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1. Defining Marketing for the 21st Century

What is Marketing?
Marketing is an organizational function and a set of processes for creating, communicating, and delivering
value to customers and for managing customer relationships in ways that benefit the organization and its
stake holders
What is Marketing Management?
It is the process of planning and executing the conception, pricing, promotion, and distribution of ideas,
goods and services to create exchanges that satisfy individual and organizational goals.
What is Marketed?
Marketing people are involved in marketing 10 types of entities: goods, services, experiences, events,
persons, places, properties, organizations, information, and ideas.
Who Markets?
A marketer is someone who seeks a response (attention, a purchase, a vote, a donation) from another
party, called the prospect.
Needs, Wants, & Demands
Needs are the basic human requirements. People need food, air, water, clothing, and shelter to survive.
People also have strong needs for recreation, education, and entertainment.
We can distinguish among five types of needs:

Stated needs (the customer wants an inexpensive car).

Real needs (the customer wants a car whose operating cost, not its initial price, is low).

Unstated needs (the customer expects good service from the dealer).

Delight needs (the customer would like the dealer to include an onboard navigation system).

Secret needs (the customer wants to be seen by friends as a savvy consumer).

These needs become wants when they are directed to specific objects that might satisfy the need. An
American needs food but may want a hamburger, French fries, and a soft drink.
Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes;
only a few are willing and able to buy one.

8 Demand states in the market

Negative demand - Consumers dislike the product and may even pay a price to avoid it.

Nonexistent demand - Consumers may be unaware or uninterested in the product.

Latent demand - Consumers may share a strong need that cannot be satisfied by an existing

Declining demand - Consumers begin to buy the product less frequently or not at all.

Irregular demand - Consumer purchases vary on a seasonal, monthly, weekly, daily, or even
hourly basis.

Full demand - Consumers are adequately buying all products put into the marketplace.

Overfull demand - More consumers would like to buy the product than can be satisfied.

Unwholesome demand - Consumers may be attracted to products that have undesirable social

Key customer markets

Consumer markets

Business markets

Global markets

Non profit & Governmental markets

Marketplace, marketspace & metamarket

The marketplace is physical, as when you shop in a store; marketspace is digital, as when you shop on
the Internet. Metamarket to describe a cluster of complementary products and services that are closely
related in the minds of consumers but are spread across a diverse set of industries. The automobile
metamarket consists of automobile manufacturers, new car and used car dealers, financing companies,
insurance companies, mechanics, spare parts dealers, service shops, auto magazines, classified auto
ads in newspapers, and auto sites on the Internet.

Production orientation

Product orientation

Selling orientation

Marketing orientation

Holistic marketing
The holistic marketing concept is based on the development, design, and implementation of marketing
programs, processes, and activities that recognizes their breadth and inter-dependencies. Four
components of holistic marketing are relationship marketing, integrated marketing, internal marketing, and
performance marketing.

Integrated marketing
Marketing mix
Four Ps

Four Cs
Customer solution
Customer cost

2. Developing Marketing Strategies & Plans

The Value Chain
Michael Porter proposed the value chain as a tool for identifying ways to create more customer value. The
value chain identifies nine strategically relevant activities that create value and cost in a specific business

Marketing Plan
The marketing plan is the central instrument for directing and coordinating the marketing effort. The
marketing plan operates at two levels: strategic and tactical.
The strategic marketing plan lays out the target markets and the value proposition that will be offered,
based on an analysis of the best market opportunities. The tactical marketing plan specifies the
marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and
Strategic Market Planning
Strategic market planning is the managerial process that entails analysis, formulation and evaluation of
strategies that would enable an organisation to achieve its goals by developing and maintaining a
strategic fit between the organisations capabilities and the threats and opportunities arising from its
changing environment. The Strategic Market Planning Process involves:


Environmental analysis (SWOT Analysis)

Competitor and industry analysis

Customer and market analysis, firm internal analysis

The formulation and evaluation of alternative strategies

The selection of a strategy, and

The development of detailed plans for implementing

The Strategic Planning Gap

Intensive Growth
Corporate management's first course of action should be a review of opportunities for improving existing
businesses. Ansoff proposed a useful framework for detecting new intensive growth opportunities called a
"product-market expansion grid"

Integrative Growth
A business's sales and profits may be increased through backward, forward, or horizontal integration
within its industry.
Diversification Growth
Diversification growth makes sense when good opportunities can be found outside the present
businesses. A good opportunity is one in which the industry is highly attractive and the company has the
right mix of business strengths to be successful.
Strategic Planning Techniques:

Boston Consulting Groups (BCG) Growth / Share Matrix:

The technique entails assigning each individual product (SBU) of an organisation to one of four possible
cells in a simple matrix according to the relative market share and rate of market growth associated with
that particular product / business.


GE Matrix:

Strategic Formulation:
Porters Generic Strategies:
Michael Porter has proposed three generic strategies that provide a good starting point for strategic
thinking: overall cost leadership, differentiation, and focus.

3. Gathering Information & Scanning the Environment

Modern Marketing Information Systems
Some firms have developed marketing information systems that provide management with rich detail
about buyer wants, preferences, and behavior.
The Marketing Intelligence System
A marketing intelligence system is a set of procedures & sources marketing managers use to obtain
everyday information about developments in the marketing environment. Marketing managers collect
marketing intelligence by reading books, newspapers, & trade publications; talking to customers,
suppliers, & distributors; monitoring social media on the Internet via online discussion groups; e-mailing
lists & blogs; & meeting with other company managers.
Identifying the Major Forces
Companies and their suppliers, marketing intermediaries, customers, competitors, and publics all operate
in a macroenvironment of forces and trends that shape opportunities and pose threats. These forces
represent "noncontrollables," which the company must monitor and to which it must respond. Within the
rapidly changing global picture, the firm must monitor six major forces: demographic, economic, socialcultural, natural, technological, and political-legal.
Natural Environment
The deterioration of the natural environment is a major global problem. There is great concern about
greenhouse gases in the atmosphere due to the burning of fossil fuels; about the depletion of the ozone
layer due to certain chemicals & global warming; & about growing shortages of water. But people vary in
their environmental sensitivity. The Roper survey breaks consumers into five groups known as
Consumer environmental segments based on their degree of environmental sensitivity.

True Blue Greens (30%): True Blues are the environmental leaders & activists. They are
characterized by a strong knowledge of environmental issues. They are more likely than the
average consumer to engage in environmentally conscious behavior, such as recycling.

Greenback Greens (10%): Greenbacks do not have the time or inclination to behave entirely
green. However, they are more likely to purchase green.

Sprouts (26%): Sprouts are environmental fence sitters. They feel some environmental issues
are worth supporting, but not others. They will purchase an environmentally conscious product,
but only if it meets their needs.

Grousers (15%): Grousers believe that their individual behavior cannot improve environmental
conditions. They are generally uninvolved & disinterested in environmental issues.

Apathetics (18%): Apathetics are not concerned enough about the environment to do anything
about it. They also believe that environmental indifference is mainstream.

4. Conducting Marketing Research & Forecasting Demand

Marketing research
Marketing research is defined as the systematic design, collection, analysis, and reporting of data and
findings relevant to a specific marketing situation facing the company.
Marketing Research Process:
Definition of the problem & research objectives
Determination of information needs
Development of research plan/ design
DATA SOURCES secondary data, primary data, or both.
RESEARCH METHODOLOGIES Primary data can be collected in five main ways: through
observation, focus groups, surveys, behavioral data, and experiments
1. Descriptive research (Quantitative)

Survey Research Companies undertake surveys to learn about people's knowledge,

beliefs, preferences, and satisfaction, and to measure these magnitudes in the
general population.

2. Exploratory research (Qualitative)

Focus Group Research A focus group is a gathering of six to ten people who are
carefully selected based on certain demographic, psychographic, or other
considerations and brought together to discuss at length various topics of interest.
Classification of Focus Groups

Exploratory - Exploratory focus groups are commonly used in the initial

phase of the marketing research process to define the problem in a
accurate manner.

Clinical - The moderator, who has to be a trained psychologist attempts

to understand sub-conscious feelings.

Experiencing - This method enables a client to observe and listen as to

how a customer thinks and feels about the product.

Stages of group development: Forming, Storming, Norming, Performing


In-depth: Opening, Questioning, Probing, Closing

Expert: Opening, Closing


Behavioral Data Customers leave traces of their purchasing behavior in store

scanning data, catalog purchases, and customer databases. Much can be learned by
analyzing these data. Customers' actual purchases reflect preferences and often are
more reliable than statements they offer to market researchers.

Experimental Research The most scientifically valid research is experimental

research. The purpose of experimental research is to capture cause-and-effect
relationships by eliminating competing explanations of the observed findings.
Experiments call for selecting matched groups of subjects, subjecting them to
different treatments, controlling extraneous variables, and checking whether
observed response differences are statistically significant.

Projective techniques Projective techniques can be incorporated in both interviews

and focus groups to encourage communication or they can be used on their own.
These are techniques that obtain information in ways other than verbal response.
Word association is simply asking for a participants first response to a name, photo
or event. The idea is to get emotional responses, rather than intellectual thoughts,
about a company, brand name or product. Cartoons can also be implemented. The
cartoon will usually consist of two characters with speech bubbles over their heads
similar to comic books. For example, one character might be saying, Hi Ahmad, I
was thinking of shopping at Sams. Want to go? Survey participants will then put their
own answers into the second characters speech bubble.

Observational Research Fresh data can be gathered by observing the relevant

actors and settings

Ethnography Ethnographic research studies the daily lives of participants. The

research can be conducted where participants live, where they shop and where they

Grounded theory Most research studies start with analyzing the cause of a problem.
A researcher will have a theory on why consumers are behaving in the way that they
do in regard to a purchase or the use of a product. There is no hypothesis, rather a
research methodology is designed to study this behavior. Instead of a researcher first
establishing a theory and an hypothesis and then asking questions to determine if
they are correct, a researcher will observe this behavior to determine a theory.

3. Causal research
If a company wants to study the effect a change in its product will have on consumer purchasing
or the possible success of a new promotional campaign, it should use causal research. Causal
research is conducted to discover whether the change a company is planning to make will have a
positive or negative effect on consumers.
RESEARCH INSTRUMENTS Marketing researchers have a choice of three main research
instruments in collecting primary data: quantitative measures through questionnaires, qualitative
measures, and mechanical devices.

Quantitative Measures through Questionnaires A questionnaire consists of a set

of questions presented to respondents. Because of its flexibility, the questionnaire is

by far the most common instrument used to collect primary data. Different scales
used in a questionnaire are

The nominal scale Male and female

Ordinal measurement scale Rank your favorite types of pizza

The interval scale Pizza was very delicious, delicious, good, all right, or

The ratio scale A ratio scale has given start and end points that already exist
and are not created by researchers. A consumers weight is an example of a
ratio scale, as no persons weight can be zero pounds. There is also an
upper limit on what a human can weigh and still survive. On a ratio scale
there is also the ability to measure exactly the difference between units. A
person who weighs 200 pounds is exactly twice as heavy as a person who
weighs 100 pounds.

Mechanical Devices Mechanical devices are occasionally used in marketing

research. For example, galvanometers can measure the interest or emotions aroused
by exposure to a specific ad or picture.

SAMPLING PLAN After deciding on the data sources, research methodologies and instruments,
the marketing researcher must design a sampling plan.
Probability versus nonprobability sampling
Probability sampling uses techniques that result in an ability to calculate exactly the probability of
a single person in a sampling frame being chosen to participate. This probability is based on the
number of total people in that sample divided by the number of total people in the population. If
the population is a known number this is quite easy to calculate. A survey that includes 250
people, out of a population of 1,000, means that every individual in the population has a 25 per
cent probability of being included.
Sampling for a quantitative research

Sampling for qualitative research

Convenience sampling Convenience sampling is used when researchers choose any

willing and available individuals as participants. This method can be implemented when it
is known that a specific location tends to attract the type of individual needed for that
research study.

Snowballing Another method of choosing participants is called snowball sampling. With

this method researchers choose the first participant to match the participant profile. This
participant then refers others with similar characteristics. The theory for using this system
is that the first participant is more likely to know someone like themselves than the
researchers. This method is appropriate when the research calls for participants who may
be from psychographic or ethnic groups that are very different to those of the

Purposive sampling The research question will define the characteristics of the
participant profile. It is important that the participants chosen match this profile so that
they have the necessary common experiences which will result in useful research data. If
input is needed from more than one type of research subject, then more than one
participant profile should be developed and two groups of potential subjects will need to
be recruited.

CONTACT METHODS Once the sampling plan has been determined, the marketing researcher
must decide how the subject should be contacted: mail, telephone, personal, or online interview.

Mail Questionnaire

Telephone Interview

Personal Interview

Online Interview

Data collection
Analysis and interpretation
Presentation of findings
Decision making

The managers who commissioned the research need to weigh the evidence. If their confidence in
the findings is low, they may decide against introducing the product or service. If they are
predisposed to launching the product or service, the findings support their inclination. They may
even decide to study the issues further and do more research. The decision is theirs, but
hopefully the research provided them with insight into the problem.
A growing number of organizations are using a marketing decision support system to help their
marketing managers make better decisions. MIT's John Little defines a marketing decision
support system (MDSS) as a coordinated collection of data, systems, tools, and techniques with
supporting software and hardware by which an organization gathers and interprets relevant
information from business and environment and turns it into a basis for marketing action

Quantitative Tools Used in Marketing Decision Support Systems

Errors in the marketing research

Sampling errors
The data obtained from asking a sample of a population can never provide as accurate an answer as a
census of everyone. A professor who wants to learn how many students study at night could ask all of his
students. However, if the same professor only asks ten out of the 30 students enrolled in his class, there

is the possibility that the answers provided are not representative of everyone. This is called sampling
Nonsampling errors
Other types of errors that result from using a sample are called nonsampling errors. These errors do not
result from the fact that a sample was used instead of a census. Instead those designing and conducting
the research cause these errors. Because they are caused by human error, nonsampling errors can be
Population specification errors
Population specification errors occur when an inappropriate population is chosen for obtaining data for
the research study. For example, if the objective of a research study is to determine what brand of dog
food people buy for their pets, & the research draws a sample from a population that consists
predominantly of cat owners, a population specification error is induced into the study.
Sampling frame errors
A sampling frame is a directory of population members from which a sample is selected. A sampling
frame error occurs when the sample is drawn from an inaccurate sampling frame. For example, if a
researcher interested in finding the reasons why some people have personal computers in their homes
selects the sample from a list of subscribers to PC World, he or she is inducing a sampling frame error
into the study.
Selection errors
Selection errors occur when the correct population has been chosen, but the sample taken from the
population is not representative of the entire population. For example, a university may decide to ask
students who are enrolled in art classes what additional classes they should offer. A selection error occurs
when the students who are asked are still not representative of the whole student population. For
example, a young male student employed to conduct the survey might view the task as a good
opportunity to chat up lots of young women. As a result, a much larger population of women than men
will be included in the sample. If women want different types of classes than men, this could result in the
survey returning inaccurate information due to selection error.
Surrogate information error
Surrogate information error is the difference or variance between the information required for a
marketing research study & the information being sought by the researcher. The famous (or rather
infamous) New Coke tests are a classic example of surrogate information error. The researchers in that
case were seeking information regarding the taste of the New Coke versus Old Coke, but the study
should have determined consumers attitudes toward a change in the product & not just their taste
Measurement error
Measurement error is the difference between or the variation between the information sought by a
researcher for a study & the information generated by a particular measurement procedure employed
by the researcher. Measurement error can occur at any stage of the measurement process, from the
development of an instrument the data analysis & interpretation stage. For example, if a researcher

interested in the individual income of the respondent words the questions as annual household
income, a measurement error is being induced into the research study.

Forecasting and Demand Measurement

Forecasting Methods

Qualitative Techniques

Quantitative Techniques

Regression or causal analysis - Uses factors that have affected sales in the past and
implements them in a mathematical model.

Time series techniques - Use historical data ordered in time to project the trend and
growth rate of sales e.g. Moving Averages, Exponential Smoothing

5. Creating Customer Value, Satisfaction & Loyalty

Value = Benefits / Costs = (Functional benefits + Emotional benefits) / (Monetary costs + Time costs +
Energy costs + Psychic costs)

Value Proposition
The value proposition consists of the whole cluster of benefits the company promises to deliver; it is more
than the core positioning of the offering. For example, Volvo's core positioning has been "safety," but the
buyer is promised more than just a safe car; other benefits include a long-lasting car, good service, and a
long warranty period
Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy
stated or implied needs
Total quality management (TQM)
Total quality management (TQM) is an organization-wide approach to continuously improving the quality
of all the organization's processes, products, and services
Customer lifetime value (CLV)
Customer lifetime value (CLV) describes the net present value of the stream of future profits expected
over the customer's lifetime purchases
Customer Equity
Customer equity is the total of the discounted lifetime values of all of the firm's customers. Lemon
distinguish three drivers of customer equity: value equity, brand equity, and relationship equity

06. Analyzing Consumer Markets

Factors influencing buyer behavior:

Cultural Factors: Culture, subculture (nationalities, religions, racial groups, and geographic
regions), social class

Social Factors: Reference groups, family, social roles and statuses.

Personal Factors: Age and stage in the life cycle; occupation and economic circumstances,
personality and self-concept, lifestyle, values

Psychological Factors: Motivation, Perception, Learning, Belief, Attitudes


MASLOW'S THEORY Abraham Maslow sought to explain why people are driven
by particular needs at particular times. Why does one person spend considerable
time and energy on personal safety and another on pursuing the high opinion of
others? Maslow's answer is that human needs are arranged in a hierarchy, from
the most pressing to the least pressing.

Maslows Hierarchy of needs

The Buying Decision Process: The Five-Stage Model

Problem Recognition

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase behavior
07. Analyzing Business Markets

What Is Organizational Buying?

Webster and Wind define organizational buying as the decision-making process by which formal
organizations establish the need for purchased products and services and identify, evaluate, and choose
among alternative brands and suppliers.
Buying Situations - straight rebuy, modified rebuy, and new task.
The Buying Center
Webster and Wind call the decision-making unit of a buying organization the buying center. It is
composed of "all those individuals and groups who participate in the purchasing decision-making process,
who share some common goals and the risks arising from the decisions." The buying center includes all
members of the organization who play any of seven roles in the purchase decision process.







Gatekeepers. People who have the power to prevent sellers or information from reaching
members of the buying center. For example, purchasing agents, receptionists, and telephone
operators may prevent salespersons from contacting users or deciders.

Buying Influences

Economic Buying Influence: Gives final approval to buy; one person or set of people.
Find EB early and demonstrate the bottom line impact

User Buying Influences: Make judgements about the potential impact of your
product/service on their job performance; there may be several UB

Technical Buying Influences: Screen out possible suppliers; make recommendations

based on how well the product meets a variety of objective specifications; cant give a
final yes, buy they can (and often do) give a final no.

Coach: leads you to buyers and provides information you need in order to position
yourself effectively with each
The Sales Funnel

9 Stages in the Buying Process

Problem Recognition.

General need description

Product specification.

Supplier Search.


Proposal Solicitation RFP & RFQ

Supplier Selection.

Order Routine Specification.

Performance Review.
8. Identifying Market Segments & Targets
Segmentation - Selecting a well-defined group of potentially profitable customers.
Targeting - Focusing marketing resources on acquiring, developing, and retaining profitable
Positioning - Developing a distinctive value proposition.
Niche Marketing
A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers
usually identify niches by dividing a segment into subsegments. For example, Progressive, a Cleveland
auto insurer, sells "nonstandard" auto insurance to risky drivers with a record of auto accidents, charges a
high price for coverage and makes a lot of money in the process.
Segmenting Consumer Markets:

Geographic Segmentation: Nations, states, regions, counties, cities, or neighborhoods

Demographic Segmentation: Age & stage of life cycle, gender, generation, social class / income

Psychographic segmentation: Life style, personality, values

Behavioral Segmentation: Behavioral variables like occasions, benefits, user status, usage rate,
loyalty status, buyer-readiness stage, and attitude
Loyalty Status : Hard-core loyals, Split loyals, Shifting loyals, Switchers
Attitude : Enthusiastic, Positive, Indifferent, Negative, Hostile

Effective Segmentation Criteria: Measurable, Substantial, Accessible, Differentiable, Actionable

Selecting the Market Segments: Single-segment concentration, Selective specialization, Product
specialization, Market specialization, Full market coverage-Large firms can cover a whole market in two
broad ways: through undifferentiated marketing or differentiated marketing.
In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with
one offer. It designs a product and a marketing program that will appeal to the broadest number of buyers.
In differentiated marketing, the firm operates in several market segments and designs different products
for each segment.

Megamarketing is the strategic coordination of economic, psychological, political, and public relations
skills, to gain the cooperation of a number of parties in order to enter or operate in a given market. Pepsi
used megamarketing to enter the Indian market.
9. Dealing with Competition
Market Leader Strategies:
Being the leader calls for action on three fronts:

The firm must find ways to expand total market demand

The firm must protect its current market share through good defensive and offensive actions

The firm can try to increase its market share, even if market size remains constant

Defending Market Share

Market-Challenger Strategies
A market challenger must first define its strategic objective. Most aim to increase market share. The
challenger must decide whom to attack:

It can attack the market leader

It can attack firms of its own size that are not doing the job and are underfinanced

It can attack small local and regional firms

Given clear opponents and objectives, available attack options are:

Market-Follower Strategies
Four broad strategies can be distinguished:
COUNTERFEITER The counterfeiter duplicates the leader's product and package and sells it on the
black market or through disreputable dealers. Music record firms, Apple Computer, and Rolex have been
plagued with the counterfeiter problem, especially in Asia
CLONER The cloner emulates the leader's products, name, and packaging, with slight variations. For
example, Ralcorp Holding Inc., sells imitations of name-brand cereals in lookalike boxes. Its Tasteeos,
Fruit Rings, and Corn Flakes sell for nearly $1 a box less than the leading name brands.
IMITATOR The imitator copies some things from the leader but maintains differentiation in terms of
packaging, advertising, pricing, or location. The leader does not mind the imitator as long as the imitator
does not attack the leader aggressively. Fernandez Pujals grew up in Fort Lauderdale, Florida, and took
Domino's home delivery idea to Spain, where he borrowed $80,000 to open his first store in Madrid. His
TelePizza chain now operates almost 1,000 stores in Europe and Latin America.
ADAPTER The adapter takes the leader's products and adapts or improves them. The adapter may
choose to sell to different markets, but often the adapter grows into the future challenger, as many
Japanese firms have done after adapting and improving products developed elsewhere.
Market-Nicher Strategies
An alternative to being a follower in a large market is to be a leader in a small market, or niche. Smaller
firms normally avoid competing with larger firms by targeting small markets of little or no interest to the
larger firms. Here is an example.

10. Creating Brand Equity

Brand as "a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods
or services of one seller or group of sellers and to differentiate them from those of competitors."
Branding is endowing products and services with the power of a brand
Brand promise or brand essence or brand mantra
Brand promise is the marketer's vision of what the brand must be and do for consumers
Brand equity
Brand equity is the customer's subjective and intangible assessment of the brand, above and beyond its
objectively perceived value. Brand equity is the added value endowed to products and services. This
value may be reflected in how consumers think, feel, and act with respect to the brand, as well as the
prices, market share, and profitability that the brand commands for the firm.
Brand awareness
Brand awareness is consumers' ability to identify the brand under different conditions, as reflected by their
brand recognition or recall performance.
Brand knowledge or brand association
Brand knowledge or brand association consists of all the thoughts, feelings, images, experiences, beliefs,
and so on that become associated with the brand.
Brand image
Brand image is the perceptions and beliefs held by consumers, as reflected in the associations held in
consumer memory.
Brand personality

Brand personality is the human characteristics or traits that consumers can attribute to a brand. We can
measure it in different ways. Perhaps the simplest & most direct way is to solicit open-ended responses to
a probe such as the following:

If the brand were to come alive as a person, what would it be like?

What would it do?

Where would it live?

What would it wear?

Who would it talk to if it went to a party (and what would it talk about)?

Brand contact
Brand contact can be defined as any information-bearing experience a customer or prospect has with the
brand, the product category, or the market that relates to the marketer's product or service
Brand dilution
Brand dilution occurs when consumers no longer associate a brand with a specific product or highly
similar products and start thinking less of the brand
Brand Equity Models
BRAND ASSET VALUATOR MODEL (BAV) There are four key components or pillars of brand equity,
according to BAV:

Differentiation measures the degree to which a brand is seen as different from others,

Relevance measures the breadth of a brand's appeal

Esteem measures how well the brand is regarded and respected.

Knowledge measures how familiar and intimate consumers are with the brand.

Differentiation and Relevance combine to determine Brand Strength. These two pillars point to the
brand's future value, rather than just reflecting its past. Esteem and Knowledge together create Brand
Stature, which is more of a "report card" on past performance
Brand Equity Model

Former UC-Berkeley marketing professor David Aaker views brand equity as a set of five categories of
brand assets and liabilities linked to a brand that add to or subtract from the value provided by a product
or service to a firm and/or to that firm's customers. These categories of brand assets are:

Brand loyalty,

Brand awareness,

Perceived quality,

Brand associations, and

Other proprietary assets such as patents, trademarks, and channel relationships.

According to Aaker, a particularly important concept for building brand equity is brand identitythe
unique set of brand associations that represent what the brand stands for and promises to customers. It
helps establish a relationship between the brand & the customer by generating a value proposition
involving functional, emotional & self-expressive benefits.
Aaker sees brand identity as consisting of 12 dimensions organized around 4 perspectives:

Brand-as-product (product scope, product attributes, quality/value, uses, users, country of


Brand-as-organization (organizational attributes, local versus global);

Brand-as-person (brand personality, brand-customer relationships); and

Brand-as-symbol (visual imagery/metaphors and brand heritage)

Brand Identity Model

Aaker also conceptualizes brand identity as including a core and an extended identity. The core identity
the central, timeless essence of the brand, is most likely to remain constant as the brand travels to new
markets and products. The extended identity includes various brand identity elements, organized into
cohesive and meaningful groups. Take the example of Amul for this sake

BRANDZ Marketing research consultants Millward Brown and WPP have developed the model of brand
strength, at the heart of which is the BrandDynamics pyramid. According to this model, brand building

involves a sequential series of steps, where each step is contingent upon successfully accomplishing the
previous step. The objectives at each step, in ascending order, are as follows:

Presence. Do I know about it?

Relevance. Does it offer me something?

Performance. Can it deliver?

Advantage. Does it offer something better than others?

Bonding. Nothing else beats it.

BRAND RESONANCE The brand resonance model also views brand building as an ascending,
sequential series of steps, from bottom to top:


Building Brand Equity:

Brand equity drivers
1. The initial choices for the brand elements or identities making up the brand (e.g., brand names, URLs,
logos, symbols, characters, spokespeople, slogans, jingles, packages, and signage).
2. The product and service and all accompanying marketing activities and supporting marketing
3. Other associations indirectly transferred to the brand by linking it to some other entity (e.g., a person,
place, or thing).
Brand Element Choice Criteria: memorable, meaningful, likeability, transferability to new products,
adaptable/updatable with time, legally protectable against copying

Measuring Brand Equity:

Brand Value Chain
It is a structured approach to assessing the sources & outcomes of brand equity & the manner by which
marketing activities create brand value.

Steps for Measuring Brand Equity

Step 1: Brand Equity Charter

Formalize the firms view of brand equity into a document, the brand equity charter, that provides
relevant branding guidelines to marketing managers

Step 2: Brand Audit

A brand audit is a consumer-focused exercise that involves a series of procedures to assess the
health of the brand, uncover its sources of brand equity, and suggest ways to improve and
leverage its equity. Brand audits consist of two steps: the brand inventory and the brand

BRAND INVENTORY The purpose of the brand inventory is to provide a current,

comprehensive profile of how all the products and services sold by a company are
marketed and branded. Profiling each product or service requires identifying all
associated brand elements as well as the supporting marketing program The brand
inventory helps to suggest what consumers' current perceptions may be based on

BRAND EXPLORATORY is research activity conducted to understand what consumers

think and feel about the brand and its corresponding product category to identify sources
of brand equity.

Step 3: Brand Tracking

Tracking studies collect information from consumers on a routine basis over time. Tracking
studies typically employ quantitative measures to provide marketers with current information as to
how their brands and marketing programs are performing on the basis of a number of key

Step 4: Brand Equity Report

Assemble results of tracking survey & other relevant outcome measures into a brand equity
report to be distributed on a regular basis to provide descriptive information as to what is
happening with a brand as well as diagnostic information as to why it is happening

Step 5: Establishment of a implementation department

Establish a person or a department to oversee the implementation of the brand equity charter &
brand equity reports to make sure that, as much as possible, product & marketing actions across
divisions & geographic boundaries are done in a way that reflects the spirit of the charter & the
substance of the report so as to maximize the long-term equity of the brand

Brand extensions

Line extension
Parent brand extended to a new product that targets a new segment (like new flavors of ice
cream, new packaging like Lifebuoy liquid soap)

Category extension
Parent brand used for a different product category (like HMT watches, TVS printers.)

Brand Portfolio
The specific roles brands can play as part of a brand portfolio are :
FLANKER Flanker or "fighter" brands are positioned with respect to competitors' brands so that more
important (and more profitable) flagship brands can retain their desired positioning. Procter & Gamble
markets Luvs diapers in a way that flanks the more premium positioned Pampers.
CASH COWS Some brands may be kept around despite dwindling sales because they still manage to
hold on to a sufficient number of customers and maintain their profitability with virtually no marketing
LOW-END ENTRY-LEVEL The role of a relatively low-priced brand in the brand portfolio often may be to
attract customers to the brand franchise. Retailers like to feature these "traffic builders" because they are
able to "trade up" customers to a higher-priced brand

HIGH-END PRESTIGE The role of a relatively high-priced brand in the brand family often is to add
prestige and credibility to the entire portfolio
11. Crafting the Brand Positioning
Differentiation strategies: Product, Services, Personnel, Channel & Image differentiation
Steps in positioning research

Identify the relevant set of competitive products and brands which satisfy the same customer

Obtain demographic and other descriptive information to ascertain perceptual differences by


Analyze the data and present the results using simple representations such as: semantic
differential plots, quadrant maps, importance/performance profiles, or use perceptual mapping
techniques such as: specialized multidimensional scaling procedures, discriminant analysis,
factor analysis, correspondence analysis.

Profile analysis
Profile analysis of a beer brand images

Performance analysis


Concentrate here

Keep with the good work

Low priority

Possible overkill

This is a relatively low cost technique and easily understood by information users, it can provide
management with a useful focus for developing marketing strategies.

Factor Analysis
It is a class of techniques used to reduce and summarize data. The objective is to represent a set of
variables in terms of a smaller number of hypothetical, underlying and unknown dimensions called
factors. Let us take an example of life insurance policy provided by banks.

completely 1 2

will not cancel policy because of age/ minor


tries to handle claim equitably

difficult to do business with

provides excellent recommendations

does not pay attention to policy holder


explains policies clearly

raises premium without reason

policies better than others for older

renewable for life

describe at
all 6

10 long time to settle claims

11 quick service
12 good citizen

1, 8 , 9 or 2, 4, 6, 11, 12 or 3, 5, 7, 10 may prove to be similar factors

Relavance for older people
Humanistic approach

Cluster Analysis
It is a class of techniques used to separate objects into groups so that each object is more like others in
the group than outside ones. Seeks to describe natural groupings

Multidimensional Scaling (MDS)

A set of techniques to transform dissimilarities and preferences among objects into distances by placing
them in a multi-dimensional space. It creates a spatial representation of dissimilar data. It allows
embedding ideal-points and property-vectors in the spatial representation, and estimating weights for
individual differences. An example of multidimensional scaling is perceptual mapping.
Perceptual Mapping
One basis for analyzing the positioning of each competitive brand is the perceptual mapping of similarities
and preferences based on the Multidimensional scaling study. The data are obtained through interviews
with a sample of 200 individuals.

Semantic Scaling

How sweet is your ideal cola?

How important is it to you that a cola have the proper sweetness?

How closely does brand X match to your ideal sweetness?



Not much=2

Not at all=1

Conventional Mapping
Snake Chart

Conjoint Analysis
Conjoint analysis is concerned with measurement of psychological judgements such as preferences.
Utility of each stimuli is inferred from consumers overall estimation of the stimuli. Respondents are shown
different hypothetical offers formed by combining varying levels of the attributes, then asked to rank the
various offers.
Let us consider 2 dimensions Price & Years of warranty for a car, then the offers can be ranked in the
following way

Targeting Strategies

Direct hit - Single product right on

Bracketing - multiple products surround

Tweeners - Single product splitting the difference to induce a new segmentation

Product Life-Cycle Marketing Strategies
Introduction Stage:

Causes for the slow growth are:


Delay in the expansion of production capacity.

Technical problems.

Delays in obtaining adequate distribution through retail outlets.

Customer reluctance to change established behaviour.

Product complexity (for some products).

Profits are negative or low in this stage because of low sales and heavy distribution and
promotional expenses.

Prices are high because of high cost due to relatively low output rates, technological
problems in production

New product launch may be set high or low level for each marketing variable (4Ps).

Considering only price and promotion, management can pursue one of four strategies.

Rapid skimming High price and high promotion since potential market is unaware of
the product and are eager to have it and will pay at the asking price.

Slow skimming High price and low promotion since market is limited in size, market is
aware of the product & buyers are willing to pay a high price.

Rapid penetration Low price and heavy promotion as when market is large, the
market is unaware, most buyers are price sensitive, there is strong potential competition,
& unit cost will fall with companys scale of production and experience.

Slow penetration Low price and low promotion as when market is large, market is
highly aware of product, is price sensitive and there is some potential competition.

Pioneer Advantage

Growth Stage:

This stage is marked by rapid climb in sales. Early adopters & other consumers start buying it.

New Competitors enter attracted by the opportunities. They introduce new product features and
expand distribution.

Prices remain where they are or fall slightly depending on how fast demand increases.

Companies maintain their promotional expenditures at the same or at a slightly increased level to
meet competition & to educate the market.

Profits increase during this stage as promotion costs are spread over a larger sales and
manufacturing cost falls faster owing to learning / experience effect.

During this stage the strategies the firm uses to sustain rapid market growth are :

Improve product quality, add new features and improve styling.

Add new models & flanker (products of different sizes, flavours to protect the main

Enter new segments.

Increase & enter new distribution channels.

Shifts product awareness advertising to product preference advertising.

Lower prices to attract the next layer of price - sensitive buyers.

Maturity Stage:

The rate of sales growth will be slow, and the product will enter a stage of relative maturity. This
stage lasts longer than the previous stages & poses challenges to marketing management.

This stage divides into three phases: growth, stable and decaying maturity. First phase, the
sales growth rate starts to decline. In the second phase, sales flatten. Most consumers have tried
the product, sales are governed by population growth and replacement demand. In the third
phase, decaying maturity, the absolute level of sales starts to decline & customers begin
switching to other products & substitutes.

Sales slowdown creates over capacity in the industry leading to intensified competition.
Competitors engage in frequent markdown.

They increase advertising & trade and consumer promotion.

They increase R & D budgets to develop product improvements and the extensions.

Shake out begins & weaker competitors withdraw.

Dominating the industry are a few giants firms - perhaps a quality leader, a service leader & a
cost leader - that serve the whole market & make their profits mainly through high volume & lower
costs. Surrounding them are market nichers, including market specialists, product specialists and
customising firms.

Market Modifications

Convert non users.

Enter new market segments.

Win competitors customers

Product Modification

Quality Improvement

Feature Improvements

Style Improvement

Marketing - Mix Modifications





Sales Promotion.

Personal Selling.


Decline Stage:

The decline may be slow, may plunge to zero, they may petrify at a low level.

Sales decline for a number of reasons, including technological advances, shifts in consumer
tastes, increase domestic & foreign competition. All lead to over capacity, increased price cutting,
profit erosion.

Those firms in market place may withdraw from smaller segment, weak trade channels, cut their
promotional budget and further reduce prices.

Failing to eliminate weak products delay the aggressive search for replacement products.

The lower the exit barriers, the easier it is for firms to stay and attract the withdrawal firms

Company Strategies in declining industries :


Increasing the firm's investment (to dominate the market or strengthen its competitive

Maintaining the firm's investment level until the uncertainties about the industry are resolved.

Decreasing the firm's investment level selectively, by dropping unprofitable customer groups,
while simultaneously strengthening the firm's investment in lucrative niches.

Harvesting ("milking") the firm's investment to recover cash quickly.

Divesting the business quickly by disposing of its assets as advantageously as possible.

12. Setting Product Strategy

Product Levels: The Customer Value Hierarchy

1. Core product: Use-benefit, problem-solving service

The fundamental level is the core benefit: the service or benefit the customer is really buying. A
hotel guest is buying "rest and sleep."
2. Generic product: Basic version of the product
At the second level, the marketer has to turn the core benefit into a basic product. Thus a hotel
room includes a bed, bathroom, towels, desk, dresser, and closet.
3. Expected product: Set of attributes and conditions that buyers normally expect
At the third level, the marketer prepares an expected product, a set of attributes and conditions
buyers normally expect when they purchase this product. Hotel guests expect a clean bed, fresh
towels, working lamps, and a relative degree of quiet. Because most hotels can meet this
minimum expectation, the traveler normally will settle for whichever hotel is most convenient or
least expensive.

4. Augmented product: Consists of additional services and benefits that distinguish the
companys offer from that of the competition
5. Potential product: Possible augmentations and transformations that this product might
ultimately undergo in future
Here is where companies search for new ways to satisfy customers and distinguish their offer
Product-Mix Pricing
PRODUCT-LINE PRICING Companies normally develop product lines rather than single products and
introduce price steps. E.g. Intel
OPTIONAL-FEATURE PRICING Many companies offer optional products, features, and services along
with their main product
CAPTIVE-PRODUCT PRICING Some products require the use of ancillary, or captive products.
Manufacturers of razors, digital phones, and cameras often price them low and set high markups on razor
blades and film, respectively. AT&T may give a cellular phone free if the person commits to buying two
years of phone service.
TWO-PART PRICING Service firms often engage in two-part pricing, consisting of a fixed fee plus a
variable usage fee.
BY-PRODUCT PRICING The production of certain goodsmeats, petroleum products, and other
chemicalsoften results in by-products. If the by-products have value to a customer group, they should
be priced on their value. Any income earned on the by-products will make it easier for the company to
charge a lower price on its main product if competition forces it to do so.
PRODUCT-BUNDLING PRICING Sellers often bundle products and features. Pure bundling occurs
when a firm only offers its products as a bundle. Michael Ovitz's former company, Artists Management
Group, would sign up a "hot" actor if the film company would also accept other talents that Ovitz
represented (directors, writers, scripts). This is a form of tied-in sales. In mixed bundling, the seller offers
goods both individually and in bundles. When offering a mixed bundle, the seller normally charges less for
the bundle than if the items were purchased separately. An auto manufacturer might offer an option
package at less than the cost of buying all the options separately.

13. Designing & Managing Services

A service is any act or performance that one party can offer to another that is essentially intangible and
does not result in the ownership of anything. Its production may or may not be tied to a physical product.
Manufacturers, distributors, and retailers can provide value-added services or simply excellent customer
service to differentiate themselves.
Distinctive Characteristics of Services
Services have four distinctive characteristics that greatly affect the design of marketing programs:
intangibility, inseparability, variability, and perishability.
Extended Marketing Mix for Services: People, Process, Physical Evidence

14. Developing Pricing Strategies & Programs

Setting the pricing strategy

The pricing objective could be one of the three: survival, maximum current profit, maximum market
Companies select a pricing method that includes one or more of these three considerations. We will
examine six price-setting methods: markup pricing, target-return pricing, perceived-value pricing,
value pricing (Hi-lo or EDLP), going-rate pricing, and auction-type pricing.
Adapting the Price
(i) Geographical Pricing (Cash, Countertrade, Barter)
In geographical pricing the company decides how to price its products to different customers in different
locations and countries

Barter. The direct exchange of goods, with no money and no third party involved.

Compensation deal. The seller receives some percentage of the payment in cash and the rest in
products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in

Buyback arrangement. The seller sells a plant, equipment, or technology to another country and
agrees to accept as partial payment products manufactured with the supplied equipment. A U.S.
chemical company built a plant for an Indian company and accepted partial payment in cash and
the remainder in chemicals manufactured at the plant.
Offset. The seller receives full payment in cash but agrees to spend a substantial amount of the
money in that country within a stated time period. For example, PepsiCo sells its cola syrup to
Russia for rubles and agrees to buy Russian vodka at a certain rate for sale in the United States.

(ii) Price Discounts and Allowances

Cash Discount

Quantity Discount

Functional Discount:
Discount (also called trade discount) offered by a manufacturer to trade-channel members if
they will perform certain functions, such as selling, storing, and recordkeeping. Manufacturers
must offer the same functional discounts within each channel.

Seasonal Discount


(iii) Promotional Pricing

Loss-leader pricing

Special-event pricing: Sellers will establish special prices in certain seasons to draw in more
customers. Every August, there are back-to-school sales.

Cash rebates

Low-interest financing

Longer payment terms

Warranties and service contracts

Psychological discounting

(iv) Differentiated or Discriminatory Pricing

Price discrimination occurs when a company sells a product or service at two or more prices that do not
reflect a proportional difference in costs.
In first-degree price discrimination, the seller charges a separate price to each customer depending
on the intensity of his or her demand. In second-degree price discrimination, the seller charges less to
buyers who buy a larger volume. In third-degree price discrimination, the seller charges different
amounts to different classes of buyers, as in the following cases:

Customer-segment pricing
Product-form pricing

Image pricing

Channel pricing

Location pricing

Time pricing

The airline and hospitality industries use yield management systems and yield pricing, by which they
offer discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold
inventory just before it expires.
Responding to Competitors' Price Changes

Maintain price. The leader might maintain its price and profit margin, believing that (1) it would
lose too much profit if it reduced its price, (2) it would not lose much market share, and (3) it could
regain market share when necessary. However, the argument against price maintenance is that
the attacker gets more confident, the leader's sales force gets demoralized, and the leader loses
more share than expected. The leader panics, lowers price to regain share, and finds that
regaining its market position is more difficult than expected.

Maintain price and add value. The leader could improve its product, services, and
communications. The firm may find it cheaper to maintain price and spend money to improve
perceived quality than to cut price and operate at a lower margin.

Reduce price. The leader might drop its price to match the competitor's price. It might do so
because (1) its costs fall with volume, (2) it would lose market share because the market is price
sensitive, and (3) it would be hard to rebuild market share once it is lost. This action will cut
profits in the short run.

Increase price and improve quality. The leader might raise its price and introduce new brands
to bracket the attacking brand.

Launch a low-price fighter line. It might add lower-priced items to the line or create a separate,
lower-priced brand.

15. Designing & Managing Integrated Marketing Channels

Value Networks
A supply chain view of a firm sees markets as destination points and amounts to a linear view of the flow.
The company should first think of the target market, however, and then design the supply chain backward
from that point. This view has been called demand chain planning.
An even broader view sees a company at the center of a value networka system of partnerships and
alliances that a firm creates to source, augment, and deliver its offerings. A value network includes a firm's
suppliers and its suppliers' suppliers, and its immediate customers and their end customers

Channel Levels

Why Do Some End Users Prefer Distributors?

Distributors Can

Provide fast delivery

Provide segment-based product assortment

Provide local credit

Provide product information

Assist in buying decisions

Anticipate needs

Why Do Some Suppliers Prefer Distributors?

Buy and hold inventory

Combine manufacturers outputs

Share credit risk

Share selling risk

Forecast market needs

Provide market information

Producers vary greatly in skill in managing distributors. Channel power can be defined as the ability to
alter channel members' behavior so that they take actions they would not have taken otherwise.
Manufacturers can draw on the following types of power to elicit cooperation:

Coercive power: A manufacturer threatens to withdraw a resource or terminate a relationship if

intermediaries fail to cooperate. This power can be effective, but its exercise produces
resentment and can generate conflict and lead the intermediaries to organize countervailing

Reward power: The manufacturer offers intermediaries an extra benefit for performing specific
acts or functions. Reward power typically produces better results than coercive power, but can be
overrated. The intermediaries may come to expect a reward every time the manufacturer wants a
certain behavior to occur.

Legitimate power: The manufacturer requests a behavior that is warranted under the contract.
As long as the intermediaries view the manufacturer as a legitimate leader, legitimate power

Expert power: The manufacturer has special knowledge that the intermediaries value. Once the
expertise is passed on to the intermediaries, however, this power weakens. The manufacturer
must continue to develop new expertise so that the intermediaries will want to continue

Referent power: The manufacturer is so highly respected that intermediaries are proud to be
associated with it. Companies such as IBM, Caterpillar, and Hewlett-Packard have high referent

Channel Integration and Systems:

Vertical Marketing Systems
A conventional marketing channel comprises an independent producer, wholesaler (s), and retailer(s).
Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the
system as a whole. No channel member has complete or substantial control over other members.
A vertical marketing system (VMS), by contrast, comprises the producer, wholesaler(s), and retailer(s)
acting as a unified system. One channel member, the channel captain, owns the others or franchises
them or has so much power that they all cooperate. The channel captain can be the producer, the
wholesaler, or the retailer. Notable producer channel captains are Coca-Cola with soft drinks, Gillette with
shaving products, and Procter & Gamble with detergents.
CORPORATE VMS A corporate VMS combines successive stages of production and distribution under
single ownership. For example, Sherwin-Williams makes paint but also owns and operates 2,000 retail
outlets. Giant Food Stores operates an ice-making facility, a soft-drink bottling operation, an ice cream
plant, and a bakery that supplies Giant stores with everything from bagels to birthday cakes.
ADMINISTERED VMS An administered VMS coordinates successive stages of production and
distribution through the size and power of one of the members. Manufacturers of a dominant brand are
able to secure strong trade cooperation and support from resellers. Thus Kodak, Gillette, and Campbell
Soup are able to command high levels of cooperation from their resellers in connection with displays,
shelf space, promotions, and price policies.
The most advanced supply-distributor arrangement for administered VMSs involve distribution
programming, which can be defined as building a planned, professionally managed, vertical marketing
system that meets the needs of both manufacturer and distributors. The manufacturer establishes a
department within the company called distributor-relations planning. Its job is to identify distributor
needs and build up merchandising programs to help each distributor operate as efficiently as possible
CONTRACTUAL VMS A contractual VMS consists of independent firms at different levels of production
and distribution integrating their programs on a contractual basis to obtain more economies or sales
impact than they could achieve alone. Johnston and Lawrence call them "value-adding partnerships"

Contractual VMSs now constitute one of the most significant developments in the economy. They are of
three types:
1. Wholesaler-sponsored voluntary chains - Wholesalers organize voluntary chains of independent
retailers to help them compete with large chain organizations. The wholesaler develops a program in
which independent retailers standardize their selling practices and achieve buying economies that
enable the group to compete effectively with chain organizations.
2. Retailer cooperatives - Retailers take the initiative and organize a new business entity to carry on
wholesaling and possibly some production. Members concentrate their purchases through the retailer
co-op and plan their advertising jointly. Profits are passed back to members in proportion to their
purchases. Nonmember retailers can also buy through the co-op but do not share in the profits.
3. Franchise organizations - A channel member called a franchisor might link several successive stages
in the production-distribution process.-Franchising has been the fastest-growing retailing development
in recent years. Although the basic idea is an old one, some forms of franchising are quite new
The traditional system is the manufacturer-sponsored retailer franchise. Ford, for example, licenses
dealers to sell its cars. The dealers are independent businesspeople who agree to meet specified
conditions of sales and services. Another is the manufacturer-sponsored wholesaler franchise. CocaCola, for example, licenses bottlers (wholesalers) in various markets who buy its syrup concentrate and
then carbonate, bottle, and sell it to retailers in local markets. A newer system is the service-firmsponsored retailer franchise. A service firm organizes a whole system for bringing its service efficiently
to consumers. Examples are found in the auto-rental business (Hertz, Avis), fast-food-service business
(McDonald's, Burger King), and motel business (Howard Johnson, Ramada Inn).
Horizontal Marketing Systems
Another channel development is the horizontal marketing system, in which two or more unrelated
companies put together resources or programs to exploit an emerging marketing opportunity. Many
supermarket chains have arrangements with local banks to offer in-store banking
Mechanisms for effective conflict management

Adoption of superordinate goals. Channel members come to an agreement on the

fundamental goal they are jointly seeking, whether it is survival, market share, high quality, or
customer satisfaction.


Co-optation is an effort by one organization to win the support of the leaders of another
organization by including them in advisory councils, boards of directors, and the like.


Diplomacy takes place when each side sends a person or group to meet with its counterpart to
resolve the conflict.


Mediation means resorting to a neutral third party who is skilled in conciliating the two parties'


Arbitration occurs when the two parties agree to present their arguments to one or more
arbitrators and accept the arbitration decision


Sometimes, when none of these methods proves effective, a company or a channel partner may
choose to file a lawsuit

16. Managing Retailing, Wholesaling & Logistics

Retailing includes all the activities involved in selling goods or services directly to final consumers for
personal, nonbusiness use
Types of Retailers

Specialty store: Narrow product line. Athlete's Foot, Tall Men, The Limited, The Body Shop.

Department store: Several product lines. Sears, JCPenney, Nordstrom, Bloomingdale's.

Supermarket: Large, low-cost, low-margin, high-volume, self-service store designed to meet total
needs for food and household products. Kroger, Jewel, Food Emporium.

Convenience store: Small store in residential area, often open 24/7, limited line of highturnover convenience products plus takeout. 7-Eleven, Circle K.

Discount store: Standard or specialty merchandise; low-price, low-margin, high-volume stores.

Wal-Mart, Kmart, Circuit City, Crown Bookstores.

Off-price retailer: Leftover goods, overruns, irregular merchandise sold at less than retail.
Factory outlets, independent off-price retailers. Filene's Basement, T.J. Maxx, warehouse clubs
Sam's Clubs, Price-Costco, BJ's Wholesale.

Superstore: Huge selling space, routinely purchased food and household items, plus services
(laundry, shoe repair, dry cleaning, check cashing). Category killer (deep assortment in one
category) such as Petsmart, Staples, Home Depot; combination store such as Jewel, Osco;
hypermarket (huge stores that combine supermarket, discount, and warehouse retailing), such as
Carrefour in France, Pyrca in Spain, and Meijer's in the Netherlands.

Catalog showroom: Broad selection of high-markup, fast-moving, brand-name goods sold by

catalog at discount. Customers pick up merchandise at the store. Inside Edge Ski and Bike.

Corporate retailing falls into four major categories:

1. Corporate Chain Store: Two or more outlets commonly owned and controlled, employing central
buying and merchandising, and selling similar lines of merchandise. Their size allows them to buy
in large quantities at lower prices, and they can afford to hire corporate specialists to deal with
pricing, promotion, merchandising, inventory control, and sales forecasting. Examples: Tower
Records, GAP, Pottery Barn.

2. Voluntary Chain: A wholesaler-sponsored group of independent retailers engaged in bulk buying

and common merchandising. Examples: Independent Grovers Alliance (IGA), True Value
3. Retailer Cooperative: Independent retailers who set up a central buying organization and
conduct joint promotion efforts. Examples: Associated Grocers, ACE Hardware.
4. Consumer Cooperative: A retail firm owned by its customers. In consumer coops residents
contribute money to open their own store, vote on its policies, elect a group to manage it, and
receive patronage dividends.
5. Franchise organization: Contractual association between a franchisor and franchisees, popular
in a number of product and service areas. McDonald's, Subway, Pizza Hut, Jiffy Lube, 7-Eleven.
6. Merchandising conglomerate: A corporation that combines several diversified retailing lines and
forms under central ownership, with some integration of distribution and management. Allied
Domeq PLC with Dunkin' Donuts and Baskin-Robbins, plus a number of British retailers and a
wine and spirits group.
Private Labels
A growing trend and major marketing decision for retailers concerns private labels. A private label brand
(also called reseller, store, house, or distributor brand) is one retailers and wholesalers develop.
Retailers such as Benetton, The Body Shop, and Marks and Spencer carry mostly own-brand

17. Designing & Managing Integrated Marketing

The marketing communications mix consists of six major modes of communication:
1. Advertising - Any paid form of nonpersonal presentation and promotion of ideas, goods, or services
by an identified sponsor.
2. Sales promotion - A variety of short-term incentives to encourage trial or purchase of a product or
3. Events and experiences - Company-sponsored activities and programs designed to create daily or
special brand-related interactions.
4. Public relations and publicity - A variety of programs designed to promote or protect a company's
image or its individual products.
5. Direct marketing - Use of mail, telephone, fax, e-mail, or Internet to communicate directly with or
solicit response or dialogue from specific customers and prospects.

6. Personal selling - Face-to-face interaction with one or more prospective purchasers for the purpose of
making presentations, answering questions, and procuring orders.

There are eight steps in developing effective communications.

Designing the Communications

MESSAGE STRATEGY In determining message strategy, management searches for appeals, themes, or
ideas that will tie into the brand positioning and help to establish points-of-parity or points-of-difference.

CREATIVE STRATEGY Creative strategies are how marketers translate their messages into a specific
communication. Creative strategies can be broadly classified as involving either "informational" or
"transformational" appeals.

Establishing the Total

Marketing Communications Budget
AFFORDABLE METHOD Many companies set the promotion budget at what they think the company can
afford. The affordable method completely ignores the role of promotion as an investment and the

immediate impact of promotion on sales volume. It leads to an uncertain annual budget, which makes
long-range planning difficult
PERCENTAGE-OF-SALES METHOD Many companies set promotion expenditures at a specified
percentage of sales (either current or anticipated) or of the sales price. Automobile companies typically
budget a fixed percentage for promotion based on the planned car price. Oil companies set the
appropriation at a fraction of a cent for each gallon of gasoline sold under their own label
COMPETITIVE-PARITY METHOD Some companies set their promotion budget to achieve share-of-voice
parity with competitors. Two arguments are made in support of the competitive-parity method. One is that
competitors' expenditures represent the collective wisdom of the industry. The other is that maintaining
competitive parity prevents promotion wars. Neither argument is valid. There are no grounds for believing
that competitors know better. Company reputations, resources, opportunities, and objectives differ so
much that promotion budgets are hardly a guide. Furthermore, there is no evidence that budgets based
on competitive parity discourage promotional wars.
OBJECTIVE-AND-TASK METHOD The objective-and-task method calls upon marketers to develop
promotion budgets by defining specific objectives, determining the tasks that must be performed to
achieve these objectives, and estimating the costs of performing these tasks. The sum of these costs is
the proposed promotion budget

18. Managing Mass Communications: Advertising, Sales

Promotions, Events & Experiences, & Public Relations
5Ms of Advertising

An advertising goal (or objective) is a specific communications task and achievement level to be
accomplished with a specific audience in a specific period of time.

Informative advertising aims to create brand awareness and knowledge of new products or new
features of existing products.
Persuasive advertising aims to create liking, preference, conviction, and purchase of a product or
Reminder advertising aims to stimulate repeat purchase of products and services.
Reinforcement advertising aims to convince current purchasers that they made the right choice.
Automobile ads often depict satisfied customers enjoying special features of their new car.
Profiles of Major Media Types

Deciding on Reach, Frequency, and Impact

The main task is to find out how many exposures, E will produce a level of audience awareness of A. The
effect of exposures on audience awareness depends on the exposures' reach, frequency, and impact:

Reach (R): The number of different persons or households exposed to a particular media schedule at
least once during a specified time period.
Frequency (F): The number of times within the specified time period that an average person or
household is exposed to the message.
Impact (I): The qualitative value of an exposure through a given medium (thus a food ad in Good
Housekeeping would have a higher impact than in Fortune magazine).
Total number of exposures (E): This is the reach times the average frequency; that is, E = R*F. This
measure is referred to as the gross rating points (GRP). If a given media schedule reaches 80 percent of
the homes with an average exposure frequency of 3, the media schedule is said to have a GRP of 240
(80 x 3)
Weighted number of exposures (WE): This is the reach times average frequency times average impact,
that is WE = R*F*I.

PLACE ADVERTISING Place advertising, also called out-of-home advertising, is a broadly defined
category that captures many different alternative advertising forms. Some of the options available include
billboards, public spaces, product placement, and point-of-purchase
Billboards have been transformed over the years and now use colorful, digitally produced graphics,
backlighting, sounds, movement, and unusualeven three-dimensionalimages
Public Spaces Advertisers are placing traditional TV and print ads in unconventional places such as
movies, airlines, and lounges, as well as classrooms, sports arenas, office and hotel elevators, and other
public places.
Product placement has expanded from movies to all types of TV shows. Marketers pay fees of $50,000
to $100,000 and even higher so that their products make cameo appearances in movies and on
television. The exact sum depends on the amount and nature of the brand exposure. Sometimes
placements are the result of a larger network advertising deal, but other times they are the work of small
product placement shops that maintain close ties with prop masters, set designers, and production
Advertorials are print ads that offer editorial content that reflects favorably on the brand and is difficult to
distinguish from newspaper or magazine content. Many companies include advertising inserts in monthly
bills. Some companies mail audiotapes or videotapes to prospects
Other firms are exploring branded entertainment such as online mini-films. For its American Express
client, Ogilvy and Digitas are creating a series of three- to five-minute "Webisodes" starring its pitchman,
Jerry Seinfeld, in "The Adventures of Seinfeld and Superman," and also using teaser TV spots

Deciding on Media Timing and Allocation

In choosing media, the advertiser faces both a macroscheduling and a microscheduling problem. The
macroscheduling problem involves scheduling the advertising in relation to seasons and the business
cycle. Suppose 70 percent of a product's sales occur between June and September. The firm can vary its
advertising expenditures to follow the seasonal pattern, to oppose the seasonal pattern, or to be constant
throughout the year.
The microscheduling problem calls for allocating advertising expenditures within a short period to
obtain maximum impact. Suppose the firm decides to buy 30 radio spots in the month of September.

In launching a new product, the advertiser has to choose among continuity, concentration, flighting,
and pulsing.

Continuity is achieved by scheduling exposures evenly throughout a given period. Generally,

advertisers use continuous advertising in expanding market situations, with frequently purchased
items, and in tightly defined buyer categories.

Concentration calls for spending all the advertising dollars in a single period. This makes sense
for products with one selling season or holiday.

Flighting calls for advertising for a period, followed by a period with no advertising, followed by a
second period of advertising activity. It is used when funding is limited, the purchase cycle is
relatively infrequent, and with seasonal items.

Pulsing is continuous advertising at low-weight levels reinforced periodically by waves of heavier

activity. Pulsing draws on the strength of continuous advertising and flights to create a
compromise scheduling strategy. Those who favor pulsing believe that the audience will learn the
message more thoroughly, and money can be saved

Evaluating Advertising Effectiveness

COMMUNICATION-EFFECT RESEARCH Communication-effect research seeks to determine whether
an ad is communicating effectively. Called copy testing, it can be done before an ad is put into media
and after it is printed or broadcast. There are three major methods of pretesting. The consumer
feedback method asks consumers for their reactions to a proposed ad. Portfolio tests ask consumers
to view or listen to a portfolio of advertisements. Consumers are then asked to recall all the ads and their
content, aided or unaided by the interviewer. Recall level indicates an ad's ability to stand out and to have
its message understood and remembered. Laboratory tests use equipment to measure physiological
reactionsheartbeat, blood pressure, pupil dilation, galvanic skin response, perspirationto an ad; or
consumers may be asked to turn a knob to indicate their moment-to-moment liking or interest while
viewing sequenced material. These tests measure attention-getting power but reveal nothing about
impact on beliefs, attitudes, or intentions. As we noted in Chapter 4, marketers have begun to explore
various neural research methods to study how the brain evaluates different types of ad messages. The
table below describes some specific advertising research techniques.

SALES-EFFECT RESEARCH What sales are generated by an ad that increases brand awareness by 20
percent and brand preference by 10 percent? Advertising's sales effect is generally harder to measure

than its communication effect. Sales are influenced by many factors, such as features, price, and
availability, as well as competitors' actions. The fewer or more controllable these other factors are, the
easier it is to measure effect on sales. The sales impact is easiest to measure in direct-marketing
situations and hardest to measure in brand or corporate image-building advertising.
Companies are generally interested in finding out whether they are overspending or underspending on
advertising. One approach to answering this question is to work with the formulation shown in the figure
given below.

A company's share of advertising expenditures produces a share of voice (proportion of company

advertising of that product to all advertising of that product) that earns a share of consumers' minds and
hearts and, ultimately, a share of market.

Legal & Social Issues

Advertisers and their agencies must be sure advertising does not overstep social and legal norms. Public
policy makers have developed a substantial body of laws and regulations to govern advertising.
Criticisms of Advertising with regard to Society & Culture

Gender Stereotyping

Portrayal of Women to Reflect Their Changing Role in Society

Portrayal of Women As Sex Objects

Portrayal of The Elderly

Ethnic Stereotyping/Representation of Minorities

Sales Promotion

Sales promotion, a key ingredient in marketing campaigns, consists of a collection of incentive

tools, mostly short term, designed to stimulate quicker or greater purchase of particular products
or services by consumers or the trade.
Major Consumer-Promotion Tools

Samples: Offer of a free amount of a product or service delivered door-to-door, sent in the mail,
picked up in a store, attached to another product, or featured in an advertising offer.

Coupons: Certificates entitling the bearer to a stated saving on the purchase of a specific
product: mailed, enclosed in other products or attached to them, or inserted in magazine and
newspaper ads.

Cash Refund Offers (rebates): Provide a price reduction after purchase rather than at the
retail shop: consumer sends a specified "proof of purchase" to the manufacturer who "refunds"
part of the purchase price by mail.

Price Packs (cents-off deals): Offers to consumers of savings off the regular price of a
product, flagged on the label or package. A reduced-price pack is a single package sold at a
reduced price (such as two for the price of one). A banded pack is two related products banded
together (such as a toothbrush and toothpaste).

Premiums (gifts): Merchandise offered at a relatively low cost or free as an incentive to

purchase a particular product. A with-pack premium accompanies the product inside or on the
package. A free in-the-mail premium is mailed to consumers who send in a proof of purchase,
such as a box top or UPC code. A self-liquidating premium is sold below its normal retail price to
consumers who request it.

Frequency Programs: Programs providing rewards related to the consumer's frequency and
intensity in purchasing the company's products or services.

Prizes (contests, sweepstakes, games): Prizes are offers of the chance to win cash, trips, or
merchandise as a result of purchasing something. A contest calls for consumers to submit an
entry to be examined by a panel of judges who will select the best entries. A sweepstakes asks
consumers to submit their names in a drawing. A game presents consumers with something
every time they buybingo numbers, missing letters which might help them win a prize.

Patronage Awards: Values in cash or in other forms that are proportional to patronage of a
certain vendor or group of vendors.

Free Trials: Inviting prospective purchasers to try the product without cost in the hope that they
will buy.

Product Warranties: Explicit or implicit promises by sellers that the product will perform as
specified or that the seller will fix it or refund the customer's money during a specified period.

Tie-in Promotions: Two or more brands or companies team up on coupons, refunds, and
contests to increase pulling power.

Cross-Promotions: Using one brand to advertise another noncompeting brand.

Point-of-Purchase (POP) Displays and Demonstrations: POP displays and demonstrations

take place at the point-of-purchase or sale

Major Trade-Promotion Tools

Price-Off (off-invoice or off-list): A straight discount off the list price on each case
purchased during a stated time period.

Allowance: An amount offered in return for the retailer's agreeing to feature the manufacturer's
products in some way. An advertising allowance compensates retailers for advertising the
manufacturer's product. A display allowance compensates them for carrying a special product

Free Goods: Offers of extra cases of merchandise to intermediaries who buy a certain quantity
or who feature a certain flavor or size.

Major Business and Sales Force Promotion Tools

Trade Shows and Conventions: Industry associations organize annual trade shows and
conventions. Business marketers may spend as much as 35 percent of their annual promotion
budget on trade shows. Over 5,600 trade shows take place every year, drawing approximately 80
million attendees. Trade show attendance can range from a few thousand people to over 70,000
for large shows held by the restaurant or hotel-motel industries. Participating vendors expect
several benefits, including generating new sales leads, maintaining customer contacts,
introducing new products, meeting new customers, selling more to present customers, and
educating customers with publications, videos, and other audiovisual materials.

Sales Contests: A sales contest aims at inducing the sales force or dealers to increase their
sales results over a stated period, with prizes (money, trips, gifts, or points) going to those who

Specialty Advertising: Specialty advertising consists of useful, low-cost items bearing the
company's name and address, and sometimes an advertising message that salespeople give to
prospects and customers. Common items are ballpoint pens, calendars, key chains, flashlights,
tote bags, and memo pads.
Lead time & Sell-in time

Lead time is the time necessary to prepare the program prior to launching it: initial planning,
design, and approval of package modifications or material to be mailed or distributed; preparation
of advertising and point-of-sale materials; notification of field sales personnel; establishment of
allocations for individual distributors; purchasing and printing of special premiums or packaging
materials; production of advance inventories in preparation for release at a specific date; and,
finally, the distribution to the retailer. Sell-in time begins with the promotional launch and ends
when approximately 95 percent of the deal merchandise is in the hands of consumers
Marketing Public Relations

Many companies are turning to marketing public relations (MPR) to support corporate or product
promotion and image making. MPR, like financial PR and community PR, serves a special
constituency, the marketing department. The old name for MPR was publicity, which was seen
as the task of securing editorial spaceas opposed to paid spacein print and broadcast media
to promote or "hype" a product, service, idea, place, person, or organization.
Major Tools in Marketing PR

Publications: Companies rely extensively on published materials to reach and influence their
target markets. These include annual reports, brochures, articles, company newsletters and
magazines, and audiovisual materials.

Events: Companies can draw attention to new products or other company activities by
arranging special events like news conferences, seminars, outings, trade shows, exhibits,
contests and competitions, and anniversaries that will reach the target publics.

Sponsorships: Companies can promote their brands and corporate name by sponsoring
sports and cultural events and highly regarded causes.

News: One of the major tasks of PR professionals is to find or create favorable news about the
company, its products, and its people, and get the media to accept press releases and attend
press conferences.

Speeches: Increasingly, company executives must field questions from the media or give talks
at trade associations or sales meetings, and these appearances can build the company's image.

Public-Service Activities: Companies can build goodwill by contributing money and time to good

Identity Media: Companies need a visual identity that the public immediately recognizes. The
visual identity is carried by company logos, stationery, brochures, signs, business forms, business
cards, buildings, uniforms, and dress codes

20. Introducing New Market Offerings

Types of New Products:

True Innovation: This category represents the type of product that is new to the market.

Adaptive Replacement: This type of new product represents a significant adaptation and
improvement of an existing product in the market.

Me-too product (Imitative product): This product is new to firm that is marketing the item but
not new to the market.

Managing the Development Process:


Identifying market opportunities

NPD begins with assessing opportunities in the market. Several methods can be used to uncover
significant product opportunities.


Perceptual Mapping : This method relies on consumer perceptions of brands currently

available in a product category.

Benefit analysis : One important influence on consumer behaviour and choice is the pursuit
of benefits provided by purchase and use of a brand.

Problem Solution : In some cases a firm may discover that no brand currently available
addresses a particular problem experience by consumers until the development of the new
products which solves the consumers problems.

Idea Generation
After the market opportunity is identified, a firm then tries to generate ideas for new products that are
consistent with the opportunity identified. New product ideas can come from customers, R&D,
employees, competitors, channel members, top management, consultants, ad agencies etc.
To develop its Cover Girl Outlast all-day lip color, P&G tested the product on nearly 30,000 women: It
invited 500 of them to come to its labs each morning to apply the lipstick, record their activities, and return
eight hours later so it could measure remaining lip color. The activities, dubbed "torture tests" by P&G,
ranged from eating spaghetti to kickboxing to showering. The product comes with a tube of glossy
moisturizer that women can reapply on top of their colorwithout having to look at a mirror. The
blockbuster product quickly became the market leader
The stock photography industry once consisted of large companies such as Getty and Corbis that
licensed their high-end photos and images to ad agencies and other customers for hundreds or
thousands of dollars per photo. Then Calgary, Canada, photographer Bruce Livingstone began giving his
photos away online. Once users began trading photos via the site, Livingstone decided to sell the images
for a small fee and offer photographers 40% royalties. iStockphoto has been enormously successful, both
as a company and as a tool for freelance photographers like Lisa Gagne: In 2006, Gagne became the
first iStockphoto photographer to sell over 500,000 images, and she now makes six figures yearly. Getty
recently decided to purchase the company for $50 million rather than compete with it.
Karmaloop is one of the most successful retailers of "urban, streetwear, rave, and boutique clothing." Its
brands include Triple Five Soul, SpiewaSoul, Kitchen Orange, and Zoo York. One of the keys to its
success is that Karmaloop has developed a way for its lead users to spot fashion trends, model
Karmaloop clothing, take on Karmaloop's guerrilla marketing, and even create their own clothing designs.
Through Karmaloop's Kasbah E-marketplace, launched in 2006, underground and unknown designers

can sell their wares. "Some of these guys are making stuff with their own printing presses. You can't get
any closer to the ground than that," says Karmaloop founder Greg Selkoe, who works closely with his
three-person IT team to keep the infrastructure of Kasbah evolving as quickly as customers' new ideas
bubble up. To make sure the company is seen as legitimate, the site sells limited quantities and turns
merchandise over quickly to keep offerings exclusive
Leh Berry, a drink based on seabuckthorn, a deciduous shrub, which is said to contain over 100 natural
nutrients including essential vitamins, amino acids, & minerals, was developed by the Indian Defense
Research & Development Organization (DRDO) for the Indian army, especially for soldiers deployed at
high-altitude areas. This technology was then transferred for civilian & commercial use. The product is
presently marketed as a health drink, offering refreshing & rejuvenating benefits, ideal for children asa
well as adults.
Ideas Screening
After ideas with potential are identified, there are general criteria that are used to judge new product
possibilities. A DROP-error occurs when the company dismisses an otherwise good idea. A GO-error
occurs when Company permits a poor idea to move into development and commercialisation
The NBC situation comedy Friends enjoyed a 10-year run from 1994 to 2004 as a perennial ratings
powerhouse. But the show almost didn't see the light of the day. According to an internal NBC research
report, the pilot episode was described as "not very entertaining, clever, or original" and was given a
failing grade, scoring 41 out of 100. Ironically, the pilot for an earlier hit sit-com, Seinfeld, also was rated
as "weak," although the pilot for the medical drama ER scored a healthy 91. Courtney Cox's Monica was
the Friends character that scored best with test audiences, but characters portrayed by Lisa Kudrow and
Matthew Perry were deemed to have marginal appeal, and the Rachel, Ross, and Joey characters scored
even lower. Adults 35 and over in the sample found the characters as a whole, "smug, superficial, and

Concept Development & Testing

A product idea is a possible product that the company might offer to the market.
A product concept is an elaborated version of the idea expressed in meaningful consumer terms.
Concept testing is a system to redefine, reshape and coalesce ideas to arrive at a basic concept for
a product that has good chances of market acceptance. Concept tests are conducted to qualitatively
assess relative appeal, provide information for further product development and advertising & indicate
potential segments
Concept screening test is conducted to to get a feel of market acceptance, to identify potential ideas
for further development
Concept Evaluation tests are conducted after initial screening and modification of concepts for
assessment of market potential, identification of market strengths and weaknesses & indicate
potential market segments

A product image is the particular picture that consumers acquire of an actual or potential product
Product concepts are tested with an appropriate group of target consumers, then getting those
consumers reactions. Product Testing provides a critical measure of a new product's market potential.
Extremely important in FMCG Cos.

Rapid Prototyping design products on computer then produce plastic models of each.

Virtual Reality they use computers and sensory devices to simulate reality.

Consumer Driven Engineering - is an engineering effort that attaches high importance to

incorporating customer preferences in the final design.
Product testing is done for four purposes

Against competition: which of the alternatives offered is preferred relative to competition

Product improvement: whether an improved formula could replace the current product

Cost saving: whether a less expensive product could replace the current one

Concept fit: whether the product variant resembles the selling message

Product testing procedures

Blind vs Branded test

Blind test

No brand name as yet

Branded test

Product Testing methodologies

Monadic - designs where a consumer evaluates one product, having no other product for

Comparison - Consumer rates 2 or more products

Sequential monadic - rates one product and then is given a second product (rated)
independently then compared

Protomonadic - rates one product, is given a second product and compares both

Paired comparison - directly compares two products

Repeat-paired comparison - consumer is given two or more sets of products to compare

against each other at two different points of time

Round robin - tests where a series of products is tested against each other

Triangle designs - is given 2 samples of one product and one sample of another to identify
the one that differs

Duo-trio - a standard product is given and asked to determine which of the other (two)
products are similar

Difference - asked to determine if one product is different from the other

CONJOINT ANALYSIS Consumer preferences for alternative product concepts can be measured through
conjoint analysis, a method for deriving the utility values that consumers attach to varying levels of a
product's attributes. Respondents are shown different hypothetical offers formed by combining varying
levels of the attributes, then asked to rank the various offers.

Marketing Strategy Development :

The marketing strategy plan consists of three parts: The first part describes


The target market size, structure and behaviour, the planned product positioning, and the
sales, market share, and profit goals in the first few years.

The second part of the marketing strategy outlines the products planned price, distribution
strategy and marketing budget for the first year.

The third part of the marketing strategy plan describes the long run sales and profit goals
and marketing mix strategy over time.

Business Analysis
Evaluates the proposals business attractiveness by preparing sales, cost and profit projections to
determine whether it satisfies the companys objectives.


Estimating total sales


One time purchased product

Infrequently purchased product

Frequently purchased product

Estimating Costs & Profits


Break even analysis

Risk analysis

Product Development

The job of translating target customer requirements into a working prototype is helped by a set of
methods known as quality function deployment (QFD). The methodology takes the list of desired
customer attributes (CAs) generated by market research and turns them into a list of engineering
attributes (EAs) that the engineers can use.
Boeing designed its 777 aircraft on a totally digital basis. Engineers, designers, and more than 500
suppliers designed the aircraft on a special computer network without ever making a blueprint on paper.
Its partners were connected by an extranet enabling them to communicate, share ideas, and work on the
design at a distance. A computer-generated "human" could climb inside the three-dimensional design onscreen to show how difficult maintenance access would be for a live mechanic. Such computer modeling
allowed engineers to spot design errors that otherwise would have remained undiscovered until a person
began to work on a physical prototype. Avoiding the time and cost associated with building physical
prototypes reduced development time and scrap-page and rework by 60 to 90 percent
FUNCTIONAL TESTS When the prototypes are ready, they must be put through rigorous functional tests
and customer tests. Alpha testing is the name given to testing the product within the firm to see how it
performs in different applications. After refining the prototype further, the company moves to beta testing
with customers.
CONSUMER TESTS Consumer tests can take a variety of forms from bringing consumers into a
laboratory to giving them samples to use in their homes, free trials, test drives etc. Consumer preferences
can be measured in several ways. Suppose a consumer is shown three itemsA, B, and C, such as
three cameras, three insurance plans, or three advertisements.

The rank-order method asks the consumer to rank the three items in order of preference.
The consumer might respond with A>B>C. Although this method has the advantage of
simplicity, it does not reveal how intensely the consumer feels about each item nor whether
the consumer likes any item very much. It is also difficult to use this method when there are
many objects to be ranked.

The paired-comparison method calls for presenting pairs of items and asking the consumer
which one is preferred in each pair. Thus the consumer could be presented with the pairs AB,
AC, and BC and say that she prefers A to B, A to C, and B to C. Then we could conclude that
A>B>C. People find it easy to state their preference between two items, and this method
allows the consumer to focus on the two items, noting their differences and similarities.

The monadic-rating method asks the consumer to rate liking of each product on a scale.
Suppose a seven-point scale is used, where 1 signifies intense dislike, 4 indifference, and 7
intense like. Suppose the consumer returns the following ratings: A=6, B = 5, C=3. We can
derive the individual's preference order (i.e., A>B>C), and even know the qualitative levels of
the person's preference for each and the rough distance between preferences.

At Shaw Industries, temps are paid $5 an hour to pace up and down five long rows of sample carpets for
up to 8 hours a day, logging an average of 14 miles each. One regular reads three mysteries a week

while pacing and shed 40 pounds in two years. Shaw Industries counts walkers' steps and figures that
20,000 steps equal several years of average wear.
Apple Computer assumes the worst for its PowerBook customers and submits the computers to a battery
of indignities: It drenches the computers in Pepsi and other sodas, smears them with mayonnaise, and
bakes them in ovens at temperatures of 140 degrees or more to simulate conditions in a car trunk.

At Gillette, 200 volunteers from various departments come to work unshaven each day, troop to the
second floor of the company's South Boston manufacturing and research plant, and enter small booths
with a sink and mirror. There they take instructions from technicians on the other side of a small window
as to which razor, shaving cream, or aftershave to use, and then they fill out questionnaires. "We bleed so
you'll get a good shave at home," says one Gillette employee.

Market Testing
After management is satisfied with functional and psychological performance, the product is ready to
be dressed up with a brand name and packaging, and put into a market test. The new product is
introduced into an authentic setting to learn how large the market is and how consumers and dealers
react to handling, using, and repurchasing the product.
CONSUMER GOODS MARKET TESTING Here are four major methods of consumer-goods market
testing, from the least to the most costly.
Sales-Wave Research In sales-wave research, consumers who initially try the product at no cost are
reoffered the product, or a competitor's product, at slightly reduced prices. They might be reoffered
the product as many as three to five times (sales waves), with the company noting how many
customers selected that product again and their reported level of satisfaction. Sales-wave research
can also expose consumers to one or more advertising concepts to see the impact of that advertising
on repeat purchase.
Simulated Test Marketing Simulated test marketing calls for finding 30 to 40 qualified shoppers and
questioning them about brand familiarity and preferences in a specific product category. These people
are then invited to a brief screening of both well-known and new commercials and print ads. One ad
advertises the new product, but it is not singled out for attention. Consumers receive a small amount
of money and are invited into a store where they may buy any items. The company notes how many
consumers buy the new brand and competing brands. This provides a measure of the ad's relative
effectiveness against competing ads in stimulating trial.
Controlled Test Marketing In this method, a research firm manages a panel of stores that will carry
new products for a fee. The company with the new product specifies the number of stores and
geographic locations it wants to test. The research firm delivers the product to the participating stores
and controls shelf position; number of facings, displays, and point-of-purchase promotions; and

pricing. Sales results can be measured through electronic scanners at the checkout. The company
can also evaluate the impact of local advertising and promotions.
Test Markets The ultimate way to test a new consumer product is to put it into full-blown test
markets. The company chooses a few representative cities, and the sales force tries to sell the trade
on carrying the product and giving it good shelf exposure. The company puts on a full advertising and
promotion campaign similar to the one it would use in national marketing. Test marketing also permits
testing the impact of alternative marketing plans by varying the marketing program in different cities: A
full-scale test can cost over $1 million, depending on the number of test cities, the test duration, and
the amount of data the company wants to collect.


If test marketing has fine tuned the appropriate marketing strategy, and the firm has sufficient confidence
and knowledge, it should launch and commercialise the product on a full scale basis.
WHEN (TIMING) In commercializing a new product, market-entry timing is critical. Suppose a company
has almost completed the development work on its new product and learns that a competitor is nearing
the end of its development work. The company faces three choices:
1. First entry - The first firm entering a market usually enjoys the "first mover advantages" of locking up
key distributors and customers and gaining leadership. But if the product is rushed to market before it is
thoroughly debugged, the first entry can backfire.
2. Parallel entry - The firm might time its entry to coincide with the competitor's entry. The market may
pay more attention when two companies are advertising the new product.
3. Late entry - The firm might delay its launch until after the competitor has entered. The competitor will
have borne the cost of educating the market, and its product may reveal faults the late entrant can avoid.
The late entrant can also learn the size of the market.
Nebraska rancher Gerald Gohl's innovation was to create a remote-controlled spotlight so he wouldn't
have to roll down the window of his pickup truck and stick out a handheld beacon to search for cattle on
frigid nights. By 1997, he held a patent on the RadioRay, a wireless version of his spotlight that was
mounted on suctions cups or brackets and could rotate 360 degrees. Selling for $200, RadioRay
attracted attention from ranchers, boaters, hunters, and policeeven Wal-Mart's Sam's Club chain. Gohl
rejected the retailers' overtures, however, fearing that it might seek lower prices that would anger his
distributors. Shortly thereafter, Sam's Club began to sell its own wireless, remote-controlled spotlight that
was nearly identical to the RadioRay except for a small plastic part restricting the light's rotation to slightly
less than 360 degrees and its price$60. Gohl successfully sued for patent infringement in 2000, but still
could face an appeal
WHERE (GEOGRAPHIC STRATEGY) The company must decide whether to launch the new product in a
single locality, a region, several regions, the national market, or the international market.

Philips, the Dutch electronics company, recently launched Pronto, an "Intelligent Remote Control" to
replace all other devices that receive infrared signals. Its Web address,, contains
several features: About Pronto, A Virtual Tour, Where to Buy, Pronto News, Pronto Communities, and
FAQs and Contacts. This is much richer information than any ad could offer.
TO WHOM (TARGET-MARKET PROSPECTS) Within the rollout markets, the company must target its
initial distribution and promotion to the best prospect groups.
HOW (INTRODUCTORY MARKET STRATEGY) The company must develop an action plan for
introducing the new product into the rollout markets.

The Consumer-Adoption Process

Innovators also known as Technophiles are technology enthusiasts; they are venturesome
and enjoy tinkering with new products and mastering their intricacies. In return for low prices,
they are happy to conduct alpha and beta testing and report on early weaknesses.

Early adopters also known as Visionaries are opinion leaders who carefully search for new
technologies that might give them a dramatic competitive advantage. They are less price
sensitive and willing to adopt the product if given personalized solutions and good service

Early majority also known as Pragmatists are those who adopt the new technology when
its benefits are proven and a lot of adoption has already taken place. They make up the
mainstream market.

Late majority also known as Conservatives are skeptical conservatives who are risk
averse, technology shy, and price sensitive.

Laggards are tradition-bound and resist the innovation until they find that the status quo is no
longer defensible.

19. Managing Personal Communications: Direct & Interactive

Marketing, Word of Mouth, & Personal Selling
Direct Marketing
Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods and services to
customers without using marketing middlemen. These channels include direct mail, catalogs,
telemarketing, interactive TV, kiosks, Web sites, and mobile devices.
Direct Mail
Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a person.
Using highly selective mailing lists, direct marketers send out millions of mail pieces each yearletters,
flyers, foldouts, and other "salespeople with wings."
Direct-mail marketing has passed through a number of stages:

"Carpet bombing." Direct mailers gather or buy as many names as possible and send out a
mass mailing. Usually the response rate is very low.

Database marketing. Direct marketers mine the database to identify prospects who would
have the most interest in an offer.
Interactive marketing. Direct marketers include a telephone number and Web address, and
offer to print coupons from the Web site. Recipients can contact the company with questions.
The company uses the interaction as an opportunity to up-sell, cross-sell, and deepen the

Real-time personalized marketing. Direct marketers know enough about each customer to
customize and personalize the offer and message.

Lifetime value marketing. Direct marketers develop a plan for lifetime marketing to each
valuable customer, based on knowledge of life events and transitions.
TARGET MARKETS AND PROSPECTS Direct marketers need to identify the characteristics
of prospects and customers who are most able, willing, and ready to buy. Most direct
marketers apply the R-F-M formula (recency, frequency, monetary amount) for rating and
selecting customers. For any proposed offering, the company selects customers according to
how much time has passed since their last purchase, how many times they have purchased,
and how much they have spent since becoming a customer. Direct marketers can use a
number of channels to reach individual prospects and customers: direct mail, catalog
marketing, telemarketing, TV and other direct-response media, kiosk marketing, and emarketing.

Catalog Marketing

In catalog marketing, companies may send full-line merchandise catalogs, specialty

consumer catalogs, and business catalogs, usually in print form but also sometimes as CDs,
videos, or online. JCPenney and Spiegel send general merchandise catalogs. Victoria's
Secret and Saks Fifth Avenue send specialty clothing catalogs to the upper-middle-class
market. Through their catalogs, Avon sells cosmetics, W R. Grace sells cheese, and IKEA
sells furniture
Telemarketing is the use of the telephone and call centers to attract prospects, sell to existing customers,
and provide service by taking orders and answering questions
In fact, companies carry out four types of telemarketing:
Telesales: Taking orders from catalogs or ads and also doing outbound calling. They can crosssell the company's other products, upgrade orders, introduce new products, open new accounts,
and reactivate former accounts

Telecoverage: Calling customers to maintain and nurture key account relationships and give
more attention to neglected accounts.

Teleprospecting: Generating and qualifying new leads for closure by another sales channel.

E Customer service and technical support: Answering service and technical questions.

Interactive Marketing
Clearly, all companies need to consider and evaluate e-marketing and e-purchasing opportunities. A key
challenge is designing a site that is attractive on first viewing and interesting enough to encourage repeat
Placing Ads and Promotions Online
A company chooses which forms of interactive marketing will be most cost-effective in achieving
communication and sales objectives.
WEB SITES Companies must design Web sites that embody or express their purpose, history, products,
and vision. A key challenge is designing a site that's attractive on first viewing and interesting enough to
encourage repeat visits. Rayport and Jaworski have proposed that effective Web sites feature seven
design elements that they call the 7Cs

Context. Layout and design.

Content. Text, pictures, sound, and video the site contains.

Community. How the site enables user-to-user communication.

Customization. Site's ability to tailor itself to different users or

to allow users to personalize the site.

Communication. How the site enables site-to-user, user-to-site, or two-way communication.

Connection. Degree that the site is linked to other sites.

Commerce. Site's capabilities to enable commercial transactions

MICROSITES A microsite is a limited area on the Web managed and paid for by an external
advertiser/company. Microsites are individual Web pages or cluster of pages that function as supplements
to a primary site. They're particularly relevant for companies selling low-interest products. People rarely
visit an insurance company's Web site, but the company can create a microsite on used-car sites that
offers advice for buyers of used cars and at the same time a good insurance deal. Some microsites have
become huge online hits.
To compete with McDonald's wholesome, family-friendly image, Burger King adopted a youthful,
irreverent personality and menu-driven positioning via its longtime "Have It Your Way" slogan. To promote
its TenderCrisp sandwich, ad agency Crispin, Porter & Bogusky created a Web site featuring a
subservient chicken," an actor dressed in a chicken costume who performed a wide range of wacky
actions based on a user's typed commands-dust furniture, play air guitar, or, naturally, lay an egg l The
site employed prerecorded footage but looked like an interactive Webcam. Within a week of launch, about
54 million people had checked out the chicken for an average of eight minutes. This program was
designed not only to entertain and connect with target market 14-to 25-year-olds, but to help reinforce the
brand's customization message and contemporary image. Said one Burger King executive, "We're really
trying to do something different and not just give consumers a straight ad over and over.

In a campaign that received the top prize at the 2004 Cannes Lion awards, Virgin Mobile created a
wireless phone service campaign in Australia to sell 5-cent text messaging that combined TV and outdoor
ads and a Web page, all based on Warren, a fictitious, love-hungry character. Outdoor ads with Warren's
text address and photo read "Be my text kitten" and "Tell me your favorite text position." During the 10week campaign, Warren got 600,000 text responses, and the Web site got 3 million hits. Sales increased
by over 35 percent month-on-month with existing users making 15 percent more calls and sending 20
percent more text messages
SEARCH ADS A hot growth area in interactive marketing is paid-search or pay-per-click ads, which
represent 40% of all online ads. Thirty-five percent of all searches are reportedly for products or services.
The search terms serve as a proxy for the consumer's consumption interests and trigger relevant links to
product or service offerings alongside search results from Google, MSN, and Yahoo!.
DISPLAY ADS Display ads or banner ads are small, rectangular boxes containing text and perhaps a
picture that companies pay to place on relevant Web sites. The larger the audience, the more the
placement costs. Some banners are accepted on a barter basis. In the early days of the Internet, viewers
clicked on 2% to 3% of the banner ads they saw, but that percentage quickly plummeted and advertisers
began to explore other forms of communication.

INTERSTITIALS Interstitials are advertisements, often with video or animation that pop up between
changes on a Web site. Ads for Johnson & Johnson's Tylenol headache reliever would pop up on brokers'
Web sites whenever the stock market fell by 100 points or more. Because consumers found pop-up ads
intrusive and distracting, many computer users such as AOL installed software to block these ads.46
INTERNET-SPECIFIC ADS AND VIDEOS With user-generated content sites such as YouTube, MySpace
Video, and Google Video, consumers and advertisers can upload ads and videos to be shared virally by
millions of people.
In North America, BMW is positioned as the "Ultimate Driving Machine" on the basis of its dual benefits of
luxury and high performance. Beginning in 2001, it created "The Hire" series, eight short films by famous
action movie directors such as John Woo, Guy Ritchie, and Ang Lee and starring actors such as Mickey
Rourke and Madonna. Each was less than 10 minutes long and could be downloaded only from a
corporate Web site, www. and viewed on the Internet. With a budget of $3 million per film,
the films were cinematic in look, but also designed to showcase the unique qualities of different BMW
models. To build traffic to the site, BMW used television spots that mirrored movie trailers. The response
was overwhelming. According to BMW's ad agency, 55.1 million people viewed "The Hire" series, and
tremendous PR buzz resulted. Many film critics even gave the films rave reviews. And by having visitors
register before downloading the films, BMW was able to collect contact information for a large number of
potential buyers, many of whom were younger and not necessarily as well represented in BMW's prior
marketing efforts.
SPONSORSHIPS Many companies get their name on the Internet by sponsoring special content on Web
sites that carry news, financial information, and so on. Sponsorships are best placed in well-targeted sites
that offer relevant information or service. The sponsor pays for showing the content and in turn receives
acknowledgment as the sponsor of that particular service on the site.
ALLIANCES When one Internet company works with another, they end up advertising each other through
alliances and affiliate programs. AOL has created many successful alliances. Amazon has almost one
million affiliates that post its banners on their Web sites. Companies can also undertake guerrilla
marketing actions to publicize their site and generate word of mouth. When Yahoo! started its Denmark
site, it distributed apples at the country's busiest train station with the message that in the next hours a
trip to New York could be won on the Yahoo! site. It also managed to get the offer mentioned in Danish
newspapers. Companies can offer to push content and ads to targeted audiences who agree to receive
them and are presumably more interested in the product or product category.
ONLINE COMMUNITIES Many companies sponsor online communities whose members communicate
through postings, instant messaging, and chat discussions about special interests related to the
company's products and brands. These communities can provide companies useful. hard-to-get
information. When GlaxoSmithKline prepared to launch its first weight-loss drug, Alli, it sponsored a
weight-loss community. The firm felt the feedback it gained was more valuable than what it could have
received from traditional focus groups. Kraft learned from its online group that members really wanted the
ability to control how much they ate, giving rise to 100-calorie bags and $100 million in sales. A key for
success of online communities is to ere ate individual and group activities that help form bonds among
community members.50

E-MAIL E-mail uses only a fraction of the cost of a "d-mail," or direct mail, campaign, Microsoft spent
approximately $70 million a year on paper-driven campaigns. It switched to sending out 20 million pieces
of e-mail every month at a significant savings.
MOBILE MARKETING The United States has been relatively late to pick up on the trend of mobile phone
marketing. Japanese carrier NTT DoCoMo Inc. began posting ads on mobile Web sites in 2000 and
displayed 1.5 billion ads in 2006.
Word of Mouth
Social networks. such as MySpace and Facebook, have become an important force in both business-toconsumer and business-to-business marketing. A key aspect of social networks is word a/mouth and the
number and nature of conversations and communications between different parties.