DINA BUSINESS SCHOOL DINA INSTITUTE OF HOTEL AND BUSINESS MANAGEMENT PUNE – 411 028 CENTRE CODE – 02758

ASSIGNMENT – SET 1 / SET 2 NAME ROLL.NO. PAPER / SUBJECT CODE SEMESTER : TAHA MOHAMMED DHILAWALA : 520850852 : Marketing Management : MB0030 : I / II / III / IV

SIKKIM MANIPAL UNIVERSITY

SET -1 MB0030

Page 1

1. Analyze the existing business portfolio of any one company using BCG matrix, GE matrix, and Ansoff model. ANS.
BCG Matrix of KFC The need for strategy, in order to expand its existing product in very promising markets for KFC is very essential. KFC, along with McDonalds, and other major fast food chains have dominated the American continent as well as else where. Since the 1950’s when the founder of KFC had a dream, of building an empire in the fast food market, the company has undergone lots of changes. The company has changed ownership; it has taken over from Pepsi and passed over to Tricon, which owns Pizza hut, Taco bell and others. Nowadays, KFC, still dominates the chicken fast food industry while has stores in more than 100 countries operating vast profits. (De Witt 'et al.2004a) Although, due to increased conditions of life, and differentiation of the life style of the population around the world, there is still a lots of room for expansion, especially in countries with large population, and high development rate. KFC using the BCG matrix and SWOT analysis to analyze what is the current position of the company and identify that the company has the potentials to growth in fast food market.
SET -1 MB0030 Page 2

In the late 1960s the Boston Consulting Group, a leading management consulting company, designed a four-cell matrix known as BCG Growth/Share Matrix. This tool was developed to aid companies in the measurement of all their company businesses according to relative market share and market growth. The BCG Matrix made a significant contribution to strategic management and continues to be an important strategic tool used by companies today. The matrix provides a composite picture of the strategic position of each separate business within a company so that the management can determine the strengths and the needs of all sectors of the firm. The development of the matrix requires the assessment of a business portfolio, which include an organization’s autonomous divisions ( activities, or profit centers). The BCG or growth- share matrix imposes a two- dimensional analysis on management of Strategic Business Units: a comparative analysis of business strength and an assessment of the environment. The business strength measure is the business;s Relative Market share. The environmental measure is the Market Growth Rate. BCG Matrix: The market growth rate measures industry attractiveness. Because for the case of YUM Brand, all SBUs ( KFC, Taco Bell, Pizza Hut, Long John Silver’s, A&W) are located in the same fast- food industry, the referent standard is the industry growth rate measured against the SBUs’ growth rate. The underlying theory for examining market growth rate is the industry life cycle. The BCG assumes that growth rates ( life cycle stages) affect a firm’s finances.
SET -1 MB0030 Page 3

Asia

?

Europe

USA

Americas

Placing products in the BCG matrix results in 4 categories in a portfolio of a company: 1. Stars (=high growth, high market share)

Use large amounts of cash and are leaders in the business so they should also generate large amounts of cash. Frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept. So, KFC Malaysia is under Star position.

2. Cash Cows (=low growth, high market share)
SET -1 MB0030 Page 4

Profits and cash generation should be high, and because of the low growth, Keep profits high. investments needed should be low.

3. Dogs (=low growth, low market share)
• •

Avoid and minimize the number of dogs in a company. Beware of expensive ‘turn around plans’. Have the worst cash characteristics of all, because high demands and low returns due to low market share If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog.

4. Question Marks (= high growth, low market share)

The Characteristics of each SBU Type SBU STAR Cash Cow Question Mark DOG Strategy SBU Required Investment High Low Very High or Disinvest Disinvest Net Cash profits Hold/ Increase High Hold High Increase/Divest 0 or Harvest or Low Flow -or+ High+ High-or+ +

Divest orThe analysis requires that both measures be calculated for each SBU. The business strength dimension, relative market share, is included to measure competitive advantage. The KFC is falling on cash cow where a low growth and high market share is. So, the profit and cash generation is high and because of low growth, investments needed should be low. The funds received from cash cows are often used to
SET -1 MB0030 Page 5

help other businesses within the company, to allow the company to purchase other businesses, or to return dividends to stockholders. So the KFC should hold on what it has doing now. Three Paths to Success (star-cash cow-question mark)

Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not selfsustaining Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash

Three Paths to Failure (star-question mark-dog, cash cow-dog)  Over invest in cash cows and under invest in question marks  Trade further opportunities for present cash flow  Under invest in the stars  Allow competitors to gain share in a high growth market  Over milked the cash cows

strategy - portfolio analysis - ge matrix
The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. The company must: (1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and

SET -1 MB0030

Page 6

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained. The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). In both methods, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised. The McKinsey / General Electric Matrix The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate. Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed.
The diagram below illustrates some of the possible elements that determine market attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market:

SET -1 MB0030

Page 7

Factors that Affect Market Attractiveness Whilst any assessment of market attractiveness is necessarily subjective, there are several factors which can help determine attractiveness. These are listed below: - Market size - Market growth - Market profitability - Pricing trends - Competitive intensity / rivalry - Overall risk of returns in the industry - Opportunity to differentiate products and services - Segmentation - Distribution structure (e.g. retail , direct, wholesale) Factors that Affect Competitive Strength
SET -1 MB0030 Page 8

Factors to consider include: -Strength of assets and competencies - Relative brand strength - Market share - Customer loyalty - Relative cost position (cost structure compared with competitors) - Distribution strength - Record of technological or other innovation - Access to financial and other investment resources

Ansoff's product / market matrix
Introduction The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.

SET -1 MB0030

Page 9

The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. These are described below: Market penetration Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets. Market penetration seeks to achieve four main objectives: • Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling • Secure dominance of growth markets

SET -1 MB0030

Page 10

• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors • Increase usage by existing customers – for example by introducing loyalty schemes A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy, including: • New geographical markets; for example exporting the product to a new country • New product dimensions or packaging: for example • New distribution channels • Different pricing policies to attract different customers or create new market segments Product development Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. Diversification
SET -1 MB0030 Page 11

Diversification is the name given to the growth strategy where a business markets new products in new markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks

SET -1 MB0030

Page 12

2.

Discuss the Macro environment of a pharmaceutical company

ANS.

India has become an attractive destination for R&D, with opportunities emerging in this new market post- WTO (World Trade Organization) accession. India’s industrial development has accelerated and its pharmaceutical industry has become one of the most successful. Driving factors attracting international investment include: 1WTO accession 2 low labor costs 3 tax incentives from the Chinese government 4 R&D collaboration opportunities. The Chinese pharmaceutical market is split almost equally between chemical and biotechnology products at 70%, and TCM (traditional Chinese medicine) products at 30%. The Chinese government has changed the face of the industry dramatically by: ● implementing WTO guidelines and protection for intellectual property rights ● shifting authority from the Ministry of Foreign Trade to the State Food and Drug Administration (SFDA). The SFDA has imposed higher drug registration requirements for imported as well as locally manufactured products and promoted general compliance with the Chinese Good Manufacturing Practice (GMP) standards for domestically produced products. A number of domestic players could not withstand this pressure from the government—many of them closed their businesses whilst others looked to upgrade their technologies through tie-ups with foreigncompanies. The total value of the market in India was US$12.8 billion in 2005. Antibiotics have slowly decreased in sales; however, they still represent one-third of the whole market.
SET -1 MB0030 Page 13

This is a large market share compared with the other therapeutic classes. The three top therapeutic classes (antibiotics, circulatory and alimentary tract) represent around 60% of the whole market.

India’s TCM industry possesses great potential. The key issue is how to inspire this, which requires government attention and enterprise efforts. On one hand, the government must provide support with its policies; on the other hand, the government should strengthen its recommendations on Chinese medicine planting. India possesses 12,807 kinds of medicinal materials from natural sources out of which, 11,146 are of plant origin, 1,581 are from animals, and 80 are from minerals, including more than 5,000 clinically validated folk medicines.Compared with the big global players, domestic vaccine producers have small-scale production, are backward in production technology and have high operation costs. In India, clinical trials can be conducted at a much lower cost than in the West. India has a pool of highly educated doctors who are keen to participate in clinical trials. Although India is beginning to accept foreign clinical data, almost all new drugs entering the country must conduct domestic testing in some form. At present, Class I, II and III drugs must undergo phase I, II and III trials, although some Class III products are exempt from phase I trials. The major forces attracting foreign investors to India are: ● quality of the clinical data ● reasonable costs ● ability to select patients rapidly. Despite the huge growth potential, commercial health insurance still plays a minor role in the local market, covering only a meager 10% of local residents' total medical expenditures. Health insurance divides into
SET -1 MB0030 Page 14

two types in India: ● Rural Health Protection System. ● Urban Health Protection System ● Government Insurance Scheme—covers government employees ● Labor Insurance Scheme—covers enterprise employees. In India, only 15% of the population has health insurance. Most of the rural population is not covered. The Chinese R&D investment approach has been shifting from technological alliances towards international mergers and acquisitions. Overseas companies in India have established 700 R&D centers. Pharmaceutical regulation in India is based around the Drug Administration Law. The government first implemented this law in 1984, with the last major amendments taking place in 2001. In this emerging market, intellectual property protection is a big challenge. When India became a member of the WTO in 2001, it promised to uphold the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Accord, which mandates that drugs receive at least 20 years of patent protection. Political and legal reluctance to uphold the patent rights of foreign investors is not the only issue. Intellectual theft comes in many forms, including small scale reverse engineering and copying, systematic reverse R&D and reverse engineering, and counterfeiting. The major distribution channel in retail market is the hospitals, with 80% of pharmacy products going to patients through hospitals. Biotechnology globally has experienced rapid growth in recent years and promises enormous potential for future growth. In India, the biotechnology companies have developed more quickly than the pharmaceutical companies have.

SET -1 MB0030

Page 15

3. Explain the components of Marketing information systems
ANS. Components of a marketing information system A marketing information system (MIS) is intended to bring together disparate items of data into a coherent body of information. An MIS is, as will shortly be seen, more than raw data or information suitable for the purposes of decision making. An MIS also provides methods for interpreting the information the MIS provides. Moreover, as Kotler's1 definition says, an MIS is more than a system of data collection or a set of information technologies: "A marketing information system is a continuing and interacting structure of people, equipment and procedures to gather, sort, analyse, evaluate, and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their marketing planning, implementation, and control". Figure .1. illustrates the major components of an MIS, the environmental factors monitored by the system and the types of marketing decision which the MIS seeks to underpin.
Figure .1. The marketing information systems and its subsystems

SET -1 MB0030

Page 16

SET -1 MB0030

Page 17

The explanation of this model of an MIS begins with a description of each of its four main constituent parts: the internal reporting systems, marketing research system, marketing intelligence system and marketing models. It is suggested that whilst the MIS varies in its degree of sophistication - with many in the industrialised countries being computerised and few in the developing countries being so - a fully fledged MIS should have these components, the methods (and technologies) of collection, storing, retrieving and processing data notwithstanding. Internal reporting systems: All enterprises which have been in operation for any period of time nave a wealth of information. However, this information often remains under-utilised because it is compartmentalised, either in the form of an individual entrepreneur or in the functional departments of larger businesses. That is, information is usually categorised according to its nature so that there are, for example, financial, production, manpower, marketing, stockholding and logistical data. Often the entrepreneur, or various personnel working in the functional departments holding these pieces of data, do not see how it could help decision makers in other functional areas. Similarly, decision makers can fail to appreciate how information from other functional areas might help them and therefore do not request it. The internal records that are of immediate value to marketing decisions are: orders received, stockholdings and sales invoices. These are but a few of the internal records that can be used by marketing managers, but even this small set of records is capable of generating a great deal of information. Below, is a list of some of the information that can be derived from sales invoices. · Product type, size and pack type by territory · Product type, size and pack type by type of account · Product type, size and pack type by industry · Product type, size and pack type by customer · Average value and/or volume of sale by territory · Average value and/or volume of sale by type of account · Average value and/or volume of sale by industry · Average value and/or volume of sale by sales person

SET -1 MB0030

Page 18

By comparing orders received with invoices an enterprise can establish the extent to which it is providing an acceptable level of customer service. In the same way, comparing stockholding records with orders received helps an enterprise ascertain whether its stocks are in line with current demand patterns. Marketing research systems: The general topic of marketing research has been the prime ' subject of the textbook and only a little more needs to be added here. Marketing research is a proactive search for information. That is, the enterprise which commissions these studies does so to solve a perceived marketing problem. In many cases, data is collected in a purposeful way to address a well-defined problem (or a problem which can be defined and solved within the course of the study). The other form of marketing research centres not around a specific marketing problem but is an attempt to continuously monitor the marketing environment. These monitoring or tracking exercises are continuous marketing research studies, often involving panels of farmers, consumers or distributors from which the same data is collected at regular intervals. Whilst the ad hoc study and continuous marketing research differs in the orientation, yet they are both proactive. Marketing intelligence systems: Whereas marketing research is focused, market intelligence is not. A marketing intelligence system is a set of procedures and data sources used by marketing managers to sift information from the environment that they can use in their decision making. This scanning of the economic and business environment can be undertaken in a variety of ways, including2 Unfocused scanning The manager, by virtue of what he/she reads, hears and watches exposes him/herself to information that may prove useful. Whilst the behaviour is unfocused and the manager has no specific purpose in mind, it is not unintentional Again, the manager is not in search of particular pieces of information that he/she is actively searching but does narrow the range of media that is scanned. For instance, the manager may focus more on economic and business publications,
Page 19

Semifocused scanning

SET -1 MB0030

broadcasts etc. and pay less attention to political, scientific or technological media. Informal search This describes the situation where a fairly limited and unstructured attempt is made to obtain information for a specific purpose. For example, the marketing manager of a firm considering entering the business of importing frozen fish from a neighbouring country may make informal inquiries as to prices and demand levels of frozen and fresh fish. There would be little structure to this search with the manager making inquiries with traders he/she happens to encounter as well as with other ad hoc contacts in ministries, international aid agencies, with trade associations, importers/exporters etc. This is a purposeful search after information in some systematic way. The information will be required to address a specific issue. Whilst this sort of activity may seem to share the characteristics of marketing research the manager him/herself rather than a professional researcher, carry it out. Moreover, the scope of the search is likely to be narrow in scope and far less intensive than marketing research

Formal search

Marketing intelligence is the province of entrepreneurs and senior managers within an agribusiness. It involves them in scanning newspaper trade magazines, business journals and reports, economic forecasts and other media. In addition it involves management in talking to producers, suppliers and customers, as well as to competitors. Nonetheless, it is a largely informal process of observing and conversing. Some enterprises will approach marketing intelligence gathering in a more deliberate fashion and will train its sales force, after-sales personnel and district/area managers to take cognizance of competitors' actions, customer complaints and requests and distributor problems. Enterprises with vision will also encourage intermediaries, such as collectors, retailers, traders and other intermediaries to be proactive in conveying market intelligence back to them.
SET -1 MB0030 Page 20

Marketing models: Within the MIS there has to be the means of interpreting information in order to give direction to decision. These models may be computerised or may not. Typical tools are: · Time series sales modes · Brand switching models · Linear programming · Elasticity models (price, incomes, demand, supply, etc.) · Regression and correlation models · Analysis of Variance (ANOVA) models · Sensitivity analysis · Discounted cash flow · Spreadsheet 'what if models These and similar mathematical, statistical, econometric and financial models are the analytical subsystem of the MIS. A relatively modest investment in a desktop computer is enough to allow an enterprise to automate the analysis of its data. Some of the models used are stochastic, i.e. those containing a probabilistic element whereas others are deterministic models where chance plays no part. Brand switching models are stochastic since these express brand choices in probabilities whereas linear programming is deterministic in that the relationships between variables are expressed in exact mathematical terms.

SET -1 MB0030

Page 21

4. Explain the Henry assael model of buying decision behavior. ANS.
High involvement Low involvement Significant difference Complex buying Variety seeking buying between brands behavior Few differences Dissonance between brands behavior reducing Habitual behavior. buying

buying behavior

Complex buying behavior :- customer who are representing this behavior are highly involved in the purchase of the product or service. The process became complex as difference between brands are very high. For example, customer who wants to purchase refrigerator would like to know the meanings of defrosting, door lock digital temperature control etc…. the price of the product usually high let me show you

SET -1 MB0030

Page 22

the comparison of three brands and significant difference between them. Lg ge t – 282 Akai d186 tt Electrolux gv/ge Defrost system Door lock Adjustable shelves Moisture and humidity control Deodorizing ability Water dispenser Defrost system        dx        kelvinator 386       

From the above example it is clear that marketer should first develop the belief about the brand, provide the information and differentiate the company brand from others. In the above example you can see both akai and lg don’t have water dispenser while electrolux have. Both lg and Electrolux have moisture and humidity control while akai lacks it. Customer would like to know what these features are and how they add value to the product. Dissonance reducing buying behavior: The behavior exhibited by the customer when product purchase requires high involvement but only few differences exits. For example, customers who want to purchase ctv will not many differences between the brands but the price of the product and its technically makes customer to involve more. One of the major disadvantages of this type
SET -1 MB0030 Page 23

of behavior is customer will show post purchase dissonance which is very difficult to control. Variety – seeking buying behavior When there are significant difference between the brands existing but customer will not involve more while purchasing, marketer identify this behavior of the customer for biscuits. There are many varieties of biscuits available. One can purchased salt biscuits, cream biscuits, marie biscuits, and milk biscuits of Britannia, parle, itc sun feast and other. The customer who purchased Britannia tiger earlier may purchase sun feast cream biscuit next time. This doesn’t mean that quality of Britannia tiger is inferior to other brands but customer would like to try the varieties available in the market. In this situation marketer should undertake following steps  The market leader should encourage customers to buy repeatedly.  Make the product available and visible to the customer in the shopping places.  The firm who are not market leader should come out with sales promotion techniques to encourage customer to purchase the product . Habitual buying behavior :The low involvement between the brands and few differences between the brand leads to the habitual buying behavior. For example spice powder marketed by mdh, everest or mtr have very feew differences between them and customer do not search the information to purchase
SET -1 MB0030 Page 24

particular product. Marketers whose customer represent this category should follow below listed strategies  Use price and sales promotion to stimulate product trial  Use more visual aspect than the wordings in the advertisement  Television is the better media for this type of products.  Use classical conditioning theory to create advertisements.

5. Discuss the segmentation strategy of a cement company ANS. MARKET SEGMENTATION INTRODUCTION: - The market for any product is normally made up of several segments. A ‘market’ after all is the aggregate of consumers of a given product. And, consumer (the end user), who makes a market, user are of varying characteristics and buying behavior. There are different factors contributing for varying mind set of consumers. It is thus natural that many differing segments occur within a market. In order to capture this heterogeneous market for any product, marketers usually divide or disintegrate the market into a number of sub-markets/segments and the process is known as market segmentation. segmentation Thus we can say that market segmentation is the segmentation of markets into homogenous groups of customers, each of them reacting
SET -1 MB0030 Page 25

differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that way that difference between buyers within each segment is as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix. The importance of market segmentation results from the fact that the buyers of a product or a service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer’s individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment. Through segmentation, the marketer can look at the differences among the customer groups and decide on appropriate strategies/offers for each group. This is precisely why some marketing gurus/experts have described segmentation as a strategy of dividing the markets for conquering them.

MARKETING STRATEGY AND MARKET SEGMENTATION: When it comes to marketing strategies, most people spontaneously think about the 4P (Product, Price, Place, Promotion) – maybe extended by three more Ps for marketing services (People, Processes, Physical Evidence). Market segmentation and the identification of target markets, however, are an important element of each marketing strategy. They are the basis for determining any particular marketing mix. Basic steps in marketing strategy are as follows:-

SET -1 MB0030

Page 26

SET -1 MB0030

Page 27

• ATTRIBUTES OF EFFECTIVE SEGMENTATION

Market segmentation is resorted to for achieving certain practical purpose. For example, it has to be useful in developing and implementing effective and practical marketing programmes. For this to happen, the segments arrived at must meet certain criteria such:-

a. Identifiable: The differentiating attributes of the segments must
be measurable so that they can be identified. b. Accessible: The segments must be reachable through communication and distribution channels. c. Sizeable: The segments should be sufficiently large to justify the resources required to target them. A very small segment may not serve commercial exploitation. d. Profitable: - There is no use in locating segments that are sizeable but not profitable. e. Unique needs: To justify separate offerings, the segments must respond differently to the different marketing mixes. f. Durable: The segments should be relatively stable to minimize the cost of frequent changes. g. Measurable: The potential of the segments as well as the effect of a specific marketing mix on them should be measurable. h. Compatible: - Segments must be compatible with firm’s resources and capabilities.

REASONS FOR MARKET SEGMENTATION

Segmentation is the basis for developing targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments.
SET -1 MB0030 Page 28

A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers. 1. Facilitates proper choice of target marketing:marketing: Segmentation helps the marketers to distinguish one customer group from another within a given market and thereby enables him to decide which segment should form his target market.

2. Higher Profits: It is often difficult to increase prices for the whole market. Nevertheless, it is possible to develop premium segments in which customers accept a higher price level. Such segments could be distinguished from the mass market by features like additional services, exclusive points of sale, product variations and the like. A typical segment-based price variation is by region. The generally higher price level in big cities is evidence for this. When differentiating prices by segments, organizations have to take care that there is no chance for cannibalization between high-priced products with high margins and budget offers in different segments. This risk is the higher, the less distinguished the segments are.

3. Facilitates tapping of the market, adapting the offer to the target:-Segmentation also enables the marketer to crystallize the target:needs of target buyers. It also helps him to generate an accurate prediction of the likely responses from each segment of the target buyer. Moreover, when buyers are handled after careful segmentation, the responses for each segment will be homogeneous. This in turn, will help the marketer develop marketing offer/programmers that most suited to each groups. He can achieve specialization that is required in product, distribution, promotion and pricing for matching the particular customer group and develop offers and appeals for the segmented group.

SET -1 MB0030

Page 29

Example of Ford: - Ford has gained useful insights through segmentation and adapted its offer to suit the Indian target market. For the Indian segment Ford made some changes in its cars in comparison to their European version. Modifications such as: a. Higher ground clearance to make the car compatible to the rougher road surface in India. b. Stiffer rear springs to enable negotiating the ubiquitous potholes on Indian roads. c. Changes in cooling requirement, with greater airflow to the rear. d. Higher resistance to dust. e. Compatibility of engine with the quality of fuel available in India. f. Location of horn buttons on the steering wheel. As Indian motorists use horn far more frequently than the European where the horns are located on the lever. 4. Stimulating Innovation: An undifferentiated marketing strategy that targets at all customers in the total market necessarily reduces customers’ preferences to the smallest common basis. Segmentations provide information about smaller units in the total market that share particular needs. Only the identification of these needs enables a planned development of new or improved products that better meet the wishes of these customer groups. If a product meets and exceeds a customer’s expectations by adding superior value, the customers normally is willing to pay a higher price for that product. Thus, profit margins and profitability of the innovating organizations increase. 5. Makes the marketing effort more efficient and economic: Segmentation ensures that the marketing effort is concentrated on well defined and carefully chosen segments. After all, the resources of any firm are limited and no firm can normally afford to attack and tap the entire market without any delimitation whatsoever. It
SET -1 MB0030 Page 30

would benefit the firm if the efforts were concentrated on segments that are more profitable and productive ones. Segmentation also helps the marketer assess as to what extend existing offer from competitors match the needs of different customer segments. The marketer can thus identify the relatively less satisfied segments and succeed by concentrating on them and satisfying their needs.

6. Benefits the customer as well: Segmentation brings benefits not only to the marketer, but to the customer as well. When segmentation attains higher levels of sophistication and perfection, customers and companies can conveniently settle down with each other, as at such a stage, they can safely rely on each other’s discrimination. The firm can anticipate the wants of the customers and the customers can anticipate the capabilities of the firm.

7. Sustainable customer relationships in all phases of customer life cycle: - Customers change their preferences and patterns of behavior over time. Organizations that serve different segments along a customer’s life cycle can guide their customers from stage to stage by always offering them a special solution for their particular needs. For example, many car manufacturers offer a product range that caters for the needs of all phases of a customer life cycle: first car for early teens, fun-car for young professionals, family car for young families, etc. Skin care cosmetics brands often offer special series for babies, teens, normal skin, and elder skin.

8. Targeted communication: -

SET -1 MB0030

Page 31

It is necessary to communicate in a segment-specific way even if product features and brand identity are identical in all market segments. Such a targeted communications allows to stress those criteria that are most relevant for each particular segment (e.g. price vs. reliability vs. prestige).

9. Higher market Shares: In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. Market leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, channel partners and customers. It strengthens the brand and ensures profitability. On that basis, organizations have better chances to increase their market shares in the overall market.

• BASES FOR SEGMENTATION Markets can be segmented using several relevant bases. There are huge number of variables which leads to market segmentation. They comprise easy to determine demographic factors as well as variables on user behavior or customer preferences. Segmentation is done for consumer market and industrial market.

6. Case study Software pricing: issues of client billing
SET -1 MB0030 Page 32

Infosys, one of the major IT companies in India, has developed a new method of pricing software maintenance project. The new method is called as ‘ticket – based pricing. The customer payment will be based on three types of client request or ticket. First, customer may request for small enhancement in the software application. Second, customer may request for big enhancement in the software application and third, request may be for a bug fix. Earlier the methods used for pricing were ‘fixed price’ and ‘time and material-based pricing’. Under the ‘time and material based pricing’, customers are billed based on the number of man-hours spent on a project, while under the fixed price, the customer pays an agreed price that doesn’t vary with the manpower deployed on the project. Infosys developed this new pricing strategy after examining the current pricing methods. Software application methods become more stable after some time. If the client opted for fixed pricing and his request for software maintenance reduced, still has to pay fixed maintenance charges. Ticket based pricing will provide flexibility to the client. Many IT majors have been trying to decrease the dependence of revenue growth on manpower addition. But this is for the first time such an attempt has been made to bring a transactionbased pricing model. The new move is expected to increase the revenue without a proportional increase in the number of employees. Contrary to this view many industry observers still feel that fixed price or time and material based pricing provide continuous revenue. The excess revenue available from these two methods can be used for reserves or

SET -1 MB0030

Page 33

hedging. In case of ticket based pricing client has to negotiate with the company every time.

a. Do you think ticket based pricing will provide continuous
revenue to Infosys in the long term? Comment b. Compare three pricing strategies discussed here and choose any one as your choice ANS:A. yes, it should be provide continues revenues to infosys in the long term B. Pricing strategies:1. Competition-based pricing Setting the price based upon prices of the similar competitor products. Competitive pricing is based on three types of competitive product: • Products have lasting distinctiveness from competitor's product. Here we can assume o The product has low price elasticity. o The product has low cross elasticity. o The demand of the product will rise. • Products have perishable distinctiveness from competitor's product, assuming the product features are medium distinctiveness. • Products have little distinctiveness from competitor's product. assuming that: o The product has high price elasticity. o The product has some cross elasticity. o No expectation that demand of the product will rise. The pricing is done based on these three factors. 2. Cost-plus pricing Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.
SET -1 MB0030 Page 34

Price = Cost of Production + Margin of Profit

3. Limit pricing A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition. The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm's best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time.

SET -1 MB0030

Page 35

Sign up to vote on this title
UsefulNot useful