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Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha

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Chapter

1

Understanding Marketing Management Marketing is an essential art and science that is engaged in a vast number of activities by both persons and organizations. It has become an increasingly vital ingredient in the success of a business. Good marketing is the result of careful planning and execution. There are two sides to marketing – the formulated side and the creative side. It is important to lay the foundation in marketing concepts, tools, frameworks and issues of

Social Definition of Marketing

the formulated side while at the same time instil the real creativity and passion for marketing, as we shall come to see in this chapter.

Marketing is increasingly becoming an important function in all organizations to ensure that demand for a product or service persists along with customer retention.

Marketing is a

Scope of Marketing

societal process by which individuals

A good marketer must be able to answer the following questions:

and groups obtain

What is Marketing?

what they need and want through

The formal definition of marketing is, Marketing is an organizational function and a set

creating, offering

of processes for creating, communicating and delivering value to customers and for

and freely

managing customer relationship in ways that benefit the organization and its

exchanging products and

stakeholders.

What is Marketed?

services of value with others.

Some of the common entities that are marketed are goods, services, events, experiences, persons, places, properties, organizations, information and ideas.

Chapter 1 - Understanding Marketing Management Who Markets? A marketer is someone who seeks a response, attention, purchase, vote, donation etc

The five key

from another party called the prospect. Marketing managers are responsible for demand

functions of a

Eight demand states are possible: •

Negative demand

marketing

•

Nonexistent demand

•

Latent demand

manager or

•

Declining demand

•

Irregular demand

CMO are:

•

Full demand

•

Overfull demand

•

Unwholesome demand

management.

• Strengthening the brand

The key customer markets are consumer markets, business markets, global markets, non-profit and governmental markets.

• Measuring marketing effectiveness

Core Marketing Concepts:

• Driving new product development based on customer needs

•

complex needs such as for belonging. i.e. I am hungry. •

customer

•

marketing

Demands - human wants backed by buying power. i.e. I have money to buy this meal.

•

Target Markets are the market segments identified by the marketer which present the greatest opportunity.

•

insights • Utilizing new

Wants - form that a human need takes as shaped by culture and individual personality i.e. I want a hamburger, French fries, and a soft drink.

• Gathering meaningful

Needs - state of felt deprivation for basic items such as food and clothing and

Value Proposition is a set of benefits that companies offer to customers to satisfy their needs. The intangible value proposition is made physical by as offering. A brand is an offering from a known source.

•

Value reflects the sum of the perceived tangible intangible benefits and costs to customers. Satisfaction reflects a person’s judgements of a product’s perceived

technology

performance. •

To reach a target market a marketer uses different marketing channels like communication channels, distribution channels and service channels.

•

Supply chain is a longer channel stretching from raw materials to components to final products that are carried to final buyers.

Chapter 1 - Understanding Marketing Management Company orientation towards Marketplaces: The major marketing philosophies are: •

New Marketing

•

The Production Concept o

Consumers favor products that are available and highly affordable.

o

Improve production and distribution.

Product Concept o

innovative features. •

Realities:

Selling Concept o

Marketing Concept o

Some of the major •

Societal Marketing Concept o

•

Focuses on needs/ wants of target markets & delivering superior value.

Holistic Marketing Concept o

network

Based on the development, design and implementation of marketing programs, processes and activities that recognize their breadth and

information technology,

Focuses on needs/ wants of target markets & delivering satisfaction better than competitors.

marketers have to deal with today are

Consumers will buy products only if the company promotes/ sells these products.

•

societal forces that

Consumers favor products that offer the most quality, performance, and

interdependencies. •

Relationship Marketing o

globalization,

Aims to build mutually satisfying long-term relationships with key constituents in order to earn and retain their business.

deregulation, privatization, heightened

Marketing Management Tasks:

competition, industry convergence, consumer

The following are the most important marketing management tasks: •

Developing Marketing Strategies and Plans

•

Capturing Marketing Insights

•

Connecting with Customers

resistance, retail

•

Building Strong Brands

transformation and

•

Shaping the Marketing Offerings

disintermediation.

•

Delivering Value

•

Communicating Value

•

Creating Long-Term Growth

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Chapter

2

Developing Marketing Strategies And Plans In this chapter, mainly the following points have been discussed •

How does marketing affect customer value?

•

How is strategic planning carried out at different levels of the organization?

•

What does a marketing plan include?

Developing the right marketing strategy over time, through discipline and a creative

Supply

thought process can go a long way in the marketing management process. Firms must constantly strive to improve every aspect of their strategy and the plans to guide the

Chain Many companies today outsource less critical resources if

marketing process.

The Value Delivery Process In the new view of business processes, marketing is viewed at the beginning of the planning stage. A smart competitor must design and deliver products for well-defined

they can obtain

micro-markets and cater to their specific wants, perceptions and preferences. The Value

better quality or

Creation and Delivery Sequence can be divided into two segments of marketing:

lower cost. Also,

Strategic Marketing and Tactical Marketing.

many companies partner with specific suppliers and distributors to create a superior value delivery network, also

Core Competencies

known as Supply

Core Competency refers to areas of special technical and production expertise, whereas

Chain.

distinctive capability describes excellence in broader business processes. Market-driven organizations generally excel in three distinctive capabilities: market sensing, customer linking and channel bonding.

Chapter 2 - Developing Marketing Strategies And Plans A firm must coordinate all the department activities to conduct its core business

processes, through cross-functional teams

Holistic Marketing

•

Market-sensing process

•

New-offering realization process

•

Customer Acquisition process

•

Customer Relationship Management Process

•

Fulfillment Management Process

Holistic marketing

Value Chain

orientation means, integrating the

The value chain is a tool which is used for identifying ways to create more customer

value exploration,

value. There are 9 strategically relevant activities – 5 primary and 4 support.

value creation and value delivery activities with the purpose of building long-term, mutually satisfying relationships and

Strategic Planning

co-prosperity among key

Companies need to focus on the customer and organize to respond effectively to their

stakeholders. It

changing needs, to be known as master marketers. The marketing plan is the central

helps manage a

instrument for directing and coordinating the marketing effort. The marketing plan

superior value

operates at two levels: strategic and tactical.

chain that delivers

The strategic marketing plan lays out the target markets and the value

•

proposition the firm will offer, based on an analysis of the best market

a high level of product quality,

opportunities. The tactical marketing plan specifies the marketing tactics, including product

•

service and speed,

features, promotion, merchandising, pricing, sales channels and service.

in addition to expanding

Corporate Headquarters

customer share, building customer loyalty and capturing customer lifetime value.

All corporate headquarters undertake four planning activities •

Defining the corporate mission

•

Establishing strategic business units

•

Assigning resources to each Strategic Business Unit

•

Assessing growth opportunities

Innovation in marketing is critical. Senior management should identify and encourage fresh ideas from a youth perspective, from people new to the field and organization, to gain an understanding and a new approach to marketing.

Chapter 2 - Developing Marketing Strategies And Plans Mission Statement The best Mission Statement reflects a vision, an almost impossible dream that provides a direction for the company for the next 10 or 20 years. A good mission statement focuses on limited number of goals, links the company’s policies and values and gives a

Strategic

long term view. It is as short, relevant and meaningful as possible.

Business Unit A Strategic

Business Unit Strategic Planning

Business Unit is a single business (or a collection of similar businesses) that can be planned separately from the rest of the

The Business Unit Strategic Planning process consists of the following steps 1. The Business Mission: Each business unit needs to define its specific mission within the broader company mission. 2. SWOT Analysis: The overall analysis of a company’s Strengths, Weaknesses, Opportunities and Threats is called SWOT analysis. It is a way of monitoring the external and internal marketing environment. To evaluate opportunities, companies can use Market Opportunity Analysis. 3. Goal Formulation: Developing specific goals for a short term is known as Goal

company. By

Formulation. They are specific with respect to magnitude and time. Goals must

identifying the

be consistent and realistic and could be a mix of various objectives.

company’s SBUs, it is easy to develop

4. Strategy Formulation: Strategy is a game plan for achieving the goals. It consists of a Marketing Strategy, Technology Strategy and a Sourcing Strategy. 5. Program Formulation: The unit must plan programs in accordance with its goals

separate strategies

and strategy and thus work upon the various departments, to strengthen them

and assign

and integrate all of them together.

appropriate funding.

6. Implementation: Even a great marketing strategy can be sabotaged by a poor implementation. It must coordinate its tasks to implement its plan properly. These tasks must be in line with the interests of the stakeholders as well. 7. Feedback and Control: The key to organizational health is willingness to examine the changing environment and adopt new goals and behaviors. In the rapidly changing market environment, even large organizations which are subject to inertia can be changed through strong leadership.

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Chapter

3

Capturing Marketing insights and Spotting Market Trends To provide insight into an inspiration for marketing decision making, companies must possess comprehensive, up-to-date information about macro trends as well as micro trends particular to their business. This chapter deals with various modes of obtaining

MIS

this information and also looks into the major macroeconomic forces that affect marketing decisions.

(Marketing Information System) Consists of people, equipment and

MIS (Marketing Information System) MIS can provide data e.g. Swiss eat most chocolates, Greeks eat most cheese. It relies on internal company records, marketing intelligence activities and Market Research. MIS provides information on market happenings and changes in environment. Purposes of MIS have been noted below.

procedures, to gather, sort, analyze, evaluate

•

activities and listening to customer comments. •

and distribute needed, timely and

Train the sales force for intelligence gathering by observing competitors Motivate retailers and distributors to pass intelligence. E.g. mystery shoppers to identify customer treatment and possible flaws.

•

Network externally using competitor’s annual reports, talking with their

accurate

retailers, distributors and employees, attending shareholder meetings. It should

information to

be done ethically and legally.

marketers.

•

Use government sources (Census, NSSO reports) or purchase data from outside suppliers (AC-Nielsen, etc)

•

Create a panel of largest, sophisticated and important customers for feedback.

•

Use online forums, sites offering customer and expert reviews, Customer compliant sites,

Chapter 3 - Capturing Marketing insights and Spotting Market Trends Internal Company Records •

Order to Payment cycle - Customer places order for goods -> Sales team sends invoice to various departments -> Sales team back orders out of stock items -> Suppliers send goods and sales team pays suppliers -> Sales team delivers order and receives payment. Purpose is to minimize number and duration of cycles.

•

Sales Information System - Keeping constant track of sales, customers, etc. It can help in identifying trends.

•

Database / Data warehousing / Data Mining - Separate databases are there for products, salespersons and customers. Purpose is to analyze (mine) data using

Analyzing the

statistical methods and discover trends.

Macro Environment Fad –

Major Macro Environmental Forces Demographic 16.7% of World population in India; Male to Female ratio of 933:1000

Unpredictable,

Population Age mix : median age of 23.8 years, 34% b/w 12 and 25yrs, 24% b/w 25 and

short-lived, without

34 years

any economic or

Literacy level: 65.38% literate, 75.8% males and 54.16% females, 76% literacy between

social significance

15-24yrs age group, 64.5% literacy between 25-34yrs age group.

Trend Sequence of events that have

Economic Purchasing Power depends on income, savings, prices, credit availability. India’s GDP is

momentum and

$1.2 trillion, per capital income of $3100

durability, reveals

Income distribution: 77.7% of urban households have income up to Rs3000/month while

the future.

only 2.1% have income more than Rs 10,000/month.

Megatrend –

Categories of Indian consumers: Destitute ( less than Rs16,000 annually, inactive participants in market exchange), Aspirants ( Rs 16,000 to Rs22,000, new entrants in

Large social and

consumption system), Climbers, (Rs 22,000 to Rs 45,000, have desire and willingness to

economic influence,

buy but has limited cash), Consuming Class ( Rs 45, 000 to Rs 2,15,000, majority have

slow in formation

money and are willing to pay), Rich ( more than Rs 2,15 000, have money and own a

but has lasting effect.

variety of products). Trend shows increasing % of Consumers and Climbers while a decreasing % of Destitute and Aspirants.

Social-Cultural Society shapes beliefs, values, demands, and requirements. It affects dress codes, food habits, brand preferences. Trend shows an increasing role of children on purchasing decisions e.g. bicycles, computers, wrist watches, shoes and other FMCG goods.

Chapter 3 - Capturing Marketing insights and Spotting Market Trends Natural Deterioration of environment is a significant concern e.g. Greenhouse Effect, Ozone layer and fossil fuel depletion. Government concerns in this aspect are Euro-2 emissions norms and CNG. Although majority feels necessity of environmental friendly products, they do not buy because (a) Perception of green good being of inferior quality and (b) Perception that good does not contribute majorly to the environment. Corporate Environmentalism is recognizing the importance of environmental issues

What is the

affecting the firm and integrating those in its strategic plans is fast gaining ground. E.g. Focus on Non-renewable sources like Jatropha oil, Pollution Control Systems like

difference

landfills, recycling centers and focus on CNG initiatives.

between a Fad and a

Technological Four major trends are

Trend?

(a) Accelerated Pace of Change: e.g. Apple selling 23.5 million in 2006

A fad becomes a

telecommunication, Robotics, aid vaccines, contraceptive pills.

trend when it

(c) Varying R & D Budget: e.g. Increasing R & D in Pharmaceutical companies like Cipla,

affects a large number of people,

(b) Unlimited Opportunities for Innovation e.g. Developments in Bio-tech,

Dr. Reddy’s, and Ranbaxy (d) Increasing regulation of technological change e.g. Drugs and cosmetic act, control on clinical trial, standard for drugs.

has functional value, has lesser number of

Political and Legal

substitutes, and has

Two major trends are

other trends promoting it.

(a) Increase in business legislation: to protect companies from unfair competition, to protect consumers from unfair business practices, to protect society from unbridled business behavior and to charge businesses with social costs created by their products or processes (b) Growth of special interest groups and improvements like the Consumer Protection Act.

Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha

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Chapter

4

Conducting Marketing Research and Forecasting Demand

Why Marketing Research? Successful Marketing Managers need timely, accurate and actionable information about consumers, competition and their brands to assess past performance, plan future activities and take strategic decisions leading to successful product launch or increase growth of a brand.

What is Marketing

What are the major steps of Marketing Research Process? Step 1 : Define the problem, the decision alternative and the research objective

Research? Systematic Design,

Step 2 : Develop the research plan

collection, analysis and reporting of data and findings

Step 3 : Collect the information

relevant to a specific marketing situation facing the

Step 4 : Analyze the information

company. Step 5 : Present the findings

Step 6 : Make the decision

Chapter 4 - Conducting Marketing Research and Forecasting Step 1: Achieve clarity on the content, the scope of market research and what all decisions are to be made on the basis of research. Step 2:

Secondary

Primary Data ccan be collected through following:

Data: Already existing somewhere which was collected for some other purpose

Primary Data: Freshly gathered data for research only. Expensive to collect.

Research Methods •Observational Observational Research: Observing consumers, informal interviews, using tools from anthropology to provide deeper understanding of consumers. •Focus Focus Group Research: A meeting of a group of people who represent potential customers or important actors for research discussing issues relevant to research •Survey Survey Research: Companies undertake descriptive research to learn about people’s beliefs, preferences and satisfaction. •Behavioral Behavioral Data: Customer’s actual purchases do not match their statements made in surveys always hence certain techniques help in exposing these discrepancies •Experimental Experimental Research: This captures cause and effect relationship in observed findings.

Research Tools •Questionnaires: Questionnaires: A set of questions soliciting responses that is of relevance to market situation. They can be either open-ended ended or closed-ended. closed •Qualitative Qualitative Measures: Relatively unstructured measurement approach for exploring consumer’s responses •Technological Technological Devices: devices like skin sensors brain wave scanners to capture consumer’s response. •Sampling Sampling Plan: A plan addressing questions like whom all to survey, how many people to survey, how should we select people for survey. •Contact Contact Methods: Mail Questionnaire, Telephone Interview, Personal Interview, Online Interview.

Step 3: Data collection is one of the most expensive, time time-taking taking and most error prone phase of market research as it entirely depends on availability, honesty and consistency of respondents. However technology has eased the problem to a great extent. Step 4: This is the process to extract findings by tabulating the data and developing frequency distributions stributions in hope of discovering additional findings. Step 5: The researcher presents finding relevant to the major marketing decisions facing management management.

Chapter 4 - Conducting Marketing Research and Forecasting

Types of

Step 6:

Market

confidence in the findings, managers decide to use it

Potential

Market research is just a tool to provide insight to the managers. Depending on their

Barriers to Marketing Research •

Narrow approach to Marketing Research

•

Uneven Caliber of researchers

•

Poor framing of problem

Set of consumers who

•

Late and occasionally erroneous findings

profess a sufficient

•

Personality & presentational differences

market

level of interest in a market offer.

Available

Measuring Marketing Productivity To assess the efficiency and effectiveness of marketing of marketing activities there are •

Marketing metrics to assess marketing effects

•

Marketing mix modeling to estimate casual relationships and measure how marketing activity affect outcomes

market

•

from these two approaches within the organizations

Set of consumers who have interest income

Marketing Dashboard are a structured way to disseminate the insights gleaned

Types of Demand

and access to a

Market Demand

particular offer.

•

It is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program

Target market

Company Demand

The part of the

•

company marketing effort in a given time period

qualified available market the company decides to pursue.

It is the company’s estimated share of the market demand at alternative levels of

Current Demand •

It is the demand that companies attempt to determine by measuring total market potential, area market potential industry sales and market share

Future Demand

Penetrated market

•

It is the demand that companies determine by surveying buyer’s intentions, solicit their sales force’s input, gather expert opinions, analze past sales or engage in market testing mathematical models, advanced statistical techniques and computerized data collection procedures

Set of consumers who are buying the

To estimate current demand companies attempt to determine total market potential,

company's product.

area market potential industry sales and market share To estimate future demand companies’ survey buyer’s intentions solicit their sales force’s input, gather expert opinions, analyze past sales or engage in market testing mathematical models, advanced statistical techniques and computerized data collection procedures are essential to all types of demand and sales forecasting.

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Chapter

5

Creating Customer Value, Satisfaction and Loyalty In the face of increasing competition, companies today face their toughest test of survival. Moving from a product-to-sales philosophy to a holistic marketing philosophy, however, may provide a better chance of outperforming competition. And at the cornerstone of this philosophy are strong customer relations.

Customer

This chapter discusses the importance and various methods of creating customer value and sustaining customer loyalty. As customers have become more informed and

Perceived Value:

educated than ever, organisations have started to adopt business models where the customer is at the top.

Total Customer Benefit Customer

It is the perceived monetary value of the bundle of economic, functional, and

Perceived Value: It

psychological benefits customers expect from a given market offering because of the

is the difference

products, services, personnel and image involved.

between the prospective

Total Customer Cost

customer’s

It is the perceived bundle of costs customers expect to incur in evaluating, obtaining,

evaluation of all the

using, and disposing of the given market offering, including monetary, time, energy, and psychological costs.

benefits and all the costs of an offering, and the perceived alternatives.

Very often, a customer value analysis is undertaken by managers to better understand the company’s strengths and weaknesses in comparison with competition. It follows the pattern below 1. Identify the major attributes and benefits that customers value. 2. Assess the quantitative importance of the different attributes and benefits.

Chapter 5 - Creating Customer Value, Satisfaction and Loyalty Trends 3. Assess the company’s and competitors’ performances on the different customer values on each attribute and benefit. 4. Assess how customers in a specific segment rate the company’s performance against a major competitor on an individual attribute or benefit basis. 5. Monitor customer values over time as the economy, technology, and features change.

Total Customer profitability

Customer

A profitable customer is one that over time yields a revenue stream that is significantly

Satisfaction: It is the measure of

greater than that company’s cost stream for attracting, selling and servicing that customer.

a customer’s

150-20 Rule

feelings of pleasure or disappointment

The 20% most profitable customers generate as much as 150% of the profits of the company; the 20% least profitable customers lose 100% of the profits.

that results from

Measuring customer profitability lies in the concept of Customer Lifetime Value (CLV).

comparing a

CLV describes the net present value of the future stream of profits expected over the

product’s perceived

customer’s lifetime purchases. CLV calculations are generally used by marketers to

performance to

develop a long-term perspective.

their expectations. Satisfaction is usually measured

Customer Relationship Management (CRM) It is the process of carefully managing detailed information about individual customers and all occasions where a customer encounters a brand/product to maximise customer

with the help of

loyalty.

customer surveys.

CRM can be conducted using the following 4 steps –

The two major factors involved in customer satisfaction are complaint handling and product/service quality.

1. Identify your prospects and customers. 2. Differentiate customers in terms of their needs and their value to your company. 3. Interact with individual customers to improve your knowledge about their needs and to build stronger relationships. 4. Customize products, services, and messages to each customer. The value of the customer base can be increased by improved by measures such as reducing the rate of customer defection, increasing the longevity of the customer relationship, making low-profit customers more profitable or terminating them, etc.

Chapter 5 - Creating Customer Value, Satisfaction and Loyalty Trends Building Customer Loyalty It involves the following procedures – 1. Interacting with customers 2. Developing loyalty programs 3. Personalising marketing 4. Creating institutional ties

Database marketing It is the process of building, maintaining and using customer databases and other databases to contact, transact and build customer relationships.

Customer Database It contains customers’ past purchases, past volumes, past prices and profits; buyers’ personal details, status of current contacts, the company’s share of the buyer’s business, competitive suppliers, etc.

Datamining Through datamining, marketers can extract information about individuals, trends, etc. from the customer database. It uses techniques such as cluster analysis, predictive modelling, etc.

Disadvantages of Datamining and CRM 1. Building and maintaining a database requires huge amounts of investment in terms of computer hardware. 2. Convincing employees to be customer oriented than using traditional methods. 3. Customer attitudes about privacy of personal data. Probability of error of CRM methods or assumptions made thereof.

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Chapter

6

Analyzing Consumer Markets Since marketing starts from the customer, it is of primary importance to understand the psyche of the customers and their buying motives. This chapter talks about the various behavioural patterns that govern the decision making process of a customer. A marketer needs to understand these factors affecting the customer’s purchase decisions so as to design an appropriate marketing strategy.

Factors affecting Consumer Buying Behaviour 1. Cultural Factors a. Culture - Frames traditions, values, perceptions, preferences. E.g. Child learning from family & surroundings. b. Sub-culture - Provides more specific identification and socialization. Include nationalities, religions, racial groups and geographic regions. c. Social Class – Homogeneous and enduring divisions in a society which are hierarchically ordered. Members share similar tastes and behaviour. 2. Social Factors a. Reference Groups – Have direct or indirect influence on person’s attitude and behaviour. Primary groups: regular interaction, e.g. family, friends, neighbours. Secondary groups: religious, professional, trade union groups. Aspirational Groups: ones that a person hopes to join. Dissociative groups: whose values or behaviour and individual rejects. b. Family – Family of orientation: parents and siblings. Acquires orientation towards religion, politics and economics, sense of personal ambition, self worth and love. Family of procreation: spouse and children. More direct influence on buying behaviour. c. Roles and Status – Role consists of activities a person is expected to perform. Each role carries a status. Marketers must be aware of the status symbol of each product.

Chapter 6 - Analyzing Consumer Markets 3. Personal Factors a. Age and Stage in the Life Cycle – Tastes are age related. Markets should also consider critical life events or transitions. b. Occupation and Economic Circumstances – Economic Circumstances like spendable income, savings, assets, debts, borrowing power etc affect consumption patterns. c. Personality and Self Concept – Personality, set of distinguishing characteristics that influence his/her buying behaviour. Consumers match brand personality with their ideal self concept instead of their actual self concept. d. Lifestyle and Values 4. Psychological Factors a. Motivation: Freud’s theory of id, ego and super ego; Maslow’s need hierarchy theory; Herzberg’s two factor model. b. Perception: Process by which we select, organize and interpret information inputs. In marketing, perceptions are more important than reality. c. Learning – Induces changes in behaviour arising from experience. Marketers can build demand by associating the product with positive drives. d. Memory – Short term and long term memory. Build brand knowledge and brand recall as node in memory.

Problem Recogniton

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase Behaviour

The Buying Decision Process •

Problem Recognition - Customer recognises a need triggered by internal or external stimuli. Marketers need to identify circumstances that trigger needs.

•

Information Search - Two levels of involvement – Heightened attention when person becomes more receptive to information about the product. At next level consumer may enter into active information search, looking for reading material, phoning friends etc.

•

Evaluation of Alternatives - Factors influencing a particular choice over the other include attitudes, beliefs and expectancy value.

•

Purchase Decision - Between purchase intention and purchase decision, 2 intervening factors come into play- Attitudes of others and Unanticipated situational factors. Marketers should understand that these factors provoke risk and should provide information to reduce it.

•

Post purchase Behaviour - Marketers must monitor postpurchase satisfaction, postpurchase actions, and postpurchase product uses.

Chapter 6 - Analyzing Consumer Markets Trends Level of customer involvement Involvement

Significant Insignificant

Differences in Brands

High Complex Buying Behaviour

Low

Variety Seeking

Dissonance Reducing

Habitual

1. Complex Buying Behaviour: When a customer purchases something for the first time. 2. Variety Seeking: Consumers will keep switching varieties just out of boredom. Eg- Biscuits. Marketer should keep introducing new products and display the product prominently. 3. Habitual: Buying the same thing out of habit and not out of loyalty. Distribution network should be excellent in this case. Maintain consistency in product and advertising. 4. Dissonance Reducing: In case of repeat purchase of same product.

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Chapter

7

Analyzing Business Markets and Buyer Behavior Business buyers purchase goods and services to achieve specific goals, such as making money, reducing operating costs, and satisfying social or legal obligations. Therefore to provide superior customer value to the business buyers this chapter familiarizes you with the underlying dynamics and process of business buying.

Organizational buying is the decisionmaking process by

Blanket contract establishes a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed-upon prices over a specified period. Because the seller holds the stock, blanket contracts are sometimes called stockless purchase plans. Product value analysis is an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized or made by cheaper methods of production.

which organizations

The Business Market versus the Consumer Market

establish the need for purchased products and

•

consumer marketers.

services and identify, evaluate, and choose among

Fewer buyers: Business marketers normally deal with far fewer buyers than do

•

Larger buyers: Buyers for a few large firms do most of the purchasing in many industries.

•

Close supplier customer relationship: Smaller customer base and importance of

alternative brands

larger customers, suppliers have to customize offerings to meet the needs of

and suppliers.

individual customers. •

Geographically concentrated buyers

•

Derived demand: Demand for business goods is derived from demand for consumer goods, so business marketers must monitor the buying patterns of ultimate consumers.

•

Inelastic demand: Not much affected by price changes as producers cannot make quick production changes.

•

Chapter 7 - Analyzing Business Markets and Buyer Behavior •

Three types of Business Buying Situations: Straight rebuy:

Fluctuating demand: Demand for business products is more volatile than consumer products.

•

Professional purchasing: Organizational purchasing policies and constraints are followed

•

Multiple buying influences: More people typically influence buying decisions

•

Multiple sales calls: Multiple sales calls to win most business orders, and the sales cycle can take years.

•

Direct purchasing: Business buyers often buy directly from manufacturers rather than intermediaries

•

Reciprocity: Business buyers often select suppliers who also buy from them.

•

Leasing: Many industrial buyers lease rather than buy heavy equipment to conserve capital, get the latest products, receive better service, and gain tax advantages.

situation in which the purchasing

The Buying Center

department

(Decision-making unit of a buying organization)

reorders on a

Seven roles in the purchase decision process:

routine basis (e.g.,

•

Initiators: People who request that something be purchased

office supplies, bulk

•

Users: use the product or service; often, users initiate the buying proposal and help define product requirements.

chemicals). Modified rebuy: situation in which

•

Influencers: People who influence the buying decision, including technical personnel.

•

Deciders: Those who decide on product requirements or on suppliers.

•

Approvers: People who authorize the proposed actions of deciders or buyers.

•

Buyers: People who have formal authority to select the supplier and arrange the purchase

the buyer wants to modify product

•

members of the buying center

specifications, prices, delivery

Major Influences on Business Buying

requirements, or other terms.

Gatekeepers: People who have the power to prevent sellers or information from reaching

Environmental Factors Attention to numerous economic factors, including interest rates and levels of production, investment, and consumer spending. Business buyers also monitor technological, political-

New task:

regulatory, and competitive developments.

situation in which a purchaser buys a product or service for the first time

Organizational Factors Business marketers need to be aware of the following organizational trends in purchasing: •

Purchasing department upgrading: Strategically positioned and highly

•

Cross-functional roles: strategic, technical, team-oriented, and involving more

(e.g., office building, new

responsibility •

Centralized purchasing: recentralized their purchasing, to gain more purchasing clout and savings.

security system). •

Decentralized purchasing of small-ticket items

•

Long-term contracts: Buyers are increasingly initiating long-term contracts

•

Internet purchasing: Low transaction and personnel costs reduce time between order and delivery, purchasing companies moving towards internet purchasing.

•

Purchasing-performance evaluation & incentive systems and buyers’ professional

Chapter 7 - Analyzing Business Markets and Buyer Behavior •

Major

Lean production: incorporates just-in-time (JIT) production, stricter quality control, development frequent and reliable supply delivery, suppliers locating closer to customers, computerized purchasing, and stable production schedules.

Influences on Business Buying:

8 stages of PURCHASING PROCESS Stage 1: Problem Recognition Someone in the company recognizes a problem or need that can be met by acquiring a good

Interpersonal Factors Buying centers usually

or service. Internally, developing a new product, need for new equipment and materials or to obtain lower prices or better quality. Externally, occur when a buyer gets new ideas at a trade show, sees a supplier’s ad, or is contacted by a sales representative offering a better

include several

product. Business marketers can stimulate problem recognition by direct mail,

participants with

telemarketing, effective Internet communications, and calling on prospects.

differing interests,

Stage 2: General Need Description

authority, status,

The buyer has to determine the needed item’s general characteristics and the required quantity. In this stage, business marketers can assist buyers by describing how their products

empathy, and

would meet such needs.

persuasiveness.

Stage 3: Product Specification Company assigns a product value analysis (PVA) to engineering team. By getting in early and

Individual Factors Each buyer carries

influencing buyer specifications, a supplier can significantly increase its chances of being chosen. Stage 4: Supplier Search

personal motivations,

The supplier should get listed in online catalogs or services develop communications to reach

perceptions, and

buyers, and build a good reputation in the marketplace. After evaluating each company, the

preferences, as

buyer will end up with a short list of qualified suppliers

influenced by the

Stage 5: Proposal Solicitation

buyer’s age, income,

The buyer invites qualified suppliers to submit proposals. When the item is complex or expensive, the buyer will require a detailed written proposal from each qualified supplier.

education, job position, After evaluating the proposals, the buyer will invite a few suppliers to make formal personality, attitudes presentations. toward risk, and culture.

Stage 6: Supplier Selection The buying center specifies desired supplier attributes (such as product reliability and service reliability) and indicate their relative. A blanket contract may be established. The buyer’s computer automatically sends an order to the seller when stock is needed, and the supplier

Cultural Factors

arranges delivery and billing according to the blanket contract.

Marketers carefully

Stage 7: Order-Routine Specification

study the culture and

The buyer negotiates the final order, listing the technical specifications, the quantity needed,

customs of each region to better understand

the delivery schedule, and so on. In the case of MRO items, buyers are moving toward blanket contracts rather than periodic purchase orders. Stage 8: Performance Review

the cultural factors that The buyer periodically reviews the performance of the chosen supplier(s). Three methods can affect buyers and the buying organization.

are used. The buyer may contact the end users and ask for their evaluations. Or the buyer may rate the supplier on several criteria using a weighted score method. Or the buyer might aggregate the cost of poor supplier performance to come up with adjusted costs of purchase, including price.

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Chapter

8

Identifying Market Segments and Targets This chapter deals with one of the quintessential concepts of Marketing: STP i.e. Segmentation, Target and Positioning. It explains different levels of Market Segmentation, bases for Segmenting Consumer Markets, choosing target Markets & finally analyses the various requirement for effective segmentation.

Mass Marketing: The seller engages in mass

Steps in market segmenta segmentation, tion, targeting and positioning 1. Market Segmentation

•Identify Identify bases for segmenting the market •Develop Develop segment profiles

2. Target Marketing

•Develop Develop measure of segment attractiveness •Select Select target segments

3. Market Positioning

•Develop Develop positioning for target segments •Develop Develop a marketing mix for each segment

production, mass distribution and mass promotion of one product for all buyers

Levels of Market Segmentation: Micromarketing A. Segment marketing marketing: Dividing a market into distinct groups with distinct needs, characteristics, or wants who might require separate products or marketing mixes. Segment Marketing offers key benefits over Mass Marketing as the company can offer better design, price, disclose and also can fine-tune fine the marketing program to better reflect competitors marketing. B. Niche Marketing Marketing: A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually define niches by dividing segments into sub segments. egments. For e.g. Ezee, the liquid detergent from Godrej is a fabric washing product for woolen clothes.

Chapter 8 - Identifying Market Segments and Targets C. Local Marketing: Target marketing that involves marketing programs tailored to the needs and wants of local customer groups in trading areas, neighborhoods and even individual stores is called as Local Marketing. E.g. Many Banks in Kerala have special ‘NRI Branches’ to cat cater er to the needs of customers whose relatives remit money from abroad. D. Individual Marketing: This is the ultimate level of marketing that leads to “segments of one”,” customized marketing” or “one “one-to-one one marketing”. Customerization empowers customers to de design sign the product and service offering to their choice. For e.g. Asian Paints retailers facilitate customers to mix and match colors of their choice from a catalogue.

Bases for Segmenting Consumer Markets A. Geographic Segmentation: Division of the Market into different geographical Units such as nations, cities, states, regions, neighborhoods etc •

Region: South India, Western Region, North, East

•

City: Class Class-I cities, class-II cities, Metro cities etc

•

Rural, urban , semi urban areas

B. Demographic Segmentation: The market is divided on the basis of variables such as age, family size, family life cycle, gender, income, occupation, education, religion etc. Demographic variables are easy to measure and are directly associated with customer needs and wants

FAMILY LIFE CYCLE STAGES Stage1: Bachelorhood Stage2: Honeymooners

Stage3: Parenthood

Stage4:Post Stage4:Post-ParentHood

Stage5: Solitary Survivor(SS)

•Single,Focus Single,Focus of expenditure on self •Young Young married couple without kids,focus on building home and relation •Full Nest-I,1 I,1 child less than 6 yrs old •Full Nest-II,youngest II,youngest child under 6 •Full Nest-III: III: all adult children •Children Children not living with parents •Empty Nest1 :Working •Empty Empty Nest2: Not Working •One spouse dies •SS-I: Working •SS-II: Not Working

C. Psychographic Segmentation: Here buyers are divided into different groups on the basis of psychological/personality traits, lifestyles or values. •

Lifestyle: Culture-oriented, oriented, sports oriented, outdoor oriented. Classification is done on three parameters: AIO-Activities, Activities, Interests and Opinions.

•

Personality: Compulsive, gregarious ,authoritarian ,ambitious

D. Behavioral segmentation: Buyers are divided on the basis of their knowledge of, attitude toward, use of, or response to a product. The behavioral variables are as follows:

Chapter 8 - Identifying Market Segments and Targets •

Usage Rate: Light, Medium, Heavy

•

Loyalty Status: None, medium, strong, absolute

•

Readiness Stage: Unaware, aware, informed, med, interested, desirous, intending to buy

•

Attitude towards Product: Enthusiastic, positive, indifferent, negative, hostile

Requirements for Effective Segmentation

Evaluating and Selecting Market Segments Five patterns of target market selection that can be followed are: •

Single Segment Concentration Concentration:: Concentrated Marketing where the firm gains a strong knowledge of segments needs and acquires a strong market presence

•

Selective Specialization Specialization:: a firm selects a number of segments. Each objectively attractive and appropriate, there may be little or no synergy between the segments segme

•

Product Specialization: The firm makes a certain product that it sells to several different market segments.

•

Market Specialization: The firm concentrates on serving many needs of a particular customer.

•

Full Market Coverage: The firm attempts to serve all a customer groups with all products they may need. E.g. Coca Cola (non (non-alcoholic alcoholic beverage segment), Microsoft (Software Market) etc.

P = Product M = Market

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9

Chapter

Dealing with Competition Building strong brands requires a keen understanding of competition. To effectively devise and implement the best possible brand positioning strategies, companies must pay attention to their competitors. Markets have become too competitive to just focus on the consumer alone.

Vertical Integration is to integrate backward or forward i.e. with suppliers and

Technological

costumers which often lowers costs and can manipulate prices and costs in different parts of the value chain.

is the art of learning from companies that perform certain tasks leapfrogging Benchmarking better than other companies.

is a bypass strategy practiced in high-tech industries. The challenger patiently researches and develops the next technology and launches an attack, shifting the

Competitive Forces (Michael Porter’s 5 forces) 1. Threat of intense segment rivalry - segment is unattractive if it contains numerous, strong, or aggressive competitors. 2. Threat of new entrants - segment's attractiveness varies with the height of its entry and exit barriers. The most attractive segment has high entry barriers and low exit barriers. 3. Threat of substitute products - A segment is unattractive when there are actual or potential substitutes for the product. 4. Threat of buyers' growing bargaining power - A segment is unattractive if buyers possess strong or growing bargaining power. 5. Threat of suppliers' growing bargaining power - A segment is unattractive if the company's suppliers are able to raise prices or reduce quantity supplied.

battleground to its

Identifying Competitors

territory, where it has Industry Concept • Number Of Sellers And Degree Of Differentiation an advantage. • • • •

Entry, Mobility, And Exit Barriers Cost Structure Degree Of Vertical Integration Degree Of Globalization

Marketing Concept According to marketing approach, competitors are companies that satisfy the same customer need. The market concept of competition reveals a broader set of actual and potential competitors. By mapping the buyer's steps in obtaining and using the product a company's direct and indirect competitors can be identified.

Chapter 9 - Dealing with Competition Analyzing Competitors

Trends • •

Selecting Competitors: Strong versus Weak: Weak require fewer resources per share

•

Strategies: What strategies a company uses to enter/survive in the market? Objectives: What are the objectives of the competitor’s and what drives its behavior? Factors shaping a competitor’s objectives include size, history, current management, and financial situation. Strengths and Weaknesses: A company needs to gather information on each competitor's strengths and weaknesses.

Three Important Variables for analyzing competitors • Share of market - The competitor's share of the target market. • Share of mind - The percentage of customers who named the competitor in responding to the statement, "Name the first company that comes to mind in this industry." • Share of heart - The percentage of customers who named the competitor in responding to the statement, "Name the company from which you would prefer to buy the product."

point gained. The firm should also compete

Companies that make steady gains in mind share and heart share will inevitably make gains in market share and profitability.

with strong competitors to keep up with the best.

Close versus Distant: Most companies compete with competitors who resemble them the most

"Good" versus "Bad": should support its good competitors (Play by the rules) and attack its bad competitors.

Competitive Strategies for Market Leaders Expanding the Total Market New customers: Potential new users maybe divided into three groups: • Those who might use it but do not (market-penetration strategy) • Those who have never used it (new-market segment strategy) • Those who live elsewhere (geographical-expansion strategy) More usage: Two ways of increasing usage • Increasing the level or quantity of consumption: through packaging or product design or by increasing the availability of product • Increasing the frequency of consumption: identifying completely new and different ways to use the brand and communicate the advantages of using the brand more frequently

Defending Market Share The most constructive response is continuous innovation. The leader leads the industry in developing new product and customer services, distribution effectiveness, and cost cutting. It keeps increasing its competitive strength and value to customers. • Position Defense: It involves occupying the most desirable market space in the minds of the consumers • Flank Defense: the market leader should also erect outposts to protect a weak front or possibly serve as an invasion base for counterattack. • Preemptive Defense: A more aggressive maneuver is to attack before the enemy starts its offense. A company can launch a preemptive defense in several ways • Counteroffensive Defense: the leader can meet the attacker frontally or hit its flank or launch a pincer movement. An effective counterattack is to invade the attacker's main territory so that it will have to pull back to defend the territory. • Mobile Defense: In mobile defense, the leader stretches its domain over new territories that can serve as future centers for defense and offense through market broadening and market diversification. • Contraction Defense: giving up weaker territories and reassigning resources to stronger territories.

Chapter 9 - Dealing with Competition

Competitive Strategies for Market

Expanding Market Share A company should consider four factors before pursuing increased market share: • The possibility of provoking antitrust action • Economic cost • Pursuing the wrong marketing-mix strategy • The effect of increased market share on actual and perceived quality

Follower: A market follower must know how to hold current customers and win a fair share of new customers. It must keep its manufacturing costs low and its product quality and services high. Four broad strategies can be distinguished: • Counterfeiter duplicates the leader's product and package and sells it • Cloner - emulates the leader's products, name, and

Competitive Strategies for Market Challengers Defining the Strategic Objective and Opponent(S) A market challenger must decide whom to attack: It can attack the market leader. This is a high-risk but potentially high-payoff strategy It can attack firms of its own size that are not doing the job and are underfinanced It can attack small local and regional firms Choosing a General Attack Strategy • Frontal Attack: The attacker matches its opponent's product, advertising, price, and distribution • Flank Attack: Identifying shifts in market segments geographic areas that are causing gaps to develop, and then rushing in to fill the gaps and develop them into strong segments. • Encirclement Attack: The encirclement involves launching a grand offensive on several fronts. Make sense when the challenger commands superior resources • Bypass Attack: It means bypassing the enemy and attacking easier markets to broaden one's resource base. Three lines of approach: diversifying into unrelated products, diversifying into new geographical markets, and leapfrogging into new technologies to supplant existing products. • Guerrilla Warfare: Small, intermittent attacks to harass and demoralize the opponent and eventually secure permanent footholds (selective price cuts, intense promotional blitzes, and occasional legal action) Few more specific strategies: Price discount, Lower price goods, Value-priced goods and services, Prestige goods, Product proliferation, Product innovation, improved services, Distribution innovation, Manufacturing-cost reduction, Intensive advertising promotion

packaging, with slight variations. • Imitator - copies

•

Competitive Strategies for Market-Nicher

The nicher achieves high margin, whereas the mass marketer achieves high volume. Nichers some things from the have three tasks: creating niches, expanding niches, and protecting niches. Because niches can weaken, the firm must continually create new ones therefore multiple niching is leader but maintains preferable to single niching. The key idea in successful nichemanship is specialization. Here are some possible niche roles: differentiation in • End-user specialist: The firm specializes in serving one type of end-use customer. terms of packaging, • Customer-size specialist: The firm concentrates on selling to small, medium-sized, or large customers. advertising, pricing, • Geographic specialist: The firm sells only in a certain locality, region, or area of the or location. world. • Product-feature specialist: The firm specializes in producing a certain type of Adapter - takes the product or product feature leader's products and • Quality-price specialist: The firm operates at the low- or high-quality ends of the market adapts or improves • Channel specialist: The firm specializes in serving only one channel of distribution

them.

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Chapter

10

Creating Brand Equity

It is important for the marketer to create a strong brand and maintain customer loyalty. This chapter talks about the concepts of brand and how branding works. We will understand what brand equity is, how it is built and measured as well as the decisions involved in branding strategy.

Brand: A name, term, sign,

Brand Equity Added value endowed on products and services. Reflected in way consumers think, feel and

symbol or design, or a act with respect to a brand. Customer based brand equity – differential effect brand combination of them, knowledge has on customer response to the marketing of a brand. Maybe positive or intended to identify

negative depending on how consumers respond. It has three key ingredients –

the goods or services

•

Brand equity arises from differences in customer response

•

Differences in response are a result of consumer’s knowledge of the brand. Brand

of one seller or group

Knowledge consists of all thoughts, feelings, images, experiences, beliefs and so on that

of sellers and to differentiate them from those of competitors.

become associated with the brand •

The differential response is reflected in perceptions, preferences and behaviour related to all aspects of the marketing of the brand

Marketer must build a strong brand that ensures that the consumers have the right experiences.

Brand Promise Marketer’s vision of what the brand must be and do for the consumers. The true and future value depends on customers, their brand knowledge and their likely response to marketing activity.

Chapter 10 - Creating Brand Equity Trends Brand Equity Models Brand Asset Valuator It provides comparative measures of the brand equity of thousands of brands across hundreds of different categories. Leaders

Brand Element: Those trademark able devices that identify and differentiate the brand. Most strong brands employ multiple brand

Energized Brand Strength (Differentiation, Relevance, Energy)

Up and coming/Niche

Google

JetBlue

USA

Declining

Ikea

Pringles

Leaders

Nike

TiVo

Kodak AAA

Redbull

Tide

New/Undeveloped

Eroded/Commoditized

Blackberry

Centrum

Sephora

Entertainment Weekly

SAP

Wells Fargo

Brtish Airways

Budget Rent-A-Car

elements. Brand element choice criteria includes 6 main parameters – first three being memorable, meaningful and likable (‘brand

Brand Structure (Esteem & Knowledge) (E There are the five key components of the model – 1. Differentiation – degree to which a brand is seen as different from others 2. Energy – brand’s sense of momentum 3. Relevance – breadth of brand’s appeal 4. Esteem – how well the brand is regarded and respected 5. Knowledge – how familiar and intimate customers are with the brand

building’) and last

Brand Resonance Model

three being

Creation of significant brand equity requires reaching the top or pinnacle of the brand pyramid, which occurs only if the right building blocks are put into place.

transferable, adaptable and protective (‘defensive’).

Resonance

Judgement Feelings Performance

Salience

Imagery

•

Chapter 10 - Creating Brand Equity Trends Brand Salience – how often and how easily customers think of the brand under various purchase or consumption situations.

•

Brand Performance – how well the product or service meets customers’ functional needs

•

Brand Imagery - describes the extrinsic properties of the product or service; also the way in which brand attempts to meet customers’ psychological or social needs

Brand

•

Brand Judgements – focus on customers’ own personal opinions and evaluations

•

Brand Feelings – customers’ emotional responses and reactions with respect to the brand

Reinforcement

•

Brand Resonance – nature of the relationship customers have with the brand and the extent to which they feel they’re “in sync” with it

Brand needs to be managed so its value does not depreciate.

Brand Audit – consumer focussed series of procedures to assess the health of the brand, uncover its sources of brand equity and suggest ways to improve and leverage its equity.

Brand equity reinforced by

Brand Valuation – Job of estimating the total financial value of the brand.

marketing actions that

Devising a Brand Strategy

consistently convey the meaning of the brand

When a firm introduces a new product it has 3 choices –

in terms of what it

•

Develop new brand elements for the new product

represents and how it

•

Apply some of the existing brand elements (Product is called brand extension)

makes the products

•

Use a combination of new and existing brand elements (Maybe called a sub brand)

superior. Reinforcing

Brand Portfolios

requires innovation and relevance throughout the marketing program.

Marketers need multiple brands to cater to multiple markets. The reasons for diversifying the brand portfolio 1. Increasing shelf presence and retailer dependence in the store 2. Attracting customers seeking variety who may otherwise have switched to another brand 3. Increasing internal competition within the firm 4. Yielding economies of scale in advertising, sales, merchandising and physical distribution

Customer Equity Sum of lifetime values of all customers. The aim of Customer Relationship Management (CRM) is to produce high customer equity.

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11

Chapter

Crafting the Brand Positioning This chapter illustrates how a firm can choose an effective positioning in the market and differentiate its brand. It describes the various strategies a firm can employ at each stage of a products life cycle and finally shows the implications of Market evolution for marketing

Positioning: Positioning is the act of designing the company’s offering and image to occupy

strategies.

Developing and Communicating a Positioning Strategy Category Membership:

products or set of products with which the brand

competes and which function as close substitutes.

a distinctive place in the minds of the

Points of Difference (POD):

target market.

associate with a brand, positively evaluate and believe they could not find to the same extent

Positioning requires

in another brand.

determining on a

Points of Parity (POP): They are associations that are not unique to the brand

frame of reference

but in fact maybe shared with other brands. It has two forms:

based on the

•

Category Points of Parity: Associations customers view as essential to a legitimate and credible offering within a certain product or service category.

following factors: •

1. Identifying the

Attributes or benefits consumers strongly

Competitive Points of Parity: Associations designed to negate a competitor’s pointsof-difference.

target market. 2. Analyzing the competition.

Choosing POPs and PODs POPs: They are driven by the needs of category membership (to create category POPs) and the necessity of negating competitors’ PODs (to create competitive PODs) PODs: The following two criteria are considered while choosing POP’s Desirability Criteria

Deliverability Criteria

Relevance Distinctiveness Believability

Feasibility Communicability Sustainability

Chapter 11 - Crafting the Brand Positioning Establishing category membership The typical approach to positioning is to inform consumers about a brands category membership before stating its points of difference. Initial advertising often concentrates on create brand awareness and subsequent advertising attempts to craft the Brand Image. Differentiating Strategies

Competitive Advantages It is a company’s ability to perform in 1 or more ways that competitors can’t match. Two

Straddle Positing:

sustainable competitive advantages are: •

advantages •

used when a company tries to straddle between two

Dimensions to differentiate Market Offerings •

well crafted marketing program straddled ‘Luxury’ and ‘Performance’ as

Personnel differentiation: Better trained employees E.g. smartly dresses flight attendants of Kingfisher Airlines.

•

frames of reference. E.g. BMW through a

Customer Advantage: is an advantage that a customer sees in the company’s offering

It is a common positioning technique

Leverageable Advantage: is one that a company can use as a springboard to new

Channel Differentiation: more effectively and efficiently designed channels, coverage, expertise and performance.

•

Image differentiation: Companies can craft powerful compelling images. E.g. Marlboro’s “macho cowboy” image.

Product Lifestyle Marketing Strategies Most product life-cycle curves are portrayed as bell shaped curves.

both POD and POP.

A company’s positioning and differentiation strategy must change as the product, market and competitors change over the product life cycle (PLC).

Chapter 11 - Crafting the Brand Positioning Trends Summary of Product Lifecycle Characteristics, Objectives and Strategies Introduction

Growth

Maturity

Decline

Sales

Low Sales

Rapidly rising sales

Peak Sales

Declining Sales

Costs

High Cost per customer

Average Cost per Low cost per customer customer

Low cost per customer

Profits

Negative

Rising Profits

High Profits

Declining Profits

Innovators

Early Adopters

Middle majority

Laggards

Create product awareness and trial

Maximize market Maximize profit while defending share market share

Offer a basic product

Offer product Diversify brands Phase out weak extensions, and items models products service, warranty

Characteristics

Maturity: When the

competitors cover all Customers major segments of Marketing the market maturity

Objectives

stage occurs. Competitors invade each others profits

Strategies

and as market growth Product slows down, market splits into finer

Price

Charge cost-plus Price to penetrate Price to match or Cut price market best competitors’

Distribution

Build selective distribution

Build Intensive distribution

Build more intensive distribution

Go selective: phase out unprofitable outlets

Advertising

Build product awareness among early adopters

Build awareness and interest in mass market

Stress brand differences and benefits

Reduce to level needed to retain hard-core loyals

segments and market segmentation occurs. This is often followed by market consolidation caused by the emergence of a new attribute that has greater appeal. Mature markets

Sales Promotion Use heavy sales Reduce to take Increase to promotion to advantage of encourage brand heavy consumer switching entice trial demand

swing between fragmentation and consolidation.

Reduce expenditure and milk the brand

Reduce to minimum level

Market Evolution •

Emergence: Before a market materializes it exists as a latent market. Here the entrepreneur has three options: 1. Single Niche Strategy: Design a product to meet preferences of 1 segment of the market 2. Multiple-Niche Strategy: Launch 2 or more products simultaneously to capture 2 or more parts of the market 3. Mass Market Strategy: Design a product for the middle of the Market

•

Maturity

•

Decline: Eventually demand for the current products will begin to decrease because either:

1.

Society’s total need level declines

2.

New Technology replaces the old

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Chapter

12

Setting Product Strategy Product is the first and the most important element of a marketing mix. This chapter deals with various product strategies for making coordinated decisions on product mixes, product lines, brands, packaging, labeling and warranties and guarantees.

Product Levels Marketers need to address 5 product levels:

Product: Anything that can be offered to a

•

Core Benefit: The benefit a customer really buys. E.g. Hotel guest buys rest and sleep

•

Basic Product: e.g. hotel room includes bed, bathroom, desk, dresser, closet, towel etc

•

Expected product: attributes that buyers normally expect along with their product.

•

Augmented product: attributes that exceed buyer expectations. In developed countries, brand positioning and competition take place at this level, while in developing countries

market to satisfy a need or want,

it takes place at ‘expected product’ level. •

Potential product: it encompasses all the augmentations and transformations the product or offering might undergo in the future.

including physical goods, services,

Product classification

experiences, events, persons,

•

Durability and tangibility 1. Nondurable goods: tangible goods that are normally consumed in a day or two. E.g.:

places, properties.

soaps, soft drinks. They are purchased frequently, thus should be made available in many locations, charged a small markup, and advertised heavily to induce trial. 2. Durable goods: tangible goods that survive many uses. E.g. Clothes, machines. Require more personal selling, higher margins, more seller guarantees. 3. Services: intangible, variable, perishable products. E.g. Haircuts, repairs. Require more quality control, supplier credibility, adaptability. •

Consumer goods classification: done on the basis of shopping habits. 4 types1. Convenience goods: purchased frequently, immediately, with minimum effort


Staples: purchased on regular basis




Impulse goods: purchased w/o planning e.g. Chocolates




Emergency goods: purchased when need is urgent e.g. Umbrellas

Chapter 12 - Setting Product Strategy 2. Shopping goods: goods that consumer compares based on suitability, price etc


Homogeneous: similar in quality but different in price.




Heterogeneous: similar in price but different in product features.

3. Specialty goods: they have unique characteristics for which consumers can spend mo E.g. Cars, men’s suits etc. they don’t require comparison.

4. Unsought goods: those that consumers do not know about or think of buying. E Insurance, reference books. Require advertising and personal selling. •

Industrial goods classification: done on the basis of relative cost and how they enter t production process1. Materials and parts: those that enter the manufacturer’s product completely.

Straddle




Raw materials: 2 kinds- Farm products, which are seasonal and require spec

marketing apart from advertising, and Natural products, which are limited in supp

Positing:




Manufactured materials and parts: 2 kinds- component materials (e.g. Iro

cement. These are usually fabricated further), and component parts (e.g. Moto

It is a common positioning technique used when a company tries to straddle between two

tires. These enter the final product w/o change.)

2. Capital items: long lasting goods that facilitate developing or managing the finish products. They include


that personal selling


well crafted marketing program straddled ‘Luxury’ and ‘Performance’ as both POD and POP.

Equipment: includes portable factory tools and equipments. Sales force mo important than advertising.

frames of reference. E.g. BMW through a

Installation: includes buildings and heavy equipments. Advertising less importa

3. Supplies: short term goods that facilitate developing or managing finished produc They include


Maintenance and repair items. E.g. Paint, broom.




Operating supplies. E.g. Lubricants, writing paper, pencils.

4. Business services: short term services that facilitate developing or managing finish products. They include


Maintenance and repair services. E.g. Air conditioner maintenance.




Business advisory services. E.g. Management consulting, advertising.

Differentiation

Product Differentiation Form: this includes size, shape, physical structure. Features: they supplement the basic function of the product. Company must compare customer value v/s company cost for each potential feature. Customization: requires gathering and using information about consumers. Mass customization is the ability of a company to meet each customer’s requirements. Performance quality: it is the level at which a product’s primary characteristics operate. 4 performance levels- low, average, high, and superior. The level must be appropriate to the target segment and not necessarily the best. Conformance quality: the degree to which all produced units is identical and meets the promised specifications. Durability: buyers generally pay more for more durable products. However, the extra price must not be excessive and the product must not be subject to rapid technological obsolescence Reliability: probability that a product will not fail within a specified time period. Reparability: the ease of fixing a product when it malfunctions or fails Style: the product’s look and feel. Creates distinctiveness that is difficult to copy.

Chapter 12 - Setting Product Strategy Services Differentiation Ordering ease: ease of placing an order Delivery: includes speed, accuracy, and care throughout the process. Installation: work done to make a product operational in its planned location. Becomes a selling point when the target market is technologically novice. Customer training: training customer’s employees to use vendor’s equipment efficiently and properly. Customer consulting: data, information and advice services that seller offers to buyers. Maintenance and repairs: helps customers keep products in working order. Returns: they are of two types1. Controllable: result from problems, difficulties, or errors of seller or customer and can be eliminated with proper strategies. 2. Uncontrollable: can’t be eliminated by the company in the short run.

Product line length:

Product Hierarchy 1. Need family: the core need that underlies the existence of a product family. E.g.

Companies seeking

Security.

higher market share

2. Product family: product classes that satisfy a core need. E.g. Savings and income

have longer product

3. Product class: a group of products within a family that have functional coherence

lines, those seeking

4. Product line: a group of products within a class that perform similar function, are sold to same customers, are marketed through same channels. E.g. Life insurance.

higher profitability

5. Product type: a group of items within a line that share of possible forms of the

have shorter product

product. E.g. Term life insurance.

lines. They lengthen

6. Item: a distinct unit within a brand or product line distinguishable by size, price, appearance, etc. ICICI prudential term life insurance.

over time. Excess manufacturing forces production of newer

Product system:

items. However,

compatible manner.

a group of diverse but related items that function in a

Product Mix

other costs increase and thus some non

It is the set of all products and items a particular seller offers for sale.

performing items are

•

Width: how many product lines the company carries.

eliminated.

•

Length: the total no. of items in the mix.

•

Depth: how many variants are offered of each product in the line?

•

Consistency: how closely related the various product lines are in end use.

Product line Product line analysis: based on – •

Sales and Profit: a company can classify its products based on the margins. o Core products: basic products that have a high sales volume but with low margins as they are essentially undifferentiated commodities. E.g. Basic computers. o Staples: lower sales volume, higher margins, no promotions. E.g. Faster CPU o Specialties: lower sales volume, highly promoted. E.g. Installation, delivery. o Convenience items: peripherals selling in high volumes, less promotion, high margins. E.g. Software, carry cases.

•

Market Profile: product line managers must review how the line is positioned against competitor’s lines.

Chapter 12 - Setting Product Strategy Line stretching: occurs when companies try to go beyond their current range offered. Companies stretch in the following ways•

Down Market Stretch: introducing lower-priced line than the one being offered. It can be risky as the price may not be less enough for competitors or some customers may shift the cheaper version.

•

Up-Marker Stretch: entering high end of market for better growth, higher margins.

•

Two way Stretch: middle level companies entering both high end and low end markets. Helps in establishing market dominance. E.g. Titan started as mid level watch, and then introduced Sonata for low end and Edge, Xylus for high end.

Note: a high end model of a low end brand is preferred over a low end model of a high end brand.

Line filling: lengthening product line by introducing more items in the present range. Line modernization, Featuring and Pruning:

product

lines need to change with the times. Can be done piecemeal or all at once. Piecemeal allows company to gauge the effect of change on consumers, but allows competitors to copy and pose greater challenge. Improvements must not occur too early (as they will affect sales of current product) and too late (as competitors would get more time). The company may choose between featuring their most selling items and promoting their weak items from time to time. Companies also need to optimize their brand portfolio. For this, they need to identify the weak items, and weed them away. E.g. Unilever found only 400 of its 1600 items generated 90% of company’s profits.

Product-Mix Pricing: searching for a set of prices that maximizes profits on the total mix. •

Product Line Pricing: companies develop product lines and introduce price steps. Their task is to establish perceived quality differences that justify price differences.

•

Optional Feature Pricing: e.g. Automobile cos. Advertise entry level models at low prices to attract more customers. These modes are stripped of several features that buyers usually end up buying.

•

Captive Product Pricing: e.g. Manufacturers of razors price them low and set high markups on razor blades. If price is too high, counterfeiting and substitutions can erode sales.

•

Two-Part Pricing: fixed fee+ variable usage fee. Fixed fee should be low to encourage more sales; profit can be maximized from variable fees.

•

By-Product Pricing: e.g. Production of petroleum products produces several by products. If producer can sell these to the customer, he can price the main product lower.

•

Product Bundling Pricing 1. Pure bundling: products offered only as bundles. E.g. tour operators bundle stay and travel. 2. Mixed bundling: products offered individually as well as in bundles. E.g. Auto manufacturers. Customers may not plan to buy all components, but may be lured by the saving.

Chapter 12 - Setting Product Strategy Co-Branding:

2 or more brands are combined into a joined product or are

marketed together in some fashion. It includes same company co-branding (Gillette launched Mach 3 Turbo with its shaving gel), joint venture co-branding (Indian oil and Citibank cobranded credit cards), multiple sponsor co-branding ( Taligent, a one time alliance of Apple, IBM and Motorola) and retail co-branding (2 retail establishments using the same location to optimize space and profits). It allows products to be convincingly positioned and generating greater sales as 2 well known images are combined. However, consumer expectations with the level of involvement are high, so an unsatisfactory performance will be damaging for the partner company as well.

Ingredient Branding: special case of cobranding. It created brand equity for

For co-branding to succeed, both brands must have brand equity, and must fit in terms of values, goals and capabilities.

Packaging: activities of designing and producing containers for a product. Packages may include 3 levels of materials. Package is the buyer’s first encounter with the product. Factors leading to growing use of packaging: •

Self service

•

Consumer affluence

components, parts

•

Company and brand image: package leads to instant recognition of brand

that are contained

•

Innovation opportunity: packaging can be used to target different segments.

materials,

within other branded Packaging needs to achieve the following objectives: •

Identify the brand

•

Convey descriptive and persuasive information

•

Facilitate product transportation and protection

preference for their

•

Assist at-home storage

products so that

•

Aid product consumption

products. Ingredient brands create

customers do not but After designing, the packaging needs to be tested: a host product which does not have that ingredient.

•

Engineering tests: ensure that package stands up under normal circumstances

•

Visual tests: ensure that script is legible and colors harmonious

•

Dealer tests: dealers should find package attractive and easy to handle

•

Consumer test: buyers must respond favorably

Labeling: labels identify the product, grade the product, describe the product and promote the product (through attractive graphics).

Warranties and Guarantees:

warranties are formal statements of

expected product performance by the manufacturer. Products under warranties can be returned to the manufacturer for replacement, repair. Guarantees reduce the buyer’s perceived risk. They are especially helpful when the company is not well known or when product quality is superior to that of competitors.

Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha logo copy.tif

SUMMARY by

133

Chapter

Designing and Managing Services Today as product companies find it harder and harder to distinguish their physical products,

Service marketing is different from goods marketing as service

they turn to service differentiation. Service providers find significant profitability in delivering superior services.

How do we define and classify services and how do they differ from goods •

intangible and does not result in the ownership of anything .Its production may or may

consumer relies on word of mouth, they

not be tied to physical product Categories of services mix. •

cues to judge

Services can be equipment based or people based & they differ in their objectives and ownership.

rely heavily on price, personnel & physical

A service is any act or performance one party can offer to another that is essentially

•

Service companies can choose among different processes to deliver their service.

•

Services needs client presence & may meet a personal or business need.

quality. They are

Categories of services mix

highly loyal to service providers

Pure Tangible Goods

• No services accompany the product. E.g Soap,toothpaste

who satisfy them & because switching

Tangible Goods with accompanying services

•The The offering accompanied by one or more services E.g Computers, Cell Phones & cars

costs are high, consumer inertia

Hybrid

•The The offering contains equal parts goods and services. E.g restaurants

can make it challenging to entice a customer away from a competitor.

Major service with accompanying minor goods and services Pure Service

•The The offering consists of major service along with additional services or supporting goods. E.g Airplane travel alog with its services •The The Offering consists of only a service.E.g psycotherapy

Chapter 13 - Designing and Managing Services Holistic Marketing for Services External Marketing •It It describes the normal work of preparing,pricing,distribut ion,and promoting the service to customers.

Internal Marketing •It describes the training and motivating employees to serve the customers well.Engage every employee in the organization to practise marketing

Interactive Marketing •It describes the employee skills in serving the client

Distinctive Characteristics of Services Intangibility

• Services are intangible Service marketers must be able to transform intangible services into concrete benefits.

Inseparability

• Services are typically produced and consumed simultaneously .Thus service providers must learn to work in larger groups to provide services to customers

Variability

•Services Services are variable and buyers are aware of this variability and often talk to others about quality before selecting a services. •Invest In Good Hiring •Standardize the service-performance performance process •MonitorCustomer Satisfaction process

Perishability

•Services Services cannot be stored hence there is always a mismatch between demand & supply.Stratgies that marketers must use : •Demand Side - Differential Pricing,Nonpeak Demand,Complementary Services,Reservation Systems •Supply Side - Part-Time Time employees ,Peak Time efficiency,Increased consumer participation,shared services,Facilities for future expansion

Developing Brand Strategies for services Chosing Brand Elements Focus on logos,symbols,slogans to build brand awareness

Establishing Image Dimensions desgin marketing communication, information programs and building brand personality

Devising Branding Stratgey Create a brand hierarchy and brand portfolio that permits positioning, targeting of different market segments Provide Post-Sales Sales support Identify what is most valuable to customer and include repair & maintainence services

Chapter 13 - Designing and Managing Services Trends Best Practices of Service Quality Management

STRATEGIC COMPONE NT •Top companies are customer obsessed •They have clear sense of target customer and their need

TOP MANAGEM ENT COMMITME NT •Thorough commitme nt to service e.g Marriot,Xer ox •Both financial & service performanc e monitored by top manageme nt

HIGH STANDARDS •Setting high service standards •developing reliable,resi lient & innovative customer Intefrace systems

SELFSERVICE TEHNOLOGI ES •replacing person to person interaction s with self service technologie s e.g ATMs •Helping customers to use these facilities

MONITORIN G SYSTEMS •Auditing service performanc e of own & competitor s

SATISFYING EMPLOYEES & CUSTOMERS •Instilling a possitive attitude about customer satisfaction in employees

Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha logo copy.tif

SUMMARY by

14

Chapter

Developing Pricing Strategies and Programs Traditionally, price has been the major determinant of a buyers’ choice. And this is still the case with large segments of markets across the world. Although non-price factors have recently risen in importance, pricing remains an important factor in determining sales and

Pricing Environment: Many firms are

profitability. Also, price is the only component in the marketing mix that provides revenue and not costs.

Buyers can : •

Get instant price comparisons from thousands of vendors: Websites like

nowadays following

pricescan.com offer data about products like prices and reviews from hundreds of

the low-price trend

merchants.

and have seen success

•

seller willing to meet this price on sites like priceline.com. Also, volume-aggregating

in converting the acquired customers to

Name their prices: The consumer can state his desired price for a product and find the sites collate orders from many customers and press the supplier for a deeper discount.

•

Get products free: The open source software movement has eroded margins for

more expensive

almost any major software player. Also, the recent emergence of low-cost airlines

products by

providing tickets only for the amount of taxes levied on a ticket is an example how

combining unique

firms have been successful with free offerings.

product formulations and engaging marketing campaigns.

Sellers can : •

Monitor customer behaviour and customize offers: Firms use software to analyse pricing requests with pricing factors such as past sales data, discounts, etc. to reduce processing time of these requests greatly.

•

Offer certain customers special prices: Certain customers are offered lower prices by firms in order to capture a certain market segment on ensure the loyalty of existing customers further.

Setting the price Firms set a price when they introduce a new product, or venture into a new market with an existing product. This is usually achieved by following a six-step process as follows

Chapter 14 - Developing Pricing Strategies and Programs

Consumer psychology and pricing: • Reference prices: Consumers often employ reference prices, comparing an observed price to an internal reference price or a posted ‘regular retail price’. Sellers manipulate this by product positioning, suggesting that the actual price of the product is much higher or by pointing to a competitor’s high price.

Step 1: Selecting the Pricing Objective – The firm first decides where it wants to position its market offering. The five major pricing objectives are •

Survival: Companies pursue survival if they are plagued with over-capacity, intense competition, or changing consumer wants.

•

Maximum current profit: Many firms try to set a price that maximises their current profits and delivers a high return on investment.

•

Maximum market share: Here, firms believe that a higher sales volume will lead to lower unit costs and higher long-run profits and thereby maximise their market share.

•

Maximum market skimming: Companies offering new technologies often set high prices initially in order to gain high profits from various segments of the market early on.

•

Product-Quality Leadership: Many firms aspire to be the product-quality leader in the market.

Step 2: Determining Demand – Each price leads to a different level of demand and therefore has a different impact on a company’s marketing objectives. The factors entailing this are •

Price Sensitivity: The relation between price and demand, i.e. the demand curve can be analysed to determine the market’s probable purchase quantity at various prices. This helps a firm to maximise its profits.

•

Estimating Demand Curves: Most companies use the following methods to estimate

• Price-Quality inferences: demand curves: Market Surveys, Price Experiments, Statistical Analysis, etc. Many consumers use price • Price Elasticity: Marketers need to know how responsive, or elastic, the demand would be, to a change in price. If the price elasticity is high, increasing prices would as an indicator of quality. lead to a great reduction in demand, while decreasing prices would lead to increase High-price cars are in demand. Hence, marketers prefer inelastic markets where price changes do not perceived to be of higher elicit great shifts in demand. quality and vice versa. • Price cues: Consumer perceptions of prices are also affected by the manner in which prices are displayed. Many sellers believe setting a price of Rs.2999 puts a product into the 2000 range instead of the 3000 range as perceived by the consumer. Putting ‘Sale’ signs near the price display have also been known to be effective.

Step 3: Estimating Costs – While demand sets a ceiling on the range of price a firm can charge for its product, costs determine the floor. •

Types of Costs and Levels of Production: Costs are classified as Fixed costs and Variable costs. Fixed costs include salaries, electricity bills, etc. which do not depend upon quantity produced. Variable costs include processing costs, packaging costs, shipping costs, etc. which depend upon quantity produced. Hence, companies must decide on a level of production which will more or less guarantee no losses on the cost of production.

•

Accumulated Production: As firms gain experience in production of a good, the costs involved begin to decline. This is due to various factors such as workers finding shortcuts, smoother flow of materials, etc. This decline in cost with production experience is called experience curve.

•

Target Costing: Other than production scale and experience, costs also change a result of concentrated efforts by designers, engineers, purchase agents etc. They examine each cost component and try to find ways to reduce the costs involved in each of these.

Initiating and

Chapter 14 - Developing Pricing Strategies and Programs Step 4: Analyzing Competitors – The introduction of any change in price, cost, offers given by Trends

responding to price changes: •

Initiating price

cuts: Companies sometimes initiate

any seller can elicit a response in the market. A firm must analyse the value offered by a competitor to a customer in terms of prices, addons, post-sale services, etc. and thereby modify its own price in order to be competitive in the market. Step 5: Selecting Pricing Methods – There are six major pricing methods: •

the producer’s cost. • •

Initiating price

support, supplier’s reputation, etc. •

to increase their profits by taking into account

Value Pricing: Here, high quality products are assigned a fairly low price. The basic aim here is to attract a value-conscious customer base by reengineering the company to

increases: Companies initiate price increase

Perceived-value Pricing: Perceived-value pricing is made up of several factors like the buyer’s image of the product, the channel deliverables, warranty quality, customer

through lower prices. •

Target-return Pricing: In target-return pricing, the firm determines the price that would yield its target return on investment.

price cuts in order to dominate the market

Mark-up Pricing: The most elementary pricing method is to add a standard mark-up to

become a low-cost producer without sacrificing quality. •

Going-rate Pricing: Here, firms base their prices largely on competitors’ prices, charging nearly the same as major competitors in the market do.

•

Auction-type Pricing: There are three types in this pricing method –

the feasibility of the

English Auctions (Ascending bids): Here, the seller puts up an item and the bidders raise

price rise. A major

the price until the top price is reached. Dutch Auctions (Descending bids): Here, the seller announces a high price and then goes

factor leading to these

on lowering the price until a bidder accepts it. Or, a buyer announces his desire for a

price increases is over

product and sellers compete to offer him the lowest price.

demand, where the

Sealed-bid Auctions: Here, potential suppliers submit their bids without knowledge of

company cannot

other bids made and the best bid is selected.

supply all its customers and hence raises its prices. •

Responding to

competitors’ price

Step 6: Selecting the Final Price – After the pricing methods have narrowed the range of the price, the company selects the final price by taking into account factors as listed below: •

Impact of other marketing activities: The final price must take into account the brand’s quality and advertising relative to the competition.

•

Company Pricing Policies: The final price must be compliant with the company’s pricing policies.

changes: Firms respond • Gain-and-Risk-sharing Pricing: Buyers may resist accepting a supplier’s proposal because of a high perceived level of risk. Hence, the seller has the option of offering to absorb part to price cuts/raises by or all of the risk if the promised value is not delivered.

competitors by considering various factors like the

•

Impact of price on other parties: The final price’s effect on other parties such as distributors, dealers, competitors, government should also be taken into account by the management.

product’s stage in the

Adapting the Price

life cycle, its importance in the company portfolio, etc.

• • • •

Geographical Pricing Price Discounts and Allowances Promotional Pricing Differentiated Pricing