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DBA 1652 Marketing Management

UNIT -- I

Unit Unit Title Page No.


No.
1 Marketing management – an introduction
2 Marketing environment
3 Marketing with other functional areas of management
4 Market segmentation
5 Market targeting and positioning
6 Product management
7 Brand management
8 Pricing
9 Channel design and management
10 Retailing and Wholesaling
11 Integrated Marketing Communication
12 Advertising management
13 Sales promotion
14 Personal selling
15 Public relations
16 Understanding individual consumer behaviour
17 Understanding industrial consumer behaviour
18 Customer satisfaction
19 Customer relationship management
20 Marketing of services
21 Rural marketing
22 Types of marketing research
23 Process of marketing research
24 Tools and Techniques of marketing research
25 Applications of marketing research
26 Preparation of marketing research report
27 Online marketing
28 E-commerce
29 Trends in marketing

Marketing management – an introduction


Unit structure:

1. Introduction
2. Learning Objectives
3. Marketing Management
3.1. Evolution of marketing management
3.2. The Role of Marketing
3.3. Marketing concepts
3.4. The Marketing Mix (The 4 P's Of Marketing)
3.5. Corporate Social Responsibility (CSR) and Ethics in Marketing
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. INTRODUCTION:

The apex body in United States of America for the Marketing functions,
American Marketing Association (AMA) defines marketing as “Marketing consists of
those activities involved in the flow of goods and services from the point of production to
the point of consumption". The AMA has since amended its definition to read as:
“Marketing is an organizational function and a set of processes for creating,
communicating, and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders."

Hence it can be surmised that marketing is basically meeting unmet needs


for target markets, identifying those unmet needs and planning how to meet them
through products, services, and ideas. Communicating the value to them along
with pricing which is affordable and profitable and also distributing the products
so that customers have appropriate accessibility and have quick and easy
delivery. Marketing is thus the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods and services to create
exchanges (with customers) that satisfy individual and organizational objectives.

2. LEARNING OBJECTIVES:

After reading the unit, you will understand how:

• To learn the evolution of marketing as a discipline


• To understand the reasons why marketing is considered important in this era
• To assess the various marketing approaches and principles

3. MARKETING MANAGEMENT:

Marketing has evolved into a very important functional area in management


basically due to the increasing supply and lower demand over the years. This is primarily
through the competitive intensity in every sphere of the market. When competition
increases, as you know, every firm wants to be heard in the market. This will make the
firms to be different than the competitors. Hence marketing becomes a very important
functional area for every firm where the competition is very high.

In a business firm, marketing generates the revenues that are managed by


financial people and used by the productions people in creating products or
services. The challenge of marketing is to generate that revenue by satisfying
consumers wants at a profit and in a socially responsible manner. Marketing is
not limited to business. Whenever you try to persuade somebody to do
something you are engaging in marketing. Thus marketing has a broad societal
meaning. In fact, the societal view is more truly descriptive of marketing today.
Moreover, modern business marketing activities are to a large extent, a
consequence of the societal view of marketing.

The essence of marketing is a transaction, an exchange intended to satisfy


human needs or wants. Consequently, marketing occurs any time on societal
limit strive to exchange something of value with another social unit. Marketing
consists of all the activities to facilitate the exchange.

Within this societal perspective, then (1) the makers (2) what they are marketing
and (3) their potential markets all assume broad dimensions. The category of
marketers might include, in addition to business firms, such diverse social units
as (a) a political party trying to market its candidate to the public (b) the director
of an art museum providing new exhibits to generate greater attendance and
financial support (c) a labor union marketing its idea to members and to company
management; and (d) professors trying to make their courses interesting for
students.

In addition to the range of items normally considered as products and services,


what is being marketed might include (a) ideas such as reducing air pollution or
contributing to the red cross (b) people, such as new football coach or a political
candidate and (c) places, such as industrial plant sites or a place to for a
vocation.
In a broad sense markets include more than the direct consumers of products
services and ideas. Thus a state university’s market includes the legislators who
provide funds, the citizens living near the university who may be affected by
university activities and the alumni. A business firms market may include
government regulatory agencies, environmentalists, and local tax assessors.

Definition of Marketing

As you already know there are many definitions for marketing. Some definitions focus on
marketing as the process involved in satisfying the needs of a particular market, while
other definitions lean more toward defining marketing in terms of its most visible
functional areas, such as advertising and product development. There probably is no one
best way to define marketing, though whatever definition is used should have an
orientation that focuses on satisfying customers. Therefore, we will define marketing as
follows:
Marketing consists of the strategies and tactics used to identify, create and maintain
satisfying relationships with customers that result in value for both the customer and the
marketer.

Let's examine this definition in a little more detail by focusing on a few of the key terms.

Strategies and Tactics - Strategies are best explained as the direction the marketing effort
will take over some period of time, while tactics are actionable steps or decisions made in
order to follow the strategies established. For instance, if a strategy is to enter a new
market, the tactics may involve the marketing decisions made to carry this out.
Performing strategic and tactical planning activities in advance of taking action is
considered critical for long-term marketing success.

Identify - Arguably the most important marketing function involves efforts needed to
gain knowledge of customers, competitors, and markets. We will see throughout this
course material how marketing research is utilized in all decision areas.

Create - Competition forces marketers to be creative people. When marketers begin new
ventures, such as building a new company, it is often based around something that is new
(e.g., new product, new way to distribute a product, new advertising approach, etc.). But
once the new venture is launched innovation does not end. Competitive pressure is
continually felt by the marketer, who must respond by devising new strategies and tactics
that help the organization remain successful.

Maintain - Today's marketers work hard to insure their customers return to purchase from
them again. Long gone (see History below) are the days when success for a marketer was
measured simply in how many sales they made each day. Now, in most marketing
situations, marketing success is evaluated not only in terms of sales figures but also by
how long a marketer can retain good customers. Consequently, marketers' efforts to
attract customers does not end when a customer makes a purchase. It continues in various
ways for, hopefully, a long time after the initial purchase.

Satisfying Relationships - A key objective of marketing is to provide products and


services that customers really want AND to make customers feel their contact with the
marketer is helping to build a good relationship between the two. In this way the
customer is made to feel as if she/he is a partner in the transaction not just a source of
revenue for the marketer. In recent years this has lead to the concept of Customer
Relationship Management (CRM), which has emerged as a strategic approach that
insures that everyone in an organization, not just the marketer, understands the
importance of customers. Maintaining close and consistent relationships with customers
through all points of customer contact is crucial but difficult to do well. We'll see in later
sections technology plays a key role in carrying out CRM, so that nearly anyone in a
organization that comes into contact with a customer (e.g., sales force, service force,
customer service representatives, accounts receivable, etc.) has the necessary information
and is well prepared to deal with the customer.

Value for Both Customer and Marketer - Value refers to the perception of benefits
received for what someone must give up. For customers value is most often measured by
how much they feel they are getting for their money, though the value one customer feels
she/he obtains may differ from the perception of value from another customer even
though they purchase the same product. On the other side of the transaction, the marketer
may measure value in terms of how much profit they are making for the marketing efforts
and resources expended. For a successful marketing effort to take place both the customer
and the marketer must feel they are receiving something worth while in return for the
efforts. Without a strong perception of value it is unlikely a strong relationship can be
built. Throughout this tutorial we will emphasize value and show ways in which the
marketer builds value into the solutions they offer.

Other definitions for marketing include:

• American Marketing Association (AMA): "Marketing is the process of


planning and executing the conception, pricing, promotion and distribution
of ideas, goods and services to create exchanges that satisfy individual
and organizational goals."
• World Marketing Association (WMA): “Marketing is the core business
philosophy which directs the processes of identifying and fulfilling the
needs of individuals and organizations through exchanges which create
superior value for all parties.”
• Chartered Institute of Marketing (CIMU) [United Kingdom]: “Marketing is
the management process for identifying, anticipating and satisfying
customer requirements profitably.”

The functions of marketers:

In order to reach the goal of creating a relationship that holds value for customers
and for the organization, marketers use a diverse set that includes (but is not
limited to) making decisions regarding:

• Target Markets – those markets identified as possessing needs the


marketer believes can be addressed by its marketing efforts
• Products/Services – a tangible or intangible solution to the market’s needs
• Promotion – a means for communicating information about the marketing
organization’s solution to the market
• Distribution – means used to allow the market to obtain the solution
• Pricing – ways for the marketer to adjust the cost to the market for the
solution
• Services – additional options that enhance the solution’s value
Each option within the marketer’s set is tightly integrated with all other options so
that a decision in one area could and often does impact decisions in other areas.
For instance, a change in the price of a product (e.g., lowering the price) could
impact the distribution area (e.g., increases shipments, generates higher traffic).

Additionally, options within the toolkit are affected by factors that are not
controlled by the marketer. These factors include economic conditions, legal
issues, technological developments, social/cultural changes, and many more.
While not controllable, these external factors must be monitored and dealt with
since these can potentially cause considerable harm to the organization. Ignoring
outside elements also can lead to missed opportunities in the market especially if
competitors are the first to take advantage of the opportunities. As part of the
strategic and tactical planning process discussed above it would be wise for
marketers to pay close attention to the environment outside the organization.

3.1. EVOLUTION OF MARKETING MANAGEMENT:

The evolution of marketing is composed of a series of responses to major


external challenges. Pre industrial marketing, based around craft production and
personal relationships with local customers, was challenged by the urbanization
and mechanization of the industrial revolution. The industrial era created
expanding markets which required an emphasis on production, logistics and
selling to get the goods to the customer. In the late 1950s, the challenge of
increasingly saturated and competitive markets led to the birth of an explicit
marketing philosophy. Marketing is a relatively latest discipline having emerged
in the early 1900s. Prior to this time most issues that are now commonly
associated with marketing were either assumed to fall within basic concepts of
economics (e.g., price setting was viewed as a simple supply/demand issue),
advertising (well developed by 1900), or in most cases were simply not yet
explored (e.g., customer purchase behavior, importance of distribution partners).
Lead by marketing scholars from several major universities, the development of
marketing was in large part motivated by the need to dissect in greater detail
relationships and behaviors that existed between sellers and buyers. In
particular, the study of marketing lead sellers to recognize that adopting certain
strategies and tactics could significantly benefit the seller/buyer relationship. In
the old days of marketing (before the 1950s) this often meant identifying
strategies and tactics for simply selling more products and services with little
regard for what customers really wanted. Often this lead companies to embrace
a “sell-as-much-as-we-can” philosophy with little concern for building
relationships for the long term.

But starting in the 1950s, companies began to see that old ways of selling were
wearing thin with customers. As competition grew stiffer across most industries,
organizations looked to the buyer side of the transaction for ways to improve. What they
found was an emerging philosophy suggesting that the key factor in successful marketing
is to understanding the needs of customers. This now famous “marketing concept”
suggests marketing decisions should flow from first knowing the customer and what they
want. Only then should an organization initiate the process of developing and marketing
products and services. The marketing concept continues to be at the root of most
marketing efforts, though the concept does have its own problems (e.g., doesn’t help
much with marketing new technologies) a discussion of which is beyond the scope of this
tutorial. But overall marketers have learned they can no longer limit their marketing
effort to just getting customers to purchase more. They must have an in-depth
understanding of who their customers are and what they want.

3.2 THE ROLE OF MARKETING

As we’ve seen the key objective of an organization’s marketing efforts is to


develop satisfying relationships with customers that benefit both the customer
and the organization. These efforts lead marketing to serve an important role
within most organizations and within society.

At the organizational level, marketing is a vital business function that is


necessary in nearly all industries whether the organization operates as a for-
profit or as a not-for-profit. For the for-profit organization, marketing is
responsible for most tasks that bring revenue and, hopefully, profits to an
organization. For the not-for-profit organization, marketing is responsible for
attracting customers needed to support the not-for-profit’s mission, such as
raising donations or supporting a cause. For both types of organizations, it is
unlikely they can survive without a strong marketing effort.

Marketing is also the organizational business area that interacts most frequently
with the public and, consequently, what the public knows about an organization is
determined by their interactions with marketers. For example, customers may
believe a company is dynamic and creative based on its advertising message.

At a broader level marketing offers significant benefits to society. These benefits


include:

• Developing products that satisfy needs, including products that enhance


society’s quality of life
• Creating a competitive environment that helps lower product prices
• Developing product distribution systems that offer access to products to a
large number of customers and many geographic regions
• Building demand for products that require organizations to expand their
labor force
• Offering techniques that have the ability to convey messages that change
societal behavior in a positive way (e.g., anti-smoking advertising)

3.3 THE MARKETING CONCEPT


The marketing concept is the philosophy that firms should analyze the needs of
their customers and then make decisions to satisfy those needs, better than the
competition. Today most firms have adopted the marketing concept, but this has
not always been the case. In 1776 in The Wealth of Nations, Adam Smith wrote
that the needs of producers should be considered only with regard to meeting the
needs of consumers. While this philosophy is consistent with the marketing
concept, it would not be adopted widely until nearly 200 years later. To better
understand the marketing concept, it is worthwhile to put it in perspective by
reviewing other philosophies that once were predominant. While these alternative
concepts prevailed during different historical time frames, they are not restricted
to those periods and are still practiced by some firms today.

The Production Concept

The production concept prevailed from the time of the industrial revolution until
the early 1920's. The production concept was the idea that a firm should focus on
those products that it could produce most efficiently and that the creation of a
supply of low-cost products would in and of itself creates the demand for the
products. The key questions that a firm would ask before producing a product
were:

Can we produce the product?


Can we produce enough of it?

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

The Sales Concept

By the early 1930's however, mass production had become commonplace,


competition had increased, and there was little unfulfilled demand. Around this
time, firms began to practice the sales concept (or selling concept), under which
companies not only would produce the products, but also would try to convince
customers to buy them through advertising and personal selling. Before
producing a product, the key questions were:
Can we sell the product?
Can we charge enough for it?
The sales concept paid little attention to whether the product actually was
needed; the goal simply was to beat the competition to the sale with little regard
to customer satisfaction. Marketing was a function that was performed after the
product was developed and produced, and many people came to associate
marketing with hard selling. Even today, many people use the word "marketing"
when they really mean sales.

The Marketing Concept


After World War II, the variety of products increased and hard selling no longer
could be relied upon to generate sales. With increased discretionary income,
customers could afford to be selective and buy only those products that precisely
met their changing needs, and these needs were not immediately obvious. The
key questions became:
What do customers want?
Can we develop it while they still want it?
How can we keep our customers satisfied?

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


concept, which involves:
Focusing on customer needs before developing the product
Aligning all functions of the company to focus on those needs

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


when firms first began to adopt the marketing concept, they typically set up
separate marketing departments whose objective it was to satisfy customer
needs. Often these departments were sales departments with expanded
responsibilities. While this expanded sales department structure can be found in
some companies today, many firms have structured themselves into marketing
organizations having a company-wide customer focus. Since the entire
organization exists to satisfy customer needs, nobody can neglect a customer
issue by declaring it a "marketing problem" - everybody must be concerned with
customer satisfaction. The marketing concept relies upon marketing research to
define market segments, their size, and their needs. To satisfy those needs, the
marketing team makes decisions about the controllable parameters of the
marketing mix.

3.4 THE MARKETING MIX (THE 4 P'S OF MARKETING)

The term "marketing mix" became popularized after Neil H. Borden published his 1964
article, The Concept of the Marketing Mix. Borden began using the term in his teaching
in the late 1940's after James Culliton had described the marketing manager as a "mixer
of ingredients". The ingredients in Borden's marketing mix included product planning,
pricing, branding, distribution channels, personal selling, advertising, promotions,
packaging, display, servicing, physical handling, and fact finding and analysis. E. Jerome
McCarthy later grouped these ingredients into the four categories that today are known as
the 4 P's of marketing, depicted below:

Marketing decisions generally fall into the following four controllable categories:

• Product
• Price
• Place (distribution)
• Promotion

The marketing mix

Product Price

Target
Market

Place Promotion

These four P's are the parameters that the marketing manager can control, subject to the
internal and external constraints of the marketing environment. The goal is to make
decisions that center the four P's on the customers in the target market in order to create
perceived value and generate a positive response.

Product/Service

• What does the customer want from the product/service? What needs does
it satisfy?
• What features does it have to meet these needs?
• Are there any features you’ve missed out?
• Are you including costly features that the customer won’t actually use?
• How and where will the customer use it?
• What does it look like? How will customers experience it?
• What size(s), color(s), and so on, should it be?
• What is it to be called?
• How is it branded?
• How is it differentiated versus your competitors?
• What is the most it can cost to provide, and still be sold sufficiently
profitably? (See also Price, below).

Place

• Where do buyers look for your product or service?


• If they look in a store, what kind? A specialist boutique or in a
supermarket, or both? Or online? Or direct, via a catalogue?
• How can you access the right distribution channels?
• Do you need to use a sales force? Or attend trade fairs? Or make online
submissions? Or send samples to catalogue companies?
• What do you competitors do, and how can you learn from that and/or
differentiate?

Price

• What is the value of the product or service to the buyer?


• Are there established price points for products or services in this area?
• Is the customer price sensitive? Will a small decrease in price gain you
extra market share? Or will a small increase be indiscernible, and so gain
you extra profit margin?
• What discounts should be offered to trade customers, or to other specific
segments of your market?
• How will your price compare with your competitors?

Promotion

• Where and when can you get across your marketing messages to your
target market?
• Will you reach your audience by advertising in the press, or on TV, or
radio, or on billboards? By using direct marketing mailshot? Through PR?
On the Internet?
• When is the best time to promote? Is there seasonality in the market? Are
there any wider environmental issues that suggest or dictate the timing of
your market launch, or the timing of subsequent promotions?
• How do your competitors do their promotions? And how does that
influence your choice of promotional activity?

Limitations of the Marketing Mix Framework

The marketing mix framework was particularly useful in the early days of the marketing
concept when physical products represented a larger portion of the economy. Today, with
marketing more integrated into organizations and with a wider variety of products and
markets, some authors have attempted to extend its usefulness by proposing a fifth P,
such as packaging, people, process, etc. Today however, the marketing mix most
commonly remains based on the 4 P's. Despite its limitations and perhaps because of its
simplicity, the use of this framework remains strong and many marketing textbooks have
been organized around it.

3.5CORPORATE SOCIAL RESPONSIBILITY (CSR) AND ETHICS IN


MARKETING

Corporate Social Responsibility defines as “a commitment to improve


community well-being through discretionary business practices and
contributions of corporate resources”.
Some of the benefits of being socially responsible include
(a) Enhanced company and brand image
(b) Easier to attract and retain employees
(c) Increased market share
(d) Lower operating costs and
(e) Easier to attract investors.

A socially – responsible firm will care about customers, employees, suppliers, the
local community, society, and the environment. CSR can be described as an
approach by which a company:-

(a) Recognizes that its activities have a wide impact on the society and that
development
in society in turn supports the company to pursue its business successfully .
(b) Actively manages the economic, social, environmental and human rights.

This approach is derived from the principles of sustainable development and


good corporate governance. Marketing managers within different firms will see
some social issues as more relevant than others. The relevance of a given social
issue is determined by the company’s products, promotional efforts, and pricing
and distribution policies but also by its philosophy of social responsibility.

Ethical Conflict faced by the Marketers

Marketers must be aware of ethical standards and acceptable behavior. This


awareness means that marketers must recognize the viewpoints of three key
players: the company, the industry, and society. Since these three groups almost
always have different needs and wants, ethical conflicts are likely to arise. Ethical
conflicts in marketing arise in two contexts :
First, when there is a difference between the needs of the three aforementioned
groups ( the company, the industry, and society) a conflict may arise.
Second and ethical conflict may arise when one’s personal values conflict with
the organization. In either case, a conflict of interest is a possible outcome.

An example of the first type of conflict is the tobacco industry. Cigarettes have for
many decades been a lucrative business. So, cigarette and tobacco marketing
have been for companies and good for the tobacco industry. Many thousands of
people around the world are employed in the tobacco industry. So, the world
economy has been somewhat dependent on cigarettes and tobacco. However,
cigarettes are harmful to society. There is documented proof that cigarette
smoking is harmful to health. This is an ethical conflict for cigarette marketers.

An example of the second type of conflict, when one’s personal values conflict
with the organizations occurs when a leader in the company seeks personal gain
(usually financial profit) from false advertising. “Cures” for fatal diseases are
one type of product that falls into this category of ethical conflict: In their greed to
make a profit, a marketer convinces those who may be dying from an incurable
disease to buy a product that may not be a cure, but which a desperately ill
person (or members of his or her family) may choose to purchase in an effort to
save the dying family member suffering. Promoting and marketing such products
violates rules of marketing ethics. Ethical dilemmas facing marketing
professionals today fall into one of three categories: tobacco and alcohol
promoting, consumer privacy, and green marketing. Standards for ethical
marketing guide business in efforts to do the right thing. Such standards have
four functions:
To help identify acceptable practices, foster internal control, avoids confusion,
and facilitates a basis for discussion.

Consumerism

Consumerism is concerned with broadening the rights of consumers. The


concepts of social responsibility and consumerism go hand-in-hand. If every
organization practiced a high level of social responsibility the consumer
movement might never have begun. Consumerism is a struggle for power
between buyers and sellers; specifically, it is a social movement seeking to
increase the rights and powers of buyers in relation to sellers.

Seller’s rights and powers are presented in the following list:

To introduce any product in any size and style they wish into the
marketplace, so long as it is
not hazardous to personal health or safety or if it is hazardous, to
introduce it with the proper
warnings and controls
To price the product at any level they wish, provided there is no
discrimination among similar
classes of buyers
To spend any amount of money they wish to promote the product, so long
as the promotion is
not defined as unfair competition
To formulate any message they wish about the product provided that it is
misleading or
dishonest in content or execution
To introduce any buying – incentive schemes they wish
In contrast, here are buyers’ rights and power:
To refuse to buy a product that is offered to them
To except the product to be safe
To expect the product to essentially match how the seller represented it
To receive adequate information about the product

It is in the best interest of marketers to understand the level of consumer


standards and the nature
of consumer perceptions, as well as what is required to foster realism and
accuracy among consumers.

Marketing and the Natural Environment

Another significant area of social concern is the environment. Marketing is


ultimately dependent on the use of scarce resources to fulfill human needs,
without harming or unnecessarily using care resources.

Marketing managers should help to determine which products are produced, and
which products are indirectly affecting the environment:
• The natural resources and materials used
• The amount of energy required in the production process
• The residuals (e.g., waste water) that result from production
• The consumption of resources and energy that is required to use products
(cars, air conditioners)
• The generation of pollutants (e.g., exhaust fumes) in using products
• The amount of packaging material that may have to be discarded.
(packaging comprises less than 14 percent of collectible solid waste, but
consumers often estimate its share of that waste at 40 to 80 percent)

Relationship Marketing and Ethics

Nowadays, most ethicists believe that Relationship Marketing is a reasonable


practice leading to positive relationships between buyers and sellers.
Relationship marketing requires that rules are not necessarily contractual.
Relationship marketing allows buyers and sellers to work together. However,
there are disadvantages to this approach that means relationship marketing
requires time to develop a list of expected conduct or “rules of behavior.”

Green Marketing and Ethical Issues

The next important area the marketer need to know about what is the relevance
of Social Marketing in order to protect the environment and to improve the quality
of life and are concerned with issues that include conservation of natural
resources, reducing environmental pollution, protecting endangered species, and
control of land use. Many companies are finding that consumers are willing to
pay more for a green product. The last three decades have seen a progressive
increase in worldwide environmental consciousness. This has been driven by a
number of factors from increased media coverage to rising evidence of
environmental problems such as the depletion of the ozone layer, acidification of
rivers and forest degradation, global warming, the rise of pressure group activity,
tougher legislation and major industrial disasters. Concern has moved from the
local scale to a national and increasingly global scale.
The rate of environmental degradation has intensified. The nineteenth century
brought the first large scale pollution as companies geared themselves to
produce goods as fast as possible, with virtual disregard for human or
environmental well-being. Nations battled for industrial supremacy using raw
materials and creating pollution at a staggering rate. As countries became
economically stronger, competition also grew. More efficient production methods
were employed, and few companies, if any, gave a thought to the impact they
were having on their surroundings. With the increase in water pollution from the
chemical works, and air pollution from the iron and steel industry, towns and
cities began to pay the price for high industrial productivity.

The seventies saw a resurgence of environmental concern. In 1972 the historic


United Nations Conference on the Human Environment took place in Stockholm,
leading to the creation of the United Nations Environment Programme (UNEP). In
1972 the ‘Limits to Growth Report’ of the Club of Rome projected a catastrophic
future if growth continued at the same rate, and many groups called for ‘zero
growth’. The reaction of companies, governments and academics to such gloomy
environmental prophecies varied widely.

In 1987 the United Nations World Commission on Environment and Development


recognized that zero growth was no longer a viable option if the needs and
aspirations of the industrializing nations were to be fulfilled. As a result, 1987 saw
the publication of ‘Our Common Future (The Brundtland Report)’ which
concluded that economic growth had a role to play in improving the standards in
the less industrialized world and also in reducing environmental destruction. It
suggested that growth had to be of a different order, and had to move the world
away from viewing the environment as an unlimited resource to be exploited by
each incumbent generation.

Ass the 1980s progressed, it became increasingly clear that, although the
starkest predictions of resource depletion and population explosion had failed to
materialize, all was far from well with the planet. A number of published analyses
of the environment showed that according to a wide range of indicators, the
environment was coming under increasing stress. Concern among consumers
and the electorate began to mount, with the inevitable consequence being that
environmental issues moved from the fringes to the center of the business and
political agenda.

The environment’s role in business is profoundly obvious, but easy to overlook. It


provides every business with its inputs, and a destination for all its outputs. It also
provides the business with the physical space within which its operations occur.
For businesses dealing directly with environmental resources, such as
agriculture, tourism or oil, the importance of the physical environment has always
been apparent. Society in its present form and on its current trajectory of
development, however, cannot be sustained indefinitely. The physical
environment has limited resources and limited capacity to absorb pollution and
waste. The underlying cause of society’s current unsustainability relates to the
way in which economics and technology have come to dominate our thinking
about business and the environment. Conventional marketing within industry is
very much a product of this techno-economic perspective. This has created a
‘grey’ culture which is not sustainable and is therefore terminal. To transform this
into a ‘green’ sustainable culture, there is a need to balance consideration of the
economic and technical impacts and aspects of businesses with understanding
of their social and physical implications.

It is now widely accepted that societies, economies, and the businesses within
them need to find a more sustainable path to for future development. In the
business world the vocabulary of management was suddenly expanded by the
discussion of ‘green consumers’, ‘green markets’ and ‘green products’ and the
practice of ‘environmental’ or ‘green marketing’. For majority of the companies
improving environmental performance has, until recently, been a question of
legislative compliance and occasional reactions to external events and
pressures. It has only been companies in the front-line sectors such as oil,
chemicals, power and cars that have gone beyond a reactive and tactical
approach to green issues. However, by early 1990s a shift away from a
technical-compliance oriented approach towards a more proactive green strategy
orientation was noticed. Companies were increasingly pursuing competitive
advantage and product differentiation by increasing investment in environmental
marketing, green design and improving overall corporate eco-performance. In
addition to these externally motivated changes, the realization is dawning within
industry that sustainability will not be reached simply by demand-pull from the
market and compliance-push from the regulators. The changes that are needed
to safeguard the future of the environment and the economy must partly be
driven from the business community, which means they must proactively
integrate eco-performance into the strategies, systems and cultures of the
organization.

Eg: Toyota has become quite successful with their hybrid cars.

The three R s of environmentalism are:

Reduce
Reuse and
Recycle.

Green marketing refers to the development and distribution of ecologically-safe


products. It refers to products and packages that have one or more of the
following characteristics:
(1) Are less toxic
(2) Are more durable
(3) Contain reusable materials
(4) Are made of recyclable material. In short, these are products considered
“environmentally responsible”.

Research based studies on green marketing are very scanty. Whatever studies
available are those carried out in the West. Zinkhan & Carlson (1995) in a study
titled ‘Green Advertising and the Reluctant Consumer’ analyses the advertiser’s
dilemma from different perspectives of consumers having negative attitudes
about business and negative impressions of the advertising industry. The nature
of green marketing is clarified by Kilbourne (1995) in ‘Green Advertising:
Salvation or Oxymoron’, demonstrating that the concept is far more complex than
the existing marketing literature suggests. Green is characterized in this study as
a two dimensional concept with political and human dimensions. Banerjee et al
(1995) in a study on multi dimensional analysis of environmental advertising
suggests that environmental appeals are becoming increasingly common in
advertising. The results of a content analysis designed to uncover the underlying
structure of green advertising are presented. A majority of advertisers in the
sample attempted to project a green corporate image rather than focusing on the
environmental benefits of their product or service. Most of the studies focus on
the communication aspect of green marketing and studies that cover the entire
gamut of green marketing are woefully lacking and more so studies conducted in
an Indian context.

In the early to mid 1960s created concern about the social responsibility of
businesses and their impact on the natural environment and the health and
welfare of the planet. This concern was heightened during the early 1970s in
response to Limits to Growth and resulted in the emergence of both the ‘societal
marketing concept’ and the ‘ecological marketing concept’. In response to the
new green challenge that emerged during the early 1980s, these early concepts
have amalgamated to create an environmental marketing concept. Green
marketing is thus a form of socio-ecological marketing whereby the goods and
services sold, and the marketing practices involved in their sale take into account
the environmental ramifications of society as a whole. The marketing process
essentially involves matching the controllable internal variables of the marketing
mix with the demands of the marketing environment. Environmental marketing is
no different, in principle, although the internal variables and external demands
that must be reconciled are a little different.

Green marketing takes account of the wider relationship of the organization and
its products to the surroundings. It is about a more aware, open, targeted and
sensitive approach that integrates the strategic link between the company, the
environment, and marketing, rather than being primarily concerned with tactical
communications opportunities. The prime emphasis is on, developing
relationships and satisfying separate Stakeholders needs in an environmentally
and socially responsible manner. The key stakeholders are customers, investors,
parent company, directors, employees, the community, legislators, pressure
groups, suppliers, and the media
Green marketing differs from its societal and ecological predecessors in it’s
intertwining of ecological and social concerns, in the breadth of the ecological
agenda that it tackles, and in its potential application across all types and sectors
of business. Green marketing goes beyond societal marketing in four key ways:

It is an open-ended rather than a long-term perspective.


It focuses more strongly on the natural environment.
It treats the environment as something which has an intrinsic value over
and above its usefulness to society.
It focuses on global concerns rather than those of particular societies.

The key elements of green marketing can be summarised as under:

A balanced approach to the social, technological, economic and physical


aspects of businesses and societies.
An emphasis on long term sustainable qualitative development rather than
short-term unsustainable quantitative growth.
A holistic approach aimed at reversing the reductionalist and fragmented
approach of previous business theory and practice.
A consideration of consumers as real human beings rather than as
hypothetical ‘rational economic’entities.
An emphasis on meeting the genuine needs of consumers, rather than on
stimulating superficial desires.
A recognition that consumers and society have multiple and sometimes
conflicting wants and needs.
A view of the company and all its activities as part of the ‘product’ that is
consumed.
A recognition that the large scale long distance nature of the current
economy is not sustainable, and that in the future small and local will be
beautiful.
Embracing the concept of eco-performance which incorporates the non-
market outputs of the company, with performance of the product during
and after use and the environmental impact of companies which contribute
to the creation and marketing of the product elsewhere in the supply
chain.
The pursuit of added socio-environmental value as well as added techno-
economic value.

Cause – Related Marketing and Ethics

Cause-related marketing should not be confused with social marketing. A key


difference is that a major purpose of cause-related marketing is to help a
business. It might be used to improve the image of the firm or to increase market
share. The technique involves associating a business with a cause. Social
marketing, on the other hand, is generally not associated with any company and
issued solely to help society by dealing with a social problem. Cause-related
marketing has to be done correctly or it can hurt a company. A firm may look like
it is exploiting a charity. It is important for the firm to be transparent and honest
about what it is doing. There should also be a fit between the company and the
cause.

Social Marketing and Ethics

Social Marketing is defined as the use of marketing principles and techniques to


influence a target audience to voluntarily accept, reject, modify, or abandon a
behavior for the benefit of individuals, groups or society as a whole. Social
marketing is usually done by a non-profit organization, government, or quasi-
government agency. The goal is either to steer the public away from products
that are harmful to them and / or society (e.g., illegal drugs, tobacco, alcohol,
etc.) or to direct them towards behaviors or products that are helpful to them and
/ or society (e.g., having family meals, praying together, etc.).

4. Have you understood type questions?

1. State whether true or false? Marketing is defined as both a philosophy and set of
activities.
2. KY Systems is a company that uses computers to generate new product
prototypes. It has generated loyal business clients by providing the best
customer support in the industry. The company also provides direct sales
consultation that gives its salespeople intimate knowledge about what exactly its
customers want. This partnership between KY Systems and its customers entails
relationship marketing. State whether true or false?

3. Which one of the following statements by a company chairman best reflects


the marketing concept?
A. We have organised our business to make certain that we satisfy customer needs
B. We believe that the marketing department must organise to sell what we
produce.
C. We try to produce only high quality, technically efficient products
D. We try to encourage company growth.

4. Which of the following is an example of a problem that may arise in the


implementation of the marketing concept?
A. By satisfying one segment in society, a firm contributes to the
dissatisfaction of other segments.
B. Consumers do not understand what the marketing concept is.
C. Dealers do not support the marketing concept.
D. A product may fit the needs of too many segments.

5. The marketing concept is a philosophy that states that an organisation should


try to satisfy customers' needs and at the same time:
A. increase market share.
B. increase sales.
C. achieve the organisation's goals.
D. always produce high quality products

5. Summary

In the current context, there is very high competition among the marketers in India and
that has been necessitated due to the fact that consumerism is on the high and the
importance of marketing is known to people. An interaction between business and
industry in a global perspective has become imperative because of the need to upgrade
regional technologies and maintain the competitive edge in the international markets.
Today's consumer is more demanding than yester-years'. He is not content with the
second best in technology and is reluctant to pay for a product or a service just because it
comes from a particular region or a country. This, understandably, has led to business and
industry across the world to make use of technologies and resources worldwide to
upgrade their products and services. In this Liberalisation-Privatisation-Globalisation era
to become an integral part of the global system, nations are opening up their economies at
a rapid rate, which were hitherto protected from world markets. The removal of artificial
barriers to trade has and should made it possible for innovative companies to go in search
of new markets across borders with improved efficiency and greater competitive strength.
This has forced the Indian companies to be competitive on the marketing front.

6. Exercises

1. Today we have an unmanageable surplus of food grains, but regrettably, no


integrated approach to agriculture, procurement & food processing, to take
advantage of such bounty or capabilities. More worrying is the fact that public
investment in Agriculture has been declining in real terms through the 1980s &
most of the 1990s. Enhancement of public investment in agriculture is a catalyst
for private sector investment, but cash strapped state Govts. look to the centre for
financial support & policy directives. Public investment must go on a priority
basis to non green revolution products & dryland areas. The private sector has
watched passively from the sidelines. Well known solutions to the problems of
Indian agriculture require political will & a commitment to increase productivity
beyond subsistence. Do you agree? Is there any scope for marketing?
2. Researchers at Rohan Industries spent considerable time, effort, and money
developing a bluish windshield that would let in filtered sunlight but block out the
heat. Little market research was done, but the scientists were convinced this new
product would be significantly better than existing windshields even though they
were more expensive and of a different color than the current models on the
market. What do you think is the orientation of the company? Do you think it is
right? Justify.
3. Kumar owns a small laboratory that makes bifocal contact lenses. His company is
growing fast, and there are many things he does not understand about his
customers. Should Kumar who is 25, take a marketing course? State yes or no?
justify your answer.

7.References:

1. Milestones of Marketing by George Burton Hotchkiss, The MacMillan Company,


New York, 1938, page vii
2. "Dictionary of Marketing Terms" from marketingpower.com.
3. Zinkhan, George. M; Carlson, Les: Green Adversting and the Reluctant
Consumer, Journal of Advertising, 1995
4. Kilbourne, William E: Green Advertising: Salvation or Oxymoron, Journal
of Advertising, 1995
5. Banerjee, Subhabrata: Gulas, Charles S; Iyer, Easwar: Shades of Green:
A multi-dimensional Analysis of Environmetnal Advertising, journal of
Advertising, 1995
6. Kumar, Krishna; “Meeting the Challenges of a Borderless Economy:
Needed a Paradigm Shift?”: Working Paper No. 2001/4, Indian Institute of
Management, Lucknow (India), presented in Seminar on WTO & Allied
Issues held at Indian Institute of Management, Lucknow , February 24-25,
2001.
7. Donovan R; Henley N. Social Marketing: Principles and Practice.
Melbourne: IP Communications, 2003.

Marketing environment

Unit structure:
1. Introduction
2. Learning Objectives
3. Marketing Environment
3.1 Social environment
3.2 Cultural environment
3.3 Economic environment
3.4 Politico-legal environment
3.5 Lessons for marketers
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

The Business environment surrounds and impacts upon the organization. There
are three key perspectives on the environment, namely the 'macro-environment,' the
'micro-environment' and the 'internal environment'. Micro environment influences the
organization directly. It includes suppliers that deal directly or indirectly, consumers and
customers, and other local stakeholders. Micro tends to suggest small, but this can be
misleading. In this context, micro describes the relationship between firms and the
driving forces that control this relationship. It is a more local relationship, and the firm
may exercise a degree of influence. Macro environment includes all factors that can
influence and organization, but that are out of their direct control. A company does not
generally influence any laws (although it is accepted that they could lobby or be part of a
trade organization). It is continuously changing, and the company needs to be flexible to
adapt. There may be aggressive competition and rivalry in a market. Globalization means
that there is always the threat of substitute products and new entrants. The wider
environment is also ever changing, and the marketer needs to compensate for changes in
culture, politics, economics and technology. Keeping this in mind the environmental
influences needs to be studied and you will have the inputs in all the forces that influence
the organization in its quest for effective marketing.

2. Learning objectives:

After reading the unit, you will understand how:

• To learn the need for scanning the environment


• To understand the environmental influences and why marketing has to be
proactive
• To assess the impact created by each influence on the organizations

3. MARKETING ENVIRONMENT:

Environmental scanning helps in assessing the impact the environment could


create the business. Observation played a minor, but non-negligible role. Visits to the
premises, including the factory plants in some cases, meals in the canteens of some of the
organizations, attention paid to the way-of-doing-things in the several companies - how
visitors were announced, how meetings were scheduled and cancelled, absence or
frequency and type of interruptions in the course of the interviews, degree of formality or
informality in interpersonal relations - contributed to consolidate impressions or confirm
information based on documentary evidence or on the interviews. The grounded theory
proposed comprises three main components: the categories (the core category and the
subsidiary categories), the principal relationships among them, and the contextual factors
that shape the categories and relationships. From an internal perspective, these factors
include corporate history and culture. From an external perspective, these contextual
factors include the overall economic, social, cultural and political conditions that
characerize modern India and shape, at least to a certain extent, the organizations
operating in that reality. The core category identified was that of environmental scanning,
to which a set of subsidiary categories was related. According to Aguilar,environmental
scanning refers to the exposure to and acquisition of "information about events and
relationships in a company's outside environment, the knowledge of which would assist
top-management in its task of charting the company's future course of action." This
interrelated set of categories contributes to understanding how contextual factors -
external and internal to the organization, influence the scanning activity, and also how
perceived environmental change affects strategic change. The task of explaining variance
among companies resides with a few key relationships among those categories. Now let
us see each environment in detail.

3.1. SOCIAL ENVIRONMENT:

Indian society is multifaceted to an extent perhaps unknown in any other of the


world's great civilizations. Virtually no generalization made about Indian society is valid
for all of the nation's multifarious groups. Comprehending the complexities of Indian
social structure has challenged scholars and other observers over many decades. The
ethnic and linguistic diversity of Indian civilization is more like the diversity of an area as
variable as Europe than like that of any other single nation-state. Living within the
embrace of the Indian nation are vast numbers of different regional, social, and economic
groups, each with different cultural practices. Particularly noteworthy are differences
between social structures in the north and the south, especially in the realm of kinship
systems. Throughout the country, religious differences can be significant, especially
between the Hindu majority and the large Muslim minority; and other Indian groups--
Buddhists, Christians, Jains, Jews, Parsis, Sikhs, and practitioners of tribal religions--all
pride themselves on being unlike members of other faiths.

Urban-rural differences can be immense in the Indian Society. Nearly 74 percent


of India's population dwells in villages, with agriculture providing support for most of
these rural residents. In villages, mud-plastered walls ornamented with traditional
designs, dusty lanes, herds of grazing cattle, and the songs of birds at sunset provide
typical settings for the social lives of most Indians. In India's great cities, however,
millions of people live amidst cacophony--roaring vehicles, surging crowds, jammed
apartment buildings, busy commercial establishments, loudspeakers blaring movie tunes-
-while breathing the poisons of industrial and automotive pollution.

Indian caste system:

Members of the highest priestly castes, the Brahmans, are generally vegetarians (although
some Bengali and Maharashtrian Brahmans eat fish) and avoid eating meat, the product
of violence and death. High-ranking Warrior castes (Kshatriyas), however, typically
consume nonvegetarian diets, considered appropriate for their traditions of valor and
physical strength. A Brahman born of proper Brahman parents retains his inherent purity
if he bathes and dresses himself properly, adheres to a vegetarian diet, eats meals
prepared only by persons of appropriate rank, and keeps his person away from the bodily
exuviae of others (except for necessary contact with the secretions of family infants and
small children).

If a Brahman happens to come into bodily contact with a polluting substance, he can
remove this pollution by bathing and changing his clothing. However, if he were to eat
meat or commit other transgressions of the rigid dietary codes of his particular caste, he
would be considered more deeply polluted and would have to undergo various purifying
rites and payment of fines imposed by his caste council in order to restore his inherent
purity.

In sharp contrast to the purity of a Brahman, a Sweeper born of Sweeper parents is


considered to be born inherently polluted. The touch of his body is polluting to those
higher on the caste hierarchy than he, and they will shrink from his touch, whether or not
he has bathed recently. Sweepers are associated with the traditional occupation of
cleaning human feces from latrines and sweeping public lanes of all kinds of dirt.
Traditionally, Sweepers remove these polluting materials in baskets carried atop the head
and dumped out in a garbage pile at the edge of the village or neighborhood. The
involvement of Sweepers with such filth accords with their low-status position at the
bottom of the Hindu caste hierarchy, even as their services allow high-status people, such
as Brahmans, to maintain their ritual purity.

Members of the Leatherworker (Chamar) caste are ascribed a very low status consonant
with their association with the caste occupation of skinning dead animals and tanning the
leather. Butchers (Khatiks, in Hindi), who kill and cut up the bodies of animals, also rank
low on the caste hierarchy because of their association with violence and death.

However, castes associated with ruling and warfare--and the killing and deaths of human
beings--are typically accorded high rank on the caste hierarchy. In these instances,
political power and wealth outrank association with violence as the key determinant of
caste rank.

Status of Women in Indian society:

According to ancient Hindu scriptures no religious rite can be performed with


perfection by a man without the participation of his wife. Wife's participation is
essential to any religious rite. Married men along with their wives are allowed to
perform sacred rites on the occasion of various important festivals. Wives are
thus befittingly called 'Ardhangani' (betterhalf). They are given not only important
but equal position with men.

But in the later period the position of women went on deteriorating due to Muslim
influence. During the Muslim period of history they were deprived of their rights of
equality with men. They were compelled to keep themselves within the four walls
of their houses with a long veil on their faces. This was definitely due to Islamic
influence. Even today in some Islamic countries women are not allowed to go out
freely. The conservative regimes of Iran and Pakistan, for example, have
withdrawn the liberties given to women folk by the previous liberal governments.
Even in India the Muslim women are far more backward than their Hindu,
Christian and Sikh counterparts. The sight of Muslim women walking with long
'Burkas' (veils) on their person is not very rare. The women are, as a matter of
fact, regarded as captive and saleable commodities in Muslim families. One man
is allowed to have so many wives with the easiest provision of divorce. The
husband can divorce a wife just by saying 'I divorce you' under the provision of
Muslim laws. This is what the emperors did hundred years back and the men are
doing it even now in almost all Islamic countries. Even in this last phase of the
twentieth century rich and prosperous men of Islamic countries keep scores of
wives in their harems. It was natural outcome of the Muslim subjugation of India
that woman was relegated to a plaything of man, an ornament to decorate the
drawing room. Serving, knitting, painting and music were her pastimes and
cooking and cleaning her business.

In the wake of Raja Ram Mohan Roy's movement against women's subjugation
to men and British influence on Indian culture and civilization the position of
women had once again undergone a change. However, it was only under the
enlightened leadership of Mahatma Gandhi that they re-asserted their equality
with men. In response to the call of Gandhi they discarded their veil and came
out of the four walls of their houses to fight the battle of freedom shoulder to
shoulder with their brothers. The result is that the Indian Constitution today has
given to women the equal status with men. There is no discrimination between
men and women. All professions are open to both of them with merit as the only
criterion of selection.

As a result of their newly gained freedom Indian woman have distinguished


themselves in various spheres of life as politicians, orators, lawyers, doctors,
administrators and diplomats. They are not only entrusted with work of
responsibility but also they perform their duties very honestly and sincerely.
There is hardly any sphere of life in which Indian women have not taken part and
shown their worth. Women exercise their right to vote, contest for Parliament and
Assembly, seek appointment in public office and compete in other spheres of life
with men. This shows that women in India enjoy today more liberty and equality
than before. They have acquired more liberty to participate in the affairs of the
country. They have been given equality with men in shaping their future and
sharing responsibilities for themselves, their family and their country.

It is a fact that women are intelligent, hard-working and efficient in work. They put
heart and soul together in whatever they undertake. As typists and clerks they
are now competing successfully with men. There are many women working in the
Central Secretariat. They are striving very hard to reach highest efficiency and
perfection in the administrative work. Their integrity of character is probably
better than men. Generally it was found that women are less susceptible to
corruption in form of bribery and favouritism. They are not only sweet tongued
but also honest, efficient and punctual in their jobs as receptionists, air-hostesses
and booking clerks at railway reservation counters. As a matter of fact they are
gradually monopolising the jobs of receptionists and air-hostesses.

Another job in which Indian women are doing so well is that of teachers. In
country like India where millions are groping in the darkness of illiteracy and
ignorance efficient teaching to the children is most urgently needed. By virtue of
their love and affection for the children the women have proved the best teachers
in the primary and kindergarten schools. They can better understand the
psychology of a child than the male teachers. Small children in the kindergarten
schools get motherly affection from the lady teachers. It is probably significant
that the Montessori system of education is being conducted mostly by the women
in this country.

Women have been serving India admirably as doctors and nurses. Lady doctors
have been found to perform efficient surgery by virtue of their soft and accurate
fingers. They have monopolised as nurses in the hospitals and nursing homes.
Very few men have been able to compete with them in this sphere because the
women have natural tendency to serve and clean. It is thus natural tendency
found in women which motivated Florence Nightingale to make nursing popular
among the women of the upper classes in England and in Europe. She showed
the way to women kind how nobly they can serve humanity in the hours of
sufferings and agonies.

Women's contributions in politics and social services have also been quite
significant. We cannot fail to mention the name of Indira Gandhi who shone so
brilliantly and radiantly in the firmament of India's politics. She ruled this country
for more than a decade and took India victorious out of Pakistan-war which
resulted in the historic creation of a new country, Bangladesh. In the field of
social service Indian women have also done some excellent jobs. They have not
only served the cause of the suffering humanity but have also brought highest
laurels for the country. The name of Mother Teressa cannot but be mentioned.
She brought the Nobel Prize for India by her selfless services to the poor,
destitute and suffering people of our country in particular and the needy and
handicapped people of the world in general. Today, we need the services of the
educated women who can tour throughout the country and help in removing
human sufferings. The Government is alarmed at the rapid growth of population
in the rural areas in particular. Women volunteers can more easily take up the
task of canvassing the advantages of family planning among the rural
womenfolk. They can, more easily than men, carry on propaganda against
hazards of unhygienic conditions under which the villagers live. In urban areas
they can efficiently take up the task of visiting and teaching the orphans and the
helpless widows in the orphanages and the widow welfare centres. They can
train them in sewing, knitting, embroidery and nursing in which women by nature
excel. They can also train them in the art of music and dancing.

But all this should not lead us to conclude that the women should look down
upon domestic life. The main sphere of action for them who have not taken up
jobs outside should be essentially a happy home which is their real kingdom and
where their sweet manners and mature advices as wife, mother, sister and
daughter make tremendous effects on the male members of the family. The
progress of a nation depends upon the care and skill with which mothers rear up
their children. The first and foremost duty of Indian women should, therefore, be
to bring forth noble generations of patriots, warriors, scholars and statesmen.
Since child's education starts even in the womb and the impressions are formed
in the mind of a child while in mothers arms women have to play a role of vital
importance. They have to feel and realise at every step of their life that they are
builders of the fate of our nation since children grow mainly in mothers arms.
They should also discourage their husbands and sons from indulging in bribery
and other corrupt practices. This they can do only when they learn the art of
simple living by discarding their natural desires for ornaments and a living of
pomp and show. In many cases families have been running in deficit due to the
extravagance of the housewives in maintaining a high standard of living. The
result is that the earning male members of the family are forced to fill up the gap
in the budget by corrupt practices. Corruption has been so far the greatest
impediment in way to India's progress. Minus corruption India would have been
one of the most developed nations of the world.

There is no denying the fact that women in India have made a considerable
progress in the last fifty years but yet they have to struggle against many
handicaps and social evils in the male dominated society. The Hindu Code Bill
has given the daughter and the son equal share of the property. The Marriage
Act no longer regards woman as the property of man. Marriage is now
considered to be a personal affair and if a partner feels dissatisfied she or he has
the right of divorce. But passing of law is one thing and its absorption in the
collective thinking of society is quite a different matter. In order to prove
themselves equal to the dignity and status given to them in the Indian
Constitution they have to shake off the shackles of slavery and superstitions.
They should help the government and the society in eradicating the evils of
dowry, illiteracy and ignorance among the eves. The dowry problem has
assumed a dangerous form in this country. The parents of the girls have to pay
thousands and lacs to the bridegrooms and their greedy fathers and mothers. If
promised articles are not given by the parents of brides, the cruel and greedy
members of the bridegrooms' family take recourse to afflicting tortures on the
married women. Some women are murdered in such cases. The dowry deaths
are really heinous and barbarous crimes committed by the cruel and inhumane
persons. The young girls should be bold enough in not marrying the boys who
demand dowry through their parents. The boys should also refuse to marry if
their parents demand dowry. But unfortunately the number of such bold and
conscientious boys is very few. Even the doctors, engineers, teachers and the
administrative officers do not hesitate in allowing themselves to be sold to the
wealthy fathers of shy and timid girls. Such persons have really brought disgrace
to their cadres in particular and society in general.

3.2. Cultural Environment:

A society's culture includes its values, its ethics and the material objects
produced by its people. It is the accumulation of shared meanings and traditions
among members of a society. A culture can be described in terms of its ecology
(the way people adapt to their habitat), its social structure and its ideology
(including people's moral and aesthetic principles). Culture refers to the set of
values, ideas and attitudes that are accepted by a homogeneous group of people
and transmitted to the next generation. Subculture refers to the norms and values
of subgroups within the larger or national culture. African American, Hispanics,
and Asians represent sizable subcultures. It is inappropriate to think in terms of
stereotypes when marketing to these subcultures. African Americans represent
the largest racial/ethnic subculture in the united states. While price-conscious,
they are motivated by product quality and choice. Indian consists of people who
are either Aryans and Dravidians to a large extent. Current research indicates
that stereotypes are misleading. Christians are the subculture in India where as
in United States, it is the culture by itself. Asians are the fastest growing
subculture in the United States. The growth of this subculture is due primarily to
immigration. Like Hispanics, Asians represent a diverse subculture including
Chinese, Japanese, Asian-Indians, and many other nationalities. Two groups of
Asians have been identified:

(1) assimilated
Assimilated Asians are conversant in English and exhibit buying patterns
very much like "typical" American consumers.

(2) Non-assimilated
Non-assimilated Asians cling to their native languages and customs.
Culture is part of the external influences that impact the consumer. That is,
culture represents influences that are imposed on the consumer by other
individuals.The definition of culture offered by Engel is "that complex whole which
includes knowledge, belief, art, morals, custom, and any other capabilities and
habits acquired by man person as a member of society." From this definition, the
following observations can be made:

Culture, as a "complex whole," is a system of interdependent components.


Knowledge and beliefs are important parts. In the U.S., we know and believe that
a person who is skilled and works hard will get ahead. In other countries, it may
be believed that differences in outcome result more from luck. "Chunking," the
name for China in Chinese, literally means "The Middle Kingdom." The belief
among ancient Chinese that they were in the center of the universe greatly
influenced their thinking. Other issues are relevant. Art, for example, may be
reflected in the rather arbitrary practice of wearing ties in some countries and
wearing turbans in others. Morality may be exhibited in the view in the United
States that one should not be naked in public. In Japan, on the other hand,
groups of men and women may take steam baths together without perceived as
improper. On the other extreme, women in some Arab countries are not even
allowed to reveal their faces. Notice, by the way, that what at least some
countries view as moral may in fact be highly immoral by the standards of
another country. For example, the law that once banned interracial marriages in
South Africa was named the "Immorality Act," even though in most civilized
countries this law, and any degree of explicit racial prejudice, would itself be
considered highly immoral.

Culture has several important characteristics:

(1) Culture is comprehensive. This means that all parts must fit together in
some logical fashion. For example, bowing and a strong desire to
avoid the loss of face are unified in their manifestation of the
importance of respect.
(2) Culture is learned rather than being something we are born with.
(3) Culture is manifested within boundaries of acceptable behavior. For
example, in American society, one cannot show up to class naked, but
wearing anything from a suit and tie to shorts and a T-shirt would
usually be acceptable. Failure to behave within the prescribed norms
may lead to sanctions, ranging from being hauled off by the police for
indecent exposure to being laughed at by others for wearing a suit at
the beach.
(4) Conscious awareness of cultural standards is limited. A hardcore
southindian can be easily distinguished when handling a fork and knife
in eating out in north India.
(5) Cultures fall somewhere on a continuum between static and dynamic
depending on how quickly they accept change. For example, Indian
culture has changed a great deal since the 1950s, while the culture of
Saudi Arabia has changed much less.

It should be noted that there is a tendency of outsiders to a culture to


overstate the similarity of members of that culture to each other. In India, there is
a great deal of heterogeneity within our culture; however, people often
underestimate the diversity within other cultures. For example, in Latin America,
there are great differences between people who live in coastal and mountainous
areas; there are also great differences between social classes.

Subculture refers to a culture within a culture. For example, African


Americans are, as indicated in the group name, Americans; however, a special
influence of the African American community is often also present. For example,
although this does not apply to everyone, African Americans tend to worship in
churches that have predominantly African American membership, and church is
often a significant part of family life. Different perspectives on the diversity in
U.S. culture exist. The "melting pot" metaphor suggests that immigrants gradually
assimilate after they arrive. Therefore, in the long run, there will be few
differences between ethnic groups and instead, one mainstream culture that
incorporates elements from each will result. The "salad bowl" metaphor, in
contrast, suggests that although ethnic groups will interact as a whole (through
the whole mix of salad) and contain some elements of the whole (through the
dressing), each group will maintain its own significant traits (each vegetable is
different from the others). The "melting pot" view suggests that one should run
integrated promotions aimed at all groups; the "salad bowl" approach suggests
that each group should be approached separately.

Subculture is often categorized on the basis of demographics. Thus, for


example, there is the "teenage" subculture and the "French- Indian" subculture in
Pondicherry and “Portugese- Indian” subculture in Goa. While part of the overall
culture, these groups often have distinguishing characteristics. An important
consequence is that a person who is part of two subcultures may experience
some conflict. For example, teenage native Indians experience a conflict
between the mainstream teenage culture and the orthodox Indian ways. Values
are often greatly associated with age groups because people within an age-
group have shared experiences. For example, it is believed that people old
enough to have experienced the American Depression are more frugal because
of that experience.
Regional influence, both in the United States and other areas, is significant.
Many food manufacturers offer different product variations for different regions.
Joel Garreau, in his book The Nine Nations of North America, proposed nine
distinct regional subcultures that cut across state lines. Although significant
regional differences undoubtedly exist, research has failed to support Garreau’s
specific characterizations. Let us look at some of the subcultures prevailing in
India:

The Bengali subculture

Known for their contribution in the field of creative work and academic
endeavours, by nature intellectual work rather than the work which will involve
physical labour. All though successful in creative persuits, Bengali business men
are not very common to find. Bengali houses are also proves of their artistic
inclination. Extremely fond of music and books, their main festival is durga
pooja. When Bengali spend a lot on new cloths, food including sweets and non-
vegetarian item. The fact that the Bengali consume non-vegetarian food during
the religious festival, shows the unorthodox lifestyle they follow. In most parts of
India people eat vegetarian food during religious festivals. Known all over India
for the variety of sweets they make, bengalies are knowns for making delicious
fish dishes. Bengalies likes to spend a lot on food and prefer to consume variety
of dishes. A typical Bengali menu is served in course, starting from shuckto
which is like a steew of vegetable going to two or three types of fishes, ‘ Payesh’
(Kheer) and ‘Mishti doi.’(sweets curd).

The Gujrati Subculture

Known for their business acumen, Gujrathis are extremely traditional and
have very strong fellow feeling. Gujratis at the same time are friendly towards
other religional people and are extremely helpful to the people from their own
caste. They are famous for being one of the richest communities in the country
and at the same time maintain a Spartan lifestyle. It is not uncommon to find
rich diamond merchants travelling in the 2nd class compartment of the train or
by bus. There used to be saying, “If you see a Gujarati driving a car you should
know he is a karorepati.” Such simple is their life style. Gujarati businessmen
have been extremely successful in the motel business and diamond business in
the international market. Yet they will not forget their tradition. The author had a
chance to see one famous diamond exporter in Belgium who inside his palatial
house had a gujrati cook cooking “Dhollkq” and Srikhand”. The cook was flown
in from Ahmedabad. The family even after 25 years in Blgium maintained all the
traditions of their subculture. Ladies are also extremely traditional. The two
typical features in a Gujarati household are, there will bge a well cuishioned
swing in the drawing room and the kitchen is like a central palace, all the ladies
will be sitting. Even if you are a guest at somebody’s place, all the ladies will
jointly work. “Navaratri” and “Diwali” are their two main festivals. Navaratri is
marked by community dancing called ‘garba’ while ‘diwali’ marks the onset of
New Year, which is started with Laxmi Puja. Gujratis are generally vegetarian
and religious minded, although cosmoplitanness is coming in especially with the
new generation.

The Marwari Subculture

Marwari community is known all over India as the business community.


Extremely traditional and religious minded, they are like Gujratis and do not
display of pompous life style. Fond of sweets, Marvari women are generally non
working, and Marwaris though lead a simple life style, will spend lavishly on the
marriage. Hailing from Rajasthan. One will find a Marwari business man settled
in eastern states of North Bengal, Assam, Orissa. Non-aggressive and soft
spoken by nature, Marwaris are peaceful.

The Punjabi Subculture

Punjabis are distinct in terms of their lavish lifestyle, whether it is in terms


of food habits, dressing, purchse of consumer durables and nondurables.
Hardworking by nature, the most distinct trait of a Punjabi is his adaptability in the
new environment. The author had chance to visit a Punjabi household in Delhi,
the family for years of staying in Calcutta enjoyed eating fish and sweet curd,
one of their daughters being married to a Keralite, the family was equally at ease
with Keralite dishes like Appam and coconut chicken. Trying new things is very
common with Punjabis and they like to spend a lot, with an occation or without it.
Typical Punjabis food like their lifestyle is also very rich consisting of “’rajma
chawal’, ‘shahi paneer’, ‘butter chicken’, ‘patiala chicken’, etc. diwali is their main
festival where besides the puja of godess of wealth ‘Laxmi’, people exahange
gifts. A typical Punjabi will be hardworking. Aggressive, and ambitious. Being
cosmopolitan and lively are some other traits of a Punjabi. Some is true with
their, music, dance or their language, it is full of life.

The Oriya Subculture


Quite similar to Bengali subculture is oriya subculture. Oriya people, by nature,
are extremely artistic. Oriya craftsmanship is known all over the country whether
it is in fabric, philigri work, stone work. Oddissi dance is as famous as the
Jagannath Temple in Konark. Extremely fond of sweets, Oriya people eat lot of
‘pan’ and ‘pakal’; during lunch hours one will find office goers standing on the
road side and eating ‘pakal’. “Rath Yatra” of lord Jagannath is their main festival
during which Oriyas eat vegetarian food and generally wear new cloths, take
leave from the office to have a darshan of Jagannath and touch him as it is the
only time common man can touch the lord.

The Tamil subculture

Tamilians are known both their intelligence and hard work. They shine in
engineering field, scientific research and governmental jobs. Traditional by
nature, a Tamilian professor will not mind going to college wearing his traditional
dress of a white shirt and dhoti wrapped around. A Tamilian women will not mind
going to her work place with flower in her hair; such is their attachment to their
culture. A Tamil household ia an example of hygienic living. Tamil households
are spic and span and decorated with traditional handicrafts, especially
brassware. Although Tamil Nadu is a hot place, people are very fond of wearing
rich silk sarees in deep colours, so are they fond of wearing heavy gold and
diamond ornaments. Tamil Nadu is known for its Kanjivaram silk and its food
whether is the ubiquitous dosa, idli or the tamrind rice, lemon rice, tomato rice.
They only eat rice and not difficult to find a renowned professor who is also
expert in Carnatic music or an engineer who is also a Bharatanatyam dancer.
Tamilians love to hold on to their rich traditional heritage. “Pongal” is their main
festival which literally means new cooked rich and held in the month of January
and marks the incoming of the new crop.

3.3. Economic Environment:

Business fortunes and strategies are influenced by the economic characteristics


and economic policy dimensions. The economic environment includes the
structure and nature of the economy, the stage of development of the economy,
economic resources, the level of income, the distribution of income and assets,
global economic linkages, economic policies etc. A widely used classification of
economies is on the basis of per capital income,ie.,the average annual income
per person. Accordingly, countries are broadly classified as low income, high
income economies and the middle income economies. Low income economies
are those economies with very low per capital income. All economies with per
capita $755 or less in2000 are regarded as low income economies. There are 63
low income economies in 2000. High income economies are countries with very
rich income per capital. Those with a per capital GNP of$ 9266 or above in2000
fall in the category of high in come economies.
There are mainly two categories of high income economies, namely, industrial
economies and oil exporters. Middle income economies fall in between the low
income and high income economies. The middle income economies are
subdivided in to lower middle income and upper middle income economies. In
2000, there are 92 middle income economies (54 lower middle incomes and 38
upper middle incomes. The low income economies are sometimes referred to as
third world (the high income and middle income economies representing the first
and second worlds.).Low income is just an indication of deprivation people in
developing countries. Low income prevents access to basic necessities, not only
better and modern amenities. The term recession is depression in an economy
which leads to stagnation and poor incomes. Within the category of low income
economies, for example, sometimes a special category name least developed
economies is identified. Most of the least developed economies suffer from one
or more of the following constraints: a very low GNP per capita, land locked
remote insularity, desertification and exposure to natural disasters. According to
the Human Development Report there are more than 40 least developed
countries in 1999.There are on the other hand developing economies such as the
Asian countries. They are sometimes referred to as newly industrialising
economies. Now Peoples Republic of China is regarded as a newly
industrializing economy.

The most comprehensive indicator of the level of economic activity of an


economy is its aggregate output, i.e., the total annual output of finished goods
and services, known as gross national product (GNP), which is defined as the
total market value of all final goods and services produced in an economy during
a given time period (usually a year). GNP is a monetary measure of total output.
It excludes transfer payments (like buying and selling of bonds and securities,
gifts taxes, or welfare payments) and secondhand sale of goods, as these are a
part of current production. In order to avoid double-counting. GNP excludes the
production contribution of housewives, the efforts of self-help in a productive
process by members of households, or improvement in product quality not
reflected in price changes. Similarly, social cost of environmental pollution is not
deducted from total output. Yet, GNP is till the best measure of nation’s total
output.

There are three ways to look at the level of economic activity. viz., the output,
income and expenditure. Depending upon the way we look at them, we call them
gross national product (GNP), gross national income (GNI) and gross national
expenditure (GNE), where.

• GNP – Sum of the market value of all final goods and service3s in
an economy during a given time period;
• GNI – Sum of the money incomes derived from activities involving
current production in an economy during a given time period; and
• GNE – Sum of all that is spent of currently produced goods and
services by all types of buyers in an economy during a given
period.

Thus, national income can be measured by either of the three ways :

(i) as an aggregate of goods and services produced during a year;


(ii) as an aggregate cost of factor services in the economy during a
year; or
(iii) as an aggregate of expenditure on consumption, saving and
investment during a year.

The national income data can also be quite helpful for business. In order to
undertake long-term investments and to formulate business policies it is quite
essential for a dynamic management to do a thorough analysis of changes
occurring in the national income. Since national income reveals, on the one
hand, the structure of the economy and, on the other, the possible directions of
change in the future economic policy of the government, national income data in
the hands of an expert managerial economist can prove a life-line for business. It
is quite vital for a firm aspiring to capture or retain leadership in business, as it is
perhaps one of the most essential ingredients for any business forecasting
exercise. The national income data can also be successfully used for determining
the product diversification programme and undertaking technological innovations.
National income statistics is, thus, a wealth of information, but its usefulness
depends on keenness to observe and probe as well as patience to analyse.

BUSINESS CYCLES:

The effect of upswings and downswings in economic activity is felt quite


intensely because of the ever increasing business activity and the strong inter-
relations between different sectors of an economy and between various
economies. The ill effects of the wide swings in business activity were almost
ravaging during the Great Depression of 1930s. it was also noticed that after
depression there was no ‘natural recovery’ of the economic activity. Artificial
measures to be adopted for this purpose needed a scientific understanding of the
swings in the activity. Business cycle or trade cycle refers to the fluctuations in
economic activity occurring regularly in the capitalist societies. In a business
cycle there are wave-like fluctuations in four inter-linked economic variables:
aggregate employment, income, output and price level. When the values of these
economic variables over time are plotted on a graph, we get a wave-like figure,
which is given the name of a ‘cycle’. According to Keynes, “A trade cycle is
composed of periods of good trade characterized by rising prices and low
unemployment percentages. Alternating with periods of bad trade characterized
by falling prices and high unemployment percentages”. Mitchell gives even a
more explicit idea of what a business cycle is when he says, “Business cycles
are a type of fluctuations found in the aggregate economic activity of nations that
organize their work mainly in business enterprises. A cycle consists of
expansions, and revivals which merge into the expansion phase of the next
cycle: this sequence of change is recurrent but not periodic…” in short one can
observe that:

(1) Business cycles are the wave-like fluctuations in economic activity as


reflected in the basic economic variables like employment, income, output
and price level.
(2) These fluctuations are cyclical in nature. One must distinguish between
secular trend, random fluctuations, seasonal changes and cyclical
fluctuations. The secular trend represents long run changes in business
activity which occur slowly and are spread over a number of years. Such
long-run changes are the results of factors like improvement in production
techniques, change in population, etc, which occur suddenly and are
unpredictable. Effect of these events on the economy is limited to the
period of occurrence of the event, as there is no regularity in their
occurrence. Thus, neither the secular trend nor the random variations in
economic activity can form the part of business cycle. The seasonal
changes, which are short-run oscillations with regularity, can be confused
with the cyclical fluctuations. But the basic difference between the two is
that seasonal variations repeat themselves each year (e.g., demand for
heavy woolen clothes, light woolen clothes and cotton clothes, and so on,
depending on the season each year), while the cyclical fluctuations have a
longer life span. The seasonal fluctuations, therefore, have easier
predictability and adjustability in business than the cyclical fluctuations.
(3) The sequence of changes in business cycle (i.e., recovery, prosperity,
depression and recession) recurs frequently and in a fairly similar pattern.
(4) The rhythm or the periodicity between the cycles need not be similar.
(5) Business cycles are a type of fluctuations found in the aggregate
economic activity and not in any single firm or industry. In fact, it connotes
the cyclical changes in overall economic environment affecting all the
business entities.

Business cycles, the periodic booms and slumps in economic activities, are
generally compared to ‘ebb and flow’. The ups and downs in the economy are
reflected by the fluctuation in aggregate economic magnitudes, including
production, investment, prices, wages, bank credits, etc. The upward and
downward movement in these magnitudes show different phases of business
cycles. Basically, there are only two phases in cycle, viz., prosperity and
depression. However, considering the intermediate stages between prosperity
and depression, the various phases of trade cycle may be enumerated as
follows:

1. Expansion of economic activities,


2. Peak of boom or prosperity,
3. Recession, the downtrend,
4. Trough, the bottom of depression, and
5. Recovery and expansion.

In a stagnated economy, depression begins when growth rate turns negative i.e.
total output, employment, prices, bank advances, etc., decline during the
subsequent periods. The span of depression spreads over a period during which
growth rate stays below the secular growth rate or below the zero growth rate in
a stagnated economy. Trough is the phase during which the down-trend in the
economy slows down and eventually stops, and the economic activities once
again register an upward movement with a lapse of time. Though is the period of
most sever strain on the economy. When the economy registers a continuous
and rapid upward trend in output, employment, etc., it enters the phase of
recovery though the growth rate may still remain below the steady growth rate.
And when the growth rate crosses the line of steady growth rate, the economy
once again enters the phase of expansion and prosperity,. If economic
fluctuations are not controlled by the government, business cycles continues to
recur.

Recovery

This is the phase of revival of demand for goods and services. The economic
activity as a whole increases slowly, although the general prices start rising. The
upward movement of business activity is slow, production picks up, construction
activity is revived and there is a gradual rise in employment. This is a period
when the industrialists and the businessmen repay the loans taken by them from
the banks earlier and the frozen stocks held by the banks are released. Stocks of
goods remain below the normal with the shopkeepers. Once the recovery starts,
it results in a snowballing process for investment. The result is that demand
orders pour in and the producers get stimulus and encouragement to produce
more. The sellers stop their conservative period in general favoring expansion in
business activity. The capital equipment is replaced. Banks are liberal in the
matter of advances. The prices recover and tend to reach the normal. The speed,
with which the expansion of business activity takes place in response to a given
initial increase in investment, would depend upon the multiplier effect.

Prosperity

During this phase there is a rapid cumulative movement of prices, employment,


income and production. The prices and general business activity is above the
normal. Total output starts growing at a rapid pace due to higher investment and
employment. Prices of finished products rise faster than the increase in wage-
rate, raw material prices and interest rate. Consequently, producers stand to
gain. Prices of all the commodities do not rise to the same extent. The sequence
of general price rise generally begins with increase in security prices, which then
passes on to raw material prices, wholesale prices, wages of unskilled labour,
retail prices and finally the interest rates.
Recession :

When the business cycle takes a downward turn from the state of prosperity, the
state of recession is said to have set in. during the phase of prosperity,
production increases with every increase in commodity prices. As more and more
of unemployed labour, capital and raw material are employed, interest rate,
wages and other costs rise with increasing rapidity. Simultaneously, the banks
suddenly discover that they have expanded their deposits a little too far. The ratio
of cash reserves to total deposits falls. The banks become reluctant to advance
loans in the interest of their safety and statutory requirements. In order to meet
their obligations, the sellers would, therefore, have to unload their stocks in the
market. Due to unloading of stocks by many firms, the prices start declining.
Profit margins decline further because costs start overtaking prices. Business
psychology becomes depressed and the boom bursts. There is a struggle for
solvency among the businessmen. Some firms close down while others reduce
production, leading to reduction in investment, employment, income and
demand. This process is cumulative. This phase of business cycle is
characterized by fall in prices, commercial panic, restriction and calling back
loans by banks, a sharp increase in interest rate and fall in investment. Soon the
production falls, unemployment increases and inventory stocks get accumulated.
There is a collapse of confidence. If not controlled in the beginning by timely
monetary and fiscal measurers by government which can sustain investment at a
high level, recession may give way to even a more grave situation, called
depression .

Depression:

If unchecked, depression is a natural consequence of the recessionary crisis.


Gradually, the process of falling prices, demand and employment gather
momentum. Decrease in price follows the same sequence as does the price
increase in case of the state of boom. In this phase, general demand for goods
and services falls faster than the production of goods, though this is more in case
of capital goods than consumer goods. Producers find selling prices falling faster
than their costs. Producers suffer losses because by the time the goods are
ready for sale the prices are found to have fallen further, with the result that
producers are not able to recover their full cost. Businessmen get panicky, and
start releasing their stocks, which hastens the decline in prices. The
phenomenon of over-production appears and workers in large numbers are
thrown out of work. There are accumulated reserves with banks. Demand for
credit is at its lowest, resulting in idle funds with the banks. In general, the bottom
of depression is reached when liquidation of accumulated stocks is completed.
Depression is, thus, characterized by low prices, idle funds with banks, mass
unemployment and slack trade.

Levels of the economy:


Two types of policies are pursued by State to combat the inflationary and
deflationary tendencies in the economy. These are called stabilization policies,
which mainly include : (i) Monetary policy and (ii) Fiscal policy.

1. Monetary policy. It refers to the credit control measures adopted by the


central bank of an economy (in India, the Reserve Bank of India). These are of
two kinds : Quantitative or selective controls. Quantitative or general controls
include bank rate variations, open market operations and varying reserve ratios.
They aim at regulating the overall level of credit in the economy through the
commercial banks. Bank rate is the minimum lending rate at which the central
bank discounts bills and securities held by commercial banks borrow less from
the Central bank. On the other hand, commercial banks raise their lending rate.
This reduces the money supply in the economy. Reduction in money supply
reduces demand for goods and services in the economy, resulting in the check
on price rise. Open market operations refer to the sale and purchase of securities
by the central bank. When the central bank aims to control inflation it sells
securities in the open market, thereby reducing reserves of commercial banks.
When the central bank aims to control inflation it sells securities in the open
market, thereby reducing reserves of commercial banks. This reduces credit in
the market. The reduction in money supply helps in checking price rise. Changes
in reserve ratio can help combat inflation. The portion of deposits which a
commercial bank has statutorily to keep with the central bank as deposit is called
the reserve funds. In order to reduce credit by the commercial banks, many a
time the central bank increases the percentage of such deposits. Increase in
reserve ratio reduces the bank advances, thereby reducing demand for goods
and services, and checks price rise. Selective credit controls are used to
encourage or discourage specific types of credit for particular purposes. In order
to check the speculative activity in the economy, the central bank changes the
margin requirements to be charged by the commercial banks on those activities.

In recessionary conditions, the State should use monetary policies in the


opposite direction to control recessionary forces. The central bank should lower
the bank rate, thus, making borrowing by commercial banks cheaper.
Commercial banks in turn would lower their lending rate, resulting in greater
demand for credit. This would encourage investment, output, employment,
income and demand. Consequently, prices would start rising. Similarly, while
operating in the open market, the central bank should buy securities, thereby
raising money supply in the economy, whose impact would also be an increase
in investment, output, employment, income and prices. The central bank can also
use the instrument of reserve ratio to combat encourage greater lending, thus
reviving economic activity. Lastly, when recession is in some specific sectors of
economy the central bank can use some selective credit control measures,
particularly lowering margin requirements, which would help in encouraging
greater business activity.
2. Fiscal policy. Fiscal policy refers to the deliberate changing of taxes and
government spending for the purpose of keeping the actual GNP close to the
potential full employment GNP. If the potential GNP is exceeded it causes
inflation, while if the actual GNP falls short of the potential it causes recessionary
conditions.

When inflation is due to excess purchasing power in relation to the amount


of goods and services available in the economy, the basic remedy for controlling
inflationary conditions is to drain away excess purchasing power. In such a case,
fiscal policy should aim at taking rupees out of the income-expenditure stream.
As a result of this policy the aggregate demand will reduce, leading to control of
price rise. There are two approaches for accomplishing this : (1) To restrain or
reduce government spending and create a surplus budget (where tax revenue
exceeds government expenditure). The cutback on government expenditures
would reduce aggregate demand originating in the public sector; and its spillover
effect I rest of the economy would also dampen aggregate demand. (2) To
increase taxes on business and consumers without increasing government
expenditure. Obviously, its impact would also be to create surplus budget and
dampen the aggregate demand. Depending on which of the approaches are
used, there will be differential impact on public and private sectors. However,
both these approaches can also be used simultaneously.

To combat recessionary conditions, just the opposite kind of fiscal policy


measures need to be adopted. The government should aim to generate fiscal
deficit by either increasing government expenditure (keeping tax revenues
constant) or decreasing taxes (keeping government expenditure constant) or
both. We know that in recession the economy suffers from unemployment as well
as low level of output and aggregate demand. To give boost to aggregate
demand, there is a need to pump purchasing power in the economy. By
increasing aggregate demand, the unused capacity and unemployed labour can
be employed. Again, the impact of the increase in government expenditure will
be felt through resurgence of demand in the public sector and that of the cutback
on taxes through the private sector.

Indicators of Economic Development:

Inflation:

Inflation has attracted sufficient attention of economists and policy makers. India
is pursuing a policy of planned economic development. One of the prime considerations
in the strategy of growth has been to ensure that growth takes place in an environment of
price stability, which was considered crucial for both-steady growth and even distribution
of the gains of growth. Any increase in prices was likely to affect investment planning
and income distribution in the economy. Hence, efforts to contain and or avoid the same
were an integral part of the planning process. The transmission of inflation-ary impulses
in the economy is affected by various factors e.g. the differences in sectoral relations in
the economy, nature of markets, both of products and services, the extent of linkages
between these markets, the pattern of income and asset distribution, levels of
concentration of corporate and trade-union's power and the effectiveness of the
intermediation of financial institutions, rate of growth in nominal wages and labour
productivity, structure of capital formation and, finally, the rate of development, etc.
Inflation is defined as the persistent rise in the general price level. The question arises as
to what should constitute the appropriate measure to reflect the general price level. In
order to analyse the general price level, percentage annual changes in (i) Wholesale Price
Index (WPI), (ii) Gross Domestic Product (GDP) at market prices, deflator, (iii) GDP (at
factor cost) deflator and (iv) cost of living index (CLI) for industrial workers are usually
considered. Because of wide coverage, the GDP deflator (both at market prices and factor
cost) should be considered as the most appropriate index of inflation because the deflator
covers commodities as well as services, whereas the other two indices reflect movement
only in commodity prices with different 'Baskets'. Inflation rate has dropped from being
among 10% during 1991 to 5.91% during 2004.

Emergence of Consuming class:

The Indian middle class has been an enigma to most marketers who
have tried to assess its buying patterns. Although this market has not proved to
be the made-to-order goldmine that the global players originally viewed it as, it is
fast shedding the conservative tag. Increased disposable income levels, as well
as the shaking out of the taboo associated with consumer loans has resulted in
middle class families paying more and opting for CTVs. As the number of
channels increases, so does the strife amongst family members on which
programme to watch. TV manufacturers can convince them to go in for a second
TV set. Two colour TVs may seem too much of a luxury to bank balance-
conscious middle-class families, but a new B&W TV may do just fine. This could
be another market for the B&W makers to address. B&W manufacturers should
look at increasing production and cost efficiencies to sustain in the market. A
very low-priced B&W TV is sure to find a substantial market among the poorer
classes. With increased impetus on cost cutting, faster rotating models and a
little help from the Government on the duties front, the B&W industry can protect
itself from blackening out. The governements reform policies have already
started to pay off. $1.6 billion in U.S investment projects has been approved
since the introduction of economic reform – twice the amount of investment in
India during the preceding 40 years. This beginning of liberalization although so
very recent, has already meant an impetus and growth in the rise of the standard
of living among the middle class. By the year 2000, India is projected to have a
population of one billion, and while India’s per capita income average income is
quite low ($330USD), India has a growing middle class. An estimate 200 million
Indians have an annual incomes comparable to those in the United States and
Canada. Globally except for China nowhere will the new middle-class be larger
than in India. Amounting to hundreds of million of people, this new middle-class
(with a major political base and buying ability) while modern in many respect,
being entrepreneurial and professional, will also have the traditional caution of
their past generation towards the 21st century. The growth in the earning ability
and thus a rise in the standard of living amongst middle-class will also mean an
end to the "Brain Drain" phenomena happening in most developing countries.
Brain Drain being a phenomena when some of the best students and technicians
in a developing country after being subsidized in their education by their own
government migrate to a developed country, to seek a better standard of living. A
quick survey amongst numerous American Engineering and Technical
Universities would probably illustrate this "Brain Drain" both amongst faculties as
well as students.

With the birth of the new middle-class, their buying power and their technical saviness
and an almost virtual end to the "Brain Drain" phenomena, the third world will be the
place for the growth of new technology. Bleeding technologies once mainly a factor of
the developed world, will be happening in this so called once called third world, as the
third world will be where consumerism will abound. In this newfound consumer land will
be the rise of telecommunication. Since 1990s, India's $1.1 billion computer equipment
market has been growing at the rate of 31 percent annually more than any other
information technology sector. India already is the world’s leading exporter in software.
There will also be a major trend (already existing) in the rise of programming farms,
where Indian programmers would write the backend and the front end developed
elsewhere. This philosophy of outsourcing work would not only exist in programming
but amongst numerous technical and scientific endeavors. The scale of economic
expansion in India (as well as in China) cannot be underestimated. By the year 2025 India
could be in the top five, with an economy as large, or almost as large, as that of Japan and
Germany. Moreover it is estimated that across the third world two to three billion will
emerge from poverty to enjoy middle-class affluence in coming years. As we stand today
at the threshold of a new century, we stand at the beginning of a new industrial
revolution. An industrial revolution that will take place in the third world countries with
the help of developed countries by way of monetary investment, transfer of technology,
implementation of management and marketing strategies. As the dynamics of global
economics continue to change, so will major companies that will be at its core be an
agent of that change or be its very victim. Those that see and seize the opportunities will
win; those that fail to recognize the intensity of global competition will lose.

Foreign Direct Investment:

Foreign direct investment is a key ingredient in economic growth. It can impact


the host economy through a variety of channels: by adding to investable
resources and capital formation; by transferring technology, skills, innovative
capacity, and organizational and managerial practices between countries; and by
accessing international marketing networks. FDI contributes to a significant
share of the domestic investment, employment generation, exports etc. FDI
inflow into India touched $4.26 billion in 2003 as compared to $3.44 billion in
2002. With a 24% increase in FDI inflow, India has become one of the top 10 FDI
destinations among the developing countries while it is fourth among the Asian
economies. FDI inflow into the country would further increase with the recovery
of the global economy.

Foreign Direct Investment (FDI) is permited as under the following forms of


investments.
1. Through financial collaborations.
2. Through joint ventures and technical collaborations.
3. Through capital markets via Euro issues.
4. Through private placements or preferential allotments.
5. Through GDRs( Global Depository Receipt) is treated as Foreign Direct
Investment (EURO issues).

FDI is not permitted in the following industrial sectors:


1. Arms and ammunition.
2. Atomic Energy.
3. Railway Transport.
4. Coal and lignite.
5. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds,
copper, zinc.

3.4. Politico-legal environment:

India suffered political instability for a few years due to the failure of any party to win an
absolute majority in Parliament. However, political stability has returned since the
previous general elections in 1999. However, political instability did not change India's
economic course though it delayed certain decisions relating to the economy. The
political divide in India is not one of policy, but essentially of personalities. Economic
liberalisation (which is what foreign investors are interested in) has been accepted as a
necessity by all parties including the Communist Party of India (Marxist). Thus, political
instability in India, in practical terms, posed no risk to foreign direct investors because no
policy framed by a past government has been reversed by any successive government so
far. You can find a comparison in Italy which has had some 45 governments in 50 years,
yet overall economic policy remains unchanged. Even if political instability is to return in
the future, chances of a reversal in economic policy are next to nil.

As for terrorism, no terrorist outfit is strong enough to disturb the state. Except for
Kashmir in the north and parts of the north-east, terrorist activity is either non-existent or
too weak to be of any significance. It would take an extreme stretching of the imagination
to visualise a Bangladesh-type state-disrupting revolution in India or a Kuwait-type
annexation of India by a foreign power. Hence, political risk in India is practically non-
existent..

A country's economic policy environment must be conducive for firms to


achieve efficiencies that will enable them to be globally competitive. It is also
widely accepted that taxation policy can have strong incentive effects on
corporate decisions. CII interacts closely with different levels of government to
put forward industry's viewpoint. CII's large membership enables us to be the
most impartial and representative industry body, with a high level of credibility
with the government and key regulatory bodies. In order to achieve our objective
of influencing government policy, we undertake extensive research, interact with
key government officials and disseminate information through publications,
seminars and events. With a large network of offices across the country, we are
able to track policy issues in detail at the regional level. CII also interacts closely
with the Members of Parliament - the policy makers - across political parties to
raise awareness about the need for reforms, the need for change to keep up with
in an extremely competitive global economy. This has helped to keep up the flow
of economic legislation passing through Parliament.

Among the critical contingencies faced by every business firm is the need
to manage its social and political environment. Both the social and the economic
performance of the firm can be affected in significant ways by managerial
strategies and tactics; firms and their managers can be active players in efforts to
improve their social and economic bottom lines. Thus, this course will examine
the public affairs environment of the firm and the methods used by managers to
navigate within it. The corporate social performance of a firm and its economic
results are characteristically intertwined: Both in the short and the long run,
failures to attend to social performance issues can produce less than optimal
economic results. Sometimes these issues present themselves in crises that
demand swift, effective managerial intervention. These very practical concerns
accompany the manager's role as a moral citizen who must successfully manage
a complex set of ethical issues.

The private corporation is only one of the means by which economic


activity and social endeavor in general may be organized. Private managers are
likely to have significant interaction with their public counterparts, not only in the
context of public regulation, as in the United States, but also in the contexts of a
variety of public enterprises. Such enterprises are far more common in the global
economy than in our domestic one. We shall therefore examine the characteristic
behaviors of public and of private enterprises. The corporation is a relatively
recent invention. Ever since it evolved in the last century, it has made active use
of the benefits that only government can provide. Far from being seen purely as
a history of conflict, the tradition of business-government relations should be
understood more often as a history of mutual benefit. An important focus in this
course will be on the management of the business-government interface. We
shall look at the functioning of legislatures and the decision making processes of
regulatory agencies from the perspective of participation by business.

Participants in public policymaking typically include a constellation of actors,


including legislative committees, regulatory agencies and other government
bodies, public and private interest groups, courts, and so on. We shall examine
the processes by which influence is exerted in this system, including a look at the
behaviors and strategies/tactics of interest groups and the means by which firms
make strategic use of the opportunities presented to them in this system.
Government in this country is often characterized by rigid hierarchies, red-tapism,
complicated procedures, sluggish decision-making and lack of accountability.
Little wonder then, interaction with Government usually turns out to be
cumbersome, perplexing and pathetically slow. Public access to Government
services is usually clumsy and complicated. In a paper-based system, locating a
correspondence or file in a Government department can be a truly frustrating
experience. The problem gets further compounded in case of multiplicity of
agencies. The advent of Information Technology (IT) as a tool leveraging the
delivery of services is universally acknowledged now. In today's world, e-
governance has actually given an opportunity of a paradigm shift in the process
of delivery of government services to the public.

Sweeping transformations have taken place in IT with the convergence of


computing and communication technologies. The advent of the Internet has
thrown open numerous possibilities. Groupware technology can also offer
dramatic improvements in the intra-government synchronization, optimisation of
government resources, and decision support systems to boost the efficiency and
efficacy of the public policy. The major contributions of groupware in improving
organisational performance include on-line collaborative work, electronic
community development, knowledge management and workflow applications. In
such a scenario, information will be more directly accessible to decision-makers
and flow smoothly across departments through a common database and
compatible systems inter-linked under a secure high-speed networked
environment. In addition to a tangible improvement in the functioning of the
administration, the government-public interface shall undergo a radical change
for the better.

The near absence of IT in a large number of government departments today


offers both a massive challenge and an outstanding opportunity to use state-of-
the-art technologies to shape the country's future. Developments around the
globe are taking place at a breathtaking pace, and unless we urgently take steps
to plan for this new world of technology in this millennium, the government itself
may shortly face the peril of becoming lesser relevant. Wrapped in a mystic
enigma, government processes at present give enormous discretion and power
to the administration, with ample scope of its misuse. In such a scenario, a
properly conceived, developed and deployed model of e-governance will provide
a rare opportunity to the government to reinvent itself and evolve on an on-going
basis. It will redefine the public-government relationship and the business-
government interface. By enabling improved connectivity and communication
between all stakeholders, e-governance truly has the potential to propel the
country on the path of overall advancement. Such a thriving model of e-
governance shall also reinforce India's emergent status of a global IT
superpower.
With the rapid pace of change in the IT industry, there has been a shift in focus
from the traditional inputs of a production process to the processes involved in
the creation, storage, dissemination and use of information. An IT-driven system
of s-Governance works better, costs less, and is capable of servicing citizens'
needs as never before. Analogous to e-commerce, which allows businesses to
transact with each other more efficiently (B2B) and brings customers closer to
businesses (B2C), s-Governance aims to make the interaction between
government and citizens (G2C), government and business enterprises (G2B),
and inter-agency relationships (G2G) more friendly, convenient, transparent and
inexpensive. The resulting benefits are a higher revenue growth and reduced
costs. With the advent of the Internet, the 'citizen as a shareholder' can now
provide several inputs to the government's policy-making process, while the
'citizen as a customer' can demand better services from his government.
Governments across the globe are trying to make this a reality through
implementation of information technology initiatives. However, undertaking such
initiatives without focusing on long-term goals will result in 'islands of excellence'
and render a myopic vision of e-governance.

Public policy and its implications:

Developing an appropriate public policy towards the industrial sector has been an
important task for Indian policy makers for a long time. When India moved away from an
inward looking industrialisation strategy to a more ‘open’ economy in 1991, industrial
firms needed to restructure themselves to retain competitiveness. Much of these
restructuring is needed to correct the inefficiencies created by operating in a protected
market. The Automobile sector has been a major candidate in the industrialisation
process since the beginning of planned development. Automobile industry in India has
been subjected to substantial policy changes over the last two decades. The policy
changes were in two doses and took the form of partial de regulations introduced in 1985
and liberalisation measures launched since 1991. The pre 1985 regime could be described
as an era of strict controls and regulations. The initial changes, introduced in 1985, eased
the licensing requirements, broad-based the classification of vehicles for issue of licenses,
allowed selective expansion of capacity and partially relaxed controls with regard to
foreign collaborations, imports of capital goods, raw materials and spares. Though these
measures represented a "domestic liberalisation", the policy environment continued being
geared towards imposing trade and investment regulations, constraining the growth of big
business houses and regulating exchange rates. It was only after 1991 that notable broad-
based changes in policy that had far reaching implications actually came into being.
These changes dispensed with the bulk of controls and regulations and for the first time
since independence assigned a central role to market forces. To list some of these
changes more explicitly - approval for foreign investment up to 51% equity holdings
came to be given automatically, most of the industries that comprise the manufacturing
sector were removed from the licensing network, the monopolies [MRTP] act was
amended - allowing big business houses to expand at will, domestic currency was made
convertible in the trade account, the exchange rate was allowed to be influenced by the
market and quantitative controls on imports of capital goods and components were
removed. In addition to these measures aimed specifically at the industrial sector, the
Government of India also adopted certain structural adjustment and macro stabilisation
policy measures during the post 1991 period. A growing body of literature has examined
the impact of liberalisation in industrial and trade policies on manufacturing sector
performance in different countries. While most of the studies focused on making inter
country comparisons, a few studies analyse the impact of trade liberalisation on
manufacturing productivity .It focuses on variables such as concentration, ownership,
size distribution, spatial distribution and total factor productivity growth, and their results
suggest that liberalisation does not have a major impact on the industrial structure under
examination explores changes in some key corporate strategies in response to economic
reforms introduced in India since 1991 and points out significant changes with respect to
mergers and acquisition activities of multinationals, foreign technology purchase, R & D
and manufacturing capabilities. Most of the earlier studies that attempted to analyse the
differential behaviour of firms in terms of conduct and performance variables have
brought out the differences between multinationals and local enterprises. Automobile
firms in India over the period 1987-88 to 1989-90, found that even within the
multinationals, Japanese affiliates differ from those of Western Countries.

For India to become a major player in world trade, an all encompassing, and
comprehensive view needs to be taken for the overall development of the country’s
foreign trade. While increase in exports is of vital importance, we have also to facilitate
those imports which are required to stimulate our economy. Coherence and consistency
among trade and other economic policies is important for maximizing the contribution of
such policies to development. It was felt that the Exim Policy with its limited focus may
not be able to meet our objectives. Thus, while incorporating the existing practice of
enunciating an annual Exim Policy, it is necessary to go much beyond and take an
integrated approach to the developmental requirements of India’s foreign trade. This is
the context of the new Foreign Trade Policy.

Trade is not an end in itself, but a means to economic growth and national
development. The primary purpose is not the mere earning of foreign exchange, but the
stimulation of greater economic activity. The Foreign Trade Policy is rooted in this belief
and built around two major objectives. These are:

To double our percentage share of global merchandise trade within the next five
years; and
To act as an effective instrument of economic growth by giving a thrust to
employment generation
The two-fold objective of the Policy is proposed to be achieved by adopting,
among others, the following strategies:
Unshackling of controls and creating an atmosphere of trust and transparency to
unleash the innate entrepreneurship of businessmen, industrialists and traders.
Simplifying procedures and bringing down transaction costs.
Neutralizing incidence of all levies and duties on inputs used in export products,
based on the fundamental principle that duties and levies should not be exported.
Facilitating development of India as a global hub for manufacturing, trading and
services.
Identifying and nurturing special focus areas which would generate additional
employment opportunities, particularly in semi-urban and rural areas, and
developing a series of ‘Initiatives’ for each of these.
Facilitating technological and infrastructural up gradation of all the sectors of the
Indian economy, especially through import of capital goods and equipment,
thereby increasing value addition and productivity, while attaining internationally
accepted standards of quality.
Avoiding inverted duty structures and ensuring that domestic sectors are not
disadvantaged in the Free Trade Agreements/Regional Trade
Agreements/Preferential Trade Agreements that enter into in order to enhance
exports.
Upgrading infrastructural network, both physical and virtual, related to the entire
Foreign Trade chain, to international standards.
Revitalising the Board of Trade by redefining its role, giving it due recognition
and inducting experts on Trade Policy.
Activating Embassies as key players in export strategy and linking Commercial
Wings abroad through an electronic platform for real time trade intelligence and
enquiry dissemination.

There is an inherent contradiction in the Attitude and policy of the Government as


regards the private sector. The Government has continuously emphasised the important
role assigned to the private sector in the mixed economy of India and the steps it had
taken to encourage the private sector. At the same lime, the Government had taken
various measures, both direct and indirect, which do not help the private sector to develop
freely and rapidly but which actually restrict and hamper its growth. We may highlight
here some of the problems of the private sector.

Procedural delays. In all developing countries --India is no exception-there are too many
regulations imposed by the Government on the private sector and too many procedural
delays. It is estimated on an average, it takes 7 years "from the conceptual stage to the
production stage for any significant investment to take place in India." Decisions which
used to be taken at one time at a low level of government bureaucracy are concentrated in
the hands of the top bureaucracy, or with the ministers and in some cases even with the
cabinet. There is no delegation of decision-making and in fact, even the smallest
decisions are taken at the top level, resulting in avoidable delay, cost escalation, and
higher burden on the consumers.

Unrealistic controls. The Government is influenced by contradictory motives, as for


instance, the protection of the consumers (price controls) and the prevention of
concentration of wealth and income (capacity restraint). The price controls imposed by
the government on many of the goods do not give proper incentive for additional
production. Actually, the Government should encourage competition among the rival
firms and increased production would automatically bring down the prices. On the other
hand, price controls under conditions of shortage tend to perpetuate shortage, rise of
black markets and possible shifting of investment from controlled items to the production
of non-controlled items. In this Connection, the system of dual pricing has been found to
be much better than unrealistic price controls. At one time, licensing of capacity was
meant to bring about organised growth and prevent monopolistic tendencies, hi
practice, however, it has emerged as something unique in the whole world. While attempt
is made to increase capacity to create more employment and produce more, India is the
only country in the world which penalizes increase in production. Capacity restraint is
indeed anti-investor and anti-consumer. Since 1980, and more recently after the
resumption of power by Mr. Rajiv Gandhi there has been a welcome trend of regularising
excess capacity in scheduled industries, removal of restrictions on creation of new
capacities, abolition of unnecessary controls and liberalization of controls wherever they
cannot be abolished.

Reservation for the small sector. The Government has generally worked on the
assumption that small industries are in conflict with large ones which always stifle the
growth of the small and cottage sector. Accordingly, the Government has attempted to
help the small sector in many ways. One method is to provide excise exemption or
impose, a lower rate of excise duties for goods produced in the small sector. Another
method is to reserve certain products in the small sector and prevent the large sector from
producing such goods. As a result of such measures, the complementarity of the two
sectors in the process of growth has been lost. While it may not be desirable to continue
reservations or differential excise duties for all Government. Unfortunately, considerable
controversy has been created in the definition of the joint sector and the industries that
should be brought under this sector. Part of this blame goes to the Dutt Committee Report
which used the term "joint sector" for the first time and gave not one but three concepts
of joint sector :

(a) Existing private enterprises belonging to the large industrial houses should be brought
under the joint sector by public financial institutions converting their loans into equity.
"In that case we would like to emphasise that they should be clearly treated as belonging
to the joint sector and not to the private sector."
(b) The joint sector would include those industrial units in which both public and private
investment had already taken place and where the State has already been taking an active
part in direction and control.
(c) A large sized industrial unit in Schedule B and C categories, necessitated on account
of technical and economic advantages of large scale, should necessarily be in the joint
sector to prevent concentration of economic power. In this case, the joint sector should be
treated as belonging to the public sector, for a large portion of the cost would be provided
by the Government and public financial institutions though, of course, private parties too
would be permitted to have equity participation.

3.5. Lessons for marketers:

The most striking feature of contemporary India is the rise of a confident new
middle class. It is full of energy and drive and it is making things to happen. In terms of
political power, it is erstwhile middle class that has climbed to the top in the social
hierarchy of modern societies. It has transformed itself into the ruling class by acquiring
control over the levels of state power. Property no more rules, even indirectly, these days.
Nor does labour in the ”peasant and workers” states. It is the “knowledge” group
comprising not only politicians and bureaucrats but also business executives, company
directors, factory mangers, scientists engineers, technocrats, bankers, journalists,
intellectuals lawyers, doctors, teachers and many other belonging to liberal profession
and “services” sector, that does so. That group or class constitutes the political class and a
section of it the ruling elite. The two key attributes distinguishing the class from other
social classes are its possession of education or knowledge in the broad sense of the term
and leadership qualities that help to put the class at the top in all walks of social life.

The social climb that this class has experience has gone coincided with
metamorphical change that the society in Western countries has undergone in socio-
economic political and ideological fields. The concept of democracy secularism, human
rights, social security, social justice and welfare state all parts of middle class philosophy
and ideology. Since the thought and ideology of the middle class has come to acquire
universal appeal, this has help to put the class in commanding position vis-à-vis the rest
of society. It has cast that class in the leadership role and vested it with decision making
regulation coordination and controlling power in terms various types of social activity
and relations. This class has come to constitute the elite in the modern societies. A part of
it forms the governing elite, the rest becoming non-governing elite. The governing elite
by virtue of its control over the livers of power in the state machinery an exercise of all
political powers on behalf of the state is bale to influence production and distribution of
income and wealth class relation, social change, and the political and economic
development of the society it governs. This makes it and instrument of history, an arbiter
of destiny of nation. They are historical forces which are set into motion by the action of
the elite itself, there are others that are autonomous in character which the elite it self as
to content with. The elite itself, of course, does not have absolute freedom of action. It
exercise of power is moderated by the consideration of its continuing to be in possession
of power against the challenge that the non governing elite poses to it in the matter. The
struggle for power between the governing and non-governing elites is a constant feature
of the modern state and the society. The struggle is intra-class and not inter class. The
masses do not compete for power with the elite. It is the difference sections of the elite
who do so among themselves. The battles are fought and struggles waged in the name of
ideology, national interest and welfare of the masses. Professions about promoting these
interest no all masks worn by the elites contenting for political power; a degree of
genuineness is always there. That degree differs from one society to another depending
upon the level of consciousness reached among the masses. The mote developed that
consciousness is and more enlighten the masses are the more difficult it would be for the
elite to mislead them by catch phrases, empty slogan and ideological swearing. In
advanced society the class as well as self-interest of the elite will coalesce with those of
the society as a whole. The elite circulation will still be there and may even be more
pronounced than in a comparatively less developed society but it will waste on the
account that the governing elite gives of it self when in power that on the relative
manipulative abilities of the contenting elites. The competition for power among the elite
will thus become a of social instrument had material advancement. That gives the
democratic system of the government an edge over dictatorship and absolute monarchy in
which cases power is monopolised by a single individual assisted by his coterie or
collectively by a cohesive oligarchy. This will augur well for the marketers in the Indian
context.

Modern technology has made the job of the marketer easier. Here a few tools
that are in use today for improving marketing processes,and building brand
value:
SMS
One can locate the nearest pizza outlet or log on to a Web site to check out the
specifications of the new car you plan to buy.
i-Seminars
Seminars on the internet instead of physical seminars is better for the customer-
no travel time and expense.
E-marketing
No snail mailing,only e-mails;interactive Web information (no printing of
brouchers)and Web banners.
e-Surveys
Online market surveys of customers help in deciding product strategies,which
result in a greater possibility of acceptance of the final product or service,adding
to the the brand value of the organization.
Online billboards
Online billboards made of super-large plasma displays allow for time-sharing and
instant message revision.
Superior design tools
Better tools like Photoshop and illustrator allow a designer to do things that would
have required very expensive design workstations a decade or two ago.
Touch-screen kiosks
Touch sreen kiosks used to market and showcase brands at shopping mails
have changed the way a consumer can feel and experience a product on the
shop floor.
Analysis tools
Better data mining technologies coupled with cheaper storage has accelerated the pace of
research,so that one can narrow down on one’s target and focus better.At every point of
influence, not just marketing-
awareness,acquisition,education,conversion,sale,service,support-role of technology has
changed our processes and efficiencies.

The Indian electronics and hardware industry has been lagging behind the impressive
performance of the software sector. Most of the hardware requirements of the burgeoning
software and telecom sectors are met by imports. The Indian government has recognised
the need to increase domestic output and formulated the Electronic Hardware Technology
Park (EHTP) scheme that offers various concessions for companies that manufacture
either electronic goods or components.

4. Have you understood type questions:


1. The marketing environment is BEST described as being:
A. Composed of controllable variables.
B. Composed of variables independent of one another.
C. An Indirect influence on marketing activity.
D. Dynamic and Changing

2. If the Kellogg Company decides to build a new cereal plant because it


anticipates the next five years will bring low unemployment and increases in
buying power, it is forecasting a period of:

A. Depression
B. Prosperity
C. Recovery
D. Austerity
E. Recession
3. Coca Cola markets its soft drink to members of Generation Y who love extreme sports
and are risk-takers. If Coca cola Dew began lobbying politicians and engaging in
advocacy advertising to support continued use of high fructose corn syrup and caffeine in
products targeted toward young people, the company would be engaging in:
A. Mass Marketing
B. Environmental Management
C. Target Marketing
D. Market Segmentation.

4. Ramji Systems have developed Movie Mask, a system that acts as a video censor by
interfering with the playback process so that supposedly offensive material never appears
on the television screen. For movie production companies, the Movie Mask is a(n)
________ factor in their external environment.

A. Technical
B. Economic
C. Social
D. Political

5. Summary:

There is a perceptible change in the mind set of the consuming class in India as is
evident from the social, cultural, political, technological and economic environments as
discussed in this unit. However, one change which is fast sweeping the country is the
advent of Internet. The medium of the Internet and the development of e-
commerce are progressing extremely fast on a global. However, while the
Internet acts as a faster and less costly platform for consumers and businesses it
has inadvertently increased the importance of customer satisfaction. By making
transactions faster and easier it had enabled the customer to switch just as
quickly between e-businesses, causing the element of competition to take on a
new diversion. It is very important to achieve customer satisfaction to get good
financial performance in services in the physical world, and the same can be said
of e-commerce where a customer can be lost if unable to access a Website or if
the experience proves unsatisfactory.

6. Exercises

1. A marketing manager for a small computer manufacturer is analysing the


potential effects of political, legal, social, and economic forces on the firm's
operations. Develop an environmental analysis for him.
2. To effectively monitor changes in the marketing environment, marketers must
engage in what activities?
3. Conduct an evaluation of the consumption pattern of the Indian middle class.
4. Do you think all these MNC’s rushing to India is based on the growing
economic clout of India? Justify your answer.

7. References

1. A.E.A., Readings in Business Cycle Theories, American Economic


Association. CLARK,J.J.AND CHEN, M.(EDS.), Business Fluctuations,
Growth and Economic Stabilization, Random House, N.Y.,1963.
2. Dauten, C.A., Business Cycles and Forecasting, South-Western
Publishing Co. Cinciantti, 1961,2nd Edn., Cchs.3-7.
3. Gordon, R.A., Business Fluctuations, Harper and Brothers Publishers,
NewYork,1952,Chs.8-12.
4. Haberler,G., Prosperity and Depression, United Nations, New York, 1952,
3rd Edn., Parts I and II.
5. Hamber,G., Business Cycles, The Macmillan Company, New York,1951,
Chs.3-8.
6. Hansen.., Business Cycle and National Income. W.W. Norton and
Company Inc.,, New York,1951.
7. Hicks,Jr.,A Contribution to the Theory of the Trade Cycle, Oxford
University Press, London, 1950.
8. Lee,W., Economic Fluctuatio ns, Richard D.Irwin, Inc., Illionis, 1955.
9. Rameshan, P., “Corporate Performance During1990s”, Productivity, Jan-
Mar.2001, pp631-641.
10. Kumar, Krishna; “Meeting the Challenges of a Borderless Economy:
Needed a Paradigm Shift?”: Working Paper No. 2001/4, Indian Institute of
Management, Lucknow (India), presented in Opening Seminar on WTO &
Allied Issues held at Indian Institute of Management, Lucknow , February
24-25, 2001.
11. Kumar, Krishna & Srivastava Ritu, “A Study of Indian Business Ventures
Abroad”;Working Paper No. 2001/21, Indian Institute of Management,
Lucknow (India), presented in the 4th Conference of Strategic
Management Forum, Indian Institute of Management, Ahmedabad (India),
May 26-28, 2001.
12. Murthy, M.R., and Ranganathan, K.V.K., "Foreign Private Capital:
Penetration Through Collaborations", Young Indian, Vol. 8, No. 10,
October 11, 1997, pp. 3-9.
13. “India’s Foreign Exchange Reserves and Vulnerable Liabilities”, Centre for
MonitoringIndian Economy, (Mumbai), Monthly Review of Indian
Economy”, July 2001, p.128.
14. Aswathappa, K. (Dr.),”Essentials of Business Environment”, (6th edn.),
Himalaya, 1997, pp. 34-41.
15. Cherunilam Francis (Dr.), “Business Environment Text & Cases”, (14th
edn.), Himalaya, 2003, pp.623-624.
16. Goyal, S.K., et. al., "Economic Policies and Indian Development: A
Discussion Paper", Institute for Studies in Industrial Development, April
1997.

Marketing with other functional areas of management

Unit structure:
1. Introduction
2. Learning Objectives
3. Marketing Management
3.1 Nature of marketing
3.2 Scope and functions of marketing.
3.3 Significance of marketing.
3.4 Objectives of marketing.
3.5 Coordination between marketing and other functions.
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

As you aware, marketing is a dynamic discipline. The nature of marketing is such


that it will have to liaison with various departments and cannot function in
isolation. The significance of marketing department has changed in India since
the liberalisation wave was unleashed. Marketing has certain objectives and that
will deliver the best possible results for the organization. Hence it is important
that there exists an excellent coordination between marketing and other
functions.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the scope and functions of marketing.
• Understand the importance of marketing.
• Understand the nature and objectives of Marketing Management.
• Understand the coordination between Marketing and other departments.

3. MARKETING MANAGEMENT

Marketing management is an important to operative function (as distinct from


managerial function) of management. It performs all managerial functions in the
field of marketing. It is responsible for planning, organizing, directing and
controlling the marketing activities. It is required to build up appropriate
marketing-mix to achieve the objectives of the business.

According to E.W. Cundiff and R.R still, “Marketing management is concerned


with the direction of purposeful activities towards the attainment of marketing
goals.” The basic goals of marketing are satisfaction of needs of customers and
generation of revenue for the business. Most of the big business enterprises
organize the marketing activities separately under the charge of a marketing
manager. The marketing manager looks after various aspects of marketing to
achieve the objectives of marketing, viz; creation of customers and satisfaction of
their wants and earning of profits.

Marketing management attempts to contribute to the organizational objectives. It


deals with planning, organizing, directing and controlling the activities related to
the marketing of goods, ideas and services to satisfy the customer’s needs and
contribute to organizational objectives. The nature of marketing management is
illustrated in the following points.

(i) Marketing management is a functional area of management. As a


managerial function, it includes analysis, planning, implementation
and control of activities concerned with development and
distribution of products for satisfying the needs of the customers.
(ii) Marketing management is goal directed. It attempt to satisfy the
needs of customers by offering them want satisfying products and
generate revenue for the business.
(iii) Marketing management determines the appropriate marketing mix
of the firm. Product design, its promotion, its pricing and its
distribution are properly harmonized so that goods are accepted by
the customers.
(iv) Marketing management is a specialized job. Efficient handling of
marketing activities require specialized knowledge of markets,
products, consumer’s tastes and behaviour, government policies,
and business environment.
(v) Marketing management is the marketing concept in action. It
includes all activities which are necessary to know the needs of
customers and supplies goods and services to satisfy the needs of
the customers. The marketing concept is based on the philosophy
that all activities of the business enterprises should be oriented
towards the satisfaction of requirements or needs of the customers

3.1.NATURE OF MARKETING

1. Marketing is Customer-focused. Marketing intends to satisfy and


delight the customer. The activities of marketing must be directed and focused at
the customer. Marketers can remain in customer mind if they are provided value
for what they spend. Customer focus can optimize costs for the customer while
allowing the organization to focus on its core competencies. Today’s customer
makes constant trade-offs between quality, price, and benefits. Thus, marketers
must allow customers to dictate product specifications and quality standards.
Marketing efforts must be directed at meeting customer needs, not market
shares. For this, marketers must track customer needs on a continuous basis.

2. Marketing must Deliver Value. Marketer have to track customer needs


and deliver the product as per their requirements. This is not an end in itself.
The company must satisfy the following equation with resultant value above 1 as
seen in fig.1:

Benefits
CustomerValue =
Cost
The corporate strategy must be aimed at delivering greater customer value than
competitors. The corporate planning, processes, and people must be re-
configured around the customer.

3. Marketing is Business. When customer is the focus of all activities


marketer has not to search customers to seek response to his products.
Customer group is decided for whom the product is prepared and presented.

4. Marketing is surrounded by Customer Needs. Marketing starts with


the identification of customer needs and requirements. These are turned into
probable features that might satisfy the basic needs. The portable form of
product is made out and presented before the customer for approval. The
customer suggests changes or improvements in the portable product and the
final product is brought before the customer. Fig .1.illustrates the point.

Portable
Identification of Probable Features
Product
Customer Needs of Product
(Assisted
(by Marketing (Suggested by
by
D tt ) M k ti D tt )
Marketing

Final Product
(Presented Marketing Customer Suggests
Deptt.) Changes/Modifications
Fig.2 Marketing and Customer Needs.
5. Marketing is a part of Total Environment. Total environment may be
defined as the combination of all resources and institutions which are directly
related to the production and distribution of goods, services, ideas, places and
persons for the satisfaction of human needs. However, it is better to look at
remote and immediate environment of any marketing organization as shown
below in Fig.3

Technological Remote External Environment

Immediate External

Suppliers
International Technical System
R & D System
Financial
Marketing Organisation
Financial

Economic Institutions
Customers
t

Educational Personnel System

Govt. Agencies Competitors Labour

Ecological Socio-cultural Politico-


Fig.3. Remote and Immediate Marketing Environment

6. Marketing Systems Affect Company Strategy. Marketing has its own


sub-systems which interact with each other to form complete marketing system
that is responsive to company marketing strategy. Through the sub-systems
(marketing Information system, Marketing Planning system, Marketing
Organisation and Implementation System and Marketing Control System) shown
in Fig.4, the company monitors and adapts to the total marketing environment.
The interaction between marketing sub-systems and environment has been
discussed in detail in chapter 3.

7. Marketing as a Discipline. The subject of marketing has emerged out of


the business which has derived its existence from economics. After emerging
from business, marketing has got its strength from related areas-law, psychology,
anthropology, sociology, statistics, mathematics because the related problems
impinge heavily on consumer behaviour, legal aspects of marketing, research on
consumer needs, advertising media, pricing, promotion methods, etc. thus,
marketing as a disciplines stands tested as an art and a science. Fig. 4 illustrate
the point. Strategies/Tactics for Product,
Art Pricing, Promotion, Distribution,
Law
Competitors, External Environment
Psychology
Anthropology Marketing
Sociology as a
Statistics Research on Consumer,
Mathematics price, Media, Channels,
Scienc product, Market, Business

Fig.5 Marketing as Science and Art

8. Marketing Creates Mutually-beneficial Relationships. The customer is


the focus of all marketing activities. But, during the last decade, the focus has
shifted to the way of doing business, i.e., the strategic aspects of marketing.
Here the means of marketers are their knowledge and experience, and the end
result is in the form of mutual beneficial relationship. Thus, marketing is
everything that results in the mutually beneficial relationships with the customer.
For example, if social contribution can help enhance company image, help to
aged, children and disabled would definitely attract the consumer confidence in
the organization because of its assumption of social responsibility. Thus,
customer might differentiate between Coke and Pepsi, Whirlpool and Godrej
refrigerators, etc.

3.2.SCOPE AND FUNCTIONS OF MARKETING

The scope of marketing can be understood in terms of functions that a marketing


manager/director/department performs. In most of the business enterprises,
marketing department is set up under supervision of the Marketing Manager.
The major purpose of this department is to generate revenue for the business by
selling want satisfying goods and services to the customers. In order to achieve
this purpose, the Marketing Manager performs the following functions:
(i) Marketing research
(ii) Product planning and development
(iii) Buying and assembling
(iv) Selling
(v) Standardisation, grading and branding
(vi) Packaging
(vii) Storage
(viii) Transportation
(ix) Salesmanship
(x) Advertising
(xi) Pricing
(xii) Financing
(xiii) Insurance

Functions of Marketing
(A) (B) (C) (D)
Functions of Functions of Functions of Functions
Research Exchange Physical
Facilitating
Treatment Exchange

1. Marketing 1. Buying and 1. Standardisation 1.


Salesmanship
Research Assembling Grading and 2. Advertising
Branding
2. Product 2. Selling 2. Packaging 3. Pricing

The functions of marketing may be classified into four categories as shown in the
above Fig.6

A. FUNCTIONS OF RESEACH
A1. Marketing Research
It means the intelligence service of the organization. Marketing research
helps in analyzing the buyer’s habits, relative popularity of a product,
effectiveness of advertisement media, etc. its major task is to provide the
marketing manager with timely and accurate information so that better
decisions can be made. The scope of marketing research is very wide. It
may cover all the areas of business which have bearing on the marketing
function. In the words of W.J.Stanton, “Marketing research is the systematic
search for and analysis of facts related to a marketing problem. Its emphasis
is shifting from fact finding, information gathering activity to a problem solving
and action recommending function”.
A2. Product Planning and Development
A product is something which is offered by a business firm to customers to
satisfy their needs. It has great importance in all other areas of marketing
management. For instance, marketing research is mainly directed towards
knowing the needs of the customers and increasing the sale of the product;
and storage and transportation activities depend upon the nature of the
product. Therefore, it is necessary to plan and develop products which meet
the specifications of then customers. Products are the foundation of any
marketing programme. The success of marketing department depends upon
the nature of the product offered to the customers. The product must be so
designed and developed that it meets the requirements of the customers.

Product planning and development involves a number of decisions,


namely, what to manufacture or buy? How to have its packaging? How to fix
its price and how to sell it? The design, quality, colours, size and other
features of the product can be determined by conducting marketing research.
The product department will be guided by the requirement of the users.

B. FUNCTIONS OF EXCHANGE
B1. Buying and Assembling

Procurement of raw materials, semi-finished or finished products has


gained great importance for the modern industrial and commercial
enterprises. Raw materials are purchased for production by the industrial
enterprises and finished goods are purchased for resale by the commercial
enterprises. Whatever may be the case, the marketing department plays an
important role. It is the marketing department which will supply the
information regarding the needs and tastes of the customers. Coordination
between purchasing officials and the marketing officials will help in
purchasing right types of materials or goods at right time and in right
quantities.

Purchasing is different from assembling. Purchasing involves


determination of requirements, finding the sources of supply, placing the
order and receiving the goods. But assembling means collection of goods
already purchased from different sources at a common point. It is also used
in another sense. Raw materials are purchased and assembled in order to
produce goods and services.

B2. Selling
This is an important aspect of marketing under which ownership of goods
is transferred from the seller to the buyer. Sale may take the form of : (i) a
negotiated sale, and (ii) an auction sale. In case of negotiated sale, the terms
and conditions between the buyer and the seller are arrived at by bargaining
or haggling. But in case of an auction sale, there is no scope for negotiation
between the seller and the buyer. The buyers assemble at the place of
auction and bid against one another for the goods on sale. The goods are
sold to the highest bidder.

Negotiated sale may take the following forms, namely, (a) sale by inspection
,(b) sale by sample, (c) sale by description, (d) sale by grade, and (e) sale by
brand.

C. FUNCTIONS OF PHYSICAL TREATMENT


C1. Standardisation, Grading and Branding.
Standardisation means setting up of specifications of a product. Grades
of agricultural products are based on these specifications and standards.
Industrial goods are given brand names by their manufactures to convey to
the customers that their goods conform to certain well-defined standards.
These activities promote the sale of products.

C2. Packaging
Packaging is traditionally done to protect the goods from damage in transit
and to facilitate easy transfer of goods to customers. But now it is also used
by the manufacturer to establish his branded products as distinct from those
of his rivals.

Author activity connected with packaging is labeling. Labeling means


putting identification marks on the package. The label is an important feature
of a product. It is that part of a product which contains information about the
producer and the product. A label may be a part of a package or may be a
tag attached directly to the product. The label is sued to communicate brand,
grade and other information about the product.

Packaging has become one of the essential services f modern marketing.


It acts as a multi-purpose arrangement. It gives protection to goods on its
route from manufacturer to consumer. It even protects the goods during its
life with the user. Packaged goods are generally more convenient to handle.
Packaging also gives individuality to a product. It makes easier for the
consumer to identify a product by looking at its package.

Packaging facilitates the sale of a product. It acts as a silent salesman of


the manufacturer, particularly at a place where there is widespread use of
self-services, automatic vending and other self-selection methods of retail
selling. Sometimes, packages are duly sealed to ensure products of right
quality to the consumers. In the absence of sealing, duplicate products may
be distributed to the consumers by unscrupulous dealers.

C3. Storage
Goods are generally produced in anticipation of the demand. They have
to be stored properly in warehouses to protect them from any damage which
may be caused by ants, rats, moisture, sun, theft, etc.
Storage of goods in warehouses has become an indispensable service
these days. Producers, manufacturers, traders, mercantile agents, importers
and exporters engaged in business have to store their goods in warehouses.
Goods are produced or procured well in advance of the demand. They are
stored in warehouses till they are actually sold in the market. Thus,
warehousing creates time utility. In addition, modern warehouses perform
certain marketing services also such as grading, packaging, labeling, etc.

C4. Transportation
Modern organizations produce on a large scale to cater to the
requirements of customers scattered throughout the country. This calls for
transportation of goods from the place of production to the place of
consumption. Transportation provides the physical means which facilitate the
movement of persons, goods and services from one place to another.

Transport plays a significant part in the economic, social and political


development of a country. Rapid industrialization and exchange of goods and
services cannot take place unless sufficient facilities for transportation are
available. It is with the help of various means of transport that raw materials
are transported from the place of their production to the industrial centres
where they are converted into finished products. It is again transportation that
facilitates the movement of goods from the producers to the users. By doing
so, transportation removes the distance problem and creates place utility.

Transportation creates time utility in goods and services because speedy


transport minimizes the time of their transit. Transport leads to regional
specialization. A region may specialize in the production of those goods and
services for which it is most suited. This leads to production of goods and
services in different regions at the lowest possible cost. Transportation also
plays a crucial role in the price mechanism. It tends to equalize and stabilize
the prices of various commodities by moving them from the areas where they
are surplus to those areas where they are in short supply.

D.FUNCTIONS FACILITING EXCHANGE


D1. Salesmanship
Personal selling in an important method of selling goods. It is widely used
in retail marketing. Salesmanship or personal selling involves direct and
personal contact of the seller or his representative with the purchaser. It is
the oldest known form of selling and is the most important and recognized
method of selling.

The art of salesmanship has undergone a big change. The attitude of


salesman towards the customers and vice versa has also changed. This
change has gone hand in hand with the changing concept of ethical standard
in business. Earlier, caveat emptor (let the buyer beware) ruled a sales
transaction, but now the satisfaction of customer is more important. A
salesman finds our what his customer needs and does his best to meet it
from the merchandise at his disposal. Selling has become a science of
human relations and an art of getting along with people so effectively that
sales resistance may be reduced to the minimum.

D2. Advertising
Advertising has become an important function of marketing in the
competitive world. It helps to spread the message about the product and thus
promote its sale. It facilitates creation of a non-personal link between the
advertiser and the receivers of the message. The importance of advertising
has increased in the modern era of large scale production and tough
competition in the market. Business firms use several media of
advertisement to sell their products. These include newspapers, magazines,
radio, television, cinema halls, hoardings, window displays, etc.

D3. Pricing
Determination of price of a product in an important function of a marketing
manager. Price of product is influenced by the cost of product and services
offered, profit margin desired, prices fixed by the rival firms and Government
policy.

A sound pricing policy is an important factor for selling the products to the
customers. The price policy of a firm should be such that it attracts all types
of customers different means. A good price policy helps in determining the
varieties of a product to be made or procured so as to satisfy the demands of
various kinds of customers.

D4. Financing
Financing and marketing functions of a business are inter-linked with each
other. The marketing department has an important say on policies of the
finance department in regard to cash and credit sales. Financing of
customer-purchasing has become an integral part of modern marketing. The
provision of goods to the customers on credit basis is an important device to
increase th volume of sales. A manufacturer has also provide credit facilities
to wholesalers and retailers. As a matter of fact, credit is the lubricant that
facilitates the operation of the marketing machine.

D5. Insurance
A large number of risks are involved in exchange of goods and services.
Insurance helps to cover these risks. It facilitates the smooth exchange of
goods by covering risks in storage and transportation.

Loss or damage to goods or property may arise due to fire, theft, natural
calamities like flood or earthquake and so on. People employed in business
firms are also liable to the risks of injury or loss of life due to accidents in the
work-place. Business firms are able to provide for protection against these
risks by insurance companies. Thus can cover the risks on payment of a
nominal premium and recover the loss, if any, arising our of the risk.

3.3 SIGNIFICANCE OF MARKETING

Marketing Affects Our Lives

Customer is the revolving force of marketing. Customer decides what


products suit their needs. The choice of one product over another sets the
pace of marketing action. Thus, because of changed social perception about
the role of women, higher percentage of women tend to move out of their
homes. This changed role of women has resulted into need for crèches,
household domestic help, expanded need for communication facilities
because of separation of mother and child, more security inside house where
child is mostly alone, home entertainment equipments like TVs, VCRs, Video
games, Personal Computers, etc., so that the child does not move out of
home and also the parents could entertain themselves when they are back
from work.

As a result of women venturing out of home, there is expanded need for


Day Care Centres, Maids/Robots, Telephone, Steel Grills, Alarm System,
Personal Security Device, TV, VCR Video games, Personal Computers, etc.,
Table 3 helps to gauge as to how marketing affects our lives.

Table 2. Effect of Marketing on Our Lives.

Reasons Need Product/Servce Required


Promoting Need
1. Division of Separation Lawler, Documentation, Officers to
Joint Family Nuclear Administer separation, TV, Radio,
Family set-up conveyance, Coolers, Gas stove, Gas
cylinder refill, Chair, Table, Bed, Almirah
etc.
2. Greater (Separate-sized product for each)
Complexity of Specialists
Products offered Special Institutions to provide
maintenance for Air conditioners, cars,
scooters, computers, etc.

Marketing Satisfies our Needs.

Once it is ascertained that marketing affects our lives in many


ways, the immediate question arises: How it satisfies our needs? Here the
product is main propeller of the marketing activities. However, not only that
the product should satisfy customer needs and wants, it should also remove
hindrances between the marketers and customers by creating utilities for
them by adding value to the product. By removing these hindrances,
marketing ensures free and smooth exchange of goods and services from
marketers to customers.

1. Form Utility. Customer expects that their needs should be fulfilled with
appropriate goods or services with particular
features/attributes/style/shape/size etc. Form utility supplies them all by
converting the raw form of products into meaningful final products. Thus,
customers force marketers to direct production department in terms of
specific customer needs satisfaction. For example, Whirlpool advertises
its refrigerators by showing a man asking different customers to, explain
their requirements. The final product comes up as per the customer’s
requirements.
2. Person Utility. The marketers and ultimate customers are not always
situated at the same place, so that the customers could buy the products
and services for their consumption or usage. At times, there is a big gap
between the producers and the ultimate customer, marketing helps to
remove the hindrance of person by means of trade. Trade, as a part of
marketing, plays a major role in establishing contact between producers
as providers of goods and services and customers as users or consumers
of those goods and services to satisfy their needs. Various traders,
namely, wholesalers, retailer and mercantile agents operate to provide
person utility.
3. Exchange Utility. In case of goods and services, the person utility clears
the way for their proper exchange. Marketing helps to bring together the
producers of goods ready to ell their goods for money and the consumers
of those goods ready to part with their money (purchasing power), thus
removing the hindrance of exchange. Moreover, with money as the
medium of exchange, payment for goods and services is made through
banks. In this way, procure goods ion credit. Further, banks often finance
trade in ways more than one. Thus exchange utility is provided by money,
banking, and finance.
4. Place Utility. Goods may be produced at a place where advantages of
location other than the market may be available whereas the buyers of
such goods may be situated at a far off place. The barrier of distance
between the place of production and the market where these products can
be sold is removed by different means of transport. Besides transporting
goods from the place of production to that of consumption, the services of
insurance to cover the risk of loss during transit and storage and
packaging to protect goods against damage and pilferage are also aimed
at removing hindrance of place. Thus, place utility brings the producer of
goods and services closer to the customer.
5. Time Utility. Goods, in modern times, are produced in anticipation of
demand and as such they are to be stored as long as the demand for the
same comes up. Such stored goods are to be released as and when
demand materializes. This function of storage and preservation is
performed by warehouses which remove the hindrance of time by
balancing the time lag between production and consumption, thus creating
time utility. During this process of storage, insurance plays its role by
removing the risk of loss or damage through theft or fire.
6. Knowledge Utility. A producer may find it difficult to sell his products
unless and until he brings it to the knowledge of the prospective
consumers the utility and the distinctive features of his products.
Advertising and salesmanship help to remove the hindrance or lack of
knowledge on the part of the prospective buyers by bringing to the notice
of the customer the utility of buying the goods and services offered .

Marketing Generates Revenue for the Business Firm.

Marketing is a basic function of all business firms. According to peter


Drucker, “It is in marketing that we satisfy individual and social values and
needs, be it through producing goods, supplying services, fostering innovation
for creating satisfaction.” Marketing is an important activity these days,
particularly in the competitive economies. Marketing generates revenue for
the business enterprises. No firm can survive in the long-run unless it is able
to market its products. In fact, marketing has become the nerve-centre of all
human activities.

Efficient marketing management is a pre-requisite for the successful


operation of any business enterprise. A business organization is
differentiated from all other human organizations by the fact that it makes and
sells products or service. Marketing is the beating heart of the business
organsiation. The chief executive of a business organisation cannot plan, the
production manager cannot produce, the purchase officer cannot purchase,
and the financial controller cannot budget until the basic marketing decisions
have been taken. Many departments in a business enterprise are essential
for its growth, but marketing is still the sole revenue producing activity.
Marketing function is rightly considered to be the most important operative
function of management.

Role of marketing in Economic Development

Marketing is the kingpin that sets the rate of progress of the economy.
The marketing organization, if more scientifically organized, makes the
economy strong and stable. The lesser the stress on the marketing function,
the weaker will the economy be. Underdeveloped marketing is a sign of
under-developed economy. An under-developed economy is characterized
by many shortages and is a seller’s market. Selling effort is not needed
much. As a result, business firms do not feel the need for changing their
marketing methods and practices. The other reasons for the unsystematic
marketing in an under-developed economy are heavy dependence upon
agriculture, old methods of production, over-population, lower income and
lower standard of living. Since marketing is consumer oriented, it can bring
about many positive changes in the underdeveloped economies.

Marketing enables a nation to improve the standard of goods and services


and consequently business values. Consumer gets the top-most priority.
Quality of goods, store display, advertisement, packaging, etc. are all directed
towards the satisfaction oft eh consumer. Marketing helps in improving the
standard of living. Marketing provides better standard of living by offering a
wide variety of goods and services with freedom of choice, and by providing
the customer a higher standard of living, because it meets the consumer’s
physical as well as emotional needs.

Marketing generates employment both in production and in distribution


area. A large number of people are employed by modern business houses to
carry out the functions of marketing. Marketing also gives an impetus to
further employment facilities. In order to ensure the finished product reach
the customer, it passes through wholesalers and retailers and in order to man
these numerous establishments, many people get employed. In the absence
of marketing, the level of employment should have not increased.

Marketing helps in developing economic resources. Since a business firm


generates revenue and earns profits by carrying out marketing functions, it
will engage in exploiting more and more economic resources of the country to
earn more profits. Therefore, marketing should be given the greatest
importance if the national resources are to be exploited fully. Marketing
determines the needs of the customers and sets out the pattern of production
of goods and services necessary to satisfy the needs of the customers.
Marketing also helps the traders to explore the export market.

3.4. OBJECTIVES OF MARKETING

Marketing management is concerned with those activities which are


necessary to determine and satisfy the needs of customers so as to achieve the
objectives of business. Thus, the basic goal of marketing management is to
achieve the objectives of the business. A business aims at earning reasonable
long-term profits by satisfying the needs of customers. In the light of this
statement, we may state the objectives of marketing management as follows:
1. To create customers for the business. The marketing manager must
attract customers to buy the firm’s products and services. This will
facilitate increased sales. New customers may be attracted through
advertisement and sales promotion activities such as distribution of
samples, display of goods, etc.
2. To satisfy the needs of the customers. The marketing manager must
study the demands of customers before offering them any goods or
services. Selling the goods or services is not that important, as the
satisfaction of the customer’s needs. Modern marketing begins and ends
with the needs of customers.
3. To determine marketing-mix that will satisfy the needs of the customers.
Product, pricing, promotion and physical distribution should be so planned
as to meet the requirements of different kinds of customers.
4. To generate adequate profits for the business. The marketing department
is the only department which generates revenue for the business.
Sufficient profits must be earned as a result of sale of want-satisfying
products. If the firm is not earning profit, it will not be able to survive in the
market. Moreover, profits are also needed for the growth and
diversification of the firm.
5. to earn goodwill for the business. To build up the public image of firm over
a period is another objective of marketing. The marketing department
provides quality products to customers at reasonable process and thus
creates its impact on the customers. The marketing manager attempts to
raise the goodwill of the business by initiating image building activities
such as sales promotion, publicity and advertisement, high quality,
reasonable price, convenient distribution outlets, etc. If a firm enjoys
goodwill in the market, it will increase the morale of its sales-force. They
will show greater loyalty and will develop a sense of service to the
customers. This will further enhance the reputation of the business.
6. To raise standard of living of the people. Marketing management attempts
to raise the standard of living of the people by providing them better
products at reasonable prices. It facilitates production and distribution of a
wide variety of goods and services for use by the customer.

3.5 Coordination Between Marketing And Other Functions:

The persons interacting with the customer are commonly known as Sales
Managers, Advertising managers, Sales promotion Managers, marketing
Researchers, product Managers, Brand Managers, Customer-Service
managers, etc. The person producing the product is known as Production
Manager. The person recruiting people into the organsiation is known as
Personnel Manager.
The person dealing with financial aspects is known as Finance Manager.
The task of the marketing management is to coordinate with other
departments and expect reciprocal coordination from other departments.
Thus, if sales people feel that the product is not up to the mark, the marketing
management should order a probe by the marketing research department
which invariably should include representation from production department.
Otherwise, it would mean that sales persons were unable to sell the product
and therefore put blame on the defects in the product. In essence, there
should be proper coordination between the marketing and other departments.

Achieving Coordination
Marketing concept forces business firms to use an integrated approach in
their operations. Each firm should coordinate the activities of purchase,
production, finance, personnel and marketing departments to satisfy the
needs and expectations of customers. Thus, marketing should not be
considered merely as a fragmented assortment of marketing functions. Each
and every department bas to contribute for the satisfaction of customers and
this needs proper coordination between the functioning of all departments.
Coordination with Purchase and Production Departments

Marketing department is responsible for sales forecasts which are


communicated to all the departments of the firm. It has to prepare the time
schedules for the production and the purchase departments to inform them
the dates by which goods are to be manufactured and made ready for
delivery. It informs the purchase and production departments of the
introduction of new substitutes and any change in the prices of competitive
goods. It also communicates about the quality of goods committed by it to the
customers. Information is also to be given in case of urgent orders so that the
purchase department is able to proceed immediately for the purchase of
materials required to execute the urgent orders.

Since marketing department is in touch with the present and prospective


customers, it should gather information about the change in taste or needs of
the people and pass it on to the purchase and production departments. This
will enable the purchase department to purchase right types of materials. The
purchase department should inform the marketing department about the
changes in the cost of raw materials to facilitate the latter in fixing competitive
prices. There should always be harmonious relations between the
purchasing and marketing departments. The marketing department must
take assistance from the purchase department in calculation of pricing of job
contracts and in submitting bids or quotations so that adequate profit margin
is assured of such proposals.

Coordination with Finance Department

Every enterprise maintains a separate department known as Finance


Department which is responsible for managing the funds of the enterprise.
There should be harmony of relationship between the marketing and finance
departments because marketing department can’t extend unlimited credit to
the customers and credit collections are to be made by the finance
department. The finance department should help the marketing department
to determine pricing, cash discount and credit policies under different
conditions. So far as revenues are concerned, finance is dependent on the
marketing policies and revenues are concerned, finance is dependent on the
marketing policies and programmes, and their administration. Total sales
revenues as well as their timing significantly affect the cash flow of the
business. Product pricing, customer credit policies, terms and conditions of
sales including trade, cash and quantity discount, all have a vital bearing on
the finances of the company. On the other hand, availability of funds plays a
crucial role in the planning and operation of marketing programmes. All
promotional activities including advertising, sales promotion, etc., are
dependent on the size of the budget. Customer credit and sales
administration policies are also closely related to the firm’s financial policies.

Coordination with Human Resource/Personnel Department

Coordination between marketing and human resource departments is


important for matching the total organization effort with market opportunity.
The effectiveness of marketing, as of any other function, depends on the
quality of its personnel.. Marketing needs sincere, aggressive and innovative
kinds of people. Its personnel should also be adept in interpersonal and
communication skills. The personnel specialist can be of great assistance to
the marketing manger in the recruitment, selection, training, development and
maintenance of a high quality of sales force and other marketing personal. A
suitable incentive scheme is also important to motivate the sales-force. The
personnel manager can provide expert advice to the marketing manager in
designing an effective incentive scheme.

4. Have you understood type questions:

1. All of the following are marketing management tasks EXCEPT:


A. marketing planning.
B. organising marketing activities.
C. co-ordinating marketing activities.
D. project development and analysis
2. Which one of the following is an example of a customer in an
organisational market?
A. a homemaker who buys detergent
B. a consumer who hires a solicitor
C. a shop owner who buys pencils for use in his shop
D. a plant manager who buys petrol for her personal car
3. An aggregate of people who, as individuals, have needs for products in a
product class and have the ability, willingness and authority to purchase
such products is called a:

A. market segment
B. target market
C. customer group
D. market

5. Summary
To sum up, an attempt should be made to develop integrated marketing in
the firm to serve the customers better. The marketing department can’t
achieve the marketing goals independently; it has to seek the cooperation of
all other departments, namely, purchase, production, finance, legal,
personnel, etc. All these departments must focus on the customer to achieve
integrated marketing.

6. Exercises

1. What according to you is the problem area between marketing and finance
department? Comment.
2. Explain the relevance of marketing concept to a monopoly organization?
Comment.
3. Discuss the provisions in the organizations’ policy which could prove to be a
benefit for an organization.
4. A company which is foraying into the states of Orissa, Bihar and Jharkhand for
marketing its toothpaste, what support the entire organization should give?
Explain.

7. References
1. Cundiff , E.W.Etol , Fundamentals of modern marketing, Prentice Hall of
India Pvt. Ltd. New Delhi.
2. De Bruicker , Stewart F., and Summe, Gregory., make sure your
customers keep coming back , Harward Business review, 1985.
3. Neelamegham, S., Marketing management and the Indian Economic,
Vikas Publishing (P) Ltd., New Delhi – 1987.
4. Neelamegham, S., Marketing in India, cases and Reading , Vikas (P) Pvt.
Ltd. New Delhi 1992.

Market segmentation

Unit structure:

1. Introduction
2. Learning Objectives
3. Market segmentation
3.1. Micromarketing
3.2. Steps involved in segmentation process
3.3. Bases for market segmentation
3.4. Bases for segmenting business markets
3.5. Benefits of segmentation
3.6. Market segmentation in various industries
3.7. How to implement market segmentation
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1.Introduction:

Market segmentation is based on the generally true concept that the market for a
product is not homogenous as to its needs and wants. The opposite of market
segmentation is market aggregation, which is looking into one mass market. Coca-
Cola practiced mass marketing when it sold only one kind of coke in a 6.5 ounce
bottle. The arguments for mass marketing is that it creates the largest potential
market, which leads to the lowest costs, which in turn can lead to lower prices or
higher margins. Long run production runs are more economical than short runs.
However, many critics point to the increasing splintering of the market, which makes
mass marketing more difficult. The more that market may be aggregated, the lower
the cost per thousand in buying advertising to reach that mass market, at least within
the range of certain promotional budgets. However in order to attract more local and
specialised markets, it becomes necessary that the companies need to segment the
market. Thus segmentation involves substantial use of advertising and promotion.
This is to inform market segments of the availability of goods or services produced
for or presented as meeting their needs with precision.

Market segmentation is the process of disaggregating the total market for a given
product into a number of sub-markets. The heterogeneous market is broken up in the
process into a number of relatively homogenous units. The process is based on the
recognition that (a) any given market or consumer group is made up of a number of
subgroups distinguished by varying needs and buying behaviour; and (b) it is feasible
to disaggregate the consumers into suitable segments in such a manner that the
characteristics of the segmented groups would vary significantly AMONG segment
but would almost be identical WITHIN segments.

Segmentation may also be practised through specialisation in sales force in


one market or the greater diversification of distribution channels.
Segmentation is based upon developments on the demand side of the market
and represents a rational and more precise adjustment of product and
marketing effort to consumer or user requirements. According to Wendell
Smith, market segmentation consists of heterogeneous market (one
characterised by divergent demand) as a number of smaller homogenous
markets in response to differing product preferences among important market
segments.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the need for segmenting the markets.
• Understand the importance of micro marketing.
• Understand the steps and process of market segmentation.
• Understand the market segmentation in different industries and
• Learn the difference between consumer and industrial segmentation.

3. Market Segmentation:
A company can segment its market in many different ways. And the bases for
segmentation vary from one product to another. However, the first step is to divide a
potential market into two broad categories; ultimate consumers and business users. The
sole criterion for this first cut at segmenting a market is the customer’s reason for buying.
Ultimate consumer buy goods or services for their own personal or household use
and are satisfying strictly non-business wants. Business users are business, industrial, or
institutional organizations that buy goods or services to use in their own organizations, to
resell, or to make other products.
3.1 Micromarketing:

The focus of mass marketing is on mainstream brands. Typically these


appeal to a broad cross section of demographic groups. They are promoted
using mass distribution media using simple, undifferentiated messages.
Promotional effort is shared evenly across the country and little effort is made to
customise the product to reflect the particular needs of individual consumers or
the localities in which they live. The focus of micromarketing is quite different.
Less interested in market share than in customer lifetime value, the
micromarketer uses profiling tools to build a careful picture of the target audience
for the product.

The micromarketer is keen to recognise the different motivations that lead


different demographic segments to buy each variant of the brand and through
different channels. Reliance is on media, which can be highly targetted - direct
mail, telephony, the Internet, door-to-door distribution - many of which can be
customised on a one-to-one basis. Micromarketers are completely aware of
differences in local culture and seek to customise their proposition, incentives
and distribution mix by location. Quantitative techniques such as profiling,
mapping, scoring and clustering are used to define and reach target audiences
efficiently. The major objectives of micro marketing are:
Understand the characteristics of their customers
Identify the value and profitability of different customer segments
Identify the size and characteristics of the market in which they
operate.

Some of the possible micro segments, which are attractive for marketers,
include:
a. Segment Marketing
A market segment consists of a large identifiable group within a market with similar
wants, purchasing power, geographical location, buying attitudes, or buying habits. For
example, an auto company may identify four broad segment; car buyers who are
primarily seeking basic transportation, or high performance, or luxury, or safety.
Segment marketing offers several benefits over mass marketing. The company
can create a more fine-tuned product or service offering and price it appropriately for
target audience. The choice of distribution channels and communication channels
becomes easier. The company also may face fewer competitors in the particular segment.

B. Niche Marketing
A niche is a more narrowly defined group, typically a small market whose needs
are not well served. Marketers usually identify niches by dividing a segment into sub
segments or by defining a group seeking a distinctive mix of benefits. For example, the
segment of heavy smokers includes those who are trying to stop smoking and those who
don’t care.
An attractive niche is characterized as follows: the customers in the niche have a
distinct set of needs: they will pay premium to the firm that best satisfies their needs; the
niche is not likely to attract other companies (competitors); the niche gains certain
economics through specialization; and the niche has size, profit and growth potential.
Both small and large companies can practice niche marketing.
C. Local Marketing
Target marketing is leading to marketing programmes being tailored to the needs
and wants of local customers groups (trading areas, neighbourhoods, even individual
stores). Citibank provides different mixes of banking service in its branches depending on
neighbourhood demographics. Those favouring localizing a company’s marketing see
national advertising as wasteful because it fails to address local needs.
D. Individual Marketing
The ultimate level of segmentation leads to “segments of one”, “customized
marketing”, or “one-to-one marketing”. For centuries, consumers were served as
individuals. The tailor made the suit and the cobbler designed shoes for the individual.
Much business-to-business marketing today is customized, in that a manufacturer will
customize the offer, logistics, communication, and financial terms for each major
account.
3.2.Steps involved in segmentation process:

According to Philip Kotler, the main steps involved in the segmentation process are as
follows.
1. Asses the differences between one customer group and the other in terms of their
needs and their likely responses to the product and other marketing inputs of the firm.
2. Find out by what descriptive characteristics can consumers of a particular
disposition be tagged on to a specified segment.
3. Based on the above, disaggregate the consumers into suitable segments.
4. Analyse and establish whether it is desirable and possible to formulate separate
marketing programs and marketing mixes for the different segments.
5. Find out which segments would be happy with the offerings of the firm and could
therefore be considered as the natural targets of the firm.
6. Select those segment which offer high potential and which would be amenable to
the offerings of the firm.

Three stages are there for identifying market segments


a. Survey
b. Analysis
c. Profiling
a. Survey stage: The researcher conducts exploratory interviews and focus groups to
gain insight into consumer motivations, attitudes, and behaviour. Then the researcher
prepares a questionnaire and collects data on attributes and their importance ratings;
brand awareness and brand ratings; product usage patterns; attitudes towards the products
category; and demographics, geo graphics, psychographics and media graphics of the
respondents.
b. Analysis stage: The researcher applies factor analysis to the data to remove highly
correlated variables then applies cluster analysis to create a specified number of
maximally different segments.
c. Profiling stage: Each cluster is profiled in terms of its distinguishing attitudes,
behaviour, demographics, psychographics, and media patterns. Each segment is given a
name based on its dominant characteristics. One way to discover new segments is to
investigate the hierarchy of attributes that consumers examine in choosing a brand. 1)
Brand-dominant hierarchy, 2) Nation-dominant hierarchy, 3) Price dominant, and 4)
Type dominant.

3.3. Bases for segmenting consumer markets:

Two broad groups of variables are used to segment consumer markets. Some researchers
try to form segments by working at “consumer characteristics”: geographic, demographic
and psycho graphic. Then they examine whether these customer segments exhibit
different needs or product responses. Other researchers try to form segments by looking
at consumer responses to benefits sought, use occasions, or brands. Once the segments
are formed, the researcher sees whether different characteristics are associated with each
consumer- response segment.

3.3.1.Geographic Segmentation:
Geographic segmentation calls for dividing the market into different geographical units
such as nations, states, regions, counties, cities or neighbourhoods. The company can
operate in one or few geographic areas or operate in all but pay attention to local
variations. For example, Godrej – Sara Lee identified two different geographical
segments, the south India and the other regions for its mosquito repellant products. For
South India, the brand “Jet” was popular and throughout India the “Good Knight” brand
was the popular brand. So ‘Good Knight’ was made the national brand while ‘Jet’ was
made a regional brand.

3.3.2.Demographic Segmentation:
Segmentation based on age of the customer group, sex, family size, race, religion,
community, language, occupation, educational level, social level, family life cycle,
nationality and income level comes under demographic segmentation. To consider an
example, the market for consumer goods in India has been segmented by marketers
broadly into three segments; the high-income group, the middle class and the lower
income group.

3.3.3.Psychographic Segmentation:

In psychographics segmentation, buyers are divided into different groups on the basis of
life style or personality and values. People within the same demographic group can
exhibit very different psychographic profiles.
3.3.4.Behavioural Segmentation:

In behavioural segmentation, buyers are divided into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product. Many marketers believe
that behavioural variables-occasions, benefits, user status, usage rate, loyalty status,
buyer-readiness stage, and attitude-are the best starting points for consulting market
segments.
3.3.5.Multi-Attribute Segmentation (Geo-clustering):

Several variables are combined to identify smaller, better-defined target groups. Thus a
bank may not only identify a group of wealthy retired adults, but also within that group
distinguish several segments depending on current income, assets, savings, and risk
preferences. One of the most promising developments in multi attribute segmentation is
called geoclustering. Geo clustering yields richer descriptions of consumers and
neighbourhoods than traditional demographics. The groupings take into consideration 39
factors in 5 broad categories. (1) Education and affluence, (2) family life cycle, (3)
urbanization, (4) race and ethnicity and (5) mobility.
3.4. Bases for segmenting buisiness markets:

Some of the bases for segmenting the consumer markets are also useful bases for
segmenting business markets. For example, business markets can be segmented on the
geographic basis. Some industries are geographically concentrated. For example, firms
that process natural resources locate close to the source to minimize shipping costs. Also,
businesses can be segmented on the basis of demographics. For example, the size of the
firm, the firm’s type of business, firm’s method of buying, etc. Sellers also can segment
on the benefits desired by the buyer and on product usage rates. To get a feel for business
market segmentation, let’s look at segmenting by
1. Type of customer
2. Size of customer
3. Type of buying situation
For segmentation to be useful, the segments must be Relevant, Accessible, Sizeable,
Measurable, and Profitable.

3.5. Benefits of market segmentation:

1. One customer group can be distinguished from another with in a given market and
enables to decide which segment of the market should form as target market.
2. Facilitates in-depth study of the characteristics of the buyers.
3. Help marketing man to develop marketing programme on a predictable and reliable
base.
4. More suitable ‘marketing offers’ for a particular segment can be easily developed.
5. Suitable marketing mix can be achieved.
6. Due to concentrated efforts most productive and profitable segments of markets can
be achieved.
7. It helps to assess competitors’ stand in the market.
8. Customers and companies can choose each other for mutual benefit and satisfaction.

3.6.Market segmentation in various industries:

3.6.1.Soap industry:

Laundry soap: very expensive detergents to wash things. General application, broad
distribution, low cost and medium advertising. Examples: Nirma. OK, Rin

Special laundry soap: To wash fancy things with stress cleaning effect, and ‘will do not
harm the expensive garments’ as selling points. Distribution only to high-income
customers and retailers. High priced much advertising. Examples: Surf Excel, Tide
Low-grade toilet soap: For washing the body. Broad application, low price, low quality,
medium advertising and wide distribution. Examples: Nima, Lifebuoy

Premium toilet soap: For the luxury customer group, particularly women and high
bracket income-groups. Stress ‘beauty’ as a selling point. Distribution only to high-
income customers and retailers. High price, high quality and heavy advertising.
Examples: Dove, Aramusk, Lux international

Toilet soap for stores, offices and restaurants: For customers and employees to wash
their hands. Sell direct to the businesses. Packaged in large numbers per box, no
individual wrapping, no advertising and low priced.

Industrial soap: For washing hands after very dirty work. Higher cleansing power
than ‘commercial’ soap. Sold directly to industry. Packaged in large numbers per

3.6.2.Watch industry:

The Titan Company segments its market on the basis of


1. Geographic location of customers. Quite common is the rural and urban divide in the
consumer market. Sonata range is segmented for smaller towns and rural areas where the
company is looking at brand switches.

2. Life style pattern: Digital ‘fastrack’ is designed especially for the trendy and sporty.
So far digital watches have always had a stereotyped image either around specification of
sports. With 22 variants in four series, Titan’s new collection aim’s to provide a wide
choice for the fashion conscious 15-24 age group.

3. Based on age: Titan produces watches for children in the brand ‘ Dash” and youth.

4. Based on sex: Company produces variety of products aiming and beefing its presence
in the women market titan has launched variety of products like sonata, regalia, for, men
and has new range of fast track watches for woman aged 18-30 a fashion branch to match
the aspirations of woman.

5. Based on income: Titan launches variety of products based on the purchasing power
of people the titan sold it products for the range from 450/- on wards to 30,000.

3.6.3. Indian car industry:

Indian car industry can be classified based on the price of the car, into the small
car or the economy segment, mid-sized segment, luxury car segment and super
luxury car segment. The various models in the segments of the car market can
be classified as:
Economy segment : Maruti Omni, Maruti 800, Maruti Alto, Chevy Spark
Mid-sized segment : Ambassador Nova, Fiat Palio, Maruti Zen Estilo,
Hyundai Santro,
Tata Indica, Maruti Swift, Maruti Wagon R, Chevy
Aveo UVA,
Hyundai Getz
Luxury segment : Maruti SX4, Tata Estate, Tata Sierra, Chevy Aveo
Honda City, Mitsubishi Lancer, Ford Fiesta, Huyndai
Accent,
Hyundai Verna

Super Luxury segments: Grand Vitara, Mercedes Benz and other imported cars

3.7. How to implement market segmentation

Market segmentation is simply the process by which we subdivide a large potential


market into smaller groups that have different buying criteria and needs, thereby enabling
marketing strategies which appeal to the needs of particular segments.

1. Identify your market: What are the overall boundaries of the market that you
intend to segment? In many traditional marketing operations this is done at the product
development stage, in newer business (e.g. the software market) this is often not done at
all with many software products developed on a hunch or as a result of the drive of one
leading personality. However, get as much information about your intended target as
possible.
2. Establish a Segmentation Matrix: Establish key market segmentation drivers for
a product, this could be based on age, spending power, usage of other products,
demographics, geographic, preferred payment method, the list is endless. Use those,
which you consider to be most important to define a few 'master' segments.
3. Prioritize: prioritize in line with the resources that you are able to devote to your
marketing effort and the likely impact of addressing each segment on any support/spare
parts services.

4. Have you understood type questions:

1. Maruti knows that some people want vans, estate cars, or economy cars.
In this case Maruti has found its markets to be:
a. heterogeneous
b. undifferentiated
c. focused
d. homogeneous
2. The process of dividing a total market into market groups so that persons
within each group have relatively similar product needs is called:
a. segmenting
b. differentiating
c. target marketing
d. concentrating
3. If Audi cars focused all of its marketing efforts on professionals with over
Rs.2 lakh a month gross earnings, it would be using a ______ targeting
strategy.

a. homogeneous
b. undifferentiated
c. multisegment
d. concentration
4. Gillette was the first marketer of disposable razors to offer a product
specifically designed for women. This is an example of segmentation
using _______ variables:

a. Demographic
b. Psychographic
c. Geographic
d. Family life cycle
5. By offering Colgate for Kids (attractive taste for children), Regular
Colgate, Colgate Total and Colgate Herbal toothpastes, it is segmenting
the market based on:
a. benefits
b. psychographics
c. lifestyle
d. demographics

5.Summary

Segmentation emphasizes the importance of knowing and targeting current


customers. Most companies do not have a proper balance of targeting
current customers for retention and prospective customers for acquisition.
Because of the traditional emphasis on transactions rather than relationships
and acquiring new customers rather than retaining and growing current ones,
many marketing programs have not been as cost-efficient as they could be.

6. Exercises

1. Develop a market segmentation for the following:


a. Dish washers
b. Microwave ovens
c. Laptop computers
2. What are the factors that influence the development of a market segment?
Explain.
3. Develop a strategy for segmenting industrial markets. Cite examples.
4. Classify the lifestyles in India and break down the same for the benefit of
manufacturers of consumer durables.

7. References

1. Frank.E.Ronald, Massy.F.William, Yoram Wind, “Market Segmentation”, Prentice


Hall of India, 1972, pp.113-114.
2. Davar.S.Rustom, “Modern Marketing Management”, Universal Bookstall, 7th
edition, pp.147-149.
3. Stanton.J.William, Etzel.J.Michael, Walker.J.Brue, “Fundamentals of Marketing”, Mc
GrawHill Inc., 10th edition pp. 123-126.
4. Alan.A.Roberts, “Applying the strategy of market segmentation”, Business Horizons,
fall 1961, Chicago.
5. Wendell R.Smith, “Product differentiation and market segmentation as
alternative marketing strategies”, Journal of Marketing, National Quarterly,
July 1956.
6. Bucklin RE, Sunil Gupta etal. “ A brand’s eye view of segmentation in consumer
brand choice behaviour”, Journal of Marketing Research, Vol.32, February 1995, pp.
66-69.
7. Wyner GA., “Segmentation analysis, Then and Now”, Journal of Marketing
Research, Vol.7, winter 1995, pp.40-41.
8. Roy. “Growth in financial services”, Business Today, February 7-21, 1998.
9. Mishra RN. “Role of service sector in our economy”, Indian Management, Vol.39,
No.7, July 2000, pp.54-55.
10. Narayan Krishnamurthy, “This line is always busy”, Advertising and Marketing, 15
March 2000, pp.91-92.
11. Chandrasekar K.S, “Strategic management in the Indian pharmaceutical industry:
Focus on marketing strategies”, Alagappa University (unpublished thesis), 2001.

Positioning and Differentiation


Unit structure:

1. Introduction
2. Learning Objectives
3. Positioning and Differentiation
3.1 Principles of positioning
3.2 Errors in positioning
3.3 Strategies for positioning
3.4 How to position a brand
3.5 Positioning strategies in consumer durables
3.6 Positioning paradigms
3.7 Advantages of positioning
3.8 Disadvantages of positioning
3.9 Examples of positioning
3.10Product differentiation variables
3.11Product differentiation strategies
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Al Ries and Jack Trout, proponents of the concept, defined positioning as


“Positioning starts with a product. A piece of merchandise, a service, a company, an
institution or even a person----. But positioning is not what you do to your product.
Positioning is what you do to the mind of the prospect. That is, you position the product
in the mind of the prospect”. Positioning is the art of designing the company’s offering
and image to occupy a distinctive place in the target markets’ mind. The end result of
positioning is the successful creation of a market- a focused value proposition, cogent
reasons why the target market should buy the product. The significance of product
positioning can be understood from David Ogilvy’s words: “The results of your
campaign depend less on how we write your advertising than on how your product is
positioned. Often factors like luxury, economy, quality and fashion form planks for
positioning. While positioning a brand the leaders position has to be reckoned. Product
differentiation in a way is the prelude to product positioning. They are interrelated
strategies and are employed in close alignment with each other.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the principles and some errors in positioning .
• Understand the positioning advantages and disadvantages.
• Understand the examples of positioning in the Indian context
• Understand the product differentiation variables and
• Learn the effective strategies to be applied with respect to differentiation .

3. Product positioning and Differentiation:

The product can be positioned for an exclusive well to do segment of the market,
it can be positioned for men, for children, for fun loving youth, for health conscious
market, it can be a claim on luxury, a claim on distinctiveness, a claim of convenience,
economy, novelty, usage. The marketer cannot invent a positioning theme when he is
ready to enter the market with his product. He should have already decided what his ‘cash
on’ point should be where he should introduce his product for whom and on what
distinctive claim he should go around and promote his product.

Thus as a comprehensive definition positioning can be viewed as


♦ The position of a brand is the perception it brings about in the mind of the
target customer.
♦ This perception reflects the essence of the brand in terms of functional and
non-functional benefits in the judgement of that consumer.

All products can be differentiated to some extent. But not all brand differences
worthwhile or meaningful. A difference is worth establishing to the extent that it satisfies
any of the following criteria.

Important- the difference delivers a highly valued benefit to a sufficient


number of buyers.
Distinctive- the difference is delivered in a distinctive way.
Superior – the difference is superior to other ways of obtaining the benefit.
Preemptive- the difference cannot be easily copied by competitors.
Affordable- the buyer can afford to pay for the difference.
Profitable – the company will find it profitable to introduce he difference.

3.1.Some of the principles of positioning are:

1. It is better to be the first than to be late. The selectivity of the mind is such that the
pioneer will always have a presence in the mind-set of the consumers. Hence
companies like Thums up, Amul, Xerox etc., are still in the minds of the
consumers.
2. In case not the first, then the company should be able to create a new category by
making even a small change in the marketing mix elements. AIWA and AKAI
created a pricing strategy through replacement market and got into the minds of
the consumers. Maruti created a small car market through product innovation.
3. It is important to understand the position and strategies of the competitors. It is
clear that the competitors’ strengths and weaknesses should be known to the
company. Britannia did the repositioning exercise to overcome the competition
and similarly Tata Indica gave a scare to Maruti when they introduced their small
car in the market. Certain strategies usually adopted by competitors for
positioning

Strengthen its own current position in the customer’s mind.


The famous advertising line from Avis acknowledged its position in the car
rental business and claimed “ We are number two. We try harder.”
Grab an unoccupied position.
Complan is advertised as the “complete food for the growing children”.
Deposition or reposition the competition
Exclusive club strategy which is the Three Big idea and implies that those in
the club are the best.
4. Positioning using an easy name is very important in this context. Names like LG
is easy to pronounce as compared to the earlier name, “Goldstar”. Similarly, Bata
is found to be recalled better than LeeCooper.

3.2. Positioning errors:


As companies increase, the number of claims for their brand, they risk disbelief and a
loss of clear positioning. In general, a company must avoid four major positioning errors.
1. Under positioning: Some companies discover that buyers have only a vague idea of
the brand. The brand is seen as just another entry in crowed market place.
2. Over positioning: Buyers may have too narrow an image of the brand. Thus a
consumer might think that diamond rings at Tiffany start at $5000 when in fact
Tiffany now offers affordable diamond rings starting at $1000.
3. Confused positioning: Buyers might have a confused image of the brand resulting
from the company’s making too many claims or changing the brand’s positioning too
frequently.
4. Doubtful positioning: Buyers may find it hard to believe the brand claims in view of
the product’s features, price, or manufacturer.

3.3. Different types of positioning strategies:

1. Attribute positioning: A company position itself on an attribute, such as size


or number of years in existence. Raymond’s and other companies, with long
period of service, appealing to the customer that they had been serving the
customer for quite a long time. Philips launched tube lights stating that it will
consume only less electricity. Some having an attractive attribute, such as
“environmentally friendly,” e.g., Hero Honda launched its two wheeler vehicle
stating that it is environment friendly. This strategy is widely used now for
food products. For example Sunflower and Saffola introduced oil with one
common denominator – they contain no cholesterol
2. Benefit positioning: The product is positioned as the leader in a certain benefit.
Various automobile products like Hero Honda position themselves as better in
mileage. Hero Honda’s advertisement “Fill it, Shut it and forget it” is evidence to the
benefit offered to the customers.
3. Use or application Positioning: Positioning the product as best for some use or
application. The Suzuki Samurai “no problem bike” is a classic example in this
category. D‘Cold was positioned as a vapourub for adults.
4. User positioning: Focussing the product as best for some user group. Business today
position itself as a business magazine used by the top managers.
5. Competitor based positioning: The product claims to be better in some way than a
named competitor. For example, Pepsodent position itself as being able to reduce the
number of germs in the teeth of the users when compared to the other brands of
toothpaste. Pepsi used “nothing official about it” to counter the official drink status of
Coca-Cola during the Cricket World Cup in 1996.
6. Product category positioning: The product is positioned, as the leader in a certain
product category. Aquafresh position its dental paste not as toothpaste but rather a
mouth paste.
7. Quality or Price positioning: The product is positioned as offering the best
value. Bajaj scooters position itself as a product that offers value to the
customers’ money. In the automotive field, positioning by price and quality is
common. In recent years, “luxury” cars that accentuate quality and carry
comparatively high prices have proliferated; Infiniti and Lexus are the latest
noteworthy entries. However, the makers of luxury cars are having trouble
differentiating themselves from each other with respect to important attributes
such as performance, comfort, and safety. As a result, consumers are
confused.
8. Positioning in relation to a target market: Regardless of which positioning
strategy is used, the needs of the target market always must be considered.
This positioning strategy doesn’t suggest that the other ones ignore
target markets. Rather, with this strategy, the target market – rather than
another factor such as competition – is the focal point in positioning product.
Nestle offers different products using this strategy those address different
consumers’ desires regarding taste, calories and price.

3.4.How to position the brand:

To position the brand a technique called perceptual mapping is commonly


used. This technique involves studying the consumers' perception of the product and
competitors brands and based on it identifying vacant slots. Specifically this involves the
following:

(1) Studying the ideal product perception – this involves studying both tangible and
intangible attributes that a customer looks for while buying a product. Among the
tangibles are product features, performance levels, style and aesthetics of the
product packaging, product components and even price and distribution. The
intangibles will include the services that a customer looks for, like after sales
service, training on how to use the product, financing assistance etc.
(2) Get the customers to rank these attributes in the order of importance to them.
(3) Customer’s knowledge of the competitors brands.
(4) How do the competitors brand favour in the ideal product map. Here the
customers are asked to assess competitor brands and specify how close or far they
are on each attribute to the ideal product.
(5) Based on the assessment of competitor brands on the ideal product map, product
managers identify vacant slots and then build the positioning strategy by filling
these up. It is important to note here that if an attribute sought by a customer is
not high on his/her priority and the firm feels it has the strength in it and should
be considered by the customers, the firm can adopt a strategy to help change this
perception. But the customer perceptions should be continued for, changing
customer perceptions in a long drawn out strategy involving substantial resources.
After this perceptual mapping is done, the marketer uses statistical techniques to
arrive at a position.

3.5.Most common positioning strategies in the consumer durable sector:

1. Benefit/use positioning:
The positioning strategies adopted by consumer durable depend a lot on ‘usage’,
‘economy’ and ‘corporate identity’ of which a well established brand surely projects
the identity of the product in terms of ‘ which corporate house the product is from’.
Benefit or usage is the next positioning strategy used. For e.g.: - BPL Converti
projects out the multi usage of the product. This strategy is based on identifying the
possible uses to which the firm’s brand can be put to. In a way it may appear same as
use situations but differs from it because this talks on all the possible uses of a
product or brand. For e.g.: - since video cassette recorders (VCRs) could be used in
playing, recording and regulating the pace at which the different scenes can be
watched (like pause, forward etc) most customers saw it as a distinct development
over the video cassette player and the demand for VCR boomed.

2. Competitor related positioning:


This is the strategy of placing a firm’s brand next to the leader in the market and
trying to uproot it on a specific tangible variable. . To fend off rival makers of
microprocessors, Intel corp. launched a campaign to convince buyers that its product
is superior to competitors. The company even paid computer makers to include the
slogan, “Intel inside”, in their ads. Coca-Cola and Pepsi-Cola compete directly with
each other in virtually every element of the marketing mix (even celebrity endorsers).
For e.g.: - Onida was positioned against the giants in television industry through this
strategy. For Onida colour TV was launched on the message that all others were
clones and only Onida was the leader and the message said “ the boss wasn’t late; it
was others who arrived in a hurry” and later followed it with the envy concept. Today
Onida has been able to uproot all the yesteryears leaders in the TV market.

3. Lifestyle positioning:
A firm may even position the brand as a lifestyle contemporary or futuristic. Many of
today’s new kitchen appliances like microwave ovens are positioned accordingly.

4. Positioning by corporate identity:


This type of positioning is seen very much with consumer durables when a tried and
trusted corporate identity or source which has become a household name for products
like Philips for radios and lamps is used to imply the competitive superiority of newer
products bearing that name: Philips mixies, Philips electric irons, Philips refrigerator.
Godrej Company also often uses this strategy in positioning their product. By
stressing on the “Godrej product”. BPL too uses this corporate identity. It says “From
BPL”.

5. Positioning by versatility of usage:


Many consumer durables are positioned on the basis of the versatility of usage. For
e.g.: - the Prestige pressure pan is positioned in such a way that the product is
designed specifically to give the benefit of versatile usage to the consumer.

6. Surrogate positioning:
In this kind of positioning the product can’t be positioned differently on the basis of
attributes but differentiated by positioning them on the surrogates for the attributes.
The claim would be that our product is better than or different from others. For e.g.: -
the Futura pressure cooker is advertised based on these surrogate ideas. It uses two
kinds of surrogate ideas – ‘predecessor’ – the popular and trusted Hawkins
association and ‘Endorsement’ because Indians admire Western designs and are
impressed by the western names.

3.6.Positioning paradigms:

Monopolistic competition is prevailing in the contemporary markets. Product


differentiation and price differentiation are the main features of the monopolistic
competition. The marketer must reinterpret the product differentiation as a meaningful
consumer benefit. Suppose a company has identified four alternative positioning
platforms technology, cost quality and service as shown in following table5.1. It has one
major competitor. Both companies stand at 8 as technology (1=low score, 10=high
score), which means they both have good technology. The competitor has a better
standing on cost (8 instead of 6). The company offers higher quality than its competitor
(8 compared to 6). Finally, both companies provide below average service.

It would seem that the company should go after cost or same to improve its
market appeal. However, other considerations arise. The first is how target consumers
feel about improvements in each of these attributes. Column 4 indicates that
improvements in cost and service would be of high performance to customers. But can
the company afford to make the improvements in cost and service, and how fast can it
provide them? Column 5 shows that improving service would have high affordability and
speed. But would the competitor be able to match the improved service? Column 6 shows
that the competitor’s ability to improve service is low. Based on this information, column
7 shows that the appropriate actions to take with respect to each attribute. The one that
makes the most sense is for the company to improve its service and promote this
improvement.
(1) (2) (3) (4) (5) (6) (7)
Competitive Company Competitor Importance Affordability Competitor’s Recomme
advantage standing standing of and speed ability to nded
improving improve action
H-M-L
standing standing
H-M-L H-M-L
Technology 8 8 L L M Hold
Cost 6 8 H M M Monitor
Quality 8 6 L L H Monitor
Service 4 3 H H L Invest

Positioning through differentiation

*H-high M-medium L-low

3.7.Advantages of positioning:

It helps to focus the product on a specific target customer.


It offers the product a new appeal in the market.
a distinctive place can be occupied in the target markets’ mind.
Successful creation of the market.

3.8.Disadvantages of positioning:

It is not possible to offer a product wholly for a specific type of customers.


The wrong positioning has affected a number of products.

3.9.Examples of positioning in the Indian context:

The Positioning of Great shake


-Health drink,
-Against milk
-Soya milk was positioned against a universal product; milk, appealing to a
health conscious market. However unpalatability to Indian tastes made the
product a failure.
The Positioning of Complan:
Against milk and as a health builder , Superior over milk
The Positioning of Amul Milk powder:
-Against milk,
-Convenient and ready substitute to milk and not as one superior to milk
The Positioning of Maruti Udyog:

- As a vehicle that displays the customers personality


- A car which is Young and Energetic
- A vehicle which had comfort and reliability and a Low cost of
Operation

3.10.Perceptual mapping:

Perception is the meaning added by an individual to the information that


has been obtained from the environment. This forces a consumer to create his
own ideas or say, perception about a brand/product. If consumer feels that
branded footwear are costly, he/she will always try to buy from unorganised
market. Similarly, a customer might feel that Raymond’s products are of high
quality without even having an experience of the product. When a brand creates
a proposition, it chooses a position, which will enable it to differentiate itself from
other brands. As consumers get used to this position, a close association
develops between the brand and the proposition. Subsequently, this association
defines what the brand stands for and it is important for a brand to continue and
nurture that proposition or develop on it. This can be done through mapping the
perceptual thinking of the prospective customers. This method is known as
perceptual mapping.

In order to construct a perceptual map for say readymade garments; it is


necessary first to identify the features that are more widely expected by the
customer. Based on the market research and from the inputs of the
experts/executives, following ten dominant features have been identified:
Wrinkle free
Fashion
Perfect fit
Quality fabric
Good looks
Attractiveness
Color options
Popularity
Stitching and
Economical

With the above features, the perceptual map can be constructed by taking the
two outstanding features in the two axes as in the following figure. Those
features can be Quality and Price.

From the perceptual map, it is clear that the brands bearing foreign impressions are
falling in the first quadrant where the features like Wrinkle free, fashion, quality fabric
etc., are found. Color plus, Provouge brands are lying in the second quadrant which
denotes the features like perfect fit, colour options, popularity etc. This quadrant gives
less consideration to quality. The features like economical is taken in fourth quadrant
where the brands like Excalibur and Parx are plotted. This plotting of the perceptual map
gives a direction for any new entrant in the readymade garments about the consumer
psyche. Features must essentially translate into benefits in the consumer’s mind, and be
offered at a price where the price-value equation meets, is the lesson for the new entrant
in this sector.

H ig h P ric e
W rin k le fre e
P e rfec t fit
F a sh io n
C o lo u r o p tio n s Q u a lity fab ric
. A rro w
. L o u is P h illip e
p o p u la rity C o lo u r p lu s . . V an H . Zuoese
d iac
n A ttrac tiv e n ess

S titch in g G o o d lo o k s
P ro v o u g e . . P e te r E n g la n d

o w q u a lity H ig h Q u ality
. P a rx
. C a m b rid g e
.E x c alib u r

. K u m ar
E co n o m ic a l
L o w p ric e

Perceptual map for readymade garments

3.11. Product differentiation Variables:

Product differentiation has many differentiation variables, they are


• Form
• Features
• Performance
• Conformance
• Durability
• Reliability
• Repairability
• Style
• Design

Form:

Many products can be differentiated in form, the size, shape or physical structure
of a product. Consider the many possible forms taken by products such as
aspirin. Although aspirin is essentially a commodity, it can be differntiated by
dosage size, shape, coating, action time and so on. The UPS as is being used in
Personal Computers and other electronic devices have undergone such changes
in size that from a vary bulky equipment, one cannot even see an UPS now. To
that extent miniaturisation has taken place in this sector.

Features:

Most product can be offered with varying features, characteristics that


supplement the products basic function. Being the first to introduce valued new
features is one of the mose effective ways to compete. Companies must also
think in terms of feature bundles or packages. During 1992-93, when Kinetic
Honda conducted market research, it showed that most of the existing two-
wheelers were not user friendly. Starting was the problem to the user. Kinetic
Honda brought in a scooter which had an electronic ignition dispensed away with
the boring kick-start routine as a stand-by. In addition the new model contained a
whole new range oof features including automatic gear shifting, choke, built-in
indicators and a stream lined aerodynamic design.

The major differentiation through features as evident from Colour Television


industry are:
Screens are modified into super flat ones from the ususal tinted screens.
Interactive picture set modes
Bass, treble, 3D Surround effects, Dolby noise reduction, pitch
adjustments
Number of channels nearing 210 in AIWA and 200 in Konka.
High Definition Televisions, Plasma televisions

Performance Quality:

Performance quality refers to the level at which the products’ primary


characteristics operate. This is to be focussed only when the company is certain
that offering higher product performance produce higher profitability. Quality link
to profitability does not mean that the firm should design the highest performance
level possible. There are diminishing returns to ever-increasing performance.
The manufacturer must design a performance level appropriate to the target
market and competitors performance levels.

Conformance Quality:

Conformance quality is the degree to which all the produced units are identical
and meet the promised specifications. The problem with low conformance
quality is that the product will disappoint some buyers. Maruti for instance offers
specific technological product differentiations based on the model bought by the
customers. Multi point fuel injections, All Aluminium Combustion Engine are only
available with specific models. IFB washing machines are still famous mainly
because of the fact that their front loading machines have been performing
without any defects.

Durability:

It is the measure of the products’s expected operating life under natural or


streeful conditions, is a valued attribute for certain products. Buyers will
generally pay more for vehicles and kitchen appliances that have a long-lasting
reputation. Tinting machines are being introduced by Asian Paints to differentiate
their shades since actual handling is not possible to show the durability of the
paints. This has also helped solve the logistics problem as the dealers can now
stock only the base material and thus save almost 20-25% in the working capital
cycle.

Reliability:

Reliability is a measure of the probability that a product will not malfunction or


fail, within a specified time period. Buyers normally will pay a premium for more
reliable products. Dunlop car tyres showed their reliability by advertising the
special kind of tyres for each brand. For a Maruti, a tyre was specially desinged
for its front wheel drive. An extra wide tyre was desinged for Premier Padmini
because it goes through a lot of wear and tear on city roads and for the
Ambassador, the tyre walls with extra rubbe to take the extra weight.

Repairability:

Repairability is a measure of the ease of fixing a product when it malfunctions or


fails. Buyers prefer products that are easy to repair. An automobile made with
standard parts that are easily replaced has high repairability. Channel
differentiation in terms of number of Maruti service centres made Maruti a
successful one.

Style:

Style describes the product’s look and feel to the buyer. Buyers are normally willing to
pay a premium for products that are attractively styled. Car buyers pay a premium for
Weekender models because of their extraordinary look. We must include packaging as a
styling weapon, especially in food products, cosmetics, toiletries, and small consumer
appliances. The package is the buyers first encounter with the product and is capable of
turning the buyer on or off.

Design:

As competition intensifies, design offers a potent way to differentiate and position a


company’s products and services. Design is the factor that will often give a company its
competitive edge. Design is the totality of features that affect how a product looks and
functions in terms of customer requirements. Design is particularly important in making
and marketing durable equipment, apparel, retail services, and packaged goods. Some
companies confuse design with styling and think that design is a matter of enclosing an
average product in a stylish casting. Or they think that reliability is something to catch
during inspections rather than designing it into the manufacturing process.

For example, for many people, brushing is a ritual to which they pay relatively
little attention. As a consequence, many brushes are used well past the point
when their bristles are worn and are no longer effective. Toothbrush maker Oral
– B discovered a way to capitalize on this widespread habit. The company, by
introducing a patented blue dye in the center bristles of its toothbrushes found a
way to have the brush itself communicate to the customer. As the brush is used,
the dye gradually fades. When the dye is gone, the brush is no longer effective
and should be replaced

Similarly, John Scully marketing team at Pepsi – cola used packaging as a way
to differentiate Pepsi from Coke. They created a distinct, if temporary advantage
for Pepsi by designing plastic bottles that where lighter and thus easier for
customers to carry, than the heavy glass bottles of the time. They called it the
beauty on the move and that it not only made carrying soda easier, but it also
reduced the advantage of Coke’s well known contoured bottle. At the time ,it
was difficult to produce plastic bottles in that shape.

3.12.Characteristics of differentiation strategies

There are a variety of ways to differentiate. Whatever the route, the successful
differentiation strategy should have three characteristics.

Generate customer value


Provide perceived value
Be difficult to copy

Differentiation strategy needs to add value for the customer. A distinction


is needed between apparent value and actual value. Too often a point of
difference with apparent value is not valued by the customer. The one stop
financial service vision was not valued by customers they wanted excellence and
competence from investment managers, and aspirin products had much less
value in the market than was hoped. The value of the Bayer name did not
transfer to new product classes. One key to a successful differentiation strategy
is to develop the point of differentiation from the customer’s perspective rather
than from the perspective of the business operation. How does the point of
differentiation affect the customer’s experience of buying and using the product?
Does it serve to reduce cost, add performance, or increase satisfaction?
Another method for differentiating a product is to employ market research
to systematically understand the customer and to test ideas and assumptions.
One role of market research is to insure that the value added will justify the price
premium involved. A differentiation strategy is often associated with higher price,
because it usually makes price less critical to the customer and because
differentiation usually costs something. The question is whether that price
premium works in the marketplace.

The perceived value problem is particularly acute when the customer is not
capable of evaluating the added value. Consider the airline safety or the skill of a dentist.
The customer is unable to evaluate them without investing a significant time and effort.
Rather than expand such effect, the customer will look for the signals such as the
appearance of the aircraft or the professionalism of the dentist’s front office. The task is
then to manage the signals or the cues of value added. User association and endorsements
can help. Oral B is the toothbrush recommended by the dentists and Air jordan is
endorsed by Michel jordan.

The point of differentiation needs to be sustainable. A value added such as 24-


hour support is relatively easy to copy if it proves successful. The challenge is to create
differentiation strategies that are difficult to copy. One reason to identify two strategic
thrusts – synergy from the previous chapter and first mover advantage in the next – is that
when they are combined with a differentiation thrust, sustainability is more likely. When
the point of differentiation involves a total organisational effort with a complex set of
assets and skills, it will be difficult and costly to copy, especially if there is a dynamic
constantly evolving quality to it. A creative organisation with heavy R&D investment,
such as that of Microsoft, will inhibit duplication. The quality option and building strong
brands can also require a total organisational effort.

4. Have you understood type questions:

1. An attribute of a product that is desired by customers in a target market


and which competing products cannot match is termed ____________
a. a strength
b. a differential advantage
c. a selling point
d. a benefit
2. Soft Shave is a shaving cream aimed particularly at women. The activities
and decisions involved an developing and maintaining the product concept
in buyers minds is called:

a. the promotion mix


b. the product mix
c. product positioning
d. product promotion
3. A product's _________ is the place it occupies in the minds of consumers
relative to competing brands:

a. segment
b. position
c. attribute
d. image

5. Summary

Many kinds of efforts that were given to produce differentiation in the product
being offered have failed. For example Westin Stamford hotel in Singapore advertises
that it is the world’s tallest hotel. But the tourists were least bothered about the height of
the hotel. Hence each firm needs to develop a distinctive positioning for its market
offering which is very much relevant in the benefit being provided by the product. Take
the case of an excellent positioning strategy being used by Volvo (station wagon). They
are aiming at the safety conscious upscale families and the positioning strategy is very
much related with the benefits being offered which are durability and safety. They
position the product as the “safest, most durable wagon in which your family can ride.”
Differentiation is the act of designing a set of meaningful difference to distinguish the
company’s offering from competitor’s offerings. Most profitable strategies are built on
differentiation; offering customers something they value that competitors don’t have. But
most companies in seeking to differentiate them, focus their energy only on their products
or services. In fact, a company has the opportunity to differentiate itself at every point
where it comes in contact with its customers – from the moment customers realize that
they need a product or service to the time when they no longer want it and decide to
dispose of it. It is believed that if companies open up their creative thinking to their
customers entire experience with a product or service – what the company call
consumption chain – they can uncover opportunities to position their offerings in ways
that they, and their competitors, would never have thought possible. Physical products
vary in their potential for differentiation. Product differentiation has a close linkage with
product positioning. It is in a way a prelude to product positioning. At one extreme we
find products that allow little variation: salt, steel, paracetamol. Yet even here, some
differentiation is possible. HLL makes several brands of laundry detergent, each with a
separate brand identity. At the other extreme are products capable of high differentiation,
such as automobiles, commercial buildings, and furniture. Duplication by competitors
requires not only ability but will. Increasing the investment or risk involved will
discourage competitors. If, for example, multiple points of differentiation are involved,
duplication will be more expensive. Duplicating only one aspect of this differentiation
strategy would be inadequate. Over investment in a value added activity may pay off in
the long run by discouraging competitors from duplicating a strategy. For example , the
development of a superior service back up system might discourage competitors. The
same logic can apply to a broad product line. Some elements of that line might be
unprofitable, but if they plug holes that competitors could use to provide value, then the
analysis looks different.
6. Exercises

1. Develop a perceptual map for automobiles (cars) in the Indian context.


2. What is positioning errors? Can you identify during the last one year in selected
industries.
3. What is the role of advertising agency in making positioning statements? Identify the
same from two agencies (national) of your choice.
4. Explain the positioning of Surf Excel and Tide and justify your answer.
5. What is the difference between product positioning and brand positioning? Explain
with examples.

7. References
1. Adrian Slywotzky and Benson Shapiro, “ Leveraing to beat the odds: The new
marketing mindset”, Harvard Business Review, September- October 1993, pp.100-
107.
2. Claudio Romano, “Identifying factors which influence product innovation: a case
study approach”, Journal of Management Studies, January 1990, pp.78-92.
3. Devine Hugh and John Morton, “ How does the market really see your product?”,
Business Marketing, July 1984, pp.70-77.
4. Ian C. MacMillan and Rita Gunther McGrath, “Discovering New Points of
Differentiation”, Harward Business Review, July-August 1997, pp133-145.
5. J.Karel, “Brand strategy positions products worldwide”, Journal of Business Strategy,
May-June 1991, pp.16-19.
6. John Rockwell and Marc Particelli, “ New product strategy: How does the pros do
it?”, Industrial marketing, May 1982, pp.49-60.

Product management

Unit structure:

1. Introduction
2. Learning Objectives
3. Marketing mix element- Product
3.1 Product strategies
3.2 Rationale for product mix
3.3 Components of product plan
3.4 Product life cycle
3.5 Product portfolio Analysis
3.6 New product management
3.7 New Product Development
4. Have you understood type questions
5. Summary
6. Exercises
7. References
1. Introduction:

Dominiquez conceives product management as a hexagon and found to have


the following as the important aspects:
Product
Forecasting
Planning
Market
Profit and
Coordination

According to Philip Kotler, there are five levels of a product. Marketing managers need
to think their way around five different levels of product when working through the
essentials of the offer which is going to be made to the customers. They are:

The core benefit: The basic benefit which is what the customer really wants when
deciding on a particular product. For example, a toothpaste which is able to clean
the teeth.
The generic product: This is the basic version of the actual physical product, for
example, an electric cooker.
The expected product: A set of attributes and conditions that buyers normally
agree to when they purchase a product. For example, a soap is expected to last
long and at the same time does not wear away due to water.
The augmented product: The product includes additional services and benefits
which help to distinguish it from competitive offerings, for example, a
manufacturer of television might extend the normal warranty period from one
year to say three years. In fact, SHARP television offered seven years warranty.
The potential product: At the final level stands the product of the future, namely
all the transformations and augmentations that a particular product might
undergo in the future. This is where the companies search for new ways to
satisfy their customers and differentiate their products. The emergence of Hyper
markets is one example.

It is hence imperative that you are given a indepth information on what is product,
why product management is important to organizations, the ways of new product
development and its entry into the market etc. Let us learn them in detail.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the various product levels and their importance .
• Understand the different aspects of product life cycle
• Understand the product management issues and problems .
• Understand the ways of new product management and their steps .
3. Product management:

Product is any thing that can be offered to a market to satisfy a want or need. Products
that are marketed include physical goods, services, experiences, events, persons, places,
properties, organizations, information, and ideas. A product mix (also called product
assortment) is the set of all products and items that a particular seller offers for sale. For
example, Kodak’s product mix consists of two strong product lines: information products
and image products. A company’s product mix has a certain width, length, depth, and
consistency. These concepts are illustrated below.

Width:

The width of the product mix refers to how many different product lines the
company carries. Hindustan Unilever Limited (HUL) has different product lines. It
offers different products for the consumers. The product lines offered by HUL are
Home and Personal care, Food and Beverages and Industrial, Agricultural and
others.

Length:

The length of a product mix refers to the total number of items in the mix.
This is obtained by dividing the total length by the number lines. Procter and
Gamble offers different product line width. It offers different brands under
detergents like Tide, Ariel.

Depth:

The depth of a product mix refers to how many variants are offered of
each product in the line. Hindustan Unilever Limited offers tooth paste named
Close Up at different sizes like 20 grams, 50 grams, 150 grams etc. In this case
HTL had a product depth of three.

Consistency:

The consistency of the product mix refers to how closely related the
various product lines are in terms of the end use, production requirements,
distribution channels, or some other way. P&G’s product lines are consistent
insofar as they are consumer goods that go through the same distribution
channels. The lines are less consistent insofar as they perform different functions
for the buyers.

These four product mix dimensions permit the company to expand its
business in four ways. It can add new product lines, thus widening its product
mix. It can lengthen each product line. It can add more product variants to each
product and deepen its product mix. Finally, a company can pursue more
product-line consistency.
COMPANIES PRODUCT MIX
WIPRO Software, Hardware, Soaps, Baby Care,
Cooking media, lighting and Medical
equipments
RELIANCE Power projects, Telecom, Satellite and
Internet Services, Infrastructure (Roads, Oil
lines, Ports, Landscape business),
Petrochemicals, Textiles, Fibres, Plastics,
Refining and Marketing
UB Spirits, Media, Healthcare, Agro-chemicals,
Engineering and Media software
MODI Cements, Alkalies, Tyres, Cigarettes,
Telecom equipments, Cellular service,
Paper products, Hardware and Office
Automation equipments
TTK Cookery products, Undergarments,
Pharmaceuticals, Cleaning agents and
Personal care products

Product mix of select companies

3.1.Product strategies:

Godrej offers different brands of refrigerators, soaps and other things to its
consumers. Did this diverse assortment of products developed by accident? No -
-- it reflects a planned strategy by the company. To be successful in marketing,
producers and middlemen need carefully planned strategies for managing their
product mixes.

Product-mix expansion

Product-mix expansion is accomplished by increasing the depth within a


particular line and/or the number of lines a firm offers to consumers. Let’s look at these
options. When a company adds a similar item to an existing product line with the same
brand name, this termed a line extension. For illustrations, pull the coupons insert out of
your Sunday newspaper. For example Pepsi-cola company introduced many new flavors
for its drink like Diet Pepsi, Lehar Team etc. Like wise Coca-Cola Company introduced
news flavors like sprite, diet coke etc. The line extension strategy is also used by
organizations in service fields. For example, universities now offer programs to appeal to
prospective older students, and the Roman Catholic Church broadened its line of
religious services by adding Saturday and Sunday evening masses. There are many
reasons for line extensions. The main one is that the firm wants to appeal to more market
segments by offering a wider range of choices for a particular product. Line extensions
might be the most pronounced trend in marketing during the early 1990s. As discussed in
the nearby box, line extensions have become so common as to raise questions about their
effectiveness. Another way to expand the product mix, referred to as mix extension, is to
add a new product line to the company’s present assortment. To illustrate, when Johnson
& Johnson introduced a line of Acuvue disposable contact lenses, that was mix extension
because it added another product to the company’s product mix. In contrast, line
extension adds more items within the same product line. When J&J adds new version of
baby soaps, that’s line extension. Under a mix-extension strategy, the new line may be
related or unrelated to current products. Furthermore, it may carry one of the company’s
existing brand names or may be given an entirely new name. Here are examples of these
four alternatives. Most often, the new line is related to the existing product mix because
the company wants to capitalize in its expertise and experience.

Related product, same brand:


♦ Pepsi cola’s Pepsi, Miranda, Lehar 7UP, Diet Pepsi, etc.
♦ SmithKline Beecham’s Horlicks, Boost etc.

Unrelated product, same brand:


♦ Godrej produces many unrelated products like refrigerators, soaps
etc.

Related product, different brand:


♦ Procter & Gamble introduces Luvs as a companion to its
disposable diapers.

Unrelated product, different brand:


♦ Veegaland, an amusement park at Kochi from the well known
voltage stabiliser maker V-Guard.
♦ McDonald’s testing leaps and bounds, an indoor playground for
children and their parents.

Trading up and trading down:

The product strategies of trading up and trading down involve a change in product
positioning and an expansion of the product line. Trading up means adding a higher price
product to a line to attract a broader market. Also, the seller intends that the new
product’s prestige will help the sale of its existing lower-price products. By adding
Adreno and Energy as new bikes to the saddle of LML scooters, the company has traded
up. Trading down means adding a lower-price product to a company’s product line. The
firm expects that people who cannot afford the original higher-price product or who see it
as too expensive will buy the new lower-price product. The reason: the lower-price
product carries some of the status and some of the other more substantive benefits (such
as performance) of the higher-price item. Nirma introduced Nima soap in the northern
market at Rs.5 when other low end soaps are sold at the lowest price of Rs.6.
Some times the effect of trading down can be achieved through advertising, without
introducing new, lower-priced products. A manufacturer of fine or chinaware might
accomplish this by advertising some of the lower-price in its existing product
lines.Trading up and trading down are perilous strategies because the new products may
confuse buyers, resulting in negligible net gain. It is equally undesirable if sales of the
new item or line are generated at the expense if the established products. When trading
down, the new offering may permanently hurt the firm’s reputation and that of its
established high-quality product. To reduce this possibility, new lower-price products
may be given brand names unlike the established brands. In trading up, on the other hand,
the problem depends on whether the new product or line carries the established brand or
is given a new name. If the same brand name is used, the firm must change its image
enough so that new customer will accept the higher-price product. At the same time, the
seller does not want to lose its present customers. The new offering may present a cloudy
image, not attracting new customers but driving away existing customers. If a different
brand name is used, the company must create awareness for it and then stimulate
consumers to buy the new product.

Alteration of existing products:

As an alternative to developing a completely new product, management should take a


fresh look at the organizations existing products. Often, improving an established product
– product alteration can be more profitable and less risky than developing a completely a
new one. However product alteration is not with out risks. When Coca-Cola co. modified
the formula for its leading product and changed its name to new coke, sales suffered so
much that the old formula was brought back 3 months later under the Coca-Cola classic
name.

Product mix contraction:

Another product strategy, product mix contraction, is carried out either by eliminating an
entire line or by simplifying the assortment with in a line. Thinner and/or shorter product
lines or mixes can weed out low-profit and unprofitable products. The intended result of
product-mix contraction is higher profits from fewer products. Hindustan Lever has
announced that it would prune its brand portfolio during the year 2001-2002. During the
early 1990’s most companies expanded – rather than contracted – their product mixes.
Numerous line extensions document this trend. As firms find that they have an
unmanageable number of products or that various items or lines are unprofitable, or both,
product-mix pruning is likely. The result in many organizations will be fewer product
lines, with the remaining lines thinner and shorter.

3.2.Rationale for product mix:

Internationally, brand rationalization has been on companies’ agendas for some time. In
September 1999, Unilever announced that it would prune its brand portfolio by 75% -
from 1600 to 400. The basket of 400 includes brands like Dove, Lux, and the Calvin
Klein range of fragrances. Extensions are a company’s way of responding to consumer’s
desires, which are often gauged through research. Still, many consumers cannot
differentiate across the numerous alternatives – and get frustrated or angry in the process.
The large number of new offerings also poses problems for many retailers. Under these
circumstances, it is important for a Product manager to look at the optimum mix of
products in the company’s portfolio. It is hence necessary that the Product Manager gives
due consideration to the financial aspects related to the products and concentrates on the
following:

1. Cumulative annual sales revenue


2. Cumulative support costs
3. Cumulative asset use including that of buildings, machinery, inventories and
receivables
4. Cumulative profit contribution and finally
5. Cumulative return on assets contribution by the product

By calculating the above, the Product Manager can look at the following as alternatives:
1. Concentrating on the true profitability of each product irrespective of the years of
reckoning
2. Pricing has to be reworked based on the total costs
3. Possible outsourcing products to augment the product mix

Product line extensions:

A product line if it is too short, then the Product manager can increase profits by adding
items in the similar line under the same brand name, usually with new features. This is
termed as product line extension. The line extension may be innovative, ‘me-too’,or
filling in using another package size like that of Bisleri (from one litre bottle, offered two
litre bottle). The vast majority of new product introductions consists of line extensions.
Bacardi white rum which entered India, soon realising the need for black rum, added the
brand into their line. In a study undertaken by Holak and Bhatt revealed the following
about line extensions:

Line extension of strong brands are more successful than weak brands
Line extension of symbolic brands enjoy greater market success than those of less
symbolic brands
Line extensions that receive strong advertising and promotional support are more
successful than those that receive less promotional support
Firm size and marketing competence plays a part in an extension success
Earlier line extensions have helped in the market expansion of the parentbrand
Incremental sales generated by line extension may more than compensate for the
loss in sales due to cannibalisation.

Some of the examples of product line extensions are:

1. TVS Victor scooter from motorcycle manufacturer TVS-Suzuki


2. Kinley club soda from Coca-Cola
3. Elf Equitaine has launched Elf Super Sporti S 15W40 through Elf Lubricants
4. Reebok has widened their DMX range with the launch of DMX 6 series
5. Reckitt and Coleman launched their line extension – Harpic Plus Bleach
6. Parker pens introduced a line extension – Parker Zodiac pens
7. Pepsi came out with their Mirinda Lime drink as the Mirinda extension
8. Johnson and Johnson introduced New Stayfree Secure sanitary napkins
9. HLL launched the new variant of Surf – Surf with excel power
10. P&G intorduced Pantene Pro-V anti-dandruff and Head & Shoulders Menthol
shampoo
11. Dabur extended Vatika to Vatika Henna Cream conditioning shampoo
12. Marico introduced Parachute Lite, Parachute Nutrisheen grooming cream, Parachute
Nutrisheen After wash liquid for woman
13. Brittania introduced dairy products like Brittania Butter and Brittania Cheese Spread
14. Mercedes Benz introduced Mercedes E 230 and M 250-D
15. Iodex came out with Iodex power cream for the lower waist area problems
16. Iodex Sport was launched for people with a sporty attitude
17. Bajaj scooters introduced Bajaj Pulsar DTSi

Product mix width expansion:

1. Dettol:

Dettol started off in the 1930’s with Dettol mouthwash, antiseptic cream, obstetrics cream
and liquid antiseptic. Over the years, the portfolio has expanded to soaps, liquid soap and
shaving cream, Dettol plaster and several other products are still to use the brand equity
of Dettol. This has been done mainly due to the threat of Savlon. All these products will
be positioned along Dettol’s core values – trust and protection.

2.Godrej:

Apart from their growing portfolio of soap brands, Godrej bought Key, Ezee and
Trilo from Cussons International. IT has since added many brands in the soap category
including Godrej Fairglow, Godrej Sandal, Fairever vanishing cream etc. Godrej also
added ‘Cooklite’, edible oil and later on added a small variant –Chota Cooklite. In the
FMCG sector, Godrej is trying to augment their portfolio with new brands from
competitors.

3.DS Groups:

During 1999, DS group conducted a study through McKinsey and decided to increase
their product mix by adding food and beverages, Salt and spices branded –Catch, Tea and
edible oils in the same brand name and also mothfreshners. This is done apart from their
major brands – Baba Zarda and Rajniganda paan masalas.
3.3.Components of Product plan:

Each product level within a business unit must develop a marketing plan
for achieving its goals. The marketing plan is one of the most important outputs
of the marketing process, and it should contain the following elements.

1) Executive summary and table of contents.

The marketing plan should open with a brief summary of the plan’s main
goals and recommendations. The executive summary permits senior
management to grasp the plan’s major thrust. A table of contents should follow
the executive summary.

2) Current marketing situation:

This section presents relevant background data on sales, costs, profits,


the market, competitors, distribution and the macro environment. The data are
drawn from a product fact book maintained by the product manager.

3) Opportunity and issue analysis:

After summarizing the current marketing situation the product manager


proceeds to identify the major opportunities/ threats strengths/ weakness and
issues facing the product line.

4) Objectives:

Once the product manager has summarized the issues, he or she must
decide on the plan’s financial and marketing objectives.

5) Marketing Strategy:

The product manager is responsible for the broad marketing strategy


or “game plan” to accomplish the plan’s objectives. In developing the strategy,
the coordination of product manager, production manager and buyers are
needed. The product manager also needs to talk to the sales manager to obtain
sufficient sales force support and to the financial officer to obtain sufficient funds
for advertising and promotion.

6) Action Programs:

The marketing plans should specify the broad marketing programs


for achieving the business objectives. Each marketing strategy should be
focussed in such a way that the action to be done, when and how it is to be done
should be planned.
7) Projected Profit and Loss statement:

Action plans allow the product manager to build a supporting budget. On


the revenue side, this budget shows the forecasted sales volumes in units and
the average price. On the expense side, it shows the cost of production, physical
distribution, and marketing, broken into finer categories. The difference between
revenue and sales is projected profit. Once approved, the budget is the basis for
developing plans and schedules for material procurement, production schedule,
employee recruitment, and marketing operations.

(viii) Control:
The last section of the market plan outlines the controls for monitoring the
plan. Typically the goals and budget are spelled out for each month or quarter.
Senior management can review the results each period. Some control sections
include Contingency plans. A Contingency plan outlines the steps management
would take in response to specific adverse developments, such as price war or
strikes.

3.4.Product Life Cycle

Product life cycle as a concept has been an indicator by which companies decide the fate
of the products and the brands they posses or introduce as new products. It is only a toll
which can be used for taking marketing decisions based on the position of the
brand/product in the life cycle. Some of the important aspects of the life cycle strategies
are mentioned below:

Stages Main strategy Price Advertising and sales


promotions
Aim to get the Try to have a higher Generate awareness;
innovators try the price to cover the
Introduction Samples, test drives etc.
product launch costs
Aim at the weaker Keep price up to take Reinforce success;
market advantage of market
Growth Reduced sales promotions
growth
Fight off the Avoid price wars Stress the differential
increasing competition advantages; use sales
Maturity
and support loyal promotions to attract users
customers to the brand
1.Revamp Change price levels Stress and inform change
Decline 2.Promotion Reduce price Spend more, special offers
3.Substitution Price down to clear Do nothing
stocks
Product life cycle strategies

Arguments against PLC:

According to PLC, sales following a product’s launch are initially slow but then
increase as awareness grows. Maturity is reached when the rate of sales growth levels
off and repeat purchasers account for the majority of sales. Ultimately, sales begin to
decline as new products and new technologies enter the market. Leading eventually to
the product being withdrawn. The literature available in this area have thrown
contradicting arguments. One school of thought is clear that PLC is a foundation for
an effective product management system, while Dhalla and Yuseph argued that the
PLC is conceptually and operationally flawed. The bases on which the arguments are
presented include:

The biological metaphors used to suggest that products are living entities is
misleading
Attempts to match empirical sales data to life-cycle curves have proved
difficult and the results are largely meaningless
The life cycle of a product and hence the shape of the curve is determined by
how the product is managed over time. It is not an independent variable as is
suggested by traditional PLC theory
The PLC is not equally valid for product class, product form and for brands as
often argued
The stages of the life cycles are difficult to define
Identifying where on the life cycle a product is at any particular time is difficult
to determine
The scope for using the concept as a planning tool is limited and
Evidence suggests that where companies have tried to use the PLC as a
planning tool, opportunities have been missed and costly mistakes made.

The product life cycle of Maruti:

The passenger cars in the low end models are passing through a maturity stage. The
profits associated with a car follow the ‘S’ curve of its life cycle , and decline as the
product nears the end of the maturity phase. Maruti Udyog’s decision to drop prices
during December 1998 of all versions of the Maruti 800 came at this stage. The
respite that the price-cut is expected to provide is aimed at extending the maturity
phase of Maruti as seen from the following figure:
Every product comes to the market has to pass through a series of stages (i.e.)
which is studied under the head product life cycle. It may be a shorter (or) longer
life cycle depending upon the performance of the product. To say that a product
has a life cycle is to assert four things :
Products have a limited life.
Product sales pass through distinct stages, each posing different challenges,
and problems to the seller.
Profits rise and fall at different stages of the product life cycle.
Products require different marketing, financial, manufacturing, purchasing,
and human resource strategic in each stage of their life cycle.

Stages In Product Life Cycle :

The shape of the product life cycle curve are portrayed as bell-shaped.
This curve is typically divided into 4 stages:

Introduction
Growth
Majority
Decline

Sales Matur
Dec

Growt

Introducti
Introduction :

During the market introductory stage, there may not be ready market for the
product. Sales are low; the product undergoes teething troubles, profits seem a
remote possibility ; demand has to be created and developed ; and the
customers have to be prompted to try out the product. this stage posses several
problems for the marketer. This stage poses several problems for the marketer.
The complexity of the problems and the duration of the stage depend upon the
nature of the product, its price, its technological newness and the consumer’s
view of the product. One of the crucial decision to be taken in this stage is the
pricing decision so, the management can pursue one of the four strategies.

I. Rapid skimming :
Launching the new product at a high price and a high promotion level. It
will take advantage of early entry and the realitive novelty of the product in the
market introduction stage. Those who became aware of the product are eager to
have it and can pay the asking price and the firm faces potential competition and
wants to build brand preferences.

2. Slow skimming :
Launching the new product at a high and low promotion. This strategy
make sense when the market is limited sense, when the market is limited in size ;
most of the market is aware of the product, buyers are willing to pay a high price,
and potential competition is not imminent.

3.Rapid Penetration :
Launching the product at a low price and spending heavily on promotion. This
strategy make sense when the market is large, the market is unaware of the
product, most buyers are price sensitive, there is strong potential competition,
and the unit manufacturing costs fall with the company’s scale of production and
accumulated manufacturing experience.

4. Slow penetration :
Launching the product at a low price and low level of promotion. This
strategy make sense when the market is large, is highly aware of the product, is
price sensitive, and there is some potential competition. Another crucial area
demanding attention at this stage is market development and promotion. In this
stage, demand has to be created and developed. The firm has to invest heavily
in promotion and visit for the reward.

Several examples of this introductory phase illustrates the different core


strategies available. Consumer electronics and industrial product companies
almost always pursue a skimming strategy. When Washing machines,
Refrigerators, Camcorders, digital tape players were first introduced, they were
priced heavily intitally and then fell in price over time. At the same time,
penetration pricing is done usually in the Fast Moving Consumer Goods (FMCG)
because market share is very important for retaining the Space Keeping Units in
the retail outlets.

II. Growth Stage :

During this stage, the demand for the product increases and the size of
the market grows. There is a rapid increase in sales. Early adopters like the
product, and additional consumers start buying it. Now competitors enter,
attacked by the opportunities. They introduce new product features and expand
distribution. Prices remain where they are or fall slightly, depending on how fast
demand increases. Sales rise much faster than promotional expenditures,
causing a welcome decline in sales promotion ratio. Profits increase during this
stage as promotion costs are spread over a large volume and unit manufacturing
costs fall faster than price declines owing to the producer learning effect.

During this stage, the firm uses several strategies to sustain rapid market
growth as long as possible.

It improves product quality and adds new features and improved


styling.
It adds new models and flanker products (i.e. products of different
sizes, flavours, etc.)
It enters new market segments.
It increases its distribution coverage and enters new distribution
channels.
It shifts from product awareness advertising to product preference
advertising.
It lowers price to attract the next layer of price sensitive buyers.

Marketing and distribution efficiency becomes the decisive factor at this stage.
The pioneer sales and profits keep increasing at this stage.

III Maturity Stage :

In the maturity stage, the demand for the product reach a saturation point.
Price competition become intense and the pioneer tries to distinguish his brand
by subtle product differentiation and exploits the brand loyalty built by the
company. Maturity divides into 3 phases :

i) Growth phase :
This is the first phase where the sales growth rate starts to decline.

ii) Stable phase :


In the second phase, sales flatten on a per capita basis because of market
saturation. Most potential consumers have tried the product, and the future sales
ar governed by population growth and replacement demand.

iii) Decaying maturity :


In the third phase, the absolute level of sales starts to decline, and
customers begin switching to other products and substitutes.

Market Modification :

The company might try to expand the market for its mature brand by
working with the two factors that makeup sales volume.

Volume = number of brand users x usage rate per user.


The company can try to expand the number of brand users in three ways.

Convert non-users.
Enter new market segments.
Win competitor’s customers.

Volume can be used adopting the following three strategies.

The company can try to get customers to use the product more
frequently.
The company can try to interest users in using more of the product
on each occasion.
The company can try to discover new product uses and convince
people to use the product in more varied ways.

Product modification:

Managers also try to stimulate sales by modifying the product’s


characteristics through quality improvement, feature improvement, or style
improvement. This strategy has several advantages. New features build the
company’s image as innovator and win the loyalty of market segments that value
these features. They provide a opportunity for free publicity and they generate
sales and distributor enthusiasm. The chief disadvantage is that feature
improvements are early imitated ; unless there is a permanent gain from being
first, the feature improvement might not pay off in the long run.
Marketing – Mix Modification :
Product managers might also try to stimulate sales by modifying other
marketing mix elements.

i) Price :
Regarding the price, the decisions should be made in a way to attract
buyers or the price should be lowered (or) sometimes it is highered to signal
higher quality.

ii) Distribution :
In the distribution element, the outlets where the products to be displayed
increased or not ; about the introduction of new distribution channels, the number
of outlets are to be decided.
iii) Advertising :
The factors to be considered in advertising is, the expenditures made, the
message of the present advertisement to be modified, and about the frequency,
size of advertisements.

iv) Sales Promotion :


Should the company set up sales promotion – trade deals, cents – off
coupons, rebates, warranties, gifts and contests are to be decided.

v) Personal selling:
In this, the number of quality of sales people to be increased, basis for
sales force specialisation, sale territories revision, sales force incentives, sales –
call planning are to be properly planned.

vi) Services :
The technical assistance given by the company to the customers, credit
facilities, their delivery node are to be enhanced. So, the marketing mix
modifications should be done efficiently. The major problem is especially price
reductions and additional services is that they are early imitated.

IV Decline Stage :

In this stage, sales begin to fall. The demand for the product shrinks
probably due to new and functionally advanced products becoming available in
the market / market being more saturated to the product. In any case, prices and
margins get depressed ; total sales and profits diminish. Firms do perceive the
impounding total decline and prepare for the gradual phasing out of the product.
Successful firms quite often keep new products ready in the queue to fill the
vacum created by the decline of existing products.
Some firms will use several strategies to over come this decline stage like
that is to link up the sale of these products with some other premium products
they have developed and thus try to sketch the life of declining product. In a
study of company strategies in declining induction, five decline strategies
available to the firm :

Increasing the firm’s investment (to dominate the market / strengthen its
competitive position).
Maintaining the firm’s investment level until the uncertainties about the
industries are resolved.
Decreasing the firm’s investment level selectively, by dropping unprofitable
customer groups, while simultaneously strengthening the firm’s investment in
lucrative riches.
Harvesting (“milking”) the firm’s investment to recover cash quickly.
Divesting the business quickly by disposing its assets as advantageously as
possible.

Managing the product mix throughout the product life cycle

Effects and Stages of the Product life cycle


Responses Introductio Growth Maturity Decline
n
Competition None of Some Many rivals Few in number with
importance emulators competing for a rapid shakeout of
a small piece weak members
of pie
Profits Profits are Profits reach Increasing Declining volumes
negligible peak levels as competition pushes costs up to
because of a result of cuts into profit levels that eliminate
high high prices margins and profits entirely
production and growing ultimately into
and demand total profits
marketing
costs
Distribution Selective, Intensive; Intensive; use Selective; slowly
as employ small heavy trade phase out
distribution trade allowances to unprofitable outlets
is slowly discounts retain shelf
built up since dealers space
are eager to
store
Advertising Aim at the Make the Use Emphasise low
strategy needs of mass market advertising as price to reduce
early aware of a vehicle for stock
adopters brand benefits differentiation
among
otherwise
similar brands
Overall Market Market Defence of Preparations for
Strategy establishm penetration; brand position; removal; milk the
ent; persuade check the brand dry of all
persuade mass market inroads of possible benefits
early to prefer the competition
adopters to brand
try the
product

Advantages of Product Life Cycle:

1) Facilitates preplanning the product launch:

In launching of a new product, many companies fail because of not knowing how
to handle the problems at various stages in PLC. With the help of PLC concept, it is
possible to foresee and predict the profile of the proposed product’s life, the events that
are likely to take place in the market, and the issues on pricing, channel and promotion
that are likely to come up. The elaborate Exercise at preplanning and the lead time
available for keeping strategic options ready in anticipation of certain events in the
market, make the marketing man better equipped to charter the course of a product.

2) Facilitates prolonging of profitable phase :

Some products get into trouble in their maturity stage, the PLC concept
can be of help to the marketing man. Strategies are formulated at this stage to
prolong profitable phase to overcome the threat from competitors normally, the
following strategies are followed.
Finding out new users of the product.
Finding out new uses of the product.
Popularising more frequent use of product.
Making the product more distinctive to the consumers.
By adding real / psychological value to the product.

3) Facilitates investment decision on products :

Product portfolio planning is becoming a crucial subject, and the PLC as a


tool can help in long term planning. This inturn facilitates investment decisions
on products ; investment can be given to the right products and committing heavy
resources on wrong products can be avoided. In short, practicing the PLC
concept means that one is substituting stop-gap arrangements in product
management with a structured long term product monitoring plan.

4) Linkage between the PLC concept and the entry strategy :


As a new product travels through its life, different firms join the market.
With their respective versions of the product, at different stages. The specific
stage in the PLC of the product at which a given firm enter with its brand, will
influence the entry strategy of the firm. Basically, four distinct entry postures are
possible for a firm seeking entry into the market.

Entry as innovators
Entry as early followers
Entry as segmenters
Entry as Me-too’s

5) Effective tool in managing customers :

Customers experience with the company changes as the product passes


through the PLC stages. As the experience level of customer changes, the
benefits they seek from the company also keep changing. The seller of the
product has to understand when and how a transition is taking place in the
experience level of the customer, as his product moves along its life cycle. The
changing expectations and demands of the customers can be handles through
different strategy routes – strengthening the company – customer relationship,
augmenting the product, improving service support or modifying the pricing
approaches.

6) As a control tool :

PLC concept also helps the company as a control tool by measuring the
performance of the products of their company to the competitor’s product
launched in the past. A detailed comparison can be made at each stages of PLC
and an effective strategy can be implemented.

Levels of Product Life Cycle::

Product life cycle operates a three levels.


Product level
Product sub-category level.
Brand level.

It can be explained with the help of an example : “Computers”

1. Product category :

It involves all configuration of computers – super computers, mainframes,


micro/mini and personal computers.

2) Product sub – category :


The sub-category is personal computers within computers. Within the sub
category of PC, it involves brands like HCL, Wipro and Siva.

3. Brand level :
At the brand level ; HCL, Wipro and Siva brands are having their own
paths.

So, when a company wants to project its life cycle (i.e.) Wipro wants to project
the life cycle of its PC, it cannot make a realistic analysis unless it studies the life cycle of
a product sub-category personal computers as a whole. Wipro’s life cycle at the brand
level cannot evolve totally independent of other PC’s in the market. So, when the life
cycle of brand is assessed, it is essential to study the life cycle of the product category
and the product sub category as well. However, an idea of the likely life cycle of the
main product category of computers is helpful in understanding the course of the sub
category personal computers. In concluding that, a meaningful picture of the path the
brand is taking, it has to be studied in the context of the life cycle of the product sub
category and product category.

PLC strategies of Nylon:

Nylon was a product that was primarily used for the military purposes to make
parachutes, threads, and ropes. Then it was extended to circular knit market that
is women’s hosiery. At that stage, the necessity for the growth of nylon was
found. Then there are steps taken to vitalise nylon.

Steps Taken To Vitalise Nylon:

Frequent usage:

Then steps were taken to vitalise nylon. The usage of nylon was increased
and the convenience that nylon had created a market for itself. Frequent usage
of nylon was promoted the bare laggardness of the users were used. The
stockings were promoted using that.

Varied usage:

Nylon was promoted as a fashion product. This product is perceived as a


hosiery functional product. The clothing function of it was to promote as a large
extent. There the varied usage of the nylon was stressed to the users and was
promoted in the market.

New users:
The users of the nylon products were first the military, the it was targeted
at hosiery function and fashion users, and younger teenagers and substitutes
were using those products.

New uses:

New uses were created for the nylon, it was stretched and socks, rugs,
tires and bearings there uses of the nylon which was created to promote it warp
knits were invented in 1945 and nylon tire cord was invented in 1948. Nylon
textured yarns were invented in 1955 and carpet yarns were invented in 1958.
As a result of this in 1962 the sales went up of to 500 million pounds which was
previously 50 million pounds.

PLC strategies by Vaccum Tube Industry And Semiconductor Industry:

In early 1930’s, vaccum tubes got into the usage in electronics industry, the
home entertainment industry. Till 1940, the product was in the introduction stage
in the time of World War II the product’s usage became high at the period of
1945 to 1950. the product sales grown from 90 to 280 after the period of the
1950 the use of TV and phonographic computers made its sales to 300 units due
to military usage the number rose to a height of 400 units. At the early 1960’s,
the semiconductors were invented and the vaccum tubes were out of the market.
After the innovation of semiconductors, the growth in the electronic industry was
triggered after 1954. In early 1950’s, the portable radios made the industry to
grow, then Germanium devices and Silicon devices had a separate PLC then the
other trigger like space, IC’s also triggered the growth of the industry. The
computers and the IC’s were acting as the catalyst for the growth of the
semiconductor industry. The industry growth can be explained using the diagram
as explained below.
3.5. Product portfolio Analysis

Portfolio planning is best advised for diversified companies than a more product
coherent ones. Portfolio planning hence recognises that diversified companies are a
collection of businesses, each of which makes a distinct contribution to the overall
corporate performance and which should be managed accordingly. Such companies are
expected to redefine businesses for strategic business units (SBU), which may or may not
differ from operating units. They then classify these SBUs on a portfolio grid according
to the competitive position and attractiveness of a particular product market. Based on
these, they use this framework to assign each a ‘strategic mission’ with respect to its
growth and financial objectives and allocate resources accordingly. Companies can thus
theoretically assess the strategic position of each of their enterprises and compare these
positions using cash flow as the common variable. The four components of strategy can
be seen as influences on the firm's effectiveness and efficiency. The firm's effectiveness
is determined by the combined influence of scope, distinctive competence and
competitive advantages.

Objective of Resource Development:

Implementing Corporate Level Strategy


Resource development is very helpful implement corporate level strategy.
Corporate level strategy is to determine what business to go into and relative allocation of
resource and management of synergies among them.
Direct Interaction with Scope and Resources Deployment
They should there fore be considered at the corporate level and should
not be treated as functional area policy decisions to be decided at lower levels.
Business level strategy focuses on how to compete in a particular product /
market segment or industry. Competitive advent ages and distinctive
competencies thus become dominant strategic concerns at this level. At
functional level, the primary focus of strategy is efficiency.

Types of portfolio planning:

Following are the possibilities of various types of portfolio planning undertaken by


companies:

Types Explanations
Analytic planning Portfolio planning is only in the stage
of planning tool and traditional
administrative tools are used
Process planning Portfolio planning as a central part of
the ongoing management process
and strategic mission is explicit in
activities

Types of portfolio planning

Benefits of portfolio planning:

Since the road to portfolio planning is a long one, companies often get stuck
trying to implement it and cannot realise the full potential of the approach. In
implementing portfolio planning, companies often write in biases that block its
usefulness, including the tendency to focus on capital investment rather than
resource allocation. In spite of such limitations, portfolio planning is offering the
following benefits to companies if implemented properly:

1. It promotes substantial improvement in the quality of strategies developed at


both the business and the corporate level.
2. It provides a guideline for adopting their overall management process to the
needs of each business.
3. It provides selective resource allocation to the various SBUs.
4. It furnishes companies with a greatly improved capacity for strategic control
when portfolio planning is applied intelligently and with attention to its
limitations and problems.
Peter Drucker on portfolio planning:

Peter Drucker suggests a mechanism of portfolio analysis of products within the


company. He suggests that all products can be classified into five groups as follows:

Tomorrow’s breadwinners:
These are either modifications or improved versions of what one company
has got as their major products or new products.
Today’s breadwinners:
These may exist today but they really are the innovations of yesterday.
Yesterday’s breadwinners:
These are old hat but eat up all that they earn.
“Problem children”:
Difficult to live with perhaps but better parental control should make the
difference between a healthy child and a potential deviant child.
“Also-rans”:
These are otherwise known as ‘me-too’ products in the market whose
existence itself is a question mark.

Boston Consulting Group Matrix:


The business policy portfolio models are most popular useful to
understand the firms strategic concerns and choices. They defined the firm's
scope or domain by highlighting the inter - relatedness of diverse factors such as
1. Market growth
2. Market share
3. Cash and Cash flow patterns
4. Capital intensity
5. Product maturity etc.

Relative market share

High Low

Star Question mark


Market High
growth

Cash cow Dog


Low

BCG Growth/Share Matrix

Star
Star are high growth - High market share business which may or may not
be self sufficient in term of cash flow. This cell corresponds closely to the growth
phase or product life cycle

Cash cows
As the term indicates, cash cows are business which generate large amounts of
cash but their rate of growth is slow In terms of PLC, these are generally mature
business which are reaping the benefits of experience curve. The cash
generation exceeds the reinvestment that could profitably be made into 'cash
cows'.

Question Marks

Business with high industry growth but low market share for companies are
question marks or problem children. They required large amount of cash to
maintain or gain market share. Question mark is usually new products or
services, which have a good commercial potential

Dogs
Those businesses, which are related to slow growth industries and where
a company has a low relative market share, are termed as 'dogs'. They neither
generate nor require large amounts of cash. In terms of PLC, the 'dogs' are
usually products in the late maturity or declining stage.

The firm should hold its dominant market position by reducing prices and thus
keeping away the high cost competitors. Cash flows are likely to be negative during the
growth phase in a dominant market since the firm will have to keep in investing to
maintain its competitive edge. Dominant position generates positive cash flows, during
the mentioned stage of life cycle. The BCG matrix makes it very clear that a firm for its
ultimate success needs a balanced portfolio of products or businesses. The individual
businesses are analyzed to form a corporate portfolio, which should act as a guide to
commit the firm’s resource. Portfolio should be balanced in terms of profit, cash flows,
and overall corporate risk.

GE Nine Cell Matrix:

Another corporate portfolio analysis technique is based on the pioneering effort


of general electric (GE) company of the united state supported by the consulting
firm of Mckinsey & Company.

The vertical axis represents industry attractiveness, which is a weighted


composite rating based on eight different factors. These factors are: -
1. Market size and growth rate
2. Industry profit margins
3. Competitive intensity
4. Seasonably
5. Cyclically
6. Economics of Scale
7. Technology and
8. Social, environmental, legal and human impacts.

The horizontal axis represents business strength competitive position, which is


again; a weighted composite rating based on seven factors. These factors are
1. Relative market share
2. Profit margins
3. Ability to compete on price and quality
4. Knowledge of customer & market
5. Competitive strength and weakness
6. Technological capability and
7. Caliber of management

Industry attractiveness

High Medium Low

High Investment Selective Selectivity


growth
Growth
Business Medium Selective Selectivity Harvest
Strengths growth

Low Selectivity Harvest Harvest

GE Nine Cell Matrix

The two composite values for industry attractiveness and business


strength/competitive position are plotted for each business in a company's
portfolio. The PIE charts (Circles) denote the proportional size of the industry and
the dark segments represent the company's market share.

The nine cells of the GE matrix are grouped on the basis of low to high
industry attractiveness and were to thrown business strength three zones of
three calls each are made denoting different conditions represented by green
yellow and red colours for this reason, the matrix is also known as the stoplight
strategy matrix. Based on the three zone, the signal is go ahead to grow and
build indicating expansion strategies business in the green zone attract major
investment for the yellow zone, the signal 'Wait and See' indicate hold and
maintain type of strategies aimed at stability and consolidation for the red zone
the signal is top indicate achievement strategies of divestment and liquidation or
rebuilding approach for adopting turnover strategies.

Advantages
It is compared to the BCG matrix it offers intermediate classification of
medium and average rating.
It incorporates a large variety of strategic variables like market there &
Industry size.

Draw back
It only provides broad strategic prescriptions rather than the specific or business
strategy.

Directional policy matrix (DPM):

The DPM is a method of business portfolio analysis formulated by Shell


International Chemical Company. It has nine cells in which businesses are
located depending upon their scores on each of the two axes: Expected market
profitability and competitive positions. The horizontal axis, labeled "business
sector prospects" or "prospects for market sector profitability," is a measure
similar to industry attractiveness used in the GE planning grid.

A firm is rated on a scale from "unattractive," through "average," to


"attractive" depending upon an evaluation of its industry's market growth, market
quality, and environmental aspects. Similarly, its location on a scale that runs
from a "weak," through "average," to "strong" competitive position is determined
by answering questions about its market share position, production capabilities,
and R&D strengths.

The cell labels represent possible strategic choices or types of resource


deployments most appropriate for the firm, given its score on each of the two
axes. More specifically these cell labels have the following implications:

Disinvest (1,1): Likely already losing money; net cash flow negative over time.
Losses may be minimized by divestiture or even liquidation.
Phased Withdrawal (1,2) and (2,1): Probably not generating sufficient cash to
justify continuation; assets can be redeployed.
Cash Generator (3,1): Equivalent to a "cash cow" in the GE planning grid. A
firm or product would occupy this cell in later stages of the life cycle that does
not warrant heavy investment, but can be "milked" of cash due to its strong
competitive position.
Proceed with Care (2,2): Similar to a "question mark;" firms falling in this
sector may require some investment support but heavy investment would be
extremely risky.
Growth (upper - 3.2) and (lower - 2.2): Similar to a GE planning grid "green-
light" strategy. A firm, product, or SBU in these sectors would call for
investment support to allow growth with the market. It should generate
sufficient cash on its own.
Double or Quit (1,3): Units in this sector should become "high fliers" in the not
too distant future. Consequently those in the upper rightmost corner of cell
(1,3) should be singled out for full support. Others should be abandoned.
Try Harder (2,3): External financing may be justified to push a unit in this
sector to a leadership position. However, such a move will require judicious
application of funds.
Leader (3,3) (lower - 3,2): The strategy for this segment is to protect this
position by external investment (funds beyond those generated by the unit
itself - occasionally); earnings should be quite strong and a major focus may
be maintaining sufficient capacity to capitalize on strong demand.

Prospects for sector profitability

Unattractive Average Attractive

Weak Disinvest Phased Double or


Withdrawal Quit

Company’s Average Phased Custodial Try harder


Competitive Withdrawal
Capabilities
Growth
Strong Cash Growth Leader
generation

Leader

Directional Policy Matrix

The DPM can thus be used to identify strategies for single businesses as well
as for plotting combinations of units in multi business or multi product firms.
Locating competitors on the DPM can provide useful insights into the nature of
corporate-level strategic configurations. However, there is room for error in the
positioning of a firm or product on the two axes, and thus DPM location should be
interpreted with an open mind and not in isolation. The Directional Policy Matrix
(DPM) developed by Shell Chemicals; U.K. uses the two parameters of “business
sector prospects” and “company’s competitive abilities.”
A number of factors such as market growth, market quality, market supply,
etc. are used to rate the business sector prospects as unattractive, attractive or
average. A company’s competitive abilities are similarly judged as weak,
average, or strong on the basis of several factors. The 3 x 3 matrix when plotted
form the basis for recommending baseline strategies. One advantage on DPM is
that one of its extension; “risk matrix” provides alternative way to analyse
environmental risk. In a risk matrix, environmental risk is taken as the third
dimension and is divided into four categories from low risk to very high risk. Each
risk position is determined on the basis of environmental threats and the
probability of their occurrence.

Business Profile matrix:

This matrix is more flexible than the growth/share matrix and uses
competitive position and industry maturity as the two dimensions. It uses twenty
cells for clarity of resource allocation. Empirical determination of the correlates of
the two dimensions is superior to the growth/share matrix.

Stage of Industry maturity


Embryonic Growth Maturity Aging

Dominant
Strong

Competitiv Favourable
e Tenable
Position Weak

Business Profile Matrix

Designing a portfolio:

In order to design a portfolio, the following guidelines are suggested by Yoram Wind
and Vijay Mahajan:

Establishing the level and unit of analysis and determining what links connect
them
Identifying the relevant dimensions, including single-variable and composite
Determining the relative importance of the dimensions
To the extent that two or more dimensions are viewed as dominant,
constructing a matrix based on them
Locating the products or businesses on the relevant portfolio dimensions
Projecting the likely position of each product or business on the dimensions if
(a) no changes are expected in environmental conditions, competitive
activities, or the company’s strategies and if (b) changes are expected
Selecting the desired position for each existing and new product and
developing how resources might best be allocated among these products.

In order to establish a matrix out of the available information from both the
company and the market, the GE matrix can be constructed using the following
steps:

1. Identify the factors making for an attractive market


2. Establish the business position factors
3. Give agreement among managers to factors
4. Make a priority list and give each a weightage as in the following table 9.6.
5. Measure each factor- by market research, internal discussion or external
information
6. Apply the weightage to the measurement and arrive at a total
7. Apply the totals to the matrix and
8. Start a discussion on what the figures show.

Factors Weight Measuremen Value


(%) t

Market attractiveness .20 4.00 0.80


Overall size .20 5.00 1.00
Annual growth .15 4.00 0.60
Competitive intensity .15 2.00 0.30
Technological requirements .15 3.00 0.45
Inflationary pressures .05 2.00 0.10
Energy need .10 1.00 0.10
Historical margins must be
Social/Legal/Economic/ acceptab
Political/Technological le
impact
1.00 3.35

Business Strength 0.10 2.00 0.20


Market share 0.15 4.00 0.60
Share growth 0.10 4.00 0.40
Product quality 0.10 5.00 0.50
Brand reputation 0.05 3.00 0.15
Distribution strength 0.05 2.00 0.10
Promotional effectiveness 0.15 3.00 0.45
Production capability 0.15 5.00 0.75
Unit costs 0.10 4.00 0.40
R & D strength 0.05 4.00 0.60
Management effectiveness
1.00 4.15

Market attractiveness and business position measurement

Using the above, a case of Digital Theatre System (dts) product to be sold in the
theatres of Mumbai, the following done to find out about the investment
proposition:

Product : Digital theatre system


Market : Recommended for investment- Mumbai
theatres

Attractiveness factors Information Importance scale


available
Market size Yes 1

Current coverage No 2
Competition Yes 3
Current systems Yes 4
Social aspects No 5
Legal aspects No 6

Business strength factors Five-point Weightage Value


measure
Market share 2 5 10
Product quality 4 15 60
Brand reputation 5 10 50
Distribution network 5 15 75
Promotional 2 10 20
effectiveness
Costs 3 5 15
Managerial personnel 2 10 20
70 250
Possible total: 350
Market Five-point Weightage Value
attractiveness measure
factors
Market size 5 15 75

Coverage 4 15 60
Competition 2 5 10
Current systems 4 10 40
Social aspects 2 5 10
Legal aspects 2 5 10
60 205
Possible total

Investment matrix scales

Industry attractiveness
300 200 100
0
High Medium Low

High
350

+
Medium
233
Business
Strengths Low
117

The next stage was to use the matrix to compare the present markets with
Mumbai as a potential investment by using the same basis. Hence the + in the
matrix clearly gives evidence for investment in the market concerned.

3.6. New Product Management


New products provide new life for otherwise aging organizations and propel
entrepreneurs to the top of new industries. The rate of new product introductions varies
across industries, but new and better ways to serve needs and wants are ultimately
introduced in all industries. Introducing a product can mean moving into an industry
leadership position. Thus, few decisions in an organization are fundamental, pervasive,
and long lasting as those concerning products. Still, the number of new products each
year is striking. Just in the food industry, it is common to see over 2,000 new product
introductions in a year and such that in pharmaceutical industry also. The risks,
opportunities and strategies associated with a product will partly depend on the type of
newness in question. At one extreme, newness could simply involve a new pack size or
colour, while at the other extreme, the product could represent a break through
innovation. Hence it is pertinent to note the type of newness as follows:

1. New to the company; new to the market:

Technological developments often provide the basis for such radical new products.
Those products like CD player, Personal computer, Internet, which have made a huge
impact on the life style of people, are examples. At the first instance, many customers
will not obtain the product for the want of reason to use the product. Hence it was
only appropriate to target the right audience who are not price-sensitive. Companies
will get lot of time to convince the customers since competition is less. Pond’s black
head remover is a new product for HLL and also new to the market.

2. New to the company; a significant innovation for the market:

Customers may be aware of the core concept but an improvement in the product
creates a market. Hence the companies need to only communicate the nature of
innovation and the added benefits it provides to the product. Consumers can compare
the new product with the old from their own experience and reach an opinion as to the
value of the innovation. Stain-free clothes, wrinkle free ready-made garments and
first car fitted with a catalytic converter are some examples.

3. New to the company; a minor innovation for the market:

A minor innovation for the market is always required to stay tuned to the vagaries of
the markets and hence many companies in the consumer durable, automobiles always
try to opt for minor innovations. AKAI introduced TV with VCR as combined
equipment but however due to the risk involved in the product, customers were not
interested and was withdrawn. Products like FMCG where the risk is less, minor
innovations can work out.

4. New to the company; no innovation for the market:

“Me-too” products come under this category. For small companies with limited
resources, it makes sense to let the big competitors spend the time, effort and money
developing the radical new concepts. When the market is established and known, it
can launch a slightly cheaper imitation and get a foothold in the lower end of the
market. Walkman now has as many as 100 brands of imitations. There are plethoras
of soap brands, which are me-too in the market.

Categories of new products:

Booz, Allen & Hamilton, Inc., an international management and technology-


consulting firm with extensive experience in new product development conducted a
major study manufacturing companies. It identified six categories of new products in
terms of their newness both to the company and to the customers in the market place.

1. Additions to the existing product lines: Products that supplement a company’s


established lines (26% of total). Lakme Lever ltd. Unveiled a new brand identity. It
launched a range of premium skin care products, reconstituted its existing range, and
got itself a new logo and a new positioning statement: “The source of radiant beauty”.
Margo Natural Moisturizer was launched in November 2000,apart from Margo
original Neem. The variant is pale green, translucent soap retaining the Neem, but
with glycerin and the scent of lime. Research had revealed that Margo tended to dry
skin in the winter and the variant sought to redress this complaint well.
2. Improvement in/revisions to existing products: Products that provide improved
performance or greater perceived value and replace existing products (26% of total). )
New upgraded version of Pentium 4 from Intel inside. HLL considered most Indians
tend to oil their hair before they shampoo and tried to tap this trend by introducing a
Ceramides based oil brand called “Ceramics Sunsilk hot oil treatment”.
3. New product lines: Products that allow a company to enter an established market for
the first time (20% of total). Bal Pharma is all set to launched 'Ketovate' a novel anti
dandruff and seborrhoeic dermatitis of the scalp. The product is expected stand out in
the crowded anti-dandruff market with its unique formulation and competitive
pricing. Initially, the product will be introduced through the dermatologists. But the
company will slowly bring it to the OTC segment, considering the consumer
awareness on the anti-dandruff shampoo market.
4. Cost reductions: New products that provide similar performance at lower cost (11%
of total). Usha group launched a fan which will save 50 per cent electricity (the
company already has a model-Windsor-which consumes 25 per cent less energy); a
shank-less fan, where the blades wrapped around a triangular shaped motor; a fan
with propeller-like blades, each revolving at 360-degree, giving a two-way breeze;
5. New to the world products: Products that create an entirely new market (10% of
total). MinerWa ,a miniature mineral water machine launched by Softel was
commercially launched almost three years after the concept stage
Repositioning: Existing products that are targeted to new markets or market
segments (7% of total). The mid- market CTV brand of LG, ‘Sampoorna’, directed
at rural and semi urban consumers, was repositioned to appeal to middle and
lower middle income urban consumers too. HLL’s lime soap ‘Rainfresh’ does not
highlight any natural ingredient. It was basically a perfumistic soap, which smells
fresh. Rainfresh does not connote lime freshness; hence it was decided to
change to blue colour a new repositioning.

3.7. New Product Development

Booz, Allen and Hamilton Consulting Company’s experience with more than 4,000
companies since 1914 has given the insights about the stages in the new product
development process. They are:

Exploration
Screening
Business Analysis
Development
Testing and
Commercialisation

No Company can survive on new products alone. It will also need to upgrade its
existing products on a continuous basis making incremental improvements. Sometimes
there are accident grades like microwave oven but without a good process in place it
cannot work. The above mentioned stages are sequential in nature and in each stage,
management should be gathering additional information to reduce uncertainty about
demand, product-company fit, or even cannibalization of its own products. The concept
of ‘stage-gate’ process involves the maintenance of control over the expenditures
involved in new product development by balancing the company’s investment against the
value of additional information. That is, by assessing each idea after each stage based on
the information acquired, management can reevaluate the idea’s prospects for success. In
this stage-gate system, managers can open the gate to the next stage in the process or can
kill the new product at that point, thus avoiding the further expenditure of time and
money if the demand or profit prospects for the new product seem unfavorable.

Stage 1: Exploration

This stage is the one, which decides the fate of a company in the process of its
commitment to new product development. Hence, companies need to first
determine the product fields of primary interest to the company. Here the
question of new products in-house or using acquisitions as a route to new
product development needs to be addressed. Companies have to analyse the
major problems confronting them. They have to evaluate the company’s principal
resources. At this stage, it is necessary that external growth opportunities like
expanding markets, technological breakthroughs, rising profit margins be
identified. If found acceptable, such a route needs to be planned. In order to do
so, companies have to establish a planned programme for idea generation. The
sources of new product ideas are many and varied. Following is the table of new
product idea generation possibilities:
Table 11.1.Sources of new product ideas

INTERNAL SOURCES EXTERNAL SOURCES


Research and engineering Customers and prospects
Sales, marketing and planning Contract research companies and
Production consultants
Other executives and board of Technical publications
directors Competitors
Universities
Inventors
Unsolicited sources
Advertising agency
Suppliers
Government agencies

Companies have to identify the idea generating groups and give them a clear
concept of the company’s interest fields. It is important that the creative personnel are
exposed to idea generating facts. These people are kept away from the distractions from
the current problems the company might face. Some companies designate an idea
collection point. Many companies in India in the manufacturing sector have a suggestion
box or idea box in the factory/office premises. Some companies even provide incentives/
bonuses for the employees whose suggestions have been carried forward to the next
stage.
To find and nurture REALLY BIG ideas, organizations should

Start with a clear strategic imperative


Add a culture conducive to cross-functional creativity
Feed in forecasting from trends, technology mapping, and outside
learning
Invite customer wisdom, intuition, understanding and input
Launch "idea engine" along the trajectory of Stage Gate
Anticipate success

In addition, a company’s scientists and technicians often make discoveries that lead to
new products. Mahindra & Mahindra uses the nomenclature of “sandpit projects” where
the R&D staff is encouraged to act freely around with new concepts. This is the way they
had made Bijlee. At Titan, ideas can originate with the marketing brief on the shop floor
as a spin off from a new material or process, in a lab, as an R&D idea no matter where it
comes from. Blow Plast, in the first week of the month begins with a meeting headed by
the CEO and attended by the functional heads of manufacturing, sales, R&D and
marketing purely for the purpose of product development brain storming. They have the
policy of set the standards and the creativity will follow. The most common methods of
idea generation in companies are:
Brain storming:
This method developed by Alex Osborn uses the recognition that the
really new ideas often mix several ideas to produce something that is non-
obvious and exciting. Group discussions are held to generate as many new ideas
as possible. The group generally consists of six to ten people. The group
members are encouraged to be as wild as they want in suggesting solutions. No
idea is criticised and hence no ideas are held back. As ideas start to flow, one
leads to another. Within a short time, hundreds of ideas can be on the table. Only
after ideas are generated freely, the group can then look forward to critically
evaluate later on for the purposes of practicability. A specific problem or goal is
set at the beginning of the meeting, which is known as synectics.

Market Research:
Companies have to identify the needs of the customers through the use of market
research. Most of the companies rely on this method since the customer analysis is the
best way of offering a product to their need. Nowadays, there are many consultants and
agencies that provide the necessary support to companies. The Persona toothpaste from
Amway uses accu pressure point was developed based on market research. The research
revealed that people tend to apply excessive pressure while brushing. This adversely
impacts teeth and gums. The accupressure point in Persona toothbrushes allows the brush
to bend, absorbing excess pressure. In addition to the USP of accue pressure point, the
Persona toothbrush has an angular design, and a slender neck, which allow easy access to
all regions of the mouth. The toothbrush also has rounded bristles, which prevent gums
from being grazed. A non-slip grip helps support the thumb, providing for better control.

Long range planning studies:

Often a long term forecasting by companies can yield the required results. The
customer life style changes over the years, the changing societal trend etc., can
be forecasted and products brought accordingly. Dishwashers, Microwave ovens
are examples to this category of research.

Market Gap Analysis:

Gap analysis is a technique which plans maps of the market and used to determine how
various products are perceived by how they are positioned on the market map. This
method helps in understanding the flaws in the existing products and the need for a new
product. The advent of Satellite television showed the need of nearly 100 channels and
host of other attributes which was immediately worked upon by companies like BPL,
Onida etc. Dabur developed Lemoneez lemon juice using market research to identify the
gaps felt most keenly by its target customer, as the lady in a house worked in the kitchen.
From this process the idea for Lemoneez, the lemon substitute converted into a product
by its laboratories.
Think Tank:

Companies are now employing the use of think tanks that assess the company’s resources
and objectives and devise concepts. Some times, top managers of the companies often act
as the source of new product ideas by identifying the consumer needs and changing
society. They also act as the think tanks.

Activity Analysis:

This technique is used by companies in ascertaining the usage of a product. Maruti Omni
was intended as a cargo vehicle but however, the usage of the product showed that it was
more used as a passenger vehicle. Hence the positioning and the product itself was
changed to the requirement. P & G studied the washing habits of 3000 customers in the
target segment for its middle market laundry brand, Ariel Gain Super Soaker, to identify
the one critical need – removing grease stains – that the brand addresses.

Foreign Search:

Some times, many multi national companies translate their experience from another
country. Some Indian companies search the various products, which are not available in
India and offer this product after obtaining the necessary agreements. It is often found
that many products, which are successful in one country, may not succeed in another due
to the cultural and social differences. Soya bean milk was successful in USA but when in
India, it failed confirming the above reasons.

Morphological analysis:

This method analyses the structural dimensions of the product, which helps in getting to
the relationships between them. When a writing instrument is analysed, the extent of its
length, clarity and convenience become the relationship factors from where a new
product can be found out. Research on the old Ford Escort indicated that a three – box
design found favour than a hatchback. Apart from more space for luggage, consumers felt
the boot also provided more safety than a hatch. Indian customers also told Ford that rear
seats used for 70 % of the time. In other markets, the rear seat is used less than 10% of
the time, whereas in India it is used extensively to cram in people. So, the Ikon was to
have a roomier rear seat with full roll –down windows, reading lights and comfortable
centre seating as well. And the rear door openings were claimed to be the largest in the
industry while the height of the chassis was such that it will be easy to get in and out. The
new Ford Ikon car’s design had also taken care of the poor road conditions during the
monsoons in India.

Stage 2: Screening:

Screening is the second stage in the new product development model. During the
screening process, a company evaluates the commercial potential of a new product. The
commercial potential of a product includes such criteria as profitability, marketability,
and costs of production. Screening also calls for the participation of other departments
within the company in the development of new ideas. The ideas and advice of people at
different levels of production will aid the product in areas such as its eventual
effectiveness, ease of production, and production costs. Allowing all levels of employees
to be involved in the process increases the empowerment within the company.

After the necessary ideas are generated, the next stage is to reduce the number to a
manageable size. It is important to expand each idea into a full product concept. New
product ideas should fit into the company’s overall strategy. They should also build on
the company’s resources and skills. They have to collect facts and opinions, which are
quickly available, bearing on the product ideas as business propositions. This stage
should translate the idea into business terms. At this stage it is important to identify the
best sources of facts and qualified opinions. Quick and inexpensive fact gathering
methods using the principle of “diminishing returns” is better to be resorted. The
checklist for the screening of new product ideas is depicted in the following table.

No. Element Yes No


1 The idea represents high value-added products, not
commodity products
2 It requires consumer-oriented development and
presentation of products utilising existing marketing
capabilities
3 The idea has high advertising or promotional content
that allows for intensive communication of products
4 It is not a major capital investment for the consumer
5 There is opportunity for logical extensions to be
developed
6 The product offers a significant ‘plus’ that is
discernible by a large majority of consumers
7 There is an opportunity to expand into many overseas
markets
8 The idea ties in with existing company functions-
technology, marketing, sales force
9 Labour will be of average or lower intensity relative
to national standards
10 Capital will be of average or lower intensity relative
to national standards
11 The product is compatible with company’s physical
packaging capabilities
12 The product is preferably non-perishable
13 The idea is related to the area of operation of the
company
14 The product utilises existing distribution channels
15 There is an extended product life cycle
16 The product can be a building block for a multi-
products line or business
The Checklist for screening new –product ideas

At Titan Industries, every idea is made to pass through a stringent 5 – point test covering

Styling
Costing
Sourcing
Schedules and
Resource requirements

At HUL it was the sheer systematic approach to idea management that ensured the
development of Close up toothpaste sachet with a nozzle. The idea for the product, which
originated with a marketing team, was forwarded to one of the three innovation centres in
HUL. A cross-functional team examined it, approved it and allotted the required
resources.

Stage 3: Business Analysis

In business analysis, the company decides whether the new product will fit well within
the company's product line, distribution methods, and promotion methods. Marketers
also further test the potential for sales, profits, market growth, and competitiveness.
Human welfare is also considered in the operation of the company. The ideas are made
more specific in this stage. Universal Air Technology, an Indian American firm in the
USA has developed an innovative new technology called Phototech using the concept- it
disinfects and cleans indoor air by photocatalytic oxidation. It is a revolutionary concept
that is effective against indoor air pollutants such as bacteria, viruses, and molds, dust
mite allergens and odors. It won the 1999 New Product Award in the small business
category by the National Society of Professional Engineers. This was made possible only
after the deluge of ideas were carefully screened and developed further into a business
proposition. This is the stage where the concept has to be further refined and made into
business terms. The aspects that need to be formulated for making an idea into a concept
are:

Target audience of the new product


The primary benefit of the new product
The usage pattern of the new product

Based on these, once the concept has been developed, it has to be tested. Consumer
reactions are obtained by using a verbal description or a picture of the product and asking
for unbiased opinions. In the major manufacturing industry, the products are brought to
business or industrial consumers at a designated test sites, and developers work closely
with these consumers to spot the problems and refine the designs. After this, the company
has to project costs, profits, return on investment and cash flow if the product is placed on
the market. Projections of potential sales at various prices need to be made, as well as
detailed cost projections for different volumes of production. Start-up and continuing
costs, fixed and variable costs and the impact of economies of scale need to be
determined. Tentative marketing plans need to be set, along with the costs associated
with them. Lastly, a set of full-blown budgets is required to estimate the potential return
on the product. Thus business analysis must include an assessment of the amount of risk
the company will face if the new product is introduced. If the new product can be
produced using existing production and marketing capabilities, the risk is lower. Less
investment in new plant and equipment will be needed, and the marketer can benefit from
already acquired knowledge of the market. TVS Suzuki and Bajaj Auto use the technique
of target costing to determine the price of the product and working backwards to fix the
maximum acceptable cost to develop new products.

Stage 4: Development:

Once a company reaches prototype process development-the fourth stage of new-


product development-they are committing to spend a lot of money on the initial
production of a still unproven product. Product development aimed at better serving
through a disciplined process, with clearly defined targets for every stage, continuous
interaction with other functions and more than one eye on costs, delays and the extent of
manufacturablity. During this stage, many companies implement computer-aided
production programs. Not only do these reduce overall costs in production, but also
should a flaw be found with either the product or the production process, computer-aided
production systems can easily correct the problem. This saves valuable time in redesign
and production restructuring. By getting the product to the market more quickly, a
company can turn potential profit into realized profit. Production engineers and R&D
specialists construct a model; the marketing department develops a brand name to match
the idea or concept; packaging is designed; and the major elements of the marketing mix
are put together. The positioning strategy is also identified. At this stage, many different
functional areas of the company are called upon to cooperate in the creation of prototypes
and development of production or delivery processes, marketing plans and other elements
required to make the idea a reality.

After the laboratory tests on the basic performance against specifications are over,
the new product should be released. At this stage it is important to note the commercial
rather than scientific standards to determine the product release point. TI Cycles of
Chennai put the Hercules top gear in shops, a product that has fuelled 20-fold growth in
the segment in quick time as a new product to overcome the depressing cycle sales. When
this was identified as the lack of reliability of gears, TI cycles decided to use the best and
safest gears and design its product around its component. Managing cost was a critical
issue, because the gears were being imported. This was achieved by maintaining best
control on material cost and cheaper outsourcing. Both the decision taken as a part of
product development and not as a production process. At Bajaj Auto, product
development is about five parallel activities like product definition and design,
manufacturing process development, marketing, planning and tooling. Different
departments work on different application areas, industrial design on styling, engineering
design on structural and engine components, product engineering on machine tool design
and systems on system configuration. A potent technique for ensuring product quality at
the development stage is benchmarking. For instance M&M is benchmarking Scorpio
against Tata Sumo for passenger comfort against its own vehicle for fuel economy,
against the Maruti Gypsy for comfort and ease of driving, against Tata Sierra for
acceleration. Philips applies the fault-mode effect analysis technique to check the various
things that could go wrong with a specified product and chalk out an optimum solution.

Stage 5: Test Marketing:

Test marketing is a tool for new product launch and new product development.
The company can develop new product in own laboratories and independent researcher
develops a new product. Test Marketing has been defined as a “research technique in
which the product under study is placed on sale in one are more selected localities or
areas, and its reception by customer and trade is observed, recorded and analysed”. This
test market will allow managers to see how the product might perform when released to
the entire market. From this information, managers can also decide if they have the right
target market, the right price, and the right level of advertising.

In this stage the new product and relevant marketing programme is tried out for
the first time in well selected market segments under representative marketing
environments. Hence test marketing is the process of introducing a new product or
service to a small “test market” (i.e.) considered to be representative of the large target
market. Test marketing have many alternative forever like advertisement with coupon
and samples. Launching the new product in the market is risky one, Because the product
development are variable to changing customer needs and taste, New technology,
shortage product life cycle, and lastly the increased domestic and foreign competition.
Seventh aspect of product development is launching the market product.

Test marketing is done mainly to identify the following:

• Potential sales volume generation.


• Identification of innovative buyers.
• Comparison of target and actual number/types of buyers.
• Recognition of strong points of product by buyers.
• Ability of advertising message to transmit products strong points.
• Competence to attain planned distribution.
• Potentials for repeat purchases.

Rationale for test marketing:

a. Test marketing should be conducted when the potential financial loss to


the company through new product failure, or though the failure of market
plan or approach is significantly greater than the cost of the proposed test
marketing procedure.

b. Where the cost and risk of product failure are high relative to the profit
and probability of success.
c. Where the difference in the scale of investment involved in the test versus
national launch route has an important bearing on deciding whether to test.
If the company investment for a national launch is far greater than the test
launch, testing should be preferred.

d. When the possibilities of and the speed with which copying of the test
product by competitors are great, testing may be avoided. This is
particularly relevant in soft technology industries.

Objectives of test marketing:

Find out the consumer needs of buying


Evaluate impact of local advertising and promotion during the test.
Evaluate the market potential for other competition product
Find out the area coverage for sales
Find the consumer ability to buy the product based on price.

Process Of Test Marketing:

1. City selection
2. Select the sales representatives.
3. Duration of the test.
4. Select suitable data.
5. Implementation

The test market to be selected should be a restricted geographical area, which


represents the national market. In India, cities like Bangalore, Mumbai, Chandigarh,
Delhi and Calcutta are usually selected by companies to test market their products. There
should not be fewer than two markets for each variation to be tested. However, where the
purpose of the test is to estimate the sales potential of a product to be nationally marketed
markets in, at least, four geographic areas should be used. Pepsodent failed in the first test
marketing mainly because it was test marketed only at Calcutta. As the significance of
the variables to be tested decreases, the number of markets necessary to reflect the effect
of these variables increases. Marketing achievements in the test-market should be
recorded and then projected nation-wide. For example, if monthly volume in 2 per cent
of the country were Rs.4000, then the total volume projected would be Rs.4000/.
02=Rs.2, 00,000.

All available data should be carefully reviewed to make sure that the test-market is by
and large representative of the whole market in terms of social class, caste, age, and other
demographic variables. All available data should be reviewed also to make sure that the
test-market is representative in terms of consumption of similar or substitute products. It
is also advisable to be assured that competitive strength in the test-market is approximate
to those in the whole market. After having considered the above factors in test marketing,
it is also advisable to check up different components of the marketing-mix to be
employed in the test marketing and their probable future relationships. It is important
because distortion in any one component at the commercialization stage would bring
about distortion in the test results and the actual product performance. For example, if
testing is accompanied by an aggressive sales promotion campaign but not so in
commercialization stage then subsequent results would be different. Based on the
response in the test marketing, a company can follow any of the three options:

Abandonment of the product,


Additional testing, and
Commercialization.

The test marketing needs to incorporate the following as the tools:

1. Sales personal demonstrations


2. Free samples
3. Couples
4. Local advertisement ; and
5. Door to-door distributions

Controlling The Test Market:

The controlled test marketing allows the company to the insure factors ((i.e.) Alpha
testing which means the testing for with in the company) and limited advertising on
buying behaviour. A sample of consumer can be tested or interviewed later to give their
impression of the product. However, the controlled test marketing provides no
information on how to sell the trade on carrying the new product. This technique also
exposes the product and product feature to competition. Even the company does not have
to use its own sales force, give trade allowances and buying distributions.

Simulated Test Marketing:

This testing means 30 and 40 qualified shoppers have to be selected and questioning
then about brand familiarity and preferences in specified consumer of product. This
testing involves the interviews with the shoppers about the product that is moving fast
and how to put the new product in the market. Consumers receive a small amount of
money and are invited in to a store where they may buy the product or any item of
product. Some weeks later, they are interviewed by phone to determined product
attribute, usage, satisfaction and repurchase frequently and are offered a opportunity for
repurchasing of the product, results are incorporated in forecasting to the sales levels.
Colgate Palmolive used a different marketing mix in each four cities like. Colgate
Palmolive after launching a new product in set of small “lead corners” and keeps rolling
it out if the proves successful, and general mills have launched new product area too large
for rivals to distribute.
An average amount of advertising coupled free samples.
Heavy advertising with free samples
Average amount of advertising linked with redeeming samples.
An average advertising with no the other special offers.

Stage 6: Commercialisation:

At this stage, complete final plans for production and marketing has to be done. The
product team if necessary needs to be expanded to cover all the departments of the
company. This is the stage where the right individuals are identified who would take over
the successful marketing of the product and who have the capacity to coordinate with
other departments of the company. A complete activity schedule has to be prepared. Feed
back mechanism has to be developed for effective control. The product has to be ready
for meeting any competitive pressures and changing internal problems. In terms of
launching or commercialising the product, there are two main alternatives.

Immediate national launch:

This is one way to overcome the competition and to save on the costs of launch. If
considerable promotions are carried out, it will be difficult for the competition to
overcome the company. The risk of national launch is that it leaves the company with
many problems, which were not countered during the test marketing. Production routines
that work well on the schedules may not scale up as expected. Early problems of supply
may show poorly on the launch.

Rolling launch:

This is an alternative to the full national launch. It involves building towards full national
coverage by starting with one or two recognised distribution areas, then gradually adding
new regions to those already served as experience and success of the product further
increases. This helps the company to concentrate on getting the logistics and production
schedules in tune with the requirements. Coca-Cola, Kellogg’s’ and several other major
players including HLL use this strategy effectively.

NEW PRODUCT DEVELOPMENT IN THE INDIAN SCENARIO:

In April 1999, Mahindra & Mahindra unveiled the Bijlee, the first ever
commercially viable electrically operated 3 wheeler, a classic skunk work project,
worked on by a 14 member team, without a deadline, budget or even assurance of
success. The project took exactly 6 months. For example, at Titan industries which
develops between 70 and 100 new watches every year every new model flows from 3
central strategic considerations viz., boosting brand value, increasing market share and
profit maximisation. HUL considered most Indians tend to oil their hair before they
shampoo and tried to tap this trend by introducing a ceramides based hot oil brand called
Ceramides sunsilk hot oil treatment. Though the company had already stretched the
equity of its largest selling shampoo, Clinic into oils, in the case of Sunsilk it is the
ceramides based hot oil concept it was trying out on its customers. It was initially test
marketed in Calcutta and the product poised for a national launch at the end of 1999.The
product was in the form of a blister pack in which the contents were visible .The oil was
to be immersed in warm water before use. Stretching the equity of a shampoo brand into
hair oils was not looked upon favorably by analysts. HUL after realising its market share
in the shampoo market has slipped from 18% in 1996 to 16.75% in 1998, in a move to
regain its position, launched two new variants to the brand Sunsilk- Fruitamins and
Ceramides as standalone brands in 1998.

4. Have you understood type questions:

1. Raman called several airlines to compare rates and chose a flight on Jet
airways as it had a better reputation for service and competitive prices. The
airline ticket is an example of which type of product?

A. convenience
B. shopping
C. specialty
D. unsought
2. Industrial products are :

A. purchased for personal consumption.


B. frequently purchased for both their functional aspects and their
psychological rewards.
C. traditionally classified according to their characteristics and intended
uses.
D. not purchased by nonbusiness organisations.
3. Products that are used directly in the production of a final product but are not
easily identifiable are categorised as

A. accessory products.
B. component parts.
C. consumable supplies.
D. assembly components.
4. Hindustan Unilever Ltd., markets a number of different brands of laundry
detergents including Surf Excelmatic, Surf Excel, Rin, Ariel and Surf. Each of
these specific versions of laundry detergents can be described as:
A. a product item
B. a product line
C. a core product
D. a mix item
5. A product item can be best described as a

A. component of a marketing mix.


B. particular type of brand.
C. specific characteristics of a company's product.
D. specific version of a product.

5. Summary:

As the competition becomes more intensified in years to come, companies are gearing
to face them by becoming more specialised. Hence the marketing department
becomes more professionalised and in this context, product management gains
prominence. The expanding markets based on liberalisation, privatisation and
globalisation needs a professional approach coupled with the sophistication in
technology and consumers becoming more educated, this development in product
management is inevitable. A product manager has to be in the current competitive
environment competent to handle diverse functions like:

Strategy development: oversee the long-term strategy for the product


category, like specific competitive strategies for different market segments as
well as develop product line extensions and project demand.
Consumer understanding: maintain close contact with the consumer and
develop an intimate knowledge of consumer attitudes and behavior.
champion the cause of the consumer in the business.
Product innovation: awareness of consumer needs gaps and appreciation of
technological possibilities will impact the product development team and help
bring about innovations with tangible benefits to the consumer.
Brand equity management and communication: As a custodian of the brand,
the product manager will build the image and personality of the brand and
communicate it consistently through advertising over different media. He will
be responsible for optimising advertising spends and the selection of the right
media mix to reach the specific target audience.
Team leadership: An excellent team leader and team player, he will co-ordinate with
the sales and product development teams to facilitate and implement business
initiatives in these areas.

Hence it is imperative that he should have a clarity over the new product
management and development along with the knowledge of product life cycle.

6. Exercises

1. Prepare a product mix depth for fast moving consumer goods of any company.
2. Identify and explain strategies for the following products in different product life cycle
stages:
a. Ceiling fans
b. Scooters
c. Palm top computers
d. Starch for laundry
e. Digital diary
f. Mobile phones
3. For a product like Vacuum cleaner, you want to conduct test marketing. This product is
to be launched on a national basis. Explain how will you proceed?
4. Describe the new product development process in a pharmaceutical industry.
5. Evaluate the methodology for launching the following products on a national basis:
a. Incense sticks
b. Digital note books
c. Mouthwash
d. Anti septic lotion

7. References

1. Dhalla and Yuseph, “Forget the Product Life Cycle”, Harvard Business
Review, 1976, pp.102-110.
2. John Smallwood, “The product life cycle: a key to strategic marketing
planning”, MSU business topics, winter 1973, pp.29-32.
3. Joseph Gullitinan, Gordon Paul and Thomas Madden, “Marketing
management- strategies and programs”, McGraw-Hill,1996, pp.182-85.
4. Glen Urban, Theresa Carter, Steven Gaskin and Zofia Mucha, “ Market share
rewards to pioneering brands: an empirical analysis and strategic
implications”, Management Science, June 1986, pp.645-57.
5. Ian Wilson, “Reforming the Strategic Planning Process: integration of social
and business needs”, Long Range Planning, October 1974, p.3.
6. Michel Allen,” Diagramming GE’s planning for what’s WATT “in Robert Allio
and Malcolm Pennington, editors,” Corporate planning Techniques and
applications”, New York, 1979.
7. Philippe Haspeslagh, “Portfolio planning: uses and limits”, Harvard Business
Review, January-February 1982, pp.61-63.
8. Dhawan Radhika, “How to develop the best new products “, Business Today, June
22,1999,pp.74 – 85.
9. Dobhal Shailesh & Gupta Indrajit, “David Vs Goliath ii: The soap opera”, Business
Today, October 7 1999, pp.23-24.
10. Hubert Gatington, Eric Anderson and Kristiaan Helsen, “ Competitive reactions to
market entry: explaining interfirm differences”, Journal of Marketing research,
February 1989, pp.44-55.
11. Albert Page, “ Assessing new product development practices and performances”,
Journal of product innovation and management, Spetember 1993, pp.136-145.
12. Bhushan Ratna, “Turning on the heat”, Businessline, October 12, 2000.Tom Gorman,
“What will our customers think of this product idea?” Business Marketing, September
1987, pp.76-78.
13. Chakraborthy Alokananda, “Donning the war paint”, Business India, November 3 –
16, 1997, pp. 97-98.
14. Challapalli Sravanthi, "Margo dishes out a new avatar”, Businessline, January 11,
2001
15. Robert Cooper, “The new product system: the industry experience”, Journal of
Product innovation and management, June 1992, pp.113-120.
16. Roger Calantone, Anthony Di Benendetto and Ted Haggblom, “ Principles of New
product Management: Exploring the beliefs of product practitioners”, Journal of
product innovation and management, June 1995, pp.235-240.
17. Salton, Gary J., Organizational Engineering: A New Method of Creating High
Performance Human Structures. Ann Arbor: Professional Communications
Inc., 1966.

Brand management
Unit structure:

1. Introduction
2. Learning Objectives
3. Branding
3.1. Branding decisions
3.2. Brand meaning
3.3. Brand platform
3.4. Brand Architecture
3.5. Brand Extensions
3.6. Brand Stretching
3.7. Brand equity
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Brand is a name term, sign, symbol, or design or a combination of them


intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors. In essence the brand identifies the
seller (or) maker. Brand is considered to be a trademark or distinctive name
identifying a product or manufacturer. The brand must be a bridge between the
customer and the owner of the brand. Both functional and emotional satisfaction
is attained through branding. A brand has the power to create interest and
command an immediate second look. The value of a business is directly related
to the strength of its brand. A strong brand will evoke a number of images in the
mind of the prospects.

Branding is a major issue in product strategy on the one hand, developing a


branded product requires a great deal of long term investment especially for promotion,
advertising and packaging. On the other hand manufacturers eventually learn market
power lies with building their own brands. Even when the companies can no longer
afford to manufacture their products in their homelands, the brand name continues to
command customer loyalty.
A brand is essentially a seller’s promise to deliver a specific set of
features; benefits services consistently to the buyers. The best brand conveys
warranty of quality. Brands convey even more meanings up to six levels.

Attributes
Benefits to the customer
Producer’s values
Culture
Personality
User

2. Learning objectives:

After studying this unit, you will understand:

The traits of successful brands


The brand management aspects and strategies
The brand equity issues and why is it important etc..

3. Brand management:

Kevin Lane Keller, brand guru identified the following ten traits as the common aspect
behind the successful brands:

1. The brand excels at delivering the benefits customers truly desire.


2. The brand stays relevant.
3. The pricing strategy is based on consumers’ perceptions of value.
4. The brand is properly positioned.
5. The brand is consistent.
6. The brand portfolio and hierarchy make sense.
7. The brand makes use of and coordinates a full repertoire of marketing
activities to build equity.
8. The brand’s managers understand what the brand means to consumers.
9. The brand is given proper support, and that support is sustained over the long
run.
10. The company monitors sources of brand equity.

Benefits Of Branding:

1. Branding makes it causes for the seller to process orders and track down
problem.
2. The seller’s brand name and trademark provide legal protection of unique
product features.
3. Branding gives the seller the opportunity to attract a loyal profitable set of
customers. Brand loyalty gives some protection from competition.
4. Branding helps the seller segment markets
5. Strong brands help build the corporate image, making it easier to launch new
brands and gain acceptance by distributors and consumers.

Use of a successful brand:

With a successful brand, a company will usually have:


1. Improved margins through higher realisations leading to higher profits.
2. Generated better cash flows; and improved management and productivity of
assets.
3. Reduced or even eliminated the need for regular infusion of fresh capital –
investment needs can be met out of internal accruals, and extensions of a
successful brand can give the benefits of a new product launch at reduced
cost.
4. Created an entry barrier for would –be rivals, who must now spend heavily to
counter the brand and
5. Insulated the brand from economic cycles, since a successful brand
immediately reduces the impact of price alone on demand.

3.1.Branding Decisions:
3.1.1.Brand name decisions:

The first decision is whether the company should develop a brand name for its
product. Branding is such a strong force that hardly anything goes unbranded. In some
cases however there has been ‘no branding’ of certain staple consumer goods and
pharmaceuticals. ‘generics’ are unbranded, plainly packaged, less expensive versions of
common products. They offer standard or low quality at a price that may be as much as
20 percent to 40 percent lower than nationally advertised brands and 10 percent to 20
percent lower than retailer private label brands. The lower price is made possible by
lower quality ingredients, lower cost labeling and packaging, minimal advertising. The
advantages of brand naming are:

Easier for the seller to process orders and track down problems
Provide legal protection against plagiarism
Gives the seller the opportunity to attract a loyal and profitable set of
customers
Helps build corporate image

Qualities of a brand name are as follows


Should suggest something about products benefits like ‘fairever’ or ‘fair
&lovely’
Should suggest product qualities such as action or color like ‘sunsilk’,
'Head and Shoulders’
Should be easy to pronounce like ‘Tide ‘,’surf’
Should be distinctive like Rin, Lux
Should not carry poor meanings in other countries and languages.

There are certain basic categories of brand (or corporate) name:


• Descriptive name A name which describes the product or service for
which it is intended, e.g., MILMA brand of milk available in Kerala.
• Associative name A name which alludes to an aspect or benefit of the
product or service, often by means of an original or striking image or idea,
e.g., VISA.
• Freestanding name A name which has no link to the product or service
but which might have meaning of its own, e.g., PENGUIN.
• Abstract name A name which is entirely invented and has no meaning of
its own, e.g.,ONIDA. Abstract names are a sub-set of freestanding names
because they also have no link to the product of service.
• Coined name Any name which is in some way invented. Coined names
can be descriptive (3M), associative (TANCEM – Tamil nadu cements)
and freestanding/abstract (ELECTROLUX).

The brand name is the most important element in the branding mix. It
identifies the product or service, and allows the consumers to specify, reject or
recommend brands. Through time and use, a name can therefore become a
valuable asset. Colgate- Palmolive company has systematically tried to
harmonise the naming of its products from country to country. In general, it uses
the Colgate name for oral care products, such as toothpaste, and the Palmolive
name for body care products, such as shampoos and conditioners. When Nissan
Motor Company introduced its cars into the United States, its management did
not have total confidence in the quality of its cars, so the name Datsun was used
for fear of losing face. However, after 20 years of promoting the Datsun name
and building a quality image, the company decided to phase out the Datsun
name and substitute the corporate name, Nissan. For a time, the company’s cars
carried both names, until the Nissan name was firmly established in consumers’
minds.

Inter brand in the 1980s helped pioneer a shift in pharmaceutical naming


trends through the creation of the name Prozac for Eli Lilly’s anti-depressant.
Prior to this, pharmaceuticals names were scientific sounding with usually some
reference to the chemical compound. Prozac was coined from “Pro” for
professional, pro-active and “Zac” for the ability of the medication to target
exactly the area needing treatment. It was one of the first names to suggest a
benefit in a way that was approachable to consumers. Over 10 years later,
Prozac still remains the world’s leading antidepressant with over $3 billion in
annual sales. Hence naming a brand is very important. The various stages in
naming a brand are:

1. Decide what job the new name need to perform, now and in the future.
2. Isolate those naming themes that are relevant to the consumer and
appropriate in branding and positioning terms.
3. Use Delphi technique or focus groups, name development specialists,
computers and an existing name library to create names.
4. Once a vast list of names are identified, it needs to be pruned to manageable
proportions.
5. Names that have difficulty of pronounciation, legibility, memorability or
meaning need to be discarded.
6. Eliminate those names that are unregistrable as trade marks, that are too
close to existing competitive marks or that fail to meet other criteria like length
of the name etc.
7. Choose the name upon discussion with the top management, advertising
agency and the participants in the marketing system.

Initially, Mitsubishi sought to sell its four-wheel-drive utility wagon as the Pajero
until they learned it meant "straw man" in Spanish; it was renamed the Montero,
"Mountain Man." One firm tried to sell a de-icer in the U.S. by the name "Super-
Piss." The Spanish potato chip "Bum" did not do well for the same reason.
Nissan also sought to sell a sports car in the U.S. in the early '70s called the "Fair
Lady." It later sold better as the 240Z. In any naming process, hundreds of
potential names are eliminated by some of the steps already mentioned. In
coming up with a name for the old Bell Labs division of AT&T, San Francisco-
based firm Landor Associates went through 700 different names before they
came up with "Lucent Technologies." Finally, it makes sense to eliminate names
that do not sound well or make sense in other languages. During Coca-Cola's
first entrance in China, great care was taken to get the phonetics correct in
pronouncing Coca-Cola. However, the name manipulators forgot the meaning of
the symbols they selected only to learn they meant "kiss the wax tadpole."

Qualities of a brand name are as follows

Should suggest something about products benefits like ‘fairever’ or ‘fair


&lovely’
Should suggest product qualities such as action or color like ‘sunsilk’,
'Head and Shoulders’
Should be easy to pronounce like ‘Tide ‘,’surf’
Should be distinctive like Rin, Lux
Should not carry poor meanings in other countries and languages.

3.1.2.Brand Sponsor Decision:

There are several options with respect to brand sponsorship. The products
can be launched as any of the following types of brands.
Manufacturer brand-called sometimes as a national brand like the
Blowplast Industries’ VIP.
Distributor brand-also called reseller, store, house (or) private brand.
Licensed brand name. Although manufacturer brands dominate, large
retailers have been developing their own brands by contracting production
from willing manufacturers.

In years past, customers viewed brands in a category arranged in a ‘brand ladder’ with
their favorite brand at the top and remaining brands in descending order of preference.

Now the ‘brand ladder’ concept is being replaced by ‘brand parity’ that many
brands are equivalent.

3.1.3.Brand Strategy Decision:

A company has five choices with regards to brand strategy. They are,

1. Line extensions: existing brand name extended to new sizes or flavors in the
existing product category like Cinthol ‘cologne’, Cinthol ‘lime’. Extensions may
lead to the brand name losing in specific meaning. However there is a much
higher chance of survival than brand new products.
2. Brand extensions: where a company may use its existing brand name to
launch new products in other categories like the brand ‘Rin’ being extended to
both detergent powders, detergent cakes. The new product may disappoint
buyers and damage their report for the company’s other products. The brand
name may be in appropriate to the new product. The brand name may also
lose it’s special positioning in consumers’ mind trough over extension. ‘Brand
dilution’ occurs when consumers no longer associate a brand with a specific
product or highly similar products.
3. Multi-brands: a company will often introduce additional brands in the same
product category. Sometimes the company is trying to establish different
features or appeal to different buying motives. A multi-branding strategy also
enables the company to lock up more distributor shelf space and to protect its
major brand by setting up ‘flanker brands’. Hindustan lever limited produces
three different brands of detergent powders. Company inherits different brand
name in the process of acquiring competitors. SmithKline Beecham consumer
health care owns the acquired brand names like ‘Viva’, ’Malt ova’. Hindustan
Lever Ltd. Owns acquired brand names like Brook Bond, Hamam Kissan. A
major pitfall introducing multi-brand entries is that each might obtain only a
small market share and none may be particularly profitable. The company will
have dissipated its resources over several brands instead of building a few
highly profitable brands.
4. New Brands: New Brands are created when company launches products in a
new category it may find that none of its current brand names are appropriate.
Yet, the cost of establishing a new brand name in the market place is costly.
5. Co –Brands: A co-brand is a combination of two or more well known brands
in an offer like the combination of SBI and GE Capital in the issue of SBI
credit cards.
3.1.4.Brand Repositioning:However well a brand is currently positioned, the company
may have to reposition it later when facing new competitors or changing customer
preferences. The UB groups McDowell’s ‘Mera no.1’ brand was once positioned for
people with ecstatic moods but now it has been repositioned as a drink for socially
responsible individuals.

The branding strategies for readymade garments and general lighting


segments are depicted in the following figure :

Figure: Branding strategies –some examples

Strategy/decision Readymade Garments General lighting

To brand or not to Always branding is Always better to


brand advantageous. brand
e.g. Arrow, Louis Phillipe, e.g. Philips, GE,
Peter England, Surya
Cambridge
Brand-sponsor Licensed brand name is Manufacturer’s
decision most common brand
e.g. Arrow (Cluett e.g.. Philips, Bajaj
Peabody, USA)
Louis Phillipe ( Van
Heusen, UK)
Brand name decision Individual brand names Blanket family name
e.g. Arvind mills owns – e.g. GE, Philips,
Excalibur, Arrow, Ruf and Surya
Tuf
Birla group owns – Louis
Phillipe, Van Heusen,
Peter England
Siyarams own-
Oxemburg, J Hampstead
Brand strategy Multi brands e.g.. Indus Brand extensions
decision League’s multi brand used by all the
shirts – Schullers, Indigo players
nation
ArvindMills - Excalibur,
Arrow, Ruf and Tuf

3.2.Brand meaning:

A brand can convey up to six levels of meaning. The challenge in branding is to develop
a deep set of these meanings for the brand. When the audience can visualise all the six
levels, then the brand can be deemed to be a success. The following are the six levels:
1. The key attributes based on its recognition, reputation, affinity and expertise
needs to be communicated to the customers. Hence if Maruti advertises on its
MPFI engine or Bajaj advertises on its resale value, then the attributes are put
across to the customers.

2. The second level is that the attributes should be translated into functional and
or emotional benefits. Thus Maruti advertises that every 2 out of 3 buy a
Maruti translates their key attributes across the customers.

3. The third level of meaning is about the producer’s values. By advertising that
even in Himalayas, Maruti has a service centre, they show that they care for
the customer and their concern to have as many service centers across the
country.

4. The fourth level is in its culture. Johnson and Johnson had always focussed
on the bondage between the mother and the child while advertising their child
care products, it represents their culture. Hyundai Santro focussed their
Korean culture intitally and then used a celebrity to drive home their product
differentiations. When Dabur Amla hair oil advertises, the non-chemical
requirements of the Indian women got translated in their culture.

5. The fifth level of meaning is on the brand personality. The brand is portraying
the personality of an individual who owns it. Hence if surf is to be related to
God Shiva, Nirma is related to Goddess Kali and their relationship will reflect
the true identity of the brands.

6. The last level is the kind of person who buys or uses the product. He/She
does it based on the product’s values, culture and personality. That is the
reason why Raymond advertises the ‘complete man’ factor to get the
premium-ness it expects from the market. “Three roses” tea portrays what the
totality of tea is all about. “Vim” bar is also an example which shows the
middle class women’s thriftiness and quality consciousness.

3.3.Brand Platform:

Interbrand's proprietary model for defining brands. The Brand Platform


consists of the following elements:
• Brand Vision: The brand's guiding insight into its world.
• Brand Mission: How the brand will act on its insight.
• Brand Values: The code by which the brand lives. The brand values act
as a benchmark to measure behaviors and performance.
• Brand Personality: The brand's personality traits
• Brand Tone: That of voice. How the brand speaks to its audiences.

3.4.Brand Architecture:
Brand Architecture is the vehicle by which the brand team functions as a unit to
create synergy, clarity and leverage. How an organization structures and names
the brands within its portfolio is also known as the brand architecture. There are
three main types of brand architecture system:
monolithic, where the corporate name is used on all products and
services offered by the company;
endorsed, where all sub-brands are linked to the corporate brand by
means of either a verbal or visual endorsement; and
freestanding, where the corporate brand operates merely as a holding
company, and each product or service is individually branded for its
target market.
Brand architecture is an organizing structure of brand portfolio that specifies the
brand roles and relationship among the brands and different product market context. It is
mainly defined by the three major dimensions viz. Portfolio roles, Product market context
roles and the Portfolio structure.

Brand portfolio: Brand architecture involves the management of brand portfolio. Brand
portfolio includes all the types of brand viz. Brands and sub-brands as well as co-brands
with other firms. For example, the brand portfolio of HLL consisting of 110 brands with
950 of different types of packs which are operating under different market context like
healthcare, personal care, beverages, etc. During the annual year 2001-2002, HLL has
taken a decision to further prune down their 110 brands to 36 brands only over a three
year period. A brand portfolio can be strengthen by the addition of brand keeping in view
the portfolio perspective. Some international brands are being planned to be strengthened
in HLL.Similarly brands can be deleted by identifying the superfluous brands which are
contributing nothing to the brand portfolio. Some of the brands to be deleted by HLL
include Jai soap, Captain cook salt and Aim toothpaste.

Portfolio roles:

For building effective brand architecture it is necessary to identify the portfolio


roles of each brand. A strategic brand or a mega brand is a currently dominating brand
that represents a meaningful future level of sales and profit. For ex: Lux and Lifebuoy are
strategic brands for HLL, TATA consultancy services (TCS) is a strategic brand of TATA
group of cos. because the vision of the firm is to move beyond traditional steel and
automobile business. A linchpin brand unlike strategic brand does not necessarily
represent a meaningful future level of sales and profit but it is a leverage point of a major
business area. It indirectly influences a business by providing a basis for customer
loyalty. For ex. ‘Premium’, a brand extension of JK.It is a linchpin brand for JK because
it has extended the JK’s credibility in different businesses from chemicals to men’s
toiletaries. A silver bullet is a brand or sub-brand that positively influence the image of
another brand.it can be a powerful force in creating, changing and maintaining a brand
image. For example, when iMaC was launched it has provided a significant boast in
public perception of the Apple brand. Strategic, Linchpin and Silver bullet brands
involves investments and active management for fulfilling their strategic mission. The
cash cow brands on contrast does not require any investment because it has a significant
loyal customer base. The role of a cash cow brand is to generate marginal resources that
can be invested in other brands, which will help for future growth and vitality of brand
portfolio. For ex; Fair and Lovely fairness cream the core product of HLL, a brand that
has been extended to soaps. Similarly, Dettol as a cash cow brand has been extended in
order to gain the maximum out of the equity.

Product market context roles

There are four steps of product market context roles that work together to define a
specific offering:

a) Endorser and sub-brands roles: An endorser brand is an established brand that


provides credibility and substance to the offering. Endorser brands usually represents
organizations rather than products because organizational associations such as
innovation, leadership and trust are particularly relevant in endorsement context for
example, Tata has 80 different companies operating in seven business sectors, which are
endorsed under the mega brand TATA. The sub brands on the other hand stretches
endorser brands that add associations, a brand personality or any other quality which
creates brand identity of it for ex. Nestle’s Cerelac, Gillette’s Mach 3 and Cadbury’s
Bournvita. The understanding and use of endorser brand and sub brands is a key in
achieving clarity, synergy and leverage in the brand portfolio.

b) Benefit brands: The benefit brand is a brand which offers either features, component
ingredients or services which becomes the unique selling proposition (USP) of offering.
For example, Johnson and Johnson brand ‘Indicator’ toothbrush, has a branded feature
which shows the time to replace the toothbrush.
c) Co-Brands: Co- branding occurs when brands from different organizations combine to
create an offering in which each plays a driver role. The impact of co-branding can be
greater than expected when the associations of each brand are strong and complementary.
d) Driver role: Driver role is an extent to which a brand drives the purchase decision and
defines the use experience. Brand with a driver role will have some level of loyalty.
Nirma washing powder for Nirma Chemicals and Lifebuoy for HLL are driver brands.

Brand portfolio structure:

The brands in the portfolio have a relationship with each other. Brand
architecture also involves designing a structure of all the brands, which will provide
clarity to the customer rather than complexity and confusion. It must provide a sense of
order, purpose and direction to the organization. Three approaches can be utilized to
present the portfolio structure.

For any firm the objectives behind designing and maintaining an effective brand
architecture are:

Create effective and powerful brands.


Understand the portfolio roles of each brand (strategic, silver bullet, linchpin and
cash cow) and allocate the brand building resources in that manner.
Create synergy between brands by enhancing visibility, creating and reinforcing
associations and cost efficiencies.
Advance clarity of product offering to the customers and organization.
Leveraging the brand equity by proper brand and line extensions exercise.
Provide a platform for future growth option to the organisation.

3.5.Brand Extension:

In today’s fiercely competitive marketplace, brand extensions have


become a standard strategy for new product introductions. Brand extensions
have proliferated over the past decade, and the rationale behind endowing a new
product with a well-known brand name is to provide consumers--and the trade--
with a sense of familiarity and security by leveraging positive brand
characteristics in a new product category. Brand extensions have become a
standard strategy for new product introductions in today’s fiercely competitive
marketplace. It is considered as a marketing strategy in which a company uses
one of its established brand names on a modified product i.e., a new line, or on
an entirely related new product. It is done so because the new products entering
the market place are well supported and well – recognised. Core brands are
being referred to as assets with profit generating capabilities. A Company may
decide not to position the brand explicitly against any competitor. In implementing
this strategy, the firm may advertise the brand and its benefits on its own grounds
rather than in a comparative fashion. In this respect, brand-extension research
has shown that the positive affect of a brand may be transferred to the extension.
Moreover, affect transfer is most likely to occur when the brand’s old and the new
categories are perceived to be similar. Finally, brand-specific associations are
another important factor to consider; they may dominate the effects of brand
affect and category similarity, especially when consumers are knowledgeable
about the brand.

Line extensions and brand extensions are different as such. Line extensions should
refer only to additions to an existing product like new sizes, styles or related products
– to fill out the line. Thus, Fair Glow is an addition to the Godrej toilet soap line,
which already included Cinthol and Ganga. Wheel was a line extension to HLL’s line
of detergent bars, which already contained Rin and Surf. By contrast, brand extension
refers to using an existing brand name to enter another product market category
altogether viz., Dettol antiseptic liquid and Dettol soap.
Product line extension: Adding related products to an already established
brand. Arrow After hours shirts being added to business shirts.

Product form extension: Providing the same product in another forms


variant. Pond’s soap cake offered as a liquid soap is an example.
Product category extension: Launching a different product under an
already successful product’s brand name. BiC disposable razors under the
same brand name as BiC disposable ball pens. Shivaki watches after
entering TV market as Shivaki TV. Amul Ice creams after the success of
Amul Butter.

The most common form of brand extension is family branding. A family brand is
assigned to an entire range or mix of all product items. Godrej makes soaps, locks,
furniture etc. In all these products, Godrej brand extensions are carried out. A
powerful name, however, is no guarantee that family branding will succeed. Xerox
tried to extend its powerful brand name to computers and printers but failed. Murphy
suggests that brand extensions constitute an estimated 95 per cent of the 16,000 new
products launched in the Untied States every year. Extensions are popular because
they can provide new products with a ready-made image while helping existing
products through increased brand exposure. However, extending a brand name to
inappropriate products may result in product failure and/or reduced brand value.
There are three key factors that a company must consider in the implementation of a
brand-extension strategy:
(1) competitive brands in the extension categories
(2) the attributes of the extension brand and
(3) The perceived fit between the brand and the extension.

3.6. Brand Stretching:

Brand stretching is applying an existing brand to a completely different business


area or a new product or service- such as Cadbury’s entry into cola market. The risk
attached to brand stretching is that failure in the new field may affect the core product.
NEPC is one such example. Its failure in the Television, aviation and agricultural
businesses affected the very credibility of NEPC brand. One aspect of brand stretching is
that, once a brand personality becomes strongly associated with a product category, it
becomes difficult to stretch the brand to another category like Hero Honda shampoo.

3.7. Brand equity:

Brand equity is a set of assets and liabilities linked to a brand’s name and symbol
that add to subtract from the value provided by a product or service to ad firm and / or
that firm’s customers. According to David A. Aaker, brand equity is "a set of brand assets
and liabilities linked to a brand, its name and symbol, that add to or subtract from the
value provided by a product or service to a firm and/or that firm's customers". Lance
Leuthesser, et al wrote that "Brand equity represents the value (to a consumer) of a
product, above that which would result for an otherwise identical product without the
brand's name. In other words, brand equity represents the degree to which a brand's name
alone contributes value to the offering (again, from the perspective of the consumer)". In
America, there is a now an influential body called the Coalition for Brand Equity
(founded 1991), which evangelists for the importance of building brand relationships and
brand loyalty. The Marketing Science Institute defines brand equity as, “The set of
associations and behaviors on the part of the brand's customers, channel members, and
parent corporations that permit the brand to earn greater volume or greater margins than it
could without the brand name and that gives the brand a strong, sustainable, and
differentiated advantage over competitors”. Joel Axelrod defines brand equity as ‘the
incremental amount your customer will pay to obtain your brand rather than a physically
comparable product without your brand name’.

The assets and liabilities on which brand equity is based differ from context to
context. They can be usefully grouped into four categories viz., Perceived quality, brand
awareness, brand identity, and brand loyalty. Brand equity refers to a “set of assets and
liabilities linked to a brand, its name and symbol that add to or subtract from the value
provided by a product or service to a firm and or to that firm’s competitors. In other
words brand equity provides (or negatively subtract) value to a firm in the form of price
premium or trade leverage or competitive advantage. The most important assets of any
business are intangible: its company name, brand, symbols, and slogans, and their
underlying associations, perceived quality, name awareness, customer base, and
proprietary resources such as patents, trademarks, and channel relationships. These
assets, which comprise brand equity, are a primary source of competitive advantage and
future earnings. The overall description of Brand Equity incorporates the ability to
provide added value to a company's products and services. This added value can be used
to the company's advantage to charge price premiums, lower marketing costs and offer
greater opportunities for customer purchase. In FMCG products, brand equities are
relatively stronger as the consumer is reluctant to try unknown brands and even
unbranded products as most of these products are for personal use. It is often difficult to
differentiate a product on technical or functional grounds and therefore there is little
reason to switch from a known brand. A successful brand generates strong cash flow,
which enables the company brand to reinvest a part of it in the form of aggressive
advertisement or promotion in order to reinforce the perceived superiority of the brand.
The worth of a brand is manifested in the consumers’ insistence on a particular brand or
willingness to pay a price premium for the preferred brand.

A badly mismanaged brand can actually have negative Brand Equity, meaning
that potential customers have such low perceptions of the brand. Many people may think
that building and maintaining brand equity is solely the responsibility of brand managers,
but it is actually a cross-functional team effort. Financial managers are important because
they can fully analyze the costs of maintaining and building brand equity. For example,
launching a new brand is extremely consuming in terms of money and time. It may be
more cost effective to extend a current brand than introduce a new brand. Marketing
research is critical for many obvious reasons. It develops most, if not all, of the research
and data that companies will use for deciding strategic issues. Marketing research can
also help determine how brand equity is actually measured. Once a definition of brand
equity is established, the responsibility of tracking and measuring it will belong to the
marketing research department. Brand managers ultimately bring all of the parts together
and decide the direction of the brand.

4. Have you understood type questions:


1. Which of the following is NOT a desirable feature for a brand name?
A. it can facilitate the introduction of new products
B. it can become used as the generic name for all products in the
category
C. it can make it possible for the firm to engage in non price
competition
D. it can help develop brand loyalty amongst buyers
2. Own label brands are initiated and owned by
A. manufacturers only.
B. manufacturers and retailers.
C. wholesalers only.
D. wholesalers or retailers.
3. Firms that use ----- are less likely to damage their reputations if a new product
fails.
A. individual branding
B. overall family branding
C. line family branding
D. brand extension branding

4. Do you think brands can create companies or vice-versa? Justify.


5. “Brand naming is a scientific process. However, it is found that 90% of the
organizations do on
their own without looking into the scientific process”- Is the statement true or false?
Justify.

5. Summary:

A customer orientation will lead to concern for existing customers and programs to
generate brand loyalty. A prime enduring asset for some businesses is the loyalty of the
installed customer base. Competitors may duplicate or surpass a product or service, but
they still face the task of making customers switch brands. Switching costs would be a
consideration for a software user, for example, when a substantial investment has already
been made in training employees to learn a particular software system. Another
development is Co-Branding. It is also called ‘dual branding’. Here two or more well-
known brands are combined in an offer. It is a form of cooperation between two or more
brands with significant customer recognition, in which all the participant brand names are
retained. Co-branding lies between the two extreme points of marketing alliances. It is of
medium to long term duration and its shared value potential is not as low as a temporary
nature nor it is as high as to justify the culmination into a joint venture. Each brand
sponsor expects that the other brand name will strengthen preference or purchase
intention. If the two brands are such that the brand values are difficult to be shared, the
success of a co-branding exercise between them is remote. In case of co-packaged
products, each brand hopes it might be reaching a new audience by associating with other
brand. If an organization has a strong brand, it can last for years. If it is not having a
brand and only physical infrastructure, it is destined to be in loss.
6. Exercises:

1. There are certain characteristics for a brand. Keeping these characteristics, find out
whether the following brands have them or not. Justify your answer
a. Kitply
b. Close-up
c. Dabur
d. Maltova
e. Pepsodent
f. Style-Spa

2. Explain the brand extensions done by companies in India.


3. “Brand stretching will damage the companies in the long run”- Explain with examples.
4. Do you think brand equity is needed for short run gains? Explain.
5. Brand dilution can lead to brand deletion- with examples explain.

7. References:

1. Balaji Prasad & M.Chandrasekhar, “ The power of brand”, Indian


management, August 1998, pp.88-89.
2. Bruce Horovitz and Melanie Wells, “ Long after their sales stop sizzling, some
brand names linger in… product purgatory”, USA Today, May 2, 1995, p.1.
3. Chris Roush, “ At Timex, they are positively glowing”, Business Week, July
12, 1993, p.141.
4. deChatnatony and McDonald, “Creating powerful brands”, Oxford
Butterworth, 1998.
5. John A.Quelch & David Harding, “Brands versus private labels: fighting to
win”, Harvard Business Review, Jan-Feb, 1996, pp.105-109.
6. Kevin Goldman, “ Old Spice’s familiar sailor is lost at sea”, Wall Street journal,
September 10, 1993, p.2.
7. Kevin Lane Keller, “ Managing Brands for the long run: Brand reinforcement
and revitalisation strategies”, California Management Review, spring 1999,
pp.120-122.
8. Kevin Lane Keller, Susan Heckler and Michael Houston, “ The effects of
brand name suggestions on advertising recall”, Journal of marketing, January
1998, pp.48-56.
9. Kotler, Philip; ‘Marketing Management’, Prentice Hall of India private limited,
New Delhi, 1999, pp. 414 – 417.
10. Kumar, .S. Ramesh , “Importance of Techno-branding”, Business Line
Catalyst, Thursday, March 16,2000.
11. Laura Bird, “Tambrands plans global advertising campaign”, Wall Street
Journal, June 22, 1993, p.8.
12. Mahaswetha Ghosh Roy, “ Second coming”, Business World, 20 March-2April
1996, pp.44-46.
13. Michael McCarthy, “ Pepsi is returning to younger generation”, Wall Street
journal, January 22, 1994, p.2.
14. Mohan Ramamurthy, “Sweet taste of victory”, Business India, May 18-21,
1998.
15. Mukul Gupta, “ Tug of war”, Indian management, September 1997, pp.37-39.
16. Nielson, “Brand stretching can be fun- and dangerous”, The Economist, 5
May, p.105.
17. Pratap Ravindran, “ Brands, The corporate ‘trust mark’”, Business Line,
January 9, 1999.

Pricing
Unit structure:

1. Introduction
2. Learning Objectives
3. Pricing
3.1. Basic principles of pricing
3.2. Importance of pricing
3.3. Factors influencing pricing decisions
3.4. Setting pricing
3.5. Pricing methods
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Most people simply use the word price to indicate what it costs to acquire a
product. The pricing decision is a critical one for most marketers, yet the amount
of attention given to this key area is often much less than is given to other
marketing decisions. One reason for the lack of attention is that many believe
price setting is a mechanical process requiring the marketer to utilize financial
tools, such as spreadsheets, to build their case for setting price levels. While
financial tools are widely used to assist in setting price, marketers must consider
many other factors when arriving at the price for which their product will sell.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the basic principles of pricing
• Understand the importance of pricing
• Understand the factors influencing pricing by organisations
• Understand the price setting process
• Understand the various methods of pricing.

3. Pricing:
Price is considered as a component of an exchange or transaction that
takes place between two parties and refers to what must be given up by one
party (i.e., buyer) in order to obtain something offered by another party (i.e.,
seller). Price means different things to different participants in an exchange. One
is the buyer. Their view for those making a purchase, price refers to what must
be given up to obtain benefits. In most cases what is given up is financial
consideration (e.g., money) in exchange for acquiring access to a good or
service. But financial consideration is not always what the buyer gives up.
Sometimes in a barter situation a buyer may acquire a product by giving up their
own product. For instance, two farmers may exchange chicken for crops. In the
case of the seller, price reflects the revenue generated for each product sold and,
thus, is an important factor in determining profit. For marketing organizations
price also serves as a marketing tool and is a key element in marketing
promotions. For example, most discount retailers highlight product pricing in
their advertising campaigns. Price is what a buyer pays to acquire products from
a seller. Cost concerns the seller’s investment (e.g., manufacturing expense) in
the product being exchanged with a buyer. For marketing organizations seeking
to make a profit the hope is that price will exceed cost so the organization can
see financial gain from the transaction. While product pricing is a main topic for
discussion when a company is examining its overall profitability, pricing decisions
are not limited to for-profit companies. Not-for-profit organizations, such as
charities, educational institutions and industry trade groups, also set prices,
though it is often not as apparent.

3.1. Basic principles of pricing:

Before any discussion on pricing, it is important to know what really drives pricing.
Every organization is involved in a cost component before the ultimate product comes to
the market. Now we need to know how the cost is calculated. The components that are
considered in costing include cost of materials that you have issued for order, activity you
have performed in terms of labour hours that you entered while confirming the order (the
rates for the labour vary..) which is generally associated with a formula key and attached
to a work center that is linked to a cost center also and the overhead as applicable with
respect to that cost center based on a predetermined cost center planning and its rate.

A break-even analysis examines the interaction among fixed costs,


variable costs, prices, and unit volume to determine that combination of elements
in which revenues and total costs are equal. Fixed costs are those expenses
necessary to keep the business open, and are not impacted by sales volume.
They will include such things as rent, basic telephone expenses and utilities,
wages for core employees, loan or lease payments, and other necessary
expenditures. An entrepreneur should also include a living wage for
himself/herself as a fixed cost. Variable costs include those expenses that
change as a result of sales volume. Variable costs can also be very complex; for
example, higher sales in one area of our business may increase long distance
charges. Labor costs may be fixed for full-time employees, then, as sales
increase, some overtime is incurred until additional personnel can be justified.
Generally, an initial break-even analysis focuses on a relatively narrow range of
sales volume in which variable costs are simple to calculate. A general term often
used for the difference between selling price and variable cost is "contribution
margin," or the amount that the unit sale contributes to the margin available to
pay fixed costs, and generate profit. Selling price is determined based on all this
above considerations. The extent of contribution margin will decide the pricing of
the product.

3.2.Importance of Pricing:

For a buyer, value of a product will change as perceived price paid and/or
perceived benefits received change. But the price paid in a transaction is not only
financial it can also involve other things that a buyer may be giving up. For example, in
addition to paying money a customer may have to spend time learning to use a product,
pay to have an old product removed, and close down current operations while a product is
installed or incur other expenses. Pricing decisions can have important consequences for
the marketing organization and the attention given by the marketer to pricing is just as
important as the attention given to more recognizable marketing activities. In most
companies, prices are tactically derived based on internal costs and gut reaction to
competitive moves.

This is often the only element the marketer can change quickly in response to
demand shifts and it is directly related to total revenue. Profits can be made only
by knowing the difference between total revenue and total cost. Organizations
can use price symbolically, emphasize quality or bargain. The importance of
pricing depends on the image the organization wants to portray, competitive
activity in the market and the changing behaviour of the customer. From a
strategic aspect, pricing has more impact on positioning and ultimate profitability
than any other item in the overall marketing mix. Depending on market
sensitivities and current profit margins, a 1% increase in price could increase
profitability by up to 10%. The key to effective strategic pricing is to leverage
market based understanding of how customer's value new and existing offerings
in a competitive marketplace. Customers want the best value for their money,
and thus they will almost always do a quality comparison and make purchases
based on the best price for the best value. How customers view the product or
service and what they are willing to pay for it is based upon those perceptions. In
the end, customers will tell through their purchasing behavior whether or not the
prices are too high, too low or right on the money.
3.3.Factors Affecting Pricing Decision

There are both internal and external factors that affect pricing.

3.3.1. Internal Factors :


These internal factors are controllable by the company and, if necessary, can be
altered. However, while the organization may have control over these factors
making a quick change is not always realistic. For instance, product pricing may
depend heavily on the productivity of a manufacturing facility. The marketer
knows that increasing productivity can reduce the cost of producing each product
and thus allow the marketer to potentially lower the product’s price. But
increasing productivity may require major changes at the manufacturing facility
that will take time and will not translate into lower price products for a
considerable period of time. Corporate objectives can be wide-ranging and
include different objectives for different functional areas (e.g., objectives for
production, human resources, etc). While pricing decisions are influenced by
many types of objectives set up for the marketing functional area, there are four
key objectives in which price plays a central role. In most situations only one of
these objectives will be followed, though the marketer may have different
objectives for different products. The four main marketing objectives affecting
price include:
• Return on Investment : A firm may set as a marketing objective the
requirement that all products attain a certain percentage return on the
organization’s spending on marketing the product.
• Cash Flow: Firms may seek to set prices at a level that will insure that
sales revenue will at least cover product production and marketing
costs. This objective allows the marketer to worry less about product
profitability and instead directs energies to building a market for the product.
This is most likely to occur with new products where the organizational
objectives allow a new product to simply meet its expenses while efforts are
made to establish the product in the market.
• Market Share: The pricing decision may be important when the firm has
an objective of gaining a hold in a new market or retaining a certain percent
of an existing market. For new products under this objective the price is set
artificially low in order to capture a sizeable portion of the market and will be
increased as the product becomes more accepted by the target market. For
existing products, firms may use price decisions to insure they retain market
share in instances where there is a high level of market competition and
competitors who are willing to compete on price.
• Profit maximization: Older products that appeal to a market that is no
longer growing may have a company objective requiring the price be set at a
level that optimizes profits. This is often the case when the marketer has
little incentive to introduce improvements to the product and will continue to
sell the same product at a price premium for as long as some in the market
is willing to buy.
Marketing strategy concerns the decisions marketers make to help the company satisfy its
target market and attain its business and marketing objectives. Price, of course, is one of
the key marketing mix decisions and since all marketing mix decisions must work
together, the final price will be impacted by how other marketing decisions are made.
For instance, marketers selling high quality products would be expected to price their
products in a range that will add to the perception of the product being at a high-level.

Costing is yet another area of concern. While variable costs are often determined on a
per-unit basis, applying fixed costs to individual products is less straightforward. For
example, if a company manufactures five different products in one manufacturing plant
how would it distribute the plant’s fixed costs (e.g., mortgage, production workers’ cost)
over the five products? In general, a company will assign fixed cost to individual
products if the company can clearly associate the cost with the product, such as assigning
the cost of operating production machines based on how much time it takes to produce
each item. Alternatively, if it is too difficult to associate to specific products the
company may simply divide the total fixed cost by production of each item and assign it
on percentage basis.

3.3.2. External Factors:

There are many influencing factors which are not controlled by the company but
will impact pricing decisions. Understanding these factors requires the marketer
conduct research to monitor what is happening in each market the company
serves since the effect of these factors can vary by market.

Marketing decisions are guided by the overall objectives of the company. The pricing
decision can be affected by factors that are not directly controlled by the marketing
organization.

When it comes to adjusting price, the marketer must understand what effect a change in
price is likely to have on target market demand for a product. Understanding how price
changes impact the market requires the marketer have a firm understanding of the
concept economists call elasticity of demand, which relates to how purchase quantity
changes as prices change. Elasticity is evaluated under the assumption that no other
changes are being made (i.e., “all things being equal”) and only price is adjusted. For
example, competitors may react to the marketer’s price change by changing the price on
their product. Despite this, elasticity analysis does serve as a useful tool for estimating
market reaction.

Elasticity deals with three types of demand scenarios:

1. Elastic Demand – Products are considered to exist in a


market that exhibits elastic demand when a certain
percentage change in price results in a larger percentage
change in demand. For example, if the price of a product
increases (decreases) by 10%, the demand for the product
is likely to decline (rise) by greater than 10%.
2. Inelastic Demand – Products are considered to exists in an
inelastic market when a certain percentage change in price
results in a smaller percentage change in demand. For
example, if the price of a product increases (decreases) by
10%, the demand for the product is likely to decline (rise) by
less than 10%.
3. Unitary Demand – This demand occurs when a percentage
change in price results in an equal percentage change in
demand. For example, if the price of a product increases
(decreases) by 10%, the demand for the product is likely to
decline (rise) by 10%.

Firms within the marketer’s channels of distribution also must be considered when
determining price. Distribution partners expect to receive financial compensation for
their efforts, which usually means they will receive a percentage of the final selling
price. This percentage or margin between what they pay the marketer to acquire the
product and the price they charge their customers must be sufficient for the distributor to
cover their costs and also earn a desired profit. Marketers will undoubtedly look to
market competitors for indications of how price should be set. For many marketers of
consumer products researching competitive pricing is relatively easy, particularly when
Internet search tools are used. Price analysis can be somewhat more complicated for
products sold to the business market since final price may be affected by a number of
factors including if competitors allow customers to negotiate their final price.

Marketers must be aware of regulations that impact how price is set in the markets in
which their products are sold. These regulations are primarily government enacted
meaning that there may be legal ramifications if the rules are not followed. Price
regulations can come from any level of government and vary widely in their
requirements. For instance, in some industries, government regulation may set price
ceilings (how high price may be set) while in other industries there may be price floors
(how low price may be set). Additional areas of potential regulation include: deceptive
pricing, price discrimination, predatory pricing and price fixing.

3.3. Pricing setting process:

Price setting process starts with understanding the company and marketing objectives.
Then an initial price is to be readied. We need to also understand the standard price
adjustments along with determining promotional pricing and looking for payment
options. First, the overall objectives of the company guide all decisions for all functional
areas (e.g., marketing, production, human resources, finance, etc.). Guided by these
objectives the marketing department will set its own objectives which may include return
on investment, cash flow, market share and maximize profits to name a few as stated in
3.2. Pricing decisions like all other marketing decisions will be used to help the
department meet its objectives. For instance, if the marketing objective is to build market
share it is likely the marketer will set the product price at a level that is at or below the
price of similar products offered by competitors.

For companies selling to consumers, this price also leads to a projection of the
recommended selling price at the retail level often called the manufacturer’s retail price
(MRP). The MRP may or may not be the final price for which products are sold. For
strong brands that are highly sought by consumers the MRP may in fact be the price at
which the product will be sold. But in many other cases, as we will see, the price setting
process results in the price being different based on adjustments made by the marketer
and others in the channel of distributions. This will lead to which of the pricing methods
best suited for the brand. That will be discussed in 3.5. In most cases standard
adjustments are made to reduce the list price in an effort to either stimulate interest in the
product or to indirectly pay channel partners for the services they offer when handling the
product. It should be noted that many companies do not make adjustments to their list
price, particularly those selling directly to final customers. There are two key reasons for
this. First, the product is in high demand and therefore the marketer sees little reason to
lower the price. Second, the marketer believes the product holds sufficient value for
customers at its current list price and the marketer feels reducing the price may actually
lead buyers to question the quality of the product.

For firms that do make standard price adjustments, the possibilities include:

• Quantity Discounts
• Trade Allowances
• Geographic Pricing
• Special Segment Discounts

Quantity Discounts
This adjustment offers buyers an incentive of lower per-unit pricing as more
products are purchased. Most quantity or volume discounts are triggered when a
buyer reaches certain purchase levels. For instance, a buyer may pay the list
price when they purchase between 1-99 units but receive a 5% discount off the
list price when the purchase exceeds 100 units. The most common quantity
discounts exist when a buyer places an order that exceeds a certain minimum
level. While quantity discounts are used by marketers to stimulate higher
purchase levels, the rational for using these often rests in the cost of product
shipment. There can be discounts offered to the products. This method allows
the buyer to receive a discount as more products are purchased over time. For
instance, if a buyer regularly purchases from a supplier they may see a discount
once the buyer has reached predetermined monetary or quantity levels. The key
reason to use this adjustment is to create an incentive for buyers to remain loyal
and purchase again.
Trade Discounts

Manufacturers who rely on channel partners to distribute their products (e.g., retailers,
wholesalers) offer trade discounts off of list price. Essentially the difference between the
trade discounted prices paid by the reseller and the price the reseller charges its customer
will be the reseller’s profit.

Special Segment Pricing

In some industries special classes of customers within a target market are offered pricing
that differs from the rest of the market. The main reasons for doing this include: building
future demand by appealing to new or younger customers; improving the brand’s image
as being sensitive to customer’s needs; and rewarding long time customers with price
breaks. For instance, many companies including railways, airways offer lower prices to
senior citizens. Some marketers offer non-profit customers lower prices compared to that
charged to for-profit firms. Other industries may offer lower prices to students or
children.

Geographic Pricing

Products requiring marketers to pay higher costs that are affected by geographic area in
which a product is sold may result in adjustments to compensate for the higher expense.
The most likely cause for charging a different price rests with the cost of transporting a
product from the supplier’s distribution location to the buyer’s place of business.
Transportation expense is not the only cost that may raise a product’s price. Special taxes
or tariffs may be imposed on certain products by local, regional or international
governments which a seller passes along in the form of higher prices. Now with the
advent of VAT, these issues will be overcome.

The final price may be further adjusted through promotional pricing. Unlike standard
adjustments, which are often permanently part of a marketer’s pricing strategy and may
include either a decrease or increase in price, promotional pricing is a temporary
adjustment that only involves price reductions. They are:

Markdowns:

The most common method for stimulating customer interest using price is the
promotional markdown method, which offers the product at a price that is lower than the
product’s normal selling price. There are several types of markdowns including:

• Temporary Markdown – Possibly the most familiar pricing method


marketers use to generate sales is to offer a temporary markdown or “sale’
pricing. These markdowns are normally for a specified period of time the
conclusion of which will result in the product being raised back to the normal
selling price.
• Permanent Markdown – Unlike the temporary markdown where the price
will eventually be raised back to a higher price, the permanent markdown is
intended to move the product out of inventory.
• Seasonal – Products that are primarily sold during a particular time of the
year, such as clothing, gardening products, sporting goods and holiday-
specific items, may see price reductions at the conclusion of its prime selling
season.

Loss Leaders:

An important type of pricing program used primarily by retailers is the loss leader.
Under this method a product is intentionally sold at or below the cost the retailer pays to
acquire the product from suppliers. The idea is that offering such a low price will entice
a high level of customer traffic to visit a retailer’s store or website.

Sales Promotions:

Sales Promotion may offer several types of pricing promotions to simulate demand.
These include rebates, coupons, trade-in, and loyalty programs. There is a separate unit
on Sales promotions later on.

Bundle Pricing:

Another pricing adjustment designed to increase sales is to offer discounted pricing when
customers purchase several different products at the same time. Termed bundle pricing,
the technique is often used to sell products that are complementary to a main product.
For buyers, the overall cost of the purchase shows a savings compared to purchasing each
product individually. For example, a TV retailer may offer a discounted price when
customers purchase both 29’ TV and DVD that is lower than if both items were
purchased separately.

With the price decided, the final step for the marketer is to determine in what form and in
what timeframe customers will make payment. As one would expect payment is most
often in a monetary form though in certain situations the payment may be part of a barter
arrangement in which products or services are exchanged.

Dynamic Pricing

The concept of dynamic pricing has received a great deal of attention in recent years due
to its prevalent use by Internet retailers. But the basic idea of dynamic pricing has been
around since the dawn commerce. Essentially dynamic pricing allows for the point-of-
sale (i.e., at the time and place of purchase) price adjustments to take place for customers
meeting certain criteria established by the seller. The most common and oldest form of
dynamic pricing is haggling; the give-and-take that takes place between buyer and seller
as they settle on a price.
Finally marketers must decide in what form payments will be accepted. These options
include cash; check, money orders, credit card, online payment systems (e.g., PayPal) or,
for international purchases, bank drafts, letters of credit, and international reply coupons,
to name a few. They can also offer the following:

• Ownership Options
• Early Payment Incentives
• Auction Pricing

Ownership Options:

An important decision faced by marketers as they are formulating their marketing


strategy deals with who will have ownership of the product (i.e., holds legal title) once an
exchange has taken place. The options available include:

• Buyer Owns Product Outright – The most common ownership option is for
the buyer to make payment and then obtain full ownership.
• Buyer Has Right to Use but Does Not Have Ownership – Many products,
especially those labeled as services, permit customers to make payment in
exchange for the right to use a product but not to own it.

Early Payment Incentives

For many years marketers operating primarily in the business market offered incentives
to encourage their customers to pay early. Typically, business customers are given a
certain period of time, normally 30 or 60 days, before payment is due. To encourage
customers to pay earlier, and thus allow the seller to obtain the money quicker, marketers
have offered early payment discounts often referred to as “cash terms”. This discount is
expressed in a form that indicates how much discount is being offered and in what
timeframe. For example, the cash terms 2/10 net 30 indicates that if the buyer makes
payment within 10 days of the date of the bill then they can take a 2% discount off some
or all of the items on the invoice, otherwise the full amount is due in 30 days.

Auction Pricing:

Auction pricing is the reverse of bid pricing, which we discussed earlier, since it is the
buyer who in large part sets the final price. This pricing method has been around for
hundreds of years, but today it is most well known for its use in the auction marketplace
business models such as eBay and business-to-business marketplaces. While marketers
selling through auctions do not have control over final price, it is possible to control the
minimum price by establishing a price floor or reserve price. In this way the product is
only sold if someone’s bid is at least equal to the floor price.

3.5. Pricing methods:


Following are the pricing methods before the manufacturer.

Cost Pricing

Under cost pricing the marketer primarily looks at production costs as the key factor in
determining the initial price. This method offers the advantage of being easy to
implement as long as costs are known. But one major disadvantage is that it does not
take into consideration the target market’s demand for the product. There are several
types of cost pricing including:

Markup Pricing

This pricing method used by many resellers, who acquire products from suppliers, is one
in which final price is determined by adding a certain percentage to the cost of the
product. For many resellers, such as retailers, who purchase thousands of products it is
far easier to use a markup pricing approach due to its simplicity than it would be to
determine what the market is willing to pay for each product.

Resellers differ in how they use markup pricing with some using the markup on cost
method and others using the markup on selling price method.

• Markup on Cost – Using this method price is determined by simply


multiplying the cost of each item by a predetermined percentage then adding
the result to the cost. A major general retailer, such as Bigbazzar, may apply
a set percentage for each product category (e.g., women’s clothing,
automotive, garden supplies, etc.) making the pricing consistent for all like-
products. Alternatively, the predetermined percentage may be a number that
is identified with the marketing objectives (e.g., required 20% ROI). The
calculation for markup on cost is:

Item Cost + (Item Cost x Markup Percentage) = Price


Rs.500 + (500 x .30) = Rs.650

• Markup on Selling Price – Many resellers, and in particular retailers,


discusses their markup not in terms of markup on product cost but as a
reflection of price. The calculation for markup on selling price is:

Item Cost = Price


(1.00 – Markup Percentage)

Rs.500 = Rs. 714.3


(1.00 – .30)

The astute reader should recognize that the information in markup of selling price
contains the same information in markup of cost.
Cost-Plus Pricing

In the same way markup pricing arrives at price by adding a certain percentage
to the product’s cost, cost-plus pricing also adds to the cost by using a fixed
monetary amount rather than percentage. For instance, a contractor hired to
renovate a homeowner’s bathroom will estimate the cost of doing the job by
adding their total labor cost to the cost of the materials used in the renovation.

Breakeven Pricing

Breakeven pricing is associated with breakeven analysis, which is a forecasting


tool used by marketers to determine how many products must be sold before the
company starts realizing a profit. Like the markup method, breakeven pricing
does not directly consider market demand when determining price, however it
does indicate the minimum level of demand that is needed before a product will
show a profit. From this the marketer can then assess whether the product can
realistically achieve these levels.

Market Pricing

Under the market pricing method cost is not the main factor driving price decisions;
rather initial price is based on analysis of market research in which customer expectations
are measured. The main goal is to learn what customers in an organization’s target
market are likely to perceive as an acceptable price. Of course this price should also help
the organization meet its marketing objectives. Market pricing is one of the most
common methods for setting price, and the one that seems most logical given marketing’s
focus on satisfying customers. For those marketers who use market pricing, options
include:

• Backward Pricing
• Psychological Pricing
• Price Lining

Backward Pricing

In situations where a price range is ingrained in the market, the marketer may need to use
this price as the starting point for many decisions and work backwards to develop
product, promotion and distribution plans.

Psychological Pricing

Certain pricing tactics “may” have a psychological effect since the results of
some studies have suggested otherwise.
• Odd-Even Pricing - Many times a buyer will pass along the price as being
lower than it is either because they recall it being lower than the even
number or they want to impress others with their success in obtaining a
good value. For instance, in our example a buyer who pays Rs.299.95
may tell a friend they paid “a little more than Rs.200” for the product when
in fact it was much closer to Rs.300.

• Prestige Pricing - Another psychological effect, called prestige pricing,


points to a strong correlation between perceived product quality and price.
The higher the price the more likely customers are to perceive it has being
higher quality compared to a lower priced product.

Price Lining

Price lining or product line pricing is a method that primarily uses price to create
the separation between the different models. With this approach, even if
customers possess little knowledge about a set of products, customers may
perceive they are different based on price alone. Price lining can also be
effective as a method for increasing profitability. In many cases the cost to the
marketer for adding different features to create different models or service
options does not alone justify a big price difference. For instance, an upgraded
model may cost 10% more to produce than a base model but using the price
lining method the upgraded product price may be 20% higher and thus more
profitable than the base model. The increase in profitability offered by price lining
is one reason marketers introduce multiple models, since it allows the company
to not only satisfy the needs of different segments but also presents an option for
a customer to “buy up” to a higher priced and more profitable model.

Competitive Pricing

For some, competitor’s price serves as an important reference point from which they set
their price. In some industries, particularly those in which there are a few dominant
competitors and many small companies, the top companies are in the position of holding
price leadership roles where they are often the first in the industry to change price.
Smaller companies must then assume a price follower role and react once the big
companies adjust their price.

When basing pricing decisions on how competitors are setting their price, firms may
follow one of the following approaches:

• Below Competition Pricing - A marketer attempting to reach objectives that


require high sales levels (e.g., market share objective) may monitor the
market to insure their price remains below competitors.
• Above Competition Pricing - Marketers using this approach are likely to be
perceived as market leaders in terms of product features, brand image or
other characteristics that support a price that is higher than what competitors
offer.
• Parity Pricing - A simple method for setting the initial price is to price the
product at the same level competitors price their product.

Bid Pricing

Not all selling situations allow the marketer to have advanced knowledge of the prices
offered by competitors. While the Internet has made researching competitor pricing a
relatively routine exercise, this is not the case in markets where bid pricing occurs. Bid
pricing typically requires a marketer to submit a price to a potential buyer that is sealed or
unseen by competitors. It is not until all bids are obtained and unsealed that the marketer
is informed of the price listed by competitors.

Bid pricing occurs in several industries though it is a standard requirement when selling
to local, national and international governments. In these situations the marketer’s
pricing strategy depends on the projected winning bid price, which is generally the lowest
price. However, price alone is only the deciding factor if the bidder meets certain
qualifications. The fact that marketers often operate in the dark in terms of available
competitor research, makes this type pricing one of the most challenging of all pricing
setting methods.

4. Have you understood type questions:

1. You've just invented an innovative new product and are ready to launch it into
the market. You will most likely price the product high. Your pricing strategy is
probably based on:

A. Distribution strategy
B. Promotion strategy
C. Lack of relevant competition
D. Quality image
2. One of the advantages of break-even analysis is the ease with which costs
can be verified to be fixed or variable
True/ False

3. If the formula for elasticity results in a measure of elasticity (E) equal to 1, an


increase in sales will exactly offset a decrease in price, and total revenue will
remain the same
True/ False

4. When Indian oil reduces the price, immediately Essar group lowers the price of petrol
and diesel. This strategy is called:

A. Predatory pricing
B. Cost plus pricing
C. Market share pricing
D. Status quo pricing
5. Economies of scale will help in lowering pricing by:

A. Large scale companies


B. Small scale companies
C. Both of them
D. Neither of them

5. Summary

Customers want the best value for their money, and thus they will almost always
do a quality comparison and make purchases based on the best price for the
best value. While the beat-the-competition pricing approach may work for some,
there are many other complexities involved in establishing a pricing strategy.
Many players have started to use multiple pricing methodology for getting across
to variety of customers. Hence pricing is a major aspect of decision to be made
by organizations.

6. Exercises

1. Now a days, retailers are resorting to EDLP pricing. What is this pricing? Conduct a
study and explain the same.
2. Trace the role of Break even analysis in price fixation.
3. Do you think cost plus pricing will help organizations? Comment.
4. Elucidate the steps to be taken for pricing strategies for services in the current context
with examples.

7. References
1. Everett Rogers, “ Diffusion of innovations”, Free Press, New York, 1996.
2. Geoffery Moore, “Crossing the chasm”, Harper Business, New York, 1991.
3. Laurence P. Feldman, “Buy In and Get Well' as a Product Launch Strategy”,
University of Illinois at Chicago, Journal of Product Development and Management,
1996.
4. Govindarajan, V. and Anthony, R. (1983), How Firms Use Cost Data in Price
Decisions, Management Accounting, July pp. 30-36.
5. Abrams, J. (1964). A New Method for Testing Pricing Decisions. Journal of
Marketing, 28(1).
6. Fürderer, R., Hermann, A., and Wübker, G. (1999). In R. Fürderer, A.
Hermann, amd G. Wübker (Eds.), Optimal Bundle Pricing: Marketing
Strategies for Improving Economic Performance, chapter “Introduction to
Price Bundling”. Berlin, Heidelberg: Springer Verlag.

CASE STUDIES
1. CATHOLIC SYRIAN BANK:

In a study of SWOT analysis conducted at some branches of CSB, the following was
found:
Strengths

Branches
Bank deliver products and services through a variety of channels ranging from extensive
branch network, extension counters, ATM centre, Internet banking and Mobile banking.
There are 344 branches all over India. Non performing assets of the bank is reduced. i.e,
Amount of Bad & doubtful debts reduced. Supreme customer services. Employees are
shareholders hence more commitment from employees. Technology Implementation

Weaknesses
A major part of bank’s branch network is concentrated in southern India. More than 90%
of the total branches are located in Southern India. Any disruption, disturbance or
breakdown in the economy of these areas could adversely affect the result of bank’s
business and operations. CSB does not have any trademark for the name ‘The Catholic
Syrian Bank” along with the logo and the tag line ‘support all the way’ associated with
the Bank. Bank may not be able to prohibit persons from using the said trademark to their
advantage and any unfavorable use of such trademark may adversely affect bank’s
goodwill and business. Human resource profile is weak. Cost involved in adopting
technology. Reducing Spreads. CBS is not started yet

Opportunities
Bank may undertake mergers or acquisitions. Bank may make acquisitions and
investments to expand customer base, acquire new service or product offerings or to
enhance technical capabilities. The Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act 2002 (The Securitisation Act). With the
enactment of The Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act 2002 (The Securitisation Act), banks have been empowered to
attach assets of the defaulters without intervention of lengthy and time-consuming court
procedures. This has suddenly turned the tables in favour of banks. Till recently, debt
recovery was one of the most hopeless jobs in India due to archaic laws, which were
totally tilted towards borrowers. Banks were in fact at the mercy of borrowers'
willingness to pay. Thus in spite of the fact that most borrowing is against security, the
value of which is often higher than the loan, banks still could not do much except cajole
and tempt borrowers to pay up. Huge NPAs were burdening the entire banking sector.
Due to the fear of increasing NPAs, their willingness to lend and expand business was
also adversely affected. It is expected that over the next couple of years, banks will be
able to significantly clean up their NPA mess due to the Securitisation Act.

Threats

Delay in the rollout of bank’s core banking solutions. CSB is in the process of
implementing Core Banking Solution (“CBS”) and has already succeeded in bringing a
substantial number of branches under the CBS system. This technology initiative will
allow to increase interconnectivity among branches and to provide many of the products
and service. In the event of any delay in the roll-out of the CBS across entire branch
network, it may be difficult to expand products and services. Competition. Regulatory
System Cost.

Questions:

1. Do you think the SWOT gives an option for improvement by the bank? Justify.
2. Develop a SWOT for another bank and compare the same with CSB.

2.MARKS AND SPENCER

"There's no need to ask the price - it's a penny" was the proud claim of Marks
and Spencer a hundred years ago. From the start, it had developed a unique
position in its market - an emphasis on low price, wide range and good quality.
Over time, the Marks and Spencer position has been steadily developed, along
with its profitability. By the 1990s it looked unstoppable as a retailer, as it
progressively expanded its product range from clothing to food, furnishings and
financial services. The world seemed to be waiting for M&S to exploit, and
despite disappointing starts in the US and Canada, it developed steadily
throughout Europe and the Far East. Then, just like any star who has been put
on a pedestal, the media began to savage the company. After a sudden drop in
profits and sales during 1998, critics claimed that the company had lost its
position in the market place. It appeared to be like a super tanker, ploughing
straight ahead with a management that had become much less adaptable to
change than its nimbler competitors. Many observers had commented on the fact
that the company did not have a marketing department until 1998. Marketing, at
least in terms of advertising the brand, had become so important to its
competitors, but had never been high on Marks & Spencer's agenda. According
to Media Monitoring Services, M&S's total media spending between Dec 1997-
Nov 1998 was just £4.7 million, almost a drop in the ocean compared to the
spending of Sainsburys (£42.1m); Tesco (£27.5m); and Woolworths (£21.5m).
While other retailers had worked hard on building a brand image, M&S has relied
on the quality of its stock to do the talking. The argument was that everyone
knew what they were getting with M&S underwear or shirts - good quality at fair,
but not cheap, prices. Similarly with food, M&S's offering was about quality
rather than price. M&S believed its customers knew what the brand stood for and
advertising was much less important than ensuring that it could obtain the right
products at the right price.

In 1998, M&S looked to marketing to help turn around its performance,


describing its new marketing division for UK retail as "a significant development
in our retailing philosophy". Many suspected that M&S's conversion to marketing
had been encouraged by the example set by the star of modern retailing, Tesco.
There are many similarities between the problems facing M&S and those which
Tesco faced a decade previously. In the early 1990s Tesco was a brand which
looked like it had seen better days. The retailer's format was tired, its stores
poorly laid out and the positioning of the company was still based on its founder's
principle of 'pile it high and sell it cheap'. Its arch-rival, Sainsbury's, was
regarded as the more upmarket store for the middle classes, who shopped for
quality food in a more pleasant environment. Since then, Tesco had innovated
with improved store designs, petrol stations, coffee shops, a new fascia, the
Tesco Clubcard and 24-hour store opening. The list of Tesco's marketing
initiatives seemed to be unstoppable, in an attempt to keep one step ahead of its
competitors. In contrast, M&S had failed to keep pace with customer service. In
many issues of retail development, such as out-of-town shopping centres,
Sunday opening and loyalty cards, it had lagged behind its main competitors.
While it has stood still, the likes of Tesco and Sainsbury's marched ahead until
there was no longer much that felt exceptional about the M&S shopping
experience. Analysts argued that M&S had failed to make its store layouts help
shoppers bring clothing together to make outfits. In a typical M&S store, all
jackets would be located in one area and all cardigans in another, for example.
Its competitors had made much greater progress in bringing together co-
ordinated sets of clothing which would encourage shoppers to spend more. M&S
has also been criticised for making things difficult for customers by not accepting
payment by major credit cards.

In response to its current troubles, the newly created marketing department of


M&S launched its first national campaign for retail towards the end of 1998. The
ads followed an initial attempt at regional TV advertising earlier in the year, which
the company was said to be very pleased with. The newly appointed Chief
Executive claimed "It's not that people don't like what we're selling, but that we
haven't got the message across. There are an awful lot of people who love us for
our knickers, but they don't love our home furnishings because they don't even
know they are there." Many critics thought the problems were much more deep-
seated and blamed the store's problems on the fact that its autumn fashions were
seen as dull and uninspiring, and out of touch with consumers' preferences.
Greater authority was pledged to the marketing department when it came to new
product design.

In response to its pledge to listen to what its customers wanted, new designers
were brought in to try and give the company's ranges more sparkle. The
company even thought the previously unthinkable by proposing to stock
manufacturers' own branded products, instead of relying entirely on M&S's own
label products. If customers wanted to obtain variety at M&S, the new thinking
was that the company must adapt and offer it. Another area identified for
development was direct marketing of fashion products - an area where the
company had begun to lag behind its rivals who had developed interactive web
sites. Serious questions remained about the company. How quickly could it
change in response to its changed environment? The company had not been
known for speedy decision making, so probably a major structural overhaul was
essential before it could get down to the serious business of adapting to
customers' changing needs. Also, there was a great danger of changing the
company's position too far and too fast, thereby alienating its traditional
customers without gaining sufficient new ones. As a warning of how not to
change, M&S's rival Laura Ashley had repositioned itself so radically from its
original format that it now failed to gain the support of any major group. M&S had
itself tried to become more fashion conscious during the mid-1980s with similar
effect, and had to make a hasty retreat to its traditional, more staid image.

QUESTIONS

1. What do you understand by positioning, and what tools are available to Marks
and Spencer to give it a positioning advantage?
2. There has been a lot of debate bout whether the existence of a marketing
department can actually be harmful to services companies because it absolves
everybody else of marketing responsibilities. What then, do you make of M&S's
decision to introduce a marketing department.

3. MOBILE PHONES AND MARKETING

One of the oldest principles of marketing is that sellers may sell features, but
buyers essentially buy benefits. This is a distinction sometimes lost on
technology led organisations, and the service sector is no exception. Recent
experience of the UK’s largest telecommunications company, Vodafone Airtouch,
illustrates how crucial it is to see service offers in terms of the benefits they bring
to customers. The company was aware of extensive research which had found
high levels of confusion among purchasers of mobile phones, with a seemingly
infinite permutation of features and prices. With four main networks to choose
from, dozens of tariffs and hundreds of handsets, it easy to see why buyers
sought means of simplifying their buying process. Throughout the 1990s,
Vodafone had positioned its UK network as superior technically to its
competitors. Advertising focused on high coverage rates and call reliability.
Vodafone was the UK's most popular mobile phone operator, with almost eight
million customers, including 4.2 million Pay as you Talk customers. It had opened
the UK's first cellular network on 1 January 1985and was the market leader since
1986. Vodafone's networks in the UK - analogue and digital - between them
carried over 100 million calls each week. It took Vodafone more than 13 years to
connect its first three million subscribers but only 12 months to connect the next
three million. Vodafone had the largest share of the UK cellular market with 33%
and had more international roaming agreements than any other UK mobile
operator. It could offer its subscribers roaming with 220 networks in 104
countries.
Despite all of the above, Vodafone was aware that although it was recognised
as an extremely strong business in the corporate marketplace, it was not so
strong in the market for personal customers. Research indicated that personal
buyers bought Vodafone for essentially rational reasons rather than having any
emotional attachment to the brand. The success of the competing Orange
network, which had developed a very strong image, was a lesson to Vodafone
that many people did not understand many of the product features on offer, but
instead identified with a brand whose values they could share. Vodafone
recognised that it needed to be perceived as adding value to a consumer’s
lifestyle?. Given the increasing complexity of product features, positioning on
technical features was likely to make life more confusing for personal customers.
An alternative approach was needed which focused on image and lifestyle
benefits. The company decided to hire Identica – the consultancy that originally
created the One 2 One brand – to revamp its brand communications and
advertising strategy in an effort to make Vodafone more appealing to personal
customers. Identica created a new ‘visual language’ for the Vodafone brand.
Vodafone became involved in the biggest ever TV, press, poster and radio
advertising campaign in its 15 year history. Employing a completely new style,
the new advertising centred around the theme: 'You are now truly mobile. Let the
world come to you' and featured a new end-line - Vodafone YOU ARE HERE.
The campaign demonstrated how Vodafone's products and services were
designed to make life easier for its customers.

The campaign, created by BMP DDB, was worth £20 million over two months
alone and ran for the whole year. Bringing meaning to the Vodafone brand and
what it represented, a series of advertisements, through a range of media,
showed how Vodafone let the world come to its customers, enabling them to be
truly mobile. This portrayed how Vodafone always pioneered to make things
more possible for its customers in a wire-free world. In press and poster
executions, Vodafone used arrows photographed in various real life situations to
depict its flagship services, e.g. a weather vane was used to illustrate the
Vodafone Interactive weather service showing how weather information could be
brought to customers through their mobile. Each advertisement again had the
Vodafone YOU ARE HERE end-line. The arrows indicated the directional
approach of Vodafone, letting the world come to the customer. Other executions
illustrated cinema listing information, sports updates, share price information,
international roaming and the Vodafone Personal Roadwatch 1800 service.

The change in emphasis by Vodafone seemed to be timely. The mobile phone


industry was facing a new wave of confusing product features hitting consumers,
with the development of Wireless Access Protocol (WAP) phones and the newer
“Third generation” phones due to be launched in 2001. It seemed inevitable that
all of the competing networks would be offering confusing permutations of
features with their service, so Vodafone calculated that, given similar levels of
reliability and sophistication by all networks, a favourable image and lifestyle
association would be an important source of competitive advantage. Given the
right image with existing technology, there would be a strong probability that
consumers would migrate with the brand to the new technology when it arrived.
Source: adapted from
“Vodafone Image Shift”, Marketing, 4th May, 2000 and Vodafone Home Page,
http://www.vodafone.co.uk

QUESTIONS

1. Identify the principal benefits to customers which derive from a mobile


phone. What differences are likely to exist between market segments?
2. Is a strong brand identity on its own a source of sustainable competitive
advantage? To what extent must this be backed up by real product
features?
3. Are goods different to services in the way that a distinction is made between
features and benefits?
UNIT - II

Channel Design and Management


Unit structure:

1. Introduction
2. Learning Objectives
3. Channels of distribution
3.1. Types of channel members
3.2. Importance of channel management
3.3. Channel arrangements
3.4. Selection of channel members
3.5. Channel members Relationship
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1.Introduction:

Distribution decisions are taken by companies basically to allow customers to gain access
and purchase a marketer’s product. However, marketers may find that getting to the
point at which a customer can acquire a product is complicated, time consuming, and
expensive. Distribution decisions are relevant for nearly all types of products. In fact,
while the Internet is playing a major role in changing product distribution and is
perceived to offer more opportunities for reaching customers, online marketers still face
the same distribution issues and obstacles as those faced by offline marketers.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the type of channel members
• Understand the importance of channel to organisations
• Understand the channel arrangments
• Understand the factors in arriving at the channel members
• Understand the relationships among the channel members

3. Channels of Distribution:

For marketers the distribution decision is primarily concerned with the


supply chain’s front-end or channels of distribution that are designed to move the
product (goods or services) from the hands of the company to the hands of the
customer. Obviously when we talk about intangible services the use of the word
“hands” is a figurative way to describe the exchange that takes place. But the
idea is the same as with tangible goods. All activities and organizations helping
with the exchange are part of the marketer’s channels of distribution. Activities
involved in the channel are wide and varied though the basic activities revolve
around these general tasks:
• Ordering
• Handling and shipping
• Storage
• Display
• Promotion
• Selling
• Information feedback

3.1. Type of Channel Members:

Channel activities may be carried out by the marketer or the marketer may seek
specialist organizations to assist with certain functions. We can classify
specialist organizations into two broad categories: resellers and specialty service
firms.

Resellers

These organizations, also known within some industries as intermediaries,


distributors or dealers, generally purchase or take ownership of products from the
marketing company with the intention of selling to others. If a marketer utilizes
multiple resellers within its distribution channel strategy the collection of resellers
is termed a reseller network. These organizations can be classified into several
sub-categories including:

• Retailers – Organizations that sell products directly to final consumers.


• Wholesalers – Organizations that purchase products from suppliers, such
as manufacturers or other wholesalers, and in turn sell these to other
resellers, such as retailers or other wholesalers.
• Industrial Distributors – Firms that work mainly in the business-to-business
market selling products obtained from industrial suppliers.

Specialty Service Firms

These are organizations that provide additional services to help with the
exchange of products but generally do not purchase the product (i.e., do not take
ownership of the product):
• Agents and Brokers – Organizations that mainly work to bring suppliers
and buyers together in exchange for a fee.
• Distribution Service Firms – Offer services aiding in the movement of
products such as assistance with transportation, storage, and order
processing.
• Others – This category includes firms that provide additional services to
aid in the distribution process such as insurance companies and firms
offering transportation routing assistance.
3.2.Importance of Distribution Channels

Distribution channels often require the assistance of others in order for the
marketer to reach its target market. While on the surface it may seem to make
sense for a company to operate its own distribution channel (i.e., handling all
aspects of distribution) there are many factors preventing companies from doing
so. While companies can do without the assistance of certain channel members,
for many marketers some level of channel partnership is needed. For example,
marketers who are successful without utilizing resellers to sell their product (e.g.,
Dell Computers sells mostly through the Internet and not in retail stores) may still
need assistance with certain parts of the distribution process (e.g., Dell uses
parcel post shippers such as FedEx and UPS). In Dell’s case creating their own
transportation system makes little sense given how large such a system would
need to be in order to service Dell’s customer base. Thus, by using shipping
companies Dell is taking advantage of the benefits these services offer to Dell
and to Dell’s customers.

When choosing a distribution strategy a marketer must determine what value a


channel member adds to the firm’s products. Several surrounding features can
be directly influenced by channel members, such as customer service, delivery,
and availability. Consequently, for the marketer selecting a channel partner
involves a value analysis in the same way customers make purchase decisions.
That is, the marketer must assess the benefits received from utilizing a channel
partner versus the cost incurred for using the services.

Benefits Offered by Channel Members


• Cost Savings in Specialization – Members of the distribution channel are
specialists in what they do and can often perform tasks better and at lower
cost than companies who do not have distribution experience. Marketers
attempting to handle too many aspects of distribution may end up exhausting
company resources as they learn how to distribute, resulting in the company
being “a jack of all trades but master of none.”
• Reduce Exchange Time – Not only are channel members able to reduce
distribution costs by being experienced at what they do, they often perform
their job more rapidly resulting in faster product delivery.
• Customers Want to Conveniently Shop for Variety – Marketers have to
understand what customers want in their shopping experience. Referring
back to our grocery store example, consider a world without grocery stores
and instead each marketer of grocery products sells through their own
stores.
• Resellers Sell Smaller Quantities – Not only do resellers allow customers
to purchase products from a variety of suppliers, they also allow customers
to purchase in quantities that work for them. Suppliers though like to ship
products they produce in large quantities since this is more cost effective
than shipping smaller amounts.
• Create Sales – Resellers are at the front line when it comes to creating
demand for the marketer’s product. In some cases resellers perform an
active selling role using persuasive techniques to encourage customers to
purchase a marketer’s product.
• Offer Financial Support – Resellers often provide programs that enable
customers to more easily purchase products by offering financial programs
that ease payment requirements. These programs include allowing
customers to: purchase on credit; purchase using a payment plan; delay the
start of payments; and allowing trade-in or exchange options.
• Provide Information – Companies utilizing resellers for selling their
products depend on distributors to provide information that can help improve
the product. High-level intermediaries may offer their suppliers real-time
access to sales data including information showing how products are selling
by such characteristics as geographic location, type of customer, and
product location (e.g., where located within a store, where found on a
website).

3.3. Channel Arrangements

The distribution channel consists of many parties each seeking to meet their own
business objectives. Clearly for the channel to work well, relationships between
channel members must be strong with each member understanding and trusting
others on whom they depend for product distribution to flow smoothly. For
instance, a small sporting goods retailer that purchases products from a
wholesaler trusts the wholesaler to deliver required items on-time in order to
meet customer demand, while the wholesaler counts on the retailer to place
regular orders and to make on-time payments.

Relationships in a channel are in large part a function of the arrangement that


occurs between the members. These arrangements can be divided in two main
categories: independent and dependent.

Independent Channel Arrangement

Under this arrangement a channel member negotiates deals with others that do
not result in binding relationships. In other words, a channel member is free to
make whatever arrangements they feel is in their best interest. This so-called
“conventional” distribution arrangement often leads to significant conflict as
individual members decide what is best for them and not necessarily for the
entire channel. On the other hand, an independent channel arrangement is less
restrictive than dependent arrangements and makes it easier for a channel
members to move away from relationships they feel are not working to their
benefit.

Dependent Channel Arrangement

Under this arrangement a channel member feels tied to one or more members of
the distribution channel. Sometimes referred to as “vertical marketing systems”
this approach makes it more difficult for an individual member to make changes
to how products are distributed. However, the dependent approach provides
much more stability and consistency since members are united in their goals.
The dependent channel arrangement can be broken down into three types:
• Corporate – Under this arrangement a supplier operates its own
distribution system in a manor that produces an integrated channel. This
occurs most frequently in the retail industry where a supplier operates a
chain of retail stores. Starbucks is a company that does this. They import
and process coffee and then sell it under their own brand name in their own
stores. It should be mentioned that Starbucks also distributes their products
in other ways, such as through grocery stores and mail order. As we will see
in more detail later, Starbucks is using a multi-channel structure to market
their products.
• Contractual – Under this arrangement a legal document obligates
members to agree on how a product is distributed. Often times the
agreement specifically spells out which activities each member is permitted
to perform or not perform. This type of arrangement can occur in several
formats including:
o Wholesaler-sponsored – where a wholesaler brings together and
manages many independent retailers including having the retailers use
the same name
o Retailer-sponsored – this format also brings together retailers but
the retailers are responsible for managing the relationship
o Franchised – where a central organization controls nearly all
activities of other members
• Administrative Arrangement – In certain channel arrangements a single
member may dominate the decisions that occur within the channel. These
situations occur when one channel member has achieved a significant power
position. This most likely occurs if a manufacturer has significant power due
to brands in strong demand by target markets (e.g., Procter &Gamble) or if a
retailer has significant power due to size and market coverage (e.g.,
Shoppers-stop or Reliance Fresh). In most cases the arrangement is
understood to occur and is not bound by legal or financial arrangements.
3.4. Factors involved in creating Distribution Channels

Like most marketing decisions, a great deal of research and thought must go
into determining how to carry out distribution activities in a way that meets a
marketer’s objectives. The marketer must consider many factors when
establishing a distribution system. Some factors are directly related to marketing
decisions while others are affected by relationships that exist with members of
the channel. Let us examine the key factors to consider when designing a
distribution strategy.

Marketing Decision Issues

Distribution strategy can be shaped by how decisions are made in other


marketing areas.

Product Issues

The nature of the product often dictates the distribution options available
especially if the product requires special handling. For instance, companies
selling delicate or fragile products, such as flowers, look for shipping
arrangements that are different than those sought for companies selling
extremely tough or durable products, such as steel beams.

Promotion Issues

Besides issues related to physical handling of products, distribution decisions are


affected by the type of promotional activities needed to sell the product to
customers. For products needing extensive salesperson-to-customer contact to
(e.g., automobile purchases) the distribution options are different than for
products where customers typically require no sales assistance (i.e., bread
purchases).

Pricing Issues

The desired price at which a marketer seeks to sell their product can impact how
they choose to distribute. As previously mentioned, the inclusion of resellers in a
marketer’s distribution strategy may affect a product’s pricing since each member
of the channel seeks to make a profit for their contribution to the sale of the
product. If too many channel members are involved the eventual selling price
may be too high to meet sales targets in which case the marketer may explore
other distribution options.
Target Market Issues

A distribution system is only effective if customers can obtain the product.


Consequently, a key decision in setting up a channel arrangement is for the
marketer to choose the approach that reaches customers in the most effective
way possible. The most important decision with regard to reaching the target
market is to determine the level of distribution coverage needed to effectively
meet customer’s needs. Distribution coverage is measured in terms of the
intensity by which the product is made available. For the most part, distribution
coverage decisions are of most concern to consumer products companies,
though there are many industrial products that also must decide how much
coverage to give their products.

As we will see the marketer must take into consideration many factors when
choosing the right level of distribution coverage. However, all marketers should
understand that distribution creates costs to the organization. Some of these
expenses can be passed along to customers (e.g., shipping costs) but others
cannot (e.g., need for additional salespeople to handle more distributors). Thus,
the process for determining the right level of distribution coverage often comes
down to an analysis of the benefits (e.g., more sales) versus the cost associated
with gain the benefits.

There are three main levels of distribution coverage - mass coverage, selective
and exclusive.

• Mass Coverage - The mass coverage (also known as intensive


distribution) strategy attempts to distribute products widely in nearly all
locations in which that type of product is sold. This level of distribution is
only feasible for relatively low priced products that appeal to very large target
markets (e.g., see consumer convenience products). A product such as
Coca-Cola is a classic example since it is available in a wide variety of
locations including grocery stores, convenience stores, vending machines,
hotels and many, many more. With such a large number of locations selling
the product the cost of distribution is extremely high and must be offset with
very high sales volume.
• Selective Coverage - Under selective coverage the marketer deliberately
seeks to limit the locations in which this type of product is sold. To the non-
marketer it may seem strange for a marketer to not want to distribute their
product in every possible location. However, the logic of this strategy is tied
to the size and nature of the product’s target market. Products with selective
coverage appeal to smaller, more focused target markets (e.g., see
consumer shopping products) compared to the size of target markets for
mass marketed products. Consequently, because the market size is smaller,
the number of locations needed to support the distribution of the product is
fewer.
• Exclusive Coverage - Some high-end products target very narrow markets
that have a relatively small number of customers. These customers are
often characterized as “discriminating” in their taste for products and seek to
satisfy some of their needs with high-quality, though expensive products.
Additionally, many buyers of high-end products require a high level of
customer service from the channel member from whom they purchase.
These characteristics of the target market may lead the marketer to sell their
products through a very select or exclusive group of resellers. Another type
of exclusive distribution may not involve high-end products but rather
products only available in selected locations such as company-owned
stores. While these products may or may not be higher priced compared to
competitive products, the fact these are only available in company outlets
give exclusivity to the distribution.

3.5.Relationship Issues

A good distribution strategy takes into account not only marketing decisions, but
also considers how relationships within the channel of distribution can impact the
marketer’s product. In this section we examine three such issues:

Channel Power

A channel can be made up of many parties each adding value to the product
purchased by customers. However, some parties within the channel may carry
greater weight than others. In marketing terms this is called channel power,
which refers to the influence one party within a channel has over other channel
members. When power is exerted by a channel member they are often in the
position to make demands of others. For instance, they may demand better
financial terms (e.g., will only buy if prices are lowered, will only sell if price is
higher) or demand others members perform certain tasks (e.g., do more
marketing to customers, perform more product services). Channel power can be
seen in several ways:

• Backend or Product Power – Occurs when a product manufacturer or


service provider markets a brand that has a high level of customer demand.
The marketer of the brand is often in a power position since other channel
members have little choice but to carry the brand or risk losing customers.
• Middle or Wholesale Power – Occurs when an intermediary, such as a
wholesaler, services a large number of smaller retailers with products
obtained from a large number of manufacturers. In this situation the
wholesaler can exert power since the small retailers are often not in the
position to purchase products cost-effectively and in as much variety as what
is offered by the wholesaler.
• Front or Retailer Power – As the name suggests, the power in this
situation rests with the retailer who can command major concessions from
their suppliers. This type of power is most prevalent when the retailer
commands a significant percentage of sales in the market they serve and
others in the channel are dependent on the sales generated by the retailer.

Channel Conflict

In an effort to increase product sales, marketers are often attracted by the notion
that sales can grow if the marketer expands distribution by adding additional
resellers. Such decisions must be handled carefully, however, so that existing
dealers do not feel threatened by the new distributors who they may feel are
encroaching on their customers and siphoning potential business. For
marketers, channel strategy designed to expand product distribution may in fact
do the opposite if existing members feel there is a conflict in the decisions made
by the marketer. If existing members sense a conflict and feel the marketer is
not sensitive to their needs they may choose to stop handling the marketer’s
products.

Overall Distribution Design

Mindful of the factors affecting distribution decisions (i.e., marketing decision


issues and relationship issues), the marketer has several options to choose from
when settling on a design for their distribution network. We stress the word
“may” since while in theory an option would appear to be available, marketing
decision factors (e.g., product, promotion, pricing, target markets) or the nature of
distribution channel relationships may not permit the marketer to pursue a
particular option. For example, selling through a desired retailer may not be
feasible if the retailer refuses to handle a product. For marketers the choice of
distribution design comes down to selecting between direct or indirect methods,
or in some case choosing both.

Direct Distribution System

With a direct distribution system the marketer reaches the intended final user of
their product by distributing the product directly to the customer. That is, there
are no other parties involved in the distribution process that take ownership of the
product. The direct system can be further divided by the method of
communication that takes place when a sale occurs. These methods are:

• Direct Marketing Systems – With this system the customer places the
order either through information gained from non-personal contact with the
marketer, such as by visiting the marketer’s website or ordering from the
marketer’s catalog, or through personal communication with a customer
representative who is not a salesperson, such as through toll-free telephone
ordering.
• Direct Retail Systems – This type of system exists when a product
marketer also operates their own retail outlets. Arrow, Zodiac and others are
examples in this category.
• Personal Selling Systems – The key to this direct distribution system is
that a person whose main responsibility involves creating and managing
sales (e.g., salesperson) is involved in the distribution process, generally by
persuading the buyer to place an order. While the order itself may not be
handled by the salesperson (e.g., buyer physically places the order online or
by phone) the salesperson plays a role in generating the sales.
• Assisted Marketing Systems – Under the assisted marketing system, the
marketer relies on others to help communicate the marketer’s products but
handles distribution directly to the customer. The classic example of
assisted marketing systems is eBay which helps bring buyers and sellers
together for a fee. Other agents and brokers would also fall into this
category.
Indirect Distribution System

With an indirect distribution system the marketer reaches the intended final user
with the help of others. These resellers generally take ownership of the product,
though in the some cases they may sell products on a consignment basis (i.e.,
only pay the supplying company if the product is sold). Under this system
intermediaries may be expected to assume many responsibilities to help sell the
product. Indirect methods include:
• Single-Party Selling System - Under this system the marketer engages
another party who then sells and distributes directly to the final customer.
This is most likely to occur when the product is sold through large store-
based retail chains or through online retailers, in which case it is often
referred to as a trade selling system.
• Multiple-Party Selling System – This indirect distribution system has the
product passing through two or more distributors before reaching the final
customer. The most likely scenario is when a wholesaler purchases from the
manufacturer and sells the product to retailers.

Multi-channel or Hybrid System

In cases where a marketer utilizes more than one distribution design the
marketer is following a multi-channel or hybrid distribution system. The multi-
channel approach expands distribution and allows the marketer to reach a wider
market, however, as we discussed under Channel Relationships, the marketer
must be careful with this approach due to the potential for channel conflict. Since
channel members must be convinced to handle a marketer’s product it makes
sense to consider channel partner’s needs in the same way the marketer
considers the final user’s needs. However, the needs of channel members are
much different than those of the final customer. They are:
• Delivery – Resellers want the product delivered on-time and in good
condition in order to meet customer demand and avoid inventory out-of-
stocks.
• Profit Margin – Resellers are in business to make money so a key factor in
their decision to handle a product is how much money they will make on
each product sold. They expect that the difference (i.e., margin) between
their cost for acquiring the product from a supplier and the price they charge
to sell the product to their customers will be sufficient to meet their profit
objectives.
• Other Incentives – Besides profit margin, resellers may want other
incentives to entice them especially if they are required to give extra effort
selling the product. These incentives may be in the form of additional free
products or even bonuses (e.g., bonus, free trips) for achieving sales goals.
• Packaging – Resellers want to handle products as easily as possible and
want their suppliers to ship and sell products in packages that fit within their
system. For example, products may need to be a certain size or design in
order to fit on a store’s shelf, or the shipping package must fit within the
reseller’s warehouse or receiving dock space. Also, many resellers are now
requiring marketers to consider adding identification tags to products (e.g.,
RFID tags) to allow for easier inventory tracking when the product is received
and also when it is sold.
• Training – Some products require the reseller to have strong knowledge of
the product including demonstrating the product to customers. Marketers
must consider offering training to resellers to insure the reseller has the
knowledge to present the product accurately.
• Promotional Help – Resellers often seek additional help from the product
supplier to promote the product to customers. Such help may come in the
form of funding for advertisements, point-of-purchase product materials, or
in-store demonstrations.

4. Have you understood type questions:

1. In a simple economy of five producers and five consumers, there would be


__________ transactions possible without an intermediary and __________
transactions possible with one intermediary.
A. ten; twenty-five
B. thirty; ten
C. twenty-five; fifteen
D. twenty-five; ten
2. What is the relationship that is seen among the manufacturers, wholesalers
and retailers?
A. Short term
B. Medium term
C. Long term
D. Minor commitments
3. Large retailers such as Big Bazzar and Subhiksha are MOST likely to
participate in which of the following channels?
A. Producer, industrial distributors, retailers, consumers
B. Producer, consumers
C. Producer, wholesalers, retailers, consumers
D. Producer, retailers, consumers

4. Louis Phillipe shirts are sold through department stores as well as in its own
specialty shops. The company uses __________ as a channel strategy.

A. channel extension
B. intermediary exclusion
C. broker utilisation
D. dual distribution
5. NIIT follows the franchising route. State whether it is True of False.

5. Summary

India is home to six million retail outlets, including 2 million in 5,160 towns
and four million in 627,000 villages. Reaching all these markets will be a
stupendous task for the marketer. Hence he has to rely heavily on the
middlemen. In spite of the difficulties and problems posed by the middlemen, it is
imperative to keep them and have now become more organised. This makes
logistics particularly for new players extremely difficult. It also makes new product
launches difficult since retailers are reluctant to allocate resources and time to
slow moving products. Critical factors for success are the ability to build, develop,
and maintain a robust distribution network. An organised retail chain which is
explained in the next section have set up systems for inventory management and
quick servicing, thereby offering the opportunity for a company/supplier to reduce
distribution cost by reducing intermediaries such as wholesalers/distributors and
supplying directly to the warehouse of retail chain.

6. Exercises
1. What do you think of the distribution strategies adopted by the following companies?
Comment on their strategies.
A. Bata
B. VIP luggages
C. TI Cycles
D. Essar Oil
E. Cease Fire
F. Zodiac garments
2. Explain the need for Franchising with some Indian examples.
3. Classify the vertical integration that is done by some of the Indian companies and
explain the same.
4. Evaluate the role of company like VOLTAS in the distribution chain.
5. Describe the importance of player like Shopppers stop in the distribution system.
7. References
1. Rebecca Gardyn , “There’s No Place Like Home”, American Demographics,
22 (March 2000), pp. 40–42, 44–45.
2. Coughlan, Anne T., E. Anderson, Louis W. Stern and Adel I. El-Ansary. 2006.
Marketing channels. 7th ed. Upper Saddle River, N.J.: Pearson Prentice Hall.
3. Van den Poel, D., Leunis, J. (1999), "Consumer acceptance of the Internet as
a channel of distribution", Journal of Business Research, Vol. 45 pp.249-56.
4. Ford, D. - Understanding business marketing and purchasing (3rd ed.) :
Thomson Learning, 2001

Retailing and Wholesaling

Unit structure:

1. Introduction
2. Learning Objectives
3. Retailing and Wholesaling
3.1. Retailer types
3.2. Concerns of Retailers
3.3. Retailer formats
3.4. Wholesalers benefits
3.5. Categorisation of Wholesalers
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Retailing is defined as selling products to consumers for their personal use. A


retailer is a reseller (i.e., obtains product from one party in order to sell to
another) from which a consumer purchases products. In the majority of retail
situations, the organization from which a consumer makes purchases is a
reseller of products obtained from others and not the product manufacturer.
While consumers are the retailer’s buyers, a consumer does not always buy from
retailers. For consumers the most important benefits relate to the ability to
purchase small quantities of a wide assortment of products at prices that are
considered reasonably affordable. For suppliers the most important benefits
relate to offering opportunities to reach their target market, build product demand
through retail promotions, and provide consumer feedback to the product
marketer. Wholesaling is defined as the activities involved in selling to
organizational buyers who intend to either resell or use for their own purposes. A
wholesaler is an organization providing the necessary means to: 1) allow
suppliers (e.g., manufacturers) to reach organizational buyers (e.g., retailers,
business buyers), and 2) allow certain business buyers to purchase products
which they may not be able to otherwise purchase.

2. Learning objectives:

When you finish this unit, you should be able to:


• Understand the need for retailing and whlesaling.
• Understand the various types of retailing and wholesaling.
• Understand the issues involved in both forms .
• Understand the relevance to the channel management.

3. Retailing:

Currently, India does not possess a very high percentage of organized retail segments.
Even by the most optimistic estimates, the figure stands at less than 3%. But suddenly the
biggest business houses of India have woken up to the great potential of this Rs. 1 lakh
crore retail sector. Today the likes of Wal-Mart and Tesco are all set to debut in India.
The rising per capita income of middle and lower middle class has propelled the growth
of retail in India. They form a large chunk of people visiting the malls and food joints on
any day. The emergence of many Tier-2 and Tier-3 cities has given the fillip to the
development of organized retailing in India. The concepts of malls and super-stores have
now gripped the entire nation and the number is increasing. The organized retail sector is
expected to grow at 6% by 2010 and touch a retail business of $ 17 billion as against its
current growth level of 3% which at present is estimated to be $ 6 billion, according to
the study undertaken by The Associated Chambers of Commerce and Industry of India
(ASSOCHAM). It has emerged as one of the most dynamic and fast-paced industries
with several players entering the market. Retailing in India is gradually inching its way
toward becoming the next boom industry. The whole concept of shopping has altered in
terms of format and consumer buying behavior, ushering in a revolution in shopping in
India. Modern retail has entered India as seen in sprawling shopping centers, multi-
storied malls and huge complexes offering shopping, entertainment and food all under
one roof.

3.1. Retailers Types:

There are many ways retailers can be categorized depending on the


characteristics being evaluated. For our purposes we will separate retailers
based on six factors directly related to major marketing decisions:
• target markets served
• product offerings
• pricing structure
• promotional emphasis
• distribution method
• service level

and one operational factor:

• ownership

However, these groups are not meant to be mutually exclusive.

3.1.1.Target Markets Served

The first classification looks at the type of markets a retailer intends to target.
These categories are identical to the classification scheme we saw in Part 8
when we discussed the levels of distribution coverage.
• Mass Market – Mass market retailers appeal to the largest market
possible by selling products of interest to nearly all consumers. With such a
large market from which to draw customers, the competition among these
retailers is often fierce.
• Specialty Market – Retailers categorized as servicing the specialty market
are likely to target buyers looking for products having certain features that go
beyond mass marketed products, such as customers who require more
advanced product options or higher level of customer service. While not as
large as the mass market, the target market serviced by specialty retailers
can be sizable.
• Exclusive Market – Appealing to this market means appealing to
discriminating customers who are often willing to pay a premium for features
found in very few products and for highly personalized services. Since this
target market is small, the number of retailers addressing this market within a
given geographic area may also be small.

3.1.2.Products Carried

Under this classification retailers are divided based on the width (i.e., number of
different product lines) and depth (i.e., number of different products within a
product line) of the products they carry.

• General Merchandisers – These retailers carry a wide range of product


categories though the number of different items within a particular product
line is generally limited (i.e., shallow depth).
• Multiple Lines Specialty Merchandisers - Retailers classified in this
category stock a limited number of product lines (i.e., narrow) but within the
categories they handle they often offer a greater selection (i.e., deep) than
are offered by general merchandisers. For example, a consumer electronics
retailer would fall into this category.
• Single Line Specialty Merchandisers – Some retailers limit their offerings
to just one product line, and sometimes only one product. This can be seen
online where a relatively small website may sell a single product such as
computer gaming software. Another example may be a small jewelry store
that only handles watches.

3.1.3.Pricing Strategy

Retailers can be classified based on their general pricing strategy. Retailers


must decide whether their approach is to use price as a competitive advantage or
to seek competitive advantage in non-price ways.
• Discount Pricing – Discount retailers are best known for selling low priced
products that have a low profit margin (i.e., price minus cost). To make
profits these retailers look to sell in high volume. Typically discount retailers
operate with low overhead costs by vigorously controlling operational
spending on such things as real estate, design issues (e.g., store layout,
website presentation), and by offering fewer services to their customers.
• Competitive Pricing – The objective of some retailers is not to compete on
price but alternatively not to be seen as charging the highest price. These
retailers, who often operate in specialty markets, aggressively monitor the
market to insure their pricing is competitive but they do not desire to get into
price wars with discount retailers. Thus, other elements of the marketing mix
(e.g., higher quality products, nicer store setting) are used to create higher
value for which the customer will pay more.
• Full Price Pricing – Retailers targeting exclusive markets find such
markets are far less price sensitive than mass or specialty markets. In these
cases the additional value added through increased operational spending
(e.g., expensive locations, more attractive design, more services) justify
higher retail prices. While these retailers are likely to sell in lower volume
than discount or competitive pricing retailers, the profit margins for each
product are much higher.

3.1.4.Promotional Focus

Retailers generate customer interest using a variety of promotional technique, yet


some retailers rely on certain methods more than others as their principle
promotional approach.

• Advertising – Many retailers find traditional mass promotional methods of


advertising, such as through newspapers or television, continue to be their
best means for creating customer interest. Retailers selling online rely
mostly on Internet advertising as their promotional method of choice.
• Direct Mail – A particular form of advertising that many retailers use for the
bulk of their promotion is direct mail – advertising through postal mail. Using
direct mail for promotion is the primary way catalog retailers distribute their
materials and is often utilized by smaller local companies who promote using
postcard mailings.
• Personal Selling – Retailers selling expensive or high-end products find a
considerable amount of their promotional effort is spent in person-to-person
contact with customers. While many of these retailers use other promotional
methods, in particular advertising, the consumer-salesperson relationship is
key to persuading consumers to make purchase decisions.
3.1.5.Distribution Method

Retailers sell in many different formats with some requiring consumers visit a
physical location while others sell to customers in a virtual space. It should be
noted that many retailers are not tied to a single distribution method but operate
using multiple methods.
• Store-Based Sellers – By far the predominant method consumers use to
obtain products is to acquire these by physically visiting retail outlets (aka
brick-and-mortar). Store outlets can be further divided into several
categories. One key characteristic that distinguishes categories is whether
retail outlets are physically connected to one or more others stores:
o Stand-Alone – These are retail outlets that do not have other retail
outlets connected.
o Strip-Shopping Center – A retail arrangement with two or more
outlets physically connected or that share physical resources (e.g., share
parking lot).
o Shopping Area – A local center of retail operations containing many
retail outlets that may or may not be physically connected but are in
close proximity to each other such as a city shopping district.
o Regional Shopping Mall – Consists of a large self-contained
shopping area with many connected outlets.
• Non-Store Sellers – A fast growing method used by retailers to sell
products is through methods that do not have customers physically visiting a
retail outlet. In fact, in many cases customers make their purchase from
within their own homes.
o Online Sellers – The fastest growing retail distribution method
allows consumer to purchase products via the Internet. In most cases
delivery is then handled by a third-party shipping service.
o Direct Marketers – Retailers that are principally selling via direct
methods may have a primary location that receives orders but does not
host shopping visits. Rather, orders are received via mail or phone.
o Vending – While purchasing through vending machines does
require the consumer to physically visit a location, this type of retailing is
considered as non-store retailing as the vending operations are not
located at the vending company’s place of business.
3.1.6. Service Level

Retailers attract customers not only with desirable products and affordable
prices, but also by offering services that enhance the purchase experience.
There are at least three levels of retail service:
• Self-Service – This service level allows consumers to perform most or all
of the services associated with retail purchasing. For some consumers self-
service is considered a benefit while others may view it as an
inconvenience. Self-service can be seen with: 1) self-selection services,
such as online purchasing and vending machine purchases, and 2) self-
checkout services where the consumer may get help selecting the product
but they use self-checkout stations to process the purchase including
scanning and payment.
• Assorted-Service – The majority of retailers offer some level of service to
consumers. Service includes handling the point-of-purchase transaction;
product selection assistance; arrange payment plans; offer delivery; and
many more.
• Full-Service – The full-service retailer attempts to handle nearly all
aspects of the purchase to the point where all the consumer does is select
the item they wish to purchase. Retailers that follow a full-price strategy
often follow the full-service approach as a way of adding value to a
customer’s purchase.

3.1.7. Ownership Structure

Finally, we can categorize retailers based on the ownership structure of the


business.

• Individually Owned and Operated – Under this ownership structure an


individual or corporate entity owns and operates one or a very small number
of outlets. Single ownership of retail outlets most frequently occurs with
small retail stores, though there are some cases, for instance in the
automotive or furniture industries, where single ownership involves very
large outlets.
• Corporate Chain – A retail chain consists of multiple retail outlets owned
and operated by a single entity all performing similar retail activities. While
the number of retail outlets required to be classified as chain has never been
specified, we will assume that anyone owning more than five retail locations
would be considered a chain.
• Corporate Structure – This classification covers large retailers
predominantly operating in the non-store retail arena such as online, catalog
and vending.
• Contractually Licensed and Individually Operated – The contractual
channel arrangement has lead to a retail ownership structure in which
operators of the retail outlet are not the out-right owners of the business.
Instead, the arrangement often involves a legal agreement in which the
owner of the retail concept allows the operator to run the owner’s business
concept in exchange for financial considerations such as a percentage of
revenue. This structure is most often seen in retail franchising.

3.2.Concerns of Retailers

Retailers are faced with many issues as they attempt to be successful. The key
issues include:

• Even though India has well over 5 million retail outlets of all sizes and styles (or
non-styles), the country sorely lacks anything that can resemble a retailing
industry in the modern sense of the term. This presents international retailing
specialists with a great opportunity.
• Retailing in India is thoroughly unorganised. There is no supply chain
management perspective. According to a survey by AT Kearney, an
overwhelming proportion of the Rs. 400,000 crore retail market is
UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is
organised. As much as 96 per cent of the 5 million-plus outlets are smaller than
500 square feet in area. This means that India per capita retailing space is about
2 square feet (compared to 16 square feet in the United States). India's per
capita retailing space is thus the lowest in the world.
• Just over 8 per cent of India's population is engaged in retailing (compared to
20 per cent in the United States). There is no data on this sector's contribution to
the GDP. From a size of only Rs.20,000 crore, the ORGANISED retail industry
will grow to Rs. 160,000 crore by 2005. According to AT Kerney, the total
retail market, however, as indicated above will grow 20 per cent annually from
Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005
• Given the size, and the geographical, cultural and socio-economic diversity of
India, there is no role model for Indian suppliers and retailers to adapt or
expand in the Indian context. The first challenge facing the organised retail
industry in India is: competition from the unorganised sector. Traditional
retailing has established in India for some centuries. It is a low cost structure,
mostly owner-operated, has negligible real estate and labour costs and little or
no taxes to pay. Consumer familiarity that runs from generation to generation is
one big advantage for the traditional retailing sector.
• In contrast, players in the organised sector have big expenses to meet, and yet
have to keep prices low enough to be able to compete with the traditional
sector. High costs for the organised sector arises from: higher labour costs,
social security to employees, high quality real estate, much bigger premises,
comfort facilities such as air-conditioning, back-up power supply, taxes etc.
Organised retailing also has to cope with the middle class psychology that the
bigger and brighter a sales outlet is, the more expensive it will be. The above
should not be seen as a gloomy foreboding from global retail operators.
International retail majors such as Benetton, Dairy Farm and Levis have already
entered the market. Lifestyles in India are changing and the concept of "value
for money" is picking up.

3.3. Retail Formats:

These categories are designed to identify the primary format a retailer follows. In
some cases, particular with the advent of the Internet, a retailer will be involved in
more than one formats.
• Mom-and-Pop – Represent the small, individually owned and operated
retail outlet. In many cases these are family-run businesses catering to the
local community.
• Mass Discounters - These retailers can be either general or specialty
merchandisers but either way their main focus is on offering discount
pricing. Compared to department stores, mass discounters offer fewer
services and lower quality products.
• Warehouse Stores – This is a form of mass discounter that often provides
even lower prices than traditional mass discounters. In addition, they often
require buyers to make purchases in quantities that are greater than what
can be purchased at mass discount stores. These retail outlets provide few
services and product selection can be limited. Furthermore, the retail design
and layout is as the name suggests, warehouse style, with consumers often
selecting products off the ground from the shipping package. Some forms of
warehouse stores, called warehouse clubs, require customers purchase
memberships in order to gain access to the outlet.
• Category Killers – Many major retail chains have taken what were
previously narrowly focused, small specialty store concepts and have
expanded them to create large specialty stores.
• Department Stores – These retailers are general merchandisers offering
mid-to-high quality products and strong level of services, though in most
cases these retailers would not fall into the full-service category. While
department stores are classified as general merchandisers some carry a
more selective product line.
• Boutique – This retail format is best represented by a small store carrying
very specialized and often high-end merchandise. In many cases a boutique
is a full-service retailer following a full-pricing strategy.
• Catalog Retailers – Retailers like Otto Burlington’s have built their
business by having customers place orders after seeing products that
appear in a mailed catalog. Orders are then delivered by a third-party
shipper.
• e-tailers - Possibly the most publicized retail model to evolve in the last 50
years is the retailer that principally sells via the Internet. There are
thousands of online-only retail sellers of which Amazon.com is the most
famous. These retailers offer shopping convenience including being open
for business all day, every day. Electronic retailers or e-tailers also have the
ability to offer a wide selection of product since all they really need in order to
attract orders is a picture and description of the product. That is, they may
not need to have the product on-hand the way physical stores do. Instead
an e-tailer can wait until an order is received from their customers before
placing their own order with their suppliers. This cuts down significantly on
the cost of maintaining products in-stock.
• Franchise – franchise is a form of contractual channel in which one party,
the franchisor, controls the business activities of another party, the
franchisee. Under these arrangements, an eligible franchisee agrees to pay
for the right to use the franchisor’s business methods and other important
business aspects, such as the franchise name. For instance, NIIT is a well-
known franchisor that allows individuals to use the NIIT name and methods
to deliver food to consumers. Payment is usually in the form of a one-time,
upfront franchise fee and also on-going percentage of revenue. While the
cost to the franchisee may be quite high, this form of retailing offers several
advantages including: 1) allowing the franchisee to open a retail outlet that
may already be known to local customers, and 2) being trained in how to
operate the business, which may allow the franchisee to be successful much
faster than if they attempted to start a business on their own. For the
franchisor, in addition to added revenue, the franchise model allows for
faster expansion since funds needed to expand the business (e.g., acquiring
retail space, local advertising) are often supported by the franchisee’s up-
front franchise fee.
• Convenience – As the name implies these general merchandise retailers
cater to offering customers an easy purchase experience. Convenience is
offered in many ways including through easily accessible store locations,
small store size that allows for quick shopping, and fast checkout. The
product selection offered by these retailers is very limited and pricing can be
high.
• Vending – Within this category are automated methods for allowing
consumers to make purchases and quickly acquire products. While most
consumers are well aware of vending machines allowing customers to
purchase smaller items, such as beverages and snack food, newer devices
are entering the market containing more expensive and bulkier products.
These systems require the vending machine have either Internet or
telecommunications access to permit purchase using credit cards.

3.4. Wholesaling benefits:


While many large retailers and even manufacturers have centralized
facilities and carry out the same tasks as wholesalers, we do not classify these
as wholesalers since these relationships only involve one other party, the buyer.
Thus, a distinguishing characteristic of wholesalers is they offer distribution
activities for both a supplying party and for a purchasing party. For our
discussion of wholesalers we will primarily focus on wholesalers who sell to other
resellers such as retailers. The benefits wholesalers offer to members of the
channel can be significant and there are two particular benefits – one for
suppliers and one for retailers - that are common to most wholesale operations
and are worth further discussion:
• Provide Access to Products - Wholesalers are in business to provide
products and services to buyers (e.g., retailers) who either cannot purchase
directly from suppliers because their purchase quantities are too low to meet
the supplier’s minimum order requirements or, if they purchase directly from
suppliers, will pay higher prices compared to bigger retailers who obtain
better pricing by purchasing in greater quantities. Since wholesalers sell to a
large number of buyers their order quantities may match those of large
retailers thus allowing them to obtain lower prices from suppliers.
Wholesalers can then pass these lower prices along to their buyers, which
can enable smaller retailers to remain competitive with larger rivals. In this
way transacting through wholesalers is often the only way certain retailers
can stay in business.
• Provide Access to Markets – Providing smaller retailers access to
products they cannot acquire without wholesaler help offers a benefit for
suppliers as well since it opens additional market opportunities for suppliers.
Namely, suppliers can have their products purchased and made available for
sale across a wide number of retail outlets. More importantly, for a company
offering a new product, convincing a few wholesalers to stock a new product
may make it easier to gain traction in the market as the wholesaler can yield
power with the smaller retailers convincing them to stock the new product.
Considering a wholesaler can serve hundreds of small retail customers, the
marketing efforts persuading the wholesaler to adopt a new product may be
far more efficient compared to efforts needed to convince individual store
owners to stock the new product.

3.5. Categorize Wholesalers:

Similar to how retailers can be categorized, wholesalers can also be classified


by the width and depth of product lines they handle. The categories include:
• General Merchandise – Wholesalers carrying a very broad line of products
fall into the general merchandise wholesaler category. Like general
merchandise retailers, the product lines these wholesalers carry may not
offer many options (i.e., shallow depth). These wholesalers tend to market
to the smaller general merchandise retailer such as smaller convenience or
general stores.
• Specialty Merchandise – Wholesalers focusing on narrow product lines
but offering deep selection within the lines fall into the specialty merchandise
category. Most specialty merchandise wholesalers direct their marketing
efforts to specific industries. For example, specialty wholesalers supply such
industries such as electronics, seafood, and pharmaceuticals.

Wholesalers can be separated based on the importance promotion plays in


generating demand for products handled by the wholesaler. Two basic
categories exist:

• Extensive Promotion – The main job of some wholesalers is to actively


locate buyers. This occurs most often where a wholesaler is hired to find
buyers for a supplier’s products or where the wholesaler is very aggressive
in finding new customers for their business. Under these arrangements the
most common promotional activity is personal selling through a sales force,
though advertising may also be used.
• Limited Promotion – Nearly all wholesalers engage in some promotional
activities. Even in situations where a wholesaler dominates a channel and
clients have little choice but to acquire products from the wholesaler, some
promotion will still occur. For instance, at times a wholesaler may need to
use their salespeople to persuade buyers to purchase in larger volume than
normal or to agree to stock a new product the wholesaler is handling. In
other cases, especially for wholesalers selling products for business use,
promotional activities may be more extensive and include advertising and
other promotional methods.

Wholesalers can be distinguished by the number and depth of services they


provide to their customers.
• Full-Service – Wholesalers in this category mainly sell to the retail
industry, and in most cases, require a strong, long-term retailer-wholesaler
relationship be established. In addition to basic distribution services, such as
providing access to an assortment of products and furnishing delivery, these
wholesalers also offer customers additional services that aid retail store
operations including offering assistance with: in-store merchandising; retail
site location decisions (e.g., find best geographic location for a new store);
store design and construction; back-end operations (e.g., payroll services);
financial support; and many more.
• Limited Service – Compared to full-service wholesalers, buyers dealing
with limited service firms offer far fewer services. Most offer basic services,
such as shipping and allow credit purchasing, but few offer the number of
service options found with full-service wholesalers.
• No Service – Some wholesalers follow a business model whose only
service is to make products available for sale and only on a cash basis. In
these instances, the buyer handles their own transportation of the product.
4. Have you understood type questions:

1. State whether True/ False


Wholesaling activities must be performed during distribution of all
goods, whether or not a wholesaling institution is involved.
Wholesaling is an inefficient process that should be eliminated from the
marketing channel in India.
manufacturers prefer to deal direct with retailers in India.
2. By using a wholesaler, some firms have a distinct advantage because the
specialised services performed by the wholesaler allow the firm to:
A. focus on developing and manufacturing products that match
consumers' needs and wants.
B. focus on increasing production capacity and efficiency
C. reduce manufacturing costs to retailers and provide quality
merchandise to consumers.
3. A merchant wholesaler
A. takes title and assumes risk and is generally involved in buying and
reselling products.
B. takes title and possession of goods and sells only to retailers.
C. does not take title and possession of goods but may facilitate
exchange between any two parties.
D. deals exclusively with industrial products.

4. After shopping in the same store for nearly two hours, members of a family
indulge in activities that they like viz., lunch, play and watch cinema and engage
in these activities without leaving the store in which they have been shopping.
They are most likely in a:

A. superstore.
B. hypermarket.
C. department store.
D. general merchandise retailer

5. An arrangement in which a supplier grants a dealer the right to sell products in


exchange for some type of consideration is:
A. licensing.
B. retailing.
C. franchising.
D. wholesaling.

6. Location is extremely important to a retailer because:


A. suppliers charge more to service stores in certain trading areas.
B. a desirable location appeals to consumers' emotions and
encourages them to buy.
C. location is the major determinant of store image.
D. location determines the trading area from which the store must
draw its customers.
7. The strategy of identifying an attractive market segment and serving it in a way
that differentiates the retailer from others in consumers' minds is termed:
A. product positioning
B. niche retailing
C. retail positioning
D. merchandise policy

8. A retailer mails brochures and coupons to potential consumers who can then
purchase products by mail or by phone. This illustrates which of the following
methods of selling retail products?
A. Direct-response marketing
B. Party plan
C. Catalogue marketing
D. Speciality retailing

5. Summary

Retailing in India is growing at a faster speed as compared to wholesalers and would in


all probability be replaced by retailers. almost all retail players (especially in food) have
been region-specific. So whether it is FoodWorld, Nilgiris, Margin Free Market, Giant,
Varkey's and Subhiksha in the South, Sabka Bazaar only in and around Delhi, Haiko and
Radhakrishna Foodland which are Mumbai-centric; or Ahmedabad-based Adani, they
have clearly battled with scalability. Choosing the right format is very important. RPG is
having a combination of formats, emphasizing the most successful one during the
implementation phase. A mix of supermarket and discount stores would most probably fit
the Indian market although the type of format depends on the retailer's competitive
advantage. The key is to switch between formats according to circumstances. For
example, in Thailand, Tesco entered with hypermarkets (Tesco Lotus), then convenience
stores; it now plans to expand with supermarkets. Casino entered with its Big C
hypermarkets and is now launching a Leader Price discount store. In future, it will be
retailing in an organised way that will develop as compared to any other middlemen.
There will be multiple roles for retailers in the future also.

6. Exercises
1. Identify the issues wholesaling by visiting a nearby wholesaler and explain the future
of wholesalers.
2. Wholesalers will not perish in India- comment.
3. Explain the steps to be taken in making a wholesalers mover forward to a retailer
status.
4. Enumerate the functions done by a cash and carry outlet.
5. With suitable examples, explain the various retail formats in India.
6. Prakash has a group of farmers who provide him with a regular supply of fresh
vegetables. He picks up their produce and has a regular route of grocers and
restaurants who inspect and purchase quantities of the items he has on any
given day. Prakash’s operation belongs to a specific type of wholesaler. Explain.
7. Compare and contrast Shoppers Stop with Big Bazzar.

7. References

1. Knapp Duane E. ( 2000 ) The Brand Mindset, McGraw Hill New York NY.
2. Christopher Knee (2002) Learning from experience: five challenges for
retailers, International Journal of Retail and Distribution Management, Vol.30
No. 11, pp. 519-29.
3. ‘What’s eating Indian retailing?’ Business Standard , 10 July 2001.
4. Betancourt, R. & Gautschi, D. (1988) The economics of retail firms,
Managerial and Decision Economics, 9, June, 133–142.
5. Macintosh, G. & Lockshin, L. S. (1997) Retail relationships and store loyalty:
a multilevel perspective, International Journal of Research in Marketing, 14,
pp. 487–497.
INTEGRATED MARKETING COMMUNICATION

Unit structure:

1. Introduction
2. Learning Objectives
3. Integrated Marketing Communication
3.1. The need for IMC
3.2. Future of IMC
3.3. IMC Campigns
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Marketing communication has become the backbone of the effective functioning


of an organisation in the information technology era. Many companies are very much
dependent on the services provided by these players in the market. This is only in the
nascent stages and once the technology grows, it will also grow in the same proposition.
We are now talking about going “global” which means every such organisation should
start looking at the basic impediment of language problems. The complexities of business
increase to the maximum and hence top management of research organisations should
give more importance to cross cultural communication. What is considered okay in one
society may be a taboo in another one. This is where tourism products can be affected.
With the advent of sophisticated technologies, it becomes easier for a manager to
communicate. We are now living in the era of interactive communication. A person at
Venice can easily talk with a person in Baroda through a video terminal. Technology has
shaped the way communication is dealt.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the need and scope of IMC.
• Understand the past marketing communications.
• Understand the future of marketing communication and the role of IMC.

3. Integrated Marketing Communications:

Today, communication goes beyond the specific promotion tools/marketing


communication mix. The product’s design, its price, the shape and colour of its
package and the stores sell it – all communicate something to buyers. Hence,
although the promotion mix is the company’s primary communication activity, the
entire marketing mix – promotion and product, price and place – must be
coordinated for the greatest communication impact. Each brand contact will
deliver a message – and their impact can be positive, negative or neutral on the
consumer. Therefore, the company needs to deliver a consistent positive
message at all contact points. This is possible when organizations develop a total
marketing communication strategy that requires how all of a firm’s marketing
activities not just promotion, communicate with its customers. Thus, the practice
of Integrated Marketing Communication (IMC) was encouraged.

Advocates of IMC argue that it is one of the easiest ways a company can
maximize the return on its investment in marketing and promotion. This is
achieved by building long-term relationship with the customers. The media both
deliver the messages and provide ways for customers to send messages to the
company. Customers respond to the brand messages by buying its products,
asking questions, placing complaints, having repairs made and so on. Thus,
brand experiences are created. Each brand experience either strengthens or
weakens the brand relationship. Strengthened relationships lead to increased
sales and profits, enhancing brand equity. Weakened relationships result in lost
sales and lost customers, undermining brand equity. All through the years, the
clients were leading the advertising agencies and the role of consumers was
relatively insignificant in designing the brand communication. Also the agencies
are doing what they feel comfortable to do. It is high time the agencies need to
follow customers and create competencies in the customer’s preferences. If the
customer is more convinced with the online information about the brand then the
agency should focus on that media and should take the lead to integrate all other
brand communications.

Jagdish Seth and Rajendra Sisodia, in their ‘Four As of Marketing’, have


emphasized on the integration of the various aspects of marketing to get the
desired results. They say, “Marketers cannot make a trade-off by building an
acceptable product that is not affordable; or a product that is affordable but of
cheap quality; or a product that is affordable and acceptable but cannot be
accessed through appropriate distribution channels. Today, the biggest fights are
between marketing, sales and customer support, not between marketing and
engineering or sales and engineering. But having done with the marketing mix
will not ensure necessary integration, even though these are the primary factors
to be integrated. Even integrating the elements of marketing communication mix
and coordinating all the brand communication will move half-way through. The
companies have to go beyond these integrations. Identify the factors need to be
integrated by throwing light into the firm’s internal and external environments.
Here are a few Indian examples-

Bharti Airtel, seems to have integrated three factors viz., connectivity,


affordability and innovation, which reinforce each other in bringing the expected
results. The brand recognition, market share and the brand being in the top of
consumers’ mind, point to the effective integration of the marketing mix and
communication mix variables, which Airtel has already done. Their network
coverage is wide and the service is offered at affordable rates. They are catering
to the needs of almost all customers from the enterprise segment to the villagers.
Life time prepaid is one way to make it affordable. This, along with the song
catcher is their innovative measures in the industry. Thus, these three factors
support each other to make Airtel in positioning it among the leaders in the
industry.

Kellogg India Ltd. was having their toughest time during their initial period.
Through the pricing and availability in premium retail stores, Kellogg tried to
convey the product quality to the target market. But there was lack of integration
of the marketing variables which resulted in rejection of the product because of
bad taste, in spite of the managerial, technical and financial support from the
parent company. Their frantic media activity proved to be a failure when the
consumers referred to their wheat and rice varieties as rice corn flakes and
wheat corn flakes. Learning from these mistakes Kellogg restructured their
marketing activities by integrating all the marketing elements. Indianised versions
of the product were launched; different packs of varying quantities were
introduced; media advertising along with symposiums, community oriented
programmes, etc. were organized; sales inducers were identified as children and
free gifts for them were offered; price reduction without compromising on the
quality but by changing the packaging was made; products were made available
in premium and small retail stores; one-serving sample packs were distributed.
All these resulted in converting the experimenters to regular users and Kellogg
made the India Cereal Breakfast market to grow to almost tribled its size in five
years.

3.1. The Need For Ingrated Marketing Communication:


Marketing Communication Process:

Communication is the process of influencing other's behaviour by sharing


ideas, information or feeling with them. The two major participants in the
communication are sender (marketer) and the receiver. The communication
occurs :
(a) when sender transmits the message, and
(b) a receiver receives that message and
(c) the sender and the receiver have a shared meaning.

ENCODING MESSAGE DECODING


THE CHANNEL THE
MESSAGE Advertising MESSAGE
Ad display or media or sales Compare to
Sales force frame of
promotion reference,
memory &

MESSAGE AS
NOISE MESSAGE AS
INTENDED Competing RECEIVED
Sales idea or advertisements, Knowledge,
USP other sales people beliefs, or
feelings
distractions

Start
FEEDBACK RESPONSE
Sales reports, Interest, desire,
attitude or purchase
research

Marketing communication process

Fundamentally, in the communication process there are five elements :


(a) The message
(b) The sender
(c) The receiver
(d) Communication channel, and
(e) Feed back.
The message which is being sent by the sender is being encoded into a transmitted form
and then it is being passed through channel and then the message is being received and
decoded. All stages can be affected by the noise—the factor which resist the flow. In
marketing communication the information source is an ‘idea’ to be communicated. It is
then encoded into the transmittable message as sales promotion, advertisements and
display. The channel is advertising media through which the message is transmitted. The
receiver receives the messages and the message is decoded on the basis of his perception
memory and experience. At various stages in the process, the message is being filtered,
distorted or blocked by several barriers (noise), in the form of competing advertisements,
other sales people distractions etc.

The objectives and importance of marketing communication can be


understood by following points :

Behaviour Modification : Promotion seeks to modify behaviour and thoughts and


reinforces existing Behaviour. The company hopes to create the favourable
image for itself and also to motivate purchases of the company's goods and
services.
Objective to Inform: All promotional communications are designed to inform the
largest market about the firm's product or services. Informative promotion is more
prevalent in the early stages of product life cycle of a product or service. It is
necessary to increase the primary demand. The first thing which the customer
needs is the information about the product itself, its features etc. It leads the
customer in making more intelligent purchase decision.
Objective to Persuade: It is designed to stimulate purchase. Sometimes firms
want to create a positive image for the long term gain rather than the immediate
purchase.
Persuasion objective is the main objective when the product reaches the growth
stage of its product life cycle because at that time the consumer formation
objective and consumer retention objective both has to be taken simultaneously.
Objective to Remind: It is used to keep the product brand name in the public's
mind and is used in the maturity stage of the product life cycle. This type of
promotion is used to refresh the memory of the target customers assuming that
they know the product.
Specific Objectives: The goal of promotion is to change the pattern of demand for
a product by Behaviour modification - informing, persuading and reminding. In
Economic terms, the basic purpose of promotion is to change the location and
shape of the demand curve, means to shift the demand curve upward or to make
a change even temporarily.

For years, even for companies with good market shares, advertisement was the
other name for marketing. Firms in the FMCG sector, including those who have
understood the concept of marketing were practicing mass production and hence
adopted mass marketing strategies. For selling highly standardized products to
masses of consumers, these marketers developed effective mass media
advertising techniques. It was their routine practice to invest huge amounts in the
mass media with a single advertisement for a big number of customers. Mass
media advertising enjoyed a dominant role among the promotion mixes of
consumer product companies those times. And only companies which were
financially sound used expensive media to reach the market. This was sufficient
in producing satisfactory results to the companies those times. But almost all of
them faced the problem of the message getting lost because of the
advertisement reaching the non-targeted people also. In spite of this, many
companies proved themselves to be experts in mass marketing.

With the increase of competition and when the customers tend to gain more and
more importance, marketers felt the necessity of maintaining healthy customer
relationship. To enhance better relationship with their customers marketers
advanced their objective from customer satisfaction to customer delight.
Researches on consumer behaviour show the tendency of the consumer to stick
on to the company which treats him individually. The consumer, as he is a
human being, needs to be cared personally by the marketer. There are always
prospects and customers who have question, complaints and suggestions which
must be heard and given a timely and satisfying response. If this is the trend in
the market, the marketers have to definitely tune their marketing activities
accordingly. So, in order to delight their customers through building closer
relationships with them, marketers are now moving away from mass markets
and are focusing on more narrowly defined micro markets. This trend in
marketing is supported by the improvements in information technology by
providing more information about consumers at the individual and house hold
levels. Also new technologies provide new communication avenues for reaching
smaller customer segments with more tailored messages.

Both marketers and consumers have identified the benefits of feedback in


communication. Consumers in the past were reluctant to respond to the
marketers’ messages – whether it is advertisement or feedback coupons or even
consumer surveys. The reason for these is partly due to not recognizing their
own needs and partly because of distrust in the marketers. Many consumers
believed that their suggestions and opinions will go to the marketers’ waste-bins
without producing any positive results. But now, with the advent of new
interactive communication channels, like internet, and realizing their role in
marketing, many consumers are letting the marketer know about their specific
needs, opinions and complaints in addition to responding to the feedback profile.
Many of these responses are quicker and the marketers are also reacting to
them in a faster pace than before. These changes in the consumer market have
forced many marketers to customerise their organizations. Levi’s is now able to
produce customized jeans based on a person’s measurements. P&G, on its
reflect.com site, allows a person to specify needs for a shampoo by answering a
set of questions, and then formulates a shampoo for that person.

Now, promotion results through two way communication. Encouraging


communication from the customers resulted in using the term ‘marketing
communication’ in place of ‘promotion’. The changed scenario has made the
companies analyse their marketing communication activities. Messages
delivered via different promotional approaches (marketing communication mix),
such as advertising, personal selling, sales promotion, public relations and direct
marketing – all become part of a single message about the company. Conflicting
messages from these different sources can result in confused company images
and brand positions. But in most cases companies fail to integrate their various
communication channels. Mass advertisements say one thing, a sales promotion
sends a different signal, the product label creates still another message,
company sales literature says something altogether different, and the company’s
website seems out of harmony with everything else. This is obviously
discouraging. The problems are because of the different sources for each of
these communication – advertising messages are planned and implemented by
ad agency or ad department; PR is the responsibility of the PR department or
another agency; personal selling messages are set by sales department and the
like. All these will finally see the confused consumers moving away from the
brand.

Search for new communication strategies

Advertising
It is a paid form of non-personal mass -communication by an identified
sponsor. The mass media used include print media, direct mail, audio visual
media, bill boards etc. Sponsors may be non-profit organization, a political
candidate, a company or an individual. Advertising is used when sponsors want
to communicate with a number of people who cannot be reached economically
and effectively through personal means.
Merits
- Can reach many consumers simultaneously
- relatively low cost per exposure.
- Excellent for creating brand images.
- High degree of flexibility and variety of media to choose from
- Can accomplish many different types of promotion objectives.
Demerits
- Many consumers reached are not potential buyers (waste of promotion money)
- High visibility makes advertising a major target of marketing critics.
- Advertising exposure time is usually brief
- Advertisements are often quickly and easily screened out by consumers.

Personal Selling
Personal selling is face to face contact between a seller’s representative
and those people with whom the seller wants to communicate. Non-profit
organization, political candidates, firms and individuals use personal selling to
communicate with the public.
Merits
- Can be the most persuasive promotion tool; sales people can directly influence
purchase behaviours.
- Allows two way communication.
- Often necessary for technically complex products.
- Allows direct one-on-one targeting of promotional effort.
Demerits
- High cost per contact.
- Sales training and motivation can be expensive and difficult.
- Personal selling often has a poor image, making sales force recruitment
difficult.
- Poorly done sales presentations can hurt sales as well as company, product
and brand images.

Sales Promotion
Sales promotion includes activities that seek to directly induce or indirectly
serve as incentives to motivate, a desired response on the part of the target
customers company sales people and middle men and their sales force. These
activities add value to the product. In sales promotion the activities like discounts,
gifts, contests, premiums, displays and coupons are included.

Some types of Sales Promotion


- Temporary price reductions via coupons, extended, interest free or low interest
credit; refunds, rebates; price off deals, combination offers; bonus packs, multiple
packs; other methods.
- Promotions designed to get trials, such as coupons, refunds, rebates, price off
deals, bonus packs. Samples, offers, trial sizes, free trials, special guarantees,
premium, self liquidating premiums, reusable containers, and souveniers.
- Business, industrial, trades and magazines and technical papers; Journals,
publications.
- Directories and buyers guides.
- Trading stamps redemption coupons, divided coupons and continuity
premiums.
- Displays, point of purchase, show windows, and in store signs and banners.
- Catalogs, book lets, brochures, bulletins, post card, price lists, flyers/handouts,
etc
- Sponsorship, special events and charity linked sales promotions.
Merits
- Excellent approach for short term price reductions for stimulating demand.
- A large variety of sales promotion tools to choose from.
- Can be effective for changing a variety of consumer behaviours.
- Can be easily tied in with other promotional tools.
Demerits
- May influence primarily brand-loyal customers to stock up at lower price but
attract few new customers.
- May have only short term impact.
- Over use of price related sales promotion tools may hurt brand image and
profits.
- Effective sales promotions are easily copied by competitors.
Publicity
Publicity is news carried in the mass media about a firm and its products,
policies, personnel or actions. The unique feature about the publicity is that it is a
non-paid form of promotion, Organizations frequently provide the material for
publicity in the form of news, releases, photographs and press conferences.
Merits
- As "free advertising", publicity can be positive and stimulate demand at no cost.
- May be perceived by consumers as more credible, because it was not paid for
by the seller.
- Consumers may pay more attention to these messages, because they are not
quickly screened out as are many advertisements.
Demerits
- Publicity is not always possible because it is not in the hand of the seller.
- Limited repetition of publicity messages.
- Publicity can be negative and hurt sales as well as company product, and brand
images.
- Company cannot completely control the content of publicity messages.

Public Relations
It is a planned effort by an organization to influence the attitudes and
opinions of a specific group by developing a long term relationship. The target
may be customers, stock holders, a government agency or a special interest
group.
Characteristics of Promotional Types
Factor Advertising Publicity Personal selling Sales promotion
Audience Mass Mass Small (one-to-one) Varies
Message Uniform Uniform Specific Varies
Cost Low per viewer or None for media High per customer Moderate per
reader space and time; customer
can be moderate
costs for press
releases and
promotional
materials but not
met by the
advertiser
Sponsor Company No formal sponsor Company Company
Flexibility Low Low High Moderate
Control over High None (controlled High High
content and by media)
placement
Credibility Moderate High Moderate Moderate
Major goal To appeal to a To reach a mass To deal with To stimulate
mass audience at audience with an individual Short-run sales, to
a reasonable cost, independently consumers, to increase impulse
and create reported message resolve questions, purchases
awareness and to close sales
favourable
attitudes

In this new communication environment, marketers need to rethink the roles of


various media and promotion mix tools. They have to put in efforts to create a
consistent and coordinated communication programme. Today, although
television, magazines, and other mass media remain very important, their
dominance is now declining. Many companies recognize the value of being
customer focused, of integrating their marketing efforts, and of no longer
depending on traditional advertising. Fragmentation of mass markets has
reflected in media fragmentation with the effect of more focused media that better
match today’s targeting strategies.

Now, advertising appears to be giving way to other elements of the promotion


mix. Today, media advertising captures only 26% of total promotion spending.
The rest goes to other marketing communication mix elements, which focus on
individual consumers and trade segments. To quote Philip Kotler, companies are
doing less broadcasting and more narrowcasting. For most companies, the
question is not whether to communicate but rather what to say, to whom and how
often. They have recognized that to achieve their objectives they must ask not
only ‘how can we reach our customers?’ but also ‘how can our customers reach
us?’. Even the best practitioners of mass marketing noticed that a single
marketing communication tool rarely gives the maximum result. For promotion to
be effective, each element of the MC mix should reinforce the other through a
well planned communication programme. Marketers understood that a
combination of tools will give the desired output – maximum sales. Now a days
consumers are being exposed to a greater variety of marketing communications
from and about the company from a variety of sources. But unlike the marketers,
customers do not distinguish between the message sources of a company. In the
consumer’s mind, advertising messages from different media such as TV,
magazines or online sources blur into one. This again necessitates the
messages send by a company to be consistent and coordinated so that the
consumer is not confused.

3.2. Future of marketing communication:

Following are the possible ways of looking at how marketing


communication is going to be in the near future:
1. Earlier only one promotional tool was used but now integrated communication
strategy is being increasingly adopted which heavily relies on the use of
information technology with the advent of Internet.
2. Electronics has taken a major share of the business communication and it is expected
that communication possibilities, which are fast and cheap is, expected to help the
business sector.
3. Due to the increasing complexities in dealing with the trade unions and other
workers associations, it is now considered that informal communication is
also to be given importance. When we take into consideration the influence of
domestic partners of tourism and the local dialects as well as ecotourism
participants it becomes more important. Organisations in future will allow for
this communication openly.
4. Every sales people will have to be fully conversant in the case of
communication and are expected to give feedback to the management. If we
take the case of Kerala, of the total number of tourists visiting per year,
domestic tourists account for not less than 75%. At this juncture there is a
need for a hardsell in this market. All those who are part of the Travel and
tourism wing have to get their act better. Hence they should continuously
upgrading or changing the report formats. Letter writing style to overcome
structuing and monotony and with the use of multimedia and laptop computer,
there is a possibility of changes happening in the basic mindset with which
they are going to be looked.
5. Since technology has pervaded every aspect of life, new technological
devices will help the sales people or ‘Tailor-made’ devices for the sales
people will be introduced for effective communication. With the arrival of
Internet, sales people are expected to be conversant on the same as the
tourists are becoming more Internet savvy.
6. More organisations will start to utilise the services of ‘missionary’ sales people. This
will help in developing a good information base for the company with its clients.
7. Direct marketing will have to be strengthened in the years to come since the
competition is increasing. As most of the people as what happens in “Dubai
shopping festivals” the ultimate beneficiary is directly contacted for all the
benefits offered. To overcome competition, well-written communication sent
by direct marketing can have a positive result in the market.
8. We are entering an era where ‘paperless’ or ‘fileless’ offices are going to be in
vogue. This means that all correspondence will be undertaken via the
networking of computers. The employees of an organisation especially in the
case of Tourism and travel agencies and other related areas need to know
about these aspects.

The Kerala State Government understanding the importance has


sanctioned an amount of Rs 18 lakh for the development of the Kerala Tourism
Web site. According to an official release, the amount will be spent on improving
the site, www.keralatourism.org. The Tourism Department's site, launched in
1998, has already come in for recognition from several information technology
magazines, the release adds. The appearance of the Web site, which contains
over 1.2GB of information on the State, was recently revamped. In addition to
pictures and video clips on Kerala, the site also contains a gallery of audio clips
that showcases sounds of Kerala including traditional folk songs. With
Hyderabad emerging as a major information technology destination, the demand
for rooms has been on the rise. Indian Hotels manages the operations of all the
three hotels under the Taj brand — Taj Krishna, Taj Bandra and Taj Residency.
Indian Hotels is now focussing on becoming asset-light, owning less properties.
This means that some of its future undertakings would be owned by its
subsidiaries or by way of joint ventures. With more information technology being
added, this will be a major attraction.

There is escalation in the cost of media and there is a clutter of competitive


activity all over the market. When more companies fight for the customers’
money, those who put across the message alone stand in getting profitability. By
constantly contacting the customer and packaging the product, promoting
differently each time, the actual cost of promotion comes down. Constant
communication creates a building up effect. The use of a combination of
marketing communication techniques with the use of information technology
gives more opportunity to increase the number of times the product/brands are
known to the customer. The build-ups effect of delivering the same message
through several media or techniques not only increases the efficiency of the
transmission of message but is the sum total of integrated marketing
communication. For example, in the tourism market, Singapore tourism has
covered a place in the minds of the customer. These communications spanning
TV and cinema commercials, newspaper advertising and magazine advertising,
indoor promotion and many other techniques always delivers the same core
message. In integrating any campaign, proper positioning of the product in the
mind of the consumer, the personality and proposition need to clearly
understood.
It is a commonplace argument now about the use of information
technology in the field of marketing. With the advent of Electronic Data
Interchange (EDI), now even retail outlets can target their customers without
many problems. Developments in the area of infrastructure and attraction will
boost the consumer confidence in tourism. The Internet is going to be a boon in
the communication front. The use of digital technology as like digital theatre
systems have made people flock to the cinema halls which earlier were
considered to be a declining industry. As part of tourist attractions, now Ramoji
film city has got into the guide’s schedule. This gives more room for the marketer
to effectively target, differentiate and position his product and services in the
market place. We have already witnessed the evolution of virtual market places
and it is expected that the e-commerce will provide fillip to industry to a large
extent. People today are prosperous and they want to spend on leisure. They
are tired of visiting the same place and want to explore new areas. Tourism
sector should take note of this aspect. In India, middle class tourists form a
major component in the tourism circuit. If a person in Haryana wants to explore
the tourist destinations of Karnataka, he/she should be given adequate facilities.
He should be able to know all the aspects through the Internet. Infrastructure at
the destination should be good.

3.3. IMC Campaigns:


1. According to DM Asia,LG Electronics has launched a new global integrated marketing campaign focusing on
the company's 'Full HD' 1080p flat-panel high-definition televisions (HDTVs). The global campaign will be
first seen in the United States and will roll out to more than 70 countries worldwide over the next month. LG
will invest approximately $25m in the US and more globally to highlight the ultimate viewing experience
delivered by LG's 1080p liquid crystal display (LCD) and plasma HDTVs. Key elements of the campaign
include a series of broadcast, print, outdoor and online advertisements in three creative concepts all featuring
an LG Red Couch, which serves as a symbol of the consumers' all-encompassing high-definition viewing
experience. The campaign also incorporates LG's corporate sponsorship of the Cannes Film Festival and
targeted public relations activities highlighting LG's 1080p Full HD technology and stylish flat-panel designs.
2. Coca-cola India has launched the following campaign:
a. Campaign designed to renew the focus on the thirst-quenching, no
nonsense, and unpretentious attitude of the brand- ‘Sprite Bhujaye
Pyaas…Baaki All Bakwaas . Clear Hai ?!’
b. The special online “Sprite-itude” zone provides Sprite consumers
unlimited opportunities for online gaming, express creativity and to
do their own thing etc.
c. Strategy includes building a stronger connect with the youth, who
prefer Sprite because of its unmatched thirst quenching ability.
d. Integrated marketing communication program to also include mass
media advertising on all leading TV channels, complimented by a
range of on the ground initiatives including road shows and
contests across all key markets
e. New advertising campaign conceptualized by Ogilvy & Mather and
has been shot in Leh- Ladhak

4. Have you understood type questions

1. A mature product like Tide detergent should use ________ promotion to keep the
brand name in the public's mind.

A. Influence
B. Reminder
C. Informative
D. persuasive
2. A brand like Tide detergent should use ________ promotion to keep the brand
name in the public's mind

A. informative
B. influencive
C. reminder
D. persuasive

3. Public relations will have its greatest impact in the ________ stage of the AIDA
model.
A. Attention
B. Desire
C. Impact
D. Action

4. Do you think above the line promotion will alone work in IMC? Yes/ no
5. Firms in the FMCG sector, including those who have understood the concept
of marketing were practicing mass production and hence adopted mass
marketing strategies. Yes /No

5. Summary

The success story of Samsung India Electronics Ltd. speaks the benefit of
integrating wide variety of electronic items and innovation with the marketing mix
elements. In 2002, ICC sold the marketing rights of cricket matches from 2002-
2007 to LG Electronics, Hero Honda, Pepsi and South African Airlines.
Consequently, Samsung was barred from using cricket celebrities in its ad
campaigns during cricket tournaments to be conducted between 2002 and 2007,
as it is the direct competitor of LG Electronics. This was a major setback for the
company, since they have already signed seven celebrity cricketers as their
brand ambassadors (Team Samsung). But Samsung proved to keep up its
growth in the Indian market through its integrated efforts. They offer almost all
electronic items (unlike their LG and Whirlpool) from audio music players to air
conditioners. They launched the ‘Bio’ range of home appliances. The company
have with them products in the premium range as well as for price-conscious
customers. Promotional efforts such as phod ke dekho (during deepawali 2001),
dabake jeeto (during World Cup 2002) were supported by media advertisements
with brand ambassador Tabu. Also they conducted road show showcasing their
latest high tech digital products and customer relations based direct marketing
programmes. All these integrated communication efforts helped Samsung in
creating a strong brand image in the market. This indicates the importance of
IMC.

6. Exercises

1. You are the brand manager of a national consumer brand whose very large
target market is dispersed around the country. You have ample resources to
communicate with the consumer. What will be your integrated marketing
communication methodology?
2. As a brand manager of LG in India, devise a IMC strategy for them.
3. Do you think IMC will replace the major promotional tools? Justify.
4. What according to you is the most favourable campaign for consumer
durables? Cite examples.
5. Discuss the evolution of IMC in India. There are many agencies which have
become full fledged MNC agencies like Grey World wide which have done
enough of IMC campaigns. Identify any three such campaigns and explain
their benefits to organizations.

7. References
1. C. Raja Rajeshwari , “TajGVK Hotels: Buy”, The Hindu businessline, July
27, 2003
2. Devkamal Dutta, “Building and sustaining competitive advantage in the
knowledge-era –can information technology help?”, The journal of Indian
Management and Strategy, July- September, 1999, pp.10-12.
3. Simon George, “Lifestyle marketing”, Indian Management, March 2000,
pp.81-85.
4. Bangalore Bureau, “ Karnataka Govt, BIAL to sign pacts for land lease
tomorrow”, The Hindu businessline ,Jan. 19, 2005
5. Kerala Bureau, “Kerala tourism Web site to be updated”, The Hindu
businessline, June 19, 2003.
6. Delhi Bureau, “A silver lining for tourism sector”, The Hindu businessline
,Feb 27, 2003.
7. Jim Bessen, “Riding the marketing information wave”, Harvard Business Review,
September-October 1993, pp.156-160.
8. Robert Blatberg and John Deighton, “Interactive marketing: exploiting the
age of addressability”, Sloan Management Review, Fall 1991, pp.10-14.
9. Vinita Chawla, “Indian IT industry”, Computer World, No.17, 1998, pp. 5-
12.
10. Prathajit, :LG launches integrated marketing communication”, DM Asia,
03/05/2007.

ADVERTISING

Unit structure:

1. Introduction
2. Learning Objectives
3. Advertising Management
3.1. History of advertising
3.2. Benefits of advertising
3.3. Advertising classification
3.4. Ethical and social issues in advertising
3.5.Five M’s of advertising
3.6. Advertising agencies
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Advertising is one of the form of mass selling, employed when the use of direct,
person-to-person selling is not at all practical, impossible, or simply inefficient. It is to be
distinguished from other activities intended to persuade the public, such as propaganda,
publicity, and public relations. Advertising techniques range in complexity from the
publishing of simple, straightforward notices in the classified advertisement columns of
newspapers to the concerted use of newspapers, magazines, television, radio, direct mail,
and other communications media in the course of a single advertising campaign. From its
unsophisticated beginnings in ancient times, advertising has burgeoned into a worldwide
industry. Modern advertising is an integral segment of urban industrial civilization,
mirroring contemporary life in its best and worst aspects. Advertising is an indicator of
the growth of civilisation and a pointer of attempts at its betterment and perfection. It is a
part of our social, cultural and business environment. Not only advertising mirrors this
environment but also it affects and gets affected by our style of living. In today's
environment, not only are advertisers closely examined by the target audiences for whom
the advertisements are meant, but by society in general. Advertising is considered to be
costly but with its reach, it gives the return to the employer in a very short span of time.

2. Learning Objectives:

When you finish this unit, you should be able to:

• Understand the use and issues in advertising


• Understand the five m’s of advertising
• Understand the relevance of advertising to marketing
• Understand the relevance of advertising agencies
• Understand the ways of advertising the product

3. Advertising management:

Advertising is the one of the major industries across the world. As long as media is there,
advertising, advertisers and advertising agencies will be there.
1. American Marketing Association proposed the following definition of
advertising :
"Advertising is any paid form of non-personal presentation and promotion of
ideas, goods, and services by an identified sponsor."
1. John S Wright, Willis L Winter, and Sherilyn K Zeigler defined Advertising as :
"Advertising is controlled, identifiable information and persuasion by means
of mass communications media."
2. John J Burnett defined Advertising as :
"Advertising is the non-personal communication of marketing related
information to a target audience, usually paid for by the advertiser, and
delivered through mass media in order to reach the specific objectives of the
sponsor."
These definitions have used certain words or phrases that need some
elaboration.
"Any paid form": The paid aspect of the definition reflects the fact that the space
or time for an advertising message generally must be bought.
"Non-personal presentation and promotion": In case of personal selling, there is
face-to-face presentation and promotion of product or service by the
salesperson. Advertising is totally non-personal, offering no personal interaction,
delivered through media and often viewed as intrusion. Of course, advertising
may help the salesperson in his/her selling efforts.
"Ideas, goods, and services": Advertising, being a powerful mass communication
tool, is used not only to present and promote goods and services with the intent
of selling them, it is also increasingly used to further the goals of public interest
and social causes.
"An identified sponsor": These words clarify the difference between advertising
and propaganda. Just like advertising, propaganda attempts to present certain
opinions and ideas, which may influence the attitudes and actions of people.
However, the source of propaganda mostly remains unknown and hence its
authenticity is often doubtful. People in general do not know who the originator of
these opinions and ideas is. In case of advertising, the sponsor of ideas or
opinions is known.
"Controlled": The advertiser controls the content of advertising message, its time,
and direction. In case of publicity, it is not under the control of the advertiser. The
story may be presented in a manner not to the liking of the advertiser, or not at a
time chosen by the advertiser.
"Mass communications media": The broad group of audience can best be
reached by mass media such as newspapers, magazines, television, radio and
outdoor displays. This qualification separates advertising and personal selling.
The multiple messages are delivered to thousands of people simultaneously.

3.1. History of Advertising:

The development of technology and research has led to increased


sophistication in advertising in recent decades. Modern advertising is largely a
product of the twentieth century. During ancient and medieval times advertising
was crude if measured by present day standards. However, the basic reason for
using advertising was the same then as it is now. The recorded history of
advertising covers a period of about 5000 years including the modern satellite
and Internet age. Our knowledge of advertising in ancient times is in fragments.
The urge to advertise has been a part of human nature since ancient times. The
diggings of archeologists in the countries rimming the Mediterranean sea have
unearthed a Babylonian clay tablet of about 3000 B C, bearing inscription for an
ointment dealer, a scribe and a shoemaker. Romans and their predecessors
knew that "it pays to advertise." Papyri found in the ruins of Thebes (Egypt) show
announcements' offering rewards for the return of runaway slaves (about 3000 B
C). Before the invention of printing, there were three forms of advertising :
i. Trademarks : Craftsmen in early times wanted to be identified for their skills
and placed their individual marks on goods they crafted.
Buyers learnt to look for the distinctive mark just as we look today for brand
names and trademarks on products.
ii. Signs : Phoenicians and other traders painted commercial messages on
prominent rocks along trade routes that they used. These messages highly
praised the products that were for sale. This is an example of ancient outdoor
advertising.
iii. Town criers : The system of town criers was perhaps present in all developed
civilisations of ancient world. In Greece during the Golden Age, town criers were
paid to go around spreading news and making announcements in the streets of
Athens. Epics and history books about ancient India reveal that the system of
town criers was used by the rulers in India to inform the public of various public
interest matters. In rural India, town criers were used till 1950s.
The first known printed advertisement in the English language appeared
nearly forty years after the invention of the movable type writer. William Caxton of
London printed the first advertisement. The first ad in any language to be printed
on a circulated sheet appeared in German news pamphlet in about 1525. The ad
praised the virtues of a mysterious drug. It was from such beginnings that the
printed newspaper emerged and the first printed newspaper in English came out
in 1622, the Weekly News of London. The first advertisement appeared in an
English newspaper in 1625. Advertising as we know it really had its beginnings in
mid 19th century. Volney B Palmer was the first advertising agent who
established an office in Philadelphia. For a fee, he worked as an agent of the
newspapers numbering about 1400. He sold space to advertisers throughout the
country. He did not provide any creative or planning services to clients, except
the media selection. During the 1920s, modern marketing research entered the
world of advertising. As a result of this new development, advertising of this
period started stressing on the outcome of consumer purchases such as health,
happiness, status and love, etc. Advertisements contained bold headline,
artwork, photography and plenty of colour.

3.2. Benefits of advertising:

Advertising is multi-faceted. To be effective, advertising programmes need


to be specific in their goals, specific in their audiences and specific in their
means.
Advertising can particularly help in the following areas:
• To create awareness: it can help to make things known. On the whole, people
do not deal with things they have never heard of, or they prefer not to.
• To create or develop favourable attitudes: it can help to foster a positive view of
the product or service.
• To develop a brand identity: advertising can help introduce a product with a
special image or characteristic.
• To position a product in a market: where a market is segmented, advertising
can help position a product with a particular segment and identify with it.
• To sustain relationships: it is a force to build and strengthen producer-customer
relationships over time.
• To persuade: advertising puts up a case for the customer to be interested in the
product on offer.
• To create demand: Advertising makes the product seem desirable, worthwhile
and attainable.
• To build up enquiries: often advertising is a bridge between the product and a
sales call. Its function is to obtain enquiries for a sales call, or for literature, or for
a sample, or for a price estimate.
• To support distributors: where there is a distributive chain, the distributor may
require reinforcement in the local marketplace. Advertising is one of the forces
that can supply this.
• To sustain the organisation: a company may need to consolidate, or re-
establish, or explain or reposition or rebuild relationships. It wishes to strengthen
old relationships or build new ones. Here advertising may have a strong
corporate role.
• To launch new products: advertising is a key weapon in the battery of services
used to launch products into the marketplace.
• To offset competition: Advertising helps meet competitors and match
competitors, by persuading the customer or providing a counter-claim. In an
increasingly competitive world, suppliers must advertise to protect themselves
against primary competition, and sometimes against other categories of product
too.
• To help provide a point of difference: people do not favour 'me-too' products.
The brand needs a difference, a unique personality, a point of interest, a feature
which will isolate it from a multitude of others. These can be powerfully conveyed
through advertising.
• To help reach people: in some cases, an organisation may need to reach an
important contact group. Advertising can help the organisation in this regard.

3.3. Advertising classification:

The targets of an organisation's advertising efforts often vary, as do its


role and function in the marketing programme. One advertiser may seek to
generate immediate response or action from the customer; another may want to
develop awareness or a positive image for its products over a longer period.
Marketers advertise to the consumer market with national, retail/local, and direct
response advertising, which may involve stimulating primary or selective
demand. For business/ professional markets, they use industrial, professional
and trade advertising. Various types of advertising are as follows :

i. Advertising based on demand influence level


A major portion of advertising effort is designed to increase the demand for a
product or service. There are two kinds of demand : Primary and selective.
Primary demand refers to the demand for the generic product such as milk,
magazine, radio, television set. Selective demand is designed to gain
acceptability for a particular manufacturer's brand.

Primary Demand Advertising


When the product is in the introduction stage, the best promotional strategy may
be to use advertising that is designed to gain acceptability for a product group
rather than a particular brand. Frequently primary demand advertising is
conducted by an industry, group or trade association in order to promote a
product.
Selective Demand Advertising
Most new product introductions today are accompanied by selective demand
advertising, which promotes a specific manufacturer's brand. Most advertising for
various products and services is concerned with stimulating selective demand
and emphasizes reasons for buying a particular brand. Advertisers generally
assume that there is a favourable level of primary demand for a product class
and focus attention on increasing their market share.

ii. Advertising based on the audience to which it is directed


Consumer Advertising
Consumer advertising is that type of advertising that is directed towards the
ultimate consumers.
Industrial Advertising
It is done by manufacturers or distributors of industrial goods and is designed to
stimulate demand among the industrial buyers of such goods as raw materials,
machinery, equipment, supplies or fabricated parts.
Trade Advertising
Trade advertising is done by manufacturers to obtain aggressive promotion and
sale of manufacturer's line of products by the wholesalers and retailers who are
logical outlets for such products.
Professional Advertising
It is targeted to the professional groups such as doctors, lawyers or engineers to
encourage them to use the advertiser's product or specify it for other's use.
Professional groups are important because they constitute a market for products
and services they use in their businesses.

iii. Objective based advertising


Product Advertising
It is designed to promote the sale of a particular product or brand. The objective
of product advertising is to promote particular products or services that the
organisation sells. The marketer may use such promotion to generate exposure,
attention, comprehension, attitude change or action for offering. It may be of
three types :
(a) Informative product advertising
(b) Persuasive product advertising
(c) Reminder product advertising.
Informative product advertising is meant for giving information about the product
or service. This type of advertising is generally used in the introductory stage of
the product life cycle.
Persuasive product advertising is competitive type of promotion used in the
growth stage of product life cycle.
Reminder Product advertising generally adopted in the maturity stage of the
product life cycle to remind the customer about its presence in the market.
Institutional Advertising
It is directed toward the complete institution with the aim to increase the good will
of the institution rather than on a specific brand in the eyes of the customers,
shareholders, employees, suppliers etc. Institutional advertising is often closely
related to the public relation function of the enterprise.
Public Service Advertising
Public Service Advertising is designed to operate in the public interest and
promote the public welfare. Public service advertisements emanates from various
commercial as well as non-commercial organisations. It involves sponsoring
public welfare activities such as safe driving, good health, how to prevent
epidemic etc.
Advocacy Advertising
It is also called as issue advertising. It is concerned with the propagation of ideas
and the classification of controversial social issues of public importance. In other
words, it can be said to be another form of public service advertising. It is done
when a commercial or non-commercial organisation present a point of view about
economic or social problems or be defensive in order to dispel existing prejudices
or to correct wrong impressions about a firm or industry.
Comparative Advertising
It compares specific product attributes with competitor's brands. Today
comparative advertising is used widely. Here the advertiser put the competitor's
name (sometimes not) and tell the benefits of his and competitor's offerings.
Negative comments concerning competitors are viewed as unprofessional or
unethical.
Competitive Advertising
It focuses on stimulating selective demand within a product .category. In this type
of advertising the emphasis is on positioning their product on the same attributes
as competitor is doing.
iv. Advertising based on timing of response it elicits
Direct Action Advertising
Advertising designed to obtain some immediate response from the target
customer is called direct action advertising. All sales promotion advertising and
mail order advertising is of this type. In mail order advertising, the seller attempts
to induce the reader to mail in his order for the goods advertised. An
advertisement that attempts to get the reader to send in a coupon for a sample of
the merchandise would be the example of direct action advertising.
Indirect Action Advertising
It is designed to influence the reader to have a favourable opinion or image of the
brand so that when the reader does decide to buy that product, he will buy the
advertiser's brand rather than the competing one.
iv. Advertising based on geographical coverage
National, Regional & Local Advertising
Advertising reaches people through media that are classified as national,
regional or local. National Advertising is done on nation-wide scale to stimulate
the demand for the product among ultimate buyers. If the advertising is confined
to one region of the country, it is called as regional advertising. Local advertising
is confined to one trading area or city. This type of advertising is done by local
manufacturers.
3.4. Ethical and Social aspects of Advertising

The essence of a free marketplace and a free society is the freedom to


make decisions of various kinds or the freedom to select or not select a particular
brand. There are arguments that this freedom is circumscribed by the "power" of
advertising. Advertising is so effective that it can manipulate a buyer into making
a decision against his or her will or at least against his or her best interests in
allocating his financial resources. This argument takes several forms. First, there
is concern with the use of motivation research, the appeal to motives at the
subconscious level. Second, there is the use of indirect emotional appeals.
Finally, there is the more general claim of the power of scientific advertising to
persuade- to make people believe things and behave in ways that are not in their
own or society's best interests. The communication of factual information about a
product's primary function is usually accepted as being of value to the consumer.
However, when advertising utilizes appeals or associations that go beyond such
a basic communication task, the charge of manipulation via "emotional appeals"
is raised.

There exists a general feeling that advertisers have the raw power to manipulate
consumers. Many companies have the capacity to obtain large numbers of
advertisement exposures. Some believe that these companies can utilize highly
sophisticated, scientific techniques to make such advertising effective. Some
critics feel that advertising is objectionable because the creative effort behind it is
not in good taste. Advertisements may be annoying and offensive. Annoying
advertisements are too loud, too long, too repetitious, or involved unpleasant
voices, music, or people and may be inappropriate for children. To some people,
advertising, especially television advertising, is often like a visitor who has
overstayed his welcome. It becomes an intrusion. Greyser postulates a life cycle
wherein an advertising campaign moves with repetition from a period of
effectiveness, and presumably audience acceptance, to a period of irritation. The
cycle contains the following stages :
i. Exposure to the message on several occasions prior to serious attention (given
some basic interest in the product)
ii. Interest in the advertisement on either substantive (informative) or stimulus
(enjoyment) grounds
iii. Continued but declining attention to the advertisement on such grounds
iv. Mental tune-out of the advertisement on grounds of familiarity
v. Increasing re-awareness of the advertisement, now as a negative stimulus (an
irritant)
vi. Growing irritation.

The number of exposures between the start of a campaign and the stage of
growing irritation is obviously a key variable. Advertising by its very nature
receives wide exposure. Furthermore, it presumably has an effect on what
people buy and thus on their activities. Because of this exposure and because of
its role as a persuasive vehicle, it is argued that it has an impact on the values
and life-styles of society and that this impact has its negative as well as positive
side. The key issues are what values and life-styles are to be encouraged as
healthy, which are to be avoided, and what relative impact or influence
advertising has on them. Three issues that have attracted particular attention are
the relationship of advertising to materialism, the role that advertising has played
in creating harmful stereotypes of women and ethnic minorities, and the possible
contribution of advertising in promoting harmful products. Materialism is defined
as the tendency to give undue importance to material interests. There is a
corresponding lessening of importance to non-material interests such as love,
freedom, and intellectual pursuits. Bauer and Greyser argue that although people
do spend their resources on material things, they do so in the pursuit of
nonmaterial goals. The distinctive aspect of our society is not the possession of
material goods, but the extent to which material goods are used to attain
nonmaterial goals. Bauer and Greyser thus raise the issue of whether material
goods are a means to an end rather than an end in themselves. In making, such
an evaluation it is useful to consider how people in other cultures fulfill non-
material goals. The leader in a primitive culture may satisfy a need for status in a
different away from someone in our culture. Associating advertising with
materialism does not demonstrate a causal link. Such a link is impossible to
prove or disprove. It is true that advertising and the products advertised are a
part of our culture and thus contribute to it in some way. It is also true; however,
that advertising does not have the power to dominate other forces (family,
literature, and so on) that contribute to the values of society.

The accusation that advertising has contributed to the role stereotyping of


women and ethnic minorities has been supported by several studies. One such
study found that the advertisements reflected the stereotype that women do not
do important things, are dependent on men, are regarded by men primarily as
sex objects, and should be in the home. There is a national concern with the
problems of alcohol and cigarettes. In India, there are certain restrictions over the
advertisements of alcohol and cigarettes.
Alcohol is unhealthy for the individual and is indirectly responsible for injuries and
deaths resulting from drunk drivers. There are a variety of counterarguments.
First, there is no evidence that advertising, which is geared toward brand choice
rather than increasing consumption, affects total alcohol consumption.
Other arguments are :
- A ban of advertising would prohibit product innovation that may be helpful.
- The real goal is to return to alcohol prohibition.
- Many other products could be criticized on similar grounds.

Although social and ethical criticisms of advertising are by no means new,


the nature & seriousness of the complaints made has in recent years increased
significantly. This trend has in turn been supported and reinforced by the
attention paid by successive governments to the role of advertising and the rise
of consumerism. Followings are the criticisms which are made most frequently
and because they bear the direct relationship to the ethics of advertising are
most pertinent to such discussion. These criticisms are :
- Advertising is frequently false and misleading.
- Advertising concentrates on selling products to people who neither need nor
want.
- Advertising exhibits bad taste.
- Advertising stresses small and insignificant differences between products and
has resulted in an unnecessary and wasteful proliferation of brands.
- Advertising is too persuasive.
- Advertising can be used, to take advantage of children (bad effect on children).
- Much advertising is irrelevant and unnecessary.

3.5. Five Ms of Advertising


Marketing managers must always start by identifying the target market
and buyer motives. They can make five major decisions in developing an
advertising programme. These are known as five Ms of Advertising. They are :
- Mission
- Money
- Message
- Media &
- Measurement.

3.5.1. Mission:

The objectives of the advertising programme includes :


- To increase support : Advertising increases the morale of the sales force and
of distributors, wholesalers and retailers. It thus contributes to enthusiasm and
confidence attitude in the organisation.
- To stimulate sales amongst present, former and future consumers. It involves
decision regarding the media.
- To retain the loyalty : To retain the loyalty of present and former consumers.
Advertising may be used to reassure buyers that they have made the best
purchase,
thus building loyalty to the brand name or the firm.
- To project an image : Advertising is used to promote an overall image of
respect and trust for an organisation. This message is aimed not only at
consumers but also at the government, share holders and general public.
- To communicate with consumers : This involves decision regarding Copy.

Approaches to setting advertising objectives

Management By Objectives (MBO)


The management by objectives concept was first presented by Peter
Drucker in 1954. MBO was designed to help management establish clear and
measurable goals with time component to constrain the period in which the
objective is to be met. These clear & specific objectives are then compared with
the actual achieved results to know how far the objectives are met and what are
the limitations in achievement. Another key aspect of MBO encompasses the
relation between the superior and the subordinate persons in the management
hierarchy. This aspect is very important in relation to advertising because goals
are often set by the client and given then to the agency. It is not a fruitful
exercise. If both client and the agency come to the mutual benefit and optimum
results in the long run, the results can be achieved in much better way.

Defining Advertising Goals for Measured Advertising Results (DAGMAR)


DAGMAR was the study of Association of National Advertisers (ANA) that
the goal of advertising is to achieve specialized objectives and it recognized that
different advertisements can have a number of objectives.

"Advertising's job, purely and simply, is to communicate to a defined


audience information and a frame of mind that stimulates action. Advertising
succeeds or fails, depending on how well it communicates the desired
information and attitudes to the right people at the right time and at the right
cost." - Russell H.
Colley

DAGMAR Approach can be summerized as follows :

(i) Advertisine goals are virtually always communication goals : Colley pointed
out that advertising is only one part of the marketing mix for all companies. He
assumed that specific goal for advertising in virtually all situations would have to
be represented in terms of some communication objective.
(ii) Goals should be written down : The goals should be made very clear in form
of writing, so that every one understands what is being done.
(iii) Advertising should be measured in terms of effects, not exposures : Colley
pointed out that in reaching out a certain number of potential consumers, no
matter how astronomical that number seems to be, is meaningless unless there
is some effect in terms of communication goals.
(iv) Advertising operates through a hierarchy of communication effects : There is
a series of mental step through which a brand or objects must climb to gain
acceptance. The initial task of the brand is to gain awareness to advance one
step up in the hierarchy. The next step is brand comprehension, which involves
the audience member learning something about the brand. The next step is the
attitude and conviction step and intervenes between comprehension and final
action. The action phase involves some overt move on the part of the buyer like
trying the brand for the first time, visiting a show room or requesting information.
(v) Creative planning considerations should come before media decisions in the
advertising planning process : When media considerations come first, there is a
tendency to be concerned about the amount of reach an advertising campaign
can develop rather than the effects that are to be generated. The creative or
message strategy decision is always intimately related to the communication
effects that are intended. Therefore, the creative planning decision should occur
first.
(vi) Benchmark measurements should be developed before the campaign is
implemented : Colley suggested a particular research procedure for measuring
advertising effectiveness. This involved developing a measurement of the level of
an objective before the campaign and then measuring deviations from the
measurement as an indicator of communication effect.
(vi) Specific criteria must be developed : It is impossible to develop benchmarks
unless the objectives are stated specifically in terms of some operational
measurement. This means that the advertising objective should state the specific
target market segment, the marketing goal in some percentage terms over
sometime period and the advertising goals, in terms of a percentage attainment
in a particular time period.
Colley identified following advertising tasks or advertising objectives that a firm
can pursue :
- Perform the complete selling function (take the product through all the
necessary steps toward a sale).
- Announce a special reason for "buying now" (price, premium, etc.).
- Remind people to buy.
- Stimulate impulse sales.
- Tie in with some special buying event.

3.5.2. Money:

Advertising budget’s fundamental purpose is to aid in securing control


over advertising and is accompanied by comparing actual attainments against
the projected allocation and using it as a yardstick in determining the effective
use of advertising. Advertising budget is an estimate of future advertising
expenditure that will be used to implement managerial decisions to maintain or
improve profit results. In advertising budget the money must be allocated to
various promotional forms in such a manner as to minimize the waste and
maximize the utility of such budgets. Advertising allocation must be considered
as a capital investment rather than current expense. Investment is a capital asset
that brings benefits in the future. The usual starting place for management in
setting the advertising budget is to decide the overall objectives of the company.
The objectives can be e.g., the growth, profits, net return investments, attracting
personnel etc.

Budgetary process
The advertising budgeting process involves the following steps :
- Step 1. Preparation of Budget : It is generally prepared by advertising manager
in consultation with marketing manager. The advertising budget made is based
on inputs provided by marketing research people. The budget is generally made
on annual basis. Primary input would depend upon type of product, new or
established one, target market, demographic composition, advertising copy and
media selection etc.
- Step 2. Presentation and approval of Budget : After the budget is made, it is
presented to top management for the approval of the budget.
- Step 3. Execution of the Budget : After the budget is approved by the top
management, it is executed. Various channels and media for budget allocation
are considered. The task of preparing advertising messages and acquiring
advertising time and space is given to advertising agency.
- Step 4. Control of Budget: After the budget is executed, the results come out.
Control of budgets involves comparing the desired advertising objectives and
actual advertising objectives. The purpose is to know the effectiveness of
advertising in terms of money allocated to advertising. If it is found that the
allocated budget is on the higher side or on the lower side, the appropriate
corrective action can be taken.

Factors influencing the advertising budget allocation:

Following factors should be taken into consideration while allocating the


advertising budget:
- Marketing mix of the company
- The sales forecast
- Affordability
- The product life cycle
- Quality of the campaign
- Level of competition
- The budgeting cycle
- Contingency planning
- Type of product
(i) Marketing mix of the company : The important factor influencing the amount to
allocate to advertising is the general marketing mix of the company for marketing
the product (s) involved.
(ii) The Sales forecast : While making the final budget, it is important to correlate
the amount needed to sales forecast. It is needed to know what may be expected
to happen in the light of past experience, present conditions and any changes in
factors that were influential in the past. This forecast is developed to provide the
following data :
- Sales in units rather than Rupee volume : Used whenever possible in order to be
more specific in allocating the budget to various items.
- Sales by customer classes : Data for ascertaining the advertising cost in
reaching various customer groups.
- Sales by product lines : In order to determine how much advertising will be
needed to attain the volume projected.
- Sales by territories : Helpful in deciding what advertising expenditures should be
made in each area.
(iii) Affordability : The most important and the foremost factor while deciding the budget is
how much funds are available to the company.
(iv) The Product life cycle : When the product is introduced, high level of advertising is
required because the product is new and the market is to be informed and persuaded to
purchase the product. When the product reaches to the maturity stage, more advertising
expenditure is required to reduce the dropping of sales and to maintain the status quo.
(v) Quality of the campaign : If the advertising message is of high quality and a USP widely
recognized and established, even a small budget can be effective.
(vi) Level of competition : If the competitors advertising budget is immense and is
advertising heavily, the higher budget would be required to counter attack.
(vii) The budgeting cycle : Budget appropriation would also depend upon the time period for
which the budget is allocated. If the budget is made for six months, lesser money is
required than the budget for one year.
(viii) Contingency Planning : There are many external uncontrollable restraints that must be
taken into consideration while planning the budget.
(ix) Type of the Product: If the product is one for which a strong consumer demand
can be stimulated, so that the pull strategy of marketing can be used effectively,
the budget for advertising might constitute virtually the entire marketing budget.
But for a standardised basic industrial product, the use of advertising may play a
negligible part of the marketing strategy, and it might be advisable to use other
promotional means, such as direct sales efforts.

Methods of determining budget appropriation:

The total amount of the advertising appropriation is a major question to be


answered each year. There is no research technique that will provide an exact
answer as to what is the right amount. Logically, advertising expenditures should
go up as long as they are capable of increasing returns.
Methods of determining budget appropriation are :
- The Percentage of sales method
- Unit of sales method
- Competitive parity method
- Objective task method
- Arbitrary allocation method
- The affordable method
- Sales response & decay model Communication stage model
- Pay out planning method.

i. The Percentage of Sales Method : This method is most widely used method
of setting the appropriation. In the past, the method enjoyed wide spread use.
Today, although many firms use a combination of methods, they frequently report
their advertising expenditures as a percentage of sales. Percentage of sales
method is based on previous year's sales, on estimated sales of coming year or
on some combination of these two. If virtually all conditions in the firm's market
including the general economic conditions and the competitive activity, remain
rather constant, then it is quite possible that the same correlations will remain
between the advertising and other sales and promotional activity expenditures
and the resulting sales volume.
Merits
- There is a consistency between this approach and the standard accounting
practice of handling advertising as one of the "operating expenses" that are
usually analyzed in terms of the ratio to total sales volume. When the total
marketing budget is determined in the over all marketing plan this method
assigns a fixed proportion of that budget to advertising.
- Percentage of sales is simple to calculate, and it is almost the nature of
management to think of costs in percentage terms. Moreover, when it is wide
spread throughout the industry, it results in advertising becoming proportional to
market shares.

Demerits
- This method also presents a static approach to advertising rather than one that
responds to the particular needs of market conditions. With a fixed multiplier,
advertising expenditure increases as sales increases, and the tendency is to
spend the exact ear marked amount, which may or may not be profitable.
- As sales decline the expenditures of advertising decline, despite the possibility
that it is at this point the demand may require that extra effort toward stimulation.
- The percentage of sales method is not consistent with the basic marketing
principle that advertising is an important factor in stimulating demand, and, as
such precedes sales rather than being determined by sales.

ii. Unit of Sales Method : A variation of the percentage of sales method is the
"fixed-sum-per-unit" appropriation technique. This method is also based on the
premise that a specific amount of advertising is related to the marketing cost of
each unit produced rather than total sales volume. It does not reflect price
changes as does the percentage-of-sales method and it assumes that the
amount of advertising effort needed to move a unit of merchandise is not closely
related to increase or decrease in price. The advantage is that the manufacturer
will know in advance how much the advertising cost of each unit of the product
will be, which is especially useful in price determination.

iii. Competitive Parity Method : In this method, a manager establish budget amount by
matching the percentage sales expenditure of the competitors. This method consists of
setting the appropriation by relating it in some manner to the expenditures of the firm's
major competitor or competitors. It leads to stability at the market place by minimizing
marketing warfare. If companies know that competitors are unlikely to match their
increases in promotional spending, they are less likely to take an aggressive posture to
attempt to gain market share. This minimizes unrealistic advertising expenditure.
The demerits of this method are :
- It is a defensive strategy.
- It is difficult to determine the competitor's budget.
- It assumes that because firms have similar expenditures, their programmes will be
equally effective.
- It ignores the fact that advertising and promotions are designed to accomplish specific
objectives by addressing certain problems and opportunities.
- It ignores possible advantages of the firm itself.
- There is no guarantee that competitors will continue to pursue their existing strategies.

iv. Objective task method : Most often, the funds for promotional efforts are
decided upon, before the preparation of detailed plans on how these funds are to
be spent. But in this approach such plans are worked out before funds are
allocated. In this method objective setting and budgeting go hand in hand rather
than sequentially. Objective task method is a build up approach. Here, the funds
are allocated to different advertising functions and media. The major problem
with this method is the difficulty of determining which tasks will be required and
the cost associated with each task. With the present available methods of
measuring the effectiveness of advertising, it is difficult to say with any real
certainty just how much and what kind of advertising is required to achieve a
certain result. But an experienced advertiser uses the research methods
available to answer such questions. The objective task method offers advantages
over other budgeting methods, but it has more difficulty in implementing when
there is no track record for the product. So this method cannot be applicable for
deciding advertising budget for the product, which is in the introductory stage of
the Product life cycle.

v. Arbitrary allocation method : In this method, the budget is determined by the


manager solely on the basis of his judgment, intuition or without any rule or
rationality. In this method there is no systematic thinking, no objective setting and
there is a complete ignorance of the advertising purpose.

vi. Affordable Method : Also called as ‘all you can afford’ method and the
budget is
based upon what the company can afford and. is generally related to company's
profits or company assets. This approach is common among small firms.

vii. Sales response & Decay Model : The model is based on the assumption
that the shape of advertising sales response function is known and the objective
is to determine such a point that would optimise the advertising out lay/sales
response ratio. The model measures the incremental changes in revenues at a
given time relative to changes in the advertising budget at a time under a given
set of situations.
The change in the rate of the sales with time is function of following factors :
- The sales response constant ( sales generated per advertising rupee)
- Sales decay constant (fraction of sales lost per time unit)
- The advertising budget
- Saturation level of sales.

viii. Communication Stage Model : Designed by G. Ole, the model takes into
consideration the impact of several variables that effect advertising expenditures
to ultimate sales while formulating the size of the budget.
ix. Pay out planning Method : This method is widely used for making
advertising budget for the new product. A pay out plan is developed to determine
how much to spend. The basic idea is to project the revenues the product will
generate over two or three years, as well as the costs it will incur. This method is
based on the expected rate of return. This method will assist in determining how
much advertising expenditures will be necessary when the return might be
expected. Though the payment plan is not always perfect, it guide the manager
in establishing the budget. When used in conjunction with the objective and task
method, it provides a much more logical approach to budget setting than the
other budgeting approaches.

3.5.3. Message:

Advertisements must contain an appeal for creating human interest so that


it may be followed up by the audience. Through various appeals advertisers
influence the prospect's purchase decision rationally or emotionally. As the vast
amount of time and money is being spent in creating the message appeal and
advertising, it is important to have an impressive appeal in a advertisement so
that the prospects should be directed towards the product after seeing the
advertisement. Appeals are cues that provide stimulus. Appeals are developed
on the basis of buying motives. Advertising message should appeal directly or
indirectly to those key needs which influence behaviour. Advertising message is
developed in terms of its contents by using an appeal or an idea or a unique
selling preposition.

Rational Appeals
Here the functional benefits of a product are highlighted. Industrial buyers are
most responsive to rational appeals. Buying motives are normally considered
rational under the following circumstances :
- High quality appeal
- Low price appeal
- Long life appeal
- Performance minted appeal
- Ease to use oriented appeal

Emotional appeals
Emotional appeals are those appeals, which are not preceded by careful analysis
of merits and demerits of making a buying decision. Emotions are those mental
agitations or excited states of feeling, which prompt to make a purchase.
Emotional appeals are designed to stir up some negative or positive emotions,
which will motivate product interest. An advertiser may try to induce a particular
behavioural change by emphasising either positive or negative appeals or a
combination of both.

Moral Appeals
Moral appeals are those appeals to the audience, which are directed to their
sense of right and wrong. These are often used in messages to arouse a
favourable response to social causes such as adult literacy, social forestry, anti
smuggling, consumer protection, equal rights for women, rural development etc.

Copy writing
Copy writing is a specialized form of communicating ideas that are meant
to serve the requirements of modern marketing. The purpose is to inform or
persuade or remind or collective. But before copy writing, the objective of the
copy should to well defined. The copywriter must be familiar with the marketing
goals of the advertiser and specific advertising objectives. Copy writing skill
requires command over language.

Steps in Copy Writing

Creativity is of paramount importance initiating the process of writing a copy.


Creative enthusiasm has to be combined with purposeful thinking. According to
Clarke, there are following steps in copy writing :

Step 1 Abstracting : Relevant data are obtained from the market situation,
prospects and relevant media.
Step 2 Synthesizing : Elements are blended and combined, ideas and
approaches accepted, rejected, revised etc.

Step 3 Hypothesizing : Ideas formulated into experimental patterns culminating in


a working statement.
Step 4 Gestation : Objection and difficulties resolved, may involve discussion
with others or reference to sources of information.
Step 5 Coalescence : Decisions are made for transference of ideation to
physical expression; i.e. writing.
Step 6 Performance : Action is taken in the form of actual writing.

Copy structure
The total advertising copy can be classified into :
- Headline
- Body copy
- Close of the copy
Head line : The head line is that part of the copy which has been made to stand
out in the advertisement by the size or style of type in which it has been set. The
function of a head line is to attract the favourable attention of prospective
purchasers and to interest them so that they will read the advertisement. The
head line style and content will vary according to the product and the purpose
may be presented in the following way :

- An indirect head line that arouse the curiosity of the reader.


- State benefit to the customer.
- A questioning approach.
- News oriented head line.
- Address to buyer directly.
Body copy : Body copy is the middle part of advertisement which includes the text of the
advertisement. A copy should do the following things in order to produce results :
- Involve the reader
- Help the reader
- Conviction
- Inducing a response
- Inform
- Persuade
- Create interest
Close of the copy : Close of the copy calls for action. A copy may be concluded by a
specific selling approach i.e. hard sell or soft sell. Hard sell calls for instant action like
'one day sale', 'limited quantity', 'offer valid till stock lasts ', 'first come first serve' etc.
Soft Sell calls for persuation in the phased manner, but does not call for instant purchase.
Copy Elements
- Headline
- Sub head-line
- Body Copy
- Captions
- Blurb
- Boxes & Panels
- Slogan, logotypes & signature

Head line : Presents the selling idea. Primary function is to catch the eye of the reader.
Head line need not always contain special message. Company or brand name could be
used as a head line.
Sub- head line : Important facts may be conveyed. It requires more space than the head
line. All advertisements do not require sub-head lines.
Body copy : Refers to the text in the advertisement. Contains details regarding the
functions of the product/service and its benefits. Body copy can be short or long.
Captions : Used with illustrations, coupons and special offers.
Blurb : Display arrangement where words appear from the mouth.
Boxes and panels : Special display positions to get greater attention.
Slogan, logotypes & signatures : Logotype - company name, seal or trade mark also refer
to signature. Logotype is an important aid in quick recognition.

Characteristics of effective Copy


A good copy should have the following characteristics :
- It should be concise.
- It should have aim to sell.
- It should be addressed according to the type of audience.
- It should influence the reader's thoughts and/or action.
- It should inspire confidence.
- It should be precise.
- It should be sincere.
- It should create desire.
- It should stimulate interest.

Artwork, creative style & Advertising design

In the initial stages of the development of an advertisement, either the copywriter


or the art director forms a mental image of the advertisement. The copywriter may use
rough sketches to develop the theme and to convey ideas to the artist. The artist will
visualize the thought sketch and provide a pictorial representation of it. Visualisation is
often confused with the terms illustration and layout. Visualisation precedes both the
illustration and layout and is the process of forming a mental image, picture or
representation of an object or idea. The layout is the physical arrangement of the
elements in an advertisement so that this mental idea may be effectively presented. The
picture portion of the layout is generally referred to as the illustration. Much of the
creativity in advertising evolves from the process of visualisation and the countless ways
in which mental images can be made to represent ideas. Effective advertising requires
that these images be consistent with a advertiser's message, which is concerned with the
need or desire the product fulfills. It is the job of the layout artist to combine all the
elements in the idea into a single, effective communication. This requires adding to the
idea a headline, illustration, body text, logotype and occasionally a sub headline, picture
caption trademark or coupons. The layout is the arrangement of the entire verbal copy
elements plus the art- work (drawing, photography, logo types) on the paper. The layout
shows the rough composition of the design of a print advertisement so that all of those
concerned with the advertisement can evaluate it so that those who need to produce the
advertisement will have the blue print to follow.

Design of Television advertisements

In composing a script for television, the writer must include both audio and
video instructions. There is no layout, but there is a script, and ultimately, there is
a storyboard. In writing a script, the general practice is to use the right side of the
sheet(s) for audio instructions, which include the dialogue, narration, sound
effects, and/ or music. The left side is used for video instructions, which include
scene and character descriptions, movement and action instructions, camera
movement, scene changes and other edits, and any graphics. In both the audio
and video instructions, there are a number of abbreviations. These are common
symbols recognized by everyone who will be working on the commercials. The
script is the equivalent of the rough layout of the print advertisement. Its purpose
is to allow the creative and account groups to discuss the proposed commercial
without investing a great deal of expense in artwork or production.

After the script has been agreed upon within the agency, a storyboard is
developed for presentation to the client and to serve as a blueprint for later
production. The storyboard is comparable to the comprehensive layout for the
print advertisement. A storyboard has three components: (1) pictures that show
the main scenes and action, (2) a written description of what occurs, and (3) the
audio. The most common way to present a storyboard is with all scenes mounted
on a large poster board. Alternatives might include (1) putting the scenes on
slides and synchronizing these to an audio track or (2) creating an animatic. An
animatic is an animated form of the commercial that would show some of the
movements, camera work, and edits of the commercial, again including a rough
sound track. Of these formats, the straight storyboard is most common when
working with an existing client, while the other formats are more likely to be used
during a presentation to a prospective new client. Television, with sight, sound,
and motion, is hard to capture in a static storyboard, yet the storyboard must
often be used because the production alternatives are too expensive at this
stage. One purpose of the storyboard is to help the agency sell its creative work
to the client.

After approval of the storyboard by the client, it goes through one more
stage similar to the mechanical layout. Here, the board is given as much
specificity as the agency would like the producer to have. Sets are designed and
actors are cast on the basis of this board. At this stage, more scenes may be
added to the board to show more detail. The final level of specificity must evolve
between the creative department and the production company. Because it is
difficult to visualize the entire commercial on paper, there should be some
flexibility remaining for the production team, but too much flexibility means that
the director may miss the essence of the story. This is a fine line, requiring a
good storyboard as well as good communications between writer and director.
The writer, who has been involved throughout the development of the script, is
usually also around when the commercial is shot to ensure that the main issues
are properly portrayed.

Copy testing

Copy testing is an important part of advertising management. There are


three factors that have to be addressed in copy testing: (1) whether or not to test,
(2) what and when to test, and (3) what criteria or test to use. Every advertising
manager must consider these factors in the context of the overall advertising
plan. Copy testing implies that funds will be allocated to research on consumer
reactions to the advertising before the final campaign is launched. The first
decision is really whether or not to spend more money on research. Most local
advertising is not tested, and there are many cases in national advertising where
copy is used without formal copy testing of any kind. Not only are there money
costs involved in testing, but there are time costs as well. Copy testing can mean
weeks or months of delay in launching a campaign.

3.5.4. Media:

The selection of media has become quite intricate because of the nature
of media themselves. The characteristics of each alternative must be considered
carefully. For example, TV can show action, combining both sight and sound,
and can produce an impact that simply is not possible in other media.
Newspapers can carry ads containing much more detailed information than TV or
radio. Magazines can convey detailed information, which remains available to a
potential buyer for a longer time. The process of choosing between alternatives
becomes even more complicated considering the wide range of alternatives
within the same medium. New and evolving media have further contributed to the
difficulty of planning when, where, and how the advertising message will be
delivered. Media planning refers to a series of decisions required in delivering the
advertising message to the target audience. The plan specifies media objectives
and media strategies to accomplish the objectives. The basic goal of media plan
is to formulate a particular combination of media that would enable the advertiser
to communicate the message successfully and effectively to the maximum
number of potential and existing customers in the target market at the lowest
cost. Any mistakes in this function may result in wastage of substantial amounts
of money.

Each medium offers its own distinct advantages. By carefully developing a


suitable blend of media, the advertiser can introduce versatility in media strategy
to increase coverage, reach and frequency levels. To effectively cover the target
market, the media planner determines the segments that should get the
maximum media emphasis. This requires matching the media and media
vehicles most suitable to the target audience. A very optimistic goal could be full
coverage of the market. However, in real situations the coverage of the media
does not allow for this. Some potential customers are left without exposure to the
advertising message. Media coverage reaches some non-targeted audiences
who are not considered as potential customers and the advertiser is faced with
the problem of overexposure referred to as waste coverage. The media planner's
objective is to reach as many members of the target audience as possible and at
the same time minimise the extent of any waste coverage. This is something
where perfection is almost impossible.
There would be situations when there is less than desired media coverage and
also some situations when the most effective media would also reach people not
at all intended. For advertising mass consumption products, mass media are
generally very effective in reaching large numbers of target audience. In such
situations there is bound to be some waste coverage. However, the cost of
wastage is negligible compared to the value gained from their use.

Geographic Coverage : Geography is an important consideration for the media


planning process. The demand for certain types of products depends on the
geographic locations of the markets. There may be regional differences in
consumption and media planners select secondary localised media to
supplement their national media schedule. Advertisers are often interested in
presenting a local advertising message in different markets.

Scheduling : It is neither necessary nor possible for companies to keep their


advertising always in front of the consumers to serve as a constant reminder of
their products or services. Media schedule is the calendar of advertising plan.
Scheduling is concerned with timing the insertion of advertisements in the
selected media. Decisions in this area are essentially based on certain
assumptions regarding how the target audience will respond to the presence or
absence of the advertising messages with respect to the set advertising
objectives such as product recall or attitudes. There are three approaches to
scheduling

1. continuity,
2. flighting,
3. pulsing.

Continuity refers to the length of time an advertising schedule continues such as


every day, every week, or every month. If the planners believe that product recall
respond easily to the exposure of advertising messages and also decay easily if
there was no advertising, then probably recall increasing advertising messages
are needed continuously, at a low frequency level. What is required is to develop
a continuous pattern of reminder advertising without any time gaps in which there
is no advertising. This strategy is suitable for those product categories that are
regularly consumed on an ongoing basis without any seasonal fluctuations such
as washing powders, soaps, toothpaste, and soft drinks, etc.

Flighting refers to a less regular schedule of advertising messages and is


quite popular. There are intermittent periods of advertising and no advertising.
Because of the possible S-shaped response function, initial advertising may
require heavy expenditures on media to bring about desired change in attitudes,
and once formed, such attitudes resist rapid decay. This suggests the need for
flighting, if the advertising was intended to achieve change of attitudes. Periods
of heavy advertising would be followed with no advertising believing that changed
attitudes would not decay rapidly. In case of certain consumer products, both
durable and non-durable, flighting pattern is often used. Examples are desert
coolers, refrigerators, woolen jackets and sweaters and many other products.
Flighting offers the advantages of cost efficiency as advertising covers only
purchase cycles and may allow the use of more than one medium or vehicles
with limited budgets. It has the disadvantages of possible wear out, possible
advantage to competitors and decreased awareness, interest and retention of
advertising messages during non-scheduled periods.

Pulsing is a combination of continuity and flighting. The continuity is


maintained as a base throughout, but during certain periods the level of
advertising is stepped up. During the period just before the last date of tax return
submission, advertising for cars increases to motivate customers to buy and get
depreciation benefit. Pulsing offers the combined advantages of both continuity
and flighting. This method is not suitable for seasonal products or for small
budget companies.
Decisions about scheduling strategy are based on the advertising
objectives (brand awareness, or brand attitudes), buying cycles, competitive
spending, advertising decay, available budget, etc.

Media Reach and Frequency : Media planners face the essential tasks that
concern the optimal use of media budget while deciding about the reach,
frequency, and the number of advertising cycles affordable for the year. There is
no known way to determine how much reach is required to achieve desired levels
of awareness, attitude change, or purchase intentions. Also, there is no certainty
that an advertisement placed in a particular media vehicle will actually reach the
target audience. For example, if an advertiser buys 30 or 60 seconds of TV time
during a certain programme, everyone who is tuned to this programme will not
necessarily see the commercial for a number of reasons.
Frequency refers to the average number of times audience individuals or
households are exposed to a medium in an advertising cycle, not necessarily to
the advertisement itself. An advertisement may be placed in a media vehicle and
the fact that an individual has been exposed to it does not mean that the
advertisement has been seen. For this reason media buyers refer to the reach of
media vehicle as opportunity to see (OTS) an advertisement rather than actual
exposure to it.

Total exposures
Frequency = ______________________
Reach

Media options:

An advertising medium is the vehicle used to carry the advertising message from the
sender to the intended receiver. Generally, no single medium will be sufficient in
reaching all potential customers and as a result, it is often necessary to use a combination
of several media in an advertising campaign.

Print Media
Print media includes newspapers and magazines

Newspapers

Newspapers are usually classified on the basis of language, frequency of


publication and time of publication. There are daily newspapers, evening newspapers,
Sunday newspapers and some specialized newspapers. Most papers are the morning
papers carrying news of that day's important national and local events including business,
entertainment, financial, social and sports activities. The morning papers usually have a
wider geographical circulation than do evening newspapers. Sunday newspapers have
special sections for varied interest groups. The circulation of Sunday newspapers is
ordinarily greater than that of dailies although the rates are higher. Evening newspapers
carry the morning and late light news. Their size is small when compared to morning
newspapers.
Merits
- They can be used effectively in a Co-operative advertising plan.
- They have geographical selectivity.
- They are one of the media in which great numbers of people look for information
about merchandise.
- They provide intensive coverage of the cities and surrounding areas.
- They are very flexible, and copy can be tied in with latest developments.
- They reach all economic classes.
- They await the convenience of the reader to read.
- They have relatively low cost in comparison with other media especially audio-
visual.
- They can emphasize the local news appeal.
- They can be used, effectively for test campaigns and to check results.
- They can be tied in with the sales appeals in specific localities.
- They can be used even when the advertising budget is quite modest.
- They appeal to the entire family.
- They are the major local medium for which readers pay.
- They can be used on a daily basis.

Demerits

There are complex difficulties in selecting a satisfactory schedule of newspapers in a


national campaign and in deciding which newspaper to use in a specific market.
- For products purchased by a restricted class, there is considerable waste circulation.
- Many newspapers employ publishers, representatives to represent them nationally,
which results in the national advertiser having to place the advertising through an
intermediary.
- They are read hurriedly, and the impact of the advertisements may be relatively
small.
- The paper and printing techniques may make them unsatisfactory for products that
require special colour and other mechanical features to show qualities of the
product.
- There are so many advertisements in some newspapers that it is easy for an
advertisement to get buried.
- There is overlapping of newspaper circulations in many sections of the country.
- Newspapers are read hurriedly and have a very short life, although they reach to all
classes of people. An advertisement in the newspaper is usually read but once,
with the average reading times estimated to be less than 200 seconds. In this short
span of time, the appeal must stimulate the reader into action.

Magazine

Magazine is the other form of print media. The Newspaper appeals to all people
in a particular community; the magazine appeals to particular people in all kinds of
communities. The life of a daily newspaper is short-rarely more than a day. A magazine
advertisement continues to live and produce results. for a week, a month, or longer as the
periodical is read and re-read not only by those who buy it, but by others who come in
contact with it. Most magazines offer high quality paper and printing. The dead line for
newspaper insertions is usually two or three days in advance of publication, but such
flexibility is impossible with a magazine advertisement. The increased quality that goes
into magazine production slows down the insertion process. The newspaper is primarily
a local medium and the magazine is mainly national one. Different types of magazines
are published for different types of customers e.g., women magazines, professional
magazines, trade magazines general consumer magazines etc. Magazines are published in
English as well as in all Indian languages from different geographical areas for meeting
the needs of various sections of the society.

Magazines are unique in their service in that they communicate to a distinct group
of common interest, even if the member of this group are widely dispersed. For example,
Photography magazine reaches most camera enthusiasts, no matter where they are,
nationally or even internationally. Thus, the advertisement about a new and unique
camera would be observed and noticed by prospective customers, wherever they are.

Merits

- Due to the high quality paper and improved printing, magazines offer the
advertisers with the merits of quality printing, excellent pictorial reproduction and
colour display.
- Advertisements may be read more carefully and with greater depth of interest in
magazine than elsewhere, both because magazines tend to be kept longer and
some times read repeatedly and because of the specialized character of their
contents.
- Magazines usually have a well defined target market. They are considered largely a
class media rather than the mass media as newspapers.
- Magazines have a long life and the readers read it at leisure.
- Magazines has a secondary and further readership or pass along readership as
magazines are kept at home for the longer period than the newspaper.
- Magazines generally have an aura of prestige, expertise and credibility because of
the editorial support.
- Magazines buying families are normally above average prospect and they are loyal
to magazines to such an extent that they feel and identify themselves a distinct
class.
- Because of the high quality of paper in magazines, it is possible to use a variety of
colours and printing techniques.

Demerits
- There is a necessity of buying space and preparing copy well in advance of the date
on which it is to appear.
- Since there is no daily news nor any urgent sales of products advertised in
magazines people tend to read them at their leisure and thus reach tends to build
up slowly.
- For advertisers who do not have national distribution or wide differences in
distribution and sales strength in different markets of the country, magazine
advertising is a sheer waste.
- As magazines are published weekly, fortnightly, monthly, quarterly and annually,
the advertiser cannot communicate his message to the prospects frequently as he
can in case of other media like newspapers, radio, television, cinema etc.

Broadcast Media

It includes :
Radio or Audio media & Television media.

Radio
Radio is widely used by people to listen news, music and other programmes and
radio is the medium, which reaches now to every nook and corner of the country. Main
advantage of the radio is that it can be carried every where. Because of its portable
character, it is possessed by more than 90% of the population approximately. Because of
the nature of broadcasting and the distances radio waves travel, there can be many radio
stations in different areas so that every owner of a radio has many signals available to
him and depending upon the technical features of the radio receiver equipment, the
signals from long distances can also be caught. The advertiser using radio must decide
whether or not to use a sponsored programme. However, in recent years, the number of
sponsored programmes on radio has declined drastically. Though a very large share of
radio listening is done outside the home, it is difficult to measure the actual amount of
listening. This audience can be measured by the use of personal interviews but it still
makes extremely difficult to accurately determine the size of the radio audience.

Merits
- Radio advertising is much less costly than most of the advertising media.
- Radio is flexible and timely. The advertiser can run as many commercials in an area
or during a time period and news events and special occurrences can be aired on
radio almost as soon as they happen.
- Radio is a selective medium in the sense that the advertiser can advertise in only
those markets he desires. He can vary his messages and the intensity of coverage
of different markets to meet local conditions.
- It permeates all economic and social strata, thereby reaching the masses.
- In country like India, where literacy rates are low and so newspapers have limited
significance, radio is popular both with advertisers and audience.
- Radio is a personal medium that gives human touch as human voice is the most
natural way for the people to communicate with each other which has warmth,
persuasiveness, liveliness and dramatisation.

Demerits
- Commercial time available is limited. Only 10 seconds time for the commercials is
too less to retain and understand the message in one time.
- Message is perishable. If the person is not listening to advertising message at the
time of the broadcast, the message is lost for ever.
- Radio advertisement is of little use to products that had to be seen and
demonstrated.
- Short commercials in the succeeding order, form a commercial clutter, making it
difficult to have an impact on the listeners.
- There are possibilities of distortion in communication. Precision of script writing is
very challenging task.

Television

Television has exhibited the most rapid growth of any advertising medium. A
major portion of the promotion budget is spend to advertise on television as now it has
become a leading medium for national advertiser. Television is intense in nature, in the
sense that it commands undivided attention and programme dedication of viewers and an
eye - catching commercial is easily noticed thus creating product awareness among TV
viewers. Because of an inherent life-like quality, the advertiser has almost infinite
creative flexibility for this medium. That is one of the reasons why it is the medium of
national advertisers. TV appeals to both the senses - sound as well as sight. As a result, it
combines the two to produce high impact commercials. The fact that a product or service
is promoted on TV may build a prestigious image of the product and its sponsor. The
pleasure derived from watching TV is at least transferable to the advertising messages
delivered through the medium.

Merits
- Television has a broad reach. It has the power to reach a great number of people.
- Television has a deep impact. Television is a scientific synchronization of sound,
sight, motion and colour.
- It is the personal medium that tries to involve the viewer by direct person-to- person
selling.
- Like radio, television is becoming a vehicle of mass communication.
- Television has the unique characteristics of the ability to demonstrate the operations
and the utility of the product. This makes it the closest medium to personal
selling.
- Television has a great frequency. Unlike magazines, where the message cannot be
repeated until the next issue of the magazine comes out, there is no limit to
message repetition.
- Television has more prestige than its competitive media.
- Even though the TV media is very expensive media in terms of commercial
production and air time, the cost per thousand viewers can be very low given the
advantage of sight, sound, colour, and action. Thus, new products can be
introduced, corporate images can be built and brand names can be established at
the very low cost per viewer.
- Like radio and newspapers, television is highly flexible and selective medium. It can
be used locally, regionally and nationally.

Demerits
- Even though some demographic selection of TV coverage is possible, it is still
basically a mass media. The result is a lot of wasted coverage as the message
reaches people who are not the potential buyers.
- Similar to radio advertising, the TV commercial is also highly perishable. It is not
possible to go back and look at the commercial again as it is possible with
magazine and newspaper advertising.
- High cost of television advertising is another serious limitation. In recent years the
rates have risen much faster and sharper than the newspapers, magazines, radio
and outdoor media.
- Television has been aptly described as 'Idiot Box'. Unlike other media, except
screen, it makes the prospects to sit and concentrate on the television screen and
does not allow to do other work.
- TV restricts itself to typical purchases. Detailed enquiries cannot come. It is difficult
to note either the telephone number or the address.
- TV commercials have to conform to a broadcast code strictly.
- Television commercials are shown back to back and most commercials are about 30
seconds long, so that if there are ten or fifteen consecutive commercials, no one
commercial really stand out. Thus, retention of the message becomes a real
problem.

Other than the mainstream media options, there are a number of support
media referred to as non-traditional media, or alternative media, such as outdoor,
transit, movie theatres skywriting, etc.

Outdoor media

Outdoor advertising represents the oldest medium. Outdoor advertising


existed as early as 5000 years ago in Babylon, Greece and Egypt. Painted
advertising dates at least to Pompeii, where decorated walls promoted
merchandise. Outdoor advertising is one of the more permeating
communications and it is almost impossible for anyone living in a civilised society
in this country not to have been exposed to it.
Outdoor advertising is usually used as a supportive medium by most national
advertisers and includes billboards, hoardings, posters, wall paintings, transit
advertising, etc. Outdoor advertising can generate considerable reach and
frequency levels at a fraction of the cost of mainstream media and is most
successful when it is used to accomplish narrowly defined communication
objectives such as

- To generate immediate brand name recognition when introducing a new


product and complement other forms of advertising.
- To remind customers already in the market-place about established and
recognised brands of the marketer.

Merits

Outdoor medium combines high levels of reach and frequency at low


costs, and a colourful presentation of products to audiences already in the
marketplace. It offers the advertisers the last opportunity to remind and influence
the consumer prior to purchase. The audience of outdoor advertising doesn't
have to spend either the money or the effort to see the advertisement.

i. Reach : Outdoor advertising maximises both reach and frequency. It is


estimated that with proper placement, a moderate outdoor campaign reaches 75
per cent adults in a market at a minimum of 15 times in a 30-day period. This
level of exposure is beyond any other medium.
ii. Geographic Flexibility : Outdoor advertising is highly flexible and can be placed
almost anywhere the law permits. It can be placed near stores, on buildings,
along city roads, on mobile billboards, highways, etc. Outdoor advertising can
conveniently cover local, regional, or national markets.
iii. Continuity : Outdoor advertising provides 24-hour coverage and cannot be
turned off or ignored like any other media. Exposure to outdoor media is not
dependent on audience habits, it cannot be put aside or left unopened. The
outdoor advertisement message is always working for the advertiser.
iv. Efficiency : From the cost point of view, outdoor advertising is the most efficient
of all mass media.
v. Creativity : By combining colour, art and short copy, outdoor advertising can
quickly generate an association with a particular brand. If a billboard is placed at
a busy point, audiences see the advertisement again and again. The more
frequently the idea is repeated, the more likely it is to be retained.

Demerits

i. Limited Message Capabilities : Outdoor copy must be brief since it is perceived


while the audience is mobile and the exposure time is short. The messages are
limited to just a few words. Lengthy appeals are unlikely to be registered to have
any impact.
ii. Waste Coverage : Generally the purchase of outdoor ad space results in high
levels of waste coverage, because not everyone driving or walking past a
billboard is part of the intended target audience.
iii. Limited Effectiveness : A number of uncontrollable factors may lessen the
effectiveness of outdoor ads such as trees, structures and traffic signals which
may distract the audience.
iv. Public Criticism : Various public interest and environmental groups criticise
outdoor billboards, posters, etc. claiming that they are an eyesore, nuisance, and
often a cause of road accidents.

Outdoor advertising has become a useful medium with the increase in the
number of automobiles and improved road network. Roadside and market area
billboards are increasingly in demand by advertisers, particularly, on prime
locations.

Transit advertising
Transit advertising is similar to outdoor advertising as it also uses
billboards, neon signs and electronic messages. Transit advertising is targeted at
millions of people who are exposed to various modes of transportation such as
buses, subways, trains, or air travel. Of the many variations of transit advertising,
the airline ticket holder is a very effective form of advertising communication. It
reaches a very captive audience and keeps the message in front of the air
passenger for as long as the ticket is retained. There is an extensive public
transport system in India because most people cannot afford private
transportation. A very large number of commuters travel every day to their place
of work and back home. A large number of people, including those who come to
see off passengers, visit railway stations, bus terminals, and airports every day
and are exposed to a variety of ad messages on posters, neon signs, electronic
boards, etc. Posters also appear on the sides and backs of buses, commuter
trains, trams and delivery vans.

Merits

i. Exposure Duration : A major advantage of indoor forms of transit advertising is


that the duration of exposure is long.
ii. Exposure Frequency : Millions who commute to their place of work and back
home every day are exposed to advertisements repeatedly.
iii. Geographic Selectivity : Advertisers can choose geographic areas to reach a
select segment of population. This is particularly useful to local advertisers who
can buy locations in certain neighbourhoods.
iv. Low Cost : Transit advertising is among the least expensive media and can be
purchased for a very reasonable price.

Demerits
i. Waste Coverage : A significant number of exposed audiences to transit
advertising do not fall under the category of potential customers. In the absence
of specific geographic segments for products, this form of advertising leads to
considerable waste coverage.
ii. Creative Limitations : The message on the outside of vehicles is fleeting and
only short copy points are appropriate. This does not allow for any colourful and
attractive advertisements and limits any creativity.
iii. Audience Mood : Sitting or standing on a commuter train, station, or bus stand
may not really be helpful to reading advertisements. The audience is likely to be
engaged in other thoughts and may not be in the right mood to pay attention to
advertising. Hurrying through a station or airport often causes anxiety and
advertisements are unlikely to attract attention.

Cinema and videos

Cinema halls and videotapes are also used to communicate advertising


messages. Commercials are shown before the film and previews, carrying
messages from both local as well as national advertisers. Many local advertisers
use this medium to advertise their products. Advertisers, mostly local businesses
or retailers, use prepared slides for projection. National advertisers generally use
35 mm advertisement films based on a script. These are produced by
professionals or the advertising agency and are expensive.

Cinema is a popular source of entertainment in India. A large proportion of


cinema audience is young and comes from almost all classes of society and
socio-economic groups. Like TV, cinema also combines sight, sound, colour and
movement. People come to see a movie of their choice and hence are more
involved. The screen size is large, picture clarity is superb, and the sound quality
is superior compared to television. The combined total effect of these features
creates a powerful impact on the audience. The audience also knows that the
movie will not be interrupted by the commercials and for this reason they are
unlikely to be irritated when the commercials are shown in the beginning or
during intermission.

Merits

i. Exposure : As a source of entertainment, cinema is quite popular both in urban


and rural areas and the number of people attending cinema halls is substantial.
Similarly, households owning VCRs or DVD players are increasing and a large
number of video films remain in circulation every day carrying a variety of ad
messages to captive audiences.
ii. Audience Mood : People deliberately plan to go to movie theatres. Their pre-
movie mood is positive and this mood may lead to carry over effect to the
advertised product.
iii. Selectivity : In case of movies shown in cinema halls, advertisers can be
selective in terms of region, towns and cinema halls.
iv. Recall : According to Betsy Baurer, research shows that nearly 87 per cent
viewers can recall the advertisements that they saw in a movie next day.
v. Lack of Clutter : Most theatres limit the number of advertisements and
competing brands are not screened one after the other. This eliminates the
chances of clutter.

Demerit
i. Audience Irritation : Most people perhaps do not like to see advertisements in
these media. This is particularly the case with videotapes and DVDs and for this
reason zipping is a very common occurrence. Audience irritation can lead to the
development of negative feelings towards the film as well as the advertised
product.

3.5.5. Measurement:

In recent years the investment in all forms of advertising has increased


dramatically and advertisers have found advertising a powerful selling tool. But,
in many cases, advertisements failed to produce the expected results. Some
advertisements, and some advertising campaigns turn out to be flops. Hence,
advertisers want to weed out the poor advertisements and pick the good ones.
For this, evaluation of advertising effectiveness needs to be done. Advertisers
have actively and continuously sought new methods, which would help them to
better evaluate the effectiveness of their advertising with the aim to eliminate
waste and to increase the effectiveness of their advertising. Measurement of
advertising effectiveness help management to maximize the contribution that
advertising can make. For most advertising, the eventual measure of
effectiveness is frequently tied to sales per rupee spent. However, before
advertising can make its contribution, certain communication objectives must be
met. The eventual buyer must have been exposed to advertising, it must have
communicated a message, and it must have motivated or conditioned the buyer,
either consciously or unconsciously to want to purchase. The effectiveness of the
advertising in achieving these communication objectives will regulate its sales
effectiveness. Measurements of effectiveness may be based on a single
advertisement, on a campaign, or on a sequence of campaigns. They may be
taken at a single point in time or compiled over short or extended periods of time.
The advertisers generally want from their promotional effort an increase in
marketing performance parameters such as sales, market share, profits, etc.

There should not be any mistake in setting the advertising objective. Lack of
clarity in setting advertising objectives may arise due to the following factors :

- Apparent failure in realising that results of advertising cannot generally


be measured in terms of sales.
- Inadequate information about media, its qualitative focus and reach.
- Problems in stating objectives in quantifiable terms.
- Inability in identifying the target audience.

The overall purpose of advertising in any situation must be defined first and then
broken down in various stages. The type of copy used in the advertisement is
clearly influenced by the medium in which it is to be used. Hence both the
selection of the copy to be used and the medium or media to be used call for
research to determine the best copy and the best medium and to attempt to
measure the effectiveness of the advertising. Because of the large sums of
money invested in advertising and the highly competitive nature of today's
market, advertisers, media owners and advertising agencies are all vitally,
interested in determining the effectiveness of advertising. Because of the
complexities of testing advertising effectiveness, many advertisements are not
tested. That is, some people engaged in advertising doubt the validity of tests
designed to measure advertising effectiveness or they feel the qualities of
advertising that can be tested do not truly measure the value of the
advertisement to achieve its ultimate goal - the sale of the product or service -
and so it is not worthwhile to test. However the use of testing and measuring of
advertising effectiveness has increased in recent years due to several factors.
One factor is that the increased interest by top executives in getting the best
possible results with the larger advertising appropriations required today causes
them to support expenditures for testing. The development of scientific methods
of testing has also helped convince more agencies and advertisers to budget
sufficient funds for the proper testing of their advertising.

It is not always possible to measure the effect of an advertisement or


advertising on sales and profits of a company. Hence it is usually necessary to
establish other criteria of effectiveness for advertising and to test these. Other
objectives may be established for advertising, and tests are devised to measure
the effectiveness of advertising in achieving these more specific and narrower
objectives such as readership, understanding, believability, and so on. In
advertising effectiveness evaluation, the most important indicator of successful
advertising is the increase in sales volume. But advertising in the marketing mix
may not be the single or the only element responsible for the increase in sales. It
is the synergistic combination of all elements of marketing strategy, which are
responsible for the increase in sales. The other aspect is the effect of advertising
is visible in the long-run. The effect of advertising is sometimes measured taking
into account more important factors which are directly related to advertising
stimulus. Such factors or elements create awareness, comprehension, liking,
preference, conviction, purchase action, development of strong USP, brand
image, brand personality and changing attitudes which indirectly support the
sales effort.

Advertising campaigns are launched with certain objectives such as


creating awareness, increasing brand image, trial rate to change consumer
attitudes or increasing market share etc. The advertising should achieve: the
targets, fulfil the marketing and advertising objectives within a specified period of
time. Advertisers spend huge amount of money to convert the prospects into
active consumers, but they would be dismayed to what extent their
advertisements achieved the results. Since Cable and satellite television
advertisements are very expensive business, it is almost necessary for the
advertisers to know the actual result of their advertisements. Hence, the
measurement of effectiveness of advertising on television and Cable TV network
is quite essential. Lack of feedback, interference, and translation of advertiser's
language into consumer language are important problems in advertising, but they
do not alter the basic requirements for successful advertising. For any idea to be
transmitted effectively from the source to the receiver, whether the source is
personal or non-personal, the message must meet these three qualifications :

i. It must be so designed and delivered as to gain the attention of the


receiver.
ii. It must use signals that are understood in the same way by both the
source and the receiver.
iii. It must arouse needs in the receiver and suggest some ways of
satisfying these needs that are appropriate to the receivers' group
situation when moved to make the desired response.
In order to accomplish the communication task advertising goals are set to
achieve the cognitive, affective and behavioural responses from the prospects or
consumers, or viewers. Almost in all cases the above three aspects are essential
for measuring the effectiveness of advertising. These aspects are also dealt in
various models of advertising communication such as AIDA, DAGMAR etc. The
AIDA acronym stands for Attention, Interest, Desire and Action.

3.6. Advertising agencies:

An advertising agency is an independent company set up to render


specialised services in advertising in particular and marketing in general. When a
firm has decided upon advertising programme as part of its over all promotion
mix, it needs to have a system and an organisation to implement it for the
attainment of the desired objective. Firms do have an advertising department to
manage the advertising function. In some small firms, there may not be a
separate department in the name of advertising, but the marketing manager or
the chief executive looks after the function. The company's advertising
department usually relies on out side experts who prepares the advertisement
messages, selects appropriate media, and arranges to release them. The
advertising department of a company has only a limited creative function,
primarily a liaison point in the company for the agency, though it is responsible
for the advertisement budget and supervises the performance of the agency. An
advertising manager has to co-ordinate with the marketing and sales function, so
that the advertising efforts may be fully integrated with the firm's marketing and
sales strategy. He has also to perform the managerial task of formulating
advertising strategy and planning an advertising programme. The execution of
such programme is managed by this department through the advertising agency.
The agency often assists the advertising manager in programme formulation.

Advertising agencies can range in size from one or two person operation
to large organisations with over 1,000 employees. Accordingly, the services
offered and functions performed will vary. There can be following types of
advertising agencies :

- Full service agency


- In house agency
- A creative Boutique
- Media buying services
- A La-carte agency
- Special service agency

Full service agency : Full service agency offers its clients a full range of
marketing, communications and promotion services including planning, creating
the advertisement, performing research and selecting media. A full service
agency may also offer non advertising services such as strategic market
planning, design of sales promotions, sales training and trade show materials,
package design and public relations. The full service agency is made up of
departments that provide the activities needed to perform the various advertising
functions and serve the client.

In-House Agency : Even though most companies use full service advertising
agencies, an organisation may decide to establish its own operation for all
services of an advertising agency within its own structure. The in-house agency
as its name implies is owned by and operated under the direct supervision of the
advertiser. It performs all the creative and media services provided by the
traditional full- service agency. A major goal in adopting this approach is to
reduce the total cost of the advertising.

Creative Boutique : It is an agency that provides only creative services. The client
may seek outside creative talent because it believes that an extra creative effort
is required or because its own employees do not have sufficient skill in this
regard. Full-service agency often subcontract work to creative boutiques when
they are very busy or want to avoid adding full time employees to their payroll.
Creative boutiques are usually founded by members of the creative departments
of full service agencies who leave the firm and take with them clients who want to
retain their creative talent.

Media Buying Services: There are independent companies specialize in the buying of
media, particularly radio and TV time. Media buying is a niche service and these
agencies are specialized in the analysis and purchase of advertising time & space. Both
agencies and clients utilize their services for developing their own media strategies and
using the buying service to execute them. Because media buying services purchase such
large amounts of time and space, they receive large discounts and can save the small
agency or client money on media purchases. Media buying services are paid a fee or
commission for their work.

A La Carte Agency: Some advertisers prefer to order a la carte rather than using all of an
agency's services. Services can be purchased from a full service agency or from an
individual firm that specializes only in creative work, media, production, research, or new
product development. The two requirements most frequently obtained by a la carte are
creative and media services.

Special Service Agency (Group): Some agencies focus their efforts only in
some selected areas and then become specialists in those areas. There is great
multiplicity of firms whose objective is to provide advertisers, advertising
agencies and the advertising media with a host of specialized services. These
firms collectively are called special service groups and they are the least known
component of the advertising industry.

4. Have you understood type questions

1. What was the growth rate of advertising during 2005?


a. 11.1%
b. 12.1%
c. 14.1%
d. 15.1%
2. Which media according to NRS is showing higher growth rate?
a. Newspaper
b. Magazines
c. Transit
d. Outdoor

3. Which of the following is the advertising appropriation method that is most effective?
a. Affordable method
b. Percentage of sales
c. Percentage of turnover
d. Objective and task method
4. What is the expansion of LINTAS?
5. Media scheduling has become cumbersome due to advent of satellite channels. Yes/No
6. Portfolio method is one of a advertising measurement method. Yes/ No

5. Summary

The advertising industry has a 15.1% growth, clocking Rs.11,915 crore in


2005. Both the leading media, Television and the Print, have grown by 15
percent each. Together they account for 90 percent of the advertisement pie.
While Television and Print media have cornered Rs 5,003 crore and Rs 5,700
crore worth of advertising, respectively, the third largest media category Outdoor,
has grown moderately at 8.7 percent netting Rs 870 crore. While the
advertisement revenue growth of the Print media can be attributed to the
significant jump in advertising spends by educational institutions, real estate
developers, independent retailers, durables marketers, and automobile
companies among others, the revenue growth of Television has been largely
powered by the FMCG sector, which has recovered sharply in 2005 clocking a
double-digit growth, on back of some heavily advertising categories like toilet
soaps, hair oil, etc. Two media genres that have seen scorching growth rates are
Radio and the Internet, which have grown by 33 percent and 57 percent to touch
Rs 200 crore and Rs 110 crore, respectively. While for the Radio this growth has
been led by a number of factors, such as vigorous activities following the
liberalised regulatory regime and the faster expansion of the circles, the
humungous growth of the Internet has been driven by the faster growth in the Net
user-base that has touched 50.6 million. This augurs well for the industry as well
the marketing function as such.

6. Exercises

1. It is said that advertising helps meet competitors and match competitors,


by persuading the customer or providing a counter-claim. In an
increasingly competitive world, suppliers must advertise to protect
themselves against primary competition, and sometimes against other
categories of product too. With suitable examples, explain this aspect.
2. One such study found that the advertisements reflected the stereotype
that women do not do important things, are dependent on men, are
regarded by men primarily as sex objects, and should be in the home.
Identify such campaigns in the Indian context where stereotyping is done.
3. Conduct a study to find the styles of any three leading advertising
agencies in India.
4. What are the conflicting issues advertiser have with agencies? With
suitable examples, explain how it can be overcome.
5. Prepare a story board for a campaign on quit smoking.

7. References

1. David Rutherford, Client/Agency Evaluation - A Guide to Best Practice,


Institute of Communications and Advertising, Toronto, Ontario.
2. David.A.Aaker, Rajeev Batra, John. G. Myers, Advertising Management,
Prentice Hall of India, New Delhi.
3. Micheal L. Rothschild, Advertising - from fundamentals to strategies,
D.C.Heath & company, Canada.
4. A.D.Farbey, Handbook of successful Advertising, Crest publishing House,
New Delhi.

SALES PROMOTION

Unit structure:

1. Introduction
2. Learning Objectives
3. Sales promotions
3.1. Obejctives of sales promotions
3.2. Importance of sales promotions
3.3. Strengths and weaknesses of sales promotions
3.4. Comparison between sales promotions and advertising
3.5. Sales promotion methods
3.6. Developing sales promotion methods
3.7. Evaluation of sales promotions
3.8. Sales promotion campaigns in India
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:
Every marketer has to think about sales promotion at one stage or the other of the
product life cycle. In modern business world, sales promotion is considered as an
important instrument to lubricate the marketing efforts. The marketers have realised that
it is not expenditure but it is an investment because it will pay rich dividends. This does
not compete with advertising or personal selling. Sales promotion activities are
complementary to them. Advertising is frequently used to make sales promotion
activities, such as sweepstakes, coupons, premiums etc., known to consumers. Sales
people often use sales promotion to help sell their product lines to intermediaries.

2. Learning Objectives:

When you finish this unit, you should be able to:

• Understand the objectives and importance of sales promotions


• Understand the various methods of sales promotions
• Understand the implementation aspect of sales promotions
• Understand some of the sales promotion campaigns

3. Sales Promotions:

According to the American Marketing Association, sales promotion includes all


marketing activities, other than personal selling, advertising and publicity, that stimulate
consumer purchasing and dealer effectiveness such as displays shown and expositions,
demonstrations and various non-recurrent selling efforts not I the ordinary routine. Sales
promotional activities are impersonal and usually non-recurring and are directed to
ultimate consumer, industrial consumer and middlemen. These activities tend to
supplement the advertising and personal selling efforts. Examples of sales promotion are
free product samples, premiums and trade shows. For many organisations, including the
marketers of foods, toys and clothing, store displays are important sales tolls. All
prospective buyers must be attracted and even persuaded to buy the product. Sales
promotion is a vital link between advertising and field selling. It aims at stimulating
consumer purchasing at the point of sale and dealers effectiveness at the retail channel of
distribution especially because of the competitiveness of retailing.

3.1. Objectives of sales promotion:

The goals of sales promotion must confirm to the overall objectives of promotion
efforts. There are five broad sales promotional objectives. They are:

Exposure:
The important objective is simply to expose an adequate number of target
consumers to the message. Managers must choose promotional media that will
reach adequate numbers of target consumers. In planning for exposure,
marketers should take the following steps:
1. Define target consumers
2. Determine their number
3. Chose the promotion media
4. Determine the promotion budget needed to acquire the number of exposures

Attention:
The term attention refers to the state of focusing one’s mind upon
something. Marketers are faced with the need to take steps to make their
promotion stand out and say or do something to attract consumer attention.

Comprehension:
To comprehend is to understand, or to receive communicated knowledge.
The objective is achieved when consumers interpret the message in the manner
intended by the marketer. Consumers often fail to comprehend promotional
message when the messages are poorly designed or simply not interested.

Attitude change:
Attitude change involves readiness to respond in a particular way. When
the message promises a reward that is strong cleaning power in a detergent, that
may target consumers’ value.

Behaviour/Action:

Inducing behaviour or action is especially important in personal selling and


sales promotion. Many managers encourage consumers to:
Buy the brand for the first time
Continue to buy the brand
Buy more of the brand
Urge friends to buy the brand
Visit a retail store
See a demonstration of the brand or
Try out the brand
Confirming to the above, in a broad way, sales promotion is said to have
three objectives. They are:
To communicate marketing information to the potential buyers
or actual users or retailers
To persuade and convince them by exercising persuasive
measures and
To act as a powerful tool of competition.

3.2. Importance of sales promotion:

In recent years, expenditure on sales promotion has been increasing more rapidly than the
outlays for advertising. Changes in the marketing environment are exerting upward
pressure on the demand for sales promotion. As the number of brands increases, for
example, the competitive pressure for display space in retailer store or Stock keeping unit
(SKU) intensifies. These forces increase retailer’s demand for more sales promotional
efforts from their suppliers.

A good sales promotional programme could alleviate consumer


dissatisfaction with respect to retail selling. The trend is away from the use of
retail sales people and towards self service also points up the need for sales
promotion. Sales promotional devices are often the only promotional materials
available in the point of purchase. Advertising media reach potential consumers
at their homes and at their places of business. When the time for buying arises,
the impact of the advertisements may have worn off (or the prospect may not
even have seen the advertisement). However, the sales promotional devices at
the point of purchase inform, remind and persuade the buyer. People who
comprehend the promotional devices are excellent prospects. They are usually in
the buying frame of mind, or they would not be there at the purchase point. The
importance of sales promotion to manufacturers, middlemen and consumers are
explained below:

Sales promotion to consumers:

/ With the help of promotional efforts, the consumers get latest information
regarding the new goods or services to be initiated or sold in the market.
/ Consumers get effective incentives in the shape of off-season discount ,
gifts, samples etc.,
/ Consumers get the opportunity to participate in contests
/ Upgrade the standard of living of the consumers
/ Reduction in prices make certain products affordable

Sales promotions to manufacturers:


/ Creates new markets for the product
/ Helps in contacting and maintaining the actual consumers
/ Economies of scale comes into picture due to higher productivity and lower
prices
/ Allows them to overcome the competition
/ Helps in having goodwill from the middlemen

Sales promotion to the middlemen:

/ Easy to persuade the buyer with minimum effort


/ Allows them to make profits with minimal costs
/ Helps to provide incentives to the buyers, resellers etc.,

3.3. Strengths and Weaknesses of Sales promotion:


Sales promotion is mentioned as a push strategy as compared to
advertising which is considered as pull strategy also has its own share of
advantages and disadvantages as is seen from the following table:

Strengths Weaknesses

Adds tangible value to product Clutter


offering Can set false retail price
Gives sense of immediacy to Can undercut brand name
purchase Cost can be prohibitive if
Adds excitement, spectacle continued
Stimulates trials
Stimulates continuity of
purchase or support, repeat
purchases
Increases purchase frequency
and/or quantity
Balances inventory, helps clear
overstocks
Motivates trade support
Builds database
Adds involvement/participation

3.4. Differences between sales promotion and advertising:

A push promotion offers consumers an extra incentive to choose the brand. For new
products, a pull promotion is designed to create a demand. One advantage of a pull
promotion is that once a brand has developed consumer demand, that demand will last as
long as the brand remains competitive. Further more once a brand has created a strong
brand franchise, it can spend little on trade promotion. A disadvantage of using push
promotion is that most discounts apply to everyone who buys – regular brand users who
would have bought the brand with out the discount benefit as well as new buyers.

Advertising differs with sales promotion on the following points:

Sales promotion adds tangible value whereas advertising does not.


Advertising does not reduce the risk whereas sales promotion is able
to reduce.
Immediate response is possible from sales promotion and advertising
effect is considered long term,
Sales promotion is able to add the accountability whereas advertising
is not able to.
The continuity of purchases can be seen in sales promotion than
advertising.
The purchase frequency is increased in sales promotions due to
impulse buying, which is not possible through advertising.
The database of the customers can be built through sales promotion.
The involvement of the trade, sales people is more in sales promotion
than that of advertising.

3.5. Sales promotion methods:

Consumer promotional tools:


Price reductions:
The most common type of consumer sales promotion is a price reduction – a
sale. Although sale prices can generate tremendous response, they can also
have negative effect on a brand’s overall pricing strategy. This was understood
by Bombay Dyeing as they decided to keep their flagship brand –Vivaldi away
from the normal 15% price reduction they undertake. An indirect price reduction
is the price pack, which provides the consumer with multiple units priced less per
unit than they would be if they were individually priced. The Gillette Company in
offering shaving kit adopted this.

Coupons:
A certificate offered by either manufacturers or retailers that grants specified
savings on specific brands when presented for redemption at the point of
purchase. Manufactured sponsored coupons can be redeemed at any outlet
distributing the manufacturer brands. Retailer sponsored coupons must be
redeemed at the sponsoring retail store or chain.

Sampling:
This allows the consumer to experience the product or service either free or at a
reduced price. The primary tool for new-product introductions because it
stimulates trial, sampling is also effective for introducing modified products, for
dislodging an entrenched market leader, and for demonstrating the brand
superiority. Ariel and Pantene are examples.

Refunds and rebates:


A sales promotion that reduces price after the purchase is made is known as a
refund or rebate. The marketer promises to return a certain amount of cash or
high-value coupons to the consumer who purchases the product. Most refunds
and rebates encourage product purchase by a given time, thereby creating a
sense of immediacy and limiting the manufacturer’s period of liability.

Contests, Sweepstakes and Games:


The growth of contests and sweepstakes during the 90’s attests to the power of
tools that generate excitement by promising ‘something for nothing”. Although
contests and sweepstakes are considered low-level motivators because people
know that the odds are against them, many companies favour them because
they are highly visible inducements to participation and don’t cost as much as
coupons.

Premiums and Specialities:


An offer of merchandise, either frees or at a reduced price, for responding in
same way is called a premium. Many companies also use premiums to
encourage consumers to switch brands or to reward customer loyalty. Premiums
can be classified as:
In-pack premiums which are inserted into the package by the
manufacturers
On-pack premiums which are placed on the outside of the package at
the factory
Container premiums which are special packages, such as decorative
coffee canisters, that have extended use after the product contents are
gone.
Specialities are free gifts or rewards ranging from pencils to cellular telephones.
The difference is that the customer doesn’t have to purchase anything to get
them.

Merchandising materials:
Every promotion needs communication support if customers are to know it. Such
merchandising materials include:
♠ banners
♠ signs
♠ window posters
♠ shelf strips and tags
♠ racks
♠ stack cards
♠ end aisle displays and
♠ shelf extenders

Tie-ins:
Two products are promoted together.

Cross –promotions:
Sometimes one brand is used as a carrier to promote another, non-competitive
brand.

Trade promotions:

The following trade related the manufacturers could follow promotions:

Trade allowances:
To achieve the authorisation objective explained above often requires
slotting allowances. These are fees paid to a retail chain to stock in its
warehouses and make it available in its stores. Originally, slotting allowances
were modest sums meant to cover the costs of physically placing the product on
the shelves and entering it into the store’s computer ordering system?

Off-invoice allowances are similar to consumer price reductions. They are


used periodically by most brands takes the form of free goods –“buy six cases
and get one free”. Performance allowances are given when a wholesaler or
retailer promises to do or perform some additional activity to help sell or move
the brand.

Dealer Loaders:
To help encourage the retailer to put up a special display or POP display
for a promotion, the marketer will sometimes design a display to include an
attractive item of value to the retailer.

Trade shows:
Manufacturers, suppliers and vendors in a particular industry gather to
display and review new product developments at trade shows. Manufacturers
have exhibits or booths where they can demonstrate the product, provide
informations, answer questions and write orders.

3.6.Developing the sales promotion schemes:

After deciding the objectives and tools of sales promotion, the marketer has to
make a few more decisions to ensure effective results. The following are a few
such aspects:

1.Size of incentive:
The marketer has to determine how much incentive should be offered. A certain
minimum incentive is necessary if the promotion is to succeed. A higher incentive
level will produce more sales response but at a diminishing rate. The marketers
may usually decide the quantum of incentives on the basis of effectiveness of
part promotion plans.

2.Conditions for participation:


Incentive should not be disturbed to all the prospective buyers’ indiscrimenably. It
should be offered only who have the innate desire and attitude to purchase
products offered by the company.

3.Distribution Pattern:
The marketer must also decide the mode and media of distribution of incentives.
The cost of distribution should not be more than the results that are expected
from the promotional efforts.

4.Duration of the promotion:


If the sales promotion period is too short, many prospects will not be able to take
advantage, since they may not be repurchasing at that time. With the promotion
trends too long, a scheme will lose some of its effects.

5.Timing of the promotion:


The promotion managers have to develop a time schedule for the promotions.
The dates must be useful to production, sales and distribution managers. Some
unplanned promotions may become necessary. At that time, co-operation of
people concerned must be enlisted.

6.Sales promotion budget:


The marketer can choose the promotional tools, the method of implementation in
advance. On the basis of such a plan, he can estimate the cost of sales
promotion activities. The more popular way is to take a conventional percent age
of the total budget to use for sales promotion.

7.Pretesting:
Sales promotion scheme should be pre-tested if possible. The purpose is to
determine whether the scheme is appropriate or not. It is also helpful to test the
suitability of the size of the incentive in the context of a particular target group.

8.Implementing the promotional schemes:


Companies should establish implementation plans for each promotion
covering lead-time and sell off time.
♠ Lead-time is the time required to prepare the programme before launching it.
♠ Sell off time begins with the launch and ends when the deal closes.

3.7. Evaluation of the sales promotion schemes:

Manufacturers can use various methods to measure the effectiveness of sales promotion
schemes. Some of them are:

♠ The most common method is to compare sales before, during and after a
promotion. Suppose a company has 6% market share, in the pre-promotion
period, which jumps to 10% during the promotion, falls to 5% immediately
after and rises to 7% after some time. The promotion evidently attracted new
buyers as well as more purchasing by existing customers. After the
promotion, the sales fell as consumers worked down their inventories. The
long run rise to 7% indicates that the company gained some new users.

♠ Consumer panel data would reveal the kind of people who responded with the
promotion and what they did after the promotion. If more information is
needed, the consumer surveys can be conducted to learn how many recall
the promotions, what they think about it, how many took advantage of it, how
it affected their subsequent branded choice behaviour.
♠ Sales promotion can also be evaluated through experiments that differ such
attributes as incentive value, duration and distribution media.

3.8. Sales promotions in India:

1. Baron International, the marketers of AIWA TV promised the money back if


India succeeds in the World Cricket Cup 1999. If the team wins, one gets
some Rs.6, 000 back on a TV priced at around Rs.12, 500. Apart from this,
the company has promised each team player a Mercedes if India wins the
cup. This is by far the best sales promotion and had given the company the
dividends.
2. Britannia invested Rs.10 Crore on its ‘Britannia khao, World Cup jao’
promotion and it created waves in the market. Every product comes with a
number of runs (printed on the pack). By collecting 100 runs, one gets a
booklet from the retailer. This represents a potential trove for the buyer –
ranging from complementary packs to match tickers. The company kicks off
this sales promotion scheme in February that year well ahead of the
programme.
3. Samsung and Sansui gave away Cup related freebies with every product.
4. Asian Paints asked the customers to walk into any of their showrooms and
pick out the shade of blue that the Indian team wears in the World cup.
Winners flew to England to watch the Indian games.
5. Re.1 off on a Surf carry bag
6. 50 gm. Cake of Ponds soap was at one time given free with every purchase
of HLL shampoos.
7. Britannia Quiz Contest
8. Coke offered a cap on the purchase of 5 Coke bottles
9. Vicks, Ariel using sampling technique
10. Tamil magazines providing in pack premiums like Amrutanjan cream,
Shampoos, Saffrons and soaps
11. For every three Peter England shirts bought, one white Peter England was
given free
12. Pepsi by keeping three digit numbers in the crown offered the following prizes
based on weekly draws:
13. Rupees One lakh if all the three numbers match
14. Rupees Ten thousand if two numbers match
15. One Pepsi free if one number matches
16. TVS-Suzuki offering to provide the vehicle at Rs.3000 and later on in
instalment schemes
17. LML allowing trade ins of any make
18. Akai spearheading the exchange market where the old TV was valued at
Rs.10,000 for a new Akai TV
19. Nike tying up with Advertising and Marketing for the subscription drive
20. Castrol and Servo giving away caps, T-shirts etc as freebies
21. Parle cashing on the Sakthimann serial success with Sakthimann sub-brand
products with sales promotional efforts
22. Kurl-on mattress offered pillows free in the 5” category
23. Maruti lowering the prices of its 800, Zen Estilo by Rs.25, 000.

4. Have you understood type questions

1. To convince supermarkets to stock a large display of HUL products (containing


eight cases of the company's bar soap and body wash products), the company's
sales force had to engage in ________, especially when dealing with chain
stores.

A. Advertising
B. Personal selling
C. Sales promotion
D. Publicity
2. Do you agree that sales promotion is a below the line promotion? Yes/ No
3. State whether True or False. “Sales promotion aimed at the sales promotion normally
do not provide the results intended and discourages the entire field force”
4. Which sales promotion is quite often used by the retailers?

A. Premiums
B. Couponing
C. Tie-ins
D. Discounts
5. State whether True or false. “Sales intended across the traders necessarily need to be
discounts either as cash or in quantity”.

5. Summary
Marketers who employ sales promotion as a key component in their
promotional strategy should be aware of how the climate for these types of
promotions is changing. The onslaught of sales promotion activity over the last
several decades has eroded the value of the short-term requirement to act on
sales promotions. Many customers are conditioned to expect a promotion at the
time of purchase otherwise they may withhold or even alter their purchase if a
promotion is not present. For instance, food shoppers are inundated on a weekly
basis with such a wide variety of sales promotions that their loyalty to certain
products has been replaced by their loyalty to current value items (i.e., products
with a sales promotion). For marketers the challenge is to balance the
advantages short-term promotions offer versus the potential to erode loyalty to
the product. Sales promotions are delivered to customers in many ways such as
by mail, in-person or within print media. However, the Internet and mobile
technologies, such as cell-phones, present marketers with a number of new
delivery options. For example, the combination of mobile devices and
geographic positioning technology will soon permit marketers to target
promotions to a customer’s physical location. This will allow retailers and other
businesses to issue sales promotions, such as electronic coupons, to a
customer’s mobile device when they are near the location where the coupon can
be used.

Tracking customer’s response to marketers’ promotional activity is critical


for measuring success of an advertisement. In sales promotion, tracking is also
used. For instance, grocery retailers, whose customers are in possession of
loyalty cards, have the ability to match customer sales data to coupon use. This
information can then be sold to coupon marketers who may use the information
to get a better picture of the buying patterns of those responding to the coupon.
For many years consumers typically became aware of sales promotions in
passive ways. That is, most customers obtained promotions not through an
active search but by being a recipient of a marketer’s promotion activity (e.g.,
received coupons in the mail). The Internet is changing how customers obtain
promotions. In addition to websites that offer access to coupons, there are a
large number of community forum sites where members share details about how
to obtain good deals which often include information on how or where to find a
sales promotion. Monitoring these sites may offer marketers insight into how
customers feel about certain promotions and may even suggest ideas for future
sales promotions. Sales promotions do the same way, an advertisement
competes with other advertisements for customers’ attention. This is particularly
an issue with inserted coupon promotions that may be included in mailing or
printed media along with numerous other offerings. The challenge faced by
marketers is to find creative ways to separate their promotions from those offered
by their competitors.

6. Exercises

1. There are number of products designed for consumption by children but the
purchases are made by mothers. Such products must appeal to children and
have the mother's approval too. In what way sales promotion by these
companies be effective? Give examples.
2. Manufacturers, suppliers and vendors in a particular industry gather to display
and review new product developments at trade shows. Manufacturers have
exhibits or booths where they can demonstrate the product, provide
informations, answer questions and write orders. Explain how you will
conduct these exhibitions as an event manager.
3. An offer of merchandise, either frees or at a reduced price, for responding in
same way is called a premium. Many companies also use premiums to
encourage consumers to switch brands or to reward customer loyalty.
Conduct a study to find the latest measures in the Indian market.
4. “Advertising is a must to show cause the sales promotion efforts” –Discuss with
recent examples.

7. References
1. Julian Cummins, Sales Promotion, Universal Book Stall, New Delhi
PERSONAL SELLING

Unit structure:

1. Introduction
2. Learning Objectives
3. Personal Selling
3.1. Relevance of selling to modern marketers
3.2. Selling steps
3.3. Sales force objectives
3.4 Sales force structure
3.5. Purpose of sales territories
3.6. Sales force management
4. Have you understood type questions
5. Summary
6. Exercises
7. References

1. Introduction:

Sales management is considered crucial in those industries where personal selling


is given the most important part in the promotional mix. Sales management needs to be
carried out with conviction otherwise there will be lot of manpower turnover from
companies. There are a lot of differences sales management has as compared to other
promotional mix elements. Personal selling is a two-way flow of communication between
a potential buyer and a sales person that is designed to identify the customer’s needs,
match those needs to one of the company’s products and convince the customer to buy
the product. Hence it is very comprehensive in nature.
2. Learning Objectives:

When you finish this unit, you should be able to:

• Understand why sales management is important to marketers


• Understand what are the strengths and weaknesses of sales management
• Understand the relevance of sales management to the modern marketer
• Understand the structure of sales force management

3. Personal selling:

Personal selling’s greatest strength is its personal touch. Of all the marketing
communication functions, personal selling involves the most human contact and
interaction, qualities that are indispensable to building lasting relationship between
buyers and sellers. A related strength is the flexibility of personal sales thereby making
necessary changes in the specific needs of each potential customer, highlighting the
characteristics of a product that are most likely to meet those needs. Personal selling is
most likely to persuade some one to buy a product than other promotional tools. The one-
to-one situation facilitates instant feedback with the result that the sales person can
address customer’s objections. Salespeople are part of the corporate team, and their
relationships with other areas and functions within their own company are important
factors affecting the company’s image and ultimately the sales. A weakness of personal
selling is that one person can sometimes spoil a relationship between a company and one
or more of its customers. Because the salesperson is the company’s main representative
to customers, anything this person does that is out of line will reflect negatively on the
entire company. Another weakness is that if a salesperson leaves the company to work
for a competitor, he or she takes along all the company’s selling strategies, important
accounts and also other inside information. Personal selling is very costly due to the
labour intensiveness. A highly qualified professional sales person calling on corporate
headquarters and selling high-tech products or large volume products can make only a
few calls a day because customers are rarely geographically close. Consumers often
complain about high pressure and dishonesty among sales people, an image that
competent sales people are continually trying to dispel.

3.1. Relevance of selling to the modern marketer:

In today’s highly competitive market place, customers expect more from


companies. That can be offered only directly through the use of sales management. Since
the customers expect more information and expertise, there needs to be a one-to-one
interaction. Through selling, all the questions and other problems which the customer
have can be answered with full satisfaction. This makes selling an unique tool as
compared to advertising, sales promotion etc. Another aspect is that the customers require
a honest and just answer. The value for money (VFM) can be provided only through the
use of personal selling with effectiveness.
The broad strategy for the marketer is organising the firm to meet consumer
needs. The sales force is one of the practical weapons that the chief marketing executive,
who can be the managing director can use to achieve the objectives. In most firms the
bulk of the presentation effort is carried out by the sales force, and thus it is often by far
the most important tactical weapon. In a situation where products and prices are
becoming sincreasingly similar and the sales force is the weapon, its efficiency is
absolutely critical to the success of the whole enterprise. In fact, in many markets it can
be said that the differenece between competitors lies in relative quality of their sales
forces. The company with the best planned, selected, trained, motivated and controlled
sales force will inevitably gain dominance in the market. To a large extent, once the sales
person has been recruited and given basic training his success will depend on the field
sales manager who controls that sales person.

3.2. Selling steps:

Prospecting
Prospecting refers to identifying and developing a list of potential clients. Salespeople
can seek the names of prospects from a variety of sources including trade shows,
commercially-available databases or mail lists, company sales records and in-house
databases, public records, referrals, directories, and a wide variety of other sources.
Prospecting activities should be clearly structured so that they identify only potential
clients who fit the profile and are able, willing, and authorized to buy the product or
service. Once prospecting is underway, it then is up to the sales professional to qualify
those prospects to further identify likely customers and screen out poor leads.

Pre-approach

Before engaging in the actual personal selling process, sales professionals first analyze all
the information they have available to them about a prospect to understand as much about
the prospect as possible. During the Pre-approach phase of the personal selling process,
sales professionals try to understand the prospect's current needs, current use of brands
and feelings about all available brands, as well as identify key decision makers, review
account histories (if any), assess product needs, plan/create a sales presentation to address
the identified and likely concerns of the prospect, and set call objectives. The sales
professional also develops a preliminary overall strategy for the sales process during this
phase, keeping in mind that the strategy may have to be refined as he or she learns more
about the prospect.

Approach

The approach is the actual contact the sales professional has with the prospect. This is the
point of the selling process where the sales professional meets and greets the prospect,
provides an introduction, establishes rapport that sets the foundation of the relationship,
and asks open-ended questions to learn more about the prospect and his or her needs.

Making the Presentation

During the presentation portion of the selling process, the sales professional tells that
product "story" in a way that speaks directly to the identified needs and wants of the
prospect. A highly customized presentation is the key component of this step. At this
point in the process, prospects are often allowed to hold and/or inspect the product and
the sales professional may also actually demonstrate the product. Audio visual
presentations may be incorporated such as slide presentations or product videos and this
is usually when sales brochures or booklets are presented to the prospect. Sales
professionals should strive to let the prospect do most of the talking during the
presentation and address the needs of the prospect as fully as possible by showing that he
or she truly understands and cares about the needs of the prospect.

Overcoming Objections

Professional salespeople seek out prospect objections in order to try to address and
overcome them. When prospects offers objections, it often signals that they need and
want to hear more in order to make a fully-informed decision. If objections are not
uncovered and identified, then sales professionals cannot effectively manage them.
Uncovering objections, asking clarifying questions, and overcoming objections is a
critical part of training for professional sellers and is a skill area that must be continually
developed because there will always be objections. Trust me when I tell you that as soon
as a sales professional finds a way to successfully handle "all" his or her prospects'
objections, some prospect will find a new, unanticipated objection-- if for no other reason
than to test the mettle of the salesperson.

Closing the Sale

Although technically "closing" a sale happens when products or services are delivered to
the customer's satisfaction and payment is received, for the purposes of our discussion I
will define closing as asking for the order and adequately addressing any final objections
or obstacles. There are many closing techniques as well as many ways to ask trial closing
questions. A trail question might take the form of, "Now that I've addressed your
concerns, what other questions do you have that might impact your decision to
purchase?" Closing does not always mean that the sales professional literally asks for the
order, it could be asking the prospect how many they would like, what color they would
prefer, when they would like to take delivery, etc. Too many sales professions are either
weak or too aggressive when it comes to closing. If you are closing a sale, be sure to ask
for the order. If the prospect gives an answer other than "yes", it may be a good
opportunity to identify new objections and continue selling.

Follow-up

Follow-up is an often overlooked but important part of the selling process. After an order
is received, it is in the best interest of everyone involved for the salesperson to follow-up
with the prospect to make sure the product was received in the proper condition, at the
right time, installed properly, proper training delivered, and that the entire process was
acceptable to the customer. This is a critical step in creating customer satisfaction and
building long-term relationships with customers. If the customer experienced any
problems whatsoever, the sales professional can intervene and become a customer
advocate to ensure 100% satisfaction. Diligent follow-up can also lead to uncovering new
needs, additional purchases, and also referrals and testimonials which can be used as
sales tools.

3.3. Sales force objectives:

Sales objectives must be based on the character of the company’s target markets and the
company’s desired position in these markets. Companies typically set objectives for their
sales force. For example, a computer sales person is responsible for selling, installing and
upgrading customer computer equipments. Sales representatives perform one or more of
the following tasks for their companies:
Prospecting
Targeting
Communication
Selling
Administration
Information gathering and
Allocating

Considering these, sales representatives work with customers in several ways:


Sales representatives to buyer: A sales representative discusses issues with a prospect or
customer in person or over the phone.
Conference selling: Sales representative brings company resource people to discuss a
major problem.
Seminar selling: A company team conducts an educational seminar for the customer
company.
Once the company decides on a desirable selling approach, it can use either a
direct or contractual sales force.
Direct: It consists of full-time or part-time paid employees who work exclusively for the
company. This includes inside sales personnel who conduct business from their office
using the telephone and receiving visits from prospects and field sales personnel, who
travel and visit customers.
Contractual: This consists of manufacturer’s sales agents or brokers, who are paid a
commission based on their sales.

3.4. Sales force structures:

The sales force strategy will have implications for structuring the sales force. If
the company sells many products to many types of customers, it might need a product or
market sales force structure. If the company sells one product line to one end- using
industry with customers in many locations, the company would use a territorial sales
force structure.

Territorial structure:

In this case each representative is allotted a specific territory. The advantages of


this structure are:
1.It results in a clear definition of the sales representatives responsbilities.
2.Territorial responsibility increases the sales representatives selling effectiveness,
incentives and personal life.
3.Travel expenses are relatively small as the representative travels within a small
geographical area.
Product structure:

This is needed where the products are technically complex, highly unrelated or
very numerous. Kodak uses different sales force for its film products and industrial
products. Cipla uses different executives stationed at one area to cater to different
products.
Market structure:

Here a company’s sales force can often specialise in industry or customer lines.
Separate sales force can be set up for different industries and even different companies or
customers. Say a book publisher can set up sales force for retail trade and as well have
another one for institutional sales.

Complex salesforce:

When a company sells a wide range of products to many types of customers over
a broad geographical area, it can often combine several principles of sales structures.
Sales force can be speicalised by territory-product, territory-market, product-market etc.
A sales representative then report to one or more line managers and staff managers.

Number and size of sales force:

Once the company decided about its sales force strategy and structure, it is ready
to consider sales force size. Increasing the number of sales representatives will increase
both the sales and cost. Some of the methods of sales force size are:

Work load method:

Here the company establishes the number of customers it wants to reach, then it
can use a work load method to establish sales force size. This method consists of the
following steps:

Customers are grouped into size classes according to their sales volume.
The desirable call frequencies are established for each class.
The total work load is achieved by multiplying the number of accounts in
each class by the call frequency.
The average number of calls a sales representative can make per year is
determined.
The number of sales representatives needed is determined by dividing the
total annual calls required by the average annual calls made by a sales
representative.

Incremental method:

In this method, a company will start generating a cost-volume(revenue) equation


for hiring the sales force. The number will be added, say at 15th sales representative, if the
equation is positive, it is better to add him to the line. However at one point, the equation
will become negative which shows clearly that adding any more representative is a loss
for the company.

Budgetary method:
The company’s financial resources will often circumscribe the number of sales
people that are required. The steps involved in the process are:

1. Determine the personal selling budget


2. Determine the full costs of maintaining one sales person in the field
3. Calculate the number of sales personnel permitted by dividing item 1 by item
2.

Breakdown method:

This technique uses the following steps:


1. Determine the company’s potential sales volume for its entire market area.
2. Determine the minimum sales volume to support one sales person.
3. Calculate the number of sales personnel by dividing item 1 by item 2.

Thus the number of sales personnel a company employs in the field derives from the
fundamental considerations as:
The number of prospective customers for the company’s products
The sales potential of each of these prospective customers
The geographical concentration or dispersion of these customers and
The financial resources available to the company.

3.5. Purpose of sales territories:

1.Shared territories:

Every business defines sales territories in some fashion. Usually several sales persons of
the same company work in a given geographic area. Some firms use this shared territory
strategy to deliberately cause competition among their own sales representative.

2.Exclusive territories:
The rationale for exclusive territories is that all prospects can be covered in an orderly
and efficient manner. The risk of duplication of effort is virtually eliminated. The
customer may be better served because each sales person will be responsible and reap the
rewards of happy customers and all that means in terms of repeat business. This type
generally thought to encourage more loyalty from the sales person toward the company.

3.Territory planning:
Everyone involved must understand the plan and thus aid in its implementation.
By the same token the plan should provide direction and reduce the tendency to
drift without working toward a desirable objective. To be useful, it must be written
in simple plain language. Such issues as market penetration, geographic
concentration, sales blitzes, new account emphasis, and product strategy,
among other factors, will affect how the territory is divided.
4.Return on Assets Managed:

Some companies study the sales function and set performance criteria in terms
of ROAM. It refers to two types of items, first it can mean the actual assets
needed to support the sales effort, particularly inventories and accounts
receivable. Second, it can refer to the customers within the territory, who are
after all the most valuable resource for which the sales person is responsible.
Determining these criteria before hiring or reassigning salespeople will aid in the
deployment process itself. Specifically defining the area served is a start.
Focusing on the geographic limits, the sales manager should write down the area
for which he is responsible. In some case it the top management who defines the
target area for the company. Even if it has not this is a necessary and obvious
starting point.

5.Sales forecast:

Once the area to be served is defined the next step is relatively easy. From the sales
forecast for the following year and the estimates projected for future years, the sales
manager should be able to determine how many sales people will be required to attain the
projections. This involves analysing the sales forecast in terms of the number of sales
persons needed to make the predicted sales. One of the considerations is the commission
level expected for each sales person. The sales manager should also decide how many
territories will be required. Again it is a function of the forecast. In fact, a complete and
scientific forecast, in-depth and well documented, will be the best spring board from
which the sales manger can build the territory design for profitable sales.

3.6. Sales force management:

3.6.1. Recruitment:
The major sources of recruiting sales representative are:
1. Internal applications
2. Advertising
National newspapers
Local newspapers
Trade journals
Commercial television

Radio

3. Manpower Consultants
4. Employment agencies
5. Educational establishments
Universities
Engineering/ Technical institutions

6. Professional bodies etc.


Following are the developments in the advertising circuit over the years which help the
advertiser:

1. The emergence of specialised trade journals and magazines like Express Pharma
pulse, IT magazine, PC quest, Hotelier& Caterer, Auto India, Retailing magazine etc.,
has helped the recruiter to zoom down to the right candidates.

2. Many business magazines are offering recruitment services for the benefit of the
advertisers.

3. The evolution of Inter net has opened the opportunities section with confidentiality
being maintained. Portals like Naukri.com, JobsDB.com, indiainfo.com, rediff.com,
mafoi.com etc are offering placement services

4. The outdoor media has also become useful to conduct walk in interviews by
advertising for a single day.

5. Telephonic interchange, teleconferencing, videoconferencing have become another


source for attracting overseas talent at a low cost.

6. The developments of e-mail has helped the companies to write separately to the
prospective candidates. By sourcing the information bank of say Rediff.com,
companies can sent in mail to whom they think will fit into their position.

Based on the recruitment drive, a selection process is undertaken where by various


methods like Aptitute tests, attitude tests etc., are conducted. Primarily interview is the
most sought after selection method.

3.6.2. Types of Interviews:

1. Unstructured Interview Involves a procedure where different questions may


be asked of different applicants.
2. Situational Interview Candidates are interviewed about what actions they
would take in various job-related situations. The job-related situations are
usually identified using the job analysis technique. The interviews are then
scored using a scoring guide constructed by job experts.
3. Behavior Description Interviews Candidates are asked what actions they
have taken in prior job situations that are similar to situations they may
encounter on the job. The interviews are then scored using a scoring guide
constructed by job experts.
4. Comprehensive Structured Interviews Candidates are asked questions
pertaining to how they would handle job-related situations, job knowledge,
worker requirements, and how the candidate would perform various job
simulations. Interviews tapping job knowledge offer a way to assess a
candidate's current level of knowledge related to relevant implicit dimensions
of job performance (i.e., "tacit knowledge" or "practical intelligence" related to
a specific job position)
5. Structured Behavioral Interview This technique involves asking all
interviewees standardized questions about how they handled past situations
that were similar to situations they may encounter on the job. The interviewer
may also ask discretionary probing questions for details of the situations, the
interviewee's behavior in the situation and the outcome. The interviewee's
responses are then scored with behaviorally anchored rating scales.
6. Oral Interview Boards This technique entails the job candidate giving oral
responses tojob-related questions asked by a panel of interviewers. Each
member of the panel then rates each interviewee on such dimensions as
work history, motivation, creative thinking, and presentation. The scoring
procedure for oral interview boards has typically been subjective; thus, it
would be subject to personal biases of those individuals sitting on the board.
This technique may not be feasible for jobs in which there are a large number
of applicants that must be interviewed.

3.6.3. Training the sales force:

On-the-job-training (OJT):
Formal training for learning the skills and knowledge to perform a job that takes place in
the actual work environment.

Case study:
A printed description of a problem situation that contains enough detail to enable the
learners to recommend a solution. The learners encounter a real-life situation under the
guidance of an instructor or computer in order to achieve an instructional objective.
Control of the discussion comes through by the amount of the detail provided.

Computer-based training (CBT):


Interactive instructional experience between a computer and a learner in which the
computer provides the majority of the stimulus and the learner responds, resulting in
progress toward increased skills or knowledge. Has a more complicated branching
program of mediation and answering than CAI. Now an all-encompassing term used to
describe any computer-delivered training including CD-ROM and the World Wide Web.
Some people still use the term CBT to refer only to old-time text-only training.

Multimedia training:
An instructional system that incorporates all or various instructional methods and media.
It describes any application that uses multiple media (graphics, text, animation, audio,
video), but multimedia is primarily thought of as any application that uses high-
bandwidth media (audio and video) and is most often delivered on CD-ROM.

Performance-oriented training :
Training in which learning is accomplished through performance of the tasks or
supporting learning objectives under specific conditions until an established standard is
met.

Simulation :
Any representation or imitation of reality. An instructional strategy used to teach problem
solving, procedures, or operations by immersing learners in situations resembling reality.
The learners actions can be analyzed, feedback about specific errors provided, and
performance can be scored. They provide safe environments for users to practice real-
world skills. They can be especially important in situations where real errors would be
too dangerous or too expensive.

Web based instruction (WBI) :


Web-based Instruction is delivered over public or private computer networks and
displayed by a Web browser. WBI is available in many formats and several terms are
linked to it; on-line courseware, distance education on-line, etc. WBI is not downloaded
CBT, but rather on-demand training stored in a server and accessed across a network.
WBI can be updated very rapidly, and access to the training controlled by the training
provider.

3.6.4.Methods of compensation:

Straight salary:
This method is used by many start-up companies and those companies in the fledgling or
new industries. This method makes the staff confident about his earnings and also
provides a sense of security to him. This method works on the basis of the following:
The components of salary are:
Basic salary
Dearness allowance as decided by the company
House Rent Allowance
Medical allowance and
Provident fund , gratuity and employee insurance schemes where the
employee needs to contribute.

Straight commission:

The commission schemes are followed only in those industries which are very
old. There are lot of individuals who are experienced who can understand the
riguors of the industry and would be able to provide the company what they
expect. The following are the methods followed in this straight commission:

Simple Percentage
Company pays its salespeople 10 per cent of whatever they sell.
The details of this method are provided in the next lesson.

Salary and Commission:


This method allows for the improved performance by the sales people. In an effort
to achieve above their targets, this method helps the companies. The sales people will
work more than what they do when they are earning only a simple salary. If the
organisation is old and the industry is growing, this method is found to be useful.

Incentives:
Incentives are motivators. Over and above the salary, these incentives
play a vital role in the overall growth of the company as well the sales personnel.
Incentives provide the extra money for the employee and motivates him to
perform better. A study by Ralph & Affliates among the companies and sales
people revealed that, incentives are used to

Increase or maintain sales (84%)


Build morale (65%)
Build customer loyalty / trust (51%)
Increase market share (51%)
Build employee loyalty / trust (49%)
Improve customer service (49%)
Create new markets (44%)
Foster teamwork (42%)
Develop contracts (40%)
ESOP:
Employee Stock Ownership Plan (ESOP): An ESOP is a defined
contribution employee benefit plan that allows employees to become owners of
stock in the company they work for.
ESOP works as under:

1. The ESOP operates through a trust, setup by the company, that accepts tax
deductible contributions from the company to purchase company stock.
2. The contributions made by the company are distributed to individual
employee accounts within the trust.
3. The amount of stock each individual receives may vary according to pre-
established formulas based on salary, service, or position.
4. The employees may ‘cash out’ after vesting in the program or when they
leave the company. The amount they may cash out may depend on the
vesting requirements.

4. Have you understood type questions:

1. Personal selling plays a vital role in industrial markets. True/ False


2. The stage in the personal selling steps where the sales force actually meets the
prospect is at:
A. Prospecting
B. Pre approach
C. Approach
D. Demonstration
3. The emergence of specialised trade journals and magazines like Express
Pharma pulse, IT magazine, PC quest, Hotelier& Caterer, Auto India,
Retailing magazine etc., has helped the recruiter to zoom down to the right
candidates. State True /False.
4. Simulation is a method of sales force…………….:
A. Recruitment
B. Selection
C. Training
D. Performance appraisal
5. ……………………..is the best method in industries which are old.
A. Salary only
B. Commission only
C. ESOP
D. None of these

5. Summary

Personal selling is different for different industries. The sales people require to
have certain unique skills and traits that force them to face the harsh realities of the
market. The most important personality traits for sales people are empathy and focus,
ego-drive, optimism and attitude toward responsibility. There is a need to have personal
introspection before venturing into selling. An introvert can hardly be able to sell
anything. It is hence important that the individual is outgoing, gregarious and also an
extrovert, talkative person. Apart from selling, the sales person has to perform many
other tasks, such that the percentage of calling time is only about 33 per cent. The
potential customers have to be first identified from databases/company sources/primary
information available. The sales person has to plan on which prospect needs to be called
with what priority. Then, the sales person has to decide how to approach a customer.
Thus the selling techniques have to be constantly followed up. In addition, the sales
person’s company will request administrative work such as providing all kinds of data on
customers, reporting activities, participating in sales meetings and conferences and
visiting trade shows as seen earlier. In order to constantly improve the competence, the
sales person has to take part in product as well as sales training.

6. Exercises

1. What kinds of activities are required in determining the types of sales


personnel required by a company?
2. Describe the role of sales force in the wake of technological sophistication.
3. Explain how recognition and praise can be used successfully to motivate
sales people? Cite examples.
4. What are commission schemes? How they can be used for the purpose of
sales people? Identify the industries where it can be implemented.
5. “ The management development programmes are mostly confined to IIM” –
Discuss.
6. Mention the characteristics required for an industrial sales manager.

7. References

1. Alam Williams, “All about selling”, McGraw Hill.


2. Bellenger and Ingram, “Professional selling”, MacMillan.
3. Bert Schlain, “ Big league salesmanship”, Prentice Hall.
4. Carlton Pederson et al, “ Selling: principles and methods”, Richard Irwin.
5. Charles Futrell, “Fundamentals of Selling”, Richard Irwin.
6. David Hiller, “Leading the sales team”, Gower.
7. Ibid.,“ Training the sales team”, Gower.
8. David Georgoff and Robert Murdick, “Manager’s guide to forecasting”,
Harvard Business Review, Janurary- February 1986, pp.110-119.
9. David Mercer, “The sales professional: strategies and techniques for
managing the High level sale”, Kogan Page.
10. Eric Berne, “ Games people play”, Grove.
11. Robert Patty, “Manaing sales people”, Reston.
12. Robert Sobek, “A manager’s primer on forecasting”, Harvard Business
Review, May- June 1973, pp.6-15.
13. Susan Marks, Workforce, June 2001, p. 111.
14. Strafford et al., “Effective sales management”, Butterworth Heinemenn.
Case studies:

1. NANZ

When Nanz hit the market in 1993, it was considered a bold step into what was
then a sunrise industry. In 1997, the chain had projected a turnover Rs100 crore
by 1999. But by the appointed date, turnover was less than a fifth of that level,
and profits were nowhere visible on the horizon. Nanz appears to have got it just
right. It had the right stores in the right places - places where well-heeled
customers would come to buy things at a premium; places like South Extension
and Greater Kailash, representing some of New Delhi uppercrust areas. But
Nanz is out for the count today, after struggling for nearly a decade with low
business volumes and turnover. Why did a chain with three high-profile backers
fail in an industry that has seen a boom in the last decade? The answer, in one
sentence, is simple: getting a couple of rules of the game right is not enough if
you get the rest of them horribly wrong. With 20/20 hindsight one can say that the
Nanz management failed on almost every count. It failed to do its homework, a
fact that affected both its cost structures and its target market. It also failed in
building effective partnerships with its vendors to ensure an efficient supply
chain. The problem began right from the groundwork. Nanz chose to start its
chain in Delhi, where its Indian promoters, the Nandas, are based. But this
proved to be a bad decision because of crippling real estate prices. In contrast,
RPG group’s Foodworld opened in Bangalore, Hyderabad, Chennai and Pune,
where real estate prices are almost a quarter of those in Delhi. For one of its first
outlets in Delhi’s Greater Kailash locality, Nanz was paying as much as Rs 5 lakh
for its 10,000 square feet space in 1993. Thus at Nanz, rent accounted for as
much as 4 to 5 per cent of gross margins. But real estate proved to be a bigger
killer than Nanz had bargained for. The first Nanz outlet was opened in May 1993
in South Extension in Delhi. Within a year, it was attracting 2,000 customers per
day. But the dream run came to a sudden halt when the Municipal Corporation of
Delhi razed the building. Apparently, Nanz had violated building by-laws by
taking a lease on residential property. Kapoor claims that the Nanz management
was unaware of these irregularities; it had merely leased the property from
parties who owned the real estate. Then in 1998, a part of another Nanz outlet on
Pusa Road was demolished because the builder had taken up more are than
what was permitted. Meanwhile, Nanz had another, bigger problem on its hands
- the lack of a market. When Nanz Food Products was formed in 1993, the
supermarket concept was in its infancy.

Though retail activity started in the mid-eighties, players like Nilgiri and
Foodworld were restricted to the south and west. The first Shoppers’ Stop outlet
opened in Mumbai in 1991. Nanz was the first major food and grocery retail store
chain in northern India. It was, therefore, in direct competition with the kirana
shops, which have three distinctive advantages - proximity, service (they offer
such convenience as home delivery) and high margins due to low infrastructure
costs. Nanz’s ambiance may have been in keeping with the promoters’ aim of
providing an international shopping experience, but it failed to lure middle class
and lower middle class consumers who would help generate volumes to partially
neutralise the high overheads. Nanz made sure it targets the low turnover
customers by setting up ‘LoBill” stores - no-frills stores of 1,000 to 2,000 square
feet to increase its consumer base. These stores were opened in such middle
class “catchment areas” like Noida and Shahdara in 1994. This format was
extended in December 1996 when Nanz established six sub-1,000 square food
stores called “Kiryana from Nanz”. However, by 1997, two of these had shut
shop. The reason: Nanz Kiryana stores did not offer sufficient price differentials
from the neighborhood shops. Moreover, Nanz did little to strengthen customer
relationships in a durable manner. Where, for instance, Shoppers Stop has an
energetic loyalty program, Nanz launched special promos and went in for some
aggressive advertising. But the problem was that these efforts were rarely
consistent. Nanz would step up its media presence during the fag end of one
month and the beginning of another (from the 25th of one month to the 10th of
the next). Such measures only brought temporary relief. Typically, retailers
source directly from manufacturers instead of distributors. By cutting one link in
the chain, they are able to negotiate better bulk discounts.In the case of Nanz,
they could not leverage the same. The lax standards at the store level were a
direct reflection of the management, which was constantly in flux. In eight years,
Nanz Food Products has had six CEOs.
(source: Ronita Chattopadhyay)

Questions:
1. What were the problems as seen by the company and perceived by the
customers?
2. Nanz was also trying to fight the general perception that a supermarket or
branded store need not necessarily charge higher prices. Do you think this is
the right strategy? Explain.
UNIT - III

Marketing of services

Unit structure:

1. Introduction
2. Learning Objectives
3. Services marketing
3.1. Characteristics of services
3.2. Segmentation, positioning and differentiation
3.3. Service quality
3.4. Marketing mix for services
4. Have you understood type questions?
5. Summary
6. Exercises
7. References

1. Introduction:

Services permeate every aspect of our lives; consequently the need for
services marketing knowledge is greater than ever before. The distinction
between goods and services is often unclear. In general goods are defined as
objects, devices or things, where as services are defined as deeds, efforts, or
performances. Very few products can be classified as pure products or pure
services. When a customer purchases a service, he or she purchases an
experience. The four components of the servicing system create the experience
for the customer-the inanimate environment, service providers/contact personnel,
other customers, and the invisible organization and systems. In turn, the service
experience that is created delivers a bundle of benefits to the consumer. This
service sector which is now a major component of the Indian economy will thrive
for years to come and the marketers should know how to make the most of this
sector.

2. Learning Objectives:

When you finish this unit, you should be able to:

• Understand the emergence of service sector in India


• Understand the characteristics of services
• Understand the marketing issues in services
• Understand the marketing mix strategies of services

3. Services in Indian context


Services in India were noticed only after the advent of liberalization, privatization
and globalization aspect. The technological advancements of the last century
have been bestowed an unheard of premium on the human resource which came
as a windfall for the Indian economy, especially for its service industry. India has
a definite resource advantage to meet the growing global opportunities in the
services sector. With the rise of new economy, outsourcing has flooded the
employment channels. India's comparatively young population is well educated in
diverse fields and that specific class of professionals is also well versed in the
language which the world speaks. Being a developing nation rearing to make a
mark globally our services have the leverage of wage differential. This
phenomenon makes Indian professionals much sought after in the world market.
For domestic economy too, opening of the services sector is advantageous as it
absorbs the teaming millions reducing the possibility of educated unemployed
stuck with limited options in agriculture and manufacturing sectors of the
economy. Sixteen service sectors in the country achieved growth of more than
20 per cent in 2004-05 compared to 2003-04, according to an analysis of 42
service sectors carried out by the FICCI. Another 18 sectors clocked 10-20 per
cent growth during the same period. Based on the feedback received from
representatives of various service-related industry associations and private and
public sector companies, the analysis found that the sectors that recorded more
than 20 per cent growth in 2004-05 included organised retail trade (30 per cent),
road transport service (20 per cent), domestic air passenger traffic (24 per cent),
total air cargo handled (20 per cent), mobile subscriber (55 per cent), Internet
subscriber (22 per cent), and live entertainment (40 per cent). The sectors that
have achieved 10-20 per cent growth included international air passenger traffic
(17.1 per cent), international air cargo (19 per cent), courier services (15 per
cent), car finance (16 per cent), and film industry (17 per cent).

3.1. Characteristics of Services:

Service is an intangible product; any product offering that is essentially


intangible. The features of services that distinguish them from tangible products;
these are intangibility, variability, inseparability and perishability.

• Intangibility the service cannot be touched or viewed, so it is difficult for


customers to tell in advance what they will be getting;
• Inseparability of production and consumption the service is being
produced at the same time that the customer is receiving it (e.g. during
hair dressing, during an online search, or a legal consultation);
• Perishability unused capacity cannot be stored for future use. For
example, spare seats on one aeroplane cannot be transferred to the next
flight, and query-free times at the reference desk cannot be saved up until
there is a busy period.
• Heterogeneity (or variability): services involve people, and people are all
different. There is a strong possibility that the same enquiry would be
answered slightly differently by different people (or even by the same
person at different times). It is important to minimise the differences in
performance (through training, standard-setting and quality assurance).

People often try to overcome some of these difficulties by ensuring that the
physical manifestations of the service (the people running it, the library building,
printed search results, airline tags, hotel material, web pages etc) indicate the
quality of the service. The people running the service are more likely to inspire
confidence in the service if they are responsive, reliable, courteous, and
competent. If the hotel lobby looks shabby and disorganised, or if the website is
difficult to navigate with broken links, then users may assume that the services
provided by the respective hotel or provider is bad.

3.2. Segmentation, Positioning and Differentiation:

Market segmentation is used as a strategic marketing tool for defining markets and
thereby allocating resources. Market segmentation is the act of dividing a market into
distinct groups who might be attracted to different products or services. This technique is
widely accepted as one of the requirements for successful marketing. By dividing the
market into relatively homogenous subgroups or target markets, both strategy
formulation and tactical decision making can be more effective. Market segmentation is
concerned with individual or group differences in response to specific market variables
(e.g. preferences, lifestyles, media habits, etc.). The strategic presumption is that if these
response differences exist, can be identified, and are reasonably stable over time, and if
the segments can be efficiently reached, the company may increase its market share
beyond that obtained by assuming market homogeneity. Apart from the normal market
segmentation possibilities that are mentioned earlier in this study material, one major
segmentation that is needed in services is customer segmentation. Customer segmentation
is a good thing. It helps to recognize how customers are different and it should draw the
attention to needs of different segments, prompting you to better meet those needs.
Segment by need rather than profit or revenue. A low-profit customer today could be
high-profit tomorrow if you offer products and services that fill her/his needs. Look for
ways some customer segments can effectively be more "self- service," which cuts costs
for the company while meeting customer service needs. Build in ways to create
exceptions in automated customer service processes, so as not to alienate those with
special situations. If offering promotions, rewards, or other incentives to some segments
but not others, "spell it out" for customer service representatives and structure your Web
site and promotional mailings accordingly. By taking steps to assure customers receive
consistent information across all channels of communication, you avoid customers being
exposed to offers for which they do not qualify. There are ways to segment customers
without lowering customer service.

Positioning applies to all products and services. Positioning is about making products
available at the right time, to the right people, and at the right place. Thus, it is in the
hands of marketers how well they play with positioning by adopting innovative methods.
It is imperative for an organization to clearly differentiate its product or service from that
of its competitors. This enables the firm to gain sustainable competitive advantage in the
market. Positioning is the strategy by which the firm does the aforesaid endeavor. Some
of the methods include getting into the mind of consumers, avoiding overload of
information to customers, and sustaining the leadership position. There are perceptual
mapping that can be done so that the desired service can be offered to the customers. It
has been used as a strategic management tool for about thirty years now. Perceptual
mapping helps to communicate the relationship between competitors and the criteria used
by your consumers while making purchase decisions. Perceptual maps, being simple
graphic figures, can pave the path for all types of organizations.to think in strategic terms.

A study conducted by Nargundkar brings out the perceptual map of the Indian
airline sector where the respondents were A)Jet airways, B)Indian Airlines, C)Air
Deccan and D) Kingfisher in this order. The study was based on perceived
service quality. This study shows that customers of Jet Airways rate it as an
airline that provides very good service quality across the fourteen service
variables. Kingfisher ranks second and its customers have reported that usually
the airline provides good service quality. Indian Airlines was rated as providing
good in-flight food, waiting time for baggage, good ground service,
accommodation on delay and a few other elements such as price, online booking
and benefits for frequent fliers. Indian Airlines was rated as average or below
average on the rest of the service variables. Baggage loss has been reported as
a problem faced by some of the Indian Airlines customers. Air Deccan has been
rated by its customers as providing good service quality in informing customer
about delay. Air Deccan customers are happy with its provision for online
booking, discounted fare and real benefits for frequent fliers. The travelers
of Air Deccan seem to rate it to be a bad service provider even though they were
flying on low fares. Differentiation can occur only by adding new service
elements along with providing better quality in delivering quality service which
now Kingfisher and Jet airways have started to do so.
3.3. Service Quality:

An attitude formed by a long-term, overall evaluation of a firm’s performance. To


deliver a consistent set of satisfying experiences that can build in to an evaluation of high
quality requires the entire organization to be focused on the task. The needs of the
consumer must be understood in detail, as much the operational constraints under which
the firm operates. Service providers must be focused on quality, and the system must be
designed to support that mission by being controlled correctly and delivering as it was
designed to do.
3. Customer Expectations:

Following are the types of customer expectations:

Predicted Service: The level of service quality a consumer believes is likely to


occur, which is a probability expectation, i.e. the customer expectation based on
the customer opinion of what will be most likely when dealing with service
person.
Desired Service: The level of service quality a customer actually wants from a
service encounter, which is an ideal expectation, i.e. a customer expectation of
what a perfect service encounter would be.
Adequate Service: Level of service quality a customer is willing to accept. It is a
minimum tolerance expectation. i.e. a customer expectation based on the
absolute minimum acceptable outcome.
Zone of Tolerance: Level of quality ranging from high to low and reflecting the
difference between desired service and adequate service; expands and contracts
across customers and within the same customer, depending on the service and
conditions under which it is provided.

Perceived service quality can be defined according to Parasuraman, Zeithaml & Berry
as "a global judgment or attitude relating to the superiority of a service." Over the past
three decades, researchers have attempted to discover the global or standard attributes of
a service that are important to the customer and that contribute significantly to customers'
quality assessment. Sasser, Olsen, and Wyckoff reported seven major attributes in the
context of the service industry: security, consistency, attitude, completeness, conditions,
availability, and training. Later, ten dimensions were revealed in an exploratory study
conducted by Parasuraman, Zeithaml & Berry : tangibles, reliability, responsiveness,
communication, credibility, security, competence, courtesy, understanding the customer,
and access. Based on these ten dimensions, Parasuraman et al. further purified and
distilled these ten dimensions of service quality to five: tangibles, reliability,
responsibility, assurance, and empathy. These five service quality attributes constitute the
basis for global measurement of service quality, namely, SERVQUAL. The various gaps
that can arise out of service continuum between customer and the employee are:

1. Service gap: The distance between a customer’s expectation of a service and


perception of the service quality delivered. Ultimately the service gap is a
function of the knowledge gap, the standards gap, the delivery gap, and the
communications gap.
2. Knowledge gap: The difference between what consumers expect of a service and
what management perceives the consumers to expect.
3. Standards gap: The difference between what the management perceives
consumers to expect and the quality specifications set for service delivery.
4. Delivery gap: The difference between the quality standards set for service
delivery and the actual quality of service delivery.
5. Communications gap: the difference between the actual quality of the service
delivered and the quality of service described in the firm’s external
communications.
SERVQUAL at SBT
A study was conducted at nine branches of State Bank of Travancore in
Thiruvananthapuram. The outcome of the study reveals the current perception about the
bank, rooted in the mindset of the customers, which could be useful in formulating the
strategies in future-operations of the organization, for the attainment of its goals in this
competitive scenario.
The basic objectives of the study were to diagnosis the gap in service (the difference in
the expected and perceived service by the customer) provided in Thiruvananthapuram
district and to suggest appropriate strategies for improving service quality and thereby
increase the satisfaction level enjoyed by the customers at State Bank Of Travancore.
In order to elicit the responses, a questionnaire was framed. This was used to collect the
Personal data like age, occupation, income level, residential area etc. were collected
along with data like years of business with SBT, features of SBT and whether the
customers have accounts with other banks etc. The set of branches in
Thiruvananthapuram were classified into three groups in terms of performance with
respect to position and growth with reference to total personal deposits.
o A – High performance
o B – Medium Performance
o C – Low performance
A set of three branches was selected at random from each groups and a sample
size of nine branches were obtained, three each from the above categories. A set
of thirty customers was interviewed at each branch by performing a systematic
random sampling from these branches. After knowing the average total number
of customers per day from the branch manager. Analysis was done by
comparing the data obtained from different branches based on the preference
and opinion of the customers. A Chi–Square test for independence of attributes
was done in order to test whether the customers’ opinion on the rating given to
the banks is dependent on the basis of performance by the branches. The
SERVQUAL scores were determined from the responses of the customers on
their perceived value against their expectations on the various dimensions of
service quality.
The findings of the study revealed three factors that make the customer continue
with the bank. They are:
o Service dependent
o Bank dependent &
o Customer dependent
More than 38% of the respondents do business with SBT due to its service
quality. Here it is found that the scores for service dependent factors are more for
higher performance branches in comparison with others. Factors that make the
customers start account with other bank includes reasons like dissatisfaction with
the current services provided by SBT, and some of the mostly told causes for this
are:
o Waiting time for counter service delivery
o Confusions at the counter
o Lack of coordination between employees
o Technical difficulties in availing funds through ATMs
o Unavailability of right information due to employee’s lack of
knowledge
The best SERVQUAL scores are attained for the dimensions of quality by
branches like Kowdiar, Medical College and Nanthencode while others are far
back in the race. Performance of the branch is dependant on its attitude towards
the performance in various dimensions of service quality. The banks have got
good feedback on higher reliability while on responsiveness, assurance, empathy
as well as tangibles are not convincing to customers. At Kowdiar, Medical
College and Nanthencode the expected and personal service quality are almost
comparable while in other branches it has got much difference. The introduction
of Grahak Mitra has proved to be the right move to help the customers who are
unaware about the information regarding their transaction with the bank. In the
outskirts of the district the customers face difficulties due to the lack of
knowledge and understanding of the bank’s operations; Dissatisfaction level in
service is higher in case of private sector employees when compared to that of
the public sectors. Public sector employees have rated the service of SBT to be
excellent and good while most of the private sector marked it to be average and
suggested for betterment. Dissatisfaction level is higher in case of youth and
middle-aged while the senior people are very well satisfied with the present
service.

SERVQUAL in KTDC:

Understanding the changes in customer preferences and expectations of


services, to deliver service according to that is important in hotel service industry.
This will help to anticipate the competition and stay ahead in the competition.
Keeping in mind these aspects, the following objectives were set:
• To understand the customer perception and expectation of service
quality in hotels of KTDC
• To find out the present service quality prevailing in hotels of KTDC
• To find out customer satisfaction in service rendered by the hotels of
KTDC

This study is based on primary and secondary data. The primary data is
collected from 100 members of the management staff of the KTDC Ltd and
secondary data is collected from the published annual reports and from other
documents and from the website of the company. The study is mainly carried out
in Trivandrum (dist) and KTDC hotels at Trivandrum, Hotel Mascot, Hotel
Samudra, and Hotel Chaitram. For the study mainly primary and secondary data
were used. The Primary data was collected through questionnaire and interview
method and secondary data was collected from annual reports, brochures, and
websites. In the findings it was found that majority of respondents were
professionals and businessmen. The purpose of visit by most of the respondents
in the hotel was for leisure. A good majority of the respondents visit not only
Trivandrum but other places in Kerala as well. Most of the respondents plan to
visit Kerala yearly. Majority of the respondents prefer premium hotel for their
stay. A high level of satisfaction exists among the respondents regarding the
level of services offered. The respondent rated the information availability and
thanking provided as excellent at the reception. The respondents rated the
welcome, verbal introduction, non-verbal introduction and other conversations at
the reception as very good. The respondents have rated room service as
excellent, food and beverages, cleanliness, overall atmosphere as very good and
room facilities as good. The respondents rated the transportation and guiding as
excellent, ticket booking, foreign exchange as very good. The majority of the
respondents are not aware whether their suggestions have been implemented or
not. More than 90% of the respondents are loyal as they would use the same
hotel on their next visit and would also recommend it to others.

Some of the suggestions put forward include provision for few separate
rooms with all the facilities, which the businessmen/professional might need to
stay connected with his business. Examples may the personal computer with
broadband connection, printer, tax etc. this is because there is a growing number
of businessmen and professionals who visit Kerala. Setup help desk at each
hotel, which would provide assistance and guidance to the tourists in planning
their trip in Kerala. This could be done in co-ordination with the events organized
and places highlighted by Kerala tourism department. The main aim would be to
promote the packages of hotels of KTDC. Set up a data bank consisting of
information regarding preferences of regular customers. This would help them in
providing better service to the customers and building brand loyalty. This would
translate in repeat usage of the hotel and it getting recommended by way of word
of mouth communication. The hotels should keep up regular communication with
the clients and keep them up to date with the new packages being offered to
sending greetings on the special occasions in the clients country, so that KTDC
remains in their minds long after their visit, with the minimum effort on the part of
KTDC in terms of cost. The front desk and the hotel staff should be provided with
training regarding customer relationship and they should be kept up to date wit
the changing global preferences trends in service since most of the clients are
foreigners. Implement the changes and show it in the service provided to the
customer so that the customer feels that his suggestions have been
implemented. Provide compliments to the customers who had taken interest in
providing those suggestions. A roof top hotel could be constructed at hotel
Chaitram as was mentioned by many of the customers.

3.4. Marketing mix strategies for services:

The service marketing mix has 7Ps consists of Product, Price, Promotion, Place,
People, Physical evidence and Process. There are 3P’s in addition to the 4P’s of
product keeping in mind the characteristics of services. Let us now look at the
three additional P’s:
Physical evidence is the material part of a service. Strictly speaking there are
no physical attributes to a service, so a consumer tends to rely on material cues.
They are:
• Building
• Catalougues
• Brochures
• Furnishings
• Signages
• Pacakging
• Internet web presentation
• Uniforms

Process is another element of the extended marketing mix, or 7P's.There are a


number of perceptions of the concept of process within the business and
marketing literature. Some see processes as a means to achieve an outcome, for
example - to achieve a 30% market share a company implements a marketing
planning process. Another view is that marketing has a number of processes that
integrate together to create an overall marketing process, for example -
telemarketing and Internet marketing can be integrated. A further view is that
marketing processes are used to control the marketing mix, i.e. processes that
measure the achievement marketing objectives. All views are understandable,
but not particularly customer focused. process is an element of service that sees
the customer experiencing an organisation's offering. It's best viewed as
something that your customer participates in at different points in time. Here are
some examples to help your build a picture of marketing process, from the
customer's point of view. Going on a flight trip - from the moment that you arrive
at the airport, you are greeted; your baggage is taken to the screening.
Accessibility given to the person from restaurants and inflight shopping. Finally,
at the end of the journey the baggage is delivered to you. Here many airlines
want to differentiate their offerings to make the process successful.
People are the most important element of any service or experience. Services
tend to be produced and consumed at the same moment, and aspects of the
customer experience are altered to meet the 'individual needs' of the person
consuming it. Remember, people buy from people that they like, so the attitude,
skills and appearance of all staff need to be first class. Here are some ways in
which people add value to an experience, as part of the marketing mix - training,
personal selling and customer service. All customer facing personnel need to be
trained and developed to maintain a high quality of personal service. Training
should begin as soon as the individual starts working for an organization during
an induction. The induction will involve the person in the organization's culture for
the first time, as well as briefing him or her on day-to-day policies and
procedures. At this very early stage the training needs of the individual are
identified. A training and development plan is constructed for the individual which
sets out personal goals that can be linked into future appraisals. In practice most
training is either 'on-the-job' or 'off-the-job.' On-the-job training involves training
whilst the job is being performed e.g. training of bar staff. Off-the-job training
sees learning taking place at a college, training centre or conference facility.
There are different kinds of salesperson. There is the product delivery
salesperson. His or her main task is to deliver the product, and selling is of less
importance e.g. fast food, or mail. The second type is the order taker, and these
may be either 'internal' or 'external.' The internal sales person would take an
order by telephone, e-mail or over a counter. The external sales person would be
working in the field. In both cases little selling is done. The next sort of sales
person is the missionary. Here, as with those missionaries that promote faith, the
salesperson builds goodwill with customers with the longer-term aim of
generating orders. Again, actually closing the sale is not of great importance at
this early stage. The forth type is the technical salesperson, e.g. a technical sales
engineer. Their in-depth knowledge supports them as they advise customers on
the best purchase for their needs. Finally, there are creative sellers. Creative
sellers work to persuade buyers to give them an order. This is tough selling, and
tends to o ffer the biggest incentives. The skill is identifying the needs of a
customer and persuading them that they need to satisfy their previously
unidentified need by giving an order. Many products, services and experiences
are supported by customer services teams. Customer services provided
expertise (e.g. on the selection of financial services), technical support(e.g.
offering advice on IT and software) and coordinate the customer interface (e.g.
controlling service engineers, or communicating with a salesman). The
disposition and attitude of such people is vitally important to a company. The way
in which a complaint is handled can mean the difference between retaining or
losing a customer, or improving or ruining a company's reputation. Today,
customer service can be face-to-face, over the telephone or using the Internet.
People tend to buy from people that they like, and so effective customer service
is vital. Customer services can add value by offering customers technical support
and expertise and advice.
4. Have you understood type questions?
1. Classification of products into goods, services, and ideas is determined by
the:

A. degree of labour intensiveness.


B. type of markets.
C. skill of the service provider.
D. degree of consumer contact.

2. Of the following alternatives which service is the most people-based?


A. Carpet cleaning
B. Swimming instruction
C. Airline flight
D. Hotel accommodations

3. The appearance of the production facilities and the interpersonal skills of


actual service providers are critical in __________ services.
A. low-contact
B. equipment-based
C. industrial
D. high-contact

4. Marketers for the airline industry sometimes find it difficult to promote their
product because unused aeroplane seats cannot be stored. This problem
illustrates which one of the following unique features of services?
A. Intangibility
B. Inseparability
C. Perishability
D. Heterogeneity

5. Summary

In the present CRM era where the customer is the decision maker, the increase
in competition has made the differentiation in product range and services of an
organization more important in any industry. Considering the fact that services
are growing and are expected to be 75% of the Indian GDP, the importance can
be seen. The growth in IT and software are one of the primary indicators. Hence
organisations entering the service sector need to be competitive and updated.

6. Exercises

1. Prepare a perceptual map with the following details:


Brand A Brand B Brand C Brand D
Shares a few Shares a few Shares many
Shares no attributes
attributes with attributes with attributes with Brand
with competitors
Brand B Brand A F
More Classy More Sporty Is conservative More Practical
Less Sporty Less Classy Is Sporty Less Conservative

Brand E Brand F Brand G Your Brand

Shares no Shares many Shares no Shares absolutely no


attributes with attributes with Brand attributes with attributes with any
Brand G E Brand E Brand
More Practical More Conservative More Classy Exclusive
Less Classy Less Practical Less Practical Unique

2. Explain the service quality that is needed from a retail store. Visit the nearest retailer
and explain the same.
3. Describe the need for people in services with examples from Hotel and Hospital sector.
4. Explain the relevance of marketing mix in the following aspects:
a. Courier services
b. Software services
c. Consultancy services

7. References

1. Palmer, Adrian (2000) The principles of services marketing. 3rd ed.


McGraw-Hill.
2. Christopher lovelock & Jochen Wirtz, Services marketing, Pearson 5th Ed.
3. Foster, S. Thomas, Managing Quality: An Integrative Approach. Prentice
Hall, 2001.
4. Hiller, Steve, ARL SERVQUAL Survey Pilot. University of Washington
Libraries.
5. Nitecki, Danuta A., SERVQUAL: Measuring Service Quality In Academic
Libraries, http://arl.cni.org/newsltr/191/servqual.html.
6. Valarie A. Zeithaml , Bitner Mary Jo, “Integrated Customer Focus Across
The Firm” Tata Mc Graw Hill, 3rd Edition
7. Valarie A. Zeithaml, Parasuraman, A.and Berry,L., “Problems and
Strategies in Services Marketing”, Journal of marketing, 1985.
8. Valarie A. Zeithaml , “How Consumer Evaluation Processes Differ
between Goods and Services” THE MARKETING OF SERVICES (1981)
9. A Parasuraman, Valarie A. Zeithaml, Leonard L. Berry, “A Conceptual
Model of Service Quality and Its Implications for Future Research”,
Journal of Marketing (fall) 1985.
10. Parasuraman, Valerie A. Zeithaml, Leonard L. Berry, "SERVQUAL: A
Multiple Item Measure For Measuring Consumer Perceptions of Service
Quality", Journal of Retailing ,1988.
11. Cunningham, L. F., Young C. E., & Lee, M (2004)., Perceptions of airline
service quality Pre and Post 9/11. Public works Management & Policy,
9(1), 10-25
12. Cunningham, L. F., Young C. E., & Lee, M. (2002). Cross-cultural
perspectives of service quality and risk in air transportation. Journal of
AirTransportation, 7(1), 3-26.
13. Bhagyalakshmi Venkatesh & R. Nargundkar , Service Quality Perceptions
of Domestic Airline Consumers in India: An Empirical Study, Vilakshan-
XIMB journal, 2006.

Rural marketing

Unit structure:

1. Introduction
2. Learning Objectives
3. Indian rural sector
3.1. Rural marketing profile
3.2. Rural consumer behaviour
3.3. Strategies for rural marketing
3.4. Rural retailing
3.5. Rural marketing initatives
4. Have you understood type questions?
5. Summary
6. Exercises
7. References

1. Introduction:

Marketing of products has taken precedence over the process of


production itself. This can be attributed to the fact that the new-age consumer
equipped with the potent tool of information seeks more knowledge about the
product, its features and its uses. Customer today indeed is the "King". He can
make or break the company. And when this information is presented in a creative
and effective manner, it creates an everlasting impression on the consumer's
mind and may even alter his perception of what he needs. The urban consumer
has always been pampered with the most dazzling array of goods and services
from every industry. But the urban market is fast shrinking due to saturation
caused by the competition, and the growth rate over the past few years has
consistently shown a declining trend. Hence the only option before the marketer
is to tap the rural sector which can provide a large volume for economies of
scale.

2. Learning Objectives:

When you finish this unit, you should be able to:


• Understand the reasons why organisations resort to rural markets
• Understand the profile of the rural markets
• Understand the intricacies of marketing in rural India
• Understand the challenges and solutions to rural marketing

3. Rural marketing:

The rural market comprises of 74 per cent of the country's population, 41 per
cent of its middle class, 58 per cent of its disposable income and a large
consuming class. Today, real growth is taking place in the rural-urban markets or
in the 13,113 villages with a population of more than 5,000. Of these, 9,988
villages are in seven states -- Uttar Pradesh, Bihar, West Bengal, Maharashtra,
Andhra Pradesh, Kerala and Tamil Nadu. According to the National Council for
Applied Economic Research, the millennium belongs to the Class III and IV rural-
urban towns. In order to efficiently and cost-effectively target the rural markets,
the companies will have to cover many independent retailers since in these
areas, the retailer influences purchase decisions and stock a single brand in a
product category. Most of the companies have started tinkering with pack sizes
and creating new price points in order to reach out to rural consumers since a
significant portion of the rural population are daily wage workers. Hence it
becomes important to have a deeper insight into this emerging market.

3.1. Rural marketing profile:

There are about 285 million live in urban India whereas 742 million reside in
rural areas, constituting 72% of India's population resides in its 6, 00,000 villages.
The number of middle income and high income households in rural India is
expected to grow from 80 million to 111 million by 2007 while urban India is
expected to grow from 46 million to 59 million. In fact according to a recent
survey, there are more crorepatis in rural Punjab than in a few big urban cities.
Size of rural market is estimated to be 42 million households and rural market
has been growing at five times the pace of the urban market. There is increasing
agricultural productivity leading to growth of rural disposable income. There is
also lowering of difference between taste of urban and rural customers. There
has been good monsoons during the years 2005-06. Many companies like
Colgate-Palmolive, HLL, Godrej, etc., have already made forays into rural
households but still capturing the markets is a distant dream. Most marketers still
lack in-depth knowledge to analyze the complex rural market.

Rural market has an annual size of Rs.65,000 Crore for FMCG, Rs.5000 Crores
for Durables, Rs.45,000 Crores for Agri-inputs and Rs.8000 Crore for two and
four wheelers according to NCAER study. Of two million BSNL mobile
connections, 50% are in small towns / villages. Of the 6.0 lakh villages, 5.22 lakh
have a Village Public Telephone (VPT). 41 million Kisan Credit Cards have been
issued (against 22 million credit-plus-debit cards in urban), with cumulative credit
of Rs. 977 billion resulting in tremendous liquidity. Of the 20 million Rediffmail
sign-ups, 60% are from small towns. 50% of transactions from these towns are
on Rediff online shopping site. 42 million rural households (HHs) are availing
banking services in comparison to 27 million urban HHs. Investment in formal
savings instruments is 6.6 million HHs in rural and 6.7 million HHs in urban. The
rural market is expected to poise towards a greater jump as the infrastructure is
improving rapidly. In 50 years only, 40% villages have been connected by road,
in next 10 years another 30% would be connected. More than 90% villages are
electrified, though only 44% rural homes have electric connections. Rural
telephone density has gone up by 300% in the last 10 years; every 1000+ pop is
connected by STD. Social indicators have improved a lot between 1981 and
2001. Number of "pucca" houses doubled from 22% to 41% and "kuccha" houses
halved (41% to 23%). Percentage of BPL families declined from 46% to 27%.
Rural literacy level improved from 36% to 59%. Marketers can make effective
use of the large available infrastructure like 1,38,000 post offices, 42,000 of
haats, 25,000 melas, 7,000 mandis, 3,80,000 public distribution shops and
32,000 bank branches. Some of the companies that have used the rural
distribution have started their own centres like DSCL Haryali Stores, M & M
Shubh Labh Stores, TATA / Rallis Kisan Kendras, Escorts Rural Stores and
Warnabazaar, Maharashtra (Annual Sale Rs. 40 crore).

In the Indian context, rural marketing is a complex subject. For a business


organization, rural marketing is beset with a number of problems. The prices of
rural marketing pose many problems due to the vastness of the country and a
high potentiality for providing an effective marketing system. Besides, a few
other problems stem from the under-developed markets, and illiterate and gullible
people constitute the major segment of the markets. More purchasing power is
not enough. It is not enough to have some consumption pioneers. The activation
of buying on a wide scale is an essential pre-condition for the exploitation of the
rural market. It is now unanimously accepted that the rural salesmanship in India
has been insufficient and inadequate and out of proportion to the agriculture
revolution. This calls for strong bias in favour of raising the rural demand as
against the urban demand.

The hurdles in the rural marketing are:

1. High distribution costs


2. High initial market development expenditure
3. Inability of the small retailer to carry stock without adequate credit facility
4. Generating effective demand for manufactured foods
5. Wholesale and dealer network problems
6. Mass communication and promotion problems
7. Banking and credit problems
8. Management and sales managing problems
9. Market research problems
10. Inadequate infrastructure facilities (lack of physical distribution, roads
warehouses and media availability)
11. Highly dispersed and thinly populated markets
12. Low per capita and poor standards of living, social, economic and cultural
backwardness of the rural masses
13. Low level of exposure to different product categories and product brands
14. Cultural gap between urban-based marketers and rural consumers

In a nutshell the rural market profile is large and scattered in the sense that it consists of

over 63 Crore consumers from 5, 70,000 villages spread throughout the country.

Nearly 60 % of the rural income is from agriculture. Hence rural prosperity is tied with

agricultural prosperity. Consumer in the village area do have a low standard of living

because of low literacy, low per capita income, social backwardness, low savings, etc.

The rural consumer values old customs and tradition. They do not prefer changes. Rural

consumers have diverse socio-economic backwardness. This is different in different parts

of the country. The Infrastructure Facilities like roads, warehouses, communication

system, and financial facilities are inadequate in rural areas. Hence physical distribution

becomes costly due to inadequate Infrastructure facilities.

3.2. Rural consumer behavoiour:

Rural consumer buys products more often (mostly weekly). He buys small packs,
low unit price more important than economy. In rural India, brands rarely fight
with each other; they just have to be present at the right place. Many brands are
building strong rural base without much advertising support. Chik shampoo,
second largest shampoo brand. Ghadi detergent, third largest brand. Both of
them have had concerted effort in the north Indian rural market and have
benefited. The gap between the urban and rural spend is huge. Though there is
no authenticated figure, it is found that rural marketing currently must be
accounting for only Rs. 5 billion out of a total estimated advertising budget of
over Rs. 100 billion a year. There is a vast difference in the lifestyles of the
people. The kind of choices of brands that an urban customer enjoys is different
from the choices available to the rural customer. The rural customer usually has
2 or 3 brands to choose from whereas the urban one has multiple choices. The
difference is also in the way of thinking. The rural customer has a fairly simple
thinking as compared to the urban counterpart. With low disposable incomes,
products need to be affordable to the rural consumer, most of whom are on daily
wages.

Some companies have addressed the affordability problem by introducing small


unit packs. Godrej introduced three brands of Cinthol, Fair Glow and Godrej in
50-gm packs, priced at Rs 4-5 meant specifically for Madhya Pradesh, Bihar and
Uttar Pradesh - the so-called `Bimaru' States. Hindustan Lever, among the first
MNCs to realise the potential of India's rural market, has launched a variant of its
largest selling soap brand, Lifebuoy at Rs 2 for 50 gm. The move is mainly
targeted at the rural market. Coca-Cola has addressed the affordability issue by
introducing the returnable 200-ml glass bottle priced at Rs 5. The initiative has
paid off: Eighty per cent of new drinkers now come from the rural markets. Coca-
Cola has also introduced Sunfill, a powdered soft-drink concentrate. The instant
and ready-to-mix Sunfill is available in a single-serve sachet of 25 gm priced at
Rs 2 and multiserve sachet of 200 gm priced at Rs 15. The rural consumer is
more of price oriented and also has high level of patronage motive.

3.3. Strategies for Rural Marketing

Traditional methods of rural marketing make an interesting study and they ought
to be analyzed carefully to draw relevant conclusions. Conventionally, marketers
have used the following tools to make rural inroads: -

• Use of few select rural distributors and retailers to stock their goods but no
direct interaction with prospective consumer.
• Use of print media or radio but no alternate form of advertising for
promoting their brands.
• More focus on price of product but less attention devoted to quality or
durability.
• Same product features for urban and rural setting with no customization
for rural areas despite differences in the market environment.
• Low frequency of marketing campaigns.
• Little uses of village congregations like haats and melas to sell the
products.
• More focus on men as decision makers and buyers.

The past practices of treating rural markets as appendages of the urban market
is not correct, since rural markets have their own independent existence, and if
cultivated well could turn into a generator of profit for the marketers. But the rural
markets can be exploited by realizing them, rather than treating them as
convenient extensions of the urban market. Considering the magnitude of the
task at hand with the companies, it makes sense for non-competitive companies
like HLL and LG to make a joint effort to penetrate the market. They can use
each other's distribution channels to leverage their brands. Also considering the
poor awareness levels of the people, competitors like HLL and P&G should join
hands to avoid the product proliferation, which results in confusing the consumer.
Rural consumers have a very high level of ethos so all the care should be taken
not to hurt them in any form of advertising. Moreover, every effort should be
made by the companies to promote the "my brand" feel in the minds of
consumers. This can be achieved by connecting the local industries of that place
and, if possible, use it in packaging or graphics of the product.

Marketers need to understand the psyche of the rural consumers and then act
accordingly. Rural marketing involves more intensive personal selling efforts
compared to urban marketing. Firms should refrain from designing goods for the
urban markets and subsequently pushing them in the rural areas. To effectively
tap the rural market, a brand must associate it with the same things the rural
folks do. This can be done by utilizing the various rural folk media to reach them
in their own language and in large numbers so that the brand can be associated
with the myriad rituals, celebrations, festivals, "melas", and other activities where
they assemble. One of the ways could be using company delivery van which can
serve two purposes - it can take the products to the customers in every nook and
corner of the market, and it also enables the firm to establish direct contact with
them, and thereby facilitate sales promotion. However, only the bigwigs can
adopt this channel. The companies with relatively fewer resources can go in for
syndicated distribution where a tie-up between non-competitive marketers can be
established to facilitate distribution. Annual "melas" organized are quite popular
and provide a very good platform for distribution because people visit them to
make several purchases. According to the Indian Market Research Bureau,
around 8000 such melas are held in rural India every year. Rural markets have
the practice of fixing specific days in a week as Market Days (often called
"Haats') when exchange of goods and services are carried out. This is another
potential low cost distribution channel available to the marketers. Also, every
region consisting of several villages is generally served by one satellite town
(termed as "Mandis" or Agri-markets) where people prefer to go to buy their
durable commodities. If marketing managers use these feeder towns, they will
easily be able to cover a large section of the rural population. Firms must be very
careful in choosing the vehicle to be used for communication. Only 16% of the
rural population has access to a vernacular newspaper. So, the audio visuals
must be planned to convey a right message to the rural folk. The rich, traditional
media forms like folk dances, puppet shows, etc., with which the rural consumers
are familiar and comfortable, can be used for high impact product campaigns.

3.4. Rural retailing:

The Indian rural market with its vast size and demand base offers a huge opportunity that
MNCs cannot afford to ignore. With 128 million households, the rural population is
nearly three times the urban. The rural market accounts for half the total market for TV
sets, fans, pressure cookers, bicycles, washing soap, blades, tea, salt and toothpowder,
What is more, the rural market for FMCG products is growing much faster than the urban
counterpart. This is where rural retailing really takes off. Study on buying behaviour of
rural consumer indicates that the rural retailers influences 35% of purchase decisions.
Therefore sheer product availability can affect decision of brand choice, volumes and
market share. India offers a huge, sustainable and growing rural market which can be
tapped effectively through innovative distribution channels with retailing being the most
critical element of this strategy as it is the final touch point and the actual touch point
with the customer which can be the most critical influence in the buying process. From
the time HLL's new distribution model, named Project Shakti, was piloted in Nalgonda
district in 2001, it has been scaled up and extended to over 5,000 villages in 52 districts
in AP, Karnataka, Gujarat and Madhya Pradesh with around 1,000 women entrepreneurs
in its fold. The vision is ambitious: to create by 2010 about 11,000 Shakti entrepreneurs
covering one lakh villages and touching the lives of 100 million rural consumers. HLL
has operated Project Shakti through these self-help groups; AP was chosen for the pilot
project as its has the most number and better established SHGs - there are about 4.36 lakh
SHGs in AP covering nearly 58.29 lakh rural women. The Shakti model trains women
from SHGs to distribute HLL products of daily consumption such as detergents, toilet
soaps and shampoos - the latter's penetration being only 30 per cent in rural areas. The
women avail of micro-credit through banks. Mr Sehgal explained that some of the
established Shakti dealers are now selling Rs 10,000-Rs15,000 worth of products a month
and making a gross profit of Rs 700-Rs1,000 a month. Each Shakti dealer covers 6-10
villages which have a population of less 2,000. The company is creating demand for its
products by having its Shakti dealers educating consumers on aspects like health and
hygiene. Similarly ITC has already set up over 700 choupals covering 3,800 villages in
four States — which include Madhya Pradesh, Uttar Pradesh, Karnataka and Andhra
Pradesh — dealing with products ranging from soya bean, coffee, aquaculture and wheat.

Now there is re-emergence of mandis in the form of portals or virtual bazaars like that
EID Parry, Amul and ITC e-choupals etc. After all, the concept of mandis cannot be
written off that easily. They have evolved over a period of time and have lasted for
several centuries. They lost their prominence temporarily due to the brand marketing
strategies adopted by companies. The basic problem with brand marketing is its high
cost. Mandis offer a cost-effective method of marketing. With the virtual mandis the cost
saving is still better. Consider for example the case of marketing farm inputs like
fertilisers, seeds and pesticides. In the brand marketing approach, the same information is
provided by several marketers through different media and methods. In the virtual
mandis, several people can join hands and provide best possible information in a most
cost effective manner to the farmers.

3.5. Rural marketing initiatives:

1. Escorts did not rely on TV or press advertisements, but rather concentrated


on focused approach depending on geographical and market parameters like
fares, melas, etc. Looking at the 'kuchha' roads of village, they positioned
their bike as tough vehicle. Their advertisements showed Dharmendra riding
Escort with the punch line 'Jandar Sawari, Shandar Sawari'. Thus, they
achieved whopping sales of 95000 vehicles annually.
2. HLL started 'Operation Bharat' to tap the rural markets. Under this operation,
it passed out low-priced sample packets of its toothpaste, fairness cream,
Clinic plus shampoo, and Ponds cream to twenty million households.
3. ITC is setting up e-Choupals, which offers the farmers all the information,
products and services they need to enhance farm productivity, improve farm-
gate price realization and cut transaction costs. Farmers can access latest
local and global information on weather, scientific farming practices as well as
market prices at the village itself through this web portal - all in Hindi. It also
facilitates supply of high quality farm inputs as well as purchase of
commodities at their doorstep.
4. BPCL introduced Rural Marketing Vehicle (RMV) as their strategy for rural
marketing. It moves from village to village and fills cylinders on the spot for
the rural customers. BPCL considered low-income of rural population, and
therefore introduced a smaller size cylinder to reduce both the initial deposit
cost as well as the recurring refill cost.

4. Have you understood type questions?

1. What are the number of villages as mentioned in this unit?


A. 4,00,000
B. 5,00,000
C. 6,00,000
D. 7,00,000

2. Which company follows “hub and spoke” model of distribution?


A. HUL
B. P&G
C. Coca cola
D. Pepsi
3. Operation Bharath by HUL uses:
A. Cinema halls
B. Mandis
C. Vans
D. Dealers

4. “Fortune at the bottom of the pyramid” was written by :


A. Peter Drucker
B. Raghavachari
C. Prahlad and Hart
D. Peerumohamed

5. Summary

According to the United Nations, the richest 20 percent in the world accounted for
about 70 percent of total income in 1960. In 2000, that figure reached 85 percent.
Over the same period, the fraction of income accruing to the poorest 20 percent
in the world fell from 2.3 percent to 1.1 percent. According to CK Prahlad,
contrary to popular assumptions, the poor can be a very profitable market
especially if MNCs change their business models. Specifically, Tier 4 is not a
market that allows for the traditional pursuit of high margins; instead, profits are
driven by volume and capital efficiency. Margins are likely to be low (by current
norms), but unit sales can be extremely high. Managers who focus on gross
margins will miss the opportunity at the bottom of the pyramid; managers who
innovate and focus on economic profit will be rewarded. Considering the
discussions mentioned above, it is imperative that marketers start realizing the
need for giving attention to the rural markets. Thus, looking at the challenges and
the opportunities, which rural markets offer to the marketers, it can be said that
the future is very promising for those who can understand the dynamics of rural
markets and exploit them to their best advantage. A radical change in attitudes of
marketers towards the vibrant and burgeoning rural markets is called for, so they
can successfully impress on the 230 million rural consumers spread over
approximately six hundred thousand villages in rural India.

6. Exercises
1. Nirma has become one of the largest branded detergent makers in the
world. Meanwhile, HLL, stimulated by its emergent rival and its changed
business model, registered a 20 percent growth in revenues per year and
a 25 percent growth in profits per year between 1995 and 2000. How was
this possible?
2. With large parts of rural India inaccessible to conventional advertising
media — only 41 per cent rural households have access to TV — building
awareness is a challenge. Explain how a consumer durable company can
do it?
3. Explain the relevance of hub and spoke model of Coca cola for rural
markets. Visit the nearest Coca-cola dealer and find out.
4. Do you think this will work- “a mobile van with complete Thums Up branding
tours villages and invites people to buy any Coca-Cola product and play a game
free. The van comes complete with a magician, speakers/promoters, and invites
all consumers to participate in various games in rural markets”
5. The agri-portal of EID Parry, www.indiagriline.com, has been designed to address
the specific needs of the rural farming community and is an attempt to catalyse e-
commerce in agricultural and non-farm products by offering a network of
partnerships. Do you think this will address the rural reach problem?

7. References
1. Rethinking marketing programs for emerging markets, Chattopadhyay, A., and
Dawar. N., Insead R&D, 2000.
2. Growing brand awareness, Joseph, Sophie, The Hindu Survey of Indian Industry,
1999
3. Backcountry Business, Business Today, November 11, 2001.
4. The Consumer, Business Today, January 20, 2002
5. Alternative Nation, Baxi, Sachin, Brand Equity, The Economic Times, 15 May,
2002.
6. I’ll play the game my way, Vindi Banga’s interview with Rahul Joshi and alika
Rodrigues, Brand Equity, The Economic Times, May 22, 2002.
7. Advertising in Rural India: Language, Marketing Communication, and
Consumerism. Institute for the Study of Languages and Cultures of Asia and
Africa, Tokyo University of Foreign Studies. Tokyo Press, Tokyo, Japan. 2000.

Marketing Research

Unit structure:

1. Introduction
2. Learning Objectives
3. Marketing research
3.1. Marketing research process
3.2. Marketing research analysis
3.3. Marketing research methods
3.4. Preparation of marketing research reports
4. Have you understood type questions?
5. Summary
6. Exercises
7. References

1. Introduction:

Managers need to exceed the expectations of the various stake holders in


business such as shareholders, suppliers, employees, customers, government,
general public etc.. And it is very evident that these different groups of stake
holders possess conflicting interests. So the ability to build and maintain mutually
beneficial long term relationship with customers and suppliers, the skill to adhere
to government rules and regulations, the capacity to the uphold the shareholders
expectation, and the task of securing appreciation from the general public, all are
the performance indicators of the present day business. The turbulent
environment forces further makes it a tough sail. The ability to get adapted to the
complex and every changing environment is crucial in this ‘Darwinian economy’,
which ensure the survival of only the fittest. The much demanding system never
allows a manager to consider information as a bureaucratic nuisance like in the
yesteryears. Today, managers, irrespective of their position consider information
as a strategic weapon. The major aim of applied research is to find out a solution
for a practical problem where as basic research is aimed at contributing towards
the organized body of scientific knowledge. Descriptive or Ex post facts research
is characterised by the fact that the research can only report what has happened
or what is happening. In analytical research, the researcher has to use facts or
information already available and analyse these to make logical conclusions.
Quantitative research is concerned with the measurement of quantity or amount.
It involves the generation of data in quantitative form and various analysis using
mathematical tools. Qualitative research is important in behavioural sciences.
Conceptual research is related to theory. It is used by thinkers to develop new
concepts or reinterpret existing ones. Empirical research relies on experience or
observation. It is also called experimental type of research. In marketing the
following are normally taken up for research:
a. Consumer behaviour, loyalty
b. Product positioning, product development, product life cycle
c. Branding, brand equity
d. Market segmentation & targeting
e. Advertising, sales promotion
f. Sales and distribution etc.

2. Learning Objectives:

When you finish this unit, you should be able to:

• Understand the importance and scope of marketing research


• Understand the process of marketing research
• Understand the various types of marketing research
• Understand the applications of marketing research in India.

3. Marketing research

The Oxford Encyclopedia English Dictionary gives the meaning of


research as “the systematic investigation into the study of materials, sources etc.,
in order to establish facts and reach new conclusion. In other words, research is
simply the process of finding solutions to a problem after a detailed study and
analysis of the situational factors. So it is about finding the truth with the help of
study, observation, comparison and experiment.

3.1. Marketing research process:

The research process consists of a series of activities. The activities in the


research process are closely related and they overlap continuously rather than
following the sequence presented. A problem well defined is half solved.
Research also is not an exception to this dictum from the dateless past. Problem
identification and formulation is a crucial part in the research process. A research
problem is one which requires a researcher to find out the best possible solution
from among to find out a best possible solution from among the alternatives
available. In order to select the best alternative, researcher has to find out and
evaluate the alternatives available. Also he as to identify the various
environmental factors which have a bearing on the problem at hand. For
example, company ‘X’ is worried about the high sales force turn over they
experience and you are assigned to undertake a research on that. Here you have
to identify the reasons for the high attrition rate. Also you need to identify various
alternative courses of action to deal with the problem at hand which may be like
increasing the perks, ensuring better working environment, imparting proper
Training and Development programmes etc. Then you have to evaluate these
alternatives and suggest the appropriate one or may be a combination of these.
Also inorder to reach a decision, the researcher has to consider the environment
to which the problem pertains ie., the general industry environment, competitors
strategy etc. The research problem for the study must be carefully selected and
is not an easy task Defining a research problem properly and clearly is a
herculean task. It is a task that must be accomplished intelligently, not hurriedly.
Identification of the broad problem area through developing an intimacy with the
general situation and the problem at hand is the starting point. Then the problem
is stated in a general way. The best way to understand the problem is to discuss
it with people having some expertise in the subject. A preliminary literature
review concerned with the conceptual as well as empirical aspects of the issue is
also useful. This helps the researcher to refine and rephrase the problem. So
essentially there are the following steps involved in defining the research
problem. At this stage, the researcher makes an attempt to state the problem in
a loose, general way. In no way it may be holistic as the researcher address only
some of the concerns at this stage. A relook at the aspects covered in the
general statement of the problem is done after seeking the opinion of the
experienced people. Also it is required to keep in view the environment within
which the problem is to be studied. A preliminary literature review is
recommended at this stage. This enable the researcher to get a better
understanding of the conceptual and empirical aspect of the problem. This also
sheds some light on the data and the materials available for the study as well as
the techniques that might be used. Referring the studies done on the similar or
related topics will also be useful. When doing primary research, there are three
basic avenues you can apply. First is using direct mails. The tactics include brief
and direct questions, direct addressee of the respondents, limited pages of
questionnaires, attached professional cover letter explaining the survey, and
enclosed reminder to respond. The drawback can be lower mail responses from
the respondents. The second is using phone surveys. This is more cost-effective
compared to direct mails in terms of response rates. Phone interviews also allow
a wider geographical range. It is also relatively inexpensive by using the cheaper
rates at specified hours. The tactics include direct respondents confirmation upon
contacts, constant flow of conversation, follow-up calls, and direct relay of
information. The third is personal interviews. It can either be a group survey or a
depth interview. Group survey is mostly used by big businesses as a
brainstorming tool to obtain information on new products and product
modifications. Depth interviews are done with a ready made checklist. The
secondary sources can be: Public sources such as public libraries, business
departments, and governmental departments. This is the most cost-effective way
of finding information. It can be sometimes provided as free with lots of better
information to offer. Commercial sources such as trade and research
associations, financial institutions, corporations being traded publicly, and banks.
This can be costly since association fees and subscription fees are involved.
However, it will cost less if you hired a team to research and collect the
information for you. Educational sources is sometimes overlooked. However,
more research is conducted in polytechnic institutes, colleges, and universities
compared to a business sector in the community.

A hypothesis is a predictive statement capable of being tested by scientific


methods. Development of working hypothesis plays an important role in research
because it help the researcher to limit the area of research on the relevant
variables. It sharpens the thinking of the researcher and help to focus attention
on the important aspects of the problem. Also it sheds light on the type of the
data required as well as the method of data analysis to be used. A detailed
thinking about the subject, a fruitful literature review and consultation with
experts, all result in the formulation of working hypothesis. The hypothesis must
posses the following characteristics.

i. It should be clear and precise.


ii. It should be capable of being tested.
iii. It should state the relationship between the variables.
iv. It should be limited in scope and must be specific.
v. It should be stated in simple terms.
vi. It should be consisted with known facts.
vii. It should enable testing in a reasonable time.
viii. It should have empirical references ie, it must explain what it claims to
explain.

Eg: Sales force who have training show greater productivity than the
employees who do not receive training.

A null hypothesis (H0) is the hypothesis we are trying to reject. Alternative


hypothesis (Ha) represents all other possibilities. For example, if we are
comparing two employees A and B about their productivity and if we make the
assumption that both are equally good, it is called as null hypothesis. All the
other possibilities ie, A is better them B or B is better than A, are termed as
alternatives hypothesis. A decision rules is made for the acceptance or rejection
a hypothesis. For example, if you have to take a decision on the acceptance or
rejection of a lot of goods. The null hypothesis (H0) is that the lot is good and the
alternative hypothesis is that it is not good. Here the decision rule is that we
might test 10 items from the lot and if there are none or only one defective item,
we will accept H0, otherwise we will reject H0 ie, accept Ha.
A research design is the structures with which the research is conducted.
It deals with the collection, measurement and analysis of the data. It is the
decision regarding what, where, when and how much concerning the research. A
research design consists of the following parts

(a) The sampling design which deals with the method of selecting
items.
(b) The observation design which deals with the conditions under
which observations are made.
(c) The statistical design concerned with the methods of data analysis,
and
(d) The operational design which deals with the techniques by the
procedures specified for the above can be carried out.

So a research design contains (a) Statement of the research problem; (b) Procedure and
techniques to be used for data collection. (c) The population to be studied and (d)
Methods to be used for processing and analyzing data. The entire group of study is called
the population. These may be people, organisations, geographical areas, products etc. If
the entire population is investigated, it is a census. Normally, it is not possible to study
the entire population. So the researcher, quite often, select only a few items from the
universe for the study. The items so selected are called a sample. The problem of
sampling is to ensure that the sample is fair representation of the underlying population.
So the researcher has to select an appropriate sampling method which answers two
questions:

(a) How many sample units to be studied? (sample size)


(b) What is the way of selecting the sample? (sample design)

So we can say that a sample design is a definite plan determined before


the data are actually collected. Sampling can be either probability sampling or
non-probability sampling. With probability sampling, each element of the
population has a known probability of being included in the sample whereas the
non-probability samples, do not provide equal probability for all the elements to
be studied. For example, researcher undertake a study to evaluate the
effectiveness of the sales training programme undertaken by a company. If the
number of participants of the programme are 500 that constitute the population.
For practical reasons, the researcher decides to study only 50 participants and
then to generalise the results. So in this study 50 is the sample size. If all the 500
participants have equal chance of being studied, it is probability sampling and if it
is otherwise, it is a non-probability sampling method.

Raw data does not make any sense and only when it is analysed, we get
information, which is meaningful. Before anlaysis, the raw data is processed to
ensure that we have all the relevant data. Processing implies four activities:
Editing
Coding
Classification and
Tabulation

The process of examining the raw data to detect errors and omissions and
to correct these when possible is called Editing. Coding is the process of
assigning numerals or other symbols to the data in order to put them in limited
number of categories. Putting larger volume of data into homogenous groups is
termed as classification. The tabulation deals with the process of summarising
raw data and displaying the same in correct form for further analysis. Analysis
work after tabulation is based on the computation of various percentages,
coefficiencies, etc. by applying appropriate statistical tools and techniques. The
data analysis provides the researcher some logical insights into the problem at
hand and enable him arrive at generalisation, i.e., to built a theory. The effort
undertaken by the researcher to explain his findings is known as interpretation.
The process of interpretation quite often trigger off new questions and thus saw
the seeds for further researches. It is important that the results of the study are
properly presented and communicated. Otherwise, all the efforts hitherto
undertaken by the researcher would be in vain. So writing a report and making
an oral presentation on the same is of extreme importance.

3.2. Marketing research Analysis:

There are many analytical tools used in marketing research. SPSS is the
software which is used effectively for analysing the tabulated data. Apart from
SPSS, there are few other packages like SSP are used for the analysis.
Multivariate techniques are those that involve more than variables at the same
time. They can be categorised into essentially three broad areas which depend
on the nature of the variables examined and their relationship with each other.
The categories are based on certain questions being posed when designing
surveys for primary data and analysing primary and secondary data. In
Marketing Analysis multivariate techniques are employed for a variety of reasons
i.e. establishing relationships between variables in order to explain and/or
predict examination and analyses of differences in groups or populations. The
various approaches are:

Multiple Regression Analysis which examines the relationship between at least


two interval scaled independent variables and one interval scaled dependent
variable. It differs from regression analysis, which is bivariate (involving one
dependent and one independent variable). Multivariate Correlation which is an
extension of simple correlation analysis, to the situations involving two or more
independent variables and their degrees of assocation with the independent
variable. There are two coefficients used: The coefficient of multiple correlation,
R which indicates the strength of relationship between two or more independent
variables and the dependent variable. Also the coefficient of multiple
determination, R2. This is similar to the coefficient of determination, it indicates
the proportion of variance in the dependent variable which is statistically
accounted for by knowledge of the two (or more) independent variables. Conjoint
analysis is a commonly used tool in market research. It enables manufacturers,
for example, to find which features of a product will have most appeal to potential
customers, or conversely, which features are regarded as least important. One
consequence of this is that it is possible to trade-off factors against each other, to
keep costs within acceptable limits, and also to position a product within the
market place.

Cluster Analysis can help us to identify groups of people. The idea is quite
simple, and is based upon the idea of drawing a graph of particular peoples
scores, known as factor scores, looking at them, and noticing where there are
clusters of people, that is, a lot of people with similar scores on the factors.
Computer packages allow us a variety of options in this procedure, in a later case
example we will concentrate on trying to find easily identifiable groups. We can
actually record peoples’ group membership allocation in the data file, too, so you
can observe this, and see how useful it becomes. The key piece of output,
however, is the dendogram, which helps us to identify the number of groups that
may be useful to us. Perceptual mapping is concerned with describing the
consumers perceptions of objects on one or a series of spatial maps, in order
that the relationship(s) between objects can be easily seen. These methods can:
• identify the number of dimensions that consumers use to distinguish objects;
• determine a preferred location of an object on each of the dimensions;
• provide information on the nature and characteristics of these dimensions.

These approaches require respondents or observers to evaluate a set of objects


on a large number of attributes. This usually requires ranking the objects on
scales such as Likert or semantic differential. The following describes three of
these approaches:

There may be few or many linked variables in a data set as a result of these
marketing analysts try to group responses from tests into basic clusters. This
technique is known as factor analysis and can be used in conjunction with other
techniques, such as cluster analysis. The analysis is usually undertaken on
responses to a questionnaire. It is used to reduce the questionnaire to those
questions that are really measuring different attitudes or traits of the respondent.
The starting point of the analysis is to obtain a matrix of the correlations between
variables, gained from answers to questions. The analysis identifies patterns
from correlations. It does not indicate variable dependence directly but offer
guidance for the analyst in what patterns predominate. Discriminant analysis
seeks to generate dimensions that will separate objects as much as possible.
The procedure for this is analogous to factor analysis. Like multiple regression
analysis, this technique has one dependent variable and a set of
independent variables. Based on measurements for the independent
variables, discriminant analysis can be used to classify people or objects into one
of two or more groups. Both factor and discriminant analysis require that attribute
evaluations be interval data. Correspondence analysis allows the creation of
visual perceptual maps using categorical data as well as mixed data sets
(nominal, ordinal, and/or interval).

3.3. Marketing research methods:

3.3.1. Demand measurement research:

The major concepts in demand measurement are:

Market demand
Company demand

Market demand for a product is the total volume that would be bought by a
defined customer group in a defined geographical area in a defined period of
time in a defined marketing environment under a defined marketing programme.
Company demand is the company’s estimated share of market demand at
alternative levels of company marketing effort. One major reason for undertaking
marketing research is to identify market opportunities. Once the research is
complete, the company must measure and forecast the size, growth, and profit
potential of each market opportunity. Sales forecasts are used by finance to raise
the needed cash for investment and operations; by the manufacturing
department to establish capacity and output levels; by purchasing to acquire the
right amount of supplies; and by human resources to hire the needed number of
workers. Marketing is responsible for preparing the sales forecasts. If its forecast
is far off the mark, the company will be saddled with excess inventory or have
inadequate inventory. Sales forecasts are based on estimates of demand.
Managers need to define what they mean by market demand. Companies can
prepare as many as 90 different types of demand estimates. Demand can be
measured for six different product levels, five different space levels, and three
different time levels. Each demand measure serves a specific purpose. A
company might forecast short run demand for a particular product for the
purpose of ordering raw materials, planning production, and borrowing cash. It
might forecast regional demand for its major product line to decide whether to set
up regional distribution.

The growth of the market for consumer electronics might be more


predictable. Consider colour TVs (CTVs). These sold 4.4 million units in 1999-
2000. The market should sell some 10.5 million CTV sets in 2004-05 (with a
500,000 units margin of error). Prices have been descending in the past five
years, even as the entertainment arena bustles with the launch of more and more
satellite-TV channels. Now, with import barriers set to fall further, the action could
get even more breathtaking. Unlike PCs, however, the market is closer to
maturity amongst the ‘middle class’. The competition in this market is likely to be
immense, and it’s still not obvious whether today’s market leaders will remain so
five years ahead (the 1980s, remember, had a completely different set of leaders
than the 1990s). As commodification grows, price will become a major selling
point. Meanwhile, the replacement market is likely to grow further - even as the
low-end booms. In fact, some analysts feel that top-end and low-end brands will
coexist. The drop in excise duty on picture tubes has helped the lower-end perk
up.

Using Delphi technique, some analysts expect the TV to become an Internet-


access device, thus setting the screen for convergence. But will the TV merge with the
PC? Unlikely, given that most people remain in different mental frames while surfing the
Web and watching the ‘idiot box’. Actually, this market, like with PCs, has too many
imponderables. Lots might depend on what happens to software content (will it
converge?). Meanwhile, the Indian market for washing machines is expected to grow at
15 per cent CAGR to reach 3.5 million units. Most of the growth is expected to come
from the semi-automatic segment, though fully automatic machines could account for
most of the value growth. The markets for microwave ovens and dishwashers might also
start selling in reasonable volumes, given the requisite marketing efforts, of course.

The market for refrigerators, is now expected to reach 7.5 million by 2004-05, at a CAGR
of 12 per cent. Excise structures, if rationalized, could raise growth in the entry-level
segment. Meanwhile, this category is ripe for a wave of replacement, for which marketers
are already geared. Refrigerators with 300-litre capacity and above are likely to grow
faster than the rest of the market. If Indian food habits start to change, demand for greater
freezer capacity might also grow. The market for air-conditioners (ACs) is also
prominent among those that have failed to reach the expected figure for 1999-2000. A
likely reason could be excise duties. The fact is that this product is still treated as a luxury
by the Government, and ACs are outrageously priced in India (because of high duties).
Assembled ACs, put together by corner shops that pay no duties, are thriving - much to
the dismay of the organized sector.

Wristwatches are a market that is not growing quite as well as it should -


formally. The market was pegged at 38 million units in 1999-2000, less than half the
expected figure. At a CAGR of just under 12 per cent, the market could touch the 50-
million-units mark by 2004-05. Of late, the market has seen a sudden rush of top-end
activity. At the lower end, assembled and smuggled watches thrive. The prize for the
most thrilling performance over the past five years goes to the market for personal
computers (PCs), which has been booming all through this period (CAGR: 36 per cent),
regardless of the ups and downs of other markets. This is heartening news, for this
product is an input for future economic growth. The Indian PC market in 1999-2000
stood at just over 1.2 million units (missing expectations by nearly 200,000 units). At an
expected CAGR of 25 per cent, the market should hit 4.0 million units in 2004-05. But
then, the prices have been falling sharply over the years. If duties are reduced to nothing -
as an incentive - the current rate could hold up. Also, Internet penetration is projected to
take a hockey-curve upwards - and PCs might just remain the primary access device
(other gizmos are still to catch on). Yet, sustaining a 36-per cent rate might not be
possible. Since the PC is part of the ‘convergence sector’, projections are hard to make.
Demand for consumer electronic products is highly seasonal and cyclical. The demand
for such products reaches a high during the festive season and when the national
economy is enjoying a boom. Thus, 2000 AD is expected to witness a boom in TV sales,
as it is an Olympic year. Manufacture of CTVs registered a growth of 42% during the
first quarter of FY2000 while audio products registered an increase of 26%. However,
supply continues to outstrip demand as a result of which prices continue to fall. In terms
of volume, buyers upgrading from B&W sets represent 65% of the TV market. The
upcoming rural market represents 19% of CTV sales and 39% of B&W TV sales.

Price range for consumer electronics products has increased many times over the
years. This enables manufacturers to focus on niche markets or specific market segments.
India imports a relatively higher proportion of video and audio equipment.

The current market trends in consumer electronics industry include:


• Fierce competition resulting in price wars;
• An array of modern designs and updated technology;
• Players focusing on product differentiation, value addition
and exchange offers; and
• Manufacturers emphasising on altering consumer psyche,
sub-branding products.

The main demand drivers for consumer electronics products in the future include the
following:
• Growth in per capita income, disposable income of
households and growth in entertainment sector;
• Increasing consumerism, changing aspirations and higher
affordability will drive demand further; and
• Product penetration currently low - immense potential exists
in smaller towns and rural markets.

3.3.2. New product launch research:

New product launch is the most crucial aspect in the new product
management. The new product launch can be on a national basis or a rolling launch as
seen in the earlier chapter. The success and failure of a product heavily depends on the
new product launch. It is a known fact that the launch strategy of Microsoft, in the case of
Windows 95 using Michael Jackson contributed heavily to the success of the product. It
is important to be innovative in the launch strategies. Core teams are critical for speeding
up product development and creating exciting products. Rogers has suggested the use of
diffusion of innovation method for launching a new product. Not all-potential users of a
new product or a new generation of a technology adopt the new product at the same time.
Consequently, on the basis of the stage at which they adopt the new product, adopters
traditionally are classified into five categories: innovators, early adopters, early majority,
late majority and laggards. Rogers has suggested that for every new product, 2.5% of the
adopters are innovators, 13.5% are early adopters, 34% are early majority, 34% are late
majority and 16% are laggards. However, a later study done by Mahajan et al reveals that
the relative size of the various segments depends on the product type and ranges. Hence
the same categories will have .2% to .3% of innovators, 9% to 20% of early adopters,
29% o 32% of early majority, 29% to 32% of late majority and 21% to 23% for laggards.

A marketer to ensure product success may use the following guidelines:

1. Distinguish your product from the competition in a consumer relevant way.


2. Capitalise on key corporate competencies and brand strength.
3. Develop and market products to people’s needs and habits.
4. Market to long-term trends, not fads.
5. Don’t ignore research, but don’t be paralysed by it.
6. Make sure your timing is right.
7. Be a marketing leader, not a distant follower.
8. Offer a real value to customers.
9. Determine a products short-term and long-term sales potential.
10. Gain legitimacy and momentum for the brand.
11. Give the trade as good a deal as the customer.
12. Clearly define, understand, and talk to your target.
13. Develop and communicate a distinctive and appealing brand character… and
stick to it.
14. Spend competitively and efficiently, behind a relevant proposition.
15. Make sure the consumer is satisfied… and stays that way.

In order to do the same, marketing research to assess the success or failure of new
product launches. Studies have shown that in many industries 35-40% of new product
efforts fail. 46% of new product funding is wasted on failed or canceled projects. Failures
are different from FADS (which have a naturally short life cycle). Failures are not
necessarily financial failures, although bankruptcy may be a subsequent event. Failure is
through a flaw in the design/selection process, such as not enough or misdirected product
research or market research. Failures include, but are not limited to, products and services
which pose health and safety hazards. Failures are not necessarily 'bad' technical ideas.
The study of failures is important in that it can help us prevent future failures. Looking at
a variety of past product failures may generate some insight into what aspects of the
design process might warrant special attention in failure prevention. What went wrong
with product X? Was there something that the manufacturer/designer should have
foreseen that would have avoided the failure? Should the manufacturer have discovered
that failure was inevitable and abandoned the product, not spending any more money on
it?

3.3.3. Advertising research:

Every year companies spend huge sums of money creating


advertisements and buying media time and space. They hope that these
marketing communication efforts and expenditures would benefit their
businesses by influencing consumer choices. Too much of money is at risk
unless advertisers have very good information about who their customers are,
what they want and where they spend their media time. Research is needed to
furnish the information that drives marketing and advertising decision making.
Without reliable information, in today's highly competitive market conditions, use
of guesswork or intuition alone may prove to be failure. Advertising research is a
subset of marketing research. It systematically gathers and analyses information
to help develop or evaluate advertising strategies, individual advertisements, or
whole advertising campaigns. Advertiser needs to know how consumers perceive
its products or services, what their views about the competition are and what
image of the brand or the company would be most appropriate to build.

Advertising research is required to serve a number of purposes, which can be


grouped into four categories :
- ‘Advertising strategy research’ is used to determine product positioning
to assist in the selection of the target markets, advertising messages, or
media vehicles.
- ‘Creative concept research’ is used to assess the extent of target
audience's acceptance of different creative ideas at the concept
development stage
- ‘Pre-testing of advertisement’ is done to diagnose any possible
communication problems before beginning an advertising campaign.
- ‘Post-testing’ of advertisements helps advertisers to evaluate the
campaign results.

3.3.3.1.Advertising Strategy Research


Advertising strategy is developed by carefully blending the elements of the
creative mix. The mix elements are :
- Product and its positioning
- Target audience
- Communications media
- The message-element

To develop an effective positioning strategy for the brand, the advertiser needs to
know how consumers perceive his brand and those of the competitors. They also
need information on what qualities, features, or benefits associated with the
product or service lead to initial purchases and ultimately to brand loyalty.
Advertising can shape and enhance a brand's position and image over time. This
is one of the most important long-term benefits of advertising. Advertising
strategy research is important to develop a blueprint for creative specialists to
follow.

The major purpose of conducting target audience research is to develop a


precise profile of a brand's target markets and consumers. It is critically important
to know which customers can be classified as primary users of the product
category and carefully study the geographic, demographic, psychographic and
behavioural characteristics. The research may reveal which are the most
potential market segments and target those to achieve advertising objectives.
This is particularly true while introducing a new product. Companies may have
budget constraints and may prefer to launch the product in a phased manner
instead of attacking all geographic areas at the same time.

Communications Media Research helps develop media strategies and


select media vehicles from among different media class and type (TV,
newspapers, magazines, radio outdoor, etc.). Advertising agencies subscribe to
syndicated research services that monitor and publish information on the reach,
audience profiles and effectiveness of different media vehicles. Advertisers
undertake research to study and identify what consumers' likes and dislikes are
with respect to brands and products and hope to find the big idea and develop
promising advertising messages. Researchers use concept testing to determine
which message-element options are most likely to prove successful.

3.3.3.2. Creative Concept Research


Creative specialists prepare several tentative advertising concepts in the
form of rough copy platform or the storyboard. Researchers conduct focus group
discussions in the agency's developmental lab which combines intensive
qualitative interviews with quantitative techniques. A discussion leader
moderates the conversation and each group views the roughs (copy platform,
Storyboard or animatic). The reactions of these groups are measured,
videotaped and observed by researchers behind a one-way mirror. This helps in
identifying the most promising creative concept among the ones that have been
seen and discussed by the focus groups.

3.3.3.3. Pre-testing and Post-testing


Advertisers use pre-tests and post-tests to ensure that the advertising money is
used wisely to achieve predetermined objectives. Testing can help in judging the
effectiveness of advertising strategy or medium. Pre-testing is used to increase
the likelihood of creating the most effective advertising messages. This helps in
spotting any communication gaps or flaws in the message content before the
account executive recommends it to the client. Advertisers are often interested in
concurrent testing to assess the audience response while the advertisement
campaign is under way. Post-testing (also called advertisement tracking) is
important to evaluate the success or otherwise of an individual advertisement or
the whole campaign after it has run.

3.3.4. Customer satisfaction research:

Market researchers, ad agencies and many others have been trying to


figure out what consumers want since the opening of the first store. Valuable as
traditional qualitative techniques such as focus groups and in-depth interviews
are, there is another way to study consumer Behaviour that can get at otherwise
unobtainable truths. On-site observation, or research by watching people, gives
researchers the chance to observe and learn about consumer purchasing
decisions as they are being made. This is most effective if done in a supermarket
situation where consumers can walk around and decide on their purchases. The
best approach is for the researcher or manager or whoever, to be in, say, a
supermarket at that moment and present himself or herself as a shopper who
needs advice for making a decision. The consumer identifies the researcher as
someone who deserves assistance, and no long introductions are required. If the
trained researcher asks the right questions about the product, the answers will
come naturally. Shoppers tell about prices, taste, quality, health, ingredients,
packaging and so on – just what researchers want to know. Moreover, unlike
focus groups, consumers will tell spontaneously without feeling that they must
give an acceptable response because they are being paid or because they like to
show off. Nor will there be any problems with their recall about a product or how
often they have really used it. Finally, if an interview is unproductive, moving on
is easy. Just take your shopping cart and approach someone else.

A skilled researcher can do about 35 interviews a day in several


supermarkets with minimal overhead costs, an excellent yield for qualitative
work. Of course, when it comes to testing a new product, exploring certain
concepts in depth and having members of a group bounce ideas off each other,
there is no substitute for focus groups. But on-site observation has many benefits
and should be used far more often. Doing so, however, is not that easy. This type
of research requires intensive training in interviewing and observational
techniques. The researcher only has about three seconds in which to make eye
contact, introduce him and pop the question that will determine receptiveness.
He must know, by sizing up the shopper according to dress, demeanor, contents
of their cart, the neighborhood the store is in, age, gender etc. The marketing
scenario has changed today with an increasing emphasis on customer delight
rather than just customer satisfaction. Today, companies need to put in additional
effort to learn the likes/dislikes of their customers. In an age where product
differentiation is tending to zero and brand promiscuity is a marketer's recurring
nightmare, it is the customer's relationship with the brand that is becoming
increasingly important. Companies are looking at ways and means of entering
into a regular dialogue with their customers, to build this ever-so-important
relationship. An effective customer satisfaction survey program should focus on
measuring customer perceptions of how well the company delivers on the critical
success factors and dimensions of the business. These usually include factors
like service promptness, staff responsiveness, and understanding of the
customer's problem.

The American Association for Advertising Agencies has suggested that the
advertiser ask the following questions when considering a magazine buy:

1. Does the magazine reach the type of reader to whom expected to reach?
2. How does distribution of circulation compare with the product distribution?
3. What is the cost of reaching the thousand prospects?
4. How do readers regard the magazine?
5. Will the advertisement be in acceptable association?
6. How co-operative is the publisher in giving good position?
7. How important are merchandising aids, availability of aids?
8. How do other magazines compare with the said one on the above
comparing points?

Case study of CCOHS:

There was a study conducted for the Canadian Centre for Occupational Health
and Safety. CCOHS council fulfils the Centre’s mandate by operating as “a
source for unbiased technical information and expertise to support the efforts of
governments, labour organizations, employers, and individual Canadians to
improve workplace safety and health”.[1] CCOHS fulfils this mandate through a
portfolio of free and priced products and services that draw upon a core
collection of occupational safety and health information and the application of
information management technologies. The key products and services offered by
the Centre are the free Inquiries Service and web site and information products
and services for which it charges.

CCOHS wished to conduct a customer satisfaction survey of users of its Inquiries


service, and subscribers to and users of its other products and services. The
survey was designed to:

1. Measure client satisfaction.


2. Compare expectation or need versus to how they feel about the service
received.
3. Identify service gaps.
4. Identify what users value in the service.
5. Identify direction for improvements.

In addition, CCOHS also wished to conduct a survey of visitors to their extensive


web site. The use of a web-based survey provided a self-completion mode with
added flexibility of delivery: skip patterns are opaque to the respondent, as they
are in a computerized telephone survey. In addition, a web survey is considered
ideal for business users in that it provides for swift response and any-time-
anywhere completion

Two surveys were conducted as part of this assignment.

Web-site visitor survey: A pop-up survey of 603 visitors to the CCOHS/CCHST


web site. The survey was available from February 13 to March 9, 2004. It should
be kept in mind that this is a self-selecting sample.

Customer survey: An invitation to participate in an online survey was mailed to


3,736 customers from the CCOHS database. The invitation was mailed and not
e-mailed due to the need to comply with federal privacy legislation, and because
valid e-mail addresses were not available for some customers. The survey was
available online from February 19 to March 26, 2004. A reminder card was
mailed on March 8. Cards were returned from only 42 addresses.

CCOHS provided two Access data files for the survey. One file contained contact
information for individuals who had used the Inquiries Service. The second file
contained coded information of purchasers of products and other services (such
as subscriptions). Records with incomplete mailing addresses were removed.
The files were checked for duplicates, cleaned and a sample selected of
Canadian and US clients. A language preference (English/French) was available
in CCOHS’s sample file.

The sample file identified four product/service types:

1. Inquiries
2. Web Services
3. CD/DVD
4. Publications

Clients who purchased more than one type of product had more than one entry in
the sample file. Our sampling department randomly selected a product for
individuals with more than one. The product names in the data file were used as
provided, so there was a possibility that, in some instances, a French respondent
could get an English product name, or vice versa. Product names were
occasionally abbreviated and always capitalized in the original file, and thus
appeared as such in the survey and the letter.

Web-site visitor survey: 603 visitors to the CCOHS/CCHST web site completed
the survey over the course of the field period.

Customer survey: Completions were achieved with 549 respondents for a


response rate pf 15%, which is quite typical for a customer survey in a self-
completion mode but less than was anticipated given the level of involvement
many customers have with CCOHS.

Number of challenges arose during the design of the customer survey


methodology. CCOHS did not have previous opt-in consent to e-mail their
customers or Inquiries users for the purposes of conducting research. As well, a
significant number of records did not have e-mail addresses. To comply with
Privacy legislation and to attempt to reach customers without e-mail addresses, a
personalized letter was sent to a selected sample of potential respondents to the
customer survey. This mixed mode methodology resulted in a somewhat lower
completion rate than might have been expected with an all-electronic delivery,
partially due to the extra effort required to turn from the written word to the
computer and manually enter the web address for the survey. As well, it required
a longer field period. However, our firm notes that many surveys involving client-
supplied customer lists result in a response rate of between 10 and 15%
regardless of mode.

The CCOHS web site is unique in many ways, as it provides a great deal of
technical information to a wide audience of varying levels of knowledge, much of
it free or at low cost. Although predominantly designed for the needs of Canadian
business and individuals, it is used by a worldwide audience to answer an
astonishing variety of occupational health and safety queries. Visitors mainly
learn about the site via a search engine and, for half of respondents, it was their
first visit to the site. Two-thirds of these first-time visitors indicate they are
satisfied with the site, and satisfaction increases with more frequent visits. The
majority indicates that they found the information they came to the site to seek,
even though the site is structurally quite complex.

Visitors express a rather high level of satisfaction with how the site performed in
all areas, however, areas where there is the most gap between satisfaction and
importance are “ease of finding information” and “scope of information.” Visitors
would also like to see more free information provided. Overall, more than three-
quarters of visitors express satisfaction with the site. Very few suggested
improvements were offered. CCOHS customers represent a mix of organization
types and sizes, but a typical customer would be someone in a safety role of a
manufacturing company of medium to large size. Despite the sizes of the
organizations, most indicate that from 1 to 10 people will use or benefit from a
specific CCOHS product or service. Close of half (43%) of customers have used
the free web services, such as OSH Answers and INCHEM, in the past year.
There is room for expansion in awareness and use of the HS Canada internet
mailing list and the Health and Safety Report newsletter. A quarter of customers
indicate the product or service is used once a month, although pay for use
services are used more frequently. There is a growing preference for electronic
media for provision of products. In product attributes, reliability and clarity are the
most valued qualities, and coverage/comprehensiveness and currency (being up-
to-date) are the qualities customers would most like to see improved. While the
majority of customers are either satisfied or very satisfied with all rated attributes
of the product or service they received, they are most satisfied with usefulness
and relevance, and least with cost and assistance provided for solving a problem.
Gaps between perceived importance and performance for CCOHS product and
service attributes are small (0.5 or less) and show that CCOHS is very close to
meeting customer expectations for most of its offerings, including the important
measure of time required to receive products and services. CCOHS meets its
customers’ expectations regarding the number of service staff and contacts
required to obtain products and services. Gaps in service attribute importance
and performance are also small and there is a high level of customer satisfaction
with the service provided by CCOHS staff on all measures. Very few errors are
being made in provision of products and/or services. Close to three-quarters of
customer report that, in the end, they got what they needed, and over 80%
indicate they would purchase the product or service again.
3.3.5. Retail stores image research:

Researchers have studied a multitude of retailer attributes that influence overall image,
e.g., the variety and quality of products, services, and brands sold; the physical store
appearance; the appearance, behavior and service quality of employees; the price levels,
depth and frequency of promotions; and so on. According to Kevin Lane Keller, it can be
further categorized into a smaller set of location, merchandise, service, and store
atmosphere related dimensions. The five dimensions we use to review past research are:
1) access, 2) in-store atmosphere, and 3) price & promotion, 4) cross-category
product/service assortment, and 5) within-category brand/item assortment. A detailed
presentation on this is available in the unit – Retailing.

3.3.6. Distribution research:

The study has been now divided into supply chain research and also on logistics
research. In the case of supply chain, following are included for research:
1 - Alignment of markets with supply
2 - Linking Demand Chain and Firm performance
3 - Outsourcing
4 - Reverse Logistics
5 - RFID
6 - Supply Chain Agility
7 - Supply Chain Collaboration
8 - Supply Chain Costing
9 - Supply Chain Information Systems
10 - Supply Chain Risk & Resilience
11 - Supply Chain Strategy
12 - Service Supply Chains
13 - Stock loss

Logistics plays a crucial role in business as it is involved in the entire supply chain
starting from purchase of materials to supply of finished products. Logistics costs account
for 15- 25% of the cost of the final product in India, which is much higher than 7-9% in
developed countries. Logistics contributes 13-14% of GDP in India, when compared with
10% in US. The relative inefficiencies in logistics in India can be attributed to inadequate
logistics infrastructure (both physical infrastructure and technological), laborious paper --
based and manual processes and fragmented supply chains.. Currently logistics in India
does not have an industry status. The absence of a uniform tax structure and procedures
in all the states often leaves the transporters to face delays at check posts, creating
bottlenecks in transportation. These frequent delays also result in enormous increase in
transportation costs, which go up to 40 % of the total logistics costs. Hence it becomes
important that logistics research is undertaken also.

Case study of Home Grown Cereals Authority:


This research is a collaboration between Cranfield School of Management and
Cardiff Business School, supported by the Food Chain Centre and the Home
Grown Cereals Authority (HGCA). The project started in February 2005 and has
a duration of three years. During this period eight case studies will be conducted
focusing on different sub-sectors within the cereals industry, including malting
and brewing, bread making, animal feed and bio-fuels. Some of the main
industrial partners include Coors Brewers, Bernard
Matthews, Frontier and United Biscuits. The overall aim of the project is to
transform the UK cereals supply chain by fulfilling two main objectives.

• To conduct improvement programmes within the representative cereals supply


chains and to give confidential recommendations to the companies involved in
each chain
• To disseminate general lessons from these programmes in order to give
guidance and encouragement to the wider industry

A multiple case study methodology is being used for the research, in which each
of the studies has its own specific objectives:

1. To analyse collaboration across the Supply Chain


• Producing a Supply Chain Collaboration Index (SCCI)
• Conducting collaboration interviews for specific relationships
2. To analyse the current supply chain
• Creating a process map of the supply chain
3. To improve the current situation
• Identifying opportunities to eliminate waste
• Creating a ‘Future State’ vision agreed by the companies
• Producing recommendations as to achieve that vision
• Defining an agreed action plan

The project covers two essential aspects of supply chain management, one
refers to the ‘hard’ elements of the process (i.e. activities, times and inventories),
the other to the ‘soft’ elements, this is, the personal and organisational
relationships in the chain. These two aspects were analysed using different tools:

Process Mapping: It is a pencil and paper tool that helps to visualise and
understand the flow of material and information as a product makes its way
through the supply chain. Some of the main benefits of this tool are that it helps
to identify waste in the process, supporting the analysis of the linkages between
information and material flows and serving as a basis for the implementation
plan.

Supply Chain Collaboration Index: the purpose of this tool is to capture


quantitative and qualitative data to reveal the dynamics of long-term collaborative
business relationships. The method has been proven in a large number of multi-
million pound, bilateral relationships in the public and private sectors, and
subjected to rigorous testing. Measurements from both sides of a collaborative
relationship are taken in order to assess five key dimensions of the relationship
(creativity, stability, communication, reliability and value) and seven additional
characteristics (long term orientation, interdependence, C3 behaviour, trust,
commitment, adaption and personal relationships). Three case studies have
already been completed giving some indication of the overall results of the
project. It has been found that the commodity nature of the products in question
promotes relationships that are transactional, where parties are not interested on
establishing a close, long-term supply chain relationship. However, the project
has also shown that in parts of the industry, other factors such as quality, delivery
and reliability have gained importance. Taking these factors into consideration
requires more complex relationships which are not necessarily served by a
transactional approach. As a result, some of the organisations that contributed to
this study are already moving towards more collaborative, long-term approaches.
The research has also revealed a number of opportunities for improvement in
areas such as haulage, information flow, inventory management, vulnerability,
communication, personal relationships and trust. This was the case during 2006.

3.3.7. Competitor analysis Research:

There are number of possibilities of conducting competitive analysis. Competitive


Intelligence is the legal and ethical process of collecting and analysing
information, converting it into intelligence and then using it to determine the
capabilities, vulnerabilities, and intentions of the competition. There are three
levels at which the research is undertaken:

1. Feature level - Find out how your product stacks up against the
competition, feature-by-feature. Learn what features customers think are
important, how much they are worth, and how to focus your efforts on
getting the most from your product development efforts.
2. Solution level - We can help you understand the overall solution
characteristics that create competitive advantage. Go beyond features to
leverage options including delivery, support, and complementary services
that differentiate your offering from the competition.
3. Hidden competition - Your customers' perceptions determine who your
competitors are, and it might not be who you think. Sometimes the
competition comes from the customers the