CHAPTER I: Marketing in the Millennium Age

Objectives:

At the end of the chapter, the student shall be able to:

➢ Know the importance of marketing

➢ Identify the 10 entities involved in the scope of marketing
➢ Define the core concepts in marketing
➢ Identify the major marketing decisions
➢ Understand the new realities and trends in marketing

Importance of Marketing

Marketing is an important strategy to ensure the growth of your business. While your current
customers should always be your main priority, marketing efforts can help you expand this base. Little
efforts like social media posts and email campaigns can not on.ly engage existing consumers but spread
the word to new potential customers. In essence, marketing secures your business’s future through new
and old customer engagement.

It’s important for your business to engage its customers. Engaging involves furnishing your
customers with relevant information about your products and your business as well. Social media is one
of the best platforms where you can engage your customers. By engaging your customers, marketing
gives them a sense of belonging.

Marketing helps to build and maintain the company’s reputation. Your business’ reputation
is built when it effectively meets the expectations of its customers. The customers become proud to be
associated with your products.

Marketing Scope

The scope of marketing is determined by the marketing offering of an organization. Market

offering is a combination of goods, services, ideas, persons, places, information, etc. offered to a market
to satisfy specific needs and wants of people. It deals with the question, ‘what is marketed?’ According
to Philip Kotler, marketing people are involved with ten types of entities.
1. Goods

Physical goods constitute the major part of a country’s production and marketing effort. These
include all the consumer and producer goods, i.e., vegetables, fruits, soft drinks, cloth, bike, T.V., fridge,

machinery, etc. which are bought and sold in the market.

2. Services

As economies advance, a large proportion of their activities are focused on the production of
services. Services include the work of airlines, hotels, car rental firms, beauticians, software
programmers, management consultants, and so on.

3. Events

Marketers promote events. Events can be trade shows, company anniversaries, entertainment
award shows, local festivals, health camps, and so on.

4. Experiences

Marketers create experiences by offering a mix of both goods and services. A product is
promoted not only by communicating features but also by giving unique and interesting experiences to
customers.

5. Persons

Due to a rise in testimonial advertising, celebrity marketing has become a business. All popular
personalities such as film stars, TV artists, and sportspersons have agents and personal managers.

6. Places

Cities, states, regions, and countries compete to attract tourists. Today, states and countries are
also marketing places to factories, companies, new residents, real estate agents, banks and business
associations. Place marketers are largely real estate agents and builders. Tour and travel agencies also
induce people to visit various tourist and health resorts. It is also known as destination marketing.

7. Properties

Properties can be categorized as real properties or financial properties. Real property is the
ownership of real estates, whereas financial property relates to stocks and bonds. Properties are bought
and sold through marketing.

8. Organizations

Many organizations including social, political, religious, educational, etc. market themselves to
build up their reputation and to make people aware about their activities. The organization’s goodwill
promotes trust and reliability. The organization’s image also helps the companies in the smooth
introduction of new products.

9. Information

Information can be produced and marketed as a product. Educational institutions,

encyclopedias, non-fiction books, specialized magazines and newspapers market information. The
production, packaging, and distribution of information are a major industry. Media revolution and
increased literacy levels have widened the scope of information marketing.

10. Ideas

Ideas include platform or issues aimed at promoting a benefit for a customer. Certain ideas such
as ‘no smoking’, protection of railways property, pulse polio, etc. Target people are persuaded through
advertisements, street plays and other techniques to follow such ideas.

What is Marketed?

We all see around us various goods and services marketed, you will see hoardings,
advertisements on stores and everywhere. Marketers market 10 main types of entities: goods, services,
events, experiences, persons, places, properties, organizations, information, and ideas.

Core Concepts in Marketing

As Philip Kotler defines: “Marketing is social and managerial process by which individuals and
groups obtains what they needs and wants through creating and exchanging product and value with
other.” Analysis of this definition necessarily reveals some core concepts of marketing.
1. Need/Want/Demand

• Need – It is a state of deprivation of some basic satisfaction.

• Want – Desire for specific satisfier of need.
• Demand – Want for a specific product backed up by ability and willingness to buy.

Marketers cannot create needs. Needs preexists.

Marketers can influence wants. This is done in combination with societal influencers. Demand is
influenced by making product:

• Appropriate
• Attractive
• Approachable/Affordable
• Available easily

2. Products (Goods/Services/Place)

Product is anything that can satisfy need/want.

Product component:

• Physical Good • Service • Idea

Importance of product lies in: Owning them (minor); Obtaining them (major). Hence, products
are really a via-media for services. Hence, in marketing, the focus is on providing/satisfying service
rather than providing products.

3. Value/Cost/Satisfaction

• Value – The product’s capacity to satisfy needs/wants as per consumer’s perception or

estimation.
• Cost – Price of each product.
 • Satisfaction – Satisfaction means fulfillment of needs. Satisfaction is possible when buyer
perceives that product has more value compared to the cost paid for.

4. Exchange/Transaction

Exchange – The act/process of obtaining a desired product from someone by offering something in
return. For exchange potential to exist, the following conditions must be fulfilled.

• There must be at least two parties.

• Each party has something of value for other parties.
• Each party is capable of communication & delivery
• Each party is free to accept/reject the exchange offer.
• Each party believes it is appropriate to deal with the other party.

Transaction – Event that happens at the end of an exchange. Exchange is a process towards an
agreement. When an agreement is reached, we say a transaction has taken place.

• Barter transaction.
• Monetary Transaction.

o At least two things of value. o Condition agreed upon. o

Time of agreement. o Place of agreement.
o May have a legal system for compliance.

Proof of transaction is Bill/ Invoice.

Transfer – It is one way. Hence, differ from Transaction.

Negotiation – Process of trying to arrive at mutually agreeable terms.

Negotiation may lead to

• Transaction
• The decision not to Transaction

5. Relationship/ Networking

Relationship marketing – It’s a pattern of building long term satisfying relationship with customers,
suppliers, and distributors in order to retain their long term performances and business. Achieved
through promise and delivery of:

• High Quality
• Good Service
 • Fair Pricing, over a period of time.

The outcome of Relationship Marketing is a Marketing Network.

Marketing Network is made up of the company and its customers, employees, suppliers,
distributors, advertisement agencies, retailers, research & development with whom it has built a
mutually profitable business relationship.

6. Market

A market consists of all potential customers sharing particular need/want who may be willing
and able to engage in exchange to satisfy need/want.

Market Size – Number of people who have need/want; have resources that interest others, willing or
able to offer these resources in exchange for what they want.

In Marketing terms:

Sellers – called as “Industry”.

Buyers – referred to in a group as “Market”.

Types of Markets:

• Resource Market,
• Manufacturing Market,
• Intermediary Market,
• Consumer Market,
• Government market.

7. Marketers/ Prospects

Working with markets to actualize potential exchanges for the purpose of satisfying needs and
wants. One party seeks the exchange more actively, called as “Marketer”, and the other party is called
“Prospect”.

Prospect is someone whom marketer identifies as potentially willing and able to engage in
exchange. Marketer may be seller or buyer. Most of time, marketer is seller. A marketer is a company
serving a market in the face of competition.

Marketing Management takes place when at least one party to a potential exchange thinks
about the means of achieving desired responses from other parties.
AMA- American Marketing Association.

It defines marketing management as the process of planning & executing the conception of
pricing, promotion, distribution of goods, services, ideas to create exchanges that satisfy individual and
organizational goals.

The task of marketing management is to influence the level, timing, composition of demand in a
way that will help the organization to achieve its objective. Hence, marketing management is essentially
demand management.

States of “Demand” could be:

• Negative demand – Major market dislikes product, hence try to avoid. eg.- injections.
• No Demand – Constant unaware and uninterested in the product. eg.- segway.
• Latent Demand – Need exists, not fulfilled by current products. eg.- ATM, mobile.
• Declining demand – Demand decreases over a period of time. eg.- pagers, scooters.
• Irregular Demand – Seasonally. eg.- fans, raincoat.
• Full Demand – Good volume of business. eg.- toothpaste, most of FMCG items.
• Overfull Demand – Demand greater than the ability to handle. eg.- VSNL sim card.
• Unwholesome Demand – Unwholesome product. eg.- cigarettes, narcotic drugs.

Major Marketing Decisions

Regardless of whether a new organization is developing a brand-new marketing plan or if an

established organization is tweaking or re-creating a plan that already exists, any effective marketing
plan is built on the core fundamentals. Most marketing decisions fall into one of four main categories.
These categories are known as the four Ps: product, price, place and promotion.

1. Product

You should first consider what the product or products you offer or plan to offer in the near
future will be. Product marketing decisions include coming up with a brand name, creating a quality
product, determining the functionality of the item and making the item safe to use. When developing
the product, you also must determine if there should be a warranty associated with it and what kinds of
repairs or support you will offer.

2. Price

Most organizations sell products for different prices to different types of consumers. You need
to decide what these prices will be. For example, you might sell a product on your website for a certain
price. However, if a consumer is willing to buy a box or a crate of the product, you can sell the product
for a lower price per unit to sell more units. Likewise, you can decrease the price per unit again if a big-
box store or other large retailer wants to buy in bulk and stock the product in many stores.
3. Place

Place in the marketing sense refers to the distribution of the product. Place considerations
involve decisions that affect how you will get the product where it belongs, how you will manage
inventory, how warehouse operations will be carried out and if distribution centers will be established.
When you consider place, you also must consider where you perceive the product will sell best. For
some products this means in the store, while for other products this means online.

4. Promotions

When you make promotional decisions, you must consider what you view as the most effective
means available to communicate to others about the product. For large organizations, this often means
a full-out media blitz that includes television commercials, print advertisements, billboards and
websites. A smaller organization can talk with local retailers about setting up displays, giving away
samples and establishing a social media presence to build word-of-mouth advertising.

New Realities and Trends in Marketing in the Millennium Age

There is nothing more important for a creative business, than consistently reaching the right
audience. Companies rely on knowledge and great marketing to help their businesses survive and
thrive. For many creative companies this means staying ahead of trends within the millennial market,
which is not only the largest generation to date, but also the one with the most disposable income.

• Influencer Marketing
Millennials are looking to YouTubers and Bloggers to help make purchasing decisions. Social
media celebrities often have a huge following who trust their opinion on everything from fashion and
beauty to gaming. Consider contacting social media influencers relating to your business and ask if they
are interested in reviewing your product or service. Giving out a few samples to the right influencers
and subsequently reaching the right audience could bring a huge return of investment.

• Virtual Reality Becoming Normality

Your business may not have the funds or the technology to create virtual reality ads at present,
but be prepared to adapt to this growing trend in the future. How could VR marketing work for your
brand? Think how much a customer can really be immersed in your brand.

• Live Streaming Everything

Periscope, Meerkat and Facebook Live are the most notable apps fuelling the live stream
revolution. Allowing anyone anywhere to broadcast live audio and video to the world. Live streaming is
a great way to increase your brands transparency.
• Talking To Strangers

Anonymous social talking apps are on the verge of popularity. Anonymous talking apps are yet
to be adopted as marketing tools. If you can create a persona for your business that potential customers
can engage with, you can probably create a marketing campaign for these kinds of emerging social
apps.

• Collaboration

Young people are, now more than ever, willing to contribute to creating user generated content
for the brands they like. Whether that be through uploading unboxing videos on YouTube, sharing
product photos on Instagram, or responding to calls from brands for opinions or humor on Twitter. This
one is easy, just ask your current audience to upload a photo or provide an opinion. Encourage them to
use appropriate links and hashtags, maybe add an incentive and you are well on your way to having
your customers market your brand for you. Just make sure you get the topic/request right so your
audience will be interested in getting involved.

• The Experience Economy

78% of Millennials would rather purchase an experience than a product. That means that travel,
leisure, sports etc. are likely to become more popular than ever. Millennials also respond better to
product marketing that focuses on an idea or lifestyle rather than solely on the product.

• Social Good

This socially conscious generation is keen to make a positive difference in the world. They cite
equal rights, protection of the environment and access to healthcare as the most important issues. If
your business already supports a cause or charity, or is particularly conscious about things such as equal
pay or recycling for example, then make sure your consumers know about it, It may make you more
favorable over other brands.

What Does This Mean For Creative Businesses?

There are huge consumer and lifestyle trends emerging amongst the millennial generation.
Marketing and the way people consume products are about to be revolutionized by the world’s largest
demographic. For creative businesses, this means it’s hugely important to ensure that their marketing
remains relevant for younger generations.

Current apprentices are at an age that verges between both generation Y, and the growing and
socially aware Generation Z. There is no better way to adapt your creative business than to employ
some who lives in the epicenter of these two huge and invaluable consumer demographics. They will
ensure that your business continues to create the fresh ideas that resonate with younger audiences.

CHAPTER II: Marketing Strategies and Plans

Objectives:

At the end of the chapter, the student shall be able to:

➢ Understand the nature of strategy

➢ Identify the corporate strategies and business strategies
➢ Define the marketing strategy
➢ Identify the marketing plan

The Nature of Strategy

Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various components
to achieve a desired state in the future. Strategy results from the detailed strategic planning
process”.

A strategy is all about integrating organizational activities and utilizing and allocating the scarce
resources within the organizational environment so as to meet the present objectives. While planning a
strategy it is essential to consider that decisions are not taken in a vaccum and that any act taken by a
firm is likely to be met by a reaction from those affected, competitors, customers, employees or
suppliers.

Based on the above definitions, we can understand the nature of strategy. A few aspects
regarding nature of strategy are as follows:

• Strategy is a major course of action through which an organization relates itself to its
environment particularly the external factors to facilitate all actions involved in meeting the
objectives of the organization.
• Strategy is the blend of internal and external factors. To meet the opportunities and threats
provided by the external factors, internal factors are matched with them.
• Strategy is the combination of actions aimed to meet a particular condition, to solve certain
problems or to achieve a desirable end. The actions are different for different situations.
• Due to its dependence on environmental variables, strategy may involve a contradictory action.
An organization may take contradictory actions either simultaneously or with a gap of time.
 • Strategy is future oriented. Strategic actions are required for new situations which have not
arisen before in the past.
• Strategy requires some systems and norms for its efficient adoption in any organization.
• Strategy provides overall framework for guiding enterprise thinking and action.

Features of Strategy

Strategy is significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the business
environment. Strategy deals with long term developments rather than routine operations, it deals with
probability of innovations or new products, new methods of productions, or new markets to be
developed in future. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

The Importance of Strategy

Having a clear and focused strategy is critically important to the success of your business, and
without a well-defined strategy, yours may stall or even fail.

A successful strategic plan does the following:

1. Provides Direction and Action Plans

It establishes in a clear, concise and strategically sound way the direction for the organization how this
will be achieved, including detailed action plans

2. Prioritizes and Aligns Activities

Strategic planning is about making choices, establishing priorities, allocating resources to strategic
initiatives and coordinating to achieve desired results.

3. Defines Accountabilities

It defines clear lines of accountability and timelines for achieving expected results on the agreed
strategic initiatives.

4. Enhances Communication and Commitment

In clarifying the vision and accountabilities, the strategic plan increases the alignment of all
organizational activities and fosters commitment at all levels.
5. Provides a Framework for Ongoing Decision Making

Since all decisions should support the strategy, the strategy and the strategic initiatives are the
reference point for decision-making.

You have to have a plan for day to day business, but you also need to spend time looking and listening
to the changes that are happening in your industry. It is a matter of having both a daily plan to get things
done and an overarching strategy to guide those daily plans so you make progress towards your long-
term goals.

Corporate Strategies and Marketing

Corporate Strategy takes a portfolio approach to strategic decision making by looking across all
of a firm’s businesses to determine how to create the most value. In order to develop a corporate
strategy, firms must look at how the various business they own fit together, how they impact each
other, and how the parent company is structured, in order to optimize human capital, processes, and
governance. Corporate Strategy builds on top of business strategy, which is concerned with the
strategic decision making for an individual business.

Components of Corporate Strategy

There are several important components of corporate strategy that leaders of organizations focus
on. The main tasks of corporate strategy are:

• Allocation of resources
• Organizational design
• Portfolio management
• Strategic tradeoffs
1. Allocation of Resources

The allocation of resources at a firm focuses mostly on two resources: people and capital. In an
effort to maximize the value of the entire firm, leaders must determine how to allocate these resources
to the various businesses or business units to make the whole greater than the sum of the parts.

Key factors related to the allocation of resources are:

• People

o Identifying core competencies and ensuring they are well distributed across the firm o
Moving leaders to the places they are needed most and add the most value (changes
over time, based on priorities)
o Ensuring an appropriate supply of talent is available to all businesses

• Capital

o Allocating capital across businesses so it earns the highest risk-adjusted return o Analyzing
external opportunities (mergers and acquisitions) and allocating capital between internal
(projects) and external opportunities

2. Organizational Design

Organizational design involves ensuring the firm has the necessary corporate structure and
related systems in place to create the maximum amount of value. Factors that leaders must consider
are the role of the corporate head office and the reporting structure of individuals and business units.

Key factors related to organizational design are:

 • Head office (centralized vs decentralized)

o Determining how much autonomy to give business units o

Deciding whether decisions are made top-down or bottom-up o
Influence on the strategy of business units

• Organizational structure (reporting)

o Determine how large initiatives and commitments will be divided into smaller projects
o Integrating business units and business functions such that there are no redundancies
o Allowing for the balance between risk and return to exist by separating responsibilities
o Developing centers of excellence
o Determining the appropriate delegation of authority o Setting governance structures
o Setting reporting structures (military / top-down, matrix reporting)

3. Portfolio Management

Portfolio management looks at the way business units complement each other, their
correlations, and decides where the firm will “play” (i.e. what businesses it will or won’t enter).

Corporate Strategy related to portfolio management includes:

• Deciding what business to be in or to be out of

• Determining the extent of vertical integration the firm should have
• Managing risk through diversification and reducing the correlation of results across businesses
• Creating strategic options by seeding new opportunities that could be heavily invested in if
appropriate
• Monitoring the competitive landscape and ensuring the portfolio is well balanced relative to
trends in the market

4. Strategic Tradeoffs

One of the most challenging aspects of corporate strategy is balancing the tradeoffs between
risk and return across the firm. It’s important to have a holistic view of all the businesses combined and
ensure that the desired levels of risk management and return generation are being pursued.

Below are the main factors to consider for strategic tradeoffs:

• Managing risk

o Firm-wide risk is largely depending on the strategies it chooses to pursue o True product
differentiation, for example, is a very high-risk strategy that could result in a market
leadership position or total ruin
 o Many companies adopt a copycat strategy by looking at what other risk-takers have
done and modifying it slightly
o It’s important to be fully aware of strategies and associated risks across the firm o Some
areas might require true differentiation (or cost leadership) but other areas might be
better suited to copycat strategies that rely on incremental improvements
o The degree of autonomy business units have is important in managing this risk

• Generating returns

o Higher risk strategies create the possibility of higher rates of return. The examples above
of true product differentiation or cost leadership could provide the most return in the long
run if they are well executed. o Swinging for the fences will lead to more home runs and
more strikeouts, so it’s important to have the appropriate number of options in the
portfolio. These options can later turn into big bets as the strategy develops.

• Incentives

o Incentive structures will play a big role in how much risk and how much return managers
seek
o It may be necessary to separate the responsibilities of risk management and return
generation so that each can be pursued to the desired level
o It may further help to manage multiple overlapping timelines, ranging from shortterm
risk/return to long-term risk/return and ensuring there is appropriate dispersion

Corporate Strategy is different than business strategy, as it focuses on how to manage

resources, risk, and return across a firm, as opposed to looking at competitive advantages.

Leaders responsible for strategic decision making have to consider many factors, including
allocation of resources, organizational design, portfolio management, and strategic tradeoffs.

Business Strategies and Marketing

A business strategy refers to the actions and decisions that a company takes to reach its
business goals and be competitive in its industry. It defines what the business needs to do to reach its
goals, which can help guide the decision-making process for hiring and resource allocation. A business
strategy helps different departments work together, ensuring departmental decisions support the
overall direction of the company.

Importance of Business Strategy

There are several reasons why a business strategy is important for organizations, including:
 • Planning: A business strategy helps you identify the key steps you will take to reach your
business goals
• Strengths and weaknesses: The process of creating a business strategy allows you to identify
and evaluate your company's strengths and weaknesses, creating a strategy that will capitalize
on your strengths and overcome or eliminate your weaknesses
• Efficiency: A business strategy allows you to effectively allocate resources for your business
activities, which automatically makes you more efficient
• Control: It gives you more control over the activities you're performing to reach your
organizational goals, as you understand the path you're taking and can easily assess whether
your activities are getting you close to your goals
• Competitive advantage: By identifying a clear plan for how you will reach your goals, you can
focus on capitalizing on your strengths, using them as a competitive advantage that makes your
company unique

Components of a business strategy

There are six key components of a business strategy. They include:

1. Vision and business objectives

2. Core values
3. SWOT analysis
4. Tactics
5. Resource allocation plan
6. Measurement

1. Vision and business objectives

The business strategy is intended to help you reach your business objectives. With a vision for
the direction of the business, you can create clear instructions in the business strategy for what needs to
be done and who is responsible for it.

2. Core values

The business strategy guides top-level executives as well as departments about what should and
should not be done, according to the organization's core values.
3. SWOT analysis

SWOT stands for strengths, weaknesses, opportunities and threats. This analysis is included in
every business strategy, as it allows the company to rely upon its strengths and use them as an
advantage. It also makes the company aware of any weaknesses or threats.

4. Tactics

Many business strategies articulate the operational details for how the work should be done in
order to maximize efficiency. People who are responsible for tactics understand what needs to be done,
saving time and effort.

5. Resource allocation plan

A business strategy includes where you will find the required resources to complete the plan,
how the resources will be allocated and who is responsible for doing so.

6. Measurement

The business strategy also includes a way to track the company's output, evaluating how it is
performing in relation to the targets that were set prior to launching the strategy.

10 business strategy examples

1. Cross-sell more products

2. Most innovative product or service
3. Grow sales from new products
4. Improve customer service
5. Cornering a young market
6. Product differentiation
7. Pricing strategies
8. Technological advantage
9. Improve customer retention
10. Sustainability

1. Cross-sell more products

Some organizations focus on selling more products to the same customer. This strategy works
well for office supply companies and banks, as well as online retailers. By increasing the amount of
product sold per customer, you can increase the average cart size. Even a small increase in cart size can
have a significant impact on profitability, without having to spend money to acquire more new
customers.
2. Most innovative product or service

Many companies, particularly in the technology or automotive space, are distinguishing

themselves by creating the most cutting-edge products. In order to use this as your business strategy,
you will need to define what "innovative" will mean for your organization or how you're innovative.

3. Grow sales from new products

Some companies like to invest in research and development in order to constantly innovate,
even with your most successful products.

4. Improve customer service

This can be a good business strategy if your business has had a problem delivering quality
customer service. Some companies have even built a strong reputation for having exceptional customer
service. Usually, companies have a problem in one specific area, so a business strategy that's focused on
improving customer service will usually focus its objectives on something like online support or a more
effective call center.

5. Cornering a young market

Some large companies are buying out or merging competitors to corner a young market. This is a
common strategy used by Fortune 500 companies to gain an advantage in a new or rapidly growing
market. Acquiring a new company allows a larger company to compete in a market where it didn't
previously have a strong presence while retaining the users of the product or service.

6. Product differentiation

This is a common business strategy, especially for business-to-consumer (B2C) businesses. They
can differentiate their products by highlighting the fact that they have superior technology, features,
pricing or styling.

7. Pricing strategies

When it comes to pricing, businesses can either keep their prices low to attract more customers
or give their products aspirational value by pricing them beyond what most ordinary customers could
afford. If companies plan to keep their prices low, they will need to sell a much higher volume of
products, as the profit margins are usually very low. For companies who choose to price their products
beyond the reach of ordinary customers, they are able to maintain the exclusivity of their product while
retaining a large profit margin per product.
8. Technological advantage

Obtaining a technological advantage, you can often achieve better sales, improved productivity
or even market domination. This can mean investing in research and development, acquiring a smaller
company to gain access to their technology or even acquiring employees with unique skills that will give
the company a technological advantage.

9. Improve customer retention

It's generally far easier to retain a customer than spend money to attract a new one, which is
why this is a great strategy if you see opportunities for improvement in customer retention. This strategy
requires you to identify key tactics and projects to retain your customers.

10. Sustainability

You could launch an entire business strategy aimed at increasing the sustainability of your
business. For example, the objective could be to reduce energy costs or decrease the company's
footprint by implementing a recycling program.

The Marketing Strategy

Marketing strategy is the comprehensive plan formulated particularly for achieving the
marketing objectives of the organization. It provides a blueprint for attaining these marketing objectives.
It is the building block of a marketing plan. It is designed after detailed marketing research. A marketing
strategy helps an organization to concentrate it’s scarce resources on the best possible opportunities so
as to increase the sales.

A marketing strategy is designed by:

1. Choosing the target market: By target market we mean to whom the organization wants to sell its
products. Not all the market segments are fruitful to an organization. There are certain market
segments which guarantee quick profits, there are certain segments which may be having great
potential but there may be high barriers to entry. A careful choice has to be made by the
organization. An indepth marketing research has to be done of the traits of the buyers and the
particular needs of the buyers in the target market.

2. Gathering the marketing mix: By marketing mix we mean how the organization proposes to sell its
products. The organization has to gather the four P’s of marketing in appropriate combination.
Gathering the marketing mix is a crucial part of marketing task. Various decisions have to be made
such as

▪ What is the most appropriate mix of the four P’s in a given situation
▪ What distribution channels are available and which one should be used
 ▪ What developmental strategy should be used in the target market
▪ How should the price structure be designed

Importance of Marketing Strategy

▪ Marketing strategy provides an organization an edge over it’s competitors.

▪ Strategy helps in developing goods and services with best profit making potential.
▪ Marketing strategy helps in discovering the areas affected by organizational growth and thereby
helps in creating an organizational plan to cater to the customer needs.
▪ It helps in fixing the right price for organization’s goods and services based on information
collected by market research.
▪ Strategy ensures effective departmental co-ordination.
▪ It helps an organization to make optimum utilization of its resources so as to provide a sales
message to it’s target market.
▪ A marketing strategy helps to fix the advertising budget in advance, and it also develops a
method which determines the scope of the plan, i.e., it determines the revenue generated by
the advertising plan.

In short, a marketing strategy clearly explains how an organization reaches it’s predetermined
objectives.

The Marketing Plan

The marketing plan is a summary of what the company or firm wants and plans to do before
launching a new product, or before re-launching product/service. It is composed of the following
elements.

Executive Summary

Present market Situation

SWOT ANALYSIS

Marketing Objectives

Marketing Strategies

Marketing Programs in the Marketing Mix

• Executive Summary- it is a rundown of the programs and recommendations particular to a

product/service under study.
 • Present Market Situation- it is an account of the firm’s present standing in the market and
current or potential competitors. It also identifies what the other competitors products are
offering and what the firm’s product intends to offer to be competitive in the market.
• SWOT analysis- this analysis includes the company’s strength, weaknesses, opportunities
and threats.
• Marketing Objectives should be SMART
• Marketing Strategies- these strategies are based on the marketing mix
• Marketing Programs in the Marketing Mix
• Budget- this refers to the financial aspects of the marketing plan, which include the
following: sales forecasts for a specific period of time, costs projections, income statements,
balance sheets, and cash flow statements.
• Controls- these are mechanisms that evaluate the marketing plan and check the firm’s
current performance. Controls provide measures to be undertaken when certain strategies
or programs of the marketing plan do not work as expected.

CHAPTER III: Scanning the Marketing

Environment for Opportunities
Objectives:

At the end of the chapter, the student shall be able to:

➢ Define and discuss the marketing information system

➢ Identify the major forces in the macroenvironment

➢ Understand the competitive environment

Marketing Information System

A marketing information system (MkIS) is a software program that provides information

about marketing research. It allows users to compile and analyze data in a very easy, organized
fashion. MkIS systems are also effective tools that help users make decisions about consumer
behavior and the marketing mix, including products and how they are placed, priced, and
promoted. The more sophisticated the management information system, the more information it
can provide.

Structure of Marketing Information System

Benefits of Marketing Information System
If you are a marketing manager or business owner, finding effective ways to market your
business is vital. Marketing information becomes even more important if you are part of a
crowded market with many competitors, or you have a product that isn't well known. If you
don't have good information, such as the data found in sales reports, you may end up wasting a
lot of time and

28
money on ineffective marketing activities. An investment in an MkIS system is an effective way
to help you organize and prepare your marketing campaigns. One of the key benefits of an MkIS
system is the insight it can provide about what your customers want and their perceptions of your
products. Through your MkIS, you'll be able to make better decisions about consumer behavior
and choices or product development.

Major Forces in the Macroenvironment

The macro-environment is more general - it is the environment in the economy itself. It

has an effect on how all business groups operate, perform, make decisions, and form strategies
simultaneously. It is quite dynamic, which means that a business has to constantly track its
changes. It consists of external factors that the company itself doesn’t control but is certainly
affected by.

The factors that make up the macro-environment are economic factors, demographic
forces, technological factors, natural and physical forces, political and legal forces, and social
and cultural forces.

• Economic factors

Basically, the very environment of the economy can have an effect on two essential
aspects – your company’s levels of production and the decision-making process of your
customers.
Some examples of economic factors affecting business:

o Interest rates
o Exchange rates
o Recession
o Inflation
o Taxes
o Demand/Supply

• Demographic forces

Each and every chunk of the market is affected by universal demographic forces. These
are age, education level, cultural characteristics, country and region, lifestyle, and so on.

The crucial variables include:

29
o How income variables influence business
o Age variables that affect business
o Geographic Region Variables
o Education Level as a Variable

• Technological factors

These factors are related to skills and ability that are implemented into production, as
well as all the materials and technology that a particular product requires to be made. They are
essential and can have a big impact on how well your business is running. It boils down to even
the most basic factors, such as what kind of maintenance trolleys you use in order to preserve
your tools and equipment for as long as you possibly can.

Some of the most common technological factors are:

o Automation
 o Internet connectivity
o 3D technology
o Speed/power of computer calculation
o Engine performance and efficiency
o Security in terms of cryptography
o Wireless charging

• Natural and physical forces

Every business must also take into account the very planet and its resources. There are
those that can be renewed, such as forests and agricultural products, and those that cannot, such
as coal, minerals, oil, and the like. Both are strongly related to production.

So, natural and physical forces can be:

o Climate change
o Pollution
o Weather
o Availability of both non-renewable and renewable resources
o Laws that regulate the environment
o Survival of particular biological species

• Political and legal forces

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The market develops according to the political and legal environment in various areas.
This means that every business needs to be up to date with such forces worldwide in order to be
able to make the right decisions.

This generally includes legal factors such as:

o Copyright law
o Employment law
 o Fraud law
o Discrimination law
o Health and Safety law
o Import/Export law

• Social and cultural forces

Finally, it is crucial to understand that the product that you bring to the market can have a
strong impact on society. For example, your production needs to eliminate every practice that is
hazardous to society, and show that it is socially responsible.

There is a wide variety of social and cultural factors, some of them being:

o Purchasing habits
o Level of education
o Religion and beliefs
o Consciousness about health issues
o Social classes
o Structure and size of a family
o Growth rate of the population
o Emigration and immigration rates
o Life expectancy rates and age distribution
o Different lifestyles

Analyzing the Competitive Environment

These days, you can assume that nearly every work environment is a competitive
environment. The primary source of the competition can vary from one work area to another, but
there's competition from other local or area firms, from out-of-state firms and from companies
located all over the world. Competition can emerge seemingly from nowhere, with the
emergence of new products that replace current products with more desirable products or with
products that provide the same benefits at dramatically lower costs. One oft-cited model
describes the competitive environment as having five distinct elements.

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Who Is Michael Porter?
 In 1979, Michael Porter, a Harvard economist specializing in industrial organization,
wrote a Harvard Business Review article entitled "How Competitive Forces Shape Strategy." It's
still the best source on the subject of economic market competition. Not many economics
articles remain current for four decades, and most that do were written by Nobel Prize winners.

Porter is the exception – although he's reportedly been in contention – probably because
until the 21st century, the Nobel Prize in economics was restricted to "pure economists." Porter's
area, industrial organization, is generally considered applied economics. For the same reason, it
has been and continues to be particularly influential on forward-thinking companies looking for a
competitive edge.

Porter's Five Forces

Porter's analysis of the competitive environment isn't complex. On the contrary, it's
straightforward and easily understood. He proposes that competition in a given industry depends
upon the interaction of five separate forces. How profitable or difficult the competitive
environment may be varies widely among given industries.

Producers of steel cans, for example, operate in a competitive environment which ensures
that profits remain generally low. Other industries, such as manufacturers of soft drinks and
toiletries, exist in competitive environments "where there is room for quite high returns."

1. Threat of Entry

Competitors can arise from more than one area. In an industrialized economy, a company
can make a strategic decision to enter an area for any number of reasons, among them: because
the area is under-served, because profit margins are unusually high or because the entering
company benefits from a patented process or product that gives them a unique advantage. It
should be noted that these advantages aren't permanent. The shape of the competition changes
nearly continuously.

Porter observes that when Polaroid's instant photography patents expired, Kodak was
well equipped to enter the market. Writing in 1979, Porter couldn't have known that in a few
years digitization would drive one company out of business and the other into Chapter 11. As it
turned out, the most significant competition was a company that in 1979 sold a grand total of
35,000 relatively inexpensive hobby products worldwide. By 2017, Apple was the world's ninth
largest company, with annual sales of $217 billion.

Porter's analysis indicates that Apple's security is no greater than Polaroid's. Threats can
come from anywhere, and are difficult to anticipate. In fact, Porter maintains that concentrating
on future sources of competition rather than on present products is key for company survival.

2. Supplier Power when Many Buyers

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 Porter points out that when there are only a few sources of supply but many buyers,
suppliers will dominate and command a greater share of profits. China's strategy for solar panel
cells is an example of a business strategy based on the expectation of driving prices down far
enough that suppliers in countries with higher labor costs can't compete, eventually leaving
China's solar industries as the predominating major supplier, at which point China will be able
to control profits throughout the industry.

3. Buyer Power when Many Suppliers

In the reverse situation, where there are only a few buyers and many suppliers, buyers
will dominate and will control supplier's profits. Apple, for instance, has more than 200 Chinese
component suppliers for its iPhone. Competition among these suppliers for a single buyer has
repeatedly driven down supplier prices to the point where workers have been mistreated and
forced to work long hours without breaks under difficult conditions.

Even FoxConn (Hon Hai Precision Industry) Apple's largest Asian supplier, has been
caught using student interns and forcing them to work overtime without overtime pay in an effort
to maintain market share. Apple has been criticized for the situation and has made some attempts
to ensure equitable working conditions for workers in these factories. As Porter might have
predicted, when the supplier/buyer imbalance shifts in favor of the buyer to such an extreme, the
resulting competition will drive prices down to a point where suppliers may believe that their
survival depends on lowering prices below the point at which keeping the workplace equitable
and humane for its workers is possible.

4. Threat of Substitutes

Another competitive threat comes from the availability of substitutes for a company's
existing product. The pharmaceutical industry's attempts to devise strategies that hold off the
entrance into the marketplace of generic drugs are an instance of a strategy opposing this threat.

Sometimes, however, the substitute can come from an unpredictable place. The volume
of first-class mail the U.S. Postal Service handles has declined dramatically since the
introduction of email. Suppliers of components for gasoline and diesel-powered automobile
engines may soon find that the coming proliferation of electric cars over the next decade or so
threatens their industries with substitution of components for electric vehicles, whereas other
suppliers have more experience and are better equipped to compete.

5. The Threat of Competitor Rivalry

Porter's fifth force is the cumulative effect of the first four. Competition can come from
anywhere, from innovative new products, from the emergence of powerful new suppliers or
buyers who control the marketplace, or from product substitutions made possible by
deregulation,
 33
innovation or more cost efficient industrial processes, relying on innovative technology, a lower
cost labor force, or both.

What this means, Porter argues, is that businesses need to look beyond existing products,
the current shape of the marketplace and the current competition and to focus on where
competition may come from in the near and intermediate future. Overlooking latent and
emerging competitive sources and potential new substitutes for current products will cost
myopic businesses future market share or even – as was the case with Polaroid – the survival of
the company.

Marketing Opportunity Analysis

Today, in this competitive business environment, constant growth and profitability are
never a guarantee. With advancements in technology, life cycles of products and services keep
shortening. Additionally, business models keep changing and new competitors enter from
various industries. This persistent instability makes it very crucial for businesses to seek new
market opportunities to grow and stay ahead of the competition.

It is in this context that the real importance of market opportunity analysis comes into
the picture. It helps businesses to examine various factors like direct and indirect competitors,
brand value propositions, existing regulations, supply chains, and the general business
environment. All these factors help frame winning business strategies and allow your business
to flourish positively amidst the competitive environment.

Market opportunity analysis is a tool to determine and access the desirability of a

business opportunity. It forms a portion of the business strategy; wherein, before launching a
new product or service, the market is analyzed to identify the anticipated revenues and profits
from it. Forecasted demand is one of the most important factors that should be considered and
analyzed during opportunity analysis. There are a few important questions that can be answered
through this analysis. Therefore, these questions must be considered by businesses that perform
market opportunity analysis:

• What are the most profitable segments of the market?

• What is the rate at which the opportunity is growing?

• What do competitor and gap analysis mean?

• What are the major sustainable differentiation points?

Importance of Market Opportunity Analysis

 1. Market opportunity analysis helpsidentify the needs of the customers and accordingly
plan, design, and deliver the products or services to derive customer satisfaction. 2. It helps
the company to stay ahead of the competition due to the introduction of customer oriented
products.
3. It also allows the firm to make optimum use of resources.

34
4. It helps the business to accomplish goals like profit margin improvements and market
share etc.
5. It also enables an organization to extend and spread its business in new as well as existing
markets.

Marketing Strategies Based on Market Dominance

Based upon the market share, each company enjoys one of these positions:

• Dominant: A firm is in a dominant position, has control over other competitors.

Dominance in the market gives a firm chance to enjoy more freedom to select suitable
strategic options.

• Strong: A strong firm doesn’t control behavior of other competitors, but can take
independent actions without jeopardizing its long-term position. But, other competitors’
actions do not have a notable impact on its position.

• Favorable: These firms are in position to exploit opportunities to improve their positions.
They need to constantly adjust their strategies to continue enjoying the better-than-
average opportunities for which they have to remain alert and struggle constantly.

• Tenable (Average): These firms have satisfactory performance, but they suffer due to
dominant and strong competitors. These firms have less-than-average opportunities to
improve their positions.

• Weak: Weak firms have unsatisfactory performance. However, they need to keep a watch
on opportunities to improve their positions. Weak firms must change or adjust constantly
to exist.

• Nonviable (non-survivable): Such firms have unsatisfactory performance and have no

opportunity to improve their performance and position.

Depending on the position of firms in market, there are four types of market dominance
strategies. These are market leader, market challenger, market follower, and market nicher.

1. Market leader

Market leader has the largest market share in the relevant product in the industry. It has a
dominant position in the market. Obviously, it leads in new product development, price change,
distribution coverage, promotional activities, and novel experiments. The leader may or may not
be respected by other firms, but other firms have to acknowledge its dominance. Other firms can
challenge, follow or avoid the market leader.

A few market leaders enjoy monopoly in the market. They need to remain alert all the
time for maintaining their leadership position. Other firms constantly challenge leadership
position. A little mistake here and there can force the leader into second or third position. It has
to adopt

35
innovative practices in all the marketing areas. Sometimes, it has to incur excessive costs to
maintain the number-one position.

2. Market challenger

Market challengers are known as runner-up firms. They occupy second, third or lower
ranks in an industry. Market challengers are capable to attack the leader and other competitors.
Sometimes, capable challengers can overtake the leader. Market challengers also target smaller,
more vulnerable competitors. The fundamental principles involved are: to assess the strength of
the target competitor, keep searching opportunities to attack the target, to keep a watch on the
amount of support that the target might muster from allies. Challengers usually choose only one
target at a time. Challengers prefer to attack the target at a vulnerable moment. Challengers
usually launch the attack on narrow front.

3. Market follower

These firms prefer to follow leader rather than to use new strategies and waste energy and
resources. They do not face the leader directly. Some followers are capable to challenge but they
prefer to follow. However, market followers always react strongly in case of any loss. In some
capital goods industries like steel, cement, chemical, fertilizer, etc., product differentiation is
low, service qualities are similar, and price sensitivity is high. They decide to provide similar
offers by copying the market leader. But, one glaring fact is that followership is not always
satisfying path to pursue.

Market followers prefer to follow the leader doesn’t mean that they don’t require specific
market strategies. They cannot be simply passive or simply carbon copy strategies adopted by
leaders. They need to hold current customers and win a fair share of new customers. Followers
usually keep manufacturing cost low and offer better quality products with satisfactory services.
At the same time, they do enter new markets as and when there are opportunities. Market
followers are bound to exist in a mature market. The market followers are wider in case of
online marketing because online marketing has lower entry barriers and higher returns.

It is a simple way to follow the leader. The follower who wants to be imitator duplicates
the leader’s product as well as package and sells it in the market through disrepute distributors.
Products are marketed secretly to avoid legal complications. The product seems exactly similar
to original product except basic quality and features. This is common strategy in auto-parts and
electronics products. People, knowingly or unknowingly, buy such duplicate products as they are
made available at low price.

4. Market specialist or nicher

36
A niche is a more narrowly defined small market (limited number of buyers) whose
needs are not being well-served by existing sellers. It is a small segment that has distinctive
needs and is, mostly, ready to pay high price. Marketers can identify niches by dividing a
segment into sub segments or by dividing a group with a distinctive set of traits.

Nichers understand their niches’ needs so well and minutely that their customers are
willing to pay a premium price. They design special products with distinctive features, qualities,
uses, and value for special group which are tailor-made to suit the buyer’s needs. Nichers have
special skills to serve their market in luxury goods segment and fashion industry. They gain
certain economies through specialization. Nichemanship strategy is also called focus strategy.
The objective is focusing marketing efforts on one or few narrow market segments and tailoring
the marketing mix to give those chosen customers tailored offer. The firm typically looks to gain
a competitive advantage through effectiveness. The most successful nichers tend to have the
following characteristics:

• They tend to be in high value (luxury goods) industries and are able to obtain high margins.
• They tend to be highly focused on a specific market segment.

• They usually market high end products and are able to use a premium pricing strategy.

Entrant Strategies

Market entry strategy is a planned distribution and delivery method of goods or services
to a new target market. There are a variety of ways in which a company can enter a foreign
market. No one market entry strategy works for all international markets. There will be a
number of factors that will influence your choice of strategy, including, but not limited to, tariff
rates, the degree of adaptation of your product required, marketing and transportation costs.
While these factors may well increase your costs it is expected the increase in sales will offset
these costs. The following strategies are the main entry options open to you.
1. Direct Exporting

Direct exporting is selling directly into the market you have chosen using in the first
instance you own resources. Many companies, once they have established a sales program turn
to agents and/or distributors to represent them further in that market. Agents and distributors
work closely with you in representing your interests. They become the face of your company
and thus it is important that your choice of agents and distributors is handled in much the same
way you would hire a key staff person.

2. Licensing

Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the
use of a product or service to another firm. It is a particularly useful strategy if the purchaser of
the license has a relatively large market share in the market you want to enter.

3. Franchising

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Franchising works well for firms that have a repeatable business model (eg. food outlets)
that can be easily transferred into other markets. Two caveats are required when considering
using the franchise model. The first is that your business model should either be very unique or
have strong brand recognition that can be utilized internationally and secondly you may be
creating your future competition in your franchisee.

4. Partnering

Partnering can take a variety of forms from a simple co-marketing arrangement to a

sophisticated strategic alliance for manufacturing. Partnering is a particularly useful strategy in
those markets where the culture, both business and social, is substantively different than your
own as local partners bring local market knowledge, contacts and if chosen wisely customers.

5. Joint Ventures

Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company. It is the 1+1=3 process. Two companies agree to work
together in a particular market, either geographic or product, and create a third company to
undertake this. Risks and profits are normally shared equally. The best example of a joint
venture is Sony/Ericsson Cell Phone.

6. Buying a Company

In some markets buying an existing local company may be the most appropriate entry
strategy. This may be because the company has substantial market share, are a direct competitor
to you or due to government regulations this is the only option for your firm to enter the market.
It is certainly the most costly and determining the true value of a firm in a foreign market will
require substantial due diligence. On the plus side this entry strategy will immediately provide
you the status of being a local company and you will receive the benefits of local market
knowledge, an established customer base and be treated by the local government as a local firm.

7. Piggybacking

Piggybacking is a particularly unique way of entering the international arena. If you have
a particularly interesting and unique product or service that you sell to large domestic firms that
are currently involved in foreign markets you may want to approach them to see if your product
or service can be included in their inventory for international markets.

8. Turnkey Projects

38
Turnkey projects are particular to companies that provide services such as environmental
consulting, architecture, construction and engineering. A turnkey project is where the facility is
built from the ground up and turned over to the client ready to go – turn the key and the plant is
operational. This is a very good way to enter foreign markets as the client is normally a
government and often the project is being financed by an international financial agency such as
the World Bank so the risk of not being paid is eliminated.

9. Greenfield Investments

A greenfield investment is where you buy the land, build the facility and operate the
business on an ongoing basis in a foreign market. It is certainly the most costly and holds the
highest risk but some markets may require you to undertake the cost and risk due to government
regulations, transportation costs, and the ability to access technology or skilled labor.
 39

CHAPTER IV: SWOT Analysis and Strategic Focus

Objectives:

At the end of the chapter, the student shall be able to:

➢ Understand the use of SWOT Analysis

➢ Identify a good strategy

➢ Discuss the SWOT Analysis

➢ Define Strategic Focus

The SWOT Analysis

Many companies start with a SWOT analysis, is a strategic planning tool that
organizations can use to identify their firm's strengths, weaknesses, opportunities and threats.
This involves identifying your competitors, understanding exactly how they operate and
becoming familiar with their strengths and weaknesses.

Strengths are any competitive advantage, skill, expertise, proficiency, talent or other
factor that improves your company's position in the marketplace and can't be easily copied.
Examples are a well-trained sales team, low staff turnover, high consumer retention or low
production costs due to superior technology.

Weaknesses are the factors that reduce your company's ability to achieve its objectives
independently. Examples include unreliable delivery, outdated production tools, insufficient
marketing efforts and a lack of planning.

42
Opportunities are ways for your business to grow and be more profitable. These can
include seeking new markets, managing technological change or addressing new consumer
trends. You need to look at how your company's main skills can be used to take advantage of
these opportunities.

Threats are barriers to entry in your primary markets, such as a labor shortage, legislative
hurdles or detrimental economic or political developments.

Major Benefits of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool,

but it involves a great subjective element. It is best when used as a guide, and not as a
prescription. Successful businesses build on their strengths, correct their weakness and protect
against internal weaknesses and external threats. They also keep a watch on their overall
business environment and recognize and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in following manner:

• It is a source of information for strategic planning.

• Builds organization’s strengths.

• Reverse its weaknesses.

• Maximize its response to opportunities.

• Overcome organization’s threats.

• It helps in identifying core competencies of the firm.

• It helps in setting of objectives for strategic planning.

• It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out.

SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.

Establishing Competitive Advantage from SWOT

A competitive advantage doesn’t need to be huge to have an effect. It doesn’t have to be

mind blowing or ridiculously obvious. It only has to be useable by you.

SWOT analysis looks at four criteria: strengths, weaknesses, opportunities, and threats.
You can apply SWOT analysis to your own business or your competitor. The point is to examine
how to use the good and the bad as a competitive advantage.

Strengths: These are what the business does well. It can be developing a social media
following. Giving incentives to long-time customers. The branding of their company website. Or
outreach programs. Essentially, what’s bringing in customers, profits, and sales?

43
Weaknesses: What is not working? Are people complaining about shipping rates? Are
new customers coming in but leaving just as quickly? Are employees losing morale and by
accounts, sales? You’ve got to take a hard look at yourself or the competition and see where
they’re lacking. Because where you lack is where the competitor comes in to shine.

Opportunities: What advantages can be capitalized on? Opportunities may appear in the
form of collaborations or new suppliers. Difficult to see at the moment but easy to use when
looking for it.

Threats: This can be buyer power, or rivals, or substitution. It’s anything that threatens
to slow down or limit your business. When you look at threats competitors are facing, you can
use their pain points to your advantage.

Creating Strategic Focus

Strategic focus is seen when an organization is very clear about its mission and vision
and has a coherent, well-articulated strategy for achieving those Organizations that are strategy
focused are more effective with their resources, have higher employee retention, and make more
money because they serve their markets better than their counterparts. And they stay in business
longer because they proactively respond to the environment around them. Want to create a
culture that’s strategy-focused? Here’s a hit list of ideas gathered from a bunch of different
organizations to help create the organization:

• Be a strategic leader. Lead by example and prioritize your strategic plan over everything
else. Stay committed.

• Cut out the jargon. Make sure everyone in your organization really understands the plan. •
Hang your one-page strategic plan in the break room or another central location. • Involve

your staff in the final development of the plan. Ask for and use employee ideas. • Create a

“champion” or owner for every goal and action. Make strategy everyone’s job. • Ask your

employees to create the action items to support their assigned goals. • Review the plan with

management or the group. Align the organization with the strategy. • Use a scorecard to
monitor progress monthly.

• Schedule regular updates. Hold a monthly meeting, one-on-one with the team leaders,
where you only discuss strategy. Hold a quarterly full staff strategy meeting to report on
the progress.

• Challenge underlying assumptions. Revisit and refine the strategic plan three months from
now.

• Hold yourself accountable through a mentor, personal coach, or business organization.

• Link strategy to performance.

• Continually scan your environment to identify changes that may impact your strategy. •
Reward success! Throw a party when significant goals are reached.

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What is Good Strategy?

At its most basic level, a strategy is a hypothesis. To be a good strategy, it must precisely
diagnose the problem being solved; set a guiding policy that will address that problem; and
propose a set of coherent actions which will deliver that policy.

Much like a good strategy, The Kernel of Good Strategy is simple and practical. It contains three
elements:

• The first is a thorough diagnosis. This is more than a description of the situation; it is an
articulation of the problems and challenges that need to be addressed, a simplified version of
reality.

• The second is a clear guiding policy. This is an overarching approach or method for solving
the diagnosed challenges. Importantly, the guiding policy must rule out actions, as well as
directing us towards a number of actions.

• Finally, a good strategy will include coherent actions. These must be practical, coordinated
activities. The key word here is ‘coherent’. Actions should complement each other, and create a
‘greater sum’ like effect, where actions add power to each other.

45

CHAPTER V: Consumer and Business Buying

Behavior
Objectives:

At the end of the chapter, the student shall be able to:

➢ Define the consumer market
➢ Identify and discuss the influences on consumer behavior
➢ Define the business market
➢ Identify the participants in business market

38
The Consumer Market

The consumer market comprises of those people who are the end-users and they don’t resell
the product or service any further. We see products and consumers everywhere in the market.

Marketing and advertising play a very significant role in influencing the buying decision of the
consumers; it tells them which product to choose by educating them about the product. When it comes
to choosing the product, people prefer brand products because of the loyal. Brand loyalty doesn’t just
happen; marketers do a lot of research to find relevant information about their market and then target
them through TV ads and other promotional activities.

The consumer market is completely different from the business market because of the difference in the
marketing strategy. Marketers divide the consumer market into different segments depending upon the
characteristics, demographics, and behavior and psychographic of the consumer. After dividing the
market into different segments, they target the interest, likes, and dislikes opinion and values of the
consumers.

Consumers’ buying roles

Group members can influence purchases in many ways. For example, men normally choose their own
newspaper and women choose their own tights. For other products, however, the decision-making unit
is more complicated with people playing one or more roles:

1. Initiator. The person who first suggests or thinks of the idea of buying a particular product or service.
This could be a parent or friend.
2. Influencer. A person whose view or advice influences the buying decision, perhaps a friend who is a
camera enthusiast or a salesperson
3. Decider. The person who ultimately makes a buying decision or any part of it – whether to buy, what
to buy, how to buy or where to buy.

48
4. Buyer. The person who makes an actual purchase. Once the buying decision is made, someone else
could make the purchase for the decider.
5. User. The person who consumes or uses a product or service.

39
Consumer Buying Process

Far too often, retailers think that consumer buying is randomized. That certain products appeal to
certain customers and that a purchase either happens or it doesn’t. They approach product and service
marketing in the same way, based on trial and error. The actual purchase is just one step. In fact, there
are six stages to the consumer buying process, and as a marketer, you can market to them effectively.

1. Problem Recognition

Put simply, before a purchase can ever take place, the customer must have a reason to believe that
what they want, where they want to be or how they perceive themselves or a situation is different from
where they actually are. The desire is different from the reality – this presents a problem for the
customer.

However, for the marketer, this creates an opportunity. By taking the time to “create a problem” for the
customer, whether they recognize that it exists already or not, you’re starting the buying process. To do
this, start with content marketing. Share facts and testimonials of what your product or service can
provide. Ask questions to pull the potential customer into the buying process. Doing this helps a
potential customer realize that they have a need that should be solved.

2. Information Search

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Once a problem is recognized, the customer search process begins. They know there is an issue and
they’re looking for a solution. If it’s a new makeup foundation, they look for foundation; if it’s a new
refrigerator with all the newest technology thrown in, they start looking at refrigerators – it’s fairly
straight forward.

As a marketer, the best way to market to this need is to establish your brand or the brand of your clients
as an industry leader or expert in a specific field. Increasing your credibility markets to the information
search process by keeps you in front of the customer and ahead of the competition.
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3. Evaluation of Alternatives

Just because you stand out among the competition doesn’t mean a customer will absolutely purchase
your product or service. In fact, now more than ever, customers want to be sure they’ve done thorough
research prior to making a purchase. Because of this, even though they may be sure of what they want,
they’ll still want to compare other options to ensure their decision is the right one. Marketing to this
couldn’t be easier. Keep them on your site for the evaluation of alternatives stage.

4. Purchase Decision

Somewhat surprisingly, the purchase decision falls near the middle of the six stages of the consumer
buying process. At this point, the customer has explored multiple options, they understand pricing and
payment options and they are deciding whether to move forward with the purchase or not. That’s right,
at this point they could still decide to walk away.

This means it’s time to step up the game in the marketing process by providing a sense of
security while reminding customers of why they wanted to make the purchase in the first time. At this
stage, giving as much information relating to the need that was created in step one along with why your
brand, is the best provider to fulfill this need is essential.

If a customer walks away from the purchase, this is the time to bring them back. Retargeting or simple
email reminders that speak to the need for the product in question can enforce the purchase decision,
even if the opportunity seems lost. Step four is by far the most important one in the consumer buying
process. This is where profits are either made or lost.

5. Purchase

A need has been created, research has been completed and the customer has decided to make a
purchase. All the stages that lead to a conversion have been finished. However, this

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doesn’t mean it’s a sure thing. A consumer could still be lost. Marketing is just as important
during this stage as during the previous.

Marketing to this stage is straightforward: keep it simple. Test your brand’s purchase process online. Is it
complicated? Are there too many steps? Is the load time too slow? Can a purchase be completed just as
simply on a mobile device as on a desktop computer? Ask these critical questions and make
adjustments. If the purchase process is too difficult, customers, and therefore revenue, can be easily
lost.

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6. Post-Purchase Evaluation

Just because a purchase has been made, the process has not ended. In fact, revenues and customer
loyalty can be easily lost. After a purchase is made, it’s inevitable that the customer must decide
whether they are satisfied with the decision that was made or not. They evaluate.

If a customer feels as though an incorrect decision was made, a return could take place. This can be
mitigated by identifying the source of dissonance, and offering an exchange that is simple and
straightforward. However, even if the customer is satisfied with his or her decision to make the
purchase, whether a future purchase is made from your brand is still in question. Because of this,
sending follow-up surveys and emails that thank the customer for making a purchase are critical.

Situational Influences on Consumer Behavior

Situational factors influencing customers are external factors usually outside of the control of marketers,
manufacturers and, sometimes even retailers. In general, the situation affects how consumers
encounter and interact with a product, informing their opinion at that moment in time. Just like the
pricing, advertising, quality and reputation of any given product, situational factors can hold sway over
purchase behavior.

• Environmental Implications of Products

Environmental factors such as lighting, music, noise and aroma can either encourage or discourage the
purchase of a product. A study by North, Hargreaves and McKendrick is a perfect example of how the
choice of music affects purchase behavior. When French music was played in a store, the retailer saw a
spike in the sale of French wine. Switching to German music saw sales increase for German wine. But
atmospheric elements in the retail environment aren’t the only environmental influencers. Spatial
factors also play a role. For example, the way in which a product is displayed can make it more desirable,
while a crowded store or a long line at checkout can suddenly make that same product less compelling.

• Social Aspects of Shopping

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The social aspect of a purchase also involves situational influencers. Consumers unconsciously adjust
their behavior to conform to the behavior of those in their company, and marketers have no way of
changing this situation. A consumer is more apt stop to look at certain products when in the company of
a friend as opposed to a parent, thereby influencing the potential of a purchase. Social aspects also can
alter price point. A consumer may be persuaded to purchase a more expensive product when in the
company of a colleague or potential partner than he would when with a friend or spouse.

• Purpose for Shopping Trip

The goal of a shopping trip is yet another theory involving situational influencers. A consumer searching
for a birthday present, for instance, is in a store for a different purpose than someone casually shopping

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for a new outfit. The reason for shopping dictates the types of products customers are willing to interact
with at that time and may cause them to bypass certain products they would normally interact with on
another shopping trip. The same can be said for a trip to the grocery store. A customer out of milk will
interact with different products than someone on her weekly shopping trip.

• Timing of Purchases

Much like the purpose of a purchase, timing also can influence consumer behavior. Someone in a rush
will inevitably interact with fewer products than a consumer with hours to shop. Even if the two people
are looking for the same type of product, the one in a hurry may end up with the most accessible
product, while the leisurely shopper has time to interact with more products, giving her time to weigh
the price and quality of the offerings.

• State of Mind at Time of Interaction

Another situational factor known to influence behavior is state of mind. Someone feeling sad interacts
differently with products than a shopper feeling happy. The interaction inevitably affects the opinion on
a product and, in turn, the purchase behavior. But state of mind goes beyond mood or emotion and can
entail personal conditions. Someone who’s sick interacts with different products than someone who’s
healthy. The same can be said for someone who’s fatigued versus someone’s who’s full of energy.

Psychological Influences on Consumer Behavior

The Psychological Factors are the factors that talk about the psychology of an individual that drive his
actions to seek satisfaction. Some of the important Psychological Factors are:

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• Motivation

The level of motivation influences the buying behavior of the consumers. It is very well explained by
Maslow through his need hierarchy theory comprising of basic needs, security needs, social needs,
esteem needs and self-actualization needs. Usually, the basic needs and the security needs are more
pressing needs than the other and hence, these needs become a motive that directs the consumer
behavior to seek satisfaction.

• Perception

The consumer perception towards a particular product and the brand also influences his buying
decision. The perception is the process through which the individual selects, organize and interpret the
information to draw a meaningful conclusion. Such as, Apple iPhone is perceived as a premium brand
and consumers are motivated to buy it to get associated with the elite class of the society.

The marketers lay emphasis on managing the perceptual processes. Selective Attention, Selective
Distortion, and Selective Retention. In selective attention, the marketer tries to gain the attention of the
customer towards his offerings. Different people have different perceptions about the same product
depending on their individual beliefs and attitudes which give rise to selective

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distortion. Thus, the marketer should try to understand the attitudes and beliefs of individuals and
design the marketing campaigns to retain the consumers.

• Learning

The individual’s learning depends on the skills, knowledge and intention. The skills are developed
through practice while the knowledge and intention are acquired with the experience. There could be a
conditional learning or a cognitive learning.

In the conditional learning, the consumer derives learning from being conditioned to particular stimuli,
i.e. when he is exposed to the similar situation, again and again, he develops a particular response
towards it. While in the cognitive learning the individual applies all his knowledge, skill, attitudes, values
and beliefs to find the solution of a problem and derive satisfaction out of it.

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• Attitudes and Beliefs

The individuals have certain beliefs and attitudes towards products on which their purchase decisions
rests. These attitudes and beliefs are the tendency to respond to a given product in a particular way, and
these make up the brand image that influences the consumer buying behavior. Thus, the marketers try
to understand the attitudes and beliefs of the individuals and modify these through several marketing
campaigns.

Socio-Cultural Influences on Consumer Behavior

Socio-cultural influences evolve from a formal and informal relationships with other people.

Influences Include:

• Personal influence
• Reference groups
• The family
• Social class
• Culture
• Subculture
• Personal Influence

a. Opinion Leaders - Individuals who exert direct or indirect social influence over others b. Word
of Mouth - People influencing each other during face-to-face conversations. Power of word of
mouth has been magnified by the Internet and e-mail

• Reference Group

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a. Membership Group - One to which a person actually belongs
b. Aspiration Group - One with which a person wishes to be identified
c. Dissociative Group - One from which a person wants to maintain a distance because of
differences in values or behaviors

Reference groups are people to whom an individual look as a basis for self-appraisal or as a source of
personal standards. Reference groups have an important influence on the purchases of luxury items.

• Family Influences

Family influences on consumer behavior result from three sources:

a. Consumer Socialization - Consumer socialization is the process by which people acquire the
skills, knowledge, and attitudes necessary to function as consumers
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 b. Passage Through the Family Life Cycle - The distinct phases that a family progresses through
from the formation to retirement. Each phase bringing with it identifiable purchasing behaviors
c. Decision Making within the Family - Increasingly, preteens and teenagers are assuming these
roles for the family, given the prevalence of working parents and single-parent households o
Spouse-dominant o Joint decision making

• Social Class

a. The relatively permanent, homogeneous divisions in a society into which people sharing similar
values, interests, and behavior are grouped
b. Determinants of social class include: o Occupation o Source of income o Education
c. Social class is a basis for identifying and reaching particularly good prospects for products and
services

o Upper classes are targeted by companies for items such as financial investments, expensive
cars, and evening wear
o Middle classes represent a target market for home improvement centers and automobile
parts stores
o Lower classes are targeted for products such as sports and general needs • Culture and

Subculture

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a. Culture refers to the set of values, ideas and attitudes that are accepted by a homogeneous group
of people and transmitted to the next generation
b. Subcultures - groups within the larger, or national, culture with unique values, ideas, and attitudes
c. Each of these groups exhibits sophisticated social and cultural behaviors that affect their buying
patterns

Personal Influences on Consumer Behavior

Factors that are personal to the consumers influence their buying behavior. These personal factors differ
from person to person, thereby producing different perceptions and consumer behavior.

• Age

Age is a major factor that influences buying behavior. The buying choices of youth differ from that of
middle-aged people. Elderly people have a totally different buying behavior. Teenagers will be more
interested in buying colorful clothes and beauty products. Middle-aged are focused on house, property
and vehicle for the family.

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• Income

Income has the ability to influence the buying behavior of a person. Higher income gives higher
purchasing power to consumers. When a consumer has higher disposable income, it gives more
opportunity for the consumer to spend on luxurious products. Whereas low-income or middle-income
group consumers spend most of their income on basic needs such as groceries and clothes.

• Occupation

Occupation of a consumer influences the buying behavior. A person tends to buy things that are
appropriate to this/her profession. For example, a doctor would buy clothes according to this profession
while a professor will have different buying pattern.

• Lifestyle

Lifestyle is an attitude, and a way in which an individual stay in the society. The buying behavior is highly
influenced by the lifestyle of a consumer. For example when a consumer leads a healthy lifestyle, then
the products he buys will relate to healthy alternatives to junk food.

Economic Influences on Consumer Behavior

The consumer buying habits and decisions greatly depend on the economic situation of a
country or a market. When a nation is prosperous, the economy is strong, which leads to the greater

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money supply in the market and higher purchasing power for consumers. When consumers experience a
positive economic environment, they are more confident to spend on buying products.

Whereas, a weak economy reflects a struggling market that is impacted by unemployment and lower
purchasing power.

Economic factors bear a significant influence on the buying decision of a consumer. Some of the
important economic factors are:

• Personal Income

When a person has a higher disposable income, the purchasing power increases simultaneously.
Disposable income refers to the money that is left after spending towards the basic needs of a person.

When there is an increase in disposable income, it leads to higher expenditure on various items. But
when the disposable income reduces, parallelly the spending on multiple items also reduced.

• Family Income

Family income is the total income from all the members of a family. When more people are earning in
the family, there is more income available for shopping basic needs and luxuries. Higher family income

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influences the people in the family to buy more. When there is a surplus income available for the family,
the tendency is to buy more luxury items which otherwise a person might not have been able to buy.

• Consumer Credit

When a consumer is offered easy credit to purchase goods, it promotes higher spending. Sellers are
making it easy for the consumers to avail credit in the form of credit cards, easy installments, bank
loans, hire purchase, and many such other credit options. When there is higher credit available to
consumers, the purchase of comfort and luxury items increases.

• Liquid Assets

Consumers who have liquid assets tend to spend more on comfort and luxuries. Liquid assets are those
assets, which can be converted into cash very easily. Cash in hand, bank savings and securities are some
examples of liquid assets. When a consumer has higher liquid assets, it gives him more confidence to
buy luxury goods.

• Savings

A consumer is highly influenced by the amount of savings he/she wishes to set aside from his
income. If a consumer decided to save more, then his expenditure on buying reduces. Whereas

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if a consumer is interested in saving more, then most of his income will go towards buying products.

The Business Market

Business markets have been expanding and people are investing more money and resource in the
business market than the consumer markets.

The business market is the process of selling your product and services to other businesses, where those
products and services will either be used as a raw material for the manufacturing of other products. Or
those businesses buy the products or services and resell them.

We can also say that the business market is where one business sells products or services to the other
businesses; it is either to resell or reuse those products or services.

Consumer Markets Vs Business Markets

Consumer Market is where businesses sell their products and services to the tail-end consumers. As
compared to the buyer market, the consumer market has many sellers and the selling market is very
competitive.

Business buyers would buy the products or services to produce some new products for sales. The
business won’t buy the next shipment until the sale of already prepared products.

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Unlike the temporary relation of the consumer market, the business market involves a long term
interaction of buyer and seller. That’s what makes the relationship very stable and volatile at the same
time. It’s good if it keeps working well.

The consumer market is very precise about the demography of its targeted audience like

age, gender, beliefs, social status, attitude, and behavior. All of those factors vary in terms of
geographical regions, it’s because people in different regions have different preferences, likes, and
dislikes

Buying Situations in the Business Market

A straight re-buy—is a situation in which a purchaser buys the same product in the same quantities
from the same vendor. Nothing changes, in other words. Post-purchase evaluations are often skipped,
unless the buyer notices an unexpected change in the offering such as a deterioration of its quality or
delivery time. Sellers like straight re-buys because the buyer doesn’t consider any alternative products
or search for new suppliers. The result is a steady, reliable stream of revenue for the seller.
Consequently, the seller doesn’t have to spend a lot of time on the account and can concentrate on
capturing other business opportunities. Nonetheless, the seller cannot ignore the account. The seller still
has to provide the buyer with top-notch, reliable service or the straight-re buy situation could be
jeopardized. If an account is especially large and important, the seller might

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go so far as to station personnel at the customer’s place of business to be sure the customer is happy
and the straight-re-buy situation continues. IBM and the management consulting firm
Accenture station employees all around the world at their customers’ offices and facilities.

A new-buy selling situation occurs when a firm purchases a product for the first time. Generally
speaking, all the buying stages we described in the last section occur. New buys are the most time
consuming for both the purchasing firm and the firms selling to them. If the product is complex, many
vendors and products will be considered, and many RFPs will be solicited. New to-an-organization
buying situations rarely occur. What is more likely is that a purchase is new to the people involved. For
example, a school district owns buildings. But when a new high school needs to be built, there may not
be anyone in management who has experience building a new school. That purchase situation is a new
buy for those involved.

A modified re-buy occurs when a company wants to buy the same type of product it has in the past but
make some modifications to it. Maybe the buyer wants different quantities, packaging, or delivery, or
the product customized slightly differently. A modified re-buy doesn’t necessarily have to be made with
the same seller, however. Your instructor may have taught this course before, using a different
publisher’s book. High textbook costs, lack of customization, and other factors may have led to
dissatisfaction. In this case, she might visit with some other textbook suppliers and see what they have
to offer. Some buyers routinely solicit bids from other sellers when they want to modify their purchases
in order to get sellers to compete for their business. Likewise, savvy sellers look for ways to turn straight
re-buys into modified buys so they can get a shot at the business. They do so by regularly visiting with
customers and seeing if they have unmet needs or problems a modified product might solve

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Participants in the Business Market

Who buys the goods and services needed by business organizations? The decision-making unit of a
buying organization is called its buying centre, defined as all the individuals and units that participate in
the business decision-making process. The buying centre includes all members of the organization who
play any of the following five roles in the purchase decision process.

1. Users. Members of the organization who will use the product or service. In many cases, users
initiate the buying proposal and help define product specifications.

2. Influencers. People who affect the buying decision. They often help define specifications and
provide information for evaluating alternatives. Technical personnel are particularly important
influencers.

3. Buyers. People with formal authority to select the supplier and arrange terms of purchase.
Buyers may help shape product specifications, but they play their most important role in electing
vendors and in negotiating. In more complex purchases, buyers might include high-level officers
participating in the negotiations.

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4. Deciders. People who have formal or informal power to select or approve the final suppliers. In
routine buying, the buyers are often the deciders or at least the approvers.

5. Gatekeepers. People who control the flow of information to others. For example, purchasing
agents often have authority to prevent salespersons from seeing users or deciders. Other gatekeepers
include technical personnel and even personal secretaries.

Business Buying Market

Business buyers can be either nonprofit or for-profit businesses. To help you get a better idea of the
different types of business customers in Business to Business markets, we’ve put them into four basic
categories: producers, resellers, governments, and institutions.

Producers are companies that purchase goods and services that they transform into other products.
They include both manufacturers and service providers. Procter & Gamble, General Motors,
McDonald’s, Dell, and Delta Airlines are examples. So are the restaurants around your campus, your
dentist, your doctor, and the local tattoo parlor. All these businesses have to buy certain products to
produce the goods and services they create. General Motors needs steel and hundreds of thousands of
other products to produce cars.

McDonald’s needs beef and potatoes. Delta Airlines needs fuel and planes. Your dentist needs drugs
such as Novocain, oral tools, and X-ray machines. Your local tattoo parlor needs special inks and needles
and a bright neon sign that flashes “open” in the middle of the night.

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 Resellers are companies that sell goods and services produced by other firms without materially
changing them. They include wholesalers, brokers, and retailers. Walmart and Target are two big
retailers you are familiar with. Large wholesalers, brokers, and retailers have a great deal of market
power. If you can get them to buy your products, your sales can exponentially increase.

Governments - Business-to-government (B2G) markets, or when companies sell to local, state, and
federal governments, represent a major selling opportunity, even for smaller sellers. In fact, many
government entities specify that their agencies must award a certain amount of business to small
businesses, minority- and women-owned businesses,

Stages in the Business to Business Buying Process

1. A need is recognized. Someone recognizes that the organization has a need that can be
solved by purchasing a good or service. Users often drive this stage, although others can serve the role
of initiator.

2. The need is described and quantified. Next, the buying center, or group of people
brought together to help make the buying decision, work to put some parameters around what

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needs to be purchased. In other words, they describe what they believe is needed, the features it
should have, how much of it is needed, where, and so on.

3. Potential suppliers are searched for. At this stage, the people involved in the buying
process seek out information about the products they are looking for and the vendors that can supply
them. Most buyers look online first to find vendors and products, then attend industry trade shows and
conventions and telephone or email the suppliers with whom they have relationships. The buyers might
also consult trade magazines, the blogs of industry experts, and perhaps attend Webinars conducted by
vendors or visit their facilities.

4. Qualified suppliers are asked to complete responses to requests for proposal (RFPs).
Each vendor that makes the cut is sent a request for proposal (RFP) which is an invitation to submit a bid
to supply the good or service. An RFP outlines what the vendor is able to offer in terms of its product—
its quality, price, financing, delivery, after-sales service, whether it can be customized or returned, and
even the product’s disposal, in some cases. Good sales and marketing professionals do more than just
provide basic information to potential buyers in RFPs. They focus on the buyer’s problems and how to
adapt their offers to solve those problems.

5. The proposals are evaluated and supplier(s) selected. During this stage, the RFPs
are reviewed and the vendor or vendors selected. RFPs are best evaluated if the members agree on
the criteria being evaluated and the importance of each. Different organizations will weigh different
parts of a proposal differently, depending on their goals and the products they purchase.

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 6. An order routine is established. This is the stage in which the actual order is put
together. The order includes the agreed-upon price, quantities, expected time of delivery, return
policies, warranties, and any other terms of negotiation.

7. A post purchase evaluation is conducted and the feedback provided to the vendor.
Just as consumers go through an evaluation period after they purchase goods and services, so do
businesses. The buying unit might survey users of the product to see how satisfied they were with it.

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CHAPTER VI: Segmentation, Positioning, and

Target Marketing
Objectives:

At the end of the chapter, the student shall be able to:

➢ Discuss market segmentation

➢ Identify the positioning strategies

➢ Define the business and consumer market segmentation

➢ Create a perceptual map

What is Target Segmentation

Market segmentation is the process of dividing a market of potential customers into

groups, or segments, based on different characteristics. The segments created are composed of

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consumers who will respond similarly to marketing strategies and who share traits such as
similar interests, needs, or locations.

Why is market segmentation important for marketers?

Market segmentation makes it easier for marketers to personalize their marketing

campaigns.

By arranging their company’s target market into segmented groups, rather than targeting
each potential customer individually, marketers can be more efficient with their time, money,
and other resources than if they were targeting consumers on an individual level. Grouping
similar consumers together allows marketers to target specific audiences in a cost effective
manner.

Market segmentation also reduces the risk of an unsuccessful or ineffective marketing

campaign. When marketers divide a market based on key characteristics and personalize their
strategies based on that information, there is a much higher chance of success than if they were
to create a generic campaign and try to implement it across all segments.

Marketers can also us segmentation to prioritize their target audiences. If segmentation

shows that some consumers would be more likely to buy a product than others, marketers can
better allocate their attention and resources.

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Criteria for Successful Segmentation

Market segmentation is practiced by most businesses in one form or another, as a way of

streamlining their marketing strategy by dividing broad-based target markets into specific group
of consumers, and devising marketing methods that will appeal to each group.

Clearly defined market segmentation criteria not only ensure that customers are more
likely to identify – and purchase – the product that is right for them; it also minimizes wastage of
resources, reducing the time spent marketing the wrong products to the wrong customers. It is
important, however, to focus resources on market segments whose size, growth and profitability
is good, both immediately and in the long run. The following 5 market segmentation criteria
should be useful when planning your own company’s market segmentation strategy.

A market segment should be:

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1. Measurable

Market segments are usually measured in terms of sales value or volume (i.e. the number
of customers within the segment). Reliable market research should be able to identify the size
of a market segment to a reasonable degree of accuracy, so that strategists can then decide
whether, how, and to what extent they should focus their efforts on marketing to this
segment.

2. Substantial

Simply put, there would be no point in wasting marketing budget on a market segment
that is insufficiently large, or has negligible spending power. A viable market segment is
usually a homogenous group with clearly defined characteristics such as age group, socio-
economic background and brand perception. Longevity is also important here: no market
segmentation expert would recommend focusing on an unstable customer group that is likely
to disperse, or change beyond recognition within a year or two.

3. Accessible

When demarcating a market segment, it is important to consider how the group might be
accessed and, crucially, whether this falls within the strengths and abilities of the company’s
marketing department. Different segments might respond better to outdoor advertising, social
media campaigns, television infomercials, or any number of other approaches.

4. Differentiable

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An ideal market segment should be internally homogeneous (i.e. all customers within the
segment have similar preferences and characteristics), but externally heterogeneous.
Differences between market segments should be clearly defined, so that the campaigns,
products and marketing tools applied to them can be implemented without overlap.

5. Actionable:

The market segment must have practical value – its characteristics must provide
supporting data for a marketing position or sales approach, and this in turn must have
outcomes that are easily quantified, ideally in relation to the existing measurements of the
market segment as defined by initial market research.

A good understanding of the principles of market segmentation is an important building

block of your company’s marketing strategy – the foundation for an efficient, streamlined and

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ultimately successful approach to customers, and a means of targeting your products and services
accurately, with the minimum of wastage.

Consumer Market Segmentation

The four bases for segmenting consumer market are as follows: Demographic
Segmentation, Geographic Segmentation, Psychographic Segmentation, and Behavioral
Segmentation.

1. Demographic Segmentation

Demographic segmentation divides the markets into groups based on variables such as
age, gender, family size, income, occupation, education, religion, race and nationality.
Demographic factors are the most popular bases for segmenting the consumer group. One
reason is that consumer

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needs, wants, and usage rates often vary closely with the demographic variables. Moreover,
demographic factors are easier to measure than most other type of variables.

• Age

It is one of the most common demographic variables used to segment markets. Some com
panies offer different products, or use different marketing approaches for different age groups.
For example, McDonald’s targets children, teens, adults and seniors with different ads and
media. Markets that are commonly segmented by age includes clothing, toys, music,
automobiles, soaps, shampoos and foods.

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 • Gender

Gender segmentation is used in clothing, cosmetics and magazines.

• Income

Markets are also segmented on the basis of income. Income is used to divide the markets
because it influences the people’s product purchase. It affects a consumer’s buying power and
style of living. Income includes housing, furniture, automobile, clothing, alcoholic, beverages,
food, sporting goods, luxury goods, financial services and travel.

• Family cycle

Product needs vary according to age, number of persons in the household, marital status,
and number and age of children. These variables can be combined into a single variable called
family life cycle. Housing, home appliances, furniture, food and automobile are few of the
numerous product markets segmented by the family cycle stages. Social class can be divided into
upper class, middle class and lower class. Many companies deal in clothing, home furnishing,
leisure activities, design products and services for specific social classes.

2. Geographic Segmentation

Geographic segmentation refers to dividing a market into different geographical units

such as nations, states, regions, cities, or neighborhoods. For example, national newspapers are
published and distributed to different cities in different languages to cater to the needs of the
consumers.

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Geographic variables such as climate, terrain, natural resources, and population density
also influence consumer product needs. Companies may divide markets into regions because the
differences in geographic variables can cause consumer needs and wants to differ from one
region to another.

3. Psychographic Segmentation

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 Psychographic segmentation pertains to lifestyle and personality traits. In the case of
certain products, buying behavior predominantly depends on lifestyle and personality
characteristics.

• Personality characteristics

It refers to a person’s individual character traits, attitudes and habits. Here markets are
segmented according to competitiveness, introvert, extrovert, ambitious, aggressiveness, etc.
This type of segmentation is used when a product is similar to many competing products, and
consumer needs for products are not affected by other segmentation variables.

• Lifestyle

It is the manner in which people live and spend their time and money. Lifestyle analysis
provides marketers with a broad view of consumers because it segments the markets into groups
on the basis of activities, interests, beliefs and opinions. Companies making cosmetics, alcoholic
beverages and furniture’s segment market according to the lifestyle.

4. Behavioral Segmentation

In behavioral segmentation, buyers are divided into groups on the basis of their
knowledge of, attitude towards, use of, or response to a product. Behavioral segmentation
includes segmentation on the basis of occasions, user status, usage rate loyalty status, buyer-
readiness stage and attitude.

• Occasion

Buyers can be distinguished according to the occasions when they purchase a product,
use a product, or develop a need to use a product. It helps the firm expand the product usage.
For example, Cadbury’s advertising to promote the product during wedding season is an
example of occasion segmentation.

• User status

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Sometimes the markets are segmented on the basis of user status, that is, on the basis of
non-user, ex-user, potential user, first-time user and regular user of the product. Large companies
usually target potential users, whereas smaller firms focus on current users.
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 • Usage rate

Markets can be distinguished on the basis of usage rate, that is, on the basis of light,
medium and heavy users. Heavy users are often a small percentage of the market, but account for
a high percentage of the total consumption. Marketers usually prefer to attract a heavy user
rather than several light users, and vary their promotional efforts accordingly.

• Loyalty status

Buyers can be divided on the basis of their loyalty status—hardcore loyal (consumer who
buy one brand all the time), split loyal (consumers who are loyal to two or three brands), shifting
loyal (consumers who shift from one brand to another), and switchers (consumers who show no
loyalty to any brand).

• Buyer readiness stage

The six psychological stages through which a person passes when deciding to purchase a
product. The six stages are awareness of the product, knowledge of what it does, interest in the
product, preference over competing products, conviction of the product’s suitability, and
purchase. Marketing campaigns exist in large part to move the target audience through the buyer
readiness stages.

Business Market Segmentation

Business markets can be segmented in a variety of ways depending on the marketer's

overall objectives and product and service offerings. The more specifically and precisely the
market can be segmented, the greater the odds that the marketer will be able to connect with the
audience and compel desired action.

• Geographic Segmentation Based on Location

Geographic segmentation is used to identify business target markets based on where the
businesses are located. In some cases, business marketers will be attempting to appeal to a very
local market segment, such as cleaning services, for instance. In other cases, the market reach
might be much broader, even expanding into global market segments. Geographic segmentation
can be useful for identifying media and marketing channels designed to reach certain geographic
areas most effectively both through marketing messages, as well as through distribution
channels.

• Segmentation by Size

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Business to business, or B2B, marketers sometimes choose to target potential business
customers based on their size. Size might be measured in terms of number of employees or in
terms of annual sales. Larger companies may represent the potential for more significant sales,
while smaller companies hold value by virtue of the fact that there will be many more of them to
target as potential customers.

Size will also become an issue in determining how to best connect with these
organizations and which individuals within the organizations to target for communications. In
small companies, for example, this task will be much more straight-forward; in larger
companies, it can be challenging to identify the key decision-makers accurately.

• Segmentation by Industry

Industry segmentation may be used by marketers who are selling products with specific
appeal in certain industry segments. For instance, companies that make specialized computer
components will want to identify companies that use the components and then segment these
companies into a targeted group for communications and outreach. Different industry segments
may also have specific needs and challenges that can be addressed through key messaging in
communications. Industry segmentation also holds an advantage in that there are a multitude of
industry-specific trade associations that can be used to connect with these audiences.

• Business Need Segmentation

Segmentation based on business need allows marketers to identify and connect with
businesses that span geographies, size and industry, but share a common need addressed by the
marketer's products or services. For example, virtually every business needs telephone systems
and computers. Marketers may choose to combine segmentation to more narrowly identify their
audience, such as businesses that need accounting software that are located within a certain
radius and are part of the energy utility industry.

Selecting Target Markets

Target market represents a group of individuals who have similar needs, perceptions and
interests. They show inclination towards similar brands and respond equally to market
fluctuations.

Individuals who think on the same lines and have similar preferences form the target
audience. Target market includes individuals who have almost similar expectations from the
organizations or marketers.

Given the current state of the economy, having a well-defined target market is more
important than ever. No one can afford to target everyone. Small businesses can effectively
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compete with large companies by targeting a niche market.

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Many businesses say they target "anyone interested in my services." Some say they target
small-business owners, homeowners, or stay-at-home moms. All of these targets are too general.

Targeting a specific market does not mean that you are excluding people who do not fit
your criteria. Rather, target marketing allows you to focus your marketing dollars and brand
message on a specific market that is more likely to buy from you than other markets. This is a
much more affordable, efficient, and effective way to reach potential clients and generate
business.

With a clearly defined target audience, it is much easier to determine where and how to
market your company. Here are some tips to help you define your target market.

• Look at your current customer base.

Who are your current customers, and why do they buy from you? Look for common
characteristics and interests. Which ones bring in the most business? It is very likely that other
people like them could also benefit from your product/service.

• Check out your competition.

Who are your competitors targeting? Who are their current customers? Don't go after the
same market. You may find a niche market that they are overlooking.

• Analyze your product/service.

Write out a list of each feature of your product or service. Next to each feature, list the
benefits it provides (and the benefits of those benefits). For example, a graphic designer offers
high-quality design services. The benefit is a professional company image. A professional image
will attract more customers because they see the company as professional and trustworthy. So
ultimately, the benefit of high-quality design is gaining more customers and making more
money. Once you have your benefits listed, make a list of people who have a need that your
benefit fulfills.

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• Choose specific demographics to target.

Figure out not only who has a need for your product or service, but also who is most
likely to buy it. Think about the following factors:

o Age
o Location
o Gender
o Income level
o Education level
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o Marital or family status
o Occupation
o Ethnic background

• Consider the psychographics of your target.

Psychographics are the more personal characteristics of a person, including:

o Personality
o Attitudes
o Values
o Interests/hobbies
o Lifestyles
o Behavior

Determine how your product or service will fit into your target's lifestyle. How and when
will your target use the product? What features are most appealing to your target? What media
does your target turn to for information? Does your target read the newspaper, search online, or
attend particular events?

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• Evaluate your decision.

Once you've decided on a target market, be sure to consider these questions:

o Are there enough people who fit my criteria?

o Will my target really benefit from my product/service? Will they see a need for it?
o Do I understand what drives my target to make decisions?
o Can they afford my product/service?
o Can I reach them with my message? Are they easily accessible?

Consider if your marketing message should be different for each niche. If you can reach
both niches effectively with the same message, then maybe you have broken down your market
too far. Also, if you find there are only 50 people that fit all of your criteria, maybe you should
reevaluate your target. The trick is to find that perfect balance.

You may be asking, "How do I find all this information?" Try searching online for
research others have done on your target. Search for magazine articles and blogs that talk about
or to your target market. Search for blogs and forums where people in your target market
communicate their

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opinions. Look for survey results, or consider conducting a survey of your own. Ask your current
customers for feedback.

Defining your target market is the hard part. Once you know who you are targeting, it is
much easier to figure out which media you can use to reach them and what marketing messages
will resonate with them. Instead of sending direct mail to everyone in your ZIP code, you can
send it only to those who fit your criteria. Save money and get a better return on investment by
defining your target audience.

Positioning Strategies

Positioning strategies can be conceived and developed in a variety of ways. It can be

derived from the object attributes, competition, application, the types of consumers involved, or
the characteristics of the product class. All these attributes represent a different approach in
developing positioning strategies, even though all of them have the common objective of
projecting a favorable image in the minds of the consumers or audience. There are seven
approaches to positioning strategies:

1. Using Product characteristics or Customer Benefits as a positioning strategy

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 This strategy basically focuses upon the characteristics of the product or customer
benefits. For example, imported items it basically tell or illustrate a variety of product
characteristics such as durability, economy or reliability etc. Some motorbikes are emphasizing
on fuel economy, some on power, looks and others stress on their durability.

You would have seen this in the case of toothpaste market, most toothpaste insists on
‘freshness’ and ‘cavity fighter’ as the product characteristics. It is always tempting to try to
position along several product characteristics, as it is frustrating to have some good
characteristics that are not communicated.

2. Pricing as a positioning strategy

Quality Approach or Positioning by Price-Quality – Lets take an example and understand

this approach just suppose you have to go and buy a pair of jeans, as soon as you enter in the
shop you will find different price rage jeans in the showroom say price ranging from 350 PHP to
2000 PHP. As soon as look at the jeans of 350 PHP you say that it is not good in quality.

Why? Basically because of perception, as most of us perceive that if a product is

expensive will be a quality product where as product that is cheap is lower in quality. If we look
at this Price – quality approach it is important and is largely used in product positioning. In
many product categories, there are brands that deliberately attempt to offer more in terms of
service, features

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or performance. They charge more, partly to cover higher costs and partly to let the consumers
believe that the product is, certainly of higher quality.

3. Positioning strategy based on Use or Application

Basically this type of positioning-by-use represents a second or third position for the
brand, such type of positioning is done deliberately to expand the brand’s market. If you are
introducing new uses of the product that will automatically expand the brand’s market. Nescafe
Coffee for many years positioned itself as a winter product and advertised mainly in winter but
the introduction of cold coffee has developed a positioning strategy for the summer months also.

4. Positioning strategy based on Product Process

Another positioning approach is to associate the product with its users or a class of users.
Makes of casual clothing like jeans have introduced ‘designer labels’ to develop a fashion image.
In this case the expectation is that the model or personality will influence the product’s image by
reflecting the characteristics and image of the model or personality communicated as a product

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user.

Johnson and Johnson repositioned its shampoo from one used for babies to one used by
people who wash their hair frequently and therefore need a mild people who wash their hair
frequently and therefore need a mild shampoo. This repositioning resulted in a market share.

5. Positioning strategy based on Product Class

In some product class we have to make sure critical positioning decisions For example,
freeze dried coffee needed to positions itself with respect to regular and instant coffee and
similarly in case of dried milk makers came out with instant breakfast positioned as a breakfast
substitute and virtually identical product positioned as a dietary meal substitute.

6. Positioning strategy based on Cultural Symbols

In today’s world many advertisers are using deeply entrenched cultural symbols to
differentiate their brands from that of competitors. The essential task is to identify something
that is very meaningful to people that other competitors are not using and associate this brand
with that symbol.

7. Positioning strategy based on Competitors

In this type of positioning strategies, an implicit or explicit frame of reference is one or

more competitors. In some cases, reference competitor(s) can be the dominant aspect of the

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positioning strategies of the firm, the firm either uses the same of similar positioning strategies
as used by the competitors or the advertiser uses a new strategy taking the competitors’ strategy
as the base.

A good example of this would be Colgate and Pepsodent. Colgate when entered into the
market focused on to family protection but when Pepsodent entered into the market with focus
on 24 hour protection and basically for kids, Colgate changed its focus from family protection to
kid’s teeth protection which was a positioning strategy adopted because of competition.

Perceptual Mapping

A perceptual map is a visual representation of the perceptions of customers or potential

customers about specific attributes of an organization, brand, product, service, or idea. This
diagrammatic technique (perceptual mapping) asks participants to place products relative to one
another along 2 or more axis. The resulting map shows how consumers see the strengths of
competing products in a particular market.

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 Perceptual maps are also referred to as position maps and market maps. Examples include:

• Quality vs Price

• Functionality vs Price

• Healthiness vs Tastiness

• Price vs Performance

• Price vs Safety & Reliability

Why create a Perceptual Map

Understanding what your customers think about you and your competitors is crucial to
your success. A perceptual map helps organizations to:

• Understand the thoughts and behaviors of consumers.

• Gain insight into their competition

• Track market trends

• Identify gaps in the market

Use it for:

• Environmental scanning prior to planning

• Developing marketing, branding, and positioning strategies

• Informing product and service development initiatives

• Tracking the performance of new products

• Identifying the extent of damage to products on the decline

• Regular reviews to determine market changes and new trends

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Who should use Perceptual Maps

Perceptual maps are useful for any organization that wants to identify gaps in the market,
monitor their own products, or look for potential partners or takeover/merger targets.

Perceptual Map Template

The most common format for a perceptual map template is a two-dimensional chart
where the horizontal and vertical axes represent different attributes that you rate on a scale e.g.,
Low to High. The map is straightforward and simple to construct and interpret.

Examples of attributes used on a perceptual map template include: price, quality,

performance, packaging, size, features, safety and reliability.

How to create a Perceptual Map

Assemble a group of consumers or across a range of relevant demographics. The quality

of the outcomes is dependent on the insight of the participants, and a diverse group helps to gain
a better insight into the market.

Gathering a large group in one location can be expensive and difficult to coordinate.
Using an online collaborative tool such as Groupmap enables facilitators to engage consumers
in different places at different times and effortlessly combine the results to get an overview.

An example of consumers perception of price and quality of brands in the automobile

industry are mapped below:

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Communicating Positioning Strategy

Effective communications employ both creativity and strategy to build and maintain the
strong perceptions that attract your target audience and grow your business. Essentially,
consistent, integrated brand communications set your organization apart. What you
communicate represents your organization’s distinctive position in the minds of customers.

The first step is to have a clearly defined brand positioning strategy. Here are the
importance of the following:

• Marketresearch to understand your customers’ needs and how they perceive you and your
team members;

• Understanding the essential benefits of your business and defining how you will provide
value to your chosen market;

• Developing a strong vision statement that states what you want your organization to achieve
over time – this clear strategic focus guides and inspires your team.

If you have undertaken the necessary preparation to define your brand positioning
strategy, you will have a strong foundation. From here, you can develop and deliver a focused
communications campaign.

Here are three key principles to guide your approach to ongoing brand
communications activities.

1. Use communications activities to reinforce your brand benefits.

Define what you will do to communicate with your audience. Your communications
activities may employ a select group of focused channels, or they may be far and wide-reaching.
Common activities include events, advertising, content marketing, newsletters, social media,
promotions, direct mail and media relations.

2. Communication materials should engage the attention of your core audience.

Consider your communication materials from your audience’s viewpoint. They should
serve to quickly attract attention, but also reflect your brand in a positive and professional light.
Your logo and headline must be prominent and designed to drive maximum interest – but not at
the expense of engaging design and a well-considered tone.

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Think about the overall look and feel you want to convey. Test your end result by seeking
feedback from people in your audience’s situation. Keep in mind: if you aim to position your
organization as trustworthy and credible, then your communication materials must reflect that.
Your target audiences will respond to materials that look professional and are based on fact.

Professional photography is a valuable tool in engaging with your target audience. To

create a unique image and demonstrate your authenticity, invest in your own photo-shoot. But
make sure you develop a clear brief so that the photographer can tell your story and demonstrate
who you are.

3. Consistently integrate the same key messages into your communications.

You can have the best creative in the world, but if you don’t understand who you are
communicating with and what their drivers are, then your efforts will not translate into the action
clients most commonly seek: sales uplift. Ensure you have a summary collection of key
messages that you use consistently to guide content development from content marketing to
event topics. Once you know what your message is, your communications campaigns will
remind your audience of your brand’s key benefits again and again.

Repositioning

Repositioning is an exciting opportunity to give a product or service a much-needed

update. Repositioning involves drastically altering your brand in order to change what
customers think about your products. Repositioning is usually done due to declining
performance or major shifts in the environment.

Repositioning campaigns can take several forms depending on the specific needs of the
product. Some repositioning efforts focus on improving a brand's customer relations. As social
media platforms have gained more influence, many brands have used repositioning to connect
with internet users by increasing the brand's presence online. Other brands find it necessary to
reposition due to public relations fiascos or negative press. Changing the public's perception of a
product is a critical part of overcoming a bad reputation or responding to complaints.

Repositioning often includes a shift in the brand's overall message. In recent years, many
companies have repositioned products to be more eco-friendly to show the company's
commitment to preserving the environment. Others have adapted messages of giving or societal
responsibility and have established charity foundations or service projects.

Repositioning can involve changing other aspects of a brand or product, including:

• Product price

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 • Marketing strategy

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• Target audience

• Customer engagement

• Color scheme

• Logo design

• Tagline

Positioning Strategy

A positioning strategy is the set of actions and processes to improve the image and
visibility of our brand, company or product. That is the place that our brand occupies in the
mind of a consumer, or what is the same, the perception that we have of a brand or product
when compared with those of the competition. The objective of positioning is to establish the
image or identity of a brand or product so that consumers perceive it in a certain way.

For example:

• A handbag maker may position itself as a luxury status symbol

• A TV maker may position its TV as the most innovative and cutting-edge • A

fast-food restaurant chain may position itself as the provider of cheap meals

How to Create an Effective Market Positioning Strategy

Create a positioning statement that will serve to identify your business and how you want
the brand to be perceived by consumers.

1. Determine company uniqueness by comparing to competitors

Compare and contrast differences between your company and competitors to identify
opportunities. Focus on your strengths and how they can exploit these opportunities.

2. Identify current market position

Identify your existing market position and how the new positioning will be beneficial in
setting you apart from competitors.

3. Competitor positioning analysis

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 Identify the conditions of the marketplace and the amount of influence each competitor
can have on each other.

4. Develop a positioning strategy

Through the preceding steps, you should achieve an understanding of what your company
is, how your company is different from competitors, the conditions of the marketplace,
opportunities in the marketplace, and how your company can position itself.

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CHAPTER VII: Product Strategy

Objectives:

At the end of the chapter, the student shall be able to:

➢ Identify the characteristics and classifications of product ➢ Define product and brand
➢ Define packaging, labeling, guarantees and warrantees
➢ Understand service as a product

Product Characteristics and Classifications

Product is one of the important elements of marketing mix. A marketer can satisfy consumer needs and
wants through product. A product consists of both good and service. Decisions on all other elements of
marketing mix depend on product. For example, price is set for the product; promotional efforts are
directed to sell the product; and distribution network is prepared for the product. Product is in the
center of marketing programme. Therefore, product has a major role in determining overall success of
marketing efforts.

Characteristics of Product

• Product is one of the elements of marketing mix or programme.

• Different people perceive it differently. Management, society, and consumers have different
expectations.
• Product includes both good and service.
• Marketer can actualize its goals by producing, selling, improving, and modifying the product.
• Product is a base for entire marketing programme.
• In marketing terminology, product means a complete product that can be sold to consumers. That
means branding, labeling, color, services, etc., constitute the product. • Product includes total
offers, including main qualities, features, and services. • It includes tangible and non-tangible
features or benefits.

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 • It is a vehicle or medium to offer benefits and satisfaction to consumers. • Important lies in
services rendered by the product, and not ownership of product. People buy services, and not the
physical object.

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Classification of Product

In every part of the world there are different systems of product classification. The concept of “product
classification” consists of dividing products according to specific characteristics so that they form a
structured portfolio. In general, manufacturers use an informal product classification system but there
are also many standardized methods of product classification devised by various industry organizations.

Classification of Products (According to their Durability and Tangibility)

1. Durable products

Products used over an extended period of time and normally survive for many years. Examples
are refrigerators, cars and furniture.

2. Non-durable products

Goods that are normally consumed quickly and used on one or a few usage occasions, such as
beer, soap and food products.

3. Services

These are essential intangible goods that do not result in ownership of anything but are
necessary for human satisfaction. These are bundles of activities, benefits, or form of satisfaction that is
offered for sale at specific location. Beauty salons, barber shops, massage parlors, and home repairs are
some examples.

Classification of Products (Based on the types of Customer that use

them) 1. Consumer products

These are products bought by consumers for their personal use and consumption. Most of these
products are considered basic goods, and consumers buy them most frequently. Marketers usually
classify these goods based on consumer shopping habits. Consumer products include convenience
products, shopping products, specialty products and unsought products. Customers along this line could
be found in mini-grocery or corner stores in shopping malls buying goods like detergents, canned goods,
rice and many others. These goods are further classified according to their use and features.
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 ▪ Convenience goods/convenience goods

These are consumer goods that are bought by final consumers for personal and daily
use. It may be in the form of actual products like batch soap, baby diapers, newspapers and
magazines. Convenience goods are usually low priced, and marketers place them in many
locations to make them readily available when customers need them.
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▪ Shopping Goods/shopping products

These are goods customers have to spend some time to decide whether to buy them or not.
They compare the quality, price, style and suitability to other items of the same kind. Also, it is a
consumer product with unique characteristics or brand identification for which a significant
group of buyers is willing to make a special purchase effort.

▪ Specialty Goods

A consumer product with unique characteristics or brand identification for which a significant
group of buyers is willing to make a special purchase effort. These are products with unique
characteristics or it is identified according to the brand. It is a

consumer goods with unique characteristics or brand identification for which a significant group
of buyers is willing to make a special purchase effort. Examples include specific brands and types
of car, high-priced home entertainment systems and photographic equipment, luxury goods,
designer clothes and the services of medical or legal specialists. ▪ Unsought products

Are consumer goods that the consumer either does not know about or knows about but does
not normally think of buying. Most major new innovations are unsought until the consumer
becomes aware of them through advertising. Classic examples of known but unsought goods are
life insurance, home security systems, funeral services and blood donations. By their very
nature, unsought goods require a lot of advertising, personal selling and other marketing efforts.
It is a consumer product that the consumer either does not know about or knows about but
does not normally think of buying.

2. Industrial Goods/Industrial Products

These are products/services used for the production of new products. Depending on their use, industrial
goods can sometimes be classified as consumer goods. Examples of industrial goods include capital
goods, raw materials, and repairs, supplies and services. Thus the distinction between a consumer
product and an industrial product is based on the purpose for which the product is purchased. If a
consumer buys a lawnmower for home use, the lawnmower is a consumer product. If the same
consumer buys the same lawn mower for use in a landscaping business, the lawnmower is an industrial
product.

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 • Materials and parts

Industrial goods that become a part of the buyer’s product, through further processing or as
components. They include raw materials and manufactured materials and parts.

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• Raw materials

Consist of farm products (wheat, cotton, livestock, fruits, vegetables) and natural products (fish,
timber, crude petroleum, iron ore).

• Manufactured materials and parts

Include component materials (iron, yarn, cement, wires) and component parts (small motors,
tyres, castings). Component materials are usually processed further – for example, pig iron is
made into steel, and yarn is woven into cloth.

• Capital items

Industrial products that help in the buyers’ production or operations. They include installations
and accessory equipment. Installations consist of buildings (factories, offices) and fixed
equipment (generators, drill presses, large computer systems, lifts). Accessory equipment
includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (fax
machines, computers, desks). These products do not become part of the finished product. They
have a shorter life than installations and simply aid in the production process.

• Supplies and services

Industrial products that do not enter the finished product at all. Supplies include operating
supplies (lubricants, coal, computer paper, pencils) and repair and maintenance items (paint,
nails, brooms). Supplies are the convenience goods of the industrial field because they are
usually purchased with a minimum of effort or comparison. Business services include
maintenance and repair services (window cleaning, computer repair) and business advisory
services (legal, management consulting, advertising)

Product Differentiation

Product differentiation is a process used by businesses to distinguish a product or service from other
similar ones available in the market.

The goal of this tactic is to help businesses develop a competitive advantage and define compelling
unique selling propositions (USPs) that set their product apart from competitors. Organizations with
multiple products in their portfolio may use differentiation to separate their various products from one
another and prevent cannibalization.

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Types of Product Differentiation

There are several different factors that can differentiate a product, however, there are three main
categories of product differentiation. Those include horizontal differentiation, vertical differentiation,
and mixed differentiation.

1. Horizontal Differentiation

Horizontal differentiation refers to any type of differentiation that is not associated with the product’s
quality or price point. These products offer the same thing at the same price point. When making
decisions regarding horizontally differentiated products, it often boils down to the customer’s personal
preference.

Examples of Horizontal Differentiation: Pepsi vs Coca Cola, bottled water brands, types of dish soap.

2. Vertical Differentiation

In contrast to horizontal differentiation, vertically differentiated products are extremely dependent on

price. With vertically differentiated products, the price points and marks of quality are different. And,
there is a general understanding that if all the options were the same price, there would be a clear
winner for “the best.”

Examples of Vertical Differentiation: Branded products vs. generics, A basic black shirt from Hanes vs. a
basic black shirt from a top designer, the vehicle makes.

3. Mixed Differentiation

Also called “simple differentiation,” mixed differentiation refers to differentiation based on a

combination of factors. Often, this type of differentiation gets lumped in with horizontal differentiation.

Examples of Mixed Differentiation: Vehicles of the same class and similar price points from two different
manufacturers.

Factors of Product Differentiation

Now that we’ve looked at the categories of product differentiation, let’s look at the specific factors that
can differentiate products. A product’s unique selling proposition (USP) can be literally anything that
makes it unique or different from others out there. Here’s a few examples of ways companies can
differentiate their products from others in the market.

• Quality: How does the quality, reliability, and ruggedness of your product compare to others on
the market?

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 • Design: Have you done something different with your design? Is it minimalistic and sleek? Easy-
to-navigate?
• Service and interactions: Do you offer faster support than anyone else on the market? Does your
team provide custom onboarding? How are your customers’ interactions with your team different
from those of your competition?
• Features and functionalities: Does your product do something the competition does not?
Is it faster than anything else out there? Is it the only one to offer a certain integration? •

Customization: Can you customize parts of the product that competitors cannot? • Pricing: How
does your product’s price or pricing model differ from that of the competition? Cheaper is not the
only differentiating factor to consider with product pricing.

How Do You Develop a Product Differentiation Strategy

Here are a few steps to get you headed in the right direction.

• Know your market. Take note of the market your product serves. Who are the competing
organizations and what do they offer? What types of key customer needs are not being met with
existing options?
• Work with your entire team to establish ways you can potentially distinguish your product
from others in the market. Take inventory of the benefits and values your product brings to
customers and establish how important those values are.
• Identify opportunities to further differentiate the product from others. Assess where they may
belong in your organization’s strategic product roadmap.

Product and Brand

A product is made by a company and can be purchased by a consumer in exchange for money while
brands are built through consumer perceptions, expectations, and experiences with all products or
services under a brand umbrella. For example, Toyota’s product is cars. Its umbrella brand is Toyota and
each product has its own more specific brand name to distinguish the various Toyota-manufactured
product lines from one another. Without a product, there is no need for a brand.

A brand is a symbol, name, design, or the combination of all three that makes a product distinct from its
competitors. Brand—A name, term, sign, symbol or design, or a combination of these, intended to
identify the goods or services of one seller or group of sellers and to differentiate them from those of
competitors.

A brand is a name or mark that is intended to identify the seller’s product and differentiate it from the
product of the competitors. A brand name consists of letters, words, or numbers that can be read or
verbalized. A brand mark is the part of the brand that appears in the form of symbols designed in
distinctive lettering or colors.

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Advantages of Branding

• Brands make it easy to identify the product or service.

• It assures the buyer that they get the same quality or products.
• It reduces price comparison
• It adds prestige to the product of the seller
• It provides legal protection for the seller.
• It helps in product market segmentation

Brand equity spells out the value of the brand in the market.

Brand loyalty is developed as customers become aware on the quality of the product compare with
other brand in the market.

Selecting a Good Brand Name

• It should suggest about the product or service

• It must be easy to pronounce and to remember
• It must be simple and short in one syllable
• It must be distinct or different from others
• It must be adaptable to new company product that may be added
• It must be capable of registration and legal protection

Branding Strategies

• Producer’s Strategies- this strategy is employed by product manufacturers’ that dominate the
greater market due to the superiority of their product.
• The middleman’s strategy- this strategy is commonly called as co-branding where the producer
and sole distributor carry the brand name of the manufacturer and that of the middlemen.
Middlemen may find it advantageous to market their own brand because it increases their control
over their target market.

Product vs. Brand

• Products Can Be Copied and Replaced but Brands Are Unique

A product can be copied by competitors at anytime. When Amazon launched the Kindle e reader
device, it didn’t take long for competitors to come out with their own branded versions of an e-reader
product. However, the brand associated with each e-reader device offers unique value based on the
perceptions, expectations, and emotions that consumers develop for those brands through previous
experiences with them.

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Similarly, a product can be replaced with a competitor’s product if consumers believe the two products
offer the same features and benefits. Products with low emotional involvement are

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typically easily replaced. For example, do you really care what brand of milk you buy or do you primarily
just care that the milk you buy is fresh and includes the fat percentage that you want?

• Products Can Become Obsolete but Brands Can Be Timeless

Remember VHS players? With the introduction of DVD players and more recently DVR devices and
streaming video services, VHS players have become obsolete. The same thing happened to 8-track
tapes, vinyl records, cassettes, and CDs. Today, most people buy their music in digital format and listen
to it on their iPods. The Elvis Presley brand is timeless, but no one buys Elvis music on cassettes
anymore.

• Products Are Instantly Meaningful but Brands Become Meaningful over Time.

When you launch a new product, it’s easy to make that product instantly meaningful and useful to
consumers because it serves a specific function for them. However, a brand is meaningless until
consumers have a chance to experience it, build trust with it, and believe in it. That’s why the 3 steps to
brand building include consistency, persistence, and restraint. It takes time and effort to convince
consumers to believe in your brand.

Consider Google as an example. When Google first hit the Internet scene it offered a simple product — a
search engine. That product was instantly meaningful to consumers because it helped them find
information online quickly. However, the Google brand didn’t become meaningful to consumers until
people had a chance to use the Google search engine product and see for themselves that it really was a
better search engine. Through those experiences, consumers began to trust that the Google brand could
deliver faster and better information online. Today, when Google launches a new product (like Google+
recently), people are quick to try those products because they trust the Google brand.

Packaging, Labelling, Guarantees and Warranties

Many marketers have called packaging a fifth P, along with price, product, place, and promotion. Most,
however, treat packaging and labeling as an element of product strategy.
Warranties and guarantees can also be an important part of the product strategy.

Packaging

Packaging refers to the appearance and design of a product’s wrapper or container. Marketers weigh
different factors when it comes to packaging. In terms of appearance, they consider the size, weight,
and type of packaging material to be used on a product. Developing a good package for a new product
requires making many decisions. The first task is to establish the packaging concept, which states what
the package should be or do for the product.

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A package is the container or the wrapper of the product. Packaging is a business function that
must not be taken for granted. Package gives significant and differential advantage over other products.

Packaging must achieve a number of objectives: (1) identify the brand, (2) convey descriptive and
persuasive information, (3) facilitate product transportation and protection, (4) assist at-home storage,
and (5) aid at-home consumption. Functionally, structural design is crucial. Aesthetic considerations
relate to a package’s size and shape, material, color, text, and graphics. The packaging elements must
harmonize with each other and with pricing, advertising, and other parts of the marketing program.
Color can define a brand. Packaging updates and redesigns can keep the brand contemporary, relevant,
or practical, but they can also have a downside if consumers dislike the new package or confuse it with
other brands. Companies must also consider environmental and safety concerns about excess and
wasteful packaging.

The Vital Purpose of Packaging

• To protect the product on its way to the customer

• To provide protection after the product is purchased
• It becomes part of the company’s trade marketing program.
• It becomes part of the company’s marketing program

Labelling

Labels are attached to provide the consumers the necessary information about the products. Other than
the product manufacturer’s name, labels also indicate the products; expiration date, nutritional
contents, and manufacturing location. Labels may range from simple tags attached to products to
complex graphics that are part of the package. They perform several functions. At the very least, the
label identifies the product or brand, such as the name ‘Sunkist’ stamped on oranges. The label might
also grade the product, or describe several things about the product – who made it, where it was made,
when it was made, its contents, how it is to be used and how to use it safely. Finally, the label might
promote the product through attractive graphics.

Types of Labels

• Brand label- It is simply the brand alone that is applied to the product or package. Clothing has
labels that could be seen inside the collars. Others are embroidered as in underwear, t shirts,
socks, etc.
• Descriptive label- it gives objective information about the product’s use/s construction, care,
performance and other pertinent features. They are commonly found in food ingredients,
medicines, canned goods and others.
• Grade label-it identifies the product judge quality with letters, number or words. It contains
product expiry dates, the content values and other features. Labels are regulated

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by the operation of labelling laws especially in medicines, vitamins, milk and other related
products.

Functions of Labels

1. The labels identify the product or brand in the market

2. They describe the product features and uses
3. They serve as an advertising medium with its colors and design
4. They create lasting impression about product quality

Warranties and Guarantees

All sellers are legally responsible for fulfilling a buyer’s normal or reasonable expectations. Warranties
are formal statements of expected product performance by the manufacturer. Products under warranty
can be returned to the manufacturer or designated repair center for repair, replacement, or refund.
Whether expressed or implied, warranties are legally enforceable. Guarantees reduce the buyer’s
perceived risk. They suggest that the product is of high quality and the company and its service
performance are dependable. They can be especially helpful when the company or product is not well
known or when the product’s quality is superior to that of competitors.

Service as a Product
Service as a product (SaaP) is a transaction of service production and delivery model in which a
productized service is sold by the seller or vendor to the buyer and is centrally hosted, either on a
standalone website or an open marketplace platform. It is sometimes referred to as "on demand
service". SaaP is typically accessed by the creator and the consumer by users using a thin client via a
web browser.

SaaP has become a delivery model for some businesses, including small and medium-sized enterprises
(SMEs), freelancers, and independent contractors. It has been incorporated into the strategy of several
leading web-based marketplace companies including AirBnB, Fiverr, Lyft, TaskRabbit, Uber and others,
as listed in the SaaP marketplace platforms.

Micha Kaufman, the co-founder of the company Fiverr, claims that the company created the concept of
SaaP. The company offers as a SaaP service over 2.5 million things people will do for a small, fixed fee
SaaP Marketplace Platforms
As of November 1, 2014, a number of SaaP marketplace platforms exist. These include a variety of
platforms serving different markets and niches. Currently the marketplaces offering SaaP include brands
offering offline services, online services, shift work, and more. Below is a list of known market platforms
offering SaaP. There are also other SaaP marketplaces online in the so-called "sharing economy".

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• Airbnb offers a market platform for hosts and guests of Bed and Breakfast, guest housing and other
room and board for travellers.
• Elance is an online market for freelancer computer workers to provide services to clients anywhere on
the internet.
• Etsy is an online market platform for customers shopping for the works of arts and crafts providers.
• Fiverr is a marketplace for buyers and sellers of online digital services including voiceover, graphics and
logo design, programming and technology, copywriting, etc. • Handy (company) is a market online for
and mobile cleaning and home repair booking services.
• Lyft is a marketplace platform for taxi related car services.
• TaskRabbit is a market of service providers and clients in the offline space. Vendors provide services
such as gardening, carpentry, plumbing, cleaning, moving and more. • Thumbtack (website) is a
marketplace for customers in need of writers and writing and translation services.
• Traveling Spoon is a food tourism platform that connects travelers with local hosts who prepare
homemade local cuisine in their homes.
• Uber is a transportation network company
• Upwork is an online work and performance market for customers and vendors of computer related
services.
• Zipcar is a carsharing company with cars provided and managed by the company.

New Product Management

Management is often described as a set of processes designed to plan, organize, and control
performance of work. Product management, then, must be the set of processes that plan, design, and
control product development. It sounds pretty simple, but product management encompasses a wide
swath of activities also involving sales, marketing, manufacture, and design. New product development
(NPD) is a further subset of product management as well, balancing risk and opportunities for profit.

NPD Teams

NPD teams are typically comprised of a cross-functional group of people working together to manage
the planning, organizing, and designing activities of innovation. Such teams include individual
representatives from various functions in order to fully encompass all development activities for a new
product. These may be:

• Engineering,
• Marketing,
• Research and development (R&D),
• Operations,

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• Manufacturing,

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• Project management,
• Procurement and supply chain, and/or
• Legal.

The team may be led by a traditional project manager, an R&D manager, or a product manager.

Product managers play a large role in NPD activities. Many product manager bridge technical roles and
marketing responsibilities. Expertise in these skill sets, along with strong interpersonal and
communication skills, help a product manager successfully lead NPD efforts.

Technical Skills for Product Management

Many product managers are appointed from the technical ranks. Understanding the technology behind
existing products and upcoming new releases is important for product managers. During customer calls,
the product manager must be able to address technical questions regarding the use of the product that
s/he is representing.

For example, a catalyst product manager in the petrochemical field must be able to discuss typical
operating conditions (pressure, temperature, and throughput) of the catalyst material. A
pharmaceutical representative must be able to describe potential side effects as well as drug
interactions of the product. A food product manager must be able to advise nutrient content as well as
provide preparation and serving tips.

Effective product managers are skilled in the technology of the products. They may have worked in R&D
or operations to gain first-hand knowledge of the product. While a product manager does not have to
be an expert in the technology, s/he must be able to accurately share technical knowledge regarding the
use and application of the product in the customer’s particular situation.

Marketing Skills for a Product Manager

Product managers bridge skill sets between technical expertise and marketing prowess. Technical
specifications and superiority of the product will not sell it alone. Instead, consumers make purchasing
decisions based largely on emotional connections.

Therefore, product managers must be able to succinctly describe the benefits and value that new
products deliver. While specific features are great to add to a new product, customers will only pay for
features and attributes from which they perceive a personal benefit.

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For example, new fitness trackers include a watch feature. This offers an immediate benefit to those of
us with older trackers – reducing what’s on our wrist! It is a great benefit to the customer to not have to
wear a watch and a fitness tracker (only one tan line).

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In addition, product managers must understand customer needs and represent those to the NPD team.
Product managers are close to the end-users to understand their desires as well as social and industry
trends that drive their behaviors.

Leadership Skills

Leadership skills are also invaluable for successful product managers. Often the product manager will be
the guiding force to drive a new product idea to commercialization. So, product managers must excel in
negotiation, communication, and interpersonal skills. S/he will utilize communication skills upward to
senior management in the firm, downward to motivate the team, and horizontally to external
customers and vendors.

A product manager can develop his/her leadership skills by practicing the 3 C’s of Leadership: candor,
consideration, and courage. Candor involves being open and frank. In fact, skipping a sale may be more
effective than forcing an inappropriate product on an unwilling customer. Remember the end effect of
Kris Kringle’s recommendations for Macy’s customers to get a better buy at the competitor in “Miracle
on 34th Street”? Consideration involves hearing various diverse viewpoints from customers, vendors,
and team members. Treating all people with dignity and respect are the hallmarks of a considerate
product manager.

Finally, courage is a basic leadership skill for all product managers. It takes us outside of our comfort
zone to support a new product idea that is contrarian. It takes courage to negotiate resources for a new
product development project. It takes courage to launch a new product into a crowded retail market.
And it takes courage to recognize the challenges we’ve faced in viewing a successful new product launch
in the rearview mirror.

Becoming a Successful Product Manager

Like all good things, it takes dedication and effort to become a successful product manager. Mastering
the technology that makes the product unique allows the product manager to describe its use and
application. Understanding the benefits of the product features and the value that they bring to
customers drives a product manager’s marketing performance. The emotional connections are often far
more important than technical specifications.

Lastly, a product manager must excel in leadership, including negotiation, communication, and
interpersonal skills. Product managers can improve their performance by practicing the 3 C’s of
Leadership: candor, consideration, and courage.

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CHAPTER VIII: Pricing Strategy

Objectives:

At the end of the chapter, the student shall be able to:

➢ Identify the factors affecting price strategies
➢ Discuss the pricing strategies
➢ Understand price adjustments

Understanding Pricing

Price is the only element in the marketing mix that produces revenue; all other elements
represent costs.

Price is the amount of money needed in order to acquire the product or services from the
marketer or the seller. It determines the value of the goods or services. It is the amount or the sum of
the values that consumer exchange for the benefit or having or using product.

Price may involve more than money. It can be set in monetary or non-monetary forms. It can be
an exchange of goods or services or a combination of monetary terms.

The price of a product or service will determine how consumers perceive it, reflect on its brand
positioning, influence the choice of marketing channel, affect how it is promoted and have an impact on
the level of customer service expected by target customers. The price ingredient of the marketing mix
will also affect the viability of the supplying organization. The concept of pricing is complex and of
fundamental importance to the successful implementation of a marketing strategy.

Pricing is one of the most important elements of the marketing mix, as it affects profit, volume
and share of the market and consumer perceptions. Just as pricing plays a crucial role in determining
brand image, increasingly companies are being judged on the transparency and equity with which they
treat price as a marketing variable.

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Setting the Price of a Product

Factors to consider when setting prices

Internal factors affecting pricing decisions

Internal factors affecting pricing include the company’s marketing objectives, marketing mix
strategy, costs and organization.

1. Marketing objectives

Before setting price, the company must decide on its strategy for the product. If the company
has selected its target market and positioning carefully, then its marketing-mix strategy, including price,
will be straightforward. For example, when Toyota decided to produce its Lexus cars to compete with
European luxury cars in the higher-income segment, this required charging a high price.

Examples of common objectives are sales survival, current profit maximization objective, price
for market-share leadership, price for quality product, equity pricing

• Sales survival- it is setting the price that is within the present market competition due to
oversupply and the changing market preferences.
• Current profit maximization objective- the firm estimates the current market demand. When
there is high demand, the price is increased to get the most profit objective, increase in cash flow
and return on investment. Many companies use current profit maximization as their pricing goal.
They estimate what demand and costs will be at different prices and choose the price that will
produce the maximum current profit, cash flow or return on investment.
• Price for Market Share Leadership- this objective refers to the philosophy that the company
with the higher share of the market enjoys the higher percentage of profit. The bigger the sales
volume, the lower is the price as economies of scale operate in the system.
• Price for Quality Product- the company produces high quality of the products in the market and
command higher price to sustain research and development cost. Customers who perceive quality
is not price conscious.

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 • Equity Pricing- it is setting the price low to prevent competition from entering the market. This
will develop customer’s loyalty and support of the middlemen. Price is set to attract more
customers and help other products survive competition.

2. Marketing Mix Strategy

A product’s base price is influenced considerably by the other ingredients in the market mix. The
cost of production and the quality of materials as inputs affect the price of the product in the market.
The other factors in the making of the product such as labor cost, interest rates and overhead cost are
considered in setting price. These factors in the marketing mix are important consideration in pricing
decisions.

• Product- the cost of the product is affected by the different production inputs that are used to
make it available for sale. The product life cycle also affects the pricing decisions as price
adjustments are necessary in the course of its presence in the market. Price adjustments would
be necessary depending on the stage of the product in its life cycle.
• The channel of Distribution- the channels and types of middlemen selected in the distribution of
the product will influence the decision of the internal marketing organization. The price for direct
and wholesale distributors will be different from the retailers, as the wholesaler will be
performing the other functions before the product reaches customers. Each of these channels has
to input some percentage of the profit objective.
• Promotions- The promotional and advertising are factors in pricing decisions. The extent of these
promotional activities and the methods used to promote products it is end users must be
established before price is determined. If promotional and advertising expenses will be on the
part of the distributors, the price index is lower.
• Cost of the product- pricing of the product should also consider its cost. The product’s total unit
cost is made up of several types of costs reacting differently to the changes in the quantity
produced. The following variables are important consideration:

o The average cost per unit declines as production output increases as the total fixed cost
is spread over an increasing number of units.
o The average variable cost starts high for the first few units of production and decreases
or decline as efficiency of production is realized.
o The average total cost is the sum of the fixed cost and the variable cost. When the
variable and fixed costs decreases, the price of the product becomes lower. o The
marginal cost slopes down until the next unit is produced. There is a relationship
between the marginal and the average total cost. The average variable cost is increasing
faster than the average fixed cost.

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3. Cost

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Costs set the floor for the price that the company can charge for its product.

Types of Cost

• Fixed costs (also known as overheads)—Costs that do not vary with production or sales level. For
example, a company must pay each month’s bills for rent, heat, interest and executive salaries,
whatever the company’s output. In many industries, such as airlines, fixed costs dominate. If an
airline has to fly a sector with few passengers on board it can only save on the 15 per cent of its
costs accounted for by cabin crew and passenger service. All other costs, including flight crew (7
per cent), fuel (15 per cent) and maintenance (10 per cent), are fixed.
• Variable costs—Costs that vary directly with the level of production. These are those, which vary
according to the quantity produced. These costs are incurred through raw materials, components
and direct labor used for assembly or manufacture. Variable costs can be expressed as a total or
on a per-unit basis. Each personal computer produced involves a cost of computer chips, wires,
plastic, packaging and other inputs. These costs tend to be the same for each unit produced, their
total varying with the number of units produced.
• Marginal costs- involve the change that occurs to total cost if one more unit is added to the
production total.
• Total costs—The sum of the fixed and variable costs for any given level of production
Management wants to charge a price that will at least cover the total production costs at a given
level of production. The company must watch its costs carefully. If it costs the company more
than competitors to produce and sell its product, the company will have to charge a higher price
or make less profit, putting it at a competitive disadvantage

4. Organizational considerations

Management must decide who within the organization should set prices. Companies handle
pricing in a variety of ways. In small companies, prices are often set by top management rather than by
the marketing or sales departments. In large companies, pricing is typically handled by divisional or
product line managers. In industrial markets, salespeople may be allowed to negotiate with customers
within certain price ranges. Even so, top management sets the pricing objectives and policies, and it
often approves the prices proposed by lower level management or salespeople. In industries in which
pricing is a key factor (such as in aerospace, steel and oil), companies will often have a pricing
department to set the best prices or help others in setting them. This department reports to the
marketing department or top management. Others who have an influence on pricing include sales
managers, production managers, finance managers and accountants.

The external factors in pricing strategy

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1. The Market Demand

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The market forces are prime considerations in setting the price of the product. While cost set
the limit of price, the dictate of the market sets the upper limit in the pricing strategy. The freedom to
set price is dictated by various variables prevailing in the marketing environment.

Economists recognize types of market, each presenting a different pricing challenge.

• Pure competition-A market in which many buyers and sellers trade in a uniform commodity – no
single buyer or seller has much effect on the going market price. A seller cannot charge more
than the going price because buyers can obtain as much as they need at the going price. Nor
would sellers charge less than the market price because they can sell all they want at this price. If
price and profits rise, new sellers can easily enter the market. In a purely competitive market,
marketing research, product development, pricing, advertising and sales promotion play little or
no role. Thus sellers in these markets do not spend much time on marketing strategy.
• Monopolistic competition-A market in which many buyers and sellers trade over a range of
prices rather than a single market price. A range of prices occurs because sellers can differentiate
their offers to buyers. Either the physical product can be varied in quality, features or style or the
accompanying services can be varied. Each company can create a quasi-monopoly for its products
because buyers see differences in sellers’ products and will pay different prices for them. Sellers
try to develop differentiated offers for different customer segments and, in addition to price,
freely use branding, availability, advertising and personal selling to set their offers apart.
• Oligopolistic Competition- A market in which there are a few sellers that are highly sensitive to
each other’s pricing and marketing strategies. The product can be uniform (steel, aluminium) or
non-uniform (cars, computers). There are few sellers because it is difficult for new sellers to enter
the market. Each seller is alert to competitors’ strategies and moves. If a steel company slashes
its price by 10 per cent, buyers will quickly switch to this supplier. The other steel makers must
respond by lowering their prices or increasing their services. Anoligopolist is never sure that it will
gain anything permanent through a price cut. In contrast, if an oligopolist raises its price, its
competitors might not follow this lead. The oligopolist would then have to retract its price
increase or risk losing customers to competitors.
• Pure monopoly -A market in which there is a single seller– it may be a government monopoly, a
private regulated monopoly or a private non-regulated monopoly. The example of pure
monopoly is MERALCO that controls the supply of electricity. To counter the pricing system the
government imposed regulations to regulate the price among its customers.
• Price Freedom- the seller dictates the price based on the customers perceptions on value. They
buy the product because of its perceived quality features or other characteristics that they find
worth their money. The buyer places the benefits above the product value.

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• Price elasticity- the price will influence the demand relationships. Price elasticity is the measure
of the buyers sensitivity of demand on the changes in price. It is conditioned when the buyer
perceives the product to high quality, prestige or exclusiveness. This is the case of branded shirts
and other clothing apparels.

2. Competitors’ Strategy

Another external factor affecting the company’s pricing decisions is competitors’ costs and
prices, and possible competitor reactions to the company’s own pricing moves. A consumer who is
considering the purchase of a Canon camera will evaluate Canon’s price and value against the prices
and values of comparable products made by Nikon, Minolta, Pentax and others.

Competitors pricing strategy may be below or above the market. The seller’s price may be set
right at the market price to meet the competition.

• Pricing to Meet Competition

This competition is simple to carry out. The marketing organization ascertains the competitor’s
price after allowing customary mark up for the middlemen and sets its own selling price. These
pricing strategies operate under a perfect competition when there is an absence of product
differentiation. Buyers are well informed through advertising and the seller has no discernible
control over the selling price.

• Pricing Below Competition

A variation of market-based pricing is to set a price that is below the level of the main
competitor in the industry. It is done by retailers who stress low mark up, high volume sales, and
employing few customer service. The market strategy employed by PureGold and Super Eight
are concrete example of this strategy which can be true in most consumer goods.
• Pricing above competition

Producers and sellers sometimes set their price above the prevailing market level. It works
effectively when the product is distinctive or when the sellers had acquired the reputation
above the competitors in the industry. This is the case with some boutique and other fashion
stores that set their price differently according to their industry reputations.

3. Economic and other social concerns

• Recession

It is the state where the economic condition of the country is affected by higher interest rate
and inflation. It affects price as the buying power of the market is at low level and price
adjustment is necessary to cope with economic situation.

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• Government regulation

Prices are regulated by the government in cases when it declares a state of calamity to avoid
manipulation of prices by the sellers. In case of utilities such as water and electricity the
government intervene in the pricing of these social services.

Price Strategies

Pricing method or strategy is the route taken by the firm in fixing the price. The
method/strategy must be appropriate for achieving the desired pricing objectives.

• Product Bundle Pricing - some firms offer their products in bundles or promo packages. Shampoos,
for example, are packed together with conditioners: tomato sauce together with pasta noodles; and
milk together with coffee or biscuits. As separate products, they are more expensive; however, when
packaged as one product, they cost less. Unilever and Procter and
Gamble are examples of firms that utilize this pricing strategy.

• By-product Pricing -some firms, instead of discarding the by-products of their main products, sell
them at relatively lower prices. This strategy can give firms significant competitive advantage by
reducing the price of their main product and recovering losses by selling its by products. By employing
this strategy, firms can save money earn marked for the cost of waste disposal. Chemical plants and
petroleum companies that have efficient solid and chemical waste management systems usually
apply this pricing strategy. Example petrol industry, or sugar industry.

• Optional pricing - firms that use this strategy offer their main products at a lower price while placing
additional charges to the supplementary services that come with it. For example, most
telecommunication companies set a fixed price on their postpaid plans. However, services such as
calls to other networks, text messaging to other networks and unlimited internet access are not
covered by some postpaid plans. To avail themselves of these services, customers must pay
additional charges.

• Captive Pricing or Premium Pricing - this involves charging additional costs for the necessary
adjuncts of a main products. For example, after purchasing a television, the consumer cannot avoid
purchasing an antenna or speakers if he/she wants maximum quality performance of the main
product.

• Product Line Pricing - this involves putting noticeable and sufficient price gaps between particular
products in a product line in order to produce different product quality levels in the minds of
consumers. A firm that uses product line pricing must know the distinct price
differences of the products in the product line. For example, what are the differences in the
prices of J&J baby powder, lotion, bath oil, and shampoo? In this strategy, the pricing decision

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is based on the perceived value derived by consumers form the slights differences in the prices of
products. Another example is Samsung. It offers different smartphones with
different features at different prices

• Customary Pricing - this is use for one price over an estimated period. The price of the product is
kept for a period unless the prevailing condition in the market changes. It must consider the market
affordability in buying. Example: Candy bars of a certain weight all cost a predictable amount-unless
your purchase them in an airport shop.

• Variable Pricing - it is the condition when the price changes with the fluctuation in demand and the
difference is brought by the entrance of a new product that offers different features. A pricing
strategy in which the price of a good or service may vary based on region, sales location, date, or
other factors. Variable pricing strategies adjust product prices to achieve optimal balances between
sales volume and income per unit sold based on the characteristics of different categories of points-
of-sale. Traditional examples include auctions, stock markets, foreign exchange markets, bargaining,
electricity, and discounts. More recent examples, driven in part by reduced transaction costs using
modern information technology, include yield management and some forms of congestion pricing.

• One Price Policy - One price is charged to all customers buying the product or service under similar
conditions. A one-price policy may also mean that prices are set and cannot be negotiated by
customers. A one-price policy is the opposite of a variable pricing approach, in which prices may vary
based on location, promotional offers, method of payment, or other factors. The entrepreneur will
set one price for all products available for sale even if there are differences in taste or design.
Variations of NESCAFE is an example.

• Flexible Pricing - pricing is based on customers’ ability to negotiate or the buying power of the
prospective consumers. Method of selling where the prices are open to negotiations between buyers
and sellers, and allow for bargaining within a certain range.

• Odd pricing strategy - prices are set at levels below even values. The sellers used odd numbers to
attract customers to buy the product. Odd pricing is a pricing method aimed at maximizing profit by
making micro-adjustments in pricing structure. It relies on the assumption that consumers are
calculation-averse and will therefore only read the first digits of a price when making their purchasing
decision. According to this method, the relevant information of any given price does not usually relate
to the last digits, but rather to the first digits, or in other words, to the order of magnitude of the
numbers. For example, the price of P17.99 looks more like P17 and not like P18, products are priced
at P99.95, for children shirt, and P295 for a man’s shirt. The odd pricing strategy relies on the fact that
consumers highly value their time when evaluating prices. There is an increasing time cost associated
with
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examining each additional digit within any given number, which means that when examining a price,
the first digits carry more weight than the last ones. We can define a relevance rate for each digit
and hence define the two concepts of “perceived price” and “true price”.

• Price for Quality - consumers believe that when the product is priced higher than the other product
it is more superior quality. It is conditioning the mind of the consumers that when the product is
priced higher than that of the competing brand, the product is guaranteed to be of high quality.

• Leader Pricing - it is selling the product lower than the competitors in order to gain consumer
interest about the product. Leader pricing is an aggressive step to win the respect of the consumers
and the competitors. The product must meet the standard quality requirements and the price is
reasonable for the buyer.

• Multiple Unit Pricing - the firm offers discount to consumers for buying in large quantities. Selling
more products will generate more profit. The objective is to prevent overstocking of goods and
maintain proper inventory level by selling in bulk. Profit and growth are assured with sustained
customer patronage. Example Buy 2 get 1 free.

• Unbundled Pricing - it is the opposite of the bundled pricing strategy. The firm sells the product and
makes a separate price for the service component. There is a separate contract for the service.

• Geographic Pricing - this is the pricing strategy where the sellers and the buyers are far from each
other and shipping cost will be an added value to the product. It is either the seller or the buyer pays
for shipping cost including insurance and other incidental expenses.

o FOB Factory - the buyer pays for all shipping cost and other incidental charges including
custom duties and insurance that will cover the product while in transit. In case of damage
while on transit, the insurance pays for the cost of damage.
o Uniform Delivered pricing - Price that includes costs of transport where a seller retains title
until goods are given to the customer.
o Zone pricing - this is setting the price uniformly in one specific area of delivery or operation.
Same price is charged for Metro Manila are and another set price for other regions in the
country
o Base Point Pricing - the cost of transporting the goods is computed based on the nearest
buyer. The longer the distance of delivery, the higher the percentage of delivery cost. It may
be computed on a per kilometer basis

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o Terms of Sale -when products are sold on cash basis, discounts are given. When paid at a
later date, interest charges may be part of the price. Cash on delivery is made when the
product is paid upon receipt of goods.

The Pricing Methods are the ways in which the price of goods and services can be calculated by
considering all the factors such as the product/service, competition, target audience, product’s life
cycle, firm’s vision of expansion, etc. influencing the pricing strategy as a whole.

1. Cost-based pricing refers to a pricing method in which some percentage of desired profit margins is
added to the cost of the product to obtain the final price. In other words, cost-based pricing can be
defined as a pricing method in which a certain percentage of the total cost of production is added to
the cost of the product to determine its selling price.

2. Demand Based pricing the pricing decision is also depending on demand and supply of the
commodity.

3. Competition Oriented Pricing (Competition-based pricing) refers to a method in which an

organization considers the prices of competitors’ products to set the prices of its own products. The
organization may charge higher, lower, or equal prices as compared to the prices of its competitors

Price Adjustments

A price adjustment is any change to the original price of a product in a retailer’s inventory. There
are three primary forms of price adjustment: promotion, price protection and markdown.

• Promotion is a temporary form of price adjustment. This is when a product is “on sale” for a
designated time period and will return back to its original or “regular” price after the promotion ends.
Retailers like to be able to show a value in the sale, so a comparison between the regular price and
the promotional price is thought to stimulate more unit sales. There are regulations, usually enacted
by state, as to how a “regular” price is establishedusually it is based on how long a product has been
in inventory at a certain price. The retailer must be cognizant of this when planning promotions and
must limit the amount of time the product is “on sale” or else the promotional price will become the
new “regular price.”

• Price protection is a common form of price adjustment and the one that probably comes to mind first
for the consumer. What happens when a shopper purchases a product on Sunday only to see it

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 advertised at a lower price on Monday? Most retailers offer “price protection” for a time period
before and after a product has been reduced in price by a promotion. Most

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retailers will offer to refund the difference in price for 10- 30 days after purchase. Another form of
price protection is “price matching”. This is closely related to the concept of competition-oriented
pricing discussed earlier in this module. Price matching is the price adjustment made by a retailer
when the same product purchased is advertised or available in the competition for a lower price.
Retailers will usually refund the price difference, although in fiercely competitive situations, they
have been known to offer 5% or 10% additionally on top of the difference in price.

• Markdown is a permanent form of price adjustment used by the retailer to “liquidate” the inventory
of a product or category of product. There are many different approaches to how retailers manage
this form of price adjustment. Some retailers have an internal policy that establishes how much the
first markdown must be. Depending on the retailer or the product category, first markdowns can
range from 20% off to 50% or even 60% off the original price. Also, retailers may have a set schedule
of when subsequent markdowns are taken to ensure that the inventory will be eliminated by a target
date. For example, an item marked down to 40% off could then see an additional price adjustment in
four weeks, with an additional 30% off being applied to its price. Two weeks later a retailer could slash
further and take another 20% off that price. The markdown process can be manually managed
(monitor sales based on the latest price adjustment and calculate weeks of supply) or automated
using a variety of software applications available to retailers.

Price Adjustment Strategies

There are seven price adjustment strategies: Discount and allowance pricing, segmented pricing,
psychological pricing, promotional pricing, geographical pricing, dynamic pricing and international
pricing.

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Price Adjustment

Strategy Description

Discount and
Reducing prices to reward customer responses such as
allowance pricing paying early or promoting the product

Segmented pricing Adjusting prices to allow for differences in customers, products or

locations

Psychological pricing Adjusting prices for psychological effect

Promotional pricing Temporarily reducing prices to increase short-run sales

Geographical pricing Adjusting prices to account for the geographic location of

customers

Dynamic pricing Adjusting prices continually to meet the characteristics and needs of
individual customers and situations

International pricing Adjusting prices for international markets

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CHAPTER IX: Distribution and Supply Chain

Strategy
Objectives:

At the end of the chapter, the student shall be able to: ➢ Understand distribution channel
➢ Identify the types of distribution intermediaries
➢ Define supply chain management What is Distribution Channel?

A Distribution Channel is a set of people and business organization involved in the transfer of
the title of a product form the producer to the ultimate consumers or to other business users. The
channel of distribution always includes both the producer of goods and the final customer in its present
form. It includes the middleman as distributors, wholesalers, and the retailers.

The distributor’s role within the marketing mix is getting the product to its target market. The
most important activity of the distributor is arranging the transfer of the title of the product to its target
consumers. The distributors assume the warehousing of the product, promoting and assuming the
financial risk during the distribution process.

The middlemen are business organizations that render service related to the sale or purchase of
the product. They are the bridge between the producers or distributors to the customer in the market.
They take the position of the product and arrange the transfer of title to the next customer.

Intermediaries are the middlemen and signify those individuals in the channels that either take
title to take goods and sell at profit. They are directly involved in process of flow of goods from
manufacturer to consumer.

The objective is to move the goods or services efficiently, with the lowest possible number of
intermediaries between the producer and the end user. Ideally, the producer aims to exchange the
products directly with the consumer. However, as the physical distance between the two parties and
the volume of goods to be exchanged increases, it becomes necessary for producers to use the help of
others to complete the movement of the goods associated with the transaction.

These are the intermediaries within the channels of distribution, or the ‘value chain’, as it is
termed.

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• Value delivery network - A network made up of the company, suppliers, distributors and
customers who ‘partner’ with each other to improve the performance of the entire system. • Channel
level - A layer of intermediaries that performs some work in bringing the product and its ownership
closer to the final buyer.

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• Direct-marketing channel - A marketing channel that has no intermediary levels. For example,
Avon and Tupperware sell their products door-to-door or through home and office sales parties.
• Conventional distribution channel - A channel consisting of one or more independent
producers, wholesalers and retailers, each a separate business seeking to maximize its own profits,
even at the expense of profits for the system as a whole.

Types of Distribution Channel

• Direct to the consumer

• Distribution via retailers
• Distribution via wholesalers and retailers Functions of a Distribution Channel:

Distribution channels can be exemplified by the number of intermediary levels that separate the
manufacturer from the end consumer. The choice of a particular distribution channel is determined by
factors related to market size, buyer behavior and organization’s characteristics.
A typical distribution channel has to perform various functions as mentioned below.

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Elements of a Distribution Channel

The various elements of a distribution channel are:

1. Customer service

Customer service is a predefined standard of customer satisfaction, which a retailer plans to

provide to its customers. Without defining and setting ‘standards of customer service’, retailers cannot
achieve competitive advantage over their competitors. A customer service standard may be that 95% of
the orders are delivered within 5 hours of receipt and 100% are delivered within 24 hours. Retailers
maintaining higher service standards bear costs of maintaining higher inventory level or expenditure
incurred on fast mode of transportation.

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 The effective distribution systems must keep proper records of costs of meeting various customer
service standards (90%, 95% or 100% of orders delivered within 24 hours), and additional customer
satisfaction that results from raising standards.

These days, specialized software packages are being used by modern retailers to track the
merchandise during its transportation to ensure fastest, cost-effective deliveries on time.

Customer service levels may be improved by following steps too: ▪ By

ensuring product availability all the time.

▪ By improving order cycle time – it implies reducing the gap between placing the order and its delivery
time.
▪ By providing proper training to sales persons and employees engaged in transportation. ▪
By having separate plans for

o quick deliveries in case of urgent orders o

in case of natural/unforeseen problems o
loss in transit etc.

2. Order Processing

Order processing, alternatively known as order fulfillment is the handling of customer orders
within the distribution center (may be warehouse, retail store itself) involving the keying of customer
and order details into the computer system in order to produce the invoices for picking. The basic idea
is to deliver the orders as per customers’ wants of place and timing.

Therefore, action should be taken quickly as an order has been placed and the customer must
have fast confirmation of the order’s receipt and the exact delivery time. In today’s high tech world,
computers are used to check the customer’s credit rating, stock levels, and delivery promptness so that
management can obtain an accurate picture of distribution status. Accuracy plays a vital role in
successful order processing, as are procedures that are designed to lessen (shorten) the order
processing cycle.

The task of order processing begins with the receipt of an order from a customer through
telephone, personal visit or by fax or email.

The basic areas for improving order processing tasks relate to following questions:

• What a sales person does when he receives an order?

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• What happens when such an order is received by the order department directly? • How much it takes
to ensure inventory status?
• What methods are in practice for checking inventory?

The intelligent retailer would take proper steps to minimize the gaps in above-mentioned
situations to fulfill the customer order. Plugging these gaps certainly will result in high customer service
levels.

3. Inventory Control

Inventory control is a major component of a retail organization’s physical distribution system. It

includes money invested in inventory, wear and tear and possible obsolescence of the goods with the
passage of time. In a retail organization, where finance executives seek inventory minimization,
marketing executives advocate large inventories to prevent stock outs. Therefore, retailers should to try
minimize optimum level of inventory to meet the customers’ demand close to customer service
standards of 100%.

The companies offering wide merchandise assortments find it difficult to have all the probable
items in large quantities that a customer might order.

For them, it is suggested to segregate patterns as:

▪ Fast moving items, and ▪

Slow moving items.

A high customer service standard is then applied to fast moving items but a much lower
standard is used for those moving slowly or have less demand. Inventory control experts have
developed a number of methods, which can help retailers control inventory effectively. The widely used
method is economic Order Quantity (EOQ) model. Besides this, ABC analysis is also applied throughout
the globe.

4. Warehousing

It involves all the activities required in storage of goods between the time these are procured
and the time these are transported to the customer upon receipt of order. This function basically
involves receiving the merchandise, breaking bulk, storing and loading for delivery to customers as per
their details. Storage warehouses usually keep goods for long periods while distribution centers operate
as central/middle locations for quick movements of goods to retail stores.

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Further, retail organizations use regional distribution centers where wholesalers dump the
products in high volume. At regional distribution centers, these consignments are broken down to small
loads that are then quickly transported to retail outlets as per the outlet’s requirements.

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 These activities and related information are controlled by the computers using special software
packages those gather goods and load them to their places of requirements. This system is used by
large suppliers who have retail outlets spread throughout the country and/or abroad. Levels of
customer service will increase with increase in the number of warehouse locations, but cost will go up
accordingly.

5. Transportation Mode

Transportation is indispensable for physical distribution of goods and services. Transportation

mode enables channel members like producers, wholesalers and retailers to make goods and services
available at the customers’ place of purchase or at his doorstep. From cost point of view, transportation
accounts nearly 25-40% of total distribution costs. Quick and timely delivery, security of goods during
transit and proper handling results in customer satisfaction.

Following aspects signify the increased role of transportation:

▪ To supply goods in proper quality and quantity

▪ To supply goods at right time and at right place
▪ To satisfy customers’ demands
▪ Quick and easy availability of goods
▪ Cost considerations

Due to technological developments and variety of transportation modes available, a retail

organization can use anyone or a combination of following modes of transport:

• Rail,
• Airway,
• Roadways,
• Water ways, and
• Pipelines

6. Materials Handling

Materials handling implies the movement of goods inside the retail organization, warehouses
and retail stores/outlets. In case of chain stores, the raw materials, finished goods etc

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move from a common warehouse to various store locations. Similarly, in case of multistory or
even single-story storage houses, movements of goods take place.

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 Some items or materials may be light weight but few may be heavy, which may require proper
handling and utmost care. In modern storage facilities, material handling is through equipments meant
for moving/transferring goods. These handling equipments also vary with method of loading and modes
of transport used like railways, water ways, airways etc.

Type of handling equipment used will depend upon the following reasons:

▪ Mode of transport: rail, air, water, road and others.

▪ Nature & size of goods (materials: heavy, light, solid, liquid or gases). ▪ Place of
operation: warehouse & selling floor.

Advantages of a Distribution Channel

Using distribution channels can make it much easier for a company to get its goods to market
and target a larger geographic area and demographic. The functions of distribution channels are actually
quite extensive, and your choice of which channel to use will depend largely on your reason for
distribution, what you have to sell and who your target is.

• Cost and time saving. Using a distributor takes the job of sales and delivery out of your hands as a
small business owner, and that’s no small thing. The distributor buys from you in bulk, and sales to
the end user are handled directly by the distributor. You incur fewer expenses, because you don’t
have to employ as many sales representatives, and you don’t need to buy trucks or other means of
transportation to get your goods to the customer.
• Mass delivery is much easier. Again, being able to run your goods for sale over to the customer on
the other side of town is simple when you are a small operation. Become larger, however, with
customers all over the country, and the game changes. One of the best functions of distribution
channels is that it makes it easier not only to reach large numbers of customers quickly, but to get
your products to a targeted demographic as well.

• Targeting an audience. Employing a distribution channel can help your business target a certain
audience. Are you an East Coast company looking to branch out and sell your products in the
Midwest? It would do you well to select a distributor that knows that market and can help bring your
products to market there.

• Connecting with a demographic. By using a distribution channel, you run the risk of losing face time
with your customers. At the same time, it becomes easier to connect with a certain demographic. If
you know the regional influences in place in the Midwest that are different on the East Coast, you can
tailor your marketing messages to that particular demographic. Take for instance Coca-Cola, which is
distributed throughout the world. The company

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 changes its marketing message depending on the country they are selling in and the people who
live there.

• It doesn’t really cost that much. At first, it may sound like it would cost of a lot of money to take
advantage of different distribution channels; but really, is a couple of bucks to take an ad out on
Facebook really that much money to spend to potentially reach thousands of eager teenagers looking
to buy the new iPhone case you are marketing?

• Collecting customer data. If you’re looking to collect data about who is buying your products, one of
the most important functions of distribution channels is that it can make that job much easier. Retail
stores can help by collecting demographic information such as age and zip codes of customers who
are buying, and they also can ask for customer reviews about your product. Spend some time on
Amazon and read customer reviews about products and you’ll get an idea of the valuable (and free!)
data that companies can get from using online distributors. This helps you collect feedback that can
help you improve your product or
increase sales

• There are options available which allow for rapid distribution. Mass deliveries are much easier to
accomplish with a good distribution channel. Because the channels are automatically in contact with
the end users, implementing a contact to a targeted demographic is easy and delivering wanted
products is even easier.

• Distribution channels still offer some level of end user knowledge. Although there are fewer
opportunities to interact with specific end users, an organization that uses distribution channels can
be aware of regional influences. By knowing what the customer purchasing habits happen to be in a
specific location on the globe, the company’s specialists can tailor their marketing messages and
products to meet these expectations so a meaningful value proposition can be offered.

• No customers feel left out when distribution channels are used appropriately. If one set of
customers in a targeted demographic receive products and marketing effectively and another region
feels like they’re left out, then this can create discord within the customer base. Discord always leads
to lost profits. Because there are such broad levels of coverage through an effective distribution
channel, the organization can reach a vast majority of those within their targeted demographics so
very few individual end users feel left out.

• Distribution channels don’t cost much to get started. The average organization can take advantage
of existing channels that exist within each region they wish to target. Because there is no need to
create a new channel, the actual expenditures to reach a targeted demographic are often quite small.
Instead of a large upfront investment, all that is typically required is a small, manageable ongoing
investment whenever communication or product distribution needs to happen.

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• Specialization of the regional process creates better overall effectiveness. The problem with a mass
marketing strategy is that unless the brand awareness is fully saturated, there is no real loyalty that is
created in the engagement with the distribution channel. End users are only loyal to the lowest
possible price that is available. With specialization in place, this issue may not always be eliminated,
but it does give end users a point of contact with the organization and this can become the
foundation of a relationship.

Disadvantages of a Distribution Channel

• Revenue loss. The manufacturer sells his product to the intermediaries at costs lower than the price
at which these middlemen sell to the final customers. Therefore the manufacturer goes for a loss in
revenue. The intermediaries would never offer their services to the manufacturer unless they made
a profit out of selling his products. They are either made a direct payment by the manufacturer, for
instance shipping costs or as in the case of retailers by selling the product at costs higher than the
price at which the product was bought from the manufacturer (also known as markup). The
manufacturer could have sold at this final price and made a greater profit if he had been managing
the distribution all by himself.

• Loss of Communication Control. Along with loss over the revenue the manufacturer also loses
control over what message is being conveyed to the final customers. The reseller may engage in
personal selling in order to increase the product sale and communicate about the product to his
customers. He might exaggerate about the benefits of the product this may lead to
miscommunication problems with end users. The marketer may provide training to the salespersons
of retail outlets but on the whole he has no control on the final message conveyed.

• Loss of Product Importance. The importance given to a manufacturer’s product by the members of
the distribution channel is not under the manufacturer’s control. In various cases like transportation
delays the product loses its importance in the channel and the sales suffer. Similarly a competitor’s
product may enjoy greater importance as the channel members might be getting a higher
promotional incentive.

• The ability to interact with the end user is completely eliminated. When distribution channels are
used, then contact with the end users are sacrificed for the ability to reach multiple end users
simultaneously. When an organization knows more about the interests, habits, and passions of their
end users, they’re able to engage with them on a more personal level. The end result is a higher level
of brand loyalty, something which distribution channels don’t necessarily provide.

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• Some distribution channels can be extremely complex. When distribution channels are simple,
then they are effective. Point A connects with Point B and this lets everyone experience satisfaction.
When a distribution is forced to add Points C, D, E, and F to the equation, then

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this creates a time delay within the channel. The end result is a decrease in efficiency, which
ultimately creates individualized dissatisfaction at the end user level.

• Distribution channels may require multiple intermediaries. Whenever there are intermediaries
between an organization and its end users, then there are going to be added costs involved. An
organization needs to make a certain amount of profit in order to survive. If that organization needs
to pay intermediaries for their actions, then this adds to the cost of the final profit so that everyone
can get their needed share. The end user pays the higher costs almost every single time and that
higher cost could turn some of them away.

• There’s very little flexibility within this structure. Once an organization implements a distribution
channel strategy, it becomes difficult to change it. The created structures are designed to be more of
a mass marketing approach than an individualized approach. Companies that focus on the end user
first can create distribution channels, but companies that create distribution channels first struggle
to cast them aside because there’s no relationship with the end user.

• Different intermediaries may have different goals that they wish to accomplish. If an organization
can setup a distribution channel with intermediaries who share a similar vision, then all will be well
with this strategy. Far too often, however, the intermediaries tend to have their own strategies for
optimizing their profits and this can get in the way of a successful business relationship. When there
are different strategic goals fighting for dominance, there is discord that gets communicated to the
end user.

• There will always be some loss of control over the selling environment in every region. If
purchasing habits change, companies that are using distribution channels are going to be slow to
adapt simply because they have no information available to them. There is no way create
meaningful change because there isn’t enough information available. Even if there are employees
directly interacting with end users outside of the distribution channel, control only comes with
individualized knowledge of each end user and that’s virtually impossible to obtain with this
strategy.

Types of Distribution Intermediaries

1. Merchant Middleman- the two important groups are the wholesalers and retailers. They take
position of the product and handle the distribution until it reaches the consumers. They plan and

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 execute these essential functions of assorting and storing the product before it is shifted to the
customers.

• Retailers- are firms or people that offer products/services directly to consumers. Sari-sari stores
and supermarkets are some popular and common examples of retailers. In bigger

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retail outlets like supermarkets, products and placed on shelves and freezers with
corresponding product classification signs for consumers to locate them easily. Some retailers,
on the other hand, expand their product line by purchasing new products form a new set of
wholesalers. For example, SM Hypermarkets, which only carried or sold grocery items initially,
has recently started offering baked goods and pastries in most of their branches

• Wholesalers- wholesaling refers to the practice of firms of purchasing products in bulk from big
suppliers and manufacturers to sell them to retailers. Wholesalers are the people in charge of
purchasing products from suppliers and selling them to retailers. Many wholesalers are classified
as jobbers or middlemen because they buy products in large quantities and sell them to retailers
or, occasionally, to end consumers. Because they buy in bulk and directly from suppliers, they get
products for relatively lower prices.

2. Agent Middleman (sales agents)- these are organizations or persons who do not actually own
the product of the producer or title. They are middlemen who arrange the transfer of title form
producer to the consumers. They are the Real Estate Brokers, Real Estate
Salesman, Insurance Agents, Travel Agents and others.

3. Distributors- These are sales intermediaries who share willingness to hold stock. Usually,
distributors are linked to a single supplier for each line carried. For example, in the car industry,
Ford has a network of distributors (or dealers) that provide showrooms (and salesmen) as well as
car servicing dedicated to the Ford range of cars. The manufacturer contributes to the costs
associated with the running of the dealership. However, such distributor agreements are
becoming less rigorously maintained, so that some distributors are beginning to carry cars for
more than one car manufacturer, which inevitably leads to conflicts of interests for all
concerned.

Levels of Distribution Channels

Each layer of distribution intermediaries that performs some work in bringing the product
to its final consumer is a channel level.

1. A Zero Level Channel:

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 A zero level channel, commonly known as direct marketing channel has no
intermediarylevels. In this channel framework manufacturer sells merchandise directly to customers. An
example of a zero level channel would be a factory outlet store. Many service providers like holiday
companies, also market direct to consumers, bypassing a traditional retail intermediary – the travel
agent.

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Eureka Forbes, leaders in domestic and industrial water purification systems, vacuum cleaners,
air purifiers & security solutions is pioneered in direct selling that makes it an Asia’s largest direct sales
organization.

The remaining channels are known as indirect-marketing channels.

2. A One Level Channel:

A one level channel contains one selling intermediary. In consumer markets, this is usually
a retailer. The consumer electrical goods market in the United Kingdom is typical of this arrangement
whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such
as Comet, Dixons and Currys which then sell the goods to the final consumers.

3. A Two Level Channel:

A two level channel encompasses two intermediary levels – a wholesaler and a retailer. A
wholesaler typically buys and stores large quantities of merchandise from various manufacturers and
then breaks into the bulk deliveries to supply retailers with smaller quantities. For small retailers with
limited financial resources and order quantities, the use of wholesalers makes economic sense.

This agreement tends to work paramount where the retail channel is jumbled – i.e. not dominated by a
small number of large, dominant retailers who have an encouragement to cut out the wholesaler.
Distribution of drugs/pharmaceuticals in the Europe and United Kingdom is typical example of such
arrangement.

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4. A Three Level Channel:
A third level channel, as the name implies, encompasses three intermediary levels – a
wholesaler, a retailer and a jobber. In the poultry industry, products like mutton, chicken, eggs etc. are
first sold to wholesalers; he then sells it to jobbers, who sell to small and unorganized retailers.

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One point in this regard, is to be noted that the levels of distribution vary from industry to
industry and country to country. In Japan, food distribution system usually may involve as many as five
or six levels while rest of the world, rely on two to three levels distribution network.

Levels of Distribution Coverage

As we will see, the marketer must take into consideration many factors when choosing the right
level of distribution coverage. However, all marketers should understand that distribution creates costs
to the organization. Some of these expenses can be passed along to customers (e.g., shipping costs) but
others cannot (e.g., need for additional salespeople to handle more distributors). Thus, the process for
determining the right level of distribution coverage often comes down to an analysis of the benefits
(e.g., more sales) versus the cost associated with gain the benefits.

Distribution coverage is measured in terms of the intensity of product availability. For the most
part, distribution coverage decisions are of most concern to consumer products companies, though
there are many industrial products that also must decide how much coverage to give its products. There
are three main levels of distribution coverage – mass coverage, selective and exclusive.

1. Mass Coverage

The mass coverage strategy (also known as intensive distribution) attempts to distribute
products widely in nearly all locations in which that type of product is sold. This level of distribution is
only feasible for relatively low-priced products that appeal to very large target markets. A product such
as Coca-Cola is a classic example since it is available in a wide variety of locations, including grocery
stores, convenience stores, vending machines, hotels and many, many more. With such a large number
of locations selling the product, the cost of distribution is extremely high and must be offset with very
high sales volume.

2. Selective Coverage

Under selective coverage, the marketer deliberately seeks to limit the locations in which this
type of product is sold. To the non-marketer it may seem strange for an organization to not want to
distribute their product in every possible location. However, the logic of this strategy is tied to the size
and nature of the product’s target market. Products with selective coverage appeal to smaller, more
focused target markets compared to the size of target markets for mass marketed products.

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Consequently, because the market size is smaller, the number of locations needed to support the
distribution of the product is fewer.

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3. Exclusive Coverage

Some high-end products target very narrow markets having a relatively small number of
customers. These customers are often characterized as “discriminating” in their taste for products and
seek to satisfy some of their needs with high-quality, though expensive products. Additionally, many
buyers of high-end products require a high level of customer service from the channel member from
whom they purchase. These characteristics of the target market may lead the marketer to sell their
products through a very select or exclusive group of resellers. Another type of exclusive distribution
may not involve high-end products, but rather products only available in selected locations such as
company-owned stores. While these products may or may not be higher priced compared to
competitive products, the fact these are only available in company outlets give exclusivity to the
distribution.

Issues in Establishing Distribution Channels

Like most marketing decisions, a great deal of research and thought must go into determining
how to carry out distribution activities in a way that meets a marketer’s objectives. The marketer must
consider many factors when establishing a distribution system. Some factors are directly related to
marketing decisions while others are affected by the existing infrastructure and the relationships that
exist with members of the channel.

The key factors to consider when designing a distribution strategy are divided into three main
categories:

1. Marketing Decision Issues

2. Infrastructure Issues
3. Channel Relationship Issues

Marketing Decision Issues in Channels

Distribution strategy can be shaped by how decisions are made in other marketing areas.
These include:

• Product Issues

The nature of the product often dictates the distribution options available especially if the

product requires special handling. For instance, companies selling delicate or fragile products, such as

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flowers, look for shipping arrangements that are different than those sought for companies selling

extremely tough or durable products, such as steel beams. • Promotion Issues

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Besides issues related to physical handling of products, distribution decisions are affected by
the type of promotional activities needed to sell the product to customers. For products needing
extensive salesperson-to-customer contact (e.g., automobile purchases), the distribution options are
different than for products where customers typically require no sales assistance (i.e., bread purchases).

• Pricing Issues

The desired price at which a marketer seeks to sell their product can impact how they choose to
distribute. As previously mentioned, the inclusion of resellers in a marketer’s distribution strategy may
affect a product’s pricing since each member of the channel seeks to make a profit for their contribution
to the sale of the product. If too many channel members are involved, the eventual selling price may be
too high to meet sales targets in which case the marketer may explore other distribution options.

• Target Market Issues

A distribution system is only effective if customers can obtain the product. Consequently, a key
decision in setting up a channel arrangement is for the marketer to choose the approach that reaches
customers in the most effective way possible. The most important decision with regard to reaching the
target market is to determine the level of distribution coverage needed to effectively meet customer’s
needs. As we will see next section, distribution coverage is measured in terms of the intensity by which
the product is made available.

Infrastructure Issues in Channels

The marketer’s desire to establish a distribution channel is often complicated by what

options are available to them within a market. While in the planning stages the marketer has an idea of
how the distribution plan should be executed, the organization may find that certain parts of the
distribution channel may not be what they expected. For example, a supplier of high-end, specialty
snack foods may find a promising target market for their products is located in a mountain ski area in
Colorado. However, the company may also discover that no suitable distributor in that area possesses
the required refrigerated storage space that is necessary to store the product in the proper way
specified by the marketer.

This concern is even greater when a marketer looks to expand into international markets.
Marketers often find the type of distribution system they are used to employing is lacking or even
nonexistent (e.g., poor transportation, few acceptable retail outlets). In fact, depending on the type of
product, a marketer could be prevented from entering a foreign market because there are no suitable

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options for distributing the product. More likely, marketers will find options for distributing their
product but these options may be different, and possibly inferior, from what has

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made them successful in their home country. While viewed as risky, companies entering foreign
markets often have little choice but to accept the distribution structure that is in place if they want to
enter these markets.

Relationship Issues in Channels

An appropriate distribution strategy takes into account not only marketing decisions, but also
considers how relationships within the channel of distribution can impact the marketer’s product. In
this section, we examine three such issues:

• Channel Power

A channel can be made up of many parties each adding value to the product purchased by
customers. However, some parties within the channel may carry greater weight than others. In
marketing terms, this is called channel power, which refers to the influence one party within a channel
has over other channel members. When power is exerted by a channel member, they are often in the
position to make demands of others. For instance, they may demand better financial terms (e.g., will
only buy if prices are lowered, will only sell if suggested price is higher) or demand other members
perform certain tasks (e.g., do more marketing to customers, perform more product services). Channel
power can be seen in several ways:

o Backend or Product Power – Occurs when a product manufacturer or service provider markets a
brand that has a high level of customer demand. The marketer of the brand is often in a power
position since other channel members have little choice but to carry the brand or risk losing
customers.
o Middle or Wholesale Power – Occurs when an intermediary, such as a wholesaler, services a large
number of smaller retailers with products obtained from a large number of manufacturers. In this
situation, the wholesaler can exert power since the small retailers are often not in the position to
purchase products cost-effectively or in as much variety as what is offered by the wholesaler.
o Front or Retailer Power – As the name suggests, the power in this situation rests with the retailer

who can command major concessions from their suppliers. This type of power is most prevalent
when the retailer commands a significant percentage of sales in the market they serve and others in
the channel are dependent on the sales generated by the retailer. • Channel Conflict

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In an effort to increase product sales, marketers are often attracted by the notion that sales can
grow if the marketer expands distribution by adding additional resellers. Such decisions must be
handled carefully, however, so that existing dealers do not feel threatened by the new distributors who
they may feel are encroaching on their customers and siphoning potential business. For marketers,
channel strategy designed to expand product distribution may, in fact, do the opposite if existing
members feel there is a conflict in the decisions made by the marketer to increase the number of
resellers. If existing members sense a conflict and feel the marketer is not sensitive to their needs, they
may choose to stop handling the marketer’s products.

• Need for Long-Term Commitments

Channel decisions have long-term consequences for marketers since efforts to establish new
relationships can take an extensive period of time, while ending existing relationships can prove
difficult. For instance, Company A, a marketer of kitchen cabinets that wants to change distribution
strategy, may decide to stop selling their product line through industrial supply companies, who
distribute cabinets to building contractors, and instead sell through large retail home centers. If, in the
future, Company A decides to once again enter the industrial supply market they may run into
resistance since supply companies may have replaced Company A’s product line with other products
and, given what happened to the previous relationship, may be reluctant to deal with Company A again.
As another example of problems with long-term commitments, building contractors may be
comfortable purchasing kitchen cabinets from industrial suppliers. If Company A decides to change their
reseller network to retail home centers, they may find it difficult to retain the building contractor
customer base, who may continue to purchase from the industrial suppliers. Considering these
potential problems,
Company A may have to give serious thought to whether breaking their long-term relationship with
industrial suppliers is in the company’s best interest.

Deciding for the Distribution Channels

Some of the factors to consider while selecting channels of distribution are as follows:

• Product
• Market
• Middlemen
• Company
• Marketing Environment
• Competitors
• Customer Characteristics • Channel Compensation.

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Product

Perishable goods need speedy movement and shorter route of distribution. For durable and
standardized goods, longer and diversified channel may be necessary. Whereas, for custom made
product, direct distribution to consumer or industrial user may be desirable.

Also, for technical product requiring specialized selling and serving talent, we have the shortest
channel. Products of high unit value are sold directly by travelling sales force and not through
middlemen.

Market:

• For consumer market, retailer is essential whereas in business market we can eliminate retailing.
• For large market size, we have many channels, whereas, for small market size direct selling may be
profitable.
• For highly concentrated market, direct selling is preferred whereas for widely scattered and
diffused markets, we have many channels of distribution.
• Size and average frequency of customer’s orders also influence the channel decision. In the sale of
food products, we need both wholesaler and retailer.

Customer and dealer analysis will provide information on the number, type, location, buying
habits of consumers and dealers in this case can also influence the choice of channels. For example,
desire for credit, demand for personal service, amount and time and efforts a customer is willing to
spend-are all important factors in channels choice.

Middlemen

• Middlemen who can provide wanted marketing services will be given first preference. • The
middlemen who can offer maximum co-operation in promotional services are also preferred.
• The channel generating the largest sales volume at lower unit cost is given top priority.

Company

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• The company’s size determines the size of the market, the size of its larger accounts and its
ability to set middlemen’s co-operation. A large company may have shorter channel. • The

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 company’s product-mix influences the pattern of channels. The broader the product line, the
shorter will be the channel. If the product-mix has greater specialization, the company can favor
selective or exclusive dealership.
• A company with substantial financial resources may not rely on middlemen and can afford to
reduce the levels of distribution. A financially weak company has to depend on middlemen.
• New companies rely heavily on middlemen due to lack of experience.
• A company desiring to exercise greater control over channel will prefer a shorter channel as it will
facilitate better co-ordination, communication and control.
• Heavy advertising and sale promotion can motivate middlemen in the promotional campaign. In
such cases, a longer chain of distribution is profitable. Thus, quantity and quality of marketing
services provided by the company can influence the channel choice directly.

Marketing Environment

During recession or depression, shorter and cheaper channel is preferred. During prosperity, we
have a wider choice of channel alternatives. The distribution of perishable goods even in distant
markets becomes a reality due to cold storage facilities in transport and warehousing. Hence, this leads
to expanded role of intermediaries in the distribution of perishable goods.

Competitors

Marketers closely watch the channels used by rivals. Many a time, similar channels may be
desirables to bring about distribution of a company’s products. Sometimes, marketers deliberately
avoid channels used by competitors. For example, company may by-pass retail store channel (used by
rivals) and adopt door-to-door sales (where there is no competition).

Customer Characteristics

This refers to geographical distribution, frequency of purchase, average quantity of purchase

and numbers of prospective customers.

Channel Compensation

This involves cost-benefit analysis. Major elements of distribution cost apart from channel
compensation are transportation, warehousing, storage insurance, material handling distribution

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personnel’s compensation and interest on inventory carried at different selling points. Distribution Cost
Analysis is a fast growing and perhaps the most rewarding area in marketing cost analysis and control.

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Distribution Channel Strategies

Distribution channel strategies are designed to maximize the sales of products as they enter a
market. The strategies are most commonly discussed and planned by the end retailer, who is selling
direct to the consumer. Numerous questions loom over the retailers. Where do we source products?
How do we get products from the manufacturer to our customers? How can we reduce cost and
maximize profitability? How and when to we market these products?

• Understanding Demand

Moving inventory and purchasing through distribution channels is an investment for retailers.
Managing inventory requires that retailers purchase in bulk and make estimates about sales. If they
over purchase and do not sell, then margins take a major hit. If they under purchase and misjudge the
demand, then earning opportunity is diminished. Knowing that demand exists liberates businesses to
use a purchasing strategy, which involves ongoing marketing cycles. Demand drives marketing at phase.
A business that does not know demand, will market ahead of purchasing to test the market and
safeguard purchases.

• Marketing in Advance

Pushing marketing activities ahead of orders is a strategic distribution channel strategy used to
test demand, while preventing mismanagement of orders. Pre-orders are on strategy that's used to
know the exact production and order quantity used to meet demand. Drop-shipping distribution models
also have a strategic advantage. The model not only has a reduced margin but also has less risk and
overhead. The drop shipper markets and sells products from wholesaler catalogs, and has the
wholesaler or a logistics channel manage and deliver the inventory. They never touch the product and
are completely sales focused.

• Multiple Channel Strategies

A multiple distribution channel strategy works for retailers with diverse product lines.
Diversifying distribution channels reduces the risk associated with an single channel, by ensuring
sourcing is running smoothly across several alternative channels. It also leverages pricing flexibility, as
products are sourced and moved to market, using different methods. The

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retailer can price shop, using each strategy, and ultimately capitalize on the lowest cost option.
Alternatively, the retailer can leverage the channel with the least amount of lag time to quickly source
and meet demand.

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• Sales and Distribution Channels

Sales models and distribution channels are interconnected. The ability to source and sell will
always be tied together. High-ticket items are often divided into sales regions or territories, where
dealers are guaranteed access to their markets without same-brand competition. This model has moves
from the manufacturer to the distributor. The distributor manages dealers and delivers inventory. The
dealers focus on consumer sales.

Supply Chain Management

Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in the
marketplace.

SCM represents an effort by suppliers to develop and implement supply chains that are as
efficient and economical as possible. Supply chains cover everything from production to product
development to the information systems needed to direct these undertakings.

How Supply Chain Management Works

Typically, SCM attempts to centrally control or link the production, shipment, and distribution of
a product. By managing the supply chain, companies are able to cut excess costs and deliver products to
the consumer faster. This is done by keeping tighter control of internal inventories, internal production,
distribution, sales, and the inventories of company vendors.

SCM is based on the idea that nearly every product that comes to market results from the
efforts of various organizations that make up a supply chain. Although supply chains have existed for
ages, most companies have only recently paid attention to them as a value-add to their operations.

In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain
which consists of five parts:

• The plan or strategy

• The source (of raw materials or services)
• Manufacturing (focused on productivity and efficiency)
• Delivery and logistics
• The return system (for defective or unwanted products)

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The supply chain manager tries to minimize shortages and keep costs down. The job is not only
about logistics and purchasing inventory. According to Salary.com, supply chain managers, “make
recommendations to improve productivity, quality, and efficiency of operations.”

Improvements in productivity and efficiency go straight to the bottom line of a company and
have a real and lasting impact. Good supply chain management keeps companies out of the headlines
and away from expensive recalls and lawsuits.

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Supply Chains

A supply chain is the connected network of individuals, organizations, resources, activities, and
technologies involved in the manufacture and sale of a product or service. A supply chain starts with the
delivery of raw materials from a supplier to a manufacturer and ends with the delivery of the finished
product or service to the end consumer.

SCM oversees each touchpoint of a company's product or service, from initial creation to the
final sale. With so many places along the supply chain that can add value through efficiencies or lose
value through increased expenses, proper SCM can increase revenues, decrease costs, and impact a
company's bottom line.

Example of SCM

Understanding the importance of SCM to its business, Walgreens Boots Alliance Inc. placed
focused effort on transforming its supply chain in 2016. The company operates one of the largest
pharmacy chains in the United States and needs to efficiently manage and revise its supply chain so it
stays ahead of the changing trends and continues to add value to its bottom line.

As of July 5, 2016, Walgreens has invested in the technology portion of its supply chain. It
implemented a forward-looking SCM that synthesizes relevant data and uses analytics to forecast
customer purchase behavior, and then it works its way back up the supply chain to meet that expected
demand.

For example, the company can anticipate flu patterns, which allow it to accurately forecast
needed inventory for over-the-counter flu remedies, creating an efficient supply chain with little waste.
Using this SCM, the company can reduce excess inventory and all of the inventories' associated costs,
such as the cost of warehousing and transportation.

Supply Management Process

The supply chain management process is composed of four main parts: product portfolio
management, demand management, S&OP, and supply management.

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1. Demand management

Demand management consists of three parts: demand planning, merchandise planning, and
trade promotion planning.

• Demand planning is the process of forecasting demand to make sure products can be reliably
delivered. Effective demand planning can improve the accuracy of revenue forecasts, align
inventory levels with peaks and troughs in demand, and enhance profitability for a particular
channel or product.

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 • Merchandise planning is a systematic approach to planning, buying, and selling merchandise to
maximize the return on investment (ROI) while simultaneously making merchandise available at
the places, times, prices, and quantities that the market demands.

• Trade promotion planning is a marketing technique to increase demand for products in retail
stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-
obligation gifts, and other promotions. Trade promotions help drive short-term consumer
demand for products normally sold in retail environments.

2. Supply management

Supply management is made up of five areas: supply planning, production planning, inventory
planning, capacity planning, and distribution planning.

• Supply planning determines how best to fulfill the requirements created from the demand plan.
The objective is to balance supply and demand in a manner that achieves the financial and
service objectives of the enterprise.

• Production planning addresses the production and manufacturing modules within a company. It
considers the resource allocation of employees, materials, and of production capacity.

Production/supply planning consists of:

o Supplier management and collaboration

o Demand and supply balancing o
Production scheduling

• Inventory planning determines the optimal quantity and timing of inventory to align it with sales
and production needs.

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• Capacity planning determines the production staff and equipment needed to meet demand for
products.

• Distribution planning and network planning oversees the movement of goods from a supplier or
manufacturer to the point of sale. Distribution management is an overarching term that refers to
processes such as packaging, inventory, warehousing, supply chain and logistics.

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3. Sales and Operations Planning (S&OP)

Sales and operations planning (S&OP) is a monthly integrated business management process
that empowers leadership to focus on key supply chain drivers, including sales, marketing, demand
management, production, inventory management, and new product introduction.

With an eye on financial and business impact, the goal of S&OP is to enable executives to
make better-informed decisions through a dynamic connection of plans and strategies across the
business. Often repeated on a monthly basis, S&OP enables effective supply chain management and
focuses the resources of an organization on delivering what their customers need while staying
profitable.

4. Product portfolio management

Product portfolio management is the process from creating a product idea creation to market
introduction. of creating an idea for a product and following through on it until the product is
introduced to the market. A company must have an exit strategy for its product when it reaches the
end of its profitable life or in case the product doesn’t sell well.

Product portfolio management includes:

o New product introduction o End-of-life planning o

Cannibalization planning o Commercialization and ramp planning
o Contribution margin analysis o Portfolio management
o Brand, portfolio, and platform planning

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Supply Management Models

The way you manage your supply chain connection has a direct bearing on your business
performance in terms of the product cost, working capital requirements, service perception by
customers, speed to market and other factors that influence your competitiveness in the marketplace.

An organization's supply chain strategy is shaped by four key elements, including:

• The industry framework

• Your unique value proposition
• Internal supply chain processes

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 • Managerial focus

There are six main supply chain models that almost all businesses adopt. These can be

grouped into main categories:

• Supply chain models that are oriented to efficiency

• Supply chain models that are oriented to responsiveness

Supply chain models oriented to efficiency

In industries where the value proposition is oriented to metrics such as high relevance of asset
utilization, low cost, and total cost, the end-to-end efficiency is given high priority. Examples of such
industries include steel, cement, paper, low-cost fashion, and commodity manufacturing in general.
Three supply chain models fall under this category:

• The ''efficient'' supply chain model

This model is best suited to industries that exist in highly competitive markets with several
producers, and customers who may not readily appreciate their different value propositions. These are
usually commoditized businesses where production is scheduled based on expected sales for the length
of the production cycle and competition is almost solely based on price. The steel and cement
industries fall under this category.

The key objective of the efficient supply chain model is that managers should focus on
maximizing end-to-end efficiency including high rates of asset utilization in a bid to lower costs.

• The ''fast'' supply chain model

This supply chain model is best suited for companies that manufacture trendy products with
short lifecycles. Consumers are mostly concerned with how fast the manufacturer updates their product
portfolios to keep up with fashion trends.

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Companies that adopt the fast supply chain model focus on shortening the time from idea to
market and maximizing the levels of forecast accuracy so as to reduce market mediation cost.

• The ''continuous-flow'' model

This model is ideal for industries with high demand stability. The manufacturing processes in a
continuous-flow model are designed to generate a regular cadence of product and information flow.
This supply chain model is suited for mature industries with little variation in the customer demand
profile.

Competitive positioning for this model involves offering a continuous-replenishment system

that ensures high service levels and low inventory levels at customers' facilities.

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Supply chains oriented to responsiveness

In industries that are characterized by high demand uncertainty and where market mediation
costs are the top priority, supply chain models that are oriented to responsiveness are usually
employed. These include:

• The "agile" supply chain model

The agile supply chain model is ideal for companies that manufacture products under unique
specifications by their customers. This model is mostly used in industries characterized by unpredictable
demand. The model uses a make-to-order decoupling point that involves manufacturing an item after
receiving customers' purchase orders.

To ensure agility in the supply chain, managers focus on having the ability for excess capacity
and designing manufacturing processes that are capable of the smallest possible batches.

• The "custom-configured" model

This model is ideal where products with multiple and potentially unlimited product
configurations are required. It features a high degree of correlation between asset cost and the total
cost. Product configurations is usually accomplished during the assembly process where different
product parts are assembled according to a customer's specifications.

The custom-configured model combines the continuous-flow supply chain model and an agile
supply chain where the processes before configuration of the product are managed under the
continuous-flow model while downstream processes operate as an agile supply chain. • The "flexible"
supply chain model

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This supply chain model is best suited for industries that are characterized by high demand
peaks followed by extended periods of low demand. This model is characterized by high adaptability
with the capability to reconfigure internal manufacturing processes so as to meet specific customer
needs or solve customer problems.

For this supply chain model to be successful, the management should focus on ensuring ample
flexibility with an emphasis on rapid response capability, having an extra capacity of critical resources,
possessing adequate technical strengths, and developing a process flow that is quickly reconfigurable.

Multiple supply chains or multifaceted supply chains?

Many organizations tend to prefer their supply chains to have the capabilities of the six
supply chain models. In practice, however, it's more intuitive to develop parallel supply chains within
the same organization with each model focused on serving a particular market segment or niche.
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CHAPTER X: Promotion Strategies

Objectives:

At the end of the chapter, the student shall be able to:

➢ Understand the promotional communication process
➢ Identify the factors influencing promotional mix
➢ Define integrated marketing communications

Promotional Communication Process

Communication is the process of transmitting data, ideas, information from a source (transmitter) to a
receiver using a communication channel. All these elements form a communication system.

Marketing communication is the process where two sides try to influence each other, using symbols, in
order to achieve their final objectives:

▪ Producer's objective: to sell the products

▪ Customer's objective: satisfying the need.

The process of communication is depicted in the following scheme:

• The transmitter – is the company that wants to send a message to the target market so that it
receives a favorable answer from them:

o Purchase of a product

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o Positive attitude

o Image improvement
To assure a high credibility, the company employs public personalities or opinion leaders to
effectively deliver the message. They are the message source and are widely used in advertising.

• Message encoding – The intended meaning of the message, the idea the transmitter wants to deliver
in encoded in symbols, text, images, sounds so that it's easily received by the customer. In the
encoding process, the transmitter must take into account the public target characteristics, so that it
doesn’t understand the message inaccurately.

• The message – is transmitted through a communication channel to the receiver and has a certain
transmitted meaning. On this act various perturbing factors existing at the communication channel
level and are independent of the transmitter or receiver. These perturbing factors are called
interferences or channel noise and are usually a consequence of the message intersecting other
promotional messages.

• Message decoding – the message is received having a certain received meaning that can be different
from the original emitted meaning due to the channel noise.

• The understood meaning – results from decoding the received message according to the
interpretation the receiver gives to the symbols the transmitter used to encode the message.

• Receiver – is that part of the target market where the message is focused. It can be a person, a

group or an organization.

• Feedback – is the answering reaction of the receiver that can be a positive, negative or indifferent.
The purpose of promotional communication is that the public response to be favorable, with a clear
finality: purchasing the products and recovery, by this mean, of the expenses involved in the
promotional activities.

In the communication process, the transmitter must make sure that the understood meaning is
as close as possible to the intended meaning. Otherwise, the message can be distorted and might
not generate the desired effects, representing a total waste of resources.

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What is Promotion Strategy?

A promotion strategy is defined by the plan and tactics you implement in your marketing plan, in order
to increase the demand for your product or service. Promotion strategies play a vital role in the mix of
marketing (product, price, placement & promotion), and they revolve around:

▪ Target audience – who are you selling for and what are their interests ▪
Budget – how much are you willing to invest
▪ Plan of action – what strategy are you adopting in order to reach your purpose and make a profit.

No one is going to buy a product or service they haven't heard of, nor will they buy it if they don't know
what your company offers. This is why a great promotion strategy is vital to grow your business. Some
companies use more than one method, while others may use different methods for different marketing
purposes. Regardless of your company's product or service, a strong set of promotional strategies can
help position your company in a favorable light, while opening the doors for future communication.

Contests as a Promotional Strategy

Contests are a frequently used promotional strategy. Many contests don't even require a purchase. The
idea is to promote your brand and put your logo and name in front of the public rather than make
money through a hard-sell campaign. People like to win prizes. Sponsoring contests can bring attention
to your product without company overtness.

Social Media Promotion

Social media websites such as Facebook and Google+ offer companies a way to promote products and
services in a more relaxed environment. This is direct marketing at its best. Social networks connect with
a world of potential customers that can view your company from a different perspective.

Rather than seeing your company as "trying to sell" something, the social network shows a company
that is in touch with people on a more personal level. This can help lessen the divide between the
company and the buyer, which in turn presents a more appealing and familiar image of the company.

Mail Order Marketing

Customers who come into your business are not to be overlooked as they have already decided to
purchase your product. What can be helpful is getting personal information from these customers. Offer
a free product or service in exchange for the information. These are customers who are already familiar
with your company and represent the target audience you want to market your new products to.

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Product Giveaways and Samples

Product giveaways and allowing potential customers to sample a product are methods used often by
companies to introduce new food and household products. Many of these companies sponsor in-store
promotions, giving away product samples to entice the buying public into trying new products.

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Point-of-Sale Promotion and End-Cap Marketing

Point-of-sale and end-cap marketing are ways of selling product and promoting items in stores. The idea
behind this promotional strategy is convenience and impulse. The end cap, which sits at the end of aisles
in grocery stores, features products a store wants to promote or move quickly. This product is
positioned so it is easily accessible to the customer.

Point-of-sale is a way to promote new products or products a store needs to move. These items are
placed near the checkout in the store and are often purchased by consumers on impulse as they wait to
be checked out.

Customer Referral Incentive Program

The customer referral incentive program is a way to encourage current customers to refer new
customers to your store. Free products, big discounts and cash rewards are some of the incentives you
can use. This is a promotional strategy that leverages your customer base as a sales force.

Causes and Charity

Promoting your products while supporting a cause can be an effective promotional strategy. Giving
customers a sense of being a part of something larger simply by using products they might use anyway
creates a win/win situation. You get the customers and the socially conscious image; customers get a
product they can use and the sense of helping a cause. One way to do this is to give a percentage of
product profit to the cause your company has committed to helping.

Branded Promotional Gifts

Giving away functional branded gifts can be a more effective promotional move than handing out simple
business cards. Put your business card on a magnet, ink pen or key chain. These are gifts you can give
your customers that they may use, which keeps your business in plain sight rather than in the trash or in
a drawer with other business cards the customer may not look at.

Customer Appreciation Events

An in-store customer appreciation event with free refreshments and door prizes will draw customers
into the store. Emphasis on the appreciation part of the event, with no purchase of
anything necessary, is an effective way to draw not only current customers but also potential

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customers through the door. Pizza, hot dogs and soda are inexpensive food items that can be used to
make the event more attractive.

Setting up convenient product displays before the launch of the event will ensure the products you want
to promote are highly visible when the customers arrive.

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After-Sale Customer Surveys

Contacting customers by telephone or through the mail after a sale is a promotional strategy that puts
customer satisfaction first while leaving the door open for a promotional opportunity. Skilled
salespeople make survey calls to customers to gather information that can later be used for marketing
by asking questions relating to how customers feel about the products and services purchased. This
serves the dual purpose of promoting your company as one that cares what the customer thinks and
one that is always striving to provide the best service and product.

Factors Influencing Promotion Mix

1. Target Customer or Market

• Readiness to buy the product- the target market is affected by the following steps in the buying
process:

o Awareness-This can be attained by the ability to capture the interest of the customers.
For example, when cellphone companies introduced its mobile phone network, it began
with an extensive ‘teaser’ advertising campaign to create name familiarity.
o Knowledge- it is the process of assimilating the information about the product or
service of the marketing organization. Example: At launch, of mobile phones ads created
knowledge by informing potential buyers of the company’s service and innovative
features.
o Liking- it can be measured when the customers begin to inquire about the benefits and
features of the product. If the audience looks unfavorably on the brand, the
communicator has to find out why, and then resolve the problems identified before
developing a communications campaign to generate favorable feelings.
o Preference- it is determined when the customers ask about the price and the place
where it could be available.
o Conviction- it is evaluated when the customers make options and choices. o

Purchase- it is the ultimate degree of the customer’s preference when he pays the product.

• Geographic Scope of the Market- the area of marketing operation is another factor to consider
in promoting the product to its target market. A small territory may require the

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service of salesperson. The bigger the geographic area more promotional activities are
necessary to give the widest information dissemination through advertising and publicity.

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 o Type of Customer- the customer can be classified in many different ways. Market
segmentation is determining assortment of different types of market. The promotional
strategies therefore must match with the type of customer.
o The concentration of the Market- the density of population must be identified before
any promotional activity be implemented.

2. The Nature of the Product

• Unit Value- the product with lower sales value like consumer goods,needs more advertising to
penetrate the target market. On the other hand, products with higher value like housing units
need more the services of salesperson.
• Degree of customization- customization is the desire of the individual customer to have unique
features for the product he wants for himself. This is true in housing construction where the
services of the civil engineers and architects are needed. Sales people are needed to complete
the transaction.
• The need for pre-sale and post-sale service- the promotional strategy under this category
would be the services of sale engineers for machineries and installations. Advertising for this
kind of product would not be necessary.

3. The Stage of Product Life Cycle

Promotional Strategies are influenced by the product’s life cycle. At the introductory stage, the
consumers products must have intensive advertising and call of sales people to more dealers and
retailers in order that the product will be known and available in the market.

Promotion strategies that can be employed at each stage of the Product Life Cycle are as follows:

• Introduction

When a product is new, the organization's objective will be to inform the target audience of its entry.
Television, radio, magazine, coupons etc. may be used to push the product through the introduction
stage of the life cycle. Push and Pull Strategies will be used at this crucial stage.

• Growth

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As the product becomes accepted by the target market (at this stage of the life cycle) the organization
will employ strategy to increase brand awareness and customer loyalty.

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 • Maturity

At this stage of the life cycle the product will be experiencing increased competition and will need
persuasive tactics to encourage consumers to choose their product over their rivals. Any differential
advantage/benefit will be need to be clearly communicated to the target audience.

• Decline

As the product reaches the decline stage of its life cycle, all theorganisation can do is use strategy to
remind consumers about the product in a bid to slow the inevitable.

Promotion Through The Product Life Cycle

As products move through the four stages of the product life cycle different promotional strategies
should be employed at these stages to ensure the healthy success and life of the

product.

4. The Availability of Financial Resources

Big marketing organizations have the financial resources to back up their products with intensive
advertising. Advertising is one of the most expensive strategies in the promotional mix. This could only
be possible if the organization has the fund to sustain advertising strategy. Integrated Marketing
Communications

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Integrated marketing communications (IMC) is an approach used by organizations to brand and
coordinate their communication efforts. The American Association of Advertising Agencies defines IMC
as “a comprehensive plan that evaluates the strategic roles of a variety of communication disciplines

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and combines these disciplines to provide clarity, consistency and maximum communication impact.”
The primary idea behind an IMC strategy is to create a seamless experience for consumers across
different aspects of the marketing mix. The brand’s core image and messaging are reinforced as each
marketing communication channel works together as parts of a unified whole rather than in isolation.

The Shift from Fragmented to Integrated Marketing Communications

Prior to the emergence of integrated marketing communications during the 1990s, mass
communications—the practice of relaying information to large segments of the population through
television, radio, and other media—dominated marketing. Marketing was a one-way feed. Advertisers
broadcasted their offerings and value propositions with little regard for the diverse needs, tastes, and
values of consumers.

Often, this “one size fits all” approach was costly and uninformative due to the lack of tools for
measuring results in terms of sales. But as methods for collecting and analyzing consumer data through
single-source technology such as store scanners improved, marketers were increasingly able to correlate
promotional activities with consumer purchasing patterns. Companies also began to downsize their
operations and expand marketing tasks within their organizations. Advertising agencies were also
expected to understand and provide all marketing functions, not just advertising, for their clients.

Today, corporate marketing budgets are allocated toward trade promotions, consumer promotions,
branding, public relations, and advertising. The allocation of communication budgets away from mass
media and traditional advertising has raised the importance of IMC importance for effective marketing.
Now, marketing is viewed more as a two-way conversation between marketers and consumers. This
transition in the advertising and media industries can be summarized by the following market trends:

• a shift from mass media advertising to multiple forms of communication

• the growing popularity of more specialized (niche) media, which considers individualized patterns of
consumption and increased segmentation of consumer tastes and preferences

• the move from a manufacturer-dominated market to a retailer-dominated, consumer controlled

market

• the growing use of data-based marketing as opposed to general-focus advertising and marketing

• greater business accountability, particularly in advertising

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• performance-based compensation within organizations, which helps increase sales and benefits in
companies

• unlimited Internet access and greater online availability of goods and services

• a larger focus on developing marketing communications activities that produce value for target
audiences while increasing benefits and reducing costs

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The Tools of Integrated Marketing Communications

The IMC process generally begins with an integrated marketing communications plan that describes the
different types of marketing, advertising, and sales tools that will be used during campaigns. These are
largely promotional tools, which include everything from search engine optimization (SEO) tactics and
banner advertisements to webinars and blogs. Traditional marketing communication elements such as
newspapers, billboards, and magazines may also be used to inform and persuade consumers. Marketers
must also decide on the appropriate combination of traditional and digital communications for their
target audience to build a strong brand-consumer relationship. Regardless of the brand’s promotional
mix, it is important that marketers ensure their messaging is consistent and credible across all
communication channels.

Benefits of Integrated Marketing Communications

With so many products and services to choose from, consumers are often overwhelmed by the vast
number of advertisements flooding both online and offline communication channels. Marketing
messages run the risk of being overlooked and ignored if they are not relevant to consumers’ needs and
wants.

One of the major benefits of integrated marketing communications is that marketers can clearly and
effectively communicate their brand’s story and messaging across several communication channels to
create brand awareness. IMC is also more cost-effective than mass media since consumers are likely to
interact with brands across various forums and digital interfaces. As consumers spend more time on
computers and mobile devices, marketers seek to weave together multiple exposures to their brands
using different touch points. Companies can then view the performance of their communication tactics
as a whole instead of as fragmented pieces.

The other benefit of integrated marketing communications is that it creates a competitive advantage
for companies looking to boost their sales and profits. This is especially useful for
small or mid-sized firms with limited staff and marketing budgets. IMC immerses customers in
communications and helps them move through the various stages of the buying process. The
organization simultaneously consolidates its image, develops a dialogue, and nurtures its
relationship with customers throughout the exchange. IMC can be instrumental in creating a
seamless purchasing experience that spurs customers to become loyal, lifelong customers.

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