National Institute of Business Management Chennai - 020 FIRST SEMESTER EMBA/ MBA Subjet ! Ma"#eting Management Attend any any 4 questions. questions. Each question question carries 25 25 marks (Each answer should be of minimum 2 pages / of !! words $
1. Write an essay on "Marketing is based on the concept that the customer is the most important person to the company".
2. Explain why purchasing is regarded as a very important management function in many organiations.
!. Explain the use of marketing models that has been used in the study of consumer behaviour.
. What is the importance of #ricing in a company$ co mpany$ Explain. %. What are the uni&ue characteristics of 'ervice Marketing$ Explain. (. Explain the techni&ues and methods for designing organisation structure.
2% x )1** marks
4. What is the importance of Pricing in a company? Explain.
Definition: #rice is the value that is put to a product or service and is the result of a complex set of calculations+ research and understanding and risk taking ability. , pricing strategy takes into account segments+ ability to pay+ market conditions+ competitor actions+ trade margins and input costs+ amongst others. -t is targeted at the defined customers and against competitors.
Description: here are several pricing strategies/ Premium pricing: high price is used as a defining criterion. 'uch pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example/ #orche in cars and 0illette in blades. Penetration pricing: price is set artificially artificially low to gain market share &uickly. his is done when a new product is being launched. -t is understood that prices will be raised once the promotion period is over and market share obectives are achieved. Example/ Mobile phone rates in -ndia housing loans etc. Economy pricing: no3frills price. Margins are wafer thin overheads like marketing and advertising costs are very low. argets argets the mass market and high market share. Example/ 4riendly wash detergents 5orma local tea producers. Skimming strategy: high price is charged for a product produ ct till such time as competitors allow after which prices can be dropped. he idea is to recover maximum money before the product or segment attracts more competitors who will lower profits for all concerned. Example/ the earliest prices for mobile phones+ 678s and other electronic items items where a few players ruled attracted lower cost ,sian players.
Importance of Pricing in a company •
Profit Margins
he price you set affects your profit margin per unit sold+ with higher prices giving you a higher profit per item if you don9t lose sales. sales. :owever+ higher prices that lead to lower sales sales volumes can decrease+ or wipe out+ your profits+ because your overhead costs per unit increase as you sell fewer units.
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Sales olumes
;ne of the most obvious affects pricing will have on your business is an increase or decrease in sales volume. Economists study price elasticity+ or the response of consumer purchasing to a price change. -ncreasing your prices might lower your sales volume only slightly+ slightly+ helping you make up for decreased volume with higher total profits generated by higher margins.
Position
he price you set sends a message to some consumers about your business+ product or service+ creating a perceived value. his affects your brand+ image or position in the marketplace. 4or example+ higher prices tell some consumers that you have higher &uality+ or you wouldn9t be able to charge those prices. ;ther consumers look for low3priced products and services+ believing they9ll get the &uality they need at a low price. ;ffering sales+ discounts+ rebates and closeouts can send the message you can9t sell your products or services at your regular price+ or tell buyers they have a short3term opportunity to get a bargain. •
Market Share
he price you set makes you more or less competitive in the marketplace+ affecting your share o f the market9s volume. volume. 'ome businesses lower prices temporarily to gain market share from competitors+ who can9t respond to and meet a price decrease. ,fter consumers have had time to try your product and develop a brand preference or loyalty+ you can raise your prices again to a level that won9t cause them to leave you. #redatory pricing is the practice of selling a product or service below cost for the specific purpose of taking market share away from a competitor or closing it down+ then raising prices on consumers when they have fewer+ or no options after that competitor is gone. his is illegal. •
!oss !ea"ers
'ome businesses price products or services at or below cost to get customers into their businesses+ who then spend more money elsewhere. 4or example+ big3box retailers might buy large &uantities of tennis balls+ selling them at or below cost to entice affluent tennis players who use many cans of balls during the year into their stores. =y placing the low3cost balls at the back of the store+ they hope to generate impulse buys as the shopper walks to the sports area and back to the front. 8estaurants offer low3margin specials to offer a change3of3pace to regular diners to keep their normal business+ or to let regulars bring friends who want upscale dishes at a moderately priced eatery.
Importance of Pricing in Marketing Strategy #. Price is the Pi$ot of an Economy: -n the economic system+ price is the mechanism for allocating resources and reflecting the degrees of both risk and competition. -n an economy particularly free market economy and to a less extent in controlled economy+ the resources can be allocated and reallocated by the process of price reduction and price increase.#rice policy is a weapon to realie the goals of planned economy where resources can be allocated as per planned priorities.#rice is the prime mover o f the wheels of the economy namely+ n amely+ production+ production+ consumption+ distribution and exchange. ,s price is a sacrifice of purchasing power+ it affects the living standards of the society it regulates business profits and+ hence+ allocates the resources for the optimum output and distribution. distribution. hus+ it acts as powerful agent of sustained economic development.
%. Price regulates "eman": he power of price to produce results in the market place is not e&ualled by any other component in the product3mix.-t is the greatest and the strongest >#9 of the four >#s9 of the mix. Marketing manager can regulate the product produ ct demand through this powerful instrument. #rice increases or decreases the demand for the products. produc ts. o increase the demand+ reduce the price and increase the price to reduce the demand.
&. Price is competiti$e competiti$e 'eapon: #rice as a competitive weapon is of paramount importance. ,ny company whether it is selling high or medium or low or low priced merchandise will have to decide d ecide as to whether its prices will be above or e&ual to or below its competitors. his is a basic policy issue that affects the entire marketing planning process. 'econdly+ price does not stand alone as a device for achieving a competitive advantage.-n fact+ indirect and non3price n on3price competitive techni&ues often are more desirable because+ they are more difficult for the competitors to copy. =etter results are the outcome of a fine blend of price and non3price strategies. hirdly+ there is close relationship between the product life3cycle and such pricing for competition.
here are notable differences in the kinds of pricing strategies that should be used in different stages. 'ince the product life span is directly related to the product9s competitiveness+ competitiveness+ pricing at any point in the life3cycle should reflect prevailing competitive conditions.
4. Price is the "eterminant of profita(ility: #rice of a product or products determines d etermines the profitability of a firm+ in the final analysis by influencing the sales revenue. -n the firm+ price is the basis for generating profits. #rice reflects corporate obectives and policies and it is an important ingredient of marketing mix. #rice is often used to off3set the weaknesses in other elements of the marketing3mix. #rice changes can be made more &uickly than any other changes in the product+ channel+ and personal selling and sales3promotion includes advertising. advertising. -t is because price change is easily understood and communicating to the buyer in a precise way. hat is why+ why+ price changes are used fre&uently for defensive and offensive strategies. he impact of price rise or fall is reflected instantly in the rise or fall of the product profitability+ thinking that other variables are unaffected.
). Price is a "ecision input: -n the areas of marketing management+ countless and crucial decisions are to be made. 7omparatively marketing decisions are more crucial because+ they have bearing on the other branches of business and more difficult as the the decision3maker is to shoot the flying game in the changing marketing environment.
). What hat are are th thee un uni* i*ue ue ch char arac acte teri rist stic icss of Se Ser$ r$ic icee Mark Market etin ing? g? Expl Ex plai ain n. Ser$ice Marketing+ he ,merican Marketing ,ssociation ,ssociation defines services as 3 ?,ctivities+ benefits and satisfactions which are offered for sale or are provided in connection with the sale of goods.@
, Important -haracteristics of Ser$ices: Some of the important characteristics of ser$ices are as follo's:
1. #erishability 2. 4luctuating Aemand !. -ntangibility . -nseparability %. :eterogeneity (. #ricing of 'ervices B. 'ervice &uality is not statistically measurable. #. Perisha(ility:
'ervice is highly perishable and time element has great significance in service marketing. %. luctuating Deman":
'ervice demand has high degree of fluctuations. he changes in demand can be seasonal or by weeks+ days or even hours. Most of the services have peak demand in peak hours+ normal demand and low demand on off3period time. &. Intangi(ility:
Cnlike product+ service cannot be touched touch ed or sensed+ tested or felt before they are availed. , service is an abstract phenomenon. 4. Insepara(ility:
#ersonal service cannot be separated from the individual and some personalised services are created and consumed co nsumed simultaneously.
4or example hair cut is not possible without the presence of an individual. , doctor can only treat when his patient is present. ). /eterogeneity:
he features of service by a provider cannot be uniform or standardied. , Aoctor can charge much higher fee to a rich client and take much low from a poor patient. 0. Pricing of Ser$ices:
#ricing decision about services are influenced by perish ability+ ability+ fluctuation in demand and inseparability. inseparability. Duality of a service cannot be carefully standardied. #ricing of services is dependent on demand and competition where variable pricing may be used. ,. Ser$ice *uality is not statistically measura(le:
-t is defined in form of reliability+ responsiveness+ responsiveness+ empathy and assurance all of which are in control of employee9s direction interacting with customers. 4or service+ customers satisfaction and delight are very important. Employees directly interacting with customers are to be very special and important. #eople include internal marketing+ external marketing and interactive marketing.
) Important -haracteristics of Ser$ices Marketing /
Perisha(ility #erhaps of all the suggested special characteristics of service products or classification of services+ this is one of the most difficult to appreciate. 'ervices are highly perishable compared to physical products. =ut how could+ for example+ the services of say+ an airline be considered to be more perishable than+ say+ fresh food and vegetable products$ he reason is that unlike most physical products+ many services cannot be stored. 4or example+ if an airline does not sell all the seats on a particular flight+ then those seats or rather the sales revenue of filling of them would have carried+ has immediately and irreversibly gone.
Intangi(ility #hysical products in the store are widely displayed for cu stomers to see+ feel+ touch+ weigh or sniff at before deciding whether or not to buy. 7omparing this with the choice of the service of say+ an insurance policy. ou ou cannot touch+ see o r smell the products before b efore choosing+ although clearly you can make some assessment based on past experience+ word of mouth+ or even the location and decor of the insurance office. he intangible nature of most services gives rise to special problems both for suppliers and consumers.
aria(ility -n the production and marketing of physical products+ companies have increasingly paid special attention to ensuring consistency in &uality+ feature+ packaging+ and so on. More often than not all customers can be sure that every bottle of 7oke heFshe buys+ even in a life3time of purchases+ will not vary. he provision of services+ however+ invariably includes a large measure of the ?human element@ -ndeed+ with many services+ we are purchasing nothing else but the skills of the suppliers. =ecause of this+ it is often very difficult for both supplier and consumer to ensure a consistent ?product@ or &uality of service.
Insepara(ility , key distinguishing feature of service marketing is that the service provision and provider are inseparable from the service consumption and consumer. 4or example+ we cannot take a hotel room home for consumption we must ?consume@ this service at the point of provision. 'imilarly+ 'imilarly+ the hairdresser needs to be physically present for this service to be consumed.
1on2o'nership he final distinguishing feature of a service is that+ unlike a physical product+ the consumer does not secure ownership of the service. 8ather the customer pays only to secure access to or use of the service. ,gain the hotel room is a good example. 'imilarly+ 'imilarly+ with banking services+ although the customer may be given a 7he&ue book+ credit cards+ etc+ they serve only to allow the customer to make use of what he or she is actually buying+ namely+ bank services.
0.Explain the techni*ues an" metho"s for "esigning organi3at orga ni3ation ion structure. stru cture. rgani3ation structure: ;rganiational structure is a system that consists of explicit and implicit institutional rules and policies designed to outline how various work roles and responsibilities are delegated+ controlled and coordinated. ;rganiational structure also determines how information flows from level to level within the company. 4or example+ in a centralied structure+ decisions flow from the top down+ while in a decentralied structure+ the decisions are made at various different levels.
Intro"uction ,ny operating organiation should have its own structure in order to operate efficiently. 4or an organiation+ the organiational structure is a hierarchy of people and its functions. he organiational structure of an organiation tells you the character of an organiation and the values it believes in. herefore+ when you do business with an organiation or getting into a new ob in an organiation+ it is always a great idea to get to know and understand their organiational structure. Aepending on the organiational values and the nature of the business+ organiations tend to adopt one of the following structures for management p urposes. ,lthough the organiation follows a particular structure+ there can be departments and teams following some other organiational structure in exceptional cases. 'ometimes 'ometimes++ some organiations organiations may follow follow a combination combination of the following following organiational organiational structures as well.
rgani3ational Structure 5ypes 5ypes 4ollowing are the types of organiational structures that can be observed in the modern business organiations. =ureaucratic 'tructures =ureaucratic structures maintain strict hierarchies when it comes to people management. here are three types of bureaucratic structures/
# 2 Pre2(ureaucratic structures his type of organiations lacks the standards. Csually this type of structure can be observed in small scale+ start3up companies. Csually the structure is centralied and there is only one key decision maker.
he communication is done in one3on3one conversations. his type of structures is &uite helpful for small organiations due to the fact that the founder has the full control over all the decisions and operations.
% 2 6ureaucratic structures hese hese struct structure uress have a certai certain n degree degree of standar standardi diati ation. on. When When the organi organiat ation ionss grow grow complex and large+ bureaucratic structures are re&uired for management. hese structures are &uite suitable for tall organiations.
& 2 Post2(ureaucratic Structures he organiations that follow post3bureaucratic structures still inherit the strict hierarchies+ but open to more modern ideas and methodologies. hey follow techni&ues such as total &uality management GDMH+ culture management+ etc. 4unctional 'tructure he organiation is divided into segments based on the functions when managing. his allows the organiation to enhance the efficiencies of these functional groups. ,s an example+ take a software company. 'oftware 'oftware engineers engineers will only staff the entire entire software software development department. department. his way+ management of this functional group becomes easy and effective. 4unctional structures appear to be successful in large organiation that produces high volumes of produ product ctss at low low cost costs. s. he he low low cost cost can can be achi achiev eved ed by such such comp compani anies es due due to the the efficiencies within functional groups. -n addition to such advantages+ there can be disadvantage from an organiational perspective if the communication between the functional groups is not effective. -n this case+ organiation may find it difficult to achieve some organiational obectives at the end.
Di$isional Structure hese types of organiati organiations ons divide the functional areas of the organiation organiation to divisions. divisions. Each division is e&uipped with its own resources in order to function independently. here can be many bases to define divisions. Aivisions can be defined based on the geographical basis+ productsFservices basis+ or any other measurement. ,s an example+ take a company such as 0eneral Electrics. -t can have microwave division+ turbine division+ etc.+ and these divisions have their own marketing teams+ finance teams+ etc. -n that sense+ each division can be considered as a micro3company with the main organiation.
Matrix Structure When it comes to matrix structure+ the organiation places the employees based on the function and the product. he matrix structure gives the best of the both worlds of functional and divisional structures. -n this type of an organiation+ the company uses teams to complete tasks. he teams are formed based on the functions they belong to Gex/ software engineersH and product they are involved in Gex/ #roect # roect ,H. his way+ there are many teams in this organiation such as software engineers of proect ,+ software engineers of proect =+ D, engineers of proect ,+ etc.
%.Explain 'hy purchasing is regar"e" as a $ery important management function in many organi3ations Purchasing is the function of buying 0oods I 'ervices from External 'ource to an ;rganiation ;rganiation..
Purchase management is ;ne of the most 7rucial ,rea of the Entire ;rganiation. hus+ 5eeds -ntensive management. 67E-5IE P89-/SI1; M1;EME15: •
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o purchase the re&uired material at minimum possible price by following the company policies. to keep department expenses low. Aevelopment of good I new vendors GsuppliersH. vendors GsuppliersH. Aevelopment of good relation with the existing suppliers. training I development of personal employees in employees in department. to maintain proper I up to date d ate records of all transactions. #articipating in development of new material and products. to contribute in product improvement. to take Economic "M,JE ;8 =C" decisions. to avoid 'tock3 out situations. to develop policies I procedure. to maintain of 8;<
Importance of Purchasing: 1. #urchasing function provides materials to the factory without wh ich wheels of machines cannot move. 2. , one percent saving in materials cost is e&uivalent to a 1* percent increase in turnover. Efficient buying can achieve this. !. #urchasing manager is the custodian of his firm9s is purse as he spends more than %* per cent of his company9s earnings on purchases.
. -ncreasing proportion of one9s re&uirements are now bought instead of being made as was the practice in the earlier days. =uying+ therefore+ assumes significance. significance. %. #urchasing can contribute to import substitution and save foreign exchange. (. #urchasing is the main factor in timely execution ex ecution of industrial proects. B. Materials management organisations that exist now have evolved out or purchasing departments. K. ;ther factors like/
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#ost3war shortages+
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7yclical swings of surpluses and shortages and the fast rising materials costs+
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heavy competition+ and
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0rowing worldwide markets have contributed to the importance of purchasing.
Why Is Purchasing Important? :istorically+ purchasing has played a key role in ?getting the lowest possible price.@ his was often at the expense of a positive relationship with the supplier and usually a trade3off with &uality. :owever+ :owever+ over time+ the role of purchasing evolved into a cost3saving function in which supplier relationships and contracts were developed with cost3savings in mind. hese cost3 savings often came through process improvements+ product improvements+ or supplier development efforts. oday+ oday+ purchasing is recognied as having an overwhelming impact on the bottom line of the organiation. -t has a direct impact on the two forces that drive the bottom line/ sales and c osts. #urchasing is becoming a core competency of the firm+ finding and developing suppliers and bringing in expertise that is highly valued by the organiation. #urchasing is generally
responsible for spending more than %* percent of all the revenues the firm receives as income inco me from sales. More money is often spent for purchases of materials and services than for any other expense+ and the spend in services is rapidly increasing.( ;ften+ the cost of materials is 2.% times the value of all labor and payroll costs and nearly 1.% times the cost of labor plus all other expenses of running the business.B -n the area of services+ millions of dollars are spent on marketing and advertising+ legal+ information technology+ logistics+ temporary labor+ and other categories. ,lthough the involvement of purchasing in the services area is different than in a typical purchase of materials+ there is significant opportunity for most organiations to save money by involving purchasing in this area of spend. 4igure 131 shows 131 shows how supply management can drive sales up and costs down. he impact on net income and return on investment G8;-H have a maor influence on shareholder value. he cost impacts are easily understood because cost reduction is typically considered a ?purchasing ob.@ #urchasing works with internal customers to help improve processes and drive down costs. #urchasing also works with suppliers to improve processes+ look at alternative materials+ and look at different locations or transportation modes. 4ocusing on cost improvement is a core competency of purchasing professionals.
4igure 131 'upply 131 'upply Management9s impact on both top and bottom line :owever+ there are also many opportunities to help drive up market share. 4or example+ strong relationships with the right suppliers might allow for early supplier involvement in new product development. herefore+ the supplier is prepared for the actual launch and can also contribute and make changes if appropriate app ropriate to facilitate an easier and less costly production launch. -n 1LLK+ for example+ suppliers were involved in the product development process and actually helped by providing inputs into the design of the :onda ,ccord. ,ccord. hese inputs were both material in nature and process3oriented. his early involvement in the product development stages helped to save more than 2* percent of the cost of producing the car.K -n the casting industry+ it was found that early involvement of suppliers in product development saved time and cost+ and improved the
&uality of the parts.L he re&uest for &uote process G84DH is reduced significantly in this industry because suppliers are more aware of what is re&uired+ long before it is needed. ,s you will begin to understand from the information presented in this book+ the supply base is a source of innovative opportunities and the supp ly manager is trained to be aware of these supply market opportunities. :aving the appropriate supply base and relationships with the suppliers is like having thousands of additional people peop le thinking of the next great idea or innovation. here is a famous and highly publicied &uote about suppliers and the supply base by Aave 5elson+ who was an award3winning purchaser who worked at :onda+ ohn Aeere+ and AelphiNhe is considered a ?guru@ of supply chain.1* 5elson said+ ?-f you develop the right relationship with your supply base+ you can have 1*+*** additional brains thinking about ways to improve your product and generate cost3savings.@11 here is a lot of power resting in the hands of supply managers+ if they can harness the strength and the capabilities of the supply base.
