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Topic Name Summary

1 Unit-01-Introduction to Marketing

2 Unit-02-Strategic Marketing Process

3 Unit-03-Marketing Environment

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

5 Unit-05-Consumer Buyer Behavior

6 Unit-06-Business Buyer Behavior Introduction

7 Unit-07-Segmentation Targeting and Positioning

8 Unit-08-Product Management Decisions Development And

9 Unit-09-Product Management Services and Branding Strategy

10 Unit-10-Pricing

11 Unit-11-Distribution Management

12 Unit-12-Promotion Management Managing Non Personal

13 Unit-13-Personal Communication Channels

14 Unit-14-Customer Relationship Management?An Overview

 15 Unit-15-International Marketing Management
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Introduction to Marketing Management

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 over 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. The essentials of a market are (i) a
commodity / item which is dealt with, (ii) the existence of buyers and sellers, (iii) a place; be it a
certain region, a country or the entire world and (iv) interactions between buyers & 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 requirement like vegetable, fruits, meat and fish are sold.

Regional Market –

When the purchase and sale of goods involve buyers and sellers of a region, such as a large town
market catering to needs of a group of villages or towns, such a market is common in case of
wholesale / retail sale of food grains.

National Market –

When the purchase and sale of goods involve both buyers and sellers of the entire nation then it
is called as national market. This type of market in the case of commodities such as Cotton &
Textiles Market located in Mumbai, Tea and Jute Markets located in Kolkata. With the advent of
internet, this concept is also getting obsolete, as you can operate in any market, sitting in your
town or city.

(2) Global or World Market –

When the purchase and sale of goods involve buyers and sellers of many nations, there is said to
be a World or Global Market. Many commodities such as Gold, Silver, Tea, Coffee, Spices are
sold in such global markets. 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.

(3) 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.

(4) 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.

(5) Consumer Goods Market –

This is a market, where the buyers who are individuals and households 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,
such 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…

(6) Industrial Goods Market –

This market is also known as organizational or B 2 B 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.

(7) 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 to this market needs to be planned carefully. Government, which is a large buyer, makes
purchases on the basis of tenders, bids and negotiation.

What is Marketing?

Marketing is a set of business activities that facilitate movement of goods and services from
producer to consumer. It is an ongoing process of discovering and translating consumer needs
into products and services, creating demands for them, serving the customer and his demand
through a marketing programme of promotion and distribution to fulfill the company’s marketing
goals in a competitive environment.

It is evident that customer, his needs and wants are very important aspects of today’s marketing.
Customer focus is the very essence of marketing and his viewpoints should be taken into account
while making marketing decisions.

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

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

Definition: Marketing is an organization function and a set of process for creating,

communications 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 what is an
exchange and the exchange process.

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.

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:

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

• Each party has desire, willingness and ability to exchange.
• Each party is capable of communicating and delivering.
• Each party has the freedom to accept or reject the offer.

Learning Objective 2- Understand the concepts and functions of marketing.

Core Concepts

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”. Needs are the
basic human requirements of food, clothing shelter water and air. 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’.

1. 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.

1. 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.

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’ 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 now 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.

1. 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 under taking 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.
 1. 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 that 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.

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.

1. 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 message
targeted at a chosen group through paid space or time.
2. 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.

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 them
to use 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.

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.

Unit 2-Strategic Marketing Process

Marketing strategies and programs in the organizations are derived from the companywide
strategic planning. Thus, you have to understand how organizations develop their strategic plans.
After analyzing the strategic plan, you should be able to relate these plans’ role in guiding the
marketers, and their application in serving the customers with the help of company’s employees
as well as intermediaries.

Describe the companywide strategic planning.

Strategic Planning

Strategic planning is the process of defining the company mission, setting the long term and
short term objectives, designing an appropriate business portfolio and coordinating functional
strategies of the company.

Looking at the definition, you will be able to identify four important factors of the strategic
planning. They are

1. Defining the company mission.

2. Formulating the objectives

3. Designing an appropriate business portfolio

4. Coordination at business levels.

Now, we will discuss the above points and their relevance to the marketing plans.

Defining the company mission:

An organization mission explains who its customers are, how it satisfies their needs and what
type of products it offers.

Let me explain this concept by taking a mission statement of the Trends in Vogue, a family
beauty saloons chain from Cavin Kare, a well known fast moving consumer goods (FMCG)
company in India. The mission statement is

1. “To provide the customer an unparalleled service experience

2. To provide the customer the largest range of “natural” products and services

3. To be the first to introduce sub-formats and value-added services

4. To be the most preferred family beauty salon chain for customers, employees and
Alliance partners.

5. To provide consistent profits to all stakeholders”

Trends in Vogue mission statement analysis:

a. Who its customer is? Mission statement 4 states “family who are going to beauty

saloons” as their customers.

b. How it satisfy their needs? Mission statement 1 and 2 describes the needs as unparalleled

service experience and offering largest range of natural products and services

c. What type of products it offers? The company offers natural products in their beauty

saloons.

Formulating the objectives.

Mission statement provides a general view of the company’s products and its method of
satisfying the customer. Mission statement is once again divided into specific objectives which
are stated in writing, can be measured quantitatively and fixed for particular time. Objectives
may be business oriented or market oriented. They help marketers to develop strategies and
programs. You will come to know how organizations deduce their mission into different
objectives form the following example of Bharat Electronics Limited (BEL), a public sector
enterprise in the electronic field.

Mission: To be a customer focused globally competitive company in defence electronics and in

other chosen areas of professional electronics, through quality, technology and innovation.

Designing an appropriate business portfolio.

After setting mission and objectives, management will develop its business portfolio.

Business portfolio is the right mix of businesses that company operates and products that offers
to customers.

Portfolio analysis is the process by which company analyze its products and businesses.

Company develops their business portfolio in two steps

a. Analyze the existing business portfolio and decide which business should receive more, less or
no investment.
b. Developing the new business portfolio for future to meet growth opportunities and eliminating
the unprofitable portfolios.

Analyzing the existing business portfolio:

The current business portfolio of the company is analyzed by the businesses in which it operates.
To make it clearer, let me take an example of ITC group. The company operates in FMCG,
hotels, paper boards, specialty papers and packaging and agribusiness. These businesses are
independent from each other and have their mission and objectives separately. These subsidiaries
of organizations are called as Strategic business units (SBU)
Strategic business unit: The unit of the company that has separate mission and objectives and
that can be planned independently from other businesses.

Characteristics of SBU.

1. It may be brand, or a product line or separate division of the company.

2. It is having distinct mission and objectives.

3. It is managed by separate executive team.

Strategic planning models used in assessing the existing businesses:

1. BCG matrix ( Boston Consultancy Group)

2. GE matrix ( General electric)

BCG matrix: This model is used to identify company’s SBU’s position in the market. This model
identifies the SBU’s strength, weaknesses, opportunities and threats on the basis of market
growth rate and relative market share. This model is also known as growth share matrix.

Figure 2.1.
High Low

Relative Market Share

Axis components:

1. Market growth rate: The rate at which market is growing

2. Relative market share: Market share of the SBU divided by the market share of the largest
competitor.

Model components:

Star: This category represents the high market share and high industry growth. SBU’s in this
category require large investment to defend their position. SBU will turn as cash cow after some
time.

Cash cows: This category represents the low growth rate and high market share which is the
characteristic of SBU operating in mature industry. Here company needs less investment to hold
their position. Hence it generates more cash or in management terms we say cash cow can be
milked.

Question Mark: This category represents high market growth and low market share. SBU’s in
this category has two options, either to invest heavily and bring them to star position or divest /
liquidate from that position.
Dogs: SBU’s in this category generates less cash for the company as it operates in low growth
and low market share. Usually companies will not invest in this category and try to liquidate or
divest.

BCG matrix for ITC

1. SBU: FMCG

Industry growth rate: 24% (AC Nielson retail audit report 2007)

Company growth rate: 50% (the Hindu business line 19th January 2008)

Company’s market share : 8% (outlook business)

Largest competitor share: HUL: 54% (outlook business)

Relative market share= 0.14

2. SBU: Paper board

Industry growth rate: 7.2% (the Hindu business line 27th May 2007)

Company growth rate: 11% (the Hindu business line 19th January 2008)

Company’s market share: 55%

Largest competitors share: BILT 35%

ITC’s FMCG segment analysis shows that though it is market leader in some categories their
overall relative market share is 0.14. Company is in the high growth low relative market share
area i.e. question mark position. ITC should invest heavily to convert its SBU position into star.

ITC’s Paperboard industry is in low growth and high market share category i.e. in cash cow
segment. It should plan for investing the cash generated from this position into other businesses.

GE matrix:

1 Management can use the GE business matrix to classify SBU’s on the basis of two factors

a. Market attractiveness: Market size, entry barriers, competitors, technology and

profit margin are some factors used to analyze the market attractiveness.

b. Business position can be determined on the basis of market share, SBU size, R&D capabilities
and cost controls
Each cell in the model represented by the particular strategy namely, invest strategy, protect
strategy, harvest strategy and divest strategy

2 Invest strategy: In this position SBU

a. Should receive ample resources

b. Should support by well financed marketing efforts.

3 Protect strategy: SBU’s in this position should

a. Allocate the resources selectively.

b. Develop strategies which help in maintain its market position.

c. Generate cash needed by other SBU’s.

Business position

High Medium Low

Figure 2.2

4. Harvest strategy: SBUs should not receive substantial new resources and if required, sell them.

5. Divest strategy: SBUs which falls into this category should not receive any resources and sell i
or shut it as early as possible.

Ansoffs model of product/ market expansion.

Figure 2.3.

a. Market penetration: A strategy used in increasing the sales of company’s existing products
without modifying it in the existing market.

Characteristics of market penetration.

1. Serve customer with existing products by opening new stores.

2. Increase the promotion activities to increase the consumption.

3. Improve the service offerings.

Café- coffee day a reputed coffee chain in south India, started its operation in brigade road,
Bangalore, in the year 1996. It offers different varieties of the coffee to its existing customers.
Today it is having 100 stores in Bangalore.

b. Market development: In this strategy company identifies the new markets to sell their existing
products.

In case of market development company identifies and develops new markets for its existing
products

Café coffee day, enthused by the success of offering a world-class coffee experience, has opened
a Café in Vienna, Austria and is planning to open other Cafes in the Middle East, Eastern
Europe, Eurasia, Egypt and South East Asia in the coming months.

(Source: www.cafécoffeeday.com)

c. Product development: In this strategy, company identifies new product and sells them existing
markets.
Café coffee day added quick bites and ice-cream in their menu to cater to the needs of customers.

d. Diversification: A strategy for company growth through starting up or acquiring businesses

outside the company’s current products and markets.

Café coffee day started offering tea and cold drinks in its highway café retail outlets. These
highway café outlets offer excellent service to the travelers on the high way.

Downsizing: Eliminating the unprofitable products of the company from its product line

In the year 2000 M.S. Banga then chairman of Hindustan Unilever limited (HUL), used power
branding strategy to improve the sales and productivity. He reduced HUL’s number of products
from 110 to 35.

Coordination at business levels

1. Organization’s strategies exist in three different levels. They are corporate level, business
level and operation level.

2. Corporate level:

a. High risk and greater profit

b. Greater need for flexibility exists.

c. Long term planning

d. Choice of businesses, dividend policies, sources of long-term financing, and priorities for
growth

3. Operation level strategies

a. Implement the overall strategy formulated at the corporate and business levels

b. Involve action-oriented and operational issues

c. Relatively short range and low risk

d. Modest costs: depend upon available resources

e. Relatively concrete and quantifiable

4. Business level strategies

a. Acts as a bridge between decisions at the corporate and functional levels

b. Less costly, risky, and potentially profitable than corporate-level decisions

c. More costly, risky, and potentially profitable than functional-level decisions

d. Include decisions on plant location, marketing segmentation, and distribution

In the strategic plan, company brings the synergy between all the three levels. To make it more
clearer, company’s marketing strategy are different from HR strategies but it should bring
coordination between both to meet organization’s objectives. Company should bring the
coordination between its growth plans and segmentation then only the operation strategy works
well.

Developing the marketing mix.

Marketing mix: The product, its price, promotion and distribution blended together to get
favorable response from the customer.

This is also called as 4P’s of Marketing or Market assortment.

1. Product: It is a good, service, idea, place or person that offered to customer to satisfy his/her
need. The attributes of product are variety, quality, warranty, design, packaging, and service

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 offered in
two qualities i.e. coconut oil and perfumed hair oil.

2. Price: the value at which customer is willing to purchase the product.

For example, BSNL offers prepaid service recharge coupons in Rs175, Rs335, Rs500, Rs 1000,
Rs2000 and Rs 5000 denominations.

Figure 2.4.

The marketing mix

3. Place: Distribution of goods from the factory to the target customer. It includes distributors,
stockiest and retailers. To illustrate, Zenith computers uses authorized distributor to sell laptops
and desktops to the target customers.

4. Promotion: communicating product features and its uses to target customers through different
Medias. For example, Bharati group promotes its cellular services (AIRTEL) through TV, Radio
and news paper.

Unit 3-Marketing Environment

Introduction.
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. external macro environment and external micro environment. The macro environment
involves political and legal, economic and natural, social and cultural and technology
environment. The micro environment consists of supply chain, customer and competitor. These
factors are uncontrollable by the organization. Even the best company faces threat if one of the
external environments is adverse to it. A moderate company will be successful if the external
environment favors it. Hence marketing companies should monitor the external environment
carefully and continuously.

Environmental scanning

This is the process of gathering, analyzing and forecasting of external environments’ information
to identify opportunity and threats that company faces.

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.

Learning Objective 2: Analyze the influence of micro environment on company’s strategies.

Analyzing the organization’s micro environment

Marketing department let alone can not satisfy all the needs of customer. Therefore it is essential
to integrate the functions of suppliers, publics, company 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

Figure 3.1

Forces in the micro environment

The company

Remember in the previous unit we discussed about the strategic and marketing planning.
Deducing a strategic plan in to specific marketing plan require coordination of other functions
like finance, Human resource, production, and research and development. For example, Safe
Express, a leader in the supply chain management solution wants to hold its position in the US $
90 billion Indian logistics market. 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..

Intermediaries

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

Marketing intermediaries plays 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 and forward agents are few intermediaries to name. Retailers
are final link between company and customers. Their role in the marketing of product is
increasing every day.

Publics
These are microenvironment groups, which helps 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.

Competitors

A company should monitor its immediate competitor. The product should be positioned
differently and able to provide better services.

Suppliers

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.

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 tyre 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.

Unit 4-Understanding the Marketing

Information Systems (MIS)
Understanding the Marketing Information Systems (MIS)

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 help 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 Objective 1: Understand the concept of Marketing Information System, as well as its
characteristics & benefits.

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.

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.

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.

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

Fig 4.1 The Marketing Information System

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 record 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
published sources 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 a 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.

Learning objective 2:
Understand the role and scope of Marketing Research in making Marketing decisions.

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.

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.

Learning objective 3:
Define the objectives of a typical marketing research study

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

Learning Objective 4:
Outline and explain the steps involved in Marketing Research process

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.
Fig 4.2 Marketing Research Process

Unit-5-Consumer Buyer Behavior

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 it. 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 the new product.
Consumer motives and behavior models are analyzed to identify the buying environment.

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.

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:

(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.

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.

Learning objective 2: Explain different types of buyer behavior.

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.

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
customer 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 not able to get resale value lost their market positions.

Learning Objective 4: Discuss consumer decision process for new products.

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

Figure 5.5

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

2. Interest: As know previous information 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:

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.

Learning Objective 5:
Examine the buying motives and behavioral models.

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:

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

2 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.

3 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.

4 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.

b. Emotional patronage buying motives are patronizing the 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.

5 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.

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.

Copyright © 2009 SMU

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MB0030- Unit 6-Business Buyer Behavior

Introduction
Unit 6 Business Buyer Behavior Introduction

Any market in which customer buys the product for other than personal consumption is called
business market. This market includes organizational buying, institutional buying and
government buying. The market consist very few buyers but they purchase in a very big quantity.
These customers are usually found in the industrial towns, tech parks and industrial area. The
demand for the product in this market is derived i. e depend upon the final consumption of the
product and service. For example, Demand for car engines will depend on the how many
consumers will purchase the car. 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 depending on the final consumption. The fluctuation in the market is inelastic.
The product is purchased only after thorough examination. Therefore it includes more than one
member in the purchasing department. This has resulted in the complex buying behavior.

Learning Objective1: Differentiate between consumer behavior and organization behavior.

Difference between consumer and business buyer behavior.

Table 6.1
Learning Objective 2:
Discuss the different types of buying situations involved in the organizational buying.

Buying situations in the industrial marketing.

Buying situations varies to the large extent in the industrial marketing compared to the consumer
markets. The negotiation process and vendor evaluation stages will not be there if company
wants to purchase the same material from the existing suppliers. It means for each situations
buying process changes. Therefore in this section we are discussing the different situation
involved in the business buying. Industrial marketing usually involves three different types of
buying situations. They are

a. New Task

b. Straight re-buy and

c. Modified re-buy.

1. New task: The stage in which an organization is purchasing a major product for the first time.
Therefore company will be having more number of people involved in the decision making. In
this situation seller try to meet all the buying participants of the organization and convince them.
This will be resulted in higher uncertainty and cost for the seller.

2. Straight re-buy: In this situation organization follow routine step of informing sellers about
their requirements and supply specifications. This is the easiest situation in the organization
buying. This provides lot of flexibility to both buyers and sellers. Company already has the list of
suppliers, it gets the information from the floor about their requirements and the same is
conveyed to the supplier. After the advent of ERP software things have become simpler and
easier.
3. Modifies re-buy: In this stage buyer wants either product modification, price modification,
terms modification or suppliers’ modifications. For example, a company X is buying Rs 100,000
worth of iron materials from company Y every month. Company would like to reduce the cost of
Iron Ore. It starts the negotiation with their suppliers on the new terms and conditions.

Learning Objective 3:
Understand the buying roles and their importance in industrial marketing.

Buying roles in the Industrial marketing.

As we discussed in the beginning the difference between the consumer buying process and
business buying process, the number of people involved in the decision making are more in the
industrial marketing. Therefore many business organizations constitute the buying center or
buying committee. The characteristics of buying center are listed below

1. Several individuals can occupy a given role (e.g. many users / influencers) and one individual
can occupy 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 may
be more interested in ease of use and reliability of supply.

4. Members of 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 involved in the business buying process are

1. Users are people who actually use the product. For example, lathe machine is
used by the shop floor employee. This person can tell the specification clearly than any
other person.
2. Influencers are people who provide the information required to evaluate the
vendor and his products. Example: technical personnel.
3. Buyers: Purchasing persons who put the specification for vendors. These people
also evaluate the vendor and select him.
4. Deciders: These people give final consent on the chosen suppliers

e. A gatekeeper acts as filtering agents between buying committee and sellers. For example, a
technical person may see the vendor quotations and filter it before it goes to buying committees.

Learning Objective 4: To analyze the factors that influence the organization buying process.

Steps in business buying process

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.

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

Unit 6-Business Buyer Behavior Introduction

Unit 6 Business Buyer Behavior Introduction

Any market in which customer buys the product for other than personal consumption is called
business market. This market includes organizational buying, institutional buying and
government buying. The market consist very few buyers but they purchase in a very big quantity.
These customers are usually found in the industrial towns, tech parks and industrial area. The
demand for the product in this market is derived i. e depend upon the final consumption of the
product and service. For example, Demand for car engines will depend on the how many
consumers will purchase the car. 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 depending on the final consumption. The fluctuation in the market is inelastic.
The product is purchased only after thorough examination. Therefore it includes more than one
member in the purchasing department. This has resulted in the complex buying behavior.

Difference between consumer and business buyer behavior.

Learning Objective 2:
Discuss the different types of buying situations involved in the organizational buying.

Buying situations in the industrial marketing.

Buying situations varies to the large extent in the industrial marketing compared to the consumer
markets. The negotiation process and vendor evaluation stages will not be there if company
wants to purchase the same material from the existing suppliers. It means for each situations
buying process changes. Therefore in this section we are discussing the different situation
involved in the business buying. Industrial marketing usually involves three different types of
buying situations. They are

a. New Task

b. Straight re-buy and

c. Modified re-buy.

1. New task: The stage in which an organization is purchasing a major product for the first time.
Therefore company will be having more number of people involved in the decision making. In
this situation seller try to meet all the buying participants of the organization and convince them.
This will be resulted in higher uncertainty and cost for the seller.

2. Straight re-buy: In this situation organization follow routine step of informing sellers about
their requirements and supply specifications. This is the easiest situation in the organization
buying. This provides lot of flexibility to both buyers and sellers. Company already has the list of
suppliers, it gets the information from the floor about their requirements and the same is
conveyed to the supplier. After the advent of ERP software things have become simpler and
easier.
3. Modifies re-buy: In this stage buyer wants either product modification, price modification,
terms modification or suppliers’ modifications. For example, a company X is buying Rs 100,000
worth of iron materials from company Y every month. Company would like to reduce the cost of
Iron Ore. It starts the negotiation with their suppliers on the new terms and conditions.

Learning Objective 3:
Understand the buying roles and their importance in industrial marketing.

Buying roles in the Industrial marketing.

As we discussed in the beginning the difference between the consumer buying process and
business buying process, the number of people involved in the decision making are more in the
industrial marketing. Therefore many business organizations constitute the buying center or
buying committee. The characteristics of buying center are listed below

1. Several individuals can occupy a given role (e.g. many users / influencers) and one individual
can occupy 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 may
be more interested in ease of use and reliability of supply.

4. Members of 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 involved in the business buying process are

1. Users are people who actually use the product. For example, lathe machine is
used by the shop floor employee. This person can tell the specification clearly than any
other person.
2. Influencers are people who provide the information required to evaluate the
vendor and his products. Example: technical personnel.
3. Buyers: Purchasing persons who put the specification for vendors. These people
also evaluate the vendor and select him.
4. Deciders: These people give final consent on the chosen suppliers

e. A gatekeeper acts as filtering agents between buying committee and sellers. For example, a
technical person may see the vendor quotations and filter it before it goes to buying committees.

Learning Objective 4: To analyze the factors that influence the organization buying process.

Factors that influences on 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 image for the organization too.

2. Supply conditions: raw materials required should be matched with the demand condition of
the company. If there is an irregular or seasonal demand exists then company should adjust their
supplies. Any shortage of the raw materials will force the company to go out of the company.

3. Political and Legal environment: the unstable government will have unpredictable policies.
Any change in the government policy will have direct or indirect impact on the company. For
example, An engineering firm work towards better environment standards in their products
assuming that all automobile companies adhere to the international regulations but the
government decided to post pone the regulation standard implementation for 1-2 years the entire
material manufactured and raw materials will have extra holding and inventory costs.

4. Competitive environment: Business buying is very complex. The numbers of buyers are very
few. Any technology change adopted by the competitor should be carefully observed. If the
company not able to identify the competitors move survival will become difficult.

5. Culture and customs: Every country has its own culture and customs. As we discussed in the
previous unit, why one should not sell beef products in India, in same way business buying is
also influenced by the culture and customs. For example, most of the products produced in Japan
are of small size to suit their customers. Any company buying products in Japan should always
keep these things 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%. Some times they
will be forced to cancel the negotiation with a major supplier who may provide value to the
organization in the future to meet the current cost projection.

7. Organizational policies and procedures: Companies’ policies like centralization versus

decentralization of buying and selling will have direct impact on the company’s production.

8. Organization structure and systems: Lesser the hierarchy more will be the flexibility in the
organization. Companies with more number of hierarchies will have plenty of problems to be
addressed.

9. Interpersonal factors: business buying will have different outcome on the basis of authority,
status, empathy and persuasiveness that customer and organization posses.

10. Individual factors. Age, education, job position, Personality risk attitudes of individual will
determine the buying behavior of each role and in turn these changes will have direct impact on
the organization buying.
Learning Objective 5: Examine the business buying process in the Industrial marketing.

Steps in business buying process

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.

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.

Unit-7-Segmentation Targeting and

Positioning

Unit 7 Segmentation, Targeting and Positioning

Introduction

Market segmentation is the starting step in applying the marketing strategy. In this process the
marketer divide the market into homogeneous sub markets by understanding the needs,
perceptions and expectations of the consumers. 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, its targeting and positioning
its propositions in the mind of consumer in detail.
Learning Objective 1: Explain the concepts and benefits of market segmentation.

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.

For example, Cadbury India operates in three different markets namely, Malted foods, cocoa
powder and drinking chocolates and chocolates and sugar confectionary.

Figure 7.1

The malted food market is divided into two different segments i.e. white malted food drinks and
brown malted food drinks. Cadbury India positioned its flagship brand Bournvita in the brown
malted food drinks.

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 innovations:

Learning Objective 2: Mention the requisites of effective segmentation.

Requisites of Effective Segmentation

To be useful, segmentation of market 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 do not specifies how many of the migrated employees are educated and
if educated how many are there in white color jobs. If a company wants to target white color
employees who are migrated to particular city, will not able to measure due to non availability of
data.

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 to the lowest level in the world.

3. Accessible: The segment should be accessible through existing network of people at a

affordable cost. For example, Majority of the rural population still not able to access the internet
due to high cost and unavailability of connections and bandwidth.

4. Differentiable: The segments are different from each other and 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.

The process of Market segmentation:

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 looking 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 customer are satisfied with the time accuracy in the
watch. It should also analyze what are the other features customer is looking in the watch. It may
be style, calculator, voice recorder, jewels studded or pulse monitor. In this case, time accuracy
became existing want and other features become future wants.

2. Examine the attributes that distinguish among 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 attribute 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 wants calculator.

3. Evaluate the proposed segment attractiveness on the basis of measurability, accessibility,

and size.
Segments selected in second 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 big this student segment who like style and also wants calculator?

b. How to get the data pertaining to these students?

c. Whether this segment is accessible to existing Titan showroom?

d. How this segment is different from current segments? If selected what value this proposed
segment adds to the company.

Learning objective 3: Explain the bases of market segmentation.

Bases for Segmenting Consumer Markets

Figure 7.3
1) Geographic segmentation: Dividing the market 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

on the basis of variable 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 the 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 consumers
of 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 his marketing policy, pricing policy, advertising policy etc., accordingly.
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 best starting points for constructing market segments.

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 schemes and promotions for Akshaya Thrutiya ( auspicious day to purchase jewellary)

b) Benefits: Buyers can be classified according to the benefits they seek. 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 who comes
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 they
vary their promotional efforts accordingly.

For example, Alan Paine textile brand, offered 4 cotton trousers for Rs 999. Company is
interested in getting profit from sales volume.

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 Loyal: 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 Loyal: 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 Loyal: 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. To illustrate, 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.

Table 7. 1: Comparison of Market Coverage Strategies

Given the comparison of different coverage strategies, it is easy to locate the relevant strategies
as shown in Table 7.2.

Table 7.2: Choosing a Market Coverage Strategy

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 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).

Learning Objective 5:
Analyze the positioning strategies of companies on the basis of product differentiation

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. Each company must decide how many differences to promote to its target
customers. 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 this 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 making 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

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 that are available are:

1 Attribute Positioning: A company positions itself on an attribute such as size or number of

years in existence. Sun feast position its snacky brand as bigger lighter and crisper. (Figure 7.5)

Figure 7.5 �
Figure 7.6

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)

Figure 7.7 Figure 7.8

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 named
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
competitors sales of newspaper.

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.

Figure 7.11

The vegetable oil brand dhara position it self as ‘anokhi shuddata, anokha asar’. This means,
company offers unique purity and unique effect.

Unit 8-Product Management Decisions

Development And
Unit 8
Product Management: Decisions, Development And

Lifecycle Strategies

Introduction

Product: A good, service, person, place, events or organizations offered to consumers to satisfy
his need or want.

A good is a tangible product, which can be seen and touch. 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, A Wockhard hospital offers heart surgery,
which consumers can not see but need to undergo when there is a pain in the heart. Hence
surgery a service, is perishable in nature, need to be produced and consumed simultaneously.

Differences between goods and services:

Table 8.1

Goods Services
 1. Tangible Intangible.
1. Inventoried Simultaneous production and consumption.
1. Non perishable Perishable
1. Homogeneous Heterogeneous

A product may be 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.

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 provides 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 to tourists, a historical place in Karnataka.
Figure 8.2

Learning Objective1: Analyze how products are classified.

Levels Of Product

1. Core product: This is the fundamental goods 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 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 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…

Classification of Products

Table 8.2
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 concern for further product
development

Consumer Products

As these products are purchased by the final consumer for his own consumption, the market is
very big. The large market need 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: The fast moving consumer goods, which 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.

1. Shopping goods: High consumer involvement products in which consumer

process the information of product suitability, quality and price.

Comparing with 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 want to purchase
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 and water
consumption.

c. Specialty goods: A tangible product for which a consumer posses high brand loyalty and
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 usually unaware or
ignorant to purchase. Marketers need heavy promotion activities to educate and sell their
products.

Insurance is the product which most of the consumer are aware 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.

Product mix strategies

Product mix: The number of product line and items offered by marketer to the consumer

A company’s product mix has four different dimensions. They are product mix width, product
mix length, and product mix depth and product mix consistency.

Table 8.5

Worm turns for Cadbury (www.domain_b.com)

Mohini Bhatnagar

28 November 2003

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.
Packaging strategies:

1. Adopting a 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.

Types of label:

a. Brand label: only brand name is mentioned on the packaging. For example, 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…

Learning Objective 5: Assess the stages involved in the new product development.

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 absolutely new to the world. It may
be modification, or offered in the new market, or differentiate from existing products. Therefore
it is necessary to understand what are new products?

New Products are

a. They are really innovative: 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 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 ruche 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

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 so many change were there in the product. This shows that initial idea will be changed on the
basis of market requirements.

Stage 3: concept development:

Concepts used for Tata Nano car are

Concept 1: 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 2: a car made by engineering plastics and new materials, and using new technology like
aerospace adhesives instead of welding.

Concept 3: Indigenous, in-house car which meets all the environment standards

Stage 4; concept testing: at this stage concept was tested with the group of target customers.

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 Lakh cars per annum. The second part involves product price,
distribution and marketing budget strategies. TATA’s fixed Rs 1 Lakh as the car price, and
finding self employed person who works 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 profit estimated for a new product
to find out whether these align with company mission and objectives.

Stage 7: Product development:

TATA nano car development (source; business world nanolution)

1. Tried to outsource the product from allover the world.

2. Development of ‘mule’ or prototype with 20bhp.

3. Designing the small engine

4. Thermodynamic simulations and final engine

5. Development of MPFI with help of Bosch.

6. Cost reduction and negotiating with vendors.

7. 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.

Unit 9 Product Management Services and

Branding Strategy
Introduction

Services are deeds or performances. The importance of services in India is growing every year.
The rise of Information technology (IT) and Information technology enabled services (ITES) is
enhancing the contribution of services to the Indian economy. According to the National council
of applied economic research (NCAER) services contributes 55% to the total GDP.

Share of services in GDP

Year Share of services in GDP (%)

2001-
50
02
2002-
52
03
2003-
52
04
2004-
53
05
2005-
54
06
2006-
55
07

(Source: Central Statistical organization)

Services may be used for intermediate consumption or final consumption. Transportation is an

example of intermediate consumption whereas beauty saloons are part of final consumption. The
increase in the purchasing power and professional retail services fuelled the growth of services in
India. Deregulated telecom industry and integrated supply chain companies contribute the
majority of the service share in the GDP. Thus, we will discuss the importance of service sector
to the Indian economy.

Branding is another important area in the product management. It helps in providing the identity
to the product and build loyal customers. Organizations use their existing brand names to new
product or services. These phenomena show that brands are assets of the company. Brand
manager should take various brand decisions like name, positioning, extension, image and so on.
Companies all over the world spend huge amount on acquiring brands.

Learning Objective 1: Understand the constituents of brand equity.

Brand

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
copying by any other automobile company.

Brand is a design: the exteriors of retail outlet which helps the customer to identify it very
quickly.
Brand is a symbol: Mercedes is recognized by its symbol.

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 a 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.

Brand equity

Brand equity is set of assets linked to a brand’s name and symbol that adds to the value provided
by the product or a service to a firm and/or that firm’s customer.

Components of brand equity:

1. Brand loyalty

2. Brand awareness

3. Perceived quality

4. Brand associations

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, at least on occasion, 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 present in the market and vice versa.
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.

Perceived quality: the customer perception about the actual quality level of the product.

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.

Learning Objective 3: Analyze the brand positioning methods.

Brand positioning

As we discussed in the segmentation, targeting and positioning unit, the image of the product
should be created in the minds of consumer. Brand managers use three levels of positioning
strategies to get the mind share of the customer.

Table 9.2

Level Character Illustration.

Ingredients: the product speaks about

the innovative ingredients that company
Product offers in the product. In the gore
attributes example the company explains the four
way water pressure technology in the
advertisement

Figure 9.1
 Taste: Kissan sauce explains how their
product is different from others and
how the target customer likes it

Figure 9.2
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
Peaceful Bharti AXA
and values
Happy Nestle Kitkat

Learning Objective 5: Evaluate the brand name selection and brand sponsorship strategies.

Brand Name selection

Brand provides the image to the product. Brand manager should be careful while selecting
proper name for the brand. There are six suggestions from the Philip Kotler to create a successful
brand name. They are

1. It should suggest something about the product benefits and qualities; Frooti or
appy Fizz
2. It should be easy to pronounce, recognize, and remember: Amul, Kissan, Ruchi
3. The brand name should be distinctive: cello, VIP
4. It should be extendable: Aashirwad, Wills
5. The name should be easily translated into foreign language: Mr. White.
6. It should be capable of registration and legal protection

Brand sponsorship

Brand manager have four options of sponsoring the brand. They are

1. Manufacturer brand
2. Private brand
3. Licensing
 4. Co- branding

Ø Manufacturer brand: The brand owned by manufacturer and promoted either directly or
indirectly. This type of strategy is followed from years. Pillsbury atta is the manufacturer brand.
In the below image you can see the Pillsbury is launching the Punjabi atta in the market. ( figure
9.4)

Ø Private Brand:

Figure 9.3 Figure 9.4

Private brands are also called as store brands. These brands bearing 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
 1. The consumer is not getting the tangible value.
2. The retailer is not making the enough returns from the sale of the branded goods.

Emerging issues in private labeling:

1. The private label strategy is effective, profitable and reality.

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 need and not any private agenda of the retailers
5. There must be stringent system for the private label production. Quality control is
a must since there is no 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)

Ø 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 those 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
licensing arrangements may fail.

Ø 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
doesn’t have. Both companies promote these products. Hence they can leverage brand image and
can reduce the cost. All companies will not get benefit from co-branding. Some times company
may loose the brand image if the product fails.

Learning Objective 6: Analyze the techniques of brand development

Brand Development

Company can develop the brand on the basis of product category and brand name. Now we will
discuss the different strategies adopted by companies to develop the brands.

Product category
Brand Name Existing New
Existing
Line extension Brand extension
New
Multi brands New brands

Figure 9.5

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.

Figure 9.6

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 each other.

2. Brand extension: A strategy in which company uses one of its familiar brand names to 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. Figure 9.7
Brand extension gives instant recognition to the brand. In the above example people required
very less time to know kingfisher airline brand because parent brand was very well known.
Brand extension if it fails then it may hurt the parent brand reputation in the market.

1. Multi brands: The techniques of introducing the product or items in existing

product category with a new brand name.

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 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 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 of coming out with new brand for new category products. In this
strategy, company believes that existing brands can not be extended to the new category. The
new brand strategy requires huge resources to build it. The new category if it already had 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 is new to the company

Nature And Characteristics Of Services

In the beginning of this unit we discussed the importance of services to the Indian economy.
Services are becoming important part of companies. Manufacturing companies which are averse
to the services earlier are now giving priority to them. Some manufacturing companies like IBM
become more of Service Company today. In this context, we are discussing what makes services
so important. This can be explained with characteristics of services.

1. Intangibility means services cannot be seen tasted, felt, hears or smelled before they are
bought. For example, a patient undergoing surgery in Jaydev hospitals will not know how the
surgery is or what is the smell of surgery is. Intangibility offers many challenges to the
marketers. First customer can not evaluate the service he/she gets. Second, though customer
purchases the services but he/she will not posses any physical product for it. Third, it is very
difficult to communicate to the consumer and finally setting the price for services will become
difficult because of this characteristics.

2. Inseparability of production and consumption means services are produced and consumed
simultaneously. To explain, in hotel industry food is prepared and sold to customers
immediately. This character results in more customization of the services rather than mass
production. In case of manufacturing of goods customer involvement is less or will not be there
but in services like Haircut customer involvement is necessary. Word of mouth plays an
important role in communicating the services.

3. Perishability means service cannot be stored for later sale or use. This character of service
leads to imbalance in the supply and demand situation in the organization. Some time demand is
more for the services and some times demand is very less. For example, airline service provider
will have huge demand at the time of new year and may not be having enough demand in the
other time. So capacity may be excess or inadequate.

4. Heterogeneity or variability means quality of the service provided differs from person to
person, place to place, time to time. To explain, Tourism services provided by an organization in
Karwar is different from Mumbai. This variability of the services creates difficulties in
maintaining the service quality and standardization.
Unit-10-Pricing
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. Retailer like big bazaar
Fair price and Subhiksha targeted price conscious consumer. Manufacturers and service
providers all over the world outsourced some of their functions to developing countries to get
cost advantage which help them in reducing their final price. Internet has become alternative tool
for shopping to the consumer. It offers wide range of products and lesser price.

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 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. To explain, 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 buys 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, Airline fuel cost went up recently. All airline companies increased the price of the
ticket. 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 optimal
level and then once again it goes up. Hence the total cost (fixed cost plus variable cost) vary
according to both fixed cost and variable cost. 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 received equals the total costs 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 able to integrate their supply chain
well then it will be having distribution advantage than others. Let me explain these concepts with
examples. Nokia when it introduced 1100 handset in Indian market priced 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 Rs3800. 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 exists. 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 type of market companies should set their
prices according to the competition.

b. Monopolistic competition: The nature of the market where many buyers and sellers exists.
The difference between Perfect competition and monopolistic competition is in case of latter
prices for the products vary according to the differentiation where as in case of former there is
only one price exists. In case of Monopolistic competition prices are fixed by the gap in the
product line of all competitors and level of differentiation the company is able to do.

c. Oligopolistic competition: The market consist few players and dominant in the market. They
do not allow new players to enter the market. They are price sensitive to each other

d. Monopoly: Here market consists of one seller. An Indian railway has monopoly over the
railway industry in India. It is able to sell its products and services at the determined rates. In the
monopoly markets usually controlled by the government prices are economical.

Demands for the product vary according to the price set. Generally customers think that higher
the prices better the quality of the product and lower the price lower the quality of the price.
Marketer should understand this perception. This perception will determine the demand for the
product. For example, customer thinks that Mercedes as high quality product and chik shampoo
which costs less than other shampoo as low quality. After analyzing the perception about the
price, marketer is interested in finding out the price elasticity of demand.

The price elasticity of demand is defined as percentage change in quantity demanded to the
percentage change in the price. To explain, assume that the price of the 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
and company expects 900 units to be sold in the particular month. 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 less is the prices elasticity of demand it is very easy for the
marketer to change the price. Marketers who are interested in sales and product have inelasticity
of demand will go for the lowering of the prices.

5. Competition: Price is also determined by how intense the competition is in the 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 no frill
airline made other airliners like go air, spice jet and paramount to reduce the price of their
airlines.

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 is external to the company.

Learning Objective 2: Understand various approaches to pricing

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:

Problem: Company X would like to sell 75,000 units in the year 2008. The fixed cost of the
company is Rs 2 Lakh 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 become standard.
3. It is fairer 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
lead s 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 on 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 Total cost iv( assumed fixed Profit v-
 needed to break demand at given cost Rs 10 Lakh and constant
iii= (Price*ii) iii-iv
even(i) price(ii) variable cost Rs 12)
Rs
250,000 340,000 4,800,000 5,080,000 -280,000
16
Rs
166,667 180,000 3,240,000 3,160,000 80,000
18
Rs
125,000 140,000 2,800,000 2,680,000 120,000
20
Rs
100,000 90,000 1,980,000 2,080,000 -100,000
22
Rs
83,333 60,000 1,440,000 1,720,000 -280,000
24

Rs 20 are the ideal price to break even.

Value Based and Competition Based pricing

I. Value based pricing: Setting the price of a product on the basis of consumers’ value rather than
manufacturers’ cost.

Difference between value based and competition based pricing

Cost based pricing

value based pricing

Cost based pricing starts with development of product and prices were fixed later. In case of
value based pricing customers are given utmost importance. The product is developed only after
the price and cost estimation in value based pricing method. To explain both theories let me take
examples, 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. On the basis of values company sets
the price

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 promotions to lower the prices on
temporary prices.

2. Competition Based pricing: Method in which a seller

uses
prices of competing
products as a benchmark instead of considering own costs or the customer demand

a) Destroyer Pricing

This strategy is used as an attempt to eliminate competition. It involves lowering companies’

prices 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 even 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

Learning Objective 3: Analyze the pricing strategies adopted by marketers

Product Mix Pricing Strategies

1. Product Line pricing: strategy of setting the price for entire product line. Marketer
differentiate 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 Rs 10 Rs
20 and Rs 30 respectively.

Figure 10.1

In the above example of Nokia mobile phones Nokia 1110 is priced @ Rs 1349, Nokia
7610priced @ 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 strategy is used to set the price of optional or accessory products
along with a main product.

Figure 10.2

R
Slide Molding Rs are underbody Rs 8883
Body cover Rs 1521 Roof End Rs 6396
1123
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 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 is determining the price for by products in order to make the main products
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

5. Product bundle pricing is offering companies several products together 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.

Adjusting the price of the product.

Competition has forced companies to adjust their base prices according to the situations. There
are six different types of strategies companies are adopting. They are

1. Discounts and allowances

1. Location pricing

1. Psychological pricing
2. Promotional pricing
3. Geographical pricing and
4. International pricing.

· Discounts and allowances. Companies offer reduction in the price for the customers on the
basis of four different conditions.

a. Cash discount is given when the customer makes early payment before the due date. To
explain a manufacture 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 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.

Allowances are usually paid to the middlemen who actively involved in promoting the products.

1. 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.

2. 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 its leather
products.

3. Promotional pricing: Organizations sets the price of their product below the list price and
sometimes even below cost. The objective of such pricing is to achieve immediate sale, increase
the customer footfall, avoid the competition and introduce the product. Big bazaar annual
clearance sale etc… is the example of this type of pricing.

4. Geographical pricing: setting the price on the basis of geographies they are selling the product
and freight charges. In this strategy different options exist for the company. They are

a. Freight charges to be paid by the customer( FOB pricing)

b. Different zones have different prices i.e. company may charge different prices in south and
north zone. ( Zone pricing)

c. Same price plus freight charges for all the customers ( Uniform delivered pricing)

5 International pricing: organizations should consider the different external factors and customer
profile in different countries. 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.

Unit 11-Distribution Management

Introduction

Distribution of goods or services from the factory 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 should make them available as and when customer demands. This
has thrown up an opportunity as well as challenge to the organizations to provide right product at
a right place in a 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 interest of corporate in the distribution management resulted in the
evolution of professional retailing and wholesaling in India. These above factors made
distribution as one of the important part of the marketing planning.

Learning Objective 1: Explain the nature and functions of marketing channels.

Need of marketing channels

Marketing channels are set of independent organizations involved in the distribution of the goods
or services to the consumer from the factory at right time, and right place.

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 include retailers, wholesalers, agents, brokers etc. Some companies do not
use these channels. They directly market their products to consumer. For example, Dell
computers ask its customers to login to the website, configure their product, and order the same
on the internet. Then generally a question comes to the mind, why many companies use
marketing channels and some do not. To answer the question we need to understand what are the
functions marketing channels do and how they are advantageous than direct marketing.

Functions of marketing channels

1. Physical distribution: transporting and storing goods.

2. Communication: Marketing intermediaries promotes the company’s products. Here channel

member provide the information regarding the product and pushes it to customer.

3. Information: retailers and wholesalers collect the information from the customer and provide
the same to the company.

4. Title transforming: Marketing intermediaries purchases the goods from the company and
transform the title of goods to next intermediary or customer.

5. Relationship management: Here marketing intermediaries try to understand the needs of

consumer, try to match his needs and satisfy them.
Decisions involved in setting up a channel

Marketer should consider various factors before deciding the particular type of channel. It may
be company 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 channel, marketer will take
following decisions.

1. Understanding the customer profile: Purchasing habits differs from individual to individual.
Individuals who face shortage of time would like to purchase on the net (direct channel) and who
have abundance of time would like to experience the shopping. Some of them would like to have
variety of goods while others want unique or specialized products. Hence marketer should
understand who are his customers? How do they purchase? For example, customer don’t like to
travel half a kilometer to purchase a shampoo sachet but he don’t mind travelling two kilo meters
while purchasing durable goods.

2. Determine the objectives on which channel to be developed.

a. Reach: Company would like to make the goods available in most of the retail outlets. 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 type of the channel best suits. 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 numbers of
intermediaries are excess then the cost of the channel will increase vice versa if the number of
intermediaries are 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 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 excusive right to distribute its products in their territories. For example, a Kaya skin
care solution of Marico was marketed through exclusive distribution.

5. Assigning the responsibilities to channel members. Company should define the territory in
which 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 alternatives incur? Which one of the alternative
provides the optimum solution?

c. Profitability (P): various channel alternatives available to the company and their profitability
shall be compared. Company 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 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.

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.

Managing and motivating channel member

Now day’s companies are considering their channel members as partners. These companies are
asking its intermediaries to integrate their business with them. Integrated business reduce the
cost, increase 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 of 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

o Business Size
o Business Impact
o Business Model
o Type of product/item/service
o Type of Technology & Domain knowledge
o Performance status

Partner Categories are

o Privileged Partners – Registered, Approved, have contracts, currently supplying

and Delight us on every aspect of business engagement.
o Preferred Partners – Registered, Approved, Have contracts, supplying with
satisfactory performance
o Present Partners – Registered, Approved, Have contracts and currently supplying
o 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

Preferred Present Potential

Parameters Privileged Partners
Partners Partners Partner
Strategic Strategic Partnership
— — —
Partner can done
Airtel
Office space,
Facilities for — — —
Canteen, Parking
Partners
Partner registers grievance through available channels
Receive the grievance and forward to respective teams.
Analysis on the grievance and come out with action plan. Implementation of the action plan.
Partners are communicated with 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

o Functional Directors – Conceptualization of requirement, delivery timing and

KPI’s
o User Owner – Delivery as per specification, timeline and usage requirement
o Supply Chain Team – Commercial and Contractual Agreements
o Governance Team – Code of Conduct, Contractual Obligations and Ethical Issues

Three types of communications are considered

o Strategic
o Operational
o Need Based

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

Learning Objective 4:
Understand the importance of logistics management.

Introduction to Logistics management

Providing the right product at a right place in a right time is a challenging task. Marketing
managers are developing or outsourcing the better storage and transportation facilities to make
goods available to customer at a 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 the moving 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 (return the products to factory) in the logistics management is
now days 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 www.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 mater
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
Major logistics functions

a. Warehousing: Goods produced at the factory may not be consumed simultaneously. Therefore
companies need to store the goods. Companies able to use proper warehousing facilities
enhanced their operation efficiency. Warehousing can also be used as hub where goods come to
the facility and cross docked. Now days 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.

Better Latte than ever

Safexpress is right on 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 Safexpress 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.

Safexpress, 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, Safexpress. Safexpress, 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.

Safexpress 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 Safexpress 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 had to be a perfect alignment
between them, which is exactly what Safexpress aims to do. So with Safexpress 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 Safexpress has. Safexpress Barista tie
up is an example for those who are trying to get familiar with the role of third party logistics or
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 off 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.

Safexpress 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 off it’s
logistics tensions through expert logistics manpower, optimum utilization of resources, including
manpower, space, infrastructure, etc.

Barista stands to gain from Safexpress’ faster TAT for all performance indicators, handling
expertise of consignment, products in general. Currently, Safexpress 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, Safexpress has the capability to suggest business models packaging parameters,
reduction of logistics costs, as a value addition to its customers. Domestically, Safexpress is the
largest 3PL-service provider with over 40 customers in the 3PL area. Meaning Safexpress 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.

Safexpress 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.

Safexpress is has also offered Barista a completely web based waybill tracking system for online
delivery tracking of consignments. Safexpress 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. Safexpress 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.
 1. 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.

Supermarkets: According to Philip Kotler ‘ supermarkets are a relatively large, low cast, low
margin, high volume, self service operation designed to serve the consumer’s total needs for food
and house hold products. For example, Food world of RPG group.

b. Inventory management: Organizations need to store the goods required for day to day
operation. They can not 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 till 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. The
dominant characteristics of this mode are quick delivery, premium pricing and limited quantity
transportation.

ii. Water transportation: this is the slowest but cost efficient mode of transportation. 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.

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.

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 cover very limited geographic space. The cost of the transportation is very low. The most
suitable products for this mode are oil, natural gas and slurried products.
v. Internet carriers: This mode is used to carry digital products from producer to consumer via
satellite able modem or telephone wires. Software companies, education institutions etc are very
few to name, who are using this mode of transport.

Learning Objective 5:
Discuss the growth and scope of retailing and wholesaling

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.

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. Though customer purchased at less quantity he purchases frequently. This has led to the
better relationship between customer and retailer.

iii. Tool of marketing communication: Companies use retailer location for point of purchase
displays. They also encourages retailer to promote the products through word of mouth
communication.

Functions of retailing

1. Sorting: Retailers arrange the items in proper order so that customer can easily
identify his goods or services.
2. 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.
 3. Holding stock: Retailer works as storage facility to organizations. Retailer holds
inventory to meet the day to day needs of consumer.
4. Channels of communication: Retailer promotes the company product through
word of mouth communication. The retailer location is also used for point of purchase
display.
5. Transportation: Retailer undertakes door delivery order in case of durable goods.
This feature is now adopted by the small grocery stores also.

Type of retailing

1. 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 a limited product lines
like Textile store or furniture store. For example, Tanishq a jewellary retail store.

1.

2. Convenience store: These stores are very near to customer residence. Usually carry day
today products of high turnover at premium price. For example, Reliance fresh
3. 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.
1. Off price retailers: This type of retailer buys the goods less than wholesale prices.
These products are sold less than retail prices. For example, factory outlets in
marathahalli Bangalore.
4. 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
particular category. For example, Nalli sarees which carries large variety of sarees in
their stores. Another type of super store format exists in India is Hypermarkets. These
retail outlets have huge space and carry large merchandise. For example, Reliance Mart

in Ahmedabad.
 5. 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.

Unit 12-Promotion Management: Managing

Non Personal
Introduction

A good product with better distribution and affordable price will fail if its attributes are not
communicated to target customer. Marketer should understand how shall company develop and
channelize the communication in effective way. The communication is defined as “Any act by
which one person gives to or receives from other person 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 the marketing as
follows “marketing communication is the process of providing the information to the consumers
about the marketing mix 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.

Advertising- Any paid form of non-personal presentation and promotion of ideas, goods, or
services by an identified sponsor. For example: Print ads, radio, television, billboard, brochures
and, signs, in-store displays, posters, motion pictures, and banner ads,

Personal selling- The type of promotion mix that helps and persuades one or more prospects to
purchase a good or service or to act on any idea through the use of an oral presentation.
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. Examples: 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. Examples: 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, online mediums and other tools.

Learning Objective 1: Explain the importance of integrated marketing communication.

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 (IMC):

To plan, develop, execute and evaluate coordinated communications with organizations’

stakeholders.

Reasons for the growth of Integrated Marketing Communication (IMC)

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.

Learning Objective 2: Describe the stages involved in developing effective communication.

Communication development process

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.

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 their 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

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 likes to bring their customer to purchase stage from other five stages. Therefore
it create 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 monitor 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 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. Working 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:

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.

f. Purchase: Sometimes customers are having strong desire to buy the product but due to
affordability or any other environmental character, 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
purchasers and loyal customers.

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 their in the message, we will understand AIDA model in detail.

1. 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.
• Interest: Once the customer provides enough attention towards the
communication, organization should stimulate it to create interest.
• Desire: The interest created should be forced in the customer mind so that he will
develop desire towards the product.
• Action: Strong desires should be turned into action. Hence company should
provide the advantages of purchasing of the product in their communication messages.

1. 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.

The negative emotions like fear guilt and shame are also used in the advertisement to
attract the customer.

Ø Rational appeals highlight on the desired benefits about the products. They highlight
quality, economy value or performance of the product.

• 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.
 1. 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
1. Copy Print, TV, outdoor, online
1. Illustration Print, TV, Outdoor, online
1. Color Print, TV, outdoor, online
1. Pictures Print, Outdoor, online
1. Message size Print, TV, Outdoor
1. Shape Print, Outdoor, Online
1. Words Print, TV, Product, Outdoor
1. Sounds Radio, TV, Online, Outdoor
1. Voice Radio, TV, Online
1. Body language TV, Online
1. Texture Product, Print, Online
1. Scent Product
1. Distinctive formats Print, Online, Outdoor

Print advertisement Message format:

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!

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.

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, Reyd 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.
Target Customer Feedback

The communicator collects the feedback on the promotion campaign to assess how many of
target customer 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.

Learning Objective 3: Analyze budget allocation decisions in marketing communication.

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.

Affordable method: The 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.

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.

Competition 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.

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.

Learning Objective 4:
Understand the fundamentals of advertising and sales promotion.

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.

Types of advertisements

• Ø Institutional advertising: The objectives of advertisements are to enhance the

image of the company rather than selling the product.
• 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.

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.

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.

Basics of Public Relations

Public relations (PR) are 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.

Methods of public relations:

• 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.

Advantages of public relations:

• 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 product
• It helps in publicizing the products.

Role of public relations in 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 looked towards the public relations
rather than advertisements. For example, Cadbury chocolate warm issue or cola pesticide issue in
which the public relations is used more than the advertisements. The firms public relations
should be blended smoothly with the other promotion activities within the company have overall
integrated marketing communications effort.

Summary

i. Promotion mix is an assortment of advertising, sales promotion, public relation, Personal

selling and direct marketing.

ii. Some of the promotion objectives are awareness, knowledge, liking, preference, conviction
and purchase.

iii. 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.

iv. Advertisement allocation can be done on the basis of affordable method, percent of sales
method, competition and objective and task method.

v. Advertisements are classified as institutional advertising and product advertising.

vi. Media planner have Broadcast media, print media, outdoor media, online media and other
Medias to allocate the budget.

vii. Trade promotions are provided to channel members.

viii. Conference and exhibitions are examples of business promotion tools.

ix. Lobbying and press conference are tools of public relations.

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MB0030-Unit 13-Personal Communication

Channels
Unit 13 Personal Communication Channels

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 Objective 1: Define the personal selling

Personal selling

The communication technique in which sales people builds the personal relationship with
customers to generate the value for the organization.

The value may be sales for the sales force 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 sell the medicine to
them.

Nature of personal selling

Personal selling has experienced the paradigm shift. There was time when sales jobs are
perceived to be low. The emergence of modern corporations and rise of new India is in dire need
of professional selling. Now days 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 the 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 reach the products to the customer destination. For
example, A sales person working for transport or courier company reaches the goods to 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- medical representatives.
5. Sales engineer: In this position, the sales executive is technical expert and works with
nontechnical sales executive to provide assistance on technical information sought by the
customer.

Approaches to Personal Selling

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 made.

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
continue this process till the purchase has made.

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, generate the
alternative solution and evaluate them. Then he works with particular solution till the customer
purchase.

Situations That Favor Personal Selling

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 to carry advertisement campaigns.

4. Product can be customized and

5. Market is concentrated.

Advantages and Disadvantages of Personal Selling

Advantages

• It can be customized
• It can focus on prospective customers.
• It results in the actual sale, while most other forms of promotion are used in
moving the customer closer to the sale.

Disadvantages

• It is costly to develop and operate a sales force.

• It is very difficult to attract upper class people.

Learning Objective 2: Analyze the sales management techniques.

Sales management

Deciding the sales territory: Territory is defined as the geographical boundary set for sales
executives to work. 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.

Sales force size: The sales force size is decided by the work load method. Work load method
consists of

a. Identification of customers and grouping them into different categories.

b. List out the activities sales executive has to perform.

c. find out the time available for selling and non selling activities of sales executives.

d. Analyze the number of calls one has to do in a particular period.

e. calculate the number of sales people required.

Sales organization: sales activities in the organization are allotted on the basis of geography
(Bangalore, Mysore etc), product (personal care, water purifier etc) customer (steel companies,
electric companies etc) or matrix type. This helps company to have better control over the sales
executives.

HR practices in sales management

v Recruiting:

Recruitment is a process of finding out candidates, who are encouraged to apply. Selection is
process of choosing some out of many candidates. 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 salesman 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 salesmen is from
out of 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. Salesman 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 salesmen 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 by giving 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) Salesman of Non-competing Firms: Salesman 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 found unit.

6) Advertisement: This is a system generally accepted by firms in recruiting salesmen.

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.

• Selecting: Selection procedure differs from firm to firm. Each firm has got its own
method in choosing men for employment. The qualities that the recruiters seek in men 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)

a) 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 is known as application blank
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, when filled in, gives a clear idea about the
candidate. Generally, it may contain the name, sex, qualification, age, experience, health, social
activities, references etc.

b) 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.

c) 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.

d) Personal Interview: This is an important step in the process of selection. Only the screened
applications are considered for selection and the firm sends out interview letters. Personal
interview is a must. By 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.

e) Tests: Test is an additional tool, with which the applicants are further tested to determine their
suitability to 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 man 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 man 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 salesman are also different.
f) Medical Examination: The important thing about any person, apart from all qualities and
eligibility, is that he must be physically fit for the job. Diseases and physical deficiencies of the
salesmen will affect the business. As such, selected applicants have to undergo medical
examination.

g) Final Interview and Appointment: The selected applicant is probably, called for a final
interview and his suitability is measured through different tests, physical reports etc. The job
must be explained to him 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. 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.

• 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., (born salesman) and/or they can
be sent for training programme. Some people think that salesmanship is born in man, but there
are only born salesmen, like born doctors, lawyer, engineers, teachers etc. However all these
people need training to call them qualified, and so also is the case with salesman. A man may
have interest in the profession. The interest can be fully developed, through proper training. One
attains perfection, self-development etc., 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.

Advantages of Training to Salesman

1) A trained salesman always wins customers by systematic approach.

2) Salesman acquires better understanding of the firm, as to its past history, policies and
procedures and this helps the salesman for effective dealings.

3) A trained salesman takes less time in concluding a sale-early selling maturity.

4) A trained salesman brings increased volume of sales, in turn, more profit to the firm and
himself.

5) A trained salesman 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 relation is created among the customers through reducing customer’s complaint,
increasing brand loyalty etc. Customer’s satisfaction is gained.

The ability of the salesman is increased by expert knowledge.

9) Controlling of salesman 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 salesman needs less supervision.

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.

Training Needs of Salesmen at Different Times:

New Salesmen 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 Salesmen need

1. The above five items

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

7. Attitude or moral training

Supervisors Need:

1. Skill needed by others in discharging duties

2. Ability to train others

3. Ability to organize

4. Ability to analyze and plan

5. Ability to evaluate and follow up

Training Methods:

For imparting training to the salesman, 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-salesmen 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 salesman. 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
salesmen.

(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. Here an actual case or an imaginary case is
given as a problem to be solved, to the different groups. The case or the problem may be typed or
printed. Each group is asked to understand the problem and draw a conclusion. After this, 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 salesmen in correcting their own views. It is suitable for a small group. It is slow and costly.

(d) Conference Method: Sales conferences and sales meeting 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 are given
chances 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 this type of meetings or
conferences is 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 salesman and customers of 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 salesman 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 salesmen sit around a table along with a good discussion leader. They deal with the
problems of actual cases. Every participant takes part freely in discussing the problems and
solutions. Exchanges of new ideas take place advantageously.

(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 salesman is placed under an experienced or
senior salesman 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 chances to
observe the dealings 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 short-coming is found in the sales
trainee, they discuss how to overcome them. After some time, the sales trainee becomes a trained
and independent salesman. This system is good for traveling salesman.

(b) Sales Manual: It is a complied 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 salesman to
go through it and understand the ideas. It works as a ready-reckoner.

(c) Initial or Break-in Training: New recruits are given an orientation training so as to know
about the company and its products. He may be allowed to work for some time in the firm itself
to gain sufficient information about the products. After that he is sent to work in his field.
Apart from the above, salesman 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 salesmen who are widely
scattered. There are many firms which have permanent training departments like colleges.

Evaluation of Training: Having trained the salesmen, 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 salesman to discharge his job efficiently.

2. To tell him what to do.

3. To guide him how to demonstrate.

4. To allow him to practice or perform it.

5. To check him in his performance.

• Motivating: In this stage organization identify the attributes that motivates the
sales executive to perform well. Some executive may require money and others may
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 serves as motivators. The non financial incentives include
promotion, recognition and awards are included 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 information are compared against the set
standards. On the basis of evaluation report incentives are announced, if required sales
executives are motivated and trained.
• Compensation: sales executives are compensated on 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.
 • Quota: These are the targets set for the sales executive for a fixed period
• The quota can be of different types. They are
• Sales quota: Here sales executives are asked to sell on particular volume. For
example, 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 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 5000 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 takes
promotional activities. In the afternoon they meet distributors and in the evening they
sends all the report to company and checks 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.

Personal Selling Process

1. Lead generation: Identification of prospects is first step in personal selling process.

Organizations’ generates the lead through customer references, trade association, customer
directories or through cold calling.

2. Lead evaluation: All the methods used for lead generation may not be genuine. For example,
after do not call registry option from telecom department, most of the cell phone users opted for
it. Customer who opted for such facility belongs 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
prospects bought in the past, what products he is now using and what are his attitude 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. For example, In Japan business meetings start in
the evening. If any company sells its product in china 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 attracting.
6. Providing solutions to customer: After the presentation and product demonstration if any
queries or ambiguity exists, then sales executive should handle the questions properly with lot of
attentiveness and should solve the problems of customer.

7. Order generation: This process is very important one in the entire personal selling process.
Some time sales executives feel how to ask for the order. Such executives usually will not get the
order. Handling customer at this stage is also very difficult. Customer may get all the
information from sales executive and then show their reluctance to buy. Sales people also face
unrealistic expectation 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 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 repeated purchase.

Learning Objective 4: Identify and discuss the major forms of direct marketing.

Direct Marketing

1. 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 case BPOs there are 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.

2. Catalog marketing: According to Philip Kotler catalogue marketing is ‘direct marketing

through print, video or electronic catalogs that are mailed to select customers, made available in
stores or presented online’. The growth of catalogue marketing in India is in nascent stage. The
notable example in this type of marketing worldwide is J.C. Penny.

3. Kiosk marketing: organizations spread 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 with children stopped at Kiosk and got the information from the company.
The objective of campaign is to create awareness about the product among the target customers.
4. Online marketing: Marketing the organization’s product on the virtual medium

In this format buyers and sellers exchanges the products on the internet. Organizations sell their
products directly to consumer ( called B2C), uses trading networks or auction sites to reach new
customers and serves to current customers ( called B2B) and encourages one customer to sell the
product to the another customer ( called C2C).

To do the business on the internet organizations create an effective website, place the ads and
promote it online, create web communities, and uses e- mail. The other sides of E- Commerce
are problems of profitability and legal and ethical issues.

Summary

• The sales force size is decided by the work load method

• The communication technique in which sales people builds the personal
relationship with customers to generate the value for the organization.
• According to Philip Kotler catalogue marketing is ‘direct marketing through print,
video or electronic catalogs that are mailed to select customers, made available in stores
or presented online’
• Organizations’ generates the lead through customer references, trade association,
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.

Copyright © 2009 SMU

Unit-14-Customer Relationship
Management–An Overview
Unit 14 Customer Relationship Management – An Overview

Introduction
In the marketing world managers quite often says ‘retaining customer is more important than
acquiring one’. We will examine the importance of this sentence. The organization uses
communications tools to make their 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 big database of customer. 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 Objective 1:
Explain the meaning, need and relevance of customer relationship management.

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.

Definitions of Customer Relationship Management

Berry defines CRMS as “attracting, maintaining and– in multi-service organizations—

enhancing customer relationships.”

Berry and Parasuraman define CRMS as “attracting, developing and retaining customer
relationships.”

In industrial marketing, Jackson defines CRMS 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 customer; 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 help 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.

Learning Objectives 2: Mention the forms of relationship management.

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 alliance.

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.

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:

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.

Unit 15-International Marketing

Management
Introduction

In the previous chapters 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 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.

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 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 difference between domestic
marketing and international marketing are listed below.

International
Characteristics Domestic Marketing
Marketing
Single culture and in some cases multi
1. Culture Multi culture
culture.
1. Data accessibility Very difficult Easy
1. Data reliability Very Low High
1. Control difficult Relatively easy.
1. Consumer Vary from country to
Vary in small extent
preferences country
1. Product mix Adaptability required Standardization required.
1. Business operation More than one country Home country only
1. Currency exposure Required Required only if it into the importing.

Advantages of international marketing:

 1. International marketing provides growth opportunities for the companies whose domestic
market is maturing. For example, General motors focusing 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 large employer after agriculture and retail.
4. International market also acts as survival place for the companies. If one market become
unattractive either they establish their operation in another country or outsource the major
functions to streamline the businesses.
5. It helps in improving the standard of living in the country.

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 good, 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. For 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 it being assumed that an item which
sells well in one country will be equally successful elsewhere.

Learning Objective 2: Analyze the appropriate entry strategies for the firm in international
market.

International Market Entry Strategies

Organizations that plans to go for international marketing should answer some basic questions
like

a. In how many countries the company would like to operate?

b. What are the types of countries it plans to enter?

To answer the above questions 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
1. Civil liberties
1. Control of corruption
 1. Government effectiveness
1. Rule of law
1. Health expenditure
1. Education expenditure
1. Regulatory quality
1. Cost of starting a business
1. Days to start a business
1. Trade policy
1. Inflation
1. Fiscal policy
1. Consumption
1. Competition

Once the market is found to be attractive companies should decide how to enter this market.
Companies can enter international market from any 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 techniques of selling the goods produced in the domestic country in a foreign
country with some modifications. For example, Gokaldas textiles export the cloths 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 techniques 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 the 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 type 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 invest 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 invest 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.

Approaches To International Marketing

The orientation towards the market varies with a company to company. Each one adopts
different approaches on the basis of their expertise or strength of the company. Some companies
adapt same product for all the markets while others differentiate to each countries. In this context
we would like to know what are the common approaches adopted by the company in the
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 thinks international
markets are secondary to its domestic markets.

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 where as 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 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.

Learning Objective 4: Asses the importance of components of marketing mixes in the

international market.

International Product Policy

Customer satisfaction towards company offerings will be positive if they able to meet their
needs. Therefore product planning became integral part of 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 adopt the
different communication strategy in the foreign market. Colgate sells its toothpaste in a
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 understand 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
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 the 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 adoption 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 communication
strategy same as in the other country or change according to the local market.

International Promotions Policy

Communication in the international market is very challenging. There exist many languages and
dialects and different perceptions about communication strategies. In some countries there are
regulations on the advertisements and sales promotions. In India alcohol advertisements are
banned. In this section we are discussing what the communication strategies the company should
adapt are and what are the barriers to it. The marketer may face the language barrier, culture
barrier, legal barriers in some countries. In Saudi Arabia using women in advertisements are
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 and cost in different
countries.

Global promotional program will have three set of objectives. First, 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 can not 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 should
not use white color as it is considered only for mourning. Communication should not contain
anything using cow in the 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.

Global marketer also uses sales promotion, Public relation 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 relation 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 wishing 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.

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
consumer 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 s8upported within the advertisements by a wide variety of pictorial
illustrations.

Brand positioning: As we discussed in the product standardization the debate exist for brand
communication standardization or adaptability. We will discuss the various factors that influence
the opting the single or multiple positioning strategies.

a. The influence of local substitutes on 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 out of the china is of low price
and low quality whatever the effort the Chinese company does in other market will fail.
2. Patriotism of the people and their perception that their national brand s 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 on the following factors

1. Brand image in the market.

 2. Consumer lifestyle and brand influence
3. Branded sales versus unbranded sales
4. Brands 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. Brands 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

Learning Objective 4: To find the importance of 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.

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.

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 period 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.