Segmentation

Targeting
-Product Life Cycle
-Innovation Adoption Curve
Positioning
Diferentiation
4Ps: Product Price Place
Promotion
Brand
Service
Selling
-Personal Selling
-Direct Marketing
Marketing Strategy
-STP
-Diferentiation
-4Ps
-Selling
-rand
-Service
SWOT
PESTL
4 ! "ange om#etitors
ustomers om#any
om#etition
-Porter!s "ive "orces
E$#ansion Strategy
-Ansof!s #$pansion %rid
Market Segmentation
&Dividing 'arket into s'aller groups of (uyers )it* distinct needs+ c*aracteristics or
(e*aviors )*o 'ig*t re,uire separate products or 'arketing 'i$es- &Pg ./0-
Segmenting onsumer Markets
o %eogra#"ic Segmentation &Dividing 'arket into diferent geograp*ical units suc* as
nations+ states+ regions+ countries+ cities or neig*(or*oods-
Co'panies are locali1ing t*eir products+ advertising+ pro'otion and sales eforts
to 2t needs of individual geograp*ical units
Co'panies are seeking to cultivate as-yet untapped geograp*ic territory
3etailers are developing ne) store concepts to give t*e' access to *ig*er-density
ur(an areas
o Demogra#"ic Segmentation &Dividing 'arket into groups (ased on de'ograp*ic
varia(les suc* as age+ se$+ fa'ily si1e+ fa'ily life cycle+ inco'e+ occupation+ education+
religion+ race and nationality-
Consu'er needs+ )ants and usage rates often vary closely )it* de'ograp*ic
varia(les
De'ograp*ic varia(les are easier to 'easure &e4g4 to assess si1e of target
'arket-
&ge ' Li(e)ycle Stage
Age 5 Life-Cycle Seg'entation &Dividing 'arket into diferent age and life-
cycle groups-
Marketers 'ust guard against stereotypes
Age is often a poor predictor of a person!s life cycle+ *ealt*+ )ork or fa'ily
status+ needs and (uying po)er
%ender
%ender Seg'entation &Dividing 'arket into diferent groups (ased on
gender-
Marketers *ave noticed opportunities for targeting )o'en
*ncome
Inco'e Seg'entation &Dividing 'arket into diferent inco'e groups-
o Psyc"ogra#"ic Segmentation &Dividing 'arket into diferent groups (ased on social
class+ lifestyle or personality c*aracteristics-
o Be"avioral Segmentation &Dividing 'arket into groups (ased on consu'er
kno)ledge+ attitude+ use or response to a product-
Occasions
6ccasion Seg'entation &Dividing 'arket into groups according to
occasions )*en (uyers get t*e idea to (uy+ actually 'ake t*eir purc*ase
or use t*e purc*ased ite'-
Bene+ts Soug"t
ene2t Seg'entation &Dividing 'arket into groups according to diferent
(ene2ts t*at consu'ers seek fro' t*e product-
"inding 'a7or (ene2ts people look for in t*e product class
"inding kinds of people )*o look for eac* (ene2t
"inding 'a7or (rands t*at deliver eac* (ene2t
,ser Status
Markets can (e seg'ented into groups of nonusers+ e$-users+ potential
users+ 2rst-ti'e users and regular users
,sage -ate
Markets can (e seg'ented into lig*t+ 'ediu' and *eavy product users
Marketers usually prefer to attract one *eavy user to t*eir product or
service rat*er t*an several lig*t users
Co'panies often target lig*t users )it* t*eir ads and pro'otions
Loyalty Status
uyers can (e divided into groups according to degree of loyalty
y studying its less loyal (uyers+ co'pany can detect )*ic* (rands are
'ost co'petitive )it* its o)n
o ,sing Multi#le Segmentation Bases
Identify s'aller+ (etter-de2ned target groups
P3I8M 9:ou Are ;*ere :ou Live< &6ne of t*e leading lifestyle seg'entation
syste's (y Claritas- classi2es everyone into one => uni,ue neig*(or*ood types
or 9clusters<
- Segmenting Business Markets
o usiness 'arketers use varia(les+ suc* as custo'er operating c*aracteristics+
purc*asing approac*es+ situational factors and personal c*aracteristics
- Segmenting *nternational Markets
o "e) co'panies *ave eit*er resources or )ill to operate in all+ or even 'ost+ countries
o Diferent countries+ even t*ose t*at are close toget*er+ can vary greatly in econo'ic+
cultural and political 'akeup
o %eograp*ic Location
Assu'ing nations close to one anot*er )ill *ave 'any co''on traits and
(e*aviors+ (ut t*ere are 'any e$ceptions
o #cono'ic "actors
Population inco'e levels or overall level of econo'ic develop'ent
o Political 5 Legal "actors
Type and sta(ility of govern'ent+ receptivity to foreign 2r's+ 'onetary
regulations and a'ount of (ureaucracy
o Cultural "actors
Co''on languages+ religions+ values and attitudes+ custo's and (e*avioral
patterns
o Inter'arket Seg'entation &"or'ing seg'ents of consu'ers *aving si'ilar needs and
(uying (e*avior even t*oug* t*ey are located in diferent countries-
- -e.uirements (or Efective Segmentation
o Measurable ? Seg'entation varia(les s*ould (e a(le to (e 'easured
o Accessible ? Market seg'ents s*ould (e a(le to (e efectively reac*ed and served
o Substantial ? Market seg'ents s*ould (e large or pro2ta(le enoug* to serve
o Diferentiable ? Seg'ents s*ould (e conceptually distinguis*a(le and respond
diferently to diferent 'arketing 'i$ ele'ents and progra's
o Actionable ? #fective progra's s*ould (e designed for attracting and serving t*e
seg'ents
Target Marketing &Process of evaluating eac* 'arket seg'ent!s attractiveness
and selecting one or 'ore seg'ents to enter- &Pg .@A-
- Evaluating Market Segments
o Seg'ent Si1e 5 %ro)t*
3ig*t si1e and gro)t* c*aracteristics
Largest+ fastest-gro)ing seg'ents are not al)ays 'ost attractive to every
co'pany
o Seg'ent Structural Attractiveness
Strong and aggressive co'petitors+ actual or potential su(stitute products+
po)erful (uyers and po)erful suppliers can decrease seg'ent attractiveness
o Co'pany 6(7ectives 5 3esources
Co'pany 'ust consider its o)n o(7ectives and resources
- Selecting Target Market Segments
o Target Market &A set of (uyers s*aring co''on needs or c*aracteristics t*at
co'pany decides to serve-
o ,ndiferentiated &Mass- Marketing &Market-coverage strategy in )*ic* 2r'
decides to ignore 'arket seg'ent diferences and go after )*ole 'arket )it* one
ofer-
"ocuses on )*at is co''on in needs of consu'ers rat*er t*an diferences
o Diferentiated &Seg'ented- Marketing &Market-coverage strategy in )*ic* 2r'
decides to target several 'arket seg'ents and designs separate ofers for eac*-
Creates 'ore total sales t*an undiferentiated 'arketing across all seg'ents
Increases costs of doing (usiness
Co'pany 'ust )eig* increased sales against increased costs
o oncentrated &Bic*e- Marketing &Market-coverage strategy in )*ic* 2r' goes
after a large s*are of one or a fe) seg'ents or nic*es-
Appealing )*en co'pany resources are li'ited
%reater kno)ledge of consu'er needs in nic*es co'pany serves
Special reputation
Co'pany can 'arket 'ore efectively and eCciently
Involves *ig*er-t*an-nor'al risks ? Co'pany )ill sufer greatly if seg'ent
turns sour or if larger co'petitors decide to enter sa'e seg'ent )it* greater
resources
o Micromarketing &Practice of tailoring products and 'arketing progra's to needs
and )ants of speci2c individuals and local custo'er groups-
Local Marketing &Tailoring (rands and pro'otions to needs and )ants of local
custo'er groups ? cities+ neig*(or*oods and even speci2c stores-
Drive up 'anufacturing and 'arketing costs (y reducing econo'ics of
scale
Create logistics pro(le's
rand!s overall i'age 'ig*t (e diluted
Delps co'pany to 'arket 'ore efectively in face of pronounced regional
and local diferences
Meets needs of co'pany!s 2rst-line custo'ers ? retailers
*ndividual Marketing &Tailoring products and 'arketing progra's to needs
and preferences of individual custo'ers ? also la(eled 9'arkets-of-one
'arketing<+ 9custo'i1ed 'arketing< and 9one-to-one 'arketing<-
Mass Custo'i1ation &Process t*oug* )*ic* 2r's interact one-to-one )it*
'asses of custo'ers to design products and services tailor-'ade to
individual needs-
Co'panies need to involve custo'ers 'ore in all p*ases of product
develop'ent and (uying process+ increasing opportunities for (uyers to
practice self-'arketing &individual custo'ers taking 'ore responsi(ility
to deter'ine )*ic* products and (rands to (uy-
o "oosing a Target Marketing Strategy
om#any -esources
;*en 2r'!s resources are li'ited+ concentrated 'arketing 'akes 'ore
sense
Degree o( Product /aria0ility
Endiferentiated 'arketing is 'ore suited for unifor' products
Products varying in design are 'ore suited to diferentiation or
concentration
Product1s Li(e)ycle Stage
;*en 2r' introduces a ne) product+ undiferentiated 'arketing or
concentrated 'arketing 'ay 'ake 'ore sense
In 'ature stage of product life cycle+ diferentiated 'arketing 'akes
'ore sense
Market /aria0ility
If 'ost (uyers *ave sa'e tastes+ (uy sa'e a'ounts and react t*e sa'e
to 'arketing eforts+ undiferentiated 'arketing is appropriate
om#etitor1s Marketing Strategies
Diferentiated or concentrated 'arketing is 'ore advantageous
- Socially -es#onsi0le Target Marketing
o iggest issues usually involve targeting of vulnera(le or disadvantaged consu'ers
)it* controversial or potentially *ar'ful products

T"e Product Li(e ycle 'odel can *elp to analy1e 'aturity stages of
products and industries4
Any co'pany is constantly seeking )ays to gro) future cas* Fo)s (y 'a$i'i1ing
revenue fro' t*e sale of products and services4 Cas* "lo) allo)s a co'pany to
'aintain its via(ility+ invest in ne) product develop'ent and i'prove its )orkforce4
All t*is in an efort to ac,uire additional 'arket s*are and (eco'e a leader in its
respective industry4
A constant and sustaina(le cas* Fo) &revenue- strea' fro' product sales is key to
any long-ter' invest'ent+ and t*e (est )ay to attain a sta(le revenue strea' is to
*ave one or 'ore Cas* Co)s4 Cas* Co)s are strong products t*at *ave ac*ieved a
large 'arket s*are in 'ature 'arkets4
Also+ t*e 'odern Product Life Cycle is (eco'ing s*orter and s*orter4 Many products
in 'ature industries are revitali1ed (y product diferentiation and 'arket
seg'entation4 6rgani1ations increasingly reassess product life cycle costs and
revenues+ (ecause t*e ti'e availa(le to sell a product and recover t*e invest'ent
s*rinks4
Alt*oug* t*e product life cycle s*rinks+ t*e operating life of 'any products is
lengt*ening4 "or e$a'ple+ t*e operating life of so'e dura(le goods+ suc* as
auto'o(iles and appliances+ *as increased su(stantially4 As a result+ t*e co'panies
t*at produce t*ese products 'ust take t*eir 'arket life and service life into account
)*en t*ey are planning4 Increasingly+ co'panies are atte'pting to opti'i1e
revenue and pro2ts over t*e entire life cycle4 T*ey do t*is t*roug* t*e consideration
of product )arranties+ spare parts+ and t*e a(ility to upgrade e$isting products4
It is clear t*at t*e Product Life Cycle concept *as signi2cant i'pact upon (usiness
strategy and corporate perfor'ance4 T*e Product Life Cycle 'et*od identi2es t*e
distinct stages afecting sales of a product4 "ro' t*e productGs inception until its
retire'ent4
T"e stages in t"e Product
Li(e ycle
*ntroduction stage4
T*e product is
introduced in t*e
'arket t*roug* a
focused and intense
'arketing efort
designed to esta(lis* a
clear identity and
pro'ote 'a$i'u'
a)areness4 Many trial
or i'pulse purc*ases
)ill occur at t*is stage4
%ro2t" stage4 Can
(e recogni1ed (y
increasing sales and
t*e e'ergence of
co'petitors4 At t*e
vendorGs side+ t*e %ro)t* stage is also c*aracteri1ed (y sustained 'arketing
activities4 So'e custo'ers 'ake repeat purc*ases4
Maturity stage4 T*is p*ase can (e recogni1ed )*en co'petitors (eginning
to leave t*e 'arket4 Also+ sales velocity is dra'atically reduced+ and sales
volu'e reac*es a steady level4 At t*is point in ti'e+ typically loyal custo'ers
purc*ase t*e product4
Decline stage4 T*e lingering efects of co'petition+ unfavora(le econo'ic
conditions+ ne) trends+ etc+ often e$plain t*e decline in sales4
W"at is t"e *nnovation &do#tion urve3
T*e innovation adoption curve classi2es adopters of innovations into various
categories4 It is (ased on t*e idea t*at certain individuals are inevita(ly 'ore
open for adaptation t*an ot*ers4
,sage o( *nnovation &do#tion urve4 Practice
T*e adoption curve is useful to re'e'(er it is useless to try to .uickly
and massively convince t"e mass o( a ne2 controversial idea4 It is
(etter to start 2rst )it* convincing t*e innovators and t"e early
ado#ters4 Also t*e categories and percentages can (e used as a 2rst draft
to esti'ate target groups for co''unication purposes4
T"e researc" (ocus o( Difusion "as 5ive elements:
.4 C*aracteristics of an innovation )*ic* 'ay inFuence its adoptionH
>4 Decision-'aking process t*at occurs )*en individuals consider to adopt a
ne) idea+ product or practiceH
04 C*aracteristics of individuals t*at 'ake t*e' likely to adopt an innovationH
44 Conse,uences for individuals and society of adopting an innovationH and
I4 Co''unication c*annels used in t*e adoption process4
*nnovation &do#tion urve categories
Innovators. Brave people, pulling the change. Innovators are very important
communication mechanisms.
Early Adopters. Respectable people, opinion leaders, try out new ideas, but
in a careful way.
Early Majority. Thoughtful people, careful but accept change more quickly
than average people do.
Late Majority. Skeptic people, will use new ideas or products only when the
maority is using it.
Laggards. Traditional people, love to stick to the !old ways!, are critical
about new ideas and will only accept it if the new idea has become
mainstream or even tradition.
Positioning (or om#etitive &dvantage &Arranging for product to
occupy a clear+ distinctive and desira(le place relative to co'peting products in 'inds of
target consu'ers- &Pg >J4-
- Consu'ers position products )it* or )it*out t*e *elp of 'arketers+ (ut 'arketers do not
)ant to leave t*eir products! positions to c*ance
- Positioning Ma#s
o Perceptual positioning 'aps s*o) consu'er perceptions of co'pany!s (rands
versus co'peting products on i'portant (uying di'ensions
- "oosing a Positioning Strategy D*55E-E6T*&T*O6
o *denti(ying Possi0le om#etitive &dvantages &Advantage over co'petitors
gained (y ofering consu'ers greater value+ eit*er t*roug* lo)er prices or (y
providing 'ore (ene2ts t*at 7ustify *ig*er prices-
Product Diferentiation
Products can (e diferentiated on features+ perfor'ances or style and design
Can diferentiate products on attri(utes as consistency+ dura(ility+ relia(ility
or repara(ility
Services Diferentiation
Speedy+ convenient or careful delivery
3epair Services
Providing custo'er training service or consulting services
C*annel Diferentiation
T*e )ay co'panies design its c*annel!s coverage+ e$pertise and
perfor'ance
People Diferentiation
Diring and training (etter people t*an co'petitors do
I'age Diferentiation
Co'pany or (rand i'age s*ould convey product!s distinctive (ene2ts and
positioning
Sy'(ols+ fa'ous c*aracters+ colors and ot*er i'age ele'ents
o "oosing t"e -ig"t om#etitive &dvantage
7o2 Many Diferences to Promote3
Develop a uni,ue selling proposition &ESP- as (uyers tend to re'e'(er
nu'(er one (etter+ especially in an over co''unicated society
Position on 'ore t*an one diferentiator if t)o or 'ore 2r's are clai'ing to
(e (est on sa'e attri(ute
As co'panies increase nu'(er of clai's+ t*ey risk dis(elief and loss of clear
positioning
W"ic" Diferences to Promote3
I'portant ? Diference delivers a *ig*ly valued (ene2t to target (uyers
Distinctive ? Co'petitors do not ofer t*e diference or co'pany can ofer it
'ore distinctively
Superior ? Diference is superior to ot*er )ays t*at custo'ers 'ig*t o(tain
t*e sa'e (ene2t
Co''unica(le ? Diference is co''unica(le and visi(le to (uyers
Pree'ptive ? Co'petitors cannot easily copy t*e diference
Aforda(le ? uyers can aford to pay for diference
Pro2ta(le ? Co'pany can introduce diference pro2ta(ly
o Selecting an Overall Positioning Strategy
Kalue Proposition &"ull positioning of (rand ? "ull 'i$ of (ene2ts upon )*ic* it is
positioned-
More (or More
Providing 'ost upscale product or service and c*arging a *ig*er price to
cover t*e *ig*er costs
6ften invite i'itators )*o clai' t*e sa'e ,uality (ut at a lo)er price
More (or t"e Same
Introducing a (rand ofering co'para(le ,uality to 'ore-for-'ore positioned
co'petitors (ut at a lo)er price
T"e Same (or Less
6fering (rands sa'e as depart'ent stores and specialty stores (ut at deep
discounts (ased on superior purc*asing po)er and lo)er-cost operations
Less (or Muc" Less
Products t*at ofer less and t*erefore cost less
Involves 'eeting consu'ers! lo)er perfor'ance or ,uality re,uire'ents at a
'uc* lo)er price
More (or Less
In t*e s*ort run+ so'e co'panies can actually ac*ieve suc* lofty positions
In t*e long run+ co'panies )ill 2nd it very diCcult to sustain suc* (est-of-
(ot* positioning
Co'panies t*at try to deliver (ot* 'ay lose out to 'ore focused co'petitors
o Develo#ing a Positioning Statement &State'ent t*at su''ari1es co'pany or
(rand positioning ? To &target seg'ent and need- our &(rand- is &concept- t*at
&point-of-diference--
Placing a (rand in a speci2c category suggests si'ilarities+ (ut (rand!s superiority
is 'ade on its points of diference
So'eti'es+ 'arketers put a (rand in a surprisingly diferent category (efore
indicating points of diference
- ommunicating ' Delivering t"e "osen Position
o All t*e co'pany!s 'arketing 'i$ &4 Ps- eforts 'ust support t*e positioning strategy
o Co'pany 'ust take care to 'aintain t*e desired position t*roug* consistent
perfor'ance and co''unication
o Product!s position s*ould evolve gradually as it adapts to ever-c*anging 'arketing
environ'ent
4P ! Product
W"at is a Product3 &Pg >./-
- Product &Anyt*ing t*at can (e ofered to 'arket for attention+ ac,uisition+ use or
consu'ption+ satisfying )ant or need- includes 'ore t*an 7ust tangi(le goods
- Service &Any activity or (ene2t one party can ofer to anot*er t*at is essentially
intangi(le and not resulting in o)ners*ip of anyt*ing-
- Products8 Services ' E$#eriences
o 6fer (rings value to target custo'ers
o To diferentiate ofers+ (eyond si'ply 'aking products and delivering services+
co'panies are staging+ 'arketing and delivering 'e'ora(le custo'er e$periences
- Levels o( Product ' Services
o #ac* level adds 'ore custo'er value
o Level . ? Core ene2t
Core+ pro(le'-solving (ene2ts or services consu'ers seek
o Level > ? Actual Product
L.M "eatures+ L>M design+ L0M ,uality level+ L4M (rand na'e and LIM packaging
o Level 0 ? Aug'ented Product
Additional consu'er services and (ene2ts+ e4g4 after-sales service+ )arranty+
installation and delivery and credit
- Product ' Service lassi+cations
o onsumer Products &Products (oug*t (y consu'er for personal
consu'ption-
onvenience
Product
S"o##ing
Product
S#ecialty Product
,nsoug"t
Product
ustomer
Buying
Be"avior
L.M "re,uent
purc*ase+ L>M little
planning and
s*opping efort+ L0M
little co'parison+
L4M lo) custo'er
involve'ent
L.M Less fre,uent
purc*ase+ L>M
'uc* planning and
s*opping efort+ L0M
(rand co'parison
on price+ ,uality+
style
L.M Strong (rand
preference and
loyalty+ L>M special
purc*ase efort+ L0M
little (rand
co'parison+ L4M lo)
price sensitivity
Little product
a)areness+
kno)ledge &If
a)are+ little or
even negative
interest-
Price Lo) Dig*er Dig* Karies
Distri0uti
on
;idespread+
convenient
locations
Selective+ fe)er
outlets
#$clusive+ one or
fe) outlets per
'arket area
Karies
Promotio
n
Mass pro'otion (y
producer
Advertising and
personal selling (y
producer and
resellers
More carefully
targeted pro'otion
(y producer and
resellers
Aggressive
advertising and
personal selling
(y producer
and resellers
E$am#les
Toot*paste+
'aga1ines+ laundry
detergent
Ma7or appliances+
televisions+
furniture+ clot*ing
Lu$ury goods
Life insurance+
3ed Cross
(lood
donations
o *ndustrial Products &Products (oug*t (y individuals and organi1ations for furt*er
processing or for use in conducting (usiness
Materials 5 Parts
Include L.M ra) 'aterials and L>M 'anufactured 'aterials and parts
Price and service are 'a7or 'arketing factors
Capital Ite's
Aid in (uyer!s production or operations
Include L.M installations and L>M accessory e,uip'ent
Supplies 5 Services
Supplies include L.M operating supplies and L>M repair and 'aintenance ite's
Supplies are convenience products
Services include L.M 'aintenance and repair services and L>M (usiness
advisory services
Services are usually supplied under contract
Product ' Service Decisions &Pg >>I-
- Level . ? *ndividual Product ' Service Decisions
o Product ' Service &ttri0utes
Product 9uality &A(ility of product to perfor' its functions+ includes overall
dura(ility+ relia(ility+ precision+ ease of operation and repair-
Creates custo'er value and satisfaction
Co'panies s*ould L.M c*oose perfor'ance ,uality level 'atc*ing target
'arket needs and co'peting products and L>M strive for *ig* confor'ance
,uality
Product 5eatures
Diferentiates product fro' co'petitors!
Co'panies s*ould L.M drop features custo'ers value little in relation to costs
and L>M add features custo'ers value *ig*ly in relation to costs
Product Style ' Design
Style descri(es product appearance+ (ut design contri(utes of product!s
usefulness as )ell as looks
S*apes custo'ers! product or service e$perience
Product designers s*ould t*ink L.M less a(out product attri(utes and tec*nical
speci2cations and L>M 'ore a(out *o) custo'ers use and (ene2t fro'
product
o Branding
rand &Ba'e+ ter'+ sign+ sy'(ol+ design or co'(ination to identify and
diferentiate goods or services-
L.M Delps consu'ers identify products t*at 'ig*t (ene2t t*e' and L>M tells (uyer
a(out product ,uality
L.M asis on )*ic* )*ole story can (e (uilt a(out product!s special ,ualities+ L>M
provides legal protection for uni,ue product features and L0M *elps seg'ent
'arkets
o Packaging &Activities of designing and producing container or )rapper for product-
Includes L.M pri'ary container+ L>M secondary package and L0M s*ipping package
L.M Contains and protects product+ L>M attracts attention+ L0M descri(es product
and L4M 'akes sale
Many co'panies L.M use *ard-to-open 9c*ildproof< and ta'per-resistant packages
and L>M reduce packaging and use environ'entally responsi(le packaging 'aterial
o La0eling
L.M Identi2es product or (rand+ L>M descri(es 9)*o<+ 9)*ere<+ 9)*en<+ 9)*at< and
9*o)< a(out product and L0M pro'otes product t*roug* attractive grap*ics
o Product Su##ort Services
Co'panies L.M survey custo'ers periodically to assess current services! value
and o(tain ideas for ne) ones+ L>M assess cost of providing t*ese services and L0M
develop package of services delig*ting custo'ers and yielding pro2ts to co'pany
- Level > ? Product Line &%roup of products closely related (ecause of si'ilar functions+
sa'e custo'er groups+ sa'e types of 'arketing outlets or si'ilar price ranges-
Decisions
o Product line lengt* is inFuenced (y L.M co'pany o(7ectives+ e4g4 allo) for upselling+
allo) cross-selling and protect against econo'ic s)ings+ and L>M resources
o Co'pany can perfor' line stretc*ing (y lengt*ening product line (eyond current
range
Stretc* do)n)ard to L.M plug 'arket *ole+ L>M respond to co'petitor!s attack on
upper end+ L0M gro) faster in lo)-end
Stretc* up)ard to L.M add prestige to current products+ L>M gro) faster or earn
*ig*er 'argins at *ig*er end
Co'panies at upper end can stretc* do)n)ard+ 'iddle range in (ot* directions
and lo)er end can stretc* up)ard
o Co'pany can perfor' line 2lling (y adding 'ore ite's )it*in present range
To L.M reac* for e$tra pro2ts+ L>M satisfy dealers+ L0M use e$cess capacity+ L4M (e
leading full-line co'pany and LIM plug *oles to kept out co'petitors
6verdone if it results in canni(ali1ation and custo'er confusion
Co'panies s*ould ensure ne) ite's are noticea(ly diferent fro' e$isting ones
- Level 0 ? Product Mi$ &Set of all product lines and ite's- Decisions
o Product 'i$ )idt* refers to nu'(er of diferent product lines
o Product 'i$ lengt* refers to total nu'(er of ite's
o Product line dept* refers to nu'(er of versions ofered of eac* product in line
o Product 'i$ consistency refers to *o) closely related various product lines are in end
use+ production re,uire'ents+ distri(ution c*annels or ot*er )ays
6e2)Product Develo#ment
"ir's 'ust L.M develop ne) products to replace aging ones and L>M adapt its 'arketing
strategies in face of c*anging tastes+ tec*nologies and co'petition
6e2)Product Develo#ment Strategy &Pg >I/-
- "ir's can o(tain ne) products t*roug* L.M ac,uisition or L>M ne)-product develop'ent
&Develop'ent of original products+ product i'prove'ents+ product 'odi2cations and
ne) (rands t*roug* 2r'!s o)n 35D eforts-
- Be) products fail (ecause L.M 'arket si1e *as (een overesti'ated+ L>M actual product is
not designed as )ell as it s*ould *ave (een+ L0M incorrectly positioned in 'arket+ priced
too *ig* or advertised poorly+ L4M pus*ed despite poor 'arketing researc* 2ndings+ LIM
costs of product develop'ent are *ig*er t*an e$pected or L=M co'petitors 2g*t (ack
*arder t*an e$pected
- Step . ? *dea %eneration &Syste'atic searc* for ne)-product ideas-
o *nternal *dea Sources
"or'al researc* and develop'ent
rains of e'ployees+ e4g4 9intrapreneurial< progra's
Creative innovation approac*es+ e4g4 #urekaN 3anc*
o E$ternal *dea Sources
Custo'ers
Co'pany can analy1e custo'er ,uestions and co'plaints
Co'pany can 'eet )it* and )ork alongside custo'ers
Co'pany can conduct surveys or focus groups
Co'pany can put ne) products and uses created (y consu'ers on 'arket
Co'pany can give custo'ers tools and resources to design products
Co'petitors
Co'pany can (uy co'peting ne) products+ take t*e' apart to see *o) t*ey
)ork+ analy1e t*eir sales and decide
Distri(utors 5 Suppliers
Co'pany can o(tain infor'ation a(out consu'er pro(le's and ne)-product
possi(ilities fro' resellers
Co'pany can o(tain ne) concepts+ tec*ni,ues and 'aterials fro' suppliers
Trade 'aga1ines+ s*o)s and se'inars+ govern'ent agencies+ ne)-product
consultants+ advertising agencies+ 'arketing researc* 2r's+ university and
co''ercial la(oratories and inventors
o Searc* for ideas s*ould (e syste'atic+ not *ap*a1ard+ e4g4 idea 'anage'ent
syste'
- Step > ? *dea Screening &Screening ne)-product ideas to spot good and drop poor
ones-
o Co'pany )ants to go a*ead only )it* pro2ta(le product ideas (ecause product
develop'ent costs rise greatly in later stages
- Step 0 ? once#t Develo#ment ' Testing
o Product idea is idea for possi(le product t*at co'pany can see itself ofering to
'arket
o Product concept is detailed version of idea stated in 'eaningful consu'er ter's
o Product i'age is t*e )ay consu'ers perceive actual or potential product
o once#t Develo#ment
o once#t Testing &Testing ne)-product concepts )it* group of target consu'ers to
2nd out consu'er appeal-
;ord or picture description 'ay suCce+ (ut 'ore concrete and p*ysical
presentation of concept increases relia(ility of concept test
- Step 4 ? Marketing Strategy Develo#ment &Designing initial 'arketing strategy for
ne) product (ased on product concept-
o "irst part descri(es L.M target 'arket+ L>M planned product positioning and L0M sales+
'arket s*are and pro2t goals for 2rst fe) years
o Second part outlines L.M planned price+ L>M distri(ution and L0M 'arketing (udget for
2rst year
o T*ird part descri(es L.M planned long-run sales+ L>M pro2t goals and L0M 'arketing
'i$ strategy
- Step I ? Business &nalysis &3evie) of sales+ costs and pro2t pro7ections to 2nd out
)*et*er t*ey satisfy co'pany!s o(7ectives-
- Step = ? Product Develo#ment &Developing product concept into p*ysical product to
ensure product idea can turn into )orka(le product-
o 35D depart'ent )ill develop and test one or 'ore p*ysical versions of product
concept
o Products undergo rigorous tests to ensure L.M safe and efective perfor'ance or L>M
consu'ers 2nd value in t*e'
o Be)-product 'ust L.M *ave re,uired functional features and L>M convey intended
psyc*ological c*aracteristics
- Step A ? Test Marketing &Product and 'arketing progra' are tested in 'ore realistic
'arket settings-
o Test 'arketing L.M costs can (e *ig* and L>M takes ti'e t*at 'ay allo) co'petitors
to gain advantages
o Do)ever+ test 'arketing costs are often s'all co'pared to costs of 'a7or 'istake
o ;*en L.M costs of developing and introducing product are lo) or L>M 'anage'ent is
already con2dent+ co'pany 'ay do little or no test 'arketing
o Approac* . ? Standard Test Markets
Co'pany L.M 2nds s'all nu'(er of representative test cities+ L>M conducts full
'arketing ca'paign in t*ese cities and L0M uses store audits+ consu'er and
distri(utor surveys and ot*er 'easures to gauge product perfor'ance
L.M Kery costly+ L>M takes long ti'e+ L0M co'petitors can 'onitor test 'arket
results or even interfere and L4M co'petitors can look at ne) product )ell (efore
introducing nationally
o Approac* > ? ontrolled Test Markets
3esearc* 2r's keep controlled panels of store t*at *ave agreed to carry ne)
products for a fee
L.M Allo)s co'panies to evaluate speci2c 'arketing eforts+ L>M costs less and L0M
co'pleted ,uickly
Do)ever+ L.M co'petitors can look at ne) product and L>M li'ited nu'(er of
controlled test 'arkets 'ay not (e representative of products! 'arkets or target
consu'ers
o Approac* 0 ? Simulated Test Markets
L.M Co'pany or researc* 2r' s*o)s ads and pro'otions for variety of products+
including ne) product (eing tested+ to sa'ple of consu'ers+ L>M gives t*e'
'oney and L0M invites t*e' to real or la(oratory store )*ere t*ey 'ay keep or
use 'oney to (uy ite's
L.M Provides 'easure of trial and co''ercial!s efectiveness against co'peting
co''ercials+ L>M costs 'uc* less+ L0M co'pleted 'ore ,uickly and L4M keep ne)
product out of co'petitors! vie)
Do)ever+ s'all sa'ples and si'ulated s*opping environ'ent 'ay not (e
accurate or relia(le
- Step / ? ommerciali:ation &Introducing ne) product into 'arket-
o Co'pany 'ust decide L.M introduction ti'ing and L>M )*ere to launc* ne) product
o Can develop L.M planned 'arket rollout over ti'e or L>M glo(al rollouts
- Organi:ing (or 6e2)Product Develo#ment
o Se,uential product develop'ent &6ne co'pany depart'ent )orks to co'plete its
stage (efore passing ne) product to ne$t depart'ent and stage- L.M (rings control
to co'ple$ and risky pro7ects+ (ut L.M can (e dangerously slo)
o Si'ultaneousOTea'-(ased product develop'ent &Karious co'pany depart'ents
)ork closely toget*er+ overlapping steps in product-develop'ent process- L.M saves
ti'e and L>M increases efectiveness+ (ut L.M can (e riskier+ L>M 'ore costly+ L0M
increases organi1ational tension and confusion and L4M afect product!s ,uality
adversely
Product Li(e)ycle Strategies&Pg >A4-
- Product Life Cycle &PLC- &Course of product!s sales and pro2ts over its lifeti'e-
- Bot all products follo) typical product life cycle
- Product classes *ave longest life cycles and stay in 'ature stage for long ti'e
- Product for's tend to *ave standard PLC s*ape
- Speci2c (rand!s life cycle can c*ange ,uickly (ecause of c*anging co'petitive attacks
and responses
- Style &asic and distinctive 'ode of e$pression- lasts for generations and s*o)s periods
of rene)ed interest
- "as*ion &Currently accepted or popular style- gro)s slo)ly+ re'ains popular for a )*ile
and declines slo)ly
- "ad &Te'porary period of unusually *ig* sales driven (y consu'er ent*usias' and
i''ediate product or (rand popularity- 'ay (e part or 'ay co'prise entire life cycle
- May (e *ard to L.M identify )*ic* stage of PLC product is in+ L>M pinpoint )*en product
'oves into ne$t stage+ L0M deter'ine factors afecting product!s 'ove'ent t*roug*
stages and L4M use PLC concept to develop 'arketing strategy (ecause strategy is (ot*
cause and result of PLC
Stages
- Stage . ? Product Develop'ent
o Sales are 1ero and invest'ent costs 'ount
- Stage > ? *ntroduction Stage
o Pro2ts are negative or lo) (ecause of lo) sales and *ig* distri(ution and pro'otion
e$penses
o Co'pany+ especially 'arket pioneer+ 'ust c*oose launc* strategy consistent )it*
intended product positioning
- Stage 0 ? %ro2t" Stage
o To sustain rapid 'arket gro)t*+ 2r' can L.M i'prove product ,uality and add ne)
features and 'odels+ L>M enter ne) 'arket seg'ents and distri(ution c*annels+ L0M
s*ift advertising fro' (uilding product a)areness to product conviction and
purc*ase and L4M lo)er prices at rig*t ti'e
- Stage 4 ? Maturity Stage
o Slo)do)n in sales gro)t* (ecause product *as ac*ieved acceptance (y 'ost
potential (uyers
o Pro2ts level of or decline (ecause of increased 'arketing outlays to defend
co'petition
o ;eaker co'petitors start dropping out and eventually+ only )ell-esta(lis*ed
co'petitors re'ain
o To 'odify 'arket+ co'pany can L.M look for ne) users and 'arket seg'ents+ L>M
reposition (rand to appeal to larger or faster-gro)ing seg'ent+ L0M increase usage
a'ong present custo'ers and L4M 2nd ne) uses
o To 'odify product+ co'pany can L.M i'prove product!s ,uality and perfor'ance and
L>M product!s styling and attractiveness
o To 'odify 'arketing 'i$+ co'pany can L.M cut prices and L>M launc* (etter
advertising ca'paign or use aggressive sales pro'otion
- Stage I ? Decline Stage
o Manage'ent can L.M 'aintain (rand )it*out c*ange+ L>M reposition or refor'ulate
(rand+ L0M *arvest product or L4M drop product fro' line
*ntroduction %ro2t" Maturity Decline
"aracteris
tics
Sales Lo) sales
3apidly rising
sales
Peak sales Declining sales
Costs
Dig* cost per
custo'er
Average cost
per custo'er
Lo) cost per
custo'er
Lo) cost per
custo'er
Pro2ts Begative 3ising pro2ts Dig* pro2ts
Declining
pro2ts
Custo'er
s
Innovators #arly adopters
Middle
'a7ority
Laggards
Co'petito
rs
"e)
%ro)ing
nu'(er
Sta(le
nu'(er
(eginning to
decline
Declining
nu'(er
Marketing
O0;ectives
Create product
a)areness and
trial
Ma$i'i1e
'arket s*are
Ma$i'i1e
pro2t )*ile
defending
'arket s*are
3educe
e$penditures
and 'ilk t*e
(rand
Strategies
Product
6fer (asic
product
6fer product
e$tensions+
service+
)arranty
Diversify
(rand and
'odels
P*ase out )eak
ite's
Price Ese cost-plus
Price to
penetrate
'arket
Price to 'atc*
or (eat
co'petitors
Cut price
Distri(utio
n
uild selective
distri(ution
uild intensive
distri(ution
uild 'ore
intensive
distri(ution
%o selective+
p*ase out
unpro2ta(le
outlets
Advertisin
g
uild product
a)areness
a'ong early
adopters and
dealers
uild
a)areness and
interest in
'ass 'arket
Stress (rand
diferences
and (ene2ts
3educe to level
needed to
retain *ard-
core loyals
Sales
Pro'otion
Ese *eavy sales
pro'otion to
entice trial
3educe to take
advantage of
*eavy
consu'er
de'and
Increase to
encourage
(rand
s)itc*ing
3educe to
'ini'al level
4P ) Price
- Co'panies s*ould sell value+ not price+ i4e4 *ig*er price for co'pany!s (rand is 7usti2ed
(y greater value it delivers
W"at is a Price3 &Pg >/@-
- Price &L.M A'ount of 'oney c*arged for product or service or L>M su' of values
consu'ers e$c*ange for (ene2ts of *aving or using product or service-
- Today1s 6e2 Pricing Environment
o Dyna'ic Pricing &C*arging diferent prices depending on individual custo'ers and
situations-
o Advantages for 'arketers include a(ility to L.M price tailored products accordingly
and L>M c*ange prices on t*e Fy
o Advantages for (uyers include a(ility to L.M co'pare product and price instantly on
)e(sites and L>M negotiate lo)er prices
- Pricing: &n *m#ortant 0ut Di<cult Decision
o In 'arketing 'i$+ price is L.M only ele'ent producing revenue and L>M one of 'ost
Fe$i(le ele'ent
o Mistakes include L.M reducing prices too ,uickly to get sale rat*er t*an convincing
product!s )ort*+ L>M pricing t*at is too cost oriented rat*er t*an custo'er-value
oriented and L0M price t*at does not take rest of 'arketing 'i$ into account
5actors to onsider 2"en Setting Prices &Pg >@.-
- *nternal 5actors &fecting Pricing Decisions
o Marketing O0;ectives
Pricing strategy is largely deter'ined (y 'arket positioning and also (y general
o(7ectives+ e4g4 L.M survival+ L>M current pro2t 'a$i'i1ation+ L0M 'arket s*are
leaders*ip and L4M product ,uality leaders*ip
Pricing strategy for not-for-pro2t and pu(lic organi1ations depends on o(7ectives+
e4g4 L.M partial cost recovery or L>M full cost recovery
o Marketing Mi$ Strategy
Many 2r's support target costing &Pricing t*at starts )it* ideal selling price+ t*en
targets costs t*at )ill ensure price is 'et-
6t*er 2r's create nonprice positions+ i4e4 not c*arging lo)est price+ (ut
diferentiating 'arketing ofer to 'ake product )ort* *ig*er price
So'e 2r's even feature *ig* prices as part of positioning
o osts
Co'pany )ants price to L.M cover all costs and L>M deliver fair rate of return for
efort and risk
Ty#es o( osts
"i$ed Costs &Costs not varying )it* production or sales level-
Karia(le Costs &Costs varying directly )it* level of production-
Total Costs &Su' of 2$ed and varia(le costs for any level of production-
If costs are 'ore t*an co'petitors!+ co'pany *ave to L.M c*arge *ig*er price
or L>M 'ake less pro2t+ putting it at co'petitive disadvantage
osts at Diferent Levels o( Production
To price )isely+ 'anage'ent needs to kno) *o) costs vary )it* diferent
level of production and c*oose opti'al level
osts as a 5unction o( Production E$#erience
#$perienceOLearning Curve &Drop in average per-unit production cost t*at
co'es )it* accu'ulated production e$perience-
"or do)n)ard-sloping e$perience curve+ co'pany 'ust get large 'arket
s*are early in product!s life cycle (y follo)ing strategy+ i4e4 lo) initial price
sales increase costs )ill decrease lo)er prices furt*er
Do)ever+ L.M it 'ay give product a c*eap i'age+ L>M co'petitors 'ay 2g*t it
out to 'eet price cuts and L0M co'petitors 'ay 2nd lo)er-cost tec*nology t*at
allo)s starting at lo)er prices t*an 'arket leader!s
o Organi:ational onsiderations
Manage'ent 'ust decide )*o )it*in organi1ation s*ould set prices
- E$ternal 5actors &fecting Pricing Decisions
o T"e Market ' Demand
Costs set lo)er li'it of prices )*ile 'arket and de'and set upper li'it
Pricing in Diferent Ty#es o( Markets
Pure Co'petition
o Seller cannot c*arge 'ore and )ill not c*arge less
t*an 'arket price
Monopolistic Co'petition
o Sellers diferentiate (y price+ (randing+ advertising
and personal selling
6ligopolistic Co'petition
o #ac* seller is alert and responds to co'petitors!
strategies and 'oves
Pure Monopoly
o In regulated 'onopoly+ t*e seller set rates per'itted
(y govern'ent
o In nonregulated 'onopoly+ t*e seller prices at )*at
'arket )ill (ear
onsumer Perce#tions o( Price ' /alue
Co'panies 'ust L.M understand *o) 'uc* value consu'ers place on
(ene2ts received fro' product and L>M set price t*at 2ts t*is value
&naly:ing t"e Price)Demand -elations"i#
L.M De'and curve &Curve s*o)ing nu'(er of units 'arket )ill (uy at
diferent prices- slopes do)n)ards nor'ally+ (ut L>M so'eti'es up)ards for
prestige goods (ecause consu'ers t*ink *ig*er prices 'ean 'ore ,uality
;*en 'easuring de'and curves (y esti'ating de'and at diferent prices+
co'panies 'ust not allo) ot*er factors afecting de'and to vary
Price Elasticity &Sensitivity of de'and to price c*ange- o( Demand
uyers are less price sensitive )*en L.M product is uni,ue or *ig* in ,uality+
prestige or e$clusiveness+ L>M su(stitute is *ard to 2nd or su(stitute!s ,uality is
*ard to co'pare )it*+ L0M total e$penditure is lo) relative to inco'e or is
s*ared
If de'and is elastic+ sellers can increase revenue (y L.M lo)ering prices as
long as e$tra costs do not e$ceed e$tra revenue+ (ut 'ust avoid pricing t*at
turns products into co''odities+ or L>M diferentiate t*eir oferings
o om#etitors1 osts8 Prices ' Ofers
Co'pany 'ust consider L.M co'petitors! costs and prices+ L>M possi(le co'petitor
reactions and L0M nature of co'petition afected (y pricing strategy
o Ot"er E$ternal 5actors
Co'pany 'ust consider L.M econo'ic conditions+ L>M prices! i'pact on ot*er
parties in its environ'ent+ e4g4 resellers+ L0M govern'ent and L4M social concerns
%eneral Pricing &##roac"es &Pg 0J>-
- ost)Based Pricing
o Cost-Plus Pricing &Adding standard 'arkup to product cost-
Enlikely to lead to (est price (ecause it ignores de'and and co'petitor prices
;orks only if assigned price (rings in e$pected sales level
Popular (ecause L.M pricing is si'pli2ed as sellers are 'ore certain a(out costs
t*an de'and+ L>M )*en all 2r's in industry use t*is pricing 'et*od+ prices tend to
(e si'ilar and price co'petition is 'ini'i1ed and L0M fairer to (ot* (uyers and
sellers
o Break)Even &nalysis ' Target Pro+t Pricing
reak-#venOTarget Pro2t Pricing &Setting price to L.M (reak even on costs of
'aking and 'arketing product or L>M 'ake target pro2t-
ost)Based Pricing
Produ
ct

Co
st

Pric
e

Kalu
e

Custo'
ers
o Cost-(ased pricing is product driven
Co'pany designs )*at it considers to (e good product
Co'pany totals costs of 'aking product
Co'pany sets price covering costs plus target pro2t
Co'pany convinces (uyers value at t*at price 7usti2es purc*ase
- /alue)Based Pricing &Setting price (ased on (uyers! perceptions of value rat*er t*an
on seller!s cost-
/alue)Based Pricing
Custo'
ers

Kalu
e

Pric
e

Co
st

Produ
ct
o Kalue-(ased pricing is custo'er driven
Co'pany sets target price (ased on custo'er perceptions of product value
Targeted value and price drive decisions a(out product design and )*at costs can
(e incurred
o /alue Pricing &6fering 7ust rig*t co'(ination of ,uality and good service at fair
price-
Involves L.M introducing less versions of esta(lis*ed+ (rand na'e products or L>M
redesigning e$isting (rands to ofer 'ore ,uality for given price or sa'e ,uality
for less
#veryday lo) pricing &#DLP- involves c*arging constant+ everyday lo) price+ (ut
fe) or no te'porary price discounts
Dig*-lo) pricing involves *ig*er prices on everyday (asis+ (ut fre,uent
pro'otions to lo)er prices te'porarily on selected ite's
o /alue)&dded Marketing
3at*er t*an cutting prices to 'atc* co'petitors+ co'panies attac* value-added
services to diferentiate ofers and t*us+ support *ig*er 'argins
- om#etition)Based Pricing &Setting price (ased on prices t*at co'petitors c*arge for
si'ilar products-
o %oing-rate pricing involves (asing price largely on co'petitors! prices+ )it* less
attention paid to o)n costs or de'and
Popular (ecause L.M )*en de'and elasticity is *ard to 'easure+ going price
represents collective )isdo' of industry concerning price t*at )ill yield fair return
and L>M it prevents *ar'ful price )ars
o Sealed-(id pricing )*en 2r's (id for 7o(s
- 6e2)Product Pricing Strategies &Pg 0.0-
- Pricing strategies usually c*ange as product passes t*roug* its life cycle
- Market)Skimming Pricing &Setting *ig* price for ne) product to ski' 'a$i'u'
revenues layer (y layer fro' seg'ents )illing to pay *ig* price-
o Co'pany 'akes fe)er+ (ut 'ore pro2ta(le sales
o L.M Product!s ,uality and i'age 'ust support *ig*er price and enoug* (uyers 'ust
)ant product at t*at price+ L>M costs of producing s'aller volu'e cannot (e so *ig*
t*at advantage of c*arging 'ore is cancelled and L0M co'petitors s*ould not (e a(le
to enter 'arket easily and undercut *ig* price
- Market)Penetration Pricing &Setting lo) price for ne) product to attract large nu'(er
of (uyers and large 'arket s*are-
o Dig* sales volu'e results in falling costs+ allo)ing co'pany to cut price even furt*er
o L.M Market 'ust (e *ig*ly price sensitive so t*at lo) price produces 'ore 'arket
gro)t*+ L>M production and distri(ution costs 'ust fall as sales volu'e increases and
L0M lo) price 'ust *elp keep out co'petition and lo) price position 'ust (e
'aintained
) Product Mi$ Pricing Strategies &Pg 0.0-
- "ir' looks for set of prices t*at 'a$i'i1es pro2ts on total product 'i$
- Product Line Pricing &Setting price steps (et)een various products in product line
(ased on L.M cost diferences (et)een products+ L>M custo'er evaluations of diferent
features and L0M co'petitors! prices-
o Seller!s task is to esta(lis* perceived ,uality diferences t*at support price
diferences
- O#tional)Product Pricing &Pricing of optional or accessory products along )it* 'ain
product-
o Seller *ave to decide )*ic* ite's to include in (ase price and )*ic* to ofer as
options
- a#tive)Product Pricing &Setting price for products t*at 'ust (e used along )it* 'ain
product-
o Producers often price 'ain product lo) and set *ig* 'arkups on supplies
o T)o-part pricing+ i4e4 2$ed fee plus varia(le usage rate+ in t*e case of services
- By)Product Pricing &Setting price for (y-products to 'ake 'ain product!s price 'ore
co'petitive-
o Manufacturer seek 'arket for (y-products and s*ould accept any price covering
'ore t*an cost of storing and delivering t*e'
- Product Bundle Pricing &Co'(ining several products and ofering (undle at reduced
price-
Price (undling can pro'ote sales of products consu'ers 'ig*t not ot*er)ise (uy+ (ut
co'(ined price 'ust (e lo) enoug* to get t*e' to (uy (undle4
4P ) Place
Place strategies
3efers to *o) an organisation )ill distri(ute t*e product or service t*ey are ofering to t*e
end user4 T*e organisation 'ust distri(ute t*e product to t*e user at t*e rig*t place at t*e
rig*t ti'e4 #Ccient and efective distri(ution is i'portant if t*e organisation is to 'eet its
overall 'arketing o(7ectives4 If organisation underesti'ate de'and and custo'ers cannot
purc*ase products (ecause of it pro2ta(ility )ill (e afected4
"annel o( distri0ution
T)o types of c*annel of distri(ution 'et*ods are availa(le4
*ndirect distri0ution involves distri(uting your product (y t*e use of an inter'ediary4
Direct distri0ution involves distri(uting direct fro' a 'anufacturer to t*e consu'er
e4g4 "or e$a'ple Dell Co'puters4 Clearly direct distri(ution gives a 'anufacturer co'plete
control over t*eir product4
*ndirect Distri0ution Direct Distri0ution
Distri0ution Strategies
1. Intensive distributionP Esed co''only to distri(ute lo) priced or i'pulse purc*ase
products eg c*ocolates+ soft drinks4
2. Eclusive distribution! Involves li'iting distri(ution to a single outlet4 T*e product is
usually *ig*ly priced+ and re,uires t*e inter'ediary to place 'uc* detail in its sell4 An
e$a'ple of )ould (e t*e sale of ve*icles t*roug* e$clusive dealers4
". Selective Distribution! A s'all nu'(er of retail outlets are c*osen to distri(ute t*e
product4 Selective distri(ution is co''on )it* products suc* as co'puters+ televisions
*ouse*old appliances+ )*ere consu'ers are )illing to s*op around and )*ere
'anufacturers )ant a large geograp*ical spread4
4P ) Promotion
Advertising: Is any non personal paid form of communication using any form of mass media.
Public relations: Involves developing positive relationships with the organisation media public. The art of
good public relations is not only to obtain favorable publicity within the media, but it is also involves being
able to handle successfully negative attention.
Sales promotion: Commonly used to obtain an increase in sales short term. Could involve using money
off coupons or special offers.
Personal selling: Selling a product service one to one.
Direct Mail: Is the sending of publicity material to a named person within an organisation.
Branding Strategy: Building Strong Brands &Pg >0I-
- Brand E.uity &Positive diferential efect t*at kno)ing t*e (rand na'e *as on custo'er
response to product or service-
o A 'easure of (rand!s e,uity is e$tent to )*ic* custo'ers are )illing to pay 'ore for
(rand
o Po)erful (rand L.M en7oys *ig* level of consu'er (rand a)areness and loyalty+ L>M
*as 'ore leverage in (argaining )it* resellers+ L0M can 'ore easily launc* line and
(rand e$tensions+ L4M ofers co'pany defense against 2erce price co'petition and
LIM 'ost i'portantly+ (uilds strong and pro2ta(le custo'er relations*ips+ i4e4
custo'er e,uity
- Building Strong Brands
o Brand Positioning
At lo)est level+ position (rand on product attri(utes+ (ut L.M attri(utes can (e
easily copied and L>M custo'ers are not interested in attri(utes as suc*+ (ut
)*at t*ey can do for t*e'
At *ig*er level+ position (rand on product (ene2ts
At *ig*est level+ position (rand on strong (eliefs and values
;*en positioning+ 'arketer s*ould esta(lis* 'ission for (rand and vision of )*at
(rand 'ust (e and do
o Brand 6ame Selection
rand na'e s*ould L.M suggest a(out product!s (ene2ts and ,ualities+ L>M easy to
pronounce+ recogni1e and re'e'(er+ L0M distinctive+ L4M e$tenda(le+ LIM
translate easily into foreign languages and L=M capa(le of registration and legal
protection
"ir's protect and try to (uild (rand na'e t*at )ill eventually (eco'e identi2ed
)it* product category+ (ut risk (rand na'e (eco'ing generic na'e any seller
can use
o Brand S#onsors"i#
Manu(acturer1s Brands versus Private Brands
Manufacturers! (rands *ave long do'inated retail scene+ (ut 'ore retailers
and )*olesalers *ave created t*eir o)n privateOstore (rands
3etailers can L.M control )*at products to stock+ L>M )*ere products go on
s*elf+ L0M )*at prices to c*arge+ L4M )*ic* products to feature in local circulars
and LIM c*arge 'anufacturers slotting fees
Private (rands L.M yield *ig*er pro2t 'argins for reseller+ L>M give resellers
e$clusive products t*at cannot (e (oug*t fro' co'petitors and L0M greater
store traCc and loyalty
Do)ever+ private (rands are L.M *ard to esta(lis* and L>M costly to stock and
pro'ote
Leading (rand 'arketers *ave to L.M invest in 35D+ L>M design strong
advertising progra's and L0M 9partner< )it* 'a7or distri(utors
Licensing
Provides instant and proven (rand na'e
Includes na'e+ c*aracter and corporate (rand licensing
o)Branding &Esing esta(lis*ed (rand na'es of t)o diferent co'panies on
sa'e product-
Co'(ined (rands L.M create (roader consu'er appeal and greater (rand
e,uity+ L>M allo) e$pansion of e$isting (rand into category t*at is diCcult to
enter alone
Do)ever+ co-(randing involves L.M co'ple$ legal contracts and licenses+ L>M
careful coordination of advertising+ sales pro'otion and ot*er 'arketing
eforts and L0M trust (et)een partners
o Brand Develo#ment
E$isting Product
ategory
6e2 Product
ategory
E$isting Brand
6ame
Line #$tension rand #$tension
6e2 Brand
6ame
Multi(rands Be) rands
Line E$tensions
L.M Lo)-cost+ lo)-risk )ay to introduce ne) products+ L>M 'eet consu'er
desires for variety+ L0M use e$cess capacity and L4M co''ands 'ore s*elf
space fro' resellers
Do)ever+ overe$tended (rand na'e 'ay L.M lose speci2c 'eaning+ L>M cause
consu'er confusion or frustration and L0M 9canni(ali1e< co'pany!s ot*er
ite's
Brand E$tensions
L.M %ives ne) product instant recognition and faster acceptance and L>M
saves *ig* advertising costs
Do)ever+ e$tension 'ay L.M confuse i'age of 'ain (rand+ L>M *ar'
consu'er attitudes to)ard ot*er products carrying sa'e (rand na'e if (rand
e$tension fails and L0M not (e appropriate to ne) product
Multi0rands
L.M #sta(lis*es diferent features and appeal to diferent (uying 'otives and
L>M locks up 'ore reseller s*elf space
Do)ever+ eac* (rand 'ay L.M o(tain only s'all 'arket s*are and L>M not (e
very pro2ta(le
6e2 Brands
L.M Po)er of e$isting (rand na'e is )aning and L>M none of current (rand
na'es is appropriate
Do)ever+ ofering too 'any (rands 'ay L.M result in spreading resources too
t*in and L>M too fe) diferences (et)een (rands
- Managing Brands
o rand!s positioning 'ust (e continuously co''unicated to consu'ers
o #veryone in co'pany 'ust live t*e (rand
o Co'panies need to periodically audit (rands! strengt*s and )eaknesses+ i4e4 (rand
audit
Services Marketing &Pg >40-
- 6ature ' "aracteristics o( a Service
o Service Intangi(ility &Cannot (e seen+ tasted+ felt+ *eard or s'elled (efore t*ey are
(oug*t-
Service provider s*ould L.M 'ake service tangi(le in one or 'ore )ays and L>M
send rig*t signals a(out ,uality
o Service Insepara(ility &Produced and consu'ed at sa'e ti'e and cannot (e
separated fro' providers-
o Service Karia(ility &Quality 'ay vary greatly+ depending on )*o provides t*e'+
)*en+ )*ere and *o)-
o Service Peris*a(ility &Cannot (e stored for later sale or use-
Service 2r's s*ould design strategies for producing (etter 'atc* (et)een
de'and and supply
- Marketing Strategies (or Service 5irms
o Service providers 'ust interact efectively )it* custo'ers to create superior value
during service encounters
o T"e Service)Pro+t "ain &C*ain linking service 2r' pro2ts )it* e'ployee and
custo'er satisfaction-
Internal service ,uality Satis2ed and productive service e'ployees %reater
service value Satis2ed and loyal custo'ers Dealt*y service pro2ts and
gro)t*
Co'pany
*nterna
l
Marketi
ng
E$tern
al
Marketi
ng
#'ploye
es
*nteractive
Marketing
Custo'
ers
Internal Marketing &Marketing to train and efectively 'otivate custo'er-contact
e'ployees and all supporting service people to )ork as tea' to provide
custo'er satisfaction-
Interactive Marketing &Marketing t*at recogni1es perceived service ,uality
depends *eavily on ,uality of (uyer-seller interaction-
Calls+ clicks and visits
o Managing Service Diferentiation
Can diferentiate service ofer (y including innovative features
Can diferentiate service delivery (y L.M 'ore a(le and relia(le custo'er-contact
people+ L>M superior p*ysical environ'ent or L0M superior delivery process
Can diferentiate service i'age (y L.M sy'(ols and L>M (randing
o Managing Service 9uality
S*ould not only provide good service every ti'e+ (ut also recover fro' service
'istakes+ i4e4 service recovery+ (y e'po)ering front-line service e'ployees
o Managing Service Productivity
To increase service productivity+ L.M train current e'ployees (etter or *ire ne)
ones+ L>M increase ,uantity of service (y giving up so'e ,uality+ L0M
9industriali1e service< (y adding e,uip'ent and standardi1ing production and
L4M *arness po)er of tec*nology
Do)ever+ 'ay reduce longer-run a(ility to L.M innovate+ L>M 'aintain service
,uality or L0M respond to consu'er needs and desires
&dditional Product onsiderations &Pg >IJ-
- Product Decisions ' Social -es#onsi0ility
o Co'panies adding products t*roug* ac,uisitions 'ay (e prevented (y govern'ent
if efect t*reatens to lessen co'petition
o Co'panies dropping products *ave legal o(ligations to suppliers+ dealers and
custo'ers )*o *ave stake in dropped products
o Co'panies developing ne) products 'ust o(ey E4S4 patent la)s
o Manufacturers 'ust co'ply )it* la)s regarding product ,uality and safety
- *nternational Product ' Services Marketing
o Standardi1ation L.M *elps develop consistent )orld)ide i'age+ L>M lo)ers
'anufacturing costs and L0M eli'inates duplication of researc* and develop'ent+
advertising and product design eforts
o Do)ever+ L.M consu'ers difer in cultures+ attitudes and (uying (e*aviors+ L>M
'arkets vary in econo'ic conditions+ co'petition+ legal re,uire'ents and p*ysical
environ'ents and L0M packaging issues+ i4e4 na'es+ la(els and colors 'ay not
translate easily fro' one country to anot*er
o T*us+ co'panies 'ust adapt t*eir product oferings
o Service providers face 'ore su(tle (arriers due to L.M *ost country!s traditions or L>M
*ost country protecting o)n Fedgling service industries
Personal Selling &Pg 4IA-
- T"e 6ature o( Personal Selling
o Salesperson 'ay (e order taker+ e4g4 standing (e*ind counter+ or order getter+ e4g4
positions de'and creative selling and relations*ip (uilding
- T"e -ole o( t"e Sales 5orce
o Personal selling is interpersonal ar' of pro'otion 'i$+ involving t)o-)ay &personal
co''unication (et)een salespeople and individual custo'ers-
o Advertising is one-)ay &nonpersonal co''unication )it* target consu'er groups-
o Personal selling can (e 'ore efective (ecause salespeople can pro(e to learn a(out
custo'ers! pro(le's and ad7ust 'arketing ofer and presentation to 2t eac* needs
o Sales force represent L.M co'pany to custo'ers and L>M custo'ers to co'pany
Managing t"e Sales 5orce &Pg 4I/-
- Sales "orce Manage'ent &Analysis+ planning+ i'ple'entation and control of sales force
activities+ includes L.M setting and designing sales force strategy and L>M recruiting+
selecting+ training+ supervising+ co'pensating and evaluating 2r'!s salespeople-
- Step . - Designing Sales 5orce Strategy ' Structure
o Sales 5orce Structure
Territorial Sales 5orce Structure &Assigns eac* salesperson to e$clusive
geograp*ic territory selling co'pany!s full line-
De2nes eac* salesperson!s 7o( and 2$es accounta(ility
I'proves selling efectiveness due to desire to (uild local (usiness
relations*ips
Travel e$penses are s'all
Product Sales 5orce Structure &Salespeople speciali1e in selling only portion of
co'pany!s products or lines-
Salespeople )ill kno) t*eir products
ustomer Sales 5orce Structure &Salespeople speciali1e in selling only to
certain custo'ers or industries-
uild closer relations*ips )it* i'portant custo'ers
om#le$ Sales 5orce Structures &Co'(ines several types of sales force
structures-
o Sales 5orce Si:e
;orkload Approac* ? %rouping of accounts into diferent classes related to
a'ount of efort re,uired to 'aintain and t*en deter'ining nu'(er of
salespeople needed
o Ot"er Sales 5orce Strategy ' Structure *ssues
Outside ' *nside Sales 5orces
6utsideO"ield Sales "orce &Salespeople calling on custo'ers-
Inside Sales "orce &Salespeople conducting (usiness fro' oCces via
telep*ones or visits fro' prospective (uyers-
Inside sales force frees outside salespeople to spend 'ore ti'e selling to
'a7or accounts and 2nding 'a7or ne) prospects
Inside salespeople perfor' fro' direct selling and account service to
custo'er analysis and acting as liaisons (et)een outside salespeople and
custo'ers )it* (roader range of tools
Team Selling &Tea's of people fro' sales+ 'arketing+ engineering+ 2nance+
tec*nical support and even upper 'anage'ent servicing large+ co'ple$
accounts-
Serves co'plete needs of eac* i'portant custo'er
Pro(le's for custo'ers and salespeople used to one-salesperson concept
Sticky co'pensation issues due to diCculties in evaluating individual
contri(utions
- Step > ? -ecruiting ' Selecting Sales#eo#le
o Careful selection increases overall sales force perfor'ance and avoids costly
turnover
o Salespeople s*ould (e L.M 'otivated fro' )it*in+ L>M disciplined in )ork style+ L0M
persistent and L4M custo'er pro(le' solvers and relations*ip (uilders
o Co'panies s*ould analy1e sales 7o( itself and c*aracteristics of its 'ost successful
salespeople to identify traits needed
- Step 0 ? Training Sales#eo#le
o Training progra's L.M descri(e co'pany!s o(7ectives+ organi1ation+ 2nancial
structure+ facilities and c*ief products and 'arkets+ L>M teac* a(out co'petitors!
strategies and diferent types of custo'ers and t*eir needs+ (uying 'otives and
(uying *a(its and L0M (asics of selling process
o Today+ co'panies add in )e(-(ased training
- Step 4 ? om#ensating Sales#eo#le
o "i$ed A'ount ? Salary gives sta(le inco'e
o Karia(le A'ount ? Co''issions or (onuses re)ards for greater efort and success
o #$pense Allo)ances ? 3epaying for 7o(-related e$penses allo)s undertaking of
needed and desira(le selling eforts
o "ringe ene2ts ? Paid vacations+ sickness or accident (ene2ts+ pensions and
life insurance provide 7o( security and satisfaction
To %ain Market
S"are -a#idly
To Solidi(y Market
Leaders"i#
To Ma$imi:e
Pro+ta0ility
*deal
Sales#erson
- Independent self-
starter
- Co'petitive Pro(le'
Solver
- Tea' Player
- 3elations*ip Manager
Sales 5ocus
- Deal Making
- Sustained Dig*
#fort
- Consultative Selling - Account Penetration
om#ensatio
n -ole
- To capture
accounts
- To re)ard *ig*
perfor'ance
- To re)ard ne) and e$isting
account sales
- To 'anage product
'i$
- To encourage tea'
selling
- To re)ard account
'anage'ent
o Co'panies s*ould re)ard for (uilding custo'er relations*ips and gro)ing long-run
value of eac* custo'er instead of driving salespeople to 'ake s*ort-ter' gra(s
- Step I ? Su#ervising Sales#eo#le
o Co'panies can *elp to identify custo'er targets and set call nor's
o Co'panies can *elp to set ti'e 'anage'ent priorities+ e4g4 annual call plan and
ti'e-and-duty analysis
o Co'panies can adopt sales force auto'ation syste's
o Salespeople 'ust (e 'otivated (y sales 'anagers and t*roug* organi1ational
cli'ate+ sales ,uotas and positive incentives
- Step = ? Evaluating Sales#eo#le
o y L.M sales reports+ L>M call reports+ L0M e$pense reports+ L4M personal o(servation+
LIM custo'er surveys and L=M talks )it* ot*er salespeople
T"e Personal Selling Process &Pg 4AJ-
- Ste#s in t"e Selling Process &Steps salesperson follo)s )*en selling-
o Step . ? Pros#ecting ' 9uali(ying
Identify ,uali2ed potential custo'ers
Identify good leads and screen out poor ones
o Step > ? Prea##roac"
Learn as 'uc* as possi(le a(out organi1ation of prospect and its (uyers
o Step 0 ? &##roac"
Rno) *o) to 'eet and greet (uyer
o Step 4 ? Presentation ' Demonstration
Tell product 9story< to (uyer+ presenting custo'er (ene2ts and s*o)ing *o)
product solves custo'er pro(le's
o Step I ? 7andling O0;ections
Seek out *idden o(7ections+ clarify o(7ections+ take o(7ections as opportunities to
provide 'ore infor'ation and turn o(7ections into reasons for (uying
o Step = ? losing
3ecogni1e closing signals fro' (uyer and close sale
o Step A ? 5ollo2),#
"ollo) up to ensure custo'er satisfaction and repeat (usiness
- Personal Selling ' ustomer -elations"i# Management
o Co'pany )ants pro2ta(le custo'er relations*ips+ not si'ply transaction-oriented
personal selling
Direct Marketing &Pg 4A0-
- T"e 6e2 Direct)Marketing &Direct co''unications )it* carefully targeted individual
consu'ers using telep*one+ 'ail+ fa$+ e-'ail+ internet and ot*er tools- Model
o C*anging fro' (eing supple'entary c*annel or 'ediu' to (eing t*e only approac*
- Bene+ts ' %ro2t" o( Direct Marketing
o "or (uyers+ it is L.M convenient+ easy to use and private+ L>M ready access to )ealt*
of products and infor'ation and L0M i''ediate and interactive
o "or sellers+ it L.M targets s'all groups or individual consu'ers+ L>M tailors ofers to
individual needs+ L0M pro'otes t*roug* personali1ed co''unications+ L4M reac*es
prospects at rig*t 'o'ents+ LIM gives access to (uyers unreac*a(le t*roug* ot*er
c*annels and L=M is lo)-cost and eCcient alternative
- ustomer Data0ases &6rgani1ed collection of co'pre*ensive data a(out individual
custo'ers or prospects- ' Direct Marketing
o Data(ase can *elp to L.M identify prospects and generate sales leads+ L>M deepen
custo'er loyalty+ L0M pro2le custo'ers (ased on previous purc*asing and L4M decide
)*ic* custo'ers s*ould receive particular ofers
- 5orms o( Direct Marketing
o Tele#"one Marketing
L.M Purc*ase convenience and L>M increased product and service infor'ation
Do)ever+ unsolicited telep*one 'arketing annoys consu'ers
o Direct)Mail Marketing
Paper (ased+ fa$ 'ail+ e-'ail and voice 'ail
L.M Direct+ one-to-one co''unication+ L>M per'its *ig* target-'arket selectivity+
L0M can (e personali1ed+ L4M Fe$i(le+ LIM allo)s easy 'easure'ent of results and
L=M people reac*ed are (etter prospects
Do)ever+ L.M cost is *ig*er and L>M 'ay (e resented as 97unk 'ail<
o atalog Marketing
Printed and )e(-(ased
;e(-(ased catalogues L.M save on production+ printing and 'ailing costs+ L>M ofer
al'ost unli'ited a'ount of 'erc*andise+ L0M allo) real-ti'e 'erc*andising and
L4M can (e spiced up )it* interactive entertain'ent and pro'otional features
Do)ever+ )e(-(ased catalogues are passive and 'ust (e 'arketed
o Direct)-es#onse Television Marketing
Direct response advertising and *o'e s*opping c*annels
Direct response TK co''ercials are L.M c*eaper to 'ake+ L>M 'edia purc*ase is
less costly and L0M results are easily 'easured
o =iosk Marketing
- *ntegrated Direct Marketing
o Esing carefully coordinated 'ultiple-'edia+ 'ultiple-stage ca'paigns
o I'prove response rates and pro2ts
- Pu0lic Policy ' Et"ical *ssues in Direct Marketing
o *rritation8 ,n(airness8 Dece#tion ' 5raud
So'e L.M annoy or ofend consu'ers+ L>M take unfair advantage of i'pulsive or
less sop*isticated (uyers+ L0M 'islead (uyers and L4M pretend to (e conducting
researc* surveys
o *nvasion o( Privacy
#$tensive use of data(ases intrudes on consu'er privacy
To address et*ics and pu(lic policy issues+ co'panies 'ust L.M notify custo'ers
)*en personal infor'ation is rented+ sold or e$c*anged+ L>M *onor consu'er
re,uests to 9opt out< of receiving furt*er solicitations or *aving contact
infor'ation transferred and L0M re'ove na'es of consu'ers )*o )is* not to
receive 'ail+ telep*one or e-'ail ofers
ustomer -elations"i# Management >-M?
C3M is a (usiness strategy and is 'ore t*an a functional strategy4 It touc*es t*e
organi1ation as a )*oleP 'arketing+ sales+ IT+ logistics+ 2nance+ production+ 35D+ D3+
'anage'ent+ etcetera4 If )e t*us de2ne C3M+ it is i''ediately clear t*at i'ple'enting full-
si1e C3M is a daunting c*allenge4
Creating pro2ta(le and very eCcient &client-facing- processes is not enoug*4 "or true
Custo'er 3elations*ip Manage'ent a custo'er inti'acy strategy+ a relation 'arketing
p*ilosop*y rat*er t*an a transaction 'arketing p*ilosop*y+ as )ell as a client-orientation of
t*e )*ole organi1ation are re,uired4

,sage o( ustomer -elations"i# Management4 &##lications
Co'panies t*at )ant to reali1e a custo'er inti'acy strategy4
Co'panies t*at )ant to acco'plis* a custo'er friendly i'age4
Ste#s in ustomer -elations"i# Management4 Process
T*e follo)ing t*ings 'ake up t*e 'ain ele'ents to create a
custo'er relation oriented organi1ationP
.4 Strong custo'er-oriented leaders*ip4
>4 T*e 'ission to (e a relation-oriented organi1ation ai'ed at long-ter' interaction4
04 T*e corporate purpose is ai'ed at t*e custo'er4
44 T*e 'ain strategy is to )in (y custo'er inti'acy4
I4 Co'pany values and e'ployee values focus on caring for custo'ers4
=4 e*avioral standards reFect custo'er e'pat*y and t*e )is* to (uild long-ter'
relations*ips and co''it'ent4
A4 A relation-oriented organi1ational culture4
/4 An organi1ation t*at is putting custo'er contacts in t*e center4 Co'pareP Co-
Creation+ usiness Process 3eengineering4
@4 PeopleP e'pat*ic co''unication skills+ caring for custo'ers4
.J4 Syste's t*at can *elp to connect and 'anage *ard values )it* soft values+ suc* as
t*e Kalue Pro2t C*ain and t*e alanced Scorecard4
Strengt"s o( ustomer -elations"i# Management4 Bene+ts
Strong relations )it* clients ofer a degree of protection against actions of
co'petitors4
Loyal custo'ers can (e 'ore pro2ta(le4 ;inning ne) custo'ers is e$pensive+
satis2ed custo'ers 'ay (uy 'ore+ *appy custo'ers can (ring additional custo'ers+
etc4
Limitations o( ustomer -elations"i# Management4 Disadvantages
I'ple'enting C3M in a *olistic )ay is no sinecure4
Making large C3M invest'ents pro2ta(le is diCcult4
Ac*ieving a Sustaina(le Co'petitive Advantage )it* C3M is even 'ore diCcult4
&ssum#tions o( ustomer -elations"i# Management4 onditions
If )e are good to custo'ers+ t*ey )ill (e good to us4
C*anging fro' t*e current strategic discipline to)ards a custo'er inti'ate discipline
is possi(le4
SWOT analysis
A S;6T analysis is a tool+ used in 'anage'ent and strategy for'ulation4 It can *elp to
identify t*e Strengt*s+ ;eaknesses+ 6pportunities and T*reats of a particular co'pany4
Strengt*s and )eaknesses are internal (actors t*at create value or destroy value4 T*ey
can include assets+ skills+ or resources t*at a co'pany *as at its disposal+ co'pared to its
co'petitors4 T*ey can (e 'easured using internal assess'ents or e$ternal (enc*'arking4
6pportunities and t*reats are e$ternal (actors t*at create value or destroy value4 A
co'pany cannot control t*e'4 ut t*ey e'erge fro' eit*er t*e co'petitive dyna'ics of t*e
industryO'arket or fro' de'ograp*ic+ econo'ic+ political+ tec*nical+ social+ legal or cultural
factors &P#ST-4
Any organi1ation 'ust try to create a 2t )it* its e$ternal environ'ent4 T*e S;6T diagra' is
a very good tool for analy1ing t*e &internal- strengt*s and )eaknesses of a corporation and
t*e &e$ternal- opportunities and t*reats4 Do)ever+ t*is analysis is 7ust t*e 2rst step4 To really
create t*e 2t )it* t*e e$ternal environ'ent is often t*e 'ost diCcult )ork4
Strengt#s
Specialist 'arketing e$pertise
#$clusive access to natural
resources
Patents
Be)+ innovative product or service
Location of your (usiness
Cost advantage t*roug*
proprietary kno)-*o)
Quality processes and procedures
Strong (rand or reputation
$ea%nesses
Lack of 'arketing e$pertise
Endiferentiated products and
service &i4e4 in relation to your
co'petitors-
Location of your co'pany
Co'petitors *ave superior access
to distri(ution c*annels
Poor ,uality of goods or services
Da'aged reputation
&pportunities
Developing 'arket &C*ina+ t*e
Internet-
Mergers+ 7oint ventures or
strategic alliances
Moving into ne) attractive 'arket
seg'ents
A ne) international 'arket
Loosening of regulations
3e'oval of international trade
(arriers
A 'arket t*at is led (y a )eak
co'petitor
'#reats
A ne) co'petitor in your *o'e
'arket
Price )ar
Co'petitor *as a ne)+ innovative
su(stitute product or service
Be) regulations
Increased trade (arriers
A potential ne) ta$ation on your
product or service
PEST analysis
Esed to scan t"e e$ternal macro)environment in )*ic* a 2r' operates
Political
#cono'ic
Social
Tec*nological
P#ST factors play an i'portant role in t*e value creation opportunities of a strategy4
Do)ever t*ey are usually outside t"e control o( t"e cor#oration and must
normally 0e considered as eit"er t"reats or o##ortunities4 3e'e'(er
'acro-econo'ical factors can difer per continent+ country or even region+ so
nor'ally a P#ST analysis s*ould (e #er(ormed #er country4
In t*e ta(le (elo) you 2nd e$a'ples of eac* of t*ese factors4
Political (incl.
Legal)

Econo*ic

Social

'ec#nological

#nviron'ental
regulations and
protection
#cono'ic
gro)t*
Inco'e
distri(ution
%overn'ent
researc* spending
Ta$ policies
Interest rates 5
'onetary
policies
De'ograp*ics+
Population gro)t*
rates+ Age
distri(ution
Industry focus on
tec*nological
efort
International trade
regulations and
restrictions
%overn'ent
spending
La(or O social
'o(ility
Be) inventions
and develop'ent
Contract
enforce'ent la)
Consu'er protection
Ene'ploy'ent
policy
Lifestyle c*anges
3ate of tec*nology
transfer
#'ploy'ent la)s Ta$ation
;orkOcareer and
leisure attitudes
#ntrepreneurial
spirit
Life cycle and
speed of
tec*nological
o(solescence
%overn'ent
organi1ation O
attitude
#$c*ange rates #ducation
#nergy use and
costs
Co'petition
regulation
InFation rates "as*ion+ *ypes
&C*anges in-
Infor'ation
Tec*nology
Political Sta(ility
Stage of t*e
(usiness cycle
Dealt*
consciousness 5
)elfare+ feelings
on safety
&C*anges in-
Internet
Safety regulations
Consu'er
con2dence
Living conditions
&C*anges in-
Mo(ile Tec*nology


om#etitive &dvantage >om#etition?
&Advantage over co'petitors (y ofering consu'ers greater value t*roug* lo)ering prices or
providing 'ore (ene2ts t*at 7ustify *ig*er prices-
- Step . ? Co'petitor Analysis &L.M Identify key co'petitors+ L>M assess t*eir o(7ectives+
strategies+ strengt*s+ )eaknesses and reaction patterns and L0M select )*ic* co'petitors
to attack or avoid-
- Step > ? Co'petitive Marketing Strategies &Strongly position co'pany against
co'petitors and give co'pany strongest possi(le strategic advantage-
om#etitor &nalysis &Pg 4@I-
- Step . ? *denti(ying om#etitors
o At narro)est level of de2nition+ co'petitors ofer si'ilar products and services at
si'ilar prices
o Be$t+ co'petitors 'ake sa'e product or class of products
o Be$t+ co'petitors 'ake products t*at supply sa'e service
o At )idest level of de2nition+ co'petitors co'pete for sa'e consu'er dollars
o Co'panies 'ust avoid 9co'petitor 'yopia< and identify current as )ell as
latentOfuture co'petitors
o Co'panies can identify co'petitors fro' L.M industry or L>M 'arket point of vie)
- Step > ? &ssessing om#etitors
o Determining om#etitors1 O0;ectives
Co'petitor!s 'i$ of o(7ectives reveals L.M )*et*er co'petitor is satis2ed )it*
current situation and L>M *o) it 'ay react to diferent co'petitive actions
Co'petitor!s o(7ectives for various seg'ents reveal L.M opportunity if co'petitor
discovers ne) seg'ent or L>M )arning if co'petitor plans ne) 'oves into
seg'ents no) served (y co'pany
o *denti(ying om#etitors1 Strategies
Strategic %roup &"ir's in industry follo)ing sa'e or si'ilar strategy-
Co'petition is 'ost intense )it*in strategic group+ (ut also a'ong groups
(ecause L.M so'e strategic groups appeal to overlapping custo'er seg'ents+
L>M custo'ers 'ay not see diference and L0M co'panies 'ay e$pand into ne)
strategic seg'ents
o &ssessing om#etitors1 Strengt"s ' Weaknesses
Co'panies learn a(out co'petitors! strengt*s and )eakness t*roug* L.M
secondary data+ L>M personal e$perience+ L0M )ord of 'out* and L4M conducting
'arketing researc*
enc*'arking &Co'paring products and processes to 2nd )ays to i'prove
,uality and perfor'ance-
o Estimating om#etitors1 -eactions
%ives clues on *o) to L.M attack co'petitors or L>M defend co'pany!s current
positions
- Step 0 ? Selecting om#etitors to &ttack ' &void
o Strong or Weak om#etitors
Co'peting against )eak co'petitors re,uires less resources and ti'e+ (ut 'ay
gain little
Co'peting )it* strong co'petitors s*arpens a(ilities and provides greater
returns
o lose or Distant om#etitors
Co'panies co'pete )it* close rat*er t*an distant co'petitors
Co'panies s*ould avoid 9destroying< close co'petitors (ecause t*is 'ay force
)eak co'petitors to sell out to larger 2r's+ resulting in larger co'petitors
o @%oodA or @Bad om#etitors
%ood co'petitors L.M *elp increase total de'and+ L>M s*are 'arket and product
develop'ent costs+ L0M *elp legiti'i1e ne) tec*nology+ L4M serve less-attractive
seg'ents or lead to 'ore product diferentiation+ LIM lo)er antitrust risk and L=M
i'prove (argaining po)er versus la(or or regulators
ad co'petitors s*ake up industry (y L.M (uying s*are rat*er t*an earning it and
L>M taking large risks
- Designing a om#etitive *ntelligence System
o Syste' s*ould (e cost-efective as cost in 'oney and ti'e of gat*ering co'petitive
intelligence is *ig*
om#etitive Strategies &Pg IJ.-
- &##roac"es to Marketing Strategy
o Stage . ? #ntrepreneurial Marketing
Kisuali1e opportunity+ construct Fe$i(le strategies and knock on every door to
gain attention
o Stage > ? "or'ulated Marketing
Develop for'al 'arketing strategies and ad*ere to t*e' closely
o Stage 0 ? Intrepreneurial Marketing
3eesta(lis* )it*in co'pany entrepreneurial spirit and actions t*at 'ade t*e'
successful in t*e 2rst place
- Basic om#etitive Strategies
o Co'panies s*ould pursue a clear strategy and not to (e 'iddle-of-t*e-roaders
6verall Cost Leaders*ip
Lo) production and distri(ution costs allo) lo)er price and )in large 'arket
s*are
Diferentiation
Dig*ly diferentiated product line and 'arketing progra' 'akes co'pany
class leader in industry
"ocus
"ocus on serving fe) 'arket seg'ents )ell
o Co'panies can pursue one or 'ore value disciplines to deliver superior custo'er
value
6perational #$cellence
3educe costs and create lean and eCcient value-delivery syste' to provide
relia(le+ good-,uality products or services
Custo'er Inti'acy
Tailor products or services to 'atc* needs of target custo'ers e$actly
Product Leaders*ip
6fer continuous strea' of leading-edge products or services
- om#etitive Positions
o Market Leader &"ir' )it* largest 'arket s*are-
o Market C*allenger &3unner-up 2r' 2g*ting *ard to increase 'arket s*are-
o Market "ollo)er &3unner-up 2r' )anting to *old its s*are )it*out rocking t*e (oat-
o Market Bic*er &"ir' serving s'all seg'ents overlooked or ignored (y ot*er 2r's-
o Classi2cations do not apply to )*ole co'pany+ (ut only to position in speci2c
industry
- Market Leader Strategies
o E$#anding t"e Total Demand
Develop L.M ne) users+ e4g4 in current 'arkets+ ne) de'ograp*ic seg'ents or
ne) geograp*ic seg'ents+ L>M ne) uses and L0M 'ore usage of its products+ e4g4
use product 'ore often or 'ore per occasion
o Protecting Market S"are
Prevent or 2$ )eaknesses t*at provide opportunities for co'petitors
Al)ays ful2ll value pro'ise
Prices 'ust re'ain consistent )it* value custo'ers see in (rand
Reep strong relations*ips )it* valued custo'ers
9Plug *oles< so co'petitors do not 7u'p in
Continuous innovation
o E$#anding Market S"are
Pro2ta(ility rises )it* increasing 'arket s*are only )*en L.M unit costs fall )it*
increased 'arket s*are or L>M pre'iu' price is c*arged for superior-,uality
product t*at 'ore t*an covers cost of ofering *ig*er ,uality
- Market "allenger Strategies
o C*allenger de2nes )*ic* co'petitors to c*allenge and its strategic o(7ective
o C*allenger can attack 'arket leader to take over 'arket leaders*ip or to )rest 'ore
'arket s*are
o C*allenger can attack si'ilar or s'aller local and regional 2r's to put t*e' out of
(usiness
o "ull "rontal Attack
Attacks co'petitor!s strengt*s
;*en co'pany *as 'ore resources t*an co'petitor
Largely depends on )*o *as greater strengt* and endurance
o Indirect Attack
Attacks co'petitor!s )eaknesses or on gaps in co'petitor!s 'arket coverage
;*en co'pany *as fe)er resources t*an co'petitor
- Market 5ollo2er Strategies
o Advantages are L.M avoiding *uge e$penses of developing ne) products and
'arkets+ e$panding distri(ution and educating 'arket+ L>M learning fro' leader!s
e$perience and L0M copying or i'proving leader!s products and progra's )it* less
invest'ent
o "ollo) Closely
To )in custo'ers fro' 'arket leader
o "ollo) at a Distance
To avoid retaliation
o "ollo)er 'ust keep 'anufacturing costs lo) and product ,uality and services *ig*
- Market 6ic"er Strategies
o Advantages are L.M kno)ing target custo'er group so )ell t*at needs are 'et (etter
and so L>M can c*arge su(stantial 'arkup over costs
o Speciali1ation
Custo'er+ 'arket+ ,uality-price and service
o Multiple Bic*ing
Increases c*ances for survival
Balancing ustomer ' om#etitor Orientations &Pg I.>-
- Co'petitor-Centered Co'pany &Moves 'ainly (ased on co'petitors! actions and
reactions-
o Develops 2g*ter orientation+ (ut (eco'es too reactive
o May end up si'ply 'atc*ing or e$tending industry practices rat*er t*an seeking
innovative ne) )ays to create 'ore value for custo'ers
- Custo'er-Centered Co'pany &"ocuses on custo'er develop'ents in designing
'arketing strategies and on delivering superior value to target custo'ers-
o etter position to identify ne) opportunities and set long-run strategies
- Market-Centered Co'pany &Pays (alanced attention to (ot* custo'ers and co'petitors
in designing 'arketing strategies-
6ot ustomer)
entered
ustomer)entered
6ot om#etitor)
entered
Stage . - Product
6rientation
Stage > - Custo'er
6rientation
om#etitor)
entered
Stage 0 - Co'petitor
6rientation
Stage 4 &Today- - Market
6rientation
Porter1s 5ive 5orces
T*e "ive "orces 'odel of Porter is an Outside)in 0usiness unit strategy tool t*at is used
to 'ake an analysis of t*e attractiveness &value- of an industry structure4 T*e Co'petitive
"orces analysis is 'ade (y t*e identi2cation of I funda'ental co'petitive forcesP
.4 Entry o( com#etitors4 Do) easy or diCcult is it for ne) entrants to start co'peting+
)*ic* (arriers do e$ist4
>4 T"reat o( su0stitutes4 Do) easy can a product or service (e su(stituted+ especially
'ade c*eaper4
04 Bargaining #o2er o( 0uyers4 Do) strong is t*e position of (uyers4 Can t*ey )ork
toget*er in ordering large volu'es4
44 Bargaining #o2er o( su##liers4 Do) strong is t*e position of sellers4 Do 'any
potential suppliers e$ist or only fe) potential suppliers+ 'onopolyS
I4 -ivalry among t"e e$isting #layers4 Does a strong co'petition (et)een t*e e$isting
players e$istS Is one player very do'inant or are all e,ual in strengt* and si1e4
T"reat o( 6e2 Entrants de#ends on:
#cono'ies of scale4
Capital O invest'ent re,uire'ents4
Custo'er s)itc*ing costs4
Access to industry distri(ution c*annels4
Access to tec*nology4
rand loyalty4 Are custo'ers loyalS
T*e likeli*ood of retaliation fro' e$isting
industry players4
%overn'ent regulations4 Can ne) entrants
get su(sidiesS
Bargaining Po2er o( Su##liers de#ends on:
Concentration of suppliers4 Are t*ere 'any
(uyers and fe) do'inant suppliersS
randing4 Is t*e (rand of t*e supplier strongS
Pro2ta(ility of suppliers4 Are suppliers forced to
raise pricesS
Suppliers t*reaten to integrate for)ard into t*e
industry &for e$a'pleP (rand 'anufacturers
t*reatening to set up t*eir o)n retail outlets-4
uyers do not t*reaten to integrate (ack)ards
into supply4
3ole of ,uality and service4
T*e industry is not a key custo'er group to t*e
suppliers4
S)itc*ing costs4 Is it easy for suppliers to 2nd
ne) custo'ersS
T"reat o( Su0stitutes de#ends on:
Quality4 Is a su(stitute (etterS
uyersG )illingness to su(stitute4
T*e relative price and perfor'ance of
su(stitutes4
T*e costs of s)itc*ing to su(stitutes4 Is it easy
to c*ange to anot*er productS
*ntensity o( -ivalry de#ends on:
T*e structure of co'petition4 3ivalry )ill (e
'ore intense if t*ere are lots of s'all or
e,ually si1ed co'petitorsH rivalry )ill (e less if
an industry *as a clear 'arket leader4
T*e structure of industry costs4 Industries )it*
*ig* 2$ed costs encourage co'petitors to
'anufacture at full capacity (y cutting prices if
needed4
Degree of product diferentiation4 Industries
)*ere products are co''odities &e4g4 steel+
coal- typically *ave greater rivalry4
S)itc*ing costs4 3ivalry is reduced )*en
(uyers *ave *ig* s)itc*ing costs4
Strategic o(7ectives4 If co'petitors pursue
aggressive gro)t* strategies+ rivalry )ill (e
Bargaining Po2er o( Buyers de#ends on:
Concentration of (uyers4 Are t*ere a fe)
do'inant (uyers and 'any sellers in t*e
industryS
Diferentiation4 Are products standardi1edS
Pro2ta(ility of (uyers4 Are (uyers forced to (e
toug*S
3ole of ,uality and service4
T*reat of (ack)ard and for)ard integration
into t*e industry4
S)itc*ing costs4 Is it easy for (uyers to s)itc*
t*eir supplierS
'ore intense4 If co'petitors are 'erely
T'ilkingT pro2ts in a 'ature industry+ t*e
degree of rivalry is typically lo)4
#$it (arriers4 ;*en (arriers to leaving an
industry are *ig*+ co'petitors tend to e$*i(it
greater rivalry4
Strengt"s o( t"e 5ive om#etitive 5orces Model4 Bene+ts
T*e 'odel is a strong tool for co'petitive analysis at industry level4 Co'pareP P#ST Analysis
It provides useful input for perfor'ing a S;6T Analysis4
#1s E$#ansion %rid
Deter'ine gro2t" o##ortunities4 T*e ProductOMarket %rid *as t)o di'ensionsP products
and 'arkets4
6ver t*ese > di'ensions+ four gro)t* strategies can (e for'ed4
5our gro2t" strategies in t"e ProductBMarket %rid
.4 Market Penetration4 Sell 'ore of t*e sa'e products or services in current 'arkets4
T*ese strategies nor'ally try to c*ange incidental clients to regular clients+ and
regular client into *eavy clients4 Typical syste's are volu'e discounts+ (onus cards
and Custo'er 3elations*ip Manage'ent4 Strategy is often to ac*ieve econo'ies of
scale t*roug* 'ore eCcient 'anufacturing+ 'ore eCcient distri(ution+ 'ore
purc*asing po)er+ over*ead s*aring4
>4 Market Develo#ment4 Sell 'ore of t*e sa'e products or services in ne) 'arkets4
T*ese strategies often try to lure clients a)ay fro' co'petitors or introduce e$isting
products in foreign 'arkets or introduce ne) (rand na'es in a 'arket4 Be) 'arkets
can (e geograp*ic or functional+ suc* as )*en )e sell t*e sa'e product for anot*er
purpose4 S'all 'odi2cations 'ay (e necessary4 e)are of cultural diferences4
04 Product Develo#ment4 Sell ne) products or services in current 'arkets4 T*ese
strategies often try to sell ot*er products to &regular- clients4 T*ese can (e
accessories+ add-ons+ or co'pletely ne) products4 Cross-selling4 6ften+ e$isting
co''unication c*annels are used4
44 Diversi+cation4 Sell ne) products or services in ne) 'arkets4 T*ese strategies are
t*e 'ost risky type of strategies4 6ften t*ere is a credi(ility focus in t*e
co''unication to e$plain )*y t*e co'pany enters ne) 'arkets )it* ne) products4
6n t*e ot*er *and diversi2cation strategies also can decrease risk+ (ecause a large
corporation can spread certain risks if it operates on 'ore t*an one 'arket4
Diversi2cation can (e done in four )aysP
o +ori,ontal diversi-cation4 T*is occurs )*en t*e co'pany ac,uires or
develops ne) products t*at could appeal to its current custo'er groups even
t*oug* t*ose ne) products 'ay (e tec*nologically unrelated to t*e e$isting
product lines4
o .ertical diversi-cation4 T*e co'pany 'oves into t*e (usiness of its
suppliers or into t*e (usiness of its custo'ers4
o /oncentric diversi-cation4 T*is results in ne) product lines or services t*at
*ave tec*nological andOor 'arketing synergies )it* e$isting product lines+
even t*oug* t*e products 'ay appeal to a ne) custo'er group4
o /onglo*erate diversi-cation4 T*is occurs )*en t*ere is neit*er
tec*nological nor 'arketing synergy and t*is re,uires reac*ing ne) custo'er
groups4 So'eti'es used (y large co'panies seeking )ays to (alance a
cyclical portfolio )it* a non-cyclical one4
T*e C% Matri$ 'et*od is t*e 'ost
)ell-kno)n #ort(olio management tool4 T*e
C% Matri$ can (e used to deter'ine )*at
priorities s*ould (e given in t*e product portfolio of
a (usiness unit4 To ensure long-ter' value creation+
a co'pany s*ould *ave a portfolio of products t*at
contains (ot* *ig*-gro)t* products in need of cas*
inputs and lo)-gro)t* products t*at generate a lot
of cas*4 T*e oston Consulting %roup Matri$ *as >
di'ensionsP market s"are and market gro2t"4
T"e 0asic idea 0e"ind it is: i( a #roduct "as a
0igger market s"are8 or i( t"e #roductCs
market gro2s (aster8 it is 0etter (or t"e
com#any4
T"e (our segments o( t"e B% Matri$
Placing products in t*e C% 'atri$ provides 4 categories in a portfolio of a co'panyP
Stars &*ig* gro)t*+ *ig* 'arket s*are-
o Stars are using large a'ounts of cas*4 Stars are leaders in t*e (usiness4 T*erefore
t*ey s*ould also generate large a'ounts of cas*4
o Stars are fre,uently roug*ly in (alance on net cas* Fo)4 Do)ever if needed any
atte'pt s*ould (e 'ade to *old your 'arket s*are in Stars+ (ecause t*e re)ards )ill
(e Cas* Co)s if 'arket s*are is kept4
as" o2s &lo) gro)t*+ *ig* 'arket s*are-
o Pro2ts and cas* generation s*ould (e *ig*4 ecause of t*e lo) gro)t*+ invest'ents
)*ic* are needed s*ould (e lo)4
o Cas* Co)s are often t*e stars of yesterday and t*ey are t*e foundation of a
co'pany4
Dogs &lo) gro)t*+ lo) 'arket s*are-
o Avoid and 'ini'i1e t*e nu'(er of Dogs in a co'pany4
o ;atc* out for e$pensive Urescue plans!4
o Dogs 'ust deliver cas*+ ot*er)ise t*ey 'ust (e li,uidated4
9uestion Marks &*ig* gro)t*+ lo) 'arket s*are-
o Question Marks *ave t*e )orst cas* c*aracteristics of all+ (ecause t*ey *ave *ig*
cas* de'ands and generate lo) returns+ (ecause of t*eir lo) 'arket s*are4
o If t*e 'arket s*are re'ains unc*anged+ Question Marks )ill si'ply a(sor( great
a'ounts of cas*4
o #it*er invest *eavily+ or sell of+ or invest not*ing and generate any cas* t*at you
can4 Increase 'arket s*are or deliver cas*4
T"e B% Matri$ and one si:e +ts all strategies
T*e C% Matri$ 'et*od can *elp to understand a fre,uently 'ade strategy 'istakeP *aving
a one si1e 2ts all strategy approac*+ suc* as a generic gro)t* target &@ percent per year- or
a generic return on capital of say @+IV for an entire corporation4
In suc* a scenarioP
as" o2s Business ,nits )ill reac* t*eir pro2t target easily4 T*eir 'anage'ent
*ave an easy 7o(4 T*e e$ecutives are often praised any*o)4 #ven )orse+ t*ey are
often allo)ed to reinvest su(stantial cas* a'ounts in t*eir 'ature (usinesses4
Dogs Business ,nits are 2g*ting an i'possi(le (attle and+ even )orse+ no) and
t*en invest'ents are 'ade4 T*ese are *opeless atte'pts to Tturn t*e (usiness
aroundT4
As a result all 9uestion Marks and Stars receive only 'ediocre invest'ent funds4
In t*is )ay t*ey can never (eco'e Cas* Co)s4 T*ese inade,uate invested su's of
'oney are a )aste of 'oney4 #it*er t*ese SEs s*ould receive enoug* invest'ent
funds to ena(le t*e' to ac*ieve a real 'arket do'inance and (eco'e Cas* Co)s &or
Stars-+ or ot*er)ise co'panies are advised to disinvest4 T*ey can t*en try to get any
possi(le cas* fro' t*e Question Marks t*at )ere not selected4