Whether you‘re a small business owner just starting out or you‘ve been an entrepreneur for a long time, you

can actually outsource a lot of the marketing tasks and projects that seem to cross your desk every day.

- Mr. Nishant Singhai

Course Contents

Module I: Understanding Marketing Management

Marketing Tasks, Marketing Concepts and Tools, Company Orientation towards Market Place

Building Customer Satisfaction, Value and Retention

Winning Markets: Market Oriented Strategic Planning, Corporate and Division Strategic Planning, Business
Strategic Planning, Market Process

Module II: Analyzing Market Opportunities

Gathering Information and Measuring Market Demand: Components of Modern Marketing Information System

Scanning Marketing Environment: Demographic, Economic, Natural, Technological, Political-Legal, Social-Cultural

environments.

Analyzing Consumer Markets and Buyer Behaviour: Major Factors influencing Buyer behaviour; cultural, social,
personal, psychological; Buying Decision Process; Stages of Buying Decision Process

Analyzing Business Markets and Business Buying Behaviour: What is organizational buying, Participants in Business
Buying Process, Purchasing-Procurement Process, Institutional and Government Markets

Dealing with Competition: Identifying Competitors, Analyzing Competitors, Designing Competitive Intelligence
System, Designing Competitive Strategies

Module III: Developing Marketing Startegies

Positioning the Market Offering Through the Product Life Cycle: Differentiation Tools, Developing and
Communicating Positioning Strategy, Product Life-Cycle Marketing Strategies, Market Evolution

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Index:
Module 1:

Marketing Tasks 5

Marketing Concepts and Tools 9

Company Orientation towards Market Place 14

Building Customer Satisfaction, Value and Retention 21

Market Oriented Strategic Planning, 29

Corporate and Division Strategic Planning, 29

Business Strategic Planning, 30

Market Process 30

Module II: Analyzing Market Opportunities

Components of Modern Marketing Information System36

Scanning Marketing Environment 49

Analyzing Consumer Markets and Buyer Behaviour 61

Analyzing Business Markets and Business Buying Behaviour 78

Module III: Developing Marketing Startegies

Product Life-Cycle 95

Differentiation Tools, 101

Developing and Communicating Positioning Strategy 104

Marketing Strategies 113 3

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Module I
Understanding Marketing
Management

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A recent book, Radical Marketing, praises companies such as Harley-Davidson for
succeeding by breaking all of the rules of marketing. Instead of commissioning
expensive marketing research, spending huge sums on advertising, and operating
large marketing departments, these companies stretch their limited resources, live
close to their customers, and create more satisfying solutions to customers‘ needs.
They form buyers clubs, use creative public relations, and focus on delivering
quality products to win long-term customer loyalty. It seems that not all marketing
must follow the P&G model.

In fact, we can distinguish three stages through which marketing practice might
pass:

1. Entrepreneurial marketing: Most companies are started by individuals who

visualize an opportunity and knock on every door to gain attention. Jim Koch,
founder of Boston Beer Company, whose Samuel Adams beer has become a top-
selling ―craft‖ beer, started out in 1984 carrying bottles of Samuel Adams from bar
to bar to persuade bartenders to carry it. For 10 years, he sold his beer through
direct selling and grassroots public relations. Today his business pulls in nearly
$200 million, making it the leader in the U.S. craft beer market.2

2. Formulated marketing: As small companies achieve success, they inevitably

move toward more formulated marketing. Boston Beer recently began a $15
million television advertising campaign. The company now employs more that 175
salespeople and has a marketing department that carries on market research,
adopting some of the tools used in professionally run marketing companies.

3. Entrepreneurial marketing: Many large companies get stuck in formulated

marketing, poring over the latest ratings, scanning research reports, trying to fine-
tune dealer relations and advertising messages. These companies lack the creativity
and passion of the guerrilla marketers in the entrepreneurial stage. Their brand and
product managers need to start living with their customers and visualizing new
ways to add value to their customers‘ lives.

Marketing Tasks

Whether you‘re a small business owner just starting out or you‘ve been an
entrepreneur for a long time, you can actually outsource a lot of the marketing
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tasks and projects that seem to cross your desk every day. While you may want to
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keep a close eye on your overall plan, marketing is made up of a whole list of
small steps that can be done efficiently and effectively by someone other than
yourself.

1. Tracking Your Name: Whether you‘re working under your own name or
using a company name, you can track mentions of both online by setting up
alerts through Google Alerts, as well as sites that offer more specific
tracking, like Twilert for Twitter.
2. Customer Relations: When your name pops up on a blog or someone
leaves a comment about your website, you may want to respond to it. You
can bring in a community manager or customer relations specialist (or a
virtual assistant able to take on those roles) to handle such responses.
3. Website Design: Every business — and even most individuals — need a
website these days. Bringing in a web designer to handle setting up and
maintaining the site can free up some time.
4. Blogging: You may find that blogging guarantees constant visitors to your
website and improves your sales, but takes up a lot of time. Many freelance
writers will create content for your blog, either under their own names or as
ghostwriters.
5. Distributing Press Releases: There are several websites that will distribute
press releases for you automatically, such as PRWeb. If you have specific
media contacts that you want to send your release to, a virtual assistant can
handle emailing out releases along with personalized messages.
6. Finding Media Contacts: There are beat reporters, bloggers, and members
of the media that cover every niche — the key is finding the ones in your
niche. Generating a list can be a time-consuming project, but a virtual
assistant with research skills can get it off your plate.
7. Social Networking: Filling out profiles (and keeping them up to date) on all
those social networking sites is time consuming. But there are actually
virtual assistants, as well as PR specialists, who have made social
networking a major part of their services. Some are even willing to Twitter
for you on a daily basis.
8. Placing Advertisements: Whether you advertise online, in print, or on the
radio, comparing prices, sizes, and reach of potential advertising slots can be
tedious. However, it‘s a task that a virtual assistant can easily handle: just
ask for a report of the findings.
9. Writing Press Releases: Many companies hand their press releases off to
professional PR writers. You can hire such a writer yourself, as well as
putting your press release project up for bid on sites such as Elance.
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10.Marketing Research: No matter what your marketing research project is,

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there are thousands of firms willing to take it on in a heartbeat. In many

 cases, professional researchers even have access to resources that you might
not know about.
11.SEO: Modern marketing relies, at least in part, on getting good search
engine results. Outsourcing your search engine optimization to a SEO
specialist can ensure that your website ranks well for your niche.
12.Affiliate Marketing: Even if you set up affiliate marketing campaign on
your own, it can be difficult to convince bloggers and other website owners
to promote your products. An affiliate marketing manager can get the best
affiliates to offer your products and manage your affiliate program.
13.Crisis Management: When a company finds itself in trouble, whether
internal or external, it can often be easier to have an external PR person
manage discussions of the crisis — if only to let the regular staff take care of
the actual issue. However, it‘s important to make arrangements for a crisis
management specialist before any problems pop up.
14.Database Management: If you rely on a database of existing and past
customers — or you‘ve built a database of individuals you think could
become future customers — you may want to turn that database over to a
virtual assistant before you do anything with it: you‘ll want to have your
database checked to make sure addresses and other information are still
correct.
15.Ad Design: Advertising projects are particularly easy to outsource —
whether you‘re looking for web banners or to have a television commercial
made, there are thousands of firms ready to turn out professional-quality
advertising for you.
16.Sales Leads: If you‘ve been trying to track your sales leads on a
spreadsheet, it‘s time to outsource that task to a company with better
software options. Tools like Sales Force can organize all of your leads (and
current customers) quickly.
17.Event Organization: When it comes to planning an event, it‘s worth
bringing in a professional event organizer. Such an individual knows every
step necessary for getting an event going and can do it in half the time. Even
if you‘re only thinking about a small event, an event organizer can handle all
of the details.
18.Creating Expertise: With your expertise in your field, you might make a
great source for a member of the media — and getting your name in an
article can promote your business. While a PR firm can connect you to some
reporters, you can get great results for less time and less money by asking a
virtual assistant to respond to requests on Help A Reporter Out that fit your
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experience and knowledge.

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19.Newsletter Management: Newsletters can provide a good way to stay in
touch with your existing customers, but they can also take significant time
and energy. But all parts of a newsletter, from writing the articles to
managing the recipients‘ list can be outsourced. The simplest way to do so is
to outsource the project as a whole and let a project manager find writers,
designers, and other subcontractors.
20.Cause Marketing: Associating your company with a particular charity or
cause can help promote your product or service. There are two ways to
outsource cause marketing. The first is to give the project, from finding a
cause to marketing the relationship, to a marketing firm specializing in such
projects. The other is to agree to sponsor a particular non-profit or charity,
with the understanding that it‘ll take responsibility for making your
sponsorship known.
21.Article Writing: Distributing articles about your company‘s niche, linking
to your site, and citing you as an expert, can help market your company
online. You can hire a writer to create just a few such articles or a large
batch, just as you might hire a freelance writer for another project.
22.Analyzing Marketing: Many marketing firms offer services that assess
your marketing efforts and determine just how well they‘re working,
creating a report that boils down all your marketing information into what
you actually need to know.
23.Surveys: Conducting surveys and compiling results can be outsourced to
one of many online survey services, such as Survey Monkey.
24.Marketing Materials: Business cards, brochures, and other marketing
materials are a necessity for most businesses, but you can easily contract
with designers who are specialists in such projects — and you can even
outsource finding such a specialist to your virtual assistant!
25.Finding New Marketing Ideas: The field of marketing is growing,
especially in its online options. Contracting with a marketing specialist to
find new ways of marketing your business lets you focus on your work but
still get the benefits of new options.
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Marketing Concepts and Tools,
When we talk about Marketing, different scholars define the term in diverse
manner. But the basic idea of marketing these days, which anybody and
everybody would agree will be Marketing is selling a product with a value
addition.

Now if we go in diversifying the term, according to a social definition, marketing

is a societal process by which individuals and groups obtain what they need and
want through creating, offering, and exchanging products and services of value
freely with others. But if we try to understand the managerial aspect of the
definition, then the shortest words would be marketing as the art of selling
products.

The aim of marketing is to know and understand the customer so well that the
product or service fits him and sells itself. Ideally, marketing should result in a
customer who is ready to buy.‖ The American Marketing Association offers this
managerial definition:

Marketing (management) is the process of planning and executing the

conception, pricing, promotion, and distribution of ideas, goods, and services to
create exchanges that satisfy individual and organizational goals.

Now there are more core concepts, which one has to understand, irrespective of
their background, to operate in any market. Not everyone likes the same things in
the same way. That is why marketers segment the market. They will offer different
quality and quantity of the same product in different markets at different prices in
different way.
Like I said before, for each target market, the firm develops market offering. The
offering is positioned in the minds of the target buyers as delivering some central
benefit(s).

For example, Volvo develops its cars for the target market of buyers for whom
automobile safety is a major concern. Volvo, therefore, positions its car as the
safest a customer can buy.
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Another core concept is the distinction between marketers and prospects. A
marketer is someone who is seeking an answer (attention, a purchase, a vote, a
donation) from another party, called the prospect. If two parties are seeking to sell
something to each other, both are marketers.

A need is something that is necessary for organisms to live a healthy life. Needs
are distinguished from wants because a deficiency would cause a clear negative
outcome, such as dysfunction or death. Needs can be objective and physical, such
as food and water, or they can be subjective and psychological, such as the need
for self-esteem. On a societal level, needs are sometimes controversial.
Understanding needs and wants is an issue in the fields of politics, social science,
and philosophy. Demand is the desire to own anything and the ability to pay for it
and willingness to pay.
Demands are wants for specific products backed by an ability to pay. Many people
want a Mercedes; only a few are able and willing to buy one. Companies must
measure not only how many people want their product, but also how many would
actually be willing and able to buy it.

In marketing, a product is anything that can be offered to a market that might

satisfy a want or need. In retailing, products are called merchandise. In
manufacturing, products are purchased as raw materials and sold as finished goods.
Commodities are usually raw materials such as metals and agricultural products,
but a commodity can also be anything widely available in the open market. In
project management, products are the formal definition of the project deliverables
that make up or contribute to delivering the objectives of the project.

In marketing, a product is anything that can be offered to a market that might

satisfy a want or need. In retailing, products are called merchandise. In
manufacturing, products are purchased as raw materials and sold as finished goods.
Commodities are usually raw materials such as metals and agricultural products,
but a commodity can also be anything widely available in the open market. In
project management, products are the formal definition of the project deliverables
that make up or contribute to delivering the objectives of the project.

The value of a product is the mental estimation a consumer makes of it. Formally it
may be conceptualized as the relationship between the consumer's perceived
benefits in relation to the perceived costs of receiving these benefits.
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It is often expressed as the equation:

Value = Benefits / Cost
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Value is thus subjective (i.e., a function of consumers' estimation) and relational
(i.e., both benefits and cost must be positive values).
There are parallel's between cultural expectations and consumer expectations. Thus
pizza in Japan might be topped with tuna rather than pepperoni, as pizza might be
in the US; the value in the marketplace varies from place to place as well as from
market to market.
For a firm to deliver value to its customers, they must consider what is known as
the "total market offering." This includes the reputation of the organization, staff
representation, product benefits, and technological characteristics as compared to
competitors' market offerings and prices. Value can thus be defined as the
relationship of a firm's market offerings to those of its competitors.

Value in marketing can be defined by both qualitative and quantitative measures.

On the qualitative side, value is the perceived gain composed of individual's
emotional, mental and physical condition plus various social, economic, cultural
and environmental factors. On the quantitative side, value is the actual gain
measured in terms of financial numbers, percentages, and dollars.

For an individual to deliver value, one has to grow his / her knowledge and skill
sets to showcase benefits delivered in a transaction (e.g., getting paid for a job).

Exchange, the core of marketing, involves obtaining a desired product from

someone by offering something in return. For exchange potential to exist, five
conditions must be satisfied:

1. There are at least two parties.

2. Each party has something that might be of value to the other party.

3. Each party is capable of communication and delivery.

4. Each party is free to accept or reject the exchange offer.

5. Each party believes it is appropriate or desirable to deal with the other party.

Transaction marketing is part of a larger idea called relationship marketing.

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Relationship Marketing was first defined as a form of marketing developed from
direct response marketing campaigns which emphasizes customer retention and
satisfaction, rather than a dominant focus on sales transactions.

As a practice, Relationship Marketing differs from other forms of marketing in that

it recognizes the long term value of customer relationships and extends
communication beyond intrusive advertising and sales promotional messages.

With the growth of the internet and mobile platforms, Relationship Marketing has
continued to evolve and move forward as technology opens more collaborative and
social communication channels. This includes tools for managing relationships
with customers that goes beyond simple demographic and customer service data.
Relationship Marketing extends to include Inbound Marketing efforts (a
combination of search optimization and Strategic Content), PR, Social Media and
Application Development.

The ultimate outcome of relationship marketing is the building of a unique

company asset called a marketing network. A marketing network consists of the
company and its supporting stakeholders (customers, employees, suppliers,
distributors, university scientists, and others) with whom it has built mutually
profitable business relationships.

Increasingly, competition is not between companies but rather between marketing

networks, with the profits going to the company that has the better network.

The marketer uses three kinds of marketing channels.

Communication channels deliver messages to and receive messages from target

buyers. They include newspapers, magazines, radio, television, mail, telephone,
billboards, posters, fliers, CDs, audiotapes, and the Internet. The marketer uses
distribution channels to display or deliver the physical product or service(s) to the
buyer or user. The marketer also uses selling channels to effect transactions with
potential buyers. Selling channels include not only the distributors and retailers but
also the banks and insurance companies that facilitate transactions.
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What is the Marketing Mix? Description

The Marketing Mix model (also known as the 4 P's) can be used by
marketers as a tool to assist in defining the marketing strategy. Marketing
managers use this method to attempt to generate the optimal response in
the target market by blending 4 (or 5, or 7) variables in an optimal way. It is
important to understand that the Marketing Mix principles are controllable
variables. The Marketing Mix can be adjusted on a frequent basis to meet
the changing needs of the target group and the other dynamics of the
marketing environment.

Historically, the thinking was: a good product will sell itself.

However there are no bad products anymore in today's highly
competitive markets. Plus there are many laws giving customers Functionality; Quality;
the right to send back products that he perceives as bad. Appearance; Packaging;
Product
Therefore the question on product has become: does the Brand; Service; Support;
organization create what its intended customers want? Define Warranty.
the characteristics of your product or service that meets the
needs of your customers.
How much are the intended customers willing to pay? Here we
decide on a pricing strategy - do not let it just happen! Even if
you decide not to ask (enough) money for a product or service,
you must realize that this is a conscious decision and forms part List Price; Discounts;
Price of the pricing strategy. Although competing on price is as old as Financing; Leasing
mankind, the consumer is often still sensitive for price discounts Options; Allowances.
and special offers. Price has also an irrational side: something
that is expensive must be good. Permanently competing on
price is for many companies not a very sensible approach.
Locations; Logistics;
Available at the right place, at the right time, in the right
Channel members;
quantities? Some of the recent major changes in business have
Place Channel Motivation; Market
come about by changing Place. Think of the Internet and mobile
Coverage; Service Levels;
telephones.
Internet; Mobile.
(How) are the chosen target groups informed or educated about
the organization and its products? This includes all the weapons Advertising; Public
in the marketing armory - advertising, selling, sales promotions, Relations; Message; Direct
Promotion
Direct Marketing, Public Relations, etc. While the other three P's Sales; Sales; Media;
have lost much of their meanings in today's markets, Promotion Budget.
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has become the most important P to focus on.

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The function of the Marketing Mix is to help develop a package (mix) that
will not only satisfy the needs of the customers within the target markets,
but simultaneously to maximize the performance of the organization. There
have been many attempts to increase the number of P's from 4 to 5P's in
the Marketing Mix model.

COMPANY ORIENTATIONS TOWARD THE MARKETPLACE

Marketing management is the conscious effort to achieve desired exchange
outcomes with target markets. But what philosophy should guide a company‘s
marketing efforts?

What relative weights should be given to the often conflicting interests of the
organization, customers, and society?

For example, one of Dexter Corporation‘s most popular products was a profitable
grade of paper used in tea bags. Unfortunately, the materials in this paper
accounted for 98 percent of Dexter‘s hazardous wastes. So while Dexter‘s product
was popular with customers, it was also detrimental to the environment. Dexter
assigned an employee task force to tackle this problem. The task force succeeded,
and the company increased its market share while virtually eliminating hazardous
waste.

Clearly, marketing activities should be carried out under a well-thought-out

philosophy of efficient, effective, and socially responsible marketing. In fact, there
are five competing concepts under which organizations conduct marketing
activities: production concept, product concept, selling concept, marketing
concept, and societal marketing concept.

The Production Concept

There was this idea of production concept some decades ago, which states as,
buyers prefer goods and services which are cheap and widely available. This
concept is the oldest of the concepts in business. The production concept prevailed
from the time of the industrial revolution until the early 1920's. The production
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concept was the idea that a firm should focus on those products that it could
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produce most efficiently and that the creation of a supply of low-cost products
would in and of itself creates the demand for the products. The key questions that a
firm would ask before producing a product were:

* Can we produce the product?

* Can we produce enough of it?

At the time, the production concept worked fairly well because the goods that were
produced were largely those of basic necessity and there was a relatively high level
of unfulfilled demand. Virtually everything that could be produced was sold easily
by a sales team whose job it was simply to execute transactions at a price
determined by the cost of production. The production concept prevailed into the
late 1920's.

The Product Concept

This orientation holds that consumers will favor those products that offer the most
quality, performance, or innovative features. Managers focusing on this concept
concentrate on making superior products and improving them over time. They
assume that buyers admire well-made products and can appraise quality and
performance. However, these managers are sometimes caught up in a love affair
with their product and do not realize what the market needs. Management might
commit the ―better-mousetrap‖ fallacy, believing that a better mousetrap will lead
people to beat a path to its door.

The Selling Concept

This is another common business orientation. It holds that consumers and
businesses, if left alone, will ordinarily not buy enough of the selling company‘s
products. The organization must, therefore, undertake an aggressive selling and
promotion effort. This concept assumes that consumers typically show buying
inertia or resistance and must be coaxed into buying. It also assumes that the
company has a whole battery of effective selling and promotional tools to stimulate
more buying. Most firms practice the selling concept when they have overcapacity.
Their aim is to sell what they make rather than make what the market wants.
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In lay mans words, the selling concept says that if customers are left to themselves,
they will not make the effort to buy the firm's products. Therefore, it dictates, the
firm must be aggressive in pushing its sales.

The Marketing Concept

After World War II, the variety of products increased and hard selling no longer
could be relied upon to generate sales. With increased discretionary income,
customers could afford to be selective and buy only those products that precisely
met their changing needs, and these needs were not immediately obvious. The key
questions became:

* What do customers want?

* Can we develop it while they still want it?

* How can we keep our customers satisfied?

In response to these discerning customers, firms began to adopt the marketing

concept, which involves:

* Focusing on customer needs before developing the product

* Aligning all functions of the company to focus on those needs

* Realizing a profit by successfully satisfying customer needs over the long-term

This is a business philosophy that challenges the above three business orientations.
Its central tenets crystallized in the 1950s. It holds that the key to achieving its
organizational goals (goals of the selling company) consists of the company being
more effective than competitors in creating, delivering, and communicating
customer value to its selected target customers. The marketing concept rests on
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four pillars: target market, customer needs, integrated marketing and profitability.
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When firms first began to adopt the marketing concept, they typically set up
separate marketing departments whose objective it was to satisfy customer needs.
Often these departments were sales departments with expanded responsibilities.
While this expanded sales department structure can be found in some companies
today, many firms have structured themselves into marketing organizations having
a company-wide customer focus. Since the entire organization exists to satisfy
customer needs, nobody can neglect a customer issue by declaring it a "marketing
problem" - everybody must be concerned with customer satisfaction.

The marketing concept relies upon marketing research to define market segments,
their size, and their needs. To satisfy those needs, the marketing team makes
decisions about the controllable parameters of the marketing mix.

Distinctions between the Sales Concept and the Marketing Concept:

1. The Sales Concept focuses on the needs of the seller. The Marketing
Concept focuses on the needs of the buyer.

2. The Sales Concept is preoccupied with the seller‘s need to convert his/her
product into cash. The Marketing Concept is preoccupied with the idea of
satisfying the needs of the customer by means of the product as a solution to the
customer‘s problem (needs).

The Marketing Concept represents the major change in today‘s company

orientation that provides the foundation to achieve competitive advantage. This
philosophy is the foundation of consultative selling.

The Marketing Concept has evolved into a fifth and more refined company
orientation: The Societal Marketing Concept. This concept is more theoretical and
will undoubtedly influence future forms of marketing and selling approaches.

The Societal Marketing Concept

This concept holds that the organization‘s task is to determine the needs, wants,
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and interests of target markets and to deliver the desired satisfactions more
effectively and efficiently than competitors (this is the original Marketing
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Concept). Additionally, it holds that this all must be done in a way that preserves
or enhances the consumer‘s and the society‘s well-being.

This orientation arose as some questioned whether the Marketing Concept

is an appropriate philosophy in an age of environmental deterioration, resource
shortages, explosive population growth, world hunger and poverty, and neglected
social services. Some have questioned whether the marketing concept is an
appropriate philosophy in an age of environmental deterioration, resource
shortages, explosive population growth, world hunger and poverty, and neglected
social services. Are companies that successfully satisfy consumer wants
necessarily acting in the best, long-run interests of consumers and society? The
marketing concept sidesteps the potential conflicts among consumer wants,
consumer interests, and long-run societal welfare.

Yet some firms and industries are criticized for satisfying consumer wants at
society‘s expense. Such situations call for a new term that enlarges the marketing
concept.

We propose calling it the societal marketing concept, which holds that the
organization‘s task is to determine the needs, wants, and interests of target markets
and to deliver the desired satisfactions more effectively and efficiently than
competitors in a way that preserves or enhances the consumer‘s and the society‘s
well-being.

Are companies that do an excellent job of satisfying consumer wants necessarily

acting in the best long-run interests of consumers and society?

The marketing concept possibly sidesteps the potential conflicts among

consumer wants, consumer interests, and long-run societal welfare. Just consider:

The fast-food hamburger industry offers tasty buty unhealthy food. The
hamburgers have a high fat content, and the restaurants promote fries and pies,
two products high in starch and fat. The products are wrapped in convenient
packaging, which leads to much waste. In satisfying consumer wants, these
restaurants may be hurting consumer health and causing environmental problems.
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Integrated marketing (IM) is a management strategy and meta-discipline
focused on the organization-wide optimization of unique value for stakeholders.
Although closely linked to integrated marketing communications (IMC), it should
not be confused with it.

The logic of integrated marketing has been described as the management of three
interconnected business drivers.

1. Identification and maintenance of the organization‘s or brands coherent

identity, which is a reflection of the way it is structured and operated to provide
differentiated value. This has also been described as the DNA of the organization.
Influential characteristics of the organization include the business model, core
competencies, positioning, product designs, and brand, as well as the heritage of
culture and organizational purpose. In successful organizations, these come
together to create differentiated value for customers. Internal uniqueness of the
association lead to external actions that become the basis of the brand, brand equity
and market positioning, with consequences for future organization development.

2. Mobilization of all employees behind this identity and value, with lean, value-
focused processes and appropriate resources. This is basically a challenge of
implementation and performance management, achieving integration, coherence
and high levels of performance throughout the organization. In marketing circles,
this has sometimes been described as "living the brand" (ref), but success draws on
that subtly modifies such well-established disciplines as lean, balanced
scorecard/performance management, service management and internal marketing.
It therefore draws on the assistance of HR, operations, organization development,
finance and other groups.

3. Integrated contact management (integrated communications, creating

important experiences for customers). This is where IMC fits, as well as related
concepts such as media neutral planning (MNP) and experience management.
Although this is a key area for the marketing team, it typically also depends on the
input of sales, operational and service management functions and processes.
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Customer Satisfaction

Customer satisfaction may be defined as a level of a person‘s felt state resulting

from comparing a product‘s perceived performance in relation to the person‘s
expectations.

What a highly satisfied customer brings along:

1. Stays loyal longer

2. Buys more as the company introduces new products and upgrades existing
products.
3. Talks favorably about the company and its products.
4. Pays less attention to competing brands and advertising and is less sensitive
to price.
5. Offers product/ service ideas to the company.
6. Cost less to serve than new customer transactions are routinized.

But when there is case of dissatisfaction, a highly satisfied customer

1. Take no action.
2. Or may take some form of public action:
a. Take legal action to obtain redress.
b. Complain to business, public, or governmental agencies.
3. Take some form of private action:
a. Stop buying product/ brand or boycott seller.
b. Warn friends about the product and or seller.
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Now, the next question arises is how does a firm tracks or measure customer
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satisfaction. This may be explained by few below mentioned options,

 1. Complaint and suggestion systems.
2. Customer satisfaction survey.
3. Ghost shopping.
4. Lost customer analysis.

Building Customer Value

Strengthen your foundation with customers—and grow your bottom line

In an era of increasingly demanding consumers, it‘s no surprise that customer

satisfaction and loyalty are the nuts and bolts of business growth. Yet for many
companies, these ingredients are in short supply—and could grow scarcer as
economic uncertainty continues.

One reason for this scarcity stems from the way companies address the challenge
of growing customer value—their effectiveness at helping customers achieve their
goals or desires. In our experience, most companies build customer value through a
number of disparate activities such as value-added services and customer
satisfaction measurement programs. The problem, however, is that because these
activities are conducted independently of each other, they do not ensure the
consistent delivery of superior value that‘s needed to beat the competition.

How do top companies consistently grow customer value? Our research shows that
companies like Virgin, Cisco, and Toyota treat the various activities that support
value creation as a portfolio with three different approaches (Figure 1). They do
the right things better to keep advancing the competitiveness of their current value
proposition. At the same time, they expand the value proposition at the boundaries
by changing the rules of engagement. Third, they create entirely new and
sustainable sources of value to buttress their long-term superior position with
customers.

Doing the Right Things Better

All too often we‘ve seen companies that developed popular products and services
grow complacent and rest on their laurels—and all too often we‘ve seen their
customers migrate to the competition. But companies that persistently focus on
continuously improving the existing value proposition will grow their customer
21
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satisfaction—and reap substantial financial rewards.

Claes Fornell illustrated how higher customer satisfaction can translate into
financial success. A stock portfolio of companies whose customer satisfaction
levels grew faster than the competition performed significantly better than major
U.S. indices during the period 1997 to 2003. Its returns were nearly double those of
the Dow Jones Industrial Average, triple those of the S&P 500, and more than
quadruple the returns of NASDAQ (Claes Fornell, Sunil Mithas, Forrest V.
Morgeson III, M.S. Krishnan, ―Customer Satisfaction and Stock Prices: High
Returns, Low Risk,‖ Journal of Marketing, January 2006, pp. 3-14).

Companies that excel at delivering value to the customer tend to have some things
in common. They are able to identify and communicate the value of their basic
product or service to the customer. At the same time, these companies have a keen
understanding of the ―total customer experience,‖ the many ways they interact with
22

the customer to add value. And they know how these interactions vary across
different customer segments. How do companies acquire this understanding? By
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mapping the customer experience for all customer interfaces—that is, the points
where a customer comes into contact with the company—along the value stream.

Try taking an outside-in view by ―walking‖ through all interfaces of the customer
experience with your company along the internal value stream. Work inward to
identify which departments and business processes play a role in customer
interaction. Include the departments that interact directly with the customer, and
those that provide support. How effective is each? Your findings may be
surprising, but will definitely enhance your understanding of the total customer
experience and inform your ability to improve customer value.

Take Richard Branson, CEO of the Virgin Group and a master at improving
existing products and services to optimize the customer experience and enhance
customer value. ―At Virgin,‖ he once said, ―we have a strategy of using the
credibility of our brand to challenge the dominant players in a range of industries
where we believe the consumer is not getting value for the money‖ (Des Dearlove,
Business the Richard Branson Way, 1999).

Virgin was certainly not the first to move into air travel, mobile telephony, retail,
and a host of other market spaces. But time and time again, it was first to launch
features that improved the customer experience in very tangible ways. For
example, Virgin Atlantic, which focuses on high quality and value, won new fans
by providing individual TVs for business-class passengers, premium economy
service, and the Upper Class Suite first-class service. Consisting of over 200
branded companies, the Virgin Group today boasts revenues of more than $20
billion.

Changing the Rules of Engagement

Although all companies need to focus on ways to improve the existing value
proposition, in today‘s marketplace that approach is insufficient. As products and
services become commoditized, sustainable advantage depends on expanding the
value proposition. The most successful players do more than offer brand
extensions. They grow their customer relationships by moving considerably
beyond the original core offerings.

A particularly helpful framework for understanding this dynamic is the ―value

compass‖ illustrated in Figure 2 (Robert E. Wayland and Paul M. Cole, Customer
23

Connections: New Strategies for Growth, Harvard Business School Press, 1997).
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Companies that wish to expand their customer relationships can do so along four
distinct dimensions:

Customer portfolio management represents the level of ―customization‖ of the

value proposition that is delivered in the customer relationship. Close to the center
of the compass, all customers within the market are presented with essentially the
same value proposition. Moving out from the center, value is delivered at levels
that are increasingly tailored to the customer.

Value proposition design reflects the scope of the offerings the company uses to
deliver value to the customer. Near the center of the compass, value is provided
through a discrete product or service. Moving out along this dimension, the
company expands the offering, and its relationship with customers, to provide
complete solutions.

Value-added role refers to the extent of engagement between the company and the
customer‘s operations. Near the center of the compass, the firm is the product
manager, in charge of ensuring that the basic offerings deliver on their promise. At
the farthest point on the compass, the company becomes the network manager,
coordinating how other providers deliver value to the customer.

Reward and risk sharing address the economic relationship between customers and
companies—and how that relationship connects to customer value delivery.
Traditionally, near the center of the compass, a discrete transaction takes place
between the company ―selling‖ a product or service and the customer. At this
point, the risk is neutral for both sides. As the relationship expands, the company
takes on the responsibility for delivering greater value for each transaction. As the
company‘s risk increases, so does its financial reward.

Applying the value compass approach to the high-technology industry, we‘ve seen
how Cisco, Sun, and HP have each expanded their compass in a unique way for
sustainable advantage. According to our analysis, service revenue represents a
larger percent of total revenues for Sun, HP, and Cisco than for other competitors
that have not strategically differentiated their services positions.

Cisco‘s strategy has been to focus on the value proposition design axis. While
addressing customers‘ immediate needs with maintenance services, Cisco has
begun offering advanced proactive services where the business margins have the
24

potential to be larger. With a focus on total lifecycle support, the company is also
developing new subscription-based services that focus on optimal network
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performance. And to differentiate itself in services delivery, Cisco has simplified

the sales process, better leveraged its partners‘ services, and developed direct
relationships with large accounts

HP has focused on a different dimension of the value compass. Expanding its

value-added role, HP has positioned itself to be the IT partner of choice for its
customers. In addition to assisting users with their processes, HP actively helps
manage customers‘ IT networks. Its strategy is to add in its own equipment and
integrate it with the equipment of other companies

Taking a different customer value trajectory, Sun focuses on the customer-portfolio

management and value proposition design axes. By heavily leveraging various
services—professional services, managed services, and connected services
25

offerings—the company is able to offer total solutions that are completely

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personalized for the individual customer

Creating New Sources of Value

Over the past decade or two, few companies have succeeded in developing
innovations that generated entirely new sources of value for the customer and
company alike. One that stands out is Toyota, with the Prius, its hybrid electric
automobile. Toyota was already improving automotive performance in the
traditional sense, but by investing in hybrid technology it went one step further and
redefined the customer value proposition in its industry. Taking center stage was
the relationship of the Prius owners to their ―green‖ cars and the environment—
and, by extension, to Toyota for making it all happen. By changing the
fundamental measures of value, Toyota transformed its customer relationships and
created a strong source of growth in the face of market decline.

Develop a strong customer-value vision that is supported by long-term trends. How

do Toyota and like-minded companies make these leaps into new areas of value?
They align their vision for value creation with a long-term view of markets,
technologies, and capabilities. Many years ago, Toyota made the commitment to
develop technologies and capabilities for hybrid cars. Looking ahead, management
recognized that the consumers‘ increasing concerns about the environment and
energy costs would provide a robust foundation for cars that consumed less gas and
produced fewer emissions—while also continuing to provide the comfort and style
that were the historical source of competition. Though the exact timing would have
been difficult to predict, Toyota banked on the inevitability of two distinct but
reinforcing value drivers coming together.

Support the vision with strong technology innovation and marketing. Some may
perceive that Toyota got lucky with such events as Al Gore‘s movie, ―An
26

Inconvenient Truth,‖ or the recent run up in oil prices. In reality, however, Toyota
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likely made its investments based on the belief that some events as well as
government regulations would ultimately drive greater interest in green cars. This
type of bold vision, combined with strong technology innovation and marketing,
enables companies like Toyota to play a whole new customer value game—and
beat its competitors in the process.

Making It Happen

Expanding customer value is not a strategy that can be implemented overnight. It

requires completely changing the way you view the customer—and translating that
view into action. In our work across a range of industries, we‘ve found it helpful to
keep three principles in mind:

Ensure the entire organization—top to bottom—deeply understands value from the

customer perspective. In many companies, only a small number of people come to
know the customer through direct interaction, when selling an offering or
providing service after the sale is completed. At the top firms, however, senior
executives are involved in determining whether their organizations are delivering
value to their customers. Like Virgin‘s Branson, they then use this knowledge to
guide the organization in improving and expanding on that value proposition. In
our experience, companies that make it a point to operate with a customer-value
focus are significantly more effective in creating customer satisfaction and loyalty.

Make the “customer-value” benefit central to all operational strategy decisions.

Leading companies fully incorporate the customer-value perspective into their
operational strategies. Assess every operational investment in terms of its impact
on overall customer value and compare them to other initiatives in the value
creation portfolio. It‘s important to ask, for example, if an initiative to make the
supply chain more flexible and responsive would be truly valued by the customer,
or if it would be better to focus on other types of initiatives that would be valued
more.

Measure customer value effectively and tie it to the motivational systems of the
enterprise. Though many companies try to use customer satisfaction or other value
metrics as a way to manage business priorities, few really succeed in using these
metrics to improve business performance. The key is to design measurement
systems so that internal operational metrics such as service effectiveness and new
product performance are directly linked to customer satisfaction and customer
referral scores. Equally important, include customer-value metrics in the
27

organization‘s performance management systems so that all organizational units

and individuals are assessed this way. Such systems ―close the loop‖ for
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understanding customer value and for ensuring the effectiveness of organizational
activities designed to grow that value.

Meeting the needs of increasingly demanding customers will likely be a central

focus for any company looking for growth over the long term. While it may be
difficult to predict which way economic winds will blow in the future, firms that
focus on enhancing their customer value will leave a lot less up to chance.

Retaining Customer
Everybody would have understood for the need of retention now. Then also just to
recapitalize
Offensive marketing typically costs more than defensive marketing.

Offensive marketing is designed to obtain an objective, usually market share, from

a target competitor. Whereas, Defensive marketing warfare strategies are a type of
marketing warfare strategy designed to protect a company's market share,
profitability, product positioning, or mind share.

It requires much effort and cost to induce satisfied customers to switch away from
their current suppliers. This is how we can define a Customer Development
Process.

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Winning Markets

Market Oriented Strategic Planning

How do companies compete in a global marketplace? One part of the answer is a

commitment to creating and retaining satisfied customers. We can now add a
second part: Successful companies know how to adapt to a continuously changing
marketplace through strategic planning and careful management of the marketing
process.

In most large companies, corporate headquarters is responsible for designing a

corporate strategic plan to guide the whole enterprise and deciding about resource
allocations as well as starting and eliminating particular businesses. Guided by the
corporate strategic plan, each division establishes a division plan for each business
unit within the division; in turn, each business unit develops a business unit
strategic plan.

Finally, the managers of each product line and brand within a business unit
develop a marketing plan for achieving their objectives. However, the
development of a marketing plan is not the end of the marketing process. High-
performance firms must hone their expertise in organizing, implementing, and
controlling marketing activities as they follow marketing results closely, diagnose
problems, and take corrective action when necessary. In today‘s fast-paced
business world, the ability to effectively manage the marketing process—
beginning to end—has become an extremely important competitive advantage.

CORPORATE AND DIVISION STRATEGIC PLANNING

Marketing plays a critical role in corporate strategic planning within successful

companies.

Market-oriented strategic planning is the managerial process of developing and

29

maintaining a viable fit among the organization‘s objectives, skills, and resources
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and its changing market opportunities. The aim of strategic planning is to shape the
company‘s businesses and products so that they yield target profits and growth and
keep the company healthy despite any unexpected threats that may arise.
Strategic planning calls for action in three key areas. The first area is managing a
company‘s businesses as an investment portfolio. The second area involves
assessing each business‘s strength by considering the market‘s growth rate and the
company‘s position and fit in that market. And the third area is the development of
strategy, a game plan for achieving long-term objectives.

Corporate headquarters starts the strategic planning process by preparing

statements of mission, policy, strategy, and goals, establishing the framework
within which the divisions and business units will prepare their plans. Some
corporations allow their business units a great deal of freedom in setting sales and
profit goals and strategies. Others set goals for their business units but let them
develop their own strategies. Still others set the goals and get involved heavily in
the individual business unit strategies. Regardless of the degree of involvement, all
strategic plans are based on the corporate mission.

THE MARKETING PROCESS

Planning at the corporate, division, and business levels is an integral part of

planning for the marketing process. To understand that process fully, we must first
look at how a company defines its business.
The task of any business is to deliver value to the market at a profit. There are at
least two views of the value-delivery process. The traditional view is that the firm
makes something and then sells it (Figure 1-8). In this view, marketing takes place
in the second half of the value-delivery process. The traditional view assumes that
the company knows what to make and that the market will buy enough units to
produce profits for the company.

Companies that subscribe to this traditional view have the best chance of
succeeding in economies marked by goods shortages in which consumers are not
fussy about quality, features, or style. But the traditional view of the business
process will not work in more competitive economies in which people face
abundant choices. The ―mass market‖ is actually splintering into numerous micro
markets, each with its own wants, perceptions, preferences, and buying criteria.
The smart competitor therefore must design the offer for well-defined target
30

markets.
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Steps in the Marketing Process

The marketing process consists of analyzing market opportunities, researching

and selecting target markets, designing marketing strategies, planning marketing
programs, and organizing, implementing, and controlling the marketing effort. The
four steps in the marketing process are:

1. Analyzing market opportunities. The marketer‘s initial task is to identify

potential long run opportunities given the company‘s market experience and
core competencies. To evaluate its various opportunities, assess buyer wants
and needs, and gauge market size, the firm needs a marketing research and
information system. Next, the firm studies consumer markets or business
markets to find out about buying behavior, perceptions, wants, and needs.
Smart firms also pay close attention to competitors and look for major
segments within each market that they can profitably serve.
2. Developing marketing strategies. In this step, the marketer prepares a
positioning strategy for each new and existing product‘s progress through
the life cycle, makes decisions about product lines and branding, and designs
and markets its services.
3. Planning marketing programs. To transform marketing strategy into
marketing programs, marketing managers must make basic decisions on
marketing expenditures, marketing mix, and marketing allocation. The first
decision is about the level of marketing expenditures needed to achieve the
firm‘s marketing objectives. The second decision is how to divide the total
marketing budget among the various tools in the marketing mix: product,
price, place, and promotion.19 And the third decision is how to allocate the
marketing budget to the various products, channels, promotion media, and
sales areas.
4. Managing the marketing effort. In this step (discussed later in this chapter),
marketers organize the firm‘s marketing resources to implement and control
the marketing plan. Because of surprises and disappointments as marketing
plans are implemented, the company also needs feedback and control. 31
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Module end Quizes

1 _________________ is the difference between the prospective customer’s

. evaluation of all the benefits and all the costs of an offering as compared to the
perceived alternatives.
Total customer value
Customer gains
Customer perceived value
Total customer cost

2 Question 2 Customers develop their expectations about a product they will

. purchase from all of the following sources except:
peers
past experience
friends
unread e-mail

3 Which of the following is not a tool for tracking and measuring customer
. satisfaction?
Complaint and suggestion systems
Customer satisfaction surveys
Ghost shopping
All of the above

4 ___________ companies are increasingly focusing on the need to manage core

. business processes such as new-product development, customer attraction and
retention, and order fulfillment.
High-performance
High-profile
Big
Highly competitive
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5 Which of the following are not resources that are needed by companies to carry
. out its business processes?
commercials
labor
materials
information

6 A company’s _________ consists of its structures, policies, and corporate culture,

. all of which can be dysfunctional in a rapidly changing business environment.
culture
organization
rules
policies

7 _______________ companies are acknowledged as the industry leaders and

. widely admired; they set ambitious goals, communicate to their employees, and
embrace a high purpose beyond making money.
Visionary
Utopian
Encouraging
Comparison

8 The primary activities that represent creating value for customers as part of the
. value chain tool include all of the following except:
technology
inbound logistics
marketing and sales
operations 33
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9. Some of the ways that a company can seek to increase their profits and sales by
searching for new customers include all of the following except:
phone calls
direct mail
ads
reading the obituaries

10 Which of the following descriptions would best characterize a highly satisfied

. customer?
Try other brands to make sure they are loyal to a company
Visits competitors on a regular basis
Buys more products and services
Would not complain so they can appear to remain loyal

34
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Module II
Analyzing Market
Opportunities

35
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Modern Marketing Information System
Set of procedures and sources used by marketing management on a regular and
continuing basis to obtain information relevant to marketing planning and strategy.

Marketing is actually becoming a battle based on more on information than on

sales power .

Now these days we have to focus on more on an information system in place to

make your marketing not only easy but effective too. Therefore marketers will
always focus on a marketing research.

But the question lies what does a marketer needs to know. So everyone will ask
these questions to themselves:

? What decisions do they regularly make.

? What information do you need to make these decisions.
36

? What information do you regularly get.

? What special studies do you periodically request.
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? What information would you want that you are not getting now.
? What information would you want daily, weekly, monthly or yearly.

Everybody must have read a case study of McDonalds. When they entered decades
ago in India with there brand and business concept, they failed to a very high
extent. The reason was just simple. They did not do research on the market they
were selling. India has there reluctance to beef because of religion and they
launched beef products. The products might be their hottest selling in America, but
in India, this is not the case.

This was just a simple case of no market research, but learning through experience
curve, which any company would not like to do.

Components of Information Systems

An information system has the following components:

1. Hardware ( machines and media)

2. Software (program and procedures)
3. Data ( data and knowledge)
4. Network ( communication Media)
5. People ( end user and specialists)

All five components and arranged and interrelated to perform input, process,
output, feedback and control that converts data resources into information. The
figure shows interrelation between these components

37
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From the figure it can be concluded that:

1. Five basic operating elements of Information system are:

a. Hardware
b. Software
c. Databases
d. Network
e. People
2. Hardware includes processor, I/O devices, operating system and media
devices. Software includes programs and procedures. Databases includes
data and knowledge base. Network includes communication media and
network devices. People includes operating Personal and System specialists.
3. Database are processed to get the desired information for end user.
4. Information processing consists of input, process, output, data storage and
control.
a. INPUT – Data and instruction
b. Process – Maintain master files, reports, process inquiries, interactive
dialogues
c. OUTPUT – Transaction documents and screen reports.

38
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CASE STUDY
Modern Market Information System boosts incomes of Ukraine’s small
& medium sized growers
Author’s name:
Mr. Andriy Yarmak, Sr. Market Information Specialist and Deputy Chief of Party

Institution:
USAID-funded Ukraine Agricultural Marketing Project implemented by Land O’Lakes,
Inc.

Abstract:
The Market Information System (MIS) created by the Agricultural Marketing
Project
(AMP) jointly with its Ukrainian subcontractor APK-Inform helped boost sales
and profits of small and medium sized growers, and attracted significant
investments. It resulted in about $20 in additional benefits to farmers for each $
spent and became selfsufficient in 3 years from its launch.

Although 95% of farmers did not have access to the Internet, thanks to AMP
experts they managed to sale most of their produce with higher profits through
publications and web-portal created by AMP. The portal itself quickly became the
largest virtual wholesale market in the Eastern Europe, significantly (by 100-200
times) reducing transaction costs for all market players: growers, traders,
processors, input suppliers and supermarkets.

Based on the market information received through the numerous contacts with
market players as well as official statistics, AMP analysts have created a flow of
analytical information, making horticultural market of the country more
transparent and predictable. It, in turn, has lead to the increased amount of
investments into the industry, helped create additional production, trade and
processing opportunities, create new jobs and increase incomes of rural
population.

Problem statement
When the AMP team started working in Ukraine in 2003, it determined that further
39

development of the horticultural sector of Ukraine‘s agribusiness sector, which was

based on many small and medium sized growers provided nearly 35% of all
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revenues to rural inhabitants, was hampered by the lack of market infrastructure.
Growers did not know where and how to sell fruits & vegetables and consumers
paid relatively high prices for these products due to a large number of very small
intermediaries and completely chaotic marketing and complete lack of market
transparency.

The AMP team only had 3 years to resolve this problem and the quickest way to do
it, according to AMP professionals‘ was to develop a system, which would allow
all market players to receive easy and fast access, to information about market
prices in various regions of Ukraine; buyers and sellers of key products and their
offers & bids, market news, market reports and market forecasts. Lack of widely
recognized standards for the fruits & vegetables was another significant challenge
as the fruits & vegetables have a great variability of sizes, colors, shapes, varieties,
etc. Yes another problem we faced was a large number of different types of fruits
& vegetables, which we had to monitor, as this sector of agribusiness has a
significant number of products, all of which are very important.

As we proceeded with our idea, we discovered several other problems on our way.
To understand the markets our analysts had to consider the interests of many
market participants, including different types of growers, processors, wholesale
traders, input and equipment suppliers, retail chains, etc. On the other hand we
realized that if we succeed in helping this industry become more efficient, we
would be able to help create many new job and improve incomes of people
involved in these industries as well as living standards of rural population overall.

One of the major challenges for us was in trying to get the information flowing, as
most farmers (more than 95%) did not have Internet connection and a major part of
them did not have cell phones, while landlines were of poor quality and one could
only reach them trough the landline very early in the morning or late in the
evening. Creation of a web-site in this situation sounded as a completely useless
exercise at first but only if the web-site was created for farmers. Instead, we
created a web-portal for buyers, to support farmers and it worked.

From the very first steps of creating our own MIS, we thought about its
sustainability.
This was a great tool by itself as it guided us in our decisions, helping choose only
options that would generate a real interest of our clients. If we created something
40

people were ready to pay money for, it meant that this was a really useful thing for
them.
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Creating MIS step by step
We started creating the MIS from several brainstorming sessions, where we
discussed what‘s really essential to know about the markets to be successful based
on the opinion of various market players. Pooling it all together, we have
discovered that most market players had many things in common. Therefore, we
decided to focus our first efforts at the most important things.

It was also a very simple decision to determine where to start implementing the
MIS, as successful information system is impossible without a good database.
Since we had 8 offices and we planned to create a web-portal, we needed a modern
on-line database that would allow many people to access it at the same time. Thus,
we chose Oracle to create the database and our subcontractors‘ programmers did
all of the work based on our vision of what this system should be able to do. The
database allowed us to track the markets and also monitor overall Project‘s
activities. It is also true that we have been improving the database ever since we
created it. As I type, we are trying to implement some more improvements.

Still, the structure of the database itself is not enough to make it successful, the
next step was to fill it our with industry contacts. We trained the Project Staff to
use it and explained why it is important to keep all of the contacts in this common
database. The first few months our people spent in meetings with clients, searching
for industry contacts and entering them into the database. Since we had all the
database statistics online, it was easy to see the progress of contacts collection and
determine who of the employees needed additional help with this process.

In the meanwhile we have polled many clients to determine their problems and this
information helped us develop efficient ways to resolve them. First of all, complete
lack of information about market prices and trends motivated us to start market
monitoring. We started monitoring retail markets in most regions of Ukraine by
sending our enumerators there or collecting price information from the markets‘
administrations over the phone.

During the numerous meetings with farmers we explained them our intentions and
convinced them to purchase cell phones. We explained that otherwise they would
not be able to improve sales of their produce because buyers will have no way of
reaching them.
41

After the wave of the seminars most farmers did buy mobile phones as they were
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becoming really inexpensive. At that point we started collecting weekly farm-gate

prices for the key products from farmers included in our database via the phone.
Prior to that we have trained our Market Information Specialists in how to
determine prices. To motivate farmers provide this information we gave them free
of charge advertising in our publications and web-site as we placed products they
wanted to sell in the offers & bids section. Farmers were happy to provide the
information and, in most cases, they determined offer price when talking to our MI
specialists, who also provided consultation and advise. All of the valuable
comments provided by farmers were included in special internal section of the
database.

At this point in time we have received many phone calls from potential buyers
(processors, traders and supermarket chains) who wanted to find suppliers of fruits
& vegetables. They shared their market information with us and we, in exchange,
provided them with the free advertisement as well and provided contacts of
farmers who had products of their interest for sale. Farmers who previously had
very few opportunities to sell suddenly started getting several phone calls per day,
were able to look evaluate various options, had a possibility to call and consult
with us and thus, have been able to sell their produce quickly and the highest price
offered. After many years of receiving no attention from the government or
anybody else, farmers really appreciated the support they were getting from us.

There were many things we did simultaneously at this point: we created a

webportal, started publishing weekly magazine and sending it to all market players
who expressed their interest and we continued to build and improve our database
and train our clients. Once the farmers got their first weekly magazines, we came
around and explained how to use them. Usually we did 5-6 hour trainings for 20-40
farmers were they were able to try all of the options available. Most active farmers
who came to such seminars later on transferred the knowledge they gained to their
colleagues.

When our MI specialists talked to a client, they entered information directly into
the on-line database linked directly to a web-portal. Many clients received phone
calls from potential buyers or suppliers few minutes after their conversations with
the MIS specialists, as offers & bids appeared on-line on the web-portal as they
spoke.

From the very beginning of the project we kept telling farmers to grow what‘s in
42

the demand instead of trying to sell what they have grown. We did a lot of work
explaining all market participants the importance of contract growing for further
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industry development. We also invited buyers (processors, traders, supermarkets)

to all of our seminars and let them tell farmers what kind of product do they need,
when, how much, how should it be packaged and delivered, etc. We also published
numerous articles on these issues in our magazines. Our production and price
forecast for all key fruits & vegetables published every spring and updated two or
three times per year has helped many farmers who read it make very profitable
planting decisions.

Share of contract farming in this sector has started growing but most of the
production was still sold on spot market. Processing slowly was becoming a major
market for fruits & vegetables and we decided to create a system that allows
farmers to offer their produce to processors. We collected, processed, structured
and shared information about what key processors are ready on a weekly basis,
which helped both: processors and growers.

At this point we were getting more than 5,000 hits on our web-site every day and
many market players said that a weekly price is not enough as they would like to
be able to track prices on a daily basis. To do this we identified the key wholesale
markets in Ukraine, which were used as a price reference among market
participants and started collecting daily information from these markets. We
explained farmers that they now needed to think about Internet access if they
wanted to access daily prices and many farmers did get computers and Internet.
Others, whenever approached by potential buyers, called us on the phone and we
told them what was the price at certain market today and explained them price
trends.

To make sure farmers are able to grow what‘s demanded by the markets, we have
held many field days and demonstrated modern production, post harvest handling,
storage and packing technologies. We published this information in various
manuals, in our publications and on the web site. Thus, our MIS was more than
just market information system; it became a system for collection, processing and
distribution of technological, legal, market and other useful information for
farmers.

It is very difficult to create a good system without letting users of this system
impact it. At one point when we needed to grow the system further we decided to
let users do part of our job. We allowed companies to place offers & bids by
themselves as well as register in our database. We have trained them to do this and
43

this allowed us to expend the system and improve the quality of our information.
Our role was limited to moderation. This made our web-portal the largest virtual
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marketplace in the region as every week we had registered around 1,500 entries for
around $10mn and this helped attract even more users to the system.

Three other donor projects, which had to create their own MIS, decided to join
ours instead. We have trained their specialists and granted them access to the
system, which increased its value significantly. One of the projects that joined
forces with us was from the country Georgia. Our cooperation has boosted the
horticultural trade between the two countries.

Although we did a lot of trainings and seminars, there was a need for a nationwide
or international meeting of all key industry participants to discuss the strategic
industry perspectives and opportunities. AMP jointly with APK-Inform has
initiated, organized and held the First International Conference: ―Fruits &
Vegetables of Ukraine 2004: Market of New Opportunities‖, which has later
grown into a large international event. It now includes a specialized international
exhibition and is the largest industry meeting in the Eastern Europe. Moreover,
past year we were asked to help organize the first such event in Russia and we did
with a success.

Our MIS has played a very significant role in promoting investments into the
industry. This was in large achieved through our PR activities. Since we generate a
lot of interesting information and made it publicly available through our web portal
and other sources, we have attracted many journalists who talked to us and wrote
news and stories about the sector. We never paid a penny to publish such articles
but they got re-printed and re-quoted a lot and our specialists gave many interviews
to press. Every three months there have tracked at least 1mn copies of newspapers
and magazines that have published or re-printed our information or interviews. We
estimated that we only captured only around 20% of the quotations. And this does
not include Internet outreach.
During the years of MIS operation we had many potential investors that came to
our office through the information they found in the press and on the web-portal.
Several of them are now among the largest and most important industry players
doing really well.

Although our Project is nearly closed now, we have plans to further development
of the MIS for the next two years. Among the planned products we would like to
establish a weekly report on Russian and Ukrainian horticultural markets in
44

English to allow further development of international trade in Fruits & Vegetables.

We have also recently added mushrooms to our monitoring system and are
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working on the first international conference for the mushroom industry in

Ukraine. Shortly we are planning to make price data available to our clients
through an SMS services.

How AMP’s MIS is used in practice

We have determined that MIS cannot be created one time and forever – it has to be
a living, learning and developing system because the market is changing very
rapidly.
There are many ways to use our MIS to farmers and other market participants‘
advantage.
Let me describe several most frequent ways to demonstrate how much farmers and
others gained from this.

A farmer, who was very pessimistic about MIS and did not want to get any offers
placed in our system, came to one of our regional offices to complain about lack of
interest for his cabbage. He had around 100 tons in stock and the wholesaler who
told him he would buy it from him has disappeared. We recommended placing an
offer in our system, which he reluctantly did. We also gave him one of our latest
magazines with a list of buyers interested in cabbage and he started calling this list
from our office. 20 minutes later he had identified two buyers interested in
purchasing most of his cabbage and just when he was about the leave the office he
received a phone call from another potential buyer who found his offer on the
Internet. As a result the farmer has sold all of his cabbage during 2-3 weeks for
$10,000.

One of the top processing companies was searching for a large amount of good
quality carrots but in the area where it usually procured carrots a serous shortage of
this vegetable was observed. Managers have found our web portal through the
Internet and discovered around 30 farmers offering carrots during this week. They
were not sure this was true and called us on the phone. When we confirmed this
information and told them that in the western part of Ukraine there was a
significant over-production of carrots, they started calling the farmers. In one week
they have reportedly included contracts to supply enough carrots to satisfy their
processing plans. Farmers were very happy with the price and processors were
very happy to be able to fulfill their contracts.

One of our farmers decided to expend planting area under onions motivated by
high prices for this crop in the past season. When he was about to buy the seeds, he
45

read our production and price forecast, which suggested a high probability of very
low prices for onions. He consulted with us and changed his mind. We also
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suggested that prices for eggplants, cucumbers and early cabbage may be higher
and told him that it would be better to focus on early onions if he wanted to plant
any. He made the planting decisions based on our recommendations and got very
high prices for the products he planted (including early onions) while these who
did plant late onions had serious difficulties selling it.

Another example continues the previous story. Since onion prices were really low
due to over-production, we have started searching for way to effectively help our
growers. Ukraine has never exported onions but we found out that during this very
year there was a significant shortage of this production in Poland, Holland and
several other EU countries. We published several articles providing information
about this opportunity to all market players along with export requirements. We
received several phone calls from wholesalers who got interested and four weeks
later several farmers reported improving demand for the onions. It turned out that
wholesalers have started shipping onions to Poland and other countries, which
supported prices and helped farmers avoid losses.

Three months later the number of counties buying onions from Ukraine has
increased to around 15 and Ukraine became one of the largest exporters of onions
on the region. Many farmers have used the information we provided in our
publications about new crops, niche products and new technologies to their
advantage. One of the examples could be lettuce. While not popular or almost
unknown in Ukraine just 5 years ago, lettuce has become a significant cash crop
for many farmers in various regions Ukraine as we helped one of our clients
establish a pre-processing, packing and distribution of various types of salads. Our
farmers supplied salads to McDonalds in Ukraine and Russia as well as to
hundreds of supermarkets in many regions of Ukraine through the client company.

It was also interesting to learn that most nationwide supermarket chains fresh
produce managers start their day from checking our daily wholesale prices.
Moreover, most key supermarkets, wholesalers and processors assign specialists to
check offers & bids, catalogue, analytics, prices and other parts of our web-portal
on a regular basis.

Impact
Presently we estimate that our system has resulted in about $20 in additional
46

benefits to farmers for each $ spent. We also expect it to be fully self-sufficient and
profitable to all market participants in the future. The web-portal presently attracts
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around 30,000 unique visitors every month and a significant share of Ukraine‘s
fruits & vegetables gets sold through our portal. We are now trying to include
Russia in our monitoring and presently around 30% of the MIS users are from this
country. We also have visitors from all of the countries in the region, including:
Poland, Holland, Hungary, Moldova, Georgia, Belarus, UK and many others.

The MIS helped lower the transaction costs to farmers. If an average farmer had to
take a trip to the closest large wholesale market, he or she would spend from $0.02
to $0.10/kg of produce brought to the market, excluding costs of his or her time.
The same transaction through AMP‘s MIS would be equal to the cost of the phone
call, which frequently, was initiated by AMP. Thus, transaction costs for farmers
were reduced by 100-200 times.

Farmers were also provided with a weekly magazine, which included key market
news, market prices (wholesale and retail) in all major regions of Ukraine, offers &
bids, produce production, PHH, packing, storage and marketing recommendations
and many other useful features. This allowed farmers to improve their technologies
and develop a stronger negotiating position when talking to buyers. Thanks to the
bids published in the weekly magazine farmers could use several alternative
marketing channels, making their sales more profitable. Price information from
various regions within the country helped them improve their marketing decisions
and sell products to regions where highest margins were observed.

By having information about alternative input suppliers farmers saved money and
managed to lower production costs, while boosting yields and quality of the final
product produced. Price and production forecasts provided each spring and updated
2 times per year helped farmers plan production of crops that were in strong
demand on the market and thus, for higher prices and greater revenues.

Information about investment opportunities in the fruit and vegetable sector

published freely on the web-portal attracted many foreign and domestic investors
to Ukraine‘s horticultural sector. The number of fruit & vegetable processors
increased from 15 in 2003 to about 125 in 2006. The number of full-service
wholesale companies has increased from virtually zero to around 30 and many
mid-size companies were created.

The farmers, who used AMP‘s MIS, have more than doubled the area under fruit &
47

vegetable production and many millions of dollars have been invested into
production, storage and, PHH. At the same time that growers‘ incomes at least
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doubled, consumers received lower prices for higher quality fresh produce. Also,
thousands of on-farm and off-farm seasonal and permanent jobs were created.

Ukraine, which prior to AMP‘s interventions imported fruits & vegetables from
Poland and other neighboring countries, in 2006 became a net exporter of many of
these products.

Thus, we learned that even if farmers do not have access to the Internet, it is
enough for them to have access to a phone to have the benefits of modern market
technologies work for them. Yes, we had to train farmers but they learned quickly
realizing that these technologies can create a major difference in their lives and
those of their families.

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THE POLITICAL ENVIRONMENT

1. Nation -States and Sovereignty

Sovereignty can be defined as supreme and independent political authority.
A century ago, U.S. Supreme Court Chief Justice Fuller said.‖Every
sovereign state is bound to respect the independence of every other
sovereign state, and the courts in one country will not sit in judgment on the
acts of government of another done within its territory.‖
A sovereign state was considered free and independent. It regulated trade,
managed the flow of people into and out of its boundaries, and exercised
undivided jurisdiction over all persons and property within its territory. It
had the right, authority and ability to conduct its domestic affairs without
outside interference and use its international power and influence with full
discretion.

2. Political Risk

In political risk the risk of a change in government policy that would

adversely impact a company‘s ability to operate effectively and profitably -
can deter a company from investing abroad.
When the perceived level of political risk is lower, a country is more likely
to attract investment.
The level of political risk is inversely proportional to a country‘s stage of
economic development: All other things being equal, the less developed a
country, the greater the political risk.

3. Taxes

It is not uncommon for a country to be incorporated in one place, do

business in another, and maintain its corporate headquarters in a third. This
type of diverse geography activity requires special attention to tax laws.
Many companies make efforts to minimize their tax liability by shifting the
location of income. E.g.it has been estimated that tax avoidance by foreign
companies doing business in the U.S. costs the U.S. government several
billion dollars each year in lost revenue. In one approach, called earnings
stripping, foreign companies reduce earnings by making loans to U.S.
49

affiliates rather than using direct investment to finance U.S. activities. The
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 U.S. subsidiary can deduct the interest it pays on such loans, thereby
reducing tax burdens.

4. Confiscation, Expropriation, & Domestication

confiscation, that is, the seizing of a company‘s assets without payment.
The two most notable recent confiscation of U.S. property occurred when
Fidel Castro became the leader in Cuba & later when Shah Of Iran was
overthrown. Confiscation was most prevalent in the 1950‘s & 1960‘s when
many underdeveloped countries saw confiscation, albeit ineffective, as a
means of economic growth.
Less drastic, but still severe, is expropriation, where the govt. seizes an
investment but some reimbursement for the assets is made. Often the
expropriated investment is nationalized (i.e., it becomes a govt.-run entity).
A third type of risk is domestication. It occurs when host countries
gradually cause the transfer of foreign investments to national control &
ownership through a series of govt. decrees by mandating local ownership
& greater national involvement in a company‘s management. The ultimate
goal of domestication is to force foreign investors to share more of the
ownership & management with nationals than was the case before
domestication.
Rather than a quick answer to economic development, expropriation and
nationalization have often led to nationalized businesses that were
inefficient, technologically weak, & non-competitive in world markets.
Risks of confiscation & expropriation have lessened over the last decade
b‘coz experience has shown that few of the desired benefits materialize after
govt. takeover. Today, countries often require prospective investors to agree
to share ownership, use local content, enter into labor & management
agreements, & share participation in export sales as a condition of entry.

50
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SIDESTEPPING LEGAL PROBLEMS: IMPORTANT BUSINESS
ISSUES
1) Establishment
To transact business, citizens of one country must be assured that they will
be treated fairly in another country.
In Western Europe, e.g., the creation of the Single Market now assures that
citizens from member nations get fair treatment with regard to business and
economic activities carried out within the Common Market. The formulation
of governance rules for trade, business and economic activities in the EU
will provide additional substance to international law.
The US signed the treaty of friendship, commerce and navigation with more
than 40 countries. These agreements provide US citizens right to
nondiscriminatory treatment in trade, the reciprocal right to establish a
business and particularly to invest.
Commercial treaties provide one with privilege, not the right to, to engage
in business activities in other than one‘s own country. US citizens for
example are forbidden by the Foreign Corrupt Practice Act to give bribes to
an official of a foreign government or political party, even if bribes are
customary for conducting business in that country.

2)Jurisdiction

Company personnel working abroad should understand the extent to which

they are subject to the jurisdiction of the host country courts.
The court may examine whether the foreign company maintains an office,
solicits business, maintains bank accounts or other property or has agents or
or other employees in the state in question.
In recent case Revlon Inc. sued United Overseas Ltd.(UOL), in the U.S.
district court for the Southern District of the New York. Revlon charged the
British company with breach of contract, contending that UOL has failed to
purchase some specialty shampoos as agreed. UOL, claiming the lack of
jurisdiction, asked the court to dismiss the complaint. Revlon countered with
the argument that UOL was, in fact, subject to the court‘s jurisdiction ;
Revlon citied the presence of a UOL sign above the entrance to the offices
of a New York company in which UOL has a 50% ownership interest. The
court denied UOL‘s motion to dismiss.
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3)Intellectual property: Patents and Trademarks

Patents and trademarks that are protected in one country are not necessarily
protected in another, so global marketers must ensure that patents and
trademarks are registered in each country where business is conducted.
In the US states, where patents, trademarks and copyrights are registered
with the Federal Patent Office, the patent holder retains all rights for the life
of the patent even if the product is not produced or sold.
In France, designer Yves Saint Laurent was barred from marketing a new
luxury perfume called Champagne because French laws allow the name to
be applied only to sparkling wines produced in the Champagne region. Saint
Laurent proceeded to launch Champagne in the U.S., England, Germany and
Belgium, ‖Champagne‖ and other geographic names are protected
trademarks in the U.S. In France, the perfume is sold without a name.
Trademark and copyright infringement is a critical problem in global
marketing and one that can take a variety of forms. Counterfeiting is the
unauthorized copying and production of a product. An associative
counterfeit, or imitation, uses a product name that differs slightly from a
well known brand but is close enough that consumers will associate it with
the genuine product. A third type of counterfeiting is piracy, the
unauthorized publication or reproduction of copyrighted work.
Piracy is particularly damaging to the entertainment and software industries;
computer programs, videotapes, cassettes and compact discs are particularly
easy to duplicate illegally.
There are two treaties made for the patent agreement:
The Patent Cooperation Treaty(PCT) has 39 signatories, including
Australia, Brazil, France, Germany, Japan, the Democratic Peoples
Republic(North Korea), the Republic of Korea, the Netherlands,
Switzerland, the former Soviet Union and the United States. The members
constitute a union that provides certain technical services and cooperates in
the filing, searching and examining of patent applications in all member
countries. An applicant can file a single patent application covering all of the
convention states; the advantage is that the application will be subject to
52

only one procedure of grant. Whereas national patent laws remain effective
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 under this system, approved patents are effective in all member countries for
a period of 20 years from the filing date.

In the U.S., trademarks are covered by the Trademark Act of 1946,

also known as the Lanham Act. The law makes it easier for companies to
register new trademarks.

4)Antitrust

Antitrust laws are designed to combat restrictive business practices and to

encourage competition.
Antitrust intended to maintain free competition by limiting the
concentration of economic power.
The Sherman Act of 1890 prohibits certain restrictive business practices,
including fixing prices, limiting production, allocating markets or any other
scheme designed to limit or avoid competition.
The European Commission prohibits agreements and practices that prevent,
restrict and distort competition.

5)Licensing and Trade Secrets

Licensing is a contractual agreement in which a licensor allows a licensee to

use patents, trademarks, trade secrets, technology or other intangible assets
in return for royalty payments or other forms of compensation.
The duration of the licensing agreement and the amount of royalties a
company can receive are considered a matter of commercial negotiation
between licensor and licensee, and there are no government restrictions or
remittances of royalties abroad. In many countries these elements of
53

licensing are regulated by government agencies.

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 Important consideration in licensing include analysis of what assets a firm
may offer for license, how to price the assets, whether to grant only the right
to ―make‖ the product or to grant the rights to ―use‖ and ―sell‖ the product as
well.
What happens if a licensee gains knowledge of the licensor’s trade
secrets? Trade secrets are confidential information or knowledge that has
commercial value, is not in the public domain, and for which steps have
been taken to keep it secret. Trade secrets include manufacturing processes,
formulas, designs and customer lists. To prevent disclosure, the licensing of
unpatented trade secrets should be linked to confidentiality contracts with
each employee who has access to the protected information.

Economic Risks
1. Exchange Controls
2. Local-Content Laws
3. Import Restrictions
4. Tax Controls
5. Price Controls
6. Labor Problems

Political Sanctions: - In addition to economic risks, one or a group of nations may

boycott another nation, thereby stopping all trade between the countries, or may issue
sanctions against the trade of specific products.

Violence & Terrorism: - Although not usually initiated, violence is another related
risk for multinational companies to consider in assessing the political vulnerability of their
activities. Terrorism has many different goals. Multinational corporations are targeted to
embarrass a govt. & its relationship with firms; to generate funds by kidnapping executives
to finance terrorism goals, & to use as pawns in political or social disputes not related to
them; & to inflict terror within a country, such as the terrorist attacks on September 11 did.

Cyberterrorism: - New in the horizon is the potential for cyberterrorism. Although

in its infancy, the Internet is a vehicle for terrorist attacks by foreign & domestic
antagonists wishing to inflict damage on a company with little change of being caught. One
54

problem in tracing a cyberterrorist is that it us hard to determine whether a cyber attack

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was launched by a rouge state, a terrorist, or by a hacker as a prank.

LEGAL ENVIRONMENT

International Law

Common & Code Law

The basis for common law is traditional, past practices, & legal precedents set by
the courts through interpretations of statutes, legal legislation, past rulings. Common
law seeks ―interpretation through the past decisions of higher courts which interpret
the same statutes or apply established & customary principles of law to a similar set
of facts.‖
Code law, on the other hand, is based on an all-inclusive system of written rules
(codes) of law. Under code law, the legal system is generally divided into three
separate codes: commercial, civil, & criminal. Common law is recognized as not
being all-inclusive, whereas code law is considered complete.
Laws governing intellectual property offer the most striking differences between
common law & code law systems. Under common law, ownership is established by
use; under code law, ownership is determined by registration. In some code-law
countries, certain agreements may not be enforceable unless properly notarized or
registered; in a common-law country, the same agreement may be binding so long
as proof of the agreement can be established.
Under common law in the United States, it is fairly clear that impossibility of
performance does not necessarily excuse compliance with the provisions of a
contract unless it is impossible to comply for reasons of an act of god, such as some
extraordinary happenings of nature not reasonably anticipated by either party of a
contract. Hence, floods, lightning, earthquakes, & similar occurrences are generally
considered acts of God. Under code law, acts of god are not limited solely to acts of
nature but are extended to include ―unavoidable interference with performance,
whether resulting from forces of nature or unforeseeable human acts,‖ including
such things as labor strikes & riots.
Consider the following situations: A contract was entered into deliver a specific
quantity of cloth. In one case, before the seller could make delivery an earthquake
caused the destruction of the cloth & compliance was then impossible. In the second
case, pipes in the sprinkler system where the material was stored froze & broke,
spilling water on the cloth & destroying it. In each case, loss of the merchandise was
55

sustained & delivery could not be made. Were the parties In these cases absolved of
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 their obligations under the contract b‘coz of the impossibility of delivery? The
answer depends on the system of law invoked.
In the first situation, the earthquake would be considered an act of God
under both common & code law, & impossibility of performance would excuse
compliance under the contract.

In the second situation, courts in common law countries would probably rule
the bursting of the water pipes did not constitute an act of God if it happened in a
climate where freezing could be expected.

Therefore, impossibility of delivery would not necessarily excuse compliance

with the provisions of the contract. In code-law countries, where the scope of
impossibility of performance is extended considerably, the destruction might very
well be ruled an act of God, & thus release from compliance with the contract could
be obtained.

ISLAMIC LAW

The basis for the Shari‟ah (Islamic law) is interpretation of the Koran.
It encompasses religious duties & obligations as well as the secular aspect of law
regulating human acts. Broadly speaking Islamic law defines a complete system that
prescribes specific patterns of social & economic behavior for all individuals. It
includes issues such as property rights, economic decision making, & types of
economic freedom. The over-riding objective of the Islamic system is social justice.
Among the unique aspects of Islamic law is the prohibition against the payment of
interest. The Islamic law of contracts states that any given transaction should be
devoid of riba, which is defined as unlawful advantage by way of excess of
deferment, that is, interest or usury. Prohibiting the receipt & payment of interest is
the nucleus of the Islamic system. However, other principles of Islamic doctrine
advocate risk sharing, individuals‘ rights & duties, property rights, & the sanctity of
contracts. The Islamic system places emphasis on the ethical, moral, social, &
religious dimensions to enhance equality & fairness for the good of society.
Another principle of the Islamic legal system is the prohibition against investment in
those activities that violate the shari‟ah. For example, any investment in a business
56

dealing with alcohol, gambling, & casinos would be prohibited.

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 Prohibition against the payment of interest affects banking & banking practices
severely. However, there are acceptable practices that adhere to Islamic law &
permit the transaction of business. Mortgages for property are difficult b‘coz
payment of interest is forbidden under Islamic law. Buyers of real property have to
use a financier, who buys the property & then sells it to them in return for
repayments of the capital. Instead of charging interest a financier either sells the
property at a higher price or sells it at the same price & takes additional payments to
cover what would have been interest.

INTERNATIONAL DISPUTE RESOLUTION

1. CONCILIATION

Most disputes that arise in commercial transactions are settled informally. When
resolution is not forthcoming, however, conciliation can be an important first step in
settling a dispute.
Conciliation (also known as mediation) is a nonbinding agreement between parties
to resolve disputes by asking a third party to mediate differences. The function of
the mediator is to carefully listen to each party & to explore, clarify, & discuss the
various practical options & possibilities for a solution with the intent that the parties
will agree on a solution. Unlike arbitration & litigation, conciliation sessions are
private & all conferences between parties & the mediator are confidential; the
statements made by the parties may not be disclosed or used as evidence in any
subsequent litigation or arbitration. The track record for the conciliation process is
excellent, with a majority of disputes reaching settlement & leading to the
resumption of business between the disputants.
Conciliation is considered to be especially effective when resolving disputes with
Chinese business partners b‘coz they feel threatened by conciliation than arbitration.
The Chinese believe that when a dispute occurs, informal, friendly negotiations
should be used first to solve the problem; if that fails, conciliation should be tried. In
fact, some Chinese companies may avoid doing business with companies that resort
first to arbitration.
Conciliation can be either formal or informal. Both sides agreeing on a third
57

party to mediate can establish informal conciliation.

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 Formal conciliation is conducted under the auspices of some tribunal such as
the Beijing Conciliation Center, which assigns one or two conciliation to mediate. If
agreement is reached, a conciliation statement based on the signed agreement is
recorded. Although conciliation may be the friendly route to resolving disputes in
China, it is not legally binding; thus, an arbitration clause should be included in all
conciliation agreements. Experience has shown that having an arbitration clause in
the conciliation agreement makes it easier to move to arbitration if necessary.

2. ARBITRATION

If conciliation is not used or agreement cannot be reached, the next step is

arbitration.
When all else fails, arbitration rather than litigation is the preferred method for
resolving international commercial disputes. The usual arbitration procedure is for
the parties involved to select a disinterest & informed party or parties as referee to
determine the merits of the case & make a judgment that both parties agree to honor.
Although informal arbitration is workable, most arbitration is conducted under the
auspices of one of the more formal domestic & international arbitration groups
organized specifically to facilitate the resolution of commercial disputes. These
groups have formal rules for the process & experienced arbitrators to assist. In most
countries, decisions reached in formal arbitration are enforceable under the law.
The popularity of arbitration has led to a proliferation of arbitral centers established
by countries, organizations & institutions. All have adopted standardized rules &
procedures to administer cases, & each has its strengths & weaknesses. Some of the
more active are the following:
 The Inter-American Commercial Arbitration Commission
 The Canadian-American Commercial Arbitration Commission (for
disputes between Canadian & U.S. businesses)
 The London Court of Arbitration (decisions are enforceable under
English law & English courts)
 The American Arbitration Association (www.adr.org/)
 The International Chamber of Commerce (www.iccwbo.org/;select
Arbitration)
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 The procedures used by formal arbitration organizations are similar. Arbitration
under the rules of the International Chamber of Commerce (ICC) affords an
excellent example of how most organizations operate.
When an initial request is received, the chamber first attempts conciliation between
the disputants. If this fails, the process of arbitration is started.

3.Litigation

Lawsuits in public courts are avoided for many reasons. Most observers of lawsuits
between citizens of different countries believe that amount all victories are spurious
b‘coz the cost, frustrating delays, & extended aggravation that these cases produce
are by far more oppressive than any matter of comparable size. In India, for
instance, there is backlog of more than three million cases, & litigating is breach of
contract between private parties can take a decade or more. The best advice is to
seek a settlement, if possible, rather than sue. Other deterrents to litigation are the
following:
 Fear of creating a poor image & damaging public relations.
 Fear of unfair treatment in a foreign court.
 Difficulty in collecting a judgment that may otherwise have been
collected in a mutually agreed settlement through arbitration.
 The relatively high cost & time required when bringing legal action.
The Rheem Manufacturing Company, a billion-dollar manufacturer of
heating & air-conditioning systems, estimates that by using arbitration
over litigation, it has reduced the time & cost of commercial-dispute
resolution by half.
 Loss of confidentiality. Unlike arbitration & conciliation proceedings
that are confidential, litigation is public.

One authority suggests that the settlement of every dispute should follow four steps:
first, try to placate the injured party; if this does not work, conciliate, arbitrate, &
finally, litigate. The final step is typically taken only when all other methods fail.
Actually, this advice is probably wise whether one is involved in an international
dispute or a domestic one.
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 FOREIGN CORRUPT PRACTISES ACT

Foreign Corrupt Practices Act (FCPA) makes it illegal for companies to pay bribes to
foreign officials, candidates, or political parties. Stiff penalties can be assessed against
company officials, directors, employees, or agents found guilty of paying a bribe or of
knowingly participating in or authorizing the payment of a bribe. However, also recall
that bribery, which can range lubricating to extortion, is a common business custom in
many countries.

 ANTIBOYCOTT LAW

Under the antiboycott, U.S. companies are forbidden to participate in any

unauthorized foreign boycott; further, they are required to report any request to
cooperate with a boycott.
The antiboycott law was a response to the Arab League boycott of Israeli
businesses.
The Arab League boycott of Israel has three levels:
 a primary boycott bans direct trade between Arab states & Israel,
 a secondary boycott bars Arab govts. From doing business with companies that
do business with Israel & a tertiary boycott bans.
 Arab govts. from doing business with companies that do business with
companies doing business with Israel.
When companies do not comply with the Arab League‘s boycott directives, their
names are placed on a blacklist & they are excluded from trade with members of the
Arab League, U.S. companies are caught in the middle: if they trade with Israel, the
Arab League will nit do business with them, & if they refuse to do business with the
Israel in order to trade with an Arab League member, they will be in violation of
U.S. law.
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Analyzing Consumer Markets and Buyer
Behavior:
What is relationship between marketing stimuli & consumer response?

The most important thing is to forecast where customers are moving , and be in
front of them.

Influencing Buyer Behavior

CULTURAL Factors
Cultural factors exert the broadest and deepest influence on consumer behavior.
The roles played by the buyer‘s culture, subculture and social class are particularly
important.

Culture is the most fundamental determinant of a person‘s wants and behavior. The
growing child acquires a set of values, perceptions, preferences and behaviors
through his or her family or other key institutions.

Each culture consists of smaller subcultures that provide specific identification and
socialization for its members. Subcultures include nationalities, religions, racial
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groups, and geographical regions. Many subcultures make up important market

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segments, and marketers often design products and marketing programs tailored to
their needs.

culture - set of values, perceptions, preferences, & behaviors

subculture - includes nationalities, religions, racial groups, & geographical
region
social class - reflects income, occupation, education, & residence (uppers,
middle, working, lowers)

The following table describes the seven social classes identified by social scientists
in the US.
Upper Uppers The social elite who live on inherited wealth and have well-
(less than 1%) known families. While small as a group, they serve as a reference
group for others to the extent that their consumption decisions
trickle down and are imitated by the other social classes.
Lower Uppers Persons who have earned high income or wealth through
(about 2%) exceptional ability in the profession or business. The ambition of
these is to be accepted in the upper-upper stratum, a status that is
more likely to be achieved by their children than themselves.
Upper Middles Possess neither family status nor unusual wealth. Are primarily
(12%) concerned with career. They are the quality market for good
homes, clothes, furniture and appliances. They are home oriented
and enjoy entertaining friends and clients.
Middle Average-pay white- and blue-collar workers who live on the
Class(32%) better side of town and try to do the proper things. Often they buy
products that are popular to keep up with trends. The middle class
believes in spending more money on worthwhile experiences for
their children and aiming them toward a college education.
Working Class Average-pay blue collar workers and those who lead a working-
(38%) class lifestyle, whatever their income school background or job.
Depends heavily on relatives for economic and emotional support,
for tips on job opportunities, for advice on purchases and for
assistance in times of trouble.
Upper Lowers Upper lowers are working, not on welfare, although their living
(9%) standard is just above poverty. Very poorly paid or they are
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striving toward a higher class.

Lower Lower lowers are on welfare, visibly poverty stricken and
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 Lowers(7%) unusually out of work. some are not interested in finding a
permanent job and most are dependent on public aid or charity for
income.

SOCIAL Factors
Social classes are relatively homogeneous and enduring divisions in a society,
which are hierarchically ordered and whose members share similar values, interests
and behavior. Social classes do not reflect income alone but also other indicators
such as occupation, education, and area of residence. Social classes differ in their
dress, speech patterns, recreational preferences and many other characteristics.
Social classes have different characteristics. First, persons within each social class
tend to behave more alike than persons from two different social classes. Second,
persons are perceived as occupying inferior or superior positions according to their
social class. Third, a person‘s social class is indicated by a cluster of variables for
example, occupation, income, wealth, education, and value orientation, rather than
by any single variable. Fourth individuals can move from one social class to
another, up or down during their lifetime. The extent of this movability varies
according to the rigidity of social stratification in a given society. Social classes
show distinct product and brand preferences in many areas including clothing,
home furnishings, leisure activities and cars.

In addition to cultural factors, a consumer‘s behavior is influenced by such social

factors as reference groups, family and roles and statuses.

A person‘s Reference groups consist of all the groups that have a direct or indirect
influence on the person‘s attitudes or behavior. Groups having a direct influence on
a person are called Membership groups. Some membership groups areprimary
groups, such as family, friends, neighbors, and co-workers with whom the person
interacts fairly continuously and informally. People also belong to secondary
groups such as religious, professional and trade-union groups which tend to be
more formal and require less continuous interaction. People are significantly
influenced by their reference groups in at least three ways.
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1. They expose an individual to new behaviors and styles.

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2. They also influence the person‘s attitudes and self-concept.

And they create pressures for conformity that may affect the person‘s actual
product and brand choices.

People are also influenced by groups in which they are not members : aspirational
groups. A dissociative group is one whose values or behavior an individual rejects.

Marketers try to identify their target customers‘ reference groups. However, the
influence level varies among products and brands. They appear to strongly
influence both product and brand choice only in the case of cars, and color TV s,
mainly brand choice in furniture and clothing, and product choice in beer and
cigarettes.

Manufacturers of products and brands where group influence is strong must

determine how to reach and influence the opinion leaders in these reference
groups. An opinion leader is the person in informal product-related communictions
who offers advice or information about a specific product or product category,
such as which of several brands is best or how a particular product may be used.
Marketers try to reach opinion leaders by identifying demographic and
psychographic characteristics associated with opinion leadership, identifying the
media read by opinion leaders, and directing messages at the opinion leaders.

The family is the most important consumer-buying organization in society. Family

members constitute the most influential primary reference group. We can
distinguish between 2 types of families. The family of orientation consists of one‘s
parents and siblings. Even if the buyer no longer interacts with his or her parents,
the parents‘ influence on the buyer‘s behavior can be significant. A more direct
influence on everyday buying behavior is one‘s family of procreation namely one‘s
spouse and children. Marketers are interested in the roles and relative influence of
the husband, wife and children in the purchase of a large variety of products and
services. Often it is the matter of who has more power or expertise. Here are the
traditional product patterns.

o Husband dominant : Life insurance, cars, TV s

o Wife dominant : Washing machines, carpeting, furniture, kitchenware

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o Equal : Housing, Outside entertainment

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 These patterns are gradually changing however, due to the rise in employment of
women, especially in nontraditional jobs. Another shift in buying patters is the
increasing amount of influence wielded by childrens and teens.

Roles and statuses. The person‘s position in each group can be defined in terms of
role and status. A role consists of the activities that a person is expected to
perform. Each role contains a status. People choose products that communicate
their role and status in society. Marketers are aware aware of the status
symbol potential of products and brands.

PERSONAL Factors
A buyer‘s decisions are also influenced by personal characteristics. These include
the buyer‘s age and stage in the life cycle, occupation, economic circumstances,
lifestyle and personality and self-concept.

Age and stage in the life cycle. People buy different goods and services over their
lifetime. Consumption is also shaped by the family life cycle. Marketers often
choose life-cycle groups as their target market. But it should be added that target
households are not always family based. Marketers also target single households,
gay households, and cohabitor households. The following table lists 9 stages of the
family life cycle.

Stage in Family Life Cycle Buying or Behavioral Factors

1. Bachelor stage : young, singleFew financial burdens. Fashion opinion leaders.
people not living at home. Recreation oriented.
2. Newly married couples : Better off financially than they will be in the near
young, no children future. Highest purchase rate and highest average
purchase of durables.
3. Full Nest I : youngest Home purchasing at peak. Liquid assets low.
child under six Dissatisfied with financial position and amount of
money saved. Interested in new products. Like
advertised products.
4. Full Nest II : youngest Financial position better. Less influenced by
child six or over advertising.
5. Full Nest III : older Financial position still better. Some children get
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married couples with dependent jobs. Hard to influence with advertising. High
children average purchase of durables.
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6. Empty Nest I : older
married couples, no children
living with them, head of
household in labor force
7. Empty Nest II : older
married. No children living at
home, head of household retired
8. Solitary survivor in labor
force
9. Solitary survivor retired
Home ownership at peak. Most satisfied with
financial position and money saved. Interested in
travel, recreation and self-educaation. Make gifts
and contributions. Not interested in new products.
Drastic cut in income. Keep home.
Income still good but likely to sell home.
Same medical and product needs as other retired
group; drastic cut in income.

Some recent work has identified psychological life-cycle stages. Adults experience
certain ―passages‖ or ―transformations‖ as they go through life. Marketers pay
close attention to changing life circumstances – divorce, widowhood, remarriage –
and their effect on consumption behavior.

Occupation A person‘s occupation also influences his or her consumption pattern.

Marketers try to identify occupational groups that have above-average interest in
their products and services. A company can even specialize its products for certain
occupational groups.

Economic circumstances People‘s economic circumstances consist of their

spendable income, savings and assets, debts, borrowing power and attitude toward
spending versus saving. Marketers of income-sensitive goods pay constant
attention to trends in personal income, savings and interest rates. If economic
indicators point to a recession, marketers can take steps to redesign, reposition, and
reprice their products so they continue to offer value to target customers.

A person‘s Lifestyle is the person‘s pattern of living in the world as expressed in

the person‘s activities, interest and opinions. Lifestyle portrays the whole person
interacting with his or her environment. Marketers search for relationships between
their products and lifestyle groups. Two frameworks that have been used to
develop lifestyle classification are the AIO framework and the VALS 2
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framework.
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The AIO Framework. In this approach, respondents are presented with long
questionnaires designed to measure their activities, interests and opinions. (AIO).
Many of the questions are in the form of agreeing or disagreeing with such
statements. Once collected, the data are analyzed to find distinctive lifestyle
groups. When developing an advertising campaign, the marketers state the target
lifestyle group, and the ad people develop an ad appealing to the AIO
characteristics of the group(s).

VALS. Introduced in 1978, SRI International‘s Values and Lifestyles (VALS)

framework has been the only commercially available psychographic segmentation
to gain widespread acceptance. VALS 2 focuses more explicitly on explaining and
understanding consumer behavior. It classifies all US adults into eight consumer
groups based on their answers to 35 attitudinal and 4 demographic questions. The
major tendencies of the four groups with greater resources are :

o Actualizers – Purchases often reflect cultivated tastes for relatively upscale,

niche-oriented products.

o Fulfilleds – Favor durability, functionality and value in products.

o Achievers – Favor established, prestige products that demonstrate success to

their peers.

o Experiencers – Spend a comparatively high proportion of their income on

clothing, fast food, music, movies and video.

The major tendencies of the four groups with fewer resources are :

o Believers – Favor familiar products and established brands.

o Strivers – Favor stylish products that emulate the purchases of those with
greater material wealth.

o Makers – Favor only products with a practical or functional purpose.

o Strugglers – Cautious consumers who are loyal to favorite brands.

VALS 2 combines general personality theory with research on product diffusion.

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The system identifies persons‘ VALS 2 types by scoring responses to the VALS 2
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questionnaire, which asks them to agree or disagree.

Personality and Self-concept. By personality, we mean a person‘s distinguishing
psychological characteristics that lead to relatively consistent and enduring
responses to his or her environment. Personality is usually described in terms of
such traits as self confidence, dominance, autonomy, deference, sociability,
defensiveness and adaptability. Personality can be a useful variable in analyzing
consumer behavior, provided that personality types can be classified accurately and
that strong correlations exist between certain personality types and product or
brand choices. Related to personality is a person‘s self-concept or self-image.
Marketers try to develop brand images that match the target market‘s self-image. It
is possible that the actual self concept (how she views herself)differs from
her ideal self-concept (how she would like to view herself) and from her others-self
concept (how she thinks others see her).

PSYCHOLOGICAL factors
A person‘s buying choices are influenced by four major psychological factors ;
motivation, perception, learning, and beliefs and attitudes.

Motivation

A person has many needs at any given time. Some needs are biogenic; they arise
from physiological states of tension such as hunger, thirst, discomfort. Other needs
are psychogenic; they arise from psychological states of tension such as the need
for recognition, esteem or belonging. A need becomes a motive when it is aroused
to a sufficient level of intensity. A motive is a need that is sufficiently pressing to
drive the person to act. Psychologists have developed theories of human
motivation. Three of the best known – the theories of Sigmund Freud, Abraham
Maslow, and Frederick Herzberg – carry quite different implications for consumer
analysis and marketing strategy.

Freud‟s Theory of Motivation. Freud assumed that the real psychological forces
shaping people‘s behavior are largely unconscious. Thus a person cannot fully
understand his or her motivations. Motivation researchers collect ―in-depth
interviews‖ with a few dozen consumers to uncover deeper motives triggered by a
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product. They use various ―projective techniques‖ to throw the ego off guard.
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More recent practicing motivational researchers hold that each product is capable
of arousing a unique set of motives in consumers.

Maslow‟s Theory of Motivation. Abraham Maslow sought to explain why people

are driven by particular needs at particular times. Maslow‘s answer is that human
needs are arranged in a hierarcy, from the most pressing to the least pressing. In
their order of importance, there are physiological needs, safety needs, social needs,
esteem needs, and self-actualization needs. When a person succeeds in satisfying
an important need, that need will cease being a current motivator, and the person
will try to satisfy the next-important need. This theory helps marketers understand
how various products fit into the plans, goals and lives of potential consumers.

Hertzberg‟s Theory of Motivation. Frederick Hertzberg developed a two-factor

theory of motivation that distinguishes dissatisfiers and satisfiers. The absence of
dissatisfiers is not enough ; rather, satisfiers must be actively present to motivate a
purchase. This theory has two implications. First, sellers should do their best to
avoid dissatisfiers. Second, the manufacturer should identify the major satisfiers or
motivators of purchase in the market and then supply them.

Perception is the process by which an individual selects, organizes and interprets

information inputs to create a meaningful picture of the world. Perception depends
not only on the physical stimuli but also on the stimuli‘s relation to the surrounding
field and on conditions within the individual. People can emerge with different
perceptions of the same object because of 3 perceptual processes : selective
attention, selective distortion and selective retention. As a result people may not
necessarily see or hear the message that marketers want to send.

Selective Attention. Because a person cannot possibly attend to all stimuli, most
stimuli will be screened out – a process called selective attention. The real
challenge is to explain which stimuli people will notice. Here are some findings :

o People are more likely to notice stimuli that relate to a current need.

o People are more likely to notice stimuli that they anticipate.

o People are more likely to notice stimuli whose deviations are large in
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relation to the normal size of the stimuli.

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Selective Attention means that marketers have to work hard to attract consumers‘
notice. Their messages will be lost on most people who are not in the market for
the product. Even people who are in the market may not notice a message unless it
stands out from the surrounding sea of stimuli.

Selective Distortion is a people‘s tendency to twist information into personal

meanings and interpret information in a way that will support rather than challenge
their preconceptions. Unfortunately, there is not much that marketers can do about
selective distortion.

Selective Retention. People will forget much that they learn but will tend to retain
information that supports their attitudes and beliefs. Selective retention explains
why marketers use drama and repetition in sending messages to their target market.

Learning involves changes in an individual‘s behavior arising from experience.

Most human behavior is learned. Learning theorists believe that learning is
produced through the interplay of drives, stimuli, cues, responses and
reinforcement. A drive is a strong internal stimulus impelling action. The drive
becomes a motive when it is directed toward a particular drive-
reducing stimulus. Cues are minor stimuli that determine when, where, and how
the person responds. Learning theory teaches marketeers that they can build up
demand for a product by associating it with strong drives, using motivating cues,
and providing positive reinforcement. A new company can enter the market by
appealing to the same drives that competitors use and providing similar cue
configurations because buyers are more likely to transfer loyalty to similar brands
than to dissimilar brands (generalization). Or the company might design its brand
to appeal to a different set of drives and offer strong cue inducements to switch
(discrimination).

Beliefs and Attitudes. A belief is a descriptive thought that a person holds about
something. These beliefs make up product and brand images, and people act on
their images. If some beliefs are wrong and inhibit purchase, the manufacturer will
want to launch a campaign to correct these beliefs. A company has several options
when its products are competitively priced but their place of origin turns off
consumers. An attitude is a person‘s enduring favorable or unfavorable
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evaluations, emotional feelings, and action tendencies toward some object or idea.
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People have attitudes toward almost everything : religion, politics, clothes, music,
food and so on. Attitudes put them into a frame of mind of liking or disliking an
object, moving toward or away from it. Attitudes lead people to behave in a fairly
consistent way toward similar objects. A person‘s attitudes settle into a consistent
pattern, and to change a single attitude may require major adjustments in other
attitudes.

The Buying Process

Marketers must identify who makes the buying decision, the types of buying
decisions, and the steps in the buying process.

Buying Roles

It is easy to identify the buyer for many products. But marketers must be careful in
making targeting decisions because buying roles change. We can distinguish 5
roles people might play in a buying decision:

o Initiator : A person who first suggests the idea of buying the product or
service;

o Influencer : A person whose view or advice influences the decision;

o Decider : A person who decides on any component of a buying decision –

whether to buy, what to buy, how to buy, or where to buy;

o Buyer : The person who makes the actual purchase;

o User : A person who consumees or uses the product or service.

Buying Behavior

Consumer decision making varies with the type of buying decision. Assael
distinguished 4 types of consumer buying behavior based on the degree of buyer
involvement and the degree of differences among brands.

HIGH INVOLVEMENT LOW INVOLVEMENT

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Significant Differences
Between Brands Complex buying behavior Variety seeking buying
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 behavior

Few Differences Between

Brands Dissonance-reducing buying Habitual buying behavior
behavior

Complex Buying Behavior.

Consumers engage in complex buying behavior when they are highly involved in a
purchase and aware of significant differences among brands. This is usually the
case when the product is expensive, bought infrequently, risky and highly self-
expressive. Typically, the consumer does not know much about the product
category and has much to learn. This involves a 3-step process.

1. The buyer develops beliefs about the product

2. Develops attitudes about the product

3. Makes a thoughtful purchase choice

The marketer of a high-involvement product needs to develop strategies that assist

the buyer in learning about the product‘s attributes and their relative importance
and that call attention to the high standing of the company‘s brand on the more
important attributes.

Dissonance-Reducing Buying Behavior.

Sometimes, the consumer is highly involved in a purchase but sees little difference
in the brands. The high involvement is based on the fact the purchase is expensive,
infrequent and risky. In this case, the buyer will shop around to learn what is
available but will buy fairly quickly, perhaps responding primarily to a good price
or to purchase convenience. After the purchase, the consumer might experience
dissonance that stems from noticing certain disquieting features of the carpet or
hearing favorable things about other carpets. The consumer will be alert to
information that justifies his or her decision. Thus marketing communications
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should aim at supplying beliefs and evaluations that help the consumer feel good
about his or her brand choice.
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Habitual Buying Behavior.

Many products are bought under conditions of low consumer involvement and the
abscence of significant brand differences. There is good evidence that consumers
have low involvement with most low-cost, frequently purchased products. With
low-involvement products, consumer behavior does not pass through the normal
belief/attitude/behavior sequence. Consumers do not search extensively for
information about the brands, evaluate their characteristics and make a weighty
decision on which brand to buy. Ad repetition creates brand familiarity rather
than brand conviction. Consumers do not form a strong attitude toward a brand;
rather, they select it because it is familiar. Thus, for low involvement products the
buying process begins with brand beliefs formed by passive learning and is
followed by purchase behavior, which may be followed by evaluation. Marketers
find it effective to use price and sales promotions to stimulate product trial, since
buyers are not highly committed to any brand. Marketers use 4 techniques to try to
convert low-involvement product into one of higher involvement.

1. They can link the product to some involving issue.

2. They can link the product to some involving personal issue.

3. They might design their advertising to trigger strong emotions related to

personal values or ego defense.

4. They might add an important product feature to a low-involvement product.

These strategies at best raise consumer involvement from a low to a moderate

level; they do not propel the consumer into highly involved buying behavior.

Variety Seeking Buying Behavior.

Some buying situations are characterized by low consumer involvement but

significant brand differences. Here consumers often do a lot of brand switching.
The market leader and the minor brands in this product category have different
market strategies. The market leader will try to encourage habitual buying behavior
by dominating shelf space, avoiding out-of-stock conditions, and sponsoring
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frequent reminder advertising. Challenger firms will encourage variety seeking by

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offering lower prices, deals, coupons, free samples and advertising that presents
reasons for trying something new.

The Stages of the Buying Decision Process

Smart companies research the buying decision process involved in their product
category. They can think how they themselves would act (introspective method).
They can interview a small number of recent purchases, asking them to recall the
events leading to their purchase (retrospective method). They can locate consumers
who plan to buy the product and ask them to think out loud about going through
the buying process (prospective method). Or they can ask consumers to describe
the ideal way to buy the product(prescriptive method). Each method yields a
picture of the steps in the consumer buying process. The following figure shows a
stage model of the typical buying process. It‘s not always the case to pass
sequentially through all the five stages in buying a product especially with low-
involvement products. Consumers may skip or reverse some stages.

Problem Recognition

The buying process starts when the buyer recognizes a problem or need. The buyer
senses a difference between his or her actual state and a desired state. The need can
be triggered by internal or external stimuli. Marketers need to identify the
circumstances that trigger a particular need. By gathering information from a
number of consumers, marketers can identify the most frequent stimuli that spark
an interest in a product category. The marketer can then develop marketing
strategies that trigger consumer interest.

Information Search

An aroused consumer will be inclined to search for more information. We can

distinguish between two levels of arousal. The milder search state is heighetened
attention; simply more receptive to information. At the next level, is active
information search. Of key interest to the marketer are the major information
sources to which the consumer will turn and the relative influence each will have
on the subsequent purchase decision. Consumer information sources fall into four
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groups :
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o Personal sources : Family, friends, neighbors, acquaintances

 o Commercial sources : Advertising, salespersons, dealers, packaging,
displays

o Public sources : Mass media, consumer-rating organizations

o Experiential sources : Handling, examining, using the product

Generally speaking, the consumer receives the most information about a product
from commercial sources – that is market dominated sources. But the most
effective sources comes from personal sources. Through gathering information, the
consumer learns about competing sets of brands and their features. At first we
have total set of brands available to the consumer. The consumer will come to
know only a subset of these brands (awareness set). Some brands will meet the
consumer‘s initial criteria (consideration set). As the consumer gathers more
information, only a few will remain as strong contenders (choice set). The brands
in the choice set might all be acceptable. The consumer makes the final choice
from this set. A company must strategize to get its brand into the prospect‘s
awareness set, consideration set, and choice set. The company must also identify
the other brands in the consumer‘s choice set so that it can plan its competitive
appeals. In addition, the company should identify the consumer‘s information
sources and evaluate their relative importance. Consumers should be asked how
they first heard about the brand, what information came in later, and the relative
importance of the different information sources. The answers will help the
company prepare effective communications for the target market.

Evaluation of Alternatives.

There is no simple and single evaluation process used by all consumers or by one
consumer in all buying situations. There are several decision evaluation processes,
the most current models of which see the consumer evaluation process as
cognitively oriented. That is, they see the consumer as forming product judgments
largely on a conscious and rational basis. Consumers differ as to which product
attributes they see as most relevant as well as on the importance of weights they
attach to each attribute. They will pay the most attention to the attributes that
deliver the sought benefits. The consumer develops a set of brand beliefs about
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where each brand stands on each attribute. The set of beliefs about a brand make
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up the brand image. The consumer‘s brand image will vary with his or her
experiences as filtered by the effects of selective perception, selective distortion
and selective retention. The consumer arrives at preferences towards the various
brands through an attribute evaluation process.

Purchase decision.

In the evaluation stage, the consumer forms preferences among the brands in the
choice set. The consumer may also form an intention to buy the most preferred
brand. However, two factors can intervene between the purchase intention and the
purchase decision. The first factor is the attitudes of others. A buyer‘s preference
for a brand will increase if someone he or she likes favors the same brand strongly.
The influence of others become complex when several people close to the buyer
hold contradictory opinions and the buyer would like to please them all. The
second factor isunanticipated situational factors. These may erupt to change the
purchase intention. Thus preferences and even purchase intentions are not
completely reliable predictors of purchase behavior. A consumer‘s decision to
modify, postpone or avoid a purchase decision is heavily influenced by perceived
risk. Consumers develop routines for reducing risk, such as decision avoidance,
information gathering from friends, and prefernce for national brand names and
warranties. In executing a purchase intention, the consumer may make up to five
purchase subdecisions.

1. Brand decision

2. Vendor decision

3. Quantity decision

4. Timing decision

5. Payment method decision

Postpurchase Behavior.

After purchasing a product, a consumer may detect a flaw. Some buyers will no
longer want the flawed product, others will be indifferent to the flaw, and some
may even see the flaw as enhacing the product‘s value. The buyer‘s satisfaction is
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a function of the closeness between the buyer‘s product expectations and the
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product‘s perceived performance. The larger the gap between expectations and
performance, the greater the consumer‘s dissatisfaction. The importance of
postpurchase satisfaction suggests that sellers must make product claims that
truthfully represent the produt‘s likely performance. The consumer‘s satisfaction or
dissatisfaction wit the product will influence subsequent behavior. if the consumer
is satisfied, he or she will exhibit a higher probability of purchasing the product
again. The satisfied customer will also tend to say good things about the brand to
others. Dissatisfied consumers respond differently. They may abandon or return
the product. They may seek information that confirms its high value. They may
take public action such as by complaining to the company, going to the lawyer or
complaining to other groups. Private actions include making a decision to stop
buying the product (exit option) or warning friends (voice option). Marketers can
and should take steps to minimize the amount of consumer postpurchase
dissatisfaction.

Marketers should also monitor how the buyers use and dispose of the product. If
consumers store the product, in their closet, the product is probably not very
satisfying, and word-of-mouth will not be strong. If they sell or trade the product,
new product sales will be depressed. If consumers find new uses for the product,
marketers should advertise these uses. If consumers throw the product away, the
marketer needs to know how they dispose of it, especially if it can hurt the
environment.

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ANALYZING BUSINESS MARKETS AND
BUSINESS BUYING BEHAVIOR
What is Organizational Buying?
Organizational buying is 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.

The Business Market versus the Consumer Market

The business market consists of all the organizations that acquire goods and
services used in the production of other products or services that are sold, rented or
supplied to others.

Business markets have several characteristics that constrast sharply with consumer
markets.

o Fewer buyers. The business marketer normally deals with far fewer buyers
than the consumer marketer does.

o Large buyers. Many business markets are characterized by a high buyer-

concentration ratio. A few large buyers do most of the purchasing in such
industries as aircraft engines and defense weapons.

o Close supplier-customer relationship. Because of the smaller customer base

and the importance and power of the large customers, we observe close
relationships between customers and suppliers in business markets.
Suppliers are frequently expected to customize their offerings to individual
business customer needs. Contracts go to those suppliers who cooperate with
the buyer on technical specifications and delivery requirements.

o Geographically concentrated buyers. Industries such as petroleum, rubber

and steel show an even greater geographical concentration. Most agricultural
output comes from relatively few states. This geographical concentration of
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producers helps to reduce selling costs. At the same time, business marketers
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need to monitor regional shifts of certain industries.

o Derived demand. The demand for business goods is ultimately derived from
the demand for consumer goods. If the demand for these consumer goods
slackens, so will the demand for all the business goods entering into their
production. For this reason, the business marketer must closely monitor the
buying patterns of ultimate consumers.

o Inelastic demand. The total demand for many business goods and services is
inelastic, that is not much affected by price changes. Demand is especially
inelastic in the short run because producers cannot make quick changes in
their production methods. Demand is also inelastic for business goods that
represent a small percentage of the item‘s total cost. However, producers
may switch their eyelets supplier in response to price differences.

o Fluctuating demand. The demand for business goods and services tends to
be more volatile than the demand for consumer goods and services. This is
especially true of the demand for new plant and equipment. A given
percentage increase in consumer demand can lead to a much larger
percentage increase in the demand for plant and equipment necessary to
produce the additional output. Economists refer to this effect as
the acceleration effect. This sales volatility has led many business marketers
to diversify their products and markets to achieve more balanced sales over
the business cycle.

o Professional purchasing. Business goods are purchased by trained

purchasing agents who must follow the organization‘s purchasing policies,
constraints, and requirements. Many of the buying instruments – for
example, requests for quotations, proposals, and purchase contracts – are not
typically found in consumer buying.

o Several buying influences. More people typically influence business buying

decisions than consumer buying decisions. Buying committees consisting of
technical experts and even senior management are common in the purchase
of major goods. Consequently, business marketers have to send well-trained
sales reqpresentatives and often sales teams to deal with the well-trained
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buyers. Although advertising, sales promotion, and publicity play an

important role in the business promotional mix, personal selling usually
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 serves as the main marketing tool. Business marketers also need to
remember that women and minorities now account for a significant share of
purchase decision makers.

o Direct purchasing. Business buyers often buy directly from manufacturers

rather than through intermediaries, especially those items that are technically
complex and /or expensive.

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

o Leasing. Many industrial buyers lease their equipment instead of buying it.
The lessee gains a number of advantages : conserving capital, getting the
seller‘s latest products, receiving better service, and gaining some tax
advantages. The lessor often ends up with a larger net income and the
chance to sell to customers who could not afford ouright purchase.

Buying Situations
The business buyer faces many decisions in making a purchase. The number of
decisions depends on the type of buying situation. Robinson and others distinguish
three types of buying situations :

1. Straight rebuy. A buying situation in which the purchasing department

reorders on a routine basis. The buyer chooses from suppliers on its
―approved list‖, giving weight to its past buying satsifaction with the various
suppliers. The ―in-suppliers‖ make an effort to maintain product and service
quality. They often propose automatic reordering systems so that the
purchasing agent will save reordering time. The ―out-suppliers‖ attempt to
offer something new or to exploit dissatisfaction with a current supplier.
Out-suppliers try to get a small order and then enlarge their purchase share
over time.

2. Modified rebuy. A situation in which the buyer wants to modify product

specifications, prices, delivery requirements or other terms. Usually involves
additional decision participants on both the buyer and seller sides. The in-
suppliers become nervous and have to protect the account. The out-suppliers
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see an opportunity to propose a better offer to gain some business.

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 3. New task. A buying situation in which a purchaser buys a product or service
for the first time. The greater the cost and/or risk, the larger the number of
decision participants and the greater their information gathering – and
therefore the longer the time to decision completion. The new-task situation
is the marketer‘s greatest opportunity and challenge. The marketer tries to
reach as many key buying influences as possible and provide helpful
information and assistance. Because of the complicated selling involved in
the new task, many companies use a missionary sales force consisting of
their best salespeople. New-task buying passes through several stages :
awareness, interest, evaluation, trial and adoption. Communication tools‘
effectiveness varies at each stage. Mass media are most important during the
initial awareness stage; salespeople have their greatest impact at the interest
stage; and technical sources are the most important during the evaluation
stage.

The business buyer makes the fewest decisions in the straight-rebuy situation and
the most in the new-task situation. In the latter, the buyer has to determine product
specs, price limits, delivery terms and times, service terms, payment terms, order
quantities, acceptable suppliers and the selected supplier.

Systems buying and selling.

Many business buyers prefer to buy a total solution to their problem from one
seller. Called systems buying, this practice originated with government purchases
of major weapons and communication systems. The government would solicit bids
from prime contractors, who would assemble the package or system. The
contractor who was awarded the contract would be responsible for bidding out and
assembling the system‘s subcomponents from second-tier contractors. The prime
contractor would thus provide a ―turnkey solution‖ so called because the buyer
simply had to turn one key to get the job done.

Sellers have increasingly recognized that buyers like to purchase in this way and
many have adopted systems selling as a marketing tool. A variant on systems
selling is systems contracting, where a single supply source provides the buyer
with his or her entire requirement of MRO (maintenance, repair, operating)
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supplies. The customer benefits from reduced costs because the seller maintains
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the inventory. Savings also result from reduced time spent on supplier selection
and from price protection over the term of the contract. The seller benefits from
lower operating costs because of a steady demand and reduced paperwork.

Participants in the Business Buying Process

Webster and Wind call the decision-making unit of a buying organization
the buying center. The buying center 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 the seven roles in the
purchase decision process.

1. Initiators. Those who request that something be purchased. They may be

users or others in the organization.

2. Users. Those who will use the product or service. In many cases, the users
initiate the buying proposal and help define the product requirements.

3. Influencers. People who influence the buying decision. They often help
define specifications and also provide information for evaluating
alternatives.

4. Deciders. People who decide on product requirements and/or on suppliers.

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

6. Buyers. People who have formal authority to select the supplier and arrange
the purchase terms. Buyers may help shape product specifications, but they
play their major role in selecting vendors and negotiating. In more complex
purchases, the buyers might include high-level managers participating in the
negotiations.

7. Gatekeepers. People who have the power to prevent sellers or information

from reaching members of the buying center.

To target their efforts properly, business marketers have to figure out : Who are the
major decision participants ? What decisions do they influence ? What is their level
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of influence ? What evaluation criteria do they use ?

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When a buying center includes many participants, the business marketer will not
have the time or resources to reach all of them. Small sellers concentrate on
reaching the key buying influencers. Larger sellers go for multi-level in-depth
selling to reach as many buying participants as possible. Their salespeople virtually
―live‖ with their high-volume customers. As buying teams become more prevalent,
however, salespeople will find it increasingly difficult to locate, much less call on,
all of the individuals involved in the purchasing decision. Rather companies will
have to rely more heavily on their communications program to reach hidden
buying influences and keep their current customers sold. Business marketers must
periodically review their assumptions of the roles and influence of different
decision participants. Business marketers who work in global markets must also be
aware of business buying practices internationally.

Major influences on Business Buyers

In general, the influences on business buyers can be classified into four main
groups : environmental, organizational, interpersonal, and individual.

Environmental factors. Business buyers are heavily influenced by factors in the

current and expected economic environment, such as the level of demand for their
product, the economic outlook and the interest rate. In a recession economy,
business buyers reduce their investment in plant, equipment and inventories.
Companies that fear a shortage of key materials are willing to buy and hold large
inventories. They will sign long-term contracts with suppliers to ensure a steady
flow of materials. Business buyers are also affected by technological,
political/regulatory, and competitive developments in the environment. The
business marketer has to monitor all of these forces, determine how they will affect
buyers, and try to turn problems into opportunities. Interestingly, socially
responsible buying is rarely initiated by purchasing departments but rather comes
about either through the actions of a policy enterpreneur or because the
organization is already dedicated to being socially responsible. Buyers in socially
responsible organizations will put pressure on suppliers to be socially responsible
as well.

Organizational factors. Each buying organization has specific objectives,

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policies, procedures, organizational structures and systems. The business marketer

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has to be familiar with all of these. Business marekters should be particularly
aware of the following organizational trends in the purchasing area :

o Purchasing-department upgrading : Recent competitive pressures have led

many companies to upgrade their purchasing departments and elevate their
administrators to vice-presidential status. These departments have been
changed from old-fashioned ―purchasing departments‖ with an emphasis on
buying at the lowest cost to ―procurement deparments‖ with a mission to
seek the best value from fewer and better suppliers. In addition many
companies are looking for top buying talent and offering higher
compensation.

o Centralized purchasing. Headquarters identifies materials purchased by

several divisions and buys them centrally, thereby gaining more purchasing
bust. The individual divisions can buy from another source if they can get a
better deal, but in general centralized purchasing produces substantial
savings for the company. For the business marketer, this development means
dealing with fewer and higher-level buyers.

o Decentralized purchasing of small ticket items. At the same time that many
companies are centralizing their purchasing processes, they are also
decentralizing some purchasing operations by empowering employees to
purchase small-ticket items such as duplicate keys, coffee makers or
Christmas trees. This revolution has come about through the availability of
corporate purchasing cards issued by credit-card organizations. The
additional benefit, for both buyers and suppliers, is that with less time to
spend on paperwork, purchasing departments have more time for building
partnerships.

o Long-term contracts. Business buyers are increasingly initiating or accepting

long-term contracts with reliable suppliers. in addition, business marketers
are supplying electronic data interchange (EDI) to their customers.

o Purchasing-performance evaluation and buyers‟ professional

development. Many companies have set up incentive systems to reward
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purchasing managers for good buying performance. These systems are

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 leading purchasing managers to increase their pressure on sellers for the best
terms.

The emergence of JIT production systems promises to have a major impact on

organizational purchasing policies.

Interpersonal factors. The buying center usually includes several participants

with different interests, authority, status, empathy and persuasiveness. The
business marketer is not likely to know what kind of group dynamics take place
during the buying decision process, although whatever the information he or she
can discover about the personalities and interpersonal factors would be useful.

Individual factors. Each participant in the buying process has personal

motivations, perceptions and preferences. These are influenced by the participant‘s
age, income, education, job position, personality, attitudes towards risk and
culture. Buyers definitely exhibit different buying styles. There are ―keep-it-
simple‖ buyers, ―own-expert‖ buyers, ―want-the-best‖ buyers, and ―want-
everything-done‖ buyers. Some younger highly educated buyers are computer
experts who conduct rigorous analyses of competitive proposals before choosing a
supplier. Even factors that seem consistent across one country or culture can vary
drastically in another country or culture.

The Purchasing/Procurement Process

To buy the needed goods, business buyers move through a purchasing/procurement
prcess. Robinson et al. have identified eight stages of the industrial buying process
and called them buyphases. These stages are :

BUY CLASSES

NEW TASK MODIFIED REBUY STRAIGHT REBUY

1. Problem recognition YES MAYBE NO
2. General need description YES MAYBE NO
3. Product specification YES YES YES
4. Supplier search YES MAYBE NO
5. Proposal solicitation YES MAYBE NO
6. Supplier selection YES MAYBE NO
7. Order-routine specification YES MAYBE NO
8. Performance review YES YES YES

This model is called the buygrid framework. The eight steps for the typical new-
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task buying situation are as follows.

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Problem recognition. The buying process begins when someone in the company
recognizes a problem or need that can be met by acquiring a good or a service.
Problem recognition can occur as a result of internal or external stimuli. Internally,
the most common events leading to problem recognition are the following :

o The company decides to develop a new product and needs new equipment
and materials to produce this product.

o A machine breaks down and requires replacement or new parts.

o Purchased material turns out to be unsatisfactory, and the company searches

for another supplier.

o A purchasing manager senses an opportunity to obtain lower prices or better

quality.

Externally, the buyer may get new ideas at a trade show, see an ad, or receive a call
from a sales representative who offers a better product or a lower price. Business
marketers can stimulate problem recognition by direct mail, telemarketing, and
calling on prospects.

General Need Description. Once a need is recognized, the buyer proceeds to

determine the needed item‘s general characteristics and quantity needed. For
standard items, this is not a very involved process. For complex items, the buyer
will work with others to define the general characteristics that the product must
have. These may include reliability, durability, price and/or other attributes. The
business marketer can assist the buyer in this phase by describing how his or her
products fit the organization‘s general needs.

Product Specification. After general needs are identified, the buying organization
must develop the item‘s technical specifications. Often the company will assign a
product-value-analysis (PVA) engineering team to the project. PVA is an approach
to cost reduction in which components are carefully studied to determine if they
can be redesigned or standardized or made by cheaper methods of production.
Suppliers, too can use PVA as a tool for positioning themselves to win an account.
By getting in early and influencing buyer specifications, the supplier increases its
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chances of being chosen in the supplier-selection stage.

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Supplier Search. Once the product has been specified, the buyer tries to identify
the most appropriate suppliers. The buyer can examine trade directories, do a
computer search, phone other companies for recommendations, watch trade
advertisements, and attend trade shows. The supplier‘s task is to get listed in major
directories, develop a strong advertising and promotion program, and build a good
reputation in the marketplace. Suppliers who lack the required production capacity
or suffer from a poor reputation will be rejected. Those who qualify may be visited
by the buyer‘s agents, who will examine the suppliers‘ manufacturing facilities and
meet their personnel. After evaluating each company, the buyer will end up with a
short list of qualified suppliers.

Proposal Solicitation. The buyer will now invite qualified suppliers to submit
proposals. Where the item is complex or expensive, the buyer will require a
detailed written proposal from each qualified supplier. After evaluating the
proposals, the buyer will eliminate some suppliers and invite the remaining
suppliers to make formal presentations. Business marketers must thus be skilled in
researching, writing and presenting proposals. Their written proposals should be
marketing documents, not just technical documents. Their oral presentations
should inspire confidence, positioning their company‘s capabilities and resources
so that they stand out from the competition. An important part of any presentation
involves not only giving information but also asking questions.

Supplier Selection. Before selecting a supplier, the buying center will specify
desired supplier attributes and indicate their relative importance. It will then rate
suppliers on these attributes and identify the most attractive suppliers. The choice
and importance of different attributes varies with the type of buying situation.
Delivery reliability, price, and supplier reputation are highly important for routine-
order products. For procedural-problem products, such as a copying machine, the
three most important attributes are technical service, supplier flexibility and
product reliability. For political-problem products that stir rivalries in the
organization the most important attributes are price, supplier reputation, product
reliability, service reliability and supplier flexibility.

The buying center may attempt to negotiate with its preferred suppliers for better
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prices and terms before making the final selection. Marketers can counter the
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request for a lower price in a number of ways. They may be able to show evidence
that the ―life-cycle cost‖ of using its product is lower than that of competitors‘
products. They can also cite the value of the services the buyer now receives,
especially where those services are superior to those offered by competitors.

Increasingly however companies are reducing the number of suppliers.

Furthermore, these companies want each chosen supplier to be responsible for a
larger component system. They also often require the chosen suppliers to achieve
continuous quality and performance improvement while at the same time lowering
the supply price each year by a given percentage. These companies rely on their
suppliers to work closely with them during product development and value their
suggestions.

Order routine specification. After the suppliers have been selected, the buyer
negotiates the final order, listing the technical specifications; the quantity needed,
the expected time of delivery, return policies, warranties, and so on. In the case of
maintenance, repair and operating items, buyers are increasingly moving toward
blanket contracts rather than periodic purchase orders. Writing a new purchase
order, each time stock is needed is expensive and time consuming. Nor does the
buyer want to write fewer and larger purchase orders because that means carrying
more inventory.

A blanket contract establishes a long-term relationship in which the supplier

promises to resupply the buyer as needed at agreed-upon prices over a specified
period of time. Because the stock is held by the seller, blanket contracts are
sometimes called stockless purchase plans. The buyer‘s computer automatically
sends an order to the seller when stock is needed. Blanket contracting leads to
more single-source buying and ordering of more items from that single source.
This system locks the supplier in tighter with the buyer and makes it difficult for
out-suppliers to break in unless the buyer becomes dissatisfied with the in-
supplier‘s prices, quality or service.

Performance review. When all is said and done, the buyer reviews the performance
of the chosen supplier(s). Three methods are commonly used. The buyer may
contact the end users and ask for their evaluations. Or the buyer may rate the
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supplier on several criteria using a weighted score method. Or the buyer might
aggregate the cost of poor supplier performance to come up with adjusted costs of
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purchase, including price. The performance review may lead the buyer to continue,
modify or drop his relationship with the supplier. The supplier should monitor the
same variables that are monitored by the product‘s buyers and end users.

Institutional and Government markets

The institutional market consists of schools, hospitals, nursing homes, prisons and
other institutions that must provide goods and services to people in their care.
Many of these organizations are characterized by low budgets and captive
clienteles. The hospital purchasing agent has to search for institutional-food
vendors whose quality meets or exceeds a certain minimum standard and whose
prices are low. In fact, many vendors set up a separate division to sell to
institutional buyers because of these buyers‘ special buying needs and
characteristics.

In most countries, government organizations are a major buyer of goods and

services. Government organizations typically required suppliers to submit bids, and
normally they award the contract to the lowest bidder. In some cases, the
government unit will make allowance for the supplier‘s superior quality or
reputation for completing contracts on time. Governments will also buy on a
negotiated contract basis, primarily in the case of complex projects involving
major R&D costs and risks, and in cases where there is little competition. Because
their spending decisions are subject to public review, government organizations
require considerable paperwork from suppliers, who often complain about
excessive paperwork, bureaucracy, regulations, decision-making delays and
frequent shifts in procurement personnel.

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Module End Quizes

In a(n) _____ only one firm provides a certain product or service in

the area.

pure monopoly

oligopoly

monopolistic competition

pure competition

industry

In a(n) _____ a small number of large firms produce products that

range from highly differentiated to standardized.

pure monopoly

oligopoly

monopolistic competition

pure competition

industry
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Firms often face _____ such as legal or moral obligations to
customers.

entry barriers

mobility barriers

exit barriers

ethical barriers

conscience barriers

The firm with the largest market share in the relevant product
market is called the _____.

market challenger

market follower

market nicher

market king

market leader
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 In a pure _____ attack, the attacker matches its opponent's
product, advertising, price, and distribution.

flank

frontal

encirclement

bypass

guerrilla warfare

6. The field of ________________________ studies how individuals, groups, and

organizations select, buy, use, and dispose of goods, services, ideas, or
experiences to satisfy their needs and desires.
customer behaviour
sales behaviour
consumer behaviour
retail behaviour

7 Seniors, particularly boomers-turned-seniors, make buying decisions based on

each of the following items except which one?]
Social
Cultural
Personal
None of the above

8. Social classes are indicated by a cluster of variables rather than a single

variable. Which of the following is a variable that describes social class?
Wealth
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Education
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 Occupation
All of the above

9. Which of the following types of reference groups is described as the group with
whom the person interacts fairly continuously and informally?
Aspiration group
Primary group
Secondary group
Dissociative group

10 The social class that is described as the social elite who live on inherited wealth
. are said to be in what level of social class?
Upper Upper
Lower Upper
Upper Middle
Upper Lower

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Module III
Developing Marketing
Strategies

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The Product Life Cycle
This model can help to analyze maturity stages of products and industries.

A product's life cycle (PLC) can be divided into several stages characterized by
the revenue generated by the product. If a curve is skectched showing product
revenue over time, it may take one of many different shapes.

The term was used for the first time by Theodore Levitt in 1965 in an Harvard
Business Review article: "Exploit the Product Life Cycle" (Vol 43, November-
December 1965, pp 81-94). Any company is constantly seeking ways to grow
future cash flows by maximizing revenue from the sale of products and services.
Cash Flow allows a company to maintain its viability, invest in new product
development and improve its workforce. All this in an effort to acquire additional
market share and become a leader in its respective industry.

The Product Life Cycle (PLC) is based upon the biological life cycle. For
example, a seed is planted (introduction); it begins to sprout (growth); it shoots out
leaves and puts down roots as it becomes an adult (maturity); after a long period as
an adult the plant begins to shrink and die out (decline).

In theory it's the same for a product. After a period of development it is introduced
or launched into the market; it gains more and more customers as it grows;
eventually the market stabilises and the product becomes mature; then after a
period of time the product is overtaken by development and the introduction of
superior competitors, it goes into decline and is eventually withdrawn.

A constant and sustainable cash flow (revenue) stream from product sales is key to
any long-term investment, and the best way to attain a stable revenue stream is to
have one or more Cash Cows. Cash Cows are strong products that have achieved a
large market share in mature markets.

Also, the modern Product Life Cycle is becoming shorter and shorter. Many
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products in mature industries are revitalized by product differentiation and market

segmentation. Organizations increasingly reassess product life cycle costs and
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revenues, because the time available to sell a product and recover the investment
shrinks.

Although the product life cycle shrinks, the operating life of many products is
lengthening. For example, the operating life of some durable goods, such as
automobiles and appliances, has increased substantially. As a result, the companies
that produce these products must take their market life and service life into account
when they are planning. Increasingly, companies are attempting to optimize
revenue and profits over the entire life cycle. They do this through the
consideration of product warranties, spare parts, and the ability to upgrade existing
products.

It is clear that the Product Life Cycle concept has significant impact upon business
strategy and corporate performance. The Product Life Cycle method identifies the
distinct stages affecting sales of a product. From the product's inception until its
retirement.

The life cycle concept may apply to a brand or to a category of product. Its
duration may be as short as a few months for a fad item or a century or more for
product categories such as the gasoline-powered automobile.

Product development is the incubation stage of the product life cycle. There are no
sales and the firm prepares to introduce the product. As the product progresses
through its life cycle, changes in the marketing mix usually are required in order to
adjust to the evolving challenges and opportunities.

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The stages in the Product Life Cycle

A. Introduction stage. The product is introduced in the market through a

focused and intense marketing effort designed to establish a clear identity
and promote maximum awareness. Many trial or impulse purchases will
occur at this stage.

When the product is introduced, sales will be low until customers become aware of
the product and its benefits. Some firms may announce their product before it is
introduced, but such announcements also alert competitors and remove the element
of surprise. Advertising costs typically are high during this stage in order to rapidly
increase customer awareness of the product and to target the early adopters. During
the introductory stage the firm is likely to incur additional costs associated with the
initial distribution of the product. These higher costs coupled with a low sales
volume usually make the introduction stage a period of negative profits.

During the introduction stage, the primary goal is to establish a market and build
primary demand for the product class. The following are some of the marketing
mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated

Price - Generally high, assuming a skim pricing strategy for a high profit
margin as the early adopters buy the product and the firm seeks to recoup
development costs quickly. In some cases a penetration pricing strategy is
used and introductory prices are set low to gain market share rapidly.
Distribution - Distribution is selective and scattered as the firm commences
implementation of the distribution plan.
Promotion - Promotion is aimed at building brand awareness. Samples or
trial incentives may be directed toward early adopters. The introductory
promotion also is intended to convince potential resellers to carry the
product.

B. Growth stage. Can be recognized by increasing sales and the emergence of

competitors. At the vendor's side, the Growth stage is also characterized by
sustained marketing activities. Some customers make repeat purchases.
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The growth stage is a period of rapid revenue growth. Sales increase as more
customers become aware of the product and its benefits and additional market
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segments are targeted. Once the product has been proven a success and customers
begin asking for it, sales will increase further as more retailers become interested
in carrying it. The marketing team may expand the distribution at this point. When
competitors enter the market, often during the later part of the growth stage, there
may be price competition and/or increased promotional costs in order to convince
consumers that the firm's product is better than that of the competition.

During the growth stage, the goal is to gain consumer preference and increase
sales. The marketing mix may be modified as follows:

Product - New product features and packaging options; improvement of

product quality.
Price - Maintained at a high level if demand is high, or reduced to capture
additional customers.
Distribution - Distribution becomes more intensive. Trade discounts are
minimal if resellers show a strong interest in the product.
Promotion - Increased advertising to build brand preference.

C. Maturity stage. This phase can be recognized when competitors beginning

to leave the market. Also, sales velocity is dramatically reduced, and sales
volume reaches a steady level. At this point in time, typically loyal
customers purchase the product.

The maturity stage is the most profitable. While sales continue to increase into this
stage, they do so at a slower pace. Because brand awareness is strong, advertising
expenditures will be reduced. Competition may result in decreased market share
and/or prices. The competing products may be very similar at this point, increasing
the difficulty of differentiating the product. The firm places effort into encouraging
competitors' customers to switch, increasing usage per customer, and converting
non-users into customers. Sales promotions may be offered to encourage retailers
to give the product more shelf space over competing products.

During the maturity stage, the primary goal is to maintain market share and extend
the product life cycle. Marketing mix decisions may include:

Product - Modifications are made and features are added in order to

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differentiate the product from competing products that may have been
introduced.
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 Price - Possible price reductions in response to competition while avoiding a
price war.
Distribution - New distribution channels and incentives to resellers in order
to avoid losing shelf space.
Promotion - Emphasis on differentiation and building of brand loyalty.
Incentives to get competitors' customers to switch.

D. Decline stage. The lingering effects of competition, unfavorable economic

conditions, new trends, etc, often explain the decline in sales.

Eventually sales begin to decline as the market becomes saturated, the product
becomes technologically obsolete, or customer tastes change. If the product has
developed brand loyalty, the profitability may be maintained longer. Unit costs
may increase with the declining production volumes and eventually no more profit
can be made.

During the decline phase, the firm generally has three options:

Maintain the product in hopes that competitors will exit. Reduce costs and
find new uses for the product.
Harvest it, reducing marketing support and coasting along until no more
profit can be made.
Discontinue the product when no more profit can be made or there is a
successor product.

The marketing mix may be modified as follows:

Product - The number of products in the product line may be reduced.

Rejuvenate surviving products to make them look new again.
Price - Prices may be lowered to liquidate inventory of discontinued
products. Prices may be maintained for continued products serving a niche
market.
Distribution - Distribution becomes more selective. Channels that no longer
are profitable are phased out.
Promotion - Expenditures are lower and aimed at reinforcing the brand
image for continued products.
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Several variations of the Industry Life Cycle model have been developed to handle
the development of the product, market, and/ or industry. Although the models are
similar, they differ as to the number and names of the stages. Here is a list of some
major models:

In the Introduction stage, the product is introduced to the market through a

focused and intense marketing effort designed to establish a clear identity and
promote maximum awareness. Many trial or impulse purchases will occur at this
stage. Next, consumer interest will bring about the Growth stage, distinguished by
increasing sales and the emergence of competitors. The Growth stage is also
characterized by sustaining marketing activities on the vendor's side, with
customers engaged in repeat purchase behavior patterns. Arrival of the product's
Maturity stage is evident when competitors begin to leave the market, sales
velocity is dramatically reduced, and sales volume reaches a steady state. At this
point in time, mostly loyal customers purchase the product. Continuous decline in
sales signals entry into the Decline stage. The lingering effects of competition,
unfavorable economic conditions, new fashion trends, etc, often explain the decline
in sales.

Limitations of the Product Life Cycle Concept

The term "life cycle" implies a well-defined life cycle as observed in living
organisms, but products do not have such a predictable life and the specific life
cycle curves followed by different products vary substantially. Consequently, the
life cycle concept is not well-suited for the forecasting of product sales.
Furthermore, critics have argued that the product life cycle may become self-
fulfilling. For example, if sales peak and then decline, managers may conclude that
the product is in the decline phase and therefore cut the advertising budget, thus
precipitating a further decline.

Nonetheless, the product life cycle concept helps marketing managers to plan
alternate marketing strategies to address the challenges that their products are
likely to face. It also is useful for monitoring sales results over time and comparing
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them to those of products having a similar life cycle.

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In reality very few products follow such a prescriptive cycle. The length of each
stage varies enormously. The decisions of marketers can change the stage, for
example from maturity to decline by price-cutting. Not all products go through
each stage. Some go from introduction to decline. It is not easy to tell which stage
the product is in. Remember that PLC is like all other tools. Use it to inform your
gut feeling.

Three Levels of a Product.

For many a product is simply the tangible, phsysical entity that they may be
buying or selling. You buy a new car and that's the product - simple! Or maybe
not. When you buy a car, is the product more complex than you first thought? In
order to actively explore the nature of a product further, lets consider it as three
different products - the COREproduct, the ACTUAL product, and finally
the AUGMENTED product.
These are known as the 'Three Levels of a Product.' So what is the difference
between the three products, or more precisely 'levels?'

This will be explained by the example of PEPSI

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The CORE product is NOT the tangible, physical product. You can't touch it.
That's because the core product is the BENEFIT of the product that makes it
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valuable to you. So with the car example, the benefit is convenience i.e. the ease at
which you can go where you like, when you want to. Another core benefit is speed
since you can travel around relatively quickly.

Core Benefit of PEPSI

A drink for refreshment without Alcohol

The ACTUAL product is the tangible, physical product. You can get some use out
of it. Again with the car example, it is the vehicle that you test drive, buy and then
collect.

Actual Product of PEPSI

Brand Name: Pepsi

Quality Level: exceptional

Design and Packaging: Regular (275ml), Disposable (500ml), Can (300ml),

Regular (1Liter), Disposable (1.5 Liter), Jumbo (2.5 Liter)

Feature: Black color with contain Aspartame (Nutra Sweet), Sucarlose (Splenda),
Acesulfame Potassium (Sunnett)

The AUGMENTED product is the non-physical part of the product. It usually

consists of lots of added value, for which you may or may not pay a premium. So
when you buy a car, part of the augmented product would be the warranty, the
customer service support offered by the car's manufacture, and any after-sales
service.

Augmented Product of PEPSI

Good Customer Support (ie. Accessible, Fast)

Aftercare, easy to find contact details.
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Page 103
What is positioning.
Positioning is what the customer believes about your product's value, features, and
benefits; it is a comparison to the other available alternatives offered by the
competition. These beliefs tend to based on customer experiences and evidence,
rather than awareness created by advertising or promotion.

Marketers manage product positioning by focusing their marketing activities on a

positioning strategy. Pricing, promotion, channels of distribution, and advertising
all are geared to maximize the chosen positioning strategy.

Positioning is a marketing method for creating the perception of a product, brand,

or company identity. Starting from 1969, two young marketing guys, Jack Trout
and Al Ries, wrote, spoke and disseminated to the advertising and PR world about
a new concept in communications which they called positioning. The term was
actually first mentioned in a paper by Jack Trout: Positioning is a game people
play in today's me-too market place, Industrial Marketing, Vol.54, No. 6, June
1969, pp.51-55. Their 1981 book about Positioning: "The Battle for Your Mind"
became a bestseller. Until then, advertising agencies had primarily been basing
their media campaigns on internally conceived benefits of the client's product.

Positioning is what the customer believes and not what the provider wants them
to believe. Positioning can change due the counter measures taken at the
competition. Managing your product positioning requires that you know your
customer and that you understand your competition; generally, this is the job of
market research not just what the enterpreneur thinks is true.

According to Trout and Ries, "positioning is not what you do to a product.

Positioning is what you do to the mind of the prospect. That is, you position (place)
the product in the mind of the potential buyer". Since that time in marketing,
positioning is the technique in which marketers try to create an image or identity
for a product, brand, or company in the perception of the target market. What
matters is how potential buyers see the product. It is expressed relative to the
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position of competitors. Typical positioning tools include graphical perception

mapping, market surveys, and certain statistical techniques.
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Competitive Edge and Positioning

A successful positioning strategy is usually based on a sustainable competitive

advantage of a company. Positioning can be based on several things, including:

Product features
Benefits, needs, or solutions
Use categories
Usage occasions
Placing and comparing it relative to another product
Dissociation of the product class
Three bases of positioning can be distinguished

1. Functional (solve problems, provide benefits to customers)

2. Symbolic (self-image enhancement, ego identification, belongingness and
social meaningfulness, affective fulfillment)
3. Experiential (provide sensory stimulation; provide cognitive stimulation)

Steps in Product Positioning. Process

Identify competing products

Identify the attributes, also called dimensions, that define the product 'space'
Collect information from a sample of customers about their perceptions of
each product on the relevant attributes
Determine the share of mind of each product
Determine the current location of each product in the product space
Determine the target market's preferred combination of attributes. These are
called: an ideal vector.
Examine the fit between: the positions of competing products, the position
of your product and the position of the ideal vector
Select the optimum position

Generally, there are six basic strategies for product positioning:

1. By attribute or benefit- This is the most frequently used positioning strategy. For
a light beer, it might be that it tastes great or that it is less filling. For toothpaste, it
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might be the mint taste or tartar control.

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2. By use or application- The users of Apple computers can design and use
graphics more easily than with Windows or UNIX. Apple positions its computers
based on how the computer will be used.

3. By user- Facebook is a social networking site used exclusively by college

students. Facebook is too cool for MySpace and serves a smaller, more
sophisticated cohort. Only college students may participate with their campus e-
mail IDs.

4. By product or service class- Margarine competes as an alternative to butter.

Margarine is positioned as a lower cost and healthier alternative to butter, while
butter provides better taste and wholesome ingredients.

5. By competitor- BMW and Mercedes often compare themselves to each other

segmenting the market to just the crème de la crème of the automobile market.
Ford and Chevy need not apply.

6. By price or quality- Tiffany and Costco both sell diamonds. Tiffany wants us to
believe that their diamonds are of the highest quality, while Costco tells us that
diamonds are diamonds and that only a chump will pay Tiffany prices.

Three Positioning Strategies by Youngme Moon

In an HBR article of May 2005, Youngme Moon introduced three variations of

Positioning that can be used to break free from Product Life Cycle thinking.
Companies can change how consumers perceive them. By Positioning or often
Repositioning their products in unexpected ways. Three positioning strategies that
marketers use to cause a mental shift at consumers are Reverse, Breakaway,
Stealth Positioning:

1. Reverse Positioning. This method removes "sacred" product attributes.

Simultaneously new attributes are added that would typically be found only
in a highly augmented product. For example IKEA is not delivering to your
home the products which you have bought, and it offers no sales
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consultancy. But IKEA added: children drop-off, cafe, toys). Recommended

for: Services companies.
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 2. Breakaway Positioning. This method associates the product with a
radically different category. By manipulating the cues of consumers of how
they perceive and categorize a product, a firm can change how consumers
frame a product. (ex. Swatch > no longer in category Swiss Watches, but in
Fashion Accessories). Recommended for Packaged Goods companies.
3. Stealth Positioning. This variant gradually interests consumers for a new
offering, by hiding the product's true nature. For example Sony's AIBO
robot was positioned as a lovable pet. This shifted consumer's attention away
from its major limitations as a household aide. It apparently even turned
elderly people into early technology adopters. Recommended for:
Technology companies.

After the organisation has selected its target market, the next stage is to decide how
it wants to position itself within that chosen segment. Positioning refers to „how
organisations want their consumers to see their product‟. What message about the
product or service is the company trying to put across? Car manufacturer Daewoo
in the UK, has successfully positioned themselves as the family value model. The
UK car Skoda brand which has been taken over by Volkswagen has been re-
positioned as a vehicle which had negative brand associations, to one which
regularly wins car of the year awards. The positive comments from the industry
and attributes of this vehicle is has changed the perception of consumers about the
Skoda brand.

Developing a positioning strategy

Developing a positioning strategy depends much on how competitors position
themselves. Do organisations want to develop ‗a me too‘ strategy and position
themselves close to their competitors so consumers can make a direct comparison
when they purchase? Or does the organisation want to develop a strategy which
positions themselves away from their competitors? Offering a benefit which is
superior depends much on the marketing mix strategy the organisation adopts. The
pricing strategy must reflect the benefit offered and the promotion strategy must
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communicate this benefit.

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Ultimately positioning is about how you want consumers to perceive your products
and services and what strategies you would adopt to reach this perceptual goal.

Competitive Positioning
What sets your product, service and company apart from your competitors? What
value do you provide and how is it different than the alternatives?

Competitive positioning is about defining how you’ll “differentiate” your

offering and create value for your market. It‘s about carving out a spot in the
competitive landscape and focusing your company to deliver on that strategy. A
good strategy includes

Market profile: size, competitors, stage of growth

Customer segments: groups of prospects with similar wants & needs
Competitive analysis: strengths, weaknesses, opportunities and threats in the
landscape
Positioning strategy: how you‘ll position your offering to focus on
opportunities in the market
Value proposition: the type of value you‘ll deliver to the market

When your market clearly sees how your offering is different than that of your
competition, it‘s easier to generate new prospects and guide them to buy. Without
differentiation, it takes more time and money to show prospects why they should
choose you; as a result, you often end up competing on price – a tough position to
sustain over the long term.

One of the key elements of your positioning strategy is your value proposition.
There are three essential types of value: operational excellence, product leadership
and customer intimacy.

Here is a hypothetical example of each type of value.

PRODUCT LEADERSHIP OPERATIONAL EXCELLENCE CUSTOMER INTIMACY

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Alpha is completely dedicated to Carrot Technology’s customers Starboard’s market is flooded

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innovation and quality. They’re
constantly working on product
improvements and new ideas
that they can bring to market.
They know what their
competitors are doing and are
completely focused on staying
one step ahead in order to
capture a greater share of their
market. Alpha’s culture is all
about product leadership, and
their prospects see it even
before they become customers.
don’t want bells and whistles,
just a good product at the
lowest possible price. Carrot
focuses on operational
excellence so they can
continually offer the lowest
price in the market. For
example, they just patented a
new machine that dramatically
lowers their costs. They’re not
trying to come up with new or
better products; they just want
to produce more volume at a
lower cost. Carrot’s value
proposition is operational
excellence; they convey it in
their messages and in
everything they do. Alpha Co.’s
customers care most about
quality – they want the best
product.
with products at all ends of the
price spectrum. Yet Starboard’s
customers want more than a
product off the shelf; they want
customized solutions. So
Starboard’s mission is to know
as much as possible about their
customers’ businesses so they
can deliver the correct solutions
over time. Starboard knows they
can’t just say “We offer great
service.” Starboard’s team
knows they have to deliver on
that value proposition in every
interaction they have with
prospects and customers.

These companies are totally focused on delivering their value propositions. They
don’t just say it — they do it, and that makes it easier to win in their respective
markets.

Rather than leaving your positioning and value proposition to chance, establish a
strategy. Think impartially about the wants and needs of your customers and
what your competition offers. You may find an unmet need in the market, or you
may realize that you need to find a way to differentiate from your competitors.

As a result, you may decide to promote a different attribute of your product, or

you may find entirely new opportunities to create new products and services.
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Either way, you’ll strengthen your business in both the short and long term.
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 Best Case
You provide a one-of-a-kind
product/service that your
market needs and wants. You
have a strong value proposition
that differentiates you from
your competitors; you
communicate it consistently in
everything you do. Your
prospects respond because
you’re meeting their needs, and
your company has found
success in the market.
Neutral Case
Your product is somewhat
different and better than those
of your competitors and you
communicate that difference,
though probably not as
consistently as you should. Your
prospects partially buy into the
value you provide, but you don’t
win all of the deals that you
could.
Worst Case
Your prospects see little
difference between you and
your competitors, so you’re
competing solely on price. You
have to fight long and hard for
every sale. It’s very difficult to
meet your revenue and profit
goals.
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Key concepts & steps
Before you begin

Your competitive positioning strategy is the foundation of your

entire business – it’s the first thing you should do if you’re launching
a new company or product. It’s also important when you’re expanding or looking
for a new edge.

Profile your market

Document the size of your market, major competitors and how they’re
positioned.
Determine whether your market is in the introductory, growth, mature, or
declining stage of its life. This “lifecycle stage” affects your entire marketing
strategy.

Segment your market

Understand the problems that your market faces. Talk with prospects and
customers, or conduct research if you have the time, budget and
opportunity. Uncover their true wants and needs – you’ll learn a great deal
about what you can deliver to solve their problems and beat your
competitors.
Group your prospects into “segments” that have similar problems and can
use your product in similar ways. By grouping them into segments, you can
efficiently market to each group.

Evaluate your competition

List your competitors. Include any competitors that can solve your
customers’ problems, even if their solutions are much different than yours
– they’re still your competition.
Rate your own company and your direct competitors on operational
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efficiency (price), product leadership and customer intimacy. It’s easy to

think you’re the best, so be as impartial as you can.
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Stake a position

Identify areas where your competition is vulnerable.

Determine whether you can focus on those vulnerable areas – they’re
major opportunities.
Identify products/services you can offer to meet the true needs of your
market in a new and better way.

Define your value proposition

There are three core types of value that a company can deliver: operational
efficiency (the lowest price), product leadership (the best product), or
customer intimacy (the best solution & service). Determine which one
you’re best equipped to deliver; your decision is your “value proposition.”

Now, Once you have a competitive positioning strategy, develop a brand strategy
to help you communicate your positioning and value proposition every time you
touch your market. Together, these strategies are the essential building blocks for
your business.

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Marketing Strategy:

Marketing Strategies: A marketing strategy serves as the foundation of a

marketing plan. A marketing plan contains a list of specific actions required to
successfully implement a specific marketing strategy. An example of marketing
strategy is as follows: "Use a low cost product to attract consumers. Once our
organization, via our low cost product, has established a relationship with
consumers, our organization will sell additional, higher-margin products and
services that enhance the consumer's interaction with the low-cost product or
service."

A strategy is different than a tactic. While it is possible to write a tactical

marketing plan without a sound, well-considered strategy, it is not recommended.
Without a sound marketing strategy, a marketing plan has no foundation.
Marketing strategies serve as the fundamental underpinning of marketing plans
designed to reach marketing objectives. It is important that these objectives have
measurable results.

A good marketing strategy should integrate an organization's marketing goals,

policies, and action sequences (tactics) into a cohesive whole. The objective of a
marketing strategy is to provide a foundation from which a tactical plan is
developed. This allows the organization to carry out its mission effectively and
efficiently.

One used the following techniques to device the Marketing Strategy for the
product/service:

Segmentation

Targeting

Positioning

Lecture dealing with the aspects of Segmentation ,Targeting and Positioning:

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http://www.utdallas.edu/~tskim/Lecture%20Note%206.pdf
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Segmentaion:

Market segmentation is the process in marketing of grouping a market (i.e.

customers) into smaller subgroups. This is not something that is arbitrarily
imposed on society: it is derived from the recognition that the total market is
often made up of submarkets (called 'segments'). These segments are
homogeneous within (i.e. people in the segment are similar to each other in their
attitudes about certain variables). Because of this intra-group similarity, they are
likely to respond somewhat similarly to a given marketing strategy. That is, they
are likely to have similar feeling and ideas about a marketing mix comprised of a
given product or service, sold at a given price, distributed in a certain way, and
promoted in a certain way.

Market segmentation is widely defined as being a complex process consisting in

two main phases:
- identification of broad, large markets
- segmentation of these markets in order to select the most appropriate target
markets and develop Marketing mixes accordingly.

Everyone within the Marketing world knows and speaks of segmentation yet not
many truly understand its underlying mechanics, thus failure is just around the
corner. What causes this? It has been documented that most marketers fail the
segmentation exam and start with a narrow mind and a bunch of misconceptions
such as "all teenagers are rebels", "all elderly women buy the same cosmetics
brands" and so on. There are many dimensions to be considered, and uncovering
them is certainly an exercise of creativity.

Identify and name the broad market

You have to have figured out by this moment what broad market your business
aims at. If your company is already on a market, this can be a starting point; more
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options are available for a new business but resources would normally be a little
limited.
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The biggest challenge is to find the right balance for your business: use your
experience, knowledge and common sense to estimate if the market you have just
identified earlier is not too narrow or too broad for you.

Identify and make an inventory of potential customers' needs

This step pushes the creativity challenge even farther, since it can be compared to a
brainstorming session.

What you have to figure out is what needs the consumers from the broad market
identified earlier might have. The more possible needs you can come up with, the
better.

Got yourself stuck in this stage of segmentation? Try to put yourself into the shoes
of your potential customers: why would they buy your product, what could
possibly trigger a buying decision? Answering these questions can help you list
most needs of potential customers on a given product market.

Formulate narrower markets

Try to form sub-markets around what you would call your "typical customer",
then aggregate similar people into this segment, on the condition to be able to
satisfy their needs using the same Marketing mix. Start building a column with
dimensions of the major need you try to cover: this will make it easier for you to
decide if a given person should be included in the first segment or you should form
a new segment. Also create a list of people-related features, demographics
included, for each narrow market you form – a further step will ask you to name
them.

There is no exact formula on how to form narrow markets: use your best
judgement and experience. Do not avoid asking opinions even from non-Marketing
professionals, as different people can have different opinions and you can usually
count on at least those items most people agree on.

Identify the determining dimensions Carefully review the list resulted form the
previous step. You should have by now a list of need dimensions for each market
segment: try to identify those that carry a determining power.

Reviewing the needs and attitudes of those you included within each market
segment can help you figure out the determining dimensions.
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 Name possible segment markets You have identified the determining
dimensions of your market segments, now review them one by one and give them
an appropriate name.

A good way of naming these markets is to rely on the most important determining
dimension.

Evaluate the behavior of market segments

Once you are done naming each market segment, allow time to consider what other
aspects you know about them. It is important for a marketer to understand market
behavior and what triggers it. You might notice that, while most segments have
similar needs, they're still different needs: understanding the difference and acting
upon it is the key to achieve success using competitive offerings.

Estimate the size of each market segment

Each segment identified, named and studied during the previous stages should
finally be given an estimate size, even if, for lack of data, it is only a rough
estimate.

Lecture on Segmentation:

http://www.intelliquest.com/resources/technical/MarketSegmentationOverview_M
BIQ_June24.pdf

Positioning

Simply, positioning is how your target market defines you in relation to your
competitors.

A good position is:

1. What makes you unique
2. This is considered a benefit by your target market

Both of these conditions are necessary for a good positioning. So what if you are
the only red-haired singer who only knows how to play a G minor chord? Does
your target market consider this a good thing?
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Positioning is important because you are competing with all the noise out there
competing for your potential fans attention. If you can stand out with a unique
benefit, you have a chance at getting their attention.

It is important to understand your product from the customers point of view

relative to the competition.

Environment

In order to begin positioning a product, two questions need to be answered:

1.What is our marketing environment?

2.What is our competitive advantage?

The marketing environment is the external environment. Some things to

consider:

How is the market now satisfying the need your software satisfies?
What are the switching costs for potential users for your market?
What are the positions of the competition?

The competitive advantage is an internal question. What do you have that gives
you advantage over your competitors. Some things to consider:

Is your company small and flexibility?

Do you offer low cost and high quality?
Does your product offer unique benefits?
Are you the first on the market with this product (First mover advantage)?

Positioning Strategies

There are seven positioning strategies that can be pursued:

Product Attributes: What are the specific product attributes?

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Benefits: What are the benefits to the customers?

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Usage Occasions: When / how can the product be used?

Users: Identify a class of users.

Against a Competitor: Positioned directly against a competitor.

Away from a Competitor: Positioned away from competitor.

Product Classes: Compared to different classes of products.

Targeting:

Target Marketing involves breaking a market into segments and then

concentrating your marketing efforts on one or a few key segments.

Target marketing can be the key to a small business‘s success.

The beauty of target marketing is that it makes the promotion, pricing and
distribution of your products and/or services easier and more cost-effective. Target
marketing provides a focus to all of your marketing activities.

So if, for instance, I open a catering business offering catering services in the
client‘s home, instead of advertising with a newspaper insert that goes out to
everyone, I could target my market with a direct mail campaign that went only to
particular residents.

While market segmentation can be done in many ways, depending on how you
want to slice up the pie, three of the most common types are:

Geographic segmentation – based on location such as home addresses;

Demographic segmentation – based on measurable statistics, such as age

or income;

Psychographic segmentation – based on lifestyle preferences, such as being

urban dwellers or pet lovers.
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The marketing concept of building an organization around the profitable
satisfaction of customer needs has helped firms to achieve success in high-growth,
moderately competitive markets. However, to be successful in markets in which
economic growth has leveled and in which there exist many competitors who
follow the marketing concept, a well-developed marketing strategy is required.
Such a strategy considers a portfolio of products and takes into account the
anticipated moves of competitors in the market.

The Case of Barco

In late 1989, Barco N.V.'s projection systems division was faced with Sony's
surprise introduction of a better graphics projector. Barco had been perceived as a
leader, introducing high quality products first and targeting a niche market that was
willing to pay a higher price. Being a smaller company, Barco could not compete
on price, so it traditionally pursued a skimming strategy in the graphics projector
market, where it had a 55% market share of the small market. Barco's overall
market share for all types of projectors was only 4%.

Even though Barco's market was mainly in graphics projectors, the company had
not introduced a new graphics projector in over two years. Instead, it was spending
a large portion of its R&D budget on video projector products. However, video
projectors were not Barco's market.

Barco's engineers had been working long hours on their new projector that would
not be as good as Sony's. Some people thought they should not stop work on that
product since the engineers' morale would suffer after being told how important it
was to work hard to get the product out. However, even considering the morale of
the product team, it would not have been a good idea to introduce a product that
was inferior to that of Sony. Barco wisely stopped working on the inferior product
and put a major effort in developing a projector that outperformed Sony's.

The Barco case illustrates several marketing strategy concepts:

Price / Selling Effort Strategies: A firm that follows a skimming strategy

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seeks to be the first to introduce a product with very good performance,

selling it to the innovator market segment and charging a premium price for
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it. It makes as much profit as possible, then moves on when the competition
 arrives. The price is likely to fall over time as competition is encountered.
Such a skimming strategy contrasts with a penetrating strategy, which seeks
to gain market share by sacrificing short-term profits, and increasing the
price over time as market share is gained.
Competitors have certain strengths and abilities. To succeed, a firm must
leverage its own unique abilities.
A firm should prepare defensive strategies before potential threats arrive. If
the competition surprises a firm with the introduction of a vastly superior
product, the firm should resist the temptation to proceed with its mediocre
product. A firm never should introduce a product that is obsolete when it hits
the market.
The competition's probable response to a firm's actions should be considered
carefully.

Marketing Research for Strategic Decision Making

The two most common uses of marketing research are for diagnostic analysis to
understand the market and the firm's current performance, and opportunity analysis
to define any unexploited opportunities for growth. Marketing research studies
include consumer studies, distribution studies, semantic scaling, multidimensional
scaling, intelligence studies, projections, and conjoint analysis. A few of these are
outlined below.

Semantic scaling: a very simple rating of how consumers perceive the

physical attributes of a product, and what the ideal values of those attributes
would be. Semantic scaling is not very accurate since the consumers are
polled according to an ordinal ranking so mathematical averaging is not
possible. For example, 8 is not necessarily twice as much as 4 in an ordinal
ranking system. Furthermore, each person uses the scale differently.
Multidimensional scaling (MDS) addresses the problems associated with
semantic scaling by polling the consumer for pair-wise comparisons between
products or between one product and the ideal. The assumption is that while
people cannot report reliably which attributes drive their choices, they can
report perceptions of similarities between brands. However, MDS analyses
do not indicate the relative importance between attributes.
Conjoint analysis infers the relative importance of attributes by presenting
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consumers with a set of features of two hypothetical products and asking

them which product they prefer. This question is repeated over several sets
of attribute values. The results allow one to predict which attributes are the
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 more important, the combination of attribute values that is the most
preferred. From this information, the expected market share of a given
design can be estimated.

Multi-Product Resource Allocation

The most common resource allocation methods are:

Percentage of sales
Executive judgement
All-you-can-afford
Match competitors
Last year based

Another method is called decision calculus. Managers are asked four questions:

What would sales be with:

1. no sales force
2. half the current effort
3. 50% greater effort
4. a saturation level of effort.

From these answers, one can determine the parameters of the S-curve response
function and use linear programming techniques to determine resource allocations.

Decision algorithms that result in extreme solutions, such as allocating most of the
sales force to one product while neglecting another product often do not yield
practical solutions.

For mature products, sales increase very little as a function of advertising

expenditures. For newer products however, there is a very positive correlation.

Portfolio models may be used to allocate resources among major product lines or
business units. The BCG growth-share matrix is one such model.
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New Product Diffusion Curve

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As a new product diffuses into the market, some types of consumers such as
innovators and early adopters buy the product before other consumers. The product
adoption follows a trajectory that is shaped like a bell curve and is known as the
product diffusion curve. The marketing strategy should take this adoption curve
into account and address factors that influence the rate of adoption by the different
types of consumers.

Dynamic Product Management Strategies

Two fundamental issues of product management are whether to pioneer or follow,

and how to manage the product over its life cycle.

Order of market entry is very important. In fact, the forecasted market share
relative to the pioneering brand is the pioneering brand's share divided by the
square root of the order of entry. For example, the brand that entered third is
forecasted to have 1/√3 times the market share of the first entrant (Marketing
Science, Vol. 14, No. 3, Part 2 of 2, 1995.) This rule was determined empirically.

The pioneering advantage is obtained from both the supply and demand side. From
the supply side, there are raw material advantages, better experience effects to
provide a cost advantage, and channel preemption. On the demand side, there is the
advantage of familiarity, the chance to set a standard, and the choice of perceptual
position.

Once a firm gains a pioneering advantage, it can maintain it by improving the

product, creating a standard, advertise that it was the first, and introduce a new
product in the market that may cannibalize the first but deter other firms from
entering.

There also are disadvantages to being the pioneer. Being first allows a competitor
to leapfrog the early technology. The incumbent develops inertia in its R&D and
may not be a flexible as newcomers. Developing an industry has costs that the
pioneer must bear alone, and the way the industry develops and its potential size
are not deterministic.

There are four classic price/selling effort strategies:

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 Selling Price
Effort Low High

Low Necessity Goods Classic Skim Strategy

Vulnerable to new entrants

Classic Penetration Strategy Luxury Goods

High

In general, products are clustered in the low-low or high-high categories. If a

product is in a mixed category, after introduction it will tend to move to the low-
low or high-high one.

Increasing the breadth of the product line as several advantages. A firm can better
serve multiple segments, it can occupy more of the distributors' shelf space, it
offers customers a more complete selection, and it preempts competition. While a
wider range of products will cause a firm to cannibalize some of its own sales, it is
better to do so oneself rather than let the competition do so.

The drawbacks of broad product lines are reduced volume for each brand
(cannibalization), greater manufacturing complexity, increased inventory, more
management resources required, more advertising (or less per brand), clutter and
confusion in advertising for both customers and distributors.

To increase profits from existing brands, a firm can improve its production
123

efficiency, increase the demand through more users, more uses, and more usage. A
firm also can defend its existing base through line extensions (expand on a current
Page
brand), flanker brands (new brands in an existing product area), and brand
extensions.

Module end Quizes

1
The sales and profits of an individual product may not follow the life cycle pattern.

True
A)

False
B)

2
During the sales decline stage of the product life cycle, no firm can earn a profit.

True
A)

False
B)

3
A new product is one that is new in any way for the company concerned.

True
A)

False
B)

4
If an individual is injured by a defective or unsafely designed product, the seller's legal obligation to
pay damages is called product liability.

True
A)
124

False
B)
Page
5
Category managers have exactly the same role as brand managers.

True
A)

False
B)

6
During the introduction stage of the product life cycle:

promotion is likely to be needed to increase primary demand.

A)

"me too" products quickly take market share away from the innovator.
B)

most products achieve intensive distribution.

C)

industry profits are at their highest.

D)

none of the above.

E)

7
During the introduction stage, what would hinder acceptance of a new product?

consumers may not see the new product as offering a superior alternative to whatever
A) they are currently using.

the new product may not be compatible with the buyer's values.
B)

problems communicating or demonstrating the new product's benefits.

C)

risk in buying something for the first time.

D)
125

all of the above.

E)
Page
8
During the market growth stage of the product life cycle:

the industry experiences the smallest profits.

A)

the market begins to fragment into sub-markets or segments.

B)

industry sales grow slowly.

C)

industry profits fall, then rise.

D)

all of the above.

E)

9
What is the most important reason why industry sales level off in the market maturity stage of the
product life cycle?

aggressive competitors entering the markets.

A)

price cutting.
B)

less efficient firms leaving the market.

C)

pool of potential users is exhausted.

D)

persuasive promotion.
E)

10
Rallo Company has seen most of its competitors drop out of its product market due to declining sales
and profits. However Rallo still has much demand for its products from a small group of loyal
126

customers. In which stage of the product life cycle is this product market?

market introduction.
Page
A)

market growth.
B)

market development.
C)

market maturity.
D)

sales decline.
E)

127
Page
Refer Books
Book: Jack Trout and Al Ries - Positioning: The Battle for Your Mind -

Marketing Management, Phillip Kotler, Prentice-Hall India

Integrated Marketing: a new vision, in Marketing Mind Prints edited by Philip

Kitchen, Palgrave-Macmillan, Basingstoke UK/New York N.Y

Video resources
Academicearth.org

1. Dealing with Competition By Evan Williams | Maintaining Focus

as an Entrepreneur

2. Can Entrepreneurship be Taught? By Evan Williams | Maintaining

Focus as an Entrepreneur

References
Jenkinson, A. and Mathews, B. (2007) Integrated Marketing and its implications for personalised
customer marketing strategies. J Direct, Data and Digital Marketing Practice. Vol 8 No. 3. pp. 93-209.
Palgrave Macmillan, Basingstoke, UK

Jenkinson, A., Sain, B. and Bishop K. (2005). Optimising Communication for Charity Brand
Management, International Journal of Voluntary Sector and Nonprofit Marketing; 10:1-14

Green, L. ed. (2005) Advertising Works And How, WARC, Henley on Thames, pp. 204-219

Salutogenesis, a concept developed by Aaron Antonovsky that is concerned with the conditions for
human coherence, motivation, morale and energy, is a useful approach
128

Jenkinson, A., Sain, B. (2004) ‘Implementing Integrated Marketing: The SEEBOARD Energy case’,
Page

Journal of Interactive Marketing, Vol. 5 no. 4, April, p359-372

 Ghoshal S., Bartlett, C.A., (1998) The Individualized Corporation, Heinemann, London

Kotler, Philip; Gary Armstrong, Veronica Wong, John Saunders (2008). "Marketing defined". Principles
of marketing (5th ed.). p. 7.

Kotler, Philip; Gary Armstrong, Veronica Wong, John Saunders (2008). "Marketing defined". Principles
of marketing (5th ed.). p. 17.

"Definition of Marketing". American Marketing Association.

Paul H. Selden (1997). Sales Process Engineering: A Personal Workshop. Milwaukee,WI. p. 23.

"Definition of marketing". Chartered Institute of Marketing.

Paliwoda, Stanley J.; John K. Ryans. "Back to first principles". International Marketing: Modern and
Classic Papers (1st ed.). p. 25.

Kotler, Philip; Kevin Lane Keller (2009). "1". A Framework for Marketing Management (4th ed.).
Pearson Prentice Hall.

Adcock, Dennis; Al Halborg, Caroline Ross (2001). "Introduction". Marketing: principles and practice
(4th ed.). p. 15.

Adcock, Dennis; Al Halborg, Caroline Ross (2001). "Introduction". Marketing: principles and practice
(4th ed.). p. 16.

"Marketing Management: Strategies and Programs", Guiltinan et al., McGraw Hill/Irwin, 1996

Dev, Chekitan S.; Don E. Schultz (January/February 2005). "In the Mix: A Customer-Focused Approach
Can Bring the Current Marketing Mix into the 21st Century". Marketing Management 14 (1).

The Economist .

Joshi, Rakesh Mohan, (2005) International Marketing, Oxford University Press, New Delhi and New
York \

"Chapter 6: ORGANIZATIONAL MARKETS AND BUYER BEHAVIOR". Rohan.sdsu.edu

"Services Marketing". Marketingteacher.com.

http://www.marketingteacher.com/Lessons/lesson_services_marketing.htm.
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