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PRINCIPLES of MARKETING

Student Study Material

Mr. Roopak Gupta

TABLE OF CONTENTS

Chapter no. Area Page no.

Chapter1 Marketing and its Framework 5

Introduction

1.1 Definitions of Marketing

1.2 Confusion around marketing

1.3 Need wants and Demand

1.4 Steps in Marketing process

1.5 Exchange and utility of a product

1.6 Corporate Social Responsibility.

1.7 Societal marketing

1.8 Marketing Mix

1.9 Environment and its impact

Chapter 2 Segmentation and Markets 35

2.1 Introduction

2.2 Market Segmentation and process

2.3 Basis of Segmentation

2.4 Basis for Organisational Customer

2.5 Targeting the Market

2.6 Positioning

Chapter 3 Consumer Behavior and Marketing 60

1.1 Introduction

1.2 Contribution of Psychology

1.3 Cognitive Dissonance

1.4 Purchase Decision Process

1.5 Diffusion of Innovation

Chapter 4 Marketing research and Information Systems 83

1.1 Introduction

1.2 Questionnaire Design

Chapter 5 Product- First P and New product Development 102

5.1 Introduction

5.2 Classification of goods

5.3 Product Life Cycle

5.4 Product and Product Mix

5.5 Branding

5.6 Why new products Fail

5.7 Branding Strategies

5.8 Brand Stretching

Chapter 6 Organisation Buyer 124

6.1 Introduction

6.2 Characteristics of Industrial Goods

Chapter 7 Place 127

7.1 Channel decisions

7.2 Ware housing, Inventory management, order processing

7.3 Marketing channel Decisions

7.4 Channel captain

7.5 Conflict in Channel

Chapter 8 Promotion Decisions 134

8.1 Introduction

8.2 Promotion and Promotiom mix

8.3 Communication Process

8.4 How to develop effective communication

8.5 Integrated Marketing communication

8.6 Promotion Mix

Chapter 9 Pricing decisions 154

9.1 Introduction to Pricing

9.2 Key questions in Pricing

9.3 Different types of pricing

Chapter 10 Extending the principles of marketing 162

Author’s Note

These Principles of Marketing are there to help a undergraduate to learn the

marketing platform . I have tried to gather and record the areas of marketing that meet

two goals. First, I have included the information that is most likely to be used not only

by a typical marketing student but also by a beginner in marketing stream. Second, I

have written about principles of marketing that are true principles, that is, that are less

likely to change fundamentally in the foreseeable future. In choosing material to cover,

I have tried to consider the fact that most people who learn this material do not have

their primary professional responsibility in marketing. The material is so designed to

help you professionally and imbibe you the fundamentals of Marketing. By learning

this material you will be knowledgeable about the framework of Marketing.

I hope that you will enjoy the material and would justify the effort there in to take

marketing to new dimension.

With Best Wishes

Roopak Kumar Gupta

Chapter One

Learning Outcomes –

After reading this lesson you should –

� Know the evolution & development of marketing

� Understand the core concepts of marketing

� Be able to appreciate the definitions of marketing

� Visualize the scope of marketing

� Understand the different types of marketing orientations

� Be familiar with new developments in marketing

Frame work of Marketing

The essence of Principles of Marketing is a recommended prerequisite for many business

majors. What is marketing? The answer to this question is many fold. The experienced

candidates of the field of marketing may connote in different ways for achieving to a

definition. There are many different definitions of marketing. Consider some of the

following alternative definitions.

The term marketing has changed and evolved over a period of time, today marketing is

based around providing continual benefits to the customer, these benefits will be

provided and a transactional exchange will take place.

The Chartered Institute of Marketing define marketing as 'The management process

responsible for identifying , anticipating and satisfying customer requirements

profitably'

If we look at this definition in more detail Marketing is a management responsibility and

should not be solely left to junior members of staff. Marketing requires co-ordination,

planning, implementation of campaigns and a competent manager(s) with the appropriate

skills to ensure success.

Marketing objectives, goals and targets have to be monitored and met, competitor

strategies analysed, anticipated and exceeded. Through effective use of market and

marketing research an organisation should be able to identify the needs and wants of the

customer and try to delivers benefits that will enhance or add to the customers lifestyle,

while at the same time ensuring that the satisfaction of these needs results in a healthy

turnover for the organisation.

Philip Kotler defines marketing as 'satisfying needs and wants through an exchange

process'

Within this exchange transaction customers will only exchange what they value (money)

if they feel that their needs are being fully satisfied, clearly the greater the benefit

provided the higher transactional value an organisation can charge.

“The all-embracing function that links the business with customer needs and wants in

order to get the right product to the right place at the right time”

“The management process that identifies, anticipates and supplies customer

requirements efficiently and profitably”

“Marketing may be defined as a set of human activities directed at facilitating and

consummating exchanges”

Which definition is right? In short, they all are right in their own way. They all try to

embody the essence of marketing:

• Marketing is about meeting the needs and wants of customers;

• Marketing is a business-wide function – it is not something that operates alone

from other business activities;

• Marketing is about understanding customers and finding ways to provide

products or services which customers demand

Thus marketing seeks to satisfy the needs of people (customers or the market) (creating a

sense of usefulness or utility) through the exchange process.

Why is the term “marketing” surrounded by confusion?

First, the word ‗marketing‘ means very different things to different people in different

industries. For example, a coal producer in Kentucky just needs to understand what price

the local buyer will be paying for the product and s/he can then plan to ‗market‘ (or just

sell) the coal produced to the local buyer. Second, think about how much different the

above situation is from another case in which ‗marketing‘ must be done. Let‘s say that

you are a product-marketing engineer at Agilent Technologies and your Product

Marketing Manager has informed you that you will be responsible for ‗marketing‘ a new

product that has been conceptualized by engineers in the Research and Development

(R&D) Department. Finally, assume a good friend of yours who has invented a new way

for people to wash their car. She has asked you ‗to market‘ her product for her. In all

three of these situations, the product has already been conceptualized and produced. It

won‘t help the individual marketer at all to consider how the market will react to the

product. In situation one, the coal miner must just extract the coal from the ground and

deliver it to a local coal broker for sale. In situation two, the product manager at Agilent

must first figure out what the new product will be good for and who might want to buy it.

Finally, in situation three, your friend has already invented the product; it just remains for

you to figure out who the people are who wash their own car and how to reach them. In

all three situations, the marketer is faced with coming up with a way to sell what has

already been produced. This definition of marketing, unfortunately, is how most people

would define marketing, that is, ―Marketing is how an organization or individual sells its

product or service.‖ Thus in this definition, marketing is relegated to finding and

exploiting a market of buyers for the product or service.

But is that how marketing practitioners and people who teach marketing define it? Let‘s

review some alternate definitions of marketing from the business literature.

The American Marketing Association’s definition. The American Marketing

Association (AMA) is the leading organization in the U.S. representing the academic side

of marketing. The organization is comprised of and primarily impacted by people who

teach marketing at the college level. In 1948, the AMA defined marketing as follows:

“The performance of business activities directed toward, and incident to, the flow of

goods and services from producer to consumer or user.”

(AMA, 1948).

Note that the definition above focuses on the DISTRIBUTION aspect of marketing and

doesn‘t really include the ‗Four P‘s‘: Product, price, promotion, place (distribution).

The reality is marketing encompasses all the activities which incorporates the conception

and movement of product from starting point that is idea generation to consumer (who

consumes).In order to understand the conception and movement let us see the following

seven steps.

Needs Wants And Demands:

Marketing thinking starts with the fact of human needs and wants. We all have some

needs residing in ourselves. These needs exist. Remember that needs can never be

created.

Needs:

Needs are the basic human requirements. They are the state of felt deprivation. People

need food, air, water, clothing & shelter to survive.People also have needs for recreation,

education and entertainment. At the bottom we all love to finish our basic needs.

Wants are desires for specific satisfiers of these deeper needs. Demands are wants for

specific products that are bagged by an ability and willingness to buy them. Marketers do

not create the needs. They can influence the demand by making the product appropriate,

attractive, affordable and easily available. For example, a person is hungry and he eats

food as bread that is need. Suppose he wish to satisfy by specific way that is French fries

or burger that becomes want Want becomes demand for the company when the person

has

Purchasing power

Willingness to buy

Concepts of Marketing

In order to meet needs and wants of people by valuable exchange the marketers defined

and redefine the contours of marketing and this led to various concepts of marketing

adopted time to time. These various orientations are discussed one by one.

The Production Concept

The Product Concept

The Selling Concept

The Marketing Concept

The Societal Marketing Concept

Production Concept — Firms that follow this philosophy focus on manufacturing

products that are relatively easy to produce; the firm does everything it can to improve

production efficiency and thereby lower the price of the product. The problem with this

approach is that it does not focus on the needs of the customer. Since the focus is on

production efficiencies, this means the firm has to "sell" the product after manufacturing

it.

Selling Concept — Firms that follow this philosophy focus on "pushing" the product

using advertising and promotion. Please note that marketing is not selling: selling is

similar to pushing, and marketing, we will see, is more like pulling. A firm that promotes

a product heavily after it is manufactured is in danger of creating a dissatisfied customer.

People are very likely to be disappointed in the product‘s performance. Your textbook

cites a study that shows that a dissatisfied customer is likely to complain to ten others

about a bad experience with a product.

Product Concept — Focusing too much on one‘s product and trying to make it the best-

performing product in the market via improvements can also be dangerous. Marketing

myopia is a term coined by Theodore Levitt to describe firms that define themselves in

terms of a product rather than in terms of the need that the product satisfies. For example,

the public does not want rail transportation, it wants fast, inexpensive, and convenient

transportation. The railroads made a great deal of money during the latter part of the 19th

Century. They made the mistake of thinking that the public wanted rail transportation.

Much of their business was taken away by newer modes of travel (planes stole much of

their passenger business; planes and trucks took away a great deal of their freight

shipping business). The railroads should not have focused on rail transportation but on

transportation in general. The goal is to do the best job of satisfying one's customers.

Consumers want energy, not necessarily oil; education, not necessarily in classrooms;

communication, not necessarily by telephone; music, not necessarily on cassettes; and

entertainment, not necessarily films or television. A firm that defines itself in terms of a

product, e.g., a firm that insists that it is in the business of providing long-distance

telephone service, might become obsolete.

Companies should not focus on existing products but on customer needs. This is the

reason the marketing concept became the philosophy that guides most firms today.

Marketing Concept — One of the most important terms that you will learn in this

course is the marketing concept. If a firm wants to achieve its goals it has to focus on

satisfying the needs of its customers. These goals do not necessarily have to relate to

profit since any firm that is involved in a transaction should follow the marketing

concept. Libraries, politicians, colleges, hospitals, and many other kinds of organizations

should be marketing-oriented. If a firm focuses on satisfying the needs of its customers, it

does not have to "push" its product. The public will demand the product and "pull" it

through the channel of distribution. Note what happens in a college when a course or

program is offered that satisfies students‘ needs for getting a good job. You do not have

to beg students to take the course or to major in that program.

As you can see from the above discussion, the two major concerns of marketing-oriented

firms that abide by the marketing concept are discovering consumer needs and then doing

everything possible to satisfy those needs.

The Seven Steps in the Marketing Process

It is natural that people in different situations define marketing differently. However, we

will approach the definition of marketing by first learning about the seven steps in the

process of marketing. While this process is not always followed, it is important that any

student of marketing understand what steps must be taken to be successful in a marketing

effort. The marketing process can be described in the following seven steps:

A. Understand the market wants/needs of interest

B. Based on relative size and needs of the market, select certain segments of the market

that are of the most interest to you and your organization

C. Thoroughly describe these segments based on their individual needs

D. Create a product or service that will meet the specific needs identified

E. Communicate the concept of the product or service to the targeted customer in a

way that makes sense to the customer

F. Deliver the product or service to the targeted customer in a way that will be

convenient to the customer

G. Solicit feedback from the customer about how your product or service could be

improved to meet the customers‘ needs even better

This process is applicable to most situations encountered by those wanting to market a

product or service. The process of marketing can be divided into ‗upstream‘ and

‗downstream‘ activities. That is, steps A through D are all ‗upstream‘ activities that

should be performed before a product actually exists. Surely, there are many readers

who will say, ―Wait, this won‘t work for me, I am like those people who you described

at first, I already HAVE a product to sell, I just need to find somebody to BUY IT!‖ As

marketers, we understand that many sellers don‘t have the option or input to create a new

product or service. However, this e-book is designed for people who want to do

marketing the right way. If you must pick up the process after steps A, B, and C have

already been performed, realize that some steps have already been done, and you should

check to see if they have been done correctly.

Also note that marketing research plays an integral role in each of these stages. That is,

the organization that is truly focused on customer needs must be driven by an active

research effort.

These are employed to satisfy a target market' or target demographic (the pool of

potential customers).

Example:

Product: Procter and Gamble introduces a new toothpaste designed to taste good

and fight cavities. Logo and packaging designed in bright colors to appeal to kids

of elementary school age to encourage more tooth brushing.

Price: $2.00, and discounted by means of coupons

Promotion: television and radio commercials, magazine and newspaper ads, and a

website; these use bright colors and happy music, perhaps an animated cartoon

character for a fun and family-friendly attitude

Place (or distribution): Supermarkets, drugstores, discount stores such as Wal-

Mart

Target demographic:

Mothers with kids who make toothpaste buying decisions for the family

(advertising could be shown on children's programming, prompting kids to ask

parents to buy the toothpaste)

Creating utility

The American Heritage Dictionary defines utility as "the quality or condition of being

useful". Utility is further defined as any quality and/or status that provides a product with

the capability to satisfy the consumer's wants and needs. Marketing is responsible for

creating most of a product's inherent utility.

There are four basic types of utility:

Form utility: production of the good or service, driven by the marketing function.

For example, Procter and Gamble turns raw ingredients and chemicals into

toothpaste.

Place utility: making the product available where customers will buy the product.

Procter and Gamble secures shelf space for the toothpaste at a wide variety of

retailers including supermarkets and drugstores.

Time utility: making the product available when customers want to buy the

product. The U.S. drugstore chain Walgreens has many locations open 24 hours a

day, and since the 1990's has placed most of their newer stores at major

intersections.

Possession utility: once you have purchased the product, you have rights to use

the product as intended, or (in theory) for any use you would like.

A fifth type of utility is often defined along with the above four types:

Image utility: the satisfaction acquired from the emotional or psychological

meaning attached to products. Some people pay more for a toothpaste perceived

to be more effective at fighting cavities and whitening teeth.

The exchange process

The exchange process is the process by which two or more parties give something of

value to each other to satisfy the perceived needs. The marketer (a company like Procter

and Gamble) offers goods and services desired by the market (the pool of potential

customers). In return, the market (the customer) gives back something of value to the

marketer, generally money. Both ends receive something of value in the exchange

process. The marketer makes money and the customer receives goods, services, or ideas

that satisfy their needs. The exchange process is the origin of marketing. The exchange

process creates utility.

For an exchange to occur:

Both parties must have something of value to exchange

Both parties need to be able to communicate (Procter and Gamble (P&G) must

have money to buy advertising on TV/radio/Internet)

Both parties must be able to exchange (the toothpaste (in some cases) must be

approved by the FDA; the customer must have the money to buy it, and have

access to a retail store where the product is sold)

Both parties must want to exchange

At least 2 people are needed for an exchange to occur

The marketing activities begin with the orientation of profit maximization with customer

satisfaction. The role of marketers is to see through the product movement in different

chains and till it is consumed satisfactorily. This consists of:

analyzing market opportunities,

selecting target markets,

designing marketing strategies,

planning marketing programs,

organizing, implementing and controlling the marketing effort.

1. Analyzing marketing opportunities

o Defining the market

o Consumer assessment

o Environmental assessment

o Company resource assessment

o Demand analysis and sales forecast

2. Identifying Market Segments and Selecting Target Markets

o Marketers set priorities for business opportunities, concentrating on

market segments within which they expect to achieve the best overall

economic return from their product or service. Market segmentation and

target marketing are the processes used to isolate these opportunities.

Market segmentation is the process of grouping customers based on their

similarities

o Market segmentation allows a company to:

Understand the different behavioral patterns and decision-making

processes of different group of consumers

Select the most attractive segments or customers the company

should target

Develop a strategy to target the selected segments based on their

behavior

3. Developing marketing strategies

o Positioning

o Develop new product, test and launch

o Modification in the stages of product life cycle

o Strategy choice depends on the strategy pursued by the firm

o Consider changing global opportunities and challenges

4. Planning marketing programs

o Transforming strategy into programs

o Managing Product Lines, Brands, and Packaging

o Managing Service Businesses and Ancillary Services

o Designing Pricing Strategies and Programs

o Selecting and Managing Marketing Channels

o Managing Retailing, Wholesaling, and Physical-Distribution Systems

o Designing Communication and Promotion Mix Strategies

o Designing Effective Advertising Programs

o Designing Direct-Marketing, Sales-Promotion, and Public-Relations

Programs

o Managing the Sales force

5. Managing marketing efforts

o Organizing resources

o Implementation

o Control - Annual control, Profitability control, Strategic control

What do we expect of organizations that abide by the marketing concept?

(1) They use marketing research to ensure that they are indeed performing well.

Marketing research is used to help develop new products and to determine

whether the new product will actually satisfy the needs of customers.

(2) They are innovative and constantly improving their products/services to

maximize their customers‘ satisfaction.

(3) They understand that a market is not monolithic, i.e., not everyone has the

same needs. Therefore, they will practice market segmentation. For instance,

the market for soap consists of such segments as: those that want a "pure" soap

(mothers for their babies), those that want an anti-bacterial soap (teenagers),

those that want an anti-deodorant soap (people worried about body odors),

those that want an inexpensive soap (bargain shoppers) , those that want a

creamy soap (women who want soft skin), those that want an abrasive soap

(mechanics), and those that want a soap that makes one feel fresh.

(4) They will have a target market. To come up with a marketing strategy,

you must select a target market and develop the best marketing mix

(discussed below) to satisfy this target market Thus, a marketing strategy is a

target market + an optimum marketing mix to satisfy the target market. The

marketing mix is the 4 Ps of marketing: product, price, promotion, and place.

(5) They do not suffer from "marketing myopia." They define their business

in terms of a need (which they will satisfy) and not in terms of a particular

product.

(6) They are concerned about improving the quality of their products.

Defective products will not result in customer satisfaction. Many firms have

special procedures for dealing with customer complaints and do everything

possible to resolve problems.

Social Marketing

Can marketing be used to improve the world? The tools of marketing which you will

learn in this course can be used to help humankind. They can be used to change

behaviors. Some consumer behaviors are good and should be encouraged (e.g.,

improving health via annual checkups, checking for breast cancer, checking for skin

cancer, etc.; improving the environment by using green products, driving less and

walking more, etc.; getting people to donate organs, blood, time for good causes;

avoiding injury by using products correctly, using seat belts, safe sex, etc.). Marketing

may also be used to discourage behaviors that are harmful to people and society

(smoking, littering, drugs, steroids, sexual harassment, etc.).

Kotler, Roberto, and Lee in their book, Social Marketing, define social marketing as:

"the use of marketing principles and techniques to influence a target audience to

voluntarily accept, reject, modify, or abandon a behavior for the benefit of

individuals, groups, or society as a whole."

How would you use social marketing to get people to donate organs such as kidneys?

There is a big shortage of organs and thousands of people die each year waiting for an

organ. How would you use social marketing to get people to exercise? To eat nutritious

foods? Obesity is a national problem: Do you think social marketing can be used to help

solve it?

1.7 Corporate Social Responsibility (CSR)

Kotler and Levy, in their book, Corporate Social Responsibility (John Wiley & Sons)

define corporate social responsibility as "a commitment to improve community well-

being through discretionary business practices and contributions of corporate

resources." My definition of corporate social responsibility (CSR) will be the one cited

in Hollender and Fenichell (2004, p. 29): "… an ongoing commitment by business to

behave ethically and to contribute to economic development when demonstrating respect

for people, communities, society at large, and the environment. In short, CSR marries the

concepts of global citizenship with environmental stewardship and sustainable

development." Thus, corporate social responsibility includes the following: (1) Concern

for the environment, (2) Commitment to ethical behavior, (3) Respect for people, and

(4) Concern for society at large.

Some of the benefits of being socially responsible include: (a) enhanced company and

brand image (b) easier to attract and retain employees (c) increased market share (d)

lower operating costs and (e) easier to attract investors.

A socially-responsible firm will care about customers, employees, suppliers, the local

community, society, and the environment. Of course, a company has an obligation to be

concerned about its stockholders. However, a firm is also responsible for all

stakeholders. There is considerable evidence that doing good pays in the long run. Even

if it didn't, a firm has a responsibility to do the right thing. Every religion believes in the

Golden Rule. Confucius, Hillel, and other great thinkers gave us the negative version of

it: "What is hateful to thee, do not do to others." That should be the mantra of every

person and company.

This number should continue to grow. Patricia Aburdene, a renowned trend watcher and

author of Megatrends 2010, asserts that spirituality in business is ―converging with other

socioeconomic trends to foster a moral transformation in capitalism‖ (Lampman, 2005).

Corporations are becoming more sensitive to the needs of the community and less

concerned about ―profits at all costs.‖ Aburdene (2005) notes that we are moving towards

―conscious capitalism‖ a new kind of capitalism which not only focuses on profits but

which considers factors such as social, environmental, and economic costs in business

decision making (Lampman, 2005). Some of the major social trends identified by

Aburdene include ―the power of spirituality,‖ ―the dawn of conscious capitalism,‖

―spirituality in business,‖ ―the values-driven consumer,‖ and the ―socially responsible

investment boom‖ (Aburdene, 2005). This transformation is also on the consumer side

According to Business Ethics Magazine, ―The best managed firms today —in this era

when societal expectations of business are rising — can no longer focus solely on

stockholder return. Companies that aim to prosper over the long term also emphasize

good jobs for employees, environmental sustainability, healthy community relations, and

great products for customers‖ (Business Ethics Online, 2006).

The business model that focuses solely on maximizing shareholder wealth is becoming

obsolete, and is morphing into one that is concerned with all the stakeholders including

employees, customers, suppliers, government, the community, and society (including the

effects on the environment). Pava, an accountant whose research compared socially

responsible firms with those that were not, came to the following conclusion (Pava,

2003:62): ―Much to my surprise, we were unable to uncover any cost of social

responsibility. In fact, the evidence suggested that there might even be a financial

advantage for the companies carrying out these projects.‖ Hollender and Fenichell

(2004: 26-27) assert that there is a strong positive correlation between being a value-

driven firm and financial performance. Firms that make virtue part of their culture have

done much better in terms of long-term financial performance than those only concerned

with profit maximization. It does not matter whether virtue leads to profit. In fact, one

can say that looking for a profit motive in acting virtuously cheapens the latter. For the

values-driven firm, it is about doing the right thing.

A socially responsible firm benefits in numerous ways. These include: increased sales

and market share, strengthened brand positioning, enhanced corporate image and clout,

increased ability to attract, motivate, and retain employees, decreased operating costs,

and increased appeal to investors and financial analyst (Kotler and Lee, 2005: 10-11).

Virtuous firms with values quite likely have a competitive edge over firms that do not

have values. Studies of numerous industries demonstrate that virtuous organizations

experience increased levels of customer satisfaction, product quality, productivity,

employee satisfaction, and profitability (Brady 2006; Paine, 2003:53). Two companies

that measure and track ‗corporate citizenship‘ have found a relationship between stock

market returns and virtuous behavior (Dvorak, 2007).

1.8 Societal marketing concept – unfortunately, satisfying customers‘ short-term needs

may not be compatible with society‘s needs. For instance, your customers may prefer

large automobiles, disposable diapers, hamburgers, no-deposit bottles, etc. Society is

better off if we drive small cars, use cloth diapers, and eat soy burgers. Should a firm

worry about its customers‘ short-term needs, or consider what is best for society? Think

about this. Social responsibility is the belief that organizations have a responsibility to

society as a whole. An organization must think of the effects its actions have on society.

Convincing the public to purchase products that are unhealthy and clog arteries are not in

the best interests of society. There is nothing wrong with making a profit but a firm must

also care about society.

By now you should realize that the primary objective and first task of marketing is to

discover the needs of consumers. A need occurs when an individual feels that s/he lacks

a basic necessity. A want, on the other hand, is something learned; it is shaped by such

factors as culture, experience, social influence, family influence, etc. A market is

composed of potential consumers with the desire and ability to purchase a specific

product. The group or groups towards which a company or organization directs, focuses

and concentrates its marketing program is the target market.

1.9 Marketing Mix

In marketing the practitioners have discussed it along some principles. Jerome Mcgarthy

proposed four elements of marketing termed as marketing mix.

(The 4 P's of Marketing)

The major marketing management decisions can be classified in one of the following four

categories:

Product

Price

Place (distribution)

Promotion

These variables are known as the marketing mix or the 4 P's of marketing. They are the

variables that marketing managers can control in order to best satisfy customers in the

target market. The marketing mix is portrayed in the following diagram:

The Marketing Mix

Product

Place

Target

Market

Price

Promotion

The firm attempts to generate a positive response in the target market by blending these

four marketing mix variables in an optimal manner.

Product

The product is the physical product or service offered to the consumer. In the case of

physical products, it also refers to any services or conveniences that are part of the

offering.

Product decisions include aspects such as function, appearance, packaging, service,

warranty, etc.

Price

Pricing decisions should take into account profit margins and the probable pricing

response of competitors. Pricing includes not only the list price, but also discounts,

financing, and other options such as leasing.

Place

Place (or placement) decisions are those associated with channels of distribution that

serve as the means for getting the product to the target customers. The distribution system

performs transactional, logistical, and facilitating functions.

Distribution decisions include market coverage, channel member selection, logistics, and

levels of service.

Promotion

Promotion decisions are those related to communicating and selling to potential

consumers. Since these costs can be large in proportion to the product price, a break-even

analysis should be performed when making promotion decisions. It is useful to know the

value of a customer in order to determine whether additional customers are worth the cost

of acquiring them.

Promotion decisions involve advertising, public relations, media types, etc.

A Summary Table of the Marketing Mix

The following table summarizes the marketing mix decisions, including a list of some of

the aspects of each of the 4Ps.

Summary of Marketing Mix Decisions

Product Price Place Promotion

Functionality

Appearance

Quality

Packaging

Brand

Warranty

Service/Support

List price

Discounts

Allowances

Financing

Leasing options

Channel members

Channel motivation

Market coverage

Locations

Logistics

Service levels

Advertising

Personal selling

Public relations

Message

Media

Budget

The four Ps are are the controllable marketing mix factors, i.e., the organization can

control and manipulate them. An organization has little control over such factors as the

economy, government regulation (they may try to do some lobbying), or social. Forces

over which an organization has little control are known as environmental factors. For

example, if the United States Government passes legislation requiring all cars to be

nonpolluting, this would be an example of government regulation, an environmental

factor. Of course, this would have a huge impact on automobile sales. Other

environmental factors include economic, regulatory (legal), competitive, social (this

includes cultural), technological, etc. Thus, the five major environmental factors are:

social, technological, economic, competitive, and regulatory (legal). Global warming is a

controversial area and the government may pass laws to reduce it-- this may have an

impact on many industries. If you think regulation is not an issue, restaurants in NYC

may no longer use trans fats in their products. I am sure this had an impact on many

restaurants.

1.10 Environments Affecting Marketing

“It is useless to tell a river to stop humming the best thing is to learn how to survive in the

direction to flow”

The current global scenario reveals that markets are integrating throughout. It is hightime

for companies to restructure themselves for the futuristic challenges. In this chapter we

are focusing on environment around the business .

Environmental threat—Sometimes, there is something going on in the environment that

can have an adverse effect on an organization if no action is taken. Consider the effect of

electronic commerce on various businesses, e.g., the music industry and software

retailing. Similarly, do you think there is a future for travel agents and video rental

stores? Newspapers are now in trouble because on the new media. Young people get

their news from the Internet and are generally not newspaper readers. Also, classified

advertising has moved from newspapers to the Internet.

Big threat to the music industry: Consumers like to purchase individual songs on

websites such as iTunes. Will this have an effect on sales of albums? Why buy an

expensive CD consisting of many songs when all you want is one or two songs? Sales of

albums have been dropping while sales of individual digital songs have been rising. In

fact, catalog sales (this is what the music industry calls the sale of old releases) account

for 50% to 66.67% of the sales of digital singles. Some companies are afraid that online

sales of digital singles will hurt profits so they only sell songs in album form and do not

allow downloads of digital singles

The marketing environment can be divided in to two parts- Internal environment and

external environment. For a company internal environment is known and can be

controlled, but external environment is where they have to focus for better fiscal results.

The external environment can be broken in to –Macro environment and micro

environment. Macro environment is remote and little contollable.The macro environment

factors include-

Natural Environment

Demographic Environment

Political and Legal environment

Economic environment

Socio-cultural environment

Technological environment

While Micro factors include-

Company

Research and Development

Suppliers

Market intermediaries

Competition

Customers

Publics

These factors are there to guide a marketer towards risk in environment .He needs to do a

scanning of those factors which can affect the business directly and indirectly. Marketing

environment analysis is the process of gathering, filtering and analyzes information

relating to the marketing environment. Involved in the process are the tasks of monitoring

the changes taking place in the environment and forecasting the future position in respect

of each of the factors.

The analysis spots the opportunities and threats in the environment, and pinpoints the

ones that are specifically relevant to the firm No business is so great that they can bring

change in the environment, they are just the adapters. The variables that operate within

the organization have a direct or indirect influence on their working. A successful

organisation is one, which understands, can anticipate and take advantage of changes

within and outside their environment.

Now the point that should come to your minds is what should be covered in this

environment analysis.As already told to you all earlier in strategic planning process, that

a firm gathers relevant information relating to the environment, and forecasts the future

position in each of them. It reviews this information through the marketing information

system and marketing research.

Marketing environment is divided in to two broad categories- microenvironment, that is

specific to the given business, and macro environment, specific to the overall industry.

The firm covers both these parts in its environmental analysis. Thus now you can say,

marketing environment analysis involves the diagnosis of the mega environment as well

as the environment that is specific to the given business. Under the mega or the macro

environment the firm studies the political, demographic,and the other environmental

factors. As regards the environment that is specific to the given business, the firm studies

the position of the industry concerned, especially aspects such as the structure of the

industry, the nature of competition, the scope for invasion by substitute products, etc.

It also studies factors relating to the customer and factors relating to demand.

Micro Environment – Factors that an organization has direct control over

Macro Environment – Factors on which organization has no control at all.

Micro Environment

These are the internal forces close to the company and have a direct impact on the

organization strategy. It influences the organization directly. It describes the relationship

between the firms and the driving forces that control their relationship. It is more local

relationship and the firm may exercise a degree of influence.

The Company: constitutes the internal environment of the organisation, which consists of

men, money, materials and machinery. If marketing has to function well it has to

coordinate the activities with all the other members / departments involved in the

organization as they have a great impact on its functioning department.

Research and development-

Research & development is involved in developing the new products giving life to new

ideas so the marketing department, if, finds any changes in the tastes of the consumers

and identifies new needs coming up , have to communicate it to the R&D dept. and co-

ordinate the process to get what is required by its customers.

To manage the supply and demand of the product there is a need to co-ordinate the

activities between the production and the marketing department. Hence we can say that

the Internal Marketing is very essential for the smooth functioning of the marketing

activities in the company and they allhave the impact on the working of marketing.

Suppliers: The suppliers form a very important link between the company and customers

and their value delivery network. They constitute one of the five forces shaping

competition in any industry.

They have their own bargaining power in the industry; they influence the costs of raw

materials and other inputs to a firm, and hence the profits a firm can take home. It is in

this context that the trade –off between integrating vs outsourcing of supplies assumes

importance for a firm because this has implications on the cost as well as quality fronts.

Suppliers also keep introducing frequent changes in their products, processes and

business practices. Sometimes, suppliers suddenly become direct competitors to a firm,

by themselves becoming end products manufacturers. Obviously, thefirm have to closely

monitor the supplier environment

For Example – Let us take air conditioners. Compressors are the major component and

they account for 65 percent of the end price, so the suppliers of the compressors have a

major influence inthis industry. In India major domestic suppliers for compressors are

Kirloskar, Carrier Aircon, SIEL and Tecunisch India. Carrier Aircon as a larger producer

of compressors has been enjoying themajor influence in the industry.

Marketing Intermediaries:

Also constitute an important component of the value delivery network of the company. It

consists of the sources that are involved in promoting, selling and distributing its goods to

the final buyers. Marketing intermediaries include – resellers, physical distributors,

marketing service agencies and financial intermediaries.

Competition-

The competition makes it challenging for the companies to survive and sustain the market

share which they have captured earlier.Even for a new venture it is imperative for seeking

the knowledge about the relevant competition in the fray. To be successful, apart from

meeting the needs and wants of the target markets the marketer needs to provide the products

better than its competitors. They have to answer the question what benefit can the organisation

offer which is better that their competitors? So they need to constantly keep track of competitor‘s

strategies and change as and when required. Michael Porter gave his famous five forces

analysis for sorting competition. He says that there are five forces responsible for

competition in the market.they are shown in the diagram below

Publics: These are various groups of individuals who have actual or potential interest in

the working of the organisation and some how effect its working. The various publics

include Financial public, which influences the companies ability to obtain funds that is if

the company does not maintain good relations with the banks or other financial

institutions it may face the problems in the long run.

Media Public, the positive or adverse media attention on an organisations product or

services can in some cases make or break an organisation. Then there is a General public,

it consists of people who may or may not be consuming the organisations product or

services but form some attitude towards the company or its products, so the company

needs to be concerned about those who may talk about their company also.

Macro Environment: Includes all factors that can influence an organisation but that are

out of their direct control. It consists of larger societal forces that affect the companies‘

micro environment. It is continuously changing and the company needs to be flexible to

adapt.

Natural environment

The natural resources, ecology, climate etc. in the country, constitutes the natural

environment. Business depends on the natural resources for raw materials, so the firms

need to keep track of the availability of raw materials and if there is going to be any

shortage in the future. As the technology develops it causes lot of environmental threats

like increased pollution and is damaging the environment.

Ecology: Firms are also concerned with ecology. In modern times, all societies are very

much concerned about ecology, especially about issues like environmental pollution,

protection of wild life and ocean wealth. And, governments are becoming active

bargainers in environmental regulations and to what extent these factors will affect their

business prospects. They also need to know the role of environmental activists in the

region.

Climate: This is another aspect of the natural environment that is of interest to a business

firm.Firms with products whose demand depends on climate, and firms depending on

climate –dependent raw materials will be particularly concerned with this factor. These

firms have to study the climate in depth and decide their production locations and

marketing territories appropriately.

Demographic environment: Demography means the study of human population in terms

of size, growth rate, gender, age distribution, race, occupation, literacy levels and other

statistics. This study is very important to be done by a marketer as his whole business

depends on the people.As a Matter of fact, several factors relating to population, like size,

growth, age, religious composition and literacy levels need to be studied. Aspects such as

composition of workforce, households patterns, regional or geographical characteristics,

migration of the population needs to be studied, as they all are part of the demographic

environment.

Economic Environment: The marketing managers need to keep track of the economic

environment,as it affects the buying power and spending patterns of consumers. While

studying the economic environment three economic areas that are of greatest concern to

most marketers are the distribution of income, inflation and recession.

All businesses are affected by economical factors nationally and globally. Whether an

economy is in boom, recession or recovery will effect consumer behavior. An economy,

which is booming, is characterized by certain variables. Unemployment is low, job

confidence is high, because of this confidence spending by consumers is also high. At

this time the organisations have to be able to keep up with increased demand if they are

to increase turnover.

An economy which is in recession is characterized by high unemployment and low

confidence. The spending is low because of high unemployment. Businesses face a tough

time, as consumers will not spend because of low disposable income. Organisations start

cutting back on costs that is labour, advertising etc. They try to improve existing products

and introduce new ones that would help the manufacturers reduce production hours,

waste and material costs. In this period there would be the demand for the products that

offer economy and efficiency and offer value .

Socio-Cultural

The third aspect of PEST focuses its attention on forces within society such as family,

friends, colleagues, neighbours and the media. Social forces affect our attitudes, interest s

and opinions. These forces shape who we are as people, the way we behave and

ultimately what we purchase. For example within the UK peoples attitudes are changing

towards their diet and health. As a result the UK is seeing an increase in the number of

people joining fitness clubs and a massive growth for the demand of organic food.

Products such as Wii Fit attempt to deal with society‘s concern, about children‘s lack of

exercise.

Population changes also have a direct impact on organisations. Changes in the structure

of a population will affect the supply and demand of goods and services within an

economy. Falling birth rates will result in decreased demand and greater competition as

the number of consumers fall. Conversely an increase in the global population and world

food shortage predictions are currently leading to calls for greater investment in food

production. Due to food shortages African countries such as Uganda are now

reconsidering their rejection of genetically modified foods.

In summary organisations must be able to offer products and services that aim to

complement and benefit people‘s lifestyle and behaviour. If organisations do not respond

to changes in society they will lose market share and demand for their product or service.

Culture and subculture does affect the way business is practiced.

Political and legal factors

Political factors influence organisations in many ways. Political factors can create

advantages and opportunities for organisations. Conversely they can place obligations

and duties on organisations. Political factors include the following types of instrument:

Government

World bodies

Corporate affairs

Consumer protection

Employee protection

Sectoral protection

Corporate protection

Protection of society as a whole against unbridled business behaviour

Regulations on products, prices and distribution

Controls on trade practices

Protecting national firms against the onslaught of foreign firms

Non conformance with legislative obligations can lead to sanctions such as fines, adverse

publicity and imprisonment. Ineffective voluntary codes and practices will often lead to

governments introducing legislation to regulate the activities covered by the codes and

practices.

Technological environment-

With the advent of internet, mobile and online purchase of products a whole new

challenge is mounting on the companies to upgrade themselves for the market share.

Technology has created a society which expects instant results. This technological

revolution has increased the rate at which information is exchanged between

stakeholders. A faster exchange of information can benefit businesses as they are able to

react quickly to changes within their operating environment.

However an ability to react quickly also creates extra pressure as businesses are expected

to deliver on their promises within ever decreasing timescales..

For example the Internet is having a profound impact on the marketing mix strategy of

organisations. Consumers can now shop 24 hours a day from their homes, work, Internet

café‘s and via 3G phones and 3G cards. Some employees have instant access to e-mails

through Blackberrys but this can be a double edged sword, as studies have shown that

this access can cause work to encroach on their personal time outside work.

The pace of technological change is so fast that the average life of a computer chip is

approximately 6 months. Technology is utilised by all age groups, children are exposed

to technology from birth and a new generation of technology savvy pensioners known as

―silver surfers‖ have emerged. Technology will continue to evolve and impact on

consumer habits and expectations, organisations that ignore this fact face extinction.

These factors can be considered

Options available in technology

Government‘s approach in respect of technology

Technology selection

Spheres where technology breakthroughs are happening

Technology breakthroughs in ICE

Digital revolution

Homes go digital- digitalisation of entertainment

• TV becomes smarter

• Digital cameras and E-cinema

Future Environment

Futuristics is the study of the future. A good marketer should have a future orientation

and try to determine what lies ahead as far as technological, social, and cultural changes.

Technological forecasting refers to the prediction of future technology and inventions

and is part of futuristics. Technology is not the only factor with which marketers have to

be concerned. Marketers also have to be concerned with social/cultural shifts. A shift

away from materialism and ostentatiousness towards simplicity, for example, could have

a huge impact on the demand for super luxury products such as $10,000 watches, $2,000

pens, and $100,000 cars. The current financial meltdown has caused many Americans to

become frugal and learning to tighten their belts. Showing off wealth is not cool,

especially when millions of people are out of work. Several articles have been written

about religion in the workplace. Apparently, religion is becoming more important to

Americans. Americans are also concerned about the environment and green marketing is

in.

Many shopping malls were built assuming that women stay home and take care of the

children. The percentage of women in the labor force with small children keeps growing.

Today, working women do not go to malls on weekdays, they have to be at work. They

prefer shopping from catalogs. In fact, there are several successful catalogs that specialize

in clothing for working women. Electronic commerce will have a huge impact on

catalogs and, in the future, it seems quite likely that people will prefer electronic catalogs

(using the Web) to paper catalogs.

It is only a matter of time before technology makes video rental stores obsolete.

Consumers will be able to easily download (from a Web site) movies they wish to see

("video on demand"). The future of the music industry is also moving to the Web.

Consumers are downloading the music they want and pay per individual song. The same

is true of books. I believe that it is quite likely that in the future most books will be

downloaded; you will print books on your own printer, rather than buying books at

bookstores.

CHAPTER 2 Segmentation, targeting and Positioning

Learning Outcomes:

� Define the three steps of target marketing: market segmentation, target marketing, and

market positioning

� List and discuss the major bases for segmenting consumer and business markets

� Explain how companies identify attractive market segments and choose a target marketing

strategy

� Discuss how companies position their products for maximum competitive advantage in the

marketplace

� Determine how a firm chooses and communicates an effective position in the market

� Determine the major differentiating attributes available to firms

� Describe the marketing strategies that are applied at each stage of the product life cycle

� Describe the marketing strategies that are applied at each stage of the market‘s evolution

2.1 INTRODUCTION

Take a example – A father has three kids. One kid is fond of football. Second is into car

racing and third likes to be in cinema. Each one is different. In their life they want to

become footballer, car racer and actor. Knowing each one of them the father would not

be able to serve their likings in a like way. He has to be different. In the same way a

market is comprised of different people with dissimilar tastes. It will be difficult for a

marketer to serve all customers with one set of marketing mix. The need set and demand

is different from masses and classes. This calls for division of a market in to different

segments. Consider a situation where a new colony is built up by a colonizer, when

people will come around to live there. Then they require different commodities based on

their daily needs. After that they will be requiring other specialties and shopping goods.

Now a shrewd marketer will like to analyze the type of people living in the colony say

rent paid, income and colonizing expenses. This categorization is called as segmentation

and the factors upon which it is done is referred as basis of segmentation.

The total market for a good or service consists of all the people and/or organizations that desire it,

have resources to make purchases, and are willing and able to buy. Firms often use market

segmentation—dividing the market into subsets of customers that behave similarly. The

development of a target market strategy consists of three general phases: analyzing consumer

demand, targeting the market, and developing the marketing strategy.

1. The firm determines demand patterns, establishes bases of segmentation, and identifies

potential market segments.

2. The firm targets the market through undifferentiated marketing (mass marketing), concentrated

marketing, or differentiated marketing (multiple segmentation).

3. The firm then positions it‘s offering relative to competitors and outlines the appropriate

marketing mix. Meaningful product differentiation is essential.

2.2 Market segmentation process

There are several important reasons why businesses should attempt to segment their markets

carefully.

These are summarized below.

Better matching of customer needs - Customer needs differ. Creating separate offers for each

.

segment makes sense and provides customers with a better solution

Enhanced profits for business - Customers have different disposable income. They are,

therefore, different in how sensitive they are to price. By segmenting markets, businesses can

raise average prices and subsequently enhance profits

Better opportunities for growth - Market segmentation can build sales. For example, customers

can be encouraged to ―trade-up‖ after being introduced to a particular product with an

introductory, lower-priced product

Retain more customers - Customer circumstances change, for example they grow older, form

families, change jobs or get promoted, change their buying patterns. By marketing products that

appeal to customers at different stages of their life (―life-cycle‖), a business can retain customers

who might otherwise switch to competing products and brands

Target marketing communications - Businesses need to deliver their marketing message to a

relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key

customers are missed and (2) the cost of communicating to customers becomes too high /

unprofitable .By segmenting markets, the target customer can be reached more often and at lower

cost

Gain share of the market segment - Unless a business has a strong or leading share of a market,

it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale economies

in production and marketing, pressures from distributors and limited space on the shelves.

Through careful segmentation and targeting, businesses can often achieve competitive production

and marketing costs and become the preferred choice of customers and distributors. In other

words, segmentation offers the opportunity for smaller firms to compete with bigger ones.

Analysing demand

A firm would face one of three demand patterns, as mentioned below, and shown in the figure.

1. Homogeneous demand is when consumers have relatively uniform needs and desires for a

good or service category.

2. With clustered demand, consumer needs and desires for a good or service category can be

classified into two or more clusters, each with different purchase criteria.

3. With diffused demand, consumer needs and desires are so diverse that clear clusters cannot be

identified. A firm‘s marketing tasks are more difficult because product differentiation is more

costly and harder to communicate.

2.3 ESTABLISHING POSSIBLE BASES FOR SEGMENTING

It is widely thought in marketing that than segmentation is an art, not a science. The key

task is to find the variable, or variables that split the market into actionable segments

There are two types of segmentation variables:

(1) Needs (2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of

customers in a market, it is necessary to undertake market research. Profilers are the

descriptive, measurable customer characteristics (such as location, age, nationality,

gender, income) that can be used to inform a segmentation exercise.The most common

profilers used in customer segmentation include the following:

Basis of Segmentation

A Demographic

� Age, sex, family size

� Income, occupation, education

� Religion, race, nationality

B Geographic

� Region of the country

� Urban or rural

C Behavioral

� Product usage - e.g. light, medium, heavy users

� Brand loyalty: none, medium, high

� Type of user (e.g. with meals, special occasions)

D Psycho graphic

� Social class

� Lifestyle type

� Personality type

Now, we will discuss these bases for segmentation to you, one by one.

Market segmentation - demographic segmentation

Demographic segmentation consists of dividing the market into groups based on

variables such as age; gender family size, income, occupation, education, religion, race

and nationality.

As you might expect, demographic segmentation variables are amongst the most popular

bases for segmenting customer groups.This is partly because customer wants are closely

linked to variables such as income and age. Also,

For practical reasons, there is often much more data available to help with the

demographic segmentation process. The main demographic segmentation variables are

summarized below:

Age: Consumer needs and wants change with age although they may still wish to

consumer the same types of product. So Marketers design, package and promote products

differently to meet the wants of different age groups. Good examples include the

marketing of toothpaste (contrast the branding of toothpaste for children and adults) and

toys (with many age-based segments).

Life-cycle stage- A consumer stage in the life cycle is also an important variable. We can

talk of the following products to talk of the life-cycle concept: Infants: Baby foods like

Cerelac and Farex

Young child: Leo toys, Barbie dolls (Again these can be segmented by gender basis for

small girls and boys)

Adolescent: Trendy products and services like Jeans, T-shirts, and Coffee shops

Young Adults: Mobikes, music systems, mobile phones

Old people: Investment instruments, health packages for old

When you talk of segmentation based on life cycle, you need to specify exact age groups

like for a young child, you might specify the segment as 3-12 years, old people as 55

years and above and so on.

Gender: Gender segmentation is widely used in consumer marketing. The best examples

include clothing, hairdressing, magazines and toiletries and cosmetics. You have

footwear exclusively for males, females and kids. For example, you have ‗Action‘ School

shoes exclusively for school-going children. You can talk of soft perfumes for women

and deodorants for men. Kinetic scooters are targeted more at women. You have

magazines dedicated to women like Femina.

Income: You might have noticed that income is another popular basis for segmentation.

Many companies target affluent consumers with luxury goods and convenience services.

Good examples include

Mercedes, Pizza Hut Pizzas, Ebony and Parker pen. By contrast, many companies focus

on marketing products that appeal directly to consumers with relatively low incomes.

You can have examples including Nirma, and Reliance phones besides others.Can you

think of more examples for the income criterion?

Social class: Many Marketers believe that a consumer ―perceived‖ social class influences

their references for cars, clothes, home furnishings, leisure activities and other products

& services.

There is a clear link here with income-based segmentation.

B Market segmentation - geographic segmentation

Geographic segmentation tries to divide markets into different geographical units. These

units include, regions: e.g. in India, you can talk of North India, West India, as regions or

zones and Delhi,Mumbai, Chennai as metropolitan cities and Jaipur, Lucknow and

Baroda as smaller cities. Countries:perhaps categorized by size, development or

membership of geographic regionCity / Town size:e.g. population within ranges or above

a certain level Population density: e.g. urban, suburban, rural,and semi-rural Climate: e.g.

Northern, SouthernGeographic segmentation is an important process - particularly for

multi-national and global businesses and brands. Many such companies have regional and

national marketing programmes that alter their products, advertising and promotion to

meet the individual needs of geographic units.

C Market segmentation - behavioral segmentation

Behavioral segmentation divides customers into groups based on the way they respond

to, use orknow of a product. Behavioral segments can group consumers in terms of:

Occasions: When a product is consumed or purchased. For example, cereals have

traditionally been marketed as a breakfast-related product. Kelloggs have always

encouraged consumers to eat breakfast cereals on the ―occasion‖ of getting up. More

recently, they have tried to extend the consumption of cereals by promoting the product

as an ideal, anytime snack food. In India, lots of home shopping takes place on the

occasion of ‗Divali‘. TV sets sales goes up during world cup cricket.

You might have seen that Archies, Hallmark and other greeting card companies makes

occasions out of relatively unknown days.

What such examples can you think of?

Usage: Some markets can be segmented into light, medium and heavy user groups

Loyalty: Loyal consumers - those who buy one brand all or most of the time - are

valuable customers.Many companies try to segment their markets into those where loyal

customers can be found and retained compared with segments where customers rarely

display any product loyalty. The holiday market is an excellent example of this. The

―mass-market‖ overseas tour operators such as SOTC, Thomson, JMC and First Choice

have very low levels of customer loyalty - which means that customers need to be

recruited again every year. Compare this with specialist, niche operators such as those

specializing for Bangkok and Singapore only; you can have customers who have traveled

with the brand in each of the last 15-20 years.

Benefits Sought: You may note that this is a different and an important form of

behavioral segmentation.Benefit segmentation requires Marketers to understand and find

the main benefits customers

look for in a product. An excellent example is the toothpaste market where research has

found four main ―benefit segments‖ - economic; medicinal, cosmetic and taste.

D Market segmentation – Psycho graphic segmentation

Lifestyle: Marketers are increasingly interested in the effect of consumer ―lifestyles‖ on

demand Unfortunately, there are many different lifestyle categorization systems, many of

them designed by advertising and marketing agencies as a way of winning new marketing

clients and campaigns!

A. Lifestyles are the ways in which people live and spend time and money.

B. You can target final consumers by segmenting by social class and stage in the family

cycle.

C. A heavy-usage segment is a consumer group that accounts for a large proportion of an

item‘s sales relative to the segment‘s size.

D. Benefit segmentation groups consumers into markets on the basis of different benefits

sought from a product.

What examples can you think of when you talk of psycho graphic segmentation?

I will give some example here:

� Citibank International Gold card is for the ‗affluent‘ people who travel abroad

frequently

� Five Star Hotels are for the foreigners, top business and corporate class to whom

comfort and convenience are the parameters of ‗value‘

� Black and White TV still sells in upcountry areas, small hotels and small shops to

lower middle class

When you talk of lifestyle, you also talk of AIO.

A- Activities: Work, hobbies, shopping style

I- Interests: In food, fashion, recreation

O- Opinions: About themselves, others, social issues

2.4 BASES OF SEGMENTING ORGANIZATIONAL CONSUMERS OR

INDUSTRIAL MARKETS

As the consumer markets are segmented, organizational or industrial markets may also be

Small, medium and large A, B and C type depending on the volume of business

generated(Typically, Pareto‘s rule may apply and 80% of business may come from 20%

of customers who may be your ‗A‘ category customers) Location of the industrial

customers

BLENDING DEMOGRAPHIC AND LIFESTYLE FACTORS

A. Market segments should be described in demographic and lifestyle terms. A more

valuable

analysis takes place when a variety of factors are reviewed.There are two broad

classification

systems:

1. VALS (Values and Lifestyles). See Figure below for the VALS network, which

segments consumers based on self-orientation and resources into these categories:

a. Actualizers.

b. Fulfilleds.

c. Believers.

d. Achievers.

e.Strivers.

f. Experiencers.

g. Makers.

h.Strugglers.

2. Social Style model. See Figure below for this approach, which divides

organizational personnel into these categories:

a. Analytics.

b. Expressive.

c. Drivers.

d. Amiable.

Segmentation

So what are the bases for segmentation? While it is difficult to determine what will

segment a market into different segments based on different benefit tradeoffs, there are

some useful ways of thinking about how this might be done. In any event, however, this

is typically a reiterative process (i.e., trying one way, then another).

One way to start the process is to look at the various benefits and think about whether

there are groups of customers who would care about different clusters of these benefits.

In my experience, this may lead you to following bases for beginning to think about

segmenting a market.

Usage - often how customers use a product can result in their making tradeoffs across

differentbenefits. For example, light users and heavy users of a product often care about

different benefits.

Application - customers who apply a product in a mission critical way often care about

different benefits (for business buyers this could be a way central to their business, but a

cook may use a product that is central to a recipe as well).

Prior experience with the product category - often denoted as experts and novices,

these different types of prior experience usually highly correlate with different

needs.Often in consumer markets, prior brand loyalty, buying situation (work vs.

entertainment), or some times lifestyle (as in the case of may cars) can be the basis

of segmentation.

Without good data to help you, the best you can do is to begin trying to segment the

market using some a priori idea (such as using usage, prior experience, etc.), and

then checking it to see if the segments really care about different benefits. If not, try

again using different segmentation bases,and reiterate. You might look for

combinations of bases as well. You will know that you have a good segmentation if it

meets the criteria that the customers in the different segments make tradeoffs

differently. A good segmentation will also meet othercriteria, such as

Criteria for

successful segmentation

Distinctive

Measurable Identifiable

Substantia

l

Actionable

Accessible

The segments are measurable - that is, you can identify the size of the segment

The segments are reachable - that is, you can reach the segment by media

(often this can be ascertained by looking at the segment descriptors)

The segments are distinctive-Clear differences in consumer preferences for a

product must exist.

The Segments are actionable-Companies must be able to respond to difference

preferences with an appropriate marketing mix.

The segment is substantial-The proposed market segment must have enough size

and purchasing power to be profitable.

You might confuse that segmentation means segment ―targeting‖. This is not so.

Segmenting markets is simply the analytical process of breaking the market into distinct

segments. Targeting is a decision to go after a particular segment, and this decision can

only be made after you consider a number of other factors, including competitive

response, and customer perceptions

Creativity

If you are the marketing manager of a luxury watch company, how would you segment

the Indian market keeping in mind the segmentation variables?

2.5 TARGETING THE MARKET

IDENTIFYING POTENTIAL MARKET SEGMENT : A firm develops consumer

profiles after establishing bases of segmentation.These profiles identify potential market

segments by aggregating consumers with similar characteristics and needs, and

separating them from consumers with different characteristics and needs.You can

understand from the following sections how a variety of firms could identify potential

market segments and develop consumer profiles.

CHOOSING A TARGET MARKET APPROACH

You can see below a description and contrast of the three alternative approaches for

choosing a target market.

Undifferentiated Marketing (Mass Marketing)

A. An undifferentiated marketing approach aims at a large, broad consumer market

through one

basic marketing plan.

B. Use of this approach has declined in recent years due to the following:

1. Growth of competition.

2. Stimulated demand by appealing to specific segments.

3. Improved marketing research that pinpoints desires of different segments.

4. A reduction in total production and marketing costs because of segmentation.

C. A major objective of undifferentiated marketing is to maximize sales.

D. For successful pure mass marketing, a large group of consumers must have a desire

for the same product attributes or consumer demand must be so diffused that it would not

be worthwhile for a firm to aim marketing plans at specific segments.

1. A firm sells items through all possible outlets.

2. Both total and long run profits should be considered.

Concentrated Marketing

A. A concentrated marketing approach aims at a narrow, specific consumer group

through one specialized marketing plan catering to the needs of that segment.

B. Concentrated marketing is popular for small firms for these reasons:

1. Mass production, mass distribution, and mass advertising are not necessary.

2. It can succeed with limited resources and abilities by concentrating efforts.

C. If concentrated marketing is used, it is essential for a firm to do a better job than

competitors in several areas.

1. The company needs to tailor its marketing program for its segment better than

competitors.

2. Competitors‘ strengths should be avoided and weaknesses exploited.

D. The majority fallacy, appealing to a large segment that is laden with competition,

should be avoided.

E. A potentially profitable segment may be one ignored by other firms.

F. Per unit profits can be maximized through market segmentation. Total profits are not

maximized, because only one segment is sought.

G. A distinct niche can be carved out for a particular brand.

Differentiated Marketing (Multiple Segmentation)

A. Differentiated marketing combines the best attributes of undifferentiated marketing

and concentrated marketing. It appeals to two or more distinct market segments, with a

different marketing plan for each.

1. Firms such as Maruti-Suzuki use differentiated marketing to attract all segments.

Others, such as Hyundai, and Microsoft appeal to two or more segments, but not all

segments.

2. Some companies, such as Time Inc., use both undifferentiated marketing and

concentrated marketing approaches in their multiple-segmentation strategy. They have

one or more major brands for the mass market and secondary brands geared toward

specific segments.

B. Company resources and abilities must be able to produce and market two or more

different sizes,brands, or products. Costs vary, depending on modifications needed.

C. Differentiated marketing should enable the firm to achieve several objectives:

F. Wholesalers and retailers usually find differentiated marketing to be desirable, because

it enables them to reach different consumers, offers a degree of exclusivity, allows orders

to be concentrated, and encourages private labels.

G. Total profits should rise as the number of segments serviced increases.

H. A firm must balance revenues obtained from selling to multiple segments against the

costs.

I. A company must be careful to maintain product distinctiveness in each consumer

segment and to guard its image.

SELECTING THE TARGET MARKET (S)

A. A company needs to make two decisions:

1. Which segment(s) offer the greatest opportunities?

a. A company should consider its objectives and strengths, competition, segment size,

segment growth potential, distribution requirements, required expenditures, profit

potential, company image, and its ability to develop and sustain a differential advantage.

2. How many segments should the firm pursue?

a. The firm decides whether to pursue one or more segments (or the mass market). Most

likely, a firm new to an industry would start with concentrated marketing.

Requirements For Successful Segmentation

A. For concentrated marketing or differentiated marketing plans to succeed, the selected

market segments have to meet these five criteria:

1. Differences among consumers.

2. Similarities within segments.

3. Measurable consumer attributes and needs.

4. Large size (to generate sales and cover costs).

5. Reachable in an efficient manner.

Limitations of Segmentation

A. Segmentation can be misused if:

1. Segments are too small.

2. Consumers are misinterpreted.

3. There are cost inefficiencies.

4. There are too many brands.

5. Firms become short-run, rather than long run, oriented.

6. Media cannot be used.

7. Segments are too disparate.

8. Consumers are confused.

9. The firm is locked into a declining segment.

Myers and Shocker have classified product characteristics:

Pseudo physical characteristics: reflect physical properties that cannot be measured on

physicalscale as taste, freshness, fragrance, spiciness etc.

Physical characteristics: which can be measured on some physical scale like

temperature, colourintensity sweetness, thickness etc.

Benefits: it refers to advantages that promote well-being of the consumer of user For

example‗juice quenches thirst. ‗Thirst-quenching is a benefit and can provide a basis for

positioning strategy.

(2) Price – Quality Approach or Positioning by Price-Quality - Lets take an example

andunderstand this approach just suppose you have to go and buy a sunglass ,as you enter

in the shop you will find different price range sunglass in the showroom say price ranging

from 350 rupees to 2000 rupees. As soon as look at the sunglass of 350 Rupees you say

that it is not good in quality. Why? Basically because of perception, as most of us

perceive that if a product is expensive will be a quality product where as product that is

cheap is lower in quality. If we look at this Price – quality approach it is important and is

largely used in product positioning. In many product categories, there are brands that

deliberately attempt to offer more in terms of service, features or performance. They

charge more, partly to cover higher costs and partly to let the consumers believe that the

product is, certainly of higher quality.

But you should understand that in the same product category, there are many other brands

that appeal on the basis of price, although they might also try to perceive as having

comparable or at least adequate quality. In many product categories, the price quality

approach is so important that it needs to be considered in any positioning decisions

mainly in durable consumer goods. For example, in general merchandise stores, Sabka

Bazar are at the top end and all other departmental stores are positioned under it in terms

of price. The advertiser must maintain his image of low price while communicating a

quality message but there is always a risk that the quality message will blunt the basic

low price position. So if you want to position your product in terms of price and quality

you have to be very careful.

(3) Positioning by Use or Application - Lets understand this with the help of an

example like Nescafe Coffee for many years positioned it self as a winter product and

advertised mainly in winter but the introduction of cold coffee has developed a

positioning strategy for the summer months also.

Basically this type of positioning-by-use represents a second or third position for the

brand, such type of positioning is done deliberately to expand the brand‘s market. If you

are introducing new uses of the product that will automatically expand the brand‘s market

(4) Positioning by Product Process - Another positioning approach is to associate the

product with its users or a class of users. Makes of casual clothing like jeans have

introduced ‗designer labels‘ to develop a fashion image. In this case the expectation is

that the model or personality will influence the product‘s image by reflecting the

characteristics and image of the model or personality communicated as a product user.

Lets not forget that Johnson and Johnson repositioned its shampoo from one used for

babies to one used by people who wash their hair frequently and therefore need a mild

people who wash their hair frequently and therefore need a mild shampoo. This

repositioning resulted in a market share.

(5) Positioning by Product Class - In some product class we have to make sure critical

positioning decisions For example, freeze dried coffee needed to positions itself with

respect to regular and instant coffee and similarly in case of dried milk makers came out

with instant breakfast positioned as a breakfast substitute and virtually identical product

positioned as a dietary meal substitute.

(6) Positioning by Cultural Symbols - In today‘s world many advertisers are using

deeply entrenched cultural symbols to differentiate their brands from that of competitors.

The essential task is identify something that is very meaningful to people that other

competitors are not using and associate this brand with that symbol. Air India uses

maharaja as its logo, by this they are trying to show that we welcome guest and give them

royal treatment with lot of respect and it also highlights Indian tradition. Using and

popularizing trademarks generally follow this type of positioning.

(7) Positioning by Competitors - In this type of positioning strategies, an implicit or

explicit frame of reference is one or more competitors. In some cases, reference

competitor (s) can be the dominant aspect of the positioning strategy, the firm either uses

the same of similar positioning strategies as used by the competitors or the advertiser uses

a new strategy taking the competitors‘ strategy as the base. A good example of this would

be Colgate and Pepsodent. Colgate when entered into the market focused on to family

protection but when Pepsodent entered into the market with focus on 24 hour protection

and basically for kids, Colgate changed its focus from family protection to kids teeth

protection that is basically done because of competition. This strategy may be preferred

for two simple reasons: -

(i) Competitors may have a well-crystallized image developed over a number of years.

The advertiser may use that image as a bridge to help communicate another image

referenced to it.Sometimes, you know what happens, it is not important to know where

you are or what your position is in the market or how good consumers think you are. It is

just important that they believe that you are better or as good as a given competitor.

When we are discussing positioning with respect to a competitor it can be an excellent

way to create a position with respect to product characteristics, especially price quality.

But lets not forget that this cannot be done in certain cases where it is difficult to

evaluate, like liquor products will often use an established competitor to help the

positioning task. Positioning with respect to a competitor can be accomplished by

comparative advertising i.e., advertising in which the name of competitor is explicitly

named and compared on one or more product characteristics, on factual information. It

makes that communication task easier.

Procedure for Determining

Positioning Strategy.

In the previous topic, we have discussed different positioning strategies, then what should

be our positioning strategy. All of us know that it is a complex and difficult task to

identify and select a positioning strategy. Lets us discuss the steps involved in positioning

strategy, there are basically six-step that are adopted

information. These steps now will be discussed:

(I) Identifying the Competitors – A first step is to identify the competition. This step is

not as simple as it seems to be. For example, ‗Pepsi ‘ might define its competitors as

follows:

(1) Other cola drinks

(2) Non-diet soft drinks

(3) All soft drinks

(4) Non-alcoholic beverages,

(5) All beverages except water

One thing, which should be clear to you, is regarding competition that is there basically

two types of competitors

� Primary competitors i.e., competitors belonging to the same product class

� Secondary competitors, those belonging to other product category.

In the above example other cola drinks are primary competitors and other drinks and

beverages are secondary competitors.This can be done in number of ways the first

approach can be to determine from buyers of a product,which other brands or products

they consider appropriate if suppose they do not get a brand of their choice.

A buyer of ‗Pepsi‘ cola may be asked to recall his or her last purchase of Pepsi and

shelter any alternative went through his or her mind or he may asked to name the

alternative cola if Pepsi was out of stock. The resulting analysed will identify the primary

and secondary groups competitive product.

Another approach that can be developed is related to your associations with the products.

In this a respondent may be asked to maintain a diary or to recall the use context for

Pepsi. One might be with an afternoon snack. The respondent may then be asked to name

all the beverages, which might be appropriate to drink with an afternoon snack. For each

drink or beverage, a list of use context can beprepared. This process would continue for

20 or 30 respondents. Then another group of respondent will be asked to make a

judgment on a seven point scale as to how appropriate each beverage would be for each

use situations. Thus if ‗Pepsi ‘ was regarded as appropriate with snacks, it would

primarily compete with other beverages used with snacks. The same approach would

work with an industrial

product such as computers.

Basically these two approaches suggest a conceptual basis for identifying competitors

even when marketing research is not employed. A management team or a group of

experts, such as retailers or buyers management team or a group of experts, such as

retailers or buyers who have an understanding of customers, could employee one or both

of these bases to identify competitive groupings.

(2) Determining how the Competitors are Perceived and Evaluated – The second step

in is related to determining the product positioning, it is basically done to see, when the

competitors products are purchased by the customers. It is to see comparative view, an,

appropriate set of product attributes should be chosen. The term ‗attributes‘ includes not

only product characteristics and consumer benefits but also product associations such as

product use or product users. In any product category, there are usually a host of attribute

possibilities. Some can be difficult to specify. For example beer has taste, smell, strength,

fullness (including alcoholic content) attributes. The task is to identify the potential

attributes out of a variety of attributes to remove redundancies from the test of attributes

and then to select those that are most useful and relevant in identifying the product or

brand

(3) Determining the competitor’s positions – our next focus should be to determine

how different brands (including our own brand) are positioned with respect to the

relevant attributes selected under the previous step. At this point we should be clear about

what is the image that the customer has about the various product brands? You have to

see how are they positioned in respect to each other? Which competitors are perceived as

similar and which as different? This judgment can be made subjectively. However a

research can be taken up for getting the answer of these questions. Such research is

termed as multidimensional scaling because its goals it to scale objects on several

dimensions or attributes. Multidimensional scaling can be based upon either attribute data

or nonattribute data this topic will be covered in detail in Research Methodology Paper.

4. Analysing the Customer – now you need to analysis the customers habits and

behaviour in a particular market segment. The following questions need attention while

understanding the customer and the market – (i) how is market segmented? (ii) What role

does the product class pay in the customers life style? What really motivates the

customers? And what habits and behavior patterns are relevant?

The segmentation question is, of course, critical. There are various approaches to

segmentation but out of all benefit segmentation is relevant here, which focuses upon the

benefits or attributes that a segment believes to be important. In order to specify that

benefit segments, it is useful to highlight the role of ‗ideal object‘ as a tool.

Now you should understand what is an ideal object, ‗An ideal object‘ is an object, the

customer prefer over all other objects including the object, which really does not exist. It

is a combination of all the customers preferred attribute level. Although, the assumption

that people have similar perception may be reasonable, their preferences are nearly

always different and there ideal object location will differ. One reason to locate ideal

object is to identify segments of customers having similar ideal object. The attributes of

ideal object then should be compared and the advertiser should improve the product by

renovating the product in view of the ideal object

(5) Making the positioning Decision – The above four steps provide you a useful

backgrounds and are necessary to be conducted before taking any decision about

positioning. The managers can carry these steps or exercises. After these four exercises,

the following guidelines can be offered to reach a positioning decision: -

(i) An economic analysis should guide the decision. This analysis depends upon two

basic factors (a) the potential market size, and (b) the penetration probability unless both

these factors are favourable, the success in unlikely.

(ii) Positioning usually implies a segmentation commitment. It implies concentration

only on certain segments and ignores the parts of the market. Such an approach requires

commitment and discipline to the potential buyers. Yet the effect of generating distinct,

meaningful positions is to focus on the target segments and not be constrained by the

reaction of other segments.

(iii) If the advertising is working, the advertiser should stick to it. He should not get

tired of a positioning strategy and should not think of change in advertising used to

implement it.

(iv) Do not try to be something, your are not. It is usually fatal to decide on positioning

strategy that exploits a market need or opportunity but assumes that the product is

something, it is not.

(v) In making a decision on position strategy, symbols or set of symbols must be

considered. If any brand or symbol is already in use. That must be use in positioning

strategy.

(6) Monitoring the position – An image objective, like an advertising objective should

be measurable.It is necessary to monitor the position overtime, for that you have variety

of techniques that can be employed it can be on the basis of some test and interviews

which will help to monitor any kind ofchange in the image.

Thus, the first four steps in the process provide a useful background. The fifth one only is

taken to make the position decision. The final step is to evaluate and measure and follow

up. Now let‘s discuss about Product positioning in Advertising. Product positioning in

Advertising: Product positioning is a new term developed in the advertising circles during

1970s. No generally accepted definition of the term has been developed, although the

concept can be described by

William J. Station in these words – ―A product‘s position is the image that the product

projects in the minds of consumers in relation to, first, other products sold by the

company, and, second, to competitive product.‖

Thus product positioning may be referred to as the image or overall impression of the

product in the minds of the consumers as compared to other brands available in the

market. In other words, it is a reputation of the product, just as an individual develops a

reputation for consistency, trust worthiness and so on, so too do brands, products,

companies and organizations.

A brand name may have many associations some may be based on physical attributes

other will reflect the fact that products are used to express life styles, social positions, and

professional roles, Still others will reflect associations involving product applications,

types of people who might use the product, stores that carry the product, or sales people

who handle it. Basically, the advertising can be used to mould and reinforce an image and

the decisions as to what kind of an image should be developed is a very crucial to many

advertising campaigns. This decision means, selecting those which are to be removed or

de emphasized .So we can say that ‗positioning‘ or ‗product positioning‘ means ranking

the brands of a product in the order of the image or overall impression in the minds of

consumers. When we say that Sony Music system is the best or number one among the

brands available in the market, it means the position of brand Sony is at the top or it hold

first position. The position must have a frame of reference for the image, the reference

point usually being competition. It is important to understand that several levels of

organization – the company it self its brands or its products –can be thought of as objects.

An image is associated with each, and that each can be positioned with respect to

competitive alternatives. Thus an attribute and a competitor must be there in positioning

the product.

Consumer Behavior

3.1 Introduction-For a class teacher it is imperative to understand the behaviour of

each student to direct them better. Similiarly in the market there are people who

require products distinctly. Look at the advertisement campaign by pepsi i.e my

can, my way. This clearly gives the indication that companies are now becoming

very choosy and clinical in targeting the customers according to need set.

Consumer Behavior- The relatively young discipline of marketing has a great deal to

learn from other fields such as psychology, sociology, anthropology, economics, etc. --

especially when it comes to consumer motivation and behavior. One thing scholars are

noticing is the convergence of disciplines.

Consumer buying behaviour

The study of how and why people purchase goods and services is termed

consumer buying behaviour . The term covers the decision-making processes

from those that precede the purchase of goods or services to the final experience

of using the product or service. Models of consumer buying behaviour draw

together the various influences on, and the process of, the buying decision. They

attempt to understand the proverbial 'blackbox' of what happens within the

consumer between his or her exposure to marketing stimuli and the actual

decision to purchase.

In the next reading, Kotler et al. (2004) briefly explain the 'black box' model;

however Fig shows the content and process involved much clearer.

Figure Black box model of consumer buying behaviour

Source: Keegan et al. (1992, p. 193)

The essence of the model is that it suggests consumers will respond in particular ways to

different stimuli after they have 'processed' those stimuli in their minds. In more detail,

the model suggests that factors external to the consumer will act as a stimulus for

behaviour, but that the consumer's personal characteristics and decision-making process

will interact with the stimulus before a particular behavioural response is generated.

It is called the 'black box' model because we still know so little about how the human

mind works. We cannot see what goes on in the mind and we don't really know much

about what goes on in there, so it's like a black box. As far as consumer behaviour goes,

we know enough to be able to identify major internal influences and the major steps in

the decision-making process which consumers use, but we don't really know how

consumers transform all these data, together with the stimuli, to generate particular

responses.

3.2 Contributions of Psychology to Consumer Behavior

Learning—Two important learning theories are classical conditioning (Pavlov) and

instrumental conditioning (Skinner). Classical conditioning focuses on contiguity

(association) and repetition. Pavlov taught dogs to associate the meat and the bell by

pairing the two through numerous trials. Eventually, the dog salivated to the bell without

the meat. Advertising can get you to associate a soft drink with good times by showing

you numerous ads pairing the drink with young people having fun. Suppose a company

wants you to believe that its tissues are soft. Its ads might show the tissues together with

clouds, piles of cotton, and/or babies. Question: Why are cigarettes associated with being

macho and mature? If the nebs and nerds on TV and movies were always shown as

smokers, would this have any affect on smoking?

Instrumental conditioning focuses on reinforcement. If you want a behavior to reoccur,

you reward it. Note that the seal is given a sardine every time he does a trick well. A

good product is the best reinforcer. However, premiums (gifts for buying) are also good

ways to reinforce a behavior. Marketers might give you a gift for trying a new product.

The problem with always rewarding a behavior is that you get used to the reward. You

want to gradually "fade out" the reward. If you purchases a brand several times and are

satisfied each time, you may become brand loyal. Brand loyalty is what happens if you

have a favorable attitude toward a particular brand and buy that brand all the time.

Stimulus Generalization vs. Stimulus Discrimination: Suppose a dog has been

conditioned to salivate at the sound of a bell. The dog is very hungry and a car siren goes

off and the dog salivates. This is an example of stimulus generalization. It is more likely

to occur when the drive (hunger) is strong. If a dog only salivates at the sound of a

particular bell, this is known as stimulus discrimination. There are guard dogs that will

only attack if they hear a particular word. No other word will get them to react. That

would be an example of stimulus discrimination. Some guard dogs are trained not to eat

food from a stranger unless they are first told a particular word. This is done so that

burglars will not be able to feed them poisoned meat. A marketer may want you to

generalize by using a popular brand name on several different products. This is known as

brand extensions. Notice how a successful brand name — e.g., Tylenol — is used on so

many different products. They are doing this with successful television programs. There

are many television shows with the name Survivor, Law and Order, and CSI. Is there a

CSI -Brooklyn yet? :) A successful movie leads to how many sequels? How many

Rocky films were made? One day there may be a Rocky 15.

The slot machine, according to a fascinating article which appeared in The New York

Times Magazine ("How the Slot Machine was Remade, and how it's Remaking America"

by Gary Rivlin, May 9, 2004), is "brilliantly designed from a behavioral psychology

perspective." It accounts for 70% of gambling revenues according to this article. The

target market for slot machines is women over 55-years of age with time and money. Did

you know that the machines are purposely designed to pay out more frequently but with

smaller amounts. Why? This helps condition the player. In psychology this is known as

intermittent (sporadic reinforcement) reinforcement, i.e., infrequent random

reinforcement. You win sometimes --not always-- but enough to keep you hooked.

Intermittent reinforcement is a way of making a behavior more permanent. If a parent

always rewards a child for getting good grades, the child expects the reward and it loses

its ability to motivate (always rewarding is known as continuous reinforcement). Never

rewarding the child or showing that you care causes the child to stop trying. Rewarding

the child for good grades randomly is more likely to produce a permanent behavior.

Psychologists note that continuous reinforcement produces faster learning but when the

reward stops it also results in fast extinction (i.e., the behavior stops). If you were to play

a slot machine all day and not win anything, you might lose interest in gambling

permanently. The problem is that you will win on a slot machine enough times to get you

hooked. The lights and sounds are also used to get one hooked. The slot machines are

rigged so that the two cherries in a row shows up very often. This convinces the suckers

that they are getting closer to the big win (three cherries). Did you know that slot

machines are referred to as the "crack cocaine of gambling."

Unconscious motives and motivation research — During the 1950‘s, many marketers

believed that the unconscious played a major role in consumer behavior. An entire field

emerged called motivation research. Techniques such as depth interviewing, focus

groups, and projective techniques were supposed to uncover what is going on in the

consumer‘s unconscious (or subconscious) when s/he purchases a product. The technique

was found to lack reliability (i.e., there was a lack of consistency; different researchers

would get different results) and today very few marketers believe that the unconscious

plays a significant role in consumer behavior. The Rorschach is an example of a

projective technique that is popular in psychology. A projective technique that might be

used in marketing is sentence completion. For example, in a study of furs, we might have

men and women complete the following sentence: "Women who wear mink coats are

______________." Word associations, another example of a projective technique, are

also used to penetrate the consumer's subconscious mind.

Perception — We use our senses (sight, smell, taste, touch, hearing) to interpret

information and give meaning to what objects around us. Perception is the process by

which we organize and select information received through the senses and give meaning

to the objects in the world around us. This is done by our brain. We do not always do this

correctly. How do you determine whether furniture is durable? Suppose a marketer finds

out that you lift it and if it is heavy, you conclude that it is durable. It is quite possible

that weight has nothing to do with durability of furniture, but this is your perception. One

reason that quiet vacuum cleaners have not been successful is that people assume that the

louder the vacuum cleaner, the stronger and better it is. Consumers think a quiet vacuum

cleaner has very little suction power. It is no secret that almost all sodas are made out of

the same basic ingredients. Why does orange soda seem so different from say, cherry

soda? The artificial color and artificial fragrance are critical. This may be a reason that

clear colas were not successful. Color is very important in perception. It is important for

franks to be red--this is accomplished via nitrates. Colors have symbolic meaning too.

Green is often used to suggest freshness and nature. Red is a hot color and blue is cold.

How do you decide whether a store is cheap? Studies indicate that using prices that end

in .99 and .95 ("odd pricing') help communicate this message. Many of us love the 99-

cent stores for this reason. Do you think that a very exclusive, upscale dress shop prices

dresses at $999.99? Somehow I doubt this. I wonder what you would think if tuition at

this college was $199.99 per credit.

Getting back to perception, there is something called selective perception. The world is

very complex and full of information you cannot respond to every single stimulus.

Selective perception is the process where you filter the information so that only some of

it is noticed, understood, and remembered. This is why two people can watch the same

television commercial and notice different things. For example, Jane and Bill are

watching television and see a commercial for vacationing in Las Vegas. Jane does not

care for gambling and notices all the nice restaurants and shows in Las Vegas; Bill

missed that completely but did notice that there are many casinos in Las Vegas.

Image: Marketers believe that image is very important. Some images that have been

studied include: store image (think of the images of Sears, Macys, and Bloomingdales),

brand image (Marlboro vs. Winston), corporate image (IBM vs. Apple), political image,

and self-image. Images can be affected by price, advertising, packaging, etc. If you want

people to see your store as a low-price store, you want cheap fixtures, fliers when you

walk in, prices on the merchandise that end in 99, etc. What should you do if you want

people to see your restaurant as an upscale, elite establishment?

People have a self-image. You may see yourself as being very smart and it may not be

true. IQ tests attempt to measure the real self; self-image is the way you see yourself.

People tend to buy products that fit their self-image. If you think of yourself as a sexy

woman, what brand of perfume will you wear? If you see yourself as a sexy, flashy, kind

of guy, what kind of car will you drive? If, on the other hand, you see yourself as thrifty,

simple, and frugal, what kind of car do you drive? Self-image affects such things as the

wine you drink, the car you drive, the fragrance you use, the publications you read, etc.

Subliminal Perception — The idea that you can influence consumer behavior by

flashing subliminal messages is something that started in the early 1950‘s. A "researcher"

claimed that he subliminally flashed two messages about drinking Coke and eating

popcorn during the showing of the film Picnic at a movie theater in New Jersey.

Supposedly, popcorn and Coke sales rose significantly. There is no evidence that the

study ever took place and no one, to my knowledge, has been able to replicate it. It is

much ado about nothing. A supraliminal ad, i.e., a regular ad that you can see clearly

works much better than subliminals.

Perceived Risk — Some products are perceived as high risk (e.g., sports car, house) and

some are seen as low risk (e.g, flour, a deck of playing cards). In general, two factors

affect the perceived risk of a product: uncertainty and consequences. If all brands are

seen as being alike (what economists call a homogeneous product), there is little

uncertainty and you would not have to worry too much. This is the case with most

commodities. The second factor is consequences: the consequences of a bad choice are

not the same for all products. The consequences of buying a sports car that is a lemon are

much more significant than the consequences of purchasing a pencil that does not work

well. In fact, there are six consequences that a marketer should study:

Financial risk – sometimes consumers are concerned about losing money if a product

does not work well.

Performance risk – you might be worried that the product does not work. Do you worry

that salt will not work?

Time risk – You might be concerned that one product may require more time to put

together or to get it to work right than another product. Some computers that I purchased

took two full days to get them to work properly.

Physical risk – Some products can actually harm you. Do you worry about physical risk

from radiation emitted by cellular phones and microwave ovens?

Psychological risk – Sometimes people are concerned that a product may not fit their

self-image. This is mainly true for clothing. Did you ever buy a tie or skirt and stop

wearing it because it just wasn‘t you? How many people are upset about a tattoo that they

got when they were younger, and now feel is inappropriate for them?

Social risk – Did you ever worry that the product you bought might cause others to laugh

at you? Imagine yourself wearing that new tie, the new earrings, or a new bathing suit –

and everyone is laughing at you. When you buy a painting for your living room or some

exotic furniture you might be afraid of the social risk. There may be social risk when you

get a visible tattoo. Imagine getting a tattoo on your neck because you think it is cool and

then you find out that all your friends think you are disturbed.

A marketer‘s job is to find out which types of risk are present and to reduce them for you.

For instance, warranties are one way of reducing the financial risk. A celebrity

endorsement might reduce the social risk.

Consumers reduce their perceived risk by buying major, well-known brands and/or by

engaging in word-of mouth conversations with others before buying to reduce their risk.

Alternatively, searching for information on the Web or in publications is a way of

reducing risk. Brand loyalty is another way of reducing perceived risk. Stick to one

brand, a brand that you have tried previously, and you might feel safe.

There is a new kind of risk when purchasing products on the Internet, privacy risk.

Consumers are afraid that buying products from the wrong website can lead to loss of

privacy (people finding out personal things about you) or even identity theft. This is why

many websites have assurances that the information is kept confidential and that it is

hacker safe.

Attitudes – An attitude is a learned predisposition or a tendency to consistently respond

in a favorable or unfavorable way towards an object, person, idea, or situation. Thus,

you may have a negative attitude towards smoking and a positive attitude towards

Brooklyn College. Attitudes have three components: the cognitive deals with beliefs and

knowledge; the affective deals with emotion, i.e., likes and dislikes; and the conative,

which is more behavioral, deals with actions, motives, and intent. The teacher evaluation

scale completed by students every semester measures your attitude towards a particular

instructor (it is an attitude scale). It includes items dealing with the professor‘s

knowledge of the subject matter, whether s/he is fair, and whether you would recommend

him or her. Attitudes are organized and have consistency. Consumers have beliefs about

products and services. For instance, you might believe that Ivory Soap is very mild.

Brand Beliefs are perceptions or of how a brand or product performs on various

attributes. You have beliefs regarding how your professor performs on attributes such as

teaching ability, fairness of grading, friendliness, general intelligence, expertise in

subject, etc.

Brand Loyalty - You are brand loyal when you have a favorable attitude toward a

particular product and keep purchasing that brand over a long period of time. If, for

example, you really like Marlboro cigarettes and have been smoking them for 20 years

(hopefully you do not have lung cancer from them), we would say that you are brand

loyal.

3.3 Cognitive dissonance theory describes what happens when there is an inconsistency

among attitudes or an attitude and a behavior. There is a resulting tension and people try

to reduce this tension. One type of dissonance is post-purchase dissonance. After

making a purchase, a consumer is nervous about the brand choice especially if a great

deal of effort and/or money is involved. The consumer will try to reassure herself that she

made the right choice. She might pay more attention to the ads of the selected brand than

brands she did not buy after the purchase as a means of reassuring herself that she made a

good choice. Sometimes, post-purchase dissonance is referred to as buyer's remorse.

You will find this term used quite a bit on the Internet. For instance, I have noticed that

several websites used in the real estate business warn agents that home-buyers will often

get very nervous after agreeing to buy a house and worry about the decision. There are

many risks associated with the purchase of a house; it is not only financial. A buyer may

be concerned about the psychological and social risk. A new home means living in a new

neighborhood--new friends, new schools, etc. It is not surprising that home-buyers will

be afraid that they made a wrong choice. This (in red) is from Reid Trautz's website

aimed at lawyers:

"Buyer's remorse is not limited to the purchases of consumer electronics, homes and

automobiles. Many clients also experience second-thoughts about the lawyer or law

firm they just hired. They may never voice these thoughts to you, but there is

something lawyers can do: To reassure your new clients that they have made the

right choice, immediately show a little extra client care: Personally call them within

24 hours to let them know you have commenced work on their behalf. Tactfully let

them know this is a courtesy call at no-charge." (Source: Reid Trautz, advisor to

lawyers, http://reidtrautz.typepad.com/reidmyblog/2005/week8/)

3.4 Purchase Decision Process -- The consumer goes through stages when making a

decision about which product to buy.

Stage 1 is Problem Recognition. Here is where the consumer perceives a need. This

happens when you recognize a difference --one that is large enough to get you to act--

between the ideal state and the actual state. A good advertising campaign may make one

aware of a problem. The entire anti-perspirant/deodorant industry was built on

advertising that has convinced all of us that perspiring is a problem. Is it? Does every

culture care about sweat?

Stage 2 is Information Search. There is a great deal of research on studying when

consumers will decide to do extensive searches. Clearly, if you are going to purchase salt

in a supermarket, you are not going to spend days doing research. On the other hand, if

you decide to buy a car, you might spend months on information search. Why? Searches

may take the form of an internal search -- you search your memory. Previous

experiences will play a major role in this kind of search. Another kind of search is

known as external search. You might turn to friends and relatives (personal sources),

magazines that rate products such as Consumer Reports (public sources), and/or

salespeople in stores, ads, company websites, or information on product labels (marketer-

dominated sources).

Stage 3 is Alternative Evaluation -- When you buy a product, you are actually

purchasing a bundle of attributes. Think of the different attributes you must consider

when purchasing a car: mileage, power, price, prestige, style, roominess/comfort, etc.

These factors are called evaluative criteria. The evaluative criteria represent both

objective attributes of a brand or product (e.g., price, length of warranty) as well as

attributes that are subjective (e.g., reputation, stylishness, "coolness"). A company that

understands marketing will do research to determine which are the important attributes in

choosing a product. The goal is to promote attributes that are important to your target

market and which your brand excels in. Suppose ABC College finds that the three most

important criteria for choosing a college are college reputation, tuition cost, and course

offerings. They discover that the competition has a reputation that is just as good and

offers the same number of programs and courses. However, ABC College has a much

lower tuition than the competition. If this is the case, the ads for ABC College should

stress the lower tuition. An organization should promote evaluative criteria that are

important to its target market; however, the organization has to select evaluative criteria

on which it rates significantly better than the competition, i.e., performs better. This

technique is sometimes referred to as Importance/Performance Analysis.

To the ladies in the class: What are the evaluative criteria you use in selecting a soul

mate? I would guess a sense of humor, good looks, ambition, wealth, intelligence, and

prestigious occupation. Did I miss anything? Once you decide on the evaluative criteria

in your mind, then you decide which people are possibilities. In marketing we refer to

the brands you consider as acceptable as the consideration set. Of course, there are

brands that you will never consider and they are sometimes called the inept set. Brands

you never heard of are called the inert set.

Stage 4 is Purchase Decision -- Two key decisions you have to make is when to buy and

where to buy. Nowadays, many manufacturers use multiple channels. Supposed you

decide to purchase a HP Printer. You can buy it at Staples (retailer) or online from

Amazon or possibility directly from HP on the company website. In a later chapter, we

will discuss why many manufacturers are using several channels of distribution to sell

their products. A key reason is to reach their target market effectively. Many consumers

do not want to purchase products from stores since they do not have the time to go

shopping. It is much more convenient for them to buy products online. Also, a company

may be trying to reach several different target markets.

Stage 5 is Postpurchase Behavior. Customer satisfaction is what the marketing concept

is all about. One way we measure satisfaction is by determining actual performance of a

product with expected performance. The value of (Actual Performance - Expected

Performance) is a good measure of satisfaction. A product that performs better than

expectations will produce a great deal of customer satisfaction. Satisfied customers will

tell others about their positive experience. What happens if a product performs below

expectations? You then have a dissatisfied customer. Studies show that an unhappy

customer will complain to 9 people on average. If the unhappy customer has access to

the Web, s/he may complain to thousands of people. I have noticed that dissatisfied

students will use the ratemyprofessor website to complain about professors. A large

number of students use that website to acquire information about professors before

registering for a course (see Stage 2-- information search).

Even a company that makes good products will occasionally have some that do not work

well. A smart company is concerned about dissatisfied customers and will make sure that

they have a complaint department that honestly tries to resolve complaints. By the way,

if you take care of an unhappy customer by resolving her complaint, you will now have a

very loyal customer who will tell a large number of people how nice your company is.

The goal is to resolve complains so that you retain your customers. This is why every

company should have toll-free numbers so that unhappy customers know whom to call.

Firms should be happy to make exchanges or give refunds. The employees working in

complaint departments (nowadays they call them customer satisfaction departments) need

special training on how to convert an unhappy customer into a satisfied one. I once had a

problem with a product and the employee said: "Mr. Friedman, we will not be happy

until you are happy." Guess what? I have been buying from this company for years and

so do my children. By replacing a $45 item, they have a loyal customer. The cost of an

unhappy customer is too high. Moreover, marketing is about being ethical; it is the right

thing to do to resolve complaints.

Attitude Change -- Marketers use several approaches in order to try to change the

attitudes of consumers. As was noted above, the attributes of a product play an important

role in the process

Suppose a toothpaste manufacturer -- let's call its toothpaste Brand Q-- finds that its

target market believes that preventing gum disease is an extremely important attribute

and Brand Q performs poorly on this measure. Brand Q, however, performs very well on

the attributes of whitening teeth, price, and naturalness. Research shows that price is an

unimportant attribute; naturalness is not used as an evaluative criterion in choosing

toothpaste.

(a) The company can attempt to change the beliefs consumers have about how well its

brand performs on a particular attribute(s). The company could use advertising to change

consumer beliefs and convince the public that Brand Q actually does a very good job of

preventing gum disease. Please note that beliefs are a perception of how good or bad a

job a particular brand will do on each of the attributes. For instance, how good a job does

Crest toothpaste do on the attribute of preventing cavities? The attribute of freshening

breath? The attribute of whitening teeth? The attribute of keeping your gums healthy?

We had this problem at Brooklyn College. Students thought that only Baruch offered a

decent business program. About 15% of graduating high school students want to go to a

college that has a good business program. One strategy thought up by the Provost was to

offer a BBA (Bachelor of Business Administration) degree. When word got out that

Brooklyn College offers a BBA degree as well as a B.S. in Business, Management, and

Finance, beliefs about Brooklyn College changed. Brooklyn College was no longer

perceived as a school that is only great for liberal arts.

(b) The company can change the importance rating of attributes. Perhaps they can

convince the public (or at least the target market) that having white teeth is very

important. Ads can show people with dull teeth doing poorly in social situations.

Commercials might show someone a manager not getting a job promotion because her

teeth are yellow.

(c) The company can create a new attribute for a product. The ads work to convince the

public to use naturalness as an attribute in deciding which brand of toothpaste to buy.

B. Contributions of Sociology and Anthropology to Consumer Behavior

Reference Group – This can be a group that you identify with. Notice how many people

wear Yankee or Met baseball caps. It could also be a group that you aspire to join or a

group that you actually belong to. People who are members of a gang tend to dress alike

and buy the same brand of beer and cigarettes. Reference group influence tends to be

stronger for conspicuous products that are expressive and have meaning to people. For

example, reference group influence is probably much stronger for wine, beer, tattoos,

cars, hats, eye glasses, earrings, nose rings, and hairdos than for salt, toilet paper,

detergent, and canned peaches. You might avoid a product because you do not like the

group that it is associated with—this would be a negative reference group.

Opinion Leader – Before seeing a film, do you ask anyone for advice? If a number of

people turn to the same individual for advice, s/he may be an opinion leader. Some

movies are "platformed" i.e., start in a few theaters to give the film a chance to build up

appeal through word of mouth. The strength of Word of mouth has been enhanced by

the Internet. Buzz is a term used to describe popularity and excitement that results from

consumer word of mouth.

There was an interesting article on "Buzz Marketing" in Business Week (July 30, 2001).

According to the article, marketers "seek out the trend-setters in each community and

subtly push them into talking up their brand to their friends and admirers." Word-of-

mouth supposedly helped the film The Blair Witch Project, Harry Potter books and the

Razor scooters become such huge successes. Word-of-mouth spreads very quickly today

because of the Web. The trick is to find the trend-setters who will spread the word about

a company's product. Some examples of how buzz marketing works: Anita Diamant's

book, The Red Tent, which deals with female empowerment during Biblical times, was

not selling very well until hundreds of free copies of the book were sent to female reform

rabbis all across the country. This generated the word-of-mouth that eventually put the

book on the bestseller lists. Razor scooters used the Web to create the "buzz" that made

their product a big hit. If you want to learn more about buzz marketing, you should read

Malcolm Gladwell's book, The Tipping Point: How Little Things Can Make a Big

Difference.

Family Influence – There are different roles that family members play in the buying

decision. Some important roles individual family members play in the buying decision

are: information gatherer, influencer, decider (or decision maker), purchaser, and user.

Suppose the baby has a bad cold. Who in your family does the research (information

gatherer) as to which brand of cold medicine to purchase? A decision may be made not

to buy any cold medicine and to have the infant drink tea with honey. Who buys the

cold medicine (purchaser). We know who the user will be in this case.

A key role is the product and brand decider. Marketers want to know who makes the

decision to buy the generic product and the particular brand. Who decided to buy the

brand of cereal you ate today? Who decided whether you should buy hot cereal, cold

cereal, or simply have eggs and toast? In a nuclear family consisting of a husband, wife,

and children we tend to find the following:

The husband tends to make the decision as to which insurance to buy.

The wife is more likely to make the food and detergent decisions.

A joint (syncratic) decision is made for vacations, homes, and cars. In fact, try to

imagine buying a house or car without having your spouse present. However, husband

and wife may be interested in different things. A wife might be more concerned with the

color and style of the car and the husband might care more about the horsepower. In

general, women are more concerned with aesthetics than men. Sometimes, it works out

that in half of all households it is the husband who made the decision, and in the other

half it is the wife. We call this autonomic. This means that a marketer has to advertise to

both men and women. This is the case with clothing (e.g., shirts and ties) for men and

wine. Some shirt companies advertise men‘s shirts in women‘s magazines for this reason.

Question: When a man and woman go out, who decides what film to see? [usually the

man]

This may interest the women in the class. The more educated the woman, the more

likely she will be involved in joint decision making with her husband. Approximately

60% of the students in college are women. This may be why we are seeing much more

joint decision making in the US.

Social Class – This affects the kind of restaurant at which you eat. Who is more likely to

eat at McDonald‘s or Beefsteak Charley, a successful attorney or a plumber? Social class

affects the kind of publications you read (Wall Street Journal or Star Magazine), where

you shop, and what you do with your leisure (go to the wrestling matches or to the tennis

matches). A simple way of determining an individual‘s social class is by finding out

his/her occupation and level of education completed. Marketers sometimes get an idea

about your social class from your zip code. Please note that social class difference is not

the same as an income difference. A plumber might make as much as a college professor

(probably a lot more), yet they are of different social classes. One way of classifying

social class is as follows:

Culture – Remember that culture is a learned way of life. Your culture, for example,

determines what is a pet and what is food. Sociologists and anthropologists study the

American culture. Attitudes and beliefs associated with culture tend to change slowly, but

they may change over time. This is why there are trend experts who try to predict trends.

Are Americans becoming more religious? Are Americans becoming more interested in

marriage and children? More or less materialistic? A cultural shift can affect your

product. For instance, if our culture frowns on showing off and materialism, how do you

market a super luxury car? As Americans become more concerned with ecology, how

will this affect your business? The fur industry has been devastated by the concern for

animal rights.

Subcultures – A subculture is a segment of a culture. These are groups of people --a part

of the national culture-- who share distinctive patterns of behavior, life experiences,

and/or beliefs, i.e., shared value systems. Sometimes subcultures have their own slang,

jargon, or way of dress. A culture often contains many different subcultures.

Subcultures include religions, ethnic groups, nationalities, and different age groups. You

may have heard the term "youth culture" but the big market today is mature consumers

(the over 50 crowd). They are increasing in number and have a great deal of money. The

gay market is also a subculture with their own value system and they are also being

targeted by many companies.

Three very important subcultures to marketers are African-Americans, Hispanics, and

Asian-Americans. There are minority agencies who specialize in these groups. For

instance, The Bravo Group specializes in the Hispanic market and Solomon Advertising

specializes in the Chinese market. Ethnic marketing is a big business.

Did you know that the New York Times changed the color of its vending machines in

Chinatown from blue to red since blue is the color of mourning in China? The number 4

implies death in various Asian cultures so that you would not want to run an ad with the

number 1-800-444-4444.

There are two important reasons for studying subcultures: (1) a subculture might be a

good target market for your product. Or, you might have to promote your product

differently to one subculture than to others. For instance, one cooking oil company

stresses taste to Hispanics and health (no cholesterol) to the Anglo population. Hispanics

fry a great deal and taste is a more important benefit than health. In the past, ads stressing

lack of caffeine have not done well with Hispanics since they do not care about caffeine.

(2) Many innovations start with subcultures. Think of foods that have become immensely

popular that were originally eaten by various subcultures, e.g., tacos, salsa, pita, falafel,

etc.

People completing the 2000 Census were asked to list their ancestry. The largest groups

(by ancestry) in the United States are:

German (15.2%), Irish (10.8%), African American (8.8%), English (8.7%), American

(7.2%), Mexican (6.5%), Italian (5.6%), Polish (3.2%), French (3.0%), American Indian

(2.8%), Scottish (1.7%), and Dutch (1.6%).

The largest groups in New York State are: Italian (14.4%), Irish (12.9%), German

(11.2%).

I co-authored a paper (you can see it on the syllabus) that deals with a very large

subculture-- the disabled.

One subculture that may be of interest to many of you is the American Muslim. There

was an article in Business Week (1/15/2007, pp. 51-54) about them. It is based on a book

by Paul M. Barrett, American Islam: The Struggle for the Soul of a Religion. Did you

know that 59% of Muslim adults residing in the U.S. have college degrees? The median

family income of this group is considerably higher than that for other Americans.

Monem Salam, an immigrant from Pakistan, runs a mutual fund that abides by Shariah

(Islamic law). Islamic law frowns on investing in companies whose main business deals

with pork, pornography, or alcohol. The fund also stays away from companies that are

in the gambling business. Banks are also an issue since Shariah does not allow the

payment of interest. Salam asserts that he is "more at peace, doing something to help

Muslims and doing it in a way [with which] God would be happy."

3.5 Diffusion of Innovations –

Innovators (first 2.5% to try something new), Early Adopters (next 13.5%), Early

Majority (next 34%), Late Majority (next 34%), and Laggards (last 16%).

Innovators are venturesome, i.e., willing to take risks. They are not bound to tradition;

this is why they are open to new things. Since they are not tradition-bound, they are

willing to take advantage of specials. A good way to reach them might be to send them

samples of a new product (marketers call this sampling). Innovators tend to be more

educated and have higher income than those that adopt products after them. The laggards

(the last 16% to try something new) are dogmatic, close-minded, and afraid of change.

Innovators tend to be more cosmopolitan (wordly) than the others and have more contacts

outside their local community. They tend to be heavier users of the product. You are

unlikely to be an innovator for a product that you rarely use.

Late majority individuals are skeptical and will wait to adopt an innovation only after a

majority of people have tried it. Laggards are the last ones to try an innovation. By the

time they finally adopt the innovation it is probably on the verge of being obsolete.

What are some factors that affect the adoption rate of products?

Everett Rogers came up with 5 critical factors: Compatibility, Complexity, Divisibility

(or Trialability), Communicability (or Observability) and Relative Advantage. Other

factors identified by marketers include availability, fulfillment of felt needs, price,

perceived risk, and immediacy of benefit.

Compatibility -- how well does the innovation fit with existing traditions, culture, values,

needs, and past experiences. When Quaker oats was first introduced, people were

skeptical of the product since they thought oats were for horses.

Complexity -- if a product is perceived as being very complicated (e.g., computers in the

days of DOS), it will not be accepted so readily.

Divisibility/Trialability -- marketers should always try to ensure that new products can be

tried on a small scale (e.g., trial size of new foods or cosmetics). People prefer trying

something out on a small scale when it is new.

Observability/Communicability -- innovations that are used in public and thus have great

visibility usually have faster adoption rates than innovations that are consumed in private.

This, in my opinion, was a major advantage in spreading the use of cellular phones.

Relative Advantage -- clearly products that offer a significant advantage over what they

are replacing will be adopted more readily. Does a digital camera offer a major advantage

over 35 mm cameras?

A marketer will try to convince you that a product is user friendly. If people believe that a

new product is too complex, it will be hard to get them to adopt it. How do you convince

the public that a product is very easy to use? [Use children in the ads]

What problem would you have trying to sell worm burgers to the public? [Compatibility-

since, in our experience, worms are not food].

Why do marketers sometimes allow you to try out ("test drive") a new product for a

weekend and then decide on whether or not you wish to buy it? [Divisibility/Trialability

at work].

Stages in the New Product Adoption Process:

Awareness -> Interest -> Evaluation -> Trial -> Adoption

A marketer‘s job is to determine whether there are any bottlenecks in the process.

Sometimes, a marketer discovers that there is a bottleneck between evaluation and trial.

In other words, many people are considering the new product but they are not trying it

out on a small scale. One way to overcome this is by sending them a free sample or by

giving them a gift for trying out the product. AOL became a great success by mailing

millions of free trial offers (100 free hours on the Internet) to the public.

There is a new area of economics known as behavioral economics that attempts to

understand how people make decisions. One book that is especially fascinating is

Nudge: Improving Decisions about Health, Wealth, and Happiness by Thaler and

Sunstein. The authors discuss how government can use "choice architecture" to gently

push (i.e., nudge) people to making the right choices. The traditional belief of

economists that we are all "rational man" and behave in a rational way that maximizes

self interest is simply not true. Another book that you will find interesting is Predictably

Irrational by Dan Ariely.

As you will see, marketers can learn a great deal about consumer motivation by studying

the work of the behavioral economists. Marketers never did believe that consumers act in

a rational manner. The following notes are from Nudge. When you have time, I hope

you will read the book.

A key idea in the book is that we have two cognitive systems that influence the way we

think: an automatic system and a reflective system. Many decisions we make use the

automatic system which is unconscious, fast, uses associative reasoning, and requires

little brain effort. Of course, the automatic system is often wrong. The reflective system

is deductive, conscious, slow, and tries to solve problems. It also makes mistakes but at

least the individual is attempting to think things through and come up with a good

decision.

This example is from Nudge:

"If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100

machines to make 100 widgets?" Did you say 100 minutes? Don't feel bad about being

so wrong. That was your automatic system. If you use your reflective system and reflect

on the correct answer, you will get it right ---- 5 minutes.

Thaler and Sunstein describe how our brains work and why we make so many mistakes.

We tend to use three heuristics (rules of thumb) to arrive at quick decisions and they tend

to give us the wrong answer.

(1) Anchoring: Thaler and Sunstein provide the following example of how this works:

If I ask you to guess the population of Syracuse, you will have no idea. Suppose I have

two groups (subjects were randomly assigned to the two groups or the experiment would

not be valid) Group A is first told that NYC has 8 million people and then asked to guess

the population of Syracuse. Group B is told the population of Monticello, NY is 6,600.

What will happen is that Group A will make a much higher guess than Group B. The

reason is that the first number they are given is used as an anchor and then adjusted.

Group A will adjust the 8 million downward knowing that Syracuse is much smaller than

NYC. Group B will adjust upward knowing that Syracuse is larger than Monticello, NY.

Here is another example of the anchoring effect from Nudge: Two questions in a survey:

(a) How happy are you? (b) How often are you dating? In this order, the correlation

between the two questions is a very low .11. However, if the order is reversed and (b) is

asked before (a), then the correlation is .62. In marketing research we call this priming.

It is an easy way to bias a study. You can use the first question to make the subject angry

about something (e.g., the number of children in the US who live below the poverty line)

and then you ask subjects to rate the performance of the president.

Lawyers use anchoring to establish a number in a lawsuit. The lawyer will ask for $10

million in damages knowing very well that there is no way the jury will award this kind

of number for a, say, a libelous story in the paper about the client. However, she might

get her client a few million dollars since the $10 million will be used as an

anchor. Retailers might use phony markdowns (original price $500) to anchor a price

and get customers to overpay for a product.

Oh! you want to know the population of Syracuse, NY. It is about 160,000.

(2) Availability: Do you know why we are more worried about being killed with a gun

than drowning in a pool? Or, we think more people die of homicides than suicides.

According to Thaler and Sunstein, people "assess the likelihood of risks by asking how

readily examples come to mind." Risks that we are familiar with (e.g., those that are

reported in the media) are more frightening to us than those that are not familiar. Many

of us, for example, are more afraid of being killed by a terrorist attack (especially after

9/11) than dying from smoking or in a car accident. According to Thaler and Sunstein:

"easily remembered events may inflate people's probability judgments." It works both

ways. Events that we cannot bring to mind, will have lower probabilities of occurring.

Of course, a marketer can make you remember events by showing them in ads. Run an

ad showing many communities hit with tornados and you might convince people to get

tornado insurance.

(3) Representativeness (Similarity): When people try to judge the likelihood of an

event occurring, they do so by finding something similar and then make the assumption

that the two probabilities will be very similar.

This is why we believe in "lucky streaks" or "hot hands." Fluctuations that are random

will often be perceived by the public as having a causal pattern.

In one experiment conducted by Tversky and Kahneman and discussed in Nudge,

subjects were presented with the following description:

Linda is 31 years old, single, outspoken, and very bright. In college, she majored in

philosophy; as a student she was deeply concerned with issues of discrimination and

social justice and also participated in antinuclear demonstrations. Subjects then ranked in

terms of probabilities (most likely to least likely) eight possible futures for Linda: The

two choices that were of interest in the study were (4) Linda is a bank teller. and (5)

Linda is a bank teller and is active in the feminist movement. The majority of

respondents ranked (5) as more likely than (4). Of course, this is logically impossible.

Every feminist bank teller is a bank teller; not every female bank teller is a feminist.

In all its about strategic alignment of your product and long term associations with the

customers which matters, they are met when a thorough understanding of consumer is

taken.

Marketing Research

4.1 Introduction

A marketing information system is ongoing and information is collected whether or not

it will be used. Many colleges have a student information system, a type of marketing

information system, that routinely gathers information such as number of majors by

discipline, number of students taking courses at various hours, number of closed sections

by discipline, etc. One college recently did a study to determine the number of students

by zip code of residence and by high school. This information was in their information

system and they found that a large number of their students came from a small number of

zip codes and high schools.

Marketing research is used to identify problems and opportunities and usually has a

specific objective. It is also used to solve a specific problem or to provide assistance in

making a decision.

4.2 Steps in Marketing Research:

(1) Define the problem: The first step in marketing research is to define the problem. It

is easier to solve a problem once it is defined. Declining sales are a symptom and can be

caused by such factors as too high a price, too low a price, unattractive warranty, poor

product performance, bad package, inadequate distribution, etc. How can you solve a

problem when you do not know whether to change the price, improve the warranty,

redesign the package, improve distribution, or simply wait for the economy to improve?

Exploratory research is used to help define the problem.

A college is suffering from declining enrollments. That is a symptom. What is the

problem? Is it high tuition, poor quality of instructors, poor course selection, not enough

popular majors, not enough parking, changing demographics of feeder high schools, or

declining reputation? Note that you cannot come up with a solution unless you do some

research. One college found that its sinking enrollments were due to security issues.

Another college discovered that it had to introduce a business major to make enrollments

increase.

(2) Develop the research plan: What kind of data is needed to come up with a

strategy? How is the data going to be collected?

(3) Find the information that is needed. Sometimes you need primary data; sometimes

secondary data is sufficient.

Secondary data: Data that has already been collected and that you have to find. The

advantage of using secondary data is that it can save you a great deal of time. It takes

much longer to collect new data (primary data) than to retrieve information that is already

out there. Also, it is much cheaper to get secondary data than primary data.

--An organization‘s own internal records (sales, customer complaints, etc.)

--Census information - Check out the US Census Bureau homepage:

http://www.census.gov/

--Trade association data

--journals

--Internet

US Business Advisor – Find useful government information on the Web

http://www.business.gov/

AC Nielsen is the largest marketing research company:

http://www.acnielsen.com/

Primary data: Data that you have to collect yourself. This could take the form of

surveys, experiments, observation study, focus groups, or depth interviews. Obviously,

this takes quite a bit of time to collect and can be quite expensive.

--Surveys. It is usually too costly to take a census of the entire population (there are more

than 300 million people in the United States). Generally, we study a sample, i.e., a subset

of the population. Typical sample sizes are between 1,000 and 5,000 people. If a sample

is done correctly, it can be representative of the entire population. Random samples have

the advantage that they are supposed to be representative. With a simple random sample,

every element in the population has an equal chance of being selected. A convenience

sample of say 500 people shopping in a mall may not be representative. With surveys it is

important to get a representative sample (which means a decent rate of response) and

honest/accurate responses. A survey is meaningless if it does not represent the population

you are studying.

Some types of surveys are: mail, telephone, personal interview, mall intercepts, fax, e-

mail, and Web. One serious problem with mail surveys is the low rate of response. If you

send out a mail survey and get a 15% rate of response, it is quite likely that your results

will not be representative. Much marketing research today is conducted via telephone and

Internet (online) surveys. Telephone and online surveys are quick and not very

expensive. Some of you may have completed an online survey. This is becoming

another relatively inexpensive way to survey people.

--Experimentation. The key elements of an experiment are randomization, manipulation,

and control. Subjects are randomly assigned to different conditions in order to test the

effect of certain factors. For an experiment to be valid, you need a control group. For

instance, the classical studies on shelf space were conducted by trying different amounts

of shelf space (e.g., 3 feet vs. 6 feet vs. 9 feet). A product was randomly assigned to the

three conditions and in, say, 50 stores the product was allocated 3 feet of shelf space, 6

feet of space in another 50 stores, and 9 feet of space in another 50 stores. The same price

is used in all stores and, in fact, you try to keep everything as similar as possible. The

manipulated variable is shelf space and you try to keep everything else as constant as

possible (controlled variables). Thus, experiments are used to determine cause and effect

relationships. Studies show that shelf space is very important for impulse items and not

very important for staples.

Experiments provide information on actual behaviors whereas surveys are often

attitudinal. Experiments are very useful to determine how customers will react to changes

in packaging, pricing, and advertising. People cannot answer questions such as will you

buy more of Brand X in the red package than the blue package? To answer this you must

use an experiment.

--Observation. There are two types of observations: by machine and by people.

Occasionally, marketing research involves people observing people. For example, you

might use researchers disguised as shoppers and place them in stores in order to

determine whether shoppers read the ingredients before purchasing a new product. This,

however, is rarely done in marketing. Most research involves observation by machine.

For instance, closed-circuit cameras are used to monitor customers and study such things

as shopping patterns (studies show that customers like to start with the produce section in

a supermarket). Television ratings are obtained by devices connected to a sample of

households that own TV sets. Scanners at checkout counters in supermarkets also provide

a great deal of information. A supermarket can quickly discover how well different

brands are doing every day. They can see what effect changing the location of a brand

(or increasing shelf space) has on sales.

--Focus Group Interviews – are very popular in research today. Most focus groups

consist of 6 to 12 individuals and a moderator. Many open-ended questions are used; the

goal is to get the group to interact. The response of one person may get other people in

the group to speak up. Focus groups are sometimes used to find out what problems

customers have with products and to help come up with ideas for new products. For

instance, a company might conduct a focus group with 10 users of its product to find out

how it is being used, problems with it, and what can be done to improve it.

--Depth Interviews – These are detailed, one-on-one interviews and may last for 90

minutes or so. It is somewhat like a psychiatric interview (the one where the psychiatrist

has you sit or lie down on a couch and engage in a lengthy, free-flowing conversation).

The goal is to get the interviewee to relax and talk. Problems with new products might be

discussed. One study I am considering involves asking students whether they considered

dropping out of college as freshman, and why.

Focus groups and depth interviews are qualitative research techniques. With qualitative

research, you try to get consumers to open up so you can find out how they really feel.

You want considerably more than simple yes or no answers. There is much reliance

(possibly too much) on the subjective interpretations of the researcher. In fact, it is quite

likely that two companies working independently and doing focus groups for a client may

come to very different conclusions. Researchers refer to this problem as lack of

reliability. Some companies will purposely hire two different marketing research firms to

perform qualitative research and then see whether the results are the same or not, i.e.,

check for reliability.

Panel data: Some research companies use a sample of consumers or stores and take

measurements (e.g., sales) on a regular basis (daily, weekly, monthly, etc.). This is

known as panel data. Some of you may be members of a consumer panel.

(4) Interpret the Data and Write the Business Research Report. The data must be

analyzed properly and recommendations as to the best course of action must be made.

Research papers often have the following headings: Introduction, Method, Results,

Conclusions (or Discussion).

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A great deal of marketing research deals with customer satisfaction. Are customers

satisfied? What can be done to increase satisfaction? Research helps a company

discover why they are losing customers (customer attrition). What can be done to stop

the loss of customers? Can anything be done to get them back?

The Kerin, Hartley, and Rudelius marketing textbook has an interesting example of how

marketing research is used by the film industry to come up with a good title for a film.

Researchers found that the public did not like the title of a movie Clint Eastwood was

directing-- Rope Burns. The title was changed to Million Dollar Baby. A good movie

title helps position the film and may also affect attendance. Even the ending of a film

might be changed after a test screening (film shown to an audience of several hundred

people in the target market for the film). A good ending is important because an

unsatisfying ending may reduce customer satisfaction and the word of mouth for a film.

A film that has a satisfying ending (not necessarily a happy one) will be talked about for

a long time. What do you think of the ending of the film Titanic? Not a happy one but

certainly memorable. I never did like the ending of Gone With the Wind but have to

admit that it works. Nowadays, many movie studios use test screenings to see whether

anything can be improved (title, music, characters, ending of film, etc.). I suspect that

film directors and writers do not like the idea that a few hundred viewers attending a test

screening (or a "sneak preview" ) will have input on how a film ends and decide which

characters may not make it into the final edit of the film.

Those of you who are interested in law might be interested in doing some research on the

subject of mock juries and jury research. There are firms that use mock juries as a type

of focus group. The goal is to analyze how juries will react to different kinds of

summaries, witnesses, and/or evidence. A mock jury can help a lawyer make a more

effective presentation before the real jury.

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Need help in constructing a questionnaire? This paper may be of value to you

4.2 THE ART OF QUESTIONNAIRE DESIGN: A MODULAR APPROACH

Constructing a useful and effective questionnaire can be a formidable task,

especially for a novice. The purpose of this paper is to introduce a simple approach that

can be used to instruct individuals in the art of questionnaire construction. One can be

efficiently taught to create comprehensive and reliable questionnaires using this method.

This approach is based on the idea that there are basically five major types of questions

that comprise many questionnaires.

I. Frequency/Behavioral

The first type of question, which is often placed at the beginning of the

questionnaire, revolves around frequency of performing a certain type of behavior.

These questions might deal with how long a certain behavior has been performed, how

often, how much, etc. For example:

How long have you been shopping at this Rite Aid pharmacy?

__ Less than 6 months

__ From 6 months to less than 1 year

__ From 1 year to less than 3 years

__ From 3 years to less than 5 years

__ 5 years or more

During the past six months, about how often have you visited this Sears store?

__ More than once a week

__ About once a week

__ A few times a month

__ About once a month

__ Less than once a month

During the past thirty days, about how many times have you used each of the following

drugs?

Marijuana: _________________

Heroin: _________________

Cocaine: _________________

Crack: _________________

LSD: _________________

About how much money do you usually spend on a pair of jeans?

___Less than $20.00

___$20.00 to $39.99

___$40.00 to $59.99

___$60.00 to $79.99

___More than $80.00

The last example is not a frequency question but it does inquire about the extent of the

behavior, in this case spending. This is not a "how many" but a "how much" question. It

is important to avoid vague terms such as "regularly," "often," and "frequently," in the

response categories since they provide little useful information. What does it mean if a

respondent shops at Sears "frequently"? Does this mean every day? Once a week?

Twice a month? We have no way of knowing. What is frequent for one person may be

infrequent for another. (Woody Allen made this very point, in the movie Annie Hall, with

respect to conjugal sex.)

In some situations, the researcher may be forced to ask a frequency of behavioral type of

question using a likelihood scale. It may be impractical, if not impossible, to use

response categories with specific frequencies in them.

How likely are you to take each of the following types of courses as free electives?

very likely likely neither likely nor unlikely unlikely

very unlikely

Accounting: ____ ____ ____ ____

____

Finance: ____ ____ ____ ____

____

Marketing: ____ ____ ____ ____

____

Management: ____ ____ ____ ____

____

Statistics: ____ ____ ____ ____

____

Computers: ____ ____ ____ ____

____

II. Importance

The second type of question deals with the importance of various factors in the

subject's selection of a product or service. For example,

How important is each of the following factors in your choice of a toothpaste?

extremely slightly not

important important important important

Taste: ____ _____ _____ _____

Price: ____ _____ _____ _____

Cavity prevention: ____ _____ _____ _____

Whitening ability: ____ _____ _____ _____

Tartar control: ____ _____ _____ _____

How important is each of the following factors in your choice of a supermarket in which

to shop?

extremely slightly not

important important important important

Price: ____ _____ _____ _____

Cleanliness of the store: ____ _____ _____ _____

Convenient parking: ____ _____ _____ _____

Courteous employees: ____ _____ _____ _____

Fast checkout: ____ _____ _____ _____

Senior citizen discounts: ___ _____ _____ _____

Coupon policies: ____ _____ _____ _____

Quality of the produce: ____ _____ _____ _____

Quality of the meats: ____ _____ _____ _____

How important is each of the following factors in your choice of a job?

extremely slightly not

important important important important

Pay: ____ _____ _____ _____

Opportunity for Advancement: ____ _____ _____ _____

Job security: ____ _____ _____ _____

Fringe benefits: ____ _____ _____ _____

Status: ____ _____ _____ _____

Challenging/interesting work: ____ _____ _____ _____

Friendly co-workers: ____ _____ _____ _____

Safe work environment: ____ _____ _____ _____

Effective and fair management: ____ _____ _____ _____

The purpose of this question is to determine which factors are important to your

respondents. Different groups of customers (or prospective customers) will find different

things to be important. For example, elderly people might not be so concerned with

slower checkouts if this means lower prices. Or, the opportunity for advancement may be

more important for some jobs and less important for others. Management must know

what is important to each group in order to decide which features to concentrate on.

III. Performance Rating

The third type of question usually follows the importance question and deals with

the performance rating of various features (attributes) of a product or service. For

example:

Please rate Crest toothpaste on each of the following factors:

very very

good good fair poor poor

Taste: ____ ____ ____ ____ ____

Price: ____ ____ ____ ____ ____

Cavity prevention: ____ ____ ____ ____ ____

Whitening ability: ____ ____ ____ ____ ____

Tartar control: ____ ____ ____ ____ ____

Overall: ____ ____ ____ ____

____

Note that the same factors used in the importance question can be used in the

performance-rating question. The "overall" category was added in order to obtain an

overall performance rating. The importance and performance rating questions can be

used together in an importance/performance analysis (Martilla and James, 1977) to

determine the important attributes or features that the organization is not performing well

on. Resources should be allocated to improving features that are important to customers

(or prospective customers) and which the organization is not doing a good job in

satisfying. It would be foolish to improve features with which the customers are already

very satisfied. Thus, if Crest toothpaste determines that its prospective customers find

taste to be very important and only rate the taste of Crest as "fair," it should focus

resources on improving the taste of Crest.

Other ways to ask for an overall performance rating include the following:

Overall, how would you rate the performance of AOL (America Online)?

__excellent __very good __good __fair __poor __very poor __awful

Overall, how satisfied are you with the performance of AOL (America Online)?

_____extremely satisfied

_____satisfied

_____neither satisfied nor dissatisfied

_____dissatisfied

_____extremely dissatisfied

Using a 9-point scale, where 9 means extremely satisfied and 1 means not at all satisfied,

how satisfied are you with AOL (America Online), overall?

Extremely satisfied Not at all satisfied

9 8 7 6 5 4 3 2 1

Sometimes it is a good idea to follow up an overall performance rating question

with an open-ended question asking for the reason respondents answered the way they

did. This can be useful in determining areas of dissatisfaction.

Please describe briefly why you responded the way you did in Question X.

_______________________________________________

____________________________________________________________

Subjects can be asked to indicate their intent to buy or use a product or service, or

whether they would recommend it to a friend.

Would you recommend a General Electric washing machine to a friend?

__definitely

__probably

__might or might not

__probably not

__definitely not

Please indicate the chance that you will buy a Dell personal computer if you need a

computer:

__definitely would buy

__most probably would buy

__probably would buy

__might or might not buy

__probably would not buy

__most probably would not buy

__definitely would not buy

These questions should also be followed up with an open-ended question asking for the

reason for the response.

Another type of open-ended question which can be of great value is one that asks

respondents to list improvements that should be made. For example:

What improvements, if any, should be made to better the New York City subway system?

________________________________________________

____________________________________________________________________

What, if anything, do you dislike about Pepsi Cola?

________________________________________________________________________

________________________________________________________________

In some situations, a researcher might find it more useful to have respondents describe

how the product/service can be improved rather than asking, in effect, how well am I

currently doing (Waddell, 1995). Consumers may rate a product as "good" but still feel

that it can be improved dramatically. If this is the case, they might switch to a competitor

who offers the improvements even if the current product performs "good." The rating of

"good" simply means that the product performs adequately.

Please indicate the amount of improvement, if any, needed to better our restaurant in each

of the following:

Amount of Improvement Needed

none slight some much

huge

Taste of food: ____ ____ ____ ____

____

Prices: ____ ____ ____ ____

____

Speed of service: ____ ____ ____ ____

____

Portion size: ____ ____ ____ ____

____

Friendliness of staff: ____ ____ ____ ____

____

Variety of menu: ____ ____ ____ ____

____

It is often advisable to also determine the performance ratings of competitor's brands in

order to find out where the areas of superiority lie. These areas may then be highlighted

in advertising.

IV. Agree/Disagree Statements

The fourth type of question is especially useful when the researcher is trying to

determine respondents' opinions, beliefs and attitudes and it is difficult to use hedonic

rating scales with adjectives as response categories. It may be simpler to construct

statements and ask respondents how strongly they agree or disagree with each of the

statements. For example:

Please indicate how strongly you agree or disagree with each of the following statements:

1. People who exercise regularly live longer.

____ strongly agree

____ agree

____ neither agree nor disagree

____ disagree

____ strongly disagree

2. Exercise is more important than dieting in losing weight.

____ strongly agree

____ agree

____ neither agree nor disagree

____ disagree

____ strongly disagree

3. The best exercise for losing weight is bicycling.

____ strongly agree

____ agree

____ neither agree nor disagree

____ disagree

____ strongly disagree

4. The most boring exercise is jogging.

____ strongly agree

____ agree

____ neither agree nor disagree

____ disagree

____ strongly disagree

The agree/disagree questions can be laid out with the response categories as column

headings just as with the importance and performance rating questions presented earlier.

The Likert scale (or summated ratings scale), a popular attitude scale used in

research, requires subjects to indicate how strongly they agree or disagree with a series of

statements relating to a particular behavior or object (Tull and Hawkins, 1993, pp. 393-

394). A total attitude score can be computed for each subject after numerical values of 1

to 5 are assigned to the response categories. Reverse scoring is necessary for unfavorable

statements; strongly agreeing with a favorable statement (e.g., "New York City is the

best city in the world") would receive the same score as strongly disagreeing with an

unfavorable statement (e.g., "I would never live in New York City").

V. Demographics

The fifth type of question is usually placed at the end of the questionnaire and

deals with the demographics of the respondents. These questions can be used to

determine the profile of the respondents (who should be representative of customers,

prospective customers, the population of an area, etc.). Demographics are also needed to

compare different groups on importance or performance ratings, for example, to

determine whether men and women rate one's product the same.

The following information is necessary for classification purposes only:

1. Your sex: ___Male ___Female

2. Your age: __Under 25 __25 to 34 __35 to 44

__45 to 54 __55 to 64 __65 or older

3. Your education:

__less than high school graduate

__high school graduate

__some college

__college graduate

__some postgraduate college work

__graduate school degree

4. Total household Income (before taxes) for the past 12 months: __Under $15,000

__$15,000- 24,999 __$25,000 - 34,999

__$35,000 - 49,999 __$50,000 - 79,999 __$80,000 or more

5. Your ethnicity: __Caucasian (white) __African-American (black) ___Hispanic

___Asian __Other (please specify):_______________

6. Current marital status: ___Married/living together __single/never

married ___widowed/divorced/separated

There are many other demographic questions that can be added, including occupation,

size of household, county or state of residence, etc.

In conclusion, most questionnaires consist of essentially these five types of questions.

Once individuals understand how to use these question types, they should have little

difficulty in constructing their own questionnaires.

Product Policy; New Product Development

5.1 Introduction-Please note that sometimes the word "product" is used to mean brand

and sometimes it refers to the generic product.

The classification of consumer goods was discussed previously but I feel that it is

necessary to review this in order to understand distribution.

5.2 Classification of Consumer Goods:

Convenience goods— These are goods that consumers want to acquire with virtually no

shopping effort. They include: staples (milk, bread), impulse items (candy, gum, soda,

magazine), and emergency goods (ambulance, tow truck).

Shopping goods—Customers tend to shop around, i.e., make price and/or quality

comparisons. Examples of shopping goods: computer, suit, coat, printer, sofa, and

bedroom set.

Specialty goods –Customers are willing to make an extended search to find these goods.

In some cases, a customer might be willing to travel 20 or 30 miles to find them. Some

examples: wedding dress; Rolls Royce; a special stamp if you are a stamp collector; an

exotic camera if you are a photography buff.

Convenience goods need intensive distribution. Your product has to be in millions of

outlets. Think of how many places you can purchase a newspaper or a cup of coffee.

Shopping goods require selective distribution and specialty goods require exclusive

distribution.

5.3 Product Life Cycle Theory (This is a theory dealing with generic products, not

brands.)

Introduction: Firms have to decide whether to use penetration pricing or skimming

(skim-the-cream) pricing. A penetration price is a low price. This is usually done in order

to keep the competition out. The company introduces the new product at a low price in

order to attract a large number of customers and --hopefully -- keep competing firms

out.

A skimming price is a high price and this enables the company to recoup its investment

much sooner since many innovators (innovators were discussed in the section dealing

with consumer behavior. They are the first people to try something new. They are

willing to take risks because they want to be first. They are the opposite of the laggards)

are willing to pay a very high price for a new product in order to be first. After many of

the innovators have paid the high price, the company then lowers the price. For

example, a company introducing a new kind of television might start at a very high price

of $2000; six months later, they lower it to $1500; after another 6 months they lower the

price again to $1000.

Product Life Cycle Diagram

In the Introduction Stage, advertising is used to try to build up primary (generic)

demand for the product, not selective demand for the brand. Ads are more informative

and attempt to explain why one should buy the product (relative advantage). Promotional

expenditures are high since you are trying to induce trial. You do not begin to make

profits until the end of this stage. Distribution is limited and you have few models from

which to choose.

Growth: Sales are growing rapidly. Profits tend to peak during this stage. Many firms

attempt to enter the industry during this stage. Customers have more models to choose

from and there are major product improvements. Competition causes prices to drop.

Advertising tends to stress selective demand, i.e., demand for the brand, not primary

demand.

Maturity: Market shares become fairly stable, the product's sales growth slows down,

and only a few major firms are left in the industry (oligopoly). Prices are now close to

costs. Firms compete on the basis of price or sometimes will use advertising to stress

emotional appeals. This may be necessary since there are few real differences among

brands. Notice that the difference among cigarette brands, for example, is more emotional

than actual. For firms to enter a new growth phase, it is necessary to come up with new

uses or to constantly innovate and add exciting new features to the product. The maturity

stage is usually the longest stage in terms of time.

Most products are in the maturity stage of the product life cycle. It is important to be

proactive and come up with ways to extend the product life cycle. This can be

accomplished by:

(a) modifying the market -- find new users for the product.

(b) modifying the product -- change a product feature to attract new users

(c) modify the marketing mix -- change one of the marketing mix elements, e.g., price or

the way the product is promoted.

Look at how Arm and Hammer keeps coming up with new uses for its baking soda (e.g.,

deodorant for one's refrigerator). This is important since very few people have time to

bake. Do you know what has been the biggest problem for aluminum foil? Takeout

foods! If people do not cook, they do not need aluminum foil. This is one reason that

Reynolds has modified its product so that it foods such as cake frosting and melted

cheese will not stick to it.

Decline: Sales for the product category begin to fall. There are fewer firms in the

industry and fewer brands to choose from. Very little is being spent on promotion, and

distribution is rather limited. Products in the decline stage include: typewriters, cloth

diapers, 35 mm cameras, black and white television sets, color television sets, VCR, and

cassette players.

New Product Development

Every company must develop new products. New products development shapes the

company‘s future. A company can add new products through acquisition or development.

The acquisition route can take three forms:-

the company can buy other companies

it can acquire patents from other companies

it can buy a license or franchise from another company

The development route can take two forms:

the company can develop new products in its own laboratories; or

it can contract with independent researchers or new-product development firms to

develop specific new products.

Competition is strong and dynamic in most markets. So it essential for a firm to keep

developing new products-as well as modifying its current products-to meet changing

customer needs and competitors‘ actions.

Booz, Allen and Hamilton have identified six categories of new products:- 1. New-to-the

world products 2. New-product lines. New products that allow a company to enter an

establishment market for the first time. 3. Additional to existing product lines: New

products that supplement a company‘s established product lines (package sizes, flavor

and so on.) 4. Improvements and revisions of existing products: New products that

provide improved performance or greater perceived value and replace existing products.

5. Repositioning existing products that are targeted to new markets or market

segmentation. 6. Cost reduction: new products that provide similar performance at lower

cost

An Organized New-Product Development Process is Critical Identifying and developing

new-product ideas and effective strategies to go with them is often the key to a firm‘s

success and survival. New-product development demands effort, time and talent-and still

the risks and costs of failure are high.

A new product may fail for many reasons. Most often, companies fail to offer a unique

benefit or underestimate the competition. Specific reasons are: • A high-level executive

pushes a favorite idea thru‘ in spite of negative market research findings. • The idea is

good but the market size is over-estimated. • The product is not well designed. • The

product is incorrectly positioned in the market, not advertised effectively or over-priced. •

Development costs are higher than expected. • Competitors fight back harder than

expected.

Several other factors hinder new-product development • Shortage of important ideas in

certain areas. • Fragmented markets • Social and governmental constraints. • Costliness of

the development process. • Capital shortages • Faster required development time •

Shorter product life cycle

New Product Development Process

1. Idea Generation- is the idea worth considering? Ideas might come from Internal

sources: R & D, top mgt‘ employees; External sources: Customers, competitors,

distributors, suppliers, research institutes

2. Idea Screening- Is the product idea compatible with company objectives, strategies?

Strength and weaknesses, Fit with objectives, Market trends, Rough ROI (Return on

Investment) estimate Ideas are evaluated against criteria; most are eliminated. Errors: A

GO-Error A DROP-Error

3. Concept development and testing-Can we find a good concept for the product that

consumers say they would try? Concept: who will use the product? What primary benefit

should the product provide? When will people consume? Concept testing is the way of

testing new product concepts with a group of target consumers to find out if the concepts

have strong consumer appeal. It can be presented symbolically or physically. Nowadays

are designed and developed in a computer Obtain: Reactions from customers, Rough

estimates of cost, sales and profits

4. Marketing strategy development-can we find a cost-effective, affordable marketing

strategy? Preliminary market strategy plan describe: • The target market, product

positioning, and sales, share, and profit goals for the first few years. • Product price,

distribution, and marketing budget for the first year. • Long-run sales and profit goals and

the marketing mix strategy.

5. Business Analysis Evaluating proposal‘s business attractiveness - Will this product

meet our profit goal? Management prepares sales, cost, and profit projections. As new

information comes in, the analysis will undergo revision and expansion

6. Product development R&D or reengineering – developing physical product Prototype

development and testing

7. Market testing Not all companies undertake market testing. New-to the market

products, high risk, high investment cost influence market testing.

Questions: have product sales met expectations? Or should we send the idea back for

product development (stage 6)? how much market testing should be done, and what

kind(s)? How many test cities? Which cities? Length of test? What information? What

action to take?

8. Commercialization-Are product sales meeting expectations? Contracting for

manufacture or build or rent a full-scale manufacturing facility. The company launching a

new product must first decide on introduction timing, geographic strategy, target market

prospects and introductory market strategy. When? (introduction timing) – First entry –

Parallel entry – Late entry Where? (geographic strategy) – single location, – a region, –

the national market or – the international market. To Whom? (target market prospects) –

Determining initial distribution and promotion – Early adopters, heavy users and opinion

leaders How? (introductory market strategy) – Developing action plan for introducing the

product – Critical path scheduling (CPS) can be used

MANAGING PRODUCT LIFE CYCLE Stages in Product Life Cycle • Introduction •

Growth • Maturity • Decline

Introduction • Price: High • Quality: Low • Number of versions: Few • Number of

competitors: Few • Intensity of Competition: Little • Advertising: High to introduce •

Distribution: Little

Growth • Price: High and dropping • Quality: Low and growing • Number of versions:

Few and increasing • Number of competitors: Few and growing • Intensity of

Competition: Growing • Advertising: Still high to expand • Distribution: Growing

Maturity • Price: Dropping and stabilizing • Quality: High • Number of versions: Many •

Number of competitors: Many/dropping • Intensity of Competition: High • Advertising:

Stable • Distribution: Maximum

Decline • Price: Dropping • Quality: High • Number of versions: Dropping • Number of

competitors: Dropping • Intensity of Competition: Depends • Advertising: Dropping •

Distribution: Losing

Product and Product Mix

Product Planning refers to the systematic decision making related to all aspects of the

development and management of a firms products including branding and packaging. A

product is anything that can be offered to a market to satisfy a want or need. Each product

includes a bundle of attributes capable of exchange and use. Products that are marketed

include physical goods, services, experiences, events, persons, places, organizations,

properties, information, and ideas. The marketing manager needs to understand how

markets develop overtime, in order better to plan and manage products, their life-cycles

and their marketing strategies.

Differences between Goods and Services o Goods are tangible. You can see them, feel

them, touch them etc. o Services are intangible. The result of human or mechanical

efforts to people or objects o Sales of goods and services are frequently connected, i.e. a

product will usually incorporate a tangible component (good) and an intangible

component.

Product Levels A product has five levels. • Core benefits- the essential service or benefit

that the buyer is buying. E.g. getting clean, rest and sleep, • Basic (generic) products - the

basic product recognized as such. E.g. soap; room components – bed, bathroom, •

Expected products - the set of attributes and conditions that the buyer normally expects in

buying the product. E.g. smell, shape; clean bed, towel, quietness, etc • Augmented

products - additional services and benefits that the seller adds to distinguish the offer

from competitors. E.g. anti-bacterial, moisturizing; fresh flowers, rapid services, etc •

Potential product- the set of possible new features and service that might eventually be

added to the offer. that exceeds customer expectations. E.g. Vitamins; candy on the

pillow.

Product Classifications

1) Durability and Tangibility a) Non-durable goods b) Durable goods c) Services 2)

Consumer goods Classification: Classified according to shopping habits a) Convenience

goods b) Shopping goods c) Specialty goods d) Unsought goods

3 Industrial Goods Classification 1) Material and parts i-raw material ii-manufactured

materials and parts 2) Capital items a) installations and b) equipment 3) Supplies and

business services

5.5 Managing the Product Mix

If an organization is marketing more than one product it has a product mix. o Product

item--a single product o Product line--all items of the same type o Product mix--total

group of products that an organization markets

In a dynamic marketing environment, the product mix is not static. The effects of

changing technology, evolving competition and changes in customer needs mean that is

most important for an organization to find ways of keeping its product ranges fresh and

interesting. This opens up a number of management problems, requiring planned

procedures and strategies in order to: o retain and maintain existing products so that they

continue to meet their objectives o modify and adapt existing products to take advantage

of new technology, emerging opportunities or changing market conditions. o delete old

products that are close to the end of their working lives and no longer serve their purpose

o introduce a flow of new products to maintain or improve sales and profit levels and to

form a firm foundation for tomorrow‘s market. Too many products could put an

organization at risk, as product launch is resource intensive with no guarantee of success.

At the other extreme, too many declining products could threaten the future of the

business as sales and profits start to fall.

Elements of a Product Mix Depth measures the # of products that are offered within each

product line. Width measures the # of product lines a company offers.

Product decisions Marketers make product decisions at three levels: o individual product

decisions o product line decisions o product mix decisions

1. Individual product decisions are focused around the development and marketing of: o

Product attributes o Branding o Packaging o Labelling o Product support services.

2. The product line is comprised of a group of products that are closely related because: o

they function in a similar manner o are sold to the same groups o are marketed through

the same types of outlet o fall within given price ranges The product line length involves

the number of items in the product line. It is greatly influenced by the company

objectives and the resources. Product line growth needs to be planned carefully and is

extended in two ways: ‗stretching‘ and ‗filling‘.

Product line stretching Downward stretch: Company initially located at the top end of the

market and then ‗stretches‘ downwards to pre-empt a competitor or respond to an attack.

Launch of C-Class by Mercedes-Benz. Upward stretch: Companies stretching upwards to

add prestige to their existing range of products. Toyota with the Lexus. Can be risky due

to customer perception and inability of sales people to trade up and negotiate to the new

level. Two-way stretch: Extending product lines upwards and downwards to address

different segments of the market.

Product line filling: Increasing the product line by adding more items within the present

range of the line. Reasons for product Using excess capacity Satisfying dealers

Extra profits filling: Plugging holes to keep out the Being the leading full-line

company opposition Care needs to be taken that the line filling does not lead to

cannibalisation and customer confusion.

3. Product mix decisions Product mix or product assortment consists of all the product

lines and items that a particular seller offers for sale to buyers. Dimensions of the product

mix Breadth or width - Wide product mix containing many different product lines. E.g

Unilever producing cooking oil, toilet soap, cosmetics etc. Length - Total number of

products in the product lines Depth - Different versions, such as size of packaging and

different formulations. Consistency - How closely related the various product lines are in

end use, production requirements, distribution channels etc

Product mix strategies • Company can add new product lines, thus widening the product

mix. • Company can lengthen the existing product lines to become a more full line

company. • It can add more product versions of each product and deepen its product mix.

• The company can pursue more product line consistency, or less, depending upon

whether it wants to have a strong reputation in a single field or in several fields.

5.5 Branding

Branding is an important element of the tangible product and, particularly in consumer

markets. It is a means of linking items within a product line or emphasizing the new

individuality of product items. Branding can also help in the development of a new

product by facilitating the extension of a product line or mix, trough building on the

consumer‘s perceptions of the values and character represented by the brand name.

The common definition of brand, accepted by most marketers is that it consists of any

name, term, design, style, words, symbols or any other feature that identifies the goods,

and services of one seller from those of other sellers or that distinguish one product from

another in the eyes of the customer.

Branding involves researching, developing and implementing brand names, brand marks,

trade characters and trademarks. Branding is the art and cornerstone of marketing.

Branding is a task that requires a significant contribution from marketing

communications and is a long term exercise.

A successful brand is one which creates and sustains a strong, positive and lasting

impression in the mind of a buyer. An organization‘s approach to branding depends on its

overall product mix and individual line strategy.

A brand is a complex symbol that can convey up to 6 levels of meaning

Attributes eg. Mercedes suggests expensive, well-built, well-engineered, durable,

high-prestige automobiles.

Benefits attributes must be translated into functional and emotional benefits. The

attribute "durable" could translate into the functional benefit.

Values producer‘s values eg Mercedes stands for high performance, safety and

prestige

Culture certain culture e.g. Mercedes represents German culture, organized,

efficient, high quality

Personality project a certain personality

User the brand suggests the kind of consumer who buys a uses the product

Brand name: is any word or illustration that clearly distinguishes one seller‘s goods from

another. It can take the form of words or initials. Trade name: is the legal name of an

organization, which may or may not relate directly to the branding of its products e.g.

Procter and Gamble-do not display the company name, although it is shown on the back

or side of the pack-Persil, Surf. Trade mark: is a brand, name, symbol or logo, which is

registered and protected for the owners role use. Trademarks are valuable properties, as

organizations invest much time and money in creating them and educating consumers

about what they stand for e.g. coca-cola. Brand mark: is specifically the element of the

visual brand identity that does not consist of words, but of design and symbols eg,

McDonalds symbol (M)

The benefits of branding

1. The consumer

1. Easier product identification

2. Communicates features and benefits

3. Helps products evaluation

4. Establishes product‘s position in the market

5. Reduces risk in purchasing

1. The manufacturer

1. Helps creates loyalty

2. Defends against competition

3. Creates differential advantage

4. Allows premium pricing

5. Helps targeting/positioning

6. Increases power over retailer

1. The retailer

1. Benefits from brand marketing support

2. Attracts customer

3. Helps differentiate the product from competitors

Types of brands: -

There are many forms of branding but primarily there are manufacturer, distributor, price

and generic brands

Brand Equity: - a) is an asset b) a degree of brand-name recognition perceived brand

quality, strong mental and emotional associations, and other assets such as patents,

trademarks and channel relationship. c) is a measure of a number of different

components, including the beliefs, images and core associations consumer have about

particular brand.Brand equity is the positive differential effect that knowing the brand by

the buyer has on the seller.

5.6 Packaging and Labeling

Packaging

Packaging includes the activities of designing and producing the container for a product.

The package may include up to three levels of materials. E.g. Old spice aftershave

1. Bottle - primary package

2. Cardboard box - secondary package

3. Corrugated box - shipping package

Packaging is any container or wrapping in which the product is offered for sale and can

consist of a variety of materials such as glass, paper, metal or plastic depending on what

is to be contained. Packaging is an important part of the product that not only serves a

functional purpose, but also acts as a means of communicating product information and

brand character. The packaging is often the consumer‘s first point of contact with the

actual product and so it is essential to make it attractive and appropriate for both the

products and the customers need.

Due to the growth of mass merchants and self-service, manufacturers have come to

realize the value of packaging as a marketing tool. Today it is a vital part of a firm‘s

product-development strategy; a package may even be an integral part of the product

itself. Packaging has become a potent marketing tool. Well-designed packages can create

convenience and promotional value.

Developing an effective package for a new product requires several decisions. The first

task is to establish the packaging concept: defining what the package should basically be

or do for the particular product. Decisions must include the following elements: size,

shape, materials, color, text and brand mix.

The packaging elements must also be harmonized with decisions on pricing and other

marketing elements. Once the packaging is designed, it must be tested.

Factors that have contributed to packaging growing use as a marketing tool:- • Self

service: An increasing number of products are sold on a self-service basis. The package

attract attention, describe the products features, create consumer confidence and make a

favorable overall impression • Consumer affluence: Rising consumer affluence means

consumers are willing to pay a little more for the convenience, appearance dependability

and prestige of better packages. • Company and brand image: packages contribute to

instant recognition of the company or brand. It differentiates a product from competitors

by its design, color, shapes and methods. • Innovation opportunity: Innovative packaging

can bring large benefits to consumers and profits to producers. Packaging can be a major

element of new-product planning. • Promotional tool: It serves as a promotional tool and

is the final form of promotion the consumer sees prior to making purchase decision. •

Reminder: A package also serves as a reminder after a purchase is made.

Although packaging is expensive, developing effective packaging may cost several

hundred thousand dollars and take several months to complete. Companies must pay

attention to growing environmental and safety concerns about packaging. Shortages of

paper, aluminum, and other materials suggest that marketers should try to reduce

packaging.

5.7 Labeling

Labeling is a particular area within the packing field that represents the outermost layer

of the product. Labels have a strong functional dimension, in that they include warnings

and instructions, as well as information required by law on best industry practice. Labels

state, at the very least, the weight or volume of the product. A bar code and the name and

contact address of the producer. Consumer demand has also led to the inclusion of far

more product information, such as ingredients, nutritional information and the

environment friendliness of the product. Information about the extent to which the

packing is made of recycled is also much more common now. Sellers must label

products. The label may be a simple tag attached to the product or an elaborately

designed graphic that is part of the package. The label might carry only the brand name

or a great deal of information. Even if the seller prefers a simple label, the law may

require

Based on the seven-step approach to marketing, we will define marketing as:

“The conceptualization and delivery of customer satisfaction” – the first part of this

definition would be covered in steps A through D in the marketing process above and the

final aspect ‗delivery‘ would be represented by steps E, F, and G. Of course, in order to

deliver ‗customer satisfaction,‘ one must do customer research, thus step G will provide

feedback into the continuation of the seven-step marketing process over time.

Upstream and Downstream Marketing Activities in the Marketing Process

What marketing activities are performed and how they are performed will have a lot to do

with how many choices you have in managing the steps marketing process and the focus

of the organization‘s marketing effort. The organization will view the marketing

function‘s responsibilities based on the history of the organization and its orientation to

doing business. For example, there are several different orientations that organizations

use to approach doing business or serving their customers. Usually, the firm does not

specifically state this orientation. For example, if a firm defined its product policy as

―research leading to creation of the most sophisticated, highest quality products and

services in the world‖ then it has decided to use a ―Product or Production Orientation.‖

That is, the organization has decided for itself what customers want (sophisticated,

highest quality products) and has ignored the first three steps in the marketing process we

described above.

As a consumer, do all customers want the most sophisticated, highest quality products

and services? Do you as a consumer always seek out the most sophisticated, highest

quality products and services?

Write your answer to this question in the following line:

Another approach or orientation to managing the marketing function can be called ―Sales

(or Promotion) orientation‖. In this approach, marketing is seen as serving the same

function as with personal selling and advertising, and marketing‘s primary job in the

organization is to ‗sell, sell, sell.‘ In this approach, steps A through C of the marketing

process are largely ignored and marketing resources are instead placed on generating

more sales.

There is an approach to marketing called the ―Customer as Monarch (or Marketing)

Concept‖ and while it has been around under different names for many decades, it is still

a good guide to managing marketing activities. It can be described by the slogans ‗we do

it all for you,‘ ‗have it your way‘ a former Burger King slogan, or just by the simple

saying which perhaps you have already heard, ―find a need and fill it‖. The Marketing

Concept would rephrase this saying a bit, and be represented by an approach of ―find a

need, and fill it profitably and more effectively than the competition,‖ Yes, this is a

demanding task, but in these times, we exist in an extremely competitive world. Note

that this competition includes organizations in both the for-profit sector and the not-for-

profit sector, with the latter being as competitive as the former.

5.6 Why New Products (Brands) Fail

Some textbooks claim that the new product failure rate is 80%. This number is not

necessarily accurate. Failure is defined differently by different researchers. Furthermore,

it depends on the type of product (consumer or industrial).

Major reasons for failure of new products (i.e., brands):

Conference Board Study — Inadequate market analysis

Angelus Study — Inadequate market research

Study by Buzzel and Nourse — Misjudged marketing conditions

Harvard Business Review study — Most failures are products that offer no price or

performance advantage

Bottom line: most failures are due to marketing mistakes.

In fact, some failures are due to poor product positioning. The way a product is

positioned can affect its sales. Remember that positioning has to do with how you want

the product perceived either on its own and/or relative to the competing brands in the

market. When 7-Up was positioned as an "uncola" sales rose dramatically. The public

was told that it was an alternative to cola soft drinks and it was not just a mixer to be used

with scotch. Positioning Tang as an orange juice limited its market. It is mainly

consumed in the morning as an alternative to fresh OJ or concentrate. An alternative way

to position it might have been as a soft drink. It is certainly easier to carry home a jar of

Tang than several bottles of soda. Perrier has been positioned as an alternative to soft

drinks and alcoholic beverages, not as a substitute for tap water. Note that it does not

come in gallon containers. The Perrier bottle looks like a soft drink bottle and the price is

much higher than waters such as Poland Spring.

Sick Products—Sometimes existing brands get old and sick. Companies have to

consider pruning the product line. Gardeners prune their rose bushes by cutting off the

dying branches. Marketers also have to look at all their brands and decide which need to

be pruned. This means eliminating the sick brands, i.e., brands that do not have a future

and waste a great deal of management time. Even in academe, departments have to prune

their course offerings. Courses can become obsolete and stale. A dynamic, successful

department is always examining and modifying its curriculum.

How to spot a sick product:

Sales trend is down, price trend is down, profit trend is down, and/or it uses up too

much managerial time.

What to do? Some possibilities:

1. Delete the product as soon as possible.

Considerations in dropping the product:

(a) Effects on customers who expect service and replacement parts.

(b) Effects on employees if you fire the workers making the product.

(c) Effect on other products in the product line. For example, if GE were to discontinue

selling dryers, this might have an adverse effect on washing machines.

2. Sell the product to another company.

3. Revise your marketing strategy. You might turn the brand into a discount brand which

means sell it for a very low price and minimize your promotional expenses. This was

done to Pepsodent toothpaste and Lux soap. You might try to find a new target market

and/or modernize the brand by giving it a new package.

4. You might eliminate the product gradually and milk it for remaining profits. The way

to do this is to eliminate all marketing support (no advertising or sales promotions such as

couponing) and continue to sell it.

Strategy of Pepsi

According to Business Week (June 14, 2004, pp. 54-56), Pepsi adds more than 200

product variations every year. Pepsi is not obsessed with protecting the market share of

its flagship brands (Pepsi and Lay's potato chips) but is concerned with "understanding

and catering to changing tastes." The company believes that consumers are looking for

innovation. Here are some examples of how Pepsi has dealt with changes in consumer

taste:

(a) There is a growing market for New Age beverages-- Pepsi acquired SoBe Beverages

and has used brand extensions to add such products as SoBe No Fear (energy drink),

SoBe Synergy (50% juice targeted to school-aged children), and SoBe Fuerte (Hispanic

Market). Also introduced Propel Fitness Water (flavored, vitamin-enhanced water).

(b) For those concerned with obesity-- Frito-Lay offers low-fat chips and is developing

low-carb Doritos, Cheetos, and Tostitos.

(c) For those concerns with health -- natural and organic chips.

The Pepsi Cola Company has defined its COMPANY MISSION as serving customers,

not as protecting flagship brands. Is this a good idea? Yes! This is one way of

ensuring that a company's products have appeal to young people and not only appeal

to older consumers. Many young people would rather drink water, sports drinks, or tea

than cola beverages. In fact, Coca Cola is promoting POWERADE (I happen to like

POWERADE ZERO) and even has soda machines for it. The days where cola

beverages dominate the soft drink market may be over.

Brands and Trademarks:

A brand consists of a brand name and a brand mark. The brand name can be vocalized

(e.g., Coke) and the brand mark can be recognized (e.g., the Playboy bunny, Dreyfus lion,

and the Nike logo). Trademark means that the brand name or mark has legal protection

and has been registered. The Lanham act (1946) specifies what type of names or marks

can be registered. Generic names cannot be registered. For example, the term "ice cream"

cannot be registered as part of a company's brand name. Anyone is permitted to use that

term. However, the "Ben & Jerry's" name is a registered trademark and cannot be used

by another company without permission.

Some names that started out as trademarks and are now generic include: aspirin, corn

flakes, zipper, nylon, kerosene, gold card, and escalator.

Brand names that are not generic: Xerox, Kleenex, Formica, Scotch tape, Jello, Coke, and

Vaseline. The public may [incorrectly] use these registered brand names in a generic

sense but they are still protected trademarks. The correct generic terms are: photocopy,

tissue, wood laminate, gelatin dessert, cola soft drink, and petroleum jelly, respectively.

5.7 Branding Strategies:

1. Give each brand its own individual brand name – Procter and Gamble used to do this.

Some of their successful brand names: Tide, Ivory, Pampers, Bounty, Jif, Crest, Pert,

Crisco, Oil of Olay, Pringles, Charmin, and Scope.

2. Blanket family name for all products (family brand) – GE uses the GE name on

everything from bulbs to washing machines.

3. Separate family name for different product lines – Sears uses names such as Craftsman

and Kenmore.

4. Company name plus individual brand name – Kellogg‘s Rice Krispies. This might give

you the advantages of the individual brand name and the family name.

The advantages of using individual brand names:

(a) If one brand fails, other brands are not hurt.

(b) This is necessary when you have incompatible products (Clorox makes bleach and

Hidden Valley Ranch Dressings; Ralston makes dog food and cereal).

(c) Necessary when products have very different target markets (Gallo makes Andre

champagne and Bartles and Jaymes wine coolers. Also, if a company wants to sell brands

of different quality levels.

(d) This is one way to keep the competition from getting shelf space.

Disadvantage: It is very costly to promote many different brands. It is much easier to

promote one brand. For example, GE promotes the General Electric name and helps all of

its brands. Of course, if one product is bad, it can have a negative effect on other GE

brands.

5.8 Brand Stretching:

Line Extension – Take a successful brand name and use it in the same product category.

For instance, Coke introduced Diet Coke; Pepsi introduced Pepsi One.

Brand Extension – Take brand name from one product category and move it into a

totally different category (Arm and Hammer baking soda to Arm and Hammer

toothpaste).

Product (brand) manager:

The product manager is assigned to a brand (or product) and is responsible for planning,

establishing objectives, developing a marketing strategy, and ensuring that plans are

properly executed. Problem: product managers have a great deal of responsibility and

little authority. After all, a big company may have dozens of brands. All the product

managers in the firm have to work with the sales force, advertising department, and

marketing research department. Some firms have category managers who are responsible

for managing the product categories. Problem: sometimes the product managers within

the same company compete with each other vigorously to increase market share (e.g.,

Tide vs. Cheer) and do not work as hard to wrest market share from brands belonging to

other companies. The job of the category manager is to try to give each brand made by

the same company in the same category a distinct position and try to ensure that they do

not compete with each other.

6.1 ORGANIZATIONAL BUYER

When businesses sell to other business (B2B), they often deal with an organizational

buyer. An organizational buyer works for a company or organization and is paid to make

the purchase. For instance, an organizational buyer might work for a retailer and buy

products (e.g., dresses or sweaters) that will be resold to consumers. Manufacturer's buy

goods (e.g., steel, glass, plastic) to make into products (e.g., car).

Organizational buyers tend to focus more on economic factors such as performance,

quality, price, service, and reputation of seller when making the purchase. They might

also consider such factors as dealing with multiple sources. It may not be a good idea to

only buy a crucial part or product from only one company. What happens if the company

goes bankrupt, or if there is a strike? It is good to deal with several firms, especially with

respect to critical components or products. Another consideration might be reciprocity.

This means that you might prefer buying from companies that buy from you. For

instance, a steel company might feel obliged to purchase cars and trucks from automobile

companies that buy steel from them.

Organizational buyers tend to be less emotional than consumers when buying. However,

there may be considerations other than purchasing the product that is best for the

organization. Sometimes, buyers are given "gifts" and bribes to influence them. Many

organizations have strict rules about what kind of gifts are acceptable. In fact, some do

not allow buyers to accept anything. This is necessary to ensure that the buyer remains

objective and purchases the best products at the lowest price.

It should be noted that today much of the routine buying is done by computer. Many

buyers use the Web to find the cheapest source.

Consumer goods, as noted above, are classified as convenience, shopping and specialty

goods. This classification does not make much sense with industrial goods that are sold

business to business (B2B).

6.2 Characteristics of Industrial Goods:

(1) Installations -- [These are similar to specialty goods]. Installations are capital

equipment with a long life and they tend to be very expensive. This is the reason that they

are normally sold directly from one company to another without using intermediaries.

Service is very important and negotiations can be quite long. Examples: factory, power

plant, jets, railroad cars, steel mill, buses, etc. When the Transit Authority purchases a

billion dollars worth of buses, they negotiate directly with manufacturers.

(2) Accessory Equipment -- These are capital equipment with a much shorter life than

installations. They are also not that expensive. Since it is not a major decision, they are

purchased via wholesalers or through the Web. Examples: personal computers, fax

machines, desks, etc.

(3) Fabricated Parts and Materials -- These are finished goods made by one company

that become part of another company's final product. Examples: batteries and tires for

car, batteries for toys, software for computers, etc. The company that buys these needs to

ensure that they will receive a continuous supply of uniform, high quality fabricated

parts. Note all the problems that Ford had in the past because of the Firestone tires. If you

purchase a camera or watch you will be very upset if the battery in it does not work.

Fabricated parts are often purchased directly from the supplier on a contractual basis for a

long time, i.e., three-year contract to supply batteries for XYZ cameras.

(4) Raw Materials -- These include farm products (wheat, barley, corn, etc.) and natural

products (coal, iron, oil, aluminum, etc.). These products are used in manufacturing the

finished product (e.g., cereal, automobile). Most raw materials are graded and sold in the

commodity markets. You can check the price of all kinds of commodities such as gold,

silver, wheat, oil, etc. Sometimes wholesalers are used when buying raw materials from

foreign markets.

(5) Supplies -- [These are similar to convenience goods]. Supplies include maintenance

items (bulbs, floor cleaner, liquid soap, etc.) and office supplies (paper, pens, markers,

etc.). These are routine purchases and are often bought on the Web.

B2B selling has been greatly affected by the Internet. The B2B Marketplace or exchange

brings corporate buyers and sellers in many different industries together. Check out

http://www.freemarkets.com and learn about B2B online auctions.

Chapter 7

Channel Policy and Physical Distribution

Introduction

Physical Distribution:

Physical distribution (logistics) deals with the efficient movement of a company‘s

product through the channel of distribution. A firm can manufacture a great product, but

if it takes 10 months for the product to get from the manufacturer to the retailer (or

consumer), the firm will find itself in serious trouble. Do you know that an average

grocery product spends about 84 days in the channel? This means that grocery foods are

not as fresh as we may think they are. Making the physical distribution process work

more efficiently is important to marketing. Physical distribution makes up about 10% to

15% of the total cost of a product.

Physical distribution consists of the following tasks:

7.2 Warehousing, Materials Handling, Inventory Management, Order Processing,

and Transportation.

Firms must take a total cost approach to physical distribution (PD). This means that

firms should work to minimize the total cost of physical distribution and not try to

minimize each of the five tasks separately. It does not make sense to consider the costs of

storing and handling inventory and transportation separately. For example, a firm might

be considering two different approaches to PD:

Approach A: They will have one warehouse in the center of the United States and will

use computerized order processing and ship via air.

Approach B: They will have six warehouses throughout the United States and ship via

truck.

The question is which approach is cheaper overall. Approach A may be very costly as far

as shipping (shipping by air is very expensive) but the savings in inventory and

warehousing may outweigh the extra expense of shipping by air. Approach B has much

lower shipping expenses but the warehousing and inventory expenses are much higher.

The Marines are learning to improve their supply chains by emulating the private sector

(see Business Week, "The Marines Learn New Tactics--From Wal-Mart" December 24,

2001, p. 74). Several years ago, when a soldier needed a spare part it took a week to get

it--even if the part was on the other side of the military base. Moreover, the Marine Corps

policy that required a 60-day supply of every article was very cost-ineffective and

resulted in the overstocking of too many items. During the Gulf war, tons of supplies

were stockpiled in the desert near the battlefield. One problem: no one was able to keep

track of all the ordnance and therefore much of it went unused. After hiring a consulting

firm, things began to change and the Marines started using the approach used by the

private sector. Handheld scanners are now being used to keep track of inventory and 60-

day inventory supplies are no longer necessary. If supplies are ordered, e.g., jeeps, they

will be shipped from the nearest supply point. A great deal of money is saved by

improving logistics. The Marine Corps now needs less inventory (improved inventory

management), warehouses perform the sorting and retreiving tasks more efficiently and at

reduced cost (warehousing), and technology has been greatly simplified by the use of

fewer computer systems (order processing).

7.3 Marketing Channel Decisions:

Indirect distribution vs. direct distribution:

Indirect distribution means that intermediaries will be used. One common channel of

distribution is:

Manufacturer => Wholesaler => Retailer => Consumer

Note that two intermediaries are being used (a wholesaler and a retailer).

With direct distribution, no intermediaries are used. Some examples:

Manufacturer sells to consumers by using (a) its own retail outlets (e.g., Gateway sells

computers through its own outlets) (b) door-to-door salespeople (c) the Web (Electronic

Commerce) (d) direct mail (e) catalogs (f) telephone (telemarketing) (g) direct response

radio advertising (h) direct response television adverting (i) direct response magazine

advertising (j) direct response newspaper advertising.

Direct response ads are advertisements that attempt to elicit a response from the

consumer. In the above cases, the ads attempt to get you to order the product by calling

the 800 telephone number in the ad (or mailing something in). Many late-night television

commercials are direct response TV ads that attempt to get consumers to call an 800

telephone number and order music, exercise equipment, beds, mattresses, education, etc.

Note: Do not confuse direct marketing and direct distribution. Direct distribution means

that no intermediaries are used. Selling through manufacturer-owned retail outlets or

door-to-door salespeople is direct distribution, but is not direct marketing. You will learn

more about direct marketing in the section dealing with retailing and direct marketing.

Today, many manufacturers use several channels – multiple distribution (multichannel

distribution systems) – to distribute their product. This may be necessary to reach

everyone in your target market. For instance, not every student wants to buy music from

a specialty store. Some students would rather download it directly into their computers.

Others might prefer purchasing music from direct response television ads on late night

television. Many companies are finding that they have to use several channels of

distribution in order to ensure that everyone in their target market is reached. A new

channel of distribution for automobiles is the World Wide Web. Quite a few cars are

ordered via the Web. Check out Microsoft‘s Carpoint Web site (http://carpoint.msn.com )

or Autoweb.com (http://autoweb.com ).

Another reason for using multiple distribution is to reach new market segments, i.e.,

market development. These are segments you have not reached in the past. For instance,

some colleges are using distance learning to reach American soldiers stationed overseas.

The classroom courses are for students living in the area.

Use of multiple distribution can cause friction in the channel of distribution. In particular,

retailers get very upset when suppliers start selling directly to customers using the Web.

7.4 Channel Captain

The informal leader of the channel of distribution is the channel captain. In the early days

of the PC, IBM became the channel captain. They set standards and everyone followed.

For example, IBM decided on DOS as their operating system and this became the

operating system of most desktop computers. Later on, they switched to Windows and

this became the default operating system. Today, the channel captain seems to be

Microsoft.

For many years, automobile manufacturers were the channel captains. A shift occurred a

while back. The rise of the superdealer (or megadealer) such as Potamkin – a firm that

sells numerous makes of car – caused a shift. The superdealers are becoming the channel

captain. The Web may change things again. Companies selling cars on the Web might

the become the next channel captains of the industry.

7.5 Conflict in Channel

Quite often there is conflict in the channel. As noted above, multiple distribution can

cause strife. Sometimes manufacturers put pressure on intermediaries to carry too much

inventory. Intermediaries might place pressure on manufacturers to reduce prices or

provide more promotional allowances. In general, retailers do not like EDLP (Everyday

Low Pricing) and they want specials. They take advantage of the specials and stock up. In

fact, they do enough "forward buying" (also called trade loading) so that they have

enough merchandise for several months. Of course, the product is sold at the special price

for only a week or two, even if the supermarket purchased enough product for three

months.

Vertical Marketing System (VMS)

Vertical marketing systems are coordinated and integrated channels. There are three

types:

Corporate VMS – One way of getting a channel to work better is by having one

company own several levels of the channel If a manufacturer takes over a retailer, you

have a corporate VMS. In some industries, the channel of distribution is fully (vertically)

integrated. One company owns all the stages of production and distribution.

Administered VMS – A very strong channel captain (e.g., a company with the incredible

resources of a Microsoft) can use their power to make the channel function well and

obtain economies.

Contractual VMS – A franchise is an example of a contractual VMS. The franchisee

signs an agreement with the franchisor and has to agree to various stipulations. The

franchisee, however, gets training and the right to use the name. Many of the well-known

fast food restaurants (Burger King, MacDonald‘s, Kentucky Fried Chicken) are

franchises.

Partnering

Some manufacturers are linking their computers with their retailers (e.g., Procter and

Gamble is doing this with Wal Mart and K-Mart). The manufacturer then has the ability

to observe when inventories are low for a particular product and make recommendations

that the retailer restock, or even just make a shipment. This process may be tied into the

retailer‘s inventory system and automated. The manufacturer can recommend which

products to stock altogether and how much inventory to carry for each brand. The

manufacturer can also inform the retailer which promotions are most likely to be

effective at a particular location. Working together results in lower inventory costs for

both the manufacturer and retailer and enables the manufacturer to even out the

production schedules.

Film Distribution

The film industry is an interesting one to examine. According to Adam Leipzig (New

York Times, 1/16/2005, p. AR 9), about 450 movies are released per year in the United

States by approximately 30 distributors. Making a film is quite easy today--all you need

is a computer with editing software and a digital video camera. Indeed, more than 2,600

films were submitted to the Sundance Film Festival in 2004, the major portal for

independent films. Unfortunately, only 120 of those films (120/2600) were shown, and

only 10 of the 120 were selected for distribution.

The trick is not in making a film but in getting distribution. Even if you get distribution,

very few films released by independent distributors make any money. Studio-released

films account for about 90% of box office receipts; this leaves very little for the films

released by independent distributors. A similar problem exists with new products. A

great product will not succeed if it does not get shelf space.

The traditional model of film distribution: theaters, then pay-per-view, then home video,

then pay cable networks such as HBO, and finally broadcast television. The time from

beginning to end used to be 6 months, now it is about 4 months. This traditional model is

being challenged by film producers who are testing a simultaneous release (this is known

as "day-and-date releases or omni debuts). Advantage of this is that homebodies who do

not like to go out can watch the film immediately. The film producers save a great deal

of money on advertising with day-and-date releases. (By the way, a typical film earns

50% of its revenue from home video about double what is earns from theaters.) Theater

owners are very concerned about this new distribution strategy and fear it will destroy

their business. As you can see, there are numerous ways to get films to the public;

theaters are only one channel of distribution. The big question is how big is the channel

using theaters? Is it an obsolete channel?

Channel management calls for selecting particular middlemen and motivating them with

a cost effective trade relations mix. The aim is to build a ―partnership‖ feeling and joint

distribution programming.Individual channel members must be periodically evaluated

against their own past sales and other channel members‘ sales. Channel modification

must be performed periodically because of the continuously changing marketing

environment.

The company has to evaluate adding or dropping individual middlemen or individual

channels and possibly modifying the whole channel system.

1. Selecting Channel Members

2. Training Channel Members

3. Motivating Channel Members

4. Evaluating Channel Members

1. Selecting Channel Members

Companies need to select their channel members carefully. To customers, the channels

are the company. Consider the negative impression you would get of McDonald‘s, , or

Hyundai if one or more of their outlets or dealers consistently appeared dirty, inefficient,

or unpleasant.Selecting channel members would therefore involve

� evaluate experience,

� number of lines carried,

� growth and profit record

� solvency, cooperativeness, and reputation

2. Training channel members

Companies need to plan and implement careful training programs for their intermedi-

aries, because they will be viewed as the company by end users .

They prepare the channel member employees to perform more effectively and efficiently

The company should provide training programs, market research programs, and other

capability-building programs to improve intermediaries‘ performance.

3. Motivating channel members

A.company needs to view its intermediaries in the same way it views its end users. It

needs-to

determine intermediaries‘ needs and construct a channel positioning such that its, channel

offering is tailored to provide superior value to these intermediaries Producers vary in

their ability to attract intermediaries . They can exercise the following types

CHAPTER 8

PROMOTION AND MARKETING DECISIONS

8.1 INTRODUCTION

Promotion‘s role is to communicate with individuals, groups, or organisations to

directlyor indirectly facilitate exchanges by informing and persuading one or more of

the audiences to accept an organisation’s products.

To facilitate exchanges directly, marketers communicate with selected audiences about

their companies and their goods, services and ideas.Marketers indirectly facilitate

exchanges by focusing information about company activities and products on interest

groups, current and potential investors, regulatory agencies, and society in general.

Promotion can play a comprehensive communication role. Some promotional activities

can be directed towards helping a company justify its existence and maintain healthy,

positive relationships between itself and various groups in the marketing environment. To

develop and implement effective promotional activities, a firm must use information from

the marketing environment,often obtained from its marketing information system. The

degree to which marketers can effectively use promotion to maintain positive

relationships with environmental forces dependslargely on the quantity and quality of

information an organisation takes in.

8.2 Let us now define promotion

Promotion is communication about an organization and its products that is intended

to inform, persuade, or remind target market members

A promotion mix (sometimes called a marketing communications mix) is the particular

combination of promotional methods a firm uses to reach a target market. In this chapter,

we examine the process for effective communication and promotion methods of

advertising, personal selling, sales promotion, and public relations.

Let us begin by discussing the process of effective communication.

WHAT IS EFFECTIVE COMMUNICATION?

THE COMMUNICATION PROCESS:

All of us are a part of communication process of marketers as consumers .Today there is

a new view of communication as a interactive dialogue between the company and its

customers that takes place during the pre-selling, selling, consuming, and post-consuming

stages. Companies must ask not only ―How can we reach our customers?‖ but also, ―How

can our customers reach us.

8.3 COMMUNICATION PROCESS

Have you observed that the product‘s styling and price, the shape and color of the

package, the salesperson‘s manner and dress, the store decore, the company‘s stationer –

all communicate something to buyers? Every brand contact delivers an impression that

can strengthen or weaken a customer‘s view of the company. The whole marketing mix

must be integrated to deliver a consistent message and strategic positioning.The starting

point is an audit of all the potential interactions target customers may have with the

product and the company. For example, someone interested in purchasing a new

computer would talk to others, see television ads, read articles, look for information on

the Internet, and observe computers in a store. Marketers need to assess which

experiences and impressions will have the most influence at each stage of the buying

process. This understanding will help them allocate communications dollars more

efficiently.

Marketers also need to understand the fundamental elements of effective

communications. Figure above shows communication model with nine elements. Two

represent the major parties in a communication – sender and receiver. Two represent the

major communication tools – message and media. Four represent major communication

function – encoding, deconding, response,and feedback. The last element in the system is

noise (random and competing messages that may interfere with the intended

communication).

The model emphasizes the key factors in effective communication. Senders must know

what audiences they want to reach and what responses they want to get. They must

encode their messages so that the target audience can decode them. They must transmit

the message through media that reach the target audience and develop feedback channels.

To monitor the responses. The more the sender‘s field of experience overlaps with that of

the receiver, the more effective the message is likely to be.

Sometimes the target audience may not receive the intended message. Why do you think

so ?:Some of the possible reasons could be –Selective attention: People are bombarded

with many commercial messages a day, of which only a few are consciously noticed and

provoke some reaction. Selective attention explains why ads with bold headlines

promising something, such as ―How to Make a Million,‖ have a high likelihood of getting

attention.Selective distortion: People will retain in longterm memory only a small

fraction of the messages that reach them. If the receiver‘s initial attitude toward the object

is positive and he or she rehearses support arguments, the message is likely to be

accepted and have high recall. If the initial attitudes negative and the person rehearses

counterarguments, the message is likely to be rejected but to stay in long-term memory.

Because persuasion requires the receiver‘s rehearsal of his or her own thoughts, much of

what is called persuasion is actually self- persuasion Let us now focus about effective

communications ?

8.4 How To Develop Effective Communications?

I am sure all of you would want to know about developing effective communications . Let

us discuss about it step by step.

1. Identify the target audience -The process must start with a clear target audience in

mind: potential buyers of the company‘s products, current users, deciders, or influencers;

individuals, groups, particular publics, or the general public.

The target audience is a critical influence on the communicator‘s decisions on what to

say, how to say it, when to say it, where to say it, and to whom to say it.

2. Determine the communication objectives

- The marketer can be seeking a cognitive, affective, or behavioral response. That is, the

marketer might want to put something into the consumer‘s mind, change an

3. Design the message - Having defined the desired response, the communicator moves

to developing an effective message. Ideally, the message should gain attention, Hold

interest, arouse desire, and elicit action Formulating the message will require solving

four problems: what to say ( message content,) how to say it logically ( message structure

), how to say it symbolically ( message format), and who should say it (message source).

� Message content: In determining message content, management searches for an appeal,

theme, idea, or unique selling proposition (USP). There are three types of appeals:

rational,emotional, and moral.

� Message structure Effectiveness depends on structure as well as content

� Message format The message format needs to be strong. In a print ad, the

communicator has to decide on headline, copy, illustration, and color. For a radio

message, the communicator has to choose words, voice qualities, and vocalizations. The

―sound‖ of an announcer promoting a used automobile has to be different from one

promoting a new Cadillac. If the message is to be carried on television or in person, all

these elements plus body language ( nonverbal clues) have to be planned. Presenters have

to pay attention to facial expressions, gestures, dress, posture, and hairstyle, If the

message is carried by the product or its packaging, the communicator

has to pay attention to color, texture, scent, size, and shape

� Message source Message delivered by attractive or popular sources achieve higher

attention and recall. This is why advertisers often use celebrities .What is important is the

spokesperson‘s credibility. Pharmaceutical companies what doctors to testify about

product benefits because doctors have high credibility.

Anti drug crusaders will use ex-drug addicts because they have higher credibility for

students than teachers do. What factors underlie source credibility? The three most often

identified are expertise, trustworthiness, and likability.19 attractiveness.

4. Select the communication channels – The communicator must select efficient

channels to carry the message. For example, pharmaceutical company salespeople can

rarely wrest more than five minutes‘ time from a busy physician. Their presentation must

be crisp, quick, and convincing. This makes pharmaceutical sales calling extremely

expensive. The industry has had to expand its battery of communication channels. These

include placing ads in medical journals, sending direct mail ( including audio and

videotapes ), passing out free samples, and even telemarketing.

5. Establish the total marketing communication budget - One of the most difficult

marketing decisions is determining how much to spend on promotion. John Wanamaker,

the department store magnate, once said, ― know that half of my advertising is wasted,

but I don‘t know which half.‖

6. Deciding on the marketing communications mix - Companies must allocate the

promotion budget over the give promotional tools –advertising, sales promotion, public

relations and publicity, sales force, and direct marketing. Here is how one company

touches several bases. Let us now study about Integrated Marketing Communications.

8.5 What Is Integrated Marketing Communications?

A. Integrated marketing communications is the coordination of promotion efforts to

ensure the maximum informational persuasive impact on customers.

B. A major goal of integrated marketing communications is to send a consistent message

to customers.

C. This approach fosters long-term customer relationships and the efficient use of

promotional resources.

D. The concept of integrated marketing communications has been increasingly accepted

for a number of reasons.

� Mass media advertising is used less today because of its high costs and less predictable

audience sizes.

� Marketers can now take advantage of more precisely targeted promotional tools, such

ascable TV, direct mail, CD ROMS, the Internet, special interest magazines, and

voice broadcasts.

� Database marketing is also allowing marketers to be more precise in targeting

individual customers.

KNOWING THE ROLE OF PROMOTION

Do you know that Promotion is commonly the object of two misconceptions.

� People take note of highly visible promotional activities, such as advertising and

personal selling, and conclude that these make up the entire field of marketing.

� People sometimes consider promotional activities to be unnecessary, expensive, and

the cause of higher prices. Neither view is accurate. The role of promotion is to facilitate

exchanges directly or indirectly by informing individuals, groups, or organizations and

influencing them to accept a firm‘s products or to have more positive feelings about the

firm. The following points clear it all-

a. To expedite exchanges directly, marketers convey information about a firm‘s goods,

services, and ideas to particular market segments.

b. To bring about exchanges indirectly, marketers address certain interest groups,

regulatory agencies, investors, and the general public.

c. he broader role of promotion, therefore, is to maintain positive relationships between a

company and groups in the marketing environment.

d. Marketers must carefully plan, implement, and coordinate promotional

communications to make the best use of them.

8.7 The Promotion Mix: An Overview

Have you heard of promoton mix ? let us know it a little better ………..Marketers can

use several promotional methods to communicate with individuals, groups, and

organizations.

Advertising, personal selling, sales promotion, and publicity are the four major elements

in an organization’s promotion mix.

Two, three, or four of these ingredients are used in a promotion mix, depending on the

type of product and target market involved.

Factors Affecting The Selection Of The Promotion Mix Elements

We will broadly look at some of the major considerations in promotion.:-

� Promotion Resources, Objectives, and Policies

–A limited promotional budget affects the number and types of promotion mix

components affordable to a firm.

–Objectives and policies influence the types of promotion selected.

� Characteristics of the Target Market

–Market size, geographic distribution, and demographics help dictate the choice of

promotion mix elements.

� Characteristics of the Product- nature of the product, features, advantages and

benefits.

Introduction to Advertising

Now that we‘ve looked at overall integrated marketing counications planning, let‘s dig

more deeply into the specific marketing communications tools. In this chapter, we‘ll

explore the most popular mass-communications tool—advertising.

How Do We Define Advertising ?

All of you are well exposed to advertising . You ike ads , sometimes you don‘t , some

are catchy and some very boring…. Is it not ? Now let us have look at what Advertising

is to marketers. We will begin the discussion by defining advertising.

Advertising- Any paid form of nonpersonal presentation and promotion of ideas,

goods, or services by an identified sponsor.

Advertising can be traced back to the very beginnings of recorded history. Archaeologists

working in the countries around the Mediterranean Sea have dug up signs announcing

various events and offers. The Romans painted walls to announce gladiator fights, and

the Phoenicians painted pictures promoting their wares on large rocks along parade

routes. Modern advertising, however, is a far cry from these early efforts. Although

advertising is used mostly by business firms, it also is used by a wide range of not-

forprofit organizations, professionals, and social agencies that advertise their causes to

various target publics In fact, the twenty-fourth largest advertising spender is a not-for-

profit organization— the U.S. government. Advertising is a good way to inform and

persuade, whether the purpose is to sell Coca-Cola worldwide or to get consumers in a

developing nation to use birth control.Comments by Dr. Demo Organizations handle

advertising in different ways. In small companies, advertising is handled by someone in

the sales or marketing department, who works with an advertising agency. A large

company will often set up its own department, whose manager reports to the vice

president of marketing. The advertising department‘s job is to propose a budget; develop

advertising strategy; approve ads and campaigns; and handle directmail advertising,

dealer displays, and other forms of advertising. Most companies use an outside agency to

help create advertising campaigns and to select and purchase media.

Knowing types of Advertising by Purpose.

Depending on its purpose and message, advertising may be classified into three groups.

1.Primary-Demand Advertising. Primarydemand advertising is advertising aimed at

increasing the demand for all brands of a product within a specific industry.

� Trade and industry associations are the major users of primary-demand advertising.

� Their advertisements promote broad product categories without mentioning specific

brands.

2. Selective Demand Advertising. Selective demand (or brand) advertising is

advertising that is used to sell a particular brand of product.

� It is by far the most common type of advertising, and it accounts for the lion‘s share of

advertising expenditures.

� Selective advertising that aims at persuading consumers to make purchases within a

short time is called immediate-response advertising.

� Selective advertising aimed at keeping a firm‘s name or product before the public is

called reminder advertising.

� Comparative advertising compares specific characteristics of two or more identified

brands.

3. Institutional Advertising. Institutional advertising is advertising designed to enhance

a firm‘s image or reputation.

DEVELOPING ADVERTISEMENT

PROGRAM

Marketers must make four important decisions when developing an advertising program

(see Figure ):

� setting advertising objectives,

� setting the advertising budget,

� developing advertising strategy (message decisions and media decisions), and

� evaluating advertising campaigns.

The Five Ms of Advertising

1. Setting the advertising objectives – The advertising objectives must flow from prior

decisions on target market, market positioning, and marketing mix. Advertising

objectives can be classified according to whether their aim is to inform, persuade, remind,

or reinforce.

� Informative advertising aims to create awareness and knowledge of new products

or new features of existing products.

� Persuasive advertising aims to create liking, preference, conviction, and purchase of

a product or service. Some persuasive advertising uses comparative advertising, which

makes an explicit comparison of the attributes of two or more brands..‖ Comparative

advertising works best when it elicits cognitive and affective motivations simultaneously.

� Reminder advertising aims to stimulate repeat purchase of products and services.

Expensive, four-color Coca-Cola ads in magazines are intended to remind people to

purchase Coca-Cola

� Reinforcement advertising aims to convince current purchasers that they made the right

choice. Automobile ads often depict satisfied customers enjoying special features of their

new car.

2. Deciding on the advertising budget – How does a company known if it is spending

the right amount? Some critics charge that large, consumer packaged-goods firms tend to

overspend on advertising as a form of insurance against not spending enough, and that

industrial companies underestimate the power of company and product image building

and tend to underspend

There are five specific factors to consider when setting the advertising budget:

1. Stage in the product life cycle - New products typically receive large advertising

budgets to build awareness and to gain consumer trial. Established brands usually are

supported with lower advertising budgets as a ratio to sales.

2. Market share and consumer base - Highmarket- share brands usually require less

advertising expenditure as a percentage of sales to maintain share. To build share by

increasing market size requires larger expenditures. On a costper- impression basis, it is

less expensive to reach consumers of a widely used brand than to reach consumers of

low-share brands.

3. Competition and cluster - In a market with a large number of competitions and high

advertising spending, a brand must advertise more heavily to be heard. Even simple

cluster from advertisements not directly competitive to the brand creates a need for

heavier advertising.

4. Advertising frequency: The number of repetitions needed to put across the brand‘s

message to consumers has an important impact on the advertising budget.

5. Product substitutability: Brands in a commodity class ( cigarettes, beer, soft drinks )

require heavy advertising to establish a differential image. Advertising is also important

when a brand can offer unique physical benefits or features. Choosing the advertising

message:

Advertising campaigns vary in creativity: -

� Message generation: advertising people have proposed different theories for creating

an effective message. Whatever method is used, creative people should talk to

consumers, dealers, and experts. However, when competitors all hear the same talk from

members of the target market, they often end up using the same appeal. Many of today‘s

ads for automobiles have a sameness about them – a car driving 90 miles an hour on a

curved mountain road – with the result that only a weak link is established between the

brand and the message.

� Message evaluation and selection a good ad normally focuses on one core selling

proposition. Dik Twedt suggested that messages be rated on desirability, exclusiveness,

and believability

� Message execution The message‘s impact depends not only on what is said, but often

more important, on how it is said. Some ads aim for rational positioning and other for

emotional positioning. Message execution can be decisive for highly similar products,

such as detergents, cigarettes, coffee, and vodka.

� Social responsibility review advertisers

and their agencies must be sure their ―creative‖ advertising does not overstep social

and legal norms. Most marketers work hard to communicate openly and honestly with

consumers. Still, abuses occur, and public policy makers have developed a substantial

body of laws and regulations to govern advertising.

Deciding on media and measuring

effectiveness

After choosing the message, the advertiser‘s next task is to choose media to carry it. The

steps here are deciding on desired reach, frequency, and impact; choosing among major

media types; selecting specific media vehicles; deciding on media timing; and deciding

on geographical media allocation. Then the results of these decisions need to be

evaluated. Media is discussed in detail in section- 14 ( c ).

6. Evaluating advertising effectiveness -

Good planning and control of advertising depend on measures of advertising

effectiveness. Yet the amount of fundamental research on effectiveness is appallingly

small.

Most measurement of advertising effectiveness deals with specific ads and campaigns.

Most of the money is spent by agencies on pretesting ads, and much less is spent on

evaluating their effectiveness. A proposed campaign should be tested in one or a few

cities first and its impact evaluated before rolling it out nationally. One company tested

its new campaign first in Phoenix. The campaign bombed, and the company saved all the

money that it would have spent by going national Most advertisers try to measure the

communication effect of an ad-that is, its potential effect on awareness, knowledge, or

preference. They would also like to measure the ad‘s sales effect.

There are three major methods of advertising pretesting.

i. The consumer feedback method asks consumers for their reactions to a proposed ad.

They respond to such questions as these

1. What is the main message you get from this ad?

2. What do you think they want you t know, believe, or do?

3. How likely is it that this ad will influence you to undertake the implied action?

4. What works well in the ad and what works poorly?

5. How does the ad make you feel.?

6. Where is the best place to reach you with this message?

7 Where would you be most likely to notice it and pay attention to it

8. Where are you when you make decisions about this action?

Ii Portfolio tests ask consumers to view or listen to a portfolio of advertisem4ents, taking

as much time as they need. Consumers are then asked to recall all the ads and their

content, aided or unaided by the interviewer. Recall level indicates an ad‘s ability to stand

out and to have its message understood and remembered.

iii Laboratory tests use equipment to measure physiological reaction – heartbeat, blood

pressure, pupil dilation, galvanic skin response, perspiration – to an ad; or consumers

may be asked to turn a knob to indicate their moment-to-moment liking or interest while

viewing sequenced material. These tests measure attention-getting power but reveal

nothing about impact on beliefs, attitudes, or intentions. Table 20.2 describes some

specific advertising research techniques.

Publicity (a tool used in public relations) is nonpersonal communication, that is typically

in the form of a news story, that is transmitted through the mass media. The purpose of

publicity is to draw favorable attention to a company and/or its products without having

to pay the media for it. The way it often works is as follows: a company sends a press

release (often with a video tape) to the media (e.g., New York Times, Wall Street Journal,

Business Week, Newsweek, ABC News, NBC News, CBS News, Fox News, etc. ) with

the hope that it is newsworthy enough to be mentioned in the mass media. The advantage

of publicity, besides the fact that it is free, is that it tends to more credible than

advertising. On the other hand, there is no guarantee that the media will find the story

newsworthy. Also, they might change the press release around so that it does not help the

organization in any way. One product that received an incredible amount of publicity was

Viagra. Sometimes, a film – especially one that is controversial – can generate a great

deal of publicity. Several years ago, Brooklyn College received much publicity regarding

its innovative core curriculum, one that is being copied by universities all over the world.

Sales Promotions are inducements or gimmicks whose purpose is to encourage the

purchase of a product/service immediately. Unlike advertising, where the objective is

usually to influence long-term buying behavior, sales promotions are concerned with the

short-term. A problem with promotions is that they sometimes cause consumers to focus

more on the promotion than the product. In fact, sometimes consumers are not at all loyal

to the product but are attracted to the coupon, gift, or rebate.

Price deal: A temporary reduction in the price, such as happy hour

Loyal Reward Program: Consumers collect points, miles, or credits for purchases

and redeem them for rewards. Two famous examples are Pepsi Stuff and

AAdvantage.

Cents-off deal: Offers a brand at a lower price. Price reduction may be a

percentage marked on the package.

Price-pack deal: The packaging offers a consumer a certain percentage more of

the product for the same price (for example, 25 percent extra).

Coupons: coupons have become a standard mechanism for sales promotions.

Loss leader: the price of a popular product is temporarily reduced in order to

stimulate other profitable sales

Free-standing insert (FSI): A coupon booklet is inserted into the local newspaper

for delivery.

On-shelf couponing: Coupons are present at the shelf where the product is

available.

Checkout dispensers: On checkout the customer is given a coupon based on

products purchased.

On-line couponing: Coupons are available on line. Consumers print them out and

take them to the store.

Mobile couponing: Coupons are available on a mobile phone. Consumers show

the offer on a mobile phone to a salesperson for redemption.

Online interactive promotion game: Consumers play an interactive game

associated with the promoted product. See an example of the Interactive Internet

Ad for tomato ketchup.

Rebates: Consumers are offered money back if the receipt and barcode are mailed

to the producer.

Contests/sweepstakes/games: The consumer is automatically entered into the

event by purchasing the product.

Point-of-sale displays:-

o Aisle interrupter: A sign that juts into the aisle from the shelf.

o Dangler: A sign that sways when a consumer walks by it.

o Dump bin: A bin full of products dumped inside.

o Glorifier: A small stage that elevates a product above other products.

o Wobbler: A sign that jiggles.

o Lipstick Board: A board on which messages are written in crayon.

o Necker: A coupon placed on the 'neck' of a bottle.

o YES unit: "your extra salesperson" is a pull-out fact sheet.

Kids eat free specials: Offers a discount on the total dining bill by offering 1 free

kids meal with each regular meal purchased.

Trade sales promotion techniques

Trade allowances: short term incentive offered to induce a retailer to stock up on a

product.

Dealer loader: An incentive given to induce a retailer to purchase and display a

product.

Trade contest: A contest to reward retailers that sell the most product.

Point-of-purchase displays: Extra sales tools given to retailers to boost sales.

Training programs: dealer employees are trained in selling the product.

Push money: also known as "spiffs". An extra commission paid to retail

employees to push products.

Trade discounts (also called functional discounts): These are payments to distribution

channel members for performing some function .

Personal Selling

One important advantage of personal selling is that the selling pitch can be adjusted and

individualized to the prospect. Once you determine the prospect‘s needs, you tailor the

sales pitch. Unfortunately, personal selling is extremely expensive. As noted previously,

door-to-door selling is disappearing in the area of consumer marketing. This is, however,

not true in the area of business-to-business marketing. Companies selling complex

products such as printing presses, buses, jets, computer systems, power plants, and other

expensive "installations" usually use salespeople to sell their products. These salespeople

are compensated quite well and a large number of them are college graduates.

Personal selling is divided into three tasks:

Order getting – order getters attempt to increase their firm‘s sales by selling to new

customers or by convincing current customers to buy more of a company‘s products.

They are important to a company because they develop new business and are therefore

compensated quite well. Salespeople in computer stores or fancy clothing stores are often

order getters. Their job is to convince the customer to purchase an expensive computer or

a fancy outfit. They need to have persuasive abilities, and they generally receive

commissions plus salary.

Order taking – order takers are involved in the routine completion of a sales. They

complete the sales transaction and mainly deal with the same or similar customers. A

sales clerk in a supermarket is an order taker. They are paid minimum wage and do not

have to persuade anyone to buy anything. Example: In a fancy women‘s clothing store,

the order getter convinces the customer to purchase some very expensive gowns. She will

then take the customer with the merchandise to the order taker who will complete the

transaction and take care of such matters as payment, delivery, etc. A smart retailer does

not want to waste an order getter‘s valuable time with such routine and mundane matters

as completing the order.

Support Personnel – Do not make any sales but help facilitate the selling function.

There are two major types of support personnel: missionary salespeople and technical

specialists. A missionary salesperson for a drug company (i.e., a detailer) will visit

doctors and try to convince them to use various drugs manufactured by her company.

They do not sell anything and often leave many free samples with the doctors. Technical

specialists are necessary when very technical products are sold (e.g., advanced

computers). They have the ability to explain how to use the product and its limitations.

Some support personnel are sent to retailers to help them with displays and provide

advice about promoting the product.

The Personal Selling Process:

Step 1: Prospecting and Qualifying

Prospecting, the first step in the personal selling process, focuses on developing a list of

potential customers (prospects). Both internal (a company‘s own records) and external

sources can be used to prospect. Many salespeople use the telephone to prospect. Some

firms get names of prospects from list brokers. For instance, one firm that sells burglar

alarms purchases a list of new home buyers. One good way of getting leads is by running

a direct response ad in a magazine. For instance, Xerox might run an ad in a trade

publication describing a new copying machine that can make one million color copies a

month at a price of a few cents per copy. The ad will provide a toll-free number and offer

a free brochure describing this machine. Anyone who calls will be asked a few critical

questions (e.g., when do you expect to make a purchasing decision) and their name and

the company name will be entered into a database.

Qualifying deals with determining which prospects are most likely to purchase the

product. In some firms, prospects are rated A, B, C, D, and F depending on the chance

that they will purchase and the amount they might spend. In many firms, prospects who

plan on buying the product within 3 months are classified as "hot leads."

Step 2: Preapproach

A good salesperson attempts to know his/her prospect well. You want to know something

about the buyer‘s company, the buyer‘s specific product needs, and what brands are

currently being used. The more you know about your prospects, the easier it is to sell to

them. Knowing about a prospect‘s needs also makes the salesperson more credible in the

eyes of the buyer.

Step 3: Approaching the Customer

Cold calls are not the most effective way of approaching customers. Some salespeople

spend a great deal of time canvassing an area trying to find prospects willing to listen to

their spiel without a prior appointment. This wastes a great deal of time since it may take

hours to find an individual with the authority to make the purchase willing to listen to the

sales pitch.Referrals (referred leads) are usually more effective than cold calls.

Step 4: Presentation Step = Making the sales presentation

During the presentation step, the salesperson has a vital job. S/he has to tell the prospect

the "product story" and highlight the benefits of the product. You are familiar with the

term USP (unique selling proposition) that is used in advertising. A good salesperson has

to convince prospects that the product is special and will provide important benefits. Did

you get a call from the college when you were a high school senior? If you did, what

were you told that made you choose this college? Research indicates that students

selecting a college are concerned with reputation and variety of programs to choose

from.

Three types of sales presentations:

Prepared sales presentation – The salesperson does almost all of the talking. Usually,

the entire sales pitch is "canned," i.e., the salesperson memorizes what s/he has to say.

This approach is used by many telemarketers who are trying to sell an inexpensive

product (e.g., home delivery of a paper or a warranty extension) and untrained people are

used for this type of selling. The entire training consists of reading a script. This is a

selling approach used by telemarketers that sell relatively inexpensive and uncomplicated

products or services (e.g., home delivery of a newspaper). The telemarketers are not

trained, other than being given a script to memorize, and have a very high turnover. The

pay is quite low and high school students are often used. If you were ever called by a

telemarketer trying to convince you to use a particular long distance service, you know

what I am talking about. The telemarketers do virtually all the talking and have no

interest in understanding (or satisfying) your needs.

Need satisfaction approach – The customer does most of the talking and the salesperson

attempts to understand the customer‘s needs. A problem solving approach is used. This

approach is good for complicated and expensive products. Salespeople need extensive

training for this approach. In fact, firms using the need satisfaction approach to selling

may require a six-month training period for their salespeople. If you get a job as a

salesperson for IBM or Xerox selling high-technology products, this is the approach that

you will be taught.

Selling formula approach – This is in between the first two approaches. Salespeople are

trained to use an approach similar to AIDA (Attention – Interest – Desire –Action). The

salesperson does most of the talking in the beginning of the selling pitch. Afterwards, the

customer is brought into the discussion to help clarify his/her needs. The training is not as

extensive as with the need satisfaction approach.

An important part of the preparation for the sales presentation involves Overcoming

Objections. It is important to anticipate and prepare counterarguments for any objections

that a prospect might have. For instance, if a prospect states that she likes the product but

her firm cannot afford it, a possible counterargument could be that financing is available

at very reasonable terms. Alternatively, the salesperson might note that the product

actually saves the company money in the long run and is therefore quite reasonably

priced.

Step 5: Closing the Sale

Here is where you are trying to get the order. The salesperson asks the prospect to buy the

product. One common approach is to assume that the prospect does want to buy the

product and to ask "when you do want delivery?" or "how many do you want?"

Step 6: Follow-up

A good salesperson follows up and ensures that everything went well. Was the product

delivered on time? Is the customer satisfied? Any problems? By demonstrating that you

care about your customers, you will increase the chances that customers will continue to

buy from you and recommend you to others. Marketing is all about customer satisfaction

and following up is necessary to determine whether or not your customers are satisfied.

Compensating Salespeople

Most firms use a combination of a fixed salary and a commission based on sales.

Relationship Marketing

Relationship marketing refers to a philosophy that a company that wishes to succeed

should maintain a strong, continuous, long-term relationship with its customers,

suppliers, and distributors. Companies that follow this philosophy understand the

importance of communicating with their customers, suppliers, and distributors on a

regular basis. In order to have this kind of relationship customers and intermediaries have

to feel good about doing business with the company. Also, customers and intermediaries

should find it easy to contact the company and feel welcome when communicating with

it. They should feel that they are part of a big family and that the company is upset if the

product or service fails to perform properly. Obviously, it is much easier to make

customers and intermediaries feel this way if you strive to understand their needs.

Chapter 9 Pricing decisions

9.1 Introduction

Pricing is a fundamental aspect of financial modeling, and is one of the four Ps of the

marketing mix. The other three aspects are product, promotion, and place. It is also a key

variable in microeconomic price allocation theory. Price is the only revenue generating

element amongst the four Ps, the rest being cost centers. Pricing is the manual or

automatic process of applying prices to purchase and sales orders, based on factors such

as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote,

price prevailing on entry, shipment or invoice date, combination of multiple orders or

lines, and many others. Automated systems require more setup and maintenance but may

prevent pricing errors.

Pricing involves asking questions like:

How much to charge for a product or service? This question is that a typical

starting point for discussions about pricing, however, a better question for a

vendor to ask is - How much do customers value the products, services, and other

intangibles that the vendor provides.

What are the pricing objectives?

Do we use profit maximization pricing?

How to set the price?: (cost-plus pricing, demand based or value-based pricing,

rate of return pricing, or competitor indexing)

Should there be a single price or multiple pricing?

Should prices change in various geographical areas, referred to as zone pricing?

Should there be quantity discounts?

What prices are competitors charging?

Do you use a price skimming strategy or a penetration pricing strategy?

What image do you want the price to convey?

Do you use psychological pricing?

How important are customer price sensitivity (e.g. "sticker shock") and elasticity

issues?

Can real-time pricing be used?

Is price discrimination or yield management appropriate?

Are there legal restrictions on retail price maintenance, price collusion, or price

discrimination?

Do price points already exist for the product category?

How flexible can we be in pricing? : The more competitive the industry, the less

flexibility we have.

o The price floor is determined by production factors like costs (often only

variable costs are taken into account), economies of scale, marginal cost,

and degree of operating leverage

o The price ceiling is determined by demand factors like price elasticity and

price points

Are there transfer pricing considerations?

What is the chance of getting involved in a price war?

How visible should the price be? - Should the price be neutral? (ie.: not an

important differentiating factor), should it be highly visible? (to help promote a

low priced economy product, or to reinforce the prestige image of a quality

product), or should it be hidden? (so as to allow marketers to generate interest in

the product unhindered by price considerations).

Are there joint product pricing considerations?

What are the non-price costs of purchasing the product? (eg.: travel time to the

store, wait time in the store, disagreeable elements associated with the product

purchase - dentist -> pain, fishmarket -> smells)

What sort of payments should be accepted? (cash, check, credit card, barter)

Pricing

What a price should do

A well chosen price should do three things:

achieve the financial goals of the company (e.g., profitability)

fit the realities of the marketplace (Will customers buy at that price?)

support a product's positioning and be consistent with the other variables in the

marketing mix

o price is influenced by the type of distribution channel used, the type of

promotions used, and the quality of the product

price will usually need to be relatively high if manufacturing is

expensive, distribution is exclusive, and the product is supported

by extensive advertising and promotional campaigns

a low price can be a viable substitute for product quality, effective

promotions, or an energetic selling effort by distributors

From the marketer's point of view, an efficient price is a price that is very close to the

maximum that customers are prepared to pay. In economic terms, it is a price that shifts

most of the consumer surplus to the producer. A good pricing strategy would be the one

which could balance between the price floor (the price below which the organization ends

up in losses) and the price ceiling (the price beyond which the organization experiences a

no demand situation).

Definitions

Pricing is the process of determining what a company will receive in exchange for its

products. Pricing factors are manufacturing cost, market place, competition, market

condition, Quality of product.

The effective price is the price the company receives after accounting for discounts,

promotions, and other incentives.

Price lining is the use of a limited number of prices for all your product offerings. This is

a tradition started in the old five and dime stores in which everything cost either 5 or 10

cents. Its underlying rationale is that these amounts are seen as suitable price points for a

whole range of products by prospective customers. It has the advantage of ease of

administering, but the disadvantage of inflexibility, particularly in times of inflation or

unstable prices.

A loss leader is a product that has a price set below the operating margin. This results in a

loss to the enterprise on that particular item, but this is done in the hope that it will draw

customers into the store and that some of those customers will buy other, higher margin

items.

Promotional pricing refers to an instance where pricing is the key element of the

marketing mix.

The price/quality relationship refers to the perception by most consumers that a

relatively high price is a sign of good quality. The belief in this relationship is most

important with complex products that are hard to test, and experiential products that

cannot be tested until used (such as most services). The greater the uncertainty

surrounding a product, the more consumers depend on the price/quality hypothesis and

the more of a premium they are prepared to pay. The classic example of this is the pricing

of the snack cake Twinkies, which were perceived as low quality when the price was

lowered. Note, however, that excessive reliance on the price/quantity relationship by

consumers may lead to the raising of prices on all products and services, even those of

low quality, which in turn causes the price/quality relationship to no longer apply.

Premium pricing (also called prestige pricing) is the strategy of consistently pricing at,

or near, the high end of the possible price range to help attract status-conscious

consumers. A few examples of companies which partake in premium pricing in the

marketplace include Rolex and Bentley. People will buy a premium priced product

because:

1. They believe the high price is an indication of good quality;

2. They believe it to be a sign of self worth - "They are worth it" - It authenticates

their success and status - It is a signal to others that they are a member of an

exclusive group;

3. They require flawless performance in this application - The cost of product

malfunction is too high to buy anything but the best - example : heart pacemaker.

The term Goldilocks pricing is commonly used to describe the practice of providing a

"gold-plated" version of a product at a premium price in order to make the next-lower

priced option look more reasonably priced; for example, encouraging customers to see

business-class airline seats as good value for money by offering an even higher priced

first-class option. Similarly, third-class railway carriages in Victorian England are said to

have been built without windows, not so much to punish third-class customers (for which

there was no economic incentive), as to motivate those who could afford second-class

seats to pay for them instead of taking the cheaper option. This is also known as a

potential result of price discrimination.

The name derives from the Goldilocks story, in which Goldilocks chose neither the

hottest nor the coldest porridge, but instead the one that was "just right". More

technically, this form of pricing exploits the general cognitive bias of aversion to

extremes. This practice is known academically as "framing". By providing three options

(i.e. small, medium, and large; first, business, and coach classes) you can manipulate the

consumer into choosing the middle choice and thus, the middle choice should yield the

most profit to the seller, since it is the most chosen option.

Demand-based pricing is any pricing method that uses consumer demand - based on

perceived value - as the central element. These include : price skimming, price

discrimination and yield management, price points, psychological pricing, bundle pricing,

penetration pricing, price lining, value-based pricing, geo and premium pricing. Pricing

factors are manufacturing cost, market place, competition, market condition, quality of

product.

Multidimensional pricing is the pricing of a product or service using multiple numbers.

In this practice, price no longer consists of a single monetary amount (e.g., sticker price

of a car), but rather consists of various dimensions (e.g., monthly payments, number of

payments, and a downpayment). Research has shown that this practice can significantly

influence consumers' ability to understand and process price information

The 9 Laws of Price Sensitivity

In their book, "The Strategy and Tactics of Pricing", Thomas Nagle and Reed Holden

outline 9 laws or factors that influence a buyer's price sensitivity with respect to a given

purchase:

1) Reference Price Effect

Buyer‘s price sensitivity for a given product increases the higher the product‘s price

relative to perceived alternatives. Perceived alternatives can vary by buyer segment, by

occasion, and other factors.

2) Difficult Comparison Effect

Buyers are less sensitive to the price of a known / more reputable product when they have

difficulty comparing it to potential alternatives.

3) Switching Costs Effect

The higher the product-specific investment a buyer must make to switch suppliers, the

less price sensitive that buyer is when choosing between alternatives.

4) Price-Quality Effect

Buyers are less sensitive to price the more that higher prices signal higher quality.

Products for which this effect is particularly relevant include: image products, exclusive

products, and products with minimal cues for quality.

5) Expenditure Effect

Buyers are more price sensitive when the expense accounts for a large percentage of

buyers‘ available income or budget.

6) End-Benefit Effect

The effect refers to the relationship a given purchase has to a larger overall benefit, and is

divided into two parts:

Derived demand: The more sensitive buyers are to the price of the end benefit, the more

sensitive they will be to the prices of those products that contribute to that benefit.

Price proportion cost: The price proportion cost refers to the percent of the total cost of

the end benefit accounted for by a given component that helps to produce the end benefit

(e.g., think CPU and PCs). The smaller the given components share of the total cost of

the end benefit, the less sensitive buyers will be to the component's price.

7) Shared-cost Effect

The smaller the portion of the purchase price buyers must pay for themselves, the less

price sensitive they will be.

8) Fairness Effect

Buyers are more sensitive to the price of a product when the price is outside the range

they perceive as ―fair‖ or ―reasonable‖ given the purchase context.

9) The Framing Effect

Buyers are more price sensitive when they perceive the price as a loss rather than a

forgone gain, and they have greater price sensitivity when the price is paid separately

rather than as part of a bundle.[3]

[edit] Approaches

Pricing as the most effective profit lever.[4]

Pricing can be approached at three levels.The

industry, market, and transaction level.

Pricing at the industry level focuses on the overall economics of the industry, including

supplier price changes and customer demand changes.

Pricing at the market level focuses on the competitive position of the price in comparison

to the value differential of the product to that of comparative competing products.

Pricing at the transaction level focuses on managing the implementation of discounts

away from the reference, or list price, which occur both on and off the invoice or receipt.

Tactics

Micromarketing is the practice of tailoring products, brands (microbrands), and

promotions to meet the needs and wants of microsegments within a market. It is a type of

market customization that deals with pricing of customer/product combinations at the

store or individual level.

Chapter 10

Extending the Principles of Marketing

As noted above, the principles of marketing are being extended to such areas as the

marketing of ideas, political marketing, and even marketing the volunteer army.

Whenever there is some type of exchange, it is important to understand marketing.

Politicians, for instance, understand that they must segment voters and select a target

market(s). A good politician does research to learn what voters want (jobs, increase in

social security, homeland security, health insurance, strengthening the traditional family,

etc.). Direct mail and Internet marketing with different messages for different groups is

one tool being used by shrewd politicians.

Even libraries have started using marketing. Libraries are being defined as a place to find

information, not only books. (If they define themselves solely as a place to borrow books

they are suffering from marketing myopia.) This is why libraries have numerous

computers and wireless networks so that anyone with a laptop can access the Internet.

Libraries also have DVDs since they are almost as important as books. Incidentally,

there is a revolution in the area of book publishing, a new kind of book is the eBook.

Libraries are also places where young children whose mothers work can do their

homework after school.

Colleges are also using sophisticated marketing tools to attract students. This is

becoming a hot area since colleges find themselves competing for students. Research

shows that students choose schools based on reputation, convenience, and course

offerings. Hospitals are also becoming marketing-oriented. Patient satisfaction is

becoming very important to hospitals. Customer satisfaction is very important in

marketing (indeed, that is what the marketing concept is all about). Today, hospitals and

colleges are learning about the importance of satisfying patients and students,

respectively. Do you think this college has done a good job satisfying you?

New Dimensions in marketing

Relationship marketing is concerned with the long-term and not merely to sell a product

or service to a customer one time, and that is it. The goal is to have a satisfied customer

and establish an ongoing, personal, and long-term relationship with him or her. This

means that the organization will have to understand the needs of the customer as they

change over time. A firm that believes in relationship marketing wants to establish a

connection with the customer. It is important to communicate with the customer and

develop the relationship. Without two-way communications, it is difficult to develop a

relationship. What matters is the lifetime value of the customer, not how much money a

firm makes with one transaction. One goal of relationship marketing is customer

retention, i.e., to keep an organization's existing customers. The cost of keeping an

existing customer is a fraction of the cost of finding a new customer. It is therefore

foolish for a firm to ignore existing customers and focus solely on finding new ones. Of

course, if a firm only expects to sell a product to a customer once, than relationship

marketing may not be an issue. Think of all those stores selling electronic appliances in

mid-town to tourists. They do not expect to ever see those customers again so they do

not think of relationship marketing. If a company expects to do business with a person

for many years, there is no question that it should be concerned about having a long-term

relationship with customers, i.e., relationship marketing. This is how Brooklyn College

or any college for that matter should see its students. The college expects to have a long-

term relationship with you. In fact, after you graduate, we want you to come back and

visit and hopefully donate some money to the college (especially the Business Program).

Quality of automobiles:

J.D. Power & Associates conducts two important surveys of vehicle quality: (a) Initial

Quality Study which measures complaints about automobiles in the first three months of

ownership and (b) Vehicle Dependability Study which measures complains over the first

three years of ownership. The firm uses a mail survey (100,000 questionnaires mailed

out) and asks new car buyers to report problems.

The 2004 J.D. Power & Associates Vehicle Dependability Study is showing that

American automakers are catching up to the Japanese automakers. Lexus, a very

expensive luxury car, has been number 1 for the last 10 years (162 problems per 100

cars). Toyota has 216 problems per 100 cars. The industry average is 269 problems per

100 cars. Chevy Malibu has the best score for entry-level midsize cars; Ford F-150 was

number 1 for pickups.

Note that firms are striving to improve their quality. Good marketing is about improving

quality and thereby satisfying one's customers. The goal should be 0 problems per 100

cars.

J.D. Power & Associates is now involved in the rating of customer satisfaction in many

new areas such as hospitals, cell-phone providers, and satellite dishes (Business Week,

November 22, 2004, p. 158). The firm recently started rating auditors.

Demarketing

Sometimes it is necessary to demarket a product. There are two types of demarketing:

general demarketing and selective demarketing. General demarketing is used when a

firm (or government) wants to demarket to everyone. For instance, the government

demarkets cigarettes and alcohol (discouraged goods) and illegal drugs (a banned good).

There are situations in which a company demarkets to one specific market segment. This

is called selective demarketing. An example of this would be a resort in the Poconos that

does not want the business of singles and prefers couples. Also, some areas in Florida

prefer elderly vacationers and demarket to college students. This is accomplished by

promoting in a way that attracts the desired target market and is unattractive to the

demarketed segment. Photographs of elderly people in a promotional brochure that

describes exciting bingo nights and shuffleboard tournaments should do the trick. There

are adult resorts that cater to adults and children are not permitted.

Demarketing is necessary when there is a limited supply of a product and very heavy

demand. In the past, gasoline was demarketed (general demarketing) and it is quite likely

that electricity will have to be demarketed if the supply situation does not improve soon.

Water is becoming scarce in many regions and general demarketing will be necessary.

This is the reason NYC installed water meters in homes. One way to encourage

conservation of water is to charge by amount of usage.

Back in 2001, the State of California demarketed the use of electricity. People were told

how important it was to conserve electricity and what they could do to help. The public

was also informed that they could make a difference. According to a study by Reiss and

White, the demarketing campaign worked.

Tools used to demarket include:

Higher prices – This is one justification for high taxes on cigarettes and liquor.

Counter-advertising – e.g., counter-ads advising young people not to take crack, cocaine,

or heroin.

Limiting advertising – Cigarettes, for example, may not be advertised on television.

Limited distribution – Alcohol may only be sold in stores with a license.

Warning labels.

Development of substitutes.

Marketers prefer to classify goods using the following approach. Note that the advantage

of this approach is that goods are classified in accordance with the way they are

perceived by consumers. This approach is more useful to marketers than an approach

used by non-marketers: durables, non-durables, and services.

Hospitality Marketing is a good way to see how a marketer thinks.

(a) A marketer has to segment the market. Suppose you run a

hotel/resort for vacationers. Does every vacationer want the same

benefits/experiences? Benefits vacationers might want include:

sports (golf, tennis, or skiing), gambling, weight loss/spa, gourmet

food, activities for children, trips to historical sites, etc. Hotels that

are for the business traveler must offer benefits such as access to

the latest technology (fax machines, Tele-conferencing, conference

rooms, scanners, printers, etc). First thing to do is to select a target

market.

(b) The marketing mix:

Product/service mix: What benefits should be offered? Should

the hotel have a pool, spa, Jacuzzi, golf course, tennis court, etc.

What kind of food should be served (gourmet meals?)?

Price: What price to charge? Some hotels use several prices in

order to attract different segments. Price per room may range from

$100 to $2000 per night.

Promotion: Should we use television, direct mail, radio, travel

agents, telemarketing, Internet, etc.

The Internet has had a major affect on the hospitality industry.

Rather than having empty rooms, some hotels deal with online

discounters.

The goal is to have a satisfied guest. Many hotels ask guests to

complete a questionnaire in order to measure satisfaction. Hotels

also create a database that includes the name and address of guests.

A good marketer will try to determine whether the hotel should

change anything in order to improve customer satisfaction. By the

way, if you are interested in this area, the classic text is by Philip

Kotler, Marketing for Hospitality and Tourism

A niche market is the subset of the market on which a specific product is focusing

on.Therefore the market niche defines the specific product features aimed at satisfying

specific market needs, as well as the price range, production quality and the

demographics that is intended to impact.

Every single product that is on sale can be defined by its niche market. As of special note,

the products aimed at a wide demographics audience, with the resulting low price (due to

Price elasticity of demand), are said to belong to the Mainstream niche, in practice

referred only as Mainstream or of high demand. Narrowed demographics though lead to

elevated price because of the same principles.

In practice, product vendors and trade businesses are commonly referred as mainstream

providers or narrow demographics niche market providers (colloquially shortened to just

niche market providers). Small capital providers usually opt for a niche market with

narrow demographics as a measure of increasing their gain margins.

Nevertheless, the final product quality (low or high) is not dependant on the price

elasticity of demand though, it is more associated with the specific needs that the product

is aimed at satisfy and in some cases with brand recognition which the vendor wants to be

associated with (i.e Prestige, Practicability, Money saving, Expensiveness, Planet

environment conscience, Power, etc)

Online niche marketing

An often used technique for affiliate marketers. By seeking out smaller segments of

larger markets, referred to as niches, a website can be developed and promoted quickly to

uniquely serve a targeted and usually loyal customer base, giving the affiliate a small but

regular income stream. This technique is then repeated across several other niche

websites until a desired income level is achieved. A bigger niche is harder to market to as

the expense of online advertisements increases according to the popularity of the

keywords used on Ad words for example. Many niches are becoming saturated with

marketers; increasing competition reduces the slice of the pie available to each according

to classic "supply and demand" economic theory. The secret is to find smaller

"undiscovered" but still profitable niches, usually by searching out the best keywords to

target. These lower cost keywords are called "long tailed keywords", as in the long tail of

secondary keyword phrases which usually follow the main keyword in popularity of

number of searches conducted by internet users. Some are too obscure and may have very

few or even no clicks per month, and therefore not much use to target.

Ambush marketing is a marketing campaign that takes place around an event but does

not involve payment of a sponsorship fee to the event.[1]

For most events of any

significance, one brand will pay to become the exclusive and official sponsor of the event

in a particular category or categories, and this exclusivity creates a problem for one or

more other brands. Those other brands then find ways to promote themselves in

connection with the same event, without paying the sponsorship fee and without breaking

any laws.

Some Examples

1984 Olympics; Kodak sponsors TV broadcasts of the Games as well as the US

track team despite Fujifilm being the official sponsor.

1992 Summer Olympics in Barcelona; Nike sponsors press conferences with the

US basketball team despite Reebok being the official sponsor. During ceremonies,

the players covered their Reebok logos.

1996 Atlanta Olympics; sprinter Linford Christie wore contact lenses embossed

with the Puma logo at the press conference preceding the 100 metres final, despite

Reebok being the official sponsor.

1996 Atlanta Olympics; Messages On Hold strategically infiltrates a banner

within the camera frame as US runner Jon Drummond prepares for the opening

leg of 4x100 relay final. The moment is broadcast live across the world.

1996 Cricket World Cup; Pepsi ran a series of advertisements titled "nothing

official about it" targeting the official sponsor Coca Cola.

1998 World Cup; Nike sponsored a number of teams competing in the Cup

despite Adidas being the official sponsor.

2000 Sydney Olympics; Qantas Airlines‘ slogan "The Spirit of Australia" sounds

strikingly similar to the Games‘ slogan "Share the Spirit." despite Ansett Air

being the official sponsor.

2002 Boston Marathon; as Adidas-sponsored runners come off the course Nike

are treated[clarification needed]

to spray-painted messages honoring the day of the race,

but not the race itself.

2003 Cricket World Cup; Indian players threatened to strike over concerns that

the anti-ambush marketing rules were too strict. Of particular concern was the

length of time before and after the cup that players were not allowed to endorse a

rival to one of the official sponsors. Players argued that if they had pre-existing

contracts that they would be in breach of them if they were to accept the ICC's

rules.

2006 FIFA World Cup; fans of the Netherlands were made to remove Bavaria

Brewery's leeuwenhosen because Budweiser was the official beer sponsor.

2008 Beijing Olympics; entire countries were tuned into the Opening Ceremonies,

and worldwide, millions more saw Li Ning light the torch and learned that he

owns a shoe company with the same name, a direct rival of Adidas and quite

famous in China, but not an official Olympic sponsor.[2]

Blue Ocean Strategy is a business strategy book written by W. Chan Kim and Renée

Mauborgne of INSEAD, an international business school, that promotes creating new

market space or "Blue Ocean" rather than competing in an existing industry.[1]

It contains

retrospective case studies of business success stories the authors claim were Blue Ocean

Strategies. The book has sold more than a million copies in its first year of publication

and is being published in 41 languages.

About Book

The book is divided into three broad and systematic segments. The first segment presents

the essence of blue ocean strategy, and the essential tools and framework to analyse

profitable growth across companies and across industries. The second segment analyses

growing companies that create strategies to ensure that both the company and their

customers win as the company creates new business terrain. This segment deals with the

notion of maximizing the size of the Blue Ocean and of creating the greatest market of

new demand. This segment demonstrates unconventional ways to achieve aggregated

demand by not focusing on the differences that separate customers, but by building on

commonalities across non-customers to maximize the size of the Blue Ocean. The last

segment deals exclusively with the means to successfully execute a Blue Ocean Strategy.

This segment is essential because most of the strategic plans fail because of poor

execution of brilliant ideas. It makes sure that after managers invest lots of effort and lots

of time in strategy formulation, they don‘t deliver tactical red ocean moves. From

showing managers the methodology to mobilize an organization to overcome the key

organisational hurdles that block the implementation of a blue ocean strategy, to

integration of execution into strategy making, thus motivating people to act on and

execute a blue ocean strategy in a sustained way – is essentially the crux of executing the

blue ocean strategy.

In the book the authors draw the attention of their readers towards the correlation of

success stories across industries and the formulation of strategies that provide a solid base

create unconventional success – a strategy termed as ―Blue Ocean Strategy‖. Unlike the

―Red Ocean Strategy‖, the conventional approach to business of beating competition

derived from the military organization, the ―Blue Ocean Strategy‖ tries to align

innovation with utility, price and cost positions. The book mocks at the phenomena of

conventional choice between product/service differentiation and lower cost, but rather

suggests that both differentiation and lower costs are achievable simultaneously.

The authors ask readers ―What is the best unit of analysis of profitable growth?

Company? Industry?‖ – a fundamental question without which any strategy for profitable

growth is not worthwhile. The authors justify with original and practical ideas that neither

the company nor the industry is the best unit of analysis of profitable growth; rather it is

the strategic move that creates ―Blue Ocean‖ and sustained high performance. The book

examines the experience of companies in areas as diverse as watches, wine, cement,

computers, automobiles, textiles, coffee makers, airlines, retailers, and even the circus, to

answer this fundamental question and builds upon the argument about ―Value

Innovation‖ being the cornerstone of a blue ocean strategy. Value Innovation is

necessarily the alignment of innovation with utility, price and cost positions. This creates

uncontested market space and makes competition irrelevant. The following section

discusses the concept behind the book in detail.

Cirque du Soleil - The classical Blue Ocean Strategy in operation

The metaphor of red and blue oceans describes the market universe.

Red Oceans are all the industries in existence today—the known market space. In the red

oceans, industry boundaries are defined and accepted, and the competitive rules of the

game are known. Here companies try to outperform their rivals to grab a greater share of

product or service demand. As the market space gets crowded, prospects for profits and

growth are reduced. Products become commodities or niche, and cutthroat competition

turns the ocean bloody. Hence, the term red oceans.[3]

Blue oceans, in contrast, denote all the industries not in existence today—the unknown

market space, untainted by competition. In blue oceans, demand is created rather than

fought over. There is ample opportunity for growth that is both profitable and rapid. In

blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

Blue ocean is an analogy to describe the wider, deeper potential of market space that is

not yet explored. [3]

The corner-stone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created

when a company achieves value innovation that creates value simultaneously for both the

buyer and the company. The innovation (in product, service, or delivery) must raise and

create value for the market, while simultaneously reducing or eliminating features or

services that are less valued by the current or future market. The authors criticize Michael

Porter's idea that successful businesses are either low-cost providers or niche-players.

Instead, they propose finding value that crosses conventional market segmentation and

offering value and lower cost.

Educator Charles W. L. Hill proposed this idea in 1988 and claimed that Porter's model

was flawed because differentiation can be a means for firms to achieve low cost. He

proposed that a combination of differentiation and low cost might be necessary for firms

to achieve a sustainable competitive advantage.

Many others have proposed similar strategies. For example, Swedish educators Jonas

Ridderstråle and Kjell Nordström in their 1999 book Funky Business follow a similar line

of reasoning. For example, "competing factors" in Blue Ocean Strategy are similar to the

definition of "finite and infinite dimensions" in Funky Business. Just as Blue Ocean

Strategy claims that a Red Ocean Strategy does not guarantee success, Funky Business

explained that "Competitive Strategy is the route to nowhere". Funky Business argues

that firms need to create "Sensational Strategies". Just like Blue Ocean Strategy, a

Sensational Strategy is about "playing a different game" according to Ridderstrale and

Nordstrom. Ridderstrale and Nordstrom also claim that the aim of companies is to create

temporary monopolies. Kim and Mauborgne explain that the aim of companies is to

create blue oceans, that will eventually turn red. This is the same idea expressed in the

form of an analogy. Ridderstråle and Nordström also claimed in 1999 that "in the slow-

growth 1990s overcapacity is the norm in most businesses". Kim and Mauborgne claim

that blue ocean strategy makes sense in a world where supply exceeds demand.

The concept of guerrilla marketing was invented as an unconventional system of

promotions that relies on time, energy and imagination rather than a big marketing

budget. Typically, guerrilla marketing campaigns are unexpected and unconventional;

potentially interactive[1]

; and consumers are targeted in unexpected places.[2]

The

objective of guerrilla marketing is to create a unique, engaging and thought-provoking

concept to generate buzz, and consequently turn viral. The term was coined and defined

by Jay Conrad Levinson in his book Guerrilla Marketing. The term has since entered the

popular vocabulary and marketing textbooks.

Guerrilla marketing involves unusual approaches such as intercept encounters in public

places, street giveaways of products, PR stunts, any unconventional marketing intended

to get maximum results from minimal resources. More innovative approaches to Guerrilla

marketing now utilize cutting edge mobile digital technologies to really engage the

consumer and create a memorable brand experience.

Levinson's books include hundreds of "guerrilla marketing weapons," but they also

encourage guerrilla marketeers to be creative and devise their own unconventional

methods of promotion. A guerrilla marketeer uses all of his or her contacts, both

professional and personal, and examines his company and its products, looking for

sources of publicity. Many forms of publicity can be very inexpensive, others are free.

Levinson says that when implementing guerrilla marketing tactics, small size is actually

an advantage instead of a disadvantage. Small organizations and entrepreneurs are able to

obtain publicity more easily than large companies as they are closer to their customers

and considerably more agile.

Yet ultimately, according to Levinson, the Guerrilla Marketeer must "deliver the goods".

In The Guerrilla Marketing Handbook, he states: "In order to sell a product or a service, a

company must establish a relationship with the customer. It must build trust and support.

It must understand the customer's needs, and it must provide a product that delivers the

promised benefits."

Levinson identifies the following principles as the foundation of guerrilla marketing:

Guerrilla Marketing is specifically geared for the small business and entrepreneur.

It should be based on human psychology instead of experience, judgment, and

guesswork.

Instead of money, the primary investments of marketing should be time, energy,

and imagination.

The primary statistic to measure your business is the amount of profits, not sales.

The marketer should also concentrate on how many new relationships are made

each month.

Create a standard of excellence with an acute focus instead of trying to diversify

by offering too many diverse products and services.

Instead of concentrating on getting new customers, aim for more referrals, more

transactions with existing customers, and larger transactions.

Forget about the competition and concentrate more on cooperating with other

businesses.

Guerrilla Marketers should always use a combination of marketing methods for a

campaign.

Use current technology as a tool to empower your business.

Affiliate Marketing is an Internet-based marketing practice in which a business rewards

one or more affiliates for each visitor or customer brought about by the affiliate's

marketing efforts. It is an application of crowdsourcing.

The Affiliate Marketing industry has four core players at its heart: the Merchant (also

known informally as 'Retailer' or 'Brand'), the Network, the Publisher (also known

informally as 'the Affiliate') and the Customer. The market has grown sufficiently in

complexity to warrant a secondary tier of players, including Affiliate Management

Agencies, Super-Affiliates and Specialized Third Parties vendors.

Affiliate marketing overlaps with other Internet marketing methods to some degree,

because affiliates often use regular advertising methods. Those methods include organic

search engine optimization, paid search engine marketing, e-mail marketing, and in some

sense display advertising. On the other hand, affiliates sometimes use less orthodox

techniques, such as publishing reviews of products or services offered by a partner.

Affiliate marketing—using one website to drive traffic to another—is a form of online

marketing, which is frequently overlooked by advertisers.[citation needed]

While search

engines, e-mail, and website syndication capture much of the attention of online retailers,

affiliate marketing carries a much lower profile. Still, affiliates continue to play a

significant role in e-retailers' marketing strategies.[1]

Marketing buzz or simply buzz is a term used in word-of-mouth marketing. The

interaction of consumers and users of a product or service serve to amplify the original

marketing message.[1]

Some describe buzz as a form of hype among consumers,[2]

a vague but positive

association, excitement, or anticipation about a product or service. Positive "buzz" is

often a goal of viral marketing, public relations, and of advertising on Web 2.0 media.

The term refers both to the execution of the marketing technique, and the resulting

goodwill that is created. Examples of products with strong marketing buzz upon

introduction were Harry Potter, the Volkswagen New Beetle, Pokémon, Beanie Babies,

and the Blair Witch Project.[2]

It is possible for firms to track the marketing buzz of their products online using buzz

monitoring. For some companies it is important to understand the buzz surrounding a

product before committing to the market.

Consumerism

Consumerism is concerned with broadening the rights of consumers; a firm that is

committed to CSR will care about the rights of consumers.

President Kennedy said that consumers have the following four rights: to safety, to

information, to choice, and to be heard.

Are you dissatisfied with a product or service? If you want to complain, try:

http://planetfeedback.com

You can also use the above site to send suggestions to firms.

Green Marketing

A key component of CSR is concern for the environment. Environmentalists work to

protect and improve the quality of life and are concerned with issues that include

conservation of natural resources, reducing environmental pollution, protecting

endangered species, and control of land use. The three Rs of environmentalism are

Reduce, Reuse, and Recycle. Many companies are finding that consumers are willing to

pay more for a green product. Toyota has become quite successful with their hybrid cars.

Green marketing refers to the development and distribution of ecologically-safe products.

Click below to learn about Green-e (green electricity from renewable sources)

http://www.green-e.org/

Cause-Related Marketing

Cause-related marketing (or cause marketing) discussed in a previous chapter is one

way a company can be socially responsible. The most common method is to donate a

percentage of revenues to a specific charity or cause. For example, a company might

donate a dime to America's Second Harvest (http://www.secondharvest.org/ They

provide food for the poor) every time someone purchases its product. Yoplait® yogurt

uses cause marketing with their lid program. Yoplait makes a 10 cent contribution to the

Susan G. Komen Breast Cancer Foundation for every lid sent back to them.

Cause-related marketing should not be confused with social marketing. A key difference

is that a major purpose of cause-related marketing is to help a business. It might be used

to improve the image of the firm or to increase market share. The technique involves

associating a business with a cause. Social marketing, on the other hand, is generally not

associated with any company and is sued solely to help society by dealing with a social

problem.

Cause-related marketing has to be done correctly or it can hurt a company. A firm may

look like it is exploiting a charity. It is important for the firm to be transparent and

honest about what it is doing. There should also be a fit between the company and the

cause. A good fit would be, for example, might be a bottled water company and a cause

the deals with providing clean water for poor people in Asia and Africa.

Strategic Marketing and Models

The marketers need to understand certain models which can direct the strategic

intent of a firm in short run as well as long run. We will discuss in detail the models.

The BCG matrix (aka B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston

Consulting Group analysis) is a chart that had been created by Bruce Henderson for the

Boston Consulting Group in 1970 to help corporations with analyzing their business units

or product lines. This helps the company allocate resources and is used as an analytical

tool in brand marketing, product management, strategic management, and portfolio

analysis

BCG Matrix

To use the chart, analysts plot a scatter graph to rank the business units (or products) on

the basis of their relative market shares and growth rates.

Cash cows are units with high market share in a slow-growing industry. These

units typically generate cash in excess of the amount of cash needed to maintain

the business. They are regarded as staid and boring, in a "mature" market, and

every corporation would be thrilled to own as many as possible. They are to be

"milked" continuously with as little investment as possible, since such investment

would be wasted in an industry with low growth.

Dogs, or more charitably called pets, are units with low market share in a mature,

slow-growing industry. These units typically "break even", generating barely

enough cash to maintain the business's market share. Though owning a break-

even unit provides the social benefit of providing jobs and possible synergies that

assist other business units, from an accounting point of view such a unit is

worthless, not generating cash for the company. They depress a profitable

company's return on assets ratio, used by many investors to judge how well a

company is being managed. Dogs, it is thought, should be sold off.

Question marks (also known as problem child) are growing rapidly and thus

consume large amounts of cash, but because they have low market shares they do

not generate much cash. The result is a large net cash consumption. A question

mark has the potential to gain market share and become a star, and eventually a

cash cow when the market growth slows. If the question mark does not succeed in

becoming the market leader, then after perhaps years of cash consumption it will

degenerate into a dog when the market growth declines. Question marks must be

analyzed carefully in order to determine whether they are worth the investment

required to grow market share.

Stars are units with a high market share in a fast-growing industry. The hope is

that stars become the next cash cows. Sustaining the business unit's market

leadership may require extra cash, but this is worthwhile if that's what it takes for

the unit to remain a leader. When growth slows, stars become cash cows if they

have been able to maintain their category leadership, or they move from brief

stardom to dogdom.[citation needed]

As a particular industry matures and its growth slows, all business units become either

cash cows or dogs. The natural cycle for most business units is that they start as question

marks, then turn into stars. Eventually the market stops growing thus the business unit

becomes a cash cow. At the end of the cycle the cash cow turns into a dog.

The overall goal of this ranking was to help corporate analysts decide which of their

business units to fund, and how much; and which units to sell. Managers were supposed

to gain perspective from this analysis that allowed them to plan with confidence to use

money generated by the cash cows to fund the stars and, possibly, the question marks. As

the BCG stated in 1970:

Only a diversified company with a balanced portfolio can use its strengths to truly

capitalize on its growth opportunities. The balanced portfolio has:

stars whose high share and high growth assure the future;

cash cows that supply funds for that future growth; and

question marks to be converted into stars with the added funds.

Practical Use of the BCG Matrix

For each product or service, the 'area' of the circle represents the value of its sales. The

BCG Matrix thus offers a very useful 'map' of the organization's product (or service)

strengths and weaknesses, at least in terms of current profitability, as well as the likely

cashflows.

The need which prompted this idea was, indeed, that of managing cash-flow. It was

reasoned that one of the main indicators of cash generation was relative market share, and

one which pointed to cash usage was that of market growth rate.

Derivatives can also be used to create a 'product portfolio' analysis of services. So

Information System services can be treated accordingly.[citation needed]

Relative market share

This indicates likely cash generation, because the higher the share the more cash will be

generated. As a result of 'economies of scale' (a basic assumption of the BCG Matrix), it

is assumed that these earnings will grow faster the higher the share. The exact measure is

the brand's share relative to its largest competitor. Thus, if the brand had a share of 20

percent, and the largest competitor had the same, the ratio would be 1:1. If the largest

competitor had a share of 60 percent; however, the ratio would be 1:3, implying that the

organization's brand was in a relatively weak position. If the largest competitor only had

a share of 5 percent, the ratio would be 4:1, implying that the brand owned was in a

relatively strong position, which might be reflected in profits and cash flows. If this

technique is used in practice, this scale is logarithmic, not linear.

On the other hand, exactly what is a high relative share is a matter of some debate. The

best evidence is that the most stable position (at least in Fast Moving Consumer Goods

FMCG markets) is for the brand leader to have a share double that of the second brand,

and triple that of the third. Brand leaders in this position tend to be very stable—and

profitable; the Rule of 123.[1]

The reason for choosing relative market share, rather than just profits, is that it carries

more information than just cash flow. It shows where the brand is positioned against its

main competitors, and indicates where it might be likely to go in the future. It can also

show what type of marketing activities might be expected to be effective.[citation needed]

Market growth rate

Rapidly growing in rapidly growing markets, are what organizations strive for; but, as we

have seen, the penalty is that they are usually net cash users - they require investment.

The reason for this is often because the growth is being 'bought' by the high investment,

in the reasonable expectation that a high market share will eventually turn into a sound

investment in future profits. The theory behind the matrix assumes, therefore, that a

higher growth rate is indicative of accompanying demands on investment. The cut-off

point is usually chosen as 10 per cent per annum. Determining this cut-off point, the rate

above which the growth is deemed to be significant (and likely to lead to extra demands

on cash) is a critical requirement of the technique; and one that, again, makes the use of

the BCG Matrix problematical in some product areas. What is more, the evidence,[1]

from

FMCG markets at least, is that the most typical pattern is of very low growth, less than 1

per cent per annum. This is outside the range normally considered in BCG Matrix work,

which may make application of this form of analysis unworkable in many markets.[citation

needed]

Where it can be applied, however, the market growth rate says more about the brand

position than just its cash flow. It is a good indicator of that market's strength, of its

future potential (of its 'maturity' in terms of the market life-cycle), and also of its

attractiveness to future competitors. It can also be used in growth analysis.[citation needed]

Critical evaluation

The matrix ranks only market share and industry growth rate, and only implies actual

profitability, the purpose of any business. (It is certainly possible that a particular dog can

be profitable without cash infusions required, and therefore should be retained and not

sold.) The matrix also overlooks other elements of industry. With this or any other such

analytical tool, ranking business units has a subjective element involving guesswork

about the future, particularly with respect to growth rates. Unless the rankings are

approached with rigor and scepticism, optimistic evaluations can lead to a dot com

mentality in which even the most dubious businesses are classified as "question marks"

with good prospects; enthusiastic managers may claim that cash must be thrown at these

businesses immediately in order to turn them into stars, before growth rates slow and it's

too late. Poor definition of a business's market will lead to some dogs being misclassified

as cash bulls.

As originally practiced by the Boston Consulting Group,[1]

the matrix was undoubtedly a

useful tool, in those few situations where it could be applied, for graphically illustrating

cashflows. If used with this degree of sophistication its use would still be valid. However,

later practitioners have tended to over-simplify its messages. In particular, the later

application of the names (problem children, stars, cash cows and dogs) has tended to

overshadow all else—and is often what most students, and practitioners, remember.

This is unfortunate, since such simplistic use contains at least two major problems:

'Minority applicability'. The cashflow techniques are only applicable to a very limited

number of markets (where growth is relatively high, and a definite pattern of product life-

cycles can be observed, such as that of ethical pharmaceuticals). In the majority of

markets, use may give misleading results.

'Milking cash bulls'. Perhaps the worst implication of the later developments is that the

(brand leader) cash bulls should be milked to fund new brands. This is not what research

into the FMCG markets has shown to be the case. The brand leader's position is the one,

above all, to be defended, not least since brands in this position will probably outperform

any number of newly launched brands. Such brand leaders will, of course, generate large

cash flows; but they should not be `milked' to such an extent that their position is

jeopardized. In any case, the chance of the new brands achieving similar brand leadership

may be slim—certainly far less than the popular perception of the Boston Matrix would

imply.

Perhaps the most important danger[1]

is, however, that the apparent implication of its

four-quadrant form is that there should be balance of products or services across all four

quadrants; and that is, indeed, the main message that it is intended to convey. Thus,

money must be diverted from `cash cows' to fund the `stars' of the future, since `cash

cows' will inevitably decline to become `dogs'. There is an almost mesmeric inevitability

about the whole process. It focuses attention, and funding, on to the `stars'. It presumes,

and almost demands, that `cash bulls' will turn into `dogs'.

The reality is that it is only the `cash bulls' that are really important—all the other

elements are supporting actors. It is a foolish vendor who diverts funds from a `cash cow'

when these are needed to extend the life of that `product'. Although it is necessary to

recognize a `dog' when it appears (at least before it bites you) it would be foolish in the

extreme to create one in order to balance up the picture. The vendor, who has most of his

(or her) products in the `cash cow' quadrant, should consider himself (or herself)

fortunate indeed, and an excellent marketer, although he or she might also consider

creating a few stars as an insurance policy against unexpected future developments and,

perhaps, to add some extra growth. There is also a common misconception that 'dogs' are

a waste of resources. In many markets 'dogs' can be considered loss-leaders that while not

themselves profitable will lead to increased sales in other profitable areas.

Product-Market Growth Matrix

The Ansoff Product-Market Growth Matrix is a marketing tool created by Igor Ansoff

and first published in his article "Strategies for Diversification" in the Harvard Business

Review (1957). The matrix allows marketers to consider ways to grow the business via

existing and/or new products, in existing and/or new markets – there are four possible

product/market combinations. This matrix helps companies decide what course of action

should be taken given current performance. The matrix consists of four strategies:

Market penetration (existing markets, existing products): Market penetration

occurs when a company enters/penetrates a market with current products. The

best way to achieve this is by gaining competitors' customers (part of their market

share). Other ways include attracting non-users of your product or convincing

current clients to use more of your product/service, with advertising or other

promotions. Market penetration is the least risky way for a company to grow.

Product development (existing markets, new products): A firm with a market for

its current products might embark on a strategy of developing other products

catering to the same market (although these new products need not be new to the

market; the point is that the product is new to the company). For example,

McDonald's is always within the fast-food industry, but frequently markets new

burgers. Frequently, when a firm creates new products, it can gain new customers

for these products. Hence, new product development can be a crucial business

development strategy for firms to stay competitive.

Market development (new markets, existing products): An established product in

the marketplace can be tweaked or targeted to a different customer segment, as a

strategy to earn more revenue for the firm. For example, Lucozade was first

marketed for sick children and then rebranded to target athletes. This is a good

example of developing a new market for an existing product. Again, the market

need not be new in itself, the point is that the market is new to the company.

Diversification (new markets, new products): Virgin Cola, Virgin Megastores,

Virgin Airlines, Virgin Telecommunications are examples of new products

created by the Virgin Group of UK, to leverage the Virgin brand. This resulted in

the company entering new markets where it had no presence before.

The matrix illustrates, in particular, that the element of risk increases the further the

strategy moves away from known quantities - the existing product and the existing

market. Thus, product development (requiring, in effect, a new product) and market

extension (a new market) typically involve a greater risk than `penetration' (existing

product and existing market); and diversification (new product and new market)

generally carries the greatest risk of all. In his original work [1]

, which did not use the

matrix form, Igor Ansoff stressed that the diversification strategy stood apart from the

other three.

While the latter are usually followed with the same technical, financial, and

merchandising resources which are used for the original product line, diversification

usually requires new skills, new techniques, and new facilities. As a result it almost

invariably leads to physical and organizational changes in the structure of the business

which represent a distinct break with past business experience.

For this reason, most marketing activity revolves around penetration. For the coming time

the marketing is going for a paradigm shift and these fundamentals are going to play an

important role for the radicals.

Many Thanks.

Text & References:

Philip Kotler : Marketing Management, Prentice Hall of India Ltd, New Delhi.

Marchannd & B. Vardharajan : An introduction to Marketing, Vikas Publishing House, 5

Ansari Road, New Delhi.

Maurice & Mondell & larry Rosenberg - Marketing : Prentice Hall of India Ltd. New Delhi.

Mohammad Amanatuallh : Principles of Modern Marketing. Kalyani Publications New

Delhi.

Dr. C. N. Sontakki : Marketing Management Kalyani Publications New Delhi.

www.Quickmba.com

Wikipedia

www.Knowthis.com

www.academic.brooklyn.cuny.edu