Thursday, April 10, 2008

Indian Marketing-by Dr. Prasad Kulkarni

INTRODUCTION TO INDIAN MARKETING

Introduction:

Marketing is an activity which can be seen every where. Any time you try to buy something, marketing has a role to play. It is often viewed by many as being advertising or sales promotion or marketing research. But it is a concept much larger than any of them or all of them put together. Marketing consists of all activities designed to create exchanges which satisfy human or organizational needs or wants in a way that brings profit for the firm. It performs the task of both identifying and satisfying customer needs. This helps business enterprises in anticipating customer demand and creating satisfied customers through conception, production, promotion and physical distribution of goods and services. No example can better illustrate this than the popularity of Mobile Phone. In less than fifteen years, mobile phones have become such an important part of our lives that many of us cannot think of a life without it.

This unit deals with meaning, importance and functions of marketing. The old concepts of marketing under which companies have conducted marketing activities and the modern concepts which are now being used are explained in detail.

Objectives

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

Define market and marketing.
Understand the concepts and functions of marketing.
Explain the importance of marketing.
Differentiate between types of marketing orientations.
Understand how marketing function has changed over the period.

Market and Marketing

What is a 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.

Based on the 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.

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.

Based on the Nature of Competition in the market

Perfect Market –It refers to a market or market situation where there is perfect competition. Competition is said to be perfect when (a) the sellers & buyers of a particular product are so many that none of them have to sell or buy at a single uniform price. (b) Price is determined by the market forces of supply & demand.

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.

Based on the Nature of Goods Sold

Consumer Goods Market –Definition: A Consumer Goods Market is defined as a market where the final output of the firm goes for the consumption of individual or household. 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...

Industrial Goods Market-Definition: A business market is defined as a market where output of one firm goes either as raw material, goods in process or as consumables of another industry.This market is also known as organizational or 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.

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.

Key Customer Markets Consider the following key customer markets ...

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.

Core Concepts of Marketing

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

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’.

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

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

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.

Product and Services

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

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.

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.

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.

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

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

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:-

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.

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.

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.

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.

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.

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.

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.

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

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

Marketing Orientations

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

The Production Concept

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

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

The Product Concept

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

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

The Selling Concept

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

The Marketing Concept

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

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

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

Table 1.1. Differences between Selling and Marketing Concepts

Selling Concept

Marketing Concept

1. Emphasis on Product

1. Emphasis on Customer needs and wants

2. Goal is to sell what is produced

2. Goal is to produce what is needed by

the customers

3. Aggressive Sales and Promotion used

3. All the departments of the company

work together for serving the

customers

4. Objective is profits through Sales volume

4. Objective is profit through customer

Satisfaction

The Societal Marketing Concept

This marketing concept emphasizes that the key task of the company is not only to determine the needs and wants of the target markets and delivering the desired satisfaction but also to preserve and enhance the consumers and society’s overall well being.

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

Summary

Marketing is a dynamic and all pervasive subject in business
The main functions of Marketing are Marketing Research and Information Management, Product Planning, Advertising and Sales Promotion, Selling, Physical Distribution and Pricing.
Marketing plays an important role in the economic development of a country like India. It is also very important from the customer and societal point of view as it helps improve the standard of living of people through better product and service offers.
Marketing as a concept has evolved over a period of time and has witnessed changes and modifications in its philosophy. There are five concepts which describe this development and offer ways to companies on how to conduct their business – Production Concept, Product Concept, Selling Concept, Marketing Concept and Societal Marketing Concept However, the first three are of limited use today.

Unit 2: Strategic Marketing Process

Introduction.

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.

Objectives:

After studying this chapter you should be able to:

1. Understand the marketing mix exists in the company

2. Describe the companywide strategic planning.

3. Discuss how to design marketing planning models

4. Prepare marketing planning for the company.

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.

Objectives:

To be a customer focused company providing state-of-the-art products & solutions at competitive prices, meeting the demands of Quality, delivery & service.
To generate internal resources for profitable growth.
To attain technological leadership in defence electronics through in-house R&D, partnership with defence/research laboratories & Academic institutions.
To give thrust to exports.
To create a facilitating environment for people to realize their full potential through continuous learning & team work.
To give value for money to customers & create wealth for shareholders.
To constantly benchmark company’s performance with best-in-class internationally.
To raise marketing abilities to global standards.
To strive for self-reliance through indigenization

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.

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:

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

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

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

2. 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

Ø Invest strategy: In this position SBU

a. Should receive ample resources

b. Should support by well financed marketing efforts.

Ø 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.

Figure 2.2

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

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

Developing the new business portfolios

After analyzing the existing business of the company, let us discuss company’s future plans i.e. growth or downsizing. Company adopts growth strategies to become more competitive in the market, tap new opportunities and become preferred employer. Downsizing is used when the product or market became unattractive to it. The Ansoff Product-Market Growth Matrix is a marketing tool created by Igor Ansoff and first published in his article "Strategies for Diversification" in the Harvard Business Review (1957). The matrix allows marketers to consider ways to grow the business via existing and/or new products, in existing and/or new markets.

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 markets and sells their existing products.

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

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

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

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

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.

SWOT analysis

S W O T represents strengths, weaknesses, opportunities and threats. SWOT analysis helps company to implement its strategies by leveraging strengths, overcoming from weaknesses, tapping the opportunities and minimizing the threats

1) Strengths:

Following are the list of strengths that company should have

i. Valuable competencies or know-how

ii. Valuable physical assets

iii. Valuable human assets

iv. Valuable organizational assets

v. Valuable intangible assets

vi. Important competitive capabilities

2) Weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage. Resource weaknesses relate to inferior or unproven skills, expertise, or intellectual capital and Lack of important physical, organizational, or intangible assets.

3) Opportunities: Opportunities are those which match with its financial and organizational resources, can generate profits for long term and become strength in future.

4) Identifying External Threats

i. Improved technology

ii. Improved products by competitors

iii. Dumping of materials

iv. Unfavorable political situation

v. Potential of a hostile takeover

vi. Change in the demography

SWOT helps marketer to understand the current position of the company. It also helps to leverage its strengths to improve the performance and tap the opportunity that exists. Weaknesses and threats analysis helps company to overcome from them and become more agile.

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

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.

Planning, control and implementation.

Marketing planning:

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

Contents of marketing plan

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

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

i. What is the intended market and market segment?

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

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

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

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

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

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

e. Marketing strategy: This section should highlight on

i. Identifying the segmentation, target customer and positioning strategy

ii. 4P’s of marketing

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

i. What are the programs that company plans to undertake?

ii. Who are responsible to monitor these programs?

iii. How much time it takes to complete the program?

iv. How much will it cost?

g. Marketing Budget

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

Marketing Implementation and control.

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

Marketing implementation depends on the following factors:

1. Organization structure

2. Organization culture

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

Marketing control involves four steps. They are

a. Set specific marketing goals.

b. Measure the marketing performance

c. Evaluate the market performance against objectives

d. Take corrective actions

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

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

Characteristics of marketing audit:

1. Comprehensive.

2. Systematic

3. Independent

4. periodic

Components of marketing audit:

1. Marketing environment audit

2. Marketing strategy audit

3. Marketing organization audit

4. Marketing systems audit

5. Marketing productivity audit.

6. Marketing function audit

Summary:

· Strategic planning process involves defining the company mission, formulating the objectives, designing an appropriate business portfolio and coordination among functional strategies.
· BCG and General electric models are used to analyze existing market situation of SBU.
· SBU’s growth and downsizing strategies are determined by Ansoff model of product- market growth matrix.
· Marketing mix or 4Ps of marketing is the assortment of product, place, price and promotion.
· Marketing implementation depends on organization structure and its culture.
· Marketing Audit is used as strategic control tool.

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.

Objectives:

After studying this chapter you will be able to explain

a. The need of environmental scanning.

b. How external micro environment affects the company’s strategies.

c. The influence of external macro environment on company’s plans.

d. The difference between the external macro and micro environment.

e. The role of organization’s internal environment in dealing with opportunities and threats.

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.

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, public, company departments and intermediaries in creating the value to the customer. These forces are known as organization’s micro environment.

Micro environment: 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

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. Company is coming out with logistics parks in different cities; plan’s to hold seven million square feet of warehousing capacity in the next three years and investing Rs 10 billion in three years to meet that targets. The above example shows that company’s marketing plan should be supported by the other functional department activities also.

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.

Public:

These are micro environment 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.

3.4. Company’s macro environment.

Figure 3.2 Forces in the macro environment.

Macro Environment

3.4.1. Demographic environment.

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

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

1. Age structure of the population

2. Marital status of the population

3. Geographic distribution of the population

4. Education level

5. Migration

6. Occupation.

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

TABLE 3. 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONS TO TOTAL POPULATION

Age group

Population

Percentage

All Ages

1,028,610,328

100.0

0 - 4

110,447,164

10.7

5 - 9

128,316,790

12.5

10 - 14

124,846,858

12.1

15- 19

100,215,890

9.7

20 - 24

89,764,132

8.7

25 - 44

284,008,819

27.6

45 - 64

139,166,661

13.5

65 - 79

41,066,824

4.0

80+

8,038,718

0.8

Less Than 18

422,808,543

41.1

Less than 21

492,193,906

47.9

Age no stated

2,738,472

0.3

Source: C2 and C14 Table, India, Census of India 2001.

Marital status of the population:

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

Marital status

Number of Persons ( in '000)

Percentage to Total

Persons

Males

Females

Males

Females

Total

1,028,610

532,157

496,454

100

Never Married

512,668

289,619

223,048

49.8

54.4

Married

468,593

231,820

236,773

45.6

43.6

Widowed

44,019

9,729

34,290

4.3

1.8

Divorced / Separated

3,331

988

2,343

0.3

0.2

Source : C2 and C14 Table, India, Census of India 2001

Half of the Indian population falls into the never married category. This provides an opportunity for organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. Vintage group and shaadi.com are few to name in this industry. These companies are offering end to end solution to the customers who are looking for lavish wedding in the exotic locations both in domestic and abroad.

Geographical distribution of the population

Table 3.3; Rural – urban distribution of the population

Population

Persons

1,028,737,436

Males

532,223,090

Females

496,514,346

Rural

742,617,747

Urban

286,119,689

% Urban population

27.8%

Rural India with 74 crore population is a biggest market. Companies are trying to get a pie in this untapped market. For example, DCM Shriram limited, opened ‘Hariyali’ bazaars in rural market. These bazaars offer quality agriculture inputs, financial services, and farm output services.

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

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

Level of education

Absolute Numbers (000')

Persons

Males

Females

Literate

560,688

336,534

224,154

Literate without educational level $

20,023

11,361

8,662

Below Primary

144,831

81,148

63,683

Primary

146,740

83,525

63,215

Middle

90,227

55,940

34,286

Matriculation/Secondary

79,230

51,202

28,028

High secondary/ Intermediate/PreUnivercity/ Senior Secondary

37,816

24,596

13,220

Non technical diploma or certificate not equal to degree

386

259

128

Technical diploma or certificate not equal to degree

3,667

2,901

766

Graduate and above

37,670

25,533

12,137

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

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

Unit 4 Understanding the Marketing Information Systems (MIS)

4.1. Introduction

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

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

Objectives

After studying this unit, you will be able to:

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

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

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

Define the objectives of a typical marketing research study

Outline and explain the steps involved in Marketing Research process

Understand the importance of marketing research

Explain the advantages and limitations of the marketing research function.

4.2. Characteristics of MIS

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

Its characteristics are as follows:

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

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

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

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

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

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

4.3. Benefits of MIS

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

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

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

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

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

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

4.4. Types of Marketing Information

A Marketing Information System supplies three types of information.

(i) 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.

(ii) 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.

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

4.5. Components of MIS

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

(i) Internal Records System

(ii) Marketing Intelligence System

(iii) Marketing Research System

(iv) Analytical Marketing System

Fig 4.1 The Marketing Information System

Marketing Information System

Internal reports system

Marketing research system

Marketing Intelligence system

Analytical marketing system

Marketing Managers

Analysis Planning Implementation Control

Marketing Environment

Target markets Marketing channels Competitors Publics Macro environment forces

Marketing Information

Marketing decisions and Communications

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

4.6. Marketing Research

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

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

American Marketing Association (AMA) defines Marketing Research as –

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

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

5.7 Features of Marketing Research

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.

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.

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

4.8. Objectives of Marketing Research

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

Ø To understand why customers buy a product

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

Ø To assess competitive strengths and strategies

Ø To evaluate the effectiveness of marketing action already taken

Ø To assess customer satisfaction of company’s products/services

4.9. Marketing Research Process

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

Develop the Research Plan & Design

Collect the information

Analyze the information

Present the findings

Define the problem & research objectives

Fig 4.2 Marketing Research Process

Step I – Define the problem and research objectives

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

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

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

Step II - Develop the Research Plan and Design

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

General Format of a Report

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

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

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

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

Findings and Conclusions - Major findings and conclusions.

Recommendations – Recommendations for action.

Appendix and Bibliography.

4.10. Importance of Marketing Research

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

4.11. Advantages and limitations of Marketing Research.

Advantages: Marketing Research has several advantages

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

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

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

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

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

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

Limitations:

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

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

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

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

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

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

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

4.12 Summary

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

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

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

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

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

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

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

Unit 5 Consumer buyer behavior

5.1. Introduction:

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

After studying this unit you will be able to

1. Identify the characteristics those affect consumer behavior.

2. Explain different types of buyer behavior.

3. Analyze the consumer decision making process

4. Discuss consumer decision process for new products.

5. Examine the buying motives and behavioral models.

5.2. Characteristics affecting consumer behavior

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

I. Cultural factors:

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

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

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

a. Deprived

b. Aspires

c. Seekers

d. Strivers and

e. Global Indians.

v 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.

v 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.

v 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.

v 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.

v 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.

Figure 5.1 Figure 5.2

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.

5.3. Types of buying decision behavior: Henry Assael model.

Figure 5.3

High Involvement

Low involvement

Significant difference between brands

Complex buying behavior

Variety seeking buying behavior

Few differences between brands

Dissonance reducing buying behavior

Habitual buying behavior.

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

Table 5.1

LG GR T-282 GV/GE

Akai D186 TT DX

Electrolux Kelvinator 386

Defrost system

Door Lock

Adjustable Shelves

Moisture and Humidity Control

Deodorizing Ability

Water Dispenser

Defrost system

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

Dissonance reducing buying behavior:

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

Variety - seeking buying behavior.

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

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

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

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

Habitual buying behavior:

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

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

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

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

d. Use classical conditioning theory to create advertisements.

5.4 . Consumer buying decision process.

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

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.

5.5. Buyer decision process for new products.

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

Adoption process

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.

5.6. Buying Motives

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

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

Classification of buying motives:

Figure 5.7

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

o 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

i. Customer attaches the pride with the product.

ii. Customer try to imitate form others

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

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

v. Sexual appeal products are brought on emotional product motives

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

vii. Products those provide distinctiveness or individuality.

o 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

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

ii. The value for money provided by the product.

iii. Suitability and utility of the product.

iv. Durability of the product.

v. Convenience of the product.

· 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.

o Emotional patronage buying motives are patronizing the particular shop without logical thinking or reasoning. Emotional patronize buying motives include the following decisions

i. Appearance of the shop

ii. Visual merchandising in the shop.

iii. Reference groups influence about one particular shop.

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

v. Imitating the other reference groups’ members.

o 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

i. Convenience of the shop to the buyers.

ii. Value for money provided by the shops.

iii. Financial schemes and facilities provided by the shop.

iv. Availability of wide range of goods.

v. Reputation of the shop in the area.

vi. Sales force efficiency to convince the customer.

vii. Services provided by the sales executives.

5.7. Buyer behavior models.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Unit 6: Business buyer behavior

Structures:

6.1 Introduction

Objectives

6.2. Differences between consumer and business buyer behavior

6.3. Buying situations in industrial marketing

6.4. Buying roles in business buying process

Self assessment Questions 1

6.5. Factors that influences business buyers

6.6. Steps in business buying process.

Self assessment Questions 2

6.7. Summary

6.8. Terminal Questions

6.9. Answers to SAQ’s and TQ’s

6.1. 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.

After studying this unit you will be able to

Differentiate between consumer behavior and organization behavior.

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

Understand the buying roles and their importance in industrial marketing.

Analyze the factors that influence the organization buying process.

Examine the business buying process in the Industrial marketing.

6.2. Difference between consumer and business buyer behavior.

Table 6.1

Characteristics

Consumer Market

Business market

Demand

Direct

Derived

No of customers

Large

Few

Location

Dispersed

Concentrated.

Nature of buy

Personal

Profession

No of buying roles

Few

Many

Negotiations

Easy

Complex

Promotion

Advertising

Personal selling

6.3. 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

New Task

Straight re-buy and

Modified re-buy.

Ø 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.

Ø 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.

Ø 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.

6.4. 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

Ø Several individuals can occupy a given role (e.g. many users / influencers) and one individual can occupy multiple roles.

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

Ø 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.

Ø 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

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.

Influencers are people who provide the information required to evaluate the vendor and his products. Example: technical personnel.

Buyers: Purchasing persons who put the specification for vendors. These people also evaluate the vendor and select him.

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.

6.5. 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.

6.6. Steps in business buying process

Problem recognition

Product specification

Need description

Supplier search

Performance review

Order routine specification

Supplier selection

Proposal association Figure 6.1 Stage 1: Problem recognition

Ø 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.

Ø 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

Ø Characteristics and quantity of the needed item.

Ø For the complex products team assessment is required.

Ø 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.

Buying process

New task

Modified re-buy

Straight re-buy.

1. Problem recognition

√

2. General need description

√

√( some times)

3. Product specification

√

4. supplier search

√

(Sometime)

5. Proposal solicitation

√

√( some times)

6. Supplier selection

√

7. order routine specification

√

8. Performance review

√

Self Assessment Questions 2:

1. Trade show is an internal stimulus in

a. True b. False

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

a. True b. False

3. -------------- is also known as vendor selection stage.

4. ------------ stage qualified suppliers are invited to make formal presentations

5. The full form of MRO is -------,-------, and ------.

6.7. Terminal Questions

1. Differentiate between consumer and business buyer behavior.

2. Explain the buying situations.

3. Discuss the buying roles in the industrial marketing.

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

5. Describe the stages of business buying process.

6.8. Answers to SAQs and TQs

SAQ 1

1. Business market or industrial market.

2. Personal selling.

3. Business market.

4. Users.

5. False

SAQ2

1. External stimuli

2. False

3. Supplier selection

4. Proposal solicitation.

5. Maintenance, Repair, and operating items.

Answers to Terminal Question.

1. Refer 6.2

2. Refer 6.3

3. Refer 6.4

4. Refer 6.5

5. Refer 6.6

UNIT 7: Segmentation, Targeting and Positioning:

Structure:

7.1. Introduction

Objectives

7.2. Concept of market segmentation

7.3. Benefits of market segmentation.

7.4. Requisites of effective segmentation.

7.5. The process of market segmentation.

Self Assessment Questions 1

7.6. Bases of consumer market segmentation

7.7. Targeting

7.8. Market positioning

Self Assessment Questions 2

7.9. Summary

7.10. Terminal Questions

7.11. Answers to SAQs and TQs

7.1. 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.

Objectives:

After studying this unit, you will be able to:

· Explain the concepts and benefits of market segmentation.

· Mention the requisites of effective segmentation.

· Explain the bases of market segmentation.

· Describe the process of evaluating market segments.

· Identify appropriate target market for given segment.

· Analyze positioning strategies of companies on the basis of product differentiation

7.2. Concept of Market Segmentation

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

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.

7.3. Benefits of Market Segmentation

I. Understanding the needs of Consumers:

II. To adopt better positioning strategies.

III. Proper allocation of marketing budget.

IV. Helps in preparing a better competitive strategy.

V. Provides guidelines in preparing media plan of the company.

VI. Different offerings in different segments enhance the sales.

VII. Customer gets more customized product.

VIII. Helps Company to identify niche markets.

IX. Provides opportunities to expand market

X. Encourages innovations:

7.4. 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.

7.5. 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.

7.6. Bases for Segmenting Consumer Markets

Figure 7.3

Consumer Market Segments

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.

For example, HUL launched ‘pepsodent kids’ for small children.

b) Gender: Gender segmentation has long been applied in clothing, hair-styling, cosmetics and magazines. For example, Emami segmented its personal care business on the basis of gender. For women, it is having Emami naturally fair, and for men it is fair and handsome.

c) Income: Income segmentation is a long-standing practice in such product and service categories as automobiles, clothing, cosmetics and travel. However, income does not always predict the best customers for a given product.

For example, Baja Auto limited, a leading automobile company, different bikes for different commuters. For entry level (less than Rs35000) it is Bajaj CT 100, for mid segment (greater than Rs35000 but less than Rs60000) it is pulsar and for the upper segment greater than Rs 60000 Avenger and Eliminator is positioned.

3) Psychographic Segmentation: In Psychographic segmentation, buyers are classified into different groups on the basis of life-style or personality and values. People within the same demographic group can exhibit very different psychographic profiles.

a) Life-style: People exhibit different life-styles and goods they consume express their life-styles. Many companies seek opportunities in life-style segmentation. But life-style segmentation does not always work.

Figure 7.4

One of the most used psychographic profiling schemes is called VALSTM. Developed by SRI International, Inc., its first version groups the entire U.S. population into eight groups, based on the identities they seek and implement via marketplace behaviors.

The Eight VALSTM Group: - Using the self-orientation and resources dimensions, VALS defines eight segments of adult consumers who have different attitudes and exhibit distinctive behavior and decision making patterns. These segments are Innovators Thinkers, Achievers, Experiencers, Believers, Strivers, Makers and survivors

Innovators are successful, sophisticated, active, take-charge people with high self-esteem and abundant resources. They are leaders in business and government and are interested in growth, innovation, and change. They seek to develop, explore and express themselves in a variety of ways, sometimes guided by Principle and sometimes by a desire to have an effect or to make a change. They seek to develop, explore and express themselves in a variety of ways, sometimes guided by principle and sometimes by a desire to have an effect or to make a change. Image is important to them, not as evidence of status or power but as an expression of their taste, independence, and character. They possess a wide range of interests, are concerned with social issues, and show a cultivated taste for the finer things in life.

Thinkers are mature, satisfied, comfortable, reflective people who value order, knowledge, and responsibility. Most are well educated and in (or recently retired from) professional occupations, content with their career, families, and tend to center around the home. Thinkers have a moderate respect for the status quo institution, but they are open minded to new ideas and social changes. They tend to base their decision on firmly held principles and consequently appear calm and self-assured. Thinkers are conservative, practical consumers, and the universal values of performance, service, and price are more important than person values (e.g., social and emotional values).

Achievers are successful career ad work oriented people who like to feel in control of their live. They value predictability and stability over risk. They are deeply committed to work and family. Work provides them with a sense of duty, material rewards, and prestige. Their social lives are centered on family, church, and career. Achievers live conventional lives are phonically conservative, and respect authority and the status quo. Image is important to them: they favor established prestige products and services that demonstrate success to their peers.

Experiencers are young, vital, enthusiastic, impulsive, and rebellious. They seek variety and excitement, savoring the new, the offsets, and the risky. Still in the process of formulating life values and patterns of behavior they quickly become enthusiastic about new possibilities but are equally quick to cool. At this stage in their lives they are politically uncommitted, uninformed, and highly ambivalent about what they believe. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiences are avid consumer and spend much of their income on clothing, fast food, music, movies and video.

Believers are conservative, conventional people with commitment to family, church, community, and the nation. Living by a moral code is very important to them. As consumers, Believers are conservative and predictable and favor American products and established brands. Their income, education, and energy are modest but sufficient to meet their needs.

Strivers seek motivation, self-definition and approval from the world around them. They strive to find a secure place in life, unsure of themselves and low on economic, social, and psychological resource. Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don’t have enough of it and often feel that life has given them a raw deal. Strivers are impressed by possessions, but what they wish to obtain is often beyond their reach.

Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work and physical recreation and have little interest in what lies outside that context. Makers experience the world by working in it, building a house, raising children, fixing a car, or canning vegetable and have enough skill, income and energy to carry out their projects successfully. Makers are politically conservative, suspicious of new ideas, respectful of government authority and organized labor, but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a partial or functional pursuing pressed by martial possession other than those with a practical or functional purpose, such as tools, utility vehicles, and fishing equipment.

Survivors tend to be chronically poor, ill-educated, low skilled, elderly and concerned about their health. Preoccupied with the urgent needs of the present moment, they do not show a strong self-orientation. Their chief concerns are for security and safety. Survivors are cautious consumers. They represent a very modest market for most products and services but they are loyal to favorite brands.

b) Personality: Marketers have used personality variables to segment the markets. They endow their products with brand personality that corresponds to consumer personalities.

c) Social Class: It has a strong influence on preference in cars, clothing, home furnishings, leisure activities, reading habits etc. Many companies design products and services for specific social classes.

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.

7.7. Targeting

Targeting is defined as a group of people or organizations for which an organization designs, implements and maintains the marketing mix.

Once the bases for segmentation are selected, you have to identify the people or organization to which the product meant. Organizations may not differentiate their customer or it may have different customer for different products. In the next section we will study how to identify the target customers.

Selecting Target Market Segments

Depending upon the emerging patterns of market segmentation, homogeneous preference (showing no natural segments) as in case of soft drinks sale by Pepsi and Coca-Cola), diffused preference (showing clear preferences as in case of automobile market), and clustered preference (market showing natural segments as in case of occupation having impact on the types of clothes worn), a company chooses its market segmentation strategy.

A) Undifferentiated Marketing: It is a market coverage strategy in which the company treats the target market as one and does not consider that there are market segments that exhibit uncommon needs. The company focuses on the centre of the target market to get maximum advantage. The feature of ‘one product-all segments’ calls for presenting one marketing-mix for the target market. For example, the Coca-Cola Company sells Coke, Limca, Thums-up etc., and does not distinguish the target audience.

B) Differentiated Marketing: It is a market coverage strategy in which the company goes for proper market segmentation as depicted by its analysis of the total market. The company, therefore, goes for several products or several segment approach which calls for preparing different marketing mixes for each of the market segment. This strategy is followed by Hindustan Lever Limited which sells different soaps (Life Buoy, Lux, Rexona, Liril, Pears etc.) and each of them has its own market. Thus, the company creates segments in the soap market and not in toiletries market (including soaps, detergents, toothpaste, etc.)

C) Concentrated Marketing: It is a market coverage strategy in which company follows ‘one product-one segment’ principle. For example, Ashok Leyland produces large chassis of machine which can be used for buses and trucks. The manufacturer gets maximum knowledge about the segment’s needs and therefore acquires special reputation. This strategy can also help the small company to stand against a large corporation because the small company can create niches in its one-product one-segment approach by providing maximum varieties.

Choosing a Market Coverage Strategy: The below table depicts an overview of the three market coverage strategies will help to choose one for a particular company. Table 7.1 provides a snap-shot view.

Table 7. 1: Comparison of Market Coverage Strategies

Focus Undifferentiated Differentiating Concentrated

Marketing Marketing Marketing

Product One/Few Many One/Few

Segment All Many One/Few

Marketing-Mix One Many One/Few

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

Table 7.2: Choosing a Market Coverage Strategy

Undifferentiated Differentiating Concentrated

Marketing Marketing Marketing

Constrained More suitable Least suitable Most suitable

Firm Resources

Common usage Most suitable More suitable Least suitable

Products

Different need Least suitable Most suitable More suitable

Satisfying products

Given the above table, the firm’s resources and the product’s requirement in its present form (by all or few) would decide the choice of a particular market- coverage strategy. Finally, the competitor’s adaptation of a particular strategy should be considered for deciding company’s own strategy. For example, Coca-Cola starts segmenting soft drinks market and targets family, Pepsi cannot ignore it because it would be suicidal for them (segmentation would provide differentiation of products more easily).

7.8 Market Positioning

Each firm needs to develop a distinctive positioning for its market offering.

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target market’s mind. 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

Cosmetic

Godrej No1 Pears Dove

Lifebuoy Santoor

Low price cinthol High Price

Hamam

Medimix Himalaya cucumber

Ayurvedic

Type of product

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.

7.9 Summary

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

· The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data.

· Target marketing helps the marketer to identify the markets – the group of customers for whom the product is designed.

· Buyers can be classified into four groups based on brand loyalty status:

a) ‘Hard-core Loyal’ are those consumers who buy one brand all the time.

b) ‘Split Loyal’ is those consumers who are loyal to two or three brands.

c) ‘Shifting Loyal’ are those consumers who shift from one brand to another.

d) ‘Switchers’ are those consumers who show no loyalty to any brand.

· Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target customers’ mind.

Unit 8:Product management

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

Tangible

Intangible.

Inventoried

Simultaneous production and consumption.

Non perishable

Perishable

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

Objectives:

After studying this chapter you will be able to

Analyze how products are classified.

Discuss the product line and product mix strategies.

Describe the product life cycle.

Assess the stages involved in the new product development.

Levels of product.

Core product: This is the fundamental goods or service offered to the consumer. E.g. Hospital services

Generic product: This is the basic version of the product. E.g. Hospital having doctors, nurses, beds and laboratories.

Expected product: The minimum attributes consumer expects in the product. E.g. Hospital should have qualified doctors, good service and proper amenities.

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...

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

Product

Business products

Materials and parts

Capital items

Supplies and services

Consumer Products

Convenience goods

Shopping products

Specialty product

Unsought goods

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

8.3.1. Consumer products:

As these products are purchased by the final consumer for his own consumption, the market is very big. The large market 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

Convenience goods.

Shopping goods

Specialty goods

Unsought goods.

Convenience goods: The fast moving consumer goods, which are purchased regularly with less amount of effort.

i. These are purchased frequently.

ii. Customer involvement is very low.

iii. Price of the product is very low.

iv. Intensive distribution is used to reach the consumer.

v. The stock turnover is high.

vi. Aggressive promotion is required

Example: soaps and detergents.

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.

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.

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.

8.3.2. Business products classification:

Business products are purchased by the business consumer who uses this product as a material, part, capital item or service in producing his/her final product. For example, CET offers range of services to Birla copper, Jindal vijayanagar steel and Mukund limited. These services are used to develop the final products of these companies.

Table 8.3

Centre for Engineering & Technology

Center for Engineering & Technology (CET), an ISO: 9001 certified organization is the design, engineering & consultancy unit of SAIL. It has its Head Office at Ranchi, Sub Centers at Bhilai, Durgapur, Rourkela, Bokaro, Burnpur & Bhadravati, Unit Offices at Bangalore, and New Delhi for formulation of Interplant Standards for Steel Industry. As a solution provider for all project needs, CET had been rendering complete range of services not only to the Steel Plants under SAIL but also to various clients other than SAIL – both within and outside the country. Some of the important clients other than SAIL include EGITALEC (Egypt), Ashok Steel (Nepal), Chittagong Steel Mills (Bangladesh), Birla Copper, Mukand Ltd., Jindal Vijayanagar Steels Ltd., National Iron & Steel Co., Hindustan Zinc Ltd., National Mineral Development Corporation and Romelt- SAIL (India) Ltd., CET is also the nodal agency for acquisition and lateral transfer of technologies within SAIL plants.

The range of services includes conceptualization, project evaluation & appraisal, project consultancy, design & engineering and project management in the areas of iron and steel making. Apart from this, CET has been providing its services in the related areas like mine planning and development, infrastructure development, industrial piping, industrial warehousing, material handling system, industrial pollution control and environment management systems, water supply and sanitation, town planning, power projects, etc

(Source: www.sail.co.in)

Business products are classified into three categories. They are

Materials and parts.

Capital items

Supplies and services.

Materials and parts: These products are further classified as raw materials and manufactured material and parts.

Materials and parts.

Raw materials manufactured materials & parts

1. Natural products 1.component materials

2. Farm products 2. Component parts

Materials are classified into raw materials and manufactured materials and parts.

Raw materials are of two types firstly, Natural products and secondly, Farm products.

Natural products are extracted and used for further product development. For example, Orex minerals private limited supplies iron ore to Adani exports limited, Nobel resources and trading private limited and Sino steel India private limited.

Farm products are also used in further product development. For example, Parle agro division supplies required wheat for the production of biscuits.

Manufactured materials are further classified into two types. They are component parts and component materials.

Component parts. For example, Melco Precisions private limited supplies Heat resistant steel to Grasim, NTPC and NFL for further product development.

Component materials These are also called as original equipment manufacturer products. These companies’ products are directly fitted in the final product. For example, MRF tyres are directly fitted in Maruti Udyog Limited cars.

Capital items includes developing the building( for example, L & T and Siemens developing Bangalore International Airport) Fixed equipments( for example, Lenovo supplying computers to Manipal university) Accessory equipments( for example, Hindustan Everest tools limited sells its spanners and pliers to industrial customers) and office equipments ( HP supplying fax machine to Shristi automation private limited)

Suppliers and services: Supplies includes operating supplies( Castrol sells its lubricants to VRL limited) maintenance and repair services (Eagle securities service to corporate clients)

8.4. PRODUCT HIERARCHY

The different stages in the product and their attributes are listed below

Table 8,3

1. Need family :

The core need that underlies the product family

2. Product family :

All the product classes that can satisfy a core need with reasonable effectiveness.

3. Product class :

A group of products within the product family recognized as having a certain functional coherence

4. Product line :

A group of products within a product class that are closely related because they function in a similar manner or are sold to the same customer groups or are marketed through the same types of outlets or fall within given price ranges.

5. Product type :

Those items within a product line that share one of several possible forms of the products.

6. Brand :

The name associated with one or more items in the product line that is used to identify the source or character of the item

7. Item :

A distinct unit within a brand or product line that is distinguishable by size, price, appearance, or some other attribute.

(Adopted from Kotler Philip, Marketing Management)

8.5. Product line strategies:

Product line: The group of related products which uses same marketing effort to reach the consumer.

The product line identifies profitable and unprofitable products and helps in allocation of resources according to that. The product line understanding helps the marketer to take line extension, line pruning and line filling strategies of the company.

Pidilite industries, the adhesives and chemical company have following group of related products (or product lines) in consumer and business markets.

Consumer market.

i. Adhesives and sealants.

ii. Art materials and stationeries.

iii. Construction chemicals.

iv. Automotive chemicals

v. Fabric care

Business market.

i. Industrial adhesives.

ii. Textile chemicals.

iii. Organic pigment powders.

iv. Industrial resins and

v. Leather chemicals.

PRODUCT LINE DECISIONS:

The major product line decisions are

Product line length:

Product line stretching

Product line filling

Product line pruning.

Product line length: The number of items in the product line is called the product line length. Company should decide whether it requires longer chain or shorter length. The decision depends upon the objective of the company, competitive environment and profitability. If the chain is short company can add new products and if it is lengthy company can reduce the number of products. For example, Pidilite’s adhesives and sealants line has following 11 items in the product line. Hence the length of product line is 11

White Glue

Paper Glue

Glue Stick

Instant Adhesive

Epoxy Putty

Epoxy Adhesive

PVC Insulation Tape

Silicone Sealants

Contact Glue

All Purpose Glue

Maintenance Spray

Product line stretching: Company lengthens its products line either by stretching upwards or downwards or both ways. Line stretching decision depends on three situation

i. Company which operates in high end market may come up with mid class or low class targeted products.

ii. The company which operates in lower end of market may come up with high end market products.

iii. If the company operates in mid segment and comes out with low end product as well as high end product then it is stretching both ways.

To explain let me take an example of Maruti Suzuki limited. Company launched its first product Maruti 800 in the year 1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than Maruti 800 and targeted for higher segment. This shows that company extended its product line upwards or in short, upward stretch.

A Tata motor is planning to launch their Rs 1 Lakh car NANO in the year 2008. The company which was targeting upper class and middle class with their products SUMO and Indica respectively has stretched downwards to reach another segment. This illustrates the downward stretch.

Toyota Kirloskar limited which extended their line from Qualis and Corolla to Innova and Camry, is planning to come out with small car in India. This clearly illustrate the two way stretch of the product line.

Product line filling: Adding more items in the present line. For example, in the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800 and Maruti Zen. Here company was trying to fill the gap existed in the segment by introducing ALTO i.e. line filling.

Product line pruning: removing the unprofitable products form the product line. Toyota Kirloskar phased out their well known brand Qualis when it thought the brand is not adding value to the product line.

8.6. 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 8.4

Fabric care

House hold insecticide

Utensil cleaners

Fragrances

Personal care

Allied business

Ujala supreme

(9ml, 30ml, 75ml, 125ml,250ml)

Maxo cyclothrin coil

(8hr, 10hr, 12hr)

Exo dish wash bar

(100g, 200g 380g)

Maya

(8, 15, 20, 40 and 100 sticks.)

Jeeva Natural

(Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in 75gm packs. )

Continental speciale

Ujala washing powder

(25g, 500g, 1Kg)

Max vaporizer

(30ml, 45ml)

Exo dish wash liquid

(500ml, 125ml)

Marketing of godrej Tea

Stiff & shine

(20gm sachets, 100ml and 200ml bottles)

Max aerosol

(150ml,300ml)

Marketing of Ekta dhoop

Product mix width: The total number of product line that company offers to the consumers.

For example, Jyothy laboratories product mix has six lines. Hence width is 6

Fabric care

House hold insecticide

Utensil cleaners

Fragrances

Personal care

Allied business

Product mix length: The total number of items that company carries within its product line.

For example, Jyothy laboratories fabric care division has three items

Fabric care

Ujala supreme

Ujala washing powder

Stiff & shine

Product line depth: The number of versions offered of each product in the line.

For example, Jyothy laboratories’ Jeeva Natural is offered in three versions i.e. Coconut Milk with Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in 75gm packs.

Product mix consistency: If company’s product lines usage, production and marketing are related then product mix is consistent else it is unrelated.

Incase of Jyothy laboratories, all six product lines are FMCGs. Hence it is having consistent product mix. But ITC Company’s cigarette and cloth product line are totally unrelated.

8.7. Packaging and labeling.

Packaging: The process of designing and producing the container or wrapper for a product.

Packaging plays vital role in marketing a product. Some rural consumers identify and buy the product on the design or cover of the product. Packaging has other benefits to the consumers also. They are

It gives proper protection to the product.

It helps in bulk breaking.

Entices the customer to buy the product.

Companies those not give much importance faces severe problems in the market.

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:

Adopting a same package for entire product line.

Multiple packs for multiple products

Changing the packages continuously.

Labeling:

Labeling: it carries the information about the product and the seller.

Types of label:

Brand label: only brand name is mentioned on the packaging. For example, Dharawad mangoes pack, only brand name is highlighted.

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…

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…

8.8. New Product Development

New products are essential for existing firms to keep the momentum and for new firms they provide the differentiation. New product doesn’t mean that 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)

Tried to outsource the product from allover the world.

Development of ‘mule’ or prototype with 20bhp.

Designing the small engine

Thermodynamic simulations and final engine

Development of MPFI with help of Bosch.

Cost reduction and negotiating with vendors.

Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cutting weight. Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres to bear extra weight on rear wheels.

Stage 8: test marketing:

The product is introduced into the realistic market

The 4P’s of marketing are tested.

The cost of test marketing varies with the type of product.

Stage 9: commercialization: In this stage product is completely placed in the market and aggressive communication program is carried out to support it.

8.9. Product life cycle management:

The product which is introduced into the market will undergo some modifications over the period. Its sales also fluctuate. Therefore marketer is interested in finding out How sales changes over period? And what strategies best suits at that point? A product life cycle can be graphed by plotting aggregate sales volume for a product category over time. Generally the curve resembles bell shaped curve but it is not the only one type of curve. We can obtain style, fashion or fad style of product life cycles also.

Product life cycle (bell shaped curve)

According to this type of cycle a product passes through five stages:

1. Product development stage: In this stage company identifies the viable idea and develops it. Sales in this stage are zero but require huge research and development budget. Therefore company incurs losses at this stage.

2. Introduction stage: Company introduces the product into the market. As the product is new to the market, awareness is usually very low. Here company adopts heavy sales promotion and product awareness programs. The cost of product is very high and a sale is very low. At this juncture company charges high price to the customer.

3. Growth stage: Company gets experience over the period and now tries to get the maximum market share (take first mover advantage). Sales will grow rapidly resulting in lesser cost and better profit. Company reduces the price of the product and offers varieties and values in it. It focuses on building better distribution network and pushes the product through it. Therefore company needs less sales promotion. Number of competitors will grow and it forces company to keep tab on them.

4. Maturity stage:

a. Peak sales.

b. Low cost per customer.

c. High profits.

d. Competition based pricing

e. Communicating the product differentiation to consumer.

f. Improving supply chain efficiency.

g. Defend the market share

h. Industry experiences the consolidation.

5. Decline stage: In this stage, product sales and profit declines. Company should phase out weak items from their product mix. The advertisement budget of the company also comes down.

Other product life cycles:

1. Style: a style is a basic and distinctive mode of expression appears in the field of human behavior. For example, style appears in homes, art, and clothing. Once the style is invented it will lost for longer period.

2. Fashion: currently accepted or popular style in a given field for example, cargo jeans are now fashion with college going students.

3. Fad: a fashion that enters quickly, adopted with great zeal, peaks early, and decline very fast for example, when the pager is introduced, every body would like to have the product. But when people found mobile as alternatives the demand for the product went down drastically.

8.10. Summary:

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

Ø A product is having five levels i.e. Core product, generic product, expected product, augmented product, and potential product.

Ø A product can be classified as consumer products and industrial products.

Ø Product line length: The number of items in the product line is called the product line length.

Ø Product mix width: The total number of product line that company offers to the consumers.

Ø New products may be really innovative, different form others or imitative one.

Ø In the growth stage sales and profit of the company increases.

Unit 9 Services and branding strategy.

9.1 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.

Table 9.1. Share of services in GDP

Year

Share of services in GDP (%)

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

(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.

After studying this chapter you will be able to

Understand the constituents of brand equity.

Analyze the techniques of brand development

Evaluate the brand name selection strategies.

Know the characteristics of services.

Discuss the strategies used in service marketing management.

9.2. 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.

9.2. 1. Advantages and disadvantages of branding

Advantages

Helps in identifying the goods and services.

It stimulates the purchase decision of the consumer.

It helps in creating customer loyalty.

It helps the company to maintain the leadership position in the market( if they are already market leader)

Disadvantages

Requires huge investment.

An unsuccessful brand will bring negative image to the company.

Customer may not be willing to pay extra just because it is branded.

9.3. Brand equity

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

Components of brand equity:

Brand loyalty

Brand awareness

Perceived quality

Brand associations

9.3.1. Brand loyalty is consumer's commitment to repurchase the brand and can be demonstrated by repeated buying of a product or service or other positive behaviors such as word of mouth advocacy. True brand loyalty implies that the consumer is willing, 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.

9.3.2. Brand awareness: The number of customers exposed to the brand name. Higher the brand awareness, higher will be the brand equity. Organizations put all the effort in the introduction stage of the product to create awareness among the customers.

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

9.3.4. Brand associations: The attribute of the brand that customer associates with his/ her belief. A person may associate the brand for power, strength or protectiveness.

9.4. 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.

Product attributes

Ingredients: the product speaks about the innovative ingredients that company offers in the product. In the gore example the company explains the four way water pressure technology in the advertisement

Figure 9.1

Taste: Kiss an 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 and values

Peaceful

Bharti AXA

Happy

Nestle Kitkat

9.5. Brand Name selection:

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

It should suggest something about the product benefits and qualities; Frooti or appy Fizz

It should be easy to pronounce, recognize, and remember: Amul, Kissan, Ruchi

The brand name should be distinctive: cello, VIP

It should be extendable: Aashirwad, Wills

The name should be easily translated into foreign language: Mr. White.

It should be capable of registration and legal protection

9.6. Brand sponsorship

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

Manufacturer brand

Private brand

Licensing

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

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.

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

The consumer is not getting the tangible value.

The retailer is not making the enough returns from the sale of the branded goods.

Emerging issues in private labeling:

The private label strategy is effective, profitable and reality.

The retailer must understand the price, quality and willingness to pay.

The retailer must have a sufficiently large base of loyal customers in the store before introducing the private label.

The focus must be on consumer need and not any private agenda of the retailers

There must be stringent system for the private label production. Quality control is a must since there is no else to blame.

Private label must work to fill- in gaps in the category and not target the brand leader

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.

9.7. 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

New

Line extension

Brand extension

Multi brands

New brands

Figure 9.5

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.

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.

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

9.8. 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.

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.

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.

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.

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.

9.9. Strategies for service organizations.

Ø Service differentiation

a. Service firms offer different strategies to be recognized in the competition. Air Deccan started no frill airline services when all the companies were trying to put luxury in their airline services.

b. Service firms differentiate their services in supply chain management practices. For example, Air Deccan started booking their tickets only on website and telephone. It didn’t used agent network like other competitors.

c. Service firms differentiate on the basis of image too. To explain, Merrill lynch’s bull, and ING’s lion are two symbols differentiated them from the others.

Ø Service quality: Managing the quality is very difficult because of service characteristics. Few organizations try to standardize their services to improve the service quality. They worked on following dimensions to ensure better service quality

a. Reliability

b. Responsiveness

c. Assurance

d. Empathy and

e. Tangibility

Ø Service productivity: the service productivity can be increased in the following ways

a. Train the existing employees.

b. Recruit new employees who work better.

c. Increase the quantity of their services.

d. Provide physical evidence to the services.

9.10 Summary

Ø A brand is a name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers’.

Ø Components of brand equity are brand loyalty, brand awareness, brand association and perceived quality

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.

Ø Companies use line extension, brand extension, multi brands and new brand strategies to develop the brand

Ø Characteristics of services are intangibility, perishability, heterogeneity and inseparability of production and consumption.

Ø The dimensions of service quality are reliability, responsiveness, assurance, intangibility and empathy.

Unit 10: Pricing

10.1. Introduction

Price determination is very important aspect of strategic planning. Marketers fix the price of the product on the basis of cost, demand or competition. Dell, which allows customers to customize the product adopted flexible pricing methods. In contrast, Indian oil companies’ product prices are fixed by the government where company does not have any control. 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.

Objective:

After studying this unit you will be able to

Find out the factors that influence the pricing strategies.

Understand various approaches to pricing

Analyze the pricing strategies adopted by marketers

Know the situations when marketer should initiate the price cuts.

10.2. Factors affecting price decisions

1. Marketing objectives: There are four major objectives on which prices are determined. They are survival, current profit maximization, Market share leadership and product –Quality leadership. Survival strategy 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

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.

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.

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

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.

10.3. Cost based pricing:

I. Cost plus pricing: The method of adding markup to the total cost of the product

Procedure for calculating cost plus pricing:

Find out the variable cost per unit and fixed cost.

Estimate the number of units the company is intended to sell.

Calculate the Unit cost by the following formula

Fixed costs

Unit cost = Variable cost +-----------------------------

Unit sales

Find out the required mark up( desired return on sales)

Calculate the price by the following formula.

Unit cost

Price= -----------------------------------------------

(1- Desired return on sales)

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:

Sellers are more certain about the cost than the demand.

If all the companies in the industry use this method price become standard.

It is fairer to both buyers and sellers.

Disadvantages of cost plus pricing:

It ignores the demand and competition

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:

Find out the total fixed cost of the company.

Determine the price on which company would like to sell

Calculate the variable cost per unit.

Determine the break even volume by the following formula

Break even volume= Fixed cost/ (Price- variable cost)

Procedure to identify breakeven price

Determine the unit demand needed to break even at a given price.

Find out the expected unit demand at given price.

Find out the total revenue at a given price.

Calculate the total cost ( assuming fixed cost and total of variable cost)

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 needed to break even(i)

Expected unit demand at given price(ii)

Total revenue iii= (Price*ii)

Total cost iv( assumed fixed cost Rs 10 Lakh and constant variable cost Rs 12)

Profit v-iii-iv

Rs 16

250,000

340,000

4,800,000

5,080,000

-280,000

Rs 18

166,667

180,000

3,240,000

3,160,000

80,000

Rs 20

125,000

140,000

2,800,000

2,680,000

120,000

Rs 22

100,000

90,000

1,980,000

2,080,000

-100,000

Rs 24

83,333

60,000

1,440,000

1,720,000

-280,000

Rs 20 are the ideal price to break even.

10.4. 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 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

10.5. 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

NOKIA 1110 NOKIA 7610 NOKIA E90

Price: Rs 1349 Price Rs 6249 Price Rs 34599

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

Body cover Rs 1521

Slide Molding Rs 1123

Rare underbody Rs 8883

Roof End Rs 6396

Maruti Suzuki will not add above accessories to its product Swift but all these are optional customer has to pay different prices as mentioned in the picture for different products. Organizations separate these products from main product so that customer should not perceive products are costly. Once the customer comes to the show room, organization explains the advantages of buying these 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.

10.6 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

Discounts and allowances

Location pricing

Psychological pricing

Promotional pricing

Geographical pricing and

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.

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.

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.

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.

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)

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.

10.7. Initiating and responding to the price changes

1. Initiating the price changes

Ø Initiating the price cuts: Below we are discussing the situations when organizations think of initiating the price cuts

a. Companies reduce their price when they have excess capacity.

b. Falling market share in the face of strong market competition

c. Dominate the market through lower costs.

Ø Initiating price increases

a. Rising cost of raw materials.

b. Demand for the product exceeds the supply.

Ø Buyer reactions to price changes

a. Reduce price means reduced quality

b. Reduced price means company is not selling the product as expected.

c. Prices may go down further.

d. May avoid buying the product for some time

2. Responding to price changes

In the competitive world other manufacturer some times initiates the price changes. In such situations company should analyze two situations

Ø If the price cut of other company is not affecting our company, then hold current price and monitor the market. This situation helps to keep the profitability of the company.

Ø If the price change of other company affects the company then it should take any one of the following steps

a. Reduce the price of the product on par with competition or below the competition.

b. Increase the perceived quality of company and product.

c. Improve the quality of the product and then increase the price.

d. Launch different brand which can fight in the lower end.

10.8. Summary

Ø There are four major objectives on which prices are determined. They are survival, current profit maximization

Ø 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).

Ø The price elasticity of demand is defined as percentage change in quantity demanded to the percentage change in the price.

Ø Optional Product pricing strategy is used to set the price of optional or accessory products along with a main product.

Ø By product pricing is determining the price for by products in order to make the main products price more attractive

Ø Product bundle pricing is offering companies several products together at the reduced price.

Unit 11: Distribution Management

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.

Objectives:

After studying this chapter you will be able to:

Explain the nature and functions of marketing channels.
Analyze the decisions involved in the distribution management.
Evaluate the different distribution strategies adopted by the company.
Understand the importance of logistics management.
Discuss the growth and scope of retailing and wholesaling.

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:

Physical distribution: transporting and storing goods.

Communication: Marketing intermediaries promotes the company’s products. Here channel member provide the information regarding the product and pushes it to customer.

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

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

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.

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.

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.

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.

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.

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.

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.

11.4.1. 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

o Categorization

o Rewards & recognition

o Satisfaction level

o Communication

o 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 verticalof SCM function. Based on the category type, following privileges are given to partners

Parameters

Privileged Partners

Preferred Partners

Present Partners

Potential Partner

Strategic Partner

Strategic Partnership can done

---

Airtel Facilities for Partners

Office space, Canteen, Parking

---

Risk

Risk Sharing

---

Advances

Max. 5% of the buying within a fiscal and recovery in 12 equal installments

requirement justification

---

Engagement Meetings

High

Medium

Need Based

---

New Business opportunities

Preferred

Considered over potential

Considered over non registered

Rewards and Recognition

Consistent performance is the basis for rewarding and recognizing Partners. The reward and recognition a criterion is partner performance score card. The performance is analyzed for different partner categories.

Parameters

The list of parameters and their weightages are

Ranking Parameters

Weightages

Cost

Quality

Delivery

Development / Innovation / New Technology

After Sales service / SLA

Responsiveness / Flexibility

BACKWARD Compatibility / Scalability

Systems and Processes

Differentiators

Key differentiators for the parameters are

Parameter

Key Differentiators

Cost

Beating Inflation

Alternate Sourcing

Value Engineering

Continuous Cost Reduction Y-on-Y

Quality

Minimum Failure on Receipt

No infant Failure

First time Acceptance

Quality Certification

Consistent Quality in long run

Quality Culture initiatives

Minimum Outage

Eco Friendliness

Delivery

On Time, as required

Consistency

Handling Challenges

Delivery in Exigency

Development / Innovation / New Technology

Value Engineering

Time to Market

Competitive advantage

Value for Money / Value Added

Focus on R & D

Additional Revenue Stream

Go to Market

After Sales service / SLA

No Outage

Spares Availability

Meeting TAT

Preventive Maintenance

Response Time

Resolution within SLA

Detect-ability of the defects - online monitoring

24 X 7 Support

Responsiveness / Flexibility

Meeting Challenges

Speed of Response

Willingness to raise the bar

Understanding Customer needs

BACKWARD Compatibility / Scalability

Product Life Cycle - integration with Technology

Timely Investments

Breadth & Depth

Alignment with Airtel 's Strategy

Systems and Processes

Proactive Regulatory Compliance

Innovative Business Models implementation

Improvement Focus

Partners are selected based on the following criteria

o Covers all major categories

o Major share of business in the category

The scoring of each partner is carried by an evaluation team consisting of key users. Scores are compiled and ranking is carried out.

Award Categories

The award categories are dynamic and primarily depend on Airtel's Key thrust areas for the fiscal.

o Product

o Services

o Special

Award Announcement

Awards are announced and presented during the annual partnership meets. Consistent & good performers are recognized whereas bad performances are warned and punitive actions taken, as required, from time to time.

Partner Satisfaction

Partner Satisfaction is considered as important tool by Bharti Airtel to improve and further develop its internal processes and external processes with partners in the supply chain network. Partner Satisfaction is considered

o As an element of supply chain management including partnership, supply management and collaboration, quality management and reverse marketing

o As an analogical element with customer satisfaction including marketing research

o As analogical approach with 360° methodology.

In order to obtain an unbiased feedback, the survey is conducted by an independent external agency. Survey parameters are jointly decided by partner approval team and the agency. These surveys are conducted once a year for selected Partners. The confidentiality of the survey data is maintained by the agency and is not disclosed to Bharti Airtel.The outcome of the survey would include

o Area of improvements

o Internal Benchmarks

o Competition Benchmarking

o Best Practices

The results and feedback received from the partner satisfaction survey would be used to improve partner engagement processes at all levels of the organization. Partner touch-points would also be given feedbacks on their interaction & support effectiveness.

Partner Grievances

Bharti Airtel recognizes Partners as one of the key stakeholders of its business and hence it is important to address their grievances in transparent and structured manner. Issues related to ethics and integrity is handled by Ombudsman Process as per the Bharti Airtel Code of Conduct policy.

All other grievances are monitored, reviewed and resolved by Supply Chain Council. This council comprises of senior members of the supply chain function.

Partner identity is kept confidential in case of sensitive grievances like integrity issues.

Types of grievances

Grievances are broadly classified in the following categories

o Payments

o Dispute/Disagreement in business

o Unethical/Integrity/Code of Conduct violations

There are different channels through which Partners can register their grievances

o Partner Portal (to be activated soon)

o E-mails to helpdesk

Overview of Partner grievances handling process is given below

Partner Grievance Handling Stages

Partner registers grievance through available channels

Receive the grievance and forward to respective teams.

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

11.4.2. Evaluating Channel Members.

The channel members need to be evaluated on a regular basis to assess their performance. In case of Airtel cellular service provider channel members are evaluated on the basis of

SN Ranking Parameters Weightages

1 Cost 25

2 Quality 15

3 Delivery 15

4 Development / Innovation / New Technology 10

5 After Sales service / SLA 15

6 Responsiveness / Flexibility 10

7 BACKWARD Compatibility / Scalability 5

8 Systems and Processes 5

11.5. Introduction to Logistics management.

Providing the right product at 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

11.5.1. Major logistics functions

a. Warehousing: Goods produced at the factory may not be consumed simultaneously. Therefore companies need to store the goods. 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.

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

Air transportation.

Water transportation.

Surface transportation.

Pipelines and

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.

Self Assessment Questions 1:

1. A strategy in which company stores goods in maximum number of retail outlets is----------

2. In exclusive distribution maximum number of retailers enjoy the right to sell in their territory

a. true b. False

3. SCPCA method is used to analyze

a. channel motivation

b. Channel design.

c. Inventory management in channel

d. All the above.

4. Pipeline mode of transport is used to transport------------ goods.

5. Satellite is ------------type of transportation mode.

11.6. Introduction to Retailing

Retail sector has witnessed tremendous growth in the last few years. The major factors which drive the retail boom are change in consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government, increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate . The Indian retail market, which is the fifth largest retail destination globally, according to industry estimates is estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by 2015. Simultaneously, organized retail which presently accounts for 4 per cent of the total market is likely to increase its share to 22 per cent by 2010.

As per Associated Chambers of Commerce and Industry of India (ASSOCHAM), the overall retail market is expected to grow by 36%. The organized sector is expected to register growth amounting to Rs 150 billion by 2008. Retail is amongst the fastest growing sectors in the country and India ranks 1st, ahead of Russia, in terms of emerging markets potential in retail.

11.6.1. Characteristics of retailing:

i. Direct interaction with customers. Retailer is the final link between company and customer. Retailer understands the need of the customer and provides the proper solution to him. For example, neighborhood grocery store person knows his customer profile better. He reminds the customer of what to purchase and provides credit.

ii. Purchased in small quantity: Customer purchases small quantity of merchandise at the retail store. 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.

11.6.2. Functions of retailing:

Sorting: Retailers arrange the items in proper order so that customer can easily identify his goods or services.

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.

Holding stock: Retailer works as storage facility to organizations. Retailer holds inventory to meet the day to day needs of consumer.

Channels of communication: Retailer promotes the company product through word of mouth communication. The retailer location is also used for point of purchase display.

Transportation: Retailer undertakes door delivery order in case of durable goods. This feature is now adopted by the small grocery stores also.

11.6.3. Type of retailing:

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.

2) Department store: In this retail format apparel, home furnishing and consumables goods and services are sold. Each of the formats is considered as a different department and managed in the retail store. For example, Shoppers stop of Raheja group.

3) Supermarkets: According to Philip Kotler ‘ supermarkets are a relatively large, low 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.

4) 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

5) Discount store: These stores sell products at low prices with low margin. The store achieves their profit by generating high volumes. Subhiksha, a south India based retailer follows this format.

6) Off price retailers: This type of retailer buys the goods less than wholesale prices. These products are sold less than retail prices. For example, factory outlets in marathahalli Bangalore.

7) Super stores: These are very large stores where customer can purchase food and non food products. The super store includes category killers that carry large merchandise in 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.

Non store retailing: The mode of retailing where a company uses electronic media or direct selling medium to sell their products. For example, direct selling, Telemarketing, Automatic vending, online retailing and direct marketing. These examples will be discussed in detail in the Unit 13.

11.7. Wholesaling

According to Philip Kotler wholesaling is

‘All activities involved in selling goods and services to those buying for resale or business use’

Wholesale trading in India is changing in character. Since pre-Independence, it has been dominated by the traditional caste-specific trading community. However, today, foreign investors seem to be making a beeline for this traditional trade. Government approved Rs 256.79 crore worth of investment in the last three months. The Foreign Investment Promotion Board (FIPB) had approved 100 FDI proposals, out of which 33 are proposals to undertake wholesale trading in India by foreign companies. These are in a wide range of product categories — from shoes to animal feed, from color TVs and electrical equipments to hardware for doors and windows, to name a few. This is revolutionary change in the wholesale business because earlier foreign companies looking at wholesale trading in India were mainly interested in importing products to sell in the Indian market. But now these companies are coming in purely as trading firms and sourcing and selling domestically only. This may pose strong competition to the local trading population. The single largest investor in wholesale trading to have got Government approval is Cargill Holding BV of Holland, which is poised to invest Rs 238 crore for trading in commodities including food grains and animal feed, and other industrial commodities. Similarly, Sharp Corporation of Japan, which already has a manufacturing base in India, will now start trading in color TVs, VCRs and similar items from other manufacturers as well. The UK-based Randox Laboratories, whose products were earlier imported by domestic importers, will now be setting up its own subsidiary with an investment of Rs 15.5 crore for importing its own products and undertaking wholesale trading in them.

11.7.1. Functions of wholesaler:

1) Selling: wholesalers have well defined network of retailers. Hence, they can sell the company product in the large area.

2) Bulk breaking: wholesalers buy the product in large quantities and send in small quantities to retailers.

3) Warehousing: Wholesalers have huge space to store the goods. They help in reducing the inventory cost to the company.

4) Transportation: Some companies have agreements with wholesalers on transporting the goods to retailers.

5) Credit and risk taking: wholesalers provide credit to the retailers. By doing this they take the risk of finance as well as products.

6) Information: Wholesalers provide the information to company on retailers purchase, retail market characteristics.

11.7.2. Types of wholesalers

Merchant wholesalers. These are independently owned wholesalers who take the risk of possessing the titles. Often they are classified on the basis of product line. Full service wholesalers perform all the above mentioned functions. Limited service wholesalers’ offer controlled services to retailers and customers. For example cash and carry business of METRO in Bangalore.

Brokers and agents: These wholesalers do not take the title of goods and perform few functions. Brokers have knowledge of buyer and seller, and bring both to the negotiation. Agents represent the company or retailer or customer on a permanent basis.

Self Assessment Questions 2:

1) Tanishq is --------------type of store.

2) Discount store sells the product as low price and high margin

a. a) True b) False

3) Hypermarkets are examples of

discount store

department store

super markets

super stores.

4) Direct selling is a type of retailing

a) True b) False

5) Cash and carry business is an example of

Full service merchant wholesaler.

Limited service merchant wholesaler.

agent

Broker.

11.8. Summary

Ø Marketing channel perform physical distribution, transportation, warehousing, financing and risk taking functions.

Ø Channels are design on the basis of reach, profitability and differentiation objectives.

Ø Companies decide the number of marketing intermediaries on intensity required. They may use intensive distribution, exclusive distribution or selective distribution.

Ø SCPCA method is used to evaluate the channel design.

Ø Three major logistics functions performed are warehousing, inventory management and transportation of goods.

Ø Specialty stores carry large amount of merchandise but in a limited product lines like Textile or furniture product lines.

Ø Wholesaling is defined as ‘All activities involved in selling goods and services to those buying for resale or business use’

11.9. Terminal questions

1) Discuss the decisions involved in setting up marketing channels.

2) Explain the functions of marketing channels.

3) Describe the major logistics functions with examples.

4) Write a note on retailing.

5) Explain the different types of wholesalers.

11.10. Answers to SAQs and TQs

SAQ1:

1. Intensive distribution.

2. False

3. Channel design

4. Oil

5. Internet

SAQ 2:

1. Specialty store

2. False.

3. Super store.

4. True

5. Limited service wholesaler

TQ:

1. Refer 11.3

2. Refer 11.2.1

3. Refer 11.5.1

4. Refer 11.6

5. Refer 11.7

Unit 12: Promotion Management: Managing non personal communication channels.

12.1. 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.

Objectives:

After studying this chapter you will be able to

Explain the importance of integrated marketing communication.

Describe the stages involved in developing effective communication.

Analyze budget allocation decisions in marketing communication.

Understand the fundamentals of advertising and sales promotion.

Discuss the role of public relation (PR) in marketing communication.

12.2. Integrated Marketing Communications (IMC).

According to The American Marketing Association, Integrated Marketing communication is “a planning process designed to assure that all brand contacts received by a customer or prospect for a product, service, or organization are relevant to that person and consistent over time.”

Objective of Integrated Marketing Communication (IMC):

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

Reasons for the growth of Integrated Marketing Communication (IMC)

The growth of innovative promotional tools and need of integration of them.

Specialized media vehicles for niche target customers.

Growth of retailer dominated market and passing of control from manufacturer to the customer.

Growth of database marketing.

Wider geographical coverage through internet.

Higher accountability and performance linked compensation schemes.

12.3. Communication development process.

Preparing target customer profile

Selecting the message source

Identifying promotion objectives

Selecting channels of communication

Target customer feedback

Designing a message

12.3.1 Preparing target customer profile: Effective marketing communication starts with identifying the target customer to whom the communication is going to be 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

12.3.2. Identifying promotion objectives: Target customer profile provides inputs about his/her readiness to purchase the product. Customer may be in any of the six stages of hierarchy of effects. The six stages are awareness, knowledge, liking, preference, conviction and purchase. Every company 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, induces them to choose the brand, stimulates and looks 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 tries 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, asks its customer to go for test drive and experience the truth. Customer may be convinced about indigo but not developed 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 but due to affordability or any other environmental character, 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 to repeat purchasers and loyal customers.

12.3.3. Designing a message.

After deciding the communication objectives, Marketer turns to develop right message which should create attention, interest, desire or action (AIDA) by the customer. Before deciding what message should contain, we will understand AIDA model in detail.

AIDA model:

Ø 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.

Ø Interest: Once the customer provides enough attention towards the communication, organization should stimulate to create interest.

Ø Desire: The interest created should be forced in the customer mind so that he will develop desire towards the product.

Ø Action: Strong desires should be turned into action. Hence company should provide the advantages of purchasing of the product in their communication messages.

Deciding the message content.

Message content must have any one of the following appeals

Ø 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.

www.makemytrip.com- Joy

BMW fastest saloon car in the world- pride

Fevicol - humor

Wheel- love.

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

ICICI prudential- fear.

NIIT- if you are not studying at NIIT you are missing something- guilt

Rexona deodorant – shame.

Ø Rational appeal: these advertisements highlight on the desired benefits about the products. They highlight quality, economy value or performance of the product.

Dabur Amla – value appeal ( long Hair)

Lakme brilliance- Quality products.

Reliance India mobile- performance( works even in flood situations)

Reliance Infocom- Like the first three, the mobile phone must come to me as a necessity and not as a luxury- economy

Ø 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.

Message format: In this section we will discuss how message should look and stimulate the interest.

Constituents of message format:

Characteristics

Suitable media.

Headline

Print, Outdoor, Online

Copy

Print, TV, outdoor, online

Illustration

Print, TV, Outdoor, online

Color

Print, TV, outdoor, online

Pictures

Print, Outdoor, online

Message size

Print, TV, Outdoor

Shape

Print, Outdoor, Online

Words

Print, TV, Product, Outdoor

Sounds

Radio, TV, Online, Outdoor

Voice

Radio, TV, Online

Body language

TV, Online

Texture

Product, Print, Online

Scent

Product

Distinctive formats

Print, Online, Outdoor

Print advertisement Message format:

Pictures

Base line

Body copy

Sub Headline

Headline

Colors used: Saffron, Yellow, Red, Watermark brown, Black, Brown.

Size: 3.5inch breadth* 4.2 inch length

Shape: Rectangle

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12.3.4. Selecting the channels of communications

v The communicator may use company sales people, reference groups of customer, blogs, RSS, webinar, online communities and social networking sites to promote their products. These media are called as personal communication channels. This type of channel has led to the new ways of promoting the products. The word of mouth campaigns buzz marketing and viral marketing are some examples of personal communication channels.

Word of mouth communication: the personal communication between customers and their reference groups about the product

Buzz marketing: The marketing technique in which organizations create opinion leaders (people whose opinion are sought by others) and spread the product information to others.

For example, Gmail - Google did no marketing, they spent no money. They created scarcity by giving out Gmail accounts only to a handful of "power users." Other users who aspired to be like these power users "lusted" for a Gmail account and this manifested itself in their bidding for Gmail invites on eBay. Demand was created by limited supply; the cachet of having a Gmail account caused the word of mouth, rather than any marketing activities by Google.

Viral marketing: The marketing technique of using social networks on the internet to create the brand image.

Viral marketing is a phenomenon that facilitates and encourages people to send messages to others voluntarily Viral promotions may take the form of video clips, interactive Flash games, images, or even text messages. For example, Cadbury's Dairy Milk 2007 Gorilla advert was heavily popularized on YouTube and Face book.

v The communicators are using mass media like print (Newspaper, magazine, journals) Broadcast (radio, television) Outdoor (hoardings, Bill board posters) and online (e-mail, communities, groups, websites) to communicate their product attributes.

12.3.5. Selecting the message source.

Messages communicated by the celebrities and proper sources have high credibility among the target consumers. Many companies use well known actors and actresses, cricket players, and even cartoon characters to promote their advertisements. Colgate- Palmolive well known FMCG company used Indian Dental Association’s (IDA) recommendation to promote their toothpaste. As we have seen earlier Rahul Dravid, Amitabh Bachan and Karishma Kapoor are used as sources for Reebok, 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.

12.3.6. 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 how many of them really purchased it. Some companies go further and ask the customer to provide suggestion to improve the promotion campaign.

12.4. Budget allocation decisions in marketing communications

Media vehicle selection, number of insertions and message structure depend on the budget allotted for the communication program. A popular channel may charge more for advertisement but organization gets better viewership. A newspaper having high circulation charges premium for the advertisement but all the organization may not have enough budgets to support such campaign. Hence marketer would like to decide what is the budget for the communication program? And how shall it be allotted optimally? There are four different methods on which a media planner decides the allocation of advertisement budget.

12.4.1. 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.

12.4.2. 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.

12.4.3. 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.

12.4.4. 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.

12.5. Introduction to Advertising:

Please remember we already discussed definition of advertisement in the promotion mix concepts at the beginning of this unit. In this section we will discuss different types of advertisement and four important decisions management takes in developing advertisement program.

12.5.1. Types of advertisements:

Ø Institutional advertising: The advertisements objective is to enhance the image of the company rather than selling the product.

Ø 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.

12.5.2. Decisions involved in developing advertisement programs.

Ø Determining the advertisement objectives: Marketing management should determine the objectives of advertisements in the initial phase of the program. The objectives of advertisements are

i. Provide the information about advertisements and create awareness about the product.

ii. Highlight the uniqueness of company’s products over competitors.

iii. Reminding about the product and facilitating the thinking about the product.

Ø Determining the advertisement budget: We discussed four important techniques used in setting up communication budget in the beginning of this unit. In this section we will discuss the factors that influence the advertisement budget decisions.

i. The product stage in the product life cycle: In the introduction stage of product life cycle Company spends more money on consumer to inform about the product and to create the awareness.

ii. The market share of the company: If the share of the company is high, companies try to defend it by heavy advertisement and if it is low and market is attractive organizations promote company’s product heavily.

Ø Developing advertisement strategy: Advertisement strategy depends on two important factors. They are developing messages and choosing proper media.

i. Message development:

· Message should be developed only after preparing the complete target profile.

· Understand what interests target customer.

· Message should answer the objectives of the program.

· Message should be simple and can be understood by anybody.

· Use more interactive communication tools.

ii. Selecting advertising media:

· Assess how many target customers should view the communication message.

· Point out how many times a target customer will expose to the advertisement.

· Evaluate the impact of advertisement message on the target audience.

· List out the media habits of the target customers.

· Find the suitable media for type of product organization have.

· Prepare cost sheet and choose optimum media.

· Choose particular media vehicle (Zee channel, Times now, Prajavani, Hindu etc…)

· Decide how many times advertisement should be given in the year and also decide the continuity of advertisement.

· Allocate the media execution strategy on the basis of prime time and non prime time or seasonal and non seasonal decisions.

Ø Evaluating advertising: Communication department is interested in identifying whether the message given is effectively reaching the consumer and inducing them to purchase the product. Therefore they critically evaluate the advertisements through various methods. Some of the important methods through which advertisements evaluated are recognition method (showing the advertisement and asking whether thy have seen it before), aided recall (asking people to tell the brand they remember) and unaided recall (asking people if they can remember seeing any ads within an identified product category).

12.5.3. Characteristics of major media.

I. Broad cast media

Radio

1. Provides the up to date information

2. Reaches the local audience effectively

3. After FM revolution this is one of the fastest growing media.

Television

1. Expensive medium

2. Products can be well explained and demonstrated.

3. It provides wide geographic coverage

4. Image creation is difficult in this medium because of spontaneity.

5. Wide number of media vehicle creates the problem for media planners.

II. Print media

Newspapers

1. Continue to dominate local markets

2. Retail and classified advertisement are key

3. Important advantages include flexibility and community prestige

4. Newspapers offer powerful merchandising services like promotional and research support

Magazines

1. Divided into two broad categories of consumer magazines and business magazines

2. These categories are also subdivided into monthly publications and weekly publications

3. Specialty advertisements can be promoted through this media.

III. Outdoor Advertising

1. Includes billboards, painted bulletins or displays, and electric boards

2. The oldest and simplest media business

3. Effective in the high traffic areas.

4. Environmentalists oppose this type of advertisement.

IV. Online advertising

1. Contains characteristics of both print and broadcast media

2. Enhances two-way communication and encourages audience participation

3. Example of this media is e- mail.

V. Other Advertising Media

1. Transit advertisement: advertisements placed on the buses and moving vehicles.

2. Movie advertising: Inserting the advertisement inside the movie

3. In flight commercials: advertisements placed in the airplanes.

4. Using yellow pages and pamphlets to advertise the product.

12.6. Fundamentals of sales promotion:

Sales promotions are short term programs which encourages consumers purchase or sale of a product or service immediately.

According to the Institute of Sales Promotion,

"Sales Promotion comprises that range of techniques used to attain sales or marketing objectives in a cost effective manner by adding value to a product or service either to intermediaries or end users, normally but not exclusively within a defined time period."

Sales promotions are short term incentives and best suits for generating instant sales. Organizations that are into the retailing and managing it independently are using these to the maximum. According to AdEX India a TAM India, sales promotion accounted for 18% of total print advertisement.

Sales promotion methods according to Indian market:

Sales promotion uses three different types of tools. They are consumer promotion tools, Trade promotion tools and business promotion tools.

Consumer promotion tools: These promotion tools are directly targeted to customer. These tools stimulate an interest among target customer to purchase the products quickly. Some of the consumer promotion tools used in the Indian market is listed below.

(Source: AdEX- a TAM media company)

Price promotion: Organization offers price reduction on the product. For example, Rs 5 off on the purchase of Revive 200g.

Contest promotion: organization requests the customer to purchase the product to participate in the contest and win the prizes. For example, Britannia’s ‘Britannia khao, world cup jao’

Multiple promotions: Promotions offer includes more than one promotional offer. For example, Rs 30 off and a multipurpose jar free on the purchase of 1 liter pack of Halo shampoo.

Add on promotion: Promotion offers a free or an add on product (same or different) on the product. For example, an 8 ml Sunsilk shampoo sachet is free with 75g Pears.

Exchange promotion: Price of a product is reduced in an exchange of an old product. For example, bring your old color television and take home a Philips LCD TV for Rs 15,000.

Combination promotion: two or more products are offered together at a discount price or some incentive is given on a combination pack. For example, save Rs 10 on the combined purchase of Colgate toothpaste and tooth brush.

Volume promotion: allows additional quantity of product free on its purchase. For example, get 50g extra on purchase of 100g Tide.

The list of Top 10 companies that used sale promotions in the year 2007 in Indian market.

Maruti Suzuki limited

Reliance communications limited

Nokia Corporation.

LG electronics India ltd.

Pantaloons India limited.

HP India limited

Tata Sky limited

Planning consultant India limited.

Samsung India electronics limited.

Hero Honda motors limited.

Trade promotion tools: These promotions are targeted to retailers and wholesalers. The objective of this type of promotion is to get the self space, motivate to sell the products and promote brands in the local media. There are various types of Trade promotion tools are used in the market but we are limiting our discussion to major two types. They are discounts and allowances.

Discounts: manufacturer offers straight reduction in the list price on every purchase that channel member does in the particular period.

Allowances: This is the promotion value provided by the manufacturer to the channel member to advertise the product in the local media or display the product in the store.

Business Promotion tools: the promotion tools used to lead generation, reward customer and motivate salespeople for business customers. An organization uses conventions and trade shows. For example, Machine tool industry organizes Amtex exhibition in different places of the country. Organization also conducts sales contest to its sales executives to motivate them to sell more.

12.7 Basics of Public Relations

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:

Ø Lobby groups: these are established to influence government policy, corporate policy, or public opinion. These groups claim to represent a particular interest.

Ø News conferences and grand openings to attract media and customers.

Ø Using written and audio visual material to reach the publics.

Ø Social responsibilities of the organization have shown through public service activities.

Ø Preparing interactive website, communities and blogs on the internet.

Advantages of public relations:

Ø 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.

Ø It helps in keeping better relations with the investors.

Ø A good image with social groups creates word of mouth advertising.

Ø It helps in reducing the conflicts and misconception about company or product

Ø 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 it is the public relations 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.

12.8. Summary

Promotion mix is an assortment of advertising, sales promotion, public relation, Personal selling and direct marketing.

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

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.

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

Advertisements are classified as institutional advertising and product advertising.

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

Trade promotions are provided to channel members.

Conference and exhibitions are examples of business promotion tools.

Lobbying and press conference are tools of public relations.

Unit 13: Personal communication channels

Structure:

13.1. Introduction

Advertisement clutter and large product assortment posed 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

Objectives:

After studying this unit you will be able to:

Define the personal selling

Understand the process of personal selling

Analyze the sales management techniques.

Identify and discuss the major forms of direct marketing.

13.2. Personal selling:

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 for 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.

13.2.1. 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. At last marketing started getting its due. 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

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.

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.

Outside order: these are field executives who go to the customer place and get the order.

Missionary selling: sales executives provide the information and promote the company products- medical representatives.

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.

13.2.2. 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.

13.3.3. 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.

13.3.4. Advantages and disadvantages of personal selling

Advantages

v It can be customized

v It can be focused on prospective customers.

v It results in the actual sale, while most other forms of promotion are used in moving the customer closer to the sale.

Disadvantages

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

v It is very difficult to attract upper class people.

13.3. Sales management:

13.3.1. Deciding the sales territory: This is the geographical boundary set for sales executives to work in. The objective of setting up territory is to avoid the conflict between two sales executives. This will help to set particular quota for sales executives and shall be used for performance evaluation.

13.3.2. 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.

13.3.3. Sales organization: sales executive can be 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.

13.3.4. 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.

v 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.

Personal contact is necessary and it is better, because people are straight forward in tongue better than in pen. This is one-sided, but the effectiveness of such opinion is doubted, as there may be chances of telling only the good qualities of applicants. Moreover, only the names of such favorable persons are mentioned in reference, with pre-intimation. To overcome this, personal interview is essential.

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.

Interviews are also of two types: (a) Patterned and non-patterned. Under patterned interview, questions are designed and the same questions are asked to all, which is easy for comparison purposes. (b) In non-patterned interview, no standardized questions are asked. The applicant is allowed to talk freely. A few direct questions are asked. By this type of interview, the applicant gets a chance of speaking about his attitude and interest freely. The interviewer must be able to make an easy evaluation of the interview.

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.

v 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.

Training means it is the process of perfecting the salesmen for their work. Training programme are organized procedure or methods through which knowledge as well as skill, for a definite purpose, is acquired. By training, one can increase knowledge in a particular field. The salesmanship is not born but can be made effective through training.

Significance of Training: The present era of marketing world is full of stiff and cut-throat competition. The world is dynamic and not static. Customers are more benefit-oriented. Producers, in order to meet the ever-changing demands of the consumers, produce new products, new devices, and products with multiple uses and so on. Thus, training or repeated training is essential to keep the salesmen, with up-to-date knowledge, in respect of new or developed goods. Training gives scope for improvement.

Objectives of Training: The objectives are summed up below:

1. To facilitate the salesmen to acquire the technique and principles of salesmanship, process of sales, canvassing etc.

2. To bring down the labor turnover in the sales force.

3. To facilitate better sales performance.

4. To improve the relations with the customers.

5. To increase the efficiency of sales personnel.

6. To keep the salesman informed of the knowledge of products, market, competitors etc., to face all situations.

7. To lower the selling expense so as to increase the profits.

8. To maintain sound relation between employer and employee.

9. To develop better knowledge, and the ways and means to resist all situations.

10. To motivate the consumers more effectively.

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.

8) 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.

A: Aim of Training

C: Content of Training

D: Method of Training

E: Execution of Training

E: Evaluation.

1. Aim of Training: The whole idea behind the training is to make a recruit a good salesman. It is true that some of the qualities of a good salesman may be inherent in him, but not all qualities. It is the training which makes him to have all qualities required of a salesman. It must aim to make him a guide to the buyer taking into account his needs, problems etc. and to make him a salesman of effective power by which an interest in the product may be aroused and a desire to purchase may be created.

2. Content of Training: No hard and fast rules can be laid down as to the contents of training. The content of the training programme relates to the subject-matter of training. A training programme varies from firm to firm, because of the differences in products, markets, policies of the company, trainee’s ability etc. In general terms, sales training is the teaching of salesman and prospective salesmen how to do their jobs better. A good training programme facilitates the trainee-salesman to learn and understand the following contents:

(a) The knowledge of his job

(b) The products

(d) The markets and consumers

(e) The competitors

(f) The sales techniques

(g) The routine reports etc.

(a) The Knowledge of his Job: The job of a salesman is not complete, as soon as the transfer of goods takes place. The salesman of today carries more weight than the salesman who merely takes orders. He must understand what the firm expects of him; what power he possesses and how to convince the buyers about the company’s product and image. The company assigns responsibilities and powers, with which he works as a guide to buyers by projecting the merits of the products and on the other hand with profit to the firm. He is expected to do services to both the firm and the customers. He must have concrete plans as to his sales planning, meeting customers, sales talks, demonstration, presenting the goods, concluding sales, securing order, collecting dues, handling objections and complaints etc. Apart from these, he must be a keen observer of market conditions, competition, consumers’ likes and dislikes etc. He should co-operate with his senior fellows. Thus, he is trained with a purpose, the aim of his appointment being to know what the firm eagerly expects from him.

(b) The Products: A good understanding of the product is essential. The firm must give or ensure that the salesman has a thorough knowledge of the products, to be dealt with. In brief, they are:

1. Raw materials used in the product.

2. Manufacturing methods in brief.

3. Research and development undertaken.

4. Improvement brought out.

5. Its suitability to the consumers.

6. Its trade mark, brand, characteristics.

7. Its color, weight, packaging, quality control etc.

8. Selling points of the products.

9. Product merits and uses to consumers.

10. Limitation of the product performance.

11. Its price and discounts offered.

12. Service after sales and guarantee period.

13. Demonstration of its actual working.

14. Availability of the products.

15. Cost of operation and maintenance.

16. Comparative study of similar products.

17. Strength and weakness of competitors’ products.

18. The position of the product in the product line.

The above-said knowledge of the products is essential for a salesman so as to emerge as a creative salesman. When the salesman has a sound knowledge, he meets the public and converts them as buyers, in a better and more efficient way.

1) Brief history of the firm.

2) Its marketing policies.

3) Objectives and purposes of the firm.

4) Economic and social objectives.

5) Its position in the market field.

6) Credit policies, sales policies, personnel policies.

7) Capacity of the plant.

8) Personnel of the firm-directors, stock-holders.

9) Execution and handling of orders, sales accounting and collection methods.

10) Salary, commission computation, traveling and daily allowances etc. and their payment procedures.

11) Method of exercising control over the salesman.

12) Allocation of quotas and territories.

13) Marketing policies, pricing policies.

14) Handling of complaints and their adjustment. A clear-cut knowledge about the company is essential to the salesman to enable himself to work accordingly.

(d) The Markets and Consumers: Information about the market is an important and essential part of the training programme. The salesman must have a thorough knowledge of the size of the market, demand for the products and the area under the competitor’s side. Besides the knowledge of the market, salesman should know about the type of customers, buying motives, likes and dislikes of the products. Different types of customers need different types of approaches. People differ widely from person to person, sex to sex, age to age, place to place etc. Persons of different types require specialized way of persuasion. The salesman must adjust himself according to the nature of the customers. A blanket policy to all classes of people is not advisable.

(e) The Competition: Salesman must be given a good knowledge or comparative study of the selling activities of rivals. Study relating to comparison with the rivals as to the merits and demerits of the product is important i.e., strong as well as weak points. The salesman should know the rival firm’s policies, method of approaching the customers, how they are paid, the customers’ opinion, how their product is, how they fulfill their duties, the area they like or dislike, their selling-points etc.

(f) The Sales Technique: The sales techniques are the essential part in sales training. After the training, the salesman has to be sent to the field, where he has to sell the company’s product. He must be given exhaustive training in “Sales Process”. The selling points must be correlated and sales talk be applied at the appropriate situation. A born salesman has to be instructed with the various selling techniques in detail. In short, training on the following items must be imparted.

(a) Selling process.

(b) Method of gaining interview from consumers.

(d) Demonstration and presentation.

(e) Method of handling objections of consumers.

(f) Why salesman fails in the field etc.

(g) Routine Reports: Salesmen should be trained to know their routine works and submit their reports to the firm. The report may include:

(a) Amount of sales made.

(b) List of new customers.

(d) Collection of Outstanding dues.

(e) Competitor’s position in the market.

(f) Maintenance of Accounts of expenses.

(g) Demonstration and display of products.

(h) Action taken on complaints, grievances etc.

(i) The attitude of market in respect of competitors.

(j) Consumers’ suggestion if any.

The reports may be sent to the firm, daily, weekly or monthly etc. as directed. The salesmen are eyes and ears of the selling firm. The salesman must be aware of the method of reporting and its importance.

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.

It is important to note that even the trained or experienced salesmen need periodic training, called refresher training or follow up training. This is because of the changes in products, sales policies, changes in consumers and market, government policies, new developments, new ideas etc.

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 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.

v 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.

v 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.

v 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.

13.3.5. Quota: These are the targets set for the sales executive for a fixed period

The quota can be of different types. They are

v 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.

v 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.

v 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.

v 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.

v 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.

13.4. 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. Major part of this 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.

13.5. 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.

Unit 14 Customer Relationship Management

14.1 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 the 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.

Objectives:

After studying this unit, you will be able to:

· Explain the meaning, need and relevance of customer relationship management.

· Mention the forms of relationship management.

· Cite reasons for losing customers by organizations.

· Bring out the significance of customer relationship management.

14.2. Relationship Marketing Vs. Relationship Management

The relationship marketing approach considers customers as insiders to the business and aims at building a long term and never-ending relationship with them. The focus of relationship marketing approach centers on developing ‘hard core loyal’ customers with the idea of retaining them forever. A high degree of customers’ contact, commitment and services are maintained.

The relationship marketing approach has gradually taken the shape of customer relationship management. Relationship marketing has a narrow focus on the customers and focuses only on the marketing function of the organization concerned. On the other hand, customer relationship management focuses more widely on customers and on the entire functions connected with value creation and delivery chain of the organization concerned. The customer relationship management is a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches. The process invites total commitment on the part of entire organization in evolving and implementing relationship strategies that would be rewarding to all concerned.

Organizations have preferred the usage of the term ‘Customer Relationship Management’ rather than ‘Customer Relationship Marketing’. However, in practice, both these terms are used interchangeably.

14.3Definitions of Customer Relationship Management

Berry defines 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.

14.4. Forms of Relationship Management

An extensive review of literature reveals ten different but interrelated forms of relationship marketing as mentioned below:

1. The partnering involved in relational exchanges between manufacturers and their external goods suppliers.

2. Relational exchanges involving service providers, as between advertising or marketing research agencies and their respective clients.

3. Strategic alliances between firms and their competitors, as in technology alliances; co-marketing alliances and global strategic 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.

14.5. Managing Customer Loyalty and Development

Managing customer-development process is one of the critical dimensions of relationship marketing. Basically it involves a twin focus-customer catching, and customer keeping. ‘Customer catching’ is the process of attracting new customers (inviting new blood), while the customer keeping aims at the process of retaining the existing ones (encouraging old blood). The dynamics of managing customer loyalty and development are shown in the following figures.

Customer catching focus

Suspects

Prospects First-time

customer

(Awareness) (Exploration)

Disqualified

prospects

Customer keeping focus

Zero customer defection

(preventive & proactive)

Repeat Client Advocate Partner

Customer

(Expansion) ( Commitment )

Win them back

(curative and reactive)

inactive

ex-customers

(Dissolution)

Customer – Development Process:

Suspects

Prospects

First time customers

Repeat customers

clients

Members

Advocate

Partners

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.

14.6 Reasons behind Losing Customers by Organizations

It is said that cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers. Unfortunately, most marketing theory and practice center on the art of attracting new customers rather than retaining existing ones. The emphasis traditionally has been on making sales rather than building relationships. The focus has been on pre-selling and selling rather than on caring for the customer afterwards. Today, however, more companies are recognizing the importance of satisfying and retaining the current customers.

Today’s companies must pay closer attention to their defection rate and take steps to reduce it. The possible reasons for customer defection would include:

14.6.1 Price related reasons: A customer tries to match the price to pay for acquiring a brand and the value the brand could generate. If the customer perceives a mismatch between the price and the value, he would opt for a competitor’s brand. Also, if the price of brand for any reason goes beyond his reach, he would switch over to a low priced brand. Thus, the role of price in customer retention is very significant.

14.6.2 Product related reasons: In view of technological advancement, the new brand which makes market entry would be capable of offering better performance as compared to the already existing brand. This would induce the customers to make a brand switch over.

14.6.3 Services related reasons: The customer’s concentration is not only on the brand, but also on the accompanying services offered at three different stages--pre-sales, during sales and after sales. Any dissatisfaction as regards to services would cause the customer to move away from the brand.

14.6.4 Benefit related reasons: The customers may be attracted by various augmented benefits offered by the competitors. Such benefits may be more appealing and induce customers towards brand changes.

14.6.5 Competitor related reasons: Technological advancement, attractive offers, value added services, etc., offered by competitors would also draw the attention and induce customers towards brand switching.

14.6.6 Personal reasons: On the personal front, a customer would become a brand defector due to the following reasons:

· Moved away from the market area where the brand is sold.

· Role changes in life cycle and consequently leading changes in brand preference.

· Anger, disgust, distress developed within the process of product delivery.

· Sentimental reasons.

· Influence of other members of the family.

The organization must periodically analyze the reasons behind losing customers and accordingly develop a customer retention plan that would serve as the basic tool towards building a strong and long lasting relationship with customers.

14.7 Significance of Customer Relationship Management

· Reduction in customer recruitment cost.

· Generation of more and more loyal customers.

· Expansion of customer base.

· Reduction in advertisement and other sales promotion expenses.

· Increase in the number of profitable customers.

· Easy introduction of new products.

· Easy business expansion possibilities.

· Increase in customer partnering.

The customers are also benefited by relationship marketing in terms of improved service quality, personalized care, reduction of customer stress, increased value for money, customer empowerment, etc.

In today’s highly competitive business world, CRM is becoming the ultimate solution for both, customers as well as organizations. Any organization must have a clear idea as to why it loses its customers. This would help informing proactive and reactive measures to minimize or avoid the same. This chapter mainly focuses on the causes responsible for losing customers and deals at length, the various strategies that can be employed to build and maintain long term relationship with customers, enabling a reader to consolidate relevant strategies suitable to his business context.

Traditional Organizational Chart Vs Modern Customer – Oriented Company Organization Chart

Many managers who believe that the customer is the key to profitability considered the traditional organization chart as in fig. (a) – a pyramid with the president at the top, management in the middle, and front-line people (sales and service people, telephone operators, receptionists) and customers at the bottom – to be obsolete. Master marketing companies know better; they invert the chart, as shown in fig. (b) above. At the top of the organization are the customers. Next in importance are the front-line people who meet, serve, and satisfy the customers. Under them are the middle managers, whose job is to support the front-line people so they can serve the customers well. Finally, at the base is top management whose job is to support the middle managers. We have added customers along the sides of Fig. (b) to indicate that all the company’s managers are personally involved in knowing, meeting, and serving customers.

Broadening the concept of Relationship Marketing

Companies should realize that there are multiple constituencies important to organizational success other than customers. The stakeholders of an organization would include: investors, the financial community, vendors and suppliers, employees, competitors, the media, neighbors and community leaders, special interest groups, and government agencies. These stakeholders can affect and be affected by a company’s marketing programme. Adopting an integrated view of multiple constituencies has bottom-line implications. Kotter and Heskett (1992) found that firms that emphasized the interests of three constituencies--customers, employees and stakeholders – outperformed those that emphasized only one or two.

Figure Showing Integrated View of Multiple Corporate Constituencies

FOCAL FIRM

Employees

External goods suppliers

Investors and

Financial

Community

Ultimate

Customers

Service provider

(ad and marketing research agencies

Functional departments (interfunctional co-ordination

among production, finance, marketing, R & D, HRM)

Channel of distribution

(distribution and dealers)

Subsidiaries, divisions,

Strategic business units (SBU’s)

Completions (strategic aliances: technology, co-marketing and global)

Neighbours and

Community leaders

Government

agencies

Government-local

State, and central

(joint R & D projects)

Special interest

Groups in the society

Integration of Soft and Hard Versions of Relationship Marketing

At this juncture, it is necessary to clarify and elaborate the ‘soft’ and ‘hard’ versions of relationship marketing. Soft version of relationship marketing is more reminiscent of ‘humanistic relationship development’, whereas the hard version reflects a ‘utilitarian instrumentalism’. The soft version lays stress on the term ‘relationship’, thus conjuring up echoes of the relationship management. Because it strongly advocates that all management is basically relationship management and all managers are relationship managers. It invariably focuses on ‘developmental humanism’ as a foundation to build and nurture enduring relationships in marketing exchanges. On the other hand, the hard version puts the stress on the idea of ‘marketing’, that is something to be used dispassionately and in a formally rational manner. Various elements constituting both the versions of relationship marketing are shown in the following table.

Table 1: Integration of soft and hard versions of relationship marketing

Integrated Version Soft version Hard version

Relational exchanges with role clarity and relationship commitment

Empathy, empowering, envisioning, ethics & excellence

Leadership.

Accommodating spirit.

Trust and team spirit.

Involvement and inspiration.

Ownership of mistakes and ideas.

Negotiation and nurturing spirit.

Satisfaction beyond expectations.

Hopes of becoming better.

Integrity.

Pride, purpose and perseverance

Measure and manage economic and service performance.

Analysis, planning, implementation, and control of marketing programmes

Reversal of cycle of failure

Kill a culture of complacency and arrogance.

External marketing effectiveness.

Targeting, segmenting, and positioning.

External and interactive marketing.

Networks.

Goal attainment.

14.8 Social Actions Affecting Buyer-Seller Relationships

Good Things Bad Things

Initiate positive phone calls. Make only callbacks.

Make recommendations. Make justifications.

Candor in language. Accommodative language.

Use phone. Use correspondence.

Show appreciation. Wait for misunderstandings.

Make service suggestions. Wait for service requests.

Use “we” problem-solving language. Use “owe-us” legal language.

Get to problems. Only respond to problems.

Use jargon or shorthand. Use long-winded communications.

Personality problems aired. Personality problems hidden.

Talk of “our future together”. Talk about making good on the past.

Routinize responses. Fire drill and emergency responsiveness.

Accept responsibility. Shift blame.

Plan the future. Rehash the past.

Source: Thedone Levitt, The Marketing Imagination (New York: Free Press, 1983) p. 119. Reprinted by permission of the Harvard Business Review. An exhibit from Theodore Levitt, “After the Sale is Over”, Harvard Business Review (September-October 1983, p. 119). Copyright @ 1983 by the President and Fellows of Harvard College.

14.9 Summary

· The focus of relationship marketing approach centers on developing ‘hard core loyal’ customers with the idea of retaining them forever.

· The customer relationship management is a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches.

· Customer Relationship Management is about acquiring, developing and retaining satisfied loyal customer; achieving profitable growth, and creating economic value in company’s brand,”

· CRM is becoming the ultimate solution for both, customers as well as organizations.

Unit 15: International Marketing Management.

15.1. Introduction

In all 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 t suit the global needs. Company’s express their desire to enter into the international market because of the following reasons

It identified potential in the foreign markets for its products.

The domestic market is matured.

Existing customers demand for the international availability of organization’s products and services.

Objectives

After studying this unit you will be able to

Understand the nature of international market.

Analyze the appropriate entry strategies for the firm in international market.

Examine the approaches to the international market.

Asses the importance of components of marketing mixes in the international market.

Bring out the importance of country of origin effects.

15.2. Nature of International marketing concept

International marketing is defined as “The performance of business activities designed to plan, price, promote and direct the company’s flow of goods and services to consumers or users in more than one nation for a profit”.

A company that wants to sell their product in other than domestic market should understand the environmental factors, consumer behavior, market forces and other characters relevant to the international market. After understanding the definition several questions may arise in your mind like why marketer should go 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.

Characteristics

International Marketing

Domestic Marketing

Culture

Multi culture

Single culture and in some cases multi culture.

Data accessibility

Very difficult

easy

Data reliability

Very Low

High

control

difficult

Relatively easy.

Consumer preferences

Vary from country to country

Vary to the small extent

Product mix

Adaptability required

Standardization required.

Business operation

More than one country

Home country only

Currency exposure

Required

Required only if it into the importing.

Advantages of international marketing:

International marketing provides growth opportunity for the companies whose domestic market is maturing. For example, General motors focusing its strategies on the emerging markets like India

It brings the major portion of sales and profits to the company. For example, Unilever’s major revenue comes from the Asian markets.

It generates employment: Indian textile sector which exports majority of the product produced is large employer after agriculture and retail.

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 business.

It helps in improving the standard of living in the country. Increase in the affordability due to growth of IT sector in India.

15.3. The International marketing concept.

The marketing concept is the idea that a firm should seek to evaluate market opportunities before production assess [potential demand for 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.

15.4. International market entry strategies.

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

In how many countries the company would like to operate?

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

Political rights

Civil liberties

Control of corruption

Government effectiveness

Rule of law

Health expenditure

Education expenditure

Regulatory quality

Cost of starting a business

Days to start a business

Trade policy

Inflation

Fiscal policy

Consumption

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

Exporting

Licensing

Contract manufacturing

Management contract

Joint ownership

Direct investment

Exporting: This 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 with 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.

15.5. 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

Domestic market extension approach.

Multi domestic market orientation.

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. Company tries to standardize their products or services. For example, Sony walkman needs are same across the country. The product information brochure contains explanation in different languages of different countries. The final product is same in all the countries.

15.6. International Product policy:

Customer satisfaction towards company offerings will be positive if they 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 generally adopt five different types of product strategies in the international markets. They are

Product extension

Communication adaptation

Product adaptation

Product and communication adaptation

Product invention.

1. Product extension: 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. Thus Microsoft is following the product extension strategies.

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 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: 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.

15.7. 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.

15.8. International branding:

Brand names used in foreign markets need to be internationally acceptable distinct and easily recognizable, culture free, legally available and not subject to local restrictions. Brand name communicates its messages and appeals to consumers. They create the stimulus in the minds of 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.

The influence of local substitutes on the foreign brand

The coverage of the brand( mass versus niche)

Acceptability for product uniqueness in all purchase points

Brand name suitability in the particular market.

Now we will discuss the advantages of brand standardization in the global markets.

Firms’ concentration on the positioning will be effective.

It helps in saving the costs.

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

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.

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

Brand image in the market.

Consumer lifestyle and brand influence

Branded sales versus unbranded sales

Brands contribution to the corporate image.

Length of brand loyalty.

Market share of brand in each category it operates.

Adaptability and standardization of the brand in different countries.

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 to representing a brand's true economic worth.

Brand

Country of origin

Sector

Valuation(in Million$)

Coca cola

USA

Beverages

65,324

Microsoft

USA

Software

58,709

IBM

USA

Software

57,091

USA

Diversified

51,569

Nokia

Finland

Telecommunication

33,696

Toyota

Japan

Automobiles

32,070

Intel

USA

Computer Hardware

30,954

McDonalds

USA

Restaurants

29,398

Disney

USA

Media

29,210

Mercedes

Germany

Automotive

23,568

15.9. Country of origin effects.

Country of origin is the country of manufacture, production, or growth where an article or product comes from. There are differing rules of origin under various national laws and international treaties.

Country of origin as a marketing strategy

From a marketing perspective, "country of origin" gives a way to differentiate the product from the competitors. It is believed that the country of origin has an impact on the willingness to buy a product, and studies have shown that consumers may tend to have a relative preference to products from their own country or may tend to have a relative preference for or aversion to certain products that originate from certain countries. The effect of country of origin is however debated as studies have shown that the origin of design (for instance Apple computers or Nike shoes) can be more important than the country of origin.

Ambiguous country of origin labeling

While many products made within the European Union carry the country of origin label or marking "Made in EU" or "Made in EC", some non-EU manufacturers in Europe and some others outside the continent of Europe use ambiguous markings, such as "Made in Europe" (made anywhere else in Europe, but not in the EU or EC; this may constitute any country geographically close to Europe or the EU that also wishes to be in) or "Made for Europe" (made anywhere else in the world, but not in Europe or the European Union). These tactics appear to be intended for consumer deception, whereby a buyer not proficient in English may come to believe from looking at the label that the non-EU product he is interested in is made in the EU.

Country of origin in international trade

When shipping products from one country to another, the products may have to be marked with country of origin, and the country of origin will generally be required to be indicated in the export/import documents and governmental submissions. Country of origin will affect its admissibility, the rate of duty, its entitlement to special duty or trade preference programs, antidumping, and government procurement.

Today, many products are an outcome of a large number of parts and pieces that come from many different countries, and that may then be assembled together in a third country. In these cases, it's hard to know exactly what the country of origin is, and different rules apply as to how to determine their "correct" country of origin. Generally, articles only change their country of origin if the work or material added to an article in the second country constitutes a substantial transformation, or, the article changes its name, tariff code, character or use (for instance from wheel to car). Value added in the second country may also be an issue.

15.10. International Pricing

Determination of selling prices:

The price of an organization may change for its output depends on many factors. They are

Customer perception towards the product.

Total demand for the good

The degree of competition in the market.

Competitors price reactions

Substitute products and its effect on the product.

Products brand image

Cost of production and distribution.

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. The government of the extraction country receives no revenue from sales taxes because the MNC’s subsidiary in that country is selling its output to the same MNC’s subsidiary in the production country at a price of zero. Equally the production country raises no income from import tariffs on this transaction because the raw materials are imported at zero prices! The only tax the MNC pays is a sales tax in the last country in the chain. Transfer pricing at unacceptably low values has been major problem for many developing nations. Sometimes, therefore the government of the country in which an MNC operated the government officially shall declare the price at which the MNC exports its output, not an employee of the MNC itself. Thus the government of host country will ensure that it receives an appropriate amount of sales tax. Similarly importing countries might impose quantity based instead of price based import duties to ensure reasonable revenues from taxes on imports of an MNC’s goods.

Tax considerations aside, transfer prices need to be realistic in order that the profitability of various international operations may be assessed. Possible criteria for setting the transfer price include

The price at which the item could be sold on the open market.

Cost of production or acquisition.

Acquisition/ production cost plus a profit mark up

Senior management’s perceptions of the value of the item to the overall international operations.

Political negotiations between the units involved.

Normally the solution adopted is at which maximize profits for the company taken as a whole and which best facilities the parent control over subsidiaries operations. Arm’s length pricing is the method generally preferred by national governments and is recommended in a 1983 code of practice on the subject drafted by the organization for economic cooperation and development. Note how subsidiary that charges a high transfer price will accumulate cash which might be invented more profitability in the selling country than elsewhere. Problems with setting a realistic transfer price as follows.

Differences in the accounting systems used by subsidiaries in different countries.

Executives in operating units deliberately manipulate the transfer to enhance the book value of subsidiary profits.

Disparate tax rates and investment subsidy levels in various countries.

Possible absence of competition in local markets at various stages in the supply chain. Thus a market price in such an area may be artificially high in consequences of the lack of local competition.

There might not be any other product directly comparable to the item in question, again making it difficult to establish a market price.

If the price is set too high level the selling unit will be able to attain its profit targets too easily and lead perhaps to idleness and inefficiency in the selling subsidiaries.

15.11. Summary:

Ø 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”.

Ø International market entry strategies are exporting, licensing, contract manufacturing, management contract, direct investment and joint ownership.

Ø International marketing approaches are of three types. They are domestic market orientation, multi domestic market orientation and global market orientation.

Ø 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.

Ø Transfer pricing means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries.

References:

Etzel, Walker, Stanton – Marketing: concepts and cases 13th edition – McGraw-Hill

Kotler and Armstrong- Principles of marketing- 11th Edition- PHI

Lamb, Hair, and McDaniel- Marketing- Thomson.

Borne and Kurtz- cotemporary marketing- Thomson.

Sommers and Barnes- Fundamentals of marketing- McGraw Hill

Masaki Kotabe and Helsen- John Wiley and sons

Aaker David- Managing brand equity and buiding strong brands

Keller and Kotler- Marketing Management

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Thursday, April 10, 2008

Indian Marketing-by Dr. Prasad Kulkarni

INTRODUCTION TO INDIAN MARKETING

Introduction:

Objectives

Market and Marketing

What is a Market?

Based on the Geographic Area

Based on the Nature of Competition in the market

Based on the Nature of Goods Sold

What is Marketing?

The Exchange Process

Core Concepts of Marketing

Needs and Wants :

Demand

Product and Services

Target Market

Marketing Management

Values and Satisfaction

Functions of Marketing

Marketing Research and Information Management

Advertising and Sales Promotion

Product Planning and Management

Selling

Physical Distribution

Pricing

Importance of Marketing.

Marketing Orientations

The Production Concept

The Product Concept

The Selling Concept

The Marketing Concept

The Societal Marketing Concept

Summary

Unit 2: Strategic Marketing Process

Introduction.

Strategic Planning

Defining the company mission:

Formulating the objectives.

Designing an appropriate business portfolio.

Coordination at business levels

SWOT analysis

Developing the marketing mix.

Planning, control and implementation.

Marketing planning:

Marketing Implementation and control.

Summary:

Unit 3: Marketing Environment.

Introduction.

Objectives:

Environmental scanning

Analyzing the organization’s micro environment

The company:

Intermediaries:

Public:

Competitors:

Suppliers

Customers:

Unit 4 Understanding the Marketing Information Systems (MIS)

4.1. Introduction

4.2. Characteristics of MIS

4.3. Benefits of MIS

4.4. Types of Marketing Information

4.5. Components of MIS

4.6. Marketing Research

5.7 Features of Marketing Research

4.8. Objectives of Marketing Research

4.9. Marketing Research Process

4.10. Importance of Marketing Research

4.11. Advantages and limitations of Marketing Research.

4.12 Summary

Unit 5 Consumer buyer behavior

5.1. Introduction:

5.2. Characteristics affecting consumer behavior

5.3. Types of buying decision behavior: Henry Assael model.

5.4 . Consumer buying decision process.

5.5. Buyer decision process for new products.

5.6. Buying Motives

5.7. Buyer behavior models.