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MARKETING MANAGEMENT

Dr. C. V. Krishna

MARKETING MANAGEMENT

Contents

S.No.

Pg.No.

UNIT-I
1

Needs, Wants, Demands

Products, Exchange, Transactions, Market, Marketing

Production Concept, Product Concept, Sales Concept, Marketing Concept, Societal


Marketing Concept

Indian Marketing Environment.

Identification of Market Segments

11

Consumer and Institutional/corporate Clientele

11

Segmenting Consumer Markets

11

Segmentation Basis

12

Selecting Target Markets

15

10

Segmentation and Targeting as a basis for Strategy Formulation

15

11

Developing and Communicating a Positioning Strategy

16

UNIT-II
1

Product Life Cycle

18

PLC as a tool for Marketing Strategy

18

Constituents of a Product, Core Product, Augmented Product, Differentiated Products,


Potential Product

20

Product Line

22

Product Mix

22

Product-line decisions, Brand decisions

23

Classification of new products

25

New product development, Idea Generation, Idea screening, concept testing, business
analysis, market testing, commercialization.

25

UNIT-III
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1

Objectives of pricing

28

methods of pricing

29

Selecting the final price, adopting price, initiating the price cuts,

29

Initating price increases, responding to Competitors price changes

32

UNIT-IV
5

Channel function and flows, channel levels,


channel management decisions,

35

Types of retailers,

40

Trends in retailing,

43

Growth and trends in wholesaling.

44

Sales force and sales agency Advantages and disadvantages.

44

UNIT-V
Communicating Value Role of Marketing Communication Developing Effective
Communication
Marketing Communication Mix Managing the Integrated Marketing Communications
process

45

12

Managing Mass Communication-Advertising and Sales promotion.

48

13

Word of mouth - Public relations and Direct Marketing.

48

14

Sales force Objectives, Sales force structure and size, Sales force Compensation.

48

15

Socially Responsible Marketing Internal Marketing - Rural Marketing.

49

10
11

47

CASE STUDIES
1

Nestles Strategic Transformation

51

Dr. Reddy's Laboratories: On the New Drug Discovery Trail

52

A Dent in Wal-Mart's Public Image: The PR Strategy

53

Rural Marketing in India: Retailing through Microfinance Institutions

54

Rise and Fall of Subhiksha

55
QUESTION PAPERS

PREVIOUS EXTERNAL QUESTION PAPER-AUG-2015


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UNIT I: INTRODUCTION TO MARKETING
Needs wants and demand
Needs wants and demands are a part of basic marketing principles. Though they are 3 simple worlds,
they hold a very complex meaning behind them along with a huge differentiation factor. In fact, A
product can be differentiated on the basis of whether it satisfies a customers needs, wants or demands.
Each of them is discussed in detail in this article
Needs -Human needs are the basic requirements and include food clothing and shelter. Without these
humans cannot survive. An extended part of needs today has become education and healthcare.
Generally, the products which fall under the needs category of products do not require a push.
Instead the customer buys it themselves. But in todays tough and competitive world, so many brands
have come up with the same offering satisfying the needs of the customer, that even the needs
category product has to be pushed in the customers mind.
Example of needs category products / sectors Agriculture sector, Real Estate (land always
appreciates), FMCG, etc.
Wants Wants are a step ahead of needs and are largely dependent on the needs of humans
themselves. For example, you need to take a bath. But i am sure you take baths with the best soaps.
Thus Wants are not mandatory part of life. You DONT need a good smelling soap. But you will
definitely use it because it is your want. In the above image, the baby needs milk but it WANTS
candy
Example of wants category products / sectors Hospitality industry, Electronics, Consumer Durables
etc, FMCG, etc.
Demand You might want a BMW or a Mercedes for a car. You might want to go for a cruise. But
can you actually buy a BMW or go on a cruise? You can provided you have theability to buy a BMW
or go on a cruise. Thus a step ahead of wants is demands. When an individual wants something which
is premium, but he also has the ability to buy it, then these wants are converted to demands. The basic
difference between wants and demands is desire. A customer may desire something but he may not be
able to fulfill his desire.

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Definition Market: A market is a medium that allows buyers and sellers of a specific good or service
to interact in order to facilitate an exchange. This type of market may either be a physical
marketplace where people come together to exchange goods and services in person, as in a bazaar or
shopping center, or a virtual market wherein buyers and sellers do not interact, as in an online market.
2. The general market where securities are traded. This form of the term may also refer to specific
securities markets and may take place in person or online.
3. People with the desire and ability to buy a specific product or service.

Definition: Marketing Management


The American Marketing Association offers this managerial definition: Marketing (management) is
the process of planning and executing the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that satisfy individual and organizational goals
Definition: Marketing
Marketing is a societal process by which individuals and groups obtain what they need and want
through creating, offering, and exchanging products and services of value freely with others.

MARKETING PHILOSOPHIES
The Production Concept
The production concept, one of the oldest in business, holds that consumers prefer products that are
widely available and inexpensive. Managers of production-oriented businesses concentrate on
achieving high production efficiency, low costs, and mass distribution. This orientation makes sense
in developing countries, where consumers are more interested in obtaining the product than in its
features. It is also used when a company wants to expand the market. Texas Instruments is a leading
exponent of this concept. It concentrates on building production volume and upgrading technology in
order to bring costs down, leading to lower prices and expansion of the market. This orientation has
also been a key strategy of many Japanese companies.
The Product Concept
Other businesses are guided by the product concept, which holds that consumers favor those
products that offer the most quality, performance, or innovative features. Managers in these
organizations focus on making superior products and improving them over time, assuming that
buyers can appraise quality and performance. Product-oriented companies often design their products
with little or no customer input, trusting that their engineers can design exceptional products. A
General Motors executive said years ago: How can the public know what kind of car they want until
they see what is available? GM today asks customers what they value in a car and includes
marketing people in the very beginning stages of design.
However, the product concept can lead to marketing myopia.16 Railroad management thought that
travelers wanted trains rather than transportation and overlooked the growing competition from
airlines, buses, trucks, and automobiles. Colleges, department stores, and the post office all assume
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that they are offering the public the right product and wonder why their sales slip. These
organizations too often are looking into a mirror when they should be looking out of the window.
The Selling Concept
The selling concept, another common business orientation, holds that consumers and businesses, if
left alone, will ordinarily not buy enough of the organizations products. The organization must,
therefore, undertake an aggressive selling and promotion effort. This concept assumes that consumers
must be coaxed into buying, so the company has a battery of selling and promotion tools to stimulate
buying. The selling concept is practiced most aggressively with unsought goodsgoodsthat buyers
normally do not think of buying, such as insurance and funeral plots. The selling concept is also
practiced in the nonprofit area by fund-raisers, college admissions offices, and political parties.
Most firms practice the selling concept when they have overcapacity. Their aim is to sell what they
make rather than make what the market wants. In modern industrial economies, productive capacity
has been built up to a point where most markets are buyer markets (the buyers are dominant) and
sellers have to scramble for customers. Prospects are bombarded with sales messages. As a result, the
public often identifies marketing with hard selling and advertising. But marketing based on hard
selling carries high risks. It assumes that customers who are coaxed into buying a product will like it;
and if they dont, that they wont bad-mouth it or complain to consumer organizations and will forget
their disappointment and buy it again. These are indefensible assumptions. In fact, one study showed
that dissatisfied customers may bad-mouth the product to 10 or more acquaintances; bad news travels
fast, something marketers that use hard selling should bear in mind.
The Marketing Concept
The marketing concept, based on central tenets crystallized in the mid-1950s, challenges the three
business orientations we just discussed.18 The marketing concept holds that the key to achieving
organizational goals consists of the company being more effective than its competitors in creating,
delivering, and communicating customer value to its chosen target markets.
Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts:
Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is
preoccupied with the sellers need to convert his product into cash; marketing with the idea of
satisfying the needs of the customer by means of the product and the whole cluster of things
associated with creating, delivering and finally consuming it.
The marketing concept rests on four pillars: target market, customer needs, integrated marketing, and
profitability. The selling concept takes an inside-out perspective. Itstarts with the factory, focuses on
existing products, and calls for heavy selling and promotingto produce profitable sales. The
marketing concept takes an outside-in perspective.It starts with a welldefined market, focuses on
customer needs,
coordinatesactivities that affect customers, and produces profits by satisfying customers
The Societal Marketing Concept
Societal marketing concept, holds that the organizations task is to determine the needs, wants, and
interests of target markets and to deliver the desired satisfactions more effectively and efficiently than
competitors in a way that preserves or enhances the consumers and the societys well-being.
The societal marketing concept calls upon marketers to build social and ethical considerations into
their marketing practices. They must balance and juggle the often conflicting criteria of company
profits, consumer want satisfaction, and public interest. Yet a number of companies have achieved
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notable sales and profit gains by adopting and practicing the societal marketing concept. Some
companies practice a form of the societal marketing concept called cause relatedmarketing. Pringle
and Thompson define this as activity by which a company with an image, product, or service to
market builds a relationship or partnership with a cause, or a number of causes, for mutual benefit.

MARKETING ENVIRONMENT
According to Philip Kotler, A companys marketing environment consists of the internal factors &
forces, which affect the companys ability to develop & maintain successful transactions &
relationships with the companys target customers.
The Environmental Factors may be classified as:
1. Internal Factor
2. External Factor
External Factors may be further classified into:
External Micro Factors & External Macro Factors
Companys Internal Environmental Factors:
A Companys marketing system is influenced by its capabilities regarding production, financial &
other factors. Hence, the marketing management/manager must take into consideration these
departments before finalizing marketing decisions. The Research & Development Department, the
Personnel Department, the Accounting Department also have an impact on the Marketing
Department. It is the responsibility of a manager to company-ordinate all department by setting up
unified objectives.
External Micro Factors:
1. Suppliers: They are the people who provide necessary resources needed to produce goods &
services. Policies of the suppliers have a significant influence over the marketing managers
decisions because, it is laborers, etc. A company must build cordial & long-term relationship with
suppliers.
2. Marketing Intermediaries: They are the people who assist the flow of products from the
producers to the consumers; they include wholesalers, retailers, agents, etc. These people create
place & time utility. A company must select an effective chain of middlemen, so as to make the
goods reach the market in time. The middlemen give necessary information to the manufacturers
about the market. If a company does not satisfy the middlemen, they neglect its products & may
push the competitors product.
Consumers: The main aim of production is to meet the demands of the consumers. Hence, the
consumers are the center point of all marketing activities. If they are not taken into consideration,
before taking the decisions, the company is bound to fail in achieving its objectives. A companys
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marketing strategy is influenced by its target consumer. Eg: If a manufacturer wants to sell to the
wholesaler, he may directly sell tothem, if he wants to sell to another manufacturer, he may sell
through his agent or if he wants to sell to ultimate consumer he may sell through wholesalers or
retailers. Hence each type of consumer has a unique feature, which influences a companys marketing
decision.
3. Competitors: A prudent marketing manager has to be in constant touch regarding the information
relating to the competitors strategies. He has to identify his competitors strategies, build his
plans to overtake them in the market to attract competitors consumers towards his products.
Any company faces three types of competition:
a) Brand Competition: It is a competition between various companies producing similar
products. Eg: The competition between BPL& Videcon companies.
b) The Product Form Competition: It is a competition between companies manufacturing
products, which are substitutes to each other Eg: Competition between coffee & Tea.
c) The Desire Competition: It is the competition with all other companies to attract consumers
towards the company. Eg: The competition between the manufacturers of TV sets & all other
companies manufacturing various products like automobiles, washing machines, etc.
Hence, to understand the competitive situation, a company must understand the nature of
market & the nature of customers. Nature of the market may be as follows:
I. Perfect Market
II. Oligopoly
III. Monopoly
IV. Monopolistic Market
V. Duopoly
4. Public: A Companys obligation is not only to meet the requirements of its customers, but also to
satisfy the various groups. A public is defined as any group that has an actual or potential ability
to achieve its objectives. The significance of the influence of the public on the company can be
understood by the fact that almost all companies maintain a public relation department. A positive
interaction with the public increase its goodwill irrespective of the nature of the public. A
company has to maintain cordial relation with all groups, public may or may not be interested in
the company, but the company must be interested in the views of the public.
Public may be various types. They are:
a. Press: This is one of the most important group, which may make or break a company. It
includes journalists, radio, television, etc. Press people are often referred to as unwelcome
public. A marketing manager must always strive to get a positive coverage from the press
people.
b. Financial Public: These are the institutions, which supply money to the company. Eg: Banks,
insurance companies, stock exchange, etc. A company cannot work without the assistance of
these institutions. It has to give necessary information to these public whenever demanded to
ensure that timely finance is supplied.
c. Government: Politicians often interfere in the business for the welfare of the society & for
other reasons. A prudent manager has to maintain good relation with all politicians
irrespective of their party affiliations. If any law is to be passed, which is against the interest
of the company, he may get their support to stop that law from being passed in the parliament
or legislature.
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d. General Public: This includes organisations such as consumer councils, environmentalists,
etc. as the present day concept of marketing deals with social welfare, a company must satisfy
these groups to be successful.
External Macro Environment:
These are the factors/forces on which the company has no control. Hence, it has to frame its policies
within the limits set by these forces:
1. Demography: It is defined as the statistical study of the human population & its distribution. This
is one of the most influencing factors because it deals with the people who form the market. A
company should study the population, its distribution, age composition, etc before deciding the
marketing strategies. Each group of population behaves differently depending upon various
factors such as age, status, etc. if these factors are considered, a company can produce only those
products which suits the requirement of the consumers. In this regard, it is said that to
understand the market you must understand its demography.
2. Economic Environment: A company can successfully sell its products only when people have
enough money to spend. The economic environment affects a consumers purchasing behavior
either by increasing his disposable income or by reducing it. Eg: During the time of inflation, the
value of money comes down. Hence, it is difficult for them to purchase more products. Income of
the consumer must also be taken into account. Eg: In a market where both husband & wife work,
their purchasing power will be more. Hence, companies may sell their products quite easily.
3. Physical Environment or Natural Forces: A company has to adopt its policies within the limits
set by nature. A man can improve the nature but cannot find an alternative for it.
Nature offers resources, but in a limited manner. A product manager utilizes it efficiently.
Companies must find the best combination of production for the sake of efficient utilization of the
available resources. Otherwise, they may face acute shortage of resources. Eg: Petroleum
products, power, water, etc.
4. Technological Factors: From customers point of view, improvement in technology means
improvement in the standard of living. In this regard, it is said that Technologies shape a
Persons Life.
Every new invention builds a new market & a new group of customers. A new technology
improves our lifestyle & at the same time creates many problems. Eg: Invention of various
consumer comforts like washing machines, mixers, etc have resulted in improving our lifestyle
but it has created severe problems like power shortage.
Eg: Introduction to automobiles has improved transportation but it has resulted in the problems
like air & noise pollution, increased accidents, etc. In simple words, following are the impacts of
technological factors on the market:
a) They create new wants
b) They create new industries
c) They may destroy old industries
d) They may increase the cost of Research & Development.
5. Social & Cultural Factors: Most of us purchase because of the influence of social & cultural
factors. The lifestyle, values, believes, etc are determined among other things by the society in
which we live. Each society has its own culture. Culture is a combination of various factors which
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are transferred from older generations & which are acquired. Our behaviour is guided by our
culture, family, educational institutions, languages, etc.
The society is a combination of various groups with different cultures & subcultures. Each society
has its own behavior. A marketing manager must study the society in which he operates.
Consumers attitude is also affected by their society within a society, there will be various small
groups, each having its own culture.
Eg: In India, we have different cultural groups such as Assamese, Punjabis, Kashmiris, etc. The
marketing manager should take note of these differences before finalizing the marketing
strategies.
Culture changes over a period of time. He must try to anticipate the changes new marketing
opportunities.
INDIAN MARKETING ENVIRONMENT
It is difficult to analyze the environmental factors affecting Indian market. Ours is a vast country with
various religions, caste, sub-caste, languages, culture, etc. Each of these factors operates at different
levels & art different places.
1. Vast Market: The Indian market is the second largest in the world considering its population. If
consumption is considered, it has one of the lowest levels of consumption. Hence, it can be said
that majority of the market for various products has been left untapped. Region-wise, the Indian
Market can be broadly classified into Four Parts:
a. Northern Market
b. Southern Market
c. Western Market
d. Eastern Market
2. Rural Market: Majority of the Indians live in rural areas. Hence, rural markets have a significant
influence on the companys marketing strategy
3. Cultural & Religion:India is a country with many religions each religion has its own culture &
most of the Indians are religious. The culture affects the habits of people. Hence, it has to be
considered before deciding what is to be sold.
Eg: Jainism completely prohibits the consumptions of meat. Hence, it is difficult to sell meat
where Jains are living
Economic Conditions:India is one of the fastest developing countries. The standard of living is
increasing every year. This indicates that the marketing opportunities in our country are vast.
4. Government: We are following the policy of mixed Economy i.e., Market is neither totally free
(Capitalism) nor it is fully controlled (Socialism). The government encourages consumerism &
hence he marketers are gradually accepting the marketing concept.
5. Intermediaries: Our country has two types of distribution system. They are:
a. Public distribution system, where essential commodities are directly sold to the consumers
through government agencies.
b. Open distribution system, where the products are sold in the open market. The open
distribution system in our country is the traditional one. The chain of distribution is once of
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the most efficient chains of the world. Wholesalers, retailers, brokers, etc are the
intermediaries operating in our country.
6. Press: Press in our country is not as sophisticated as in the developed countries. Most of the
newspapers & magazines are controlled by big business houses.
7. Technology: Most of the company/companies in our country import the technology from other
countries. Investment in research is one of the lowest in the world.
Rural Marketing Challenges & Opportunities:
Majority of Indians live in villages & most of them are farmers. Rural markets in our country are
changing rapidly. Many companies have not tried to find out the needs of rural consumers. Hence,
many rural markets have been left untapped.
Problems of Rural Marketing:
About 80% of villages do not have proper infrastructural facilities like transportation,
communication, etc. People in the rural market purchase in small quantities; usually, they behave as
group. Hence, it is difficult to influence their behavior to deliver a product directly to the rural
consumers; a company has to incur double the cost of what it incurs in case of urban consumers.
Illiteracy among villagers makes it difficult to promote products. Most of them purchase because of
their belief.
IDENTIFYING MARKET SEGMENTS
Segment Marketing
A market segment consists of a large identifiable group within a market, with similar wants,
purchasing power, geographical location, buying attitudes, or buying habits. For example, an
automaker may identify four broad segments in the car market: buyers who are primarily seeking (1)
basic transportation, (2) high performance, (3) luxury, or (4) safety.
Niche Marketing
A niche is a more narrowly defined group, typically a small market whose needs are not being well
served. Marketers usually identify niches by dividing a segment into subseg tobacco company might
identify two subsegments of heavy smokers: those who are trying to stop smoking, and those who
dont care.
Local Marketing
Target marketing is leading to some marketing programs that are tailored to the needs and wants of
local customer groups (trading areas, neighborhoods, even individual stores). Citibank, for instance,
adjusts its banking services in each branch depending on neighborhood demographics; Kraft helps
supermarket chains identify the cheese assortment and shelf positioning that will optimize cheese
sales in low-, middle-, and high-income stores and in different ethnic neighborhoods.
Individual Marketing
The ultimate level of segmentation leads to segments of one, customized marketing, or onetoone marketing.6 For centuries, consumers were served as individuals: The tailor made the suit and
the cobbler designed shoes for the individual. Much business-to-business marketing today is
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customized, in that a manufacturer will customize the offer, logistics, communications, and financial
terms for each major account. Now technologies such as computers, databases, robotic production,
intranets and extranets, e-mail, and fax communication are permitting companies to return to
customized marketing, also called mass customization.7 Mass customization is the ability to
prepare individually designed products and communications on a mass basis to meet each customers
requirements
Bases for Segmenting Consumer Markets
Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units such as
nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few
geographic areas or operate in all but pay attention to local variations. Some marketers even segment
down to a specific zip code. Consider Blockbuster, which has databases to track the video preferences
of its 85 million members and buys additional demographic data about each stores local area. As a
result of this segmentation, it stocks its San Francisco stores with more gay-oriented videos,
reflecting the citys large gay population, while it stocks Chicago stores with more family-oriented
videos. Blockbuster can even distinguish between patterns of East Dallas and South Dallas customers
Demographic segmentation
The market is divided into groups on the basis of age and the other variables in Table 3.5. One
reason this is the most popular consumer segmentation method is that consumer wants, preferences,
and usage rates are often associated with demographic variables. Another reason is that demographic
variables are easier to measure. Even when the target market is described in non-demographic terms
(say, a personality type), the link back to demographic characteristics is needed in order to estimate
the size of the target market and the media that should be used to reach it efficiently. Here is how
certain demographic variables have been used to segment consumer markets:
Age and life-cycle stage. Consumer wants and abilities change with age, as Gerber realized when
it decided to expand beyond its traditional baby foods line because the market was growing more
slowly due to lower birthrates, babies staying on formula longer, and children moving to solid foods
sooner. The company hopes that parents who buy its baby food will go on to buy its Graduates foods
for 1- to 3-year olds.13 However, age and life cycle can be tricky variables. For example, Ford
originally designed its Mustang automobile to appeal to young people who wanted an inexpensive
sport car. But when Ford found that the car was being purchased by all age groups, it recognized that
the target market was not the chronologically young, but the psychologically young.
Gender. Gender segmentation has long been applied in clothing, hairstyling, cosmetics, and
magazines. Occasionally other marketers notice an opportunity for gender segmentation. The
Internet portal iVillage.com reaped the benefits of gender segmentation after initially trying to
appeal to a broader market of baby boomers. Noticing that Parent Soup and other offerings for
women were the most popular, iVillage soon evolved into the leading womens on-line community.
Its home page entreats visitors to Join our community of smart, compassionate, real women.
Income. Income segmentation is a long-standing practice in such categories as automobiles,
boats, clothing, cosmetics, and travel. However, income does not always predict the best customers
for a given product. The most economical cars are not bought by the really poor, but rather by those
who think of themselves as poor relative to their status aspirations; medium-price and expensive cars
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tend to be purchased by the overprivileged segments of each social class. Generation. Each
generation is profoundly influenced by the times in which it grows upthe music, movies, politics,
and events of that period. Some marketers target Generation Xers (those born between 1964 and
1984), while others target Baby Boomers (those born between 1946 and 1964).15 Meredith and
Schewe have proposed a more focused concept they call cohort segmentation.16 Cohorts are groups
of people who share experiences of major external events (such as World War II) that have deeply
affected their attitudes and preferences. Because members of a cohort group feel a bond with each
other for having shared these experiences, effective marketing appeals use the icons and images that
are prominent in the targeted cohort groups experience.
Social class. Social class strongly influences preference in cars, clothing, home furnishings,
leisure activities, reading habits, and retailers, which is why many firms design products for specific
social classes. However, the tastes of social classes can change over time. The 1980s were about
greed and ostentation for the upper classes, but the 1990s were more about values and selffulfillment. Affluent tastes now run toward more utilitarian rather than ostentatious products
Psychographic Segmentation
In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle or
personality and values. People within the same demographic group can exhibit very different
psychographic profiles.
Lifestyle. People exhibit many more lifestyles than are suggested by the seven social classes,
and the goods they consume express their lifestyles. Meat seems an unlikely product for lifestyle
segmentation, but one Kroger supermarket in Nashville found that segmenting self-service meat
products by lifestyle, not by type of meat, had a big payoff. This store grouped meats by lifestyle,
creating such sections as Meals in Minutes and Kids Love This Stuff (hot dogs, hamburger
patties, and the like). By focusing on lifestyle needs, not protein categories, Krogers encouraged
habitual beef and pork buyers to consider lamb and veal as wellboosting sales and profits.18 But
lifestyle segmentation does not always work: Nestl introduced a special brand of decaffeinated
coffee for late nighters, and it failed, presumably because people saw no need for such a
specialized product.
Personality. Marketers can endow their products with brand personalities that correspond to
consumer personalities. Apple Computers iMac computers, for example, have a friendly, stylish
personality that appeals to buyers who do not want boring, ordinary personal computers.
Values. Core values are the belief systems that underlie consumer attitudes and behaviors. Core
values go much deeper than behavior or attitude, and determine, at a basic level, peoples choices
and desires over the long term. Marketers who use this segmentation variable believe that by
appealing to peoples inner selves, it is possible to influence purchase behavior. Although values
often differ from culture to culture, Roper Reports has identified six values segments stretching
across countries: strivers (who focus more on material and professional goals), devouts (who
consider tradition and duty very important), altruists (who are interested in social issues), intimates
(who value close personal relationships and family highly), fun seekers (who tend to be younger and
usually male), and creatives (who are interested in education, knowledge, and technology).
Behavioral Segmentation
In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of,
attitude toward, use of, or response to a product. Many marketers believe that behavioral variables
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occasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitudeare
the best starting points for constructing market segments.
Occasions. Buyers can be distinguished according to the occasions on which they develop a
need, purchase a product, or use a product. For example, air travel is triggered by occasions related
to business, vacation, or family, so an airline can specialize in one of these occasions. Thus, charter
airlines serve groups of people who fly to a vacation destination. Occasion segmentation can help
firms expand product usage, as the Curtis Candy Company did when it promoted trick-or-treating at
Halloween and urged consumers to buy candy for the eager little callers. A company can also
consider critical life events to see whether they are accompanied by certain needs. This kind of
analysis has led to service providers such as marriage, employment, and bereavement counselors.
Benefits. Buyers can be classified according to the benefits they seek. One study of travelers
uncovered three benefit segments: those who travel to be with family, those who travel for adventure
or education, and those who enjoy the gambling and fun aspects of travel. User status.
Markets can be segmented into nonusers, ex-users, potential users, first time users, and regular users
of a product. The companys market position also influences its focus. Market leaders (such as
America Online) focus on attracting potential users, whereas smaller firms (such as Earthlink, a fastgrowing Internet service provider) try to lure users away from the leader.
Usage rate. Markets can be segmented into light, medium, and heavy product users. Heavy
users are often a small percentage of the market but account for a high percentage of total
consumption. Marketers usually prefer to attract one heavy user rather than several light users, and
they vary their promotional efforts accordingly.
Repps Big & Tall Stores, which operates 200 stores and a catalog business, has identified 12
segments by analyzing customer response rates, average sales, and so on. Some segments get up to
eight mailings a year, while some get only one to three mailings. The chain tries to steer lowvolume
catalog shoppers into nearby stores, and it offers infrequent customers an incentive such as 15
percent off to buy during a particular period. Repp gets a 6 percent response to these segmented
mailings, far more than the typical 0.5 response rate for nonsegmented mailings. Loyalty status.
Buyers can be divided into four groups according to brand loyalty status: (1) hard-core loyals (who
always buy one brand), (2) split loyals (who are loyal to two or three brands), (3) shifting loyals
(who shift from one brand to another, and (4) switchers (who show no loyalty to any brand).23 Each
market consists of different numbers of these four types of buyers; thus, a brand-loyal market has a
high percentage of hard-core loyals. Companies that sell in such a market have a hard time gaining
more market share, and new competitors have a hard time breaking in. One caution: What appears to
be brand loyalty may actually reflect habit, indifference, a low price, a high switching cost, or the
nonavailability of other brands. For this reason, marketers must carefully interpret what is behind
observed purchasing patterns.
Buyer-readiness stage. A market consists of people in different stages of readiness to buy a
product: Some are unaware of the product, some are aware, some are informed, some are interested,
some desire the product, and some intend to buy. The relative numbers make a big difference in
designing the marketing program.
Attitude. Five attitude groups can be found in a market: (1) enthusiastic, (2) positive, (3)
indifferent, (4) negative, and (5) hostile. So, for example, workers in a political campaign use the
voters attitude to determine how much time to spend with that voter. They may thank enthusiastic
voters and remind them to vote, reinforce those who are positively disposed, try to win the votes of
indifferent voters, and spend no time trying to change the attitudes of negative and hostile voters.
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MARKET TARGETING
Evaluating Market Segments
In evaluating different market segments, the firm must look at two factors: (1) the segments
overall attractiveness, and (2) the companys objectives and resources. First, the firm must ask
whether a potential segment has the characteristics that make it generally attractive, such as size,
growth, profitability, scale economies, and low risk. Second, the firm must consider whether
investing in the segment makes sense given the firms objectives and resources. Some attractive
segments could be dismissed because they do not mesh with the companys long-run objectives;
some should be dismissed
if the company lacks one or more of the competences needed to offer superior value.
Selecting and Entering Market Segments
Having evaluated different segments, the company can consider five patterns of target market
selection, as shown in Figure 3-7.
Single-Segment Concentration
Many companies concentrate on a single segment: Volkswagen, for example, concentrates on the
small-car market, while Porsche concentrates on the sports car market. Through concentrated
marketing, the firm gains a thorough understanding of the segments needs and achieves a strong
market presence. Furthermore, the firm enjoys operating economies by specializing its
production, distribution, and promotion; if it attains segment leadership, it can earn a high return
on its investment. However, concentrated marketing involves higher than normal risks if the
segment turns sour because of changes in buying patterns or new competition. For these reasons,
many companies prefer to operate in more than one segment.
Selective Specialization
Here the firm selects a number of segments, each objectively attractive and appropriate. There
may be little or no synergy among the segments, but each segment promises to be a
moneymaker. This multi-segment coverage strategy has the advantage of diversifying the firms
risk. Consider a radio broadcaster that wants to appeal to both younger and older listeners using
selective specialization. Emmis Communications owns New Yorks WRKSRM, which describes
itself as smooth R&B [rhythm and blues] and classic soul and appeals to older listeners, as
well as WQHT-FM, which plays hip-hop (urban street music) for under-25 listeners.

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POSITIONING
The word positioning dates back to 1972, and was coined by Al Ries and Jack Trout.
According to them, positioning is not what you do to a product; rather it is what you do to the
mind of the customer. In other words, product positioning refers to all the activities undertaken
by a marketer to create and maintain the concept of value regarding its brand in the minds of
customers as against competitors brands. This concept soon caught the attention of marketers
and advertisers who began developing positioning strategies for their products and services.
Exhibit 12.2 describes how positioning effects the sale of products in a retail scenario. Marketers
try to position the product in such a manner, that it seems to possess all the desired
characteristics.
Creating a position for its products in the market helps a company develop a competitive
advantage. Al Ries and Jack Trout, in their book Positioning: The Battle for your Mind, have
elaborated upon the positioning strategies that need to be devised by companies to reach the
target customers in a marketplace that is swamped by competitors. Various positioning strategies
suggested by Al Ries and Jack Trout are discussed below.
Getting into the mind of the consumer
Getting into the mind of the customer is easier if the product or service happens to be the first in
the market. It is very easy to remember who is first but very difficult to remember who is second.
For instance, if you were asked to name the first man to land on moon, you would immediately
say "Neil Armstrong" but if you were asked to name the second person to land on the moon,
would you be able to confidently give the right answer Buzz Aldrin. Similarly, in the
marketplace, customers find it easy to remember products that were introduced first in the
market. Subsequent products in that category, however good they may be, are difficult to bring to
mind.
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Positioning of a leader
It is traditionally believed that the number one brand in the market occupies twice the market
share of number two brand. Likewise, the number two brand occupies twice the market share of
number three brand. The success of a company is not just due to its successful marketing
strategies, but a major reason is that it was first in the market. For instance, Xerox being the first
in the plain-paper copier market was able to attain market leadership. However, the company
failed several times to introduce products in other categories where it did not have market
leadership. Another example is IBM, the market leader in manufacturing computers. When IBM
tried to compete with Xerox in the copier market where it did not have first mover advantage, it
failed. It is therefore important for a market leader to maintain its position by positioning its
products intelligently. Most important of all, a market leader should not boast about its being
number one in the market. The danger is that customers may believe that the insecurity of being
number one in the market is forcing the company to do so.
Positioning of a follower
As already mentioned, if a brand is not the first that comes to mind, then it is better to identify an
unoccupied position where the brand can be the first. For example, when large cars like
Ambassador and Fiat were popular in India in the 80s, Maruti introduced a smaller car with an
800 cc capacity and it turned out to be immensely successful because it was the first in the small
car segment.
Repositioning the competition
Marketers sometimes try to reposition their products. The reasons might be that competitors are
also positioning for the same segment or that the market has become overcrowded or that the
target segments do not turn out to be as attractive as forecasted. For example, When Tata Sumo
of TELCO was introduced in the market, it was positioned on the takes the rough with the
smooth and the tough one ideas. However, when Toyotas Qualis was introduced in the
market much earlier than expected and the rural market did not turn out to be as attractive as
forecasted due to poor harvests in several states, TELCO had to reposition Sumo as a multi
utility vehicle (MUV) suitable for the urban market. Before repositioning, it modified the design
of Sumo. It redesigned the exterior, giving it a more urban look, took better care to soundproof
the cabin, and added power steering and central locking to make the Sumo attractive for the
urban segment. To communicate the change in the positioning, Tata Sumo came out with a teaser
campaign in August 2001. Its advertisement in the leading newspapers said, If you can identify
the family vehicle shown here, dont bother paying us for it. Readers had to call a toll-free
number to register their responses. Readers responses varied widely. In September 2001, the
new look Sumo was unveiled and it received a favorable response in the market.
The power of a name
Creating a unique position for the brand in the mind of the customer becomes easy if the brand
has a suitable name. Names like Uncle Chipps, Pepsodent, Close Up, Head & Shoulders, Clinic
All Clear, Timex, Speed (branded petrol), etc reveal something about the product's utility and
therefore have a large recall value for customers. These examples indicate the power of a name
in positioning a product suitably. At the same time, condensing the company name into a series
of initials may not help significantly because it tends to confuse the customer as to what business
the company is involved in. This strategy may benefit large companies, but not small companies.
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UNIT II: PRODUCT MANAGEMENT

PRODUCT LIFE CYCLE


Product life cycle (PLC) analysis is a very valuable tool in the hands of a marketer. As shown in
Figure 11.2, a typical product goes through four stages in its life, i.e. (a) introduction, (b) growth,
(c) maturity and (d) decline. And it varies according to the type of product. Studying the patterns
of PLC, from time to time, helps the business to prosper. It gives marketers a better
understanding in managing their profitable products and eliminating the unprofitable ones. As
the product moves from one stage of its life cycle to another, marketers try to evaluate and adjust
strategies for promoting, pricing and distributing the product. We will explain the various stages
below.
Introduction
In the introduction stage, the product is introduced to the customer. Introducing a new product is
difficult because (a) only a few sellers can afford the technological know-how, marketing and
other costs to launch the product and (b), the risk of new product failure is quite high. The
introduction stage is marked by zero profits and negative or negligible sales. This is because
initial revenues generated are low. Promotional expenses are at their highest because the
company needs to (i) inform the customer about the product (ii) induce product trial and (iii)
secure distribution in retail outlets. Advertising is one of the most effective tools at this stage of
PLC because marketers must communicate their product's features, usage and advantages to
potential customers.
Figure 11.2: The Four Stages of the Product Life Cycle

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Strategies for introduction stage
Marketers can set the price, promotion, distribution and quality of the product as either high or
low, for the introduction of a new product. Keeping only price and promotion in mind, a
marketer can adopt strategies like:
Rapid skimming: Using this strategy, marketers launch the product at a higher price and higher
promotional level to skim the market rapidly. This strategy is more successful when a large part
of the potential market is unaware of the product. Using this strategy, the firm tries to build brand
preferences.
Slow skimming: This strategy calls for launching the new product at a higher price and a low
promotional level. This strategy is feasible when the market is aware of the product, the market
size is limited, competition is not intense and the customers are ready to pay a higher price for
the product.
Rapid penetration: Rapid penetration demands the launching of a product at a lower price and
with heavy promotion. This strategy is applied when the market is large in size, customers are
unaware of the product, they are more price sensitive, there is a strong competition among firms,
and the unit manufacturing cost comes down with the company's scale of production.
Slow penetration: Slow penetration calls for launching the new product at a lower price and a
low level of promotion. Marketers resort to this strategy when the market is large in size, the
customers are highly aware of the product, they are price sensitive, and there exists some
potential competition in the market.
Growth
The introduction stage is followed by the growth stage. The growth stage is crucial for the
product's survival in the market because the reactions of the competitors to the product's success
will affect the product's life expectancy. This stage is characterised by increase in sales, heavy
demand for the product and peaking of profits. New firms enter the market in the growth stage,
attracted by the promising opportunities in the market. They introduce new product features and
a wider distribution network. Companies increase their level of promotional expenditure to meet
the competition. The profit of the firm increases initially as (a) promotional costs are spread over
a larger volume and (b) the unit manufacturing cost falls. At a later phase in growth stage, the
profits begin to decline as competition increases, forcing the lowering of prices and heavy
spending on promotion.

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Strategies for the growth stage
Firms use various strategies to cash in on the growth in the market, as quickly as possible.
(a) They restore to aggressive pricing, including price cuts to attract price sensitive
customers.
(b) They emphasize the product's benefits in order to create a competitive niche in
the market.
(c) They try to improve product quality and add new features and models. Other
changes brought about to the product include making the product available in
different sizes, flavors, etc.
(d) They may introduce new distribution channels.
(e) They enter new markets.

Maturity
The maturity stage is marked by a steady decline in profits. The sales tend to (a) grow, (b)
stabilise and (c) then start to decline (refer the sales curve in Figure 11.2). The sales growth rate
slows down as the distribution channels get exhausted. Then the sales tend to flatten or stabilize
on a per capita basis as the market reaches its saturation. And finally the sales start declining and
customers try out new products and substitutes. Competition is fierce at this stage as many
brands compete at the same time. Each competitor tries to improve his product and highlight the
product benefits. Weaker competitors and smaller firms are squeezed out of the market.
Strategies for the maturity stage
Firms adapt various strategies to stimulate sales in the maturity stage, like:
Abandon weaker products and concentrate more on profitable products.
Increase advertising and sales promotion. Marketers resort to introducing fresh advertising
campaigns, new packaging and even product re-launches during this stage.
Invest more in R&D to bring about improvements in the product and product line extensions.
Divest the business through disposal of assets.
Limitations of PLC concept
The PLC concept helps in making marketing decisions but it needs to be implemented with care.
Managers need to be aware of the limitations of the PLC so that they are not misled by its
prescriptions.

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The sales of some products rise quickly and may decline at the same rate. However, some
products may continue at the same stage for long. For example, Cadbury's Dairy Milk chocolate
has survived for decades in the mature stage of the PLC.
Increase in marketing activities like promotion may alter the shape of the PLC's sales curve to a
considerable extent. For example, an increase in advertising at the maturity and or decline stages
may increase the length of these phases.
The PLC outlines the phases but does not give any indication as regards to their duration i.e.
duration of introduction, growth, maturity stages. This limits its use as a forecasting tool since it
is not possible to predict when maturity/decline will begin.

Constituents of a Product
Marketers plan their market offering at five levels, as shown in Figure 4-2. Each level adds more
customer value, and together the five levels constitute a customer value hierarchy. The most
fundamental level is the core benefit: the fundamental service or benefit that the customer is
really buying. A hotel guest is buying rest and sleep; the purchaser of a drill is buying holes.
Effective marketers therefore see themselves as providers of product benefits, not merely product
features. At the second level, the marketer has to turn the core benefit into a basic product. Thus,
a hotel room includes a bed, bathroom, towels, and closet. At the third level, the marketer
prepares an expected product, a set of attributes and conditions that buyers normally expect when
they buy the product. Hotel guests expect a clean bed, fresh towels, and so on. Because most
hotels can meet this minimum expectation, the traveler normally will settle for whichever hotel is
most convenient or least expensive. At the fourth level, the marketer prepares an augmented
product that exceeds customer expectations. A hotel might include a remote-control television
set, fresh flowers, and express check-in and checkout. Todays competition essentially takes
place at the product-augmentation level. (In less developed countries, competition takes place
mostly at the expected product level.) Product augmentation leads the marketer to look at the
users total consumption system: the way the user performs the tasks of getting, using, fixing, and
disposing of the product. As Levitt notes: The new competition is not between what companies
produce in their factories, but between what they add to their factory output in the form of
packaging, services, advertising,customer advice, financing, delivery arrangements,
warehousing, and other things that people value.

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Product Line
The product category the firm is dealing is often called as Product Line. A firm may have many
Product lines and it depends upon the firm as to how many Product Lines they should have
Product Mix Decisions
The product mix is the set of all the products that an organization offers to its customers. For
instance HLL offers detergents, shampoos, hair care products, cosmetics, beverages, health care
products, ice creams, etc. A product mix consists of all the product mix lines and categories. It
has a certain characteristic features like product width, length, depth and consistency.
Width: This is the total number of product lines a company carries. In Table 11.1 we see that
HLL's product mix width consists of 10 lines.
Length: The length of the product mix is the total number of items in that mix. In our example
of HLL (Table 11.1), it is 46. The average length of a line is obtained by dividing the total
length by the number of lines i.e. 46/10 = 4.6
Depth: The depth of a product mix is the assortment of sizes, colors and variations offered for
each product in the product line, for example, Lifebuoy Active Red comes in three sizes:
125gm, 100gm and 60gm cakes.
Consistency: Consistency refers to the closeness exhibited by the products lines in production
requirements, distribution, end usage, etc. For instance, most of the HLL product lines are
consistent as they are consumer goods, distributed by the same channels of distribution and are
produced in similar manufacturing facilities.
Product Mix Strategies
Manufacturers and middlemen use several strategies to manage their product mix effectively. We
will discuss a few of these strategies here.

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Expansion of product mix: An organization may opt to expand its existing product mix by
increasing its product lines and/or the depth within the line. New product lines may be either
related or unrelated to the existing product lines.
Table 11.1: Product Mix of HLL

Contraction of product mix: It has been noted that companies contract their product mix during
economic slumps, and when the competition is intense. Organizations contract their product mix
either by eliminating the entire product line or by simplifying the assortments within the lines.
The product mix is contracted to eliminate low profit yielding products and to get a better profit
margin from fewer products.
Altering existing products: Companies should consider altering the existing products instead of
adding new products to their product mix. Redesigning or adding new features to the existing
product can prove to be less risky and more lucrative. Packaging is an equally important tool in
altering the look and the usage of the product. Creative packaging has been found to increase the
attractiveness of even mundane products like cheese, paper napkins, eggs, etc. For example, the
tetra pack of milk/juices increases the ease of handling and storage. Colgate toothpaste's plastic
packaging makes it easy to use and dispense the product.

Product Line Decisions & Brand Decisions


Selection of a brand name is crucial for the success of a brand. There are several factors that
have to be considered before the brand name is selected. It is necessary to ensure that the brand
name is easy to remember. It should have an easy recall value and people should be able to
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spell and pronounce it easily. The brand name should be such that it arouses curiosity when
heard. A brand name, which arouses curiosity, will attract the attention of the target audience.
Brand Strategy Decision
A brand signifies some value to the customers and a brand strategy decision involves the
necessary steps that have to be taken to deliver this value to the customers.
Steps: identification of the availability of resources for allocating budgets for brand building,
the commitment of the company, and its capability to take an initiative that is required. These
steps form part of a brand building exercise and if an organization is unable to take such steps,
the brand becomes a liability to the organization rather than an asset. The strategic implication
of building a brand is that it should help improve the business of the organization.
Line Extension
A line extension is the development of a product that is closely related to one or more products
in the existing product line but is designed specifically to meet the somewhat different needs of
customers. For example, Godrej had a face cream with the name Fair Glow Fairness cream and
came out with the Fair Glow toilet soaps to cater to the people who wished to use soap bars
rather than cream.
Brand Extension
Brand extensions are brand names extended to new product categories. Market dynamics throw
up opportunities for extending a brand in three forms:
Extending the brand to another form of the same product: The primary benefit derived
from both the products is the same. For instance, the benefit derived from brushing the teeth
with either Colgate toothpaste or toothpowder is the same. The efficacy levels of both forms are
assumed to be similar. Several brands have grown in value through this route. For example,
Colgate is available both as a toothpaste and toothpowder. Similarly 'Vim bar' has been
extended to a powder form. In the pharma sector, a branded anti-allergy medication from Dr
Reddy's Laboratories sells both in syrup as well as tablet form. By offering the same brand in
different forms, the marketer enhances the scope of application of a brand and reaches a larger
audience.
Product line extensions: Adding related products to a brand that is well established. A
marketer resorts to this when he wants a brand to cover different sub-segments within the same
product category. HLL extended its Flora brand of sunflower oil to the gingelly oil subsegment
of the edible oils category. Such a move is common in very competitive markets.
Reaching out to a new category: When the brand has the potential of providing benefits in
another category either through a carefully chosen name or through its wide acceptance in a
category, this form of extension is followed. Godrej Consumer Products extended its Fair Glow
brand, having a presence in fairness creams, to soaps. By extending the brand to soaps, the
assurance that Fair Glow promoted fairness was expected to easily flow to soaps as well. The
brand enables this extension conveniently by standing for a product that promises fairness.
Packaging Decisions Packaging
Packaging is the process of developing a design and a container for a product. Packaging adds
value to the product in the form of easier handling and secured usage. Packaging plays a
prominent role in the sales of a product since a properly packaged product will result in repeat
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purchases by the customers. A secured, transparent and easy-to-use packaging will have better
sales. A clear transparent packaging will help the customers view the contents of the product
and will help them in their purchase decision-making.
Labeling
Labeling is the process of exhibiting important information on the product's package. Labeling
has become increasingly important and legally essential. Manufacturers have to display the
ingredients of the product on the package, with warnings and safety precautions along with
instructions about the best possible utilisation of the product.
The Government of India encourages the manufacture of products that are eco-friendly. One
such step in this direction is to provide a labeling with the name 'ECOMARK' for those
products that meet certain criteria. Such criteria could lead to effective reduction in the harm
caused to the environment, when such products are disposed of. The Government of India
issues this ECOMARK, when the products meet the set standards along with the requirements
of the Indian Standards Institute. This process has been started to encourage the industries in
India to contribute to the protection of the environment.
Universal Product Codes
Labeling many products is done by attaching a universal product code which consists of a
unique sequence of lines that identifies a product with the help of an electronic scanner usually
placed at the retail checkout counters. In India, the usage of the bar code started in the 1990's
with the Indian Institutes of Technologies (IITs) using it for coding their library books. The
concept was later introduced in retail outlets like Food World. Most of the logistics firms are
increasingly using the bar coding technology in India. Bar codes, however cannot help a firm in
effectively tackling piracy or imitations. But it has advantages like reducing the amount of data
entry work. EAN (European Article Number), a Delhi-based organization, is responsible for
issuing bar codes for products. The Government of India has made it compulsory for exporters
to bar code their products.
NEW PRODUCT DEVELOPMENT
Before the introduction of a product into the market it goes through several stages of
development. These stages of development usually include (a) idea generation, (b) screening, (c)
concept testing and business analysis, (d) product development, (e) test marketing and (f)
commercialization.
Idea Generation
Companies seek new ideas to enhance the performance of their existing products and/or to
innovate new products. The act of searching for new ideas is called idea generation. New
product ideas can come from customers, dealers, in-company resources, advertising agencies
and the external research consultants. But the main source of ideas for generating new products
or improving the existing product is the customers. Their complaints and grievances are a rich
source of ideas. This is true in case of customer products as well as industrial products. Most
companies prefer user stimulus strategies and announce attractive prizes for people who
suggest ideas.
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Idea Screening
The main purpose of idea generation is to collect a large number of ideas. However, not all ideas
can be commercially viable. Therefore, companies filter the less viable ideas with the help of a
systematic process. Companies can use various parameters to screen the ideas such as market
size, technical capabilities, potential competition, compatibility with the known customer needs,
etc. Addressing the following issues will also help companies analyze the attractiveness of ideas:
The main purpose of idea screening is to reduce the number of ideas to a manageable few that
deserve further attention for development. Screening calls for spotting good ideas and dropping
poor ones as soon as possible. If poor ideas are not dropped at the appropriate time, the company
will have to bear the expense of product development and disposal. Therefore, marketers must be
prudent in selecting the ideas.
Concept Testing and Analysis
After passing the initial screening stage, the product idea proceeds to the next stage i.e. concept
testing. Concept testing is one of the crucial stages of product development. But companies
often do not take this stage seriously or omit it completely. As a result, many new products fail.
They fail because they reflect only the preferences and capabilities of the company and not the
customer needs or product benefits that significantly distinguish them from competitive
offerings.
Marketers use various tools to explain the product attributes, like drawings, sample designs,
computer aided designs and virtual reality programs, etc. Companies use research like a focus
group survey and/or broad market survey to collect the feedback about customer needs,
perceived value, believability of the idea, comparison with competitive products, and purchase
intentions. The results of concept testing help in understanding what attributes and benefits a
customer is looking for in a product.
Business analysis
After testing the product concept, the firm makes a plan for developing, producing, and
marketing the new product. This requires research on the market size, competitive structure and
preliminary technical analysis for providing the basis for the design and production approach,
and also the appropriate legal and patent search.
Business analysis is the first in-depth financial evaluation of the new-product to be developed. It
undergoes several revisions. Business analysis is considered as one of the important stages in the
new product development process, as it involves estimating the total investment required in
developing the product and the expected sales.
Total sales estimation
Total estimated sales are a sum of the estimated first-time sales, replacement sales and repeat
sales. For one time purchased products, sales rise at the beginning, peak and later approach zero.
For infrequently purchased products such as cars, replacement cycles are dictated by physical
wearing out or by obsolescence. Sales forecasting calls for estimating first-time sales and
replacement sales separately. In case of frequently purchased products, the number of first time
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buyers initially increases and then decreases. If repeat purchases occur soon after the first
purchase, it indicates that the product satisfies some buyers.
Estimating costs and profits
The R&D, manufacturing, marketing and finance departments estimate the cost. The profitability
of the new product is estimated through various financial tools. Break-even analysis is the
simplest technique which estimates the number of units of a product a company would have to
sell to break even with the given price and cost structure.
Product Development
After completing concept testing and business evaluation, the next stage involves the actual
product development. In this stage, detailed technical analysis is conducted to know whether the
product can be produced at costs low enough to make the final price attractive to the customers.
A working model or a prototype is developed which reveals all the tangible and intangible
attributes of the product. These prototypes are developed in limited numbers for customer testing
purposes.
Product use testing
Marketers identify a sample of target customer group to test the functionality of the prototype
and the final product. They can select the sample from either the employees of the company or
volunteers who will test the product. The prototype developed is tested for its feasibility and
functionality. Product testing is carried out to evaluate the product characteristics and examine
the functional performance of the product. It gives useful information like customers first
impression about the product and provides early use experiences of the customers and their
further expectations. Product testing further helps in:
Test Marketing
Test marketing is the stage where the product is introduced in a few select cities. Test marketing
comes with its own cost. The company bears the following expenses:
i.High advertising costs considering the low volume,
ii.High manufacturing costs because of lack of economies of scale,
iii.High distribution costs, because of low volumes
iv.Other costs like cost of distributing samples, coupons, etc.
Commercialization
The results of test marketing help marketers decide the changes that are needed in the marketing
mix before entering the market. It also helps the marketers decide the amount of production, the
distribution strategy, selling efforts and other issues like providing guarantees, warranties, post
purchase repair and replacement services etc.

UNIT III: PRICING STRATEGY


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PRICING
Price of a product is its value expressed in terms of money which the consumers are expected to
pay. Form the sellers point of view, it is return on the exchange & in economic terms, it is the value
of satisfaction.
Importance of Price:
Price is a key factor, which affects a companys operation. It plays an important role at all levels of
activities of a company. It influences the wages to be paid, the rent, interest & profits. It helps in
proper allocation of resources by controlling the price, the demand & supply factor may easily be
adjusted.
Objectives of Pricing:
1. To increase the profit: this is the most common objective. A company may fix the price with
the aim of earning certain percentage of profits
2. Market Share Objective: some companies fix the price with a view to capture new market or
to, increase or maintain the existing market share. The objective here is to either avoid
competition or to meet it.
3. To Stabilize the Price: This is usually followed in the oligopoly market by the market
leaders. The objective here is to avoid the price war & fluctuations in price.
4. To Recover Cost: To get back the cost incurred as early as possible, is another objective of
pricing. It is for this reason that different prices are set for cash & credit sales for the same
product.
5. Penetration Objective: The objective of penetration pricing is to fix a low-price so as to
enter the new market.
6. To Maintain the Product Image: In this case, the objective is to fix a higher price to create a
perception that the product is of superior quality. This is called market skimming strategy.
Factors Influencing the Price Determination:
The decision to fix the price is influenced by many factors which are controllable & uncontrollable.
They are:
Product Characteristics.

Pricing The Process of Setting Prices


Setting the price involves the following steps:

Setting pricing objectives

Factors affecting demand determination

Selection of a pricing method

The selection of pricing policy

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Analyzing the pricing of the competitors

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Pricing Methods
Mark-up pricing
Firms fix a selling price on the products they produce, which normally exceeds the costs incurred
in producing these products. In this type of pricing, a marketer adds a mark-up on its cost of the
product. Mark-up pricing is most common in retailing, where a retailer buys a product for resale.
For example, if a retailer incurs a cost of Rs.85 to buy a product, he might add a mark-up of
Rs.15 and fix the selling price of the product at Rs.100. Mark-up is most normally expressed as a
percentage of the cost or a percentage of the selling price. In the above example, the markup
expressed as a percentage of the cost and as a percentage of the selling price is shown below.

Target return pricing


The target return pricing is set by marketers to achieve a specified rate of return on their
investments. The companies, which fix a return on their investment, are usually the leaders in
their industry. General Motors, General Electric, Dupont are examples of companies, which have
linked the prices of their products to this objective. A marketer can fix the prices of his products
on the basis of target returns that he is expecting on the investment with the help of following
formulae:

Suppose a marketer produces a product and the cost of each unit is Rs 200. He made an
investment of Rs. 100,000 to set up his business. He expects that he will be able to sell 500 units
of the product and obtain 15 percent return on his investment. He will price his product at

Perceived value pricing


In this type (perceived value) of pricing, marketers set the prices of the products on the basis of
their perceived value in the minds of customers. Perceived value is calculated as a weighted
average of the products perceived attribute scores. Marketers normally use advertising and sales
promotional activities to enhance the perceived value of the product in the market. Firms may
conduct market surveys to analyze customers perceptions about the value of the product. This
will help marketers efficiently set the prices for their products. Dupont follows perceived value
pricing for its products. However, there is an inherent risk in using this method. If the marketer
underestimates the value of the product based on the customers belief of the perceived value of
the product, he will charge less than what he actually can from the customers and he will not be
able to maximize his profits. Similarly, if the marketer overestimates the value of the product, the
customers will not buy the product and it will be difficult for him to survive in the market.

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Going rate pricing
Going rate pricing is a simple method in which a company simply follows the prevailing pricing
patterns in the market. The company adopts a pricing strategy similar to those adopted by the
major players in the market or may slightly adjust its prices to suit the companys systems and
processes. Generally, in this method, marketers give importance to price changes made by the
market leader and alter their own prices accordingly, rather than changing the prices according to
the demand patterns of the companys product in the market.
Sealed bid pricing
In some markets, business is carried out on the basis of sealed bids rather than on the basis of
openly setting prices for products. This type of pricing is more suitable for industrial products.
Many companies compete in this process, where the price of the product or service is usually
quoted in a sealed cover. This method is adopted for the products that do not possess a market
price or for products for which it is difficult to fix the price owing to attributes like varying levels
of quality and specifications. The sealed bid method is usually followed in government
organizations. Whenever a government organization needs to purchase a product or service, it is
required to call for bids and several companies are invited to quote their prices in a sealed form.
After receiving the sealed bids, the organization will normally purchase the product or service
from the company, which has bid the least price.
Differentiated pricing
In differentiated pricing, marketers adopt different prices for the same product at different
locations or for different types of customers. For instance, the cost of a 250 ml Pepsi may cost
Rs.8 in a supermarket, Rs.10 in a cinema hall and Rs.12 in a restaurant. Thus, even though the
product is the same, it is sold at different prices at different locations. This pricing method, if
used effectively, will help a company increase its profits. Another example of differentiated
pricing can be seen in the service provided by Andhra Pradesh State Road Transport Corporation
(APSRTC), which offers tickets at a lower cost to regular travelers through various schemes,
than to those who only travel occasionally. Similarly, at hill stations, hotels keep different prices
for summer and winter seasons.
Value pricing
Value pricing is a method in which marketers offer low prices for high quality products or
services. The idea of value pricing is to help the customers perceive that they are getting a high
quality product at a low price. Value pricing is not implemented as a response to the pricing
patterns of the competitors. On the contrary, it is an outcome of improved research and
development that helps the company deliver high quality goods at low prices. For example, The
Times of India started a revolution in the newspaper market by offering the daily newspaper for
as less as Re.1 on some days of the week. Similarly, in the shampoo and detergent markets, HLL
and P&G have recently reduced their prices by 15-20% in an attempt to send a message to
customer that they are getting better value for their money.

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Market skimming
Marketers usually adopt such an objective when they develop unique and innovative products or
a breakthrough technology. Certain companies prefer to set high prices for their products and
recover the costs incurred in developing and producing them as early as possible. It becomes
necessary for a marketer to do this if he feels that the product being developed or the technology
being utilized has a short life cycle. Intel, the chip producer, adopted this strategy. However, this
strategy has an inherent disadvantage. If the competitor prices his products lower than the firms
prices, it may result in the firm losing significant market share.

Pricing Policies & Pricing Methods or Determination or the Price:


I. Cost Plus Pricing: In this method, the cost of manufacturing a product serves as the basis to
fix the price, the desired profit is added to the cost & the final price is fixed. Most of the
companies follow this method. Following are various methods of cost + pricing.
a. Price Based on the Total Cost: Here a percentage of profit is added to the cost to
calculate the selling price. It is usually followed by the whole sellers & the retailers.
For industries such as construction, printing, repair shops, etc. this method is more
suitable.
b. Price Based on the Marginal Cost: It is the method of pricing where the price is
fixed to recover the marginal cost only. Marginal cost is the extra cost incurred to
produce extra units. Hence, this method is suitable only when pricing decisions are to
be taken to expand the market to accept the export orders etc.
c. Break Even Pricing: Under this method, the price is fixed first to recover the total
cost incurred to produces the product. It is fixed in such a manner that the company
neither earns profit nor does it suffer losses. This method is suitable during depression
when there is acute competition, when a new product is to be introduced or when the
product enters the declining stage of its life.
Advantages of Cost + Pricing:
1. This method is simple & hence price can be easily determined.
2. Companies, which cannot estimate the demand may follow this method.
3. It is suitable for long-term pricing policies
Dis-advantages of Cost + Pricing:
1. It neglects the demand factor of the product
2. It is difficult to determine the exact cost.
II. Pricing Based Upon Competition: Competition based pricing is defined as a method where a
company tries to maintain its price on par with its competitors. It is suitable when the
competition is serve & the product in the market is homogenous. This price is also called the
going rate price. The company cannot take risk of either increasing the price or decreasing it.
Following are some of the methods based upon competition:
a. Pricing Above the Competition: It is usually followed by well-recognized
manufacturers to take advantage of their goodwill. The margin of profits is too high.
This method is useful to attract upper class & upper middle class consumers.
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b. Pricing Below Competition Level: This type of pricing is followed by the
wholesalers & the retailers. They offer various kinds of discounts to attract consumers.
Even established companies follow this method to maintain or to increase their sales
during the off season.
III. Pricing Based on Markets: Depending upon the market of product, the manufacturers may
fix the price for their products. In a perfect market, he has to go for the expected price in the
market. It is also called the market price or going rate price. In case of monopoly, he is free to
fix the price & can effectively practice the price discrimination policy.
In oligopoly where there are few sellers, the price is fixed by the largest seller called the
market leader & others follow him. If price is above this level, he loses sales considerably &
if he reduces it, sales may not increase because competitors immediately react & reduce their
price also.
Initiating Price changes
An organization may initiate price changes to deal with new forces arising within the organization or
the market. The organization has to work n both directions of Price Cuts and Price Increases.
Initiating the Price Cuts
Several situations lead an organization to reduce the price of its products. Organizations with excess
capacity try for extra sales in order to achieve higher capacity utilization rates. In such a situation, it
may find lowering price the most easy method of achieving higher sales volume.
Some organizations often lower the price to achieve higher sales volume, and thereby capture larger
market share. These organizations believe that once they are to dominate the market and hold to a
large market share, the resulting sales volume may allow it to achieve economies of scale.
Lowering price is very risky strategy. It usually invites sharp reactions from competitors and often
results into a price war. Care less prices cuts may lead an organization into the following traps:
Low quality trap
An organization initiating price cuts may fall in a low quality trap when consumers associate the new
low prices to a poorer quality product.
Fragile market trap
It may fall into a fragile market trap when price sensitive consumers wait for further price cuts or
search for cheaper products.

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Shallow pocket trap
It may fall into the shallow pocket trap if financially strong organizations react by huge price cuts to
counter the price cuts initiated by a weak organization.
Initiating Price Increases
Internal or external forces often lead an organization to change its prices. Price changes are often
initiated by the organization. The organization also has to design its strategy to deal with price
changes initiated by competitors.
Increasing price
Increasing price of a product is an attractive proposition for every business organization, since a small
increase in the price results in huge increase in the revenue and profits. If an organization feels that
the sales volume will not be affected by a small price increase, it may always be tempted to increase
the price.
Most price rises are the results of inflation that causes the organization's costs to increase. Costs often
increase when the government introduces new taxes or raises the current tax rates. Increase in the
price of any factors of production - wage levels, raw materials prices and interest rates - cause the
price to increase. Often, organizations anticipate such increases and may raise the price of its
products in advance.
Sometimes, an organization may increase the price in order to reduce the demand for the product.
When an organization cannot increase the supply of its over demanded product, it may raise the price
level to manage the demand at the current supply point.
Responding to Competitors price changes
An organization faces a strategic decision situation when competitors initiate price changes.
Responding to the price change, particularly in the case of price cuts is a difficult question. The
organization has to consider the objective and time frame of the price change. The following clues
are important in responding to price changes:

If the price cut has been initiated in order to use excess capacity or to cover rising costs, it
does not warrant any response.

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If the price change is temporary or short term, initiated to clear old stocks, there is no need for
response.

If the objective is to dominate the market and the price change is long term, the organization
has to respond quickly and effectively.

The organization should also evaluate the consequences of non response to the price change.

If the price change does not seriously affect it current sales and market share, there is no need
for response.

Before showing any response, it should carefully watch how other competitors react to the
price change.

Responding to a competitor's price change is also influenced by the status of the organization in the
market. Small follower firms are forced to follow the price changes initiated by a large organization
that forced to follow the price changes initiated by a large organization that performs the role of the
price leader. The price leader normally establishes the market price that is adopted by several price
follower firms.
Sometimes, the price leader is also troubled by smaller firms through severe price cuts. In such a
situation, the price leader has the options of response or non response. The leader organization may
not respond if it does not expect to lose any significant portion of its market share.

If the price cut is expected to seriously hurt the market share and profit situation, the leader
organization may take one or more of the strategic options:
Option 1: Increase customers perceived value of the product by increasing promotional level.
Option 2: Increase the price complemented by an improvement in quality and features of the product.
This requires a re-positioning strategy to establish the brand at a higher price position.
Option 3: Add a new lower price brand to the current product line and position it directly with the
attacker's brand. This trading down strategy helps the organization to maintain high quality image for
the old brand.
Option 4: As a last option, reduce the price to off to set the negative effects of the price attack.
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UNIT IV: SALES AND DISTRIBUTION MANAGEMENT
Marketing Channels
Originally defined as: Paths through which goods or materials can move from producers to users.

- Definition: A set of interdependent organizations involved in the process of making a product of


service available for consumption or use.*
-Four Types of Utility: Form, Time, Place, and Possession utility
Middleman or Intermediaries
Create value by reducing the spatial separation the physical distance between the point of
production and point of consumption
Marketing Channels Act as Exchange Facilitators
We define a Marketing Channel as exchange relationships that create customer value in the
acquisition, consumption, and disposition of products and services

Functions and Flows in Marketing Channels*


A. Functions in Marketing Channels

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Carrying of Inventory
Demand generation
Physical distribution
After-sale service
Extending credit to customers

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MARKETING MANAGEMENT
FIGURE 1-1: CONTACT COSTS TO REACH THE MARKET WITH AND WITHOUT
INTERMEDIARIES

Manufactur
ers

Selling
Directly
40 Contact
Lines

Retailers

Manufactu
rers

Selling Through One


Wholesaler

Wholesaler

Retailers

14 Contact
Lines

Manufactur
ers

Selling Through Two


Wholesalers

Wholesaler
s

28 Contact
Lines
Retailers

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B. Flows in Marketing Channels (Figure 1-2)
- Physical Possession - Ownership
- Promotion

- Negotiation

- Financing

- Risking

- Ordering

- Payment

FIGURE 1.2: MARKETING FLOWS IN


CHANNELS

Produce
rs

Physical
Physical
Possession
Possession
Ownership
Ownership
Promotion
Promotion
Negotiation
Negotiation
Financing
Financing
Risking WholesalersRisking
Ordering
Ordering
Payment
Payment

Physical
Possession
Ownership
Promotion
Negotiation
Financing
Retailers Risking
Ordering
Payment

Commercial Channel Subsystem


Important Flows in Marketing Channels
1)
2)
3)
4)
5)

Product Flow
Negotiation Flow
Ownership Flow
Information Flow
Promotion flow

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Consumers
Industrial
and
Household

MARKETING MANAGEMENT
1) Product Flow Refers to the actual physical movement of the product from the
manufacture, through all if the parties who take physical possession of the product,
from its point of production to final consumer
2) Negotiation Flow Represents the interplay of the buying and selling functions
associated with the transfer of title.
3) Ownership Flow shows the movement of the title to the product as it is passed
along from the manufacturer to final consumers.
4) Information Flow all parties participate in the exchange of information, and the
flow can be either up or down.
5) Promotion flow Refers to the flow of persuasive communication in the form of
advertising, personal selling, sales promotion and publicity
Distribution Channel Levels
The producer and the final customer are part of every channel. We will use the number of
intermediary levels to designate the length of a channel. Figure 5-3a illustrates several
consumergoods marketing channels of different lengths, while Figure 5-3b illustrates industrial
marketing channels. A zero-level channel (also called a direct-marketing channel) consists of a
manufacturer selling directly to the final customer through Internet selling, door-to-door sales,
home parties, mail order, telemarketing, TV selling, manufacturer-owned stores, and other
methods. A one-level channel contains one selling intermediary, such as a retailer.
A two-level channel contains two intermediaries; a three-level channel contains three
intermediaries. From the producers point of view, obtaining information about end users and
exercising control becomes more difficult as the number of channel levels increases. Channels
normally describe a forward movement of products. One can also talk about backward channels,
which recycle trash and old or obsolete products no longer used by customers. Several
intermediaries play a role in backward channels, including manufacturers redemption centers,
community groups, traditional intermediaries such as soft-drink intermediaries, trash-collection
specialists, recycling centers, trash recycling brokers, and central-processing warehousing.

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Channel Management Decisions


Channel Member Selection
Modern management practices suggest that organizations must focus their attention on
developing their core competencies. The firms should try to outsource activities, if the outside
agencies can perform those activities better than the firm itself. However, firms should not
outsource their critical activities. A substantial amount of time should be invested in developing
better relationships amongst the channel members. Recruiting and selecting the right channel
partners is a crucial managerial aspect of any firm. Before actually recruiting the channel
members, certain aspects of selection should be clearly defined. These include the exact role that
each channel members will play, the expected qualifications of the channel members, and the
duties and tasks of each channel member. Subsequently, a screening process eliminates
incompatible channel partners. Finally, the selection of the channel partners is made on the basis
of the evaluation of the channel members sales efficiency, product knowledge, experience,
administrative ability and the risk factors involved in selecting a particular channel member.
Channel Members Training
The training of channel members is important for manufacturers, because it is the channel
members who actually deal with the end customers and not the manufacturers. Most
manufacturers offer distributor training programs to help channel members increase their
efficiency in performing the various business activities. For instance, Ford offers training
programs to its dealers through the satellite-based Fordstar network. Through this network, Ford
provides online training to more than 6,000 dealers.
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Member Motivation and Evaluation
After careful selection of the channel members and assigning them their responsibilities, it is
very important for the manufacturers to motivate them continuously to improve their
performance. One of the strategies used for motivating channel members is relationship
marketing wherein the manufacturer tries to forge better and stronger relations with the
distributors so that they perform to their best possible levels. A suitable reward structure also
helps manufacturers motivate channel members. Manufacturers can have different tiers of
rewards to motivate channel members. Those who bring the highest business should be given the
maximum rewards. Similarly, manufacturers can call their channel members and give rewards
and recognition in the presence of others. This will motivate the one who gets the reward and
recognition and others as well to perform better. The company can also motivate the channel
members by helping distributors improve their supply chain, reduce their capital employed,
operating costs and risks involved, enhance customer finance schemes and adopt other measures
like improving the sales promotional activities, and so on.
The company can also motivate channel members by initiating cooperative programs, providing
advertising allowances, training the distributors sales force, providing payments for displays,
and providing commission on higher sales. The company can facilitate the setting up of
distributor advisory councils that help distributors to regularly meet to discuss crucial issues and
the problems faced by them and communicate the same to the top management of the company.
Modifying Channel Arrangement
Modifying channel arrangements becomes necessary when consumers purchase patterns change
or when rapid expansion of the market takes place or when a new competitor comes into the
market or when the existing channel technology becomes obsolete and is not sufficient to carry
on the business.

Types of Retailers
Regardless of the particular type of retailer (such as a supermarket or a department store), retailers
can be categorized by (a) Ownership, (b) Store strategy mix, and (c) Non store operations.
1 Form of Ownership
A retail business like any other type of business, can be owned by a sole proprietor, partners or a
corporation. A majority of retail business in India are sole proprietorships and partnerships.
a. Independent Retailer.
Generally operates one outlet and offers personalized service, a convenient location and close
customer contact. Roughly 98% of all the retail businesses in India, are managed and run by
independents, including barber shops, drycleaners, furniture stores, bookshops, LPG Gas Agencies
and neighborhood stores. This is due to the fact that entry into retailing is easy and it requires low
investment and little technical knowledge. This obviously results in a high degree of competition.
Most independent retailers fail because of the ease of entry, poor management skills and inadequate
resources. b. Retail Chain
It involves common ownership of multiple units. In such units, the purchasing and decision making
are centralized. Chains often rely on, specialization, standardization and elaborate control- systems.
Consequently chains are able to serve a large dispersed target market and maintain a well known
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company name. Chain stores have been successful, mainly because they have the opportunity to take
advantage of "economies of scale" in buying and selling goods. They can maintain their prices, thus
increasing their margins, or they can cut prices and attract greater sales volume. Unlike smaller,
independent retailers with lesser financial means, they can also take advantage of such tools as
computers and information technology. c. Retail Franchising
Is a contractual arrangement between a "franchiser" (which may be a manufacturer, wholesaler, or a
service sponsor) and a "franchisee" or franchisees, which allows the latter to conduct a certain form
of business under an established name and according to a specific set of rules. The franchise
agreement gives the franchiser much discretion in controlling the operations of small retailers. In
exchange for fees, royalties and a share of the profits, the franchiser offers assistance and very often
supplies as well. Classic examples of franchising KR Bakery, Famous bakery and opus bakery.
d. Cooperatives
A retail cooperative is a group of independent retailers, that have combined their financial resources
and their expertise in order to effectively control their wholesaling needs. They share purchases,
storage, shopping facilities, advertising planning and other functions. The individual retailers retain
their independence, but agree on broad common policies. Amul and milma are typical example of a
cooperative in India.
2 Store Strategy Mix
Retailers can be classified by retail store strategy mix, which is an integrated combination of hours,
location, assortment, service, advertising, and prices etc. The various categories are:
a.
Convenience Store: Is generally a well situated, food oriented store with long
operating house and a limited number of items. Consumers use a convenience store; for fill in
items such as bread, milk, eggs, chocolates and candy etc.
b.

Super markets: Is a diversified store which sells a broad range of food and non food
items. A supermarket typically carries small house hold appliances, some apparel items,
bakery, film developing, jams, pickles, books, audio/video CD's etc.

c.

Department Stores: A department store usually sells a general line of apparel for the
family, household linens, home furnishings and appliances. Large format apparel department
stores include Pantaloon, Ebony and Pyramid. Others in this category are: Shoppers Stop and
Westside.

d.

Speciality Store: Concentrates on the sale of a single line of products or services, such

as Audio equipment, Jewellery, Beauty and Health Care, etc. Consumers are not confronted
with racks of unrelated merchandise. Successful speciality stores in India include, Music
World for audio needs, Tanishq for jewellery and McDonalds, Pizza Hut and Nirula's for food
services.
Hyper Markets: Is a special kind of combination store which integrates an economy super market
with a discount department store. A hyper market generally has an ambience which attracts the
family as whole. LULU hypermarket is good example of hypermarket.

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3 Non Store Retailing
In non store retailing, customers do not go to a store to buy. This type of retailing is growing very
fast. Among the reasons are; the ability to buy merchandise not available in local stores, the
increasing number of women workers, and the presence of unskilled retail sales persons who cannot
provide information to help shoppers make buying decisions
The major types of non store retailing are:
a.
In Home Retailing: Where, a sales transaction takes place in a home setting including
door-door selling. It gives the sales person an opportunity to demonstrate products in a very
personal manner. He/ She has the prospect's attention and there are

Page6
fewer distractions as compared to a store setting. Examples of in home retailing include, Eureka
Forbes vacuum cleaners and water filters.
b.
Telesales/Telephone Retailing: This involves contact between the prospect and the
retailer over the phone, for the purpose of making a sale or purchase. A large number of
mobile phone service providers use this method. Other examples are private insurance
companies, and credit companies etc.
c.

Catalog Retailing: This is a type of non store retailing in which the retailers offers the
merchandise in a catalogue, which includes ordering instructions and customer orders by
mail. The basic attraction for shoppers is convenience. The advantages to the retailers include
lover operating costs, lower rents, smaller sales staff and absence of shop lifting. This trend is
catching up fast in India.

d.

Direct Response Retailing: Here the marketers advertise these products/ services in
magazines, newspapers, radio and/or television offering an address or telephone number so
that consumers can write or call to place an order. It is also sometimes referred to as "Direct
response advertising." The availability of credit cards and toll free numbers stimulate direct
response by telephone. The goal is to induce the customer to make an immediate and direct
response to the advertisement to "order now." Telebrands is a classic example of direct
response retailing. Times shopping India is another example.

e.

Automatic Vending: Although in a very nascent stage in India, is the ultimate in non
personal, non store retailing. Products are sold directly to customers/buyers from machines.
These machines dispense products which enable customers to buy after closing hours. ATM's
dispensing cash at odd hours represent this form of non store retailing. Apart from all the
multinational banks, a large number of Indian banks also provide ATM services, countrywide.

f.

Electronic Retailing/E-Tailing: Is a retail format in which retailers communicate with


customers and offer products and services for sale, over the internet. The rapid diffusion of
internet access and usage, and the perceived low cost of entry has stimulated the creation of
thousands of entrepreneurial electronic retailing ventures during the last 10 years or so.
Flipcart, Amazon.com, E-bay and Bazee.com HDFCSec.com are some of the many e-tailors
operating today.

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Trends in Retailing
New Retail Forms and Combinations: To better satisfy customers need for convenience, a variety
of new retail forms have emerged. For e.g. gas stations include food stores.
Growth of Intertype Competition:
Different type of stores-discount stores, showrooms, department stores-all compete for the same
consumers by carrying the same type of merchandise.
Competition between Store Based and Non-Store based retailing:
Store based retailers want their stores to be destinations where consumers enjoy richexperience.
While the consumer now also receives sale offer through direct-mail letters, catalogs, television
and internet.
Growth of Giant Retailers:
Through their superior information system, logistical systems, and buying power, giant retailers
are able to deliver good service and immense volume of products at appealing prices.
Growing Investment in Technology:
Almost all retailers now use technology to produce better forecasts, control inventory costs, and
order electronically from suppliers.
Global Profile of Major Retailers:
Retailers with unique format and strong brand positioning are increasingly appearing in other
countries.
Growth of Shopper Marketing:
Research suggest that as much as 70% to 80% of purchase decisions are made inside the retail
store, firms are increasingly recognizing the importance of influencing consumers inside the store.
Trends in Wholesaling
Wholesale distributors have faced mounting pressure in recent years from new sources of
competition, demanding customers, new technologies, and more direct buying programs by large
industrial, and retail buyers.
The distribution between large retailers and large wholesalers continues to blur.
Wholesalers are increasing the services they provide to retailers.

Retail Pricing

Cooperative Advertising

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Marketing and Management,

Information reports

Accounting Services

Online Transaction and others

The wholesaling industry remains vulnerable toone of the most enduring trends-fierceresistance
to price increases and the winnowing out of suppliers based on cost and quality.

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UNIT V: MARKETING COMMUNICATION

Traditional Communication Model


Updated Communications Model

Updated Communications Model

Consumers are now proactive in communications process

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VCRs, DVRs, video-on-demand, pay-per-view TV, Caller ID, Internet

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A View of the Communications Process

Communications Process

Sender is the party sending the message to another party.

Encoding is the process of putting thought into symbolic form.

Message is the set of symbols the sender transmits.

Media refers to the communications channels through which the message moves from sender
to receiver.

Decoding is the process by which the receiver assigns meaning to the symbols.

Receiver is the party receiving the message sent by another party.

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Response is the reaction of the receiver after being exposed to the message

Feedback is the part of the receivers response communicated back to the sender

Noise is the unplanned static or distortion during the communication process, which results in
the receivers getting a different message than the one the sender sent

Steps in Developing Effective Communication


Effective Communication
1. Identify the target audience
2. Determine the communication objectives
3. Design a message
4. Choose media
5. Select the message source
6. Collect feedback

Promotion Mix or Integrated Communications Mix


Advertising
Advertising is a paid form of non-personal presentation of goods or services by an identified
sponsor. It can be done using any form of media like television, radio, print media, etc. A firm
has the flexibility of choosing the target market while advertising. It can advertise its
product/service in the local newspaper to reach a small geographical area. If it is looking for
national reach, the firm can advertise its product/service on the television through a national
channel like Doordarshan or any other television channel depending on the target audience.
Advertising allows firms to communicate with the intended audience in the most interesting
format using actions and dramas. It helps in generating faster response in the form of increased
sales. However, the interactivity with the audience is negligible and their feedback is indirect.
Sales Promotion
Sales promotion is a form of attracting the consumers by offering them various benefits in the
form of incentives or by adding value to the products (Refer Exhibit 19.2). Sales promotions are
generally aimed at resellers and final consumers. The various kinds of sales promotional tools
include coupons, discounts, rebates, samples, etc. Most often organizations spend more money
on sales promotions than on advertising. Although sales promotion is often considered a
shortterm tool to achieve immediate benefits in the form of increased sales, sales promotional
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activities like event sponsorships, trade shows and such are used for attaining long-term benefits
in the market.
Publicity
Publicity is a non-paid form of communicating information about the company or the product or
both as a news article in newspapers or television or radio. Studies have shown that people attach
a lot of importance to news articles and read them with greater attention as compared to
advertisements in newspapers. Also, people give much more importance to the product or service
details given in a news report than in an advertisement, because they perceive news report to be
more credible. Efforts like generating repeated exposures will also help marketers effectively
communicate the desired message. Therefore, managing the marketing communication mix with
appropriate and timely publicity through newspaper articles, coupled with attractive public
relation campaigns helps marketers to a great extent.
Public Relations
Public relations is essentially a function of an organization, where it tends to develop and manage
its goodwill in the market. The primary aim is to create a suitable environment for the firm.
Public relations helps organizations create a positive opinion about the firm in the market
through appropriate communications. An organization can develop its public relations with
several member groups such as suppliers, customers, employees, the government, shareholders,
distributors, members of the public, etc. In the current market scenario, customers look forward
to having business dealings with companies that are good corporate citizens. Therefore,
companies should not neglect public relations because though it does not induce any immediate
customer action, it produces positive results for an organization in the long-run. Exhibit 19.3
discusses the importance of public relations for an organization.
Personal Selling
Personal selling is the form of selling a product or a service directly to the consumer by
explaining or demonstrating the features of the product to him/her. Personal selling is highly
specific, with regard to the target audience. The costs involved are high as the salesperson has to
personally meet every potential customer.
Personal selling has a high impact on the consumers and the feedback is also almost immediate.
This form of marketing is the most effective way of communicating a companys marketing
message, because it involves direct interaction between the marketer and the customer. It helps
the marketer receive immediate feedback from the customer. Being a high cost marketing tool,
personal selling is usually implemented for high cost products and services that need detailed
demonstrations of product usage and have limited target markets. Personal selling is normally
done for industrial products and is used as a support activity for advertising in consumer goods
marketing.
Direct Marketing
In direct marketing, organizations communicate directly with the customers through mail or
telemarketing or marketing through the Internet. This is a popular form of communication for
certain types of services like real estate. Amway is the global giant in direct marketing with a
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product portfolio of 450 products and operations in over 80 countries. Amways direct marketing
efforts are discussed in Exhibit 19.4. In direct marketing, there is a non face-to-face interaction
with customers, to persuade them to immediately respond to the marketing effort and initiate an
action. Direct marketing activities such as telemarketing, mailers, catalogs, etc. Have been
gaining popularity over the years. The greatest advantage of direct marketing is that it is highly
cost effective and gives the maximum mileage. Unlike other marketing tools like advertising, the
response can be easily measured with accuracy in direct marketing since it persuades the
customer to take immediate action. So, the success or failure of the marketing effort can be
immediately known. Direct marketing tools are used to communicate with both consumer
markets and industrial markets through telemarketing, mailers, catalogs, etc.

Internal Marketing
Internal marketing is inward facing marketing. Internal marketing is used by marketers to
motivate all functions to satisfy customers. With internal marketing the marketer is really
extending and developing the foundations of marketing such as the marketing concept, the
exchange process and customer satisfaction to internal customers.Internal customers would be
anybody involved in delivering value to the final customer. This will include internal functions
within business with which marketing people interact including research and development,
production/operations/Logistics, human resources, IT and customer services.
Internal marketing is orienting a motivating customer contact employees and supporting service
people to work as a team to provide customer satisfaction.
(Kotler and Armstrong 2010).

A marketing company would embed the basic principles of marketing such as company vision and
mission, its overarching objectives, its business strategy, marketing tactics i.e. the marketing mix,
and finally how we measure marketing success.

Its important that a company recruits the right people. Marketing companies want people that are
motivated by its products and services. Take Apple for example. If you visit an Apple store there
is a purposefully designed customer experience, part of which is communicated by the Apple
people. They are enthusiastic and very knowledgeable and actually uphold Apple principles and
brand. They are purposely recruited, they are trained and retained, which is all part of human
resource management and also a successful internal marketing program.
So with the Apple example above you can see that internal marketing ensures that internal staff
now link with external customers in a customer relationship. Internal marketing meets external
marketing. The basic chain links internally so the concept of the internal customer sees everybody
within the organisation treating each other as customers. The Logistics manager would see a
customer services function as his internal customers. The customer service function would see
field engineers as their customers. The research and development team would see the
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manufacturing team as their customers. The relationship works in both directions, up and down
the supply chain.
Rural Marketing: Emergence of Rural Marketing: In recent years, rural markets have acquired
significance, as the overall growth of the economy has resulted into substantial increase in the
purchasing power of the rural communities. On account of green revolution, the rural areas are
consuming a large quantity of industrial and urban manufacturedproducts. In this context a special
marketing strategy, namely, rural marketing, has emerged.
Features of Rural Market in India
1. Large and scattered market: According to 2001 census rural population is 72% of total
population and it is scattered over a wide range of geographical area.
2. Diverse socio-economic background: This is different in different parts of the country and
brings diversity in rural markets.
3. Changing demand pattern: Demand pattern of rural customer is fast changing due to increasing
in income and credit facilities offered by banks like kisan credit card.
4. Major income comes from agriculture: About 60% of the rural income is from agriculture and
hence the demand for consumer goods is high during harvesting season.
5. Saving habits: Rural consumer is now having saving habits due to the efforts of co-operative
and commercial banks.
6. Traditional outlook: Rural customer values old customs and traditions.
7. Low standard of living: Rural consumer have low standard of living because of low literacy,
low per capita income and social backwardness.

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CASE STUDIES

1. Nestles Strategic Transformation


Nestl was one of the world's top five, most respected, food and beverages company. Besides being
the world's no.1 food company in terms of sales, Nestle was also the world leader in coffee (Nescafe),
food and nutrition. The companys international Research & Development network supported
products made in more than 500 factories in over 84 countries.
Most food companies worldwide were focusing on catering to health conscious consumers and
increase their reach into health care segments. On the same premises, Nestl acquired the medical
nutrition business of Swiss pharmaceutical major, Novartis International AG in 2007, striving to
reposition itself as nutrition, health and wellness company. With this acquisition, Nestle moved from
being a minor player in healthcare nutrition segment to world number two player in the nutrition,
health and wellness industry. Nestle aimed at becoming the leader of the industry with the combined
strengths of the two companies.
The strategic transformation initiatives undertaken at Nestle and its impact and ends on the debate
whether s transformation process will help Nestle achieve its long term objectives of being a leader in
nutrition, health and wellness?
Question :
To discuss the strategic transformation of Nestl from a food company to nutrition, health and
wellness company
To discuss the future growth strategies of Nestl to achieve the goal of becoming the leader of
the industry.

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2. Dr. Reddy's Laboratories: On the New Drug Discovery Trail

With India's imminent shift from process patent regime to product patent regime, post 2005, a host of
top Indian drug firms such as Dr. Reddy's, Ranbaxy, Wockhardt, Lupin Laboratories and others,
realised the need to do their own drug-discovery research. Dr. Reddy's, one of the leading players in
the Indian pharmaceutical industry, is also one of the leading Active Pharmaceutical Ingredient (API)
and generics players in the top pharma markets of the world. It has also challenged and won a lawsuit
against the world's leading pharmaceutical company, Pfizer, for norvasc (the world's top-selling
hypertension medicine) with its generic version. The company, after being successful in its API and
generic business, is heading towards new drug discovery. By 2007, the company intends to be among
the top 50 global pharmaceutical companies and by 2013 among the top 25.

Questions :
To analyse Dr. Reddy's strategy of heading towards new drug discovery and being a discovery-led
global pharmaceutical company.

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3. A Dent in Wal-Mart's Public Image: The PR Strategy


Wal-Mart Inc., the largest discount store in the world, has been facing a major PR (public relations)
crisis. For years, it remained media-shy and was known for its poor relations with the media. But in
recent years the company's public image has taken a beating with its business practices coming under
severe criticism. A host of lawsuits alleging low wages, gender discrimination and usage of illegal
immigrant labour has led to adverse publicity for the company. To repair the damage, the company
has attempted to refurbish its image through a major PR campaign.

Questions
Suggest effective and appropriate companys public relations strategy in regaining customer loyalty,
amidst uproar against the companys business practices.

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4. Rural Marketing in India: Retailing through Microfinance Institutions
Rural India was once considered a mere painters muse and not a uberous ground for business. The
reason being around 42% Indians are below poverty line earning around $1.25 a day. Addressing
poverty-based issues, NGOs, Microfinance Institutions (MFIs) and social entrepreneurial
organizations have emerged in a big way to provide sustainable solutions to the poor through scalable
business models and also created market opportunities for business transforming the rural markets
landscape substantially.
In the 21st century, rural India has evolved in a big way. The growing literacy rates, rising income
levels, increasing purchasing power and consumption levels of people have grabbed the attention of
corporate, who have erstwhile wooed urban consumers to buy their products. As of 2009, rural
regions are flocked by big companies like Coca-Cola, Nokia, HUL, LG, Bharti Airtel, ITC, Bajaj
Allianz and Godrej. Over the years, these companies also realised the need to develop rural regions as
a key for their growth as well as the nation's economic development. In the process of charting out
ways for market-based development, they partnered with MFIs to expand their network. These MFIs,
acting as distributors to the companies, are benefitting them by enhancing their brand visibility in
rural areas, helping them in tapping more rural consumers, save distribution costs, etc. However, can
the social mission of MFIs be aligned with profit objective of companies? Question also arises about
the sustainability of corporate-MFI partnerships.

Questions :
Examine how Indian rural markets have been transformed from market seekers to market providers
and discuss the contributing factors

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5. Rise and Fall of Subhiksha

Subhiksha. Having been started by the alumnus of the prestigious B-school, Indian Institute of
Management Ahmedabad (IIM-A). In the light of India's promising retail potential, huge investments
were made by several big corporate houses of India, jacking up the prices of all the related parts of
the industry.
Being a pioneer in the organised retailing in India, Subhiksha became India's largest retail
chain with 1,665 stores across the country. In the process it succeeded in building a sound brand
name over years with its no-frill, discount format. With Indian organised retail industry blooming
under the economic liberalisations and attention from the global players, Subhiksha was expected to
grow bigger, but as global recession set in, credit markets froze and Subhiksha stumbled as its capital
structure could not support the requirement. Lack of liquidity and overexpansion troubled Subhiksha
as it failed to pay rent to the landlords and salary to its employees. Operations came to a standstill.
However, Ramaswamy Subramanian (Subramanian), the managing director of Subhiksha expressed
confidence that the chain will emerge from the crisis.

Questions
Assess the Indian retail potential and analyze the feasibility for coexistence of several retail
formats

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PREVIOUS EXTERNAL QUESTION PAPER

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