice, two-wheelers, etc. can be transported using rail and roadways.

iv. Pipelines: This mode is excellent in meeting delivery schedules as it is having fewer obstacles. The drawback of this type of transportation mode is, it carries very limited variety of products and covers very limited geographic space. The cost of the transportation is very low. The most suitable products for this mode are oil, natural gas and slurries products.

v. Internet carriers: This mode is used to carry digital products from producer to consumer via satellite enabled modem or telephone wires. Software companies, education institutions etc. are very few service providers who are using this mode of transport.

Self Assessment Questions

1. A Strategy in which Company stores goods in maximum number of Retail Outlets is _____________.

2. In Exclusive Distribution, maximum number of retailers enjoy the right to sell in their Territory.

A. True B. False

3. Scpca method is used to Analyze

a. Channel Motivation

b. Channel Design.

c. Inventory Management In Channel

d. All of the Above.

4. __________ Mode of Transport is used to transport goods like oil.

5. Internet is _____________ type of transportation mode.

11.6 Introduction to Retailing

Retail sector has witnessed tremendous growth in the last few years. The major factors which drive the retail boom are change in consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government, increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate. The Indian retail market, which is the fifth largest retail destination globally, according to industry estimates is estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by 2015. Simultaneously, organized retail which presently accounts for 4 per cent of the total market is likely to increase its share to 22 per cent by 2010.

As per Associated Chambers of Commerce and Industry of India (ASSOCHAM), the overall retail market is expected to grow by 36%. The organized sector is expected to register growth amounting to Rs 150 billion by 2008. Retail is amongst the fastest growing sectors in the country and India ranks 1st, ahead of Russia, in terms of emerging markets’ potential in retail.

11.6.1 Characteristics of retailing

i. Direct interaction with customers. Retailer is the final link between company and customer. Retailer understands the need of the customer and provides the proper solution to him. For example, neighborhood grocery store person knows his customer profile better. He reminds the customer of what to purchase and provides credit.

ii. Purchased in small quantity: Customer purchases small quantity of merchandise at the retail store. Even if customer purchases less quantity he will purchase it frequently. This has led to better relationship between customer and retailer.

iii. Tool of marketing communication: Companies use retailer location for point of purchase displays. They also encourage retailer to promote the products through word of mouth communication.

11.6.2 Functions of retailing

i. Sorting: Retailers arrange the items in proper order so that customer can easily identify the goods or services that he needs.

ii. Breaking bulk: The process of unpacking big packets into small packets. Retailer will perform this function as customer may not be able to purchase large quantity of goods and services.

iii. Holding stock: Retailer works as storage facility to organizations. Retailer holds inventory to meet the day to day needs of consumer.

iv. Channels of communication: Retailer promotes the company product through word of mouth communication. The retailer location is also used for point of purchase display.

v. Transportation: Retailer undertakes door delivery order in case of durable goods. This feature is now adopted by the small grocery stores also.

11.6.3 Type of retailing

A. Store retailing: The mode of retailing where a store is essential in a particular location to do business. Store retailing can be performed in different formats. They are

1) Specialty store: The stores carry large amount of merchandise but in limited product lines like Textile store or furniture store. For example, Tanishq, jewelery retail store.

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2) Department store: In this retail format, apparel, home furnishing and consumables goods and services are sold. Each of the formats is considered as a different department and managed in the retail store. For example, Shoppers Stop of Raheja group.

3) Supermarkets: According to Philip Kotler supermarkets are a relatively large, low cost, low margin, high volume, self service operation designed to serve the consumer’s total needs for food and household products. For example, Food World of RPG group.

[pic]

4) Convenience store: These stores are very near to customer residence; usually carry or hold day to day products of high turnover at premium price. For example, Reliance Fresh

5) Discount store: These stores sell products at low prices with low margin. The store achieves their profit by generating high volumes. Subhiksha, a south India based retailer follows this format.

6) Off price retailers: This type of retailer buys the goods at less than wholesale prices. These products are sold at lesser than retail prices. For example, factory outlets in Marathahalli, Bangalore.

7) Super stores: These are very large stores where customer can purchase food and non food products. The super store includes category killers that carry large merchandise in a particular category. For example, Nalli sarees which carries a large variety of sarees in their stores. Another type of super store format which exists in India is Hypermarkets. These retail outlets have huge space and carry large merchandise. For example, Reliance Mart in Ahmedabad.

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B. Non store retailing: The mode of retailing where a company uses electronic media or direct selling medium to sell their products. For example, direct selling, Telemarketing, Automatic vending, online retailing and direct marketing. These examples will be discussed in detail in the Unit 13.

11.7 Wholesaling

According to Philip Kotler wholesaling is ‘All activities involved in selling goods and services to those buying for resale or business use’.

Wholesale trading in India is changing in character. Since pre-Independence, it has been dominated by the traditional caste-specific trading community. However, today, foreign investors seem to be making a beeline for this traditional trade. Government approved Rs 256.79 crore worth of investment in the last three months. The Foreign Investment Promotion Board (FIPB) had approved 100 FDI proposals, out of which 33 are proposals to undertake wholesale trading in India by foreign companies. These are in a wide range of product categories – from shoes to animal feed, from color TVs and electrical equipments to hardware for doors and windows, to name a few. This is revolutionary change in the wholesale business because earlier foreign companies looking at wholesale trading in India were mainly interested in importing products to sell in the Indian market. But now these companies are coming in purely as trading firms and sourcing and selling domestically only. This may pose strong competition to the local trading population. The single largest investor in wholesale trading to have got Government approval is Cargill Holding BV of Holland, which is poised to invest Rs 238 crore for trading in commodities including food grains and animal feed, and other industrial commodities. Similarly, Sharp Corporation of Japan, which already has a manufacturing base in India, will now start trading in color TVs, VCRs and similar items from other manufacturers as well. The UK-based Randox Laboratories, whose products were earlier imported by domestic importers, will now be setting up its own subsidiary with an investment of Rs 15.5 crore for importing its own products and undertaking wholesale trading in them.

11.7.1 Functions of wholesaler

1) Selling: Wholesalers have well defined network of retailers. Hence, they can sell the company product in the large area.

2) Bulk breaking: Wholesalers buy the product in large quantities and send in small quantities to retailers.

3) Warehousing: Wholesalers have huge space to store the goods. They help in reducing the inventory cost to the company.

4) Transportation: Some companies have agreements with wholesalers on transporting the goods to retailers.

5) Credit and risk taking: Wholesalers provide credit to the retailers. By doing this they take the risk of finance as well as products.

6) Information: Wholesalers provide the information to company on retailers’ purchase, retail market characteristics.

|Activity 2: |

|Make a list of wholesalers in your locality and identify the various tasks they perform with respect to |

|the products they deal with. |

11.7.2 Types of wholesalers

Merchant wholesalers. These are independently owned wholesalers who take the risk of possessing the titles. Often they are classified on the basis of product line. Full service wholesalers perform all the above mentioned functions. Limited service wholesalers offer controlled services to retailers and customers. For example cash and carry business of METRO in Bangalore.

Brokers and agents: These wholesalers do not take the title of goods and perform few functions. Brokers have knowledge of buyer and seller, and bring both to the negotiation. Agents represent the company or retailer or customer on a permanent basis.

Self Assessment Questions

6. Tanishq is an example for __________ type of store.

7. Discount store sells the product at low price and high margin

a) True b) False

8. Hypermarkets are examples of

a) Discount store

b) Department store

c) Super markets

d) Super stores.

9. Direct selling is a type of retailing

a) True b) False

10. Cash and carry business is an example of

a) Full service merchant wholesaler.

b) Limited service merchant wholesaler.

c) Agent

d) Broker.

11.8 Summary

· Marketing channels perform physical distribution, transportation, warehousing, financing and risk taking functions.

· Channels are designed on the basis of reach, profitability and differentiation objectives.

· Companies decide the number of marketing intermediaries on intensity required. They may use intensive distribution, exclusive distribution or selective distribution.

· SCPCA method is used to evaluate the channel design.

· Three major logistics functions performed are warehousing, inventory management and transportation of goods.

· Specialty stores carry large amount of merchandise but in a limited product lines like textile or furniture product lines.

· Wholesaling is defined as ‘All activities involved in selling goods and services to those buying for resale or business use’

List of Key terms

Marketing channels Marketing intermediaries Channel management Logistics Retail Wholesalers

11.9 Terminal Questions

1. Discuss the decisions involved in setting up marketing channels.

2. Explain the functions of marketing channels.

3. Describe the major logistics functions with examples.

4. Write a note on retailing.

5. Explain the different types of wholesalers.

11.10 Answers

Answers to Self Assessment Questions:

1. Intensive distribution.

2. False

3. Channel design

4. Pipeline

5. Satellite

6. Specialty

7. False.

8. Super store.

9. True

10. Limited service wholesaler

Answer to Terminal Questions:

1. Refer 11.3

2. Refer 11.2.1

3. Refer 11.5.1

4. Refer 11.6

5. Refer 11.7

11.11 Mini-Case

Better Late than ever

Safe Express is on right time with front, the mocha and crackers. Its Just-In-Time Management ensures minimal inventory for the Barista chain of coffee bars. Both parties are involved in a win-win situation

Barista, one of the favored outlets for coffee and snacks in the Indian sub-continent, is a good example of transparency in supply chain management operations. In fact, it would be a good case study to highlight as to how a logistics service provider can make his operations transparent to the consumer oriented company, in this case, the Barista chain of coffee shops. For the newly established Barista outlets in Indian cities, warehousing the supplies at posh locations in the heart of the city is a costly proposition. Leading logistics company Safe Express has taken over as third party logistics (3pl) partner to supply each Barista outlet in different Indian cities their ingredients for that just right coffee cup, Just-In-Time, (JIT). This will leave Barista absolutely free of any investment and recurring costs for logistics and warehouse management.

Warehouse management is the latest area where companies are trying to cut the costs and dilute the level of resources employed to that area. Outsourcing logistics is a trend that started with the large supermarket chain in the United States and Canada. For the supermarket in North America, logistics is a non-entity as far as the operations workflow chart goes. They just concentrate on the maintenance of the shelf space. The JIT operations aided by weather forecasting are fully carried out by third party logistics providers.

Safe Express, with considerable expertise in Supply Chain Management, looks after the distribution and inventory requirement of Barista outlets operating from its mother warehouse in Delhi. This mother warehouse further supports three regional warehouses in Mumbai, Calcutta and Bangalore. Barista currently operates 82 outlets across 11 cities in India. It is serving around 15,000 people every day, and by the look of things, this is just the beginning of a bigger wave. With a new outlet opening every 10 days, Barista expects to have 175 coffee bars by 2003.

In such a scenario, how does Barista manage its supply chain? This, of course, is not its core business but is still critical to its success. The answer lies in their logistics and Supply Chain Management Company, Safe Express. Safe Express, India’s largest express company, offers complete logistics management solutions to Barista and in a way contributes to giving the Barista customer a world class coffee experience at a much better price.

A typical Barista outlet world is 1000 sq-ft store with seats around a table. Around 95 per cent of the space is occupied by around 60 seats and the rest of it is the administration utility corner required for processing orders. The inventory space is zero per cent and a set amount of supplies ranging from paper cups to coffee beans are replenished on daily basis. The daily replenishment ensures minimum order quantities. The efficiency of supply chain, in such a case, becomes a critical issue and hence requires the best of logistics management.

Safe Express, with its hands fully into Supply Chain Management looks after the distribution and inventory requirement of Barista outlets operating from its mother warehouse in Delhi, Which further supports three regional warehouses in Mumbai, Calcutta and Bangalore.

The above four warehouses cater to the supplies for the outlets in the respective cities as well as the whole of that region’s outlets. So Delhi’s mother warehouse is the biggest of the four supplying the remaining three at Mumbai, Calcutta and Bangalore, as well as all the four regions’ demands. All three regional warehouses in Mumbai, Calcutta and Bangalore have one-week stock for fast moving items and three-week stock for slow moving items.

The Safe Express logistics strategy focuses on reducing product response time, thereby ensuring that the customer’s demand is met at the right time, right place and at the right cost. The key lies in understanding the customer demand pattern, tracking transit time reliability, capturing real time data and through continuous replenishment. Any supply chain strategy has to dovetail with the business strategy. The two have to be in tandem and there has to be a perfect alignment between them, which is exactly what Safe Express aims to do. So with Safe Express in charge of Barista’s supply chain operations, the much-desired cup of coffee will never be late, will never be unavailable.

How the supply chain in this new venture is going to be in a win-win situation is something worthwhile to contemplate, given the rich experience that Safe Express has. Safe Express Barista tie up is an example for those who are trying to get familiar with the role of third party logistics or what is popularly known as 3PL partner’s role in Supply Chain Management in the current business environment.

As globalization catches up, outsourcing is getting more and more popular as a business strategy. In the supply chain management, 3PL is a proven practice worldwide and is gaining acceptance now in India as well. Ideally, a 3PL partner should unburden a client of its logistics tensions. At the same time, a 3PL partner must prove credentials by way of ensuring cost rationalization as a measurement of his performance.

Safe Express as an expert 3PL solution provider is exactly trying to be the same role model that purists of Supply Chain Management philosophy talk of i.e., to really unburden Barista of its logistics tensions through expert logistics manpower, optimum utilization of resources, including manpower, space, infrastructure, etc.

Barista stands to gain from Safe Express’ faster TAT for all performance indicators, handling expertise of consignment, products in general. Currently, Safe Express is having a nationwide network of over 425 metropolitan cities and townships with state-of-the-art infrastructure, backed by cutting edge Information Technology, systems and warehousing space exceeding one million square feet. The company has more than 2,000 all weatherproof IICL V containerized vehicles, covering 750 routes, through 20 hubs and super hubs. Being a frontline 3PL company its domain knowledge of all aspects including statutory, functional, operational, logistical and managerial will also go a long way in maintaining smooth operations. And no doubt it will boost cost effective partnership.

Further, Safe Express has the capability to suggest business models packaging parameters, reduction of logistics costs, as a value addition to its customers. Domestically, Safe Express is the largest 3PL-service provider with over 40 customers in the 3PL area. Meaning Safe Express can not only carry expertise and experience in 3PL, but also can bring in these experiences to best use in whichever of the crunch area client is requiring, as bulk of its expertise comes from Indian context.

Safe Express is streamlining its warehouse management too by developing innovative software and web tracking facilities. It has offered to create warehouse space for Barista to offer effective warehouse management system and complete MIS solutions. It will be offering its solutions through in-house WMS software, which has been developed and customized on the Tally based platform. The end result is a completely, web compatible solution for cargo and warehouse management. This shall be utilized wherever there is a gap of reports/analysis in the Barista system, if any.

Safe Express has also offered Barista a completely web based waybill tracking system for online delivery tracking of consignments. Safe Express has adopted state of the art information technology applications to leverage value added services. The company provides on-line real time information through its unique track and trace system. Safe Express has also pioneered a perfect blend of ‘Radio Trunking’ technology, along with V-SAT links and satellite communication for monitoring route vehicles and intra city runs through a Global Positioning System. Strategic Alliances with Supply Chain Management Software Organizations provides a cutting edge for a holistic service. In the end that cup of coffee tastes doubly good.

Considering all the above facets and strategies, a logistics expert with your assistance wants to note down the strengths and opportunities of the Safe Express.

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MB0046-Unit-12-Promotion Management: Managing Non Personal Communication Channels

Unit-12-Promotion Management: Managing  Non Personal Communication Channels 

Structure:

12.1 Introduction

Learning Objectives

12.2 Integrated Marketing Communication

12.3 Communication Development Process

12.3.1 Preparing target customer profile

12.3.2 Identifying promotion objectives

12.3.3 Designing message

12.3.4 Selecting channels of communication

12.3.5 Selecting message source

12.3.6 Target customer feedback

12.4 Budget Allocation Decisions in Marketing Communications

12.5 Introduction to Advertising

12.5.1 Types of Advertisements

12.5.2 Decisions involved in developing advertisement programs

12.5.3 Characteristics of major media

12.6 Fundamentals of Sales Promotion

12.7 Basics of Public Relations (PR) and Publicity

12.8 Summary

12.9 Terminal Questions

12.10 Answers

12.11 Mini-case

12.1 Introduction

A good product with better distribution and affordable price will fail if its attributes are not properly communicated to target customers. Marketer should understand how shall company develop and channelize the communication in an effective way. Communication is defined as "Any act by which one person gives to or receives from other person any information about that person’s needs, desires, perceptions, knowledge, or affective states. Communication may be intentional or unintentional, may involve conventional or unconventional signals, may take linguistic or nonlinguistic forms, and may occur through spoken or other modes." The definition provides the general view of all types of communication. The definition can be interpreted in marketing as “marketing communication is the process of providing the information to the consumers about the marketing mix (essentially the 4 P’s) either through personal channels (direct selling, direct marketing etc..) Or through non-personal channels (advertising, sales promotion etc…)”. Both personal channels and non personal channels constitutes the Marketing communication mix or promotion mix.

Promotion mix: This is an assortment of advertising, sales promotion, public relation, Personal selling and direct marketing any organization must have an ideal promotion mix to promote its products. Therefore, it is a very crucial task for the marketer to properly list out the promotion mix strategies and its benefits.

Advertising- Any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. For example: Print ads, radio and television ads, billboard, brochures and, signs, in-store displays, posters, motion pictures and banner ads,

Personal selling- The type of promotion mix that involves sales people who will help and persuade one or more prospects to purchase a good or service or to act on any idea through the use of an oral presentation. For Examples: Sales presentations, sales meetings, sales training and incentive programs for intermediary salespeople.

Sales promotion- Incentives designed to stimulate the purchase or sale of a product, usually in the short term and generally adopted in the stores or point of purchase. For example: Coupons, sweepstakes, contests, product samples, rebates, tie-ins, and self-liquidating premiums.

Public relations- This is the process of non-paid non-personal stimulation of demand for a product, service, or business unit by planting significant news about it or a favorable presentation of it in the media. For example: Newspaper and magazine articles/reports, TVs and radio presentations, charitable contributions, speeches, issue advertising, and seminars.

Direct Marketing: The communication tool used to interact with the customers directly by using telephone, mail, online mediums and other tools. For example, telemarketing, e-mails, voicemail marketing etc.

Publicity: this medium of communication may be used with or without the organization knowing about it. When the company itself is involved in publicizing a certain message or idea then publicity is organizational oriented; if any other external party such as media is involved in communicating any issue about the company then it gets publicity through others. For example, film producers often use publicity stunts to promote their films even before it is released.

Learning Objectives

After studying this unit, you will be able to

· Explain the importance of integrated marketing communication.

· Describe the stages involved in developing effective communication.

· Analyze budget allocation decisions in marketing communication.

· Understand the fundamentals of advertising and sales promotion.

· Discuss the role of public relation (PR) in marketing communication.

12.2 Integrated Marketing Communications (IMC)

According to The American Marketing Association, Integrated Marketing communication is “a planning process designed to assure that all brand contacts received by a customer or prospect for a product, service, or organization are relevant to that person and consistent over time.”

Objective of Integrated Marketing Communication:

To plan, develop, execute and evaluate coordinated communications with organizations’ stakeholders.

Reasons for the growth of Integrated Marketing Communication

1. The growth of innovative promotional tools and need to integrate them.

2. Specialized media vehicles for niche target customers.

3. Growth of retailer dominated market and passing of control from manufacturer to the customer.

4. Growth of database marketing.

5. Wider geographical coverage through internet.

6. Higher accountability and performance linked compensation schemes.

12.3 Communication Development Process

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12.3.1 Preparing target customer profile

Effective marketing communication starts with identifying the target customer to whom the communication is developed. In this stage company prepares target customer profile.

[pic]

Company: Exide industries.

Copy: Help, whenever wherever your car battery is in trouble we will be there, just dial the bat mobile number of your city and we will be right there r to bring your car back to life. Because, we love cars.

Target customer profile:

|Customer Characteristics |Description |

|Type of customer |Individual |

|Income |Upper middle class and upper class. |

|Media exposure |Print ( English magazines, dailies and journals) |

|Occupation |Salaried or business class. |

|Need of the product |OEM of a car |

12.3.2 Identifying promotion objectives

Target customer profile provides inputs about his/her readiness to purchase the product. Customer may be in any of the six stages of hierarchy of effects. The six stages are awareness, knowledge, liking, preference, conviction and purchase. Every company will like to bring their customers to the purchase stage from other five stages. Therefore it creates different promotion program at different stage. To make it clearer, Company first creates awareness about the product, educate them about the advantages, induce them to choose the brand, stimulates and monitors that customer purchases the product.

a. Awareness: Marketer creates the new range of products. Awareness level for these products is very low. Intention of the advertisement is to create awareness about these new products. In the following example of Reebok’s play dry technology garments, it focuses to create awareness among the target audience. Look at the message copy of print advertisement.

Copy: Dravid does this simply by sporting his Reebok Play Dry apparel. These fabrics have been designed with a special moisture ventilation system that dries away perspiration in action. It works effectively by pushing moisture away from the skin to the outer layer of the fabric for evaporation. So if you want to stay cool all summer, just do what the hottest players do. Walk into the nearest Reebok Store.

b. Knowledge: In this stage target audience don’t have complete knowledge of the product. Marketer explains the product in detail and its advantages to the target customers. Following advertisement of Parry Neutraceuticals explains the advantages of beta carotenes.

Company:

[pic]Parry Neutraceuticals

Copy: You know these are good for you, Natural beta carotene and other carotenoids like it, are the natural pigments found in orange, yellow, red and some green fruits and vegetables. They’re some of the biggest reasons why fruits and veggies are good for you. They help prevent the worst things that can happen to you – cancer, heart disease, diabetes, arthritis, cataract and even ageing. The age-related or ‘degenerative’ diseases begin with repeated damage to cells, which adds up over time. The biggest cause of damage to cells is a common process called oxidation. Carotenoids help prevent oxidation damage because they’re some of nature’s best anti-oxidants. But to get enough natural beta carotene and other carotenoids, you need to eat 5 servings of fruits and 5 servings of vegetables every day or just one soft gel of Parry’s Natural Beta Carotene. It is a mixture of natural carotenoids that comes from Dunaliella salina, one of nature’s best sources of carotenoids

c Liking: Promotion is used to convert knowledgeable audience into likeable category. Marketer uses celebrities to create interest in the product. For example, Reid and Taylor highlight their product quality in the advertisement by using Amitabh Bachhan a film actor.

d Preference: Creating differentiation in the market place so that customer identifies it over the rival brands. Big bazaar advertisement with tag line ‘is se sasta aur achcha kahin nahi’ or nobody sells cheaper and better is alluring the customer by telling them what differentiation they can bring.

e. Conviction: customer may have preference over the product but he/she still not able to decide. In this situation, marketer develops the messages in such a way that it provides platform for him to decide. For example, Tata indigo, requests its customer to go for test drive and experience the truth. Customer may be convinced about indigo but not developed the conviction. Look at the words used in the copy.

Copy: Business class travel, now with power dressing, presenting the stylish new Tata Indigo. Make a powerful style statement on the roads with the new Tata Indigo. The fascia is accentuated by dual chamber headlamps and more pronounced chrome-lined grille, while sill valance covers, chrome insert door rub rails and dual tone ORVMs add a sporty touch to the overall elegance of the car. The rear sports a chiseled body-hugging bumper, new tail lamps and chrome surround registration plate garnish. The interiors turn beige for the full range, and the new cockpit topped off by the 3-spoke steering wheel carries forward the classic modernity of the exteriors. The best-selling sedan just got better. Take a test drive today. And discover power dressing on Wheels. Spoil yourself.

[pic]

f. Purchase: Sometimes customers have strong desire to buy the product but due to affordability or any other environmental factor, they are not able to purchase. In this situation, marketer uses promotional schemes particularly reduced price schemes to attract the customer. Company also comes out with communication programs for repeat buyers and loyal customers.

12.3.3 Designing a message

After deciding the communication objectives, Marketer turns to develop right message which should create attention, interest, desire or action (AIDA) by the customer. Before deciding what should be there in the message, we will have to understand AIDA model in detail. The main objective of any message is to meet the AIDA model although the message framed will be subject to product type/category, ad budget and creativity skills of individuals.

I. AIDA model:

· Attention: The marketing communication should generate attention towards the product. In this stage customer is having the need; organization should provide solution from their communication. For example, when advertisers use a popular film star or a celebrity to promote a perfume brand or even a soap or a toothpaste, it will immediately catch the audience’s attention.

· Interest: Once the customer provides enough attention towards the communication, organization should stimulate it to create interest. For example, if celebrities are used to endorse products, audience must be curious enough to know what they are saying about that particular product.

· Desire: The interest created should be forced in the customer mind so that he will develop desire towards the product. For example, when people have seen the ad and show interest, next thing would be to create a desire for that product. People should have the willingness to buy the product and unless they don’t desire it, they will not be eager to buy the same.

· Action: Strong desires should be turned into action. Hence company should provide the advantages of purchasing of the product in their communication messages. For example, it is very difficult for the Insurance companies to grab the attention of people towards insurance products, create interest and desire as to make a person buy the same. So, it’s a challenge to the marketer to develop such a message that immediately gets the attention and make a person to go for it. For example, it is easy to catch people’s attention towards ice-creams so that they will have interest and desire to taste it and eventually buy it.

II. Deciding the message content.

Message content must have any one of the following appeals

· Emotional appeal: Positive emotional appeal or negative emotional appeals are strong tools used to intensify the purchasing activity of the customer. Positive emotions like love, pride, joy and humor are used in the message. Following are the advertisement where such attributes of positive emotions used.

|[pic] |[pic] |

|- Joy |BMW fastest saloon car in the world- pride |

|[pic] |[pic] |

|Fevicol – humor |Wheel- love. |

The negative emotions like fear guilt and shame are also used in the advertisement to attract the customer.

|[pic] |[pic] |

|ICICI prudential- fear. |NIIT- if you are not studying at NIIT you are |

| |missing something- guilt |

|[pic] |  |

|Rexona deodorant – shame. | |

· Rational appeals highlight on the desired benefits about the products. They highlight quality, economy value or performance of the product.

|[pic] |[pic] |

|Dabur Amla – value appeal |Lakme brilliance- Quality products. |

|( long Hair) | |

|[pic] |[pic] |

|Reliance India mobile- performance( works |Reliance Infocom- Like the first three, the |

|even in flood situations) |mobile phone must come to me as a necessity |

| |and not as a luxury- economy |

· Moral appeal: These are concerned towards public health or environment or social responsibility. For example, Shell lubricants show its commitment towards environment in their advertisements.

III. Message format: In this section we will discuss how message should look and stimulate the interest.

Constituents of message format:

|Characteristics |Suitable media. |

|1. Headline |Print, Outdoor, Online |

|2. Copy |Print, TV, outdoor, online |

|3. Illustration |Print, TV, Outdoor, online |

|4. Color |Print, TV, outdoor, online |

|5. Pictures |Print, Outdoor, online |

|6. Message size |Print, TV, Outdoor |

|7. Shape |Print, Outdoor, Online |

|8. Words |Print, TV, Product, Outdoor |

|9. Sounds |Radio, TV, Online, Outdoor |

|10. Voice |Radio, TV, Online |

|11. Body language |TV, Online |

|12. Texture |Product, Print, Online |

|13. Scent |Product |

|14. Distinctive formats |Print, Online, Outdoor |

Print advertisement Message format:

[pic]

Colors used: Saffron, Yellow, Red, Watermark brown, Black, Brown.

Size: 3.5inch breadth* 4.2 inch length

Shape: Rectangle

Words: Straight out of the pack and into your mouth, that’s the usual style of eating Haldiram’s Namkeen. But now, there’s a whole new way of doing it! A blend of our delicious namkeen with a dash of imagination, presented in a list of yummy recipes, just for you. But where do you get these Recipe Remixes? Just write to us at the address given below and we’ll send you a Recipe Remix booklet, absolutely free! What’s more, you can also try these recipes at most of the Haldiram’s outlets. So, get your own booklet and start whipping up your remixes in your kitchen itself or simply visit us at our outlets. But wait, there’s more! You can even create your own recipes and send it to us. Who knows your recipe could win you a gift voucher of up to Rs. 2500/-*. Not only that, your winning recipe could also feature in our next Haldiram’s Recipe Remix booklet. So, get those recipes started and let the good times begin!

|Activity 1: |

|Take any newspaper and mark those advertisements that you think has a good message content, right kind of |

|appeals and aspects that can grab the reader’s attention. |

12.3.4 Selecting the channels of communications

v The communicator may use company sales people, reference groups, blogs, RSS, webinar, online communities and social networking sites to promote their products. These media are called as personal communication channels. The word of mouth campaigns, buzz marketing and viral marketing are some examples of personal communication channels.

Word of mouth communication: the personal communication between customers and their reference groups about the product

Buzz marketing: The marketing technique in which organizations create opinion leaders (people whose opinion are sought by others) and spread the product information to others.

For example, Gmail – Google did no marketing, they spent no money. They created scarcity by giving out Gmail accounts only to a handful of "power users." Other users who aspired to be like these power users "lusted" for a Gmail account and this manifested itself in their bidding for Gmail invites on eBay. Demand was created by limited supply; the cachet of having a Gmail account caused the word of mouth, rather than any marketing activities by Google.

Viral marketing: The marketing technique of using social networks on the internet to create the brand image.

Viral marketing is a phenomenon that facilitates and encourages people to send messages to others voluntarily. Viral promotions may take the form of video clips, interactive Flash games, images, or even text messages. For example, Cadbury’s Dairy Milk 2007 Gorilla advert was heavily popularized on YouTube and Face book.

v The communicators are using mass media like print (Newspaper, magazine, journals) Broadcast (radio, television) Outdoor (hoardings, Bill board posters) and online (e-mail, communities, groups, websites) to communicate their product attributes.

12.3.5 Selecting the message source

Messages communicated by the celebrities and proper sources have high credibility among the target consumers. Many companies use well known actors and actresses, cricket players, and even cartoon characters to promote their advertisements. Colgate- Palmolive well known FMCG company used Indian Dental Association’s (IDA) recommendation to promote their toothpaste. As we have seen earlier Rahul Dravid, Amitabh Bachan and Karishma Kapoor are used as sources for Reebok, Reid and Tayolr, and Dabur Amla respectively. Companies should be very careful about the selection of the sources. If the product character does not match with sources, then product will fail in the market. Recently Pepsi dropped its sources Rahul Dravid and Sourav Ganguly and selected Rohit Sharma for the promotion campaigns.

12.3.6 Target Customer Feedback

The communicator collects the feedback on the promotion campaign to assess how many of target customers are able to see, hear or read the message. This stage helps communicator to understand how many of target customers actually able to recall the message? And among them how many of them really purchased it. Some companies go further and ask the customer to provide suggestion to improve the promotion campaign.

12.4 Budget Allocation Decisions in Marketing Communications

Media vehicle selection, number of insertions and message structure depend on the budget allotted for the communication program. A popular channel may charge more for advertisement but organization gets better viewership. A newspaper having high circulation charges premium for the advertisement but all the organization may not have enough budgets to support such campaign. Hence marketer would like to decide what is the budget for the communication program? And how shall it be allotted optimally? There are four different methods on which a media planner decides the allocation of advertisement budget.

a) Affordable method: This method is used by small companies who don’t have enough communication budgets. In this method company allots the fixed amount for the communication program. The advantage of this method is company can have better control over the spending on the communication. The disadvantage is if sales require higher communication effort, company is not in a position to allocate the budget.

b) Percentage of sales method. In this method company allots the budget on the basis of total sales forecasted. This is the simplest method. Marketer can have better control over the budget and also have flexibility to allocate the budget.

c) Follow the Competitor method: The Company sets its promotion budget on the basis of competitors advertising effort. Here company closely monitors the developments of the competitors’ communication program and study the industry trends in communication budget prior to setting up communication budget.

d) Objective and task method: The procedure involved in estimating the advertisement budget by this method are First, Objectives are set for the communication programs. Second, identifying the task to be performed to achieve the objective and third, estimating the cost of achieving these objectives.

Self Assessment Questions

1. Expansion of AIDA is _________________________________

2. The three appeals used in the message content are ________, ___________ and _____________.

3. The technique of using the social network on the internet to create the brand image is called as ————

4. Percentage of sales method of advertisement budget decision is determined on the basis of affordability of the company

a. True b. False

5. The promotion objective used when customer may have preference over the product but he/she still not able to decide is ————–

12.5 Introduction to Advertising

Please remember we already discussed definition of advertisement in the promotion mix concepts at the beginning of this unit. In this section we will discuss different types of advertisement and four important decisions management takes in developing advertisement program.

12.5.1 Types of advertisements

• Institutional advertising: The objectives of advertisements are to enhance the image of the company rather than selling the product. For example, Wipro uses ‘Applying Thought’ for all its businesses thus promoting the company.

• Product advertising: The objective of this type of advertisement is to communicate about the product attributes to the target customer. Product advertising is further classified into three types. They are

1. Pioneer advertising: This mode of advertisements is used to create awareness and demand in the initial stage of the product life cycle. For example, TATA Docomo advertised initially as to why a person should pay for the unused minutes when talks may last for seconds.

2. Competitive advertisements: This type of advertisement is used to highlight the differentiation of organization’s product. This method is usually used in the growth phase of product life cycle. For example, Detergents like Ariel, Surf and Tide constantly differentiate their product features from each other.

3. Comparative advertisements: This type of advertisements highlight on the comparing company’s communication message with competitors product information. This method is used when the competition is very high or sales are sluggish. For example, soft drinks like Pepsi and Coca-cola at some point were involved in comparative advertising.

12.5.2 Decisions involved in developing advertisement programs

· Determining the advertisement objectives: Marketers should determine the objectives of advertisements in the initial phase of the program. The objectives of advertisements are

i. Provide the information about advertisements and create awareness about the product.

ii. Highlight the uniqueness of company’s products over competitors.

iii. Reminding about the product and facilitating the thinking about the product in order to make a purchase.

· Determining the advertisement budget: We discussed four important techniques used in setting up communication budget in the beginning of this unit. In this section we will discuss the factors that influence the advertisement budget decisions.

i. Stage of the product in the product life cycle: In the introduction stage of product life cycle Company spends more money on advertising to inform the consumers about the product and to create awareness.

ii. The market share of the company: If the share of the company is high, it tries to defend by heavy advertisement and if it is low and market is attractive organizations promote company’s product heavily.

· Developing advertisement strategy: Advertisement strategy depends on two important factors. They are developing messages and choosing proper media.

i. Message development:

· Message should be developed only after preparing the complete target profile.

· Understand what interests target customer.

· Message should answer the objectives of the program.

· Message should be simple and can be understood by anybody.

· Use more interactive communication tools.

ii. Selecting advertising media:

· Assess how many target customers should view the communication message.

· Point out how many times a target customer will expose to the advertisement.

· Evaluate the impact of advertisement message on the target audience.

· List out the media habits of the target customers.

· Find the suitable media for type of product organization have.

· Prepare cost sheet and choose optimum media.

· Choose particular media vehicle (Zee channel, Times now, Prajavani, Hindu etc…)

· Decide how many times advertisement should be given in the year and also decide the continuity of advertisement.

· Allocate the media execution strategy on the basis of prime time and non prime time or seasonal and non seasonal decisions.

· Evaluating advertisements: Communication department is interested in identifying whether the message given is effectively reaching the consumer and inducing them to purchase the product. Therefore they critically evaluate the advertisements through various methods. Some of the important methods through which advertisements evaluated are recognition method (showing the advertisement and asking whether thy have seen it before), aided recall (asking people to tell the brand they remember) and unaided recall (asking people if they can remember seeing any ads within an identified product category).

12.5.3 Characteristics of major media

I. Broad cast media

Radio

1. Provides up to date information

2. Reaches the local audience effectively

3. After FM revolution this is one of the fastest growing media.

Television

1. Expensive medium

2. Products can be well explained and demonstrated.

3. It provides wide geographic coverage

4. Image creation is difficult in this medium because of spontaneity.

5. Wide number of media vehicle creates the problem for media planners.

II. Print media

Newspapers

1. Continue to dominate local markets

2. Retail and classified advertisement are key

3. Important advantages include flexibility and community prestige

4. Newspapers offer powerful merchandising services like promotional and research support

Magazines

1. Divided into two broad categories of consumer magazines and business magazines

2. These categories are also subdivided into monthly publications and weekly publications

3. Specialty advertisements can be promoted through this media.

III. Outdoor Advertising

1. Includes billboards, painted bulletins or displays, and electric boards

2. The oldest and simplest media business

3. Effective in the high traffic areas.

4. Environmentalists oppose this type of advertisement.

IV. Online advertising

1. Contains characteristics of both print and broadcast media

2. Enhances two-way communication and encourages audience participation

3. Example of this media is e- mail.

V. Other Advertising Media

1. Transit advertisement: advertisements placed on the buses and moving vehicles.

2. Movie advertising: Inserting the advertisement inside the movie

3. In flight commercials: advertisements placed in the airplanes.

4. Using yellow pages and pamphlets to advertise the product.

|Activity 2: |

|Take any product and observe how it is advertised on different media. Compare the message advertised and |

|where it is more successful. |

12.6 Fundamentals of Sales Promotion

Sales promotions are short term programs that encourage consumers purchase or sale of a product or service immediately.

According to the Institute of Sales Promotion,

"Sales Promotion comprises that range of techniques used to attain sales or marketing objectives in a cost effective manner by adding value to a product or service either to intermediaries or end users, normally but not exclusively within a defined time period."

Sales promotions are short term incentives and best suits for generating instant sales. Organizations that are into the retailing and managing it independently are using these to the maximum. According to AdEX India a TAM India subsidiary, sales promotion accounted for 18% of total print advertisement.

Sales promotion methods according to Indian market:

Sales promotion uses three different types of tools. They are consumer promotion tools, Trade promotion tools and business promotion tools.

Consumer promotion tools: These promotion tools are directly targeted to customer. These tools stimulate an interest among target customer to purchase the products quickly. Some of the consumer promotion tools used in the Indian market is listed below.

(Source: AdEX- a TAM media company)

1. Price promotion: Organization offers price reduction on the product. For example, Rs 5 off on the purchase of Revive 200g.

2. Contest promotion: organization requests the customer to purchase the product to participate in the contest and win the prizes. For example, Britannia’s ‘Britannia khao, world cup jao’

3. Multiple promotions: Promotions offer includes more than one promotional offer. For example, Rs 30 off and a multipurpose jar free on the purchase of 1 liter pack of Halo shampoo.

4. Add on promotion: Promotion offers a free or an add on product (same or different) on the product. For example, an 8 ml Sunsilk shampoo sachet is free with 75g Pears.

5. Exchange promotion: Price of a product is reduced in an exchange of an old product. For example, bring your old color television and take home a Philips LCD TV for Rs 15,000.

6. Combination promotion: two or more products are offered together at a discount price or some incentive is given on a combination pack. For example, save Rs 10 on the combined purchase of Colgate toothpaste and tooth brush.

7. Volume promotion: allows additional quantity of product free on its purchase. For example, get 50g extra on purchase of 100g Tide.

Top 10 companies on usage of sale promotions (2007).

1. Maruti Suzuki limited

2. Reliance communications limited

3. Nokia Corporation.

4. LG electronics India ltd.

5. Pantaloons India limited.

6. HP India limited

7. Tata Sky limited

8. Planning consultant India limited.

9. Samsung India electronics limited.

10. Hero Honda motors limited.

Trade promotion tools: These promotions are targeted to retailers and wholesalers. The objective of this type of promotion is to get the self space, motivate to sell the products and promote brands in the local media. There are various types of Trade promotion tools are used in the market but we are limiting our discussion to two major types. They are discounts and allowances.

1. Discounts: manufacturer offers straight reduction in the list price on every purchase that channel member does in the particular period.

2. Allowances: This is the promotion value provided by the manufacturer to the channel member to advertise the product in the local media or display the product in the store.

Business Promotion tools: the promotion tools used to lead generation, reward customer and motivate salespeople for business customers. An organization uses conventions and trade shows. For example, Machine tool industry organizes Amtex exhibition in different places of the country. Organization also conducts sales contest to its sales executives to motivate them to sell more.

12.7 Basics of Public Relations and Publicity

Public relations (PR) involves with the management of internal and external communication of an organization to create and maintain a positive image. Public relations involve popularizing successes, downplaying failures, announcing changes, and many other activities such as investor relations, communication during crises, participating in societal causes etc.

Methods of PR:

· Lobby groups: these are established to influence government policy, corporate policy, or public opinion. These groups claim to represent a particular interest.

· News conferences and grand openings to attract media and customers.

· Using written and audio visual material to reach the publics.

· Social responsibilities of the organization have shown through public service activities.

· Preparing interactive website, communities and blogs on the internet.

· Even the front office desk or the receptionist counter at the entrance or the enquiry desk is designed with the main objective of establishing PR.

Advantages of PR:

· It helps in building and maintaining relations with local community. For example, coca cola India’s initiatives of transforming villages’ campaign helped it to get better image among the rural consumers.

· It helps in keeping better relations with the investors.

· A good image with social groups creates word of mouth advertising.

· It helps in reducing the conflicts and misconception about company or its products.

· It helps in publicizing the products.

Role of PR in marketing communications: Public relation messages are created by the company staff and circulated in the media without any cost. If the message is powerful, it reaches different media. Whenever the company faces the issues, it looks towards the public relations rather than advertisements. For example, Cadbury’s chocolate worm controversy or Cola pesticide issue in which PR becomes more applicable than using other forms of advertisements. The firms public relations should be blended smoothly with the other promotion activities within the company have overall integrated marketing communications effort.

Publicity:

Publicity can be said as a simple act of making a suggestion to the concerned parties – TV or radio channel, news reporter or journalist, film makers, etc. that leads to the inclusion of a company/products in an already existing story or a newly developed one. Publicity may also include any such information that attracts attention to a company, its products, its people or any event, usually generated by a third party such as media. Publicity maybe a part of PR or it may be independent of it in certain situations.

Good Publicity and Bad Publicity:

Publicity may have positive or negative impacts. For example, it became a negative publicity for Coca-Cola when people in India, started to throw or break the bottles on the roads because of the belief that it contained pesticides or toxic substances. News channels covered the same giving negative publicity to the company and the products.

Ways in which organizations can use publicity as a communication tool are as follows:

· Organizing events, contests, exhibitions, public displays, tours, etc.

· Sponsoring awards, scholarships or giving charity for any noble cause.

· Issuing reports, conducting survey or polls, taking stand on any debatable or environmental issues, etc.

· Any other way that is appropriate like for example displaying the products in a movie and asking the lead actors to use the products in that movie.

Ways in which organizations can avoid or minimize the effects of bad publicity:

· Providing people with the accurate information and giving clarifications if needed either through press release, media interviews, websites, public messages, advertising etc.

· Company’s top management or spokesperson can give a public statement or comment in the various media.

· Improvising Public Relations and designing good publicity message to erase the effects of bad publicity.

· Continuing to provide quality products and services to the consumers.

· Involving in community work or environmental protection campaigns or any such activity for a good cause.

Self Assessment Questions

6. _________ Advertisements are used to create awareness.

7. _________ and _________ are factors that determine the advertisement budget.

8. Television is a type of

a. Broadcast media.

b. Print media.

c. Out door media.

d. Online media

9. A sales promotion technique in which marketer offers two or more products together at a discount price or some incentive is given on a combination pack is called as ______________

10. Lobbying is the method of

a. Sales promotion

b. Public relations

c. Advertising

d. All the above

12.8 Summary

§ Promotion mix is comprises of a combination of various marketing communications techniques which includes of Advertising, Sales Promotion, Public Relation, Publicity, Personal Selling and Direct Marketing.

§ AIDA model discusses creating attention, interest, desire in the consumers and making them ready for action which is nothing but buying the product. .

§ Buzz marketing refers to the marketing technique in which organizations create opinion leaders (people whose opinion are sought by others) and spread the product information to others.

§ Advertisement allocation (ad budget) can be done on the basis of affordable method, objective and task method, percentage of sales method, competition method.

§ Advertisements are classified as institutional advertising and product advertising.

§ Media planners have broadcast media, print media, outdoor media, online media and other types of Medias to allocate the budget.

§ Trade promotions are provided to channel members where as Conference and exhibitions are examples of business promotion tools.

§ Lobbying and press conferences are tools of Public Relations.

List of Key terms

Promotion mix Advertising Sales promotion Public Relations Publicity Media Ad appeals Message Ad copy Target audience or customers

12.9 Terminal Questions

1. What do you mean by promotion mix?

2. Explain the reasons for growth of integrated marketing communications.

3. Explain the communication development process with examples.

4. What do you mean by consumer sale promotion? Explain the consumer sales promotion techniques used in the Indian market.

5. Write a note on public relations.

12.10 Answers

Answers to Self Assessment Questions:

1. Attention, Interest, Desire and Action.

2. Emotional, rational and moral

3. Viral marketing

4. False

5. Conviction

6. Pioneer.

7. Product stage in the PLC and market share.

8. Broadcast media.

9. Combination promotions.

10. Public relations.

Answer to Terminal Questions:

1. Refer 12.1

2. Refer 12.2

3. Refer 12.3

4. Refer 12.6

5. Refer 12.7

12.11 Mini-Case

Sales impact of Goodwill

Goodwill Electricals is a manufacturer of home appliances. It is a company that distributes its products in its own showrooms located in metros and cities. In March this year, they introduced an electric shaver priced at almost 15% lower than the competitors. This shaver according to the manufacturer is superior to competitive products in quality and user-friendly.

Goodwill was keen to launch their shaver in the national market. Accordingly, they gave advertisements in print media (in English newspapers and magazines). The advertisement is as below:

Headline: You can shave electrically

Body: Picture of shaver with brand name ‘Smooth’ and word with across the picture.

Closing: Brand name ‘Smooth’ written in bold and address of company in right hand corner.

Till June end Goodwill had spent Rs.25 lakhs in advertisements as against sales of only Rs.30,000.

Mr. Rajan the proprietor was worried and depressed. On July 3rd, Rajan decided to abandon the whole project of shavers. However, before doing so, he contacted Brilliant Ad Agency and made a contract with them to have a last shot at establishing the product.

After a careful analysis of the situation and market position, by the end of July, the agency presented the following advertisement:

Headline: Now you can shave in the Luxury of your Bed.

Body: Picture showing a double-bed with a lady sleeping peacefully on one side of the bed. On the other side, a man is shown holding a cup of tea in his left hand and shaving his cheek with his right hand. He is shown to be absolutely relaxed and reclining on the pillows and the whole setting is of a middle class bed-room

Closing: Below the picture, brand name ‘Smooth’ is mentioned and below this in brackets (*) (August 1st onwards shave in Luxury; contact nos.) (No. of distributor) Then on right hand corner-Quality symbol of Goodwill.

Within August 5th and after just 6 ad insertions, Goodwill recorded sales on an all India basis of about Rs. 12 lakhs and pending orders of about Rs. 3 lakhs.

(*) Action date was changed on each advertisement.

(Source: Modified case based on original case study of ‘Fast Track Electricals- Cases and Simulations in Marketing Management edited by Prof. M.K. Rampal and Dr. S.L. Gupta)

One of the new recruits in the Ad agency was very impressed with this move and compared the appeals of the 2 print ads. If he did this comparison and found out the right associations, then he would be able to know how the desired impact on sales was achieved. The new recruit is also interested to know how other media types could be utilized to promote this product.

Assume you are the new recruit and make the assessment.

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MB0046-Unit-13-Personal Communication Channels

Unit-13-Personal Communication Channels

Structure:

13.1 Introduction

Learning Objectives

13.2 Personal Selling

13.2.1 Nature of Personal Selling

13.2.2 Personal Selling Approaches

13.2.3 Advantages and Disadvantages of Personal Selling

13.3 Sales Management Basics

13.4 Human Resource (HR) Practices in Sales Management

13.4.1 Recruiting

13.4.2 Selecting

13.4.3 Training

13.4.4 Training Programme

13.4.5 Training Methods

13.4.6 Evaluation of Training

13.5 Personal Selling Process

13.6 Direct Marketing

13.7 Summary

13.8 Terminal Questions

13.9 Answers

13.10 Mini-Case

13.1 Introduction

Advertisement clutter and large product assortment are posing new challenges. One of the major challenges is how to reach consumer. The indirect media has an influence on consumer but its effectiveness in generating the sales has diminished over the period. Organizations are looking towards interpersonal communications. As we discussed in the last chapter, companies are encouraging word of mouth communication and viral marketing. They are concentrating on enhancing the effectiveness and efficiency of their sale force. In this unit, we are discussing the personal selling, sales force management and direct marketing concepts

Learning Objectives

After studying this unit, you will be able to:

· Define personal selling

· Understand the process of personal selling

· Analyze the sales management techniques.

· Identify and discuss the major forms of direct marketing.

13.2 Personal Selling

Involves the communication technique in which sales people build the personal relationship with customers to generate the value for the organization.

The value may be sales and benefits to the customer. The value may not be only financial gains, but it may be providing the information to customer. For example, Medical representatives of CIPLA provide the information to doctors and they don’t actually sell the medicine to them.

13.2.1 Nature of Personal Selling

Personal selling has experienced a paradigm shift. There was a time when sales jobs were perceived to be low. The emergence of modern corporations and rise of new India is in dire need of professional selling. Nowadays it is not mere selling. It is using professional skills to have a long term relationship with the customers to generate the value continuously. This has resulted in the growth of professional sales force. Even companies that believed in marketing through channels entered into personal selling. For example, Hindustan Unilever Limited (HUL) which is having retail and wholesale channels, recently entered into the network marketing. There are various types of sales jobs used to sell the product of the organizations.

They are:

1. Delivering: The job of sales executive is to make the products reach to the customer destination. For example, a sales person working for transport or Courier Company has to make the goods reach the customer places.

2. Inside order taker: Sales executives in the retail stores like Subhiksha help the customer in identifying the product. The person in the hotel takes the order and serves better.

3. Outside order: These are field executives who go to the customer place and get the order.

4. Missionary selling: Sales executives provide the information and promote the company products like for example- medical representatives.

5. Sales executives: In this position, the sales executive is technical expert and works with nontechnical sales executives to provide assistance on technical information sought by the customer.

13.2.2 Personal Selling Approaches

1. Stimulus response selling: In this approach, sales person provides the stimulus and expects the response from the buyer. This process will continue till purchase decision has been made. For example, salesperson will tell the customer that the price offer for a particular product is available for only 2 days and then might wait for the customer to accept the offer within 2 days.

2. Need satisfaction selling: In this approach, sales executive identifies the need of the product in the customer and confirms it. He provides the various offerings to the customer to choose and continues this process till the purchase has been made. For example, if a customer is looking for specific features in a product, then salesperson will show him the products having those features and will suggest to him variety of options to choose from.

3. Problem solving selling: This approach is used when the customer faces the purchasing problem. In this approach, sales executive defines the problem of the customer, generates the alternative solution and evaluates them. Then he works with the particular solution till the customer purchase. For example, when customer is not sure about the type of brand he wants or the kind of features he needs in the product, then the salesperson will tell him about other particular brands available or in the second case, will identify his product needs first and then suggest products having those features that will fulfill his needs.

Situations when personal selling is favourable

1. The price of the product is high, technical in nature and needs demonstration.

2. The product is in the introductory stage of the product life cycle.

3. Organization does not have enough money for advertisement campaigns.

4. Product can be customized and

5. Market is concentrated.

13.2.3 Advantages and Disadvantages of Personal Selling

Advantages

1. It can be customized since personal element or face to face contact is involved between the salesperson and prospective customer.

2. It can focus on prospective customers as well as cater to the existing customers.

3. It results in the actual sale, while most other forms of promotion are used in moving the customer closer to the sale.

4. It is very helpful in maintaining long-term customer relationships and in Customer Relationship management

5. It is applicable when products have to be demonstrated and certain features or information has to be specifically explained to the consumers.

6. Conveniently suits certain product categories such as consumer durables – washing machines, dishwashers, air-conditioners, etc.; highly technical items such as computers, laptops, etc.; automobiles, industrial goods, pharmaceutical products etc.

Disadvantages

1. It is costly to develop and operate an effective and efficient sales force.

2. Not effective because at a time the sales person can target one or two customers and so it lacks mass appeal.

3. It is very difficult to attract upper class people.

4. It is not appropriate for all types of products as some products may not require any personal selling.

|Activity 1: |

|Find out any dealer shop or outlet in your area that uses personal selling to market its products. Highlight |

|its benefits and drawbacks. |

13.3 Sales Management Basics

The activity of procuring, training, developing and managing sales force for the purpose of achieving more customers or sales and also to maintain existing customers can be called as Sales Management.

Sales management involves certain basic or key aspects which are –

a) Deciding the sales territory

This is the geographical boundary set for sales executives to work in. The objective of setting up territory is to avoid the conflict between two sales executives. This will help to set particular quota for sales executives and shall be used for performance evaluation.

b) Determining Sales force size

The sales force size is decided by the work load method. Work load method consists of

· Identification of customers and grouping them into different categories.

· Listing out the activities that sales executive has to perform.

· Finding out the time available for selling and non selling activities of sales executives.

· Analyzing the number of calls one has to do in a particular period.

· Calculating the number of sales people required.

c) Sales organization

Sales activities in the organization are allotted on the basis of geography (Bangalore, Mumbai etc.), product (personal care, water purifier etc) customer (steel companies, electric companies etc) or having a matrix type of organization to show the assignments and allocations of each sales person. This helps company to have better control over the sales executives.

13.4 HR Practices in Sales Management

The important tasks in order to make Sales management effective and efficient include the following HR practices which are normally adopted in any organization:

13.4.1 Recruiting

Recruitment is a process of finding out candidates, who are encouraged to apply. Selection is process of choosing or short-listing some suitable candidates out of many those who have applied. Therefore, we can say that selection is recruitment, but recruitment is not selection. Selection is a process of rejection of unfits. Recruitment precedes the selection process.

After deciding the number of salespersons and the objectives, the sales manager must select personnel. The usual sources of recruitment may be either internal or external.

Internal Sources: Many firms feel that the best policy to fill the vacancies of salespersons is from the existing employees of the same organization. It may also be termed as promotion. This can well be adopted by analyzing the ability and promising character of the staff on the basis of seniority i.e., length of services.

Merits:

1. Much co-operation can be expected.

2. They are loyal.

3. Since it is a promotion, sincere and honest performance can be expected.

4. They may not need training.

5. They may not need high salary.

Demerits:

1. There is limited scope for selection.

2. Favoritism plays its role.

3. The person may not adjust himself to the new job as the nature of work is different.

Apart from the internal selection, ex-employees of the company can also be appointed if they are willing to accept a job. This policy is better and can profitably be adopted.

External Sources: We have the following sources:

1. Employment Exchange

2. Competitors’ organization

3. Salesperson of non-competing firms

4. Educational Institutions

5. Recommended cases

6. Advertisement

7. Unsolicited applications etc.

1) Employment Exchange: Private and public employment exchanges are the best source of personnel. They maintain proper registers with names and other full details of persons, such as job referred by those who seek jobs. The sales manager can call persons from exchange, by giving job specification to the officer concerned. In almost all cases the candidates may be untrained; and inexperienced hands requiring further training.

2) Competitors’ Organization: The salespersons employed in other competing firms can also be chosen. But this method is not morally accepted. He may be trained and may be developing his firm. Such a person can be drawn by temptation when he is offered more facilities and a higher salary. But it must be verified how far he is able to meet the sales objectives, considering his sincerity, loyalty, habits etc Such a man, when he gets some additional benefits from some other firms, will follow the same tactics i.e., leave the firm.

3) Salespersons of Non-competing Firms: Salesperson can also be chosen from non-competing firms. Such persons may have experience in the line, if not touch with the particular product. They may need training to come up to the level of aimed sales objectives.

4) Educational Institutions: Advanced countries like America, England etc., select students directly from specialized institutions, where theoretical and practical knowledge is gained by them. The Institutional Heads maintain complete records of students but as far as India is concerned, the chances are rare. It has been neglected with the feeling, ‘just from egg’ i.e., inexperienced.

5) Recommended Cases: The employees of the firm – managers, superintendents, section heads etc., may recommend candidates from their friend circles. They have a moral responsibility when such persons are recruited. The employee who recommends personnel will be blamed, if the person is incapable of doing the assigned work. .

6) Advertisement: This is a generally accepted system of recruiting salespeople by firms. Advertisements are displayed in newspapers, trade journals specifying the job and the required qualifications, experience and skill. There is the possibility of a wider scope of selection, as the news spreads over a wide geographical area.

13.4.2 Selecting

Selection procedure differs from firm to firm. Each firm has got its own method in choosing people for employment. The qualities that the recruiters seek in people to be appointed, depends on the job description. Similarly the selection method also depends upon the sales management. Generally, the following steps are followed:

1. Application blank

2. Screening

3. Reference

4. Personal interview

5. Test

6. Medical examination

7. Final interview (appointment)

1. Application Blank: Necessary information about the applicant is required to be considered for appointment. Generally, the candidates are asked to apply on company’s application form, sent directly to applicants against a requisition, or an application known as application blank is given in the advertisement itself. This is with a view to gather only the necessary details of the applicants. It contains a number of questions, which after being filled, gives a clear idea about the candidate. Generally, it may contain the name, sex, qualification, age, experience, health, social activities, address, references etc.

2. Screening: All applications will not be considered. Screening is a process by which applications are to be screened out (rejected) from further consideration, on the basis of unsuitability. The remaining applications are formally considered for appointment, subject to further formalities. By rejecting the applications of unqualified applicants, much time and energy can be saved in further processing.

3. Reference: Generally, it is a common practice to ask the applicant to mention the names of two references or referees, to whom the sales manager can make enquiries about the integrity, general character and ability of the applicant concerned. The qualities are checked with care and caution by the sales manager, by contacting the referees. If the opinions are favorable, the applications pass on to the next stage; and in case the referee gives unfavorable comment, the application is rejected at this stage.

Personal contact is necessary and it is better, because people are straight forward in tongue better than in pen. This is one-sided, but the effectiveness of such opinion is doubted, as there may be chances of telling only the good qualities of applicants. Moreover, only the names of such favorable persons are mentioned in reference, with pre-intimation. To overcome this, personal interview is essential.

4. Personal Interview: This is an important step in the process of selection. Only the screened applications are considered for selection to which the firm sends out interview letters. Personal interview is a must. Through this interview, the sales manager can understand the positive and negative qualities of the applicant, with reference to the job duties. A good interviewer must be unbiased, able to discover facts and be a keen observer of the interviewee.

Interviews are also of two types: (a) Patterned and non-patterned. Under patterned interview, questions are designed and the same questions are asked to all, which is easy for comparison purposes. (b) In non-patterned interview, no standardized questions are asked. The applicant is allowed to talk freely. A few direct questions are asked. In this type of interview, the applicant gets a chance of speaking about his attitude and interest freely. The interviewer must be able to make an easy evaluation of the interview.

5. Tests: Test is an additional tool, with which the applicants are further tested to determine their suitability for the job. Generally, following are the important types of psychological tests conducted:

i) Ability Test: This test is devised to ascertain the capacity to grasp things, and is a measure to know how well a person performs a particular task with motivation. This can also be called a mental ability or intelligence test. Such tests determine the suitability of a candidate for a particular job.

ii) Habitual Characteristic Test: A person may be intelligent but may hesitate to take a decision. This test is aimed to know one’s aptitude and interest on normal, daily work, irrespective of the best behavior occasionally.

iii) Achievement Test: This test is designed to know what knowledge a person has gained from his education or training.

By all these psychological tests, the ability and suitability of a candidate can be verified. One can aim to evaluate the honesty, cheerfulness, leadership quality, assertiveness, co-operation, supervision capacity, emotional stability, determination, ability etc., of the personnel. The effectiveness and reliability of these tests are questionable, as the qualities cannot be measured exactly and the circumstances to be faced by salespersons are also different.

6. Medical Examination: The important thing about any person, apart from all qualities and eligibility, is that he/she must be physically fit for the job. Diseases and physical deficiencies of the salesperson will affect the business. As such, selected applicants have to undergo medical examination.

7. Final Interview and Appointment: The selected applicant is probably, called for a final interview and his/her suitability is measured through different tests, physical reports etc. Once confirmed, appointment letter will be given to the person and the job will t be explained to him/her, along with all relevant details, which are required to perform the duties efficiently.

If everything is in favor of the applicant, an agreement must be executed by him/her. Generally, the agreement contains duties and authorities, sales quota, sales territory allotted, salary and conditions of resigning. It is followed by an appointment order, which contains designation, jobs to be performed, salary and other financial benefits etc.

13.4.3 Training

Training is a continuation of selection. Having selected the salesmen, there are two options. They can be sent to the field directly with samples, order books etc., and/or they can be sent for training programme. Some people think that salesmanship is born, but there are no born salesmen like there are no born doctors, lawyer, engineers, teachers etc. However, all these people need training to call them qualified, and so also is the case with salespersons. A person may have interest in the profession. Thiess interest can be fully developed, through proper training. One attains perfection, self-development etc., through training.

Training means the process of perfecting the salespersons for their work. Training programmes are organized procedures or methods through which knowledge as well as skill, for a definite purpose, is acquired. By training, one can increase knowledge in a particular field. The salesmanship is not born but can be made effective through training.

Significance of Training: The present era of marketing world is full of stiff and cut-throat competition. The world is dynamic and not static. Customers are more benefit-oriented. Producers, in order to meet the ever-changing demands of the consumers, produce new products, new devices, and products with multiple uses and so on. Thus, training or repeated training is essential to keep the salesmen, with up-to-date knowledge, in respect of new or developed goods. Training gives scope for improvement.

Objectives of Training: The objectives are summed up below:

1. To facilitate the salespersons to acquire the techniques and principles of salesmanship, process of sales, canvassing etc.

2. To bring down the labor turnover in the sales force.

3. To facilitate better sales performance.

4. To improve the relations with the customers.

5. To increase the efficiency of sales personnel.

6. To keep the salesperson informed about the products, market, competitors etc., to face different situations.

7. To lower the selling expense so as to increase the profits.

8. To maintain sound relations between employer and employee.

9. To develop better knowledge, and the ways and means to resist all undesirable situations.

10. To motivate the consumers more effectively.

Advantages of Training to Salespersons

1. A trained salesperson always wins customers by systematic approach.

2. Salesperson acquires better understanding of the firm, as to its past history, policies and procedures and this helps the salesperson for effective dealings.

3. A trained salesperson takes less time in concluding a sale-early selling maturity.

4. A trained salesperson brings increased volume of sales, in turn, more profit to the firm and himself/herself.

5. A trained salesperson is able to meet consumer’s demand and help in solving problems.

6. Increased volume of sales facilitates reduction in cost of production i.e., sales rise faster than expected. The cost per unit of order or per prospect can be minimized.

7. A better relationship is created among the customers through reducing customer’s complaint, increasing brand loyalty etc. Customer’s satisfaction is gained.

8. The ability of the salesperson is increased by expert knowledge.

9. Controlling of salespersons becomes easy.

10. Training facilitates better demonstrations, selling the products which have high profit margin, better methods of canvassing etc. Sales training helps to increase the sales volume. Supervision cost is reduced as trained salesperson needs less supervision.

13.4.4 Training Programme

A firm should chalk out a programme for sales training. The training is based on the nature of the job and the products to be sold. A planned training programme should function with the following ideas or principles, often referred to as ACMEE.

A: Aim of Training

C: Content of Training

M: Method of Training

E: Execution of Training

E: Evaluation.

1. Aim of Training: The whole idea behind the training is to make a recruit a good salesperson. It is true that some of the qualities of a good salesperson may be inherent, but not all qualities. It is the training which makes him/her have all qualities required of a salesperson. It must aim to make him/her a guide to the buyer, taking into account his/her needs, problems etc. and to make him/her a salesperson of effective power by which an interest in the product may be aroused and a desire to purchase may be created.

2. Content of Training: No hard and fast rules can be laid down as to the contents of training. The content of the training programme relates to the subject-matter of training. A training programme varies from firm to firm, because of the differences in products, markets, policies of the company, trainee’s ability etc. In general terms, sales training is the teaching of salesperson and prospective salespersons how to do their jobs better. A good training programme facilitates the trainee-salesperson to learn and understand the following aspects:

a) The knowledge of the job

b) The products

c) The company or the organization

d) The markets and consumers

e) The competitors

f) The sales techniques

g) The routine reports etc.

a) The Knowledge of his/her Job: The job of a salesperson is not complete, as soon as the transfer of goods takes place. Today, the salespersons carry out more work than the salesperson who merely takes orders. He/she must understand what the firm expects of him/her; what power he possesses and how to convince the buyers about the company’s product and image. The company assigns responsibilities and powers, with which he/she works as a guide to buyers by projecting the merits of the products and on the other hand with profit to the firm. He is expected to do services to both the firm and the customers. He must have concrete plans as to his sales planning, meeting customers, sales talks, demonstration, presenting the goods, concluding sales, securing order, collecting dues, handling objections and complaints etc. Apart from these, he must be a keen observer of market conditions, competition, consumers’ likes and dislikes etc. He should co-operate with his senior fellows. Thus, he is trained with a purpose, the aim of his appointment being to know what the firm eagerly expects from him.

b) The Products: A good understanding of the product is essential. The firm must give or ensure that the salesman has a thorough knowledge of the products to be dealt with. In brief, they are:

1. Raw materials used in the product.

2. Manufacturing methods in brief.

3. Research and development undertaken.

4. Improvement made.

5. Its suitability to the consumers.

6. Its trade mark, brand, characteristics.

7. Its color, weight, packaging, quality control etc.

8. Selling points of the products.

9. Product merits and uses to consumers.

10. Limitation of the product performance.

11. Its price and discounts offered.

12. Service, after sales and guarantee period.

13. Demonstration of its actual working.

14. Availability of the products.

15. Cost of operation and maintenance.

16. Comparative study of similar or competitive products.

17. Strengths and weaknesses of competitors’ products.

18. The position of the product in the product line.

The above-said knowledge of the products is essential for a salesperson so as to emerge as a creative salesperson. When the salesperson has a sound knowledge, he/she meets the public and converts them as buyers, in a better and more efficient way.

c) The Company: A clear-cut knowledge about the company is essential to the salesperson to enable him to work accordingly. A salesperson should be well-informed about the following:

1) Brief history of the organization or company

2) Organizational hierarchy, top management and key people, organization’s stake-holders and investors

3) Organization’s objectives and purposes

4) Economic and social objectives

5) Past performances of the company

6) Future plans and ventures of the company

7) Its position in the market or in the industry

[pic]Credit policies, sales policies, personnel policies

9) Capacity of the plant

10) Execution and handling of orders, sales accounting and collection methods

11) Salary structure, commission computation, traveling and daily allowances etc. and their payment procedures

12) Method of exercising control over sales methods

13) Allocation of quotas and territories

14) Marketing policies, pricing policies, etc.

15) Long term customers of the company

d) The Markets and Consumers: Information about the market is an important and essential part of the training programme. The salesperson must have a thorough knowledge of the size of the market, demand for the products and the area under the competitor’s side. Besides the knowledge of the market, salesperson should know about the type of customers, buying motives, likes and dislikes of the products. Different types of customers need different types of approaches. People differ widely from person to person, sex to sex, age to age, place to place etc. Different persons require specialized ways of persuasion. The salesperson must adjust him/her according to the nature of the customers. A blanket policy to all classes of people is not advisable.

e) The Competition: Salespersons must be given a good knowledge or comparative study of the selling activities of rivals. Study relating to comparison with the rivals as to the merits and demerits of the product is important i.e., strong as well as weak points. The salesperson should know the rival firm’s policies, method of approaching the customers, how they are paid, customers’ opinion, how their product is, how they fulfill their duties, the features they like or dislike, their selling-points etc.

f) The Sales Techniques: The sales techniques are the essential part in sales training. After the training, the salesperson has to be sent to the field, where he/she has to sell the company’s product. He/she must be given exhaustive training in “Sales Process”. The selling points must be correlated and sales talk be applied at the appropriate situation. A born salesperson has to be instructed with the various selling techniques in detail. In short, training on the following items must be imparted.

a) Selling process.

b) Method of gaining interview from consumers.

c) Method of approach to consumers.

d) Demonstration and presentation.

e) Method of handling objections of consumers.

f) Reasons for failure of salesperson in the field etc.

g) Routine Reports: Salespersons should be trained to know their routine work and submit their reports to the firm. The report may include:

a) Amount (quantity/units and money value) of sales made.

b) List of new customers.

c) Credit outstanding of customers.

d) Collection of outstanding dues.

e) Competitor’s position in the market.

f) Maintenance of accounts of expenses.

g) Demonstration and display of products.

h) Action taken on complaints, grievances etc.

i) The attitude of market in respect of competitors.

j) Consumers’ suggestions or experience with the product if any.

The reports may be sent to the firm, daily, weekly or monthly etc. as directed. The salespersons are eyes and ears of the selling firm. The salesperson must be aware of the method of reporting and its importance.

Training Needs of Salespersons at Different Times:

New Salespersons Need:

1. Facts about the company-history, policies etc.

2. Product details

3. Company’s system and procedures

4. Fundamentals of selling their specific products

5. Moral training

Regular Salespersons need

1. The subject matter of the above five aspects

2. Changes in policies and procedures

3. Facts about new products

4. Future plans of the company

5. Knowledge to supervise others

6. Know-how to discharge responsibility (or delegation of duties)

Supervisors Need:

1. Skill needed to discharge duties

2. Ability to train others

3. Ability to organize

4. Ability to analyze and plan

5. Ability to evaluate and follow up

13.4.5 Training Methods

For imparting training to the salespersons, different methods are being used. Broadly, these methods may be divided into two:

1. Group Training

a) Lecture Method: An expert or a lecturer speaks to trainee-salespersons about the various aspects of selling. It consists of oral talk in a classroom. This system is widely used. The trainees listen to the lectures. The instructor invites questions and answers from them. To make the lecture more interesting, visual aids, demonstration, suitable examples may be added. This system is more economical, and is the easiest and quickest in imparting theoretical training to a group of salespersons. But it is difficult to evaluate the effectiveness of lecture method. This method can be used more effectively in continuing sales training programme to provide new information or changes in the policies of the firm. This may include seminars, demonstration etc., by expert salespersons.

b) Audio-Visual Method: In order to supplement the lecturing (telling) method, training programs include the use of visual aids, such as films, slides, posters etc., and are capable of making them more interesting.

c) Discussion Method: This is a good method wherein an actual case or an imaginary case is given with a specific problem to be solved, by different groups. The case or the problem may be typed or printed. Each group is asked to understand the problem and draw a conclusion. Later, the different conclusions or suggestions are analyzed collectively, under the leadership of the instructor, in drawing generalizations from each case or problem. This type of training enables the salespersons in correcting their own views. It is suitable for a small group. It is slow and costly.

d) Conference Method: Sales conferences and sales meetings are a kind of ‘get together’ of all the concerned staff, weekly, fortnightly or monthly. The thoughts of various persons are pooled in the conference. Meetings or conferences have motivating effects as the participants get the opportunity for creative thinking and to express their views. To make the conference more interesting, dramas, demonstrations etc., are included. Topics like sales policies, facing competition, publicity ideas, dealings with complaints etc., are dealt with. And these will facilitate the participants in broadening their outlook and ideas. But these types of meetings or conferences are not suitable for new recruits.

e) Role Playing Method: Role playing is a newly developed method. The sales trainees are made to act out roles in contrived problems. The trainer explains the situation of the problem and assigns the role of salesperson and customers with different characters to the sales trainees. Each one has to act the assigned role. The trainer watches the role played by each and discusses their weaknesses and strong points. A few may be selected to act the play, while others may watch it. Thus, the salespersons have chance to see and understand the ideas in different situations. It is not suitable for new recruits.

f) Panel Method: Members in the panel group may be permanent. The members, who are experts in the panel, discuss the problems, and solutions are passed to the sales-trainee groups, who may have further discussion. This system is ineffective.

g) Round Table method: It is similar to the discussion method. It consists of few members. The salespersons sit around a table along with a good discussion leader. They deal with the real-life problems faced in the industry or in the organization. Every participant takes part freely in discussing the problems and solutions. Exchanges of new ideas take place which may prove beneficial to the organization.

h) Brain Storming Method: Under this method, more or less, similar to round table conference, persons sit around the table. The leader presents the problems for discussion. The sales trainees have to understand the problems and find the solutions. The solutions are analyzed by the leader or tested by the panel of experts. This method practically fetches no value.

2. Individual Training

a) On-the-job Training: Under this method, a new salesperson is placed under an experienced or senior salesperson who trains him. First the coach explains the sales techniques under different situations. He also takes the trainee along with him on his rounds and gives him several chances to observe the dealings/interactions with the customers. Doubts of the trainee are also clarified. Then the coach along with the trainee calls on customers; the sales trainee is allowed to deal with the customer and the coach observes the performance. If any weak point or shortcoming is found in the sales trainee, they discuss how to overcome them. After some time, the sales trainee becomes a trained and independent salesperson. This system is good for traveling salespersons.

b) Sales Manual: It is a compiled textbook. It contains details of the firm and products, job description, sales policies, opinions or reports required for reference purposes etc. Generally, it contains many problems with suggestive solutions. A copy of the book is given to a salesperson to go through it and understand the ideas. It works as a handy guide.

c) Initial or Break-in Training: New recruits are given an orientation training so as to know about the company and its products. They may be allowed to work for some time in the firm itself to gain sufficient information about the products. After that they are sent to work in the field.

Apart from the above, salespersons can also be sent to specialized educational institutions. The training cost is borne by the firm. There are many institutions in India which impart theoretical training along with practical work. Doors are open and firms can send their new recruits for training. Correspondence courses are also available for initial training. In certain cases, one can undergo training while one is fully employed. This is suitable for salespersons who are widely scattered. There are many firms which have permanent training departments like colleges.

It is important to note that even the trained or experienced salespersons need periodic training, called refresher training or follow up training. This is because of the changes in products, sales policies, changes in consumers and market, government policies, new developments, new ideas etc.

13.4.6 Evaluation of Training

Having trained the salespersons, the marketing manager must evaluate the usefulness or effectiveness of training, individually and collectively on the basis of the performance of the sales personnel. Money, effort and time have been spent on training. Therefore, it is natural to expect returns. Evaluation can be made on the basis of performance of sales executive in terms of sales volume, sales profitability, order-size, expenses etc., between, before and after training periods.

Aims of Training:

1. To prepare the salesperson to discharge his/her job efficiently.

2. To tell him/her what to do.

3. To guide him/her how to demonstrate.

4. To allow him/her to practice or perform it.

5. To check his/her performance.

Apart from the above objectives of training, training method also includes:

Motivating: In this stage, organization identifies the attributes that motivate the sales executive to perform well. Some executives may require money and others may require status or control. Here organizations draw two types of incentives. They are financial incentives and non financial incentives. In financial incentives, salary package, flexible expenses and fringe benefits serve as motivators. The non financial incentives include promotion, recognition and awards to motivate the sales executives.

Evaluating: Companies are interested to know whether sales executives are achieving the quotas set for them. To know this they ask sales executives to send the different sales reports. It may be call reports, expense reports, loss order report, travel plan and expenditure and so on. These reports are compared against the set standards. On the basis of evaluation report, incentives are announced, and if required, sales executives are motivated and trained.

Compensation: Sales executives are compensated through three methods. They are direct salary, direct commission and combined plans. In direct salary method sales executives are given fixed salary per month. In case of direct commission, sales executives will be working on commission basis only. For example, life insurance agents get straight commission. The combined method is mixture of straight salary and straight commission method. In this method sales executives are paid fixed salary and also commission on the sales they make. For example, BMTC pays its conductors fixed salary and also 2% of commission on total tickets sold in a day.

Sales Quota: These are the targets set for the sales executive to achieve in a fixed period. The quota can be of different types. They are

· Sales quota: Here sales executives are asked to sell a particular volume. For example, the organization may ask sales executives to sell Rs 50,000 worth of goods in a year or 5000 units in a year.

· Expense quota: In this case, sales executives’ quotas are set on the basis of sales generated and a percentage of it is used for the sales expenses. For example, if sales executive X achieves Rs 1,00,000 worth of sales and his expense ratio is 5%, then he can spend Rs. 5,000 for his expenses.

· Profit quotas: Here emphasis is on the profit margin but not on the volume. Company would like to realize better profit. Hence, it always asks sales executives to get better margin from the sales.

· Activity Quota: In this method, sales executive should do multiple tasks. For example, Medical representatives meet the doctors in the morning and explain the product. They also meet the retailers where they try to push the product and induce promotional activities. In the afternoon they meet distributors and in the evening they send all the reports to company and check the order status from the head office.

· Combination quota: In this type of quota, any of the above five quotas can be mixed and quotas shall be set for a certain period.

Self Assessment Questions

1. Medical representative work is ___________ type of sales job.

2. Work load method is used to

a. Determine the sales quota

b. Determine the sales territory

c. Determine the sale force size

d. None of the above

3. Employees are ___________ source of recruitment

4. ______________ is the first step in the selection process.

5. The full form of ACMME is _________________________________

13.5 Personal Selling Process

1. Lead generation: Identification of prospects is first step in personal selling process. Organizations generate the lead through customer references, trade associations, and customer directories or through cold calling.

2. Lead evaluation: All the methods used for lead generation may not be genuine. For example, do not call registry option from telecom department, has most of the cell phone users opt for it. Customers who opted for such facility belong to middle and upper class. Hence if some executive uses cold calling there is doubt about its reliability. Marketer also should concentrate on whether the lead generated has necessary willingness, purchasing power and authority to buy.

3. Buyer analysis: Before approaching the customer, sales force should understand what products have prospects bought in the past, what products they are now using and what are their attitudes and buying habits towards the products. Sales personnel should set sales objectives and prepare draft for customer approach.

4. Approaching the customer: In this step sales person should know how to meet the prospect and what is the mode to build rapport with him/her. For example, in Japan, business meetings start in the evening. If any company sells its product in China, it should not use number 8 in their presentation. Sales executive should decide the presentation format. Please see work book for the checklist on sales presentation.

5. Presentation and demonstration: Sales presentation starts with briefing the product, understanding the need of the customer and changing the mode of presentation according to the need of customer. The presentation should be vivid, simple and attractive.

6. Providing solutions to customer: After the presentation and product demonstration, if any queries or ambiguity exist, then sales executive should handle the questions properly with lot of attentiveness and should then solve the problems of customer. If the problem is not properly identified, then the solution may not be appropriate.

7. Order generation: This process is very important in the entire personal selling process. Sometimes sales executives are unsure about how to ask for the order. Such executives usually will not get the order. Handling customer at this stage is also very difficult. Customers may get all the information from sales executive and then show their reluctance to buy. Sales people also face unrealistic expectations from the customer. Sales executive should be smart enough to use order closing techniques.(these techniques are discussed in the workbook)

8. Follow up: Sales executives should follow up on the order generated. It will help the company to identify the customer satisfaction towards the product. It also helps them to induce the buyer to go for repeat purchase.

13.6  Direct Marketing

When the company or organization is involved in marketing activities (usually selling products) without the use of any intervening media or channel, then it is called as Direct Marketing. The company directly sells its products to the final consumer and the consumer is expected to respond immediately or at the earliest. Direct marketing is sometimes called as B2C marketing for example, direct factory shoe sale. Following are the methods of Direct Marketing:

1. Direct mail: It is the most common method used in direct marketing, it involves sending postal mails to the consumer’s address and consumers maybe randomly chosen or specifically selected as targets. For example, credit card applications forms sent by banks, travel guides or manuals sent by tour operators, free trial packs of products sent by companies, subscriptions offers for magazines etc.

2. Telephone marketing: Telephone marketing is used to sell the product directly to consumer. The growth of BPOs in India fuelled the development of telephone marketing. In the case of BPOs, two types of verticals exist. They are inbound call center and outbound call center. In case of inbound call center, customer is given a toll free number for enquiry and executives try to sell the product to such customers. In out bound call center employees call the customers and sell the products. The expansion of Indian telecommunication industry and its cheapest tariffs in the world attracted domestic sellers to use this type of channel.

3. Catalogue marketing: According to Philip Kotler, catalogue marketing is direct marketing through print, video or electronic catalogues that are mailed to select customers, made available in stores or presented online. The growth of catalogue marketing in India is in a nascent stage. The notable example in this type of marketing worldwide is J.C. Penny.

4. Kiosk marketing: Organizations spreads the information and keep ordering machines called kiosks in the shopping malls and other places. For example, Ambi Pur a perfume company recently organized a kiosk related marketing campaign in the Nirmal life style Mumbai. Company used inflatable as shown in the pictures to attract the small boys.

Parents who came along with their children stopped at Kiosk and got the information from the company. The objective of campaign was to create awareness about the product among the target customers.

[pic]

5. Online marketing: Marketing the organization’s product on the virtual medium using the company websites as selling point or ordering point for the consumers. Sometimes companies use e-mails to offer their products and make a sale to the prospective consumers or even existing consumers.

In this format buyers and sellers exchange the products on the internet. Organizations sell their products directly to consumers (called B2C), use trading networks or auction sites to reach new customers and serve current customers (called B2B) and encourage one customer to sell the product to the another customer (called C2C).

To do business on the internet, organizations create an effective website, place the ads and promote it online, create web communities, and use e- mail. On the other side of e-Commerce, are the problems of profitability and legal/ethical issues.

Self Assessment Questions

6. Customer directories are used in ____________ of personal selling.

7. Organizations which sell their products on the internet directly to consumers are called ____________.

8. J. C. Penny is famous for _________ format of direct marketing.

9. The ideal presentation should be ___________, _________ and __________.

10. In ____________ call center, employees telephone the customers and sell the products.

13.7 Summary

§ The communication technique in which sales people build the personal relationship with customers to generate the value for the organization can be termed as personal selling.

§ The sales force size is usually decided by the work load method.

§ According to Philip Kotler catalogue marketing is ‘direct marketing through print, video or electronic catalogues that are mailed to select customers, made available in stores or presented online.

§ Organizations generate the leads through customer references, trade associations, and customer directories or through cold calling.

§ Evaluation can be made on the basis of performance of sales executive in terms of sales volume, sales profitability, order-size, expenses etc., between, before and after training periods.

§ Expansion of ACMEE is A: Aim of Training C: Content of Training, M: Method of Training, E: Execution of Training, E: Evaluation.

List of Key terms:

Personal selling Sales Management Sales organization Sales territory Recruitment Training Evaluation Direct marketing.

13.8 Terminal Questions

1. Discuss the advantages and disadvantages of personal selling.

2. Explain the internal and external sources of recruitment.

3. Describe the steps involved in the selection process.

4. Explain ACMEE with examples.

5. Write a note on direct marketing.

13.9 Answers

Answers to Self Assessment Questions:

1. Missionary

2. Determine sales force size

3. Internal

4. Application Bank

5. Aim, Content, Method, Execution and Evaluation.

6. Lead generation

7. B2C

8. Catalogue marketing

9. Vivid, simple and attracting

10. Outbound

Answers to Terminal Questions:

1. Refer 13.3.

2. Refer 13.3.4.

3. Refer 13.3.4.

4. Refer 13.3.4.

5. Refer 13.5

13.10 Mini-Case

Mouth-freshener Sugandh’s dilemma

Sugandha Mouth Fresheners Ltd. has been a major player in the national market. Their tobacco-based product by the brand-name Khushboo, is a very popular brand and has enjoyed 50% share of the market in the last five years. Recently, they have introduced a non-tobacco mouth freshener, by the name Sugandh. This is being received well especially by the youth segment.

Recently, the Govt. launched an advertising campaign asking the people to give up tobacco consumption. The company is at present, facing two major problems:

a) Fear of drop in sales of tobacco-based Khushboo

b) People’s growing belief that even Sugandh contains some tobacco.

The challenge for the sales force is to build awareness and educate consumers that Sugandh is a tobacco free mouth freshener. So, each salesperson is about to face this challenge and also to ensure that there is no drop in sales. Mr. Roy, the sales manager of Sughandh Ltd. is thinking about how he can train and motivate his sales force to make them ready for this challenge. Mr. Roy is also determined to know the ideas of individual sales person and how they can contribute in this situation.

How do you propose to help Mr. Roy?

(Source: Case modified from original simulation exercise – Cases and simulations in Marketing Management edited by Prof. M.K. Rampal and Dr. S.L. Gupta)

Copyright © 2009 SMU

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MB0046-Unit-14-Customer Relationship Management and Other Contemporary Issues

Unit-14-Customer Relationship Management and Other Contemporary Issues

Structure:

14.1 Introduction

Learning Objectives

14.2 Relationship Marketing vs. Relationship Management

14.3 Definitions of Customer Relationship Management (CRM)

14.4 Forms of Relationship Management

14.5 Managing Customer Loyalty and Development

14.6 Reasons behind Losing Customers by Organizations

14.7 Significance of Customer Relationship Management

14.8 Social Actions Affecting Buyer-Seller Relationships

14.9 Rural marketing

14.10 Services marketing

14.11 E-marketing or online marketing

14.12 Summary

14.13 Terminal Questions

14.14 Answers

14.1 Introduction

In the marketing world managers quite often say ‘retaining customer is more important than acquiring one’. We will examine the importance of this statement. The organization uses communications tools to make its product and brand aware among the consumer. It uses its supply chains and human resources to sell their products. Each stage costs for the company. In this competitive world, organizations want to reduce the cost and develop the database which helps in creating loyalty programs. Therefore it is very essential for the organizations to use software to pile up a big database of customers. Many Indian companies like Infosys, Wipro and others started offering CRM software to companies. The benefits of CRM software are quicker, better quality and timely services to the customers. This increases the word of mouth communications and reduces the cost of mass media.

Learning Objectives

After studying this unit, you will be able to

· Explain the meaning, need and relevance of CRM.

· Mention the forms of relationship management.

· Cite reasons for losing customers by organizations.

· Bring out the significance of customer relationship management.

· Ascertain the latest and recent developments in Marketing Management

14.2 Relationship Marketing Vs. Relationship Management

The relationship marketing approach considers customers as insiders to the business and aims at building a long term and never-ending relationship with them. The focus of relationship marketing approach centers on developing ‘hard core loyal’ customers with the idea of retaining them forever. A high degree of customers’ contact, commitment and services are maintained.

The relationship marketing approach has gradually taken the shape of customer relationship management. Relationship marketing has a narrow focus on the customers and focuses only on the marketing function of the organization concerned. On the other hand, customer relationship management focuses more widely on customers and on the entire functions connected with value creation and delivery chain of the organization concerned. The customer relationship management is a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches. The process invites total commitment on the part of entire organization in evolving and implementing relationship strategies that would be rewarding to all concerned.

Organizations have preferred the usage of the term ‘Customer Relationship Management’ rather than ‘Customer Relationship Marketing’. However, in practice, both these terms are used interchangeably.

14.3Definitions of Customer Relationship Management

Berry defines CRM as “attracting, maintaining and – in multi-service organizations – enhancing customer relationships.”

Berry and Parasuraman define CRM as “attracting, developing and retaining customer relationships.”

In Industrial Marketing, Jackson defines CRM as “marketing oriented toward strong, lasting relationships with individual accounts.”

Doyle and Roth define CRMS as “the goal of relationship selling is to earn the position of preferred supplier by developing trust in key accounts over a period of time.”

The sequence of activities for performing relationship marketing would include developing core services to build customer relationship, customization of relationship, augmenting core services with extra benefits, and enhancing customer loyalty and fine-tuning internal marketing to promote external marketing success.

Christopher considers relationship marketing as “a tool to turn current and new customers into regularly purchasing clients and then progressively moving them through being strong supporters of the company and its products to finally being active and vocal advocates for the company.”

Relationship marketing is in essence “selling by using psychological rather than economic inducements to attract and retain customers. It seeks to personalize and appeal to the hearts, minds and purses of the mass consumers.”- James J. Lynch

Thus, “Customer Relationship Management is about acquiring, developing and retaining satisfied loyal customers; achieving profitable growth, and creating economic value in company’s brand,”

From the above definitions, it could be concluded that Customer Relationship Management refers to all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, win-win, beneficial and successful relational exchanges between the focal firm and all its supporting key stakeholders.

CRM is not a new concept but an age-old practice, which is on the rise because of the benefits it offers, especially in the present marketing scenario. So, CRM today is a discipline as well as a set of discrete software and technology which focuses on automating and improving the business process associated with managing customer relationships in the area of sales, marketing, customer service and support. CRM helps companies understand, establish and nurture long-term relationships with clients as well as in retaining current customers. The most important step that an organization has to take in the direction of CRM is to create an interdisciplinary team to review how the organization interacts with each customer and determine how to improve and extend the relationship.

14.4 Forms of Relationship Management

An extensive review of literature reveals ten different but interrelated forms of relationship marketing as mentioned below:

1. The partnering involved in relational exchanges between manufacturers and their external goods suppliers.

2. Relational exchanges involving service providers, as between advertising or marketing research agencies and their respective clients.

3. Strategic alliances between firms and their competitors, as in technology alliances; co-marketing alliances and global strategic alliances.

4. Alliances between a firm and non-profit organizations, as in public-purpose partnerships.

5. Partnerships for joint research and development, as between firms and local, state, or national governments.

6. Long-term exchanges between firms and ultimate customers, as particularly recommended in the services marketing area.

7. Relational exchanges of working partnerships as in channels of distribution.

8. Exchanges involving functional departments within a firm.

9. Exchanges between a firm and its employees, as in internal marketing.

10. Within firm, relational exchanges involving such business units as subsidiaries, divisions or strategic business units.

These different forms of relationship marketing both jointly and severally influence the emergence and growth of enduring long-term dyadic, triadic network, and web of relationships between the focal firm and its supporting key stakeholders.

14.5 Managing Customer Loyalty and Development

Managing customer-development process is one of the critical dimensions of relationship marketing. Basically it involves a twin focus – customer catching, and customer keeping. ‘Customer catching’ is the process of attracting new customers (inviting new blood), while the customer keeping aims at the process of retaining the existing ones (encouraging old blood).

Customer – Development Process:

[pic]

To understand customer relationship management, we must first examine the process involved in attracting and keeping the customers. The starting point is suspects. Suspect is everyone who might conceivably buy the product or service. The company looks hard at the suspects to determine who the most likely prospects are. The prospects are those people who have a strong potential interest in the product and the ability to pay for it. Disqualified prospects are those whom the company rejects because they have poor credit or would be unprofitable. The company hopes to convert many of its qualified prospects into first- time customers, and to then convert those satisfied first-time customers into repeat customers. Both first-time and repeat customers may continue to buy from competitors as well. The company then acts to convert repeat customers into clients. Clients are those people who buy only from the company in the relevant product categories. The next challenge is to turn the clients into advocates. Advocates are those people who praise the company and encourage others who buy from it. Ultimate challenge is to turn advocates into partners, where the customer and the company work actively together. At the same time, it must be recognized that some customers will inevitably become inactive or drop out for various reasons causing relationships to dissolve. The company’s challenge is to reactivate the dissatisfied customers through customer win-back strategies. It is often easier to re-attract ex-customers than to find new ones. Unfortunately, the traditional marketing approach with its emphasis on making sales rather than building relationships fails to achieve this.

Self Assessment Questions

1. _________is the process of attracting new customers, while ______________aims at the process of retaining the existing ones.

2. CRM involves using set of discrete software and technology which focuses on automating and improving the business process.

a) True b) False

3. ___________are those people who have a strong potential interest in the product and the ability to pay for it.

4. ___________are those people who buy only from the company in the relevant product categories.

5. ___________are those people who praise the company and encourage others who buy from it.

14.6 Reasons behind Losing Customers by Organizations

It is said that cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers. Unfortunately, most marketing theory and practice center on the art of attracting new customers rather than retaining existing ones. The emphasis traditionally has been on making sales rather than building relationships. The focus has been on pre-selling and selling rather than on caring for the customer afterwards. Today, however, more companies are recognizing the importance of satisfying and retaining the current customers.

Today’s companies must pay closer attention to their defection rate and take steps to reduce it. The possible reasons for customer defection would include:

14.6.1 Price related reasons: A customer tries to match the price to pay for acquiring a brand and the value the brand could generate. If the customer perceives a mismatch between the price and the value, he/she would opt for a competitor’s brand. Also, if the price of brand for any reason goes beyond his/her reach, he/she would switch over to a low priced brand. Thus, the role of price in customer retention is very significant.

14.6.2 Product related reasons: In view of technological advancement, the new brand which makes market entry would be capable of offering better performance as compared to the already existing brand. This would induce the customers to make a brand switch over.

14.6.3 Services related reasons: The customer’s concentration is not only on the brand, but also on the accompanying services offered at three different stages – pre-sales, during sales and after sales. Any dissatisfaction as regards to services would cause the customer to move away from the brand.

14.6.4 Benefit related reasons: The customers may be attracted by various augmented benefits offered by the competitors. Such benefits may be more appealing and induce customers towards brand changes.

14.6.5 Competitor related reasons: Technological advancement, attractive offers, value added services, etc., offered by competitors would also draw the attention and induce customers towards brand switching.

14.6.6 Personal reasons: On the personal front, a customer would become a brand defector due to the following reasons:

· Moved away from the market area where the brand is sold.

· Role changes in life cycle and consequently leading changes in brand preference.

· Anger, disgust, distress developed within the process of product delivery.

· Sentimental reasons.

· Influence of other members of the family.

The organization must periodically analyze the reasons behind losing customers and accordingly develop a customer retention plan that would serve as the basic tool towards building a strong and long lasting relationship with customers.

Exhibit 1

|Improving Customer Relationship |

|You cannot go about improving customer relationship for the short term and succeed. It is a continuous |

|process and involves follow ups right from the time they make their first purchases for you. Primarily, |

|customer service is something that many business owners think later and concentrate more on the marketing |

|part. Instead of devising strategies to retain customers they are more concerned about getting new customers |

|on board. |

|If you lose your existing customers due to lack of a proper planning about servicing them and supporting |

|their needs after they buy products and services from you, you would be failing in the primary rules of CRM |

|or customer relations management. Your existing customers matter more as they have already bought from you |

|and expect hands-on support and service. They would be the ones who would come once again to buy from you if |

|they are satisfied. It is far cheaper making them stick around with you rather than spend money on ads and |

|promos trying to attract new customers. |

|In tough economic times it is the old customers that are going to come back to you if you can maintain a |

|level of satisfactory service and do everything possible to improve customer relationship. It doesn’t take |

|much to please your existing customers if you have a trained sales service and support team. If you can look |

|after your experienced staff well, they would go all out to keep the customers happy. |

|Having been with you for long, they develop a relationship with their workplace and have a direct stake in |

|the future of the company. They know much more than others about the need to keep customers happy and |

|contented after buying your product or service. They can also train up and be hands-on guides to the new |

|members of the sales staff and egg them along. |

|If you maintain a regular database about customers since the time of their first purchase, you would have all|

|the necessary information at hand. You would know the demographics, their interests, hobbies and the type of |

|occupation they are engaged in. Their special days and events they cherish would also be known to you and you|

|can always send a card or small gift. |

|These small gestures may appear very simple and minor, but can go a long way in cementing your relationship |

|with your customer. People always love when they are wished unexpectedly and feted for achievements and you |

|go several notches up in the eyes of your customers. |

|For improving customer relationship, you can form small groups of loyal customers and hold informal meetings |

|to get to know more about them. It would be the right place to get feedbacks about your products and |

|services. The more you can make them talk and express their opinions, the more likely it would be for you to |

|sense their attitudes and preferences. You can easily tailor your product and service accordingly for |

|improving customer relationship more. |

|Article Source: |

| |

| |

|Author: |

|Jeff D McQueen |

14.7 Significance of Customer Relationship Management

· Reduction in customer recruitment cost.

· Generation of more loyal customers.

· Expansion of customer base.

· Reduction in advertisement and other sales promotion expenses.

· Increase in the number of profitable customers.

· Easy introduction of new products.

· Easy business expansion possibilities.

· Increase in customer partnering.

The customers are also benefited by relationship marketing in terms of improved service quality, personalized care, reduction of customer stress, increased value for money, customer empowerment, etc.

In today’s highly competitive business world, CRM is becoming the ultimate solution for both customers as well as organizations. Any organization must have a clear idea as to why it loses its customers. This would help informing proactive and reactive measures to minimize or avoid the same. This chapter mainly focuses on the causes responsible for losing customers and deals at length with the various strategies that can be employed to build and maintain long term relationship with customers, enabling a reader to consolidate relevant strategies suitable to his business context.

Traditional Organizational Chart Vs Modern Customer – Oriented Company Organization Chart

[pic]

Many managers who believe that the customer is the key to profitability considered the traditional organization chart as in fig. (a) – a pyramid with the president at the top, management in the middle, and front-line people (sales and service people, telephone operators, receptionists) and customers at the bottom – to be obsolete. Master marketing companies know better; they invert the chart, as shown in fig. (b) above. At the top of the organization are the customers. Next in importance are the front-line people who meet, serve, and satisfy the customers. Under them are the middle managers, whose job is to support the front-line people so they can serve the customers well. Finally, at the base is top management whose job is to support the middle managers. We have added customers along the sides of Fig. (b) to indicate that all the company’s managers are personally involved in knowing, meeting, and serving customers.

Broadening the concept of Relationship Marketing Companies should realize that there are multiple constituencies important to organizational success other than customers. The stakeholders of an organization would include: investors, the financial community, vendors and suppliers, employees, competitors, the media, neighbors and community leaders, special interest groups, and government agencies. These stakeholders can affect and be affected by a company’s marketing programme. Adopting an integrated view of multiple constituencies has bottom-line implications. Kotler and Heskett (1992) found that firms that emphasized the interests of three constituencies–customers, employees and stakeholders outperformed those that emphasized only one or two.

[pic]

Figure14.1: Showing Integrated View of Multiple Corporate Constituencies

Integration of Soft and Hard Versions of Relationship Marketing

At this juncture, it is necessary to clarify and elaborate the ‘soft’ and ‘hard’ versions of relationship marketing. Soft version of relationship marketing is more reminiscent of ‘humanistic relationship development’, whereas the hard version reflects a ‘utilitarian instrumentalism’. The soft version lays stress on the term ‘relationship’, thus conjuring up echoes of the relationship management, because it strongly advocates that all management is basically relationship management and all managers are relationship managers. It invariably focuses on ‘developmental humanism’ as a foundation to build and nurture enduring relationships in marketing exchanges. On the other hand, the hard version puts the stress on the idea of ‘marketing’, that is something to be used dispassionately and in a formally rational manner.

14.8 Social Actions Affecting Buyer-Seller Relationships

[pic]

Source: Theodore Levitt, The Marketing Imagination (New York: Free Press, 1983) p. 119. Reprinted by permission of the Harvard Business Review. An exhibit from Theodore Levitt, “After the Sale is Over”, Harvard Business Review (September-October 1983, p. 119). Copyright @ 1983 by the President and Fellows of Harvard College.

14.9 Rural Marketing

In a rapidly changing scenario, marketers have to continuously explore new markets and ways of serving them. In India, enterprises are discovering the potential of a huge rural population to drive business. Prof C K Prahlad, had aptly summed up the potential as ‘fortune at the bottom of the pyramid’ in a pathbraking book of the same name. Rural marketing is not something akin to glocalisation. It is not the modification of urban marketing strategies to suit the rural market. On the other hand it is developing products to meet the needs of the rural sector and reaching it across as per the specific characteristics of the rural environment. In case of a detergent, it is producing one which will suit the rural environment (considering that the dirt and grime is different, clothing alternatives are different, availability of water and number of times of washing is different and so on); packaging and pricing which will be akin to their requirement and alternative ways for which the detergent may be put to use. For example Hindustan Lever found that its detergent was being used for washing the cattle.

14.9.1 Why is the rural market so important today?

The following table will give you some idea about the emergence of the rural market which marketers may ignore at their own peril.

14.9.2 Why is rural marketing different?

This has to be understood in the light of the 4Ps or 7Ps of marketing. Imagine that you are trying to establish a Coffee Café Day Outlet in a remote village in Maharashtra. Will that be viable proposition? Yet there may be consumers for coffee in the rural sector too. The offering has to suit the sector. Similarly an ice cream parlor may not be a workable idea in a village or a cluster of villages if there is no electricity connection there. The ice cream cart vendor is a better idea. Keeping these situations in perspective, one can draw some inferences why rural marketing is different.

1. Accessibility and mobility: This applies both for the supplier and the consumer. The movement of the people is restricted by the lack of surface roads and the mode of transport. There are restrictions by way of visibility during night.

2. Average income level of consumers: The average wage earners are characterized by lower per capita income and disposable income in comparison to the urban.

3. Geographical distances: The living quarters are separated more than they are in the urban areas. The cluster of villages is also segregated by distances.

4. Literacy level: On an average the literacy level in the rural sector is lower in comparison to the urban sector.

There could be several other issues which are specific to the rural sector. These may force marketers to take a different approach for the entire marketing process or at least some of them as against the urban sector.

14.10 Services Marketing

You would have come across the term ‘services’ several times during the course of going through this and other self learning material. You may also be familiar with the meaning. Till late ‘the services’ were generally taken for granted. Over the last decade or so it assumed importance to be treated as a field of study as distinct from products. Although a service will have a product component during the process of service delivery, the service itself can have a different strategic orientation.

The configuration of the Ps and their strategic implication would be quite different from those for products. For example a doctor would charge different fees for the same treatment for different patients. This may not happen in case of institutionalized health care service providers like Wockhardt, Apollo etc. Logistics also may take a back seat except for the courier or similar services. As a service is consumed the instant it is offered, the offering is to be followed by a pre-offer and post -offer ambience. For example in a hospital, the environment and facilities before a patient gets treated is highly important. Once the patient gets treated the actual service has been consumed. Post the treatment the billing and reports assume importance. This is contrary to a product offer where the product is most important, to provide the satisfaction or delight. In the light of these examples you may be able to appreciate the fact that ‘services marketing’ and ‘services management have become a specialized branch of study.

Exhibit 2

|Kerala Tourism and Internet |

|“Kerala is sitting on a gold mine of tourism opportunities and so far only the big names have exploited that |

|potential. The internet is now facilitating smaller constituents in the state’s tourism spectrum to tap into |

|the global markets at affordable costs” – Narasimha Jayakumar, Business Head, Google India |

|Kerala Tourism is already among the leading search words on the internet, and that web presence is being |

|extended with the state tourism board, becoming the first among its peers in the country to have a campaign |

|in association with Google. Mr. Jayakumar also said the pilot project for the promotion of the state tourism |

|brand had already been successfully completed by Google and that Kerala tourism was taking a holistic |

|approach to market itself in a manner the will benefit the state economy in general. |

|“The Kerala tourism campaign is not intended to benefit only the tourism players, but even have a rub off on |

|players like jewelery sellers or other service providers,” Jayakumar said adding that it was the fist state |

|tourism brand to take such a leap into global marketing through geo-targeting. |

|As part of the campaign, Kerala tourism will aim to promote itself in three targeted markets – the UK, the US|

|and Canada. |

|Kerala Tourism director M. Shivshankar said the move for the global campaign on the net was a logical one, |

|considering that awareness was already high about the brand. “We don’t need to tell anyone what Kerala |

|tourism is about. With such a high awareness level about the brand, we thought the time was ripe to move in |

|for marketing the brand directly,” he said. |

|Shivshankar said Kerala tourism had already been spending roughly 10% of its annual promotional budget of |

|about Rs.15 crore on new media, and that this was a conscious decision to use a good chunk of the new media |

|budget on search-engine based advertising. |

|The campaign, with an outlay of Rs.95 lakhs, will roll out from the first week of December, ahead of which |

|the industry partners are being given an induction into the world of net marketing. Tourism sector players, |

|particularly the small and medium operators, are being given a training programme here to upgrade their net |

|marketing skills. |

|Jayakumar pointed out hotel searches on the new were rising at a compounded annual growth rate of 55% in |

|India from 2007 and railway searches were growing at a more robust 92% per annum. He further added that the |

|travel vertical dominated the search business on the net, accounting for well over 90% of the e-com business.|

|(Source: The Economic Times 25th November 2009) |

14.11 E-Marketing or Online Marketing

You may be familiar with ‘’, ‘’ and ‘e-Bay’. By visiting these websites you may be able to purchase products and pay through your debit and credit card. Today you can virtually conduct your entire shopping online and the products will be delivered to you at your home. Similarly, you can book your air, bus or rail ticket as per your desire. Are these merely facilitating availability through the internet medium or are there marketing elements embedded into these.

If you try to understand a little closely, you will find that these sites have altered the way we make our buying decisions. The mere fact that these sites are able to offer a far wider variety from across the globe, at highly competitive prices, are indications of the differences that e-marketing could bring to the field/function of marketing. At the same time it may not be able to provide the same buying experience that physical presence can do.

The challenge for the marketer in this form of marketing lies in making it comfortable for the customer to ‘browse’ through the site and make a purchase decision. It should be attractive enough for him to forego the experience of physical shopping.

Exhibit 3

|Online Shopping and Consumer confidence |

|The Visa e-Commerce Consumer Monitor conducted from April to June 2009 found that 33% of Indians are |

|confident about using online modes of payment. This is higher than the average for Asia-Pacific countries, |

|which stood at 29%. |

|However, 30% of the sample size who were not exposed to this mode showed greater concern about the usage as |

|compared to 16% of the sample size in the Asia Pacific. |

|Indian respondents, as per the study, also reported to be more satisfied with online shopping than other Asia|

|Pacific consumers. Of these participants, 57% of Indian shoppers shop at both local and overseas websites. |

|Only 5% of the consumers opt exclusively for overseas websites, while only 38% stick to the local websites. |

|51% of the overseas shoppers said that the main overseas online shopping destination for them was US sites, |

|while 12% shopped on Chinese websites to find products that are not locally available. 17% of purchasers |

|claimed that discounts and inexpensive products were the primary attractions of online shopping. |

|The study highlights that 72% of Indians look for security in online shopping; especially bank guarantee in |

|transactions. Since the mandate passed by the RBI on August 2009 for VISA verification of all online |

|transactions, this mode of payment has increased in popularity, VISA country manager Uttam Nayak said. VISA |

|plans to tie up with 40 Indian banks to facilitate the process. |

|(Source: The Times of India 21st November 2009) |

Self Assessment Questions

6. Soft version of relationship marketing is more reminiscent of ____________, whereas the hard version reflects a____________.

7. Service needs to be consumed as and when it is offered

a) True b) False

8. Kotler and Heskett found that firms that emphasized the interests of three constituencies, namely _________________, employees, and __________ outperformed those that emphasized only one or two.

9. Rural market is different and more challenging than the urban market.

a) True b) False

10. Online shopping or virtual shopping cannot replace the experience of ______________.

14.12 Summary

· The focus of relationship marketing approach centers on developing ‘hard core loyal’ customers with the idea of retaining them forever.

· The customer relationship management is a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches.

· Customer Relationship Management is about “ acquiring, developing and retaining satisfied loyal customer; achieving profitable growth, and creating economic value in company’s brand,”

· CRM is becoming the ultimate solution for both, customers as well as organizations.

· The rural sector has opened up new possibilities for the marketers. Its characteristics are quite different from that of the urban. Many companies have adopted special rural focus in their marketing approach.

· Services have now become a special business proposition and thus a separate branch of study – Services Marketing. The pre and post experience on a service offer are more important than the service itself.

· With internet and broadband becoming more accessible to a wide population base, e-marketing is an inevitable development.

List of Key terms

Customer relationship management

Relationship marketing

Customer development process

Rural marketing

E-marketing

14.13 Terminal Questions

1. Define customer relationship marketing.

2. State the various forms of customer relationship marketing.

3. What are the various reasons for losing customers by organizations?

4. State the significance of customer relationship management.

14.14 Answers

Answers to Self Assessment Questions:

1. Customer catching; Customer keeping

2. True

3. The prospects

4. Clients

5. Advocates

6. Humanistic relationship development; utilitarian instrumentalism

7. True

8. Customers ; stakeholders

9. True

10. Physical shopping

Answers to Terminal Questions:

1. Refer to 7.3

2. Refer to 7.4

3. Refer to 7.6

4.Refer to 7.7

Copyright © 2009 SMU

Powered by Sikkim Manipal University

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MB0046-Unit-15-International Marketing Management

Unit-15-International Marketing Management

Structure:

15.1 Introduction

Learning Objectives

15.2 Nature of International marketing concept

15.3 International marketing concept

15.4 International market entry strategies

15.5 Approaches to international marketing

15.6 International product policy

15.7 International promotions policy

15.8 International branding

15.9 Country of origin effects

15.10 International pricing

15.11 Summary

15.12 Terminal questions

15.13 Answers

15.1 Introduction

In the previous units our study was focused on how marketing strategies are formulated, implemented and controlled in the Indian marketing. After the globalization and liberalization of the Indian economy in the year 1991, Indian enterprises started facing the competition from the global brands. In this context it has become inevitable for all the companies small or big to analyze the international marketing environment and strategies to adapt to it. The companies which were operating in the domestic market are also aggressively redrafting their policies and strategies to suit the global needs. Companies express their desire to enter into the international market because of the following reasons:

1. It identified potential growth opportunities in the foreign markets for its products.

2. The domestic market is matured.

3. Existing customers’ demand for the international availability of organization’s products and services.

Learning Objectives

After studying this unit, you will be able to:

· Understand the nature of international market.

· Analyze the appropriate entry strategies for the firm in international market.

· Examine the approaches to the international market.

· Asses the importance of components of marketing mixes in the international market.

· Bring out the importance of country of origin effects.

15.2 Nature of International Marketing Concept

International marketing is defined as “The performance of business activities designed to plan, price, promote and direct the company’s flow of goods and services to consumers or users in more than one nation for a profit”.

A company that wants to sell their product in other than domestic market should understand the environmental factors, consumer behavior, market forces and other characters relevant to the international market. After understanding the definition, several questions may arise in your mind like why marketer should go to the international market? And what is the difference between international marketing and domestic marketing? As we discussed in the introduction part, companies enter into the international market to tap the potential, to support the customer requirements or to avoid the unprofitable domestic market. The differences between domestic marketing and international marketing are listed below:

|Characteristics |International Marketing |Domestic Marketing |

|1. Culture |Multi culture |Single culture and in some cases |

| | |multi culture |

|2. Data accessibility |Very difficult |Easy |

|3. Data reliability |Very Low |High |

|4. Control |Difficult |Relatively easy |

|5. Consumer preferences |Vary from country to country |Vary in small extent |

|6. Product mix |Adaptability required |Standardization required |

|7. Business operation |More than one country |Home country only |

|8. Currency exposure |Required |Required only if there is importing |

Advantages of International marketing:

1. International marketing provides growth opportunities for the companies whose domestic market is maturing. For example, General Motors focuses its strategies on the emerging markets like India

2. It brings the major portion of sales and profits to the company. For example, Unilever’s major revenue comes from the Asian markets.

3. It generates employment: Indian textile sector which exports majority of the product produced is a large employer after agriculture and retail.

4. International market also acts as survival place for the companies. If one market becomes unattractive, either they establish their operations in another country or outsource the major functions to streamline the businesses.

5. It helps in improving the standard of living in the country.

15.3 The International Marketing Concept

The marketing concept is the idea that a firm should seek to evaluate market opportunities before production, assess potential demand for goods, determine the product characteristics desired by the consumers, predict the prices consumers are willing to pay and then supply goods corresponding to the needs and wants of target markets. Adherence to marketing concept means the firm conceives and develops products to satisfy consumer wants. In international marketing this means the integration of the international side of the company’s business with all aspects of its operations and the willingness to create new products and adapt existing products to satisfy the needs of world markets. Products may have to be adapted to suit the tastes, needs and other characteristics of consumers in specific regions, rather than to assume that an item which sells well in one country will be equally successful elsewhere.

15.4 International Market Entry Strategies

Organizations that plan to go for international marketing should know the answers for some basic questions like –

a. In how many countries would the company like to operate?

b. What are the types of countries it plans to enter?

That’s why companies evaluate each country against the market size, market growth, and cost of doing business, competitive advantage and risk level.

Checklist for country evaluation

|Characteristics |weightages |score |

|1. Political rights |  |  |

|2. Civil liberties |  |  |

|3. Control of corruption |  |  |

|4. Government effectiveness |  |  |

|5. Rule of law or legal issues |  |  |

|6. Health expenditure |  |  |

|7. Education expenditure |  |  |

|8. Regulatory quality |  |  |

|9. Cost of starting a business |  |  |

|10. Days to start a business |  |  |

|11. Trade policy |  |  |

|12. Inflation |  |  |

|13. Fiscal policy |  |  |

|14. Consumption patterns |  |  |

|15. Competition |  |  |

Once the market is found to be attractive, companies should decide how to enter this market. Companies can enter the international market by adoptingany one of the following strategies. They are

a. Exporting

b. Licensing

c. Contract manufacturing

d. Management contract

e. Joint ownership

f. Direct investment

Exporting is the technique of selling the goods produced in the domestic country in a foreign country with some modifications. For example, Gokaldas textiles export the cloth to different countries from India. Exporting may be indirect or direct. In case of indirect exporting, company works with independent international marketing intermediaries. This is cost effective and less risky too. Direct exporting is the technique in which organization exports the goods on its own by taking all the risks. Maruti Udyog Limited, India’s leading car manufacturer exports its cars on its own. Company can also set up overseas branches to sell their products. Adani Exports, another leading exporter from India has international office in Singapore.

Licensing: According to Philip Kotler, licensing is a method of entering a foreign market in which the company enters into an agreement with a license in the foreign market, offering the right to use a manufacturing process, trademark, patent, or other item of value for a fee or royalty. For example, Torrent Pharmaceuticals has license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may cause some problems to the parent company. Licensee may violate the agreement and can use the technology of the parent company.

Contract manufacturing: Company enters the international market with a tie up between manufacturer to produce the product or the service. For example, Gigabyte Technology has contract manufacturing agreement with D- link India to produce and sell their mother boards. Another significant manufacturer is TVS Electronics; it produces key boards in its own name as well as for other companies too.

Management contracting: In this case, a company enters the international market by providing the know how of the product to the domestic manufacturer. The capital, marketing and other activities are carried out by the local manufacturer, hence it is less risky too.

Joint ownership: A form of joint venture in which an international company invests equally with a domestic manufacturer. Therefore it also has equal right in the controlling operations. For example, Barbara, a lingerie manufacturer has joint venture with Gokaldas Images in India.

Direct Investment: In this method of international market entry, Company invests in manufacturing or assembling. The company may enjoy the low cost advantages of that country. Many manufacturing firms invested directly in the Chinese market to get its low cost advantage. Some governments provide incentives and tax benefits to the company which manufactures the product in their country. There is government restriction in some countries to opt only for direct investment, as it produces the jobs to the local people. This mode also depends on the country attractiveness. It may become risky if the market matures or unstable government exists.

Exhibit 1

|Shale Gas – the next big global opportunity in the fuel market |

|Reliance Industries, which has executed the world’s single largest refinery complex at one place, and one of |

|the most complex gas projects in the depth of the Bay of Bengal on the East coast of India, may join global |

|oil majors in search of shale gas. |

|RIL has been studying the break-throughs and the new technologies that are being used in producing shale gas,|

|which is now a huge rage in US. “We are studying the prospects and we will take a decision on the investment |

|in the next six months. RIL is looking at the overseas market and it plans to go big in new technology. We |

|now have the balance sheet to support such a move,” said a senior RIL executive. |

|Shale gas is natural gas produced from shale – a fine grained sedimentary rock composed of flakes of clay and|

|minerals such as quartz and calcite. “The future of energy is a low-carbon regime. Shale gas is one such |

|example. It is somewhat like coal bed methane and is on land. US has made major strides in technology in |

|shale gas, which has made it now a commercial proposition,” said the same executive. |

|According to Vijay Kelkar, former petroleum secretary and chairman of the thirteenth finance commission, it |

|is innovative technology using horizontal drilling (allowing the gas to be brought out easily) that made this|

|fuel a commercial possibility. Kelkar had floated a paper on how such non-conventional possibilities existed |

|in gas hydrates-deposits in sea – near the Andaman Nicobar islands. |

|RIL which has used advanced technology in its exploration projects in the Krishna Godavari basin, is betting |

|on its expertise in technology to tap unconventional energy sources in the energy value chain. |

|The conglomerate has been eyeing unconventional energy sources such as solar for some time now. But industry |

|analysts are of the view that a fuel like Shale gas is perhaps the best bet as it has already been proved as |

|a viable commercial proposition. |

|RIL has had technological collaboration with several international oil companies and a tie up with one of |

|them for making a foray is a possibility. What looks certain is that RIL is planning to make its next big |

|stride in overseas market. |

|According to energy analyst in a brokerage firm, RIL is now set to reap the benefits of its investments in |

|refinery and gas projects within the country. Since it has the necessary balance sheet strength, the company |

|would now look to scaling up in new geographies. “We are looking at overseas investments and now that we have|

|the expertise, we want to use it,” the senior company executive said. |

|This unconventional gas has caught the fancy of every big oil company ever since new technology made the fuel|

|commercial. According to an energy analyst the cost of production of shale gas has come down by as much as |

|80% over the last five years in the US with new technologies and fiscal incentives provided by that country |

|to encourage exploration. |

|The largest known reserves of this gas are found in Canada and the US followed by Australia and some parts of|

|Europe. Royal Dutch Shell, Exxon Mobil, Chevron and British Petroleum are among the latest entrants in shale |

|gas exploration. |

|“It is estimated that almost 50% of North America’s energy consumption would be met by Shale gas b 2020,” |

|said Rick Bott COO of Carin India. Large finds and lowered costs have had implications for the entire gas |

|market in the US as this new unconventional gas has come as a major alternative at a cheaper price. |

|Back in India, early steps are being taken for this new age fuel as well. Cairn India, which recently started|

|producing oil from its field in Barmer, Rajasthan has begun work on Shale gas in its fields. Bott, who has |

|come as the new COO, is leading a team of technologists and explorers to search through the layers of rock in|

|the Barmer hills. “We are very excited with the studies and possibilities and are hoping to have pilot |

|projects over the next 12 to 18 months before we submit a detailed plan. The early signs are very positive.” |

|(Source: The Economic Times – 16th November 2009) |

15.5 Approaches to International Marketing

The orientation towards the market varies from company to company. Each one adopts different approaches on the basis of their expertise or strength of the company. Some companies adopt same product for all the markets while others differentiate for each country. In this context, we would like to know what are the common approaches adopted by the company in international marketing. The three common approaches used in the international market are -

a. Domestic market extension approach.

b. Multi domestic market orientation.

c. Global market orientation.

Domestic market extension approach: Companies that adopt this strategy think international markets are secondary to its domestic markets. For example, HSBC advertises its banking services with a tag line “the world’s local bank”.

Multi domestic market orientation: In the international market each country has its uniqueness. Their preference varies. The consumer profile is different from domestic operation. Companies develop different market plans for such markets. For example, in France, men use more cosmetics than the women, whereas in India women use more cosmetics than men. A cosmetics company should change the product positioning differently.

Global market orientation: In this approach, company thinks that products’ needs are universal in nature irrespective of country where they work. Here company tries to standardize their products or services. For example, Sony Walkman is same across the world. The product information brochure contains explanation in different languages of different countries. The final product is same in all the countries.

15.6 International Product Policy

Customer satisfaction towards company offerings will be positive if they are able to meet their needs. Therefore product planning becomes an integral part of the international marketing plan. The distinctiveness in the different countries forces companies to think in different ways of product offerings and support promotion programs. These organizations adopt five different types of product strategies in the international markets. They are

1. Product extension

2. Communication adaptation

3. Product adaptation

4. Product and communication adaptation

5. Product invention.

1. Product extension is marketing a product in the international market without change in the product and promotion activities. Microsoft office 2007 and Microsoft servers are similar to USA market and communication is also unaltered.

2. Communication adaptation: Company does not change the product but adopts a different communication strategy in the foreign market. Colgate sells its toothpaste in the same way all over the world. Their communication strategy varies in different countries. In India and USA, white teeth are preferred by the consumers, while in Indonesia yellow teeth are preferred. Hence Colgate changed its communication strategies for these countries.

3. Product adaptation: Marketer understands the different needs of the consumer and adopts the product according to the local tastes but keeps the communication strategies same. Majority of the Indian consumers are vegetarians. KFC started selling vegetarian burgers in India though it is famous for chicken. The communication strategies of KFC remain the same all over the world.

4. Product and communication adaptation: The product will be modified according to the needs of local market. Nokia, world’s largest cell phone manufacturer increased the volume options in India as most of the places are overcrowded. Consumers in India are not so familiar with English language. Hence Nokia changed its promotion to regional languages also. This is adaptation of product and communication by the company. This strategy is also known as dual strategy.

5. Product invention: Here, marketer develops entirely new product to suit the requirements of the local customers. Nokia manufactured 1100 cell phone only for the Indian market and promoted it as made for India. In this strategy, company may adopt same communication strategy as in the other country or change according to the local market.

Self Assessment Questions

1. The method in which management know-how is transferred

a. Exporting

b. Licensing

c. Management contract

d. Contract manufacturing

2. Global market orientation focuses on product standardization.

a. True b. False

3. The strategy in which a company does not change the product but adopts a different communication strategy in the foreign market is known as __________.

4. Product and communication adaptation is also known as

a. Product invention

b. Straight product extension

c. Dual adaptation

d. All the above.

5. ____________ is a method of international market entry in which company invests in manufacturing or assembling directly.

15.7 International Promotion Policy

Communication in the international market is very challenging. There exists many languages and dialects and different perceptions about communication strategies. In some countries there are regulations on the advertisements and sales promotions. For example in India, alcohol advertisements are banned. In this section we deal with the communication strategies that the company should adopt and what are the barriers to it. The marketer may face the language barriers, cultural barriers and legal barriers in some countries. In Saudi Arabia using women in advertisements is prohibited. Vodafone has to change its promotion program to Tamil in Tamilnadu, a state in India. Organizations also face the problem of media and production cost in different countries.

Global promotional program will have three sets of objectives. First of all, in setting the global objectives, Secondly, formulating the regional objectives and finally setting the local objectives. The media decisions depend on the objectives of the promotion program. As we discussed in the promotion unit, media budget in the international marketing is also determined by percentage sales method, competitive parity, resource allocation and objective and task method.

Global promotion program may be standardized or adapted. Standardization will help the company to reduce cost and add the value to the product. The pitfall of standardization is local customers who cannot understand global messages. One of the famous companies in the world was showing its advertisements on supply chain management software in India in the same way as in the USA. The advertisement evaluation results were very strange. People can recall only the horse word in the advertisement. As we discussed in the earlier section of the unit, company can adapt its communication strategy only to the local market, or both product and communication can be adapted.

Advertisements will have modifications. If marketer wants to sell their products in Japan, he should not use white color as it is considered only for mourning. Communication should not contain anything using cow in Nepal as it is considered as sacred. The following examples of the United Colors of Benetton and Microsoft depict the different advertisements strategies adopted by them.

[pic]

[pic]

Global marketers also use sales promotion, public relations and direct marketing techniques to communicate it to the consumer. Amway direct marketing company adapts same strategy in India, while Cadbury and Microsoft also use public relations and sales promotion techniques to communicate the messages.

Sales promotion covers the issue of coupons, the design of competitions, special offers, and distribution of free samples. International businesses who want to employ sales promotions for cross border campaigns face a number of serious practical difficulties, because in many nations the use of certain sales promotion techniques is regarded as unfair competition and as such is subject to stringent legal control. Indeed conflicting laws sometimes apply to these matters in various countries. Money off vouchers is legal in Spain but not in Germany; Lower price for the next purchase are legal in Belgium but illegal in Denmark. In Germany and certain other countries free gifts are forbidden if they constitute a genuine incentive to buy.

15.8 International Branding

Brand names used in foreign markets need to be internationally acceptable, distinct and easily recognizable, culture free, legally available and not subject to local restrictions. Brand name communicates its messages and appeals to consumers. They create the stimulus in the minds of consumers to purchase the product. Brand name should be small, easy to pronounce and should have proper meaning. Such brand names can be used in several countries simultaneously for family branding and may be supported within the advertisements by a wide variety of pictorial illustrations.

Brand positioning: As we discussed in the product standardization, the debate exists for brand communication standardization or adaptability. We will discuss the various factors that influence the opting for the single or multiple positioning strategies.

a. The influence of local substitutes as against the foreign brand

b. The coverage of the brand( mass versus niche)

c. Acceptability for product uniqueness in all purchase points

d. Brand name suitability in the particular market.

Now we will discuss the advantages of brand standardization in the global markets.

1. Firms’ concentration on the positioning will be effective.

2. It helps in saving the costs.

3. A standardized product and standardized promotion helps to have same packaging.

But all the companies will not go for standardizing the brand. Standardization of branding strategies has its own limitations. They are

1. Stereotype image of the national products (Germany for engineering, China for low price product). If the customer thinks that any product coming from China is of low price and low quality, whatever the effort the Chinese company does in other markets will considerably fail.

2. Patriotism of the people and their perception that their national brand is superior to others.

Brand valuation in the international markets: Brand valuation in one country helps it to leverage the same brand in the other country. It also helps it to acquire different brands in the international markets. Brand valuation can be done based on the following factors

1. Brand image in the market.

2. Consumer lifestyle and brand influence

3. Branded sales versus unbranded sales

4. Brand’s contribution to the corporate image.

5. Length of brand loyalty.

6. Market share of brand in each category it operates.

7. Adaptability and standardization of the brand in different countries.

8. Brand’s ability to be extended to other lines or category.

The top 10 brands of 2007 (Source: Business week)

INTERBRAND TAKES lots of ingredients into account when ranking the world’s most valuable brands. To even qualify for the list, each brand must derive about a third of its earnings outside its home country, be recognizable outside of its base of customers, and have publicly available marketing and financial data. One or more of those criteria eliminate such heavyweights as Visa, Wal-Mart, Mars, and CNN. Interbrand doesn’t rank parent companies, which explains why Procter & Gamble doesn’t show up. And airlines are not ranked because it’s too hard to separate their brands’ impact on sales from factors such as routes and schedules.

BUSINESSWEEK CHOSE Interbrand’s methodology because it evaluates brands much the way analysts value other assets: on the basis of how much they’re likely to earn in the future. The projected profits are then discounted to a present value, taking into account the likelihood that those earnings will actually materialize.

THE FIRST STEP IS figuring out what percentage of a company’s revenues can be credited to a brand. (The brand may be almost the entire company, as with McDonald’s Corp., or just a portion, as it is for Marlboro.) Based on reports from analysts at J.P. Morgan Chase, Citigroup, and Morgan Stanley, Interbrand projects five years of earnings and sales for the brand. It then deducts operating costs, taxes, and a charge for the capital employed to arrive at the intangible earnings. The company strips out intangibles such as patents and management strength to assess what portion of those earnings can be attributed to the brand.

Finally, the Brand’s strength is assessed to determine the risk profile of those earnings forecasts. Considerations include market leadership, stability, and global reach – or the ability to cross both geographic and cultural borders. That generates a discount rate, which is applied to brand earnings to get a net present value. Business Week and Interbrand believe this figure comes closest to representing a brand’s true economic worth.

|Brand |Country of origin |Sector |Valuation |

| | | |(in Million$) |

|1. Coca cola |USA |Beverages |65,324 |

|2. Microsoft |USA |Software |58,709 |

|3. IBM |USA |Software |57,091 |

|4. GE |USA |Diversified |51,569 |

|5. Nokia |Finland |Telecommunication |33,696 |

|6. Toyota |Japan |Automobiles |32,070 |

|7. Intel |USA |Computer Hardware |30,954 |

|8. McDonalds |USA |Restaurants |29,398 |

|9. Disney |USA |Media |29,210 |

|10. Mercedes |Germany |Automotive |23,568 |

15.9 Country of Origin Effects

Country of origin is the country of manufacture, production, or growth where an article or product comes from. There are differing rules of origin under various national laws and international treaties.

Country of origin as a marketing strategy

From a marketing perspective, "country of origin" gives a way to differentiate the product from the competitors. It is believed that the country of origin has an impact on the willingness to buy a product, and studies have shown that consumers may tend to have a relative preference to products from their own country or may tend to have a relative preference for or aversion to certain products that originate from certain countries. The effect of country of origin is however debated as studies have shown that the origin of design (for instance Apple computers or Nike shoes) can be more important than the country of origin. So, when products have been labeled as ‘made in China’ or ‘made in USA’ it may or may not have effect on the people of another country.

Ambiguous country of origin labeling

While many products made within the European Union carry the country of origin label or marking "Made in EU" or "Made in EC", some non-EU manufacturers in Europe and some others outside the continent of Europe use ambiguous markings, such as "Made in Europe" (made anywhere else in Europe, but not in the EU or EC; this may constitute any country geographically close to Europe or the EU that also wishes to be in) or "Made for Europe" (made anywhere else in the world, but not in Europe or the European Union). These tactics appear to be intended for consumer deception, whereby a buyer not proficient in English may come to believe from looking at the label that the non-EU product he is interested in is made in the EU.

Country of origin in international trade

When shipping products from one country to another, the products may have to be marked with country of origin, and the country of origin will generally be required to be indicated in the export/import documents and governmental submissions. Country of origin will affect its admissibility, the rate of duty, its entitlement to special duty or trade preference programs, antidumping, and government procurement.

Today, many products are an outcome of a large number of parts and pieces that come from many different countries, and that may then be assembled together in a third country. In these cases, it’s hard to know exactly what the country of origin is, and different rules apply as to how to determine their "correct" country of origin. Generally, articles only change their country of origin if the work or material added to an article in the second country constitutes a substantial transformation, or, the article changes its name, tariff code, character or use (for instance from wheel to car). Value added in the second country may also be an issue.

15.10 International Pricing

Determination of selling prices:

The price of an organization may change for its output depends on many factors. They are

a) Customer perception towards the product.

b) Total demand for the good

c) The degree of competition in the market.

d) Competitors’ price reactions

e) Substitute products and its effect on the product.

f) Products’ brand image

g) Cost of production and distribution.

h) Price elasticity of demand for the product

Special problems apply to international pricing, particularly in relation to lack of information, uncertain consumer response, and foreign exchange rate influences and the difficulty of estimating all the extra costs associated with foreign sales. These extra costs might include translating and interpreting fees, export packaging and documentation costs, insurance payments, clearing agents’ fees, pre-shipment inspection and many other items. Credit periods are very long in some countries. Government price controls apply in certain states. A company may adopt penetration pricing, skimming pricing, cost plus pricing and product life cycle pricing. (As discussed in Pricing Unit)

Transfer pricing:

Transfer pricing means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries. A crucial feature of large centralized MNCs is their ability to engage in transfer pricing at artificially high or low prices. To illustrate, consider an MNC which extracts raw materials in one country, uses them as production inputs in another, assembles the party finished goods in a third and finishes and sells them in a fourth. The governments of the extraction, production, and assembly countries will have sales or value added taxes; while the production assembly and finished goods countries will impose tariffs on imports of goods. Suppose the MNC values its goods at zero prior to their final sale at high prices. The government of the extraction country receives no revenue from sales taxes because the MNC’s subsidiary in that country is selling its output to the same MNC’s subsidiary in the production country at a price of zero. Equally the production country raises no income from import tariffs on this transaction, because the raw materials are imported at zero prices! The only tax the MNC pays is a sales tax in the last country in the chain. Transfer pricing at unacceptably low values has been major problem for many developing nations. itself. Thus the government of host country will ensure that it receives an appropriate amount of sales tax. Similarly importing countries might impose quantity based instead of price based import duties to ensure reasonable revenues from taxes on imports of an MNC’s goods.

Tax considerations aside, transfer prices need to be realistic in order that the profitability of various international operations may be assessed. Possible criteria for setting the transfer price include

1. The price at which the item could be sold in the open market.

2. Cost of production or acquisition.

3. Acquisition/ production cost plus a profit mark up

4. Senior management’s perceptions of the value of the item to the overall international operations.

5. Political negotiations between the units involved.

Normally the solution adopted is at which profits maximized for the company taken as a whole and which best facilities the parent control over subsidiaries operations. Arm’s length pricing is the method generally preferred by national governments and is recommended in a 1983 code of practice on the subject drafted by the organization for economic cooperation and development. Note how subsidiary that charges a high transfer price will accumulate cash which might be invented more profitability in the selling country than elsewhere. There are some problems with setting a realistic transfer price that are as follows.

1. Differences in the accounting systems used by subsidiaries in different countries.

2. Executives in operating units deliberately manipulate the transfer to enhance the book value of subsidiary profits.

3. Disparate tax rates and investment subsidy levels in various countries.

4. Possible absence of competition in local markets at various stages in the supply chain. Thus a market price in such an area may be artificially high in consequences of the lack of local competition.

5. There might not be any other product directly comparable to the item in question, again making it difficult to establish a market price.

6. If the price is set too high, the selling unit will be able to attain its profit targets too easily and lead perhaps to idleness and inefficiency in the selling subsidiaries.

Self Assessment Questions

6. Money off vouchers is illegal in

a. Spain

b. Brazil

c. Germany

d. Denmark.

7. ___________ means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries.

8. Country of origin need not be marked on the shipping goods but should be entered in the export/import documents

a. True b. False.

9. ___________ is World’s No 1. Brand on the basis of its valuations.

10. Which of the following is not used while setting the transfer pricing

a. The price of the product

b. Political negotiations

c. Cost of production

d. Competitors’ price.

15.11 Summary

· International marketing is defined as “The performance of business activities designed to plan, price, promote and direct the company’s flow of goods and services to consumers or users in more than one nation for a profit”.

· International market entry strategies are exporting, licensing, contract manufacturing, management contract, direct investment and joint ownership.

· International marketing approaches are of three types. They are domestic market orientation, multi domestic market orientation and global market orientation.

· Country of origin is the country of manufacture, production, or growth where an article or product comes from. There are differing rules of origin under various national laws and international treaties.

· Transfer pricing means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries.

List of Key terms:

Information system

Data warehousing

Data Mining

Marketing Intelligence system

Marketing research

Report

15.12 Terminal Questions

1. Define international marketing.

2. Discuss the advantages of international marketing.

3. Explain the different modes of market entry strategies available for a company in the international market.

4. Write a note on international product policy

5. What is country of origin effects/ explain its role in the international trade.

6. Explain transfer pricing with example.

15.13 Answers

Answers to Self Assessment Questions:

1. Management contract

2. True

3. Communication adoption.

4. Dual adaptation

5. Direct investment

6. Germany

7. Transfer pricing

8. False

9. Coca cola

10. Competitors’ price

Answers to Terminal Questions:

1. Refer 15.2

2. Refer 15.2

3. Refer 15.4

4. Refer 15.6

5. Refer 15.9

6. Refer 15.10

Acknowledgement and References:

1) Aaker David, Managing Brand Equity and Building Strong Brands

2) Adrian Palmer (2004), Introduction to Marketing -Theory and Practice (Indian edition), Oxford University Press

3) Arun Kumar and N. Meenakshi (2006), Marketing Management

(First edition), Vikas Publishing House Pvt. Ltd.

4) Borne and Kurtz (2007), Contemporary Marketing, Thomson

5) Etzel, Walker, Stanton (2007), Marketing: Concepts and Cases

(13th edition), McGraw-Hill

6) Keller and Kotler, Marketing Management

7) Kotler and Armstrong (2008), Principles of Marketing (11th Edition), PHI

[pic]Lamb, Hair, and McDaniel (2008), Marketing, Thomson

9) Masaki Kotabe and Helsen (2008), Marketing management,

John Wiley & Sons

10) Rajan Saxena (2002), Marketing Management (Second edition),

Tata McGraw-Hill

11) Sommers and Barnes (2007), Fundamentals of Marketing, McGraw Hill

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