MARKETING MANAGEMENT NOTES

1. Introduction to Marketing management

DEFINITON OF MARKETING:
According to American Marketing Association, “Marketing (management) is the process of
planning and executing the conception, pricing, promotion, and distribution of ideas, goods,
and services to create exchanges that satisfy individual and organizational goals
In simple terms it can be defined as the conversion of Non – Users to Users to Frequent
Users.
Modern marketing began in the 1950s when people started to use more than just print
media to endorse a product. As TV -- and soon, the internet -- entered households,
marketers could conduct entire campaigns across multiple platforms. And as you might
expect, over the last 70 years, marketers have become increasingly important to fine-tuning
how a business sells a product to consumers to optimize success.
In fact, the fundamental purpose of marketing is to attract consumers to your brand
through messaging. Ideally, that messaging will helpful and educational to your target
audience so you can convert consumers into leads.
Marketing refers to the process an organization undertakes to engage its target audience,
build strong relationships to create value in order to capture value in return. It is one of the
primary components of business management and commerce.
Philip Kotler defines marketing as “the science and art of exploring, creating, and delivering
value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled
needs and desires.
Marketing is the process of getting people interested in your company's product or service.
This happens through market research, analysis, and understanding your ideal customer's
interests. Marketing pertains to all aspects of a business, including product development,
distribution methods, sales, and advertising
Why Is Marketing Important?
Marketing is a significant part of any company. Marketing is essential for creating brand
awareness, strengthening sales, and retaining customers. Most of the businesses today are
adopting digital marketing for promoting their goods and services. They offer their goods on
online platforms. Marketing is one sector which is expanding rapidly. There are many
purposes of core marketing, such as purchase, sale, finance, transport, etc.
Provide Effective Information-It is the most efficient way of interaction with your potential
buyers.
The backbone of Business –Marketing is like fuel for a business, without it, a company
cannot sustain itself for long. It is used to fulfil every business requirement.
Increase Sales-It is important to boost sales and revenue.
Save Cost & Time-With this tool; a business can quickly reach a large audience. It helps in
creating brands awareness, improves sales and extends customer services.

Marketing and selling

Selling/ Sales – aims at selling existing products to customers through persuasion
What is Selling?

The selling theory believes that if companies and customers are dropped and detached,
then the customers are not going to purchase enough commodities produced by the
enterprise.
The notion can be employed argumentatively, in the case of commodities that are not
solicited, i.e. the commodities which the consumer doesn’t think of buying and when the
enterprise is functioning at more than 100% capacity, the company intends at selling what
they manufacture, but not what the market requires.
In the sales process, a salesperson sells whatever products the production department has
produced. The sales method is aggressive, and customer’s genuine needs and satisfaction is
taken for granted.
Examples of Selling
A few examples of selling are:

 Business-to-Business Sales
 Door-to-Door Sales
 Cold Calling
 Personal selling

What is Marketing?
The marketing theory is a business plan, which affirms that the enterprise’s profit lies in
growing more efficient than the opponents, in manufacturing, producing and imparting
exceptional consumer value to the target marketplace.
Marketing is a comprehensive and important activity of a company. The task generally
comprises recognising consumer needs, meeting that need and ends in customer’s
feedback.
In between, activities such as production, packaging, pricing, promotion, distribution and
then the selling will take place. Consumer needs are of high priority and act as a driving
force behind all these actions. Their main focus is a long run of business ending up with
profits.
It depends upon 4 elements, i.e. integrated marketing, target market, profitability customer
and needs. The idea starts with the particular market, emphasises consumer requirements,
regulates activities that impact consumers and draws gain by serving consumers.
Marketing - aims at creating of markets for products which are needed by the consumers
and thus centres around customer satisfaction and fulfilment
Examples of Marketing
A few examples of marketing are:

 Cold Calling
 Newsletters
 Search Engine Marketing
 Meeting customers at Trade shows
 Product placement in Entertainment platforms (video games)

Top 8 Difference Between Selling and Marketing

Selling Marketing
Definition
The selling theory believes that if The marketing theory is a business plan,
companies and customers are dropped which affirms that the enterprise’s profit
detached, then the customers are not going lies in growing more efficient than the
to purchase enough commodities produced opponents, in manufacturing, producing
by the enterprise. The notion can be and imparting exceptional consumer value
 employed argumentatively, in the case of to the target marketplace.
commodities that are not solicited.
Related to
Constraining customer’s perception of Leading commodities and services towards
commodities and services. the consumer’s perception.
Beginning point
Factory Marketplace
Concentrates on
Product Consumer needs
Perspective
Inside out Outside in
Business Planning
Short term Long term
Orientation
Volume Profit
Cost Price
Cost of Production Market ascertained

Customer perceived value

How do we define customer value?
- Customer perception towards the worthiness of a given product or service that he/she is
using or deem to use in comparison to the alternatives available in the market is called
‘Customer Perceived Value’.
- Worthiness refers to the customers’ post purchase evaluation of the benefits that he/she
received from the product/service over what he/she paid for the same.
- Here it must be noted that customer’s value proposition would increase if he/she feels
getting something from a product/ brand which others are not offering
Customer perceived value is a concept widely used in marketing and branding circles.
Customer perceived value is the notion that the success of a product or service is largely
based on whether customers believe it can satisfy their wants and needs. In other words,
when a company develops its brand and markets its products, customers ultimately
determine how to interpret and react to marketing messages.
What is Customer Perceived Value (CPV)?
Customer Perceived Value is the evaluated value that a customer perceives to obtain by
buying a product. It is the difference between the total obtained benefits according to the
customer perception and the cost that he had to pay for that. Customer perceived value is
seen in terms of satisfaction of needs a product or service can offer to a potential customer.
The customer will buy the same product again only if he perceives to be getting some value
out of the product. Hence delivering this value becomes the motto of marketers.
Measuring Customer Perceived Value
Customer Perceived Value = Total Perceived Benefits – Total Perceived Costs
The CPV is kind of an evaluation done by customer on what value a product or a service
would be able to provide if he/she buys it by paying money.
Please note that the benefits and costs also include the emotional benefits and costs.

Importance of CPV
Customer Perceived Value becomes very important for making sure that the customer
becomes repeat. If the CPV is positive then only there would be a probability of repeat buy
else the customer would switch to a competitor. CPV can be measured by taking in account
all types of values like task, time, functional etc. to make sure it fulfills the expected value by
the customer.

Example of Customer Perceived Value

While buying a car, the expected reactions from family and friends also become a part of
benefits or gain. The customer evaluates whether the particular car would be able to
provide whatever he/she is looking for from a car. Whether the car would provide the
comfort and the usability. Also for many customer the perceived value would also include
the mileage a car gives.

Principal Role of Marketing

1. Satisfying customer needs and wants
2. Creating markets for existing as well as new products
3. Creating value for customers
4. Be the ‘change’ agent
The Role of Marketing within A Firm
The official American Marketing Association definition published in July 2013 defines
marketing as “the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, and
society at large. ”
While this definition can help us better comprehend the parameters of marketing, it does
not provide a full picture. Definitions of marketing cannot flesh out specific transactions and
other relationships among these elements. The following propositions are offered to
supplement this definition:
2. The overall directive for any organization is the mission statement or an equivalent
expression of organizational goals. It reflects the inherent business philosophy of the
organization.
3. Every organization has a set of functional areas (e.g., accounting, production,
finance, data processing, marketing) in which tasks pertinent to the success of the
organization are performed. These functional areas must be managed if they are to
achieve maximum performance.
4. Every functional area is guided by a philosophy (derived from the mission statement
or company goals) that governs its approach toward its ultimate set of tasks.
5. Marketing differs from the other functional areas, because its primary concern is
exchanges that take place in markets outside the organization.
6. Marketing is most successful when the philosophy, tasks, and implementation of
available technology are coordinated and complementary to the rest of the business.
Marketing is often a critical part of a firm’s success, but its importance must be kept in
perspective. For many large manufacturers such as Proctor & Gamble, Microsoft, Toyota,
and Sanyo, marketing represents a major expenditure, as these businesses depend on the
effectiveness of their marketing effort. Conversely, for regulated industries (such as utilities,
social services, medical care, or small businesses providing a one-of-a-kind product )
marketing may be little more than a few informative brochures.

Be The Change Agent

Executives are expected to be the ‘change agents’ in an organisation
They bring about the culture of ushering ‘changes’ within an organisation
Example – Apple i-pod changed the complexion of the portable music industry. Here, the
change agent was Steve Jobs, Apple CEO
A change agent is a person from inside or outside an organization who helps an
organization, or part of an organization, to transform how it operates.
They can be thought of as a catalyst for change, a person who can make changes happen by
inspiring and influencing others. A change agent will promote, champion, enable, and
support changes to be made in an organization. They focus on people and the interactions
between them. A change agent inspires and influences key individuals to make the changes
necessary for the transformation, including changes to their desires, attitudes and
behaviors. Change agents fulfil one of the critical roles in the discipline of organizational
change management (OCM), which is important to ensure the success of any business
change.
The terms ‘agent of change’ and ‘change advocate’ are synonymous with the term ‘change
agent’. A ‘change champion’ has a similar role to a change agent. However, a change
champion can be just a figurehead whereas a change agent often works ‘behind the scenes’
to achieve success. Change agents are not directly involved in the IT service management
(ITSM) change management process, as this process focuses on specific changes to systems
and services.

What are the roles within Organizational Change Management (OCM)?

There are many roles involved in making changes within an organization, a change agent is
just one of the required roles. Here are some contrasts with other key roles in OCM:
Thought Leader
Thought leaders portray a vision of what the future could look like, which is also an activity
undertaken by change agents. The principle difference between a thought leader and a
change agent, is that a thought leader will inspire others with their ideas but not necessarily
follow through with actions to turn the ideas into reality. A change agent also has a role to
play in inspiring others, but then will continually influence and persuade others to take the
ideas forward. If necessary, they will change their approach, even modifying the idea to
overcome resistance and maintain progress towards the transformational goal.
Line manager
A line manager has direct control over the individuals who work for them. Whilst they have
an important role to play in acting as agents to make changes happen, they typically achieve
this using command and control approaches such as assigning tasks to their staff and setting
targets for achievement. Change agents typically do not have line management authority
over individuals, and use persuasive techniques to influence the required changes in
attitudes, behavior, and culture. These techniques used by change agents are often more
successful in transformational changes than the command and control techniques typically
used by line management, as they change the hearts and minds of individuals to support the
change.
OCM lead
The OCM lead role is responsible for the success of the full Organizational Change
Management process. This is a management role, with ownership of the OCM process, and
other OCM roles reporting into them. The change agents for the transformation will report
into the OCM lead. The OCM lead will set the strategy for organizational change
management, which the change agents would then follow. Change agents can exist in
isolation in an organization without a formal OCM approach and hence without any OCM
lead.
OCM practitioner
OCM practitioners execute the OCM strategy as set by the OCM lead. A change agent can
also be an OCM practitioner, working principally on change agent activities. Other OCM
practitioners may act as supporting agents of change, but their activities are likely to be
primarily focused in other areas such as education and stakeholder management.
OCM sponsor
Having an OCM sponsor is key to successful change. This role should be actively involved
with the transformation, regularly communicating positive messages about it, gaining
feedback, and ensuring understanding. This is also true of a change agent, and in some
ways, an OCM sponsor is also acting as one of the agents of change. The roles can
sometimes be combined, however, an OCM sponsor is often held by a senior figure in the
affected organization, whereas a change agent does not require that level of authority.
Combining the roles of change agent and OCM sponsor can be problematic, as individuals
might to the outside world seem compliant to the changes because of the level of authority
of the change agent/OCM sponsor, whilst in reality, they are resistant to the changes.
What activities does a change agent perform?

 Visibly and actively communicating why the transformation is a good idea for both
the organization and individuals
 Actively engaging with individuals
 Listening to others, gaining and acting on feedback
 Understanding how different people may react and developing appropriate
approaches
 Dealing with specific individuals who don’t seem supportive
 Encouraging and supporting others
 Identifying and leading other change agents
 Providing feedback and reporting issues to the Overall Change Management lead
Typical responsibilities of a change agent include the following:

 Understanding the needs of the staff in their scope of responsibility

 Understanding the aims of the transformation
 Understanding how their area of the business operates and contributes to the
overall organization
 Explaining the reason for the transformation and the expected benefits
 Visibly advocating the changes required for the transformation
 Determining appropriate influencing strategies
 Disseminating information
 Influencing and persuading staff in the change agents’ scope of responsibility
 Identifying and coaching new change agents
 Liaising with other change agents
 Anticipating and dealing with areas of potential dispute or disruption
 Obtaining feedback to share with leadership and management
  Advising stakeholders and impacted individuals
 Acting as a mediator
 Reporting on progress and issues
What are the characteristics of a good change agent?
As being a change agent is an incredible responsibility, the following are the desirable
qualities of a change agent:

 Enthusiastic and passionate

 Leads by example
 Easy to get on with
 Patient but persistent
 Pragmatic
 Good at getting ideas over
 Well respected by those who know them
People that identify with these are likely to make good change agents but may require
training on influencing, persuading, and negotiating skills.
How do you identify someone that could make a good change agent?
In some organizations, senior managers are expected to be change agents but, unless they
have the appropriate personal qualities required of a change agent, they are unlikely to be
effective. Senior managers can also struggle to relinquish the command and control nature
of their management role and instead use the influence and persuasion approaches
associated with good change agents. The activities to implement any transformation will
take place at a local level, hence success is more likely if there are change agents at every
level. Staff should be identified in each area who have the right mix of skills, knowledge, and
respect from their colleagues to be used as change agents in their area of the organization.
Stakeholder analysis can be useful to help with this identification. It is good practice to use a
network of change agents, identifying one or more in each area of the business. Change
agents in the network should come from various positions within the organization, their
precise role in the organization’s management hierarchy is not important provided that
each change agent is well-respected by the individuals in the area of the organization that
they are expected to influence. Each change agent should also understand their area of the
business and where it fits in the organization, and have strong working relationships with
their colleagues.
Which is better – an internal or an external change agent?
Change agents can be existing staff in an organization (internal), or brought in from outside
(external). In organizations that have no staff with the skills and experience required to be a
change agent, then using an external change agent is often the only option. If this approach
is used, it is important to assign someone internal to learn from the external change agent
so that they themselves can become a change agent. For the long term, it is more beneficial
for change agents to be internal as they will have in-depth knowledge about the
organization and its people, and have the time to build long lasting and trusted relationships
with staff. Internal change agents are also always available for use within the organization,
whereas with external change agents there is always a lead time to procure and onboard
them. There is a risk when using external change agents that the organization’s own staff
will see the change agents as a threat and unconnected with the organization. External
change agents are unlikely to be there to deal with any issues that arise after the
transformation has completed. Many transformations take a year or more to complete, the
costs of employing external change agents for long periods can be quite expensive.

https://www.mckinsey.com/business-functions/operations/our-insights/the-change-agent-
challenge

What needs to be Marketed?

Goods - Tangible Products
Services - Intangible Products
Experiences – Mix of tangible and intangible products (Eg: Resorts)
Events – Time based activities (Eg: World cup cricket, Olympics)
Information – Important information handy for a prospective customer (Eg: Specialised
magazines, Telephone directory, Encyclopedia, Websites)
Ideas – The ‘value proposition’ of a product lies in its idea. The product features deliver the
idea (Eg: Big Bazaar – The cheapest store)

Identifying target market

A given product is not meant for everyone but is rather meant for a group of people.
The group for which the product is made is called “Target Market”
The ‘Target’ is based on the ‘value proposition’ of the company
- Eg: Company A & B offers similar products, but their brand names are different. Company
A is a reputed company hence, its product is relatively higher in price than company B.
People buying product of A or B would be on the pretext of the value proposition
associated.
A target market is a group of people with some shared characteristics that a company has
identified as potential customers for its products. Identifying the target market informs the
decision-making process as a company designs, packages, and markets its product.
A target market may be broadly categorized by age range, location, income, and lifestyle.
Many other demographics may be considered. Their stage of life, their hobbies, interests,
and careers, all may be considered.1

KEY TAKEAWAYS
 A target market is a group of customers with shared demographics who have been
identified as the most likely buyers of a company's product or service.
 Identifying the target market is important for any company in the development and
implementation of a successful marketing plan.
 The target market also can inform a product's specifications, packaging, and
distribution.
Understanding Target Markets
Few products today are designed to appeal to absolutely everyone. The Aveda Rosemary
Mint Bath Bar, available for $20 a bar at Aveda beauty stores, is marketed to the upscale
and eco-conscious woman who will pay extra for quality. Cle de Peau Beaute Synactif Soap,
available at Bloomingdale's for $110 a bar, is marketed to wealthy, fashion-conscious
women who are willing to pay a premium for a luxury product. An eight-pack of Dial soap
costs about $8 on Amazon, and it is known to get the job done.

Part of the success of selling a good or service is knowing to whom it will appeal and who
will ultimately buy it. Its user base can grow over time through additional marketing,
advertising, and word of mouth.
That's why businesses spend a lot of time and money to define their initial target markets,
and why they follow through with special offers, social media campaigns, and specialized
advertising.

How Detailed Should a Target Market Be?

It depends. Broadly speaking, a product may be designed for a mass market or a niche
market, and a niche market can be a very small group indeed, especially in its early
introductory phase.
Most carbonated beverages may aim for a practically universal market. Coca-Cola had to
branch out to 200 markets abroad to grow its customer base. Gatorade is owned by Pepsi
Cola, but this brand is positioned as a drink for athletes. The soda brand Poppi, which is
branded as a "Healthy, Sparkling, Prebiotic Soda with Real Fruit Juice, Gut Health, and
Immunity Benefits," is clearly aimed at a younger, healthier, and more trend-conscious
target market.
What Is an Example of a Target Market?
Consider a casual apparel company that is working to build its distribution channels abroad.
In order to determine where its apparel will be most successful, it conducts some research
to identify its primary target market. It discovers that the people most likely to buy their
products are women between the ages of 35 and 55 who live in Switzerland.
It's only logical for the company to focus its advertising efforts on Switzerland-based
websites that appeal to women.
But first, the company may consider how its apparel can be most attractive to that target
market. It may revise its styles and colors and tweak its advertising strategy to optimize its
appeal to this new prospective market.
What Is the Purpose of a Target Market?
A target market defines a product as well as vice versa.
Once a target market is identified, it can affect a product's design, packaging, price,
promotion, and distribution.
A product aimed at men won't be packaged in pink plastic. A luxury cosmetic won't be sold
at a pharmacy. An expensive pair of shoes comes with a branded cloth drawstring bag as
well as a shoebox. All of those factors are signals to the target audience that they have
found the right product.

https://www.inc.com/guides/2010/06/defining-your-target-market.html

Customer and consumer

A customer is a person who buys a product for self-consumption or for the consumption of
others
A consumer on the other hand may buy or might not buy the product, but invariably
consumes the product
Marketing and advertising include many words that can be difficult for common people to
understand. Likewise, many people think that the word Customer and Consumer have a
similar meaning, but they have a different meaning from the marketer’s viewpoint, though
they sound similar. There are various situations where we can understand that the customer
and consumer can be the same person, but these words altogether have a different
meaning.
Every human being on earth is either a consumer or a customer, in some way or the other
and they are commonly misunderstood. However, a consumer is someone who consumes or
uses the goods, and the customer is someone who purchases the commodity and makes the
payment.
Sometimes, both the customer and consumer, are the same individual, when an individual
buys good for their personal use. However, they are not similar, therefore, this article will
help you understand the difference between the two. All the marketing processes are aimed
towards influencing customers’ behaviour, which means to influence the customer so that
they take desired action expected by marketers.
Another important feature in the discussion between consumer vs customer is that
customers can also be businesses that purchase and then resell goods or merchandises. In
such concern, they are only customers and not consumers of the goods they buy because
they are reselling it to the consumer to ultimately utilise the product. So let’s understand in
this article what are the points that make the word customer and consumer different from
each other.

Who is a Customer?
A customer is a person who buys goods and services regularly from the seller and pays for it
to satisfy their needs. Many times, when a customer who buys a product is also the
consumer, but sometimes it’s not. For example, when parents purchase a product for their
children, the parent is the customer, and the children are the consumer. They can also be
known as clients or buyers.
Customers are divided into two categories:
 Trade Customer- These are customers who buy the product, add value and resell it.
Like a reseller, wholesaler, and distributor, etc.
 Final Customer– These are the customers who buy the product to fulfil their own
needs or desires.
Further, according to an analysis of the product satisfaction and relationship with the
customers, the customers are divided into three kinds-

 Present Customer
 Former Customer
 Potential Customer
Who is a Consumer?
A consumer is someone who purchases the product for his/her own need and consumes it.
A consumer cannot resell the good or service but can consume it to earn his/her livelihood
and self-employment. Any person, other than the buyer who buys the product or services,
consumes the product by taking his/her permission is categorized as a consumer. In simple
word, the end-user of the goods or services is termed as a consumer.
All individuals who engage themselves in the economy is a consumer of the product. For
instance, when a person buys goods from a grocery store for their family, you become a
customer, as you are only purchasing the commodities. But, when they feed the grocery to
other members of the family, they become the consumer.
Given below in a tabular column are the difference between Customer and Consumer.
Customer Consumer
Definition
 Customer is the one who is purchasing the Consumer is the one who is the end user of
goods. any goods or services.
Ability to resell
Customer can purchase the good and is Consumers are unable to resell any product
able to resell or service.
Need for purchase
Customers need to purchase a product or For a consumer purchasing a product or
service in order to use it. service is not essential.
Motive of buying
The motive of buying is either for resale or The motive of buying is only for
for consumption consumption
Is payment necessary
Must be paid by customer May or may not be paid by the consumer
Target group
Individual or Company Individual, family or group

Types of Customers
In business, customers play a vital role. In fact, customers are the actual boss and
responsible for a company to make a profit. A few different types of customers are:

 Loyal Customer- They are less in numbers but increase more profit and sales as they
are completely satisfied with the product or service.
 Discount Customers- They also regular visitors but buy when they are offered
discounts or they purchase only low-cost goods.
 Impulsive Customers- These types of customers are hard to convince, as they don’t
go for a specific product, but buy whatever they feel is good and fruitful at that
particular point of time.
 Need-Based Customers- These customers buy only those products which they are in
need of or habituated with.
 Wandering Customers- These are the least valuable customers as they themselves
don’t know what to purchase.
Types of Consumers
A service or product producing firm has to recognise different types of consumers when
they target them with its product to gain profits. Some of the different types of consumers
are:

 Commercial Consumer- They buy goods in large numbers whether they need the
product or not and sometimes associate special needs with their purchase orders.
 Discretionary Spending Consumers- They have unique buying habits and purchase a
lot of clothes and electronic gadgets.
 Extroverted Consumer- They prefer brands that are unique and become a loyal
consumer once they gain that trust as a customer.
 Inferior Goods Consumer- Consumer having low-income buy goods having low price.
Why consumers are important?
The importance of consumers in various avenues is presented below:
 7. Encourage Demand- They are the main root for the demand of any product. All
manufacturers of goods and services produce various things according to the
demand in the market.
8. Create Demand for Various Products- Different consumers have several varieties of
demand or an individual consumer can also demand various types of goods. These
encourage the manufacturer to deliver various products in the market.
9. Increase Demand for Consumer Goods- It creates demand for various consumer
goods, like long-lasting, semi-durable and biodegradable goods.
10. Enhance Service Diversification – Consumers not only utilise different types of
products but also use diversified services to support the standard of living. Such as
educational service and health service, transport and communication service, and
banking and insurance service, etc. This will direct the development or improvement
of the service sector in the economy.

2. Marketing Concepts and Tools

Marketplace, Marketspace and Metamarket

Marketplace – It is physical in nature. One needs to visit the place to get his/her
commodities. It generally has a working hour
Marketspace – This is digital in nature. One need not to visit it physically. Orders can be
placed with the help of internet. Operates 24 X 7
Meta market – A group of complimentary products and services which are closely
associated for the functioning of the whole. Eg: Mobile phone and connection provider;
Television and Service provider. Meta markets are closely related markets from the
customer point of view but are different set of industries. For example, in the automobile
meta market different industries are Automobile Manufacturers, Insurance Providers,
Service Centers, Spares, Driving Academy, Finance Companies etc.
The reason why meta markets are important is because they possess a common synergy.
Industry can look into which meta markets they can get into. For example, Maruti had got
into Auto Driving School Business, while Mahindra and Tata Motors have their own Motor
Finance companies. Videocon got into DTH Services, from being a TV manufacturer.

Needs, Wants and Demands

Needs – They are generic in nature. Eg: Food, Clothing, Shelter, Elementary Education, Basic
Health facilities. These are also called ‘basic needs’
Wants – When ‘needs’ become specific in nature they are termed as ‘wants’. Eg: Idli, Dhosa,
Shirt, Trouser, House etc.
Demands – When ‘wants’ becomes brand specific or name specific it is called ‘demand’. Eg:
Madras Tiffin idli, Hamburger from MacDonald, Burberry Shirts etc.
LINK for need, demand, wants:
https://j-tradition.com/needs.html
https://kullabs.com/class-12/marketing/components-of-marketing/concept-of-needs-
wants-and-demands-in-marketing

Types of Customer Needs

Stated Need – The need that is being expressed by the customer. Eg: A consumer looking for
an economy car.
Real Need – The actual need behind the purchase intention. Eg: A consumer looking for an
economy car in terms of fuel efficiency
Unstated Need – The unexpressed need of the consumer. The consumer would expect an
efficient after-sales service from the dealer.
Delight Need – Unexpressed need but expectation is there. Eg: In this case if the consumer
expects that the dealer would provide a Hi-Fi music system in the car this becomes a
‘delight’ need
Secret Need – The need for affiliation. The consumer here wants to prove to his primary as
well as his/ her secondary circle about his position with the help of the car
Value and Satisfaction
Customer Perceived Value – is the ratio between the benefits that a customer gets out of
the product and the price that he/she pays for it
Value = Benefits/ Costs
Customer Satisfaction – If ‘benefits’ derived out of the product is commensurate to the
‘cost’ (here price being paid) of the product then the customer feels satisfied. If benefits far
surpasses the cost, then it results in ‘customer delight’

https://www.termscompared.com/customer-value-vs-customer-satisfaction/
https://store.magenest.com/blog/customer-value-and-satisfaction/

MARKETING CONCEPTS: -

Production Concept
This is perhaps the oldest concept
It favoured mass production
Marketers were of the belief that customers prefer available and inexpensive products
Achieving per unit low production cost was the focal point
Era of mass distribution
Product Concept
This concept advocated that customers prefer product having high quality, performance,
and more feature/ attributes
It also believed that customers prefer products which are easy to use. Eg: Ambassador car
from HM
Selling Concept
This concept advocates that customers would not be buying enough unless aggressive
selling and promotional activities are taken up
It believed in higher sales volume and ignored customer ‘wants’. Eg: All the brands which
are frequently seen in the advertising medium
Marketing Concept
Customer ‘first’ approach
It advocates identifying the needs and wants of the customer and delivering the same to
achieve customer satisfaction
Achieving customer satisfaction before others (competitors). Eg: Indigo airlines
Societal Marketing Concept
Society well – being is the primary focus
Customers immediate needs should not be detrimental to the societies well – being in the
long run
Developing eco – friendly products. Eg: Tesla electric cars
Link on all concepts:-
https://disruptiveadvertising.com/marketing/marketing-concepts/
https://avalaunchmedia.com/the-five-marketing-concepts/

How to Choose the Right Marketing Concept

While not all of the above concepts are effective (or perhaps as effective as they once were),
you can utilize aspects from multiple concepts in designing and strategizing a marketing
plan. As you plan, you need to ask yourself some questions before deciding which marketing
concept(s) to base it on. Consider the following:

 Who is your target audience? Which demographics are interested in your products
or services? Where are they looking for you and what you have to offer? What
attracts this demographic to your company? How can you use that to turn these
people into customers?
 What are your goals besides making money? For example, are you trying to establish
a loyal customer base? Are you trying to fill a hole in the industry you’re selling in?
 What makes your brand unique? What education do they need to be enticed to buy?
What Is Price Sensitivity?
Price sensitivity is the degree to which the price of a product affects consumers' purchasing
behaviors. Generally speaking, it's how demand changes with the change in the cost of
products.
In economics, price sensitivity is commonly measured using the price elasticity of demand,
or the measure of the change in demand based on its price change. For example, some
consumers are not willing to pay a few extra cents per gallon for gasoline, especially if a
lower-priced station is nearby.
When they study and analyze price sensitivity, companies and product manufacturers can
make sound decisions about products and services.

What Is Brand Sensitivity?

Brand sensitivity refers to the degree of value a con- sumer grants a brand when
evaluating its products. Therefore, the impact of a brand on decision making increases as a
consumer becomes more sensitive to or conscious of a brand

Law of demand
What is the Law of Demand?
The law of demand is one of the most fundamental concepts in economics. It works with the
law of supply to explain how market economies allocate resources and determine the prices
of goods and services that we observe in everyday transactions.
The law of demand states that quantity purchased varies inversely with price. In other
words, the higher the price, the lower the quantity demanded. This occurs because of
diminishing marginal utility. That is, consumers use the first units of an economic good they
purchase to serve their most urgent needs first, and use each additional unit of the good to
serve successively lower-valued ends.

 The law of demand is a fundamental principle of economics that states that at a

higher price consumers will demand a lower quantity of a good.
  Demand is derived from the law of diminishing marginal utility, the fact that
consumers use economic goods to satisfy their most urgent needs first.
 A market demand curve expresses the sum of quantity demanded at each price
across all consumers in the market.
 Changes in price can be reflected in movement along a demand curve, but do not by
themselves increase or decrease demand.
 The shape and magnitude of demand shifts in response to changes in consumer
preferences, incomes, or related economic goods, NOT to changes in price.

1:4Law of Demand
Understanding the Law of Demand
Economics involves the study of how people use limited means to satisfy unlimited wants.
The law of demand focuses on those unlimited wants. Naturally, people prioritize more
urgent wants and needs over less urgent ones in their economic behavior, and this carries
over into how people choose among the limited means available to them. For any economic
good, the first unit of that good that a consumer gets their hands on will tend to be put to
use to satisfy the most urgent need the consumer has that that good can satisfy.
For example, consider a castaway on a desert island who obtains a six-pack of bottled, fresh
water washed up on shore. The first bottle will be used to satisfy the castaway's most
urgently felt need, most likely drinking water to avoid dying of thirst. The second bottle
might be used for bathing to stave off disease, an urgent but less immediate need. The third
bottle could be used for a less urgent need such as boiling some fish to have a hot meal, and
on down to the last bottle, which the castaway uses for a relatively low priority like watering
a small potted plant to keep him company on the island.
In our example, because each additional bottle of water is used for a successively less highly
valued want or need by our castaway, we can say that the castaway values each additional
bottle less than the one before. Similarly, when consumers purchase goods on the market
each additional unit of any given good or service that they buy will be put to a less valued
use than the one before, so we can say that they value each additional unit less and less.
Because they value each additional unit of the good less, they are willing to pay less for it.
So, the more units of a good consumers buy, the less they are willing to pay in terms of the
price.
By adding up all the units of a good that consumers are willing to buy at any given price we
can describe a market demand curve, which is always downward-sloping, like the one
shown in the chart below. Each point on the curve (A, B, C) reflects the quantity demanded
(Q) at a given price (P). At point A, for example, the quantity demanded is low (Q1) and the
price is high (P1). At higher prices, consumers demand less of the good, and at lower prices,
they demand more.
Demand vs Quantity Demanded
In economic thinking, it is important to understand the difference between the
phenomenon of demand and the quantity demanded. In the chart, the term "demand"
refers to the green line plotted through A, B, and C. It expresses the relationship between
the urgency of consumer wants and the number of units of the economic good at hand. A
change in demand means a shift of the position or shape of this curve; it reflects a change in
the underlying pattern of consumer wants and needs vis-a-vis the means available to satisfy
them.
On the other hand, the term "quantity demanded" refers to a point along the horizontal
axis. Changes in the quantity demanded strictly reflect changes in the price, without
implying any change in the pattern of consumer preferences. Changes in quantity
demanded just mean movement along the demand curve itself because of a change in price.
These two ideas are often conflated, but this is a common error; rising (or falling) prices do
not decrease (or increase) demand, they change the quantity demanded.
CONDITIONS FOR DEMAND
1. Will to buy (intention)
2. Pocket to buy (affordability)

Factors Affecting Demand

So what does change demand? The shape and position of the demand curve can be
impacted by several factors. Rising incomes tend to increase demand for normal economic
goods, as people are willing to spend more. The availability of close substitute products that
compete with a given economic good will tend to reduce demand for that good, since they
can satisfy the same kinds of consumer wants and needs. Conversely, the availability of
closely complementary goods will tend to increase demand for an economic good, because
the use of two goods together can be even more valuable to consumers than using them
separately, like peanut butter and jelly.
Other factors such as future expectations, changes in background environmental conditions,
or change in the actual or perceived quality of a good can change the demand curve,
because they alter the pattern of consumer preferences for how the good can be used and
how urgently it is needed.
What Is a Simple Explanation of the Law of Demand?
The Law of Demand tells us that if more people want to buy something, given a limited
supply, the price of that thing will be bid higher. Likewise, the higher the price of a good, the
lower the quantity that will be purchased by consumers.
Why Is the Law of Demand Important?
Together with the Law of Supply, the Law of Demand helps us understand why things are
priced at the level that they are, and to identify opportunities to buy what are perceived to
be underpriced (or sell overpriced) products, assets, or securities. For instance, a firm may
boost production in response to rising prices that have been spurred by a surge in demand.
Can the Law of Demand Be Broken?
Yes, in certain cases an increase in demand does not affect prices in ways predicted by the
Law of Demand. For instance, so-called Veblen goods are things whose demand increases as
their price rises, as these are perceived as status symbols. Similarly, demand for Giffen
goods (which in contrast to Veblen goods are not luxury items) rises when the price rises
and falls when the price falls. Examples of Giffen goods can include bread, rice, and wheat.
These tend to be common necessities and essential items with few good substitutes at the
same price levels. Thus, people may start to hoard toilet paper even as its price goes up.
What is Customer Retention?
The customer retention definition in marketing is the process of engaging existing
customers to continue buying products or services from your business. It’s different from
customer acquisition or lead generation because you’ve already converted the customer at
least once.
The best customer retention tactics enable you to form lasting relationships with consumers
who will become loyal to your brand. They might even spread the word within their own
circles of influence, which can turn them into brand ambassadors.
But let’s start at the beginning. You’ve sold a product or service to a consumer, so what
next? That’s when you build and implement customer retention strategies.
The Importance of Customer Retention for an Online Business
You might have heard that it’s easier and less expensive to retain customers than to acquire
them. The most recent statistics indicate that it’s true.
For one thing, you’ll spend five times less money on customer retention.
Additionally, at best, your probability of selling to an existing customer is at least 40 percent
more likely than converting someone who has never bought from you before.
Existing customers also spend 31 percent more than new leads, and when you release a new
product, your loyal customers are 50 percent more likely to give it a shot.
Those statistics should prove sufficient to compel you to build and test out a customer
retention strategy.
How to Calculate Your Customer Retention Rate
Companies can calculate their customer retention rates in different ways. It all depends on
what period of time you’re examining, but many marketers use too many variables.
Let’s say that you have 2,000 existing customers over a period of two months. During that
same period, 900 of them return to buy something else from you. Those are the two
numbers that will allow you to calculate your customer retention rate.
However, you have to discount any new customers you bring on during those two months.
They’re not part of the equation. You should only count the people who bought something
from you prior to the two-month start date among your existing customers.
If you’re measuring your customer retention rate from January 1 to February 28, you would
take into consideration the customers who bought from you prior to January 1. If a new
customer buys from you on January 15, he or she doesn’t count.
Customer retention formula
The customer retention formula isn’t difficult, but it’s powerful. It’s an illustration of how
well you’re building relationships and drawing existing customers back for subsequent
purchases.
You’ll need to do a little math, but if you have a calculator, it won’t be a struggle.
The customer retention formula looks like this:

Start by subtracting the number of customers acquired turning the calculation period from
your total customer base at the end of the period. Divide that number by the number of
customers you had at the start of the period and divide by 100.
Let’s look at a customer retention example.
You have 50,000 customers at the start of a calculation period of two months. During those
two months, you acquire 1,000 customers, and at the end of the period, you have 40,000
customers.
We’ll subtract 1,000 from 50,000 to get rid of customers acquired during the testing period.
That’s leaves us with 49,000. Now, we’ll divide 40,000 by 49,000 to get .81. If we multiply
that number by 100, we get a customer retention rate of 81 percent.

Definition of 'Blue Ocean Strategy'

Definition: 'Blue Ocean Strategy is referred to a market for a product where there is no
competition or very less competition. This strategy revolves around searching for a business
in which very few firms operate and where there is no pricing pressure.

Description: Blue Ocean Strategy can be applied across sectors or businesses. It is not
limited to just one business. But, let's first understand what is Blue Ocean and how it is
different from Red Ocean strategy.

In today's environment most firms operate under intense competition and try to do
everything to gain market share. When the product comes under pricing pressure there is
always a possibility that a firm’s operations could well come under threat. This situation
usually comes when the business is operating in a saturated market, also known as 'Red
Ocean'.
When there is limited room to grow, businesses try and look for verticals or avenues of
finding new business where they can enjoy uncontested market share or 'Blue Ocean'. A
blue ocean exists when there is potential for higher profits, as there is now competition or
irrelevant competition.
The strategy aims to capture new demand, and to make competition irrelevant by
introducing a product with superior features. It helps the company in make huge profits as
the product can be priced a little steep because of its unique features.
Let's understand Blue Ocean strategy with the help of an example. Apple ventured into
digital music in 2003 with its product iTunes.
Apple users can download legal and high quality music at a reasonable price from iTunes
making traditional sources of distribution of music irrelevant. Earlier compact disks or CDs
were used as a traditional medium to distribute and listen to music.
Apple was successful in capturing the growing demand of music for users on the go. All the
available Apple products have iTunes for users to download music.

https://www.blueoceanstrategy.com/tools/red-ocean-vs-blue-ocean-strategy/

Red ocean strategy

Red ocean strategy is a plan of action aimed to make your product survive in the market full
of competitors.
As a design agency, we’ve been working on many projects and most of them were a red
ocean. To beat the competition companies tend to search for something that differentiates
them from others. It can be a unique feature, outstanding customer service, specific target
audience, or excellent user experience.
For example, Gridle, a client management platform we helped redesign focuses on
automating sales and marketing processes for small businesses. There are many CRM
systems on the red ocean market, but most of them look too complicated for small business
owners. Gridle stands out because of its full client lifecycle management automation and
ease of use. To be able to compete in the red ocean, Gridle's design needed to be simple for
users, and this is exactly what we did for Gridle. You can read more about it in our case
study.
Improving the usability of your product can be a helpful point in your strategy. Still, is it
enough to be successful in an already existing industry?
Economies of Scale

What Are Economies of Scale?

Economies of scale are cost advantages reaped by companies when production becomes
efficient. Companies can achieve economies of scale by increasing production and lowering
costs. This happens because costs are spread over a larger number of goods. Costs can be
both fixed and variable.
Understanding Economies of Scale
The size of the business generally matters when it comes to economies of scale. The larger
the business, the more the cost savings. Economies of scale can be both internal and
external.
Internal vs. External Economies of Scale
As mentioned above, there are two different types of economies of scale. Internal
economies are borne from within the company. External ones are based on external factors.
Internal economies of scale happen when a company cuts costs internally, so they're unique
to that particular firm. This may be the result of the sheer size of a company or because of
decisions from the firm's management. Larger companies may be able to achieve internal
economies of scale—lowering their costs and raising their production levels—because they
can buy resources in bulk, have a patent or special technology, or because they can access
more capital.
External economies of scale, on the other hand, are achieved because of external factors, or
factors that affect an entire industry. That means no one company controls costs on its own.
These occur when there is a highly skilled labor pool, subsidies and/or tax reductions, and
partnerships and joint ventures—anything that can cut down on costs to many companies in
a specific industry.
What causes economies of scale?
Generally speaking, economies of scale can be achieved in two ways. First, a company can
realize internal economies of scale by reorganizing the way their resources—such as
equipment and personnel—are distributed and used within the company. Second, a
company can realize external economies of scale by growing in size relative to their
competitors using that increased scale to engage in competitive practices such as
negotiating discounts for bulk purchases.
Why are economies of scale important?
Economies of scale are important because they can help provide businesses with a
competitive advantage in their industry. Companies will therefore try to realize economies
of scale wherever possible, just as investors will try to identity economies of scale when
selecting investments. One particularly famous example of an economy of scale is known as
the network effect.
Economies of scale refer to the cost advantage experienced by a firm when increases its
level of output. The advantage arises due to the inverse relationship between per-unit fixed
cost and the quantity produced. The greater the quantity of output produced, the lower the
per-unit fixed cost.
Economies of scale also result in a fall in average variable costs (average non-fixed costs)
with an increase in output. This is brought about by operational efficiencies and synergies as
a result of an increase in the scale of production.

Examples of Economies of Scale

In a hospital, it is still a 20-minute visit with a doctor, but all the business overhead costs of
the hospital system are spread across more doctor visits and the person assisting the doctor
is no longer a degreed nurse, but a technician or nursing aide.
Job shops produce products in groups such as shirts with your company logo. A significant
element of the cost is the setup. In job shops, larger production runs lower unit costs
because the set-up costs of designing the logo and creating the silk-screen pattern are
spread across more shirts. In an assembly factory, per-unit costs are reduced by more
seamless technology with robots.
A restaurant kitchen is often used to illustrate how economies of scale are limited: more
cooks in a small space get into each other's way. In economics charts, this has been
illustrated with some flavor of a U-shaped curve, in which the average cost per unit falls and
then rises. Costs rising as production volume grows is termed "dis-economies of scale."
Economies of scale can be realized by a firm at any stage of the production process. In this
case, production refers to the economic concept of production and involves all activities
related to the commodity, not involving the final buyer. Thus, a business can decide to
implement economies of scale in its marketing division by hiring a large number of
marketing professionals. A business can also adopt the same in its input sourcing division by
moving from human labor to machine labor.

Effects of Economies of Scale on Production Costs

11. It reduces the per-unit fixed cost. As a result of increased production, the fixed cost
gets spread over more output than before.
12. It reduces per-unit variable costs. This occurs as the expanded scale of production
increases the efficiency of the production process.

Image: CFI’s Financial Analysis Courses

The graph above plots the long-run average costs (LRAC) faced by a firm against its level of
output. When the firm expands its output from Q to Q2, its average cost falls from C to C1.
Thus, the firm can be said to experience economies of scale up to output level Q 2. In
economics, a key result that emerges from the analysis of the production process is that a
profit-maximizing firm always produces that level of output which results in the least
average cost per unit of output.

Sources to attain Economies of Scale

1. Purchasing
Firms might be able to lower average costs by buying the inputs required for the production
process in bulk or from special wholesalers.
2. Managerial
Firms might be able to lower average costs by improving the management structure within
the firm. The firm might hire better skilled or more experienced managers.
3. Technological
A technological advancement might drastically change the production process. For instance,
fracking completely changed the oil industry a few years ago. However, only large oil firms
that could afford to invest in expensive fracking equipment could take advantage of the new
technology.

Diseconomies of Scale
Consider the graph shown above. Any increase in output beyond Q2 leads to a rise in
average costs. This is an example of diseconomies of scale – a rise in average costs due to an
increase in the scale of production.
As firms get larger, they grow in complexity. Such firms need to balance the economies of
scale against the diseconomies of scale. For instance, a firm might be able to implement
certain economies of scale in its marketing division if it increased output. However,
increasing output might result in diseconomies of scale in the firm’s management division.
Frederick Herzberg, a distinguished professor of management, suggested a reason why
companies should not blindly target economies of scale:
“Numbers numb our feelings for what is being counted and lead to adoration of the
economies of scale. Passion is in feeling the quality of experience, not in trying to measure
it.”

ECONOMIES OF SCOPE
What are Economies of Scope?
An economy of scope means that the production of one good reduces the cost of producing
another related good. Economies of scope occur when producing a wider variety of goods or
services in tandem is more cost effective for a firm than producing less of a variety, or
producing each good independently. In such a case, the long-run average and marginal cost
of a company, organization, or economy decreases due to the production of complementary
goods and services.
While economies of scope are characterized by efficiencies formed by variety, economies of
scale are instead characterized by volume. The latter refers to a reduction in marginal cost
by producing additional units. Economies of scale, for instance, helped drive corporate
growth in the 20th century through assembly line production.
KEY TAKEAWAYS
 Economies of scope describe situations where producing two or more goods
together results in a lower marginal cost than producing them separately.
 Economies of scope differ from economies of scale, in that the former means
producing a variety of different products together to reduce costs while the latter
means producing more of the same good in order to reduce costs by increasing
efficiency.
 Economies of scope can result from goods that are co-products or complements in
production, goods that have complementary production processes, or goods that
share inputs to production.
Understanding Economies of Scope
Economies of scope are economic factors that make the simultaneous manufacturing of
different products more cost-effective than manufacturing them on their own. A simple way
to illustrate the contrast is to use the example of a train: A single train can carry both
passengers and freight more cheaply than having two separate trains, one only for
passengers and another for freight. In this case, a single train that has cars dedicated to
both categories is far more cost effective, and may also result in lower ticket or tonnage
costs for the train's users as well.
Economies of scope can occur because the products are co-produced by the same process,
the production processes are complementary, or the inputs to production are shared by the
products.
Co-Products
Economies of scope can arise from co-production relationships between final products. In
economic terms these goods are called complements in production. This occurs when the
production of one good automatically produces another good as a byproduct or a kind of
side-effect of the production process. Sometimes one product might be a byproduct of
another, but have value for use by the producer or for sale. Finding a productive use or
market for the co-products can reduce both waste and costs and increase revenues.
For example, dairy farmers separate raw milk from cows into whey and curds, with the
curds going on to become cheese. In the process they also end up with a lot of whey, which
they can then use as a high-protein feed for livestock to reduce their overall feed costs or
sell as a nutritional product to fitness enthusiasts and weightlifters for additional revenue.
Another example of this is the so-called black liquor produced when processing wood into
paper pulp. Instead of being merely a waste product that might be costly to dispose of,
black liquor can be burned as an energy source to fuel and heat the plant, saving money on
other fuels, or can even be processed into more advanced biofuels for use on-site or for
sale. Producing and using the black liquor thus saves costs on producing the paper.
Complementary Production Processes
Economies of scope can also result from the direct interaction of two or more production
processes. Companion planting in agriculture is a classic example here, such as the "Three
Sisters" crops historically cultivated by Native Americans. By planting corn, pole beans, and
ground trailing squash together, the Three Sisters method actually increases the yield of
each crop, while also improving the soil. The tall corn stalks provide a structure for the bean
vines to climb up; the beans fertilize the corn and the squash by fixing nitrogen in the soil;
and the squash shades out weeds among the crops with its broad leaves. All three plants
benefit from being produced together, so the farmer can grow more crops at lower cost.
A modern example would be a co-operative training program between an aerospace
manufacturer and an engineering school, where students at the school also work part time
or intern at the business. The manufacturer can reduce its overall costs by obtaining low
cost access to skilled labor, and the engineering school can reduce its instructional costs by
effectively outsourcing some instructional time to the manufacturer's training managers.
The final goods being produced (airplanes and engineering degrees) might not seem to be
direct complements or share many inputs, but producing them together reduces the cost of
both.
Shared Inputs
Because productive inputs (i.e. land, labor, and capital) usually have more than one use,
economies of scope can often come from common inputs to the production of two or more
different goods. For example, a restaurant can produce both chicken fingers and French fries
at a lower average expense than what it would cost two separate firms to produce each of
the goods separately. This is because chicken fingers and French fries can share use of the
same cold storage, fryers, and cooks during production.
Proctor & Gamble is an excellent example of a company that efficiently realizes economies
of scope from common inputs since it produces hundreds of hygiene-related products from
razors to toothpaste. The company can afford to hire expensive graphic designers and
marketing experts who can use their skills across all of the company's product lines, adding
value to each one. If these team members are salaried, each additional product they work
on increases the company's economies of scope, because of the average cost per unit
decreases.
Different Ways to Achieve Economies of Scope
Real-world examples of the economy of scope can be seen in mergers and acquisitions
(M&A), newly discovered uses of resource byproducts (such as crude petroleum), and when
two producers agree to share the same factors of production.
Economies of scope are essential for any large business, and a firm can go about achieving
such scope in a variety of ways. First, and most common, is the idea that efficiency is gained
through related diversification. Products that share the same inputs or that have
complementary productive processes offer great opportunities for economies of scope
through diversification.
Horizontally merging with or acquiring another company is another a way to achieve
economies of scope. Two regional retail chains, for example, may merge with each other to
combine different product lines and reduce average warehouse costs. Goods that can share
common inputs like this are very suitable for generating economies of scope through
horizontal acquisitions.
Example of Economies of Scope
As one last example, assume that company ABC is the leading desktop computer producer
in the industry. Company ABC wants to increase its product line and remodels its
manufacturing building to produce a variety of electronic devices, such as laptops, tablets,
and phones. Since the cost of operating the manufacturing building is spread out across a
variety of products, the average total cost of production decreases. The costs of producing
each electronic device in another building would be greater than just using a single
manufacturing building to produce multiple products.

Understanding Economies of Scope vs. Economies of Scale

Economies of Scope vs. Economies of Scale: An Overview
Economies of scope and economies of scale are two concepts that explain why costs are
often lower for larger companies. Economies of scope focus on the average total cost of
production of a variety of goods. In contrast, economies of scale focus on the cost
advantage that arises when there is a higher level of production for one good.
KEY TAKEAWAYS
 A company that benefits from economies of scope has lower average costs because
costs are spread over a variety of products.
 A company that benefits from economies of scale has a lower average cost because
costs decrease as the amount produced increases.
 In many cases, economy of scope is a generalization of economy of scale rather than
an opposing concept.
A company that benefits from economies of scope has lower average costs because costs
are spread over a variety of products. For example, it is much easier for a restaurant chain
to offer new dishes than to start a new restaurant chain offering the same new foods.
Advertising can promote multiple dishes at the same time, and the new foods can be
prepared and served using the same equipment and personnel. Economies of scope work
best when production or consumption is complementary.
On the other hand, a company that benefits from economies of scale has a lower average
cost because costs decrease as the amount produced increases. For example, a company
may be able to make 100 million computer chips at a much lower cost per unit than 1
million chips. The company has to spend a certain amount of money on research and
development (R&D) for each chip, as well as money setting up each factory. Once that is
done, less money is required to produce additional chips. Economies of scale work best
when fixed costs are high.

Marginal Utility
What Is Marginal Utility?
Marginal utility is the added satisfaction that a consumer gets from having one more unit of
a good or service. The concept of marginal utility is used by economists to determine how
much of an item consumers are willing to purchase.
Positive marginal utility occurs when the consumption of an additional item increases the
total utility. On the other hand, negative marginal utility occurs when the consumption of
one more unit decreases the overall utility.
KEY TAKEAWAYS
 Marginal utility is the added satisfaction a consumer gets from having one more unit
of a good or service.
 The concept of marginal utility is used by economists to determine how much of an
item consumers are willing to purchase.
 The law of diminishing marginal utility is often used to justify progressive taxes.
 Marginal utility can be positive, zero, or negative.
Understanding Marginal Utility
Economists use the idea of marginal utility to gauge how satisfaction levels affect consumer
decisions. Economists have also identified a concept known as the law of diminishing
marginal utility. It describes how the first unit of consumption of a good or service carries
more utility than later units.

Although marginal utility tends to decrease with consumption, it may or may not ever reach
zero depending on the good consumed.
Marginal utility is useful in explaining how consumers make choices to get the most benefit
from their limited budgets. In general, people will continue consuming more of a good as
long as the marginal utility is greater than the marginal cost. In an efficient market, the price
equals the marginal cost. That is why people keep buying more until the marginal utility of
consumption falls to the price of the good.
The law of diminishing marginal utility is often used to justify progressive taxes. The idea is
that higher taxes cause less loss of utility for someone with a higher income. In this case,
everyone gets diminishing marginal utility from money. Suppose that the government must
raise $20,000 from each person to pay for its expenses. If the average income is $60,000
before taxes, then the average person would make $40,000 after taxes and have a
reasonable standard of living.
However, asking people making only $20,000 to give it all up to the government would be
unfair and demand a far greater sacrifice. That is why poll taxes, which require everyone to
pay an equal amount, tend to be unpopular.
Also, a flat tax without individual exemptions that required everyone to pay the same
percentage would impact those with less income more because of marginal utility. Someone
making $15,000 per year would be taxed into poverty by a 33% tax, while someone making
$60,000 would still have about $40,000.
Types of Marginal Utility
There are multiple kinds of marginal utility. Three of the most common ones are as follows:
Positive Marginal Utility
Positive marginal utility occurs when having more of an item brings additional happiness.
Suppose you like eating a slice of cake, but a second slice would bring you some extra joy.
Then, your marginal utility from consuming cake is positive.
Zero Marginal Utility
Zero marginal utility is what happens when consuming more of an item brings no extra
measure of satisfaction. For example, you might feel fairly full after two slices of cake and
wouldn't really feel any better after having a third slice. In this case, your marginal utility
from eating cake is zero.
Negative Marginal Utility
Negative marginal utility is where you have too much of an item, so consuming more is
actually harmful. For instance, the fourth slice of cake might even make you sick after eating
three pieces of cake.
Example of Marginal Utility
David has four gallons of milk, then decides to purchase a fifth gallon. Meanwhile, Kevin has
six gallons of milk and likewise chooses to buy an additional gallon. David benefits from not
having to go to the store again for a few days, so his marginal utility is still positive. On the
other hand, Kevin may have purchased more milk than he can reasonably consume,
meaning his marginal utility might be zero.
The chief takeaway from this scenario is that the marginal utility of a buyer who acquires
more and more of a product steadily declines. Eventually, there is no additional consumer
need for the product in many cases. At that point, the marginal utility of the next unit equals
zero and consumption ends.
What Is Diminishing Marginal Utility?
What Is Diminishing Marginal Utility?
The Law Of Diminishing Marginal Utility states that, all else equal, as consumption increases,
the marginal utility derived from each additional unit declines. Marginal utility is derived as
the change in utility as an additional unit is consumed. Utility is an economic term used to
represent satisfaction or happiness. Marginal utility is the incremental increase in utility that
results from consumption of one additional unit.
Understanding the Law
Marginal utility may decrease into negative utility, as it may become entirely unfavorable to
consume another unit of any product. Therefore, the first unit of consumption for any
product is typically highest, with every unit of consumption to follow holding less and less
utility. Consumers handle the law of diminishing marginal utility by consuming numerous
quantities of numerous goods.
Diminishing Prices
The Law of Diminishing Marginal Utility directly relates to the concept of diminishing prices.
As the utility of a product decreases as its consumption increases, consumers are willing to
pay smaller dollar amounts for more of the product. For example, assume an individual pays
$100 for a vacuum cleaner. Because he has little value for a second vacuum cleaner, the
same individual is willing to pay only $20 for a second vacuum cleaner. The law of
diminishing marginal utility directly impacts a company’s pricing because the price charged
for an item must correspond to the consumer’s marginal utility and willingness to consume
or utilize the good.
Example of Diminishing Utility
An individual can purchase a slice of pizza for $2; she is quite hungry and decides to buy five
slices of pizza. After doing so, the individual consumes the first slice of pizza and gains a
certain positive utility from eating the food. Because the individual was hungry and this is
the first food she consumed, the first slice of pizza has a high benefit. Upon consuming the
second slice of pizza, the individual’s appetite is becoming satisfied. She wasn't as hungry as
before, so the second slice of pizza had a smaller benefit and enjoyment as the first. The
third slice, as before, holds even less utility as the individual is now not hungry anymore.
In fact, the fourth slice of pizza has experienced a diminished marginal utility as well, as it is
difficult to be consumed because the individual experiences discomfort upon being full from
food. Finally, the fifth slice of pizza cannot even be consumed. The individual is so full from
the first four slices that consuming the last slice of pizza results in negative utility. The five
slices of pizza demonstrate the decreasing utility that is experienced upon the consumption
of any good. In a business application, a company may benefit from having three
accountants on its staff. However, if there is no need for another accountant, hiring a fourth
accountant results in a diminished utility, as little benefit is gained from the new hire.
PRODUCT LIFE CYCLE
https://www.twi-global.com/technical-knowledge/faqs/what-is-a-product-life-
cycle#Stages
Product Life Cycle is the cycle through which every product goes through from the point of
its introduction to the market, till it ultimately reaches the decline stage and is finally
withdrawn from the market. The Product Life Cycle describes the stages of a product from
launch to being discontinued. It is a strategy tool that helps companies plan for new product
development and refine existing products.
The four stages are shown in the table below, although decline can be avoided by
reinventing elements of the product. It is also recognized that some products never move
beyond the introduction phase whilst others move through the life cycle much faster than
others.
Characteristics of Introduction Stage
Low Sales
High Cost per Customer
Low competition
Loss Making stage
Characteristics of Growth Stage
Growth in Sales volume
Cost per customer decreases
Market Share increases
Competition increases as new players join the market
Profit making stage
Characteristics of Maturity Stage
High Market Share
High volume of profits
Per unit cost decreases
Loyal customers
Promotional expenses comes to the minimum
Characteristics of Decline Stage
Sales decreases
Cost per customer starts increasing because of fall in market share
Product comes to its obsolescence
New and innovative products arrive in the market
Profits decrease
Importance
It provides the company with the real life picture of the market aspirations
The company understands the need to bring in new products to replace the old
SUBSTITUTION can be done at the right time
It helps in giving credibility to the BRAND
What Is a Substitute?
A substitute, or substitutable good, in economics and consumer theory refers to a product
or service that consumers see as essentially the same or similar-enough to another product.
Put simply, a substitute is a good that can be used in place of another.
Substitutes play an important part in the marketplace and are considered a benefit for
consumers. They provide more choices for consumers, who are then better able to satisfy
their needs. Bills of materials often include alternate parts that can replace the standard
part if it's destroyed.
KEY TAKEAWAYS
 A substitute is a product or service that can be easily replaced with another by
consumers.
 In economics, products are often substitutes if the demand for one product
increases when the price of the other goes up.
 Substitutes provide choices and alternatives for consumers while creating
competition and lower prices in the marketplace.
Understanding Substitutes
When consumers make buying decisions, substitutes provide them with alternatives.
Substitutes occur when there are at least two products that can be used for the same
purpose, such as an iPhone vs. an Android phone. For a product to be a substitute for
another, it must share a particular relationship with that good. Those relationships can be
close, like one brand of coffee with another, or somewhat further apart, such as coffee and
tea.
Giving consumers more choice helps generate competition in the market and lower prices
as a result. While that may be good for consumers, it may have the opposite effect on
companies' bottom line. Alternative products can cut into companies' profitability, as
consumers may end up choosing one more over another or see market share diluted.
When you examine the relationship between the demand schedules of substitute products,
if the price of a product goes up the demand for a substitute will tend to increase. This is
because people will prefer to lower-cost substitute to the higher cost one. If, for example,
the price of coffee increases, the demand for tea may also increase as consumers switch
from coffee to tea to maintain their budgets.
Conversely, when a good's price decreases, the demand for its substitute may also decrease.
In formal economic language, X and Y are substitutes if demand for X increases when the
price of Y increases, or if there is positive cross elasticity of demand.
Examples of Substitute Goods
Substitute goods are all around us. As mentioned above, they are generally used for the
same purpose or are able to satisfy similar needs for consumers.
Here are just a few examples of substitute goods:
 Currency: a dollar bill for 4 quarters (also known as fungibility)
 Coke vs. Pepsi
 Premium vs. regular gasoline
 Butter and margarine
 Tea and coffee
 Apples and oranges
 Riding a bike versus driving a car
 E-books and regular books
There is one thing to keep in mind when it comes to substitutes: the degree to which a good
is a substitute for another can, and often will, differ.
Perfect vs. Less Perfect Substitutes
Classifying a product or service as a substitute is not always straightforward. There are
different degrees to which products or services can be defined as substitutes. A substitute
can be perfect or imperfect depending on whether the substitute completely or partially
satisfies the consumer.
A perfect substitute can be used in exactly the same way as the good or service it replaces.
This is where the utility of the product or service is pretty much identical. For example, a
one-dollar bill is a perfect substitute for another dollar bill. And butter from two different
producers are also considered perfect substitutes; the producer may be different, but their
purpose and usage are the same.
A bike and a car are far from perfect substitutes, but they are similar enough for people to
use them to get from point A to point B. There is also some measurable relationship in the
demand schedule.
Although an imperfect substitute may be replaceable, it may have a degree of difference
that can be easily perceived by consumers. So some consumers may choose to stick with
one product over the other. Consider Coke versus Pepsi. A consumer may choose Coke over
Pepsi—perhaps because of taste—even if the price of Coke goes up. If a consumer perceives
a difference between soda brands, she may see Pepsi as an imperfect substitute for Coke,
even if economists consider them perfect substitutes.
Less perfect substitutes are sometimes classified as gross substitutes or net substitutes by
factoring in utility. A gross substitute is one in which demand for X increases when the price
of Y increases. Net substitutes are those in which demand for X increases when the price of
Y increases and the utility derived from the substitute remains constant.
Substitute Goods in Perfect Competition and Monopolistic Competition
In cases of perfect competition, perfect substitutes are sometimes conceived as nearly
indistinguishable goods being sold by different firms. For example, gasoline from a gas
station on one corner may be virtually indistinguishable from gasoline sold by another gas
station on the opposite corner. An increase in the price at one station will result in more
people choosing the cheaper option.
Monopolistic competition presents an interesting case that present complications with the
concept of substitutes. In monopolistic competition, companies are not price-takers,
meaning demand is not highly sensitive to price. A common example is a difference
between the store brand and name-branded medicine at your local pharmacy. The products
themselves are nearly indistinguishable chemically, but they are not perfect substitutes due
to the utility consumers may get—or believe they get—from purchasing a brand name over
a generic drug believing it to be more reputable or of higher quality.
Importance of Break-Even Point
https://corporatefinanceinstitute.com/resources/knowledge/modeling/break-even-
analysis/
https://www.yourarticlelibrary.com/accounting/break-even-point/break-even-point-
meaning-assumptions-uses-and-limitations/65309

Indicates the number of units required to be sold to cover the cost

Allocating the budget become easy if BEP is known
The company can always keep a tab on the minimum units to be sold to remain in the profit
zone (margin-of-safety)
Helps the company to set the pricing strategy at different points

PESTEL ANALYSIS
https://blog.oxfordcollegeofmarketing.com/2016/06/30/pestel-analysis/
https://www.business-to-you.com/scanning-the-environment-pestel-analysis/

PEST Analysis
In the discussion on SWOT analysis as a tool for strategy development, we talked
about internal factors (strengths and weaknesses) and external factors
(opportunities and threats) that can have an impact on business. In this post, we
introduce another useful strategy framework – PEST Analysis.

Introduction and Definition

PEST analysis is a framework that helps ascertain aspects of various external
factors (political, economic, sociological, and technological, or PEST) that can
mean opportunities or threats for a business concern.
The main difference between a SWOT analysis and a PEST analysis is that while
SWOT identifies the overall feasibility of a business proposition or idea at a point
in time, a PEST analysis evaluates the market a company hopes to enter.
Although the quality of leadership and extent of financial resources decide a
company’s future, the macro-environmental milieu represented by the PEST
factors also greatly influence its prospects.
The most important aspect of these factors is that a company or business has no
control over them and can only manage them as best as it can. This is why it has
to evolve strategies to counter these factors, and this is where an analysis of the
factors helps.

PEST analysis template

How exactly do PEST factors impact a business? Let us consider each factor.
 Image Credit: creately.com

Political factors
The policies of the government of the country where the business is operating
have a big say on the sustainability and profitability of the business. For example,
a strict health and safety policy would require a restaurant chain to invest more in
systems to ensure hygiene.
Here are some other points to ponder:
– What is the political ideology of the government?
– Is the government socialist-leaning, or does it favour a completely free market
economy?
– Will the government’s policies influence laws, regulation, or taxes?
– What is the government’s approach to trade and labour laws?
– What is the level of political stability?
– What is the level of corruption?
A business may also have to take into account local laws, too.
Economic factors
The economic climate would obviously affect the future of a business. Among
issues to consider when analysing the economic environment are the business
cycle (whether it is a time of boom or recession), rate of economic growth, rate of
inflation, economic stability, and employment policy.
For example, the rate of inflation would be a major factor in fixing employee
wages, and the higher the inflation, the higher the wages and the higher the
business expenditure.

Social factors
Social factors include the social, religious, and culture mores of the society where
a business is operating and serving its customers.
Social factors bring under its sway demographics aspects, such as the average age
and income of the population, level of education, and general outlook on life
(whether liberal or conservative), and lifestyle preferences.
For example, a cell phone manufacturer probably cannot expect to sell a very high
number of a high-end model in a society dominated by blue-collar workers.

Technological factors
A study of the technological factors in an external environment would focus on
the leverage the use of technology would give a business.
Among questions to ponder are these:
– What level of automation is available?
– What is the scope for research and innovation?
– Is there adequate facility for online business?
For example, a garment retailer will be able to reduce costs by adopting online
sales and reducing dependence on brick-and-mortar showrooms.
The PEST factors may affect companies differently. For example, a home
appliance company would be more affected by social factors such as lifestyle than
a defence equipment manufacturer.
Similarly, a global defence equipment manufacturer may be more affected by
political factors and a government’s policy on whether to outsource defence
procurement.
Example of a PEST analysis: PepsiCo
Introduction
PepsiCo, the largest beverage company in the world, accounts for about 40
percent of the beverage market globally.
It operates in 150 countries, including India. Using a PEST analysis, let us see what
changes in PepsiCo’s external environment (PEST factors) in these countries might
affect the expectations of its global results.
Political factors
 Governments may changes their tax policies and tax rates, which would
affect profits.
 Governments could bring in stricter capital transfer laws and labour laws,
which would affect its resource and employee management, respectively.
 Civil unrest and political instability exist in some countries, which may
unsettle its expansion plans.
Economic factors
 Although the economies of many countries are showing signs of recovery,
the threats of recession continue, which would affect consumer spending.
 Rapid fluctuations in currency rates have influenced the prices of raw
materials, which would force the company to review its sourcing plans.
Social factors
 Consumer awareness about the impact of carbonated drinks is increasing,
which would affect sales.
 Healthy lifestyles are gaining popularity, which, again, would affect sales.
Technological factors
 Technological innovations have been made in beverage manufacturing,
which would help maintain product quality.
 Internet-enabled technology has benefited manufacturing, which would
facilitate smooth processes.
Uses of PEST analysis
Why is PEST analysis used and how is it helpful?
A company may have all the information it requires about the quality of its
infrastructure, the extent of funds, and the employee talent available to it, but it
may not be fully aware of the external environment in which it is to operate or
launch a new project.
A PEST analysis helps it to study all these factors and evolve a strategy to take
advantage of, or to overcome, these factors.
A PEST analysis helps in decision-making and timing. For example, a company can,
through a PEST analysis, find out the factors both in favour of and detrimental to
the launch of a project, and decide on the timing of launch.
It can even predict future prospects of a project or product by studying the PEST
factors.

Extensions of PEST Analysis

Economic analysts have extended the PEST analysis to include ecological
environment and legal factors—to make it the ‘PESTLE’ analysis.
In a PESTLE analysis, the PEST analysis of PepsiCo discussed earlier would bring
under it additional factors—legal factors, including, for example, stricter food
safety laws, and environmental factors, including media attention on beverage
packaging practices.
Besides PESTLE, even more factors have been brought in for analyses of the
external environment of businesses, including the following:
– STEEPLED: PESTLE plus demographic and ethics factors
– PESTLIED: PESTLE plus international and demographic factors
– LONGPESTLE: Local, national, and global analyses of PESTLE
A PEST analysis is a perfect foundation for building a business strategy. Variations
of PEST can be chosen to recognise other factors. The model that is best for a
particular business can be chosen.

SWOT ANALYSIS
https://www.mindtools.com/pages/article/newTMC_05.htm#:~:text=SWOT%20Analysis
%20is%20a%20simple,advantage%20of%20chances%20for%20success.
https://www.investopedia.com/terms/s/swot.asp
The main differences between a SWOT or PESTLE analysis are that a SWOT analysis
focuses on actions you can take INTERNAL to your business environment, a PESTLE
analysis identifies EXTERNAL factors that are mainly outside of your control.

Marketing mix
The marketing mix refers to the set of actions, or tactics, that a company uses to promote
its brand or product in the market.
https://assemblo.com/guides/what-are-the-7-ps-of-marketing/
https://www.smartinsights.com/marketing-planning/marketing-models/how-to-use-the-
7ps-marketing-mix/

What is Product Mix?

Product mix, also known as product assortment or product portfolio, refers to the complete
set of products and/or services offered by a firm. A product mix consists of product lines,
which are associated items that consumers tend to use together or think of as similar
products or services.

Dimensions of a Product Mix

#1 Width
Width, also known as breadth, refers to the number of product lines offered by a company.
For example, Kellogg’s product lines consist of: (1) Ready-to-eat cereal, (2) Pastries and
breakfast snacks, (3) Crackers and cookies, and (4) Frozen/Organic/Natural goods.

#2 Length
Length refers to the total number of products in a firm’s product mix. For example, consider
a car company with two car product lines (3-series and 5-series). Within each product line
series are three types of cars. In this example, the product length of the company would be
six.

#3 Depth
Depth refers to the number of variations within a product line. For example, continuing with
the car company example above, a 3-series product line may offer several variations such as
coupe, sedan, truck, and convertible. In such a case, the depth of the 3-series product line
would be four.

#4 Consistency
Consistency refers to how closely related product lines are to each other. It is in reference to
their use, production, and distribution channels. The consistency of a product mix is
advantageous for firms attempting to position themselves as a niche producer or
distributor. In addition, consistency aids with ensuring a firm’s brand image is synonymous
with the product or service itself.

Illustration of a Product Mix

In the illustration above, the product mix shows a:

 Width of 3
 Length of 5
 Product Line 1 Depth of 2
 Product Line 2 Depth of 1
  Product Line 3 Depth of 2
The mix is considered consistent if the products in all the product lines are similar.

Example of a Product Mix

Let us take a look at a simple product mix example of Coca-Cola. For simplicity, assume that
Coca-Cola oversees two product lines – soft drinks and juice (Minute Maid). Products
classified as soft drinks are Coca-Cola, Fanta, Sprite, Diet Coke, Coke Zero, and products
classified as Minute Maid juice are Guava, Orange, Mango, and Mixed Fruit.
The product (mix) consistency of Coca-Cola would be high, as all products within the
product line fall under beverage. In addition, production and distribution channels remain
similar for each product. The product mix of Coca-Cola in the simplified example would be
illustrated as follows:

Importance of a Product Mix

The product mix of a firm is crucial to understand as it exerts a profound impact on a firm’s
brand image. Maintaining high product width and depth diversifies a firm’s product risk and
reduces dependence on one product or product line. With that being said, unnecessary or
non-value-adding product width diversification can hurt a brand’s image. For example, if
Apple were to expand its product line to include refrigerators, it would likely have a negative
impact on its brand image with consumers.
In regard to a firm expanding its product mix:

 Expanding the width can provide a company with the ability to satisfy the needs or
demands of different consumers and diversify risk.
 Expanding the depth can provide the ability to readdress and better fulfill current
consumers.

Summary
Successfully expanding a product mix can help a business adjust to changing consumer
demand/preferences while reducing product risk and reliance on a single product or
product line. This, in turn, generates substantial profits for the firm. On the other hand, poor
product mix expansion can result in a detrimental impact on a company’s brand image and
profitability.

MARKET SEGMENTATION
What is market segmentation?
At its core, market segmentation is the practice of dividing your target market into
approachable groups. Market segmentation creates subsets of a market based on
demographics, needs, priorities, common interests, and other psychographic or behavioural
criteria used to better understand the target audience.
By understanding your market segments, you can leverage this targeting in product, sales,
and marketing strategies. Market segments can power your product development cycles by
informing how you create product offerings for different segments like men vs. women or
high income vs. low income.

ur product development cycles by informing how you create product offerings for different
segments like men vs. women or high income vs. low income.
The benefits of market segmentation
 Stronger marketing messages: You no longer have to be generic and vague – you
can speak directly to a specific group of people in ways they can relate to, because
you understand their characteristics, wants, and needs.
 Targeted digital advertising: Market segmentation helps you understand and define
your audience’s characteristics, so you can direct your marketing efforts to specific
ages, locations, buying habits, interests etc.
 Developing effective marketing strategies: Knowing your target audience gives you
a head start about what methods, tactics and solutions they will be most responsive
to.
  Better response rates and lower acquisition costs: These will result from creating
your marketing communications both in ad messaging and advanced targeting on
digital platforms like Facebook and Google using your segmentation.
 Attracting the right customers: Market segmentation helps you create targeted,
clear and direct messaging that attracts the people you want to buy from you.
 Increasing brand loyalty: when customers feel understood, uniquely well served and
trusting, they are more likely to stick with your brand.
 Differentiating your brand from the competition: More specific, personal messaging
makes your brand stand out.
 Identifying niche markets: segmentation can uncover not only underserved markets,
but also new ways of serving existing markets – opportunities which can be used to
grow your brand.
 Staying on message: As segmentation is so linear, it’s easy to stay on track with your
marketing strategies, and not get distracted into less effective areas.
 Driving growth: You can encourage customers to buy from you again, or trade up
from a lower-priced product or service.
 Enhanced profits: Different customers have different disposable incomes; prices can
be set according to how much they are willing to spend. Knowing this can ensure you
don’t over (or under) sell yourself.
 Product development: You’ll be able to design with the needs of your customers top
of mind, and develop different products that cater to your different customer base
areas.
Companies like American Express, Mercedes Benz, and Best Buy have all used segmentation
strategies to increase sales, build better products, and engage better with their prospects
and customers.
Become a pro at market segmentation, by downloading this eBook
The basics of segmentation
Understanding segmentation starts with learning about the various ways you can segment
your market. There are four primary categories of segmentation, illustrated below.

Demographic Firmographic Psychographic Behavioural

(B2C) (B2B) (B2B/B2C) (B2B/B2C)
Definition Classification Classification Classification Classification
based on based on based on based on
individual company or attitudes, behaviours like
attributes organisation aspirations, product usage,
attributes values, and technology
other criteria laggards, etc.
Examples Geography Industry Lifestyle Usage Rate
Gender Location Personality Benefit Types
Education Level Number of Traits Values Occasion
Income Level Employees Opinions Purchase
 Revenue Decision
Decision You are a You are a You want to You want to
Criteria smaller smaller target target
business or you business or you customers customers
are running are running based on values based on
your first your first or lifestyle purchase
project project behaviours
Difficulty Simpler Simpler More advanced More advanced

Types of market segmentation

With segmentation and targeting, you want to understand how your market will respond in
a given situation, like purchasing your products. In many cases, a predictive model may be
incorporated into the study so that you can group individuals within identified segments
based on specific answers to survey questions.
Demographic segmentation
Demographic segmentation sorts a market by elements such as age, education, income,
family size, race, gender, occupation, and nationality. Demographic is one of the simplest
and most commonly used forms of segmentation because the products and services we buy,
how we use those products, and how much we are willing to spend on them is most often
based on demographic factors.
Demographic Market Segmentation Examples

 Age
 Gender
 Income
 Location
 Family Situation
 Annual Income
 Education
 Ethnicity
Where the above examples are helpful for segmenting B2C audiences, a business might use
the following to classify a B2B audience:

 Company size
 Industry
 Job function
Because demographic information is statistical and factual, it is usually relatively easy to
uncover using various sites for market research.
A simple example of B2C demographic segmentation could be a vehicle manufacturer that
sells a luxury car brand (ex. Maserati). This company would likely target an audience that
has a higher income.
Another B2B example might be a brand that sells an enterprise marketing platform. This
brand would likely target marketing managers at larger companies (ex. 500+ employees)
who have the ability to make purchase decisions for their teams.

Geographic segmentation
Geographic segmentation can be a subset of demographic segmentation, although it can
also be a type of segmentation in its own right. It creates different target customer groups
based on geographical boundaries. Because potential customers have needs, preferences,
and interests that differ according to their geographies, understanding the climates and
geographic regions of customer groups can help determine where to sell and advertise, as
well as where to expand your business.
Geographic segmentation is the simplest type of market segmentation. It categorizes
customers based on geographic borders.

Geographic Market Segmentation Examples

 ZIP code
 City
 Country
 Radius around a certain location
 Climate
 Urban or rural
Geographic segmentation can refer to a defined geographic boundary (such as a city or ZIP
code) or type of area (such as the size of city or type of climate).
An example of geographic segmentation may be the luxury car company choosing to target
customers who live in warm climates where vehicles don’t need to be equipped for snowy
weather. The marketing platform might focus their marketing efforts around urban, city
centers where their target customer is likely to work.
Firmographic Segmentation
Firmographic Segmentation is similar to demographic segmentation, except that
demographics look at individuals while firmographics look at organisations. Firmographic
segmentation would consider things like company size, number of employees and would
illustrate how addressing a small business would differ from addressing an enterprise
corporation.
Behavioural Segmentation
Behavioural Segmentation divides markets by behaviours and decision-making patterns such
as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to
purchase bottled body wash, while older consumer groups may lean towards soap bars.
Segmenting markets based on purchase behaviours enables marketers to develop a more
targeted approach because you can focus on what you know they, and are therefore more
likely to buy.
While demographic and psychographic segmentation focus on who a customer is,
behavioral segmentation focuses on how the customer acts.

Behavioral Market Segmentation Examples

 Purchasing habits
 Spending habits
 User status
 Brand interactions
Behavioral segmentation requires you to know about your customer’s actions. These
activities may relate to how a customer interacts with your brand or to other activities that
happen away from your brand.
A B2C example in this segment may be the luxury car brand choosing to target customers
who have purchased a high-end vehicle in the past three years. The B2B marketing platform
may focus on leads who have signed up for one of their free webinars.
Psychographic segmentation
Psychographic segmentation considers the psychological aspects of consumer behaviour by
dividing markets according to lifestyle, personality traits, values, opinions, and interests of
consumers. Large markets like the fitness market use psychographic segmentation when
they sort their customers into categories of people who care about healthy living and
exercise.
Psychographic Segmentation
Psychographic segmentation categorizes audiences and customers by factors that relate to
their personalities and characteristics.

Psychographic Market Segmentation Examples

 Personality traits
 Values
 Attitudes
 Interests
 Lifestyles
 Psychological influences
 Subconscious and conscious beliefs
 Motivations
 Priorities
Psychographic segmentation factors are slightly more difficult to identify than demographics
because they are subjective. They are not data-focused and require research to uncover and
understand.
For example, the luxury car brand may choose to focus on customers who value quality and
status. While the B2B enterprise marketing platform may target marketing managers who
are motivated to increase productivity and show value to their executive team.

How to get started with segmentation

There are five primary steps to segmentation:
  Define your market: Is there a need for your products and services? Is the market
large or small? Where does your brand sit in the current marketplace?
 Segment your market: Decide which of the five criteria (demographic/firmographic,
psychographic, geographic or behaviour) you want to use to segment your
market.You don’t need to stick to just one – in fact, most brands use a combination –
so experiment with each one and find what works best.
 Understand your market: You do this by conducting preliminary research surveys,
focus groups, polls, etc. Ask questions that relate to the segments you have chosen,
and use a combination of quantitative (tickable/selectable boxes) and qualitative
(open-ended for open text responses) questions.
 Create your customer segments: Analyse the responses from your research to
highlight which customer segments are most relevant to your brand.
 Test your marketing strategy: Once you have interpreted your responses, test your
findings on your target market, using conversion tracking to see how effective it
is.And keep testing. If uptake is disappointing, relook at your segments or your
research methods.
Product development
If the product or service you’ve developed doesn’t solve the problem of your target
audience or isn’t useful, then that product will have difficulty selling. When you know what
each of your market segments cares about and how they live their lives, it’s easier to know
what products will enrich or enhance their day to day.
Use market segmentation to understand your customers clearly, so that you can save time
and money developing products and services that your customers will want to purchase.
Campaign optimisation
Marketing and content teams will value having detailed information on each segment, as
this allows them to personalise their campaigns and strategies at scale. This may lead to
variations in messaging that they know will connect with audiences better, making their
campaign results more effective.
If the campaigns are combined with strong calls to action, the marketing campaigns will be a
powerful tool that drives your target market segments towards your sales channels.
Ensuring effective segments
After you determine your segments, you want to ensure they’ll be useful. A good
segmentation analysis should pass the following tests:

 Measurable: Measurable means that your segmentation variables are directly

related to purchasing a product. You should be able to calculate or estimate how
much your segment will spend on your product.For example, one of your segments
may be those who are more likely to shop during a promotion or sale.
 Accessible: Understanding your customers and being able to reach them are two
different things. Your segments’ characteristics and behaviour should help you
identify the best way to meet them.For example, you may find that a key segment is
resistant to technology and relies on newspaper or radio ads to hear about store
 promotions, while another segment is best reached on your mobile app. One of your
segments might be a male retiree who is less likely to use a mobile app or read
email, but responds well to printed ads.
 Substantial: The market segment must have the ability to purchase. For example, if
you are a high-end retailer, your store visitors may want to purchase your goods but
realistically can’t afford them. Make sure an identified segment is not just interested
in you, but can be expected to purchase from you.In this instance, your market might
include environmental enthusiasts who are willing to pay a premium for eco-friendly
products, leisurely retirees who can afford your goods, and successful entrepreneurs
who want to show off their wealth.
 Actionable: The market segment must produce the differential response when
exposed to the market offering. This means that each of your segments must be
different and unique from each other.Let’s say that your segmentation reveals that
people who love their pets and people who care about the environment have the
same purchasing habits. Rather than have two separate segments, you should
consider grouping both together in a single segment.
Market segmentation is not an exact science. As you go through the process, you may
realise that segmenting based on behaviours doesn’t give you actionable segments, but
behaviour does. You’ll want to iterate on your findings to ensure you’ve found the best fit
for the needs of your marketing, sales and product organisations.

VALS SEGMENTATION
Vals which is also known as values attitude and lifestyle is one of the primary ways to
perform psychographic segmentation.
VALS segments US adults into eight distinct types—or mindsets—using a specific set of
psychological traits and key demographics that drive consumer behavior. The US
Framework, a graphic representation of VALS, illustrates the eight types and two critical
concepts for understanding consumers: primary motivation and resources. The combination
of motivations and resources determines how a person will express himself or herself in the
marketplace as a consumer.
Using VALS provides clients with:

 A fresh perspective by effectively "putting them inside the head" of their customers
 Rich, customized, consumer profiles or personas
 Distinctive communication styles of their best targets.
Primary Motivation: Ideals, Achievement, and Self-Expression
 The concept of primary motivation explains consumer attitudes and anticipates
behaviour.
 VALS includes three primary motivations that matter for understanding consumer
behaviour: ideals, achievement, and self-expression.
  Consumers who are primarily motivated by ideals are guided by knowledge and
principles.
 Consumers who are primarily motivated by achievement look for products and
services that demonstrate success to their peers.
 Consumers who are primarily motivated by self-expression desire social or physical
activity, variety, and risk. These motivations provide the necessary basis for
communication with the VALS types and for a variety of strategic applications.
Resources
A person's tendency to consume goods and services extends beyond age, income, and
education. Energy, self-confidence, intellectualism, novelty seeking, innovativeness,
impulsiveness, leadership, and vanity play a critical role. These psychological traits in
conjunction with key demographics determine an individual's resources. Various levels of
resources enhance or constrain a person's expression of his or her primary motivation.
History of the term VALS
VALS is actually a proprietary term of SRI international. The term was developed by Social
scientist and futurist Arnold mitchell. Arnold mitchell actually developed the vals framework
to determine different classes of people who had varying values, attitudes and lifestyle.
These people were determined by the resources they had at their disposal as well as the
amount of primary innovation they could accept or create. Thus the people with low
resources were low on innovation and the ones with higher resources were higher in
innovation. This formed the basis of the VALS framework.
The VALS Types:
 Innovators

The class of consumer at the top of the vals framework. They are characterized by High
income and high resource individuals for whom independence is very important. They have
their own individual taste in things and are motivated in achieving the finer things in life.
Members of this group typically:
 Are always taking in information (antennas up)
 Are confident enough to experiment
 Make the highest number of financial transactions
 Are skeptical about advertising
 Have international exposure
 Are future oriented
 Are self-directed consumers
 Believe science and R&D are credible
 Are most receptive to new ideas and technologies
 Enjoy the challenge of problem solving
 Have the widest variety of interests and activities.

 Thinkers
A well educated professional is an excellent example of Thinkers in the vals framework.
These are the people who have high resources and are motivated by their knowledge. These
are the (rational decision making consumers and are well informed about their
surroundings. These consumers are likely to accept any social change because of their
knowledge level.
Members of this group typically:
 Have "ought" and "should" benchmarks for social conduct
 Have a tendency toward analysis paralysis
 Plan, research, and consider before they act
 Enjoy a historical perspective
 Are financially established
 Are not influenced by what's hot
 Use technology in functional ways
 Prefer traditional intellectual pursuits
 Buy proven products.

 Believers
The subtle difference between thinkers and believers is that thinkers make their own
decisions whereas believers are more social in nature and hence also believe other
consumers. They are characterized by lower resources and are less likely to accept
innovation on their own. They are the best class of word of mouth consumers.
Members of this group typically:
 Believe in basic rights and wrongs to lead a good life
 Rely on spirituality and faith to provide inspiration
 Want friendly communities
 Watch TV and read romance novels to find an escape
 Want to know where things stand; have no tolerance for ambiguity
 Are not looking to change society
 Find advertising a legitimate source of information
 Value constancy and stability (can appear to be loyal)
 Have strong me-too fashion attitudes.

 Achievers
The achievers are mainly motivated by – guess what – Achievements. These individuals
want to excel at their job as well in their family. Thus they are more likely to purchase a
brand which has shown its success over time. The achievers are said to be high resource
consumers but at the same time, if any brand is rising, they are more likely to adopt that
brand faster.
Members of this group typically:
 Have a "me first, my family first" attitude
 Believe money is the source of authority
 Are committed to family and job
 Are fully scheduled
 Are goal oriented
 Are hardworking
 Are moderate
 Act as anchors of the status quo
 Are peer conscious
 Are private
 Are professional
 Value technology that provides a productivity boost.

 Strivers
Low resource consumer group which wants to reach some achievement are known as
strivers. These customers do not have the resources to be an achiever. But as they have
values similar to an achiever, they fall under the striver category. If a striver can gain the
necessary resources such as a high income or social status then he can move on to
becoming an achiever.
Members of this group typically:
 Have revolving employment; high temporary unemployment
 Use video and video games as a form of fantasy
 Are fun loving
 Are imitative
 Rely heavily on public transportation
 Are the center of low-status street culture
 Desire to better their lives but have difficulty in realizing their desire
 Wear their wealth.

 Experiencers
The group of consumers who have high resources but also need a mode of self expression
are known as Experiencers. Mostly characterized by young adults, it consists of people who
want to experience being different. This class of consumers is filled up with early adopters
who spend heavily on food, clothing and other youthful products and services.
Members of this group typically:
 Want everything
  Are first in and first out of trend adoption
 Go against the current mainstream
 Are up on the latest fashions
 Love physical activity (are sensation seeking)
 See themselves as very sociable
 Believe that friends are extremely important
 Are spontaneous
 Have a heightened sense of visual stimulation.

 Makers
These are consumers who also want self expression but they are limited by the number of
resources they have. Thus they would be more focused towards building a better family
rather than going out and actually spending higher amount of money. Making themselves
into better individuals and families becomes a form of self expression for the Makers.
Members of this group typically:
 Are distrustful of government
 Have a strong interest in all things automotive
 Have strong outdoor interests (hunting and fishing)
 Believe in sharp gender roles
 Want to protect what they perceive to be theirs
 See themselves as straightforward; appear to others as anti-intellectual
 Want to own land.

 Survivors
The class of consumers in the Vals framework with the least resources and therefore the
least likely to adopt any innovation. As they are not likely to change their course of action
regularly, they form into brand loyal customers. An example can include old age pension
earners living alone for whom the basic necessities are important and they are least likely to
concentrate on anything else.
Members of this group typically:
 Are cautious and risk averse
 Are the oldest consumers
 Are thrifty
 Are not concerned about appearing traditional or trendy
 Take comfort in routine, familiar people, and places
 Are heavy TV viewers
 Are loyal to brands and products
  Spend most of their time alone
 Are the least likely use the internet
 Are the most likely to have a landline-only household

Porter's Generic Strategies

A firm's relative position within its industry determines whether a firm's profitability is
above or below the industry average. The fundamental basis of above average profitability
in the long run is sustainable competitive advantage. There are two basic types of
competitive advantage a firm can possess: low cost or differentiation. The two basic types of
competitive advantage combined with the scope of activities for which a firm seeks to
achieve them, lead to three generic strategies for achieving above average performance in
an industry: cost leadership, differentiation, and focus. The focus strategy has two variants,
cost focus and differentiation focus.
Generic Strategies
These three approaches are examples of "generic strategies," because they can be applied
to products or services in all industries, and to organizations of all sizes. They were first set
out by Michael Porter in 1985 in his book, "Competitive Advantage: Creating and
Sustaining Superior Performance."
Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating
uniquely desirable products and services) and "Focus" (offering a specialized service in a
niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and
"Differentiation Focus." These are shown in figure 1 below.
The Cost Leadership Strategy
 In cost leadership, a firm sets out to become the low-cost producer in its industry.
 The sources of cost advantage are varied and depend on the structure of the
industry. They may include the pursuit of economies of scale, proprietary
technology, preferential access to raw materials and other factors.
 A low-cost producer must find and exploit all sources of cost advantage. if a firm can
achieve and sustain overall cost leadership, then it will be an above average
performer in its industry, provided it can command prices at or near the industry
average.
There are two main ways of achieving this within a Cost Leadership strategy:

 Increasing profits by reducing costs, while charging industry-average prices.

 Increasing market share by charging lower prices, while still making a reasonable
profit on each sale because you've reduced costs.
The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in
your industry or market. Simply being amongst the lowest-cost producers is not good
enough, as you leave yourself wide open to attack by other low-cost producers who may
undercut your prices and therefore block your attempts to increase market share. You,
therefore, need to be confident that you can achieve and maintain the number one position
before choosing the Cost Leadership route. Companies that are successful in achieving Cost
Leadership usually have:
  Access to the capital needed to invest in technology that will bring costs down.
 Very efficient logistics.
 A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs
below those of other competitors.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost
reduction are not unique to you, and that other competitors copy your cost reduction
strategies. This is why it's important to continuously find ways of reducing every cost. One
successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous
improvement."
The Differentiation Strategy
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions
that are widely valued by buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions itself to meet those needs. It is
rewarded for its uniqueness with a premium price.
Differentiation involves making your products or services different from and more attractive
than those of your competitors. How you do this depends on the exact nature of your
industry and of the products and services themselves, but will typically involve features,
functionality, durability, support, and also brand image that your customers value.
To make a success of a Differentiation strategy, organizations need:

 Good research, development and innovation.

 The ability to deliver high-quality products or services.
 Effective sales and marketing, so that the market understands the benefits offered
by the differentiated offerings.
Large organizations pursuing a differentiation strategy need to stay agile with their new
product development processes. Otherwise, they risk attack on several fronts by
competitors pursuing Focus Differentiation strategies in different market segments.
The Focus Strategy
The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment
(b) differentiation focus a firm seeks differentiation in its target segment.
Both variants of the focus strategy rest on differences between a focuser's target segment
and other segments in the industry. The target segments must either have buyers with
unusual needs or else the production and delivery system that best serves the target
segment must differ from that of other industry segments. Cost focus exploits differences in
cost behaviour in some segments, while differentiation focus exploits the special needs of
buyers in certain segments.
Companies that use Focus strategies concentrate on particular niche markets and, by
understanding the dynamics of that market and the unique needs of customers within it,
develop uniquely low-cost or well-specified products for the market. Because they serve
customers in their market uniquely well, they tend to build strong brand loyalty amongst
their customers. This makes their particular market segment less attractive to competitors.
As with broad market strategies, it is still essential to decide whether you will pursue Cost
Leadership or Differentiation once you have selected a Focus strategy as your main
approach: Focus is not normally enough on its own.
But whether you use Cost Focus or Differentiation Focus, the key to making a success of a
generic Focus strategy is to ensure that you are adding something extra as a result of serving
only that market niche. It's simply not enough to focus on only one market segment because
your organization is too small to serve a broader market (if you do, you risk competing
against better-resourced broad market companies' offerings).
The "something extra" that you add can contribute to reducing costs (perhaps through your
knowledge of specialist suppliers) or to increasing differentiation (though your deep
understanding of customers' needs).

http://www.quickmba.com/strategy/generic.shtml

Ansoff Matrix
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to
analyze and plan their strategies for growth. The matrix shows four strategies that can be
used to help a firm grow and also analyzes the risk associated with each strategy. Learn
more about business strategy in CFI’s Business Strategy Course.

Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager, H. Igor Ansoff,
and was published in the Harvard Business Review in 1957. The Ansoff Matrix has helped
many marketers and executives better understand the risks inherent in growing their
business.

The four strategies of the Ansoff Matrix are:

Market Penetration: This focuses on increasing sales of existing products to an existing
market.
Product Development: Focuses on introducing new products to an existing market.
Market Development: This strategy focuses on entering a new market using existing
products.
Diversification: Focuses on entering a new market with the introduction of new products.

Of the four strategies, market penetration is the least risky, while diversification is the
riskiest.

The Ansoff Matrix:

1. Market Penetration
In a market penetration strategy, the firm uses its products in the existing market. In other
words, a firm is aiming to increase its market share with a market penetration strategy.
The market penetration strategy can be executed in a number of ways:

 Decreasing prices to attract new customers

 Increasing promotion and distribution efforts
 Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and employ a
market penetration strategy by offering introductory prices and increasing their promotion
and distribution efforts.
The first and most widely used growth strategy for companies in the Ansoff Matrix is the
strategy of market penetration. It is about winning new market shares with an existing
product. The company is trying to sell even more of its products to existing, new and
customer competitors.
The aim of this strategy is to increase market share. The market penetration has a relatively
low risk, but also small growth opportunities.

The so-called market penetration rate is used to estimate the potential and is calculated as
follows:
Market penetration = (number of own customers / number of potential customers in the
market) * 100
The lower the degree of market penetration, the greater the remaining growth potential for
a company with the market penetration strategy.
The Ansoff Matrix:
2. Product Development
Product development as a strategy takes place when a new product is introduced to an
existing market with existing customers. This may be the case when replacing existing
products or expanding the product range.
The advantage of product development is that customers and the market are already known
to the company.
In a product development strategy, the firm develops a new product to cater to the existing
market. The move typically involves extensive research and development and expansion of
the company’s product range. The product development strategy is employed when firms
have a strong understanding of their current market and are able to provide innovative
solutions to meet the needs of the existing market.
This strategy, too, may be implemented in a number of ways:
13. Investing in R&D to develop new products to cater to the existing market
14. Acquiring a competitor’s product and merging resources to create a new product
that better meets the need of the existing market
15. Forming strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand

For example, automotive companies are creating electric cars to meet the changing needs of
their existing market. Current market consumers in the automobile market are becoming
more environmentally conscious.

The Ansoff Matrix:

3. Market Development
The next strategy is to develop new markets with existing products. The new markets can be
new countries and new target groups. Market development usually involves only minor
changes to the product or products in order to adapt to the new markets.
In a market development strategy, the firm enters a new market with its existing product(s).
In this context, expanding into new markets may mean expanding into new geographic
regions, customer segments, etc. The market development strategy is most successful if
(1) the firm owns proprietary technology that it can leverage into new markets,
(2) potential consumers in the new market are profitable (i.e., they possess disposable
income)
(3) consumer behavior in the new markets does not deviate too far from that of consumers
in the existing markets.
The market development strategy may involve one of the following approaches:
Catering to a different customer segment
Entering into a new domestic market (expanding regionally)
Entering into a foreign market (expanding internationally)
For example, sporting goods companies such as Nike and Adidas recently entered the
Chinese market for expansion. The two firms are offering roughly the same products to a
new demographic.

Learn more about strategy in CFI’s Business Strategy Course.

The Ansoff Matrix:

4. Diversification
In a diversification strategy, the firm enters a new market with a new product. Although
such a strategy is the riskiest, as both market and product development are required, the
risk can be mitigated somewhat through related diversification. Also, the diversification
strategy may offer the greatest potential for increased revenues, as it opens up an entirely
new revenue stream for the company – accesses consumer spending dollars in a market
that the company did not previously have any access to.
There are two types of diversification a firm can employ:
1. Related diversification: There are potential synergies to be realized between the existing
business and the new product/market.
For example, a leather shoe producer that starts a line of leather wallets or accessories is
pursuing a related diversification strategy.
2. Unrelated diversification: There are no potential synergies to be realized between the
existing business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is pursuing an
unrelated diversification strategy.

BCG MATRIX

What is the Boston Consulting Group (BCG) Matrix?

The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product portfolio
matrix, is a business planning tool used to evaluate the strategic position of a firm’s brand
portfolio. The BCG Matrix is one of the most popular portfolio analysis methods. It classifies
a firm’s product and/or services into a two-by-two matrix. Each quadrant is classified as low
or high performance, depending on the relative market share and market growth rate. Learn
more about strategy in CFI’s Business Strategy Course.
Understanding the Boston Consulting Group (BCG) Matrix
The horizontal axis of the BCG Matrix represents the amount of market share of a product
and its strength in the particular market. By using relative market share, it helps measure a
company’s competitiveness.
The vertical axis of the BCG Matrix represents the growth rate of a product and its potential
to grow in a particular market.
In addition, there are four quadrants in the BCG Matrix:
Question marks: Products with high market growth but a low market share.
Stars: Products with high market growth and a high market share.
Dogs: Products with low market growth and a low market share.
Cash cows: Products with low market growth but a high market share.

The assumption in the matrix is that an increase in relative market share will result in
increased cash flow. A firm benefits from utilizing economies of scale and gains a cost
advantage relative to competitors. The market growth rate varies from industry to industry
but usually shows a cut-off point of 10% – growth rates higher than 10% are considered high
while growth rates lower than 10% are considered low.

The BCG Matrix: Question Marks

 Products in the question marks quadrant are in a market that is growing quickly but
where the product(s) have a low market share.
 Question marks are the most managerially intensive products and require extensive
investment and resources to increase their market share. Investments in question
marks are typically funded by cash flows from the cash cow quadrant.
 In the best-case scenario, a firm would ideally want to turn question marks into stars
(as indicated by A).
 If question marks do not succeed in becoming a market leader, they end up
becoming dogs when market growth declines.

The BCG Matrix: Dogs

 Products in the dogs quadrant are in a market that is growing slowly and where the
product(s) have a low market share.
 Products in the dogs quadrant are typically able to sustain themselves and provide
cash flows, but the products will never reach the stars quadrant.
 Firms typically phase out products in the dogs quadrant (as indicated by B) unless
the products are complementary to existing products or are used for a competitive
purpose.

The BCG Matrix: Stars

 Products in the star quadrant are in a market that is growing quickly and one where
the product(s) have a high market share.
 Products in the stars quadrant are market-leading products and require significant
investment to retain their market position, boost growth, and maintain a
competitive advantage.
 Stars consume a significant amount of cash but also generate large cash flows. As the
market matures and the products remain successful, stars will migrate to become
cash cows. Stars are a company’s prized possession and are top-of-mind in a firm’s
product portfolio.

The BCG Matrix: Cash Cows

Products in the cash cows quadrant are in a market that is growing slowly and where the
product(s) have a high market share. Products in the cash cows quadrant are thought of as
products that are leaders in the marketplace. The products already have a significant
amount of investments in them and do not require significant further investments to
maintain their position.
Cash flows generated by cash cows are high and are generally used to finance stars and
question marks. Products in the cash cows quadrant are “milked” and firms invest as little
cash as possible while reaping the profits generated from the products.

HORIZONTAL AND VERTICAL INTEGRATION

https://www.investopedia.com/ask/answers/051315/what-difference-between-horizontal-
integration-and-vertical-integration.asp

What is vertical integration?

Vertical integration is a competitive strategy by which a company takes complete control
over one or more stages in the production or distribution of a product. It is covered in
business courses such as the MBA and MiM degrees.
A company opts for vertical integration to ensure full control over the supply of the raw
materials to manufacture its products. It may also employ vertical integration to take over
the reins of distribution of its products.
A classic example is that of the Carnegie Steel Company, which not only bought iron mines
to ensure the supply of the raw material but also took over railroads to strengthen the
distribution of the final product. The strategy helped Carnegie produce cheaper steel, and
empowered it in the marketplace.

What is horizontal integration?

Horizontal integration is another competitive strategy that companies use. An academic
definition is that horizontal integration is the acquisition of business activities that are at the
same level of the value chain in similar or different industries.
In simpler terms, horizontal integration is the acquisition of a related business: a fast-food
restaurant chain merging with a similar business in another country to gain a foothold in
foreign markets.

Vertical Integration in Strategic

Management
Types of vertical integration strategies
As we have seen, vertical integration integrates a company with the units supplying raw
materials to it (backward integration), or with the distribution channels that carry its
products to the end-consumers (forward integration).
For example, a supermarket may acquire control of farms to ensure supply of fresh
vegetables (backward integration) or may buy vehicles to smoothen the distribution of its
products (forward integration).
A car manufacturer may acquire tyre and electrical-component factories (backward
integration) or open its own showrooms to sell its vehicle models or provide after-sales
service (forward integration).
There is a third type of vertical integration, called balanced integration, which is a judicious
mix of backward and forward integration strategies.

Credit: strategicmanagementinsight.com

When is vertical integration attractive for a

business?
Several factors affect the decision-making that goes into backward and forward integration.
A company may go in for these strategies in the following scenarios:

 The current suppliers of the company’s raw materials or components, or the

distributors of its end products, are unreliable
 The prices of raw materials are unstable or the distributors charge high fees
  The suppliers or distributors earn big margins
 The company has the resources to manage the new business that is currently being
taken care of by the suppliers or distributors
 The industry is expected to grow significantly

Advantages of vertical integration

What are the benefits of vertical integration? Let us take the example of a car manufacturer
implementing this strategy. This company can

 smoothen its supply chain (by ensuring ready supply of tyres and electrical
components in the exact specifications that it requires)
 make its distribution and after-sales service more efficient (by opening its own
showrooms)
 absorb for itself upstream and downstream profits (profits that would have gone to
the tyre and electrical companies and showrooms owned by others)
 increase entry barriers for new entrants (by being able to reduce costs through its
own suppliers and distributors)
 invest in specific functions such as tyre-making and develop its core competencies

Disadvantages of vertical integration

But what is the downside? What are the drawbacks of vertical integration? Let us see the
main disadvantages.

 The quality of goods supplied earlier by external sources may fall because of a lack of
competition.
 Flexibility to increase or decrease production of raw materials or components may
be lost as the company may need to sustain a level of production in pursuit of
economies of scale.
 It may be difficult for the company to sustain core competencies as it focuses on the
integration of the new units.
However, there are alternatives to vertical integration, such as purchases from the market
(of tyres, for example) and short- and long-term contracts (for showrooms and with service
stations, for example).

Horizontal Integration in Strategic

Management
Horizontal integration, as we have seen, is a company’s acquisition of a similar or a
competitive business—it may acquire, but it may also merge with or takeover, another
company to strengthen itself—to grow in size or capacity, to achieve economies of scale or
product uniqueness, to reduce competition and risks, to increase markets, or to enter new
markets.
Quick examples of horizontal expansion are Standard Oil’s acquisition of about 40 other
refineries and the acquisition of Arcelor by Mittal Steel and that of Compaq by HP.

Credit: aventalearning.com

When is horizontal integration attractive for a

business?
A company can think of acquisitions and mergers for horizontal integration in the following
situations:

 When the industry is growing

 When rivals lack the expertise that the company has already achieved
 When economies of scale can be achieved
 When the company can manage the operations of the bigger organisation efficiently,
after the integration
Advantages of horizontal integration
The advantages of horizontal integration are economies of scale, increased differentiation
(more features that distinguish it from its competitors), increased market power, and the
ability to capture new markets.

 Economies of scale: The bigger, horizontally integrated company can achieve a

higher production than the companies merged, at a lower cost.
 Increased differentiation: The company will be able to offer more product features
to customers.
 Increased market power: The new company, because of the merger of companies,
will become a bigger customer for its old suppliers. It will command a bigger end-
product market and will have greater power over distributors.
 Ability to enter new markets: If the merger is with an organisation abroad, the new
company will have an additional foreign market.

Disadvantages of horizontal integration strategy

As touched upon earlier, the management of a company should be able to handle the bigger
organisation efficiently if the advantages of horizontal integration are to be realised.
The legal ramifications will have to be studied as there are strict anti-monopoly laws in
many countries: if the merged entity threatens to oust competitors from the market, these
laws will be used against it.
Standard Oil, which was seen as a powerful conglomerate brooking no competition, was
split up into over 30 competing companies in an anti-trust case.
As a company grows bigger with horizontal integration, it might become too rigid, and its
procedures and practices may become unfriendly to change. This could prove dangerous to
it.
Moreover, synergies between companies that may have been predicted may prove elusive
or non-existent (for example, the failed horizontal integration of hardware and software
companies merged in the expectation of “synergies” between their products).
The decision whether to employ vertical or horizontal integration has a long-term influence
on the business strategy of a company.
Each company will have to choose the option more suitable to it, based on its unique place
in the market and its customer value propositions. A deep analysis of its strengths and
resources will help it make the right choice.

STP( PPT LOOK)

STP marketing is an acronym for Segmentation, Targeting, and Positioning – a three-step
model that examines your products or services as well as the way you communicate their
benefits to specific customer segments.

In a nutshell, the STP marketing model means you segment your market, target select
customer segments with marketing campaigns tailored to their preferences, and adjust your
positioning according to their desires and expectations.

STP marketing is effective because it focuses on breaking your customer base into smaller
groups, allowing you to develop very specific marketing strategies to reach and engage each
target audience.

In fact, 59% of customers say that personalization influences their shopping decision and
another 44% said that a personalized shopping experience would influence them to become
repeat customers of a brand.

STP marketing represents a shift from product-focused marketing to customer-focused

marketing. This shift gives businesses a chance to gain a better understanding of who their
ideal customers are and how to reach them. In short, the more personalized and targeted
your marketing efforts, the more successful you will be.
The STEP Formula
If you are looking for a simple way to remember and summarize the STP marketing concept,
the acronym STEP is extremely useful:

Segmentation + Targeting Equals Positioning

This formula clearly illustrates that each segment requires tailored positioning and
marketing mix to ensure its success. Let’s take a closer look at each of the three steps in the
STP marketing model.
Segmentation
The first step of the STP marketing model is the segmentation stage. The main goal here is
to create various customer segments based on specific criteria and traits that you choose.
The four main types of audience segmentation include:
16. Geographic segmentation: Diving your audience based on country, region, state,
province, etc.
17. Demographic segmentation: Dividing your audience based on age, gender,
education level, occupation, gender, etc.
18. Behavioral segmentation: Dividing your audience based on how they interact with
your business: What they buy, how often they buy, what they browse, etc.
19. Psychographic segmentation: Dividing your audience based on “who” your potential
customer is: Lifestyle, hobbies, activities, opinions, etc.

Targeting
Step two of the STP marketing model is targeting. Your main goal here is to look at the
segments you have created before and determine which of those segments are most likely
to generate desired conversions (depending on your marketing campaign, those can range
from product sales to micro conversions like email signups).

Your ideal segment is one that is actively growing, has high profitability, and has a low cost
of acquisition:
20. Size: Consider how large your segment is as well as its future growth potential.
21. Profitability: Consider which of your segments are willing to spend the most money
on your product or service. Determine the lifetime value of customers in each
segment and compare.
22. Reachability: Consider how easy or difficult it will be for you to reach each segment
with your marketing efforts. Consider customer acquisition costs (CACs) for each
segment. Higher CAC means lower profitability.
There are limitless factors to consider when selecting an audience to target – we’ll get into a
few more later on – so be sure that everything you consider fits with your target customer
and their needs.
Positioning
The final step in this framework is positioning, which allows you to set your product or
services apart from the competition in the minds of your target audience. There are a lot of
businesses that do something similar to you, so you need to find what it is that makes you
stand out.

All the different factors that you considered in the first two steps should have made it easy
for you to identify your niche. There are three positioning factors that can help you gain a
competitive edge:
23. Symbolic positioning: Enhance the self-image, belongingness, or even ego of your
customers. The luxury car industry is a great example of this – they serve the same
purpose as any other car but they also boost their customer’s self-esteem and
image.
24. Functional positioning: Solve your customer’s problem and provide them with
genuine benefits.
25. Experiential positioning: Focus on the emotional connection that your customers
have with your product, service, or brand.

The most successful product positioning is a combination of all three factors. One way to
visualize this is by creating a perceptual map for your industry. Focus on what is important
for your customers and see where you and your competitors land on the map.

The most successful product positioning is a combination of all three factors. One way to
visualize this is by creating a perceptual map for your industry. Focus on what is important
for your customers and see where you and your competitors land on the map.
A perceptual map of popular clothing retailers
Benefits of STP marketing
If you aren’t already convinced that STP marketing is going to revolutionize your business,
we’re breaking down the key benefits that STP marketing has over a traditional marketing
approach.

Because STP focuses on creating a precise target audience and positioning your
products/services in a way that is most likely to appeal to that audience, your marketing
becomes hyper-personalized. With personalization:
 Your brand messaging becomes more personal and empathetic because you have
your customer personas and know exactly whom you’re talking to;
 Your marketing mix becomes more crystalized and yields higher return on
investment because you’re no longer wasting budget on channels that your audience
simply ignores;
  Your market research and product innovation become more effective because you
know exactly whom to ask for advice and feedback in the development phase.

Yieldify’s recent research shows that eCommerce leaders are adopting personalization at an
unprecedented rate – 74% of eCommerce sites now claim to have now adopted some level
of personalization strategy. Their reasons?

Fifty-eight percent found that personalization helps increase customer retention, 55% cited
conversion and 45% found that personalization actually helped minimize the cost of new
customer acquisition.

Finally, STP marketing levels the playing field. The framework allows small businesses and
startups to find success in their niche markets when they normally wouldn’t have the reach
to compete with the larger whole-market businesses in their industry.
STP marketing examples: The Cola Wars
STP marketing has been around for a long time – and it has been effective for just as long.
We’re going to take a look at a real-world example of STP marketing so you can see how it
has worked historically in increasing conversions and revenue.

Back in the 1980s, when Pepsi-Cola was trying to claim some of the market share from Coca-
Cola, Pepsi used segmentation to target certain key audiences. They focused on an attitude
and loyalty segmentation approach and divided the market into three consumer segments:
26. Consumers with a positive attitude to the Coke brand who were 100% loyal to Coke.
27. Consumers with a positive attitude to the Pepsi brand who were 100% loyal to Coke.
28. Consumers with a positive attitude to both brands, with loyalty to both, who
switched their purchases between both brands.

Pepsi had always focused their marketing efforts on the third segment, as it was the most
attractive and had the highest return on investment. Focusing on customers loyal to Coke
was considered a waste of time and money, as they were unlikely to change their
purchasing habits.

However, that all changed with the launch of New Coke in 1985
How to create an STP marketing strategy: The full STP model
We covered the three stages of the STP marketing model, looked at the benefits and
examples of this approach. While this provides you with an excellent overview of the
concept, we want to get into the detail of creating an STP marketing strategy that serves
your business.

Below you will find 7 steps to creating a solid marketing strategy using the full STP model.
1. Define the market
The global market is far too big and far too vast for anyone – even the biggest corporation
with the most resources – to address. That’s why it’s important to break it down into
smaller chunks and clearly define the part you are going after.

Typically, to evaluate your business opportunity, you will need to define your TAM, SAM,
and SOM: Total Available Market, Serviceable Available Market, and Serviceable
Obtainable Market.

Think of it as an iceberg. The very top peeking from under the water is your SOM – that’s
the portion of the market that you can effectively reach.

SAM is is the portion of the total available market that fits your product or service offering.
Whereas TAM is the total available market, in other words, “the overall revenue
opportunity that is available to a product or service if 100% market share was achieved.”

For example, back when Airbnb was starting to pitch investors, they used the TAM, SAM,
SOM model to explain their business potential. Their total available market (TAM) then was
valued at $1.9 billion dollars and included any type of accommodation that travelers were
booking worldwide.

Because their service offering was targeted more at the budget travelers who were using
online booking engines to find their stay. In this case, the SAM was valued at $532 million
dollars. Lastly, their SOM came in at $10.6 million dollars and signified the revenue
obtainable for Airbnb.

Similarly with a consumer product, we can look at Diet Coke and say that its TAM would
include the total beverage market. Its SAM would narrow it down to soft drinks, and SOM
would zero in on the carbonated sugar-free drinkers out there.

There are several routes you can choose when defining a market. You can do so by:
 Industry classification (agriculture, retail, transportation, etc.
 Product category (apparel, health and beauty, food and beverage, etc.)
 Country (United States, United Kingdom, etc.)
2. Create audience segments
Now that you’ve adequately defined your target market, it’s time to segment it using
geographical, demographic, behavioral, and psychographic variables.

Each segmentation variable helps you tap into a different aspect of your audience and when
you use them in unison you can create niche segments that really make an impact on your
overall marketing effort.

For example, if you split your serviceable obtainable market into men vs women
(demographic variables) you are still left with a pretty broad audience segment. However, if
you start layering other segmentation variables on top, you can create a precise audience
that you can make the biggest impact on.

Perhaps you go after women (demographics) in the United States (geographics) who prefer
to spend money on luxury products (psychographics) who follow you on social media or
have visited your website in the past (behavior).
As you can see, this layering method creates a hyper-focused audience segment that
allows you to create an extremely personalized experience. And as we mentioned before,
personalization has a huge impact on the success of your marketing efforts.
3. Construct segment profiles
When you’ve landed on your viable market segments, it’s time to develop segment profiles.
Segment profiles are very similar to your ideal customer personas but they act as subsets of
your main persona – they are detailed descriptions of the people in each segment.

Describe their needs, behaviors, demographics, brand preferences, shopping traits, and any
other characteristics. Each profile should be as detailed as possible to give you and your
business a good understanding of the people within each segment. This will allow you to
compare segments for strategy purposes.
4. Evaluate the attractiveness of each segment
Cross-referencing your findings with available market data and consumer research will help
you assess which of your constructed segments can bring in the biggest return on your
investment. Consider factors like segment size, growth rates, price sensitivity, and brand
loyalty.

With this information, you will be able to evaluate the overall attractiveness of each
segment in terms of dollar value.
5. Select target audience/s
Now that you have detailed information on all of your segments, you need to spend some
time deciding which ones are the most viable to use as your target audiences. You’ll need to
take into account your overall business strategy, the attractiveness of the segment, and the
competition that exists in that segment.

The best way to determine the most viable segment is by performing cluster analysis. Quite
a complex and technical topic on its own (check out this guide to get more insights),
clustering in the context of eCommerce segmentation means using mathematical models to
identify groups of customers that are more similar to one another than those in other
groups.

Your ideal audience segment is one that is both large and still growing, and you are able to
reach with your marketing efforts. You’ll also want a segment that aligns with your business
strategy – it makes no sense to focus your efforts on a segment of men in Australia if you
are phasing out your menswear and don’t offer free shipping to Australia.
6. Develop a positioning strategy
Next, you need to develop a positioning strategy that will give you the best edge to compete
in the selected target audience. Determine how to effectively position your product, taking
into account other competitors – focus on how your positioning can win the largest amount
of the market share.

There are several positioning strategy paths you can follow:

 29. Category-based positioning – This calls for determining how are your products or
services better than the existing solutions on the market.
30. Consumer-based positioning – This calls for aligning your product/service offering
with the target audience’s behavioral parameters.
31. Competitor-based positioning – This is a pretty straightforward approach that calls
to prove you are better than competitor X.
32. Benefit-based positioning – This calls for proving the benefits that customers will get
from purchasing your product or service.
33. Price-based positioning – This calls for distinguishing based on the value for the
money people get when purchasing your product/service.
34. Attribute-based positioning – Competitors, price, and benefits aside, this calls for
zeroing in on a unique selling proposition that makes your product or service stands
out from the rest.
35. Prestige-based positioning – This calls for proving that your products supply a
certain boost in status to those who purchase.
7. Choose your marketing mix
The last and final step in this long and winding process is to actually implement your
strategy. For that, you will need to determine a marketing mix that will support your
positioning and help you reach the target audience(s) that you’ve chosen.

A marketing mix consists of the so-called 4 Ps: Product, Price, Place, and Promotion:
 Product takes into consideration factors like variety, quality, design, branding,
features, packaging, services, availability, convenience.
 Price takes into consideration factors like pricing strategy, list price, penetration
price, premium, discounting, payment methods, credit terms, payment period.
 Place takes into consideration factors like channels, coverage, location, inventory,
logistics, trade channels.
 Promotion takes into consideration factors like advertising, public relations, social
media, sponsorship, influencer marketing, content marketing, product placement,
sales promotion.

A carefully-curated marketing mix will ensure business success. However, if you do leave
gaps in it, all the precious work you did at the previous stages might go to waste.
Here’s an example to illustrate a poor marketing mix: Let’s say you want to sell a luxury
skincare product to women in their 40s.

Your goal is to position it as a high-end addition to their skincare routine that targets
concerns related to mature and aging skin. So you invest in print marketing and get your
product featured in a couple of popular women’s magazines that skew towards the 30+
audience. You also make sure to price the product accordingly so it indicates the luxury
category.

However, your packaging is cheap and poorly designed, while the product itself is sold in
drugstores.

This inconsistency, which isn’t aligned with the overall positioning strategy, will prevent you
from reaching your target audience in the first place; those who get reached will experience
dissatisfaction resulting in negative word-of-mouth, which will eventually make your sales
slumber.
Conclusion
Using the STP process, businesses can identify their most valuable customer segments and
create products and marketing communications that target those customers. This helps you
create engaging, personalized marketing campaigns that convert visitors to customers at a
high rate.
If you want to use clever segmentation and behavioral targeting methods in your
eCommerce marketing strategy, get in touch with Yieldify and we’ll be happy to help!

ATL AND BTL Strategies

What is ‘the Line’ and where did it come from?

These definitions of approaches to marketing were first used in 1954 when Proctor and
Gamble began paying different firms separately and at a different rate, for direct
promotional activities and wider advertising campaigns, separating the two approaches. In
this way, ‘the Line’ in marketing is that which separates direct, targeted campaigns from
those more general and widespread aimed at brand awareness, and those with the
presence or absence of direct results, and direct return on investments. There is cause to
wonder if ‘the Line’ is now blurring, for instance the massive use of social media today and
the wide exposure given means that advertising here should be ATL, though it can also be
highly targeted (BTL) so is all social media TTL? One key is to consider intent. If you are
offering a promotion or something that has a direct response element it cannot be ATL,
while to be TTL the promotion should show but on a page that is not as targeted. We will go
through the different approaches in more detail below.

Above the Line Marketing

ATL is the approach most used to build brand awareness and establish goodwill. They are
widespread campaigns, largely untargeted and undertaken at a general level. A good
example of an ATL Marketing approach is a national, or even a global TV ad campaign,
where the same advert is shown across the country to people of all demographics. Instead
of targeting the ad at specific people identified already as potential customers, the purpose
of the ad is to broaden a brand’s horizons, reaching more people and establishing
themselves more clearly and with a clear image. Other examples include print media and
radio broadcasts which again reach a multitude of different people over a large area.

ATL is a good way to promote your brand, but it is difficult to measure the exact impact and
return on investment. This is why it is more untargeted; the purpose is not to see a precise
conversion rate but to make customers generally aware of your brand or product, and
increase your visibility.

Below the Line Marketing

BTL, however, is used in the opposite way to ATL. Below the Line Marketing is aimed
specifically at targeted individuals that have been identified as potential customers. Popular
BTL strategies include outdoor advertising, such as bill boards and flyers, direct marketing,
such as utilising email and social media, and sponsorship of events. The latter is particularly
growing in popularity as giving a memorable experience to your potential customers makes
your brand in turn more memorable, and people more disposed to it.

Unlike ATL, BTL is very focused on targeting specific ads to certain people, ensuring the
content and location line up as clearly as possible with the intent of these potential
customers. BTL also differs in that it is much more focused on return on investment (ROI),
gaining user conversions and quantifying success. Instead of simply raising awareness of the
brand, BTL is designed to ensure direct consumers for the product or brand, by focusing
directly on the user and their wants. This form of marketing is usually easily quantifiable
with the advantage of highly trackable results.

Through the Line Marketing

Finally, we come to Through the Line Marketing, or TTL. This approach combines that we
have seen above, of ATL and BTL Marketing, to attempt to both raise brand awareness and
target specific potential customers and convert these into measurable and quantifiable
sales. One example of this is 360 degree marketing, where you not only have a national TV
campaign but supplement this with targeted flyers and newspaper ads. Another is to use
Digital Marketing, combining online banner ads with social media posts and blogs, for
instance.

The clear benefit of a TTL approach is that you are attacking on two fronts, simultaneously
improving general awareness and also aiming to increase traffic and sales. However, TTL is
more expensive to use than either ATL or BTL alone. For this reason, it is normally utilised
only by larger and more established companies with the money to back such a large
approach.
Conclusion
So, what is the difference between ATL, BTL and TTL? Above the Line Marketing is largely
untargeted, aimed at a large number of people in order to generally improve brand
awareness and image, while finding it more difficult to quantify results and ROI. Below the
Line Marketing is more specific to potential customers, targeting people with content that
will speak to them and being much easier so see the impact it has. Through the Line
Marketing involves combining both approaches to both target specific individuals and
impact a greater number of people on a broader scale while giving measurable data on its
impact, though costly and therefore usually used by financially secure companies.

These types of marketing have their own pros and cons and are better suited to different
companies and their needs at different times. To be sure of which is the best for you, take
the time to think about what the needs of your brand truly are, and if you need any further
assistance with this, we are happy to help guide you to the type of marketing that is right for
you!
DEFENSIVE STRATEGIES
What is Defensive Strategy?
A defensive strategy is a marketing tool that management uses to defend their business
from potential competitors. In other words, it’s a battleground where you have to fight and
protect your market share by keeping your customers happy and stabilizing your profit.
You have to be familiar with the market in order to defend your business. You should also
know when to expand your business in the new market. In simple words, we can say that a
defensive strategy is about capitalizing on your strengths and competitive advantages to
push the competitors.
Approaches to Defensive Strategy
The management follows two approaches of defensive strategy and they’re as follows;
Active Approach
The purpose of the active approach is to block the competitors that are planning to steal
your market share. Here in the active approach, you increase the marketing and
promotional activities of your product, cut down the price, and provide discounts to reduce
the sales of your competitors.
Passive Approach
The goal of passive is to stop the competitor from taking away your customers and market
share. But it’s a bit relaxed approach. In the passive approach, you take these steps and
they’re as follows;
  New Product Innovation. Your focus is on the development and launching of the new
product so that you could win back the customers.
 Company Expansion. Here your focus is on enlarging your business and company into
the new markets. The market expansion would attract and bring new customers.
 Reconnect with Old Customers. You contact and retarget your old customers in
order to increase your sale.
Types of Defensive Strategies with examples
Joint Venture
A joint venture is when two businesses and companies formally decide to cooperate in
order to achieve certain common goals. The objectives of a joint venture may vary from
business to business and market to market.
The purpose of a joint venture in the defensive strategy is to defeat the common competitor
that is targeting both similar/dissimilar companies at the same time.
For example, Microsoft and General Electric started a joint venture by the name of
“Caradigm” in 2011. Both of these companies shared their resources to develop a better
technology; GE health technology and Microsoft healthcare intelligence product.
Retrenchment
Retrenchment is also an aggressive strategy where you take a bold decision of reducing
businesses’ operations and expenses. The retrenchment strategy helps businesses and
companies in the defensive strategy in terms of cutting down the price and offering
discounts and incentives to the customers.
For instance, a particular location of the company is closed, and no possibility of its usage in
the near future. The management finally decides to sell its assets that don’t have any more
of its use.
Divestiture
Divestiture is a type of retrenchment strategy where you re-examine the asset of your
business and company. If the assets aren’t serving anymore, then you sell them off. It helps
businesses to reduce their expenses.
For example, Thomson Reuters, a Canadian multinational company, decided to sell its
science and intellectual property division in 2016. The purpose of divestiture is because the
company wanted to decrease its leverage on the balance sheet.
The US government decided to break up AT&T in 1982 on the claim that the company was
monopolizing the telecom industry. The breakup created 7 different companies and one of
them was AT&T.
Liquidation
If a part of a business is going to lose and declining and there’s no way to pull it back, then
you finally decided to sell them off. It’s also a type of retrenchment strategy. Liquidation
also helps a business in the defensive strategy, especially when they’re cutting down the
prices.
For instance, a retail shop is running into losses. The retailer to sell off his entire business,
but he couldn’t find any interested buyer. Finally, he decides to get as much value out of it
as possible by selling all the equipment, inventory, fixture, and everything. The purpose is to
permanently shut down the entire business.
Advantages of Defensive Strategies
Marketing & Advertisement
The marketing and advertising of products and services increase the market reach of your
business. It allows you to target both your old and new customers. The defensive strategy
provides you with the real benefits of promoting your business.
Less Risky
The good thing about defensive strategy is that it’s not risky. It’s even less risky than the
offensive strategy. Here you utilize your competitive advantages to secure your market
share. You reduce the threats at the cost of taking minimum risks.
Promote Value of your Product
The focus of the defensive strategy is to promote the benefits of your products and services.
When you start comparing your product/service with the competitors’ by highlighting your
key features, it devalues their service. It can turn into a long term business strategy for your
business. It also helps you to be more niches focused.
Disadvantages of Defensive Strategies
Different Needs of Target Market
One of the biggest disadvantages of the defensive strategy is that the companies and
businesses underestimate the needs and wants of the target market. They offer their
product/service to all the market without focusing on any particular segment.
For instance, the children’s bicycles and children’s storybook would only interest the young
children market. If you offer children’s products to the elderly and young demographic of
the market, they won’t buy your product. That’s how businesses make mistakes while
applying defensive strategy. You have to know your target market and target them
accordingly.
Innovation
The defensive strategy won’t work when the target market is looking for an innovative and
creative product. That’s why smart businesses and companies always look for new ideas and
technology by keeping their eyes and ears open. Therefore, businesses should develop a
long term strategy by using the defensive strategy along with innovation.

Strategic planning gap

A strategy gap refers to the gap between the current performance of an organization and its
desired performance as expressed in its mission, objectives, goals and the strategy for
achieving them. Strategic planning gap is the dissimilarity between preferred goals and the
real goals of a company. McKeon argues that a strategic gap may be transformed into a
strategic stretch. Effective strategic planning though it seems time overwhelming is
necessary for every business to witness long-term success.
Often unseen, the Strategic Planning Gap is a threat to the future performance – and even
survival – of an organization and is guaranteed to impact upon the efficiency and
effectiveness of senior executives and their management teams. The strategy gap is
considered to be real and exists within most organizations. An article in the “Fortune
magazine” (June 1999 edition) stated that some 70% of CEOs’ failures were the result of
poor execution rather than poor strategies.
Strategic Planning Gap Analysis helps recognize the performance gap with admiration to the
approach the company follows to achieve its goals, whether the performance is associated
with the mission and vision of the company. If a company does not know of its agreement in
relation to their goals that the company is not likely to achieve the desired outcomes. So,
proper strategic gap investigation would necessitate overcoming situations like this. The
results of this investigation assist categorize the errors in reserve allotment and what steps
need to be taken further to help get better performance through better consumption of the
input resources.

There are various schools of thought on what causes the gap between vision and execution,
and how the strategy gap might be avoided. In 2005, Paul R. Niven, a thought leader in
Performance Management Systems, pinpointed four sources for the gap between strategy
and execution, namely: lack of vision; people; management; and, resources. He argued that
few understand the organization’s strategy and as most employees’ pay is linked to short-
term financial results, maximizing short-term gains becomes the foremost priority which
leads to less rational decision making. Management is spending little attention to the linkage
between strategy and financial planning. Unless the strategic initiatives are properly funded
and resourced, their failure is virtually assured.
Strategic gap analysis allows a company or organization to settle on whether it is getting the
best return out of its resources and abilities. It identifies the gap between the application of
resources and the best probable result from that application of those resources.
A strategic plan in common focuses on mid to long-term goals and explains the essential
strategies for achieving them. Achieve further growth within current businesses – intensive:

 Market-penetration strategy – gain more market share in current prod, current

market
 Market-development – develop a new market for the current product
 Product-development – develop new prod of potential interest to current market
 Diversification strategy – develop new prod for a new market.
Many businesses and other organizations are unsuccessful to plan deliberately. That means
they have the capabilities and competencies to accomplish their fundamental business
targets but not succeed to appreciate their full perspective. A strategic gap analysis would
help such a business or institution bridge the gap between their present and probable
positions.