MODULE 2

MARKET SEGMENTATION
What is Market Segmentation?
Market Segmentation is a process of dividing the market of potential customers into different
groups and segments on the basis of certain characteristics. The member of these groups
share similar characteristics and usually have one or more than one aspect common among
them.

There are many reasons as to why market segmentation is done. One of the major reasons
marketers segment market is because they can create a custom marketing mix for each
segment and cater them accordingly.
The concept of market segmentation was coined by Wendell R. Smith who in his article
“Product Differentiation and Market Segmentation as Alternative Marketing Strategies”
observed “many examples of segmentation” in 1956. Present-day market segmentation
exists basically to solve one major problem of marketers; more conversions. More
conversion is possible through personalized marketing campaigns which require marketers
to segment market and draft better product and communication strategies according to the
needs of the segment.

The process of defining and subdividing a large homogenous market into clearly identifiable
segments having similar needs, wants, or demand characteristics. Its objective is to design a
marketing mix that precisely matches the expectations of customers in the targeted
segment.
Few companies are big enough to supply the needs of an entire market; most must
breakdown the total demand into segments and choose those that the company is best
equipped to handle.

Four basic factors that affect market segmentation are

1.clear identification of the segment,

2.measurability of its effective size,
3.its accessibility through promotional efforts, and
4.its appropriateness to the policies and resources of the company.

The four basic market segmentation-strategies are based on

1.behavioural,
2.demographic,
3.psychographic, and
4.geographical differences.
Types of Market Segmentation

Geographic Segmentation
Geographic segmentation divides the market on the basis of geography. This type of market
segmentation is important for marketers as people belonging to different regions may have
different requirements. For example, water might be scarce in some regions which inflates
the demand for bottled water but, at the same time, it might be in abundance in other regions
where the demand for the same is very less.

People belonging to different regions may have different reasons to use the same product as
well. Geographic segmentation helps marketer draft personalized marketing campaigns for
everyone.

Demographic Segmentation
Demographic segmentation divides the market on the basis of demographic variables like
age, gender, marital status, family size, income, religion, race, occupation, nationality, etc.
This is one of the most common segmentation practice among marketers. Demographic
segmentation is seen almost in every industry like automobiles, beauty products, mobile
phones, apparels, etc. and is set on a premise that the customers’ buying behaviour is
hugely influenced by their demographics
Behavioural Segmentation
The market is also segmented based on audience’s behaviour, usage, preference, choices
and decision making. The segments are usually divided based on their knowledge of the
product and usage of the product. It is believed that the knowledge of the product and its use
affect the buying decision of an individual. The audience can be segmented into –

 Those who know about the product,

 Those who don’t know about the product,
 Ex-users,
 Potential users,
 Current Users,
 First time users, etc.

People can be labelled as brand loyal, brand-neutral, or competitor loyal. They can also be
labelled according to their usage.

For example, a sports person may prefer an energy drink as elementary (heavy user) and a
not so sporty person may buy it just because he likes the taste (light/medium user).

Psychographic Segmentation
Psychographic Segmentation divides the audience on the basis of their personality, lifestyle
and attitude. This segmentation process works on a premise that consumer buying
behaviour can be influenced by his personality and lifestyle. Personality is the combination of
characteristics that form an individual’s distinctive character and includes habits, traits,
attitude, temperament, etc. Lifestyle is how a person lives his life.

Personality and lifestyle influence the buying decision and habits of a person to a great
extent. A person having a lavish lifestyle may consider having an air conditioner in every
room as a need, whereas a person living in the same city but having a conservative lifestyle
may consider it as a luxury.

Nature of a market segment

A market segment needs to be homogeneous. There should be something common among
the individuals in the segment that the marketer can capitalise on. Marketers also need to
check that different segments have different distinguishing features which make
them unique. But segmenting requires more than just similar features. Marketers must also
ensure that the individuals of the segment respond in a similar way to the stimulus. That is,
the segment must have a similar type of reaction to the marketing activities being pitched.
A good market segment is always externally heterogeneous and internally homogeneous.
Top 4 Bases for Segmenting Consumer Market
The four bases for segmenting consumer market are as follows: A. Demographic

Segmentation B. Geographic Segmentation C. Psychographic Segmentation D. Behavioural

Segmentation.

A. Demographic Segmentation:

Demographic segmentation divides the markets into groups based on variables such as age,

gender, family size, income, occupation, education, religion, race and nationality.

Demographic factors are the most popular bases for segmenting the consumer group. One

reason is that consumer needs, wants, and usage rates often vary closely with the

demographic variables. Moreover, demographic factors are easier to measure than most

other type of variables.

1. Age:

It is one of the most common demographic variables used to segment markets. Some com-

panies offer different products, or use different marketing approaches for different age

groups. For example, McDonald’s targets children, teens, adults and seniors with different

ads and media. Markets that are commonly segmented by age includes clothing, toys,

music, automobiles, soaps, shampoos and foods.

2. Gender:

Gender segmentation is used in clothing, cosmetics and magazines.

3. Income:

Markets are also segmented on the basis of income. Income is used to divide the markets

because it influences the people’s product purchase. It affects a consumer’s buying power

and style of living. Income includes housing, furniture, automobile, clothing, alcoholic,

beverages, food, sporting goods, luxury goods, financial services and travel.

4. Family cycle:

Product needs vary according to age, number of persons in the household, marital status,

and number and age of children. These variables can be combined into a single variable
called family life cycle. Housing, home appliances, furniture, food and automobile are few of

the numerous product markets segmented by the family cycle stages. Social class can be

divided into upper class, middle class and lower class. Many companies deal in clothing,

home furnishing, leisure activities, design products and services for specific social classes.

B. Geographic Segmentation:

Geographic segmentation refers to dividing a market into different geographical units such

as nations, states, regions, cities, or neighbourhoods. For example, national newspapers are

published and distributed to different cities in different languages to cater to the needs of the

consumers.

Geographic variables such as climate, terrain, natural resources, and population density also

influence consumer product needs. Companies may divide markets into regions because the

differences in geographic variables can cause consumer needs and wants to differ from one

region to another.

C. Psychographic Segmentation:

Psychographic segmentation pertains to lifestyle and personality traits. In the case of certain

products, buying behaviour predominantly depends on lifestyle and personality

characteristics.

1. Personality characteristics:

It refers to a person’s individual character traits, attitudes and habits. Here markets are

segmented according to competitiveness, introvert, extrovert, ambitious, aggressiveness,

etc. This type of segmentation is used when a product is similar to many competing

products, and consumer needs for products are not affected by other segmentation

variables.

2. Lifestyle:

It is the manner in which people live and spend their time and money. Lifestyle analysis

provides marketers with a broad view of consumers because it segments the markets into
groups on the basis of activities, interests, beliefs and opinions. Companies making

cosmetics, alcoholic beverages and furniture’s segment market according to the lifestyle.

D. Behavioural Segmentation:

In behavioural segmentation, buyers are divided into groups on the basis of their knowledge

of, attitude towards, use of, or response to a product. Behavioural segmentation includes

segmentation on the basis of occasions, user status, usage rate loyalty status, buyer-

readiness stage and attitude.

1. Occasion:

Buyers can be distinguished according to the occasions when they purchase a product, use

a product, or develop a need to use a product. It helps the firm expand the product usage.

For example, Cadbury’s advertising to promote the product during wedding season is an

example of occasion segmentation.

2. User status:

Sometimes the markets are segmented on the basis of user status, that is, on the basis of

non-user, ex-user, potential user, first-time user and regular user of the product. Large

companies usually target potential users, whereas smaller firms focus on current users.

3. Usage rate:

Markets can be distinguished on the basis of usage rate, that is, on the basis of light,

medium and heavy users. Heavy users are often a small percentage of the market, but

account for a high percentage of the total consumption. Marketers usually prefer to attract a

heavy user rather than several light users, and vary their promotional efforts accordingly.

4. Loyalty status:

Buyers can be divided on the basis of their loyalty status—hard-core loyal (consumer who

buy one brand all the time), split loyal (consumers who are loyal to two or three brands),

shifting loyal (consumers who shift from one brand to another), and switchers (consumers

who show no loyalty to any brand).

5. Buyer readiness stage:

The six psychological stages through which a person passes when deciding to purchase a

product. The six stages are awareness of the product, knowledge of what it does, interest in

the product, preference over competing products, conviction of the product’s suitability, and

purchase. Marketing campaigns exist in large part to move the target audience through the

buyer readiness stages.

Target Marketing: Four Generic Target

Marketing Strategies
Target Marketing: Four Generic Target Marketing Strategies!

The purpose of evaluating market segments is to choose one or more segments to enter.

Target market selection is the choice of which and how many market segments the company

will compete in.

When selecting their target markets, companies have to make a choice of whether they are

going to be focused on one or few segments or they are going to cater to the mass market.

The choice that companies make at this stage will determine their marketing mix and

positioning plank. There are four generic target marketing strategies.

1. Undifferentiated marketing:

There may be no strong differences in customer characteristics. Alternatively, the cost of

developing a separate marketing mix for separate segments may outweigh the potential

gains of meeting customer needs more exactly. Under these circumstances a company will

decide to develop a single marketing mix for the whole market. There is absence of

segmentation.

This strategy can occur by default. Companies which lack a marketing orientation may

practice this strategy because of lack of customer knowledge. It is convenient since a single

product has to be developed.

A company using an undifferentiated targeting strategy essentially adopts a mass-market

philosophy. It views the market as one big market with no individual segments. The company

uses one marketing mix for the entire market. The company assumes that individual

customers have similar needs that can be met with a common marketing mix.

The first company in an industry normally uses an undifferentiated targeting strategy. There

is no competition at this stage and the company does not feel the need to tailor marketing

mixes to the needs of market segments.

Since there is no alternate offering, customers have to buy the pioneer’s product. Ford’s

Model T is a classic example of an undifferentiated targeting strategy. Companies marketing

commodity products like sugar also follow this strategy.

Companies following undifferentiated targeting strategies save on production and marketing

costs. Since only one product is produced, the company achieves economies of mass

production. Marketing costs are also lower as only one product has to be promoted and

there is a single channel of distribution.

But undifferentiated targeting strategy is hardly ever a well-considered strategy. Companies

adopting this strategy have either been blissfully ignorant about differences among

customers or have been arrogant enough to believe that their product will live up to the

expectations of all customers, till focused competitors invade the market with more

appropriate products for different segments.

Therefore, companies following this strategy will be susceptible to incursions from

competitors who design their marketing mixes specifically for smaller segments.

Finding out that customers have diverse needs that can only be met by products with

different characteristics means that managers have to develop new products, design new

promotional campaigns and develop new distribution channels. Moving into new segments

means that salespeople have to start prospecting for new customers.

2. Differentiated marketing or multi-segment targeting:

When market segmentation reveals several potential target segments that the company can

serve profitably, specific marketing mixes can be developed to appeal to all or some of the

segments. A differentiated marketing strategy exploits the differences between marketing

segments by designing a specific marketing mix for each segment.

A company following multi-segment targeting strategy serves two or more well- defined

segments and develops a distinct marketing mix for each one of them. Separate brands are

developed to serve each of the segments.

It is the most sought after target market strategy because it has the potential to generate

sales volume, higher profits, larger market share and economies of scale in manufacturing

and marketing. But the strategy involves greater product design, production, promotion,

inventory, marketing research and management costs.

Another potential cost is cannibalization, which occurs when sales of a new product cut into

sales of a firm’s existing products. Before deciding to use this strategy, a company should

compare the benefits and costs of multi-segment targeting to those of undifferentiated and

concentrated targeting.

The car market is most clearly segmented. There are segments for small cars, luxury cars,

sports utility vehicles, etc. Most car makers like General Motors, Ford, Toyota, Honda and

others offer cars for all the segments. Though Toyota entered the US market with small cars,

it eventually chose to operate in most of the segments.

3. Focus or concentrated targeting:

Several segments may be identified but a company may not serve all of them. Some may be

unattractive or out of line with the company’s business strengths. A company may target just

one segment with a single marketing mix. It understands the needs, and motives of the

segment’s customers and designs a specialized marketing mix.

Companies have discovered that concentrating resources and meeting the needs of a

narrowly defined market segment is more profitable than spreading resources over several

different segments. Starbucks became successful by focusing exclusively on customers who

wanted gourmet coffee products.

The strategy is suited for companies with limited resources as these resources may be too

stretched if it competes in many segments. Focused marketing allows R&D expenditure to

be concentrated on meeting needs of one set of customers and managerial activities are

devoted to understanding and catering to their needs.

Large organizations may not be interested in serving the needs of this one segment or their

energies may be so dissipated across the whole market that they pay insufficient attention to

the requirements of this small segment. One danger that such niche marketers face is

attracting competition from larger organizations in the industry if they are very successful.

Companies following concentrated targeting strategies are obviously putting all their eggs in

one basket. If their chosen segments were to become unprofitable or shrink in size, the

companies will be in problem. Such companies also face problems when they want to move

to some other segments, especially when they have been serving a segment for a long time.

They become so strongly associated with serving a segment with a particular type of product

or service, that the customers of other segments find it very difficult to associate with them.

They believe that the company can serve only that particular segment.

Companies which start with concentrated targeting strategy but nurse ambitions to serve

more segments should make early and periodic forays into other segments.

The idea is to avoid being labelled as the company which exclusively serves a particular

segment. The association with one particular segment should not be allowed to become so

strong that customers cannot imagine the company doing something else.
Mercedes offers premium cars for the upper segment of the market only. It does not offer

cars for the middle and lower segments. But Mercedes segments the premium segment and

offers different cars for its different premium segments.

Some companies are focused in another way. They focus on heavy users—the small

percentage of customers that account for large share of a product’s sale.

The problem with such a strategy is that all the major players would be targeting this

segment, and hence serving this segment will involve high marketing expenditure, price

cutting and low profitability. A more sensible strategy is to target a small, less attractive

segment rather than choose the same segment that every company is after.

4. Customized marketing:

In some markets, the requirements of individual customers are unique and their purchasing

power is sufficient to make designing a separate marketing mix for each customer a viable

option. Many service providers such as advertising, marketing research firms, architects and

solicitors vary their offerings on a customer to customer basis.

They will discuss face to face with each customer their requirements and tailor their services

accordingly. Customized marketing is also found within organizational markets because of

high value of orders and special needs of customers.

Customized marketing is associated with close relationships between the supplier and

customer because the high value of an order justifies large marketing and sales efforts being

focused on each buyer.

Market Positioning Definition

What is market position?
In marketing and business strategy, market position refers to the consumer’s perception of
a brand or product in relation to competing brands or products. Market positioning refers to
the process of establishing the image or identity of a brand or product so that consumers
perceive it in a certain way.
For example, a car maker may position itself as a luxury status symbol. Whereas a battery
maker may position its batteries as the most reliable and long-lasting. And a fast-food
restaurant chain may position itself as a provider of cheap and quick standardized meals. A
coffee company may position itself as a source of premium upscale coffee beverages. Then
a retailer might position itself as a place to buy household necessities at low prices. And a
computer company may position itself as offering hip, innovative, and use-
friendly technology products.

MARKET DEMAND FORECASTING

An organization faces several internal and external risks, such as high competition, failure of
technology, labour unrest, inflation, recession, and change in government laws.

Therefore, most of the business decisions of an organization are made under the conditions
of risk and uncertainty.

An organization can lessen the adverse effects of risks by determining the demand or sales
prospects for its products and services in future. Demand forecasting is a systematic
process that involves anticipating the demand for the product and services of an
organization in future under a set of uncontrollable and competitive forces.

Some of the popular definitions of demand forecasting are as follows:

According to Evan J. Douglas, “Demand estimation (forecasting) may be defined as a
process of finding values for demand in future time periods.”

In the words of Cundiff and Still, “Demand forecasting is an estimate of sales during a
specified future period based on proposed marketing plan and a set of particular
uncontrollable and competitive forces.”

Demand forecasting enables an organization to take various business decisions, such as

planning the production process, purchasing raw materials, managing funds, and deciding
the price of the product. An organization can forecast demand by making own estimates
called guess estimate or taking the help of specialized consultants or market research
agencies.
Demand forecasting is an assumption of demand in future. By using demand forecasting, a
company makes suitable plans for upcoming challenges or demands and takes suitable
action to tackle that them.
Demand forecasting can be divided into the following two major types −
 Short run forecasting − is made to fulfil short-term targets, like preparation of
suitable sales policies to increase the sales or proper planning for inventory as per
the required demand.
 Long run forecasting − is assumption made for long-term targets like planning of
capital or assets.

Steps in Demand Forecasting

Following factors should be considered for assumption and fulfilment of short and long term
demand forecasting.
 Identifying the most relevant method for forecasting.
 Predicting factors involved, which affect the demand of the product.
 Acquiring the data about the factors that affect demand.
 Finding the most suitable relation among independent variables and dependent
variables.
 Preparing the demand forecast and analysing the results.
 Demand forecasting can be accomplished by following the above steps.
The tools or methods used to forecast demand are of the following two types −
 Quantitative techniques
 Qualitative techniques

Quantitative Techniques
These techniques are used for both short run and long run forecasting; however, for short
and long run forecasting, this method can further be sub divided as per forecasting type.
The following are the tools for short-run forecasting –

MOVING AVERAGE METHOD

A moving average is a technique that calculates the overall trend in a data set. In
operations management, the data set is sales volume from historical data of the company.
This technique is very useful for forecasting short-term trends. It is simply the average of
a select set of time periods.

Econometrics Method
This method for demand forecasting is an analytical method. In this method,
different methods of economics and mathematics are used to forecast the demand.
This method provides the liberty to assume multiple variables so it is more accurate
in real business situations.
This method is based on the following criteria −
 Demand for a product is based on several factors.
 The determinants are independent variables but the demand is the dependent variable.
 There is a constant interaction between demand and its determinants.
 There is a constant interaction between the independent variables. The independent
variables are divided into two types − Exogenous (non-economics)
and Endogenous (economics).
This type of interaction can be estimated by statistical method. The forecast is divided into
the set of linear or non-linear equations. These principles should be taken into
consideration while using the econometrics method for demand forecasting.

Qualitative Techniques
Buying Intention Survey Method
In buying intention survey method, the survey is conducted on the product; several
questions regarding the product are formulated. The participants are asked for
reviewing/rating the product based on different criteria like taste, preference, cost,
expectation, etc. These reviews are summarized and a report is prepared for consumer
demand of the product.

Sales Force Opinion Method

In sales force opinion method, different territorial sales demands are collected to forecast
the demand of a product. Then individual territory demand is combined to produce a final
report of the market demand. This method is difficult to execute due to improper skill of
salesmen. However, with appropriate skills, accurate predictions can be forecasted.

Time Series Analysis

Time series analysis is commonly used for long term demand forecasting. The
following are some of its components −
 Seasonal variation
 Cyclical variation
 Random variation
 Irregular variation
To measure the components of time series, the following three methods are used −
 Semi Average Method
 Moving Average Method
 Method of Least Square
These methods can be used for time series analysis as per demand forecasting
requirement of an enterprise.
 
Survey of Buyers’ Intentions Method:
It is also known as consumers’ expectations or opinions survey. It is commonly used method

for sales forecasting. A sale is the result of consumer intention to buy the product. Many

companies conduct periodical survey of consumers’ buying interest to know when and how

much they will buy.

A sample of potential consumers is surveyed to know how much of the stated product they

would buy at a given price during a specified future time period. Some firms maintain a

permanent sample of buyers known as the panel to collect needed data on a regular basis.

Delphi Technique
Definition: 

The Delphi Technique refers to the systematic forecasting method used to gather opinions

of the panel of experts on the problem being encountered, through the questionnaires, often
sent through mail. In other words, a set of opinions pertaining to a specific problem, obtained
in writing usually through questionnaires from several experts in the specific field is called as
a Delphi technique.
 PRODUCT PLANNING
PRODUCT LIFE CYCLE

Product life cycle is the timeline of demand for the product from its initial stage of
introduction.

Stages of Product Cycle

Product life cycle can be defined as the life cycle of the product. It means the various
stages a product sees in its complete life span.
Product life cycle comprises of the following four stages −
 Introduction or innovation
 Growth
 Maturity
 Decline

Introduction Stage
The product is introduced in the market in this stage; it is the initial stage of the product.
  Sales of the product are low in this stage because there may not be a need of the
product in the market.
 The product may undergo brand trouble.
 In this stage, there is very little or no profit.
 The demand for the product is created and developed in this stage.
After this initial stage, the next stage of the product is the growth stage.

Growth Stage
In this stage, the demands and market share increases as well as competition emerges in
the market.
 Generally, the price remains constant in this stage.
 Marketing and promotional expenses increase.
 There is rapid increase in sales.
 The manufacturing cost decreases so there is increase in profit margin.
 It penetrates other market segment.
In the growth stage, there is a boom in the demand of the product and the profit increases
substantially.

Maturity Stage

The price of the product is comparatively low, but the advertisement and promotion cost
increases in this stage.
 This stage remains for a comparatively longer duration.
 In this stage, there is high competition.
 Profit is decreased.
 Sales growth can be divided into the following three categories in the maturity stage
−
o Growth

o Stability

o Decay

In growth, there is an increase in the demand of the product. In stability, the demand of the
product remains constant. In decay, there is a slight decrease in the demand.

Decline Stage

There is a decrease in sales in this stage. Demand of product also decreases.

 There is decrease in the price of the product.
 Margins are lowered.
 There is introduction of new product in market.
 New strategies are implemented.
This is the final stage of the product.
There is a decrease in demand and sales of the product.

Importance of Product Life Cycle

Product life cycle is an important tool for market forecasting, planning and control. Product
life cycle is important in various ways. The situation of the product can be analysed properly
and changes can be made in order to increase profit. Some other important features are −
 Helpful in formulating a proper product policy, production and pricing.
 Helpful in modifying the marketing policy.
 Helpful to the marketer regarding competition.
 Cautions the management about the decline stage of the product.

New Product Development Process

If a company needs to launch a new product in the market, there is a different development
process to be considered. The following are the factors contributing to new product
development −
 Demand in market
 Acceptance of a product in the market
 Acceptance of company strategy in market
 Economic viability of the product
 Changing the product as per consumer preference
 Adapting as per technological development
 Consideration of Government Policy
The development process has to consider these different perspectives for product
development and has to adapt as per the market demand.

Stages of New Product Development

The following are the different stages of new product development −

 Stage 1 − Generation of new product ideas
 Stage 2 − Screening and evaluation of ideas
 Stage 3 − Development and testing of concept
 Stage 4 − Development of advertisement and promotion strategies
 Stage 5 − Analysis of business
 Stage 6 − Development of product
 Stage 7 − Testing product in market
  Stage 8 − Commercialization of the product
Development of a new product follows a long process, from the generation of an idea to the
commercialization of the product in the market.

THE NEW PRODUCT DEVELOPMENT PROCESS

(NPD)

In order to stay successful in the face of maturing products, companies have to obtain new
ones by a carefully executed new product development process. But they face a problem:
although they must develop new products, the odds weigh heavily against success. Of
thousands of products entering the process, only a handful reach the market. Therefore, it is
of crucial importance to understand consumers, markets, and competitors in order to
develop products that deliver superior value to customers. In other words, there is no way
around a systematic, customer-driven new product development process for finding and
growing new products. We will go into the eight major steps in the new product
development process.

1. Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the
systematic search for new-product ideas. Typically, a company generates hundreds of ideas,
maybe even thousands, to find a handful of good ones in the end. Two sources of new ideas can
be identified:

 Internal idea sources: the company finds new ideas internally. That means R&D, but also
contributions from employees.
 External idea sources: the company finds new ideas externally. This refers to all kinds of
external sources, e.g. distributors and suppliers, but also competitors. The most important
external source are customers, because the new product development process should focus on
creating customer value.
2. Idea screening – The New Product Development Process
The next step in the new product development process is idea screening. Idea screening means
nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated are
screened to spot good ones and drop poor ones as soon as possible. While the purpose of idea
generation was to create a large number of ideas, the purpose of the succeeding stages is to
reduce that number. The reason is that product development costs rise greatly in later stages.
Therefore, the company would like to go ahead only with those product ideas that will turn into
profitable products. Dropping the poor ideas as soon as possible is, consequently, of crucial
importance.

3. Concept development and Testing – The New Product

Development Process
To go on in the new product development process, attractive ideas must be developed into a
product concept. A product concept is a detailed version of the new-product idea stated in
meaningful consumer terms. You should distinguish

 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer terms
 A product image à the way consumers perceive an actual or potential product.

Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea
screening and must now be developed into a concept. The marketer’s task is to develop this new
product into alternative product concepts. Then, the company can find out how attractive each
concept is to customers and choose the best one. Possible product concepts for this electric car
could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be used
around town for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs
provide but also want an economical car.
As you can see, these concepts need to be quite precise in order to be meaningful. In the next
sub-stage, each concept is tested.

Concept testing
New product concepts, such as those given above, need to be tested with groups of target
consumers. The concepts can be presented to consumers either symbolically or physically. The
question is always: does the particular concept have strong consumer appeal? For some concept
tests, a word or picture description might be sufficient. However, to increase the reliability of the
test, a more concrete and physical presentation of the product concept may be needed. After
exposing the concept to the group of target consumers, they will be asked to answer questions in
order to find out the consumer appeal and customer value of each concept.

4. Marketing strategy development – The New Product

Development Process
The next step in the new product development process is the marketing strategy development.
When a promising concept has been developed and tested, it is time to design an initial
marketing strategy for the new product based on the product concept for introducing this new
product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

 A description of the target market, the planned value proposition, and the sales, market
share and profit goals for the first few years
 An outline of the product’s planned price, distribution and marketing budget for the first
year
 The planned long-term sales, profit goals and the marketing mix strategy.
5. Business analysis – The New Product Development
Process
Once decided upon a product concept and marketing strategy, management can evaluate the
business attractiveness of the proposed new product. The fifth step in the new product
development process involves a review of the sales, costs and profit projections for the new
product to find out whether these factors satisfy the company’s objectives. If they do, the product
can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products and
conduct market surveys. Then, it should be able to estimate minimum and maximum sales to
assess the range of risk. When the sales forecast is prepared, the firm can estimate the expected
costs and profits for a product, including marketing, R&D, operations etc. All the sales and costs
figures together can eventually be used to analyse the new product’s financial attractiveness.

6. Product development – The New Product Development

Process
The new product development process goes on with the actual product development. Up to this
point, for many new product concepts, there may exist only a word description, a drawing or
perhaps a rough prototype. But if the product concept passes the business test, it must be
developed into a physical product to ensure that the product idea can be turned into a workable
market offering. The problem is, though, that at this stage, R&D and engineering costs cause a
huge jump in investment.
 The R&D department will develop and test one or more physical versions of the product concept.
Developing a successful prototype, however, can take days, weeks, months or even years,
depending on the product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be
done by the firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate
prototypes and work with pre-release products. Their experiences may be very useful in the
product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test
marketing. In this stage of the new product development process, the product and its proposed
marketing programme are tested in realistic market settings. Therefore, test marketing gives the
marketer experience with marketing the product before going to the great expense of full
introduction. In fact, it allows the company to test the product and its entire marketing
programme, including targeting and positioning strategy, advertising, distributions, packaging etc.
before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when
introducing a new product requiring a large investment, when the risks are high, or when the firm
is not sure of the product or its marketing programme, a lot of test marketing may be carried out.

8. Commercialisation
Test marketing has given management the information needed to make the final decision:
launch or do not launch the new product. The final stage in the new product development
process is commercialisation. Commercialisation means nothing else than introducing a new
product into the market. At this point, the highest costs are incurred: the company may need
to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales
promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait until
the following year to launch the product. However, if competitors are ready to introduce their
own products, the company should push to introduce the new product sooner.
 Introduction place. Where to launch the new product? Should it be launched in a
single location, a region, the national market, or the international market? Normally,
companies don’t have the confidence, capital and capacity to launch new products into full
national or international distribution from the start. Instead, they usually develop a planned
market rollout over time.
In all of these steps of the new product development process, the most important focus is on
creating superior customer value. Only then, the product can become a success in the
market. Only very few products actually get the chance to become a success. The risks and
costs are simply too high to allow every product to pass every stage of the new product
development process.
Brand Strategy
Branding is one of the most critical aspects of business strategy and provides a sustainable
competitive advantage. Branding allows a business to differentiate its products and services
from those of its competitors’. The digital economy has made it easier for small businesses
to gain access to branding experts and leverage branding in a meaningful way.

What is Brand Strategy?

In simple terms, branding is the process of quantifying the value and authenticity of an
organization, product, or service. It is a clear set of characteristics, benefits, and attributes
that define a particular brand. Many people are often confused about branding and
marketing.

Branding is what drives marketing because branding is strategic and marketing is tactical.
In contrast, brand strategy defines rules and guidelines on how, what, where, when and to
whom you communicate your brand messages. A well-defined and executed brand strategy
leads to a consistent brand message, a strong emotional connection with customers, and
higher brand equity.

Why You Need a Brand Strategy

We live in a world that is driven by perception and brands represent customers’ opinion of a
company’s credibility, products, reputation and customer experience. A brand strategy is
essential because it provides clarity about the competitive landscape, market position and
customer expectations. This information is critical to develop effective marketing strategies
and to fine-tune marketing messages to maximize your competitiveness and build strong
brands. Branding significantly enhances the brand’s market performance and profitability by
improving name recognition, building credibility and trust, increasing advertising
effectiveness and inspiring employees.

Brand Positioning OR Positioning a Brand

Definition of Brand Positioning
Brand Positioning can be defined as the positioning strategy of the brand with the goal to
create a unique impression in the minds of the customers and at the marketplace. The Brand
Positioning has to be desirable, specific, clear, and distinctive in nature from the rest of the
competitors in the market.

Effective brand positioning enables a firm’s brand to be readily distinguishable from

competing brands in the marketplace. Distinguishing the brand from other brands can be in
terms of associated brand attributes, benefits to users, and/or market segment emphasis,
among other factors. Effective brand positioning further emphasizes elements of superiority
along one or more distinguishing dimensions which are valued by consumers.

Steps to create the Brand Positioning:

1) Identify the current positioning

If the brand is new to the market, then this first step doesn’t apply to the new entrants to the
market but if the brand is already an established player in the market and wishes to resurrect
its Brand Positioning and the overall brand architecture, then it is vital for the management of
the company and the branding department to carefully understand and identify the current
positioning of the brand and have an analysis how is it working in the favour of the brand and
its attainment of the overall business aims and objectives.

If the answer is no, then the management of the company needs to figure out the loopholes
in the current Brand Positioning and check if there is a need for the repositioning of the
brand.

2) Identify the direct competition

The next step in the line of creating the Brand Positioning is identifying the brands in the
marketplace that pose a direct threat to the brand. The brand needs to analyze and
understand the core value, brand strengths, nature of products and services offered, ethos,
and fundamentals of the competitive brands plus spot their unique selling propositions and
the factors that make them different and unique in the market and in the minds of the
customers.

3) Understand the positioning of the competitor brands

The further step involves understanding the positioning of the competitor brands, basically
figuring out their vision statement, mission statement, core values, brand fundamentals, and
the entire brand architecture. It is very important to intricately study the positioning and brand
strategies of the competitor brands in order to come up with the positioning that is unique
and distinctive giving a competitive edge in the market.

4) Identify the uniqueness of the brand

This step involves the in-depth introspection of the brand within and identify the core values,
fundamentals on which the brand is formulated, strengths, value propositions, long-term
vision, and the features and attributes that make the brand unique and different from the rest
of the brands in the market offering the similar lines of products and services.

5) Develop the unique selling propositions

In continuation to the previous step, the next stage to the Brand Positioning encompasses
developing the unique selling propositions depending on the features, objectives, attributes,
core values, and strengths of the brand that will give the brand a unique and distinctive
identity in the market and in the customer’s minds.

6) Formulate the messaging statements

Next on the line is working on the messaging statements such as mission statement, vision
statement, and the tagline or the brand slogan that is attached with the official logo of the
brand. All the messaging statements should be clear, crisp, and unique in line with the
attributes and inherent nature of the brand.

Examples of Brand Positioning

Once the Brand Positioning is in place, the tagline or the brand slogan is attached with the
logo of the brand too that aptly conveys the attributes and unique selling proposition in a
creative and strategic manner.

1) L’Oréal

The tagline of the very popular cosmetic giant says, ‘You’re worth it’ that is quite catchy and
keeps the target audience that is predominantly women at the focal point. It not only makes
the customers of the brand special but the message conveyed through the tagline has that
required pull factor and a creative streak to it.

2) BMW

The luxury automobile giant has the tagline, ‘The ultimate driving machine’ that gives it a
clear definition and distinction as compared to its direct competition. The use of word
ultimate is rightly used and placed giving the brand an edge over its contemporaries plus
goes aptly with the flow in a crisp fashion.

Brand Equity
Brand equity can be described as the value of a well-established brand name. A
product of a popular brand can generate more revenue as compared to an unknown
brand. Consumers have a perspective that a product from well know brand will be
better in terms of quality than others. This gives an advantage to a branded product
over an unknown product.

Elements of Brand Equity

Brand equity valuation is difficult and doesn’t have any basic criteria. Some of the
elements associated to it include −
 Consumer loyalty
 Awareness of brand
 Quality of product
 Association with brand
 Proprietary assets owned by the brand
Elements of brand equity add a value to the brand; a successful brand has all the
elements of brand equity.

Brand Benefits
A brand has various advantages compared to unknown products. Some of the
benefits are as follows −
 It increases customer confidence in purchasing decision
 It increases efficiency and effectiveness of advertisement and promotion
 Brand loyalty is increased
 Products can be priced higher for bigger margin and higher Return On Investment (ROI)
 Extension of brand
 Leverage in trade
 Unique position of brand

Packaging
Packaging is a method used to protect the product from external factors during
transportation or storage. Depending of the nature of product, the packaging can
differ.

At the same time, packaging creates a first impression on the consumer so it should
be designed accordingly.

Characteristics of Packaging
The characteristics or different features of packaging can be listed as follows −
 Attractive packaging
  Identity of product
 Development
 Sustainability of product
 Looks genuine
 Reveals image of brand
Packaging gives an overview of the product so these characteristics should be
considered during the design of packaging.

AIDAS Formula
AIDAS theory is a very popular marketing technique. It states that a consumer goes
through the following five stages before showing satisfaction for a product.
 A − Attention
 I − Interest
 D − Desire
 A − Action
 S − Satisfaction
These stages are to be evaluated and kept in perspective during the packaging
design of the product.

Packaging Strategies
The design of packaging can provide an advantage in the market over similar
category product. The following are the different strategies for effective packaging −
 Packaging of product line
 Multiple packaging
 Changing the package
Proper execution of packaging strategies can increase the attractiveness and
durability of the product.

Labelling
Labelling is the process of marking an identity on the product. The information used
for labelling contains the following details −
 Name and address of the manufacturer
 Name and address of the distributer
 Maximum Retail Price (MRP) of the product
 Manufacturing date of the product
 The method used to manufacture
 Ingredients used
  Precaution details
 Quantity
 Expiry date
The information provided in labelling is important because of various reasons like
tracing the origin of the product, genuinity of product, etc.

Product Mix
Product mix refers to all the products offered by a particular company. As an
example, Reliance Industries has products like cellular service, power,
entertainment, etc. Hence, a strategy should be planned such that the uniqueness
of the product can be established.

Product Line
The product line is a subset of the product mix. The product line generally refers to a type of
product within an organization. As the organization can have a number of different types of
products, it will have similar number of product lines. Thus, in Nestle, there are milk based
products like milkmaid, Food products like Maggi, chocolate products like KitKat and other
such product lines. Thus, Nestle’s product mix will be a combination of the all the product
lines within the company.

Positioning the Product

It includes positioning in relation to competition, positioning with attributes, and

positioning in relation to price and quality of other products in the segment. The
product has to be positioned as per these factors in their respective sectors.

Product Mix Expansion

It includes Product depth and product line. These are the dimension of the product
mix. It depends on the number of products manufactured by a company.

Planned Obsolescence
Planned obsolescence is a strategy to create space for a new product with the help
of advertisements showing an existing product to be out of date or fashion. This
strategy is therefore considered controversial. However, it creates a void, which can
be filled with a new product satisfying the thirst of newness.
Planned obsolescence is of the following two types −
 Technological obsolescence
 Style obsolescence