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Marketing Management

Marketing Management

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Marketing Management

• Course Title: Marketing Management

• Total lecture Hours: 38

• Course Objectives:

To enable trainees to:

• Define and describe market, concept and term.
• Know successful marketing by understanding the functions performed
by the marketing system.
• Know the similarities of all marketing efforts and unique
characteristics of cooperative agricultural marketing.
• Identifying those characteristics of buyer’s behaviour, which form a
basis for marketing?
• Understanding the role of institutions in performing the marketing
functions and how they support or constraints.
• Lecture Schedule
Chapter Topics
I Concepts of Market and Marketing 4
II The marketing Management Process 4
III New Product Development 5
IV Pricing/ Price Mix 5
V Distribution 4
VI Promotion 4
VII The marketing Planning and Implementation 4
VIII Features of Cooperative Marketing 4
IX Marketing Research 4

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Marketing Management

Chapter I
Concepts of Market and Marketing
Formally, markets were considered as certain geographic locations were sellers and buyers
physically meet for exchange of goods and services. However, while the advancement in
communication technology, the vast world itself is considered as small village.
Market therefore is considered to mean an area small/ large in which price making forces of
demand and supply freely operate through the modern means of communication that
does not necessarily involve formal physical meeting of sellers and buyers (like
national markets, international markets).
The meaning of the term can go beyond the above two. Customers make up markets. The term
market can therefore denote customers demand. This refers to people with needs/desires backed
up by the ability and willingness to pay (spend) money to satisfy their needs.
Economists’ argue that market is a group of buyers and sellers who enter into transaction for
certain goods/ services.
Nevertheless, in view of the marketers, the sellers constitute the industry and the buyers form a
market. To inform and persuade the buyers in the market, they communicate with the buyers (say
through advertising). Buyers from the market offer money as consideration to the sellers. They
also give food back to the seller about their offers/products.

Marketing Communication

Sellers Buyers
(Industry) (Market)


Marketing feed backs

Number of intermediate between the producers/manufactures and the consumers, viz. local
traders/merchants transporters, storage, wholesalers retailers, department store/consumer shops,
super markets, etc. The government collects/receives tax revenue from both parties (Producers
and customers) to undertake various social & economic development activities.
Modern Marketing System Chart

Vendors or Marketers
suppliers Intermediaries Consumers

a. Types of Markets
Markets can be classifies in to different categories based on the following variables viz:

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• On the basis of area o operation Markets can be classified as: Local Market, Regional
Market, National Market, International Market,
• On the basis of articles handled in the Market: Grain Market Coffee Market Livestock
Market Money Market/Stock market/Service Markets such as: Storage Consultancy
• On the bases of the end use of the goods sold Consumer goods Market Farm input Market,
Agro-Industrial goods Market,
• On the basis of exchange dealings: Spot or cash Market, Future or forward Market
• On the basis of the nature and volume sold: Whole sale market Retail Markets, etc
Why it is necessary to study the types of Markets:
Knowing the types of Market enable one to analysis in which one or combination of the
aforementioned types of markets a given Marketing organisation is engaged. This in turn enables
the marketing organisations to devise the appropriate strategy as to how to deal with these types
of markets.
What is marketing?
• Marketing is a social process by which individuals and groups obtain what
they need and want through creating and exchanging products and values
with others. by Philip kotler

• Marketing is the process that facilitates the exchange of valuable products, *

created and or offered to consumers so as to satisfy their needs & wants and
demands. by S.A. Chunawalla
The above definitions put forward some of the core/key marketing concepts up on which the
entire Marketing Management is based. These include needs, wants & demands, value, product,
exchange satisfaction.
The Key marketing terms/concepts
Needs: A human need is a state of felt deprivation of some basic satisfaction. It includes the basic
human requirements like food, air, water, clothing and shelter and further comprises recreation,
education and entertainment. Human needs are few and not shaped by the environment in which
we live, institutions with which we interact, like schools, families, religious orders, business

Wants: These are specified needs, i.e. need becomes wants when they are directed to specific
objects that might satisfy the needs. E.g. we need food but want Bread/Injera. We need
entertainment; we go to cinema on weekends (i.e. want). Human wants are many and unlimited.
Unlike human needs, they are shaped by the environment in which we live, institutions with which
we interact, like schools, families, religious orders, business Organizations.
Demand: Wants for specific product backed by the willingness and ability to pay for it. Marketing
people/Organizations thus usually concentrate on demand management, i.e. they try to influence
the demand by offering a suitable product at an affordable Price and make it available/accessible
to the people who demand it. They analyze that how many people have the ability and willingness
to buy the products.
Marketers do not create needs, needs pre-exist marketers. They along with other social factors
influence wants (i.e. influence the level, timing & composition of demand to meet the objective of
the organization).
Promoters can promote that fact that cooperatives are the best alternative/ means to satisfy the
people’s needs and to have improved their living conditions, but they can’t create the need for
improved living conditions. The need for improved living condition is already there.
Product: Any thing that satisfies the needs & wants of the customers. It is a general term that
stands for both goods and services, i.e. goods & Services produced to satisfy the needs & wants
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of the people. Products (Physical and non physical) are the medium through which benefits
required are offered.
E.g. A Cooperative storage provides goods carrying/holding service. Otherwise, it would have
been similar to waste material.

• A car enables to move from place to place.

• Visiting recreational area rejuvenates us.
A product is therefore not just, a bundle of some physical and chemical attributes. It is rather a
bundle of benefits and services, i.e. physical object is a package of benefits and services. They
are to be seen as a solution to our problems.
E.g. No carpenter buys a drill, but he buys a hole. Hair dyes offer youthfulness.
• A farmer who buys a tractor does not really buy a tractor but he buys a
ploughing service.
• A young girl using a lipstick is in fact buying the concept of beauty.
• Computers are needed for their software services.
In sum, what satisfies our needs & wants when we use a given product, may not be the physical
object itself, but the benefits/Services derived from it.
Value: is an assessment made by the customer about the overall capacity of the product to satisfy
his/her needs?
Among the product/choice sets that can satisfy our needs, we have to choose the one that delivers
maximum total satisfaction in respect of his/her various needs.
E.g. You participants can take any one of the following transportation means to come to this
training center, viz:
1. Taking a bus
2. Taking a minibus
3. Flying by plane
4. Using office vehicle
However, several addition needs may need to be satisfied, like:
• Speed (timeliness)
• Conformability
• Safety
• Economical ness of the cost of transportation.
The five products (Means of transportation) mentioned above have varying capacity to satisfy each
of the participants varying needs listed above. The criterion to measure this capacity of a product
is customer value. The customer assesses the capacity of each product to satisfy his/her needs,
mentally rank the products from highest to the lowest as per their satisfying capacity (E.g. Clothing
need) and ultimately chooses the one that delivers maximum total satisfaction of his/her unions
Exchange: is a value creating process.
The availability of products that have value and a set of people having needs & wants do not
necessarily lead to marketing. Marketing is the out come of the process of exchange, i.e. the
process of obtaining required products by offering something in return.

Utility: Want satisfying capacity of a product (goods and services).

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Importance of Marketing
Economic development in short means the overall wellbeing of the people. It is the result of
several interrelated and interwoven factors as shown bellow:
In the early stages of development, all countries were highly dependent on agriculture and
agricultural income constitutes the major share of national income. Increase in agricultural
production is one of the factors that contribute to increased agricultural income. Increase in
agricultural income enables to generate capital that can be invested in other sectors of the
economy and in social infrastructures. This leads to increased income in the other sectors of the
economy other than agriculture, these sectors becoming the major constituents of the national
With the progress in the level/stages of development of the nations, the share of secondary and
tertiary sectors in the income generation will be reversed. However, the increase in agricultural
production and agricultural income are determined by the performance of the market in the
country. Because, Marketing plays crucial role in that:

• It stimulates production and subsequent consumption

• It helps to overcome the problems of under, development,
• It improves productivity and efficiency,
• It enables effective and efficient utilization of scarce resources,
• It enlarges the markets of a nation through economic development,
• it would Create opportunities for new competent entrepreneur ship
and managers,
• It would offer better deal for the consumers through competitive
Effective and efficient market is thus an initiative for increased (surplus) production, which in turn
brings in increased income. Increased income is the base for the improvement of the living
condition of the people in terms of:
 Increased employment/Minimized unemployment,
 Improved health service,
 Better education,
Marketing therefore is a pace setter/multiplier of economic development. It has repeatedly been
reveled that Ethiopia is one of the least developed countries of the world. The poor performance of
marketing as a stimulating factor is the major reason that contributed to this problem. Our country
is at its infant stage of development where agricultural sector constitutes a lion’s share in GDP
The scope of Marketing
Marketers are responsible for demand management (through marketing mix) in such a way by
influencing the level, timing and composition of demand.
There are eight different states of demand. These include:
1. Negative demand – where market dislikes the product and even pay price to
avoid it
2. No demand
3. Latent demand
4. Declining demand
5. Irregular demand
6. Full demand
7. Overfull demand
8. Un whole some demand

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According to Philip Kotler, marketing organisations or people are involved in the marketing of ten
(10) types of entities, viz.:
1. Goods - physical goods,
2. Services - transport, Hotel, insurance
3. Experiences -
4. Events
5. persons
6. Places
7. Properties
8. Organisations
9. Information
10. Ideas
Functions of marketing
i) Selling function: This involves development of the product, finding buyers, fixing terms (such
as prices, quantity, quality, etc) and transfer of product possession.
ii) Buying function: This entails, planning purchases, searching for sellers, selecting goods
suiting specific needs, negotiate terms of purchases and enter into contract.
iii) Distribution: This is involves selection of distribution channel and storage of goods at proper
centres that suits the needs of distribution.

Chapter II
The marketing management process
This chapter (part) deals with the basics of the marketing process, viz.: the marketing concepts
creating and delivering customer value, the marketing mix, the marketing environment and the
marketing planning process
The marketing concepts
The marketing management is more concerned with the marketing concepts in order to achieve
the organisational goals.
Organisations/firms vary in their perception and orientation towards business. This has led to the
emergence of many different concepts of marketing. There are six or seven major competing
marketing concepts, viz.:
The exchange concept
This concept view marketing as a mere exchange process (of products) between the seller and the
buyer. However, since marketing is broader than exchange, it is a gross undermining to consider
marketing as a mere exchange process. Exchange at best covers the distribution aspect and price
mechanism involved in the marketing. The other aspects of marketing such as concern for the
customer, generation of value satisfaction, creative selling and integrated action for serving the
customer were completely over shadowed in the past.
The production concept
This is one of the oldest concepts where production and technology dominate the thinking
process of the essential people in an organisation or firms following these concepts. They assume
that low (reduced) cost per unit arising from the maximisation of output (scale of production) would
enable to attract buyers/ customers and bring them all profit they need. High production efficiency
and wide distribution network were therefore the focus areas of management. Organisation/firms
pursing such concept focus on increasing production. They believe that marketing can be
managed by managing production. In other words, such concept favours sellers’ interest
neglecting that of buyers.

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This concept seeks to win markets & profits via high volume of production and low unit cost.
However, they commonly fail to get the best of customers, because customers are motivated by a
variety of considerations in their purchases. Consequently, the production concept fails to serve as
the right marketing philosophy of the enterprise.
The product concept
Thinking that customer/consumers would automatically respond/ vote to high quality products,
organisation/firms pursuing concentrate on product excellence and hence spend much of
their time and money on research and development to bring out many products.
However, such organisation/individuals are seen failing in the market, because they don't bother
for the other aspects of marketing. It is a seller oriented concept that neglects the crucial side, i.e.
the interests of the customers/buyers.
Such concept is suitable in HI-tech specialty products where demand specifications of the product
are available in capital goods/heavy machineries.

The Sales/Selling concept

As more and more markets became buyers market, and the entrepreneurial problem became one
of solving the shortage of customers rather than that of goods & services, the sales concept
became the dominant idea guiding marketing.
This concept focuses on devising methods of selling/ getting rid off the problem of customers for
their products. The following methods are therefore used by organisation/firms pursuing this

• Aggressive advertising,
• High power personal selling,
• Large scale sales promotion,
• Heavy price discounts, and
• Strong publicity & public relations.
However, there are several evidences indicating that this concept, like the rest three concepts
discussed above, suffers from marketing myopia. Organisations following (in favour of) this
concept don't enjoy the best of customer patronage. Such organisations/ individuals assume that
selling is synonymous with marketing. In reality, there is great difference between the two.
The marketing concepts
This concept was born out of the awareness that 'marketing starts with determination of
consumer wants and ends with the satisfaction of those wants. The concept puts the consumer
both at the beginning and at the end of the business cycle. It stipulates that any business should
be organised around the marketing function, anticipating, stipulating and meeting customer's
The customer, not the organisation, has to be the centre of the business universe. It proclaims that
the entire business has to be seen from the point of view of the customers. In an organisation
practising this concept, all departments will recognise that their actions has profound impact on
company's ability to create and retain a customer. Every department and every manager will think
customer and 'act customer'.
Only the marketing concept, which is a radically new approach to the business, is capable of
keeping the organisation free from marketing Myopia.
The marketing concept has four distinguishing features:
a. Consumer Orientation
b. Integrated management action
c. Consumer satisfaction
d. Realising organisation goals including profits.
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Who benefit from the marketing concept?

i) The organisation
 Keep update with changes i.e. keep the pulse of the market through
• Marketing audit,
• Marketing research and consumer testing
 Rectifies any draw backs in its products,
 Helps in planning, research & innovation and hence decisions are based on
reliable data relating to consumers either than hunch,
 It believes in diversification (rather than stocking in one product line) that
comes out with new products or enter totally new areas of business.
 Profits become increasingly certain, as it is no longer obtained at the cost of
the customer but only through satisfying him.
 Long term survival, customer loyalty, and good image/reputation.
ii) For consumer
 Low price, better quality, improved/new production and better services such as :
• Ready stock
• Convenient location
The consumer can choose, bargain, complain and his complaint will always be attended to
• He can buy on credit or cash or on instalments.
• He can even return the goods if not satisfied with it.
iii) The society
• Increased income & improved life condition
• Infrastructure
• Employment etc,
The customer concept and the societal concepts are also newly developing more sophisticated
marketing concepts.
Societal marketing concept
It may be called the alternate name for concept like “the Human Concept”, “The intelligent
consumption concepts”,” The Ecological Importance Concept “ all of which get at different aspects
of the same problem.
The social concept holds that the organizational goals or task is to determine the needs, wants
and interests of target markets and to deliver the desired satisfactions more effectively, efficiently
than competitors in a way that preserves or enhances the consumer and the society’s well being.
Interest in Marketing is intensifying as more organizations in the business sector, the non-profit
sector and the international sector recognize how marketing contributes to improved performance
in the market place.
Creating and delivering customer value
Economic theory reveals that man is guided by the idea of utility in his purchase decisions. Utility
from the point of view of consumers includes a package/mix/ of benefits i.e. value.
Marketing concept aims at the satisfaction of the customer that emanates directly from the value
that firms/organisations deliver to the customer. The marketing concept thus gets executed
through value delivery process.
The customer expects many benefits from a product, and the provision of these benefits does
have its associated costs. The customer assigns different weight ages for different benefits that
his seeks form the offer (i.e. mentally ranks them) end these packaged set of benefits constitute
the total value provided by the offer (product). The customer has to pay a cost for acquiring this

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value, (i.e. cost here includes price of the product plus other elements of costs, economic & non
The marketing organisation identifies the benefits sought by the customers and packs (builds) its
offers with such benefits, i.e. it builds in to its offers as much value as possible. It also ensures that
the customer feels his exceptions of value have been met at the end of the purchase process. In
other words, the marketing concept gets implemented when a firm searches for the benefits
sought from it by the customers and builds them into offer.
To put it more succinctly, the marketing concept is in operation when an organisation/firm satisfies
the customer by offering him superior value compared to competing offers. The customer's
exceptions are the clues to the value to be offered.
The organisation conducts detailed analysis of the market, the customer and the competition.
Buyer analysis, market research, and marketing planning are the tools which the firm acquires this
The organisation/firm value creating and value delivering system includes the production facilities,
processes, organisation, expertise, etc. This value creating and value delivering will be made
through the marketing mix:
- Increasing the functionality of the product,
- Reducing the price,
- Giving better service support,
- Giving the customer easy access to the product,
- Offering beneficial communication.
Value creation/value delivery is the main task of marketing. Marketing in its entirety is value
creating and value delivering process.
The Marketing Mix
The term marketing mix was first coined by James Culton, a known American Marketing Expert,
and popularised by Neil H. Borden. It was later described in terms of the four Ps of marketing by
the well-known American Professor of marketing, Jerome. A mix is a combination of many
ingredients. The quality of a mix is dependent upon the right mixing of the ingredients at the proper
Marketing mix is a sole vehicle for creating and delivering customer value.
The marketing mix is a mixture of all marketing ingredients consisting of four basic elements/inputs
blended by the marketing manager. How ever Philip Kotler adds two more Ps as. The marketing
mix elements commonly known as the 4Ps of marketing therefore include:

a. Product: deals with product design, brand name, models, style, appearance, product,
services, quality, guarantee. Product mix has four components:
• Product range,
• Service after sales,
• Brand,
• Packaging and labelling.
b. Place:
i) Channels of distribution: Channel design, types of intermediaries, location, of outlets, channel
remuneration, dealer/principal relations, etc.,
ii) Physical distribution: this includes transportation, warehousing, inventory levels, order
processing, etc.
c. Price:
Deals with developing/setting of pricing policies, margins, discount /allowance & rebates.
Terms of delivery, payment terms, credit terms and instalment purchase facilities. The price mix
(stated above) deals with price competition.
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d. Promotion:
Personal Selling: Selling expertise, size of sales force, and quality of sales force.
Advertising: Media mix, vehicles, programs,
Sales promotion,
Publicity and public relations,
Exhibitions and demonstrations used in promoting sales.
The newly added Ps are power and people.

Product management
Philip Kotler has defined product as any thing that can be offered to market for attention,
acquisition, use or consumption that might satisfy a want or need.
A product is not only a physical object it includes:

• Physical goods like computer, car, radio, etc.,

• Services like music, medical, banking, etc.
• Places-tourist spots, hill stations,
• Organisations-such as voluntary organisations engaged in social work like Sisters of
Charity, mention for mention, Abebech Gobena
• Ideas-such as adult education, small family, etc.
• Persons- Libel artists.
A consumer therefore buys not merely the physical and chemical attributes of a product, but its
ability to satisfy wants.
A product is a combination of the following:
i. Physical attributes or qualities,
ii. Want satisfying capacity or utility (the sum of benefits)
iii. Brand, package and label,
iv. Product features-such as colour, size, shape, finish, style, etc.,
v. Prices,
vi. Services offered-before and after sales,
vii. Reliability of the manufacturer, dealer and retailer, etc.
Product classification
Products can be classified based on their characteristics present follows:
i. Durable and non-durable goods,
ii. Services: benefits, activities, etc. offered for sale like
repairing, dispensaries, and so on,
iii. Convenience goods: goods frequently purchased by
consumers with much eases, e.g. Soap, news paper, etc.,
iv. Shopping goods,
v. Speciality goods,
vi. The industrial goods.
Product classification helps the marketing manager to prepare its marketing strategies.
Product Mix
A product mix/product assortment-refers to all product lines and items offered for sale by
company. A product line is a group of products, closely related and sold to same customer's group
by the same outlets.

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Product policy:
This deals with essential areas where the product manager has to take decision in active
consultation with the marketing manager. These key decision areas for a product manager

• The product (type), its width and depth,

• The market and its segment,
• The product lines, brands, packaging, etc.
Steps in deciding the product policy
• Study the products and the product line,
• Product differentiation or distinction,
• Product positioning,
• Brand decisions,
• Packaging decisions,
• New product development.

i) Study of products and product lines

 No product/product line can continue for ever in the market - going out of fashion,
obsolesce because of modern substitute products from competitions
 Conflicting products may affect the image of the organization
 This needs a dynamic product policy which intern needs constant review brand
analysis - All these are quite serious decisions.
ii) Product differentiation
A marketing Organization can get higher price for its products in the absence competitors. How
ever, in a market friendly economy, high price and no entry barrier condition will attract competing
firms. This situation obliges the original organization to differentiate its products to maintain its
Differentiation enables a given marketing organization reap better price for its products by
assuming competitive position in the market. Differentiation therefore is an attempt to provide
uniqueness and distinction as compared to competitor's products of the efforts f Oromia Coffee
Farmers Cooperative Union to differentiate its coffee products as organically certified coffee. The
competition among beverage products, especially beer (as Beddle premium, Beddle Special etc)
Differentiation could be achieved through a multiple of sources and ways. It can be:
a) using the product or
b) distribution methods or
c) promotion steps
To be specific, differentiation could be in terms of the following points:

 Newness: a solution/a product not so far offered

 Goodness: better performance than that of rival
 Fastness: quick result/quick delivery
 Economy: the monetary amount paid which is lesser than the other similar product in
the market.
iii) Product Positioning
Product positioning is an attempt to create & maintain in the mind of the target audience
(customers) the intended image for the product/brand, relative to other brands. This is to enable
the customers perceive the product as possessing the attributes they want.

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Positioning is not merely a statement or a slogan that creates an image. True positioning
distinguishes a company/product from competitors along some real dimensions, which are
relevant to customers, so that the company/product becomes a preferred one.
Product positioner does something to the product, as well as to the mind. Competitive markets are
full of me-too products, with little to differentiate them from one another because of over
communication of massages. The marketer's task is therefore to achieve distinctiveness in the
consumer's mind.
Differentiation is a plat form for positioning of the product (where customers" rank the products in
their mind). The marketer's task is to get his product ranked first where the consumers tend to
remember number one. The process is always dynamic, as competition is growing increasingly
strong. Positioning is therefore like searching a niche or a hole in the consumer's mind not
occupied by someone else.
iv) Managing Brands and Brand quality
The term brand refers to:
 trade marks
 (trade) names
 sign
 symbols
 a term
 package designers, or
 Some combination of these elements that are/is used to identify the goods and services
of one seller from that of the competitors.
A brand name consists of letters, and/or numbers that can be vocalised. A brand mark is a visual
representation of the brand like a symbol, design, distinctive colouring or lettering. For example,
Mercedes Benz is a brand name and the star with it is a brand mark. All trademarks are brands
and include both the brand name and the pictorial design.
Essentially, a brand is a promise of the seller to deliver a specific set of benefits or attributes or
services to the buyer. Each brand represents a level of quality. Irrespective the fact from which
the brand is purchased, this level of quality can be expected of the brand.
A brand can not be just a bundle of physical attributes. Attributes are very easy to copy and hence
attributes valued today may not be valued tomorrow, e.g. Fuel economy car manufactured by
Maruti can be attained by other car manufacturing company. A brand becomes enduring by its
values, culture, and personality. This constitutes the essence of the brand.
Packaging is an integral component of a product that plays protective role. However, packaging is
no longer a more outer covering for protection of the product it is a highly contributing factor to its
marketability. Hence it is one of the very useful tools in promotion and product positioning &
Packaging helps the buyer to identify:

 the product
 the producer of the product
 the brand of the product
 the inner contents,
It also establishes a good product image and acts as a brand it self. Consequently, it enables the
customers to effectively recognize the difference and establish preference that will ensure
repeated purchases, hence promote sales. The decision areas for the product manager are the:
1. Choice of packaging material

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2. Package aesthetics, and

3. Package size and convenience.
Label is part of a package. Labels on packages provide accurate information and guidance to
customers. They are expected to give information the following:
 Brand name
1. Name and address of the producer
2. Weight and measure
3. Direction of use
4. Precautions if any
5. Date of packaging (manufacturing) and date of expiry
6. Retail price, etc.

Chapter III
New product Development
New product development is a major component of the firm’s product policy. There is always a
continuous change in the market place due to,

 change in technology
 Change in demand which in turn is due to changes in life style, standard of
living, food habit and other personal and impersonal factors.
 The fact that the existing products may not be viable enough to afford the
expected growth and development (i.e. in adequate profit, declining stage in the PLC
and consequent losing of market.
 Change in environmental factors (variables) may compel to switch over to
the new products abandoning the existing ones,
E.g. the currently increasing demand for organic coffee
The development of new product is based on either of the two factors, viz.
 technological innovation- that result in purely new products
 Market findings (marketing oriented modifications) this results in
modifications in the existing products.
New products therefore can be classified in to six innovative categorize as given by Booze, Allen
and Hamilton.
1. Technological break through- gives unique product, e.g. AIDS vaccine, such products
are quite different from the existing ones and are new to the world and hence will treat
their own market.
2. Significant improvements: where significant improvements are made on the existing
product, e.g. TV with it Dec facilities such products have greater perceived value

3. Modified products: Modification of existing product in terms of taste, package, size,

colour, weight, etc.
4. Products new to the company: These are products new to the company but not new to
the market. These are imitative products that allow the company to enter an existing
market with a me-too product.
5. Repositioning: Here, existing products are targeted to new markets or market
6. Cost-reduction: where the products remain functionally the same, but the prices are
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Stages in new product development go through seven important stages discussed below.
Idea generation
New product idea generation as mentioned earlier is the result of technical innovation or
market changes.
Sources of new product ideas new product idea may emanate from a number of sources.
These include Internal or in company sources such as:
 The marketing people including sales man ,the management chief executive
employees R & D department company market
 surveys of customer & their feed back
 external/outside sources such as: customers, suppliers, dealers, distributors,
innovations, scientists research agents competitors external research organisation
 As natural happening (e.g. during casual conversation).
 Brain storming technique where small group of people are collected and asked to
come up with their ideas on specified problem. An individual can suggest any idea
that comes to his/her mind, in respect of the specified problem (with our any
reservation), even reactive idea.
Idea Screening
The new product ideas generated /collected from all sources mentioned above may not be
worth committing in their entirety. It should be possible to reduce the ideas to those having
some prima facie merit. This is because some of the ideas are rejected for obvious reasons
• lousy idea,
• un suitable idea for the firm,
• obvious problems in production, and marketing,
• too little potential,
• already explored by some one else,
• other would be able to implement if better and quicker
• no long-term potential,
• other reasons, e.g. unsuitable for the main customers of the company
The process of new product idea screaming may initially be done by a technical committee
consisting of product manager, marketing and other experts.
Concept Development
The product ideas that pass the screaming stage should be developed into product
concept or a consumer proposition. The idea becomes a concept when it is elaborated, i.e.
when it includes (covers):
a) the consumer or consumer benefit
b) the target market, and
c) The intended usage.
What really is product concept?
 One product idea can be turned in to several product concepts. Each of these
concepts/variants is to be examined with care, because, the concept stage is the most

 Illustration: A large food processing company gets the idea of producing a powder
to add to milk to in crease its nutritional value & taste. This is a product idea, but
consumers do not buy product idea, they buy product concepts.
The question to be asked here are:

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1. Who are the possible users of this product /powder/? The powders can be aimed at
infants, children, teenagers, young or middle aped adults or older adults.
2. What primary benefits should this product provide (should be built in it)? Taste,
nutrition, refreshment, energy?
3. When will people consume this product /drink? At Breakfast, midmorning, lunch, mid
afternoon, dinner, late evening?
By answering these questions, a company can form several concepts.
Concept 1: An instant breakfast drink for adults who want a quick nutrition breakfast without
Concept 2: A tasty snack drinks for children to drink as midday refreshment,
Concept 3: A health supplement for alder adults to drink in the late evening before going to
Many more concepts can be developed around powder. However, the above concepts give
you as to how slight variations can affect a concept significantly. Each concept is likely to be
different in terms of the probable product design, the target market the timing (time of use) and
the pricing, each concept therefore has different marketing implications and technical
Each concept in the above represents a products category that defines the products
competition. An instant breakfast drink would compete against bacon and eggs, breakfast
cereals, coffee and pastry, and other breakfast alternatives. A tasty snack drink would compete
against soft drinks, fruit, juices, and other thirst quenchers. It is the products category that
ultimately decides its competition.
Suppose, out of the several milk additives, the concept of instant breakfast drink is ultimately
accepted. It then competes with bacon and eggs, breakfast cereals, coffee and pastry and
other breakfast is to show where this powdered product would stand in relation to other
breakfast products. This is shown in a product-positioning map of two dimensions of
(preparation) time and cost.
Concept is based on image factors rather than on factual service or product differentiation less
true for cosmetics, toiletries, household chemicals cigarettes and even alcoholic beverages the
success of deodorants Niva, etc are due to image. The image is created by consistent and heavy
advertising supplemented by foundation on product attributes. If an image is built on advertising
alone, it could prove risky, because the sales decline as soon as ad budget tapers off.
Concept Testing
Consumers are asked several questions while testing the concept
1. Communicability and believability: Are the benefit clear to you and believable? If the
scares are low the concept must be refined or revised
2. Need levels: will this solve your problem or satisfy your need? The stronger the need, the
higher the expected consumer interest.
3. Gap level: are there products (existing) which meet and satisfy the same need? The
greater the gap, the higher the expected consumer interest. A need level can be multiplied
to by the gap level to produce a need gap score. A high need gap score means that
consumer see the product filling (meeting) a strong need that is not satisfied by available
4. Perceived Value: is the price fair (reasonable in relation to the value? The higher the
perceived value the higher the expected consumer interest.
5. Purchase Intention: Would you buy the product?
6. User targets, Purchase Occasions, Purchasing frequency who would use this product, and
when and how often will the product be used?
The respondents’ answers indicate:

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 Target Consumers
 The existing products that compete with the new product
Conjoint analysis will be made if there are alternative product concepts to derive the utility values
consumers attach to varying level of a product’s attribute.
Marketing Strategy
Following a successful concept test a preliminary marketing strategy plan consisting of three parts
will be developed (by a marketing manager) to introduce the new product in to the market.

 First part describes the target markets

- Size structure and behaviour
- The planned product positioning and
- The sales market share and profit goals sought in the first few year

 Second Part describes

- The planned price
- Distribution Strategy
- Marketing budget for the first year
 Third Part of describe:
- The long run sales and profit goals
- Marketing mix strategy over time
Business Analysis
This is the preparation of sales cost and profit projections (by the management) to evaluate the
attractiveness of the proposed business and to determine whether they satisfy company’s
objectives. If they do, the concept can move to development stage. If not (if there is new
information) the business analysis will under go revision and expansion.
Sales estimation (total)
It is important to know whether the product will generate sales enough to yield satisfactory profit
for this purpose, products are classified in to three classes viz.

a) A one shot (one time purchased) product

b) An infrequent purchased products:
c) Frequently purchased products,
Estimating cost and profits
Costs are estimated by the marketing departments in consultation with the production engineering,
cost/finance and RBD departments’ product working development.

This is the stage where the product idea which has been existing as a word description, a drawing
or a prototype, can be translated in to a technically and commercially feasible product. If it can not
the accumulated (accrued) project cost will be lost except any useful information gained in the
process. Of course, this required large investment (resources commitment). In this process the
firm may develop prototype (May be more than one) that en body the key features (customer
attributes (CA) identified in the concept statement through a set of methods known as qualify
function deployment (QFD). Such prototypes shooed.

 Perform safely under normal conditions,

 Be with in the budgeted manufacturing cost.
 Not only incorporates the physical attributes but also communicates the geological aspects
of the products through physical features of a green color is perceived as being cool. A
green mouthwash will be considered. Giving a cooling effect.
Developing and manufacturing a successful prototype can take long or short process (time
depending on the nature and type of product with the customer attributes to be embodied. E.g. for

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food products it may take several months to develop taste corresponding to that demanded by
customers consumers. Once the prototypes are ready, they must be made subjected to several
tests both functional and customer/consumer testing market tasting.
This is testing the product in an actual market setting that gives an idea about the reaction of
consumers (customer such as distributors) to the product and the potential market for the product.
One the product passed the stage of product (Prototype) development, then, it is properly packed
and given brand name and be tested in the market.
Not all companies/Organizations under take market testing while most are convinced about the
effectiveness of the same which in turn enables the company to test the effectiveness of a
alternative marketing strategies.
It is always better to under take market testing for high-risk products to avoid any mistake. Any
minor mistake overlooked during product development stage may spoil entire operation and hence
necessitates market testing.
There are various methods in market testing viz.

 Consumer goods market testing

 Simulated test marketing
 Controlled test marketing
 Controlled test marketing
 Test markets
Test marketing feedbacks enable to take decision regarding the launching of a product. A product
launch stage is the cost list stage of new product development. The company either builds (sets)
up or hired the manufacturing facilities for production. As a precautionary measure the company
may set up a plant smaller than the one demanded by the sales fore cast. Apart from production
costs, the company has to bear heavy marketing costs, viz. packaging promotion advertising,
distribution etc.
1) New product Adoption:
The new products acceptance by the consumers is called “Adoption”. It is a six-step process, in
which the consumer passes through the awareness, information evaluation, trial, adoption and
Adoption categories
People vary in their speed of accepting (adopting) a new product. Research study reveled that
there are five categories of adopters depending upon the time taken to adopt a new product.
These include,

1. Innovators:
People who 1st venture to adopt a new product. They are
 Likely to be younger
 May have a high social status
 Have broad and cosmopolitan out look
 Are venturesome to try on new ideas, taking some risks.
2. Early adopters:
This consists of more of opinion leaders who are greatly respected in society. They adopt new
ideas early but are careful. They are change agents.
3. Early majority:
A deliberate group who accepts an innovation before an overage person does so they them selves
are not leaders.
4. Late majority:
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Skeptical group adopts a new product out of necessity or social pressure after so many others
have done so.
5. laggards:
These are traditional-bound groups, who are suspicious of new product (idea) and are the last to
adopt the same. Such people are older or at the lower social and economic scale by the time of
their adoption, the innovation might have been out of use/ discarded.

13 ½ %
2½ early 34 %
adopters early 34 %
majority late 16%
majority laggards
cash goods
x-26 x-6 x x+6 Time

Fig. Distribution of adopter of a new product knowing such characteristics enables the marketers
to design appropriate media habits.

Product life cycle

The Product Life Cycle and its stages
The product life cycle is an attempt to recognize distinct stages in the sales history of the product.
Corresponding to these stages are distinct opportunities and problems with respect to marketing
strategy and profit potential. By identifying the stage that a product is in, or any be headed toward,
companies can formulate better marketing plans.
To say that a product has a life cycle is to assert four things:
• Products have limited life.
• Product sales pass through distinct stages, each posing different challenges to the seller.
• Product profits rise and fall at different stages of the product life cycle.
• Products require different marketing, financial, manufacturing, purchasing, and personnel
strategies in the different stages of their life cycle.

Sales / Revenue


Introduction Growth Maturity Decline

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Stages of product life Cycle:

• Introductions, A period of slow sales growth as the product is introduced in the market. Profit is
nonexistent in this stage because of the heavy expenses of product introduction.
• Growth. A period of rapid market acceptance and substantial profit improvement.
• Maturity. A period of a slowdown in sales growth because the product has achieved
acceptance by most of the potential buyers. Profits stabilize or decline because of increased
marketing outlays to defend the product against competition.
• Decline. The period when sales show a strong downward drift and profits erode.
Introduction Stage
The introduction stage starts when the new product is first distributed and made available for
purchase. It takes time to fill the dealer pipelines and roll out the product in several markets, so
sales growth is apt to be slow. Such well-known products as instant coffee, frozen orange juice,
and powdered coffee creamers lingered for many years before they entered a stage of rapid
In this stage, profits are negative or low because of the low sales and heavy distribution and
promotion expenses. Much money is needed to attract distributors and fill the pipelines.
Promotional expenditure are at their highest ratio to sales “because of the need for a high level of
promotional effort to (1) inform potential consumers of the new and unknown product, (2) induce
trial of the product, and (3) secure distribution in detail outlets.
There are only a few competitors, and they produce basic versions of the product. Prices tend to
be on the high side because” (1) costs are high due to relatively low output rates, (2) technological
problems in production may have not yet been fully mastered, and (3) high margins are required to
support the heavy promotional expenditures which are necessary to achieve growth”.
Marketing Strategies in the introduction stage
I A rapid –skimming strategy consists of launching the new product at a high price and a high
promotion level. The firm charges a high price in order to recover as much grows profit per unit as
possible. It spend heavily on promotion to convince the market of the product’s merits even at the
high price level, the high promotion acts to accelerate the rate of market penetration. This strategy
makes sense under the following assumptions. (1) a large part of the potential market is unaware
of the product, (2) those who asking price, (3) the firm faces potential competition and wants to
build up brand preference.
II. A slow skimming strategy consists of launching the new product at a high price and low
promotion. The purpose of the of the high price is to recover as much gross profit per unit as
possible, and the low level of promotion keeps marketing expenses down. This combination is
expected to skin a lot of profit from the market. This strategy makes sense when (1) the market is
limited in size: (2) most of the market is aware of the product. (3) buyers are willing to pay a high
price, and (4) potential competition is not imminent.
III. A rapid penetration strategy consists of launching the product at a low price and spending
heavily on promotion. This strategy promises to bring about the fastest market penetration and the
largest market share. This strategy makes sense when (1) the market is large; (2) the market is
unaware of the product. (3) most buyers are price sensitive (4) there is strong potential
competition, and (5) the company’s unit manufacturing costs fall with the scale of production and
accumulated manufacturing experience.
IV A slow-penetration strategy consists of launching the new product at a low price and low level of
promotion. The low price will encourage rapid product acceptance, and the company keeps its
promotion costs down in order to realize more net profit. The company believers that market
demand is highly price elastic but minimally promotion elastic. This strategy makes sense when (1)
the market is larger (2) the market is highly aware of the product (3) the market is price sensitive,
and (4) there is some potential competition.
Growth Stage

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The growth stage is marked by a rapid climb in sales. The early adopters like the product, and
middle-majority consumers start following their lead. New competitors enter the market, attracted
by the opportunities for large-scale production and profit. They introduce new product features,
and this further expands the market. The increased number of competitors leads to an increased
number of distribution outlets, and factory sales jump just to fill the distribution pipeline.
Prices remain where they are or fall only slightly insofar as demand is increasing quite rapidly.
Companies maintain their promotional expenditures at the same or at a slightly raised level to
meet competition and continue educating the market sales rise much faster, causing a decline in
the promotion sales ratio.
Profits increase during this stages as promotion costs are spread over a larger volume and unit
manufacturing cost fall faster than price declines owing to the “experience curve effect.
Marketing Strategies in the Growth Stage –
During this stage, the firm used several strategies to sustain market growth as long as possible:
1) The firm improves product quality and adds new product features and improved styling.
2) the firm adds new models and flanker products.
3) the enters new market segments.
4) it enters new distribution channels.
5) it shifts some advertising from building product awareness to bringing about product conviction
and purchases.
6) It lowers prices at the right time to attract the next layer of price-sensitive buyers.
Maturity Stage
At some point a product’s rate of sales growth will slow down, and the product will enter a stage of
relative maturity. This stage normally lasts longer than the previous stages, and it poses
formidable challenges to Marketing management. Most products are in the maturity stage of the
life cycle, and therefore most of marketing management. Most products are in the maturity stage of
the life cycle, and therefore most of marketing management deals with the mature product.
The maturity stage can be divided into three phases. In the first phase, Growth Maturity, the sales
– growth rate starts to decline. There are one new distribution channels to fill, although some
laggard buyers still enter the market. In the second phase, stable maturity, sales become level on
a per capital basis because of market saturation, most potential consumers have tried the product,
and future sales are governed by population growth and replacement demand. In sales now starts
to decline, and customers start moving towards other products and substitutes.
Many industries widely through to be mature-auto motorcycles, television, watches, cameras-were
proved otherwise by the Japanese, who found ways to offer new values to customers. Market for
its brand by working with the two factors that make up sales volume.
Volume=Number of brand users X usage rate per user
We will examine each factor in turn.
The company can try to expand the number of brand users in three ways:
• Convert nonusers: The Company can try to convert nonusers into users of the product
category. For example, the key to the growth of air-freight service is the constant search for
new users to whom air carriers can demonstrate the benefits of using air freight over
ground transportation.
• Enter new Marketing segments: The company can try to enter new market segments-
geographic, demographic, and so on-that use the product but not the brand. For example,
Johnson and Johnson successfully promoted its baby shampoo to adult users.
• Win Competitors Customers: The Company can work to attract competitions customers to
try to adopt the brand. For example, Pepsi-cola is constantly coaxing Coca-cola users to
switch to Pepsi-Cola, throwing out one challenge after another.
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Volume can also be increased by getting current brand users to increase their annual usage of the
brand. There are three strategies:
• More Frequent use: The company can try to get customers to use the product more
frequently. For example, orange juice marketers try to get people to drink orange juice on
occasions other than breakfast time.
• More usage per occasion: The Company can try to interest users in using more of the
product each time it is used. Thus a shampoo manufacturer might indicate that the
shampoo is more effective with two rinsing than one.
• New and more varied users: The Company can try to discover new users for the product
and convince people to make more varied use of it. A common practice of food
manufacturers, for example, is to list several recipes on their packages to broaden the
consumer's awareness of all the users of the product.
• Make Mix Modification: Would a price cut attract new tires and users? If so, should the list
price to lowered, or should prices be lowered through price specials, volume or early-
purchase discounts, freight absorption, or easier credit terms? Or would it be better to raise
the price to suggest more quality?
• Distribution – can the company obtain more product support and display in the existing
outlets? Can more outlets be penetrated? Can the company get the product into some new
types of distribution channels?
• Advertising: Should Advertising expenditures be increased? Should the Advertising
message or copy be changed? Should the media vehicle mix be changed? Should the
timing, frequency. Or size of ads be changed?
• Sales promotion. Should the number or quality of sales people be increased? Should the
basis for sales – force specialization be changed? Should sales territories be revised?
Should sales-force incentives be revised? Can sales – cal planning be improved?
• Services: Can the company speed up delivery? Can it extend more technical assistance to
customers? Can it extend more credit.

The sales of most product forms and brands eventually decline. The sales decline may be slow, as
in the case of oatmeal cereal; or rapid, as in the case of Dassel automobile. Sales may plunge to
Zero, or they may petrify at a low level and continue for many years at that level.
Sales decline for a number of reasons, including technological advances, consumer shifts in
tastes, and increased domestic and foreign competition. All of these lead to overcapacity,
increased price cutting, and profit erosion.
As sales and profits decline, some firms withdraw from the market. Those remaining may reduce
the number of product offerings. They may drop smaller market segments and weaker trade
channels. They may cut the promotion budget and reduce their prices further.
Unfortunately, most companies have not developed a well though-out policy for handling their
aging products. Sentiment plays a role:
Marketing Strategies During the Decline Stage
A company faces a number of tasks and decisions to handle its aging products.
In a study of company strategies in declining industries, Harrison distinguished five decline
strategies open to the firm:
1) Increasing the firm’s investment (to dominate or strong then its competitive position)
2) Maintaining the firm’s investment level until the uncertainties about the industry resolved.
3) Decreasing the firm’s investment level selectively, by sloughing off the unpromising customer
groups, while simultaneously strengthening the firm’s investment: posture within the lucrative
nieces of enduring customer demands.
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4) Harvesting for (milking) the firm’s investment to recover cash quickly, regardless of the
resulting investment posture.
5) Divesting the business quickly by disposing of its assets as advantageously as possible.

Chapter IV
Pricing/Price mix
What is a price?
Price, value and utility are all interrelated. Utility is the want satisfying capacity of an item. The
quantitative measure of the worth of the product to attract other products in exchange is called its
value (e.g. 1kg of coffee for 2kgs of sugar). However, in today’s economy money is used as a
common denominator of value. Price is therefore the (exchange) value of a product or service
expressed in terms of money. Price is the amount of money required to procure some combination
of product and its accessories (accompanying benefits or services) such as after sales service,
spare parts, extension service and guidance, credit, delivery at convenient place, etc. Hence, it is
supposed to be,
Price = the satisfaction and benefits derived by the consumer.
For a seller,
Total market Offerings = bundle of expectations/ satisfactions = Price
Any change in price will perhaps alter the satisfaction level, it is a mechanism to compare other
products and services during purchase and take decision (by the consumer)
For seller price is the most important feature because,

• It is the source of revenue

• His profits are dependent on the same
Importance of pricing
• Helps in marketing program as it is one of the 4 Ps of marketing
• Service as a medium of exchange causing the transfer of ownership
• It is the benchmarks for demand and supply theory in economics.
• It influences the supply and demand conditions in the market in price while change
in line with the demand and supply position in the market.
• It is the regulator of profit production and distribution
• It also regulates consumption as it influences the buying decisions of the
• It influences the marketing objectives of a company as it influences many areas of
marketing like sales volume profits trade margin return on investment (ROI) product
image sales promotion strategies etc.
• It is a sharp weapon in the marketing strategy in a competitive market.
• In sum, directly or indirectly it has a great role in the economic activity of a country.
Price is the common name for price name of different goods and service.
Type of good/Service Price name
1. School Fee
2. Doctor’s/Medical Fee
3. Executives salary
4. Workers Wage
5. Bus/air plant/Train ride fair
6. Land (lord/ lady) rent
7. Brokers and agencies Commission
8. Guest speakers/lecturers honorarium
9. High way (use service) tolls
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10. Consultants retainer charges

11. Bank or moneylenders (capital) Interest
12. Unions/clubs Dues

Pricing Strategy/setting the price for new products

A firm must set a price for the first time when it:

• develops a new product ( which is at introductory stage)

• introduces its regular product into a new distribution channel or geographic area,
• When it enters bids on new contract work.
Pricing objectives
Pricing is only the means to achieve the marketing objectives of a marketing organization. The
pricing objectives should therefore be consistent with the same.
Companies may have several objectives while deciding pricing. Some of the major ones are:
 Maximum short-term profit,
 Reasonable long-term profit/survival,
 Reasonable return on investment(ROI),
 High sales turnover/increased sales volume,
 High trade margin to sales ratio,
 Larger market share,
 Entering new market,
 Strategy to meet competition,
 Price stability in the market,
 Maximum market skimming,
 Product quality leadership.
Pricing is basically to recover the cost plus a margin. The margin position is the major decision
areas and objectives are the guiding principles while deciding the margin. E.g. If the objective of
the firm is to maximise short-term profit then the rate of margin will be higher. If the objective is to
get reasonable profit over a long period, then the rate of margin will be quite reasonable.
Objectives can also be to gain reputation and develop good- will; quality image (to go for quality
standard and high price).
Public sectors and government companies may differ in their pricing objectives. Their objectives
include helping the poor, providing services such as technical advice, education, etc.
The company must set its price in relation to value delivered and perceived by the customers. If
the price is higher than the value perceived, the company will miss potential profits. If the price is
lower than the value perceived, then the company will fail to harvest potential profits.
Setting price policy is a six-step process, viz.
i. Selecting the pricing objectives, vi. Selecting the final price.
ii. Determining demand,
iii. Estimating costs,
iv. Analysing competitors costs and prices and offers
v. Selecting a pricing method,
i. Determining Demand
Generally, consumers/customers are mostly price- sensitive to products that cost a lot or bought
frequently and vice-versa. They are also less price-sensitive when the price is only a small part of
the total cost of obtaining, operating, and servicing the product over its lifetime.
Under normal condition, demand and price are inversely related, i.e. the higher the price the lower
the demand and vice-versa and hence the demand curve slops downwards to the right.
Nevertheless, there are exceptional cases where price and demand are directly related, i.e.
demand curve slops up. E.g. Prestige products like perfume, luxury cars, golden watch, etc. There

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are nine (9) conditions identified by Ms. Thomas. T. Nagle., for less price sensitiveness of
consumers/customers. These include:
1. When the product is unique, i.e. the product is unique in nature( the only of its type) and meets
the needs,
2. When the substitute awareness effect is of less importance, i.e. when buyers are less aware of
3. When it is difficult for customers to compare the quality of substitutes (b/n two products).
4. When the end benefit effect is more for a particular product , e.g. education cost,
5. Sunk investment effect, i.e. when the product is used with other product already bought. The
product is used in conjunction with the asset previously bought, e.g. ink in pen, battery for
car, etc.
6. When total expenditure to income is negligible, i.e. when the expenditure is the smaller part of
the buyers income,
7. Shared cost effect, i.e. when the cost is shared by another party,
8. Price quality effect-when a product is of high quality prestige or exclusive,
9. Inventory effect-when the product is not for storage and is for immediate use.
In all the above cases, people usually don’t bother about the price and make purchases.

ii. Estimating costs

Demand sets a ceiling on the price the company can charge for its products while costs set the
floor. The company wants to charge a price that covers its costs of producing, distributing and
selling the product, including a fair return for its efforts and risks.
The types of costs and levels of production
Costs of a marketing organisation/company can be categorised under two major heads, viz., Fixed
Costs and Variable Costs.
a) Fixed Costs (FC) /Overhead costs: are costs that don’t vary with production or sales
volume. It includes bills for monthly rent, heat, interest, salaries and some others
regardless of output.

b) Variable Costs (VC): are those costs that vary directly with the level of production (in their
totality) but tend to be constant per unit produced. They are called variable only because
their total varies with the number of units produced.

c) Total Costs (TC): Total costs are the sum of FC and VC for any given level of production.
d) Average Costs: Is the cost per unit at a given production level and is given by total costs
divided by production (units produced).
AC = TC/Qty
iii. Analysing competitors prices and offers
Once the possible price range is determined by the market demand and company costs, the
competitors' (especially nearest competitor) costs, prices and possible price reactions, help to
either add upon or subtract from the price of the company. If the firm's/company's offer contains
positive differentiation features not offered by the nearest competitor, their worth to the customer
should be evaluated and added to the competitor's price. If the revere is true, their to the customer
should be evaluated and subtracted from the firm's/company's price. In short the Firm/ Company
can charge more, same or less in reference to competitors' price and should always be aware that
the competitors can do the same in reaction.
iv. (Selecting) Pricing Methods
There are various pricing methods followed by different firms for different products in the same
product line (which is based on pricing policy criteria).
Given the 3Cs- the Customers' demand, the Cost function and Competitors' prices, the company
can select its pricing method to set prices for its products. There are seven pricing methods, viz.
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mark-up pricing, target return pricing, perceived value pricing, value pricing, going rate pricing,
auction pricing and group pricing.
Mark-up pricing
Mark-up pricing is set by adding a standard mark-up to the products cost, which is the most
elementary pricing method. Construction companies, accountants, consultants, lawyers and the
likes submit job bids by estimating the total (project) costs and adding a standard mark-up profit.

Suppose a hand calculator manufacturer has the following costs and sales expectations.
Variable costs per unit = birr10
Fixed cost = birr300,000
Expected unit sales = 50,000 units
Unit cost =Variable cost + Fixed cost /unit sales
= 10 + birr300,000/50,000 units
= 10 + 6
= birr16
Assume that the manufacturer wants to earn 20% mark-up on sales. The manufacturer's mark-up
price is given by:
Mark-up price = unit cost/(1-desired return on sales)
= birr16/(1-0.2) =birr20
The manufacturer would charge dealers $20 per calculator and make a profit of birr4 per unit. The
dealer in turn will mark-up the calculator.
Mark-ups are generally higher on seasonal items (to cover the risk of not selling), speciality items,
slower moving items, prescription items etc.
The use of mark-up price, like any other pricing method, does not make logical sense if it does not
consider current demand, perceived value and competition. Yet, mark-up pricing remains popular
for the following reasons:
First -Sellers can determine costs much more easily than estimating demand,
Second -Price similarity in industry if all firms in an industry use this method. This will have price
competition minimising effect. However, if the firms pay attention to demand variation, this will not
be the case.
Third - Many people feel that cost plus pricing is fairer.
Target Return Pricing (TRP)
This is the price that yields its target rate of Return on Investment (ROI), e.g. 15%, 20% etc. This
method is used by some vehicle companies like General Motors and by public utilities, which need
to make fair return on their investment.
Suppose a hand calculator manufacturer has invested birr2 million in the business and wants to
set a price that yields a 20% ROI, i.e. birr400,000. The target return price is given by:
Target return price = Unit cost + desired return + invested capital
Unit sales

= birr16 + 0.2 * birr2,000,000

Birr 24
Total Cost & Revenue

Total Cost

Variable Cost
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Fixed Cost

The manufacturer will realise this 20% ROI provided its costs and estimated sales turn out
to be accurate. Nevertheless, what will happen if sales do not reach 50,000 units? It has
Total Sales
to prepare a break-even chart to learn out what would happen at other sales levels.

B.E.P. Units = total Fixed Cost.

Unit Contribution
Total Fixed Cost
Selling price – Variable cost
FC = birr300,000 regardless of sales volume -TR curve starts at zero & rises
with each
-VC - rises with volume not shown in figure in figure -TC = FC + VC
-TR & TC curves cross at 30,000 units.
- This is BEV (break-even volume)
Break-even Volume (point) = Fixed Costs
(Price - VC)

=birr 300,000/birr24 - birr10 =300,000/14 =221,429 units

However, the manufacturer is hopping that the market will buy 50,000 units at birr24, in which case
it earns birr400,000 on its birr 2 million investment, but much depends on price elasticity and
competitors' prices, which the TRP ignores. The manufacturer or dealer has to consider different
prices and estimate their probable impact on sales volume and profits. Hence, ways to lower its
FC & VC; that in turn will lower its required BEV should be there.

c. (Customer) Perceived Value Pricing (PVP)

This is the pricing method based on "how customers perceive the value proposed by the
Perceived value is the constituent of several elements weighted differently by the potential
customers, viz.:
 buyers' image of the product performance,
 the channel deliverables,
 the warranty quality,

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 customer support and softer attributes such as

- Suppliers,
- Trustworthiness,
- Esteem.
The varying weights placed by the customers will oblige the company to design varying strategies
to meet those varying needs.

 Some are price buyers and the company has to offer stripped-down products and reduce
 Some are value buyers- the company should keep innovating new value and aggressively
reaffirming their value,
 Others are loyal buyers: companies must invest in building relationship and customer intimacy.
Here, production or manufacturing cost is not used to set prices but only to judge whether there
was enough profit to go ahead in the first place.
d. Value Pricing (VP): means where fairly low price is charged for a high quality offering to win
the customers. Recently, several companies have adopted this method of pricing.
e. Going Rate Pricing:
This is the pricing method where firms base their price largely on competitors' prices. The firm
may charge same, more or less than the major competitors.

• In Oligopolistic Industries that sell commodities such as steel, paper, or fertiliser, firms
normally charge same price.
• The smaller firms " follow the leader," charging their prices in line with the changes in
the market leader's prices rather than basing the changes in their own demands and
• Some firms make slight premium (addition) or discounts preserving the amount of
difference (i.e. without letting the difference increase or decrease). E.g. Minor gasoline
retailers charge a few cents less per gallon than the major oil companies.
G-R-P is quite popular in conditions where:
- costs are difficult to measure,
- Competitive response is uncertain,
Hence, firms prefer it as thought to reflect the industry's collective wisdom.
f. Auction-Type pricing:
1. This pricing method is growing more popular. One major use of auction is to dispose of excess
inventories, or used vehicles.
a. Group pricing:
This way of pricing involves pooling orders to gain the advantage of low price through
bulk purchase (volume buy). Thanks to the advancement in technology, now a days,
consumers and business buyer can join groups (such as Volume to get the
advantage of pool price, which is the function of a number of orders received so far.
Major drawbacks- some buyers will not wait for the volume of orders. E.g. Women form a group to
pool financial resources to get the advantages of bulk purchase of kitchen utincles, dresses, and
the likes.
Commonly, companies are seen using the combination of the two or more of the above in setting
price for their products.
v. Selecting the Final Price
The knowledge of all above mentioned pricing methods help to minimise (narrow) the range from
which the company must select its price.
In selecting the final price, the company must consider additional factors, such as:

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• Psychological pricing,
• Gain-and-risk-sharing pricing,
• The influence of other marketing mix elements on price,
• Company pricing policy, and
• The impact of price on other parties.

vi. Adopting the price

Companies usually don’t set a single price but rather a pricing structure that reflects:
- Variations in geographical demand and costs,
- Market segment requirements and costs,
- Purchasing time,
- Order levels,
- Delivery frequency,
- Guarantees,
- Service contracts and other factors.
There are several price adoption strategies, namely:
a) Geographical pricing,
b) Price discounts,
c) Promotional pricing
d) Discriminatory pricing,
e) Product mix pricing.
a) Geographical pricing (Cash counter trade, barter)
This deals with deciding how to price its products to different customers in different locations and
countries. That is, charging higher price to distant customers to cover higher shopping costs or a
lower price to win additional business. Another critical problem (issue) here is "how to get paid"
especially when buyers lack sufficient hard currency.
Counter, where buyers offer items in payment (exchange) of what they take, is in use to overcome
the above problem. Counter trade can take several forms as shown below.
1. Barter: Direct exchanges of goods for goods that does not involve many and third party.

2. Compensation deal: this involves both cash and kind, i.e. the seller receives some
percent in cash (e.g. 40%) and the rest in kind (product). E.g. 60%.

3. Buyback arrangement: where the seller receives as a partial payment, products manufactured
with the supplied equipment. That means the seller sells a plant, equipment, or technology to
another country and agrees to accept as a partial payment, products manufactured with the
supplied equipment. E.g., Sugar processing plant from European countries and selling sugar
product to the same plant supplying countries.

4. Offset: where payment is fully in cash the seller agrees to spend substantial amount of the
money in the buying country with in a stated period.
In sum, counter trade may account for 15-25% of world trade.

b) Price Discounts and Allowances

These are given by the companies for early payments (credit sales), volume purchases, and off-
season buying. It takes the following forms:

• Cash Discount
• Quantity Discount
• Functional (trade) discount
• Seasonal discount

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• Allowances
c) Promotional Pricing:
This is a pricing technique designed to attract customers. It includes loss leader pricing,
special event pricing, cash rebate, low interest financing, longer payment terms, warranties
and service contracts. Promotional pricing strategies are a zero sum game. Why is this so?
This is because competitors/rivals can follow and adopt the same strategy.
d) Discriminatory Pricing: occurs when a company sells a product or service at two or more
prices those do not reflect a proportional difference in costs. The seller charges varying prices
to varying customers based on:
First- Intensity of his/her demand,
Second- Volume of purchase, large volume purchase is charged less,
Third- Different classes of customers/buyers as below:

• Customer segment pricing-

• Product form pricing-
• Image pricing-
• Channel pricing-
• Location Pricing-
• Time pricing-

e) Product mix pricing: Under this are included:

• Product line pricing,
• optional feature pricing,
• Captive-product pricing,
• By-product pricing,
• Product building pricing.
Pricing policies
Pricing can be based on:

• Need based pricing is adopted by the government for public services like health, education,
water supply and the likes.
• Cost based (mark-up) pricing is pursued by many companies that deal with supply of items
on a periodic/contract basis, and products that have less competition etc.
• Market based pricing is used for consumer goods, since there are many competitors in the
market and also consumers are very much price sensitive.
The management, depending up on the product and their position in the market, has several policy
options in deciding the prices. These include:

 One price policy: where a company follows a fair and fixed price policy in line with the normal
market price which ensures a reasonable profit. This is considered quite sound and
 Variable price policy: where there is discrimination of buyers/customers in those bulk buyers
and valuable customers are offered favourable terms while others are not given the same. This
may create problem by spoiling the image of the company in the long- run. Hence it is
preferably used for short-term profit and the company has to change its long run strategy.
 The leadership policy /Market price leader (Acting as a leader in the market): following a
few leading companies that are able to control the market.
Pricing procedures
The pricing policy and methods will determine to some extent the pricing procedures in a given
company situation. However, few general guidelines applicable to most situations are the
• Considering the profile of the identified target market,
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• Considering the companies objectives and brand image,

• Considering the price sensitivity of the customers and the demand,
• Sketching out the PLC stages,
• Calculating all other costs,
• Analysing the market competition and market price,
• Deciding the pricing method in view of the above factors,
• decide the final price,
• Review, analyse and modify if necessary
• Delivery system, e.g. ex-factory price, FOB price, C.I.F price, F.O.R./destination price, ex-
warehouse price, cash/credit price, etc. These are equally important in competitive market.
Factors Affecting Pricing
Factors affecting the pricing decision are many and can be categorised as Internal and External
Internal Factors
• Objectives of the company,
• Marketing objectives,
• Product and its utility,
• PLC stages,
• Production and marketing costs,
• Product lines of the company,
• Product features and product differentiation,
• Other elements of the marketing and their dependency on pricing.
External Factors
These are the factors outside the organisation and are not controllable by the management of the
organisation. Some these factors include:

• The market and its nature,

• Customers/buyers behaviour in general and towards this product in particular,
• Type of competitors and their pricing strategy,
• Government policy and control,
• Social environment and its pressure on pricing,
• Price sensitivity.
Chapter V

Distribution has now become an integral part of modern marketing management functions. Goods
are to be distributed at a minimum possible cost ensuring a satisfactory level of service.
Distribution net work has to reach far and wide ensuring a close control over distribution activities.
Distributive machinery while discharging its social and economic responsibilities should also
ensure profit to the organization.
“Distribution may be defined as on operation or series of operations which physically bring goods
manufactured or produced by any particular manufacturer into the hands of final consumer or
user” –(R.S.Dawar)
Distribution is the “application of motions to materials as they move from the times places, forms
and conditions where they have no value to the times, places, forms and conditions where they
have value (A.W.Shaw). It facilitates movement of goods from initial producers to ultimate
There are two aspects of distribution viz. organizational and operational. The organizational aspect
is concerned with channel selection and operational aspect is concerned with channel selection

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and operational aspects are concerned with transpiration, storage etc. Here we are discussing
only the organizational aspects.
Methods of Distribution:
The methods of distribution adopted can be classified into four as below:
• Intensive distribution using several out lets at several places adopted usually for
convenience goods like soft drink, blades, bread, news paper etc. here due to low unit cost
and frequent consumer purchase, stock turn is high.
• Exclusive distribution in which distributor is selected exclusively for one area. This is used
for goods infrequently purchased like machineries, cars, scooters etc.
• Selective distribution—this is a mid-way approach between intensive and exclusive
distribution. Here limited wholesalers /retailers are selected and this is useful in shopping
goods where consumer has a brand performance.
• Franchising—“Franchising is a system under which a manufacturer grants to certain
dealers the right to sell his product in exchange for a promise to promote and merchandise
the product in a specific manner”. There are two parties in the arrangement—Franchisers
who initiates distribution system and Franchisees who undertake distribution work
independently but assisted by loans designs of buildings, training, advertising, promotion
etc. by the parent company who also exercise some control. This exists in business like
soft drinks, dry cleaning automobiles and paints etc.
Franchising is beneficial both to FRANCHISER (Manufacturer) and FRANCHISEE.
For franchiser, it helps them to start distribution with in shortest time, reduces overhead expanses
and marketing cost. For franchisee he feels more secure and the assistance he gets puts him on
sound footing. In a socialistic pattern of society (like ours) it helps small businessmen to join hands
with large organizations retaining their independence. For big organizations it helps them market
penetration and eliminates need for separate local branch management. Some problems that are
pointed out in this system are that often it leads to pre-mature entry to market and leads to
inadequate disclosures by franchiser. Further it is not stimulating development of new products.

Distribution therefore is concerned with all the activities that are performed to transfer a product
from the producer to the consumer. These can be summarised under two major heads, viz.:
a) Selection and management of distribution channels,
b) Management of physical distribution.
1. Distribution Channel consists of :
• Merchant intermediaries: those who buy and obtain the title and resale. E.g. Retailers,
wholesalers, etc.
• Sales agents/agents middlemen: those who find customers, negotiate with them on
behalf of the producers, book orders for them, but don’t take the title of the goods.
• Supporting agents or facilitators: those who undertake activities for smooth flow of
goods from producers to the consumers, such as transport, warehousing, insurance,
banks, promotions, etc.

1.1. Functions of Distribution Channels

• Provide better distributional net work (in any part of the country) which creates great
difficulties in terms of physical, personnel, financial and other operational difficulties to
the manufacturer.
• Create accessibility (collect and furnish) for information and help in marketing
• Acts as an effective communication/promotion tool through sales outlets, physical
display, demonstration, etc.
• Facilitate the transfer of the title of ownership of the product to the ultimate consumer
and undertake negotiation for reaching agreement for exchange.
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• Take the responsibility of depots and showrooms at different cities & towns throughout
the country.
• Provision of suitable warehouse and their maintenance, the inventory level, the
physical movement of goods from warehouse to the retail outlet/customers,
1.2. Types of channels
a) Producer---------------Consumer (direct marketing channel),
b) Producer--------Retailer-----Consumer (for perishable goods like milk, fruits &
c) Producer------Wholesaler-----Retailer------Consumer (for groceries, drugs, etc),
d) Producer------Agent-----Wholesaler------Retailer------Consumer,
e) Producer------Wholesaler------Consumer (for industrial goods and government
supplies, hospital supplies, co-operatives, etc.),
f) Manufacturer-----Stockists-----Wholesaler-----Retailer------Consumer.
1.3. Steps in Channel Design
a. Design distribution objectives,
b. Deciding the functions to be undertaken by the channel,
c. Analysing the product and channel suitability,
d. Study of distribution environment- legal, competitors, etc. ,
e. Company resources and channel decision,
f. Consider the alternatives and selections.

1.4 Factors influencing choice of distribution Channel

Factors affecting channel choices are numerous as below:
1. Product factor—like perish ability, size, style unit value, type of end users and other
factors like after sales service etc.
2. Market factor—such as market size, dispersal of consumers size of consumer
orders etc.
3. Consumer factor i.e. type of consumer; and their buying habits.
4. intermediary factor (services rendered by middlemen)
5. enterprise factor (financial factor, experience, need for control; quality and quality of
marketing services)
6. Environment factors such as competitors,
7. Other factors such as competitors’ channel and cost of channel also affect channel

Managing the distribution network: Besides selection and appointment, it includes,

servicing, administration, dealer compensation and motivation, their training and development
to develop their loyalty.
Management of Physical Distribution
Physical distribution is essential to make the product available at the right place at the right
time to the consumers. Physical distribution activities involve planning, organising,
implementing and control of the physical flow of goods and services from producers to

Chapter VI

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Marketing communication is an effort or endeavour of presenting a set of messages to a target

markets through a multiple of cues or media (Promotion Mix and Marketing mix). The intention is
to create favourable response from the market.
The marketing communication mix:
• Product Communicates-through its colour, shape, size, package, brand name, etc.
• Price communicates- in a way that price is an indicator of quality, superior quality.
• Place (point of sale) communicates- location, displays, sales men, etc. ,
• Promotion communicates- through advertising, Personal selling, sales promotion and publicity.
Promotion is therefore one of the elements of the marketing communication mix. It consists of four
different components, viz.:
1. Personal selling,
2. advertising,
3. Sales promotion,
4. Publicity.
1. Personal selling: is a face-to-face interaction between the salesman and prospective
customers. The sales man's:

• knowledge about the product,

• the degree of involvement in the organisation he is representing,
• degree of familiarity with the customers,
• Level of motivation, etc. determines his communicative role.
Personality of salesman including his language looks; style, age, smartness and manners are also
communicative cues to the customers.
2. Advertisement: in marketing context means any paid form of non-personal presentation and
promotion of ideas, goods or services by an identified sponsor. In this way, the advertiser intends
to spread his ideas about his products/offerings among his customers and prospects. The ultimate
intention of any advertising is to influence the purchase behaviour of consumers in a way
favourable to the advertiser.
3. Sales promotion: is a direct and immediate inducement.
Differences between advertising and sales promotion
1. Advertising is mostly an indirect approach towards persuading consumers to try a product,
while sales promotion is a direct and almost open inducement to consumers to immediately
buy the product.
2. While advertising normally has a long-term objective like positioning, building brand
awareness, or consumer loyalty, or developing new markets for the brand. Sales promotion
performs an immediate task of increasing current sales.
3. Advertising helps sales by adding some durable and long-term value to the product; while
sales promotion aids selling by temporarily-changing existing price-value equation of the
product in favour of the consumer.
Techniques of sales promotion
- Demonstration,
- Exhibitions,
- Coupons, Premiums,
- Free offers, Price-off, discounts, extras, instalment payments offers,
- Exchange offers.
Instalment offers
- Free samples,

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- Gifts.
Publicity, unlike advertising, personal selling and sales promotion, is an external factor that can't
be controlled by the firm or organisation. It requires conscious and continuous effort on the part of
the company/ organisation and maintenance of good relation with the public.
Publicity is not paid for by the sponsor; unlike the advertisement ** the sponsor is not known here.
Important Methods: press release, speeches, seminars, conferences, area development work and
social activities, public relations, etc.
Chapter VII
The marketing planning and implementation

Marketing Planning is the basis for Marketing Strategy development for an existing/new product. It
moves with the initial identification of market opportunities and assessment of how well the market
is being served by the existing manufacturers and the level of dissatisfaction level existing in the

Market opportunity
Identification of market opportunity is critical before the management of a firm takes a decision to
launch or diversify in any product area. As shown in Figure 1, this involves an analysis of the
a. Size of the market
b. Marketing strategies and the extent and quality of services rendered by other firms
(competition) in the industry.
c. Marketing Program required satisfying market wants.
d. Identification of key success factors in an industry and linking them up to a firm’s strength
and weaknesses.

Demand Conditions Market Segment Industry Analysis


Competition Analysis

Trade Analysis
a. Size of the market
b. How well the market is served
c. Any niches
d. Marketing mix required to succeed
e. Core competencies required
Size of the market

This is the starting point of any detailed analysis for the determination of market opportunity.
Factors that determine the size of a market are:
1. Demand analysis
2. Segmentation analysis
3. Industry analysis
4. competitor analysis

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Demand analysis:
The core part of market opportunity analysis is demand analysis. The market consists of existing
and potential buyers. It is important that these individuals should not only have the desire to buy,
but also the means to buy a product/service. This implies that market demand will come from only
those customers who have the willingness and purchasing power to buy a product or service, at a
given price level.
Another dimension of market demand is that a mere existence of an unfulfilled want among a
group of people does not necessarily constitute a market for a product. Hence, demand analysis
must start with the description of the product which people want. This product may be an existing
or a new one. Demand analysis can be done at varying levels. The firm can analyze a segment of
the total demand available to it.
Segmentation analysis:
Demand analysis alone isn’t enough because customer requirements vary depending upon their
unique characteristics. Marketing oriented firms understand that their nirvana is only when they
take a segmental approach to satisfying the market demand. Segmentation is the process of
dividing the market into homogeneous sub-units. Homogeneity in the market is brought about on
the basis of the demographic, geographic and psychograph characteristics of consumers. Besides,
this is also borough about on the basis of product usage. Dividing the market into segments helps
the firm in sharply focusing its attention and also on the viability of satisfying market demand. In
the example of the credit card marketing the firm may segment its market on the basis of age,
education, occupation, income and lifestyle of the consumer. Similarly, for an industrial product,
segmentation could be done on the basis of user firm’s size, buying characteristics and key
variables and used in buying a product of that kind.
Industry analysis:
The firm also needs to study industry trends during the time period covered by the market
opportunity analysis (MOA). Information to be looked for is industry growth rate in terms of sales,
production, return on investment (ROI) etc. Industry analysis should also identify common
practices characterizing the entire industry. This could relate to trade practices, labor relations and
the like. However, it is not necessary for a firm to follow these practices if they are not conducive to
its growth. But before turning away from such a practice it is important to assess the firm’s own
strengths and preparing to actualize it.
Competitor analysis:
Analysis of competition and how well the market is serviced tells us if the market is attractive
enough to enter. For example, if a market is well served and customers are satisfied with what
they are getting, then, very little opportunity exists for any new entrant. In short, dissatisfaction with
competitor’s products and services provides an opportunity for a firm to enter the market and make
Extend and quality of services rendered by competitors
The extent and quality of services rendered by the competitors need to be studies in detail. Here,
besides industry and competitor analysis, the firm needs to go into distribution channel analysis.
The firm needs to study the characteristics of the channel, and whether it needs to adopt the
established pattern of distribution.
Marketing programs required to satisfy the customer
The focus of this analysis is on the marketing effort and cost likely to be incurred in order to satisfy
customer needs or even generate demand for a product/service. For example, the two most
important elements of the marketing mix for an ice cream are advertising and distribution.
Advertising alone takes up almost 40 percent of the total sales revenue and according to some of
the leading advertising agencies, the budget required to succeed in this industry is approximately
Rs.10 cores per annum. If a firm wants to enter the ice cream industry in a big way, then it needs
to have good financial resources. Otherwise, it will fail.

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Product-market selection
Having identified market opportunity, it is now important to carry out a product-market analysis for
evolving a marketing plan. Some of the key issues that need to be addressed here are:
• What markets should be served?
Here the marketer needs to address himself to issues like whether he would want the firm to be in
the national or regional market, youth or grown up market or the women market. In other words,
the identification of a target market is important and is the starting point of any analysis.
• What form should the product take?
For example, should the product be marketed as a commodity or as a branded product?
• What should the product offer for use?
For example, conservation of energy resulting in low electricity bills is important for marketing or
consumer appliances operated on electrical mains.
• For whom is the product most important?
This decision will help in focusing marketing communications on a specific individual. For example,
it is the housewife to whom the washing machine is the most important product and hence all
communications from a firm marketing washing- machines should be addressed to her.
Approaches to marketing planning
Once the firm has made the product-market choice, it is now reedy for the marketing planning
exercise. Different approaches have been recommended by different authors. For example, porter
recommends structure analysis of the industry as shown in figure at nest page.

Situation Audit, (Where are we? How did we reach here? Who have
been our major competitors? Their strategies

Analysis of Firm’s Strengths and Weaknesses

What are the key facilitators or hindrances In our Situation?

Objective Setting Market share? , ROI? Sales turnover?

Develop and evaluate Strategy options


Strategic decision making

Structure of marketing plan

Once a firm has been able to identify market opportunity, it sets out to evolve a marketing plan. In
most Developing Countries firms, marketing planning is an information exercise. This is particularly
evident in a family managed or a sole preparatory concern. However, in large professionally
managed firms. Marketing planning is a formal exercise undertaken on an annual basis. There is
no uniformity in the structures of marketing plans of different companies. However, a careful
analysis of these plans shows that they generally have the following contents:

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a) Executive summary: The executive summary is an overall bird’s eye view of the
marketing plan. It tells the focus of the plan and is generally targeted to the top
management. Since the top management is always short of time. It is evident that no top
manager will be able to go through all the facts and figures in the plan. He needs to be told
in a clear and concise manner the thrust of the plan, the objectives to be achieved and the
overall strategy.
b) Situation analysis: A marketing plan has its origin in the situation analysis or situation
audit. At this stage the following issues are raised.
Where are we, in terms of our sales, market share and profitability? Answers to these should
reflect actual to planned performance on all these parameters and as far as possible, should
be obtained on the following two basis: Product and Customer groups
• Where are our competitors in terms of sales, market share and profitability on the
above two parameters?
• What environmental factors helped or hindered our growth?
• What will be the environmental factors in future?
The analysis will help the marketer to identify opportunities and threats as also a firm’s strengths
and weaknesses.
c) Objectives: Having conducted an in depth situation analysis, the firm has to now decide
on its objectives. Many a time, firms commit a mistake by stating their objectives in terms of
historical growth of their sales turnover. It is not uncommon to come across statements like
“we have grown 50 percent over the last two years and want to grow by another 50 percent
in the next one year”. The facility of this objective is that it does not relate the company’s
strengths to the market situation. For example, an industry where all the players are
growing at the rate of 25 to 30 percent per annum is a clear indicator of a growing market.
If the firm also grows at this rate then perhaps it is just coasting on a favorable wave. There
could be others who might be growing at a higher rate than this firm and hence are more
competitive. Thus it is important that objectives should reflect aspirations at the following
• Relative market share of the business
• Sales turnover of the business
• Profit and ROI from the business
• Customer satisfaction level
Clearly defined, realistic but highly challenging objectives on these parameters help guide
marketing and other functional teams to achieve planned performance.
These objectives mentioned above should be based on market realities, and be meaningful and
achievable. All concerned must participate to help make marketing objectives more realistic.
d) Marketing Strategy: The marketer now outlines the broad marketing strategy. This section
contains inputs on sales growth plan. A marketer has the following options to achieve an
increase in the firm’s sales turnover.
• Increase in the price of the product
• Convert non-users into users.
• Convert the competitor’s customers into firm’s customers
• Increase consumption in existing customer groups by identifying new use situations
or new applications of the existing product.
• Launch new products for different customer groups.
• Improvements in service strategy.

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The marketing strategy should also reflect positioning of the product in the target market,
pricing policies, distribution alternatives, sales force operations, advertising and sales promotion
programs and customer service policy.
e) Implementation program: At this point the marketer now turns to converting strategy into
an action plan. In other words, now the marketer creates deadlines to achieve certain
objectives, develops action programs and assigns responsibilities to individuals. This
makes the entire plan more meaningful.
f) Projected profit and loss statement: A marketing plan is meaningful only when it has a
statement of projected or anticipated profit and loss. On the revenue side, it contains
forecasted sales unphysical quantities and price to be realized. The expenses show cost of
production, distribution and marketing. This can be made on product and customer group
basis. Once the top management approves the budget, it becomes the basis for developing
plans and schedules for material procurement, manpower planning, production scheduling
and marketing operations.
g) Control Systems: In order to ensure that performance is as per planned schedule, it is
necessary to evolve control systems which can help management take corrective mid
course action. In some companies this involves monthly and quarterly reports from fields
sales managers, product managers, advertising managers and market research data. In
other companies contingency plans are integrated in the control system. These plans
become operational in emergencies like a strike in the factor or a dealer boycott. A good
marketer is one who is able to foresee future scenarios and prepare himself adequately.
Finally, in writing out a marketing plan, a marketer should remember to:
• Establish his department’s credibility
• Document supporting facts.
• Be optimistic but always truthful.
• Emphasize uniqueness
• Make sure that the plan is workable
• Keep reviewing and updating the plan.

Chapter VIII

Market research
The need for management is to understand and monitor the marketing environment, learning
about changing customer wants, new competitor initiatives, distribution and so on effective
marketing information.
Definition of marketing information system and marketing research:
“A Marketing information System is a continuing and interacting structure of people equipment and
procedures to gather, sort, analyze, evaluate, and distribute pertinent, timely and accurately
information for use by marketing decision makers to improve their marketing planning execution
and control.”
Whereas, Marketing Research is defined as: “The systematic, objective and exhaustive search for
the study of the facts relevant to any problem in the field of marketing.”
According to Philip Kotler, “Marketing Research is systematic problem analysis, model building
and fact finding for the purposes of important decision making and control in the marketing of
goods and services.”.
According to American marketing Association, “Marketing Research is the systematic gathering,
recording and analyzing of data about problems relating to the marketing of goods and services.”
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According to Green and Toll, “It is the systematic and objective search for and analysis of
information relevant to the identification and solution of any problem in the field of marketing.”
From the above definitions we can say that the job of marketing information system is to supply
marketing information and problem analysis is the job of marketing research. Further, we can
differential the two as follows:
17.2 Difference between MR and MIS

Marketing Research Marketing information System

A. It is concerned with solving A. It is concerned with preventing
problems complaints and solving problems
B. It operates on specific problems B. It is a continuous process.
C. Its emphasis is on handling C. It handles both internal and external
external information information.
D. Focus is on past information D. It tends to the future-oriented.
E. It is pertaining to particular field of E. It suggests solution to problems of
activity. the whole organization.

Function of market research:

Market research: Market Research is the only branch of marketing. It is the investigation or study
of the WHO, WHAT, WHERE, WHEN, WHY & HOW actual & potential buyers e.g. customer
Marketing research: Marketing Research has wider meaning & scope.
1) Size of the market
2) Geographic location of customers
3) Demographic descriptions of customers
4) Market segmentation of the basis of age, sex, income
5) Market Demand
6) Degree of competition & market trend.
In short the four (4) Ps of marketing mix & intensive, study, planned, process, scientific approach,
accuracy, decision tools i.e. – lands, policies programs and procedures are very important to keep
in our mind. At a glance is given below:
1. What? What is the product? - Product Research
2. Who? Who are the buyers? - Consumer Research
3. Why? Why do they buy? - Motivation Research
4. How? How do you buy? - Research in buying habits and Channels of distribution.
5. When? When do they buy? - Research in buying habits and Channels of distribution.
In other words, it may be given as below?
Find out - Where are the buyers?
 What they want?
 When they want?
 Where and how much they are willing to pay for it?
What products to purchase?
When & at what price?
How to advertise, displays goods?
How much to change?
What delivery & other services?
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Purpose and Scope of marketing Research:

The purpose of Marketing Research is:
1) To understand the economic factors affecting the sales volume and their opportunities.
2) To understand the competitive position of rival products.
3) To evaluate the reactions of consumers and customers.
4) To study the price trend.
5) To understand the system of distribution.
6) To understand the advantages and limitations of the products.
7) to find new methods of packaging, any comparing other similar packages.
8) To analyze the market size.
9) To know the estimation of demand.
10) To evaluate the profitability of different markets.
11) To study the customer’s acceptance of products.
12) To assess the volume of future sales.
13) To study the nature of the market, it’s location and its potentialities.
14) To find solutions to problems relating to marketing of goods and services.
15) To evaluate policies and plans in the right course of action.
16) To know the development of science and technology.
17) To know the complexity of marketing
18) To measure the effectiveness of advertising.

Major areas for marketing research identified by management are:

1. Research of Market:
This includes markets trends, market share and market potential. It is a study of the size, location,
nature and characteristics of markets; and market is segmented on the basis of many a variables-
age, sex, income, education, occupation, religions etc. in short, it can be restricted to the study of
“who, what, when, where and how” of actual and potential buyers.
2. Research on Product:
It involves new product development, brand image, concept tests, product tests, test marketing of
new product etc. It analyses the strength and weakness of present products in relation to
diversification, simplification etc.
3. Research on Sales
It covers sales forecasting, quota selling, sales territory design and other sales related activities. It
analyses sales volume, salesman performance data, new product performance in test markets,
opinion on customer-related product data etc.
4. Advertising and Promotion Research:
It includes media research, copy research, merchandising, packaging and measuring
effectiveness of various methods of advertising and promotion.
5. Corporate Growth Research:
It emphasizes the studies on economic and technological forecasting, measuring company image,
profitability measurement, merger, acquisition, location etc.
6. Business Economic Research:
It is concern with economic forecasting and business trend analysis. Planning and product mix,
price and profit analysis etc. are included.

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The scope of marketing Research in any organization or enterprise is usually two fold in character:
Routine problem analysis and Non-routine analysis. The non-routine problem analysis is the more
important part of the marketing research job.
The fourth system is the Analytical marketing system, which consists of advanced statistical
procedures and models to develop more rigorous findings from information.

Marketing Marketing Information System Marketing

Information Information

Marketing Marketing Managers Analysis

Environment Internal Marketing Research Planning Implementation
Report Control
Marketing System
Target Market, system
Market Channels
Publics Macro
forces Decisions and Communication

The scope of marketing research:

Marketing researches have steadily expanded their activities and techniques. The ten most
common activities are determination of market characteristics, measurement of market potentials,
market share analysis, sales analysis, studies of business trends, short range pre-casting,
competitive products studies, long range pre-casting, pricing studies and testing of existing
Marketing research process
Research Process Developing the Collecting the Analyzing the
Research Plan information information
Defining the problem
and Research
objectives Presenting the

The given research process in the diagram of five main steps.

1. Defining and Objective:
The first calls for defining the problem carefully and agree on the research objective. An adage sys
“ A problem well defined is half solved. “ Management must steer between defining the problem
too broadly and defining it too narrowly. Not all research projects can be distinguished as:
a) Exploratory: Preliminary data collection shed light to the problem and suggests some type of
these, or new idea.
b) Descriptive: Describe certain magnitude like how many customers will use the product.
c) Casual: To test cause and effect relationship.
2. Developing Research Plan:

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Second step calls for developing the most efficient plan for gathering the needed information. Plan
should be professionally designed.
Marketing managers should have knowledge about marketing research to approve the research
plan and budget and know how to interpret the findings.
Designing a research plan calls for decision on:
Data source:
Primary Data: Are data which consists of original information of the specific purpose at hand. The
data are more relevant to the issue at hand. The only disadvantage is about the high cost.
Secondary Data: Are data which already exists somewhere, having been collected for another
purpose. It provides advantages of lower costs and quicker availability. It is disadvantages
includes non-availability is needed by the researcher data incomplete and inaccurate or unreliable.
Research Approaches: Primary data can be collected in four broad ways.
i. Observational Research: Fresh data is collected by observing relevant factors and selling’s.
This exploratory might yield some useful hypothesis.
ii. Focus Group Research: it is group or gather of six to ten persons who discuss project, service
organisation or other marketing entity. The interviewers need objectivity, knowledge of the
subject matter and industry and knowledge of group dynamics and consumer behaviour.
iii. Survey Research: It is a midway between the exploratory natures of observational and focuses
group research and the vigour of experimental research. Observation and focus groups best
suited for exploratory research, surveys are best suited for descriptive research and
experiments are best suited for casual research. Company’s undertake surveys to learn about
people’s knowledge, belief, preferences, satisfaction and so on and to measure these
magnitudes in the population.
iv. Experimental Research: The most scientifically valid research. It calls for selecting matched
groups of subjects, subjecting them to different treatment, controlling, extraneous variables
and checking whether observed response differences are statistically significant.
The purpose of experimental research is to capture cause and effect relationships by eliminating
competing explanations of the observed findings.
Research Instruments: The two choices are:
i. Questionnaires – It is the most common instruments in collecting primary data. It consists of
set of questions presented to a respondent for his or her answers. It is very flexible as we can
change the question. It should be at the same time carefully developed, tested, and debugged
before administered. It should be check whether it contributes to the research objectives.
ii. Mechanical Instrument: Less frequently used galvanometers are used to measure the strength
of a subject’s interest or emotions aroused by an exposure to a specific advertise or picture.
The tachitoscope is a device that flashes an add to a subject with an exposure internal that
may range from less than one hundred of a second to several seconds.
The Audiometer is an electronic device that is attached to television sets

Characteristic of good marketing research:

i. Scientific Method: Effective MR uses the principles of the scientific method. Careful
observation, formulation of hypothesis, prediction and testing.
ii. Research Creativity: MR at best develops innovative ways to solve a problem.
iii. Multiple Methods: Competent MR fly away from over reliance on any one method. They also
recognize ten desirability of gathering from multiple sources to give greater confidence.
Interdependence of Model and Data: The show concern for unblushing the value of information
against its cost. The cost of research is typically easy to quantity, while the value is harder to
anticipate. The value depends on the reliability and validity of the research findings and
management’s willingness to accept and act on its findings.

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Problems of marketing research:

Management Use of marketing Research: Companies still fail to use MR in spite of its rapid growth
because of the factors.
1) A narrow conception of marketing research: Many executives see to as a fast findings
operation. The procedure of MR reinforces management’s idea of the limited good that can
some from marketing research.
2) Unseen Calibber of MR’s seen little batter the clerical activity. Management continues to pay
low salaries, perpetuating the basic difficulty.
3) Late Results: Carefully designed marketing research can take a long time to carry out. The
report may come too late in terms of when a decision has to be made.
4) Occasional erroneous findings by Marketing Research: Executive wants conclusive information
from marketing research although marketing phenomena are often too complex to yield
conclusive finding.
5) Intellectual different: Between mental style of managers and marketing researcher’s. The
report is more often more complicated and tentative, while manager want is completeness
simplicity and certainty.
6) Marketing research needs the services of qualified and trained persons. Such persons are
rarely found.
7) It is highly expensive and time consuming.
8) If the researcher is biased to the problem, the result will be unsatisfactory and misleading.
9) Marketing research studies the Behaviour of customers; so it is quite impossible to achieve
mathematical accuracy.
10) By the time the results are ready, the circumstances might have changed; then the whole
study will be valueless.
11) It is not an end itself. It presents the correct information for decision-making. Unless a qualified
manager uses the information; the study will be of no use.

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