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Meaning and Scope of Marketing

In today’s world of marketing, everywhere you go you are being marketed to in one form
or another. Marketing is with you each second of your walking life. From morning to night
you are exposed to thousands of marketing messages everyday. Marketing is something
that affects you even though you may not necessarily be conscious of it.

After reading this post you’ll understand – What exactly the marketing is, to whom it is
beneficial for, and what are the nature and scope of marketing.

Definition of Marketing
According to American Marketing Association (2004) – “Marketing is an organisational
function and set of processes for creating, communicating and delivering value to
customers and for managing relationships in a way that benefits both the organisation and
the stakeholder.”

AMA (1960) – “Marketing is the performance of business activities that direct the flow of
goods and services from producer to consumer or user.”

According to Eldridge (1970) – “Marketing is the combination of activities designed to


produce profit through ascertaining, creating, stimulating, and satisfying the needs and/or
wants of a selected segment of the market.”

According to Kotler (2000) – “A societal process by which individuals and groups obtain
what they need and want through creating, offering, and freely exchanging products and
services of value with others.”

Nature of Marketing

1. Marketing is an Economic Function

Marketing embraces all the business activities involved in getting goods and services,
from the hands of producers into the hands of final consumers. The business steps
through which goods progress on their way to final consumers is the concern of marketing.

2. Marketing is a Legal Process by which Ownership Transfers

In the process of marketing the ownership of goods transfers from seller to the purchaser
or from producer to the end user.

3. Marketing is a System of Interacting Business Activities

Marketing is that process through which a business enterprise, institution, or organization


interacts with the customers and stakeholders with the objective to earn profit, satisfy
customers, and manage relationship. It is the performance of business activities that direct
the flow of goods and services from producer to consumer or user.
4. Marketing is a Managerial function

According to managerial or systems approach – “Marketing is the combination of activities


designed to produce profit through ascertaining, creating, stimulating, and satisfying the
needs and/or wants of a selected segment of the market.”

According to this approach the emphasis is on how the individual organization processes
marketing and develops the strategic dimensions of marketing activities.

5. Marketing is a social process

Marketing is the delivery of a standard of living to society. According to Cunningham and


Cunningham (1981) societal marketing performs three essential functions:-

 Knowing and understanding the consumer’s changing needs and wants;


 efficiently and effectively managing the supply and demand of products and services; and
 Efficient provision of distribution and payment processing systems.

6. Marketing is a philosophy based on consumer orientation and satisfaction


7. Marketing had dual objectives – profit making and consumer satisfaction

Scope of Marketing

1. Study of Consumer Wants and Needs

Goods are produced to satisfy consumer wants. Therefore study is done to identify
consumer needs and wants. These needs and wants motivates consumer to purchase.

2. Study of Consumer behavior

A marketer performs study of consumer behavior. Analysis of buyer behavior helps


marketer in market segmentation and targeting.

3. Production planning and development

Product planning and development starts with the generation of product idea and ends
with the product development and commercialization. Product planning includes
everything from branding and packaging to product line expansion and contraction.

4. Pricing Policies

Marketer has to determine pricing policies for their products. Pricing policies differs form
product to product. It depends on the level of competition, product life cycle, marketing
goals and objectives, etc.

5. Distribution

Study of distribution channel is important in marketing. For maximum sales and profit
goods are required to be distributed to the maximum consumers at minimum cost.
6. Promotion

Promotion includes personal selling, sales promotion, and advertising. Right promotion
mix is crucial in accomplishment of marketing goals.

7. Consumer Satisfaction

The product or service offered must satisfy consumer. Consumer satisfaction is the major
objective of marketing.

8. Marketing Control

Marketing audit is done to control the marketing activities.

Marketing Philosophies
There are five marketing concepts. A company should choose the right one according to their
and their customers’ needs.

1. Production Concept
2. Product Concept
3. Selling Concept
4. Marketing Concept
5. Social Marketing Concept
1. Production Concept
This concept works on an assumption that consumers prefer a product which is inexpensive
and widely available. This view point was encapsulated in Says Law which states ‘Supply
creates its own demand’. Hence companies focus on producing more of the product and making
sure that it is available to the customer everywhere easily.

Increase in the production of the product makes the companies get advantage of economies of
scale. This decreased production cost makes the product inexpensive and more attractive to the
customer.

Low price may attract new customers, but focus is just on production and not on the product
quality. This may result in decrease in sales if the product is not up to the standards.

This philosophy only works when the demand is more than the supply. Moreover, a customer
not always prefers an inexpensive product over others. There are many other factors which
influence his purchase decision.

Examples of Production Concept of Marketing Management Philosophies

 Companies whose product market is spread all over the world may use this approach.
 Companies having an advantage of monopoly.
 Any other company whose product’s demand is more than its supply.
2. Product Concept
This concept works on an assumption that customers prefer products of ‘greater quality’ and
‘price and availability’ doesn’t influence their purchase decision. Hence company devotes most
of its time in developing a product of greater quality which usually turns out to be expensive.

Since the main focus of the marketers is the product quality, they often lose or fail to appeal to
customers whose demands are driven by other factors like price, availability, usability, etc.

Examples of Product Concept of Marketing Management Philosophies

 Companies in the technology industry.


 Companies having an advantage of monopoly.

3. Selling Concept
Production and product concept both focus on production but selling concept focuses on
making an actual sale of the product. Selling Concept focuses on making every possible sale
of the product, regardless of the quality of the product or the need of the customer. The main
focus is to make money. This philosophy doesn’t include building relations with the customers.
Hence repeated sales are very less. Companies following this concept may even try to deceive
the customers to make them buy their product.

Companies which follow this philosophy have a short sighted approach as they ‘try to sell what
they make rather than what market wants’.

Examples of Selling Concept of Marketing Management Philosophies

 Companies with short sighted profit goals. This often leads to marketing myopia.
 Fraudulent companies.

4. Marketing Concept
Selling Concept cannot let a company last long in the market. It’s a consumers market after all.
To succeed in the 21st century, one has to produce a product to fulfill the needs of their
customers. Hence, emerged the marketing concept. This concept works on an assumption that
consumers buy products which fulfil their needs. Businesses following the marketing concept
conduct researches to know about customers’ needs and wants and come out with products to
fulfill the same better than the competitors. By doing so, the business makes a relation with the
customers and generate profits in the long run.

However this isn’t the only philosophy which should be followed. Many businesses still follow
other concepts and make profits. It totally depends on the demand and supply and the needs of
the parties involved.

Examples of Marketing Concept of Marketing Management Philosophies


 Companies in perfect competition.
 Companies who want to stay in the market for long time.

5. Societal Marketing Concept


Adding to the marketing concept, this philosophy focuses on society’s well-being as well.
Business focus on how to fulfill the need of the customer without effecting the environment,
natural resources and focusing on society’s wellbeing. This philosophy believes that the
business is a part of the society and hence should take part in social services like elimination
of poverty, illiteracy, and controlling explosive population growth etc.

Many of the big companies have included corporate social responsibility as a part of their
marketing activities.

Holistic Marketing Concept


Holistic marketing is new addition to the business marketing management philosophies which
considers business and all its parts as one single entity and gives a shared purpose to every
activity and person related to that business. A business, like a human body, has different parts,
but it’s only able to function properly when all those parts work together towards a same
objective. Holistic marketing concept enforces this interrelatedness and believes that a broad
and integrated perspective is essential to attain best results.

Concept of Customer Value


Introduction
We are living in a world that is most unstable and dynamic. World is not only changing but the
rate of change is accelerating. We are experiencing change in our daily life and in marketplace
too. Customer needs, wants, expectations are changing more rapidly; customers are
increasingly demanding better quality and reliability in products and services; new products
and services are coming to market more quickly, competition is getting more intense and
global; and technology is changing rapidly.

Businesses are operating in an uncertain, highly competitive, and highly complex environment.
Not only small but big players are also facing difficulties and challenges. Top companies are
loosing market share and new companies are taking their place. In cell-phone industry Nokia
was the market leader, but it is not so today, Samsung took its place.

Today, the leading edge companies are giving importance to customer satisfaction, loyalty, and
value. They are providing higher customer value to attract new customers and retain existing
customers and it leads to their long term profitability and growth.

Definition of Customer Value


According to Woodruff (1997, p. 142) – “Customer value is a customer’s perceived
preference for and evaluation of those product attributes, attribute performances, and
consequences arising from use that facilitate (or block) achieving the customer’s goals and
purposes in use situations”.

Customer value is the difference between the values the customer gains from owning and using
a product and the cost of obtaining the product.

Customer value is the difference between total customer value and total customer cost. Total
customer value is the sum of product value, service value, personnel value, and image value.
Total customer cost is the sum of monetary cost, time cost, physics cost, and energy cost.

Types of Value

 Functional Value

It is concerned with the extent to which a product is useful, has desired characteristics, and
performs a desired function.

1. Appropriate features and characteristics – quality, aesthetics, creativity, and customization.


2. Appropriate performance – performance quality, reliability, and service-support outcomes.

 Appropriate outcomes – effectiveness, operational benefits, and environmental benefits.

For example – Apple focus mainly on creating appropriate features and attributes. Ford focus
on performance and Pfizer focus on appropriate outcomes and consequences.

 Experimental Value

It is concerned with the extent to which a product creates appropriate feelings, experiences and
emotions for the customer. For example – most restaurants focus on sensory values like
aesthetics, aromas, ambiance, feel or tone. Organizations in travel or entertainment focus on
creating emotional values like – pleasure, fun, excitement adventure, or humour.

 Symbolic or Expressive Value

It is concerned with the extent to which customers associate psychological meaning to a


product. Some products appeal to customer’s self-concept and self-worth. Branded products
like BMW, Rolex, etc are purchased because of their status, prestige, and image.

Marketing management process –


An Overview
The marketing process is a process of analyzing the opportunities in the market, selection
of the target markets, and development of the Marketing Mix and management of the
marketing efforts. Below are the 4 marketing process steps that involved in targeting the
right audience in the market.

The Marketing Process Steps

1. Analysis of the opportunities in the market.


2. Selection of the target market.
3. Development of marketing mix.
4. Management of marketing efforts.

(1) Analysis of the Opportunities in the Market

The first component of the Marketing Process is to analyze the market in order to find the
opportunities that should be availed. These opportunities are related to the needs and
wants of the customers that are not properly satisfied by the competitors in the market. A
company that is initiating the marketing process focuses the opportunities that would be
beneficial in the long run success so that its performance would be effectively improved.
For this purpose, the company gets help from the marketing information system (MIS),
which plays a significant role in providing useful information about the market.

 Marketing Environment – Micro and Macro Environment

The company also conducts effective market research that would tell him the value able
information about the customers, competitors, general trends, and any extraordinary
change occurred in the market that can be useful for the company. Then company
identifies the potential opportunities from the collected information and split the whole
market into different segment. These segments are based on some factors like age group,
geographical location etc. The company evaluates each segment separately to check the
potential of the segment in the light of its strengths and weaknesses. Finally, it selects the
target market segment to proceed further.

(2) Selection of the Target Market

This is the most important step of the marketing process in which the target customers
are selected. For this purpose, the company conducts a careful analysis of the target
markets in order to choose the final customers. As it is obvious that the company do not
satisfy the needs and wants of the whole market therefore it must divide the whole market
into different segments and choose the segment that will best meet its strengths and
opportunities. In this regards, there are certain step you need to follow.

 Market Segmentation:

The process in which the whole market is split into different units of consumers, each unit
having similar wants, characteristics and behavior of consumers which need different
marketing mixes and strategies.

 Market Targeting

In this process the targeted segments of the total market are evaluated to ascertain the
attractiveness of each segment so that the one or two most suitable and potential
segments should be selected and entered. The simple rule of selecting the target unit or
segment is that it must provide the opportunity to the company to create potential customer
value in the long run. Another important rule is that a certain company has the option to
satisfy the needs and wants of one or two segments. In this case the company focuses
on that relevant segments and develops its products and strategies for them only. Such
small segments are called “niches”. The company has also another option to split the
whole market into different segments and offers different products and marketing mixes
to each segment of the market. But the most effective method is to focus on one or two
segments and after succeeding in those segments, further new segments should be
targeted.

 Market Positioning:

This concept relates to the positioning of the product of a company in the minds of the
customers as compared to the products of competitors. In other words the company tries
to maintain a clear and specific perception in customers about its products. When a
company wants to position its product, it first specifies the competitive edge for which it
offers competitive advantages to its target customers. The whole marketing program of
the company should concentrate its identified positioning strategy. The positioning is
effective when the company truly provides the efficient, competitive offering to its
customers in order to give them maximum value as compared to the offering of
competitors.

(3) Development of Marketing Mix

After setting of a complete marketing strategy of a company, then it is ready to initiate the
planning of its marketing mix.

 Marketing Mix

Marketing Mix is composed of certain variables of markets that are mixed by the company
in order to generate certain desired response in the targeted segments.

In fact the demand of the product is influenced by the use of certain activities of the
marketing mix. The marketing mix is composed of the following four P’s.

01- Product: means any offering (goods or services) to the market by the company.

02- Price: means the money paid by the customers to obtain the product.

03- Place: means the efforts which ensure the availability of the product in the market to
customers.

04- Promotion: means all the efforts by the company that ensure the sale of products to
customers through better provision of information about the advantages of the product.

A company develops an effective marketing program in which a suitable combination of


marketing mix is blended so that they are efficiently coordinated into a useful program to
provide the greater customer value in order to accomplish the company’s objectives.
4P’s of marketing mix are from the seller perspective. In certain cases the 4C’s are
replaced by the 4P’s which are

1. Product means Customer Solution


2. Price means Customer Cost
3. Place means Convenience
4. Promotion means Communication

(4) Management of Marketing Efforts

This is actually the action phase of the development marketing program in which a suitable
marketing mix is set for a target market. For the management of marketing efforts four
functions are adopted which are as follow.

01- Analysis of the Market in which the company identifies the internal strengths and
weaknesses along with the external opportunities and threats.

02- Marketing Planning in which certain marketing plans or strategies are developed so
that the overall objective of the marketing should be accomplished.

03- Marketing Implementation in which the developed plans and strategies are
practically implemented in order to achieve the marketing objectives.

04- Marketing Control in which the performance results of the marketing plans and
strategies are evaluated and necessary steps are taken to ensure the accomplishment of
overall marketing objectives of the company.

Concept of Marketing Mix


Marketing Mix is a tool which a marketer uses to formulate a product/service offer for
customers. Marketing mix is done using the 4Ps of marketing – Product, Place, Price,
Promotion and 7Ps in case of service- Physical Evidence, People, Process. The term
Marketing Mix is attributed to Neil Bordon. The term is named marketing mix because it
suggest how a marketer mixes various elements (Product, Price, Place, Promotion etc) in
order to make a relevant/just right offering to the customer. The main objective of
marketing mix strategy is to make the right product at correct price at the right place with
right promotion.

This strategy has been one of the popular marketing topics in business. Let us talk more
about the various elements in the marketing mix. There are two types of marketing mix-
Product and Service
Product Marketing Mix
When a company is offering products or goods, it comes under the purview of the product
marketing mix. It talks about the product strategies, pricing strategies, place where the
products are distributed and promotional strategies. Elements of a product marketing mix
can be explained in detail as below:

1) Product

It is the main part of the offering, the product itself. It is most important aspect of the mix.
Product is something which has some functional value and can be used by the customer
to achieve something. A marketer needs to define his product very carefully thinking about
its value, its USP, features, competition etc

2) Price

Pricing the second most important element in our marketing mix. This is value we will get
in exchange for our product. This is what the customer will pay in return for the utility of
the product. Pricing is mainly determined by the cost of the product and also how much
the customer would be willing to pay. If we price it too high no one buys, if we price it too
low, company makes losses. So we have to devise the right pricing strategy to make our
marketing mix perfect.

3) Place

Also called the Distribution. If we are making a product as the right price, that is not
enough, we need to make it available at the right place too. The customer mostly would
not come to you until and unless our product and price is unbeatable. The product needs
to be where customer is likely to buy. If we are soft drink manufacturer and the product is
not available in grocery stores, supermarkets, restaurants etc then the first two elements
of marketing mix are of no use and the offering fails.

4) Promotion
Also referred to as Communication about the product. This is the 4th element in marketing
mix which means the communication done about the product to the customer. Advertising
on TV, print and digital media would come under promotion.

Thus, the 4Ps or marketing mix is valid for every company, whether it is a product or a
service company

Service Marketing Mix / Extended Marketing Mix


In case of a service brand like a restaurant, telecom service, hospitality etc, there are
additional points apart from the 4Ps. The additional Ps i.e. physical evidence, people and
processes are collectively known as the service marketing mix. These can be described
as below:

5) Physical Evidence

A service is intangible but there has to be a reassurance to the customer that service
happened. It can be a receipt of a service or may be an invoice. Physical evidence should
be positive meaning that customer should be assured that service completed as expected.

6) People

These are the employees who help deliver the service e.g. delivery boy or a cab driver.
They may become the face of the service hence are very important that is why very
important to chose right people.

7) Process

The steps taken for the delivery of the service. The process is very crucial. The process
should not only consist of the positive path but should also consider the negative paths to
address issues in the service delivery.

e.g. Complain management, reverse supply chain etc

All these help in understand the marketing mix for a service based business

Understanding
Marketing Environment
The marketing environment surrounds and impacts upon the organization. There are three
key elements to the marketing environment which are the micro-environment and the
macro-environment. Why are they important? Well marketers build both internal and
external relationships. Marketers aim to deliver value to satisfied customers, so we need
to assess and evaluate our internal business/corporate environment and our external
environment which is subdivided into micro and macro.
Macro-environment
The macro-environment is less controllable. The macro environment consists of much
larger all-encompassing influences (which impact the microenvironment) from the broader
global society. Here we would consider culture, political issues, technology, the natural
environment, economic issues and demographic factors amongst others.

 Demographics

Businesses need to be aware of changes in the general population. Is the age distribution
changing? Are household patterns changing? Major changes in ethnicity are critical to
identify. Watch population shifts to see if the populations in cities, suburbs or rural area
are changing to determine if segments of the population are leaving one area for another.
The same holds true for geographic areas. Are people leaving one region of the country
for another? Past demographic trends would include the shift from cities to suburbs in the
50s and 60s, the aging of the Baby Boomer generation currently, the growth of the
Hispanic population over the last 20 years and the growing acceptance of the gay
community recently.

 Economics

In a recession, people lose jobs, or worry about that happening to them. This makes
consumers less willing to spend their disposable income. However, in an economic
expansion, job security makes people more willing to spend their disposable income. If
your customers use disposable income to buy your product, knowing where you are in the
economic cycle helps you plan production. Look at income distribution to see if certain
segments of the population are growing wealthier and acquiring new needs. For example,
a major reason that China is seen as an attractive market is a rapidly growing Chinese
middle class that desires an increasing range of consumer goods.

 Social and Cultural

Every nation has a set of core cultural beliefs that are passed from generation to
generation. Changes in these core beliefs affect consumer purchases. Once taboo, single-
parent families are now considered mainstream and are growing, creating a whole new
set of product needs. Preferences for music, entertainment, exercise, eating habits or
leisure time activities change with time, creating new needs or lessening past needs.

 Technological

The development of new technology can dramatically affect needs and wants. For
example, the Internet completely changed the way people communicate. If you walk into
any electronics retailer or department store, you will literally see hundreds of new products
that were directly tied to the growth of the Internet. That shift to the Internet resulted in
new consumer needs and wants, opening the door for smart companies to take advantage
of that opportunity. Today, the pace of technological change constantly provides
opportunities for new products.

 Megatrends

Most of the forces discussed here will only affect certain segments of consumers and
businesses. Their effects will diminish over time. A few forces, however, affect nearly
every segment of our civilization, and their effects last generations. We refer to these
forces as megatrends. Some historical megatrends might be the printing press, the
incandescent light bulb and the telephone. Today, the Internet appears to fall into that
category as well.

Microenvironment
Microenvironment variables are close to the firm and include the suppliers, marketing
intermediaries, customer markets, competition & publics. Microenvironment also refers to
the internal environment of the company and affects not only marketing but also all the
departments such as management, finance, research and development, Human
resources, purchasing, operations and accounting.

 Customers

Customers have the most direct microeconomic impact on a business. The simple fact is
that you can’t successfully operate a for-profit company without attracting targeted
customers. Knowing your ideal customer types and developing and presenting effective
marketing campaigns are integral to building a customer base and generating revenue
streams.

 Employees
Your workers produce, sell or service the goods and service that drive your business. The
availability of qualified, motivated employees for your business type is vital to economic
success. If you operate a highly technical business, for instance, you might have to pay
more in salary to attract a limited number of available, specialized workers.

 Distribution Channels and Suppliers

Sourcing goods used in production or resale and distributing your inventory to customers
are important as well. Manufacturers rely on materials suppliers and resale companies
rely on manufacturers or wholesalers to transport goods. To operate profitably, you need
to get good value on products and supplies and, in turn, offer good value to your customers
with accessible solutions.

 Competitors

The level of competition also impacts your economic livelihood. In theory, more
competitors means your share of dollars customers spend diminishes. However, a large
number of competitors in an industry usually signifies lots of demand for the products or
services provided. If an industry lacks competition, you might not find enough demand to
succeed in the long run.

 Investors

Shareholders and investors may help fund your company at start-up or as you look to
grow. Without funds to build and expand, you likely can’t operate a business. You could
look to creditors, but you have to repay loans with interest. By taking on investors, you
share the risks of operating and often gain support and expertise. You do give up some
control, though.

 Media and the General Public

Your local community and media also affect your ongoing business image. Communities
often support companies that provide jobs, pay taxes and operate with social and
environmental responsibility. If you don’t do these things, you may run into negative public
backlash. Local media often help your story proliferate, for better or worse.

M/U1 Topic 7 Consumer and


Organization Buying Behavior
THEINTACTFRONT 05/02/2018 2 COMMENTS
Consumer Buying Behavior
Consumer buying behavior is the result of the attitudes, preferences, intentions and
decisions made by the consumer s in a market place before buying a product. The study
of consumer buying behavior is an interdisciplinary subject area drawing widely from
sociology, psychology, anthropology etc.
 Standard Buying Process
The buying behaviour can be broken down into a series of tasks.

1. Problem recognition:

During this stage, the consumer becomes aware of an unfulfilled need or want. For
example, his old laptop may be broken and a need arises for a new laptop.

2. Information search:

in this stage, the consumer gathers information relevant to solving his problem. Example,
collection of information about various laptop models.

3. Evaluation:

The various alternatives are evaluated against the consumer’s wants needs, preferences,
financial resources etc.

4. Purchase:

In this stage, the consumer will commit to a particular choice and make the final decision.
The choice maybe influenced by price and availability.

5. Post purchase evaluation:

In this stage, the consumer evaluates whether the purchase actually satisfied her need or
not.

Types of Buying Behaviour

1. Complex: High degree of consumer involvement with significant brand differences. Eg: –
Cars.
2. Dissonance Reducing: High degree of involvement with little brand differences. Eg: –
Carpeting
3. Habitual: Low involvement with little brand difference. Eg:- Salt
4. Variety seeking: Low involvement with significant perceived brand difference. Eg:-
Chocolates

 Organizational Buying Behavior


Organization buying behavior is defined as the rational decision-making process in which
organization buys goods and services when they have need of any goods or service for
their organization. The purchased products and services get identified, evaluated, and
chosen among alternative brands and suppliers. Organizational buying is similar to the
consumer buyer behavior without any major differences. Organizations buy the products
and services for the betterment of organizational objectives such as manufacture and
deliver goods and services to members, customers or the community. Three types of
buying situation have been distinguished: the straight rebuy, the modified rebuy, and the
new task.
The straight rebuy:

It is the buying condition in which the buyers buy the product frequently. Buying of those
products will be a routine task for the organization.

The modified rebuy:

A business buying condition in which the buyer wants to change the product specification,
its price as well as terms or suppliers.

The new task:

When the organization buys any products or services for the first time then it is called new
task. In this cases, the larger the cost, there will be more decision participants and also
there will be more efforts for collecting information. The new task situation creates more
opportunity as well as challenges.

Participants in the business buying process:


The buying center who actually participates in buying the products and services, their
roles will play a significant role while making a decision to purchase any products for the
organization.

 Users:

The members who uses the products or services. In various cases, users start off with
buying proposal and also help in defining the product specification.

 Influencer

The people who affect the buying decision in an organization are called influencers. They
help to define specifications and they also provide information for evaluating alternatives.

 Buyers

In organizational buying center, the person who actually purchases the goods and
services are called buyers.

 Decider

The people who have formal or informal power in order to select or approve the final
supplier in organizational buying center are called decider.

 Gatekeepers

The person who controls the flow of information to others in organizational buying is called
gatekeepers.

Major influence on Organization Buyers


Business buyers are subject to many influences when they make their buying decisions.
Some marketers assume that the major influences are economic. However, business
buyers actually respond to both economic and personal factors.

1. Environmental Factors:

Business buyers are mostly influenced by the current economy and future economy of the
state or the world while making any decision. Economic environment consists level of
primary demand, the economic outlook and the cost of money. They are also affected by
technological, political and competitive developments in the environment.

2. Organizational factors:

The major organizational factors like objectives, policies, procedures, structure and
system must be understood well.

3. Interpersonal factors:

There are many participants who influence each other so interpersonal skills also matter
in the business buying process. However, it will be difficult to implement such
interpersonal factors and group dynamics.

4. Individual factors

The people who participate in business buying decision process bring in personal motives,
perceptions, and preferences. These individual factors are affected by individual
characteristics such as age, income, education, professional identification, personality
and attitudes towards risk.

The Organization buying process:


There are total eight stages and by going through these stages an organization will be
able to make a rational decision. If the desired result is not achieved then the steps will be
repeated again until they meet their goals and objectives.
 Problem Recognition:

The first stage of the business buying process in which people identify the need of the
organization which will be met by purchasing any goods or services. Problem recognition
can result from internal or external stimuli. Internally , the company may take a decision
to launch a new product that requires new production equipment and materials. Or, a
machine may break down and need another new part. Externally, the buyer gets some
new ideas at a trade show, see an ad, or receive a call from a seller who offers best
products at low price.

 General Need Description:

After the need is recognized, the buyers prepare a general need description which reports
both characteristics and quantity needed and item for the organization. For standard
items, this process presents very few problems but for complex problems the buyer needs
to work with the other engineers, users, consultants in order to define the item.

 Product Specification:

In this stage, the buying organization decides and specifies the technical product features
for the needed item. Product value analysis is the approach that helps to reduce the cost
in which the components are studied. After studying it carefully they can be redesigned,
standardized or made by fewer cost methods of production. The team will decide best
product features and specifies them accordingly.
 Supplier Search:

In this stage, the buyer conducts supplier search to find the best sellers. The buyer can
assemble a list of qualified suppliers by analyzing trade directories, doing computer
searches or contacting other companies for recommendation letters.

 Proposal Solicitation:

The stage of the business buying in which the buyer ask qualified suppliers to submit
proposals is called proposal solicitation. After this supplier will send only a catalogue or a
salesperson. However, when the item is complex or expensive, the buyer ask for the
detailed written proposals or formal presentations for each potential supplier.

 Supplier Selection:

In this stage, the buyer reviews proposals and choose a supplier or suppliers. During
supplier selection, the buying center often will prepare up a list of the desired supplier trait
and their relative importance. Such trait includes product and service quality, reputation,
on-time delivery, ethical corporate behavior, honest communication and competitive
prices.

 Order- Routine Specification:

This is the stage of buying process in which the buyer choose the final supplier by listing
various things like technical specifications, quantity needed, expected time of delivery,
return policies, and warranties.

 Performance Review:

The stage of buying process in which the buyer analyze the supplier’s performance on the
basis of different criteria and decides to continue, modify or drop the arrangement. The
seller’s job is to observe and examine the same factors used by the buyer to make sure
that the seller is giving the expected satisfaction.

Demand Forecasting
Demand forecasting and estimation gives businesses valuable information about the markets
in which they operate and the markets they plan to pursue. Forecasting and estimation are
interchangeable terms that basically mean predicting what will happen in the future. If
businesses do not use demand forecasting and estimation, they risk entering markets that have
no need for the business’s product.

Purpose

The purpose of demand forecasting and estimation is to find a business’s potential demand so
managers can make accurate decisions about pricing, business growth and market potential.
Managers base pricing on demand trends in the market. For example, if the market demands
for pizza is high in a city but there are few competitors, managers know they can price pizzas
higher than if the demand was lower. Established businesses use demand forecasting and
estimation if they consider entering a new market. If the demand for their product is currently
low, but will increase in the future, they will wait to enter the market.

Techniques

Managers and business owners use multiple techniques for demand forecasting and estimation.
Using historical data is one method to determine the potential demand for a product or service.
For example, businesses with high-end merchandise might examine census information to
determine the average income of an area. Larger businesses might use test markets to estimate
demand. Test markets are micro markets in small cities that are similar to larger markets. If the
demand for a product is high in the test market, managers assume that the product will perform
well in the larger market.

Inventory Consequences
Demand forecasting and estimation is critical for inventory management. Businesses buy
inventory based upon demand forecasts. For example, grocery stores increase their stock of
certain items during hurricane season because they know from past data that demand increases.
If businesses do not use accurate demand forecasting and estimation methods, they risk
purchasing too much or too little inventory. Businesses with too much inventory might lose
some of it to time and expiration dates. Businesses with too little inventory will upset customers
and miss revenue opportunities.

Considerations
Demand forecasting and estimation methods are typically accurate for short-term business
planning. Estimating demand for the long-term is difficult because there are many unforeseen
factors that influence demand over time. For example, demand estimation might not take into
account an economic recession or other financial problems. Natural disasters might also affect
the demand for a business’s product. To forecast long-term demand, managers must account
for the social, political and economic history of their markets.

M/U1 Topic 9 Market segmentation,


Targeting and Positioning
THEINTACTFRONT 05/02/2018 2 COMMENTS
Market segmentation is a process of dividing the entire market population into multiple
meaningful segments based on marketing variables like demographics (age, gender etc),
geographic, psychographics (lifestyle, behaviour) etc. Segmentation in marketing is
identifying a set of homogenous segments having similar needs, properties & demands
which can be used by a company to sell their product/service more effectively.
Once an entire population is divided into market segments, companies can target them
more accurately and design their positioning accordingly. This entire process is also
known as STP (Segmentation, Targeting and Positioning).

Importance of Market Segmentation:


Market segmentation is an important aspect for any business as it helps them slice the
market into smaller groups or segments, which can then be identified based on their needs
and can be catered to. Market segmentation reduces the population in the market and
gives a much more addressable audience rather than giving random groups of people.
Having similar groups would enable companies to be more focused in terms of their
product offerings, product differentiation strategies, marketing strategies, pricing
strategies etc. This would help companies mitigate unnecessary risks, reduce costs, target
customers better, have better retention and generate more profits. Hence, segmenting the
entire population of market is essentially critical for any business to prosper.

Types of Market Segmentation:


The most important variables in segmentation are based on demographics, geographic,
psychographics & behavioural. These are explained in detail below:

1. Demographic Segmentation:

Slicing the market on criteria based on demographics like age, gender, income, family
members, educational qualification, socio-economic status etc, is called demographic
segmentation.

2. Geographic Segmentation:

When a population is divided on the basis on geographies i.e. country, state, city, village,
region, postal code etc, it is referred to as geographic segmentation.

3. Psychographics Segmentation:

Segmentation done based on personality of people, their characteristics, and their


lifestyle, social status etc is called as psychographic segmentation.

4. Behavioural Segmentation:

When companies divide the market based on the customer behaviour or usage patterns,
it is known as behavioural segmentation.
The above image shows the STP (Segmentation, Targeting, Positioning) process & types
of market segmentation

Advantages of Market Segmentation:


Segmentation can have many benefits for companies which can benefit their business.
Some are discussed below:

1. Segmenting a market gives focus to company as it helps to understand the market better
2. Unnecessary costs are avoided as only the required population can be tapped
3. Segmentation can help companies identify newer markets where existing products can be
launched
4. If certain overlapping markets are identified, companies can create new products to
capture them
5. Once proper segmentation is done, after identifying target groups accurately, advertising&
marketing can be more effective rather than having loosely created ad campaigns
6. Homogeneous groups can themselves promote the products or services even more if they
like it
7. Systematic market segmentation helps in market expansion and also helps in customer
retention

Disadvantages of Market Segmentation:


1. A company having multiple segments would have to cater to them separately i.e. more
costs
2. Giving products/ services to multiple segments can be a time-consuming process for
companies
3. If a company selects a wrong segment, their entire business can collapse
4. Smaller clusters/ niche markets often get neglected in the bigger scheme of things

Example of Market Segmentation


Let us take an example of a brand of chocolate cookies. If we have to launch these cookies
in the market. We need to see whether we need to target everyone or some specific
people in the population. Here is where market segmentation will help us get the answer.
Let us consider the market. Market can be considered as a country if it is a local launch.

The marketer can use various variables as discussed above to slice the market. Should
we use demographics or psychographics here?

Chocolate chip cookies are not a lifestyle or complicated product nor is it going to be very
costly product. So demographic segmentation can help.

A marketer can use age and geography as variables to divide the market I to multiple
segments. Companies can get data for the population and then can use various statistical
methods like multi dimensional scaling and factor analysis to come at simple variables. In
this case, we can have segments like :

1. Geography: Urban / Rural


2. Age (years): 5 to 10/ 10 to 18/ 18 to 25/ 25 to 40/ 40 to 50/ 50+

Now the product being a chocolate cookie, people in the age group of 40 and above can
be removed from both rural and urban. Also as the product has chocolate, marketer can
chose to target only to urban population for initial launch. Now 10 year old to 25 year old
segment in urban can have people who love chocolate and would be willing to buy cookies
on a regular basis. Now this can form a decent target group.

In practice the process is much more complicated, here it has been simply put. This way
a company actually uses market segmentation to arrive at segments which can be further
analysed to arrive at a target group.

Hence, this concludes the definition of Market Segmentation along with its overview.

Overview of competitive strategies


Competitive Strategy is defined as the long term plan of a particular company in order
to gain competitive advantage over its competitors in the industry. It is aimed at creating
defensive position in an industry and generating a superior ROI (Return on Investment).
Such type of strategies plays a very important role when industry is very competitive and
consumers are provided with almost similar products. One can take example of mobile
phone market.
Before devising a competitive strategy, one needs to evaluate all strengths, weaknesses,
opportunities, threats in the industry and then go ahead which would give one a
competitive advantage.

Types of competitive strategies by Porter

According to Michael Porter, competitive strategy is devised into 4 types:

1. Cost Leadership

Here, the objective of the firm is to become the lowest cost producer in the industry and
is achieved by producing in large scale which enables the firm to attain economies of
scale. High capacity utilization, good bargaining power, high technology implementation
is some of factors necessary to achieve cost leadership. E.g. xiomi/Redmi phones

2. Differentiation leadership

Under this strategy, firm maintains unique features of its products in the market thus
creating a differentiating factor. With this differentiation leadership, firms target to achieve
market leadership. And firms charge a premium price for the products (due to high value
added features). Superior brand and quality, major distribution channels, consistent
promotional support etc. are the attributes of such products. E.g. BMW, Apple

3. Cost focus

Under this strategy, firm concentrates on specific market segments and keeps its products
low priced in those segments. Such strategy helps firm to satisfy sufficient consumers and
gain popularity. E.g. Sonata watches
4. Differentiation focus

Under this strategy, firm aims to differentiate itself from one or two competitors, again in
specific segments only. This type of differentiation is made to meet demands of border
customers who refrain from purchasing competitors’ products only due to missing of small
features. It is a clear niche marketing strategy. E.g. Titan watches

Without following anyone of above mentioned competitive strategies, it becomes very


difficult for firms to sustain in competitive industry.

Examples of competitive strategy

There can be several examples based on the four parameters given by Michael Porter.
Some examples are given below:

1. Cost leadership:

Xiomi/Redmi smart phones and mobile phones are giving good quality products at an
affordable price which contain all the features which a premium phone like Apple or
Samsung offers

2. Differentiation leadership:

BMW offers cars which are different from other car brands. BMW cars are more
technologically advanced, have better features and have got personalized services

3. Cost focus:

Sonata watches are focused towards giving wrist watches at a low cost as compared to
competitors like Rolex, Titan, and Omega etc

4. Differentiation focus:

Titan watches concentrates on premium segment which includes jewels in its watches.

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