Chapter One

An Overview of Marketing and Marketing Management

1.1. Marketing and Its Core Concepts

Marketing is meeting customers needs and wants profitably. Marketing is the economic
process by which goods and services are exchanged between the producer and the consumer
and their values determined in terms of money prices. All of us engage in marketing in one
or another way. When we are searching job we are marketing ourselves, when we are trying
to convince customers to buy our products and services, we are marketing.

Marketing is so basic that it cannot be considered a separate function. It is really the whole
business seen from the point of view of the final result, i.e., from the point of view of the
customer. Marketing is a viewpoint, which looks at the entire business process as a highly
integrated effort to discover, create, arouse and satisfy consumer needs.

Many people think that marketing and selling mean the same thing. Others think that
marketing is the same as selling and advertising, still others have a notion that marketing has
got something to do with making products available in the stores, arranging displays and
maintaining inventories of products for future sales. Actually marketing includes all these
activities and many more. Marketing is a key function of management. It brings success to
business organization. A business organization performs two key functions producing goods
and services and making them available to potential customers for use. An organization
business success largely depends on how efficiently the products and services are delivered
to customers and how differently do the customers perceive the difference in delivery in
comparison to the competitors. This is true of all firms.

Definition of Marketing

Marketing can be defined as the performance of business activities that directs the flow of
goods and services from producer to consumers or final users. It is a process of transacting
goods and services form the producer to consumers.

According to William J. Stanton, Marketing is a system of business activities designed to

plan, price, promote and distribute want satisfying goods and services to present and
potential customers.

The Chartered Institute of Marketing defines Marketing as: Marketing is the management
process for indentifying, anticipating & satisfying customer requirements profitably.

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According to Philip Kotler, Marketing is a Social and Managerial process by which
individuals and groups obtain what they need and want through creating, offering, and
exchanging products of value with others.

Core concepts of Marketing

Marketing has been defined in various ways. The definition that serves our purpose best is
that, Marketing is a Social and Managerial process by which individuals and groups
obtain what they need and want through creating, offering, and exchanging products of
value with others.

This definition of marketing rests on the following core concepts: needs, wants, and
demands; products (goods, services, and ideas); value, cost and satisfaction, exchange and
transactions; markets, and marketers.

Needs The most basic concept underlying marketing is that of human needs. Marketing
starts with human needs and wants. A human need is a state of felt deprivation of some
basic satisfaction; people require food, clothing, shelter, safety, belonging, and esteem.
These needs are not created by society or by marketers. They exist in the very texture of
human biology and the human condition.

Wants Wants are desires for specific satisfiers of needs. Wants are shaped by society,
culture and individual personality. In different society, wants can be satisfied in different
ways. For e.g. an Ethiopian needs food and wants "Injera" & "wet", and an American needs
food and wants hamburger. Although people's needs are few, their wants are many.
Human wants are continually shaped and reshaped by social forces and institutions,
including churches, schools, families, and business corporations.

Demands are human wants for specific products that are backed by an ability and
willingness to buy them. Wants become demands when supported by purchasing power.
Many people want to have personal computer; only a few are able and willing to buy.
Companies must therefore measure not only how many would want a product but more
importantly would actually be willing and able to buy it.

Product (Goods, Services, and Ideas): People satisfy their needs and wants with products. A
product is anything that can be offered to satisfy a need or want. It can be physical goods,
services, ideas or a combination of physical product along with services. For example, a
computer manufacturer is supplying goods (computer, monitor, and printer), services
(delivery, installation, training, maintenance and repair) and an idea (computational power).

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Value and satisfaction: Consumers usually face a broad array of products and services that
might satisfy a given need. Hence, consumers make buying choices based on their
perceptions of the value that various products and services deliver. Customer value is the
difference between the value of customer gains from owning and using a product and the costs of
obtaining the product. Customer Satisfaction depends on a products perceived performance in
delivering value relative to buyer expectations. If a product's performance falls short of the
customer's expectations, the buyer is dissatisfied. If performance matches expectations, the
buyer is satisfied. If performance exceeds expectations, the buyer is delighted. Outstanding
marketing companies do out of their way to keep their customers satisfied because satisfied
customers make repeat purchases, and they tell others about their experience which
obviously provides the firm with competitive advantage (good word of mouth
communication), otherwise, if they are not satisfied, customers will not only be refrained
from buying a companys products but also they are likely to talk negatively about the firm
to the very prospective customers who may possibly purchase the companys products (bad
word of mouth communication). Some companies even aim to delight customers by
promising only what they can deliver, then delivering more than they promised.

Exchange: Earlier when we defined marketing we said that it involves exchange of products
from one party to the other party to satisfy need. Hence, we can say that marketing occurs
when people decide to satisfy needs and wants through exchange. Exchange is the act of
obtaining a desired product from someone by offering something in return. It is only one of
the ways that people can obtain what they need. A person may get what he needs by begging
others, hunting, robbing etc. As a means of satisfying needs, exchange has much in its favor.
People do not have to prey on others or depend on donations, nor do they must possess
every necessity for themselves. They can concentrate on making things that they are good at
making and trading them for needed items made by others. Thus, exchange allows a society
to produce much more than it would with any alternative system. Exchange must be seen as
a process rather than as an event. Two parties are engaged in exchange if they are negotiating
and moving toward an agreement. When an agreement is reached, we say that a transaction
takes place. A transaction consists of a trade off values between two parties.

In conjunction to exchange, the marketer should be able to offer something (product)

valuable to the customer so that they will be initiated to make the exchange. Generally
transaction marketing is a means by which the so-called marketer and prospect (customer)
exchange values to each other, hence with this relationship in between the marketer and the
customer is to be created. Here, the relationship might turn out to be for short-term
transaction (relationship that lasts with the completion of the exchange process) or long-term
transaction (relationship that continues after the transaction is completed.). Obviously the
relationship that a marketer should strive to build should be long-term relation with

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customers by promising and consistently delivering high quality products, good service, and
fair prices then profit will be gained from customers on long term basis from repeated
purchases.

Markets: The concept of exchange leads to the concept of a market. A market consists of all
the potential and actual customers sharing a particular need or want who might be willing
and able to engage in exchange to satisfy that need or want. Thus the size of the market
depends on the number of people who exhibit the need or want, have resources that interest
others, and are willing and able to offer these resources in exchange for what they want.
Here, unlike the Economics approach that considers market as a collection of buyers and
sellers, we shall consider market as a collection of buyers only and the sellers are considered
as industry.

Marketer: The concept of markets abounds us to the concept of marketing as marketing

means simply human activity that takes place in relation to markets to make an exchange of
values among individuals. Simply we can say that marketing means working with markets to
actualize potential exchanges for the purpose of satisfying human needs and wants. If one of
the two parties involved is more actively seeking an exchange than the other party, obviously
it should make some efforts to make the other party interested in the exchange and hence,
this party is referred to as marketer. This means marketer is a party that seeks a resource
from the other party and in return willing to offer something valuable to the other party and
the party with whom the marketer needs to make exchange is known as prospect. In the
event that both the parties actively seek an exchange, we say that both of them are marketers
and call the situation as reciprocal marketing.

Marketing Management
Earlier we said that marketing means managing markets to bring about exchange and
relationships for the purpose of creating value and satisfying needs and wants. Thus, we
return to the definition of marketing as a social and managerial process by which individuals
and groups obtain what they need and want through creating, offering, and exchanging
products of value with others.

According to American Marketing Association, marketing management is defined as the

process of planning and executing the conception, pricing, promotion, and distribution of
ideas, goods and services to create exchange that satisfies individual and organizational
goals.

This definition recognizes that marketing management is a process involving analysis,

planning, implementation, and control; that it covers goods, services and ideas' that rests on
the notion of exchange: and that the goal is to produce satisfaction for the parties involved.

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In light with this, marketing manager is the one who is responsible for all the activities
related to the aforementioned aspects and there by enhances the demand (acceptability) of
the companys products in the market. That is why some times marketing management is
considered as demand management. At any point in time, there may be no demand,
adequate demand, irregular demand or too much demand and marketing management must
find ways to deal with these different demand states. Hence, marketing management has the
task of influencing the level, timing, and composition of demand in a way that will help the
organization achieve its objectives by doing the activities involved in marketing properly.

Table 1-1 distinguishes eight different states of demand and the corresponding tasks
facing marketing managers.
Negative A market is in a state of negative demand if a major part of the market
demand dislikes the product and may even pay a price to avoid it. The marketing
task is to analyze why the market dislikes the product and then try to
change the attitude of customers. This kind of marketing strategy is referred
to as Conversion marketing as it involve changing attitude.
No demand Target consumer may be unaware of or uninterested in the product. Thus.
Farmers may not be interested in a new farming method, and college
students may not be interested in foreign language courses. The marketing
task is to find ways to connect the benefits of the product with the person's
natural needs and interests. This kind of marketing is called Simulative
marketing
Latent Many consumers may share a strong need that cannot be satisfied by and
demand existing product. There is a strong latent demand for harmless cigarettes,
safer neighborhoods, and more fuel-efficient cars. The marketing task is to
measure the size of the potential market and develop effective goods and
services that would satisfy the demand and this strategy is called
developmental marketing
Declining Every organization, sooner or later, faces declining demand for one or more
demand of its products, Churches have seen their memberships decline, and private
colleges have seen their applications fall. The marketer must analyze the
causes of market decline and determine whether demand can be re
stimulated by finding new target markets, changing the products features,
or developing more effective communication. The marketing task is to
reverse the declining demand through creative remarking strategy of the
product.
Irregular Many organizations face demand that varies on a seasonal, daily, or even
demand hourly basis, causing problems of idle or overworked capacity. In mass
transit much of the equipment is idle during off-peak hours and insufficient

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 during peak travel hours. Museums are under visited on weekdays and
overcrowded on weekends. The marketing task, called synchro-marketing,
is to find ways to alter the same pattern of demand through flexible pricing,
promotion, and other incentives.
Full demand Organizations face full demand when they are pleased with their volume of
business. The marketing task is to maintain the current level of demand in
the face of changing consumer preferences and increasing competition. The
organization must maintain or improve its quality and continually measure
consumer satisfaction to make sure it is doing a good job through the so
called maintenance marketing
Over full Some organizations face a demand level that is higher than they can or want
demand to handle. The marketing task, called demarcating, requires finding ways to
reduce the demand temporarily or permanently. General demarketing seeks
to discourage overall demand and consists of such steps as raising prices and
reducing promotion and service.
Unwholeso Unwholesome products will attract organize effects to discourage their
me demand consumption. The marketing ask is to find out ways by which the company
can cope up with such actions. The marketing strategy is called counter
marketing

1.2. Marketing Management Philosophies

1. The Production Concept

The production concept holds that consumers will favor products that are available and
highly affordable. Therefore, management should focus on improving production and
distribution efficiency. This concept is one of the oldest orientations that guide sellers.

The production concept is still a useful philosophy in two types of situations. The first
occurs when the demand for a product exceeds the supply. Here consumers are more
interested in obtaining the product than in its fine points (features), and suppliers taking
this advantage will concentrate on finding ways to increase production and distribution.
The second situation occurs when the products cost is too high and has to be decreased to
expand the market. Texas Instruments is one of the leading companies that use the
production concept with philosophy of GET-OUT-PRODUCTION, CUT THE PRICE.
Accordingly, TI puts all of its efforts in building production volume and improving
technology in order to bring down costs .It uses its lower costs to cut prices and attract
more consumers and hence expand the market size.

Although useful in some situations, the production concept can lead to marketing their
own operations and losing sight of the real objective satisfying customer needs and
building customer relationships.

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2. The Product Concept:

The product concept holds that consumers will favor those products that offer the most
quality, performance or innovative features. Managers in these organizations focus their
energy on making superior products and improving them over time. They assume that
buyers admire well-made products and can appraise product quality and performance.
However, these managers are sometimes caught up in a love affair with their product and
do not realize what the market needs.

Product oriented companys often design their products with little or no customer input.
They trust that their engineers can design exceptional products. Very often they will not
even examine competitor's products. Even, whatever, quality product is produced
without considering the consumers needs, there will be no demand for the product in
market. Consumers place orders to purchase a product because there is certain problem
with them. The solution to the problem is the product. The consumers buy the product
only when there is a problem and when they wish a solution from the product.
Otherwise, no need of buying the product even if the product is quality and provides the
best performance for some other purpose.

3. The Selling Concept

The selling concept holds that consumers and businesses will not buy enough of the
firms products unless it undertakes a large-scale selling and promotion effort. The
concept is typically practiced with unsought goods goods the consumer does not know
about or knows about but does not normally think of buying, such as insurance or blood
donations. These industries must be good at tracking down prospects and selling them on
product benefits. Most firms practice the selling concept when whom they have
overcapacity. Their aim is to sell what they make rather than make what the market
wants. Moreover, prospects are bombarded with TV commercials, newspaper
advertisements, direct mail and sales calls. At every turn, someone is trying to sell
something. As a result, the public often identifies marketing with hard selling and
advertising.

Nevertheless, marketing based on hard selling carries high risks. It assumes that
customers who are coaxed into buying a product will like it, and even if they do not like
it, they will not bad-mouth it or complain to consumer organizations and will forget their
disappointment and buy it again. These are indefensible assumptions because one study
showed that dissatisfied customers may bad-mouth the product to 10 or more
acquaintances; bad news travels fast.

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4. The marketing concept

The marketing concept holds that achieving organizational goals depends on knowing
the needs and wants of target markets and delivering the desired satisfactions better than
competitors do. Under the marketing concept, customer focus and value are the paths to
sales and profits.
Instead of a product-centered make and sell philosophy, the marketing concept is a
customer-centered sense and respond philosophy. It views marketing not as hunting,
but as gardening, The job is not to find the right customers for your product, but to find
the right products for your customers. As stated by famous direct marketer Lester
Wunderman, The chant of the Industrial Revolution was that of the manufacturer who
said, This is what I make, wont you please buy it. The call of the Information Age is the
consumer asking, This is what I want, wont you please make it.
The selling concept takes an inside-out perspective. It starts with the factory, focuses on
the companys existing products, and calls for heavy selling and promotion to obtain
profitable sales. It focuses primarily on customer conquest getting short-term sales with
little concern about who buys or why. In contrast, the marketing concept takes an
outside-in perspective. The marketing concept starts with a well-defined market, focuses
on customer needs, and integrates all the marketing activities that affect customers. In
turn, it yields profits by creating lasting relationships with the right customers based on
customer value and satisfaction.
Table: Marketing concept compared with the selling concept

Starting Focus Means Ends

Point
Selling Factory Existing Selling and Profit through sales
concept products promoting volume
Marketing Market Customer Integrated Profit through Sales
concept Needs marketing volume& customer
satisfaction

5. The Societal Marketing Concept

The Societal marketing concept questions whether the pure marketing concept overlooks
possible conflicts between consumer short-run wants and consumer long-run welfare. Is a
firm that satisfies the immediate needs and wants of target markets always doing whats
best for consumers in the long run? A socially responsible company must take into
account the long-run consumer and societal welfare. The drawback of marketing concept
is that it ignores the long-run societal welfare and focuses only on the short-run benefits.

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 For example, a product, which gives short-run consumer satisfaction, may have adverse
effects in the long- run. Cigarette factories and automobile companies which causes
environmental problem are good examples for this. It has, therefore, been felt that the
marketing concept be revised incorporating the long-run societal welfare. The societal
marketing concept holds that marketing strategy should deliver value to customers in a
way that maintains or improves both the consumers and the societys well-being.

1.3. Importance of Marketing

A consumer may pay more for an item just because of marketing, but without marketing he
may not be purchasing the item at all. Marketing has incredible benefits and our economy
would collapse without it. Marketing employ many people; it increases competition, and it
leads to better products. Marketing is an essential part of the capitalist society.
Marketing employs many people, directly and indirectly. Not only does it employ the people
who make advertisements and get the word out there, but it employs many people indirectly.
Advertisements and sponsorships pay for many athletes salaries. Advertisements help pay
for newspaper, television shows, internet websites, and many other items. The sustainability
of peoples jobs is like the food chain, if one small, but important, item is taken out then
everything and everyone is affected. If marketing is to cease its existence many people would
lose their jobs, which in turn causes them to lose their buying power, which causes less items
to be sold, which causes people to be laid off and then the cycle gets worse. A product may
be cheaper without marketing, but few people would be able to buy it because many people
would be unemployed.
Marketing is also important as it allows competition. Competition is a crucial part of our
economy, it helps keep prices fair and keep businesses on the cutting edge. Marketing helps
inform the public about different companies version of the same basic product. Without
marketing, only the company that is well known will get business, while the other companies
don't stand a chance. Big corporations got where they are today by effectively marketing
their products, without any marketing these businesses never would have expanded so
much. The negative effects of one company dominating the business is that they can set any
price and sell any quality product they chose. If there are people to compete with, the
business must keep its prices low enough and its quality high enough in order to prevent its
competition from getting its customers. Marketing facilitates the competition that is so
important to our society.
Finally, marketing is beneficial because it encourages the invention of new products. Creating
a new product is incredibly risky; a lot of time and money go into the project. In order to
break even the inventor must sell a considerable number of his products. Unfortunately, this
would be virtually impossible in a marketing-free society. Advertisements and promotions

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help get the word out about a new product. Without marketing very few people would ever
hear about the new product; therefore, very few people would buy it. Getting a new product
to sell without any marketing is too huge of a risk for most business men. This large risk
would lead to a stagnation in the creation of new items and severely limit our ability to
compete with other nations.
Marketing is essential to our economy and many problems would be encountered if we chose
to get rid of it. Without marketing there wouldn't be a market to buy and there won't be
innovative products to sell. The lack of money being spent and received will promptly lead to
deflation and a disintegration of society as we know it.

1.4. Scope of Marketing:

It is seen as the task of creating, promoting & delivering goods & services to consumers &
businesses. Marketers are skilled in stimulating demand for companys products; they are
responsible for demand management. Marketing managers seek to influent the level, timing
& composition of demand to meet the organizations objectives. Marketing people are
involved in marketing 10 types of entities;

Goods Events Properties Information

Services Persons Organizatio Ideas
Experiences Places ns

1.5. The goals of marketing System

Marketing is not a onetime activity it is a continuous process and affects different parties
with different interests such as, customers, suppliers, and the public etc. Most of the time the
interest of these different parties conflict each other

The marketing system generally has four goals.

1. Maximizing consumption- marketing stimulates maximum demand. Maximum

consumption inter maximize production, employment and wealth.
2. Maximizing Satisfaction-Owning one product gives sense when it maximized
satisfaction to customers. Marketing systems maximize satisfaction by creating and
providing quality products --variety products etc.
3. Maximizing choicesmarketing system provides varieties. As a result the consumer will
find products that fit to their exact test.
4. Maximizing life qualitythe participation of marketing system in environmental
protection maximize the quality of life of consumer. As a result of this the life style
consumers leads to quality of life achieved.

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 CHAPTER TWO
MARKETING ENVIRONMENTS

2.1. Definition of Marketing Environment

Marketing environment refers to the external actors and forces that affect the companys
ability to develop and maintain successful transactions and relationships with its target
customers.

Marketing does not occur in a vacuum. The marketing environment consists of external
forces that directly and/or indirectly impact the organization. Changes in the environment
create opportunities and threats for the organizations. To track these external forces a
company uses environmental scanning. Continual monitoring of what is going on.
Environmental scanning collects information about external forces. It is conducted through
the Marketing Information System.

Environmental analysis determines environmental changes and predicts future changes in

the environment the marketing manager should be able to determine possible threats and
opportunities from the changing environment.

2.2. Internal and External Elements of Marketing Environments

Businesses marketing environment is classified into two broad categories. The first is
internal environment. The second is external environment.

Internal environment

Internal environment refers to factors essentially emanated from the organizations own
territory and thus a company can have full control over such factors. For e.g. a company can
exercise control over its resources, activities of different departments such as marketing,
production, finance etc. For e.g. suppose that a company is contemplating of adding
additional product, before rushing to decision, the company should determine whether
existing production facilities and expertise can be used or not, if there are sufficient financial
rssource, etc. Generally, internal environment is abounded by the companys resources,
activities etc. So, this environment is the basic source of the organizations strength and
weakness. For instance, workforce of a given company could be more efficient than that of
the other company. In this case, the companys workforce is acting as a source of strength for
the company. On the other hand, a company may operate with old machineries and
production techniques that makes it lag behind its competitors in producing attractive
products to customers. (source of weakness).

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External Environment

External environment refers to the actors and forces outside of the company that affect the
organizations ability to develop and maintain successful relationship with its target market.
As these factors are stem from the external forces, they may provide the organization with
immense opportunities that may pave a way for better success or threats that may endanger
the organizations existence. Hence, an organization should constantly scan the different
opportunities or threats being shaped by external environment and in this regard the
marketers are the most responsible for scanning the tendency of such actors as they are
responsible for dealing with the organizations market. This eventually enables them to
revise and adapt marketing strategies to meet new challenges and opportunities in the
market place. This environmental scanning involves three basic steps: - gathering
information about a companys external environment, analyzing it and forecasting the
impact of whatever trends the analysis suggests.

This environmental level can be done at two levels as there are two levels of external factors
i.e. at macro level and at micro level.

Macro level environmental forces: these are factors springing from demographic,
economic, political, cultural, physical and technological forces. They are said macro because
they affect all the companies operating in a given market. As they are overall factors and
external, they are largely uncontrollable by a given company. But this by no means that a
companys sucess depend on a mere chance rather companies should systematically asses
these forces and shape their activities in light with the environments trend. Apart from this,
all these forces are inter related to eachother. Hence, a change in one of these factors is likely
to cause a change in one or more of the others. Additionally, all they are dynamic in nature,
that is, they are subject to change at an alarmic rate. Now, lets have a look at of them one by
one in detail.

Demographic environment: demography is the study of human population in terms of size,

density, location, age, gender, race, occupation etc. This environment is of major concern to
marketers because it essentially involves people and people constitute markets. In the first
place, the explossive growth of population has great implication for companies. Primarly
population growth results in the increase in human needs that must be fullfilled, hence we
can think of it in terms of the opportunity it may have, but it does not mean growing market
unless, otherwise the growth of population is backed up by sufficient purchasing power. On
the other hand, if the population growth presses too hard against the available food supply

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and resources, costs will shoot up and hence profit marigins will be depressed.In addition to
this, national demographic factors which vary from country to country, also have significant
impact on marketing. For e.g. in one country the number of youngesters may be far greater
than that of seniors, this may tell to the marketers what possible behaviors are dominant in
the market, which group represents the most influence etc. Likewise, in a country, where the
proportion of litrate is so small, advertising through megazines may not be fruitfull as it
doesnot make the message reach to the maximum number of customers. Similarly, the
household pattern composition may also have implication. For e.g. traditionally, household
consists of husband, wive and children. No matter how, we can have a lot other kind of
households such as only mother and children, father and children and only wife and
husband (which is being accustomed recently). Each of these groups may represent different
kind of market segments as each group may have different buying behavior based on the
selected characteristic. Generally, marketers should look into all these aspects on continous
basis to learn if any of these demographic factors are changing in such a way that they are
capable enough to pose threats or create opportunities to the organization.

Economic environment: people alone do not represent markets. They must have the ability
and willingness to buy. Individuals purchasing power is a function of different interacting
forces in the so called economic environment. When we say economic environment, we are
referring to factors that directly affect customers purchasing and spending pattern. Among
the factors affecting customers purchasing and spending pattern, level of the economy and
income distribution are the most important. As far as the level of economy concerns, some
countries have subsistent economy:- they consume most of their own agricultural and
industrial out put. Hence, such economies represent a less attractive opportunity. At the
other extrem are industrial economies, which constitute rich markets for many goods and
services. Apart from this, the income distribution in a country may have a lot with customers
purchasing power and spending pattern. Suppose that in a given country, much of the
income goes to a verry small part of the population leaving the mass with a very
insignificant portion of the income. This obviously tells that much of the purchasing power is
confined in the hands of fews and hence, major part of the society does not represent
attractive market as it has limited purchasing power.

The other force, in this regard, is the over all situation of the economy: booming and
depression. An economy is said to be booming if the economic situation of a country go on
improving due to the additional employment opportunity in an economy, additional income,
more investment etc. Contrary to this, an economy is said to be on depression if the

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economical situation in a country keeps on aggravating from time to time such as increased
unemployment, decrease in investment, decrease in income etc. Both these two kinds of
situations have their own impact on the purchasing power and psychology of individuals. In
a booming economy, individuals income is improving. This eventually results in higher
purchasing power. Apart from this, in such economies, individuals will have the confidence
to spend what they have now thinking that they will have no problem in terms of secured
income in the future. Hence, booming economy represents additional opportunity. Unlike
this, depression has negative impact on customers. In the first place, due to the many
negative factors such as unemployment, decrease in investment etc, individuals income will
go on decling and this in turn result in the shrink of purchasing power. Additionally,
individuals will have no confidence to sacrifice their current resource for their current need
thinking that the future is more agravated than it is now. Hence, this represents a threat.

Apart from all these, the so called inflation and deflation are the other important forces.
Inflation is a rise in the prices of goods and services. Hence the purchasing power of a
currency declines.( when prices rise at a faster rate than personal income, consumers buying
power declines). This as well affect consumers psychology and purchasing power and there
by marketing program of a company. For e.g. high inflation obviously results in a decrease
consumption as it makes purchasing power decline. Likewise, it may psychologically force
consumers to overspend today for fear that prices will be higher tomorrow. Apart from this,
sever inflation is a real challenge for a company as it make managing prices of final products
and inputs difficult. In the same way, extreme deflation (when the purchasing power of
currency raises at an alarmist rate : opposite of deflation) may have implication to
organizations in different ways. In particular, it is very difficult for firms to raise prices
because of consumer resistance. Hence, their only option will be to concentrate on as to how
cost of products can be decreased, otherwise, profit will evaporate.

In addition to all these factors, consumers expenditures are highly affected by savings, debt
and credit availability and interest rate. Hence, marketers must pay careful attention to major
changes in all these factors.

Technological environment: it is one of the most dramatic force shaping peoples lives. It
has a tremendous impact on life-styles, consumption patterns and economic well being. You
can think of the many technological breakthroughs that are expanding our horizon as we
progress into the future. It is realy hard to grasp each and every aspect in this regard.
Technology can affect companies in different ways:

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 By starting new industries such as computer, robot etc
By radically altering or virtually destroying existing industries as it paves the way for
improved products, innovative products etc. E.g. emergence of television over radios,
computers on type writer machine industries etc.
Apart from this, technology has affected marketing activities extensively. The breakthrough
in communication now permite people and organizations to transact from almost any
location at any time of the day.

We should also keep in mind that technology is a mixed blessing in some ways. A new
technology may improve our life in one way while creates environmental and societal
challenges and problems on the other. E.g. automobile industry has made life great but
blamed for polluting the environment. And, in fact, technology is expected to solve some of
the problems for which it is being criticized. E.g. air pollution through environmentally
adaptive products.

Socio-cultural environment: it is made up of institutions and other forces that affect a

societys basic values, perceptions, preferences and behaviors. The society, in which people
live, shapes their basic beliefes, values and norms. They absorb a world view that defines
their relationship to themselves, to others, to nature etc. People in every society hold many
core beliefs and values that tend to exist for a long. For e.g. many Ethiopians believe in
patriotism, in getting married, in giving to the poor, not eating pork etc. These are cultures
that passed down from parents to children and of course are being reinforced by different
institutions such as churches, businesss, government etc. Obviously if there are cultures that
work against a companys marketing activities, the company will be at the odd but if the
culture commonsurates with the companys marketing activities, it will be verry conducive.
Hence, companies need to assess if there are any culture operating against or with the
companys marketing activities and there by should devise ways as to how they can cope up
with the challenges being pose by that culture or as to how they can make the best use of the
opportunity. In addition to this, marketers should continously look if there are any cultural
shifts and if there, whether they are adaptive (conducive) to the organization or not. As we
all know, culture is not something that standstill always as it is. Rather it is subject to change
owing to various reasons for e.g. in Ethiopian culture, it was housewife who is responsible
for dealing with the many things involved in a family such as taking care of child,
homemaking etc. But as time passed, it came to be evidents that this culture is changing and
hence to day specially in urban areas the role of a husband and wife is deviating from its
traditional position. This eventaully may have implication on traditional buying pattern of

15
households. Additional, children are being given more attention in terms of their interest
today than that of what traditionally accustomed before. Likewise, in urban areas an
increasing number of femels are becomming office workers and such women are seeking for
better balance between work and familiy. This is essentially changing their attitude towards
shopping etc. In such a way, we can think of the differnt kind of changes happenning to our
culture begining from changing the existing upto the creation of new cultures. Generally, in
such constantly changing cultures, companies should respond on timely basis as the culture
changes otherwise their activities will be obsolated with the obsolated culture or the cultural
changes may endanger their sucess in one way or another or they may over look the new
opportunities coming along with cultural changes etc.

Natural Environment: it refers to the physical environment with in which the company
operates. It involves natural resources that are needed as an input by companies or that are
affected by activities of companies. The change in this environment may have greater
implication on the activity of marketers.

In the first place, this environment is the source of different kind of resources the company
may need. In this regard, the first kind of resources are what we call infinite resources such
as water and air but today pollusion of such resources has become a major issue and
challenge for companies. Likewise, the so called finite but renewable (recoverables) such as
food, forest etc should also be exploited in economical and reasonable manner that they can
be recovered otherwise if they are used extremly, it will be diffiicult to recover them back
and this as we know will have impact on companies in different ways begining from
degradation of environment up to shortage of resources. In the same way, the so called finite
but non renewable such as petroleum, coal and various minerals pose a verry greate
challenge for companies. Firms making products that require such materials as an input will
face large cost increase, even if the materials remain available .

Apart from all these, the activities of companies may cause problems to the environment
such as pollution. Hence, the government and the society at large may make movements
against such companies for the dangers they are causing to the environment. This in turn
may compell companies to put their large sum of money to take care the physical
environment and further it may compel them to look for improved products that are friendly
to the environment for e.g. car producing companies are doing their best to create cars that
minimizes the pollution of environment.

16
 Generally, marketer should look into all these aspects if there are any tendencies posing a
challenge or creating a chance for the company.

Political and legal Environment: this consists of laws, governmental agencies and pressure
groups. In the first place, countries will have their own legislation aimed at protecting
companies from unfair competition, protecting consumers from unfair business practices
and/or to protect the societys interest from unbridled business behavior. Hence, marketers
must have a good knowledge of the major laws protecting competition, consumers and
society. Additionally, new framework of laws might be introduced as it becomes necessary
and this newly created may affect the organizations activity positively or negatively in
addition to the exisiting ones. Apart from all this, the government may have its own
regulations and priorities and the initiation it give may change over time for different kind of
businesses. In addition to this, there might be some influential groups that are capable
enough to influence the legislation body and the government to introduce new laws or take
actions. Hence, marketers need to look into all this aspects on continous basis to identify the
possible threats being posed on the company or opportunities coming along with the
changes of these factors.

Micro environmental forces: these are factors that are specific only for the company under
consideration. They are not the same for all companies operating in a given market
(economy). For. E.g. the competitors of a company may be different from another company
engaged in some othe un related business. As well, a companys suppliers might be differnt
from one company to the other. In the same way, customers (markets) the firm serves might
be different in accordance with the companys business. Generally, all the aspects mentioned
above are things that can change from one company to the other. They are not the same for
all companies like macro factors. As they are external to the company, still these forces are
uncontrollable by a company but are not that much difficult to influence like macro factors.
For e.g. a company may not control the activity of its competitors but can systematically
affect its activity. Likewise, a company may not exert control over its suppliers but still may
have the bargaining power to influence their activity. Now lets have a look at the main
factors one by one;

1. Suppliers: Suppliers are specific to the company. i.e. suppliers of a company in one industry
are/may be different from the other company engaged in other industry and even for
companies engaged in the same industry, suppliers might be different from one company to
the other. They can affect an organizations activity in so many ways. For e.g. if the supplier
can not deliver the materials on timely basis, it will be difficult for the company to deliver the

17
 product for customers in areas where they are in need of on timely basis. In the same way, if
suppliers fail to meet quality requirments, it will be difficult for the company to come up
with supperior quality products. Likewise, if suppliers increase the price of the materials
they are delivering, it may enforce the company to raise prices of its final products etc. In
return a company may have some bargaining power to affect suppliers activity. E.g. a
company may inforce suppliers to meet some quality requirment, may inforce them to
decrease price etc. Hence, it is of paramount importance to contenously monitor the
activities of suppliers in terms of their their materials quality, dependability, etc. This is so
because if a supplier stops delivering abruptly, it may threat the companys business. In the
same way, if the number of suppliers go on raising, it can be considered as opportunity for
the company as it will make getting in puts less difficult.
2. Marketing intermediaries: these are all those parties that are involved in delivering the
companys products to the market from where they are produced and that are involved in
the exchange process with the companys target market in one way or another such as
retailers, physical distribution companies (transportation and warehousing companies),
marketing service companies such as advertising companies, marketing research companies
etc and financial intermediaries such as banks and insurances. Obviously, in one way or
another, these may have posetive and/or negative impact on a company. So, its so important
to follow up any changes in such an atomspher so that the company can prepare the things it
may encounter in advance.
3. Competitors: A companys competitive environment is a major influence on its marketing
activities. A company is rarely stands alone in its effert to serve a given customer market.
There will always be a host of competitors. Hence, a company should identify, monitor and
outmaneuvered to capture and maintain customer loyality. A comapny generally face three
types of competition;
Brand competition: comes from marketers of directly similar products e.g. coca and pepsi.
Substitute products: products from other categories but can substitute the companys
products e.g. video producing companies and theaters compete for entertainment need
(recreational need). May be Jucies, Ambo weha, Highland spring, Coca etc appeal for
satisfying the same need refreshment drink.
In the third, more general type of competition, every company is a rival as all strive to get
the limited buying power of buyers.
4. Customers: Customers companies targetting might be different from one company to the
other even in one industry and if the industry with in which the companies are operating is
different, obviously their direct customers will also be different. And, as we said it in market
oriented approach, the justification for an organizations existence is the decision of
18
customers to purchase. Hence, every activity of the organization should revolve arround the
needs and specification of customers in todays competitive environment. As we all know, in
todays world it sometimes seems that change is the only constant thing. Hence, what
customers are interested today may be outdated by tomorrow. Thus, companies should keep
on improving themselves with the changing environment of their customers. That means if
the interest of customers starts to shift, in the same way the company should adjust it self in
accordance with that change. To this end, it is compulsary for companies to continously scan
their customers and adjust themselves accordingly.

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 CHAPTER THREE
BUYING BEHAVIOR
3.1. Consumer buying behavior

Consumer buying behavior means the behavior consumers exhibit when searching for
information about product to buy, evaluate one brand against another, and when they are
using and exposing the product after using it.

In addition to a companys marketing mix and factors present in the external environment, a
buyer is also influenced by personal characteristics and the process by which he/she makes
decisions. A buyers cultural characteristics, including values, perceptions, preferences, and
behavior learned through family or other key institutions, is the most fundamental
determinant of a persons wants and behavior. Consumer markets and consumer buying
behavior have to be understood before sound marketing plans can be developed.

The consumer market buys goods and services for personal consumption. It is the ultimate
market in the organization of economic activities. In analyzing a consumer market, one needs
to know the occupants, the objects, and the buyers objectives, organization, operations,
occasions and outlets.

The buyers behavior is influenced by four major factors: cultural (culture, subculture, and
social class), social (reference groups, family, and roles and statuses), personal (age and life
cycle state, occupation, economic circumstances, lifestyle, and personality and self-concept),
and psychological (motivation, perception, learning, and beliefs and attitudes). All of these
provide clues as to how to reach and serve buyers more effectively.

Before planning its marketing, a company needs to identify its target consumers and their
decision processes. Although many buying decisions involve only one decision maker, some
decisions may involve several participants, who play such roles as initiator, influencer,
decider, buyer, and user. The marketers job is to identify the other buying participants, their
buying criteria, and their influence on the buyer. The marketing program should be designed
to appeal to and reach the other key participants as well as the buyer.

The amount of buying deliberateness and the number of buying participants increase with
the complexity of the buying situation. Marketers must plan differently for four types of
consumer buying behavior: complex buying behavior, dissonance-reducing buying behavior,
habitual buying behavior, and variety-seeking buying behavior. These four types are based

20
on whether the consumer has high or low involvement in the purchase and whether there are
many or few significant differences among the brands.

In complex buying behavior, the buyer goes through a decision process consisting of need
recognition, information search, evaluation of alternatives, purchase decision, and post
purchase behavior. The marketers job is to understand and develop an effective and efficient
program for the target market.

3.1.1. The buyers decision process

The final consumers decision process is the way in which people gather and assess
information and make choices among alternative goods, services, organizations, people,
places, and ideas. It consists of the process itself and factors affecting the process.

The decision process consists of five basic stages (the next six sections). Factors affecting the
process are a consumers demographic, social, and psychological characteristics. Sometimes,
all six stages in the process are used; other times, only a few steps are utilized. At any point
in the process, it may be ended.

1. Need recognition: normally any purchase decision begins with the recognition of needs
or problem. The need may be triggered by internal stimuli such as hunger, thirst or sex.
For e.g. before thinking about purchasing something to eat a person first should be
hungered. It may also be triggered by external stimuli for e.g. a person passes a
restaurant and smell nice food that stimulates his hunger. In this case, the stimuli are
external. At this stage, the marketer should research consumers to find out what kinds of
needs or problems are associated with the product, what factors brought them about, and
how they led the consumer to this particular product. Then they can develop marketing
strategies that that trigger consumers interest.
2. Information Search: Information search involves listing alternatives that will solve the
problem at hand and a determination of the characteristics of each. Search can be internal
and/or external. As risk increases; the amount of information sought also increases. Once
the information search is completed, it must be determined whether the shortage or
unfulfilled desire can be satisfied by any alternative. The internet has become a major
source for consumer shopping information.
3. Evaluation of Alternatives: The alternatives are evaluated on the basis of the consumers
criteria and the relative importance of these criteria. They are then ranked and a choice made.
Generally, marketers should study buyers to find out how they actually evaluate brand
alternatives. If they know what evaluative process go on, marketers can take steps to influence
the buyers decision.

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4. Purchase Decision: The purchase act involves the exchange of money or a promise to pay
for a product, or support in return of ownership of a specific goods, the performance of a
specific and so on. Purchase decisions remaining at this stage center on
The place of purchase
Terms
Availability

If the above elements are acceptable, a consumer will make a purchase.

5. Post-purchase Behavior: Frequently, the consumer engages in post-purchase behavior.

Buying one item may lead to the purchase of another. Re-evaluation of the purchase
occurs when the consumer rates the alternative selected against performances standards.
Cognitive dissonance, doubt that a correct purchase decision has been made, can be
reduced by follow-up calls, extended warranties, and post-purchase advertisement.

3.1.2. Major factors influencing buying behavior

- Demographic, social, and psychological factors affect consumer decision-making

- By understanding how these factors affect decision making, a firm can fine-tune its
strategies to cater to the target market.

There are various factors affecting consumers buying behavior. These include:

1. Cultural Factors:

Cultural factors a significant impact on customer behavior. Culture is the most basic cause of
a persons wants and behavior. Growing up, children learn basic values, perception and
wants from the family and other important groups. Marketers are always trying to spot
cultural shifts which might point to new products that might be wanted by customers or to
increased demand. For example, the cultural shift towards greater concern about health and
fitness has created opportunities (and now industries) servicing customers who wish to buy:

Low calorie foods

Health club memberships
Exercise equipment
Activity or health-related holidays etc.

Similarly the increased desire for leisure time has resulted in increased demand for
convenience products and services such as microwave ovens, ready meals and direct
marketing service businesses such as telephone banking and insurance.

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Each culture contains subcultures groups of people with share values. Sub-cultures can
include nationalities, religions, racial groups, or groups of people sharing the same
geographical location. Sometimes a subculture will create a substantial and distinctive
market segment of its won. For example, the youth culture or club culture has quite
distinct values and buying characteristics from the much older gray generation.

Similarly, differences in social class can create customer groups. In fact, the official six social
classes in the UK are widely used to profile and predict different customer behavior. In the
UKs socioeconomic classification scheme, social class is not just determined by income. It is
measured as a combination of occupation, income, education, wealth and other variables.

2. Social Factors:

A customers buying behavior is also influenced by social factors, such as the groups to
which the customer belongs and social status. In a group, several individuals may interact to
influence the purchase decision. The typical roles in such a group decision can be
summarized as follows:

Reference Groups:- As a consumer, your decision to purchase and use certain products and
services, is influenced not only by psychological factors, your personality and life-style, but
also by the people around you with whom you interact and the various social groups to
which you belong. The groups with whom you interact directly or indirectly influence your
purchase decisions and thus their study is of great importance to the marketer.

Family: The family, as a unit, is an important of all these groups and we shall discuss it in
detail. The family is an important consumer for many products which are purchased for
consumption by all family members. It is a source of major influence on the individual
members buying behavior. We can identify two families which shape an individuals
consumption behavior. One is the family of orientation that is the family in which you are
born and consists of your parents, brothers and sisters. It is from parents that we imbibe most
of our values, attitudes, beliefs and purchase behavior patterns. Long after an individual has
ceased to live with his parents, their influence of the sub-conscious mind still continues to be
great. In our country, where children continue to live with parents even after attain
adulthood, the latters influence is extremely important. The other kind of family is family of
procreation (namely one's spouse and children), which has a more direct influence on specific
purchase decision.

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Roles: An individual may participate in many groups. His position within each group can be
defined in terms of the activities he is expected to perform. You are probably a manager, and
when in your work situation you play that role. However, at home you play the role of
spouse and parent. Thus in different social positions you play different roles. Each of these
roles influences your purchase decisions.

Status: Status is often measured by the degree of influence an individual exerts in the
behavior and attitude of others. People buy and use products that reflect their status. The
managing director of a company may drive a Mercedes to communicate his status in society.

3. Personal Factors:

Age and life cycle stage: Like the social class the human life cycle can have a significant
impact on consumer behavior. The life cycle is an orderly series of stages in which consumer
attitude and behavioral tendencies evolve and occur because of developing maturity,
experiences, income, and status. Marketers often define their target market in terms of the
consumers present lifecycle stage. The concept of lifecycle as applied to marketing will be
discussed in more details.

Occupation and Income: Today people are very concerned about their image and the status
in the society, which is a direct outcome of their material prosperity. The profession or the
occupation a person is in again has an impact on the products they consume. The status of a
person is projected through various symbols like the dress, accessories and possessions.

Life Style: Our life styles are reflected in our personalities and self-concepts, same is the case
with any consumer. We need to know what a life-style is made of. It is a persons mode of
living as identified by his or her activities, interest and opinions. There is a method of
measuring a consumers lifestyle. This method is called as the psychographics-which is the
analysis technique used to measure consumer lifestyles-people activities, interest and
opinions. Then based upon the combinations of these dimensions, consumers are classified.
Unlike personality typologies, which are difficult to describe measure lifestyle analysis has
proven valuable in segmenting and targeting consumers according to their lifestyle
classification.

Personality: Personality is the sum total of an individuals enduring internal psychological

traits that make him or her unique. Self-confidence, dominance, autonomy, sociability,
defensiveness, adaptability, and emotional stability are selected personality traits. People
who have self-confidence have different purchasing behavior than people who have no self-
confidence.

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4. Psychological Factors:

Motivation: Motivation involves the positive or negative needs, goals, and desires that impel
a person to or away from certain actions. By appealing to motives (reasons for behavior), a
marketer can generate motivation. Economic and emotional motives are possible. Each
person has distinct motives for purchases; these change by situation and over time.

Consumer Needs and Motivations: We all have needs we consume different goods and
services with the expectation that they will help fulfill these needs. When a need is
sufficiently pressing, it directs the person to seek its satisfaction. It is known as motive. All
our needs can be classified into two categories primary and secondary. Primary needs or
motives are the physiological needs, which we are born with, such as the need for air, water,
food, clothing, shelter and sex. The secondary needs are our acquired needs, which we have
developed in response to the individuals psychological make-up and his relationship with
other members of the society.

The secondary needs many include the need for power, prestige, esteem, affection, learning,
status etc. clothing is a primary need for all of us. But the need for three piece tweed suit, or
bananas brocade sari or silk kimonos are expressions of our acquired needs. The man
wearing a three-piece tweed suit may be seeking to fulfill his status need or his ego need by
impressing his friends and family.

All human needs can be classified in to five hierarchical categories and this hierarchy is
universally applicable. The theory of hierarchy of needs can be ranked in order of importance
from the low biological needs to the higher level psychological needs. Each level of need is
fulfilled, people keep moving on the next higher level of need.

3.2. Organizational buying behavior

Business market is the collection of buyers who are buying products and services for resale
purpose, or for using it in day to day operation or to use it to make another product. Let us
see the difference between consumer market and business market.

3.2.1. Characteristics of business market

a. Organizational consumers purchase capital equipment, raw materials, semi-finished
goods, and other products for use in further production or operations or for resale to
others, whereas final consumers usually acquire the finished items for personal,
family, or household use.
b. Organizational consumers are likely to require exact product specifications. Final
consumers more often buy on the basis of description, style, and color.
25
 c. Organizational consumers often use multiple-buying responsibility, in which two or
more employees formally participate in complex or expensive purchase decisions.
Final consumers employ it less frequently and less formally.
d. Organizational consumers more frequently employ competitive bidding and
negotiation.

3.2.2. Organizational Buying situations

There are three major types of buying situations. At one extreme is the straight re-buy, which
is a fairly routine decision. At the other extreme is the new task, which may call for thorough
research. In the middle is the modified re-buy, which requires some research.

In a straight re-buy, the buyer reorders something without any modifications. It is usually
handled on a routine basis by the purchasing department. Based past buying satisfaction, the
buyer simply chooses. They often propose automatic reordering systems so that the
purchasing agent will save reordering time. Out suppliers try to offer something new or
exploit dissatisfaction so that the buyer will consider them.

In a modified re-buy, the buyer wants to modify product specifications, prices, terms, or
suppliers. The modified re-buy usually involves more decision participants than does the
straight re-buy. The in suppliers may become nervous and feel pressured to put their best
foot forward to protect an account. Out suppliers may see the modified re-buy situation as an
opportunity to make a better offer and gain new business.

A company buying a product or service for the first time faces a new-task situation. In such
cases, the greater the cost or risk, the larger the number of decision participants and the
greater their efforts to collect information will be. The new -task situation is the marketers
greatest opportunity and challenge. The marketer not only tires to reach as many key buying
influences as possible but also provides help and information.

The buyer makes the fewest decisions in the straight re-buy and the most in the new-task
decision. In the new-task situation, the buyer must decide on product specifications,
suppliers, price limits, payment terms, order quantities, delivery times, and service terms.
The order of these decision varies with each situation, and different decision participants
influence each choice.

Many business buyers prefer to buy a packaged solution to a problem from a single seller.
Instead of buying and putting all the components together, the buyer may ask sellers to
supply the components and assemble the package or system. The sale often goes to the firm
that provides the most complete system meeting the customers needs. Thus, systems selling
are often a key business marketing strategy for winning and holding accounts.

26
Sellers increasingly have recognized that buyers like this method and have adopted systems
selling as a marketing too. Systems selling are a two-step process. First, the supplier sells a
group of interlocking products. For example, the supplier sells not only glue, but also
applicators and dryers. Second, the supplier sells a system of production, inventory control,
distribution, and other services to meet the buyers need for a smooth-running operation.

Systems selling are a key business marketing strategy for winning and holding accounts. The
contract often goes to the firm that provides the most complete solution to the customers
needs. For example, the Indonesian government requested bids to build a cement factory
near Jakarta. An American firms proposal included choosing the site, designing the cement
factory, hiring the construction crews, assembling the materials and equipment, and turning
the finished factory over to the Indonesian government. A Japanese firms proposal included
all of these services, plus hiring and training workers to run the factory, exporting the cement
through their trading companies, and using the cement to build some needed roads and new
office buildings in Jakarta. Although the Japanese firms proposal cost more, it won the
contract. Clearly, the Japanese viewed the problem not as just building a cement factory (the
narrow view of systems selling) but or running it in a way that would contribute to the
countrys economy. They took the broadest view of the customers needs. This is true systems
selling.

3.2.3. Decision making process in organizational buying

Figure 6.3 lists the eight stages of the business buying process. Buyers who face a new-task
buying situation usually go through all stages of the buying process. Buyers making
modified or straight re-buys may skip some of the stages. We will examine these steps for the
typical new-task buying situation.

Problem General need Product Supplier

recognition description Specification search

Supplier Order-routine Performance

Proposal
selection specification review
solicitation

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Problem Recognition

The buying process beings when someone in the company recognizes a problem or need that
can be met by acquiring a specific product or service. Problem recognition can result from
internal or external stimuli. Internally, the company may decide to launch a new product that
requires new production equipment and materials. Or a machine may break down and need
new parts. Perhaps a purchasing manager is unhappy with a current suppliers product
quality, service, or prices. Externally, the buyer may get some new ideas at a trade show, see
an ad, or receive a call from a salesperson who offers a better product or a lower price. In fact,
in their advertising, business marketers often alert customers to potential problems and then
show how their products provide solutions.

General Need Description

Having recognized a need, the buyer next prepares a general need description that describes
the characteristics and quantity of the needed item. For standard items, this process presents
few problems. For complex items, however, the buyer may have to work with others
engineers, users, consultants to define the item. The team may want to rank the importance
of reliability, durability, price, and other attributes desired in the item. In this phase, the alert
business marketer can help the buyers define their needs and provide information about the
value of different product characteristics.

Product Specification

The buying organization next develops the items technical product specifications, often
with the help of a value analysis engineering team. Value analysis is an approach to cost
reduction in which components are studied carefully to determine if they can be redesigned,
standardized, or made by less costly methods of production. The team decides on the best
product characteristics and specifies them accordingly. Sellers, too, can use value analysis as
a tool to help secure a new account. By showing buyers a better way to make an object,
outside sellers can turn straight re-buy situations into new-task situations that give them a
chance to obtain new business.

Supplier Search

The buyer now conducts a supplier search to find the best vendors. The buyers can compile a
small list of qualified suppliers by reviewing trade directories, doing a computer search, or
phoning other companies for recommendations. today, more and more companies are
turning to the internet to find suppliers. For marketers, this has leveled the playing field the
Internet gives smaller suppliers many of the same advantages as larger competitors.

28
The newer the buying task, and the more complex and costly the item, the greater the
amount of time the buyer will spend searching for suppliers. The suppliers task is to get
listed in major directories and build a good reputation in the marketplace. Salespeople
should watch for companies in the process of searching for suppliers and make certain that
their firm is considered.

Proposal Solicitation

In the proposal solicitation stages of the business buying process, the buyer invites qualified
suppliers to submit proposals. In response, some suppliers will spend only a catalog or a
salesperson. However, when the item is complex or expensive, the buyer will usually require
detailed written proposals or formal presentations from each potential supplier.

Business marketers must be skilled in researching, writing, and presenting proposals in

response to buyer proposal solicitations. Proposals should be marketing documents, not just
technical documents. Presentations should inspire confidence and should make the
marketers company stand out from the competition.

Supplier Selection

The members of the buying center now review the proposals and select a supplier or
suppliers. During supplier selection, the buying center often will draw up a list of the
desired supplier attributes and their relative importance. In one survey, purchasing
executives listed the following attributes as most important in influencing the relationship
between supplier and customer; quality products and services, on-time delivery, ethical
corporate behavior, honest communication, and competitive prices. Other important factors
include repair and servicing capabilities, technical aid and advice, geographic location,
performance history, and reputation. The members of the buying center will rate suppliers
against these attributes and identify the best suppliers.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms before
making the final selections. In the end, they may select a single supplier or a few suppliers.
Many buyers prefer multiple sources of supplies to avoid being totally dependent on one
supplier and to allow comparisons of prices and performance of several suppliers over time.
Todays supplier developments managers want to develop a full network of supplier
partners that can help the company bring more value to its customers.

Order-Routine Specification

The buyer now prepares an order-routine specification. It includes the final order with the
chosen supplier or suppliers and lists items such as technical specifications, quantity needed,

29
expected time of delivery, return policies, and warranties. In the case of maintenance, repair,
and operating items, buyers may use blanket contracts rather than periodic purchase orders.
A blanket contract creates a long-term relationship in which the supplier promises to
resupply the buyer as needed at agreed prices for a set time period. A blanket order
eliminates the expensive process of renegotiating a purchase each time that stock is required.
It also allows buyers to write more, but smaller, purchase orders, resulting in lower inventory
levels and carrying costs.

Blanket contracting leads to more single-source buying and buying more items from that
source. This practice locks the supplier in tighter with the buyer and makes it difficult for
other suppliers to break in unless the buyer becomes dissatisfied with prices or service.

Performance Review

In this stage, the buyer reviews supplier performance. The buyer may contract users and ask
them to rate their satisfaction. The performance review may lead the buyer to continue,
modify, or drop the arrangement. The sellers job is to monitor the same factors used by the
buyer to make sure that the seller is giving the expected satisfaction.

We have described the stages that typically would occur in a new-task buying situation. The
eight-stage model provides a simple view of the business buying-decision process. The actual
process is usually much more complex. In the modified re-buy or straight re-buy situation,
some of these stages would be compressed or bypassed. Each organization buys in its own
way, and each buying situation has unique requirements.

Different buying center participants may be involved at different stages of the process.
Although certain buying-process steps usually do occur, buyers do not always follow them in
the same order, and they may add other steps. Often, buyers will repeat certain stages of the
process. Finally, a customer relationship might involve many different types of purchases
ongoing at a given time, all in different stages of the buying process. The seller must manage
the total customer relationship, not just individual purchases.

3.2.4. Factors influencing organizational buying Decision

Business buyers are subject to many influences when they make their buying decisions. Some
marketers assume that the major influences are economic. They think buyers will favor the
supplier who offers the lowest price or the best product or the most service. They concentrate
on offering strong economic benefits to buyers. However, business buyers actually respond
to both economic and personal factors. Far from being cold, calculating, and impersonal,
business buyers are human and social as well. They react to both reason and emotion.

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Environmental Factors

Business buyers are influenced heavily by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of
money. As economic uncertainty rises, business buyers cut back on new investments and
attempt to reduce their inventories.

An increasingly important environmental factor is shortages in key materials. Many

companies now are more willing to buy and hold larger inventories of scarce materials to
ensure adequate supply. Business buyers also are affected by technological, political, and
competitive developments in the environment. Culture and customs can strongly influence
business buyer reactions to the marketers behavior and strategies, especially in the
international marketing environment. The business marketer must watch these factors,
determine how they will affect the buyer, and try to turn these challenges into opportunities.

Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems,
and the business marketer must understand these factors well. Questions such as these arise:
How many people are involved in the buying decision? Who are they? What are their
evaluative criteria? What are the companys policies and limits on its buyers?

Interpersonal Factors
The buying center usually includes many participants who influence each other, so
interpersonal factors also influence the business buying process. However, it is often difficult
to assess such interpersonal factors and group dynamics. Managers do not wear labels that
identify them as important or unimportant buying center participants, and powerful
influencers are often buried behind the scenes. Nor does the highest-ranking buying center
participant always have the most influence. Participants may influence the buying decision
because they control rewards and punishments, are well liked, have special expertise, or have
a special relationship with other important participants. Interpersonal factors are often very
subtle. Whenever possible, business marketers must try to understand these factors and
design strategies that take them into account.

Individual Factors
Each participant in the business buying-decision process brings in personal motives,
perceptions, and preferences. These individual factors are affected by personal characteristics
such as age, income, education, professional identification, personality, and attitudes toward
risk. Also, buyers have different buying styles. Some may be technical types who make in-
depth analyses of competitive proposals before choosing a supplier. Other buyers may be
intuitive negotiators who are adept at pitting the sellers against one another for the best deal.

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 CHAPTER FOUR
MARKET SEGMENTATION, TARGETING AND POSITIONING

4.1. Market Segmentation

Market segmentation means the process of dividing the whole market for a product into
several smaller, internally homogenous groups. I.e. it is dividing a market into distinct
groups of buyers with different needs, characteristics, or behavior who might require
separate products of marketing mixes. A company that practices market segmentation
recognizes that buyers differ in their needs perceptions, and buying behaviors. Hence, the
company tries to isolate the broad segments that make up the market and adapts its offers to
more closely match the needs of one or more segments. The essence of segmentation is that
the members of each group are similar with respect to the factors that influence demand.
Hence, sometimes the ability to segment markets effectively is considered as a major element
for company success.

4.1.2. Basis for segmenting consumer market

Two broad groups of variables are used to segment consumer markets. Some researches try
to form segments by looking at consumers characteristics. They commonly use Geographic,
demographic and psychographics characteristics. Other researchers try to form segments by
looking at consumer responses (behavior) to benefit sought, use occasions or brands.

Once the segments are formed, the researcher sees whether different consumer characteristics
are associated with each customer response segment. For example, the researcher might
examine whether people who want quality versus low price in buying an automobile
differ in their geographic and psychographic makeup.

The major segmentation variables geographic, demographics, psychographics and

behavioral segmentation can be used singly or in combination.

Geographic Segmentation

This calls for dividing the market into different geographical units such as nations, states,
regions, countries, cities or neighborhoods. The company can decide to operate in one or a
few geographic areas or operate in all but pay attention to local variations in geographic
needs and preferences.

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Demographic Segmentation

In demographic segmentation, the market is divided into groups on the bases of

demographic variables such as age, family size, gender, income, occupation, education,
religion, race, generation, nationality or social class.

Demographic variables are the most popular bases for distinguishing customer groups. One
reason is that consumer wants, preferences and usage rates are often highly associated with
demographic variables. Another is that demographic are easier to measure than most other
types of variables.

Psychographic Segmentation

In psychographic segmentation, buyers are divided into different groups on the basis of life
style and/or personality. People within the same demographic group can exhibit very
different psychographic profile.

Behavioral Segmentation

Behavioral segmentation focuses on product related behavior of customers. This focuses on

such attributes as product usage rates (heavy users, medium users or light users), the benefits
derived from the product (benefit sought), attitude towards the product (enthusiastic,
positive, indifferent, negative, and hostile), buyers readiness stage (unaware, aware,
informed, interested, desirous, and intending to buy), etc.

4.1.3. Importance of segmentation

Buyers are too numerous, too widely scattered and too varied in their needs and buying
practices. Moreover, the companies themselves vary widely in their ability to serve different
segments of the market. Rather than trying to compete in an entire market, each company
must identify the part of the market that it can serve best and most profitably.

To choose its markets and serve them well, many companies are embracing target marketing.
In target marketing, sellers distinguish the major market segments, target one or more of
those segments, and develop products and marketing programs tailored to each segments.
Instead of scattering their marketing effort, they can focus on the buyers whom they have the
greatest chance of satisfying.

Criterias for effective segmentation

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There is no underlying theory to the process of market segmentation. It follows that what is
an appropriate basis for segmenting one market may not be appropriate to other markets.
Before we begin to look at the bases on which marketers can segment any given market, we
need to be aware of requirements by which the effectiveness of any segmentation basis can be
assessed. We will consider here five important criteria.

Market segments must be:

a) Measurable The size purchasing power and profiles of the segments can be
measured.
b) Substantial the market segments are large or profitable enough to serve
c) Differentiable - the segments are conceptually distinguishable and respond
differently to different marketing mix elements and programs.
d) Accessible the market segments can be effectively reached and served
e) Actionable effective programs can be designed for attracting and serving the
segment.

4.2. Target Marketing

After a market is segmented, the company must decide which and how many segments to
serve. This is what we call market selection (target marketing). A target market consists of a
set of buyers who share common needs or characteristics that the company decides to serve.
In selecting markets, it is advisable for companies to consider the followings:

First, target markets should be compatible with the organizations goals and image.
Second, the segments opportunity should proportionate with the companys resource.
Third, the segment must be profitable.
Fourth, a company ordinarily should seek a market where there are the least and
smallest competitors.

There are three alternative strategies in target marketing:

1. Aggregation strategy: (undifferentiated marketing or mass strategy): - a firm might

decide to ignore market segment differences and go after the whole market with one offer
(treating the total market as a single segment). An aggregate markets members are
considered to be alike with respect to demand for the product i.e. customers are willing to
make some compromises on less important dimensions in order to enjoy the primary
benefit the product offers. Hence, this approach focuses on what is common among
consumers rather than what is different. The company designs a product and a marketing
program that will appeal to the largest number of buyers. It relies on mass distribution
and mass advertising and one pricing strategy and superior image in the peoples minds.

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 Undifferentiated marketing provides cost economies. The narrow product line keeps
down production, inventory and transportation costs. The undifferentiated advertising
program keeps down advertising costs. The absence of segments marketing research and
planning lowers the costs of marketing research and product management. But it may not
be advantageous to use this approach in todays competitive environment. This is because
this approach targets its products at everybody or the average customer. The fallacy of
developing products directed at average customer is that relatively a few customers are
exist. Typically, population is characterized by diversity. An average is simply midpoint
in some set of characteristics. Because most customers are not average they are not likely
to be attracted to an average product. Rather they tend to use the products of other
companies that appear to tailor to their specific needs. But, this by no means that there is
no any circumstance that this approach can be practiced. It may be applied when the total
market for the type of product under consideration (the majority of customers in the total
market) are likely to respond in very similar fashion to one marketing mix. In addition, it
may be appropriate for firms that are marketing an undifferentiated, staple product like
salt or sugar. For most customers sugar is sugar and salt is salt.
2. Single segment strategy (Concentrated marketing): - is selecting one segment among
many segments. Then one marketing mix (program) will be designed to reach this market
segment. This approach is desirable when the company has limited resource to serve
many segments. Apart from this, it enables companies to penetrate new market in depth
and to acquire reputation as a specialist in that market. No matter how this advantage, it
may turn out to be a little bit disadvantageous from the risk point of view. In this
approach, the company invests the whole of its resources in a single market and hence if
anything wrong happens with that market, say if the market declines, the seller will suffer
considerably.
3. Multiple segment strategy (differentiated marketing):- When a firm selects two or more
market segments to serve. A separate marketing mix (program) is designed for each of
such market segments. Companies pursuing this strategy hope that a stronger position in
several segments will strengthen consumers over all identification of the company with
the product category. This strategy may provide the company with higher sales as
compared to other strategies and of course minimizes the vulnerability of the firm for risk
as it operates in more than one segment. No matter how, companies advocating this
approach should recognize that the costs associated with this strategy is relatively greater
than the other approaches. This is so; first because marketing for different segments
requires producing different kinds of products tailored to each segment hence,
production costs are obviously greater. Second, the company should come up with

35
 different promotional and distribution programs for each segment, which in turn keeps
the associated costs up.

4.3. The Concept of Positioning

After segmenting and targeting its market, then the company should develop marketing mix
program tailored to each targeted market so that customers in each target market will
respond in favor of the companys product. This, the act of designing the companys
offering and image to occupy a distinctive place in the mind of the target customers is what
we call positioning. The end result of positioning is the successful creation of a customer
focused value proposition, a cogent reason why the target market should buy the product. In
positioning, the firm will decide upon the nature of the product i.e. form, attribute,
performance quality, conformance quality, durability reliability etc aspects of the product in
light with each segment, the pricing strategy, promotional approach and distribution strategy
associated with each segment.

Positioning task consists of three steps: identifying a set of competitive advantage upon
which to build a position, selecting the right competitive advantages, and effectively
communicating and delivering the chosen position to the market.

A. Identifying possible competitive advantage: - Consumers typically choose products that

give them the greatest value. Thus the key to success is to understand customer needs and
buying process better than competitors do. That means a firm should come up with some
kind of benefits to customers that make it different from competitors so that customers will
be attracted to the companys products than competitor products. To this end, a company
needs to know on what grounds it can make its offers peculiar from competitors. A
companys offer can be differentiated along the lines of product, services, people or image.

1. Product differentiation: - Physical products vary in their potential for differentiation. At

one extreme we find products that allow little variation and at the other extreme products
capable of high differentiation. Companies can differentiate their products on such attributes
as features, performance, durability, reliability, reparability style and design.

2. Service differentiation: Beyond differentiating its physical product, a firm can also
differentiate the service that accompanies the product. Some companies gain competitive
advantage through speed, convenient, careful delivery, installations, customer training,
customer consultancy service and maintenance and repair.

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3. Personnel differentiation: companies can get competitive advantage through hiring and
training better people than their competitors do. People differentiation requires that a
company select its customers contact people carefully and trained them well.

4. Channel differentiation: companies can gain competitive advantage through the way they
design their distribution channel coverage, expertise and performance.

5. Image differentiation: Buyers respond differently to company and brand image. Image
refers to the way the public perceives the company or its product.

B. Selecting the right competitive advantage: suppose that a company is fortunate enough
to discover several potential competitive advantages. It now must choose the ones on which
it will build its positioning strategy. It must decide how many differences to promote and
which ones.

How many to promote: there is no fast and hard rule in this regard. A company may select
as many differentiation bases as it needs. Today in a time when mass marketing is
fragmenting in favor of small segments, companies most often tend to broaden their
positioning strategy by accommodating more than one differentiation basis. However, as
they increase the number of claims of their brands, they risk disbelief and a loss of clear
positioning.

Which difference to promote: Not all brand differences are meaningful or worthwhile, not
every difference is a good differentiator. Each difference has a potential to create company
costs as well as customer benefits. Therefore, the company must carefully select the ways in
which it will distinguish itself from competitors. A difference is worth establishing to the
extent that it satisfies highly valued benefit to customers (important), possibility to deliver it
in distinct way than competitors (distinctive), the difference must be presented in superior
ways than it is presented by competitors (superior), it should be communicable and visible to
customers (communicability), it should be difficult for competitors to copy the difference
(preemptive), it should be affordable at prices desired by buyers (affordability), and it
should be profitable to the company.

C. Communicating and delivering the chosen position: - Once it has chosen the position, the
company must take strong steps to deliver and communicate the desired position to target
customers. All companys marketing mix elements should support the positioning strategy.
Positioning calls for concrete action not talk. E.g. if the company decides to position on better
quality and service, it should not only communicate these differentiation bases to the
prospective target markets but also should deliver it. Otherwise, it bound to fail sooner or
later even if its positioning strategy is the best one.

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 Chapter Five
Managing Marketing Mix Elements

Marketing mix is a set of marketing tools: product, price place and promotion, which the firm
uses to pursue its marketing objectives in the target markets. Marketing mix planning begins
with formulating an offering to meet target customers needs and wants. The customer will
judge the offering by three basic features: the products features and attributes along with
quality, the offerings price and the availability and accessibility of the product.

5.1 Product Planning

5.1.1Meaning of a Product

A product is anything that can be offered to a market to satisfy a want or need. Products that
are marketed include physical goods, services, persons, places, organization, and ideas.

5.1.3 Classification of a Product

Products fall into two broad classes based on the types of consumers that use them;
consumer products and industrial products.

Consumer products

Consumer products are products bought by final consumers for personal consumption.
These products can be classified on the basis of consumer shopping habits. Consumer
products include convenience products, shopping products, specialty products and unsought
products.

A. Convenience products

Convenience products are consumer products that the consumer usually buys frequently,
immediately with a minimum of comparison and buying effort. Examples include soap,
candy, newspaper, fast food.

Convenience products are usually low priced, and marketers place them in many locations to
make them readily available when a customer needs them.

B. Shopping products

Shopping products are less frequently purchased consumer products that consumers
compare carefully on suitability, quality, price and style. When buying shopping products,
consumers spend much time and effort in gathering information and making comparisons.
Example includes furniture, clothing, used cars major appliances and hotel and airline

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service. Marketers usually distribute their products through fewer outlets but provide deeper
sales support to help customers in the comparison efforts.

C. Specialty products

Specialty products are consumer products with unique characteristics or brand identification
for which a significant group of buyers is willing to make a special purchase effort. Examples
include specific brands and types of cars, high priced photographic equipment, designer
clothes, and the services of medical or legal specialists. Buyers normally do not compare
specialty products. They invest only the time needed to reach dealers carrying the wanted
products.

D. Unsought products

They are consumer products that the consumer either does not know about or knows about
but does not normally think of buying. Most major new innovations are unsought until the
consumer becomes aware of them through advertising. Classic examples of known but
unsought products and services are life insurance, cemetery plots, and blood donations to the
Red cross. By their very nature, unsought products require a lot of advertising, personal
selling and other marketing efforts.

Industrial products: these are also further divided in to three groups.

1. Materials and parts: refers to those products that make up the final product of the
company (component part of the final product). E.g. raw materials, manufactured
materials, parts etc.
2. Capital items: are products that aids in the buyers production or operation. They
neither make up the final product of the company nor are consumed but are used to
produce the final product of the company for e.g. installations (buildings, offices, main
machineries etc), accessories such as portable tools and equipments etc.
3. Supplies and services: supplies refer to those products that are consumed in the
production process or operation of buyers. E.g. lubricants, oil, paper, pencil, repair
and maintenance items etc. Services refer to maintenance and repair services that the
firm purchases from outsiders or services supplied by outsiders such as legal,
management counseling, advertising etc.

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5.1.4 Product Life Cycle
Like living beings, products have life cycle. The Product Lifecycle (PLC) is depicted by the
sales curve of the product since its introduction. A product normally passes through (i.e., a
PLC has) four different stages, namely, introduction, growth, and maturity and decline.

Sales and Sales

Profit (Birr) volume

Stage I Stage II Stage III Stage IV

Profit
trend

Maturity Decline
Introduction
Growth

Time

Figure: Product life Cycle

Introduction Stage

The introduction stage of PLC, which starts, with the launching of the new product is
characterized by:

1. Low sales because it generally takes some time for a new product to get wide
acceptance by consumers and it also tasks time to expand the marketing of the
product.
2. High costs per unit because of the low sales and high promotional expenditure.
3. Absence of or low competition if the product is entirely new.
4. Loss or negligible profits because of low sales and high costs.

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Growth Stage

The growth stage, which follows the introduction stage, is characterized by:

1. Fast growth in sales because of increasing consumer acceptance and expansion of

marketing.
2. Growing profits because of growing sales and fall into incidence of fixed production
cost and marketing cost per unit.
3. Increasing competition.
4. Market segmentation and the introduction of different versions (models) of the product.

Maturity stage

The maturity stage is characterized by:

1. Saturation of sales (in the early part of this stage, sales may growth slowly but at the
later part there could even be a fall in sales)
2. Intense completion
3. Failing profits because of high promotional expenditure and falling margins

Decline stage

The last stage is characterized by:

1. Entry of new products, which compete with the product.

2. Decline in sales
3. Decline in profits: profits may even become negative
4. Exit of some of the firms

5.1.5 New Product Development

A company has to be good at developing and managing new products. Every product seems
to go through a life cycle: it is born, goes through several phases, and eventually dies as
newer products come along that better serve customer needs.

A firm can obtain new products in two ways: by acquisition- by buying the whole company,
patent or license etc and the other is through new product development. Here by new
products we mean original products, product improvements, product modifications and new
brands the firm develops through its research and development efforts.

There are some sequential steps that companies need to pass through in developing new
product.

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1. Idea generation: refers to the systematic search for new product ideas. The company
should develop a framework (clearly defining new product development strategy) through
which new product ideas that correlates with its operation can be generated in order to make
the search for ideas systematic. Ideas for new products can come from interacting with
various sources and from using creativity generating sources. It may emanate from
customers, scientists, competitors, employees, suppliers and distributors etc.

2. Idea Screening: - the purpose of idea generation is to create a large number of ideas. The
purpose of this stage is to reduce that number by accommodating good ideas and dropping
poor ones so that the company can go ahead with the product ideas that will hopefully turn
into profitable products. In screening ideas, the benchmark may be different from company
to company but it is at this stage that companies should make sure the idea is compatible
with the firms objective, strategies and resources. Hence, it is desirable to drop those ideas
that do not match with the aforementioned aspects of a company.

3. Concept Development and Testing An attractive idea has to be developed into product
concepts. As opposed to a product idea that is an idea for a product that the company can see
itself marketing to customers, a product concept is a detailed version of the idea stated in
meaningful consumer terms.

This is different again from a product image, which is the consumers perception of an actual
or potential product. Once the concepts are developed, these need to be tested with
consumers either symbolically or physically. For some concept tests, a word or a picture may
be sufficient; however, a physical presentation will increase the reliability of the concept test.
After being exposed to the concept, consumers are asked to respond to it by answering a set
of questions designed to help the company decide which concept has the strongest appeal.
The company can then project these findings to the full market to estimate sales volume.

4. Marketing Strategy Development This is the next step in new product development. The
strategy statement consists of three parts: the first part describes the target market, the
planned product positioning and the sales, market share and profit goals for the first few
years. The second part outlines the products planned price, distribution, and marketing
budget for the first year. The third part of the marketing strategy statement describes the
planned long-run sales, profit goals, and the marketing mix strategy.

5. Business Analysis once the management has decided on the marketing strategy, it can
evaluate the attractiveness of the business proposal. Business analysis involves the review of
projected sales, costs and profits to find out whether they satisfy a companys objectives. If
they do, the product can move to the product development stage.

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6. Prototype (product) Development Here, R&D or engineering develops the product
concept into a physical product. This step calls for a large investment. It will show whether
the product idea can be developed into a full-fledged workable product. First, R&D will
develop prototypes that will satisfy and excite customers and that can be produced quickly
and at budgeted costs. When the prototypes are ready, they must be tested. Functional tests
are then conducted under laboratory and field conditions to ascertain whether the product
performs safely and effectively.

7. Test Marketing If the product passes the function tests, the next step is test marketing: the
stage at which the product and the marketing program are introduced to a more realistic
market settings. Test marketing gives the marketer an opportunity to tweak the marketing
mix before the going into the expense of a product launch. The amount of test marketing
varies with the type of product. Costs of test marketing can be enormous and it can also
allow competitors to launch ame-too product or even sabotage the testing so that the
marketer gets skewed results. Hence, at times, management may decide to do away with this
stage and proceed straight to the next one.

8. Commercialization introducing the product to the market-it will face high costs for
manufacturing, advertising and promotion. The company will have to decide on the timing
of the launch (seasonality) and the location (whether regional, national or international). This
depends a lot on the ability of the company to bear risk and the reach of its distribution
network.

5.1.6 The concept of Product Mix and Product Line

5.1.6.1 Product Mix

The product mix is the full list of all the products offered for sale by a company. The product
mix may consist of one or more product lines. Product line is a group of products that are
closely related whether because they satisfy a class of need, are used together, are sold to the
same customer groups, are marketed through the same types of outlets, of fall within given
price ranges. A specific version of a product that has a separate designation in the sellers list
is known as a product item.
The product mix has certain width, depth and consistency. The width refers to the average
number of product line offered by the company within product mix. The depth of product
mix: refers to how many variants are offered of each product in the line. The consistency
refers to the extent to which the various product lines are closely related in end use,
production requirements, distribution channels, or in some other ways. The length of
product refers to the total number of items in product line. One of the important decisions in
international business is the width and depth of the product mix and the length of each

43
product line. It may vary between markets depending upon the market characteristics. It is
generally observed that companies do not introduce their full range in some countries,
particularly in the developing countries for reasons such as limited competition, lack of
demand etc. It has also been a common practice to introduce products in some markets,
especially the developing countries, only at a later stage sometimes only after the product has
become obsolete or has reached the maturity or declining stage in the product life cycle.

5.1.6.2 Branding
A Brand is a name, term, sign, symbol, design, or combination of them which is intended to
identify the goods or services of one seller or group of sellers and to differentiate them from
those of competitors. A brand identifies the seller or maker. It can be a name, trade mark,
logo, or other symbol. In todays competitive market, branding is one of competitive forces
that give edges for companies to compete. In this regard you can imagine to what extent the
difference will be if Sony sells its television without brand and with brand. In addition, it
provides a legal protection for unique product features that might otherwise be copied by
competitors. Apart from this, it enables the company to segment its market in profitable way.
Branding is not only beneficiary for producer but also for customers. It enables customers to
easily identify products that might benefit them. In addition, it will give them a guarantee
that they will get the same features and benefits and quality each time they buy a given
product.
A good name should

1) Suggest something about the products qualities or benefits

2) Be short, easily pronounced, recognized, and remembered
3) Be distinctive
4) Be consistent with the image of the product (or other product)
5) Have no undesirable associations (in English or other languages)
6) Be legally available & legally protectable

5.1.6.3 Packaging
Packaging refers to designing and producing the container or wrapper for a product. It may
take different forms. It may be primary container: a container to be used throughout the life
of the product or secondary container: a container to be thrown away when the product is
about to be used or the shipping package: container necessary to ship or store the product.
Traditionally, the primary function of package was to contain and protect the product. No
matter how, in todays competitive market environment, packaging concern extended to
include issues such as attracting customers, describing the product, convincing buyers to
make sale etc. Developing a good packaging for a product requires making many decisions.
First, the company must establish the packaging concept, which states what the package

44
should be or do for the product. Should it mainly offer product protection, introduce a new
dispensing method; suggest certain qualities about the product or something else? Decision
then must be made on specific elements of the package such as size, shape, materials, color,
text etc. All these elements must work together to support the products position and
marketing strategy. Additionally, growing environmental concerns in connection to
packaging should also be taken in to consideration.

5.1.6.4 Labeling
Labels may range from simple tags attached to product to complex graphics that are part of
the package. They perform several functions. At the very least, the label identifies the
product or brand, such as the name Sunkist stamped on oranges. The label might also
describe several things about the product who made it, where it was made, when it was
made, its contents, how it is to be used, and how to use it safely. Finally, the label might
promote the product through attractive graphics.

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 5.2 PRICING DECISION

5.2.1 Meaning of Price

In the narrowest sense, price is the amount of money charged for a product or service. More
broadly, price is the sum of all the values that consumers exchange for the benefits of having
or using the product or service.

Price is the only element in the mix that Produces revenue; the other elements produce costs.
Price is also one of the most flexible elements of the marketing mix. Unlike product feature
and channel commitments, price can be changed quickly.

5.2.2 Pricing Objectives

A firm may have various objectives and pricing contributions. And hence, the clearer a firm
is about its objectives, the easier it is to set price. A company can pursue its various objectives
through its pricing: survival, current profit maximization, market share leadership and
product quality leadership.

Survival Companies pursue survival, as their major objective if they are troubled/plagued
by overcapacity, intense competition or changing customer wants. To keep the plant going a
company will set a low price, hoping to increase demand in this case, profits are less
important than survival. However, survival is only a short-term objective, in the long run, the
firm must learn how to add value or face extinction.

Current profit maximization

Many companies use current profit maximization as their pricing goal. They estimate what
demand and costs will be at different prices and choose the price that will produce the
maximum current profit, cash flow, or return on investment.

Market share leadership companies may want to obtain market share leadership. They
believe that the company with the largest market share will enjoy the lowest costs and
highest long run profit to become the market share leader; these firms set prices as low as
possible.

Product quality leadership

A company might decide that it wants to achieve product quality leadership. This normally
calls for charging a high price to cover such quality and high cost of R&D.

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4.2.3 Factors Affecting Pricing Decision

A companys pricing decisions are affected by both internal company factors and external
environmental factors.

Internal factors affecting pricing decisions

Firms have to consider the internal factors in setting their pricing policy. Factors include the
companys marketing objectives, marketing mix strategy, costs and organizational
considerations.

1. Marketing objectives: -before setting a price, the company must decide on its strategy for
the product. If the company has selected its target market and positioning carefully, then its
marketing mix strategy, including pricing will be fairly strait forward. For e.g. if the company
decided to target high income group, this suggests that the price will be higher or if it
positioned its product as economical this requires low price. In addition, the companys main
objective in the market may have implication on its price. For e.g. a company may set
survival as its major objective if it is troubled by too much capacity, heavy competition or
changing consumer needs. To keep the plant operating in such circumstance, a company may
lower its price, hoping to increase demand. (Survival should be only a short-term objective
and in the long run a firm should learn how to add value to its product). Otherwise, a
company may have current profit maximization as a major goal. In doing so a company will
estimate its demand and cost and choose the price level that will produce the maximum
current profit. Apart from this, a company may pursue market share leadership objective and
hence may charge low price to attract more customers. Or else a company may want to
achieve product quality leadership, which normally calls for charging higher prices for
superior performance. A company may also set its price low to prevent competition from
new entrants.

2. Marketing mix strategy: Price is only one of marketing mix elements that a company uses
to achieve its objectives. Hence, price decision must be coordinated with other marketing mix
decisions (product design, distribution and promotion) to form a consistent and effective
marketing program. Decisions made for other marketing mix variable may affect pricing. For
e.g. a firm using many resellers who are expected to support and promote their products may
have to build larger reseller margins into their prices. On the other hand the decision on high
performance quality means that the seller must charge a higher price to cover higher costs.
Or else a firm looking for attracting customers through promotional campaign may find
cutting price as a means to attract customers.

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3. Costs: costs set the floor for setting price that a company can charge for its product. Most
often under normal circumstances, companies need to charge a price that both covers all its
costs for producing, distributing and selling the product and delivers a fair rate of return for
its effort and risk. Generally a companys cost has paramount implication upon the price the
company needs to charge for e.g. a company interested to charge lower prices cannot do so
unless it has lower cost of production.

4. Organizational consideration: Responsibility for setting prices is different from

organization to organization for e.g. in small companies the top management may be
involved in setting prices for products while in the case of large companies this may be the
responsibility area of divisional or product manager. In any case the organizational set up by
itself has implication upon the pricing aspect.

External factors affecting pricing

1. The market and demand: While cost determines the lower limit of prices, the market and
demand set the upper limit. The sellers freedom of setting price varies according to the type
of market for e.g. in a competitive market situation and monopolistic market situation, a
companys freedom of setting price will not be the same. In the later case, the presence of
other producers means that customers will have other alternatives to satisfy their need, this
eventually makes companies appeal customers through their price and other means. In the
first case, the absence of competitors gives the company greater freedom to the company to
set its price. Apart from all this, the demand of the product by it self has implication up on
the price that the company sets. As we all know according to Economists, demand and price
are inversely related, that is the higher the price is the lower the demand will be and vice
versa. Hence, in setting its price a company should take into consideration the resultant
demand it will have for that price as the sales volume basically emanates from the demand
level of the company.

2. Competitors costs, prices and offers: A consumer who is considering buying a given
companys product will evaluate the prices and values of a company against the prices and
values of other companies producing that product. In addition, the companys pricing
strategy may affect the nature of the competition it faces for e.g. a company pursuing high
price, high margin strategy may change the nature of the competition as compared to a
company whose strategy is low price, low margin. To this end, a company needs to
benchmark its costs against its competitors costs to learn whether it is operating at a cost
advantage or not. Likewise, it also needs to learn the price and quality of its competitors so
that it can decide on its offers including price in relatively attractive (comparable) way than
competitors.

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3. Other external factors: in setting its price, obviously a company should consider its
economic situation such as inflation, deflation, booming etc as such factors affect both the
price of the company and the perception of consumers about the companys product value
and price. In addition, a company should consider the effect of its price on other parties in its
environment such as resellers, government, etc. Apart from all these, social concerns may
have to be taken into consideration.

5.2.3 General Approaches to Pricing

Companies set prices by selecting a general pricing approach that includes one or more of
these three considerations. The price method will then lead to a specific price. We will
examine the following approaches:

1. Cost plus pricing: is the simplest pricing method that adds a standard markup to cost of
the product in order to determine the price of a product. This method does not take into
consideration the demand and competitors price but it entirely depends on the cost of the
company and the desired profit the company wishes to get thereof. No matter how this
weakness, it is a popular one because sellers in most cases are certain about costs than
about demand and it appears to be somehow fair for both buyer and seller.
2. Break-even or target profit pricing: when a firm tries to set its price at a level that
equates its cost to sale or makes the target profit it is seeking. In this method the company
will determine what price will make it break even or desired profit at a given level of
sales. In this regard it takes into consideration only the cost aspect and the desired profit,
it does not take into consideration the price-demand relationship. Thus, in using this
method a company should also consider the effect of the price it is setting on demand.
3. Value based pricing: is a method that the price of a product is decided based on the
perception of consumers rather than sellers cost as the key factor. In this method, price is
to be determined in such a way that the combination of the quality of the product along
with its service are reasonable enough to justify the benefits customers expect to get from
the product. (at a fair price).
4. Competition based pricing: is a method that considers the competition as the most
important factor to determine the price of a company. Hence, the companys price is to be
determined in such a way that it is capable enough to attract consumers than competitors
products (price that meet the competition). In perusing this approach, most often
companies follow the market leaders price i.e. it may charge a little bit greater or lesser
than the leaders price or the same as the leaders price and will change their price when
the leader changes its price or when the prevailing price in the market changes.

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Pricing Strategies

I. Market Skimming Pricing: Is setting a high price for a new product to skim maximum
revenue layer by layer from the segments (market). Market skimming makes sense only
under certain conditions.
The products quality and image must support its higher price and enough buyers
must want the product at that price.
The costs of producing a smaller volume cannot be so high that they cancel the
advantage of charging more.
Competitors should not be able to enter the market easily and undercut the high
price.

II. Market Penetration-Pricing: Setting a low price for a new product in order to penetrate
the market quickly and deeply to attract a large number of buyers quickly and win a large
market share. The high sales volume results in falling costs, allowing the company to cut
its price even further.
The market must be highly price sensitive so that a low price produces more market
growth.
production and distribution cost must fall as sales volume increase
The low price must help out competition and the penetration prices must maintain
its low price position otherwise the price advantage maybe only temporary.

5.3 Placing the Product

5.3.1 Meaning and Importance of Distribution

Distribution channel is a set of interdependent organizations involved in the process of

making a product or service available for use or consumption by the consumer or business
user.

A marketing channel performs the work of moving goods from producers to consumers.
Channel members add value by bridging the time, place, and possession gaps that separate
goods and services from those who need or want them. Members of the marketing channel
perform a number of key functions.

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Importance of Distribution

Information: Gathering and dissemination of marketing research and intelligence

information about potential and current customers, competitors and other actors and
forces in the marketing environment.
Promotions: The development and dissemination of persuasive communications
designed to attract customers to the offer.
Contract: Finding communicating with prospective buyers.
Matching: Shaping and fitting the offer the buyers needs, including activities such as
manufacturing, grading, assembling, and packaging.
Negotiation: Reaching an agreement on price and other terms of the offer so that
ownership or possession can be transferred.
Ordering: Marketing channel members communication of intentions to buy to the
manufacturer.
Physical distribution: Transporting and storing goods.
Financing: Acquiring and using funds to cover the cost of the channel work.
Risk taking: Assuming the risks of carrying out the channel work.
Payment: Buyers payment of their bills to the seller through banks and other financial
institution.

8.3.2 Factors influencing Channel Decision

Cost
Accessibility
Suitability
Nature of the product

5.3.3 Channel design decisions

The design of the channel depends on how consumers make decisions about the particular
product, the number and dispersion of consumers, the amount of goods to be sold and their
value, the cost of various channel options, the task that must be performed and competitive
practices. Generally, in designing their channel, companies need to assess the following
sequential steps so that their channel will be able to address what it is supposed to.

1. Analyze customers desired service output levels: this refers to assessing the level of
services that target market customers expect from the companys distribution channel. This
may take different aspects. For e.g. the lot size (the number or size of products) that a typical
customer wants to buy on one occasion and product variety: the assortment breadth
provided by the marketing channel should be looked in to. In the same way, the average time

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(waiting time) that customers should wait for receipt of the goods should as well be assessed.
Likewise, the spatial convenience: the degree to which the marketing channel should make it
easy for customers to purchase the product is also one of the factors to be considered. As
well, the company should also consider if there are possible service backups that customers
may expect from the channel or may attract customers such as delivery, credit, ordering etc.

2. Establish channel objectives and constraints: channel constraints and objectives should be
assessed taking in to account the targeted service output level to customers. The ultimate
objective of channels is to provide products available to targeted customers effectively and
efficiently. But in todays competitive environment, it may not be enough. In addition to this
basic and traditional purpose, channels may be designed to accommodate additional aspects
such as additional services like transportation, on line ordering etc, risks associated with the
transfer of values etc so that the channel will be more conducive to customers than
competitors channels do. Abreast with this, channel constraints should be considered in light
with the characteristics of the products under consideration. For e.g. if the product is
perishable or bulky in nature, or non-standardized such as custom-built machineries, it may
not be that much feasible to keep and distribute such item through elongated intermediaries.
Likewise, if the product by its very nature requires installation or maintenance services or
high unit value product, to distribute it thorough traditional intermediaries may not be so
viable. Rather, it may be reasonable to use companys own institution or franchised dealer.
On the other hand, if the product is somehow perishable and low unit value product, it may
be feasible for intermediaries to carry the product and provide the necessary services down
to customers. Additionally, under competitive environment, channel institutions should be
arranged in such a way that the total channel cost with respect to the desired level of service
will be minimized. Apart from all these, in assessing channel objectives and constraints, the
larger environment with in which the business is to be practiced should be taken into account
i.e. economical, legal, technological etc situations.

3. Identify major channel alternatives: companies can choose from a wide variety of channel
for reaching customers- from companys own sales force to agents, distributors, internet etc.
Each of these options will have their own unique strength as well as weakness. Companys
own sales force can handle complex products and transactions but they are too expensive.
Distributors can create sales but the company will lose direct contact with customers and the
final price that will be charged on customers will be relatively high as compared to
companies own sales force. Likewise, internet may be much less expensive but may not
handle complex products and transactions. Generally, as far as the alternatives of channels
concerns, they can be categorized into two broad options: direct marketing (distribution) and
indirect marketing (distribution). A company is said to use direct marketing (distribution) if

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it uses its own sales force and institutions to distribute its products and indirect distribution
if it uses external parties (intermediaries) to distribute its products. If a company distributes
its products by itself, it may turn out to be advantageous as it enables the company to keep
direct interaction with its customers and the possible price that reaches to final consumers
will not be that much inflated. Contrary to this, even if they may be considered as
disadvantageous from the above point of view, in todays situation it almost become
infeasible for a company to distribute its products by itself owing to the advantages of
intermediaries that outraces their disadvantages. Hence, most producers do not sell their
goods directly to the final users. Between producers and consumers stands one or more
marketing channels, a host of marketing intermediaries performing a variety of functions.
This is so primarily because intermediaries are more efficient in making goods available to
target customers in areas where they are in need of than that of the company itself. Through
contacts, experience, specialization, and scale of operation, intermediaries usually offer
products to customers more than the organization can achieve on its own. Additionally,
intermediaries smooth the flows of products to buyers by performing the key functions of
informing, promoting, and physical possession (including negotiation, title, payment, risk
taking and financing. The information function involves gathering and distributing
marketing research and intelligence about the environment for planning purposes. Scanner
technology provides a great amount of information. The promotion function involves
developing and spreading persuasive communications about an offer. The physical
possession function consists of the transporting and storing of products. This activity
involves the negotiations for reaching an agreement on price and other terms. The title is the
actual transfer of ownership from one organization or person to another. The payment
involves buyers paying their bills. The risk taking function assumes the risk of carrying the
product and receiving payment. The financing function involves acquiring and using funds
to cover costs. Without an intermediary, each buyer has to negotiate and exchange with each
seller. Intermediaries reduce the number of contacts necessary to complete a
transaction. Thus, the use of intermediaries is extremely efficient for the consumer and the
manufacturer. Likewise, most manufacturers produce a single line of products (narrow
assortment) and sell them in large quantities. Intermediaries reduce this quantity discrepancy
by matching supply and demand. They buy in large quantities and sell in smaller quantities.
They help to smooth the distribution path for goods by creating utility, performing
marketing functions, and cutting costs. Producers do not have to deal directly with a large
number of end-users. Instead, marketing intermediaries handle the tasks involved. They are
often specialists in certain functions and can perform these activities more efficiently than
producers can. Consumers need an assortment of products and intermediaries resolve this
assortment discrepancy by gathering products from several manufacturers to offer a broad

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assortment to consumers. By representing numerous producers, marketing intermediaries
cut the costs of buying and selling. Because they can consolidate orders, they may also be
able to negotiate better prices than individual consumers could. No matter how all this,
today, in order to make balanced benefit out of both options, today some companies are
accustomed to make use of both options but significant numbers of companies have already
shown a tendency to use intermediaries owing to its capitalized benefits as compared to
drawbacks.

4. Evaluate the different alternatives and choose the conducive one: We can view channel
design process as follow. First the firm must identify what customers expect to be provided
through the firms channel and then should asses the constraints associated with delivering
the desired function to customers in light with the products nature and other characteristics
and finally decides on whether to sell direct or through intermediaries. This decision in turn
depends up on how well each channel option can perform the expected distribution
functions for the firm in managing the distribution of its goods and for customers in
providing what they expect. In addition each of the available options should be evaluated
against economic, control and adaptive criteria. Each channel alternative will produce a
differential level of sales and cost. Hence, each of the options should be evaluated from the
potential sales and cost perspective. Apart from this, control and adaptive criteria should be
seen. Using sales agency posses a control problem. Intermediaries are independent parties
seeking to maximize their profit. Hence, in some circumstances, these intermediaries may act
against the companys desire in their effort to capitalize their benefit and this in turn may put
the companys business at the odd. Hence, the company should also consider to what extent
it can influence and control the activities of its intermediaries before choosing intermediaries.
After all these assessments, if management decides to sell through intermediaries, then it
must choose the breadth of coverage needed to reach customers. There are three possibilities
in this regard: intensive distribution, exclusive distribution and selection distribution.

Intensive distribution: it is a strategy to use as many outlets (intermediaries) as possible.

This is feasible and advantageous especially for convenience products because the most
important consideration that customers care about is to get the products available in areas
where they are in need of on timely basis with compatible size. So, companies pursuing this
strategy will make their products available in the hands of every possible intermediary.

Exclusive distribution: By cont 96*9 rast, some

producers purposefully may limit the number of their intermediary in a given region to one
intermediary in which the intermediary will have the exclusive right to distribute the
companys products in the specified region.

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Selective distribution: In some circumstances, companies may not limit the right to
distribute their products to only one or specific intermediary and as well may not allow all
possible and potential intermediaries to distribute their products but limit the right to
distribute their products for intermediaries more than one but fewer than all.

Generally, no matter what system is designed, the firms channel of distribution should be
designed in such a manner that it is capable enough to make products available and easily
accessible to areas where customers are in need of effectively and efficiently so as to enhance
customer satisfaction.

5.4 Promoting the Product

5.4.1 Meaning of promotion

Promotion is a form of corporate communication that uses various methods to reach a
targeted audience with a certain message in order to achieve specific organizational
objectives.

5.4.2 The Purpose of Promotion

Build Awareness & Provide Information New products and new companies are
often unknown to a market, which means initial promotional efforts must focus one
establishing an identity.
Create Interest Moving a customer from awareness of a product to making a
purchase can present a significant challenge. The focus on creating messages that
convince customers that a need exists has been the hallmark of marketing for a long
time with promotional appeals targeted at basic human characteristics such as
emotions, fears, sex, and humor.
Stimulate Demand The right promotion can derive customers to make a purchase. In
the case of products that a customer has not previously purchased or has not
purchased in a long time, the promotional efforts may be directed at getting the
customer to try the product.
Reinforce the Brand Once a purchase in made, a marketer can use promotion to help
build a strong relationship that can lead to the purchaser becoming a loyal customer.
For instance, many retail stores now ask for a customers email address so that follow-
up emails containing additional product infoamt6ikon or even an incentive to
purchase other products from the retailer can be sent in order to strengthen the
customer-marketer relationship.

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5.4.3. Promotional Mix Elements

5.4.3.1 Advertising
Advertising- any paid form or non-personal presentation and promotion of ideas, goods or
services by an identified sponsor. It can reach masses of geographically dispersed buyers at a
lower cost per exposure and it enables the seller to repeat the message many times. B/c of
advertisings public nature, consumers tend to believe that advertised products are more
legitimate than unadvertised. It can be used to build up a long-term image of the company or
it may also be used to trigger quick sales. No matter how all this advantages, its
impersonalness connote that it is not as directly persuasive as company sales people.
5.4.3.2 Sales Promotion
Sales promotion- is a variety of short-term incentives to encourage trial or purchase of a
product or a service. It refers to the use of a wide assortment of tools coupons, contests,
cents-offs deals, premiums, and others- all of which have many unique qualities. They attract
consumers attention, offer strong incentives to purchase and can be used to dramatize
product offers and to boost sagging sales. Its effect is short term, however, often are not as
effective as advertising or personal selling in building long run brand preference.
5.4.3.3 Public Relations
Public relations - a variety of programs designed to promote and/or protect a companys
image or its individual products (by building good relations with the companys various
publics).
5.4.3.4 Personal Selling
Personal selling - face-to-face interaction with one or more prospective purchasers for the
purpose of making presentations, answering questions and procuring orders. It involves
personal interaction between two or more people, so each person can observe the others
needs and characteristics and make quick adjustments. It allows all kind of relationships to
develop beginning from short term up to long term relation with customers.
Promotion mix strategies
Marketer can choose from two basic promotion strategies: push and pull strategies. A push
strategy involves pushing the product through distribution channels to final consumers. The
producer directs its marketing activities (primarily personal selling and trade promotions)
toward channel members to induce them to carry the product and to promote it to the final
consumers. Where as in Pull strategy, producer directs its marketing activities (primarily
advertising and consumer promotion) toward the final consumer to induce them to buy the
product. If the pull strategy is effective, consumers will then demand the product from
channel members, who will in turn demand it form producers. Thus under pull strategy,
consumers demand pulls the product through the channel.
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