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Understanding mrkts

managing markts
effectively,efficiently to be
how to do this?
What are markets?
Mrkts are prospects,customers and
consumers with unfulfilled needs,with a
desire to fulfill the same and
An ability to buy and willingness to buy,
An ability to pay& willingness to pay and a
willingness to be loyal as long as the
marketer's offer is perceived to be of far
higher value than those of all substitute
and competitive offers
What is mrktng?
Marktg is a continuous and proactive
process of creating,nurturing and retaining
a loyal customer base and helping them
perceive that the co's offer is far superior
to those of all current and future substitute
and competitive offers
Ninety-five percent of the people who
hear, understand and agree with a
principle do not have the ability to apply it
to their lives because they do not have the
necessary resources.
Mystery solved!-Zig Ziglar
Why do so many people start on a project ,get
marvelous results for a brief period of time , and
then revert to their old, humdrum way of thinking
and living?
Why does motivation change some people
permanently & others only temporarily?
Why do we get roughly 200 times as many
letters , phone calls, and personal statements
from people who say my books and tapes
changed their lives as we do from people who
say my presentation changed their lives?
%he answer is now clear!
%hey hear me speak & get excited .
%hen they encounter negative situations,
problems and people.Little by little, over a period
of time,they lose their enthusiasm, ant they are
back on squre one!
%he resource to implement & apply the
principles that change & enrich ur life is here.
Make a plan to fulfill the promise!
Discover why u should use the plan ,and even
more important, how u can.
Keep hope alive & give u the inspiration,
conviction & know how to follow through.
Mystery solved---
Motivation is not permanent. But neither is
bathing. However if we bathe every day,
we are ahead of the game.
From a motivational point of view, if we
deliberately seek encouragement,
(motivation) on a daily basis, it will become
a habit & enable us get ahead& stay
ahead in life!
Mystery solved--
Keep ur goals & plans highly visible
Be inspired and be enthusiastic.
$ee the connection & that will reignite the
sparks and get u excited again about what
is really important in life.
Be reminded of ur goals/ plans so u will
receive the encouragement u need to
continue ur winning ways!
!urpose of any business-what is it?
Because it's purpose is to create a customer,a business
has two and only two basic functions; marktg and
innovation. Mrktg and innovation produce results; all the
rest are costs.
Mrktng is too important to leave to a mrktng department.
Mrktng is so basic that it cannot be considered to be a
separate is the whole business seen from the
point of view of its final result, that is ,from the
customer's point of view,
!eter F Drucker'
Concept of internal and external customers
%ypes of business orientations-
what philosophy guides your
%he producttion concept or orientation
%he product concept or orientation
%he selling concept or orientation
%he marketing concept or orientation
What are the differences?what are the
%he elephantine electronics co case
Elephantine case
%he engineering manager of this co one day
concieved of a new computer terminal that
would do every thing but peel potatoes- a slight
exaggeration perhaps ,but the concept was a
widely applicable, broadly compatible device.
$ince the manager enjoyed excellent rapport
with the firm's general manager,who was also
an engineer,it was easy to convince the GM of
the merit of the idea, and a product development
program was vigorously undertaken.
When the prototype was complete and functionally
proven,a production line was set up and manufacturing
was begun. About this time,the sales manager and his
sales force were called in for a product presentation.
After the new device was explained and demonstrated,
they were told to go,sell it.
$nce the new production line was capable of producing
500 units a month, this was established as average
sales goal .%he sales manager and the sales force went
optimistically forth into the market, but 6 months later
reported back to the general management that they were
unable to move this wonderful new product in any thing
approaching the target volume.
After firing the sales manager, the gm and the engg mgr
commisserated with one another about the
incompetence of sales people who couldn't sell a
product that is obviously superior to anything else
available and right for the markt.
Neither of them knew quite where the mrkt was or who it
was,and unforttunately even the ex sales mngr hadn't
known either.$ince the mountain wouldn't come to
Mohemmad and Mohemmad didn't know where the
mountain was, so he could go to it, a lot of time and
money were wasted for practically nothing.
t was certainly too bad Elephantine was so unlucky,
because,when the product design was eventually sold to
Whiz-Bang computer co, it was a roaring success.
1.Does ur group think Elephantine was really unlucky?
Why? Why not?
2.What do u think whiz-bang did to make it a roaring
success? $tep by step process or activities?
3.What is wrong with Elephantine?What is right, f any?
4.What concept or philosophy drove Elephantine
mngmnt? Whiz-bang mngmnt?
5.Do u think Ele learnt any mrktng lessons? What
mrktng lessons did u learn? What is the moral of the
Mrktng fundamentals
Mrktng is ---
A rouge function---
$alesmen are cheats---they push you into buying things
that you don't want
Advertising is a bunch of lies
Mrktng is a sheer waste. Goods cost us much less if we
don't promote them and advertise.
nshort, life wd be better off without this function.
Do we agree with this? f so why? f not why not?
Finally what is mrktg?
t is a function
t is a process
t is a concept
t deals with understanding mrkts,effectively and
efficiently managing the same and continuously
measuring the success through monitoring continuous
profitable growth in sales volume,markt
share,profit,customer nos and brand loyltycompared to
all competitors.
What attitudes,knowledge,skills and behaviour does
mrktg need to be effective?
Characteristics of market-oriented
1.have clear market objectives
strategic intent
Ambitious mrkt share,positioning goals
2.segment their mrkts
dentify growth opportunities
%ailor strategies to segments
3.understand customers'existing and potential needs
Get close to customers
Focus on solutions, not products
4create competencies to match opportunities
Develop capabilities
ntegrate functions and resoutces around this task. competitive advantage
Beating competition
$ustainable advantages via branding and continuous improvement
Beating competition
$ustainable advantages via branding and continuous improvement
6.recognise environment changes
Existing strategies erode
!riorities to change and innovation
7.customer-focussed organisation
nverting and flattening the pyramid
!rioritising service providers
Lower costs-faster responsegreater motivation
8.monitor and bench mark customer satisfaction
Quantitative research systems
ndepth research.
Formulating a mrktng plan
1.situational assessment
Current performance
Background analysis
%rends and projections
Opportunity and issue analysis
3.positioning strategy
A.tarjet market segment(s)
B.differential advantage
Mrktng plan mix
5 action programs
6.organisation and control & Recruitment of talent
7,budjet & Control systems in implementation.
Key tasks of mrktg mgmt
1.Understand broad mrkts&segment
2.Carry out environment analysis
3.$et goals and objectives
4.Develop positioning strategies
A)select target mrkt segmentsa.broad market b.identify bases for
segmentation c.develop profiles of segments d.measure
B).create a differential advantage a.identify benefits sought
b.measure competitor positioning c.create reason for preference
5.Develop appropriate mrktg mix a.product b.price
6.Action programs
7.Create organisation structure &Recruit Appropriate talent
8.Budjets and controls and implementation
%he essence Of marketing
$elf image
Risk Avers ness
Customer Wants
Marketing MX Variables
Quality-featuresoptionsstylebrand namepackaging
List pricediscountsallowancespayment periodcredit terms
Advertisingpersonal sellingsales promotionpublic relations
All addressed at target market segment
Marketing Mix
Characteristics of mrkt
oriented co's
1have clear mrkt objectives-----
have strategic intent------
have ambitious markt share and positioning
2segment their markets---------------
identify growth opportunities-------
tailor strategiesto segments
3understand customers'existing and
Get close to customres
Focus on solutions,not products
Characteristics of mrkt oriented
4.Create competencies to match
Develop capabilities
ntegrate functions and resources around
this task
5.Build competitive advantage
Beating competition
$ustainable advantages via branding and
continuous improvement
Charactiristics of---
6.Recognise environment changes
Existing strategies erode
!riorities to change and innovation
7. Customer-focussed organisation
nverting and flattening the pyramid
!rioritising service providers
8.Monitor and bench mark customer satisfaction
Quantitative research systems
n-depth research
%he strategy of a modern airlines
n the olden days, airlines didn't segment their markets.t
soon became clear that passengers differ in their
expectations. Business travellers value convenience,
comfort and service,while,leisure travellers were more
interested in lower price,
A carrier flying from London to New ork, using a 300
seater plane and anticipating an average load factor of
80%, if it pursues an un-differentiated strategy-one class
plane-the management can charge a highest price of
$250 %O AChEVE A 80% OCCU!ANC RA%E.%he
variable cost for the airlines was $20 per passenger and
the fixed cost is $50,000per flight.
However to the mrktng mgmnt,it is obvious that while a price of $250
already begins to lose the business of low budget
travellers,business people and the more affluent people would be
willing to pay much more for superior service and comfort.
%he result was that the airlines moved to the differentiated strategy
whereby they offered 3 levels of service on the
plane;economy,business and first class at very different price levels.
%o get the same 80%occupancy level,the prices are respectively
$250,500,and 1000 per passenger while the variable costs
are$20,40 and 100 per passenger. t is estimated that the fixed cost
would go up by 10% to accommodate the changes in the aircraft to
provide the desired comfort to the upper 2 classes, each of them
taking 50% of the additional amount.t is also estimated that the
business class pssengers wd be 3 times the number of first class
and economy passengers wd be double the business class
occupants at 80% plane loading factor.
%he consequences are to massively enhance the revenue and the profitability for the
airlines.n addition,the strategy better meets the needs of all customers by offering
the values that the particular type of passenger prioritises
And this example of airline segmentationis exactly analogous to the strategies
pursued by most of the sophisticated cos of today!
ou are requested to calculate the profits,the profitability, the revenues and the costs
incurred in both the strategies,for the full plane,for each class and per passenger in
each class, assuming in both cases the plane is 80%loaded.!l find the break even
point in both.
Discussion q's
1List all benefits of segmentation to all stakeholders of the airlines
2Who all could be the beneficiaries
3Do u think any segment is subsidising for any other segment? f so who to whom? f
not,why not?What do u understand by absolute satisfaction and relative
satisfaction?Do u think that there is a possibility that any cass may feel relatively
dissatisfied although absolutely satisfied, When wd that happen? How wd mgmnt
prevent it?
4When can segmentation go wrong?How to avoid segmentation from going
wrong?What precautions to take?
What is your position?are we
positioned correctly?
A manufacturer of industrial cutting equipment
was concerned about its poor market share and
wondered whether its prices were the problem.
t undertook a markt research study which
identified the product and service attributes most
desired by customers and evaluated how its
product " X " & its key competitors were rated in
tablebelow on a 1to 6 scale where 1 is lowest
and 6 is highest.
%able assessing price & value
nce wt
a b c x
6 5 4 6
6 6 3 4
5 3 2 5
5 3 5 1
2 5 5 5
29 K 21 K 15 K 22 K
27 45 20 8
1.What is the problem of x n
marktng jargon? do you solve? What srategy do u
recommend? Why?
3. What alternates can be considered by
X? Why should they be dropped?
How to take positions? - 2 ways
based on Quality&price conscious
1.find out quality dimensions,relative importance
between them and assess performance of all current
players on each dimension
2.f there is a gap between expectations and
performance tae a position
3. fill the position by offering the highest value than the
average value provider as well as the best value provider
so that no one will find a gap in value to replace u in
4 constantly monitor and defend this position thro
!rice conscious customers/markts-
--how to take positions
1.find out what price are the markets willing to
2.find out what quality are they willing to accept
for the price they are willing to pay
3.find put a gap if any where u can offer a higher
value for the price they are willing to pay better
than the average value privider as well as the
highest value provider in the markt.
4defend and protect .
Concepts of
cost,price,revenue,value & are they connected?
Adi godrej said,when asked what is important,top line or
bottom line?
REVENUE $ (read sales) vanity,!ROF% $ $AN%
and cash is reality.Cost is a fact & Value is a perception.
Value is benefit divided by price
Customer delivered value=total customer benefits(%CB)-
total customer costs(%CC).
%CB=!roduct benefits+$ervice benefits+personnel
benefits +image benefits
%CC=monetory cost+%ime cost+energy cost+psychic
Quality is 2 types Quality of
conformance & quality of
QUAL% OF CONFORMANCE-consistently meeting specifications
laid down batch after batch/supply after any agreed level
of quality
!erformance as per promise.supplier commits to buyer a certain
level of quality features,prices and performance and delivers in
practice what was promised.
QUAL% OF !ERFORMANCE-this has got to do with the level of
quality Certain products promise and perform at higher level of
quality and certain other products promise and perform at a lower
level of quality.
EXAM!LE.Which product has a higher quality of
performance,Mercedes Benz? Or Maruti 800? Answer is the former.
Which of the above 2 products has a higher quality of conformance/
Answer is both can have the same level or one can have a higher or
loer level than the other depending on the actual percetved
performance over a period of time.
Compare the customer deliverd value of
any 2 brands fighting with each other in
the same %M$/
Compare cdv of kinetic Honda to ladies
with cdv of Hero Honda to male outh.
Which one is greater?
Caterpiller V$ komatsu how to
price caterpiller's buldozer?
Cost to make =$30k
!erceived worth of customers=$100k
Added value=$70k
!ricing optionsA.$hare
equally,!=$65k.B.take a higher
share,!=$80kC.%ake a smaller share,
How to decide what strategy to follow.?
Caterpiller 's price strategy
depends on
1.the Co's goals/ambitions
2.the competitive factors and
3. the customers value perceptions
f the co wanta a short run high return,and
doesn't mind losing competitive entry, price it
f the co's interest is to gain a high markt share
quickly and protect it over a long term,go for a
low price but a longer pay-back.
Cdv concept of buyer decision
making and its use for seller
1.Caterpiller can increase total customer
value.By improving !,$,!,or benefits
2,Caterpiller can reduce the buyers non-
mo0netary costs By lessening the buyer's
time,energy and psychic costs.
3.Caterpiller can reduce buyer's monetory
cost,by lowering its price,providing easier
terms,of sale,or in the longer term lowering its
bulldozer's operating or maintenance costs.
Customer value assessment of
Cost of prdn to Caterpiller-$140k
Customer perception of its worth-$200k
%otal added value-$60k
!RCNG O!%$
<140kcosts not covered for Caterpiller.
>200kCustomer value exceeded
$160k-20k to
$190k-50k to Caterpiller and 10k to customer.
%he lower the caqterpiller price,the highjer the delivered
value to customer.caterpiller and 40k to customer.
%otal customer satisfaction concept
Customer satisfaction depends on the product's performance
relative to a buyers' expectations-
$hort of expectations-dissatisfied
Matches expectations-satisfied
Exceeds expectations-highly satisfied or delighted.
How are expectations formed?
1,past buying experiences
2.opinions of friends and associates
3.marketer and competitors'info and promises
Marketers should set the right level of expectations. Holiday nn
campaign of 'NO $UR!R$E$ran into hot weather and was
withdrawn.Consistent and trouble-free services.if u aren't satisfied
ur night's stauy wd be free.Can u defend this ?How do u measure?
Can u argue with ur customer? And still maintain a good relation?
mplementing total quality
!M$-Correlation between Relative product
quality and profitability
QUAL%-Fitness for use
Conformance to requirements
Freedom from variation
%he tottality of characteristics and features of a
product/service that bear on its ability to satisfy
stated or implied needs.Customer-centered def
of Q as per American soc for QC.
!erformance q vs conformance Q
!erformance q-Refers to level at which a product
peforms its function.Ex Mercedes provides higher
performance Q than Volkswagen.Gives a smoother
ride,handles better and lasts longer.t is more expensive
and sells to upper segment.
Conformance Q-Refers to freedom from defects and the
consistency with which a product delivers a specified
level of performance.
A Mercedes and a Volkswagen offer equivalent
conformance Q (each delivers consistently what it
A $ 50k car that meets all its requirements is a Q car. $o
is a $15k car that meets all of its requirements.
Marketing's role in total Q
2 roles-
1.Formulate strategies/policiesto win total Q excellence
2.Must deliver marketing Q as well as !roduction Q .Must perform
each mrktng activity MR,sales training, advertising, customer
service and others to high standards.
1.Correctly identify customer needs & communicate correctly
product design dept.
2.Fill customer orders correctly on time and ensure customers
receive training in product application
3.stay in touch with customers after sales to ensure they remain
4,Gather and convey customer ideas for product and service
improvement to Co departments.
ronic research study.
Marketing people responsible for more customer complaints than
any other dept.(35%)
Marketing mistakes;
1.$ales force orderd spl product features for customers but failed to
notify manufacturing of the same changes
2.ncorrect order processing resulted in wrong product being made
& shipped
3,.Customer complaints aren't properly handled.
Marketers must be
1. customers' watch dogs complaining for the customer when
service is not right.
2.spend time and effort for both external and internal marketing
3,uphold the std of "giving the customer the best solution
%he malcolm balridge national
quality qward-Q principles applied
by MR firmCR-custom researchinc
1.focus on building major customer relationships
2 organise into cross-functional client-centered
teams to get every one working toward customer
3,Develop high Q processes& procedures to get
the work done ,then measure the results
4.Explicitly ask customers what they expect from
a partnering relationship. customer feed back on individual projects
and overall relationship.
6.Hire the best people and invest ti their
7.$tay flexible,agile fast moving-empower
every one in the Co to 'just do it'
8.Have fun with hoopla and recognition
9.Build Q continuously
10.Never be satisfied.
Essentials for total Q marketing
strategy-W.Edward Deming
1.Q is the eyes of the customer.
2.Q must be reflected not just in the Co's products but in every Co
3.Q requires total employee commitment.
4.Q requires high Q partners (suppliers)
5.A Q program can not save a poor product.
6.Q can always be improved.
7.Q improvement sometimes in quantum leaps.
8.Q does not cost more-'do things right the first time'-'Q is not
inspected in; it must be designed in'.%hese reduce the cost of
salvage ,repare and redesign,not to mention losses in customer
good will'
9.Q may be necessary but may not be $ingapore Air
lines-Competitors reduced the percieved Q gap ,so M$ reduced for
%he case of lost customers
!ay attention to 'customer defection rate'-rate at which they lose
customersand the steps to reduce it.
4 ways of doing this
1.Define and measure its retention rate. For a magazine renewal
rate is a good measure of retention .For a college it could be the 1
to 2
year retention rate.
2.Distinguish causes of customer attrition & identify those that can
be managed better .Do something about customers who leave due
to poor service ,shoddy products, high prices etc., while nothing
could be done about who leave the region or go out of business.
3.Estimate how much profit the Co loses when it loses customers. n
case of an individual customer, the lost profit is equal to the
customer's life time value (CL%V)-that is the present value of the
profit stream if the customer hadn't defected prematurely.
Cost of a lost customer
For a group of lost customers ,one transportation carrier estimated
its profit loss as follows.
1.Co's accounts-64k
2.Lost 5% due to poor service this year.
3.%he average lost A/c represented a $40k in revenue per annum.
4. %he Co's profit margin is much is the loss for the Co this
year? How much would it be if the average no. of loyal years is 5
and the inflation in prices is just same as discounting rate for N!V
5.Fgure out how much would it cost to reduce the defectrion rate ?
As long as the cost is less than the lost profit the Co should spend
the amount to reduce the defection tate.
Lost custom---
%he cost of attracting a new customer is
estimated to be 5 times the cost of keeping a
current customer happy.%raditionally we all
make sales rather than build relationships,
selling and pre selling becoming more important
than after sales.
%oday, more Co's recognise importance of
satisfying and retaining current customers . One
study indicates co's can increase profits
between 25-85% by reducing customer attrition
by 5%.
$hould this Co add new
1.cost of an average sales call-incuding
salary,commission,benefits,expenses,incentives etc.--$300
2.Av no. of sales calls to convert an average prospect into a customer-4. n
fact this doesn't include advert,promoting,operations,planning etc.
3.Co's estimate of Av customer life time value
Annual customer revenue--$5k
Av no. of loyal years2
Co profit margin-10%.
Q.s customer's L%V higher or lower than the cost of attracting a new
Q.How will u recommend this Co should do to add new customers?
%he Co is clearly spending more than they are worth to attract new
customers.Unless the Co is signing up costomers with (a) fewer
calls,(b)spend less per sales call,stimulate higher new customer annual
spending,(d) retain customers longer,(e)sell them higher profit products,the
Co is headed for bankruptsy.
2 ways to strengthen customer
1.%o erect high switching barriers. $witching
involves high capital cost, high search cost, the
loss of loyal customer discounts and so on.
2.Better approach is to deliver high customer
satisfaction .Due to this, Lower prices/switching
inducements of competitors won't be attractive
%he task of creating "strong customer loyaltyis
called "relationship marketing'%o know and to
serve better all valued customers.
%he key of relationship marketing
%he customer development process
$U$!EC%$----!RO$!EC%$----D$QUALFED !RO$!EC%$
First time customers-may buy from competitors
Repeat costomers-may buy from competitors
Clients-buy only from Co.
Advocates-word of mouth
!artners-work actively together
Every stage of customer can become inactive or EX customer due
to bakruptcy,moving out to other locations,dissatisfaction etc.
Reactivation is a challenge thro customer win back strategies.
t is easier to re attract ex customers than to win new ones.
$ocial actions affecting buyer-seller
relations-good things
1.nitiate +ve phone calls
2.Make recommendations
3.Candor in language
4.Use phone
5.$how appreciation
6.Make service suggessions
7.Use 'we' problem-solving language
8.Get to problems
9.Use jargon/shorthand
10.personality problems aired
11.%alk of our-future together
12.Routinise responses
13.Accept responsibility
14.!lan the future
Bad things-affecting buyer-seller
1.Make only call-backs
2.Make justifications
3.Accommodative langusge
4.Use correspondence
5.Wait for misunderstandings
6.Wait for service requests
7.Use 'owe-us' legal language
8.Only respond to problems
9.Use long-winded comments
10.!ersonality problems hidden
11.%alk about making good on the past
12.Fire-drill/emergency responsiveness
13.$hift blame
14.rehash the past.
Retaining customers-CRM
Only attract new customers? Don't want to retain
existing ones? Look at the statistics.
!.Competition increasing vand so cost of
attracting new customer is increasing.
2.5 times costlier to attract new customers
3.Offensive marketing costs more than
defensive marketing. Coaxing satisfied
customers away from competition is expensive.
4.By reducing customer defections by 5%,Co's
can improve profits from 25-85%.
Relationship marketing
%he process of creating ,maintaining and
enhancing strong, value-laden relationships with
customers and other stake holders.
All of Co's departments work together with
marketing as a team to serve the customer.
nvolves building relationships at many levels-
economic,social,technical and legal-resulting in
high customer loyalty.
5 different levels of relationship as
a function of profit margin and no.
of customers
1.Basic. $ell but don't follow up.H.J.Heinzdon't call every ketch-up
buyer to thank.(large no. of customers and low margins)
2.Reactive; $ell and encourage to call if any question or problem.
3.Accountable;Check after sale if product meets expectations.$olicit
improvements, suggessions,and any specific disappointments
4.!roactive;$ales persons and others in the Co phone customer
often with info on improved product use or new products.
5.!artnership;Continuously work with customers to discover ways to
deliver better value.Boeing does partnership matng with United
airlines to work closely in design of aeroplanes and satisfying
customer requirements.
!rofit margin vs no of customers-
relationship levels as a function of
profit margin & no of customers
!roft- HGH MEDUM lOW
No.of Customers
Many Accountable Reactive Basic
Medium !roactive Accountable Basic
FEW !artnership Accountable Reactive
Develop strong customer bonding
& satisfaction-3 value building
Financial, social and structural
1.Financial; Adding financial benefits to relationship
.Ex.Frequent flier programs of airlines ; *room
upgradesto frequent guests in hotels *!&G's money-
back guaranteeon Crest tooth paste(cavities and tartar
build up ion 6 months).!&G builds up data base .Dentist
2,$ocial;ndividualise and personalise the products and
services ,Ritz hotels offers financial and social
benefits.Refer to guests by name& give each guest a
warm welcome!.Record specific guest preferences &
maintain data base accessible to all hotels in chain.
A guest wanting a foam pillow Ritz in Montreal first and
Atlanta later.
3 value building approaches
3.structural ties; A business marketer helps
costomers with spl equipment or computer
linkages to help them manage orders ,pay roll or
inventory. Ex.Mc Kesson Corp.a leading pharma
wholesaler built financial,social and structural
ties with customers by spending $millions in ED
to help small pharmacies manage their
inventory,order entry and shelf space.Fedex has
computer linkages with its customers.
Customer profitability the ultimate
test-how to attract and keep
profitable customers?
1.Usually 20-40% of customers are unprofitable.
2.Most profitable A/cs aren't the largest a/cs; but
mid-size a/cs.
3.Largest a/cs demand high services and high
discounts,so low profits.
4.$mallest a/cs pay full price and receive less
service ;but cost of handling high and so low
5.Mid size a/cs paying good price and receiving
good service are the most profitable. %herfore
invade the middle not only the largest a/cs!
Choose ur customer-CRM-What
not to do
1.don't pursue and satisfy every a/c.
2.Don't try to satisfy every whim.
3,don't provide any thing and every thing an a/c
4.Market focus doesn't mean "blindly following all
suggessions that can't be profitably undertaken
5.Market focus means "making disciplined choices of
which customers to serve and which specific benefits to
deliver or deny
f !RE$DEN% customers want %aj service !resident
should say 'no'.Because providing confuses positioning
of %Aj and !resident systems.
What makes a customer
profitable?-concept of CLV
CLV is the amount by which revenues from a
given customer overtime will exceed the Co's
cost of attracting,selling and serving that
Emphasis is on life time revenues and costs
not profits from a single transaction!
Life time profit of %om !eters to Fedex.%om
spends $1500/month in fedex service.=12
*1500*10 years =$180k for 10 yrs
@10%profit=$18k on %om's life time
business.$o can Fedex risk poor service from a
driver to %om?
correlation with MARKE%
How happy ur customers are has a bearing on how well
ur stock does!
%he CFO of a Fortune 500 Co has his marketing dept
ask him for $50 mn budget to improve customer
satisfaction from 4.1 on a scale of 5 to 4.5
High level of customer satisfaction is beneficial but was it
worth $50mn? s the question.
Can the marketing explain expenditure in pure financial
terms? f they can't then difficult to get the budget
sanctioned. Marktng should speak a laguage that the
rest of the colleagues and shareholders understand!
How do marketers speak
shareholders' language?
Customers are seen as assets but marketing programs are seen as
expenditure and not investments.
As competition intensifies and cost cutting takes center stage,
marketers should learn to account for their costs.
A financial approach to understand if Cos are spending more than
they are worth.
CLV concept tells u 2 things 1, how much to spend on
customers?2, calculate market capitalisation of Cos using
customer metrics and therefore indicate how marketing spends
impact the bottom line.
!roviding value to customer requires marketing investment and the
firm must recover the investment.
CA$H $ KNGBO%H NEED$ to be combined!
Clv=value of all current & future
generated from customer over her
life of business with firm
%o calculate CLV, we need CU$%OMER !ROF% !A%%ERN &
CLV is a function of profit margin from customer, defection rate and
discount rate of the Co that depends on cost of capital & riskiness of
CLV can be tepresented as a multiple of annual profits earned from
costomers and the multiplier is a function of customer retention and
usually it is in the range of 1 to 4.5.
f u know annual profit u know CLV and u know how much u can
pamper her!
n case of credit cards & banks where customers have less
incentives to switch brands, the multiple & CLV are on higher side. f
u have a low retentio rate of ur cusrtomer, ur multiple is low,and u
need to cut back on how much u spend!
Clv is discounted cash flow of a
firm at an individual level , Extend it
and multiply with no of customers
to get M cap.
$o customer base c an be another method
of estimating M cap.
Return on customerROC ---
concept of Don !eppers
f ur business has customers , Capital will flow!
%herefore business performance metrics that
measure RO tell only half the story!
Customers are these days scarcer than capital .
n their book, "the one to one future "he
preaches the virtue of collaboration and dialogue
with costomers, customised products and
greater sophistication in segmentation!
ROC=A firm's current period cash flow from its
customers plus any changes in the underlying
customer equity ,divided by the total customer
equity at the beginning of the period.
Clv or cltv (CU$% LFE %ME
A$K Cos to do a better job of predicting long term Co
performance by askking themselves as much about
ROC as about RO.
Any fool can boost earnings and cash flow in the short
term, by say, reducing the Ad expenditure, refusing
warranty claims and firing half the customer service dept!
%herefore measure the damage here and now rather
than waiting for the consequences to emerge!
Customer equity vs CL%V
Customer equity is a slippery con cept as a basis for
ROC calculation.
%herefore to be sure u can estimate L%V of ur
customers by analysing the likelihood that each will
make repeat purchases, buy across multiple lines of
business, use low-cost sales and service channels and
so on.
LOAL% threfore is just one component of L%V.
Disclose more of non financial infowhat happened to
the value of the Co's brands during the year? Did
revenue groth come from new customers or repeat
Customer/product profitability
Customers with varying profitability
C1(high) C2(mixed) C3(losing)
!roducts at varying profitability
!1(high) ++ +crosssell +
!2(ok) + +
!3(mixed) + -crosssell -
!4(losing) +crosssell - -
high p custom Mixed bag Losing a/c
Customer-product profitability
Co's should actively measure individual customer value &
1.customer c1 buys 3 profit making products !1,p2,!3.
2.Customer C2 gives mixed profitability buying one profitable
product !2 and one un profitable product !4
3.Customer C3 generates losses by buying one profitable product
!1 and 2 unprofitable products !3 and !4..loss leaders.
What should the Co do about C3? 1.Rise the prices of less
profitable products or consider elimination.
2.try to cross-sell profit making products to its unprofitable
3.f customers like C3 defect ,it may be for the good! fact Co may benefit from encouraging its unprofotable a/cs to
switch to competitors.
$atisfaction,value and quality (tools
for building customer relationship)
$imple and effective competitive marketing strategies of
successful companies.
$teps %o consistently offer the best value to customers
$%E! 1.$tudy and listen to customer
$%E!2.Learn about consumer problems and needs;
likes and dislikes; trends, through demographic and
lifestyle analysis,focus group interviews,indepth
interviews and product tests.
$%E! 3.Give consumers what they want-a continuous
flow of useful and high quality products.
How to gain reputation of value and
1.Well designed and well made products
2.Obsession for quality
3.nnovative or new ways of serving customers
4.New product development a religion-!ER!E%U%
FAC%OR 33% from products developed and launched in
the last 5 years.
5.Base executive compensation on new product share of
6.New product teams or venture teams-Experts from
marketing,manufacturing,finance and design-live,
breathe and sleep new products from idea to commercial
7.Ordinary products offer simple
but elegant improvements.
8.strong relationship with 'other customers'-retailers and
suppliers who appreciate the Co's high quality,larger
margins,outstanding service,and strong consumer
9.Grab 'vendors of the year'awards, or 'the most reputed
marketing Co'award or 'oustanding co' award.
10.Open 'supershoppees' or 'rubber maid botiques'-
whole sections stocking Co's products and offering
'complete solutions approach'to customer problems.
11.Competence to execute the strategy flawlessly-
uncopiable by competitors.
12.%hey never run out of ideaswhen it comes to fresh
and saleable new ways to serve customers.
Being a customer-centered
1.Be adept in building customers-not just
building products.
2.%he key is 'CU$%OMER-VALUE DELVER
Mc Donald'sConsumers flock to the
McDonald's system which supplies a high
standard of Q$CV-
Not just for the taste of hamburgers ,several
others make better-tasting ones!
Value-delivery system
$ystem made of value chains of the Co and its suppliers
,distributors and ultimately customers who work together
to deliver value to customers.EX.
HONDA chose DONNELLE Corporation for supply of
car mirrors for U$ made cars.
Honda engineers work together with Donnelly in
improving products/operations.Donnelly could reduce
costs by 2% in first year.And its sales to Honda improved
from 5mn $ a year to $ 60 mn in less than 10yrs.
Honda benefited from nan efficient low cost supplier in
Donnelly for quality materials
Honda's customers benefited from lower cost and high
quality cars resulting from Honda's partnerships with
donnelly and others.
Levi $trauss's value-delivery
CU$%OMER(buyer)$EAR$(Retailer)LEV(jeans supplier)
MLLKEN(fabric supplier)---DU!ON%(fiber supplier)
n the opposite direction
LEV's Quick Response $ystem(QR$)
1.Every night Levi's knows thro ED Electronic Data nterchange-
the sizes and styles of its blue jeans that sold thro $EAR$
2.Levi's orders electronically more fabric from Milliken
3.Milliken relaysan order for more fiber from Dupont.
Most current sales info is used to make what is selling.n
QR$,goods are pulled by demand not pushed by sales/supplier!
%raditional vs modern value-
delivery processes
%raditional process
Make product---$ell the product
Design product-!rocuremake-----!rice-sell-Advertise
and promoteDistribute-service
Modern value creation and delivery sequence
Customer segmentation-market selection focus-value
position----!roduct development-service development-
pricing-sourcingand making-distributing and servicing----
personal selling-sales promos-advertising-!R-!ublicity
Usp developmentan attribute to tout as
number 1common no1 positionsbest
quality ----lowest pricesafest---best
servicebest value---fastestmost
customisedmost convenientmost
advanced technology etc.
Examples of value propositions
to price
Hll/lux Geo-
for the
4 positioning errors to avoid
1.Under positioning; buyers have only a vague
idea of the brand.Nothing special is seen. !epsi-
Cola's clear 'Crystal !epsi, was introduced in
1993. Costomers didn't see 'clarity' as important
benefit in a soft drink.
2.Over positioning. Buyers have too narrow an
'image' of the brand. Consumers think 'diamond
rings' at %iffany's start at $5000 while %iffany's
now offers affordable diamond rings $900
upwards Unsuccessfully.
!ositioning errors--contd
3.Confused positioning; %oo many changes in brand's
positioning too job's sleek and
powerful NeX% computer positioned first for students,
then for engineers and then for business people all
4.Doubtful positioning; Buyers find it hard to believe the
brand features.GM's Cadillac division launched Cimarron
as a luxury competitor with BMW, Mercedes and Audi.
While the car featured leather seats, a large luggage
rack,lots of chrome and Cadillac logo stamped on the
chassis, customers saw the car as a dolled-up version of
Chevy's Cavalier and Oldsmobile's Firenza. While the
car was positioned as "more for more customers saw
"less for more.
Factors affecting positioning
A.Attractiveness of market
1.Market size
2.Mrkt growth
3.Competitive structure
5.$ocio-political constraints
B.Ability of Co to create a relative strength.
1.Mrkt share & position
2.Cost competitiveness
3.%echnical capability
4.Mrktng and distrbn capability
5.Future cash requirements
6.Commncn & Branding capabilitry.
6 key analyses for developing
positioning strategies
1.Mrkt analysis
2.Customer analysis
3.Competitor analysis
4.%rade analysis
5.Economic analysis
6.Environmental analysis
1.Market analysis
A.How attractive are alternate mrkts?
5.$ocio-political issues
B.Do we have the capability to compete effectively?
1.Mrkt share &position
2.Cost competitiveness
3.%echnical capability
4. Mrktg & distribution
5.Future cash requirements.
2.Customer analysis
1.How is the mrkt segmented?
2 What are the needs of each segment?
3.How are purchasing decisions made?
4.Who makes the key decisions?
5.Are there any new segments to appear
or be created?
3.competitor analysis
1.Who are the key competitors?intra-type?---
2.What are the strategies of competitors?---
3.How are we positioned as competitors?----
Where are they vulnerable?---Where are we
4.Are there any srategic windows?---New markt
segmentation?----New technologies?---Market
redefinition?----Channel changes?
4.%rade analysis
1.What are the key channels?
2.Are new channel opportunities likely to
3.What are the needs of our dealers?
4.Do we have an effective partnership to
develop our mrkt opportunities?
5.How are we perceived relative to our
6.What can we add to enhanceour dealer
5.Economic analysis
1.Can "RO and "share holder valuebe
enhanced ?
2.Can costs be reduced?
3.Can prices be revised ?up and down wards?
4. Can the product mix be improved?
5. Can volume be improved by investing in new
mrkts or brand enhancements?
6. Can investment in fixed and current assets be
7. Can time be taken out of the production and
marktng processes?
6.Environmental analysis
1 How are we likely to be affected by
trends in the environment?---------------------
!ollution and environmental protection
%echnology? !olitical? Cultural?
2.what contingency and crisis mngmnt
plans exist? For key vulnerabilities?
Developing the "value proposition
U$!,UB!,V! CONCE!%$
U$!unique selling proposition
UB!unique buying proposition
V!value proposition
U$! is an attribute to tout as No.1.
Common No.1 positionsBest Quality
Lowest !rice$afestBest $ervice
Best ValuefastestMost Customised
most ConvenientMost Advanced
Examples of value propositions-
$tep by step process
1. Co name? and !roduct name?
2.What is target customer profile n
Geographic,Demographic,!sychographic including life
style and %echnosavviness parameters?
3.What is one unique benefit that is distinctly different
from others? And a couple of other normal benefits?
4. What is customers perception of Benefit to price ratio?
Expressed as%oo high a price for the benefit?---
Moderately high price for the benefit?Just right price
for the benefit?Moderately low price for the brenefit
5.Make a value proposition statementAn artistic
statemennt, compact, unambiguous' and easily
understoodNeither too long nor too short- but covering
the salient aspects of all the above 4 points.
3definitions of positioning strategy
1 !ositioning strategy is choice of target mrkt
segment(%M$), which determines where the
business competes and the choice of "DA which
dictates how it competes.
2.!ositioning strategy is deciding which game to
play and how better to play so that the co
continues to win the game for ever
3.!ositioning is not so much what the product
actually is, but rather how the Co wants it's
target customers to perceive it. A Co can choose
from a No. of different strategies.
Match the strategy with the example.
Match strategy with example
!ositioning strategy
1.!ositioning by
attribute;Associating a
product with a particular
2.!ositioning by
benefit;Associating a
product with a spl
customer benefit
3.positioning by use or
A.Master card is
accepted at more
restaurants than any
other card
B.Head & $houlders is
the best shampoo for
people with dandruff.
C.Chevy trucks out-
perform Ford trucks
4.!ositioning by
user;Associating a
product with a user or
class of users.
5.!ositioning by
competitordentifying a
product by using a
competitor as reference
6.!ositioning by product
7.!ositioning by quality&
D."%imex watches take a
licking but keep on
E"!reference by
L'Oreal.t costs a little
more, but am worth it
F.7-U! is the Un-
Cola.t's lighter& more
G.A box of
Arm&Hammer baking
soda in your refrigerator
will keep it clean-
How do Co's add superior value?
n 3 ways
1By strategies adding value
2,by strategies reducing cost & developing more effective
Let us get into details of each.
Drivers of utility
drivers of cost &repositionings
1.Drivers of utility.
Utility,usefulness,perceived value
orcustomer satisfaction is a combination of
rational, economic factors and subjective
image dimensions4 drivers -----
.!roduct,$ervice,!ersonal &mage drivers
A,!roduct drivers
!roduct drivers & service drivers
!roduct drivers;
4.Conformance to specs
7.Operating costs
$ervice drivers;Become
important as competition
narrows down product
2.Ordering facility
6 Aftersales-service
7 Gaurantee
8Operating support
!ersonal & image drivers
!ersonal drivers. n service- oriented Co's,
personnel become a valuable source of "DA-
since difficult to copy high quality person or
service. mportant traits;
1.!rofessional skill, knowledge,talent
3.%rustworthiness,reliability,!ositive attitude
5.Communicability etc.
mage drivers
mage drivers give customers the
confidence in the product.%his confidence
value is in socio-psychological utility of the
brand or it's economic performance or
Ex.oungsters see Coke, Levi's
jeans,$ony Walkman,Nike shoes as
consistent with their life styles.
2 drivers of cost
Michael !orter's 5 force theory&
value chain
%ypical !&L of a Co
Mrktng OH$---15
%O%AL CO$%95
Cost drivers
t is cost drivers that decide if a Co's costs are
lower or higher than it's competitors.Eg.
1.Economies of scale
2.Learning curve or Experience curve
3.Capacity utilisation
4.$haring of costs with group Co's
5.Vertical/horizontal integration
6,First/leader in mrkt
7.Location,Marktng strategy advantage.
Value chain
5 forces of porter
3.Repositioning strategies
are you positioned adequately?
!roduct X is positioned wrongly in between mass & premium mrkts-
where the economy and luxury segments are at the 2 extremes of
the markt.
On the Quality V$ Cost or price map, there could be 3 reasons of
inadequate positioning of X.
1.Un-attractive segment-too small in size,declining,too
competitive,or unprofitable.
2.Quality & features don't match the target segment.
3.%he product costs too high to allow it to be priced competitively.
%herefore it has %O RE!O$%On itself
7 repositioning options
real & psychological options
1.ntroduce a new brand. In 1990,IBM , in the PC mrkt,
introduced it's own cheap clone under AMBRA brand
name to have a foot - hold in the emerging mass or
economy mrkt.
2. Change existing brand. In contrast to IBM,Compaq
solved the problem by cutting price & simplifying features
offered to hold on to position in mass mrkt.
3.Alter beliefs about brand.; Chivas Regal scotch
repositioned itself from the mass mrkt to the premium
segment thus rationalising it's higher price and quality.
4. Alter beliefs about competing brands; %he BOD
$HO! retail group has communicated that the beauty&
personal care products of competitors are not
environmentally friendly.
5. Alter attribute importance rates; VOLVO
raised importance of safety as an attribute
in choosing a car thus enhancing the value
of it's differentiation.
6. ntroduce new or neglected
attributes;Unilever successfully introduced
"RADON, a new detergent that
eliminated odour-a benefit previously
considered not important.
7. Find a new mrkt segment; DUNHL
diversified from smoking accessories into
mens' clothing. nstead of getting into the
crowded segments,created a new luxury
segment of expensive high quality ready-
to-wear suits. As the only typically British
competitor in the segment,it brought a
unique brand with a strong appeal to
affluent executivesespecially the
Creating brands & nurturing them
Why brand technology products?
!urpose of any business?
How do we measure success?
%he 3 secrets of business success
& survival?
$ecrets of----
!roduct image
$ervice image
Corporate image
Channel image
Right Business orientation needed
for success?
!roduction orientation
!roduct orientation
$elling orientation
Marketing orientation
Customer focus/orientation
%he role of engineering/R&D in success
%he elephantine electronics case
What moral can we engineers draw from
this story?
Differences between products
Benefits of brands-
to customers ?
to company ?
to society?
!urpose driven R&D-in commercial
What goals should we have?
Market goals
Financial goals
!eople goals
$egmenting markts-how will we be
different & better?
"all skills are subsidiary to the master skill of concentrated focus
2 stages to undertake segmentationDefinition of potential
segments & selection of target segments
DEFN%ON-in a lot of different ways;
Geographic; ,ndustry,%ype of application,Customer size,Markt
served,Channels of distribution,
Demographic,!sychographic,%echnographic, Behavioural etc.
all can be used.
When >2or3 variables are used, the process becomes complex.
$ELEC%ONs easier based on MA & DA.
A practical approach to segmenting
markts-cascade method
$tep1;what is our definable
markt?Questions to A$K;!O%EN%AL
BU$NE$$ !ROCE$$?
1.HOW MUCH?v lowlowmedhigh
BU$iness GRA!HC$
5.WHA% !RCE?--<5k--5K-25K25K-100K-->100k
$tep3.Defining segments by
$%E!4;make as many segment statements as possible.
Guidelines for cascading
A% $%E!1
4.KEE! A MAX OF 5-6 LAER$.
"we segment our mrkts
"segments are technologies or products
"$egments are forever
"WE want to be in all segments E%C.
Assignment on cascade method of
segmenting markts
%ke any markt u like and do follow the above
swtep by step process of cascade method,
Divide into segments,
Mention at least 3-4 segment statements,find out
if thjose sedgments were already occupied by
current players,if so who and if not check
attractiveness of the niche u have just
!lc strategies. ch- fig--
!roduct strategies-Ansoff diagram
or directional policy matrix.
4 types of product strategies
BCG matrix ch fig
GE or McKinsey matrix
to merge into ND RAON-What
New entity called Aditya Birla Nuo(ABN)-sep 05
nd Ray ndGulf Bir Glo Comb
$ales* 3209 678 43 3930
Net !rof*58 57 12 127
!romo hold%28.6 58.2% 74.8% 38%
Net worth 1825 cr
*F05 R$ CR financials of ind ray are
consolidated figs
$hare holding pattern of indian
!re merger post merger
!romoter 28.64 38
F's/Banks/F's/GDR's39.52 37
Others 31.85 25
All in %
KM Birla's past time-Mergers / acquisitions
04-Acquisition of L&%'s cement operation
Now-major consolidation to create a
conglomerate with a projected turn over of rs
6000 cr for 05-06.-3 shares of indogulf & birla
global get 1 share of ind ray.
Recast history
$ep 21, 1998-nd Ray transfers cement
business to Grasim
Jul, 22,02-Hindalco takes over ndo Gulf's Cu
business-leavinf ndo gulf with fertilisers
Aug,20,03-Grasim,Hindalco,nd Ray sell
ndoGulf stake to %G$ nvestment & %rade
July,24,04-!romoters consolidate holdings in
Birla global via %G$
July,1, 05-Grasim sells Century Enka pie to %G$
$ep 11, 05-nd Ray to take over Birla global &
indogulfthro a share swap.
!ost merger nd Rayoneffective
31 May 05
Will morph into a complex combination of brick
and mortar and New-Age businesses
AB group will now have 4 major cos in ndia-
1,AB Nuo, 2, Grasim(the country's largest
viscose rayon fiber,V$F, 3,its subsidiary Ultra
%ech,ndia's largest cement producer, and 4,
Hindalco, ndia's largest producer of non-ferrous
metals.mainly Cu & Al.
%otal group turnover is Rs 34,000crof which 70%
is from ndia.
%he driver behind the restructuring-
Desire to deploy the steady stream of cash
thrown up by traditional business for
ramping up growth of New-Age
%he group clearly sees limited scope for
investment in old businesses-even though
some of them generating cash and
therefore marshall these funds in some of
faster growing new businesses.
!roduct strategies.HLL
1.product mix width strategy
2.product mix consistency satrategy
3.product line length strategy
4.product depth strategy
!RODUC% MX WD%H measures the no of
individual(NDE!ENDEN%) lines of products the co
carries in its product portfolio.
For ex,HLL has roughly 3 dozens of lines of products
pstes,toiletries,cosmetics,personal care products,ice
!roduct stra----
Advantages;wide mix helps
1,growyth in bad times for some lines
2.good customer coverage
3.prevent competitor entry
4develop trade interest
5reduce overall cost
6synergy etc.
1.resources scarcely distributed
2.lack of focus
3.Confusion if overlap
4.too much inventories.
What is optimum width?
f mix is too narrow,vulnerability, competitors get
strong if they discover & enter into new niches,
and stake holders growth expectations not met,
Optimum width depends on
1,co's resource capability's ambitions for growth with matching
3.ability to start a new line when the existing
lines can survive & grow on their own merits,
2.!roduct mix consistency strategy
%his measures how well each line is related to every other line in
terms of
1,technical capability
2.manufacturing skill& capability,
3.distribution capability,4,employee talent and skills,5branding&
commncn skills
6,customer mix etc.
Advantages of high mix consistency
1.lower costs
2.quicker growth
3higher profit
Disadvantages;1inability to venture into unrelated but high
opportunity areas.ex reliance.
!roduct line length strategy
Line length measures the no of
independent products in a line.
For example,HLL's soaps line has a dozen
different soaps
Jay Lux Hamam
Breeze Liril Dove
Lifebuoy Fair&lovely
Rexona !ears
Long lines-advantages
1different segments
2high sale,M$ & profit
3.prevent competition first to open a swegment
5overal markt leadership
6.More satisfied customer
groups7.synergies in marktng costs
7.satisfied trade
Long line-disadvantages
%oo long unnecessary-wasted inventory
$low non-moving stocks
Low RO
Confuse customer choice if overlap.
Lack of focus
Resources too thinly distributed.
product depth-no. of variants of
same product-by
sige,packing,colors,styles etc.
Lux is available in 2 formulations,3 siges,3
colors and 2 skin types
%herefore lux's product depth is
Why product depth?
%o cater to subsegmental needs
%o retain customers
%o meet needc fragmentation in evolving
!lc strategies. ch- fig--
Branding strategies
!ricing decisions-why is price p is
the most imp of all p's of M.MX?
!remium strategy Good value
Over charging
Economy strategy
higher lower
!rice is the only p that gets
revenue all others add to cost!
!rem strategyHigh Q,High !ROLEX
Economy $trategyLow Q, Low!-%imex
Usually coexist,since markt consists of atleast 2
groups of buyers%hose seeking Q and those
seeking !.
Good Value strategy---A way to attack premium
pricer.we have high Q but at a low !.f really
true,and Q sensitive buyers believe this,they buy
and save money.---Un less the premium product
offers more status or snob appeal.
Over charging strategy
Over price the product in relation to Q.n long
run, customers may feel "taken,will stop buying
& may complain to others.$o avoid this strategy.
!RO%EC%ED !RODUC%.How to price first
time? Choose between 1,Market-skimming
pricing and 2,Market-penetration pricing.
1.$et a high price to skim maximum profit from
the segment willing to pay the high price.Fewer
but,more potential sales
!ricing an innovative patent
protected product first time
Choose between skimming pricing penetration pricing skimming pricing.---set a high price to get a
high profit per unit from the segment willing to pay a high
price---fewer but more profitable sale.
Conditions for success
1.quality & image must match the high price.
2.cost of production of small volume can not be so high
as to cancel out the high price.
3.competitive entry barriers should be highnot to enter
& under-cut.
2market penetration pricing
$et a small price in order to attract a large
number of buyers and a large market share
deeply & quickly.Ex
1.Dell & Gatreway used penetration pricing for
high quality computers through lower cost mail-
order channel.%heir sales increased
substantially when BM,COM!AQ & A!!LE sold
thro retail stores & could not match their prices.
HOME-DE!O% & WALLMAR% & other discount
retailers charge low prices for high volumes
leading to low costs to allow keep prices low!
Conditions for setting low price
1.markt to be highly,low price
leads to more sales and growth.
2. production & distribution costs fall as sales
volume increases.
3.low price must help keep out competition-
otherwise price advantage may be purely
temporary.Dell & Gateway faced problems when
BM & Compaq established their own direct
distribution channels.
3.skimming layer by layer
$ome firms that are highly innovative use a hybrid
strategy whereby they set a high price to begin with to
skim maximum profit from the top most segment and
then reduce price continuously to skim profit layer by
layer from the segments willing to pay the high price.Ex.
ntel charges the highest price for the computer chip
"pentium.When it first brought it out,they charged $1000
each so that computer producers priced first pentium
computer at $3500,attracting innovative & serious first
Later, ntel cut pentium prices by 30% per year to
eventually allow the pentium !C prices to drop into the
price range of home buyers. ..
Choice between penetration and
skimming strategies.
1.Objective-long run markt
share;risk taking
2.demand-price elastic;few
markt segments
3.competition-deter new
competitors;few barriers to
4.product.-image seen as
unimportant,long product life
5.price-pressure for prices to
fall,need to move fast
$hort run profit
!rice elastic,multiple markt
Accept new competitors,high
barriers to entry
$eeks prestige and
image,short !LC
!rices can be sustained,fewer
pressures in markt.
understand product
!roduction-high scale
e curve effects
$kim strategy
Unfamiliar product
Unfamiliar channel
Few scale economies
and experience curve
!rice problem
Case 1. A toaster marketer has the cost and pricing structure as
Fixed cost;$300,000
Variable cost/unit;$10
Q1.What is the break-even volume in units and value in $
Q2.%he Co invested $10,00,000 and wants a 20% return on
investment (RO).How much should the Co sell in units and value?
Q3.At an expected unit sale of 50'000 what is the total
manufacturing cost per unit?
Q4.At the above manufacturing cost per unit,what should be the
selling price
A,to earn a mark-up of 20% on cost?
B,to earn a margin of 20% on selling price?
!rice problem case-2
$etting a price to Government A'c is quite
tough.n a sealed-bid pricing,the firm
needs to set a price based on how it thinks
competitors will price rather than on its
costs or demand.Both "high price " & "low
pricesetting strategies are
undesirable.One needs to strike a
balance.$uggest your pricing strategy with
following data.
What is the best price?
Co's bid & profit in $
9,500 &100
10,000 &600
10,500 &1100
11,000 &1600
Assumed probability
of winning
EVC-Economic value %o Customer
central concept in pricing in
industrial products
%he markt leader is selling a machine tool
(product X) at a price of Rs.30,000.%he
customer will also have to cover start-up costs of
rs.20,000-(installation,initial training etc.)and
post-purchase costs over the life of the machine
with a present value of rs.50,000-
(labor,maintainance,power and other operating
costs).%hus the total LFE CCLE CO$% of the
m/c is Rs100,000.n other words,the price is
under 1/3
of the total cost of employing the
By developing an offer with high
EVC ,a Co can charge significantly
higher prices and stll offer its
Customers a superior value.%he higher vpriced
product may offer value because (a),it generates
more output thanits competitor or
(b),because the operating costs associated with
it (mint,labor,depreciation etc)are lower over its
economic life.
f a competitor wants to dislodge the markt
leader ,it must offer superior EVC.One way is
simply to price-cut.But this is not likely to be a
decisive strategy here,because,even if the m/c
price is cut by 20%,the savings to customer of
Rs.6000 is only 6% of total cost.
%here are 2 other better ways.For
ex,a new product is shown as
reducing the start-up cost
By Rs.10,000 and post-purchase cost by
Rs 20,000.What do u think is the highest
price the customer will be willing to pay for
product ,assuming both X & would
have the same life cycle cost and
productivity?%his represents the EVC that
offers to the customer and below the
EVC it would be rational for the buyer to
switch to ,provided that all other things
were equal between the 2 suppliers.
Assume a new product Z is
available which ,besides lowering
%he customer's cost ,may enhance its revenues
also.Z actually turns out more finished product
for the customer or products with superior quality
!roduct Z has the same start-up cost as X ,but
post-purchase costs are Rs 10,000 lower and
offers a N!V of Rs 30,000 extra contribution
margin,arising from enhanced output of higher
quality for which demand exists.Find out the
EVC or the maximum price customers are willing
to pay for Z?
Questions on evc case
f you are the market leader with X and
developed and Z for the first time what
marketing strategy would u adopt for
f u are the unsuccessful competitor for the
leader X and fortunately developed both
and Z,what marketing strategy wd u adopt
to challenge the leader and displace him?
Evc case solution
Using the EVC concept, the firm can target
those mrkt segments where the evc is the
n such segments the product is more attractive
and so here the firm can get the highest prices.
n this eg, it may pay the firm to launch 2 new
A high price brand Zto the quality-oriented
customersand a low priced brand to the cost-
oriented segment of the brand mrkt.
Firm's pricing policy setting
1.selecting pricing objectives
Max current profit
Max current service
Max sales grwth
Max markt skimming
!roduct-quality leadership
Other pricing objectives
2.Determining demand-price elastic
demand & price-inelastic demand
3.estimating costs;Demand sets the sealing & cost sets
the floor for product pricing
4.analysing competitors'costs prices &offers
5.selecting aq pricing the price based on 3
C's---Customers' demand schedule,cost function &
competitive prices.
LOW !RCE costs
competitors prices/substitutes
Customers assessmnt of unique product features
f price is lower than cost, no profit
f price higher than customers'assessment of value,no
possible demand exists.
Various pricing methods
A.mark-up pricing pricing
C.perceived value pricing---value in use
D.value-pricing---fairly low price for a high
quality product ex.%oyota LEXU$
E.going rate pricing
F.sealed-bid pricing
!erceived value pricing or value-in-
use pricing
ncreasingly companies are basing prices on
buyers' perception of quality and value,not on
the seller's cost.
%hey use other marketing mix elements,such as
advertising,packing,sales force,and promotion to
build-up perceived value in buyer's mind.
Eg.Dupont,when it developed its new synthetic
fiber for carpets,it demonstrated to carpet
makersthat they could afford to pay Dupont as
much as $1.4 per pound for the new fiber and
still make their target profit.
Dupont calls this $1.4 the value-in-
use price.
Dupont sets a price lower than $1.4 to induce carpet
makersto adopt the new fiber,since at &1.4,the
customers are indifferent.
Dupont didn't use its manfng cost to set the price,but
only to judge whether there was enough profit to go
ahead in the first place.%he key to perceived value
pricing is to determine the markt's perception of the
offer's value accuraely.
$ellers with an inflated view of their offer's value will
over-price their product.$ellers with an under estimated
view will charge less than they could both are
!erceived value pricing contd.
When a customer asks Caterpiller's dealer why he
should pay$10000 more,the dealer answers;
$90k is the tractor's price if it is only equivalent to the
$7k is the price premium for Caterpiller's superior
&6k is the price premium for Caterpiller's superior
$5k is the premium for superior service
$2k is premium for larger variety on parts.
$110k is the normal price to cover Caterpiller's superior
Minus $10k discount is equal to final price.
Value pricing
Here sellers chargea fairly low price for a high quality offering,such
that the price should represent a high value offer to the consumers.
Value pricing is not a matter of simply setting lower prices on one's
products compared to competitors.
t is a matterof reengineering the co's operations to become a low
cost producer without sacrificing quality and lowering prices
significantly to attract a large no of value-conscious customers.
An imp type of value pricing is every day low pricing(EDL!) at the
retail level.High-low pricing is resorted to by promotion oriented
competitors. Here the retailer charges higher prices on every day
basis but then runs frequent promos in which prices are temporarily
lowered to below EDL! levels.
As super mrkts face increasing compttn,from counterparts and
alternate channels,the key to success is using a combination of high
low and EDL! strategies with increased ad promos!
6.$electing the final price
consider addnl factors
A.psychological pricing
B.influence of other MM elements on
price. pricing policies
D.impct of price on other parties.
Adapting the price.Co's don't set a
single price,they follow a pricing
structure that reflects
A variations in geographical
B.markt segment requirements
C.purchase timing
D.order levels frequency
G.service contracts
!rice discounts & allowances
Cash discounts-prepayment
Quantity discounts
Functional discounts
$easonal discounts
Allownces-trade-in allowances
!romotional pricing stimulates early
Loss-leader pricing
$pl-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties & service contracts
!sychological discounting-was $359, now $299 only.
!romotional strategies are usually a zero-sum game!
if they work,competitors copy easily.
f they don't work,waste of money!
Discriminatory pricing
same product at diff prices
Customer segment pricing-eg.museums-
low price for students&sr citizens
!roduct form pricing-diff pack sizes
mage pricing-diff names,diff prices,diff
Location pricing-%agj charges differently at
diff cities.
%ime pricing-season,day or hour.
!roduct mix pricing
!roduct line pricing-price steps one sneaker to
Optional feature pricing
Captive product pricing-camera & films
2-part pricing-fixed fee plus variable usage fee
Bye-product pricing
!roduct bundling pricing-season tickets. %otal
cost less than sum of individual products
nitiating & responding to price
initiating price cuts
Ex; excess plant capacity
Declining markt share
Drive to dominate markt thro lower costs
Risks of price cuts
Low-quality trap
Fragile-merkt share trap-high priced
competitors may cut prices& can withstand
due to deep pockets
nitiating price changes
Normally pressure exists on co's to reduce
prices.Experience curve,competition and rising
customer price sensitivity as markets evolve,all
encourage falling real price levels.
nflation,stock markets expectations of growing
profits and possibility of new and improved
products/brands encourage enterprising
managers to consider ways of increasing prices
and margins.
Cost reduction is another obvious way of rising
margins.But price increase has a better impact.

%echniques to reduce customer

sensitivity to price rise
9.CO$% !LU$ FORMULA$ improvement is
the basis.alongwith commncn to
customers.a better Q for high !
Ex.Rin,rin shakti etc.
2.LNE EX%EN$ON$.New features is the basis to pass price increase on
to less price sensitive customers
3.UNBUNDLNG.nitial price plus charge extra for elements that were
previously supplied free.ex delivery,installation,warranties,training.
4.MUL%!LE BRANDNG.ntroduce FGH%ER brands to match competitors
if they are forcing prices down,and simultaneously rise the price of current
version.!rice-sensitive customers can select fighter brand and less price-
oriented buyers may take the premium version.
5O!!OR%UN$%C !RCNG.Changes in environment and customer
circumstances may reduce buyers sensitivity to a price.Ex.industrial buyers
more interested in total cost of obtaining,operating and servicing the product
over its life rather than just price.
Eg rise in price of oil would increase economic value of a fuel-efficient
engine.and thereby helping in a price incresase.
6.RE!O$%ONNg.Reposition a
product to get higher
prices.Eg.Chivas regal scotch.
n early 80's, scotch whiskey was increasingly sold on price to boost
flagging volumesGuinness succeeded well in in repositioning many
of the brands as premium products taking advantage of increasin g
affluence and snob appeal of these established brand names.
7.Escalator clauses.with long term contracts and long gestation
periods,escalation clauses will allow producers pass on cost
increases to buyers.
8.Reduction in discount.Most Co's erode their basic price with bcash
discounts for pre payment,quantity trade discounts,seasonal and
pomo allowances,or trade-in.Many of them can be dropped or
reduced without significant customer dissatisfaction.
9.Cost plus price formuylas.Offer to meet new customer needs on
basis of cost plus pricing.thus introduce enhanced products with the
buyer guaranteeing the margin.
!roduct mix pricing
1.!roduct line pricing-a range of products at various
prices for buyers to choose from.Castrol G%X at low
price to more expensive G%X2,G%X3 so on uptoG%X7
to exploit different price elasticities amongst consumers
and distributors and encourage customers to trade up to
higher margin brands
$elect price points to signal clear quality differences
between the brands.
2.FOLLOW ON !RODUC%$.$ome products require
subsequent and film. Computer and
software.nitial product might be priced low to stimulate
demand and make profit on subsequent products.
$upplier needs to be dominant or specialist to prevent
competitor to enter wirh lower priced substitutes.
3.BLOCKNG !RODUC%$.$ell at
an economic price to block
competitive entry.
Eg.cross-subsidise sales in one segment or geographical area to
dissuade competition.
4.BUNDLED AND O!%ON !Ricing.Advertise the product at a low
stripped-down price and at !O!,encourage to add high margin
features.merc price Rs 20 lacs and Rs 5 lacs on options.
n contrast Japanese competitors bundle a comprehensive range of
features into the sticker price to offer superior value proposition.
5.!ARALLEL M!OR%$.ncreasingly pricing is becoming
international problem with differences in living stds and distribution
systems.countries differ in price responsiveness and therefore set
prices differently in diff countries but legl restrictions and parallel
imports are making such strategies difficult .
!roduct mix pricing strategies
!roduct line pricing-diff products at diff prices in a range
each offering more features than previous one.Kodak
royal gold and kodak fun time high and low price
2optional product pricing-Basic price+accessories
3.Captive product pricingn products razors,cameras
and computers, in services,the strategy is 2 part pricing-
a fixed fee plus charges for the calls made beyond a
numberas a variable vusage rate.
4.By-product pricing.$et a price for byproduct to make
the main product's proice more competitive.
Customer types based on price and
perceived value.VALUE OF
COMMOD% BUER$-diff low and vom high.$uppliers
develop multiple vendors and encourage them into
kamikaze price wars.$cream loudest and dictate
price,credit and selling strategies.!rofits so low attn
unjustified but provide volume sale.
Best position to be as customers.Want lower
prices,longer credit where possible,more efficient
operations,superior features or services
And wd pay faster for superior value where justified.
From marktg pt of view,firms that attract value customers
get the loyal buyers as part of the bargainand sell to the
price buyer only when profitable and reasonable,
LOAL BUER$_lovers of the care from
Less concerned about price or credit.Often have
a single supplier and don't intend to qualify
COMFOR% BUER$ lovers of convenience
Don't care who is supplying,what price,what
credit,as long as readily available.Most profitable
segment,but unfortunately have little brand
loyaltyand offer no $DA.
Cost based vs value based pricing
CO$% BA$ED !RCNG-setting price
based on buyers'perception of value.
VALUE BA$ED !RCNG-$etting price
based on seller's cost
!lace-the 3
p of mmix
physical distribution & channel
!hysical distribution/marktg logistics-!hysical distribution
is process of delivering product to marktng channels
&consumers.Logistics has a higher scope covers !D
plus part of task of mrktg channels
!D takes care of transportation,ware housing and
inventory mgmt to facilitate flow of product while
channels connect the firm with its customers and thus
bring in greater value addition in delivery chain
$CM has even higher scope encompassing the
materials mgmt task as well. Has all 5 primary activities
of value chain-both front end and back end of the
process to spread value and develop competitive edge.
!hysical distribution-importance
Ensures physical flow of product
Confers place & time utility on products
Helps build clientele
Where production locations and markets
are distanced, !D becomes crucial
A promising area of cost reduction. !D
costs are high and second only to
materials-a neglected area of cost control.
Component functions of
!lanning the overall !D
n-plant warehousing
Field warehousing
$econdary transportation,
secondary handling &
nventory mgmt at each
level in chain
Order processing /
Accounting / record
Designing a physical distribution
system-5 steps
1.articulate distribution objectives, specify the
minimum desirable service level in product
2.find out what customers want in product
3.Find out what competitors do
4.Keep the costs of the system as low as
possible, without sacrificing the guaranteed
minimum service level
5.keep the system sufficiently flexible.
Main tasks in transportation mgmt
1.Assessment of transportation
2.Choosing the mix of transportation
3.Decide the routing
4.Develop operational plans
6.control transportation costs
Role &importance of warehousing
1.Like transportation, warehousing too vests the product with time
and place utility
2.n some commodities, warehousing vests the product with form
utility as well
3.A certain level of storage is inescapable in marketing of most
products. $torage needed in large scale for seasonal products.
4.sub-distribution realities also necessitate extra storage.
5.$torage reduces the need for instant transportation which is
difficult & costly. is a competitive adv ,since better storage leads to better
servicing of channel and consumer.
7.$torage also helps in balancing demand and supply and in
stabilising prices
8.n some products storage by itself acts as a stimulant of demand.
Elements of inventory costs
1.nterest on capital tied up in the inventory
2.Warehouse rent,3.$taff salaries
4.nsurance, Rates and taxes, 5.$tationery
6.!ostage & communication.
charges,7.Administrative OH'$
7.costs of handling, unloading & stacking
8.Loss of damages & deterioration on storage
9.Cost of order processing /record keeping /
Optimum inventory is a compromise between
cost & service.
Outsourcing logistics
Volvo-GM out-sources marktg logistics tying up with
FedEx. Dealers when require spares in an emergency
call FedEx on a toll free no and FedEx supplies parts by
air the same night either at dealer's shop or at roadside
at the breakdown site. A central warehouse was set up
and some of traditional regional warehouses are, closed
and therefore reduced overall inventory costs by 15%.
n ndia AFL, Elbee, Gati,,DHL,OVERNGH%
EX!RE$$,$AFEEX!RE$$ & Blue Dart are some of the
Air express Cos collaborating with manufacturers for
Marketing channel magmt.
Functions performed
1.Facilitate selling by being physically close to
2.!rovide distribution efficiency by bridging the
manufacturer with the user, efficiently and economically
3.Break the bulk and cater to the tiny requirements of
4.Assemble products into assortments to meet buyers
needs; match 'segments of supply ' with 'segments of
5.look after a part of physical distribution/ marktg
logistics; subdistributiona .Reselling, b,Retransport.
C,Handling and d,Accounting---$%OCK HOLDNG-
a,!roviding warehouse space. B,$toring the stocks.
C,bearing risks and d,%ransforming static stocks
intooperational stocks,thereby aiding the sales process
Channel functions----
6.$hare the financial burden of the
principal; !rovide deposits; Finance the
stocks till they are sold to the ultimate
consumers; Extend credit to
7.!rovide salesmanship
8.!rovide pre and after sales service
9.assist in sales promos
10.Assist in merchandising
Channel functions---
11.Assist in introducing new products
12.Assist in implementing the price mechanism;
assist in price negotiations
13.Assist in developing sales forecasts/sales
plans for the territory.
14.provide market intelligence & feedback.
15.Maintain records,16,take care of liaison
needs17.Helpdiffuse innovations among
consumers act as 'change agents' and generate
Alternative channel patterns
1Manf----M's salesmen---User
2.ManfM's showrooms/DepotsUser
5.MWholesaler (stockist) / DistributorR
8.M$ole selling agentW($)/D---$W---R--U
$teps in designing channel system
1.Formulating channel objectives
2.dentifying functions to be performed by the channel
3.Analysing the product & linking the channel design to
the product characteristics
4,evaluatingthe distribution environment, including legal
5Evaluating competitor's channel design
6.Evaluating Co resources and matching channel design
to resources
7.Generating alternate designs, evaluating and selecting
the one that suits the firm best.
Objectives firms seek from
1.Effective coverage of the target market
2.Efficient & cost effective distribution
3.ensuring that consumers incur minimum
exertion in procuring the product.
4.Helping the firm to carry on
manufacturing uninterrupted ,confident
that channels will take care of sales
5.!artnering the firm in financing and sub
distribution tasks.
%ypes of marketing intermediates
1.$ole selling agent
3.C&F Agent(CFA's)
4.Redistribution stockists
5.$tockist/Whole saler/Distributor
6.$emi wholesaler
7.retailer/dealer 8.Broker 9.Franchisees
10Authorised reps 11Commission agents
Linkage bet channel objectives &
channel design
Channel objectives
1.Castrol ndia-
Locational convenience,
Choice of product
&$trong reach; $peedy
dely; Fill orders from
outlets in 24 hrs.
2.Reliance textiles
(VMAL)-Create exclusive
image for VMAL. Cater
to urban markts, as per
position. Build barriers to
Channel design
Vast net work of outlets
backed by CFA's/
facility,1800 $KU's,
tier design .
2.Exclusive showrooms-
200nos-in all cities and
jumbo showrooms in
metros. Outlet
Channel design---
3.Archies gifts
!roximity to
customers, convert
low involvement
purchase into High !,
Make purchase an
enjoyable experience.
4.Outlets close to
upper echelons of
society, the %M$. Go
for exclusive
%rendy interior design
and peppy
range of appealing
Channel design----
4,BBLL(premerger with
reach,!rovide choice of
brand,place&time utility
Fresh stocks to
consumers always.
5.embrace all types
stores&kirana shops.A 3-
tier channel with
CFA's,R$'s and
R's.!rovide for proper
inventory/dely backup.At
each level minimise
distance bet issuing &
receiving points.
Channel obj's & design----
3.!hilips(appliances ,!ers
care )Cover mrkts
intensively & extensively;
After sales service
integral part of channels--
Build barriers to
3.Have a 3-tier channel of
CFA's, distributors &
!hilips $ervice
Centers(100 A!$C's) and
4 CRC's (consumer
response centers).60
engineers liaise with
channel with guaranteed
30%RO to A!$C's.
Make all strong dealers
!hilips dealers.
Channel design-----
6.Louis !hilippe
!romote as a complete &
premium wardrobe line,
with shirts, trousers,
Cover the %M$ (well-to-
do gents) adequately.
Maintain an edge over
comptn by competing on
quality, service, image &
6.Go for exclusive show
rooms, ensure full line at
all out-lets.Go for multi
brand outlets and for
shop-in-shop in super
stores like Akbar Alis
where spl areas are
provided as shop in
Channel design--
7.%C tobacco division,-
ensure easy availability of
Build brands through
Go for CFA's and
wholesalers who
distribute, resell to
Go for different types of
retailers, branded,
traditional and non
Have branded retailers
and franchisee retailers
who sell only %C
cigarettes and not other
%he promotion !marketing
%he mrktng commncn mix
!roduct communicates
!rice communicates
!lace,point of sale communicates
!romotion communicates
-----advertising communicates
-----personal selling communicates
-----sales promotion communicates
------publicity communicates
!roduct communicates
!roduct personality as a whole
communicates.produc t personality constitutes
various elements such as
%he physical features,the material,the
size,shape,design,the finish etc
%he package,its color,size,design &labeling
%he brand name,the co name.
Mrktng commncn through price
!rice conveys something more than price
!rice-quality equation
!rice-status equation
!rice,an indicator of technological
Consumers' concept of a 'reasonable
!lace as a component in marktng
" buy only from X store Why?---they have a big
choice: "t is a lovely place to shop in;the service is
good;it is cheap;t has a good location;they sell
quality products.
service;store is a display unit attracting high consumer
N$%RUMEN%;particularly for image-led products and
brandsaesthetic display of Baccarose Cosmetics in an
aristocratic store environment the color of the wood,the
glass fittings.etc imp.
!romotion as a component in
mrktng commncn.
!$,ADV,$! AND !UBLC% and DM
!ER$ONAL $ELLNG & its communicative role
$ales man and his qualities in his role as a
!roduct knowledge &technical expertise
Customer-salesman relatability in
age,culture,language,dress style etc.
One who listens,communicates better
Right sa;les message leads to effective
!ublicity-a potential tool of mrktng
Oversee & influence the stories/news that appear in media and
conduct publicity campaignsaround some innovations within co or
some topics of public interest like environment,health,social welfare
$!ON$OR$H! & EVEN% MANGMN% are 2 most sought after tools
for creating wide publicity.
$ponsorship-when news worthy events take place,firms associate
with such events as sponsors
%itle sponsorship,cosponsorship,official supplier status for getting a
host of benefits & rights. $uch as signage,tickets,hospitality,product
category exclusivity and the right to advertising,promotion &
publicity.ntention is to remain part of the news creating eventand
reap the best of exposure to the firm.
Event management-a new addition
to publicity tools
Making an event spectacular through a variety of
commncn and display techniquesis crux of event
%he event can be product launch,an exhibition,a contest,
a stage show,or a sport event.idea is to capitalise on the
opportunity by converting the event itself into a grand
Event mngmnt firms do conceptualisation,program
design,logistics planning,technical planning 7 venue
%o make the event spectacular,lighting,sound and spl
effects arte creatively nleave a lasting
impression on the audience.
!r-management of reputation
!r accomplishes the task of explaining to the
outside world about the issues that are going on
within the co.
Good corporate reputation makes selling easier
& cheaper.t saves on advertising,and renders
every activity easier.
!r is more vigorous in in bad times ;for ex,in
recession,large cos often cut the ad budjet and
spend part of it on !R.
Advertising mangmnt
"advertising originates from the latin "advertowhich
means to turn round.
%herefore advertising denotes the means used to draw
attention to to any object or purpose.
n marktng, advertising is defined as "any paid form of
non-personal presentation and promotion of
ideas,goods,or services by an identified sponsor
!opularisation of products is basic aim of advertising and
hence rests on a thorough understanding of the buying
process-and influencing the purchase behaviour of
consumers in a way favorable to the advertiser.---
How does advertising influence
/persuade the buyer?
1.$hould be of interest to the buyer
2.%he audience should interpret the
message in the intended manner
3.the advertisement should influence the
audience/ change is a
central theme in advertising.
%raditional theories of attitude suggest that
it is made up of 3 interrelated components-
cognitive,affective and conative.
Attitudes created by advertising---
1cognitive component of attitude deals with
cognition or knowledge.t is the faculty of
knowing,or percieving or concieving ideas.t is
the sphere dealing with knowledge.
2.%he affective component deals with affections
/emotions.For ex feelings of likes and dislikes
towards objects are dealt on the affective plane.
3.%he conative component deals with behavior
or action.these 3 components together shape
what is known as attitude.
%heories of attitude
Consistency theory.Man seeks consistency
,balance or harmony in his belief system.He tries
to resolve inconsistencies or imbalances
because he cannot tolerate them for long.
When inconsistencies occur between existing
belief system and new information,to which he
gets exposed,the given attitude will tend to
change, so that the inconsistency will get
Factors in advtng that accomplish
audience persuasion
1.$ource/endorser of message
2%he message structure and the message
A)the credibility of source
B)Likability or attractiveness of source
C)%he source's approach to the views and
disposition of audience.
2.%he message in the ad.the
message structure and the appeal
1.Message structure
A)the message sidedness
B).order of presentation
C)climax order,anti-climax order,pyramidal order
D)message conclusion.
2.Message appeal-rational and emotional
!hysical feature-oriented,Function oriented,Brand to brand
Advertisements using celebrities as
Amitab bachhan-icici bank campaign,for its retail banking.makes
life easier
Mansoor AliKhan !ataudi for Gwalior suitings-well known cricketer
$achin %endulkar for visa,!epsi,and !hilips
$unil $hetty endorses Colgate dental powder
$harukh Khan for Mayur suitings
LUX uses film stars
%HE intention is to win over audience thro prestige and
attractiveness of endorser.
MRF uses names of famous cars that are users of its tyres.%he copy
showed Opel Astra,Ford Escort,and Fiat Uno.%he message%hese
cars ride only on MRF radials, MRF radials-ndia's answer to world
class cars.
Rational appeal %C sundrop and
Zodiac shirts
$UN DRO!;New $undrop super refined oil offers not
just one but 4 imp health benefits-easy food
absorption,energy,heart care and vitamins.Food cooked
in $undrop retains its natural flavour'.Copy highlighted
each of the 4 benefits
Energy-9 k cals per gram
Food absorption-helps the body absorb food faster as
the free fatty acid content is below 0.2%.
Heart care-Keeps the heart strong as it contains over
60%poly unsaturated fats.
Vitamins-Contains A, D and E.
Rational appeal-zodiac shirts.
Why Zodiac makes the best shirts in india?
1.Fabrics-best,including,soft,light,long staple european 7 Egyptian
cottons,in Chambrays,Oxfords and %wills
2.$titching-computerised M/cs create an almost invisible 21 stitches
per inch for max strength,others stop ay 16
3.Buttons-Genuine mother-of pearl,hand picked & matched.Others
use plastic buttons.
4.Collars use imported lining for durability.$tate-of the-art fusing
eliminates warping & creasing
5.$tyle & comfort,6.collar/cuffs,7Button holes
8.Customer satisfactionEach Zodiac shirt reflects our chairman's
obsession with quality and carries his personal guarantee.AMONG
Examples of rational appeal
$un drop,Zodiac
2.Brand to brand comparisons to convince
audience.highlight specialities,claiming superiority,name
of competing brand may be specified or implied.Eg.New
!epsodent compared with Colgate.%he claim is it is
102% $U!EROR %O CDC.HLL compares its product
with the "leading tooth pasteColgate Ad jingle in the
background sufficient to relate it to Colgate.
A$C specifies that comparative advertising direct and
indirect, is permissible if 1.the aspects compared are
clear,2.comparisons do not confer artificial advantages
on the advertiser, is factual,can be
substantiated,4.consumer is unlikely to be mislead and5.
there is no unfair denigration of the competing products.
Examples of emotional appeal
Jenson & Nicholson ad creates a romantic setting to
drive home the elegance of J&N paints----Love at first
sight,Love ever after,Colors are like love,----J&N colors--
-excitingly---beautifully---Give your home this wonderful
romance through J&N colors
Humour appeals-very common today,certainly attract imp clutter breaker.!ause,read,capture the
current of fun and enjoythe message.Whether it brings
about an attitude change is debatable.t may sometimes
even distract from the central theme of message.n
addn, people tend to take such messages too lightly.But
many copywriters do use humour in their messages
Emotional appeal in ads
Newsweek;Headline of a %ME magazine Ad reads .f ur
ad in %ME magazine,change your ad agency.Headline
of a subsequent Ad for NEW$WEEK;if ur advertising
doesn't work in %ME magazine,dont change ur
agency,place it in NEW$WEEK
FORD;$ubtly takes a dig at Japanese car
makers,highlighting the superiority of its,ofcourse,Japanese cars are excellent
AfterallFord motor Co taught them to make cars.n
1927,Ford started operations in Japan and installed the
first conveyors assembly line in all Asia.n fact for many
years,the Japanese word for automobiles is FORDO---
Fear appeal in advertising
Failure to use the advertised product might result in great
loss/damages in terms of money,health ,prestige etc.
%his fear appeal serves as stimulus for the receiver,creating a
favorable attitude towards the product.
t may also induce the receiver to learn more about the product and
encourage him to get more info about the issue.May also create a
feeling of hostility in receiver .
Be careful of 3 things;!Understand nature of product advertised
2,Understand attitudinal frame of target audience and 3,extent of
fear in hidden in the copy,
Banks and insurance cos use fear appeal to evoke concern.UN%ED
NDA N$URANCE;%odaya picture of safety---tomorrow---an
invitation to disaster.UR protection is our concern,take cover under
United ndia; %onightsleep better thsan ur neighbor.t costs so
little to insure ur household belongings
Ad objectivesmodels that link
buyers attitude change and
purchase with advertising
$ome useful models;
1.ADA-the 4 stage model proposed in 1920's for any impersonal sales
2.5-stage & 6-stage models;proposed in 1930's by rural socialogists
studying the process of innovation-adoption.%here are 5 stages in any
adoption process-Awareness,nterest,Evaluation,trial and Adoption.%hen
came 6-stage model;Awareness,Knowledge,Liking,!reference,Conviction
and !urchase.divided into 3 main components;cognitive
component(Knowledge component-First two),Affec tive
component(emotions component-next two), and lastly conative
component(Action component-last two)
All these mod.els belong to a class called "hierarchy of effectmodels
3.DAGMAR..Looks at advertising as performing a commncn task and not a
sales task.
What is required is a balancing act-advtng can not be loaded with the sales
task making it totally responsible for bringing in sales; nor can it be totally
exempted from a sales-related responsibility.
4 broad themes ad objectives
revolve around
1.%he behavioural constructs-generating
trial purchase and store visits
2.Attitude-A%%%UDE CHANGE AND
3.Awareness-Creating awareness of new
products/brands/new ideas
4.!roduct positioning and brand building
Main decision areas in
1 deciding the advertising objectives
2.deciding the budget
3.deciding the copy
4.deciding the media.
Deciding objectives$hould they include sales growth? Or should it
have only commncn goals because ad is essentially a commncn
Areas where ad objectives can be
1.introduction of new products
2.expansion of mrkt for existing & new products
3.building a long term consumer franchise for
the firm
4.countering competition
5.reminding customers
6.reassring customers by removing post-
purchase dissonance.
7.building up brand image and co image
Ad obj's
8.aiding total selling function by taking customer
thro steps in purchase process-from awareness
to purchase
9.closing an immediate sale-'clincher ads'
10.supporting other sales promotion activities
11.stimulating 'impulse buying'
12.enthusing the channel to stock the product
13.supporting &supplementing sale's selling
effort and dealers' selling effort.
Deciding ad budget
1.Competitive parity
3.A fixed % of turnover
4.Budget based on functions to be performed
5.Regression analysis;An advanced quantitative technique to arrive
at budget.Done based on Historical data-either time series data or
cross-se4ctional data
%ime series data are records of past ad expenditures and sales over
time.Cross-sectional data are records of ad expenditure and sales
for a specific period over different markets.%he aim is to predict the
dependent variable sale or market share.Advertising expenditure
level would be one of the independent variables.%he regression
coefficient crresponding to the advertising variable serves as a
measure of the short-term response to advertising.
Ad budget-the adaptive control
modeladds sophistication to budget
Ad budget decisions need updating because the relation
between advertising and sales changes over time with
the changes in makt conditions.
%he adaptive control model starts with a sales response
curve and locates an optimum level of ad
expenditure.%he firm will now experiment advertising at
non optimum levels in selected test mrktsto get more
knowledge about the sales response curve originally
set.%he new info coming out of the experimental marktng
is added to the sales response function for arriving at the
current optimal advertising expenditure rate.
%he compromise in ad budget
setting.consider basic q's like
1.Which is the audience intended to be reached by advertising?
2.What is its size,location etc?
3.What are the media available for delivering the ad message?
4.Of the available media,which combination of media is likely to be
most cost effective?
5.%o meet the given objectives,What kind of campaign is
required?What are its features?What type of endorsers are
required?What is the cost there of?
6.Does the campaigninvolve single release of an ad or repeat
releases?What is the frequency of releases proposed?N O%HER
%HEM AND NFLUENCE EACH O%HER.One gets modified and
reshaped by the other.
Deciding the copy-copy refers to all
that appear in an ad written
%o decide 'copy platform'or a precise
statement of the 'ad story',
1,close interaction between advertiser and
ad agency
2,clear-cut ad objectives by advertiser
3,knowledge of market & consumer
4,nature of competition
5,profile of competing brands/products.
Major tasks in copy development-
1.fact finding stage and 2,idea
finding stage alex osborn
'the big idea' in Advertising
1.All effective commercials have a 'big
idea'.$ays Roser reeves;%he big idea in itself is
a U$!.Get a big idea and say it in a simple style.
2.David Ogilvy says;Unless ur campaign
contains a big idea,it will pass like a ship in the
3.$ays Leo Burnett;Not only is great copy
deceptively simple,so are great ideas.And if it
takes a rationale to explain an ad,then it is too
Ad copy-keep message simple and
short.Jack %rout
!O$%ONNG-How does the mind work as it takes in,stores or
rejects ur message? %he 5 elements to positioning process are
1.Minds are limitedtoo much info indigestion
2.Minds hate confusion.Best way to enter minds is to oversimplify ur
message,so it can slice thro all noise.!owerful mrktng commncns
focus on a single word;Crest-Cavities;Volvo-$afety.
3.Minds are insecure; $o,use testimonials.!olls and panels create a
'bandwagon effect'eg.Honda Accord advertises'n the 8 yrs Car &
Driver magazine has presented its 10 best list,only one car has been
chosen every time.'
4.%hink simple..Focus on onme idea and drive into the
mind.Eliminate anything that others could claim as well as u
can.Forget anything that requires a complex analysis to prove.
5.Never ignore the obvious;Obvious ideas tend to be powerful
ideas,because they will be obvious to the markets as well.
%esting the ad copy-2 types
post tests;after product
launch and pre-tests before
3 copy testing methods-1,lab tests,2,tests that
attempt to simulatethe natural reading or viewing
environment and3,tests done in the real/natural
environment,called market tests.
1.lab tests-use phisiological measuring
techniques with aids like eye-camera,polygraphs
2.simulated environment tests include intercept
research,mobile trailers,fixed facility
research,and in-home interviewing.
Ad copy testing-markt tests
Markt tests also utilise several techniques.%he
folio test is normally used in print media.%V
commercials are tested thro the in-home
projector vtest ,or live telecasts/on-the-air-
%he DAR test for %V commercials-%he Day-after
Recall technique.%he day after a %VC goes on
air,in a normal viewing situation,a sample of thre
viewers of the program is made.%hose who saw
the test commercial are interviewed to find out
their ability to recall the commercial..Based on
certain steps,a 'recall score'is also made
%esting criteria in copy tests
When a copy is put to test what is actually
tested?t's ability to ensure a recall? Or its ablity
to ensure 'recognition? Or its ability to ensure
'persuasion'? Or someother factors?
$ame conflicts arise here as in ad objective
A majority of tests centre on
'attention','recognition'and 'recall' factors.%he
tests are mostly concerned with commncn
effectiveness of the copy.
Deciding media-major ad media
1.print media
News papers,magazines,trade
journals,direct mail
-audio and video,outdoor.
Commonly used outdoor media
Hoardings ,posters
Neon signs and other illuminations,
%ransit advertising(railways ,Other transport
Fairs and exhibitions
Amusement parks
Dance,drama and puppet shows
Loud speaker announcements
Ballooons and sky writings
nternet advertising-unilever,revlon
Unilever-had a 3yr vdeal with america Online ncto advertise scores
of its brands online.t also signed a separate deal with microsoft
Corp to advertise on Microsoft's online servicesand to develop new
interactive soft ware for advertising,
Revlon;ts website has an interactive page;'Virtual faces-%ry A new
Look'where a customer can try out different shades(from Revlon's
latest Laven Dare and Fleshtones collections)on virtual faces on the
screen and choose suitable shades.%he person is then given a
personal color consultation,a print out of which can be taken to the
retail store and pick up the products recommended.
Another web page is ;Revlon Give Aways.Customers fill in a
questionnaire and offers coupons for select products.Revlon also
offers self-care tips (on manicure etc )and info on fragrances.
!ond's website
!ond's interactive site is positioned as a
one-stop site for skin-care tips and !ond's
products.While other sites concentrate on
co-specific product oriented info,pond's
attempted to give general info and advice
on common skin-care problems to make it
!ond's took 1 yr and invested more than
Rs 1 crore in the project to start with.
Advertising thro cassettes-
electrolux's venture with Venus
%he co tied up with music & film producing co Venus
%apes & Records for promoting its brands
Alwyn,Voltas,Maxclean,& Kelvinator.
%he Rs 2.5 crore deal enables the co to advertise its
brands thro audio,video cassettes & CD's produced by
%he tie-up will ensure insertion of E's audiojingles in
each and every Venus cassette..Venus will also insert
E's %VC in its video cassette and VCD's for a total
duration of 5 minutes
$cope wide since e's Ads can be carried on a minimum
of 40 mn cassettes & CD's during the contract.
Measuring %V viewership(%R!)
%elevision Rating !oint (%R!) is ca measure of the
viewership level of the program.t reveals % of audience
tuned to a program.
%R! system involves collection of viewership data on a
weekly basis from a panel of %V viewers in select market
territories,Viewership figs are presented as % of total tv
audience with 1 %Rp representing 1% of audience.
EG.A serial on ZEE %V has a viewership of 11.5%among
a sample of men of age 25 plus in Mumbai's C&$ homes
While Zee News had just 0.2%viewership.%hat means
the serial has a %R! of 11.5 and Zee News has a %R! of
GR!=%R!*No of times the spot is
$ spots on a program with a %R! of 20 yield a GR! of 80.!rograms are
compared on basis of cost per rating point=ad tariff divided by %R!.
%R! measurement; Diary system,people meter and Laser meter.
Diary system is the most common,t is a system of program recall by panel
members who are supposed to keep a diary on what they watch.
%he people meter is a mechanical device ,which records when the tV set is
on and which member of the family is watching at a particular point.%he
viewer has to clock in by pressing a button.
%he Laser meter is a more advanced device.t automatically records the no
of people present in aroom thro heat sensors
Laser meter overcomes the limitations of both the previous devices.which
demand the active and timely participation of panel members.f the viewer
forgets to clock in or make timely notingsin the diary,then projections
become unreliable in case of people meter and diary system respectively.
Competitive strategies-building
competitive advantage/edge or
differential advantage
CA or CE is an advantage over
competitors gained by offering consumers
greater value,either through lower prices
or by providing more benefits that justify
higher prices.
Marketing strategies must consider (1) not
only the needs of target consumers (2) but
also the strategies of competitors
2 steps for building CA
1.competitor analysis-identifying and assessing
key competitors
2,developing competitive marketing strategies
that strongly position the Co against competitors
and give it the greatest possible competitive
COM!E%%OR ANAL$$-the process of
identifying key competitors,assessing their
objectives,strategies,strengthe and weaknesses
and reaction patterns and selecting which
competitors to select or avoid.
$teps in analysing competitors
1,identifying the Co's competitors
2,determining competitors' objectives
3,identifying competitors' strategies
4,assessing competitors strengths and
5,estimating competitors' reactions
6,selecting competitors to attack and
1.dentifying Co's competitors
A.Co's offering similar products and services to same
customers at same places and similar pricesEg,Coca
Cola vs !epsi Cola; For Buick Ford is a major
competitor not Mercedes
B.competition at a wider level-All firms making the same
product or class of products.Eg.Buick competes with all
other auto makers
C. competition at a more broader levelEven co's that
supply same service such as makers of trucks,motor
cycles,even bicycles
D.Even more broadly,Competitors might include all Co's
that compete for the same consumer dollars.Eg Buick's
competitors can include all Co's that sell major
consumer durables ,new homes et
Well-behaved or disruptive
Benefits of competition-1.ncrease total demand
,2.$hare costs of market and product
development 3,Legitimise new technology 4,May
serve less attractive segments 5,lead to more
product differentiation 6,mprove bargaining
power against labor.
rules 2,Favor a stable and healthy industry,3.$et
reasonable prices in relation to costs 4,motivate
others to lower costs & improve differentiation
5,Accept reasonable levels of M$ & profits.
Disruptive competitors
1.break the rules shre rather than earn3.take large risks
4,in general shake-up the industry
Eg.American Airlines finds Delta & United to be
well-behaved,but finds %WA,Continental &
America westdisruptive since they de stabilise
airline industry thro continued heavy price
discounting and wild promotional schemes.
Competirive strategies-M !orter's 3
winning competitive strategies
Over-all cost leadership-%exas nstruments & Wall Mart
2.Differentiation-Highly different product line-BM and Caterpiller
3.Focus.$erve a few markt segments well.Glass maker
AFGndustries makes 70% of glass for microwave oven doors,and
75% of glass for shower doors(%EM!ERED AND COLORED
Cos pursuing a clear strategy (one of the above) perform
well.Middle-of the-roaders like $ears,Chrysler,& nternational
Harvester suffered the worst as they didn't stand out as 1,the lowest
in cost,or 2,highest in percieved value
Or 3,best in serving some market segments.
Middle-of the-roaders try to be good on all strategic counts but end
up not being very good at anything.
Disruptive competitors
1,Break the rules
2,Buy share rather than earn
3,take large risks
4.n general shake-up the industry.
EG,American Airlines finds Delta & United to be
well-behaved,but finds %WA,Continental &
america West disruptive since they destabilise
airline industry through continued heavy price
discounting & wild promotional schemes
Competitive strategies-michael
!orter's 3 winning comp strategies
1.Over all cost leader ship-%exas
nstruments and Wall mart
2,Differentiation-highly differentiated
product lines BM,Caterpiller,Lever etc.
3,Focus-$erve few market segments
well.Glass maker AFG ndustries makes
70% of glass for micro wave oven
doors,and 75% of glass for shower
doors(tempered and colored glass)
Comp strategies---
Co's persuing a clear strategy (one of the
above) perform well.Middle-of-the-roaders like
sears,Chrysler & nternational harvester suffered
the worst because they didn't stand out as the
Lowest in cost
Or highest in perceived value
Or best in serving some market segments.
Middle-of-the-roaders try to be good on all
stategic counts but end up being not very good
at anything.
Competitor myopia
Kodak was worried of Fuji. But real competition was from
film less cameras sold by Cannon & $ony that take video
still pictures that can be shown on a %V set turned into
hard copy
B linking industry
And by market analysis by mapping out product/maket
1.From industry point of view-Coke's competitors are
!epsi,7-Up,Dr pepper
2.From market point of view-Coke's competitors are
"thirst quenchers such as iced tea,friit juice,bottled water
Customer segmentation
!lain tooth paste
%p with fluoride-
$moker's %!----------
Age19-35 36+
C!&!&G C!&!&G
C!&!G C!,!G
Beecham beecham
%opol topol
dentifying competitors---
!&G with several versions of Crest & Gleam and
C! with Colgate occupy 9 of the segments
Lever Bros with Aim occupy 3
segments,Beecham one(AquaFresh) and %opol
f %opol wants to enter other seg bments it must
estimate the market size of each segment,the
shares of current competitors,and their current
capabilities,objectives and strategies.
Each product/Markt segment poses different
competitive problems and opportunities.
2.Determine competitors'
What drives each competitor's behaviour?
A,short term vs long term profits? B,satisfactory
profits or maximise profits?
C what goals beyond profits?
Know relative impotance of each competitor for
a,current profitability,b.M$ growth
flow, leadership.f.service leadership and
other goals.
Judge competitive actions-Likely to pursue Low-
cost production strategy?or Ad promotion
3.dentify competitors' sytrategies
$trategic group-A group of firms in an industry following
same or similar strategy.Ex.GE,Whirlpool,Maytag in
home appliances industry form a strategic group offering
a full line of medium price appliances plus good sevices.
$ub-Zero and Kitchen Aid belong to a different group-
offering a narrow line of higher quality at a higher
price.but with a higher level service.
f a Co enters one of the groups, it becomes a member
of others key competitors,
t can succeed conly if it develops some strategic
advantage over these competitors.GE now offers a
premium quality premium price line to compete with
Kitche Aid and $ub-Zero.
Look at all dimensions of
competitors' strengths
Know each competitors'
!roduct quality
Features & mix.
Customer services
!ricing policy,
Distrbution coverage
$ales force strategy,
Ad &sales promo programs.Also study each
ower & other strategies.
4 assessing competitors'strengths
& weaknesses
What can our competitors do? Find their
goals,strategies,& performance over last few
Collect info from secondary data,personal
experience & hearsay.
Bench mark compare vyr Co's products
,services and processes to those of competitors
or leading firms in other industries to find ways
to improve Q and performance.
5 estimating competitors' reactions
What will our competitors do? $WO% analysis can help
us know their recations or actions.
Each has a philosophy,a culture,guiding principles and
Each competitor reacts differently
$ome don't react quickly/strongly.$ome react only to
price-cuts,others only to Ad promos!
$ome competitors don't show any predictable reaction
!&G is a fierce reactor.No new competitor wd like to
fight directly with !&G,who doesn't let a new comer into
the detergent mrkt.
6,selecting competitors to attack
and avoid.(A).$trong or weak
(B)Close or distant competitors
1.$trong or weak.Assess strength by "customer
value analysis-what benefits target customers
value and how they rate the relative valueof
various competitors 'offers.
%he key to gaining competitive adv is to take
each customer segment and examine how the
the Co's offer compares with that of its major
competitor.f Co's offer exceeds that of major
competitor,on all key attributes,Co can charge
higher prices and earn higher profits or charge
same prices and get higher share,
2.Close or distant competitors
Most want to compete with competitors who
resemble them most.Eg.Chevrolet competes
more with Ford than Jaguar
A Co may also want to avoid trying to destroy a
close competitor.Eg. Bausch7 Lomb attacked
othersoft lens manufacturers but these were
forced to sell out to larger ones such as Revlon
& Johnson& Johnson.B&L now faced larger
competitors like J&J and faced the
Hypothetical market structure
Mrkt leader-40%
Competitors focus on the leader as a Co to
challenge,imitate or avoid.
Leaders keep
A constant watch
Leaders' strategies
A product innovation may come along and hurt the
leader .Ex.%ylenol's non-aspirin pain killer took the lead
from baeyers aspirin .
%he leading firm might grow fat & slow ,losing against
new & peppier rivals.Xerox's share came down from
80% to 35%,when Japanese producers challenged with
cheaper & more reliable copiers.
GM in autos,Kodak in photography,BM in
computers,COCA Cola in soft drinks,WaLL MAR% in
retailing,Mc Donald's in fast food,And Gillette in razors
and blades.
3 actions for leader to remain no 1-
1.Expand total market
2.!rotect M$ thro defensive and offensive actions
3.Expand M$ further even if mrkt size remains same or even
A.Find new users.$ome customers are still unaware and some
resist on price or features.Ex Revlon's perfume.Opened virgin mrkt
by convincing women who don't use perfumes, and also looked at
other demographics by producing cologne for men,and
geographically by selling perfumes in other countries.
Johnson's baby shampoo Ad campaign aimed at adults and it soon
became a leading brand total shampoo market.
Leader's actions---
B.Find new uses.Eg.Dupont's Nylon
Fiber for parachutes
Womens' stockings
Major matl in shirts/blouses
Automobile tyres
Upholstery and carpeting
ARM&HAMMER baking soda as refrigerator
deodorant-by heavily advertising to put an open
box of baking soda in Fridge,
Leader's 3 actions
C.more usage;Convince people to use more
often or more per occasion.Eg.Colgate tooth
paste.Head & $houlders shampoo;more
effective with 2 applications instead of one per
Michelin began rating French restaurants on a 3
star system .Many of the best restaurants are in
south of France leading many !arisians to take
week end drives to $outh.t encouraged car
qwners to drive more miles per year.
Leader's 3 actions---2,protecting
M$ thro defensive & offensive
Coke against !epsi,Gillette against Bic,Mc
Donald's against Wendy's,GM V$ Ford.HOW?
1.!revent weaknesses that provide opportunities
to competitors :keep costs down and price
proportional to value customers see in the
2.!lug holes so competitors don't jump in.
3.%he best defense is a good offense & the best
response is a continuous innovation.
t takes the offensive and sets the pace and
exploits competitors'weaknesses
3 actions of leaders----6 defense
strastegies that mrkt leaders use
1.position defense.the most basic
defense-builds fortifications around its
current poszition.But it rarely works.ou
must continuously improve and adapt to
changing customer needs and develop
new brands.Coca-Cola,despite its
dominant 40 % M$ in U$,aggressively
extends its beverage lines and has
diversified into desalination equipment and
Actions of leaders----2.flanking
$mart competitors attack
leaders'weaknesses-like the Japanese
entered the U$ small car mrkt.$ince U$
auto makers left a gaping hole in that sub
Using a flanking defense,the Co carefully
checks its flanks and protects the weaker
3.pre emptive defense-By contrast, the leader
may employ a more aggressive preemptive
defense striking competitors before they can
move against the Co.
Ex when threatened in mid 80's,by the
impending entry of the Japanese into
U$,Cummins slashed its prices by 1/3 rd to save
its No 1 position in the 2 bn $ heavy duty truck
engine mrkt.
Ex cummins now has a 50% M$ in North
America .Not a single Us built %ractor-trailer
%ruck has a Japanese engine.
4.counter offensive defense.When a leader is
attacked despite its flanking or preemptive
efforts,it can launch a counter offensive defense.
Ex.When Fuji attacked Kodak,in the Us film
makt,Kodak counteracted by greatly increasing
its promotion and introducing several innovative
film products.
Ex.When Clorox's detergent with bleach
attacked it,!&G responded with tide with bleach
which enabled it capture a 17% share of all Us
detergent sale!
Leader strategies---5.Mobile
nvolves more than aggressively defending a
current mrkt position
%he leader stretches to new mrkts that can be
serving as future bases for defense and
offense.Ex Armstrong Cork redefined its focus
from "floor covering to "decorative room
covering(including walls and ceiling) and
expanded into related businesses that were
balanced for growty and defense.
Ex Wall mart is mustling its way into grocery
business with new "Wall Mart $uper Centres-
huge combo grocery &discount stores
Compttve ---6 contraction defense
f a large Co finds that its resourses are spread too thin
and competitors atre nibbling away on several fronts,it
prunes its portfolios to concentrate its forces or
Ex.%%,Georgia pacific,and General Mills,now serve
fewer mrkts ,but serve them much better.
Usually industry break-up is:One or a few highly
profitable large firms,several profitable and focussed
firms,and a large no of medium sized firms with poorer
profit performance.
On an average,M$ increase leads to profit
increase.(!M$).But this is not automatic.
M$ increase leading to profit increase depends
on the share increase strategy.%here are many
high share Cos with low profit and low share Cos
with high profit.%HE CO$% OF BUNG HGH
Highe shares tend to produce higher profits only
when unit costs fall with increased share, or
when the Co offers a superior quality product
and charges a premium price that more than
covers the cost of offering higher quality!
Leader strategies---
!rofitability increases as business gains shre relative to
competitors in "its served marktpreferably at a highr
Not surprising why Cos like GE want to be atleast NO1
or2 in each of its mrkts or get out!t shed its
computer,AC,& %V businesses sinse it couldn't achieve
"the top dog position here.
Mercedes has a small share of total car mrkt,but earns
high profit because it is a high share Co in its luxury car
And it achieved a high share because it does many
things right such as producing high Q,giving good
service,and holding down its costs!
Markt challenger strategies
Firms that are No 2 or 3 or lower such as
Colgate,Ford,Avis,Westinghouse,and !epsico which are
quite large, can opt one out of 2 strategies-
Challenge in an aggressive bid to increase M$,
!lay along with competitors and not rock the
Competitive strategies of mrkt cghallenger
First define the the strategic objective!rofit increase
by increase in M$
$econd decide which competitors the Co will challenge
before deciding first.
Challenger stra----
2 options
1.Attack the mrkt leader-obj being not to topple
but just wrest a certain mrkt share increase as in
BC vs GLLE%%E; OR take over on leader as
BM in !C's
Or2,to avoid the leader and challenge firms its
own size or smaller local and regional firms
1.Attacking the market leader---High risk but
potentially high gain strategy;Makes sense if
leader not serving mrkt well and attacker has
some $DA-a cost adv leading to lower prices or
ability to prov
Attacking leader
n construction equipment industry, komatsu challenged
Caterpiller by offering same quality at much lower prices
.Kimberly Clark's Huggies grabbed from !&G a big
share of disposable diaper mrkt by offering a better fitting
diaper with reusable fasteners
UJAAlA vs RobinBlue;MOOV vs Odex
Either under-financed Cos or those that are not serving
their customers well.$everal big Cos of today grew to
their present size not by challenging large competitors
but by gobbling up small local or regional
competitors.%he obj being to put the small player out of
Choosing an attack strategy for
mrkt challenger-5 possible
Full frontal attack.Challenger matches all 4 !'s of competitor
Attacks competitors' strengths rather than weaknesses.Outcome depends
on who has greater strength and endurance
f challenger has fewer resourses than the competitor,a frontal attack makes
little sense.
Lever Bros in U$ trail behind !&G in detergent mrkt.Great size and strength
may not be to challenge a resourseful competitor successfully.Unilever has
twice the worldwide sales of !&G and 5 times sales of Colgate !olmolive!
Lever launched a full frontal attack on !&Gin detergent mrkt.Lever's W$K
was already the leading liquid detergent.n quick succession, it added a
barrage of new products-$unLight dish washing detergent,$nuggle fabric
softener,$urf laundry powder and backed them with aggressive promotion&
distribution efforts.
!&G spent heavily to defend its brands and held on to most of its business.
And it counter attacked with liquid %ide which came from nowhere in just 17
months to run neck and neck with Wisk.LEVER did gain M$ but most of it
came from smaller competitors.
Attacker strategy2.flanking attack
Rather than attacking head-on,concentrate yr strength
on competritor's weaker flanksor on gaps in in
competitors' markt coverage.
Flank attacks make good sense when the co has fewer
resourses than competitors.
For Ex during 60's and 70's when German &Japanese
auto makers didn't directly compete with U$ auto makers
in producing large,flashly gas-guzzling autos.
%hey found an unserved consumer segment that
wanted small fuel-efficient cars and moved to fill this
%o their satisfaction and Detroit's surprise,the segment
grew to be a large part of the mrkt.
Attacker stra4.encirclement
nvolves attacking from the front ,sides and the
rare at the same time
Makes sense when the challenger has superior
resourses and believes that it can break the
competitor's holdon the mrkt quickly.
Ex,$eiko attacked 1,by gaining distribution in
every major watch out let and 2,constantly
changing variety.n U$ alone,it offers 400
models but makes and sells 2300 models
Attacker 4bypass attack
%he challenger bypasses the competitor and targets
easier mrkts.
t might diversify into unrelated products ,move into new
geographic mrkts or leap-frog into new technologiesto
replace existing products.
Ex MiNOL%A toppled Cannon from the lead in the 35
mm $LR camera mrkt with its technologically advanced
auto-focussing Maxxum camera,Cannon's M$ came
down 20% while Minolta's went up 30%t took Cannon 3
yrs to introduce matching tech.of course in digital
cameras story is different and Cannon took the lead.
Attacker str---5.Guerilla attacks
1.$maller or poorly financed challengers mount
these attacks
2.these are small periodic attacksto harass and
demoralise the competitorwith the goal of
eventually establishing permanent footholds.
3.%he challenger uses(a) price cuts
selectively,(b)goes on executive raids, and (c)
engages in intense promotional
outbursts,(d)takes assorted legal actions
Mrkt follower strategies
1.challengers never taken lightly by leader
2.leader has more staying power than others in an all-out battle for
customersA hard fight might leave both worse-off.
3.f challenger's lure is lower prices,improved service,or additional
product features,the leader can quickly match these to diffuse the
1.Leader bears huge expenses of developing new
products,mrkts,expanding distribution.and educating the mrkt.A
follower can copy or improve on leader's performance with much
less investment Ex Dial corp. makers of Dial,%one,!ure and Natural
hand soaps ,Armour $tar canned meats,!urex laundry
in price of %ide of !&G.)
Follower's adv
4Following isn't the same as being passive or a
carbon copy of the leader .Each follower brings
in distinctive adantages to its target mrkt
location,services,financing etc.
5.%he follower is often the major target of attack
by challengers.%herefore folloer must keep mfg
cost lowand product and service Q high.t must
also enter new mrkts as they emerge.
Mrkt nicher strategies
nsread of pursuing the whole mrkt or even large
segments,these firms target subsegments or niches
2.Nichers are often smaller firms with limited resourses
3.$maller divisions of larger firms also may pursue
niching strategies
4.Firms with low shares of total mrkt can be highly
profitablethro smart niching
5.All highly successful mid-sized Cos niched within a
larger mrkt rather than going after the whole mrkt.Ex A%
CRO$$ which niches in the high priced pen and pencil
mrkt makes famous gold writing instruments that many
executives own or want to own.CRO$$ made high
growth and profit thro this niche.
Why is niching profitable?
1.Knows %M$ better & meets their needs better than
other casual sellers
2.Chances are they charge a high price (mark up over
cost high)for added value
3.Mass mrkter acheives high volumes,nicher high profit.
4.Nichers try 7 find one or more mrkt niches that are safe
& profitable.
5.An ideal niche is big enough to be profitable and has a
growth potential and is one the firm can serve effectively.
6.the niche is of little interest to major competitors & firm
to be able to build skills and custiomer goodwill to defend
itself against a major competitor as the niche grows and
beccomes more attractive.
Ex.A law firm specialises in civil,criminal or business law
mrkts-particularly those neglected by majors.
---selling their entire output to a single Co such as
%A%AMO%OR$,WalMart Or GM.
---$ell in a certain locality ,region of the world.
--operate at the low or high end of the,H!
specialises in high Q-high !rice end of hand calculator
--offers services not available from other,a bank
taking loan request over phone and hand deliver the
money to customers.R%C reservations.
%he key idea in nichemanship is specialisation
A mrkt nicher can specialise along any of several
mrkt,customer,productor marketing mix lines.
For ex,
ONE %!E OF END U$ERlaw firm
Custm size groupssmall,med
One or a few specific costomerstelco,walmart etc.
Geographical nichers---
Q-! nichers---low or high end
$ervice nichersbank ex prev slide.
Risks of niching
%he mrkt niche may dry-up.
2.may grow to the point that attracts larger
3.$o,practise multiple niching by developing 2 or
more niches ,the co improves chances of
4,Even some large firms prefera multiple niche
strategy to serving the total mrkt.HLL.One large
law firm developed national reputation in the
3areas of Mergers & acquisitions,Bankruptsies,&
!rospectus development and little else!