GYAAN KOSH

TERM 1
Learning and
Development Marketing
Council, CAC

This document covers the basic concepts of Marketing

covered in Term 1. The document only summarizes the main
concepts and is not intended to be an instructive material on
the subject.
Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

A. Framework-1 (Marketing Planning Process) Three stage analysis

i) Situation analysis (5Cs)

Customer analysis- focus is on needs and segmentation

Company analysis- focus is on resources available and capabilities
Competitor analysis- to understand attractiveness and/or vulnerabilities of the business
Collaborators - focus is to look for common goals which can be exploited
Context of the impending marketing decision on two levels namely--
Macro (such as economic, environmental and other external context) and

Micro (such as compromise effect, framing effect, rationality etc)

ii) Analyze possible strategic options Evaluate Target Markets & Positioning Options

iii) Implementation Apply marketing mix decisions (4 Ps) Product, Price, Promotion, and Place

B. Framework-2 (STP analysis)

B.1 Segmentation 5 criteria

i) Whether there are significant/ relevant differences between consumers?

ii) If yes, then what variables allow one to segment the market, can those variables be described and
quantified

iii) Does it have the potential to create value for the business?

iv) Is the target segment identifiable and accessible?

v) Is the segmentation scheme compatible with companys resource base and capabilities?

B.2 Targeting-

i. attractiveness of each segment is evaluated

ii. target segment(s) is/are chosen Sacrificing segments essential
iii. target segment should have potential for sufficient growth, size and profit

B.3 Positioning- includes identification & communication of positioning concepts for each target segment.

Three essential elements of a positioning statement are-

(i) Choice of target segment,

(ii) Points of Difference(key advantages over competitors) and
(iii) Frame of Reference
Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

B.4 Segmentation Schemes

1) Geographic Segmentation- based on region, climate etc (consumer); and region, market, HQ, branch
etc (business)

2) Demographic Segmentation- based on age, gender, family size, income, education etc (consumer); and
industry, assets, sales, no of employees etc (business)

3) Psychographic Segmentation- based on personality, lifestyle, and media habits etc (consumer); and
corporate culture, power structure etc (business)

4) Behavioral Segmentation- based on benefits, brand loyalty, usage rate and frequency etc (consumer);
and applications, existing relationships, urgency, size of order etc (business)

B.5 Benefits of Segmentation

i) Focused approach promotes quality of the service and instills efficiency in the delivery system

ii) Often leads to design improvement and up gradation in the system

iii) Facilitates strong acquaintance and long term relationship with the customer

B.6 Downsides of Segmentation

i) Narrow focus (single segment) may limit potential sales

ii) Very broad focus (multiple segments) result into increased costs of R&D, Production, Logistics &
Marketing

Hence a good segment based strategy should be formulated so that it offers at least one of two benefits-
either increased sales or higher prices

C. Framework-3 Consumer Decision Process

i. Awareness Share of Mind

ii. Beliefs
iii. Attitude/Liking Share of Heart
iv. Behavior Share of Market
D. Framework 4 : Break even analysis (BEA)- it allows one to calculate the additional sales required so
as to balance exactly the change in the marketing mix variables e.g. increase in fixed costs or marginal
costs or distributor margin, price cut etc. BEA looks incorporates incremental short term perspective as
evident from three calculations described below-
Case (i) - increased fixed costs

- This may happen due to increase in advertising budget, purchase/ acquisition of new machine, R&D etc

- Incremental Break Even volume = Increased fixed cost / contribution margin

Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

Case (ii) lower contribution margin

- This may happen because of increased marginal cost, higher distributor margin, price cut etc.

- New Break Even volume = (Old Contribution / New Contribution) x Old Volume

Case (iii) - introduction of new product line

- This may result into cannibalization of old product line

- Break Even cannibalization rate = New Contribution / Old Contribution

This is the maximum tolerable cannibalization rate

E. Stages in product adoption by consumers

Awareness stage (consumer know about the product through advertising, word of mouth, product review,
expert opinion etc) consideration stage (priority list made through screening) evaluation stage
(evaluation of various existing alternatives) choice stage (product trial) Decision stage (satisfaction
with the product and repeat purchase, loyalty).

According to Bass Model different categories of people react differently to a new product. Based on
timing of their adoption of a new product they are categorized as Innovators (2.5%), Early Adopters
(13.5%), Early Majority (34%), Late Majority (34%) and Laggards (16%)

F. Market sizing: - is the process of estimating market potential. It is done using either Macro (Top-Down)
approach- based on historical trends

Or Micro (Bottom-Up) approach- based on collection of actual data and thorough cost-benefit analysis

G. Lifetime Value of the Customer (LTVC):- it is the estimation of customer worth to the company and
hence indicates what the company should be willing to spend to acquire, retain or lose a customer.

LTVC = (St - Ct) x Pt / (1+r) t

t=1

St, Ct, Pt and r are revenue, cost, retention rate and discount rate respectively. It helps in determining
factors that influence LTVC and hence invite better resource allocation decisions.
Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

G. 1 Why LTVC?

(i) Inputs into the value of an acquisition (Citibanks purchase of AT&Ts Universal Card)
(ii) Customer Management
(iii) Grocery Retailers (value of loyalty programs)
(iv) Pharmaceutical Cos. (for chronic ailment products)
(v) Durables (Razor Blade, Printer Toner)

G.2. Data for LTVC

(i) Customer acquisition costs

(ii) Contribution per customer
(iii) Customer usage
(iv) Customer retention costs

H. Cross merchandising: - is the concept aimed at encouraging customers to shop a greater part of the
store by linking a low traffic product category with a high traffic category product.

I. Framework 5 (Measuring media/ communication effectiveness):- measured by Reach, Frequency

and Gross Rating Points (GRPs). While reach indicates proportion of population that has been exposed to
the message at least once, frequency captures average number of times a reached individual has been
exposed to the advertisement. Depending on requirement two strategies namely reach strategy and
frequency strategy are adopted.

Model Application

Reach GRPs = Reach x Frequency for creating awareness

strategy for remainder advertising

Frequency Frequency = GRPs/ Reach for educational purposes

strategy for persuasive advertising

Peckham ratio (= SOV / SOM) another measure of advertising effectiveness

Share of voice (SOV) indicates what percent of the total communications spend in the market is for my
companys brand/product.

Share of market (SOM) indicates what percent of total sales (volume or money) is for my brand/ product.

High value of Peckham Ratio indicates overspending vis--vis product quality and acceptance amongst
consumers.
Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

J. Framework 6 (Market Expansion)

Expand the total market by finding new users or new uses of the product; Expand the total market by
encouraging more usage on each use.

K. Brand Management

A brand is a bundle of associations which brings value to both; the firm and the customers. Brand is a
complete business in itself and the most important driver of companys success. However, for sustaining
success each firm needs to conceptualize its brand structure for various product ranges. Brand
relationship spectrum (House of Brands, Endorsed Brands, Sub-brands and Branded House) provides
adequate framework for such decision. A diligent branding initiative helps firm in launching & positioning
new products, differentiating it from competitors products and often helps redefine the product category
and industry structure. Brands; among other things, can be built on design, emotional appeal,
performance, trust, personality, ambience etc. brand value is expressed commonly in terms of Brand
Equity

L. Pricing strategies

Most important objective of marketing is to extract value from the customers via effective pricing
strategy
Two strategies commonly used in pricing decisions are cost based pricing and value based pricing

L.1 Cost based pricing strategy-

Most popular because managers have better idea of their cost structure than the value of their product
& services
Appropriate when many people inside the organization are involved in setting prices
Too much cost orientation invites inefficiency and leads to failure to capitalize (extract its true worth)
on market changes
Not aligned with different customer segments

L.2 Value based Pricing Estimating customer value

Calculate Value-in-Use
Simulating buying experiences
De-compositional approach: Conjoint
Estimating Brand Equity

L.3 Effective usage of the 4Ps in pricing

1P for Pricing
Value Extraction

3P for Place, Promotion and Product
Value Creation
Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

L.4 Reference Price The level of price (of either competing product or a substitute/alternative product)
that a customer can use as a reference point when evaluating the price of a new product before deciding
on whether to purchase or not.

M. Channels of distribution

Channels facilitate the timely flow and availability of goods & services from the producer to the end
customers. The length or depth of a channel refers to the number of links in a channel. The width or
intensity of a channel refers to the number of points where the product or service is available e.g.
extensive vs. selective distribution. Channel width decision depends upon several factors including
positioning, purchase behavior, customer loyalty, coverage, perceived risk and channel control. Channel
structure refers to the number of alternative channels used by a manufacturer.

Channel Structure Characteristics

manufacturer owns the channel elements and have better control

Vertical marketing
over them
system
facilitates cost efficiency and effective management of customer
choice process
Rights given by manufacturer to another party, say franchisee, to
Contractual
market its products & services in a particular region
system Requires standardized operating system
Facilitates development of quick delivery system
Conventional Independent intermediary businesses are involved
system facilitates operational flexibility, savings and risk reduction
critical to coordinate with channel members
Hybrid system use of mix of other approaches in order to cater to diverse needs of
diverse segments

M.1 Push vs. pull strategy

Pull strategy is used when high consumer awareness and preference have been created through
advertising and other promotional means which forces the channel to carry and move the product.

Push strategy is used when the seller relies on the channel member to influence consumer preferences.
Channel members enjoy greater power in this case.

M.2 Channel Design Features

(i) Vertical Marketing System
a. Control of channel
b. Cost efficiency for large players
c. Better customer management
(ii) Contractual
a. Lower amounts of investment
b. Access to prime real estate
c. Quick Roll out
d. Standard Operating Procedures to be in place
Gyaan Kosh Term 1 MKTG Learning & Development Council, CAC

(iii) Conventional System

a. Open to all
b. No investment
c. De-Risk
d. Flexible
e. Coordination with channel is critical

M.3 Hybrid System