Market Definition In marketing, the term market refers to the group of consumers or organizations that is interested in the product

, has the resources to purchase the product, and is permitted by law and other regulations to acquire the product. The market definition begins with the total population and progrssively narrows as shown in the following diagram. Market Definition Conceptual Diagram

Beginning with the total population, various terms are used to describe the market based on the level of narrowing:
• • • •

Total population Potential market - those in the total population who have interest in acquiring the product. Available market - those in the potential market who have enough money to buy the product. Qualified available market - those in the available market who legally are permitted to buy the product.

• •

Target market - the segment of the qualified available market that the firm has decided to serve (the served market). Penetrated market - those in the target market who have purchased the product.

In the above listing, "product" refers to both physical products and services. The size of the market is not necessarily fixed. For example, the size of the available market for a product can be increased by decreasing the product's price, and the size of the qualified available market can be increased through changes in legislation that result in fewer restrictions on who can buy the product. Defining the market is the first step in analyzing it. Since the market is likely to be composed of consumers whose needs differ, market segmentation is useful in order to better understand those needs and to select the groups within the market that the firm will serve. Ansoff Matrix To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below: Ansoff Matrix Existing Products
Existing Markets

New Products
Product Development

Market Penetration

New Markets

Market Development

Diversification

Ansoff's matrix provides four different growth strategies:

Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.

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Market Development - the firm seeks growth by targeting its existing products to new market segments. Product Development - the firms develops new products targeted to its existing market segments. Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.

Selecting a Product-Market Growth Strategy The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk. The BCG Growth-Share Matrix The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share". Market growth serves as

a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability. BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an increase in the generation of cash. This assumption often is true because of the experience curve; increased relative market share implies that the firm is moving forward on the experience curve relative to its competitors, thus developing a cost advantage. A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its cash consumption. Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm's other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business unit could move along the experience curve and develop a cost advantage. From this reasoning, the BCG Growth-Share Matrix was born. The four categories are:

Dogs - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. Question marks - Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash comsumption. A

question mark (also known as a "problem child") has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Stars - Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation. Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines, a business unit will become either a cash cow or a dog, determined soley by whether it had become the market leader during the period of high growth. While originally developed as a model for resource allocation among the various business units in a corporation, the growth-share matrix also can be used for resource allocation among products within a single business unit. Its simplicity is its strength - the relative positions of the firm's entire business portfolio can be displayed in a single diagram. Limitations The growth-share matrix once was used widely, but has since faded from popularity as more comprehensive models have been developed. Some of its weaknesses are:

Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage. The

• • growth-share matrix overlooks many other factors in these two important determinants of profitability. a business unit that is a "dog" may be helping other business units gain a competitive advantage. economic trends or technology developments that might have an impact on my business? Step 3: Have a Meaningful Vision for your Business and your Brand A business Vision (or Mission ) has a number or roles: most important of which are to inspire and guide. most companies die young. but have very low market share in the overall industry. Because of that they are of limited help in inspiring or guiding the behaviour of the business team. Words like this can mean many different things to different people. A business unit may dominate its small niche. Brand Visions have just the same . Ask yourself. 'best'. the definition of the market can make the difference between a dog and a cash cow. 'preeminent'. In some cases. Understanding and responding to changing customer needs is essential. The matrix depends heavily upon the breadth of the definition of the market. The framework assumes that each business unit is independent of the others. legislation. the BCG matrix still can serve as a simple tool for viewing a corporation's business portfolio at a glance. Step 1: Become truly 'Marketing Minded' When many people think of marketing they think of meeting customers needs. In such a case. Here is the ' Seven Steps to Brand-Led Marketing ' that we promised you. and may serve as a starting point for discussing resource allocation among strategic business units. If you can't find this point of difference you're in danger of becoming a price-based commodity. and reflect on how these changes might have an impact. competitor activity. 'most successful'. Too many business Visions include words like 'leader'. at least once a quarter : What are the changing consumer trends. While its importance has diminished. look around. Ask yourself: Do my customers really see me as different from my closest competitors? How/Why? What can I do to make my business more distinctive and appealing to help secure them as long-term and profitable customers? Step 2: Monitor the Changing Environment We live in a rapidly changing world of many threats and opportunities. Brand-led marketing ensures that you meet customer needs in a way that is different from your competitors . As a result. but there is another dimension.. Few business managers take adequate time out to stop..

In everything that you say and do. Nor is it just about your 'product' or 'service'. and then consider everything that you say and do. but you have to go one step further. Ask yourself : Do I have a brand Vision that everyone understands and has bought into? How might I improve my brand Vision. Make sure that you have a written Vision for your brand that is strong enough to inspire and guide behavior. measurable objectives? (And am I measuring the things that are really important!). If you can achieve steps 1 6 that's great. This is true in life. measurable objectives . any road will get you there ".you have to know where you want to get to! Ask yourself : Do I have a brand plan with clear. Step 6: Become a 'Learning Business' Continuously improving your brand-led effectiveness is essential to long-term success. and it is true in business. experiment and anticipate. To build a strong brand you have to have a clear idea of how you want to be thought of. look around for new ways of pursuing your vision and your desired brand. You have to be prepared to change. If you want to succeed you have to have clear. so that I can find out what works and what doesn't. and do it better next time? Step 7: Be Prepared to Change What worked in the past may not work in the future. Your brand is really what your customers think of you. Explore. . The best way to achieve this is to ensure that you take a little time to become a 'Learning Business' by building learning into your processes. ask yourself : Will this get me closer to where I want to be in the mind of my customers? Step 5: Plan for Success There is a phrase: " If you don't know where you want to go. so it is a stronger inspiration and guide? Step 4: Build Your Brand 'From the Inside Out ' Building a brand is not just about advertising or 'marketing communications'. Don't just do the same things better. and how much trust they have in you. ask yourself : How can I build learning into this. For every marketing initiative you undertake.function.

Producers could price at competitive parity. Products tend to be 'no frills. 1. exploiting the benefits of a bigger margin than competitors. 2. but have the brand and marketing skills to use a premium pricing policy. This allows companies to desensitize prices . niche market? The generic strategies are: 1.Michael Porter (1980) Generic strategies were used initially in the early 1980s. Cost Leadership The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Differentiation.Generic Strategies . and 3.' However. low cost does not always lead to low price. 2. Cost leadership. such as Toyota. and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Focus.are the products differentiated in any way. or are they the lowest cost producer in an industry? Competitive scope of the market . Some organization. labor is recruited and trained to deliver the lowest possible costs of production. or does it focus on a very narrow.does the company target a wide market. are very good not only at producing high quality autos at a low price. 'cost advantage' is the focus. Differentiation Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. Costs are shaved off every element of the value chain. Each of the three options are considered within the context of two aspects of the competitive environment: Sources of competitive advantage . Factories are built and maintained.

British Airways differentiates its service. 3. A company could use either a cost focus or a differentiation focus. generating a higher than average price. Mass marketing allows economies of scale to be realized through mass production.' Make sure that you select one generic strategy. Here an organization focuses effort and resources on a narrow. Focus or Niche strategy The focus strategy is also known as a 'niche' strategy. For example.and focus on value that generates a comparatively higher price and a better margin. Competitive advantage is generated specifically for the niche. mass distribution. The differentiating organization will incur additional costs in creating their competitive advantage. Small. Market Segmentation Market segmentation is the identification of portions of the market that are different from one another. defined segment of a market. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy. .g. A niche strategy is often used by smaller firms. These costs must be offset by the increase in revenue generated by sales. that your organization gets stuck in the middle without a competitive advantage. It is argued that if you select one or more approaches. Cost focus is unachievable with an industry depending upon economies of scale e. Segmentation allows the firm to better satisfy the needs of its potential customers. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments. The danger of being 'stuck in the middle. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. Costs must be recovered. and then fail to achieve them. telecommunications. The Need for Market Segmentation The marketing concept calls for understanding customers and satisfying their needs better than the competition. Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. specialist niches could disappear in the long term. There is also the chance that any differentiation could be copied by competitors. a niche strategy could be more suitable. But different customers have different needs. Therefore there is always an incentive to innovated and continuously improve. There are potentially problems with the niche approach. and it rarely is possible to satisfy all customers by treating them alike.

for segments to be practical they should be evaluated against the following criteria: • • • • • Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified. A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous. Bases for Segmentation in Consumer Markets Consumer markets can be segmented on the following customer characteristics. If firms ignored the differing customer needs. the segments must respond differently to the different marketing mixes. that is. • • • • Geographic Demographic Psychographic Behavioralistic Geographic Segmentation The following are some examples of geographic variables often used in segmentation. Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. Requirements of Market Segments In addition to having different needs. another firm likely would enter the market with a product that serves a specific group. The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. state. Unique needs: to justify separate offerings. country. and as different as possible between segments. Durable: the segments should be relatively stable to minimize the cost of frequent changes. as similar as possible within the segment. Accessible: the segments must be reachable through communication and distribution channels. The first step in target marketing is to identify different market segments and their needs.and mass communication. • • Region: by continent. and the incumbant firms would lose those customers. or even neighborhood Size of metropolitan area: segmented according to size of population . Substantial: the segments should be sufficiently large to justify the resources required to target them.

or rural Climate: according to weather patterns common to certain geographic regions Demographic Segmentation Some demographic segmentation variables include: • • • • • • • • • • • • Age Gender Family size Family lifecycle Generation: baby-boomers. suburban. Some behavioralistic variables include: • • Benefits sought Usage rate . married with no children (DINKS: Double Income. Activities. for example. Income Occupation Education Ethnicity Nationality Religion Social class Many of these variables have standard categories for their values. full-nest. II. or III depending on the age of the children. empty-nest. Psychographic Segmentation Psychographic segmentation groups customers according to their lifestyle. Generation X. or solitary survivor. family lifecycle often is expressed as bachelor. interests.• • Population density: often classified as urban. etc. full-nest I. and opinions (AIO) surveys are one tool for measuring lifestyle. No Kids). For example. Some of these categories have several stages. Some psychographic variables include: • • • • • Activities Interests Opinions Attitudes Values Behavioralistic Segmentation Behavioral segmentation is based on actual customer behavior toward products.

Such behavioral characteristics may include: . Industrial markets might be segmented on characteristics such as: • • • Location Company type Behavioral characteristics Location In industrial markets. These characteristics apply to organizations such as manufacturers and service providers. first-time. Bases for Segmentation in Industrial Markets In contrast to consumers. regular. as well as resellers. Many of the consumer market segmentation variables can be applied to industrial markets. They evaluate offerings in more detail. Company Type Business customers can be classified according to type as follows: • • • • Company size Industry Decision making unit Purchase Criteria Behavioral Characteristics In industrial markets. so distance from the vendor may be critical. customer location may be important in some cases. patterns of purchase behavior can be a basis for segmentation. and institutions. industrial customers tend to be fewer in number and purchase larger quantities. governments.• • • • Brand loyalty User status: potential. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region. etc. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio. It is a fairly direct starting point for market segmentation. and the decision process usually involves more than one person. Readiness to buy Occasions: holidays and events that stimulate purchases Behavioral segmentation has the advantage of using variables that are closely related to the product itself.

mass production had become commonplace. negotiations. The key questions that a firm would ask before producing a product were: • • Can we produce the product? Can we produce enough of it? At the time. competition had increased. In 1776 in The Wealth of Nations. While this philosophy is consistent with the marketing concept. it is worthwhile to put it in perspective by reviewing other philosophies that once were predominant. To better understand the marketing concept. they are not restricted to those periods and are still practiced by some firms today. The Marketing Concept The marketing concept is the philosophy that firms should analyze the needs of their customers and then make decisions to satisfy those needs. etc. the production concept worked fairly well because the goods that were produced were largely those of basic necessity and there was a relatively high level of unfulfilled demand. Virtually everything that could be produced was sold easily by a sales team whose job it was simply to execute transactions at a price determined by the cost of production. first-time. better than the competition. While these alternative concepts prevailed during different historical time frames. The Production Concept The production concept prevailed from the time of the industrial revolution until the early 1920's. The production concept was the idea that a firm should focus on those products that it could produce most efficiently and that the creation of a supply of low-cost products would in and of itself create the demand for the products. Purchase procedure: sealed bids.• • • Usage rate Buying status: potential. but this has not always been the case. it would not be adopted widely until nearly 200 years later. The production concept prevailed into the late 1920's. and there was little unfulfilled demand. Today most firms have adopted the marketing concept. etc. Around this . Adam Smith wrote that the needs of producers should be considered only with regard to meeting the needs of consumers. regular. The Sales Concept By the early 1930's however.

Even today. many firms have structured themselves into marketing organizations having a company-wide customer focus.everybody must be concerned with customer satisfaction. firms began to adopt the marketing concept. which involves: • • • Focusing on customer needs before developing the product Aligning all functions of the company to focus on those needs Realizing a profit by successfully satisfying customer needs over the longterm When firms first began to adopt the marketing concept. Before producing a product. . the goal simply was to beat the competition to the sale with little regard to customer satisfaction. firms began to practice the sales concept (or selling concept). under which companies not only would produce the products. they typically set up separate marketing departments whose objective it was to satisfy customer needs.time. Marketing was a function that was performed after the product was developed and produced. Often these departments were sales departments with expanded responsibilities. While this expanded sales department structure can be found in some companies today. With increased discretionary income. the variety of products increased and hard selling no longer could be relied upon to generate sales. The key questions became: • • • What do customers want? Can we develop it while they still want it? How can we keep our customers satisfied? In response to these discerning customers. The Marketing Concept After World War II. customers could afford to be selective and buy only those products that precisely met their changing needs. Since the entire organization exists to satisfy customer needs. nobody can neglect a customer issue by declaring it a "marketing problem" . but also would try to convince customers to buy them through advertising and personal selling. the key questions were: • • Can we sell the product? Can we charge enough for it? The sales concept paid little attention to whether the product actually was needed. and many people came to associate marketing with hard selling. and these needs were not immediately obvious. many people use the word "marketing" when they really mean sales.

their size. depicted below: The Marketing Mix . personal selling. Borden published his 1964 article. promotions. the marketing team makes decisions about the controllable parameters of the marketing mix. To satisfy those needs. branding. display. advertising. pricing. The ingredients in Borden's marketing mix included product planning. servicing. physical handling.The marketing concept relies upon marketing research to define market segments. The Marketing Mix (The 4 P's of Marketing) Marketing decisions generally fall into the following four controllable categories: • • • • Product Price Place (distribution) Promotion The term "marketing mix" became popularized after Neil H. distribution channels. and their needs. and fact finding and analysis. packaging. E. Jerome McCarthy later grouped these ingredients into the four categories that today are known as the 4 P's of marketing. Borden began using the term in his teaching in the late 1940's after James Culliton had described the marketing manager as a "mixer of ingredients". The Concept of the Marketing Mix.

subject to the internal and external constraints of the marketing environment. penetration. or exclusive distribution) Specific channel members Inventory management Warehousing Distribution centers Order processing Transportation . Product Decisions The term "product" refers to tangible.These four P's are the parameters that the marketing manager can control. physical products as well as services. Some examples of distribution decisions include: • • • • • • • • Distribution channels Market coverage (inclusive. etc. Here are some examples of the product decisions to be made: • • • • • • • • • Brand name Functionality Styling Quality Safety Packaging Repairs and Support Warranty Accessories and services Price Decisions Some examples of pricing decisions to be made include: • • • • • • • • Pricing strategy (skim. The goal is to make decisions that center the four P's on the customers in the target market in order to create perceived value and generate a positive response. selective.) Suggested retail price Volume discounts and wholesale pricing Cash and early payment discounts Seasonal pricing Bundling Price flexibility Price discrimination Distribution (Place) Decisions Distribution is about getting the products to the customer.

Today. pull. promotion represents the various aspects of marketing communication. with marketing more integrated into organizations and with a wider variety of products and markets. that is. the use of this framework remains strong and many marketing textbooks have been organized around it. etc. Today however. and capabilities. Despite its limitations and perhaps because of its simplicity. Attractiveness of a Market Segment The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment: • Size of the segment (number of customers and/or number of units) . some authors have attempted to extend its usefulness by proposing a fifth P. such as packaging.) Advertising Personal selling & sales force Sales promotions Public relations & publicity Marketing communications budget Limitations of the Marketing Mix Framework The marketing mix framework was particularly useful in the early days of the marketing concept when physical products represented a larger portion of the economy. the marketing mix most commonly remains based on the 4 P's. Target marketing contrasts with mass marketing.• Reverse logistics Promotion Decisions In the context of the marketing mix. which offers a single product to the entire market. Target Market Selection Target marketing tailors a marketing mix for one or more segments identified by market segmentation. the communication of information about the product with the goal of generating a positive customer response. etc. resources. process. people. Two important factors to consider when selecting a target market segment are the attractiveness of the segment and the fit between the segment and the firm's objectives. Marketing communication decisions include: • • • • • • Promotional strategy (push.

Different marketing mixes are offered to . The impact of applicable micro-environmental and macro-environmental variables on the market segment should be considered. for example. resources. the greater the profit potential to the firm. buyer intentions. On the other hand. if the firm can develop a competitive advantage. Targeting strategies usually can be categorized as one of the following: • • Single-segment strategy . One market segment (not the entire market) is served with one marketing mix. and the more attractive the market segment. Note that larger segments are not necessarily the most profitable to target since they likely will have more competition.• • • • • • • Growth rate of the segment Competition in the segment Brand loyalty of existing customers in the segment Attainable market share given promotional budget and competitors' expenditures Required market share to break even Sales potential for the firm in the segment Expected profit margins in the segment Market research and analysis is instrumental in obtaining this information. Some aspects of fit include: • • • • Whether the firm can offer superior value to the customers in the segment The impact of serving the segment on the firm's image Access to distribution channels required to serve the segment The firm's resources vs. and statistical demand analysis are useful for determining sales potential.this is a multiple-segment strategy. and capabilities. A single-segment approach often is the strategy of choice for smaller companies with limited resources. salesforce estimates. also known as a differentiated strategy. It may be more profitable to serve one or more smaller segments that have little competition. it may find it profitable to pursue a larger market segment. Selective specialization. capital investment required to serve the segment The better the firm's fit to a market segment. For example.also known as a concentrated strategy. Target Market Strategies There are several different target-market strategies that may be followed. Suitability of Market Segments to the Firm Market segments also should be evaluated according to how they fit the firm's objectives. via patent protection. test marketing.

If a curve is drawn showing product revenue over time. an example of which is shown below: .the firm attempts to serve the entire market. Another strategy whose use is increasing is individual marketing.• • • different segments. Once it gains a foothold.the firm specializes in serving a particular market segment and offers that segment an array of different products. S2. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market. While in the past impractical. and S3. Full market coverage . The Product Life Cycle A product's life cycle (PLC) can be divided into several stages characterized by the revenue generated by the product. in which the marketing mix is tailored on an individual consumer basis. and three products P1.in many cases only the promotional message or distribution channels vary. individual marketing is becoming more viable thanks to advances in technology.the firm specializes in a particular product and tailors it to different market segments. Product specialization. or by a differentiated strategy in which a separate marketing mix is offered to each segment. The product itself may or may not be different . it may take one of many different shapes. or by pursuing a market specialization strategy and offering new products to its existing market segment. Market specialization. Single Segment S1 S2 S3 P1 P2 P3 P1 P2 P3 Selective Specialization S1 S2 S3 P1 P2 P3 Product Specialization S1 S2 S3 P1 P2 P3 Market Specialization S1 S2 S3 P1 P2 P3 Full Market Coverage S1 S2 S3 A firm that is seeking to enter a market and grow should first target the most attractive segment that matches its capabilities. P2. it can expand by pursuing a product specialization strategy. The following diagrams show examples of the five market selection patterns given three market segments S1. tailoring the product for different segments. and P3.

sales will be low until customers become aware of the product and its benefits. Some firms may announce their product before it is introduced.Generally high.one or few products. but such announcements also alert competitors and remove the element of surprise.Product Life Cycle Curve The life cycle concept may apply to a brand or to a category of product. As the product progresses through its life cycle. relatively undifferentiated Price . Introduction Stage When the product is introduced. Product development is the incubation stage of the product life cycle. Its duration may be as short as a few months for a fad item or a century or more for product categories such as the gasoline-powered automobile. assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup . changes in the marketing mix usually are required in order to adjust to the evolving challenges and opportunities. The following are some of the marketing mix implications of the introduction stage: • • Product . There are no sales and the firm prepares to introduce the product. the primary goal is to establish a market and build primary demand for the product class. Advertising costs typically are high during this stage in order to rapidly increase customer awareness of the product and to target the early adopters. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits. During the introduction stage.

there may be price competition and/or increased promotional costs in order to convince consumers that the firm's product is better than that of the competition.Maintained at a high level if demand is high. When competitors enter the market.Distribution becomes more intensive. advertising expenditures will be reduced. The introductory promotion also is intended to convince potential resellers to carry the product. increasing the difficulty of differentiating the product. they do so at a slower pace. and converting non-users into customers. During the growth stage.Promotion is aimed at building brand awareness. Because brand awareness is strong. During the maturity stage. The marketing team may expand the distribution at this point.• • development costs quickly.New product features and packaging options. Growth Stage The growth stage is a period of rapid revenue growth. often during the later part of the growth stage. increasing usage per customer. Samples or trial incentives may be directed toward early adopters. the primary goal is to maintain market share and extend the product life cycle. Promotion . Marketing mix decisions may include: . The marketing mix may be modified as follows: • • • • Product . Distribution . Once the product has been proven a success and customers begin asking for it. The competing products may be very similar at this point. Price . sales will increase further as more retailers become interested in carrying it. While sales continue to increase into this stage.Increased advertising to build brand preference. the goal is to gain consumer preference and increase sales. The firm places effort into encouraging competitors' customers to switch. Trade discounts are minimal if resellers show a strong interest in the product. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted. In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly. Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products.Distribution is selective and scattered as the firm commences implementation of the distribution plan. Distribution . or reduced to capture additional customers. Maturity Stage The maturity stage is the most profitable. improvement of product quality. Competition may result in decreased market share and/or prices. Promotion .

Furthermore. but products do not have such a predictable life and the specific life cycle curves followed by different products vary substantially. or customer tastes change. Price .Expenditures are lower and aimed at reinforcing the brand image for continued products. Promotion .New distribution channels and incentives to resellers in order to avoid losing shelf space. Discontinue the product when no more profit can be made or there is a successor product. the product becomes technologically obsolete. the life cycle concept is not well-suited for the forecasting of product sales.Emphasis on differentiation and building of brand loyalty. Promotion . Prices may be maintained for continued products serving a niche market. Channels that no longer are profitable are phased out. critics have argued that the product life cycle may become self- . Decline Stage Eventually sales begin to decline as the market becomes saturated. Incentives to get competitors' customers to switch.Prices may be lowered to liquidate inventory of discontinued products. Harvest it. Distribution .• • • • Product . Limitations of the Product Life Cycle Concept The term "life cycle" implies a well-defined life cycle as observed in living organisms. Price .The number of products in the product line may be reduced. Rejuvenate surviving products to make them look new again. the profitability may be maintained longer. The marketing mix may be modified as follows: • • • • Product . Distribution . Consequently.Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced. reducing marketing support and coasting along until no more profit can be made. During the decline phase. the firm generally has three options: • • • Maintain the product in hopes that competitors will exit. If the product has developed brand loyalty.Distribution becomes more selective. Unit costs may increase with the declining production volumes and eventually no more profit can be made.Possible price reductions in response to competition while avoiding a price war. Reduce costs and find new uses for the product.

Positioning: The Battle for your Mind has become a classic in the field of marketing. Consumers cope with information overload by oversimplifying and are likely to shut out anything inconsistent with their knowledge and experience. The following is a summary of the key points made by Ries and Trout in their book. Positioning: The Battle for your Mind. Nonetheless. managers may conclude that the product is in the decline phase and therefore cut the advertising budget. the advertiser should present a simplified message and make that message consistent with what the consumer already believes by focusing on the perceptions of the consumer rather than on the reality of the product. with advertisers spending several hundred dollars annually per consumer in the U. This approach is needed because consumers are bombarded with a continuous stream of advertising. It also is useful for monitoring sales results over time and comparing them to those of products having a similar life cycle." Not long thereafter. For example. Information Overload Ries and Trout explain that while positioning begins with a product. The consumer's mind reacts to this high volume of advertising by accepting only what is consistent with prior knowledge or experience. Getting Into the Mind of the Consumer . thus precipitating a further decline. and regular use of the term dates back to 1972 when Ries and Trout published a series of articles in Advertising Age called "The Positioning Era. It is quite difficult to change a consumer's impression once it is formed. the product life cycle concept helps marketing managers to plan alternate marketing strategies to address the challenges that their products are likely to face. if sales peak and then decline.fulfilling. Al Ries and Jack Trout describe how positioning is used as a communication tool to reach target customers in a crowded marketplace.S. the concept really is about positioning that product in the mind of the customer. Madison Avenue advertising executives began to develop positioning slogans for their clients and positioning became a key aspect of marketing communications. Positioning In their 1981 book. In an overcommunicated environment. Jack Trout published an article on positioning in 1969.

Now taste the German beer that's the most popular in Germany. Miller Lite was not the first light beer. 7-Up was able to establish itself in the mind of the consumer as a desirable alternative to the standard colas.The easiest way of getting into someone's mind is to be first." Consumers rank brands in their minds. but it was the first to be positioned as a light beer. which was No. it began using the line. especially in the short-term. it can be nearly impossible to displace the leader. all is not lost for products that are not the first. "Avis in only No. which has twice the market share of number three. By being the first to claim a unique position in the mind the consumer. On the other hand. Finally. so why go with us? We try harder." After launching the campaign. and much more difficult to remember who is second. Rather. the number one brand has twice the market share of number two. a firm effectively can cut through the noise level of other products. complete with a name to support that position. That is. consumers finally were able to relate Avis to Hertz. 2 in rent-a-cars. Avis quickly became profitable. a firm usually can find a way to position itself in relation to the market leader so that it can increase its market share. 3 behind Coke and Pepsi. "You've tasted the German beer that's the most popular in America. but Beck's Beer successfully carved a unique position using the advertising. By relating itself to Coke and Pepsi as the "Uncola". Another example is that of the soft-drink 7-Up. pretending that the number one Hertz did not exist. Similarly. however. Even if the second entrant offers a better product. Ries and Trout argue that the success of a brand is not due to the high level of marketing . the first mover has a large advantage that can make up for other shortcomings. It is very easy to remember who is first. to challenge the leader head-on and try to displace it. It usually is a mistake. Positioning of a Leader Historically. the top three brands in a product category occupy market share in a ratio of 4:2:1. Avis tried unsuccessfully for years to win customers. Lowenbrau was the most popular German beer sold in America. However. A campaign that pretends that the market leader does not exist is likely to fail. which was number one in their minds. For example. Whether Avis actually tried harder was not particularly relevant to their success. then to be successful it somehow must relate itself to the number one brand. When there is a clear market leader in the mind of the consumer. If a brand is not number one.

This is a typical pattern of changing Name 1 to an expanded Name 1 . Ries and Trout emphasize what it should not do. unchanging position in the mind of the consumer. The company might have been able to maintain its leadership position had it used its resources to form an airline division. then the advertising campaign should reinforce this fact. change is inevitable and a leader must be willing to embrace change rather than resist it. However. The power of the company comes from the power of its brand. IBM failed when it tried to compete with Xerox in the copier market. but rather. a successful firm should consider entering the new market so that it will have the first-mover advantage in it. For example. and Coca-Cola failed in its effort to use Mr. Haloid changed its name to Haloid Xerox and later to simply Xerox. If a firm was the first to introduce a product. and that is boast about being number one. When new technology opens the possibility of a new market that may threaten the existing one. With this point in mind. Pibb to take on Dr. They use the case of Xerox to make this point. For example. and later to just Name 2.acumen of the company itself. Similarly. Sometimes it is necessary to adopt a broader name in order to adapt to change. Xerox was the first plain-paper copier and was able to sustain its leadership position. and implies that other colas are just imitations. it is due to the fact that the company was first in the product category. Pepper. These examples support the point that the success of a brand usually is due to its being first in the market rather than the marketing abilities of the company. not the other way around. Positioning of a Follower . First. then customers will think that the firm is insecure in its position if it must reinforce it by saying so. Ries and Trout call this strategy a single-position strategy because each brand occupies a single. in the past century the New York Central Railroad lost its leadership as air travel became possible.Name 2. Another strategy that a leader can follow to maintain its position is the multibrand strategy. This strategy is to introduce multiple brands rather than changing existing ones that hold leadership positions. It often is easier and cheaper to introduce a new brand rather than change the positioning of an existing brand. Coca-Cola's "the real thing" does just that. If a firm does so. Finally. time after time the company failed in other product categories in which it was not first. there are certain things that a market leader should do to maintain the leadership position.

Pringle's quickly lost market share. most likely as a consequence of their thinking . Repositioning the Competition Sometimes there are no unique positions to carve out. Russia. If a product is not going to be first. but they were the first to claim that position in the mind of the consumer. Volkswagen introduced the Beetle with the slogan "Think small. At a time when larger cars were popular. they quickly gained market share. In such cases." As a resulting of this advertising. Vegetable oil. Consumers tend to perceive the origin of a product by its name rather than reading the label to find out where it really is made."the one beer to have when you're having more than one. Other positions that firms successfully have claimed include: • • • • • • age (Geritol) high price (Mobil 1 synthetic engine lubricant) gender (Virginia Slims) time of day (Nyquil night-time cold remedy) place of distribution (L'eggs in supermarkets) quantity (Schaefer . However.S. and that Stolichnaya was made in Leningrad. contained only "Potatoes. When Pringle's new-fangled potato chips were introduced. with consumers complaining that Pringle's tasted like cardboard.Second-place companies often are late because they have chosen to spend valuable time improving their product before launching it.") It most likely is a mistake to build a brand by trying to appeal to everyone. Ries and Trout suggest repositioning a competitor by convincing consumers to view the competitor in a different way. Salt.S. Such was the case with vodka when most vodka brands sold in the U." Volkswagen was not the first small car. Stolichnaya Russian vodka successfully repositioned its Russian-sounding competitors by exposing the fact that they all actually were made in the U. A product that seeks to be everything to everyone will end up being nothing to everyone. Wise potato chips successfully repositioned Pringle's in the mind of consumers by listing some of Pringle's non-natural ingredients that sounded like harsh chemicals. According to Ries and Trout.. it then must find an unoccupied position in which it can be first. Wise potato chips of course. There are too many brands that already have claimed a position and have become entrenched leaders in their positions. but had Russian names. Tylenol successfully repositioned aspirin by running advertisements explaining the negative side effects of aspirin.S. were made in the U. even though they were not. it is better to be first and establish leadership.

one supplier began calling it "corn sugar". Close-Up for a toothpaste. To improve the perceptions of corn syrup. In their opinion. it is necessary to have a memorable name that conjures up images that help to position the product.about all those unnatural ingredients. Ries and Trout argue that is usually is a lost cause to try to bring a brand back into favor once it has gained a bad image. positioning it as an alternative to cane sugar or beet sugar. The problem is that it sounds artificial and hides the true origin of the product. Ries and Trout propose that "soy butter" would have been a much better name for positioning the product as an alternative to the more common type of butter that is made from milk. Repositioning a competitor is different from comparative advertising. which is viewed by consumers as an inferior alternative to sugar. in which case the name is not so important. In the past. Comparative advertising seeks to convince the consumer that one brand is simply better than another. not just products. While some people might see soy in a negative light. Another everyday is example is that of corn syrup. While it is more difficult to protect a generic name under trademark law. One study showed that on average. Head & Shoulders for a shampoo. These days. People for a gossip magazine. Consumers are not likely to be receptive to such a tactic. . For example. a company could name a product just about anything. the Clean Air Act has a name that is difficult to oppose. Names like DieHard for a battery. Even a person's name impacts his or her success in life. Ries and Trout favor descriptive names rather than coined ones like Kodak or Xerox. Margarine is a name that does not very well position the product it is describing. as do "fair trade" laws. schoolteachers grade essays written by children with names like David and Michael a full letter grade higher than those written by children with names like Hubert and Elmer. however. Ries and Trout believe that in the long run it is worth the effort and risk. a promotional campaign could be developed to emphasize a sort of "pride of origin" for soy butter. The Power of a Name A brand's name is perhaps the most important factor affecting perceptions of it. before there was a wide range of brands available. coined names may be appropriate for new products in which a company is first to market with a soughtafter product. Ries and Trout propose that selecting the right name is important for positioning just about anything. and that in such situations it is better to introduce an entirely new brand.

Eastern Airlines was an example of a company limited by its name.F. even though it served a much wider area. Air travel passengers always viewed it as a regional airline that served the eastern U. not by spellings. and Goodyear frequently received credit by consumers for tire products that B.) Other companies have changed their names to something more general. it is only after they become famous that they begin using their initials. Inc. The reason that initials do not lead to recognition is that the human mind works by sounds. Ries and Trout advise managers who aspire for name recognition to use an actual name rather then first and middle initials. The No-Name Trap People tend use abbreviations when they have fewer syllables than the original term.F. Ries and Trout advise companies seeking more general names to select a shorter name made of words. Ries and Trout argue that such changes usually are unwise. and as a result create confusion with other similar-sounding companies. their original names became limiting. As the successful firms grew in to conglomerates. for Trans World Airlines. The same applies to people's names as well. IBM instead of International Business Machines.S. Goodrich with Goodyear. When they hear "GM". GE is often used instead of General Electric.. While some famous people are known by their initials (such as FDR and JFK). and the name of the company usually reflected that product. including the west coast. and The Continental Corporation. However. they favored truncating it simply to Trans World instead removing all words and using the letters TWA. Airlines such as American and United did not have such a perception problem. many corporations have changed their legal names to a series of two or three letters. (Eastern Airlines ceased operations in 1991. not individual letters. Most people don't know the types of business in which companies named USM or AMP are engaged. Few people confidently can say which makes cans and which sells insurance. In order to make their company names more general and easier to say. they think "General Motors". For example. lesser known companies tend to lose their identity when they use such abbreviations.) Another problem that some companies face is confusion with another company that has a similar name. The Goodyear blimp had made Goodyear tires well-known.F. Consumers frequently confused the tire manufacturer B. Take for instance The Continental Group. (B. Goodrich eventually sold its tire business to Uniroyal. Most companies began selling a single product. Goodrich has pioneered. . Companies having a broad recognition may be able to use the abbreviated names and consumers will make the translation in their minds.

or the original successful product loses market share as a result of its position being weakened by a diluted brand name.The Free-Ride Trap A company introducing a new product often is tempted to use the brand name of an existing product. Ries and Trout propose that anonymity is not so bad. it will have the advantage of being seen without any previous bias. consumers viewed Alka-Seltzer Plus simply as a better Alka-Seltzer. not from the market share of the competition. and the Life Savers chewing gum brand failed. carefully positioning the product in a different part of the consumer's mind. once under the spotlight the carefully designed positioning can be communicated exactly as intended. the product will not have a second chance to be fresh and new. the brand name is synonymous with the hard round candy that has a hole in the middle. it is a resource. To consumers. This use of the Life Savers name was not consistent with the consumer's view of it. The company later introduced the first brand of soft bubble gum and gave it a new name: Bubble Yum. For example. Nonetheless. and the sales of Alka-Seltzer Plus came at the expense of AlkaSeltzer. avoiding the need to build the brand from scratch. The consistent pattern in these cases is that either the new product does not succeed. This product was very successful because it not only had a name different from the hard candy. if the brand name has become near generic so that consumers consider the name and the product to be one and the same. it also had the the advantage of being the first soft bubble gum. In fact. Others. in fact. . When the product eventually catches the attention of the media. However. the company introduced a Life Savers chewing gum. some companies do not want their new products to be anonymous with an unrecognized name. and if a firm prepares for this event well. Ries and Trout cite many examples of failures due to line extensions. Ries and Trout generally do not believe that a line extension is a good idea. either the new product will not be successful or the original product bearing the name will lose its leadership position. Ries and Trout maintain that a single brand name cannot hold multiple positions. Ries and Trout do not favor this strategy since the original name already in positioned in the consumer's mind. The Line Extension Trap Line extensions are tempting for companies as a way to leverage an existing popular brand. This moment of fame is a one-shot event and once it has passed. However. Nonetheless. such as Procter & Gamble have selected new names for each new product. Alka-Seltzer named a new product Alka-Seltzer Plus. Consider the case of Life Savers candy. Some firms have built a wide range of products on a single brand name.

if there is no unique position that the product can occupy. it might make sense to use the house name. countries. Positioning Has Broad Applications The concept of positioning applies to products in the broadest sense. For example.an undifferentiated commodity product has less need of its own name than does a breakthrough product. There are at least three perspectives from which to view brand equity: • Financial . Brand Equity A brand is a name or symbol used to identify the source of a product. .if the sales volume is not expected to be high. Small ad budget . When developing a new product. and even careers can benefit from a welldeveloped positioning strategy that focuses on a niche that is unoccupied in the mind of the consumer or decision-maker. there are some cases in which it is not economically feasible to create a new brand and in which a line extension might work. this premium provides important information about the value of the brand. Commodity product . if consumers are willing to pay $100 more for a branded television over the same unbranded television. What is Brand Equity? Brand equity is an intangible asset that depends on associations made by the consumer. Crowded market . Distribution by sales reps . branding is an important decision. The brand can add significant value when it is well recognized and has positive associations in the mind of the consumer.One way to measure brand equity is to determine the price premium that a brand commands over a generic product.When Line Extensions Can Work Despite the disadvantages of line extensions. Some of the cases provided by Ries and Trout include: • • • • • Low volume product . This concept is referred to as brand equity.without strong advertising support. Those sold on store shelves benefit more from their own name.products distributed through reps may not need a separate brand name. Services. However. tourist destinations. expenses such as promotional costs must be taken into account when using this method to measure brand equity.

appropriate brand extensions can enhance the core brand. 3.the brand should carry a consistent image over time to reinforce its place in the consumer's mind and develop a special relationship with the consumer. the value of brand extensions is more difficult to quantify than are direct financial measures of brand equity. and a lower risk from the perspective of the consumer. Some brands acquire a bad reputation that results in negative brand equity. Brand extensions can further fortify the brand. Negative brand equity can be measured by surveys in which consumers indicate that a discount is needed to purchase the brand over a generic product.A strong brand increases the consumer's attitude strength toward the product associated with the brand. However. that is. and eventually. Introduction . Fortification . reducing promotional costs. Managing Brand Equity. Building and Managing Brand Equity In his 1989 paper.A successful brand can be used as a platform to launch related products. Farquhar outlined the following three stages that are required in order to build a strong brand: 1. Peter H. There should be accessible brand attitude. the consumer should easily remember his or her positive evaluation of the brand.• • Brand extensions . and allowing premium pricing. The consumer's awareness and associations lead to perceived quality. Increases cash flow by increasing market share. The benefits of brand extensions are the leveraging of existing brand awareness thus reducing advertising expenditures. Alternative Means to Brand Equity .make the brand easy to remember and develop repeat usage. A positive evaluation by the consumer is important. Elaboration . Attitude strength is built by experience with a product. inferred attributes. However. This importance of actual experience by the customer implies that trial samples are more effective than advertising in the early stages of building a strong brand. brand equity is not always positive in value. brand loyalty. 2. but only with related products having a perceived fit in the mind of the consumer. Strong brand equity provides the following benefits: • • • Facilitates a more predictable income stream. Brand equity is an asset that can be sold or leased.introduce a quality product with the strategy of using the brand as a platform from which to launch future products. Furthermore. Consumer-based .

Multi-brand categories . These strategies are: • • • • Single brand identity . Family of names . In some cases. Nestle uses Nescafe.Different brands having a common name stem. Protecting Brand Equity The marketing mix should focus on building and protecting brand equity. Nesquik. and Nestea for beverages. For example. brand equity can be borrowed by extending the brand name to a line of products in the same product category or even to other categories. if the brand is positioned as a premium product. Bold. Extensions also should be avoided if the core brand is not yet sufficiently strong. . Managing Multiple Brands Different companies have opted for different brand strategies for multiple products. Brand equity is an important factor in multi-product branding strategies.Building brand equity requires a significant effort. the extensions are unsuccessful and can dilute the original brand equity. As in line extensions by the same company.a separate brand for each product. potentially dilutive extensions that are inconsistent with the consumer's perception of the brand should be avoided. In other cases. the product quality should be consistent with what consumers expect of the brand. especially when there is a perceptual connection between the products. Finally. For example. Sony offers many different product categories under its brand. such extensions are successful. Cheer. Brand equity also can be "bought" by licensing the use of a strong brand for a new product. For example. etc. Umbrella . low sale prices should not be used compete.Different brands for different product categories. and V8 for juices. Pepperidge Farm for baked goods. the success of brand licensing is not guaranteed and must be analyzed carefully for appropriateness. and some companies use alternative means of achieving the benefits of a strong brand. For example. the distribution channels should be consistent with what is expected of a premium brand. and the promotional campaign should build consistent associations. Campbell Soup Company uses Campbell's for soups.all products under the same brand. in laundry detergents Procter & Gamble offers uniquely positioned brands such as Tide.

Make marketing mix decisions . pricing will depend on other product. targeting. Marketing Strategy and the Marketing Mix Before the product is developed. Determine pricing . or price stabilization (status quo).Pricing Strategy One of the four major elements of the marketing mix is price. the following is a general sequence of steps that might be followed for developing the pricing of a new product: 1.using information collected in the above steps. and define discounts. develop the pricing structure. 6. 7. distribution. While there is no single recipe to determine pricing. Set pricing objectives . etc. pricing affects other marketing mix elements such as product features. understand legal constraints. Pricing is an important strategic issue because it is related to product positioning. 4. Calculate cost . Estimate the demand curve . and promotional tactics. the above list serves to present a starting framework. so price is an important variable in positioning. revenue maximization. profit maximization.for example. segmentation. Because of inherent tradeoffs between marketing mix elements. the marketing strategy is formulated. channel decisions. Develop marketing strategy . it is important to understand the impact of pricing on sales by estimating the demand curve for the product. Understand environmental factors . and promotion. Nonetheless. Estimate the Demand Curve Because there is a relationship between price and quantity demanded. including target market selection and product positioning.understand how quantity demanded varies with price. 3. Furthermore. 5. . select a pricing method.evaluate likely competitor actions. distribution.perform marketing analysis. and positioning. 2. There usually is a tradeoff between product quality and price.include fixed and variable costs associated with the product. These steps are interrelated and are not necessarily performed in the above order.define the product. and promotion decisions.

From a legal standpoint. there likely is at least a basic understanding of the costs involved. the firm must consider the implications of its pricing on the pricing decisions of competitors. Offering a different price for different consumers may violate laws against price discrimination.seeks to maximize current revenue with no regard to profit margins. For example.seeks to maximize the number of units sold or the number of customers served in order to decrease long-term costs as predicted by the experience curve. Environmental Factors Pricing must take into account the competitive and legal environment in which the company operates. Finally. Setting the price too high may attract a large number of competitors who want to share in the profits. taking into account revenue and costs. Common objectives include the following: • • • Current profit maximization .seeks to maximize current profit. and determines the profit margin at higher prices. there might be no profit to be made. The unit cost of the product sets the lower limit of what the firm might charge. Pricing Objectives The firm's pricing objectives must be identified in order to determine the optimal pricing. collusion with competitors to fix prices at an agreed level is illegal in many countries. . setting the price too low may risk a price war that may not be in the best interest of either side.For existing products. Current profit maximization may not be the best objective if it results in lower long-term profits. otherwise. Maximize quantity . The underlying objective often is to maximize long-term profits by increasing market share and lowering costs. Current revenue maximization . there may be price controls that prohibit pricing a product too high. The pricing policy should consider both types of costs. Calculate Costs If the firm has decided to launch the product. a firm is not free to price its products at any level it chooses. Pricing it too low may be considered predatory pricing or "dumping" in the case of international trade. For example. Inelastic demand indicates that price increases might be feasible. From a competitive standpoint. experiments can be performed at prices above and below the current price in order to determine the price elasticity of demand. The total unit cost of a producing a product is composed of the variable cost of producing each additional unit and fixed costs that are incurred regardless of the quantity produced.

the goal may be to select a price that will cover costs and permit the firm to remain in the market.• • • • • Maximize profit margin . It is most appropriate when: • • • • Demand is expected to be highly elastic. Survival . so this objective is considered temporary. As the product lifecycle progresses. survival may take a priority over profits. that is. There is a threat of impending competition.use price to signal high quality in an attempt to position the product as the quality leader.an organization that has other revenue sources may seek only partial cost recovery. Large cost savings are not expected at high volumes. there likely will be changes in the demand curve and costs. the customers are not highly price sensitive. Large decreases in cost are expected as cumulative volume increases. Skimming is a strategy used to pursue the objective of profit margin maximization. Joel Dean discussed these pricing policies in his classic HBR article entitled. Quality leadership . Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and selling to those customers who are less price sensitive.the firm may seek price stabilization in order to avoid price wars and maintain a moderate but stable level of profit. For new products. To meet these objectives. . Partial cost recovery . customers are price sensitive and the quantity demanded will increase significantly as price declines. Status quo . the pricing objective often is either to maximize profit margin or to maximize quantity (market share). Pricing Policies for New Products. As such. that is. or it is difficult to predict the cost savings that would be achieved at high volume. skim pricing and penetration pricing strategies often are employed. The product is of the nature of something that can gain mass appeal fairly quickly. Skimming is most appropriate when: • • • Demand is expected to be relatively inelastic. Penetration pricing pursues the objective of quantity maximization by means of a low price. The company does not have the resources to finance the large capital expenditures necessary for high volume production with initially low profit margins. In this case.attempts to maximize the unit profit margin. the pricing policy should be reevaluated over time.in situations such as market decline and overcapacity. recognizing that quantities will be low.

the firm's resources. An example would be a DVD manufacturer offering different DVD recorders with different features at different prices eg A HD and non HD version. Types of Pricing Strategies An organisation can adopt a number of pricing strategies. Premium pricing: The price set is high to reflect the exclusiveness of the product. . The reason why this methods work. Porsche etc.The pricing objective depends on many factors including production cost. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximising turnover and profits. existence of economies of scale. even thought it was a pound or dollar away. first class airline services. is because buyers will still say they purchased their product under £200 pounds or dollars. barriers to entry. My favourite pricing strategy. Bundle Pricing: The organisation bundles a group of products at a reduced price. The pricing strategies are based much on what objectives the company has set itself to achieve. and the product's anticipated price elasticity of demand. Really a firm has three options and these are to price lower. product differentiation. Competition pricing: Setting a price in comparison with competitors. The seller will therefore charge 99p instead £1 or $199 instead of $200. Within the UK some firms are now moving into the realms of buy one get two free can we call this BOGTF i wonder? Psychological pricing: The seller here will consider the psychology of price and the positioning of price within the market place. rate of product diffusion. Once market share has been captured the firm may well then increase their price. An example of products using this strategy would be Harrods. price the same or price higher. Skimming pricing: The organisation sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer. Common methods are buy one and get one free promotions or BOGOF's as they are now known. Product Line Pricing: Pricing different products within the same product range at different price points. Penetration pricing: Here the organisation sets a low price to increase sales and market share..

This strategy is used commonly within the car industry as i found out when purchasing my car. they then decide on a mark up which they would like for profit to come to their final pricing decision. managers may make use of several pricing methods. This model offers stability to both the supplier and the customer since it reduces the large swings in software investment cycles. Afterwards.Optional pricing: The organisation sells optional extras along with the product to maximise its turnover. For example it may cost £100 to produce a widget and the firm add 20% as a profit margin so the selling price would be £120.set the price at the production cost plus a certain profit margin. In addition to setting the price level. Target return pricing . For example.base the price on factors such as signals of product quality. Price Discounts The normally quoted price to end users is known as the list price. such as one year.set the price to achieve a target return-oninvestment. Psychological pricing . Cost Based Pricing: The firms takes into account the cost of production and distribution.00 Pricing Methods To set the specific price level that achieves their pricing objectives. and what the consumer perceives to be fair. These methods include: • • • • Cost-plus pricing . There are several types of discounts.base the price on the effective value to the customer relative to alternative products. Many software suppliers have changed their pricing to a subscription model in which the customer subscribes for a set period of time. as outlined below. This price usually is discounted for distribution channel members and some end users. popular price points. . • Quantity discount . Value-based pricing . Cost Plus Pricing: Here the firm add a percentage to costs as profit margin to come to their final pricing decisions. the subscription must be renewed or the software no longer will function. managers have the opportunity to design innovative pricing models that better meet the needs of both the firm and its customers.offered to customers who purchase in large quantities. software traditionally was purchased as a product in which customers made a one-time payment and then owned a perpetual license to the software.

stresses that a strategist should focus on three key factors for success. Ohmae refers to these key factors as the three C's or the strategic triangle. such as pricing offered by long distance and wireless service providers. Promotional discount . In the construction of any business strategy. Such discounts do not have to be based on time of the year. The competition. 2. Corporate. Seasonal discount .a functional discount offered to channel members for performing their roles. they also can be based on day of the week or time of the day.extended to customers who pay their bill before a specified date. For example. a sustained competitive advantage can exist. a trade discount may be offered to a small retailer who may not purchase in quantity but nonetheless performs the important retail function. For example. The Strategic triangle Only by integrating the three C's (Customer.based on the time that the purchase is made and designed to reduce seasonal variation in sales. 3Cs model (Ohmae) Three key factors to create a successful business strategy.• • • • • Cumulative quantity discount . and Competitor) in a strategic triangle.a discount that increases as the cumulative quantity increases. a famous Japanese strategy guru. The customer.a short-term discounted price offered to stimulate sales. Trade discount . the travel industry offers much lower off-season rates. Explanation of 3C's Model of Ohmae The 3C's model of Kenichi Ohmae. Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders. Cash discount . 3. 1: Corporate-based strategies These strategies aim to maximize the corporation's strengths relative to the competition in the functional areas that are critical to achieve success in the industry: . The corporation itself. three main players must be taken into account: 1.

the corporation that is genuinely interested in its customers will be interesting for its investors. If its competitors are unable to shift production so rapidly to subcontractors and vendors. 2: Customer-based strategies Clients are the basis of any strategy according to Ohmae. The corporation does not have to lead in every function to win. If it can gain a decisive edge in one key function. Experience indicates that there are many situations in which sharing resources in one or more basic sub-functions of marketing can be advantageous. Here. 3. There appears always to be a point of diminishing returns in the cost-versus-coverage relationship. In the long run.  The functions that are performed. There is no doubt that a corporation's foremost concern ought to be the interests of its customers rather than that of its stockholders and other parties. Some people drink it for waking up or staying alert. A case of make or buy. In case of rapidly rising wage costs. so that when other operations are eliminated. it becomes a critical decision for a company to subcontract a major share of its assembly operations. This type of strategic segmentation normally emerges from a trade-off study of marketing costs versus market coverage. while others view coffee as a way to relax or socialize (coffee breaks). To share a certain key function with the corporation's other businesses or even with other companies. This can be done in three basic ways: 1. Segmentation is advisable: • • Segmenting by objectives. . Simply to exercise greater selectivity in terms of:  The orders that are accepted. the differentiation is done in terms of the different ways that different customers use the product. for example. The corporation's task. Segmenting by customer coverage. Be it geographical or channel. the resulting difference in cost structure and/or in the company's ability to cope with demand fluctuations may have significant strategic implications. So that its cost of marketing will be advantageous relative to the competition. functional costs will drop faster than sales revenues. This means cherry-picking operations with a high impact.  The products that are offered. Improving cost-effectiveness.• • • Selectivity and sequencing. therefore. Reducing basic costs much more effectively than the competition. it will eventually be able to improve its other functions which are now mediocre. is to optimize its range of market coverage. Take coffee. 2.

This hurts the company with a higher fixed cost ratio. Because a company with a lower fixed cost ratio can lower prices in a sluggish market. therefore the effectiveness of a given initial strategic segmentation will tend to decline. The market price is too low to justify its high fixed cost and low volume operation. a difference in the ratio of fixed cost and variable cost might also be exploited strategically. It could however calculate its incentives on a gradual percentage basis. profit from services etcetera. their profitability would soon be eroded. This kind of change means that the allocation of corporate resources must be shifted and/or the absolute level of resources committed in the business must be changed. Both Sony and Honda sell more than their competitors as they invested more heavily in public relations and advertising.and cost-structure differences. In such a situation it is useful to pick a small group of key customers and reexamine what it is that they are really looking for. Of course. the corporation and its head-on competitors are likely to be dissecting the market in similar ways.• Segmenting the market once more. Capitalizing on profit. . distribution channels. In this way it can win market share. the difference in source of profit might be exploited. thus making the incentives variable by guaranteeing the dealer a larger percentage of each extra unit sold. If such a company chooses to compete in massmedia advertising or massive R&D efforts. the additional fixed costs will absorb a large portion of its revenue. When product performance and mode of distribution are very difficult to differentiate. image may be the only source of positive differentiation. etc. Over an extended period of time. Tactics for flyweights. But the case of the Swiss watch industry shows that a strategy built on image can be risky and must be monitored constantly. Its giant competitors will inevitably win. customer size. the big three market players cannot afford to offer such high percentages across the board to their respective franchised shops. sales and servicing. Secondly. 3: Competitor-based strategies According to Kenichi Ohmae. And they managed these functions more carefully than did their competitors. design. Firstly. In a fiercely competitive market. Changes in customer mix: Such a market segment change occurs where the market forces are altering the distribution of the user-mix over time by influencing demography. Ways to do this: • • • The power of an image. these strategies can be constructed by looking at possible sources of differentiation in functions such as: purchasing. rather than on absolute volume. engineering. For profit from new product sales.

A favorite phrase of Japanese business planners is hito-kanemono. or people. in more routine purchases. The corporation should first allocate management talent. It forces the marketer to consider the whole buying process rather than just the purchase decision (when it may be too late for a business to influence the choice!) The model implies that customers pass through all stages in every purchase. based on the available mono: plant. skipping information search and evaluation. machinery. . Once these hito have developed creative and imaginative ideas to capture the business's upward potential. Cosumer Behaviour: Research suggests that customers go through a five-stage decision-making process in any purchase. technology. a student buying a favourite hamburger would recognise the need (hunger) and go right to the purchase decision. They believe that streamlined corporate management is achieved when these three critical resources are in balance without any surplus or waste. money. For example. should be allocated to the specific ideas and programs generated by individual managers. and functional strengths. However.Hito-Kane-Mono. and things (fixed assets). For example: cash over and beyond what competent people can intelligently expend is wasted. Too many managers without enough money will exhaust their energies and involve their colleagues in a time-wasting warfare over the allocation of the limited funds. This is summarised in the diagram below: This model is important for anyone making marketing decisions. or money. customers often skip or reverse some of the stages. However. the kane. the model is very useful when it comes to understanding any purchase that requires some thought and deliberation. funds should be allocated last. Of the three critical resources. process know-how.

buying a soft drink. the buyer recognises a problem or need (e. Low involvement purchases (e. choosing some breakfast cereals in the supermarket) have very simple evaluation processes. we need a new sofa. Why should a marketer need to understand the customer evaluation process? . the customer must choose between the alternative brands.g. then the process of information search begins.The buying process starts with need recognition. An “aroused” customer then needs to decide how much information (if any) is required. then a purchase decision is likely to be made there and then. I am hungry.g. Where a purchase is “highly involving”. point-of-sale displays • Public sources: newspapers. radio. consumer organisations. High-involvement purchases include those involving high expenditure or personal risk – for example buying a house. television. In the evaluation stage. A customer can obtain information from several sources: • Personal sources: family. Research suggests that customers value and respect personal sources more than commercial sources (the influence of “word of mouth”). retailers. examining. we mean the degree of perceived relevance and personal importance that accompanies the choice. friends. By involvement. the customer is likely to carry out extensive evaluation. you pass Starbucks and are attracted by the aroma of coffee and chocolate muffins). If not. If the need is strong and there is a product or service that meets the need close to hand. At this stage. specialist magazines • Experiential sources: handling. products and services. How does the customer use the information obtained? An important determinant of the extent of evaluation is whether the customer feels “involved” in the product. dealers. salespeople. The challenge for the marketing team is to identify which information sources are most influential in their target markets. neighbours etc • Commercial sources: advertising. I have a headache) or responds to a marketing stimulus (e. using the product The usefulness and influence of these sources of information will vary by product and by customer. a car or making investments.g. packaging.

For example. Post-purchase evaluation . The sales force may need to stress the important attributes of the product. Loss Leader Pricing Strategies What it is: Low pricing (often pricing at cost or below cost) on a product or number of products to bring customers to the storefront (physical or digital). The pricing strategy assumption is that while the customer is in the store to buy the very low-priced product. This arises from a concept that is known as “cognitive dissonance”. In these circumstances that customer will not repurchase immediately. having bought a product. you might sell one of your mature or declining products (in your product life cycle) at a loss leader price and expect that customers will buy other products or services. you might offer a below cost price on the website banner design and then expect to receive a higher price for some of your other services. the customer should be encouraged that he or she has made the right decision.Cognitive Dissonance The final stage is the post-purchase evaluation of the decision. For a business-to-business product. The customer. the marketer needs to provide a good deal of information about the positive consequences of buying. may feel that an alternative would have been preferable. but is likely to switch brands next time. and maybe even encourage “trial” or “sampling” of the product in the hope of securing the sale. Then after having made a purchase. These customers often buy on price alone. if you are a graphic designer specializing in web site design. . In high-involvement decisions. To manage the post-purchase stage.The answer lies in the kind of information that the marketing team needs to provide customers in different buying situations. the advantages compared with the competition. it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs. It is common for customers to experience concerns after making a purchase decision. they will look around and will likely buy other products at regular or higher prices (you can make up the loss on the low pricing with higher pricing on other items). such as special interactive form design.

rice. Do not use this strategy if you are in the introductory or growth stages of your product's life-cycle. A loss leader is usually a product that customers purchase frequently— thus they are aware of its usual price and that a lower price is a bargain. fresh fruits.customers will expect that that low price is where that product should be priced and they will not want to buy at a higher price. POISE Profits (desire for) Offensive (stay) instead of defense Integrate (with other business functions) Strategic (be) Effective (be result oriented) Selling Vs Marketing: Many people mistakenly think that selling and marketing are the same .). This strategy can also be used if you have high inventory of a product that you want to move quickly.)or will be discontinuing the product.g. Loss leaders are often scarce. Characteristics of loss leaders • • • • • A loss leader may be placed in an inconvenient part of the store. so that purchasers must walk past other goods which have higher profit margins. to discourage stockpiling. You might already know that the marketing process is broad and includes all of the following: . The retailer will often limit how much a customer can buy. and other inexpensive items that grocers wouldn't want to sell without other purchases.at least don't do this unless you have made it very clear in all of your promotional efforts that this is a very special low price (because you have excess inventory. The seller must use this technique regularly if he expects his customers to come back. and thus can't be stockpiled Some examples of typical loss leaders include milk. the product has a short shelf life (e. etc.they aren't. etc. Some loss leader items are perishable. vegetables. or it's a seasonal product. eggs. When NOT to use it: Do not use this strategy if the product will go dramatically up in price next week or next month . Why: because by selling at a low price you are setting a new low expectation .Why and When to use it: Use this strategy when you have products in the mature or declining stage of their product life cycle and when you want to stimulate a renewed interest in that product.

that is already being offered by the company. Selling is one activity of the entire marketing process. 2. Oftentimes. Selling is the act of persuading or influencing a customer to buy (actually exchange something of value for) a product or service. When viewed through the marketing concept lens. One approach is not always right and the other always wrong . 5. Pricing the product correctly. they are usually the most significant force in stimulating sales. they aren't rewarded for spending time listening to the customer's desires unless they have a product to match their desires that will result in a sale.it depends upon the particular situation. There is a need for both selling and marketing approaches in different situations. In the sales approach. however. Two-way communication (sometimes between a salesperson and a customer) is emphasized in marketing so learning can take place and product offerings can be improved. more listening to and eventual accommodation of the target market occurs. sometimes has the ability to individualize components of a sale. or a variation on it. Furthermore. on the other hand. however. oftentimes they use the marketing concept instead. In a marketing approach. Selling and delivering the product into the hands of the customer. A salesperson using the sales concept. businesses must first and foremost . 4. Contrasting the Sales Concept with the Marketing Concept The concepts surrounding both selling and marketing also differ. not much time is spent learning what the customer's ideal product would be because the salesperson has little say in seeing that their company's product is modified.1. Actually. to pave the way for future sales and referrals. but the emphasis is ordinarily upon helping the customer determine if they want the product. Marketing activities support sales efforts. marketing activities (like the production of marketing materials and catchy packaging) must occur before a sale can be made. Discovering what product. Producing a product with the appropriate features and quality. they sometimes follow the sale as well. service or idea customers want. that sales people aren't restricted to the use of the sales concept.) At the heart of the sales concept is the desire to sell a product that the business has made as quickly as possible to fulfill sales volume objectives. 3. (Note. Promoting the product. spreading the word about why customers should buy it.

Effective Marketing: Gives something away that is valuable (i. Do you see the difference? The selling concept. Marketing is cost-effective because the advertising medium reaches a large number of people. Sandler Insight: Marketing is the role of identifying groups of people or companies that may be a fit with your product/service before person-to-person contact is made. Whereas marketing encompasses many research and promotional activities to discover what products are wanted and to make potential customers aware of them.fulfill consumers' wants and needs. print. research studies). Effective Selling: Uses questioning techniques to uncover compelling reasons to buy in 2-way interactions. instead of focusing on meeting consumer demand. new concepts. Effective Marketing: Causes the prospect to ask for more information. Effective Selling: Attempts to minimize the sales cycle and the number of follow-ups made with a single prospect. Effective Selling: Avoids “unpaid” consulting. Effective Marketing: Is more effective when repeated many times to a large prospective audience. There’s nothing wrong with educating customers! The problem arises when salespeople begin educatingprospects. tries to make consumer demand match the products it has produced. radio. Selling is the effort applied to those “possible fits” initiated by person-to-person contact… Effective Marketing: Targets many prospects at a time. The belief is that when those wants and needs are fulfilled. educate tomorrow. Effective Marketing: Provides generic concepts and solutions to a mass audience. Effective Selling: Causes the prospect to make a yes/no decision. Effective Marketing: Generates interest in a product/service with one-way communication (i.e. allowing the prospect to do most of the talking. a profit will be made. or TV). It becomes prohibitively . Effective Selling: Targets a single company or person. coupons.e. Effective Selling: Uncovers the unique benefits that will solve a particular customer’s problem. Sandler Rule: Sell today.

8 ‘Customer satisfaction’ is the primary 8 ‘Sales’ is the primary motive. all the people and all the time. It collection of payment.expensive if it only reaches a small number of prospects. motive. 12 Selling involves ‘push’ strategy. 1 Marketing starts with the buyer and 1 Selling starts with the seller and is focuses constantly on buyer’s needs.(Dr. price 6 Cost determines the price. 9 External market orientation.) Sameer Sharma. Monitor your sales calls and see if they are turning into marketing to a single prospect. 11 It is a broad composite and worldwide 11 It is a narrow concept related to product. satisfactions provided by the product 6 Consumers determine the price. Customer consciousness permeates the entire organization – all departments. ‘products’. 13 Marketing begins much before the 13 Selling comes after production and ends production of goods and services. 10 Marketing concept takes an outside in 10 Selling concept takes an inside-out perspective perspective. NOIDA. preoccupied all the time with the seller’s needs. continues even after the sale to ensure customer satisfaction through after sales services. business from the point of view of the customer. . 2 Seeks to convert “customer needs” into 2 Seeks to convert ‘products’ into “Cash”. globalisation. 7 Marketing views the customer as the very 7 Selling views the customer as the last link purpose of the business. No. Sales Marketing No. i. 4 Marketing effort leads to the products that 4 The company makes the product first and the customers actually want to buy in then figures out how to sell it and make a their own interest. 3 Views business as a customer satisfying 3 Views business as a goods producing process. 14 Marketing has a wider connotation and 14 Selling is a part of marketing. profit. with the delivery of the product and with identification of customers’ needs. 5 Marketing communication is looked upon 5 Seller’s motives dominate marketing as a tool for communicating the benefits/ communication (promotions). It sees the in the business. Amity University. determines costs. S. S. concept. process. more so in this era of seller and sales activity. 12 Marketing is more ‘pull’ than ‘push’.e. 9 Internal company orientation. DIFFERENCES BETWEEN MARKETING & SELLING Compiled by : Prof.

15 16 17 18 19 It over emphasizes “the exchange’ aspect. According to . product planning & development. It concerns itself primarily and truly with the ‘value satisfactions’ that should flow to the customer from the exchange. and Webster 1993. trade-offs between customer and competitor monitoring must necessarily be made" (Slater and Narver 1994. Conceptual and analytical skills are required.47). 20 Selling and required. without caring for the ‘value satisfactions’ inherent in the exchange. promotion. selling etc. Consequently. Lawton and Parasuraman 1980). It assumes: “Let the seller beware”. distribution. By combining these two important external variables. a four-cell market orientation matrix emerges as shown in Figure 1. The main job is to find the right products for your customers. leading to a specific market orientation profile. customers and competitors. FIGURE 1 Market Orientation Matrix Customer Focus High Competitor Focus Low High Low Strategically Integrated Marketing Warriors Customer Preoccupied Strategically Inept Customer Preoccupied Firms emphasizing customer-focused intelligence gathering activities at the expense of competitor information may be classified as "customer preoccupied. many researchers consider a customer-focus to be the most fundamental aspect of corporate culture (Deshpande. p. they do recognize that "because businesses have limited resources to generate market intelligence. pricing. The main job is to find the customers for your products. firms may frequently emphasize one external variable in their environmental monitoring at the expense of the other.15 16 17 18 19 20 includes many activities like marketing research. The mindset is “What is that we can make here or source from outside to satisfy the needs of the target customers”. conversational skills are THE MARKET ORIENTATION MATRIX Although Slater and Narver (1994a) found no main effect for customer versus competitor-focus on market performance. Farley. Marketing generally has a matrix type of organizational structure. The mindset is “Hook the customer”. It has a functional structure. It assumes: “Let the buyer beware”." Because the marketing concept promotes putting the interests of customers first.

customer needs are less well understood. Kim. Heiens / Market Orientation 3 reliance on either customer-focused or competitor-focused decision making can often lead to an incomplete business strategy. and use of both customer and competitor intelligence. Proposition 2: Increases in competitor-focus lead to increases in market share performance in stable and predictable markets. the emphasis is necessarily on competitors. due to the high cost of . 17). when market demand is predictable. however. it is important to focus on lead users because they may serve as reference points for later adopters (Von Hippel 1986). when markets are fragmented and buyer power is low. Strategically Integrated Firms characterized as strategically integrated assign equal emphasis to the collection. competitor-focused firms seek to identify their own strengths and weaknesses and to keep pace with or stay ahead of the rest of the field (Han." According to Slater and Narver (1994b). Day and Wensley (1988) suggest that "in dynamic markets with shifting mobility barriers. the lesser the degree of competitive hostility. A focus on both customers and competitors is important because a complete Academy of Marketing Science Review Volume 2000 No. Consequently. In addition. the first proposition is suggested. and Srivastava 1998). Marketing Warriors Borrowing from the famous warfare analogy proposed by Ries and Trout (1986). Moreover. According to Day and Wensley (1988. When markets are growing. dissemination. However. a competitor-focus entails gathering intelligence on three main questions: (1) Who are the competitors? (2) What technologies do they offer? and (3) Do they represent an attractive alternative from the perspective of the target customers? Using target rivals as a frame of reference. and firms should seek to remain sufficiently flexible to shift resources between customer and competitor emphasis as market conditions change in the short run.org/articles/heiens01-2000. firms with a predominant emphasis on competitors in their external market analyses have been labeled "marketing warriors. Proposition 1: Increases in customer-focus lead to increases in market share performance in growing markets.pdf Copyright © 2000 – Academy of Marketing Science. the competitive structure is concentrated and stable. so a customer emphasis should have a greater impact on performance (Slater and Narver 1994a). many competitors. leaving an organization handicapped by a reactive posture (Day and Wensley 1988). and highly segmented end-user markets. a customer-focus is mandatory" (p. Also. 2). According to Day and Wensley (1988). the greater the positive impact of competitor emphasis on performance (Slater and Narver 1994a). a customer emphasis is most important when the market is growing and when markets are fragmented and buyer power is low.amsreview. focusing primarily on either customers or competitors could lead to "a partial and biased picture of reality. p. Slater and Narver (1994a) suggest a balance between the two perspectives is most desirable. 1 Available: http://www." In examining the impact of customer versus competitor-focus. Slater and Narver (1994a) found little empirical support for the effectiveness of different relative emphases within a market orientation.Slater and Narver (1994a). and there are few powerful customers. As such.

Proposition 3: Increases in both customer-focus and competitor-focus lead to increases in market share performance and decreases in ROI." As such. Farley. Ruekert 1992. technological advantages. Innovations create the need rather than the customer being able to second-guess how new technology is going to develop. To compete. This approach is usually criticised because it often leads to unsuccessful products particularly in well-established markets. Businesses can develop new products based on either a marketing orientated approach or a product orientated approach. p. failure to develop an external market orientation may adversely effect business performance (Deshpande. rather than what the business thinks is right for the customer. Slater and Narver 1994a). especially products with a very high technological content. with many additional gadgets. Strategically Inept The external analysis is an integral part of strategic planning. and the establishment of core competencies. firms that fail to orient their strategic decision making to the market environment without any substantial internal strength may appropriately be labeled as "strategically inept. and Webster 1993. "a market orientation appears to provide a unifying focus for the efforts and projects of individuals and departments within the organization. such as pictures. A product orientated approach means the business develops products based on what it is good at making or doing. Yet." Proposition 4: Shifting resources from external monitoring to internal operations may lead to increases in ROI in stable and predictable markets. rather than what a customer wants. businesses need to be more sensitive to their customers needs otherwise they will lose sales to their rivals. A marketing orientated approach means a business reacts to what customers want. 13). On the other hand some products are argued to create a need or want in the customer. However. . video and Internet access. Jaworski and Kohli 1993. Most markets are moving towards a more market-orientated approach because customers have become more knowledgeable and require more variety and better quality.monitoring both customers and competitors. firms may still succeed by concentrating on internal operations. The decisions taken are based around information about customers’ needs and wants. in some cases. Most successful businesses take a market-orientated approach. these firms may sacrifice ROI for market share. According to Kohli and Jaworski (1990. Mobile phones have moved from being a business accessory to being a big consumer brand item.

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