MBAD 2114 Marketing Management

DIRECTORATE OF DISTANCE EDUCATION
M.B.A
MASTER OF BUSINESS
ADMINISTRATION
MBAD
MBAD21141914
MARKETING MANAGEMENT
First Semester
Semester – I
SRM INSTITUTE OF SCIENCE AND TECHNOLOGY,

Potheri, Chengalpattu District 603203,
Tamil Nadu,INDIA
Phone: 044 – 27417040 / 41
Website: www.srmist.edu.in / Email:office.dde@srmist.edu.in
EXPERT COMMITTEE
S.N NAME DESIGNATION ORGANISATION

o.
1 Dr.R.Rajagopal Director DDE - SRMIST
2 Dr.V.M.Ponniah Dean - Management FOM - SRMIST
FOM – SRMIST, KTR
3 Dr.G.Venugopalan Academic Coordinator
FOM – SRMIST, KTR
4 Dr.T.Ramachandran Head of II year MBA
FOM – SRMIST, KTR
5 Dr.V,M.Shenbagaraman Head of I year MBA
Course Writer(s) Dr.S.K.Manivannan, Dr.M.Valliammal
Information contained in this book has been obtained by its Author(s) from sources
believed to be reliable and are correct to the best of their knowledge. However
Publishers and the Author(s) shall in no event be liable for any errors, omissions or
damages arising out of this information and specifically disclaim any implied
warranties or merchantability or fitness for any particular.

SRM Institute of Science and Technology,
Potheri, Chengalpattu District 603203, Tamil Nadu,INDIA
Phone: 044 – 27417040 / 41
Website: www.srmist.edu.in / Email:office.dde@srmist.edu.in
SYLLABI – BOOK CONTENT
MBAD 1914 - MARKETING MANAGEMENT
UNIT I
Introduction to Marketing Management–concepts–scope–Marketing Management

Philosophies – Analyzing Marketing Environment –Ethical behavior– corporate
social responsibility–Market Competition–case studies.
UNIT II
Consumer Behavior– concepts–Evolution of consumer oriented markets– factor

influencing consumer behavior –individual factors–Market Segmentation– bases for
segmenting consumer markets and business markets–Target Marketing–selection
of strategies–one to one –one to many marketing – Positioning for Competitive
Advantage– marketing information–innovation–cases.
UNIT III
Product and Services– Product Classification– Branding– Product Life Cycle– New
Product Development – Product Extension Strategies–cases.
UNIT IV
Pricing–concepts–importance–objectives–determinants–types–strategy–actics–Place–
channel distribution–intermediaries and their functions –channel structure –
channel alliances–cases.
UNIT V
Promotion Decisions –objectives–promotional mix– Factors affecting– sales

promotion–trade sales–personal selling –advertising and public relations–creative
decisions in advertising–cases.
CONTENTS
INTRODUCTION
Module – 1
1.0 Introduction
1.1 Unit objectives
1.2 Utility
1.3 Meaning of Marketing
1.4 Evolution of Marketing philosophies
1.5 Functions of Marketing
1.6 Elements of Marketing
1.7 Marketing Process
Module – 2
2.0 Introduction
2.1 Module objectives
2.2 Elements of Marketing environment
2.3 Ethical Marketing and Corporate Social Responsibility
2.4 Market Competition
Module – 3
3.0 Introduction
3.2 Consumer Behaviour
3.3 Market Segmentation
3.4 Target/Consumer Oriented Marketing
Module – 4
4.0 Introduction
4.1 Unit objectives
4.3 Marketing Mix Decisions
4.4 Marketing Strategies
4.5 Positioning
4.6 Competitive Advantage
4.7 Market Information
4.8 Innovation
Module – 5
5.0 Introduction
5.2 Product and Services
5.3 Product Mix
5.4 Product Life Cycle
5.5 Branding
5.6 New Product Development
Module – 6
6.0 Introduction
6.2 Pricing of Product and Services
6.3 Pricing Objectives
6.4 Strategies andTactics in Pricing
Module – 7
7.0 Introduction
7.2 Placing of Product and Services
7.3 Marketing Channel Types and Participants
7.4 Channel Structure, Choosing Alliances
Module – 8
8.0 Introduction
8.2 Sales Promotion and Promotion Mix
8.3 Public Relation
8.4 Personal Selling
NOTES
______________________________________________________________
INTRODUCTION
Marketing currently is in the cross roads in all parts of the world. The
rapid expansion of the Information Super Highway has changed the contours
of the traditional marketing, product, pricing, placing and promotion in
unimaginable ways. While the Globalization and Liberalization across the
world had created a universal market for the global business, the
opportunities also have thrown open a VUCA environment (Volatility,
Uncertainty, Complexity and Ambiguity) for the same business who now are
in urgent need to cater to sea changes in consumer buying behaviour,
competitor actions, public and special interest groups activism besides the
ever present government and political actions.
No longer can you carefully craft your message, buy ad space or radio
or TV time, and assume your message will be heard by a quantifiable
audience. Today the audience is fragmented, so you need to figure out where
your customers are spending their time. Perhaps they are on Facebook, where
users post more than 55 million updates a day and share more than 3.5 billion
pieces of content weekly, or maybe they're on their phones, sending one of
the 2.5 billion text messages transmitted every day in the world?
Then you need to determine how they want to hear from you on a
regular basis. It could be they want to come to you. This was the case for
more than 93,000 people who submitted questions to a new "Open for
Questions" section on Whitehouse.gov within just 48 hours of launching. Or it
could be that customers like the convenience of your information embedded
in their regular activities, such as a Promoted Tweet.
Regardless of the communications channels you choose to pursue, the

key is to not just talk, but listen. If people have problems, acknowledge and
learn from them. That's what Frank Eliason, a customer service representative
at Comcast , did. He saw that many Comcast customers were on Twitter
1 SRMIST DDE MBA Self Instructional Material

posting their frustrations, so he decided to reach out to them with a simple
question: "How can I help you?" He then responded to each and every tweet
he received and tried to resolve the issues. He now has close to 42,000 people
who follow him and has become one of the go-to resources for Comcast
customers.
Eliason's example highlights another important point: Marketing

shouldn't be about the latest buzzword or trend, but rather about how you
live the brand promise in each and everything you do. It's about creating an
ongoing relationship with the consumer, and every communication and
touch point with the consumer is an opportunity to further develop that
relationship.
Ever get frustrated when you call customer service, punch in some
information and then get asked for that exact same information when
someone comes on the call? Or maybe you are one of the more than 20% of
people who stopped their online purchase because of a lack of company
information.
Look at all the intersections you have with consumers, and determine
how you can enhance the experience and provide additional value for them.
For instance, financial institutions have found the loyal customer is the one
they can help with their overall finances. It's about creating a relationship
with customers that supports them in all their financial planning and
decisions, regardless of whether there is an immediate transaction or profit to
be made. Customers who use an institution's tools to track their spending
habits, pay their bills, create a budget and manage their debt are much less
likely to switch banks and likely do a lot more business with this bank in the
long term.
This is critical, since consumers are going to be turning to a lot of

different voices to get information about you in this digital age. A recent
survey found that more than 70% of customers looked at online reviews
before buying. Intuit revealed that eight out of every 10 sales are due to word

of mouth. The lesson is to ensure you are consistently delivering value to
NOTES
everyone because you never know who or where that critical influence will
be.
United Airlines learned the hard way the amplified impact one person
can have on a company's reputation. When Dave Carroll's Taylor guitar was
damaged on a United flight and the airline refused to reimburse him the
$1,200 it cost to fix it, he recorded a catchy song about the incident and posted
it on YouTube. Within eight months, more than 8 million people had seen the
humorous video, with "pass the buck" and "don't ask me" lyrics describing
United's customer service, along with the refrain "should have flown with
someone else or gone by car because United breaks guitars." What do you
think 300 media interviews, a top-10 viral video and a Harvard Business
Review case study cost United's brand? I would venture it's more than $1,200.
We all know that social media is disrupting the way sales and
marketing work- old paradigms like lead-generation, prospect-conversion
and account-development, are no longer as effective in a modern marketing
2.0 world, where social media enables direct relationships with consumers
and clients.
Businesses that can look across their extended operations and open
themselves up to communications that are real and not always comfortable
can build trust with customers. Companies that can relinquish control and
instil confidence in their employees to represent them well will be able to
engage consumers in authentic, ongoing dialogues and build the
relationships that are pivotal for the success of companies in this consumer-
driven world.
“Think globally, act locally.” That phrase, when it first emerged

among environmentalists in the 1970s, meant something very specific: to
enact positive environmental change on a large scale, each of us must take
environmentally responsible steps in our individual homes and communities.

Technology Has Allowed Us To Celebrate Both Our Global And Local
Communities In Unprecedented Ways.
As social media has given us more and better ways to share our
identities with the world, a kind of paradox that many have noticed is taking
place: rather than becoming more homogenized, we’re becoming more
individualized. Differences – or, more honestly, the characteristics that make
you, you, or that make your neighborhood your neighborhood – are
celebrated as loudly and often as are the vast commonalities that we humans
share.
Local Ideas Can Go Global In A Matter Of Hours. ideas like the Ice
Bucket Challenge, the insanely successful peer-to-peer fundraising campaign
for ALS, or the Harlem Shake craze, actually do spread like wildfire in a few
hours, and unfortunately so does the 'Blue Whale Challenge’s leading to
many unfortunate deaths of alleged participants.
What “Act Locally” Is Really About Is Giving People A Sense Of

Belonging, Plus The Chance To Express Their Identities. The best marketing
campaigns are the ones that not only recognize this truth but actively nurture
it.
However to understand these trends we need a understanding of the

fundamentals in the basics of Marketing. This book is an effort in that
direction.

MODULE - 1
NOTES
______________________________________________________________
Structure
1.0 Introduction
1.1 Unit objectives
1.2 Utility
1.3 Meaning of Marketing
1.4 Evolution of Marketing philosophies
1.5 Functions of Marketing
1.6 Elements of Marketing
1.0 INTRODUCTION
Marketing is as old as civilization. Though marketing is talked and

discussed in business terms today, its origin goes back to the ancient
civilization when man used symbols, signs and material artefacts to transact
and communicate with others. The need for such communication has resulted
in the extensive development of language in humanity as well to identify
things, feelings, needs and the like.
The study of marketing is very interesting in the sense that every body
of us have performed marketing activities in one form or other. For instance
yesterday in the morning you would have demanded your favourite
breakfast item very hot and spicy, the marketing may term it as ‘product
specification’. Then on your way to work you would be visiting the fuel
station for your vehicle without realizing that the fuel ‘distribution’ needs a
‘place’ for getting the product. The fuel attendant tries to ‘promote’ nitrogen
air for your tires while the billboard next to the station ‘advertises’ a new
service card for the fuel. In the evening you book a movie ticket using the
coupon for a ‘price offer’.

In the above paragraph we are seeing many marketing terminologies
which of course will be discussed in detail in the lessons that are following.
However the idea of popping these terminologies here upfront is to give you
a feel of how we are using the marketing concepts in our day to day life, not
just the ones given in the paragraph above, but much more.
_________________________________________________________________
1.1 UNIT OBJECTIVE
This unit covers the meaning of marketing, its nature, scope and
different philosophies. It also discusses the relationship of marketing to the
other functions of business.
After reading this unit, you should be able to
Define marketing and trace the origin and growth of marketing.
Distinguish between sales and marketing.
Explain the nature and objectives of marketing.
Discuss the varieties, role and scope and elements of marketing
Explain how the marketing process creates, captures and sustains
value for the customer
_______________________________________________________________
1.2 UTILITY
Production and marketing of goods and services are the essence of

economic life in any society. All organizations perform these two basic
functions to satisfy their commitments to their stakeholders – the owners, the
customers and the society, at large. They create a benefit that economists call
utility which is the want-satisfying power of a good or service. There are
four basic kinds of utility – form, time, place and ownership utility. Form
utility is created when the firm converts raw materials and component inputs
into finished goods and services. Although marketing provides important
inputs that specify consumer preference, the organization’s production
function is responsible for the actual creation of form utility. Marketing

function creates time, place and ownership utilities. Time and place utility
NOTES
occur when consumers find goods and services available when and where
they want to purchase them. Online retailers with 24*7 format emphasize
time utility. Vending machines focus on providing place utility for people
buying snacks and soft drinks. The transfer of title to goods or services at the
time of purchase creates ownership utility.
Table 1.1: TYPES OF UTILITY
Type Description Examples Responsible
function
Conversion of raw materials
and components into Pizza made from
Form finished goods and services several ingredients Production
Availability of goods and Dial-a-pizza;

Time services when consumers delivery Marketing
want them guaranteed in 30
minutes.
Availability of goods and
Place services where consumers Delivery at your Marketing
want them doorstep
Owner- Ability to transfer title to Pizza sales (in ex-
ship goods or services from change for rupees
(posses- marketer to buyer or credit card pay- Marketing
sion) ment)
To survive, all organizations must create utility. Designing and
marketing want-satisfying goods, services and ideas is the foundation for the
creation of utility.
The relationship of different utilities are explained in the following
diagram from the perspective of how the various types contribute either
directly or indirectly to the concept of marketing. As can be seen while form
utility is indirectly contributing by way of production of products and
services, the other types form the core of the marketing finctions.

Fig.1.1 Type of Utilities and their relationship
______________________________________________________________
1.3 MEANING OF MARKETING
Management guru, Peter F.Drucker emphasized the importance of
marketing in his classic book, The Practice of Management as:
‘If we want to know what a business is, we have start with its
purpose. And its purpose must lie outside the business itself. In fact, it must
lie in society since a business enterprise is an organ of society. There is one
valid definition of business purpose: to create a customer’.
To begin with let us visit a few concepts.
Marketing is essentially about marshalling all the resources of an
organisation to meet the needs of the consumers on whom the entire
organisation depends.
According to American Marketing Association “Marketing is the
process of planning and executing the conception, pricing, promotion, and
distribution of ideas, goods, and services to create exchanges that satisfy
individual and organisational objectives”.
Ramaswamy and Namakumari defines marketing “It is the total
system of interacting business activities designed to plan, promote and
distribute need satisfying products and services to existing and potential
consumers”.

Philip Kotler defines marketing “It is a social and managerial process
NOTES
by which individuals and groups obtain what they need and want through
creating, offering and exchanging products of value with others”. This
definition of marketing is the most widely accepted by marketing. It
highlights the core concepts like needs, wants, demands, products, value,
cost, and satisfaction.
So, we can conclude that marketing is the process of identifying the
needs of the target audience and provide the products accordingly in
exchange of some value. This process mainly consists of two parties. On the
one side, marketers are there who go to resource markets (raw material
markets, labour markets, money market, and so on) to buy these resources
and shape them into goods and services for their target consumers. On the
other hand, consumers are there who provide vital information to the
marketers besides money for using various products and services.
Exchanges in marketing are consummated not just between any two

parties, but almost always among two or more parties, of which one or more
taken on the role of buyer and one or more, the role of seller. A common set
of conditions are present in the marketplace, viz.,
(i) Relating to buyers
1) Buyers outnumber sellers

2) Any individual buyer is weaker than any individual seller
economically.
3) However, the total economic power of even a fraction of the
buyers is enough to assure the existence of, or to put out of business, most
sellers or groups of sellers.
(ii) Relating to sellers
4) The sellers compete to sway the largest number of buyers they

can to their, rather than another seller’s (competitor’s) offerings.

5) In this process, they are influenced as well, regularly
modifying their behaviours so they will have more success, with more
buyers, over time.
The expanded and dynamic concept has some characteristics.
• Holistic view -The concept of marketing activities permeates

all organizational functions. It assumes that the marketing effort will follow
the overall corporate strategy and will proceed in accordance with ethical
practices and that it will effectively serve the interests of both society and
organization.
• Key decision areas The concept also identifies the marketing
variables – product, price, promotion and distribution – that combine to
provide customer satisfaction. In addition, it assumes that the organization
begins by identifying and analyzing the consumer segments that it will later
satisfy through its production and marketing activities.
• Relationships The concept’s emphasis on creating and
maintaining relationships is consistent with the focus in business on long-
term, mutually satisfying sales, purchases and other interactions with
customers and suppliers.
• Universality Finally, it recognizes that marketing concepts and
techniques apply to non-profit organizations as well as to profit-oriented
businesses, to product organization and to service organizations, to domestic
and global organizations, as well as to organizations targeting consumers
and other businesses.
1.4 EVOLUTION OF MARKETING PHILOSOPHIES
As noted earlier, exchange is the origin of marketing activity. When

people need to exchange goods, they naturally begin a marketing effort. Wroe
Alderson, a leading marketing theorist has pointed out, ‘It seems altogether
reasonable to describe the development of exchange as a great invention
which helped to start primitive man on the road to civilization’. Production is

not meaningful until a system of marketing has been established. An adage
NOTES
goes as: Nothing happens until somebody sells something.
Although marketing has always been a part of business, its

importance has varied greatly over the years. The following table identifies
five eras in the history of marketing: the production era, the product era, the
sales era, the marketing era and the relationship marketing era.
Table 1.2 EVOLUTION OF MARKETING PHILOSOPHIES
Era Prevailing attitude and approach
Consumers favor products that are available

and highly affordable
Improve production and distribution

Production
‘Availability and affordability is what the

customer wants’
Consumers favor products that offer the most

quality, performance and innovative features
Product
‘A good product will sell itself ’
Consumers will buy products only if the

company promotes/ sells these products
‘Creative advertising and selling will

Sales
overcome consumers’ resistance and
convince them to buy’
Focuses on needs/ wants of target markets

and delivering satisfaction better than
competitors
Marketing
‘The consumer is king! Find a need and fill it’

Focuses on needs/ wants of target
markets and delivering superior value
Relationship mar-
‘Long-term relationships with customers and
keting
other partners lead to success’
Production era(Mass production)
In the production era, the production orientation dominated business

philosophy. Indeed business success was often defined solely in terms of
production victories. The focus was on production and distribution efficiency.
The drive to achieve economies of scale was dominant. The goal was to make
the product affordable and available to the buyers.
The classic example of this approach was seen with the Automobile
major, Ford who invented the assembly line production to mass produce cars.
This could produce cars at a lower price and the focus was only to mass
produce a uniform product. A famous line attributed to the iconic Henry
Ford as ‘I can give you any color as long as its is black’, aptly illustrates such
a focus on uniformity that made the T model Ford car (seen in the picture
below) to make cars more affordable than before.
Fig. 1.2 Mass production of T Model Ford Cars
Product era (Quality product)

In the product era, the goal was to build a better mouse trap and it
NOTES
was assumed that buyers will flock the seller who does it. However, a
better mousetrap is no guarantee of success and marketing history is full of
miserable failures despite better mousetrap designs. Inventing the greatest
new product is not enough. That product must also solve a perceived
marketplace need. Otherwise, even the best-engineered and highest quality
product will fail.
Sales era (Pressure selling)
In the sales era, firms attempted to match their output to the potential
number of customers who would want it. Firms assumed that customers will
resist purchasing goods and services not deemed essential and that the task
of selling and advertising is to convince them to buy. But selling is only one
component of marketing.
Marketing era (Satisfied customer)
In this era, the company focus shifted from products and sales to
customers’ needs. The marketing concept, a crucial change in management
philosophy, can be explained best by the shift from a seller’s market – one
with a shortage of goods and services – to a buyer’s market – one with an
abundance of goods and services. The advent of a strong buyer’s market
created the need for a customer orientation. Companies had to market goods
and services, not just produce them. This realization has been identified as
the emergence of the marketing concept. The keyword is customer
orientation. All facets of the organization must contribute first to assessing
and then to satisfying customer needs and wants.
Relationship marketing era (Relationships with customers)

The relationship marketing era is a more recent one. Organization’s
carried the marketing era’s customer orientation one step further by focusing
on establishing and maintaining relationships with both customers and
suppliers.
This effort represented a major shift from the traditional concept of

marketing as a simple exchange between buyer and seller. Relationship
marketing, by contrast, involves long-term, value-added relationships
developed over time with customers and suppliers. The following table
summarizes the differences between transaction marketing (i.e. exchanges
characterized by limited communications and little or no on going
relationship between the parties) and relationship marketing.
Table 1.3 COMPARISON OF OLD TRANSACTIONAL MARKETING

AND RELATIONSHIP MARKETING
Transaction-Based Relationship Marketing

Characteristic
Marketing
Time orientation Short term Long term
Emphasis on customer
Organizational goal Make the sale
retention
Customer service
priority Relatively low Key component
Customer contact Low to moderate Frequent
Degree of customer
Low High
commitment
Basis for seller-

Conflict manipulation Cooperation;
customer interactions
trust
Primarily from Companywide

Source of quality
production commitment

NOTES
1.5 FUNCTIONS OF MARKETING
Firms must spend money to create time, place and ownership utilities as
discussed earlier. Several studies have been made to measure marketing costs
in relation to overall product costs and service costs and most estimates have
ranged between 40-60 percent. These costs are not associated with raw
materials or any of the other production functions necessary for creating form
utility. What then does the consumer receive in return for this proportion of
marketing cost? This question is answered by understanding the functions
performed by marketing.
In the following table, marketing is responsible for the performance of 8

universal functions: buying, selling, transporting, storing, standardizing and
grading, financing, risk taking and securing marketing information. Some
functions are performed by manufacturers, others by marketing
intermediaries like wholesalers and retailers. Buying and selling, the first
two functions represent exchange functions. Transporting and storing are
physical distribution functions. The final four marketing functions –
standardizing and grading, financing, risk taking and securing market
information – are often called facilitating functions because they assist the
marketer in performing the exchange and physical distribution functions.
Table 1.4 Functions of Marketing
Marketing function
Description

A. Exchange functions
1. Buying Ensuring that product offerings are

available in sufficient quantities to meet
customer demands
2. Selling
Using advertising, personal selling and
sales promotion to match goods and
services to customer needs
B. Physical distribution Moving products from their points of
functions production to locations convenient for
3. Transporting purchasers
Warehousing products until needed
4. Storing for sale
C. Facilitating functions Ensuring that product offerings meet
5. Standardizing and grading established quality and quantity control
6. Financing standards of size, weight and so on
7. Risk taking Providing credit for channel members or
8. Securing marketing consumers
information Dealing with uncertainty about consumer

purchases resulting from creation and
marketing of goods and services that
consumers may purchase in the future
Collecting information about consumers,
competitors and channel members for use
in marketing decision making
1.6 ELEMENTS OF MARKETING
Needs, Wants and Demands
The most basic concept underlying marketing is that of human needs. A need
is a state of felt deprivation. It is a part of the human makeup. Humans have
many needs, viz., physical needs, social needs, spiritual needs and so on.
Wants are the form taken by needs as they are shaped by the one’s culture
and personality. Wants are thus shaped by both the internal and external

factors. Wants are described in terms of objects that will satisfy needs. For
NOTES
example, thirst is a need. To quench this thirst, a person may consider a
number of options (want-list)– drink water or a soft drink or a fruit juice.
These objects (which represent the different choices for a person to fulfill
his/her need) comprise the potential want-list. As people are exposed to
more objects that arouse their interest and desire, marketers try to provide
more choices, that is, more want-satisfying products. People have almost
unlimited wants but limited resources. Therefore, they want to choose
products that provide the most satisfaction for their money. When backed by
buying power (ability), a want becomes a demand.
Products
A product is anything that can be offered to a market to satisfy a need or

want. People satisfy their needs and wants with products. Though the word
suggests a physical object, the concept of product is not limited to physical
objects. Marketers often use the expressions goods and services to distinguish
between physical products and intangible ones. These goods and services can
represent cars, groceries, computers, places, persons and even ideas.
Customers decide which entertainers to watch on television, which places to
visit for a holiday, which ideas to adopt for their problems and so on. Thus
the term ‘product’ covers physical goods, services and a variety of other
vehicles that can satisfy customers’ needs and wants. If at times the term
‘product’ does not seem to be appropriate, other terms such as market
offering, satisfier are used.
Value and Satisfaction
When the customers have so many choices to choose from to satisfy a

particular need, how do they choose from among these many products? They
make their buying choices based on their perceptions of a product’s value.
The guiding concept is customer value. A customer will estimate the capacity
of each product to satisfy his need. He/She might rank the products from the
most need-satisfying to the least need-satisfying. Of course, the ideal product

is the one which gives all the benefits at zero cost, but no such product exists.
Still, the customer will value each existing product according to how close it
comes to his/her ideal product and end up choosing the product that gives
the most benefit for the rupee – the greatest value.
Exchange, Transactions and Relationships
Marketing occurs when people decide to satisfy needs and wants through
exchange. Exchange is the act of obtaining a desired object from someone by
offering something in return. Thought it is only one of the many ways
people can obtain a desired object, it allows a society to produce much more
than it would with any alternative system. For an exchange to take place,
several conditions must be satisfied. Of course, at least two parties must
participate, and each must have something of value to the other. Each party
also must want to deal with the other party and each must be free to accept or
reject the other’s offer. Finally, each party must be able to communicate and
deliver. These conditions simply make exchange possible. Whether the
exchange actually takes place depends on the parties’ coming to an
agreement. If they agree, we must conclude that the act of exchange has left
both of them better off or at least not worse off. After all, each was free to
reject or accept the offer. In this sense, exchange creates value just as
production creates value. It gives customers more consumption possibilities.
A transaction is marketing’s unit of measurement. It consists of a trade of

values between two parties. A monetary transaction involves trading goods
and services in return for money whereas a barter transaction involves
trading goods and services for other goods and services. Transaction
marketing is part of the larger idea of relationship marketing. Marketing is
shifting from trying to maximize the profit on each individual transaction to
maximizing mutually beneficial relationships with consumers and other
parties. This is based on the assumption that if good relationships are built,
profitable transactions will simply follow.

A simple view of how the marketing function enables these transactional
NOTES
flows to happen is given in the diagram below.
Fig 1.3 Product Transactional Flow through marketing
Markets
The concept of transactions leads to the concept of a market. A market is the

set of actual and potential buyers of a product. It may exist in a physical
environment as a marketplace or in a virtual environment (on the internet
platform) as a market space. To understand the nature of a market, imagine
a primitive economy consisting of only four people – a farmer, a fisherman, a
potter and a hunter. There are different ways in which these traders could
meet their needs. In the first case, self- sufficiency, they gather the needed
goods for themselves. In the second case, decentralized exchange, each
person sees the other three as potential buyers who make up a market. In the
third case, as seen in Figure 1.3 , a centralized exchange, a new person called
a merchant appears and locates in a central area called a marketplace. Each
trader brings goods to the merchant and trades for other needed goods.
Merchants and central marketplaces greatly reduce the total number of
transactions needs to accomplish a given volume of exchange. As economies

grow, exchange becomes even more centralized, as seen in the growth of
huge companies. Large supermarkets now serve millions of people who
formerly shopped in smaller outlets.
Marketing in a connected world

The internet and the resultant connected world has posed some special
challenges and opportunities for marketers. Prof. Mohanbir Sawhney
(Kellogg School of Management) has used two interesting metaphors
(hunting Vs. gardening) to describe marketing hither-to and marketing
hence-forth.
Table 1.5 Comparison of Marketing Metaphors
Marketing Hither-to: Marketing Hence-forth:
Marketing as hunting Marketing as gardening
Market as a jungle Customer relationships as

Customers as targets garden to be tended Marketer
Marketers as hunters Segmentation as as gardener Partners as players
rifle Vs. shotgun approach in the ecosystem
Products as mousetraps Customer loyalty as roots
Salespeople as Lifetime profits as harvest
baiters-and-switchers Marketing process as seed, feed
Promotions as campaigns Relationships and yield
as conquests/acquisitions
Loyalty as lock-in and retention
Customer visits as eyeballs and traffic
The underlying reason for this shift is the rise of information democracy
made possible by the internet. For information symmetry (characterized by
scarce information, ill-informed customers, monologue kind-of exchanges
and ‘command-and-control’ marketing) the society is moving towards
information democracy (characterized by ubiquitous information, well-
informed customers, conversations kind-of exchanges and ‘connect-and-

collaborate’ marketing). The Cluetrain Manifesto (www.cluetrain.org)
NOTES
describes markets as conversations in the following manner:
Markets are conversations. Their members communicate in language that is

natural, open, honest, direct, funny and often shocking… Most corporations,
on the other hand, only know how to talk in the soothing, humorless
monotone of the mission statement, marketing brochure, and your-call-is-
important-to-us busy signal. Same old tone, same old lies. No wonder
networked markets have no respect for companies unable or unwilling to
speak as they do.
In the connected world, the empowered customers can: (1) Get objective
information for multiple suppliers without relying on the manufacturer or the
retailer (e.g., Edmunds.com); (2) Initiate requests for information and
advertising from manufacturers (e.g., DealTime.com);
(3) Design and configure customized offerings (e.g., Dell.com); (4) Use buying
agents to pit sellers against each other (e.g., Free markets Online);
(5) Unbundle offerings and arbitrage across channels (e.g. Ritz Camera);
(6) Pay by the minute, by the month, by the mile (e.g., IBM e-business on
demand) and (7) Communicate with peers and experts for feedback on
products and brands (e.g. Amazon.com and Epinions.com)
1.7 MARKETING PROCESS
While there is lot of focus on the substance of marketing, particularly the

marketing mix, an equally important aspect of marketing is the marketing
process – how marketers do their job. The process is
equal in importance to the substance because the process determines the

nature and quality of the decisions made. A good process is likely to lead to a
good decision. On the other hand, a faulty process will produce a good
decision only on a random or accidental basis.

The marketing process can be divided in several different ways.
One popular conceptualization of marketing tasks is:
1. Strategy formulation – the development of the broadest

marketing/business strategies with the longest term impact.
2. Marketing planning – the development of longer-term plans which
have generally stronger impact than the short-term programs.
3. Marketing programming, allocating and budgeting – the development
of short-term programs which generally focus on integrated approaches for a
given product and on the allocation of scarce resources.
4. Marketing implementation – the actual task of getting the marketing
job done.
5. Monitoring and auditing – the review and analysis of
programs, plans and strategies to assess their success and to determine what
changes must be made
6. Analysis and research – the deliberate and careful acquisition and
examination of qualitative and quantitative data to improve decision making
Though implied and considered as part of the overall corporate planning, the
importance of situation analysis can never be undermined during marketing
strategy formulation. Especially under product policies, but throughout the
marketing mix elements, the company, customer and competitive scanning
is so essential to marketing success. Situation analysis describes the process
by which environmental assessment, marketing research and market
size/growth estimates get done. It pays particular attention to environment
scanning skills useful in forecasting and modelling consumer behaviour.
It is important to note that each part of the process is intimately related to the
other parts of the process. The dividing lines between any two parts of the
process are vague and unclear. This is particularly true of those elements of
the processes which are clearly connected. For example, the distinction
between a marketing plan and a marketing program is very unclear for
many. But the precise boundaries are not as important as the general
concept. Each element can be divided into smaller sub elements. For example,

marketing planning includes market assessment which is the evaluation and
NOTES
selection to serve specific customer markets. Product line planning is another
sub element of marketing planning.
Formulation of marketing strategy
Strategy formulation is the broadest, longest-term marketing activity. At this

stage, complex and subtle integration with other corporate functions is
required. All of the functional strategies must fit together into a business
strategy. Because marketing deals with customers and the competitive
environment, it is an early part of the total strategy formulation process.
When done well, it is impossible to separate the marketing strategy from the
corporate strategy. The two meld into a unified whole.
The strategic process is one of working with market dynamics (a particular

segment or selection of the market) to achieve a solid positioning of the
product/service offering that contains a clear ‘benefit promise’ to the
consumer which is differentiable from the offers of the competition and
which thus positions the firm well for potential competitive responses to its
actions.
For instance, a going company may choose strategies like diversification or

expansion to achieve growth. It implies that marketers go either for product
development or market development strategies.
Marketing Planning
Marketing planning involves objectives and plans with a 2-5 year time
horizon and is thus further from day-to-day activity of implementation.
Because of their broader nature and longer-term impact, plans are typically
developed by a combination of higher-level line managers and staff
specialists. If the specialists take over the process, it loses the commitment
and expertise of the line managers who are responsible for carrying out the
plan. The planning process is probably more important than the final

planning document. The process ensures that a realistic, sensible, consistent
document is produced and leads to important organizational learning and
development in its own right.
In accordance with the strategy chosen, a long term plan of financing the
project of expansion or diversification with details of acquisition of
machinery and equipment, searching and choosing sources of materials,
recruiting and training of human resources, on operational side and on the
marketing side the development of four Ps, for a product or product line.
Marketing Programming, Allocating and Budgeting
This part of the marketing process involves a good deal of detail and focuses
generally on the one-year time horizon.
Programs will be determined by the nature of the company’s organization.

They can be related to either one element of the marketing mix such as
distribution for one or more products or to all elements of the mix for a single
product or market.
• In functional type of organization (i.e. separation of marketing

functions such as advertising, sales, etc.), programs will focus on one aspect
of the mix across all products and markets.
• In product or market type organization, programs tend to be for each
of the product or market.
Allocating is a necessary function because there is never enough of any scarce

resource such as advertising budget or distribution effort to meet the
‘needs’ of all products, markets and programs. In many ways, marketing is
deciding what not to do: which prospects not to sell to, which products not to
produce to, etc. Allocation is the formal process of choosing what to do and
what not to do, as well as choosing how much to do. Because marketers tend
to be optimists, they often underestimate the amount of effort which will be
required to accomplish a goal. Allocation requires the stark realism to

separate the clearly feasible from the hopeful. It forces the marketer to set
NOTES
explicit priorities and to make hard decisions.
Budgeting reflects the programs and allocations in a set of quantitative

forecasts or estimates which are important within and beyond the marketing
function. The budgets generally include:
(i) Financial proformas which are used by the control and finance
functions to forecast cash flows and needs.
(ii) Unit sales forecasts.
Marketing Implementation
This is the execution phase which, in part produces the actual results. Poor
implementation can ruin even the best strategies, plans and programs. The
total purpose of all that goes before implementation is to ensure excellent
execution.
Implementation means different things to different people in the

organization.
To the salesperson, it means going through all of the steps of the selling
process to obtain the desired results. It involves understanding the time
bound targets tied to budgets, and performing activities like prospecting,
contacting, presenting the products, convincing the prospects and clinching
the sale. The progress is monitored by standards like sales calls /day,
costs/call, sales orders /sales calls, and others.
Because of the relatively short time frame involved in most implementation

activities, monitoring and auditing are generally easier than for the longer-
term strategies and plans. Marketing implementation focuses on prospects,
customers, distributors, retailers, centers of influence (who are the influencers
in a buying decision – they specify but do not purchase). Marketing
implementation also includes dealing with other functional areas to gain

support and to develop coordination. For example, product managers must
implement their plans and programs through product development,
production, service and logistics personnel in other functional areas.
Marketing implementation involves a very interesting tension between the

structures the firm puts in place to guide marketing efforts and the skills of
the managers doing the marketing job. In most firms, what happens is that
over time the structures become rigid and dysfunctional to changing
marketplace needs, which guides the firm to destinations it does not want
to reach! It is only by the timely intervention of the marketers, using their
personal skills to ‘subvert the organization toward quality’ that good

marketing actions result.

Fig. 1.4 Schematic of Marketing Process
NOTES
Figure 1.4 represents a schematic describing a general process of marketing

strategy development. As shown, five major areas of analysis (5 Cs) underlie
marketing decision making – customers, company, competitors, collaborators
and context. The questions to raise in each of these areas are:
Customer needs - What needs do we seek to satisfy?

Company skills - What special competencies do we
possess to meet those needs?
Competition - Who competes with us in meeting these
needs?
Collaborators - Who should we enlist to help us and how do we
motivate them?
Context - What environmental (say, cultural,
technological or legal) factors limit what is possible?
This leads first to specification of a target market and desired

positioning and then to the marketing mix (4 Ps). This results in customer
acquisition and retention strategies driving the firm’s profitability. In this
schematic, value creation happens by identifying target segment, establishing
a product/service positioning and developing the suitable product, place
(distribution) and promotion for the chosen market segment. The pricing
decision helps to capture value – for the company and for the customer.
Value is sustained by acquiring and retaining the customers at a profit for the
firm.
SUMMARY
We have seen various approaches in Marketing and the characteristics
of Marketing and its process.
SELF ASSESSMENT
A. Fill in the blanks

1. . …………. is the act of obtaining a desired object from someone by
offering something in return.
a. Marketing Myopia
b. Selling
c. Exchange
d. Delivery
2. ………… model is highly firm centric, where the firm believes that the
competitive edge lies in its ability to innovate
a. Conventional
b. Contemporary
c. Competitive
d. None of the above
3. ………….. is want for specific product backed by on ability to pay
a. Demand
b. Need
c. Want
d. Customer
B. Multiple Choice Questions

1. “Many people want BMW, only few are able to buy” this is an
example of …
a. Need
b. Want
c. Demand
d. Status
2. Get out production, cut the price”- Philosophy by Henry Ford is an
example of…
a. Marketing Concept
b. Selling Concept
c. Production Concept
d. Product Concept
3. Anything that can be offered to a market for attention, acquisition,

use, or consumption that might satisfy a want or need is called a(n):

a. Demand.
NOTES
b. Idea.
c. Product.
d. Service
C. Detailed Answers
1. Match the following
(1) Product marketing - (A) AIDS awareness campaign
(2) Service marketing -(B) Selling iron ore to a steel

manufacturer
(3) Consumer marketing -(C) Selling ice creams to adults
(4) Industrial marketing -(D) Disney setting up a park in Hong

Kong
(5) International marketing -(E) Setting up an ayurvedic massage

center
(6) Non-profit marketing -(F) Selling electric bulbs
2. What do you mean by marketing? Describe the feature of

marketing.
3. Describe in detail the various philosophies of marketing.
4. Define marketing management? Also discuss the various levels of
demand and the task of a marketing manager thereto.
5. Do all companies need to practice the marketing concept?
Could you cite companies that do not need this orientation?
6. Why is the study of marketing important to everyone?
Discuss.
7. Give an example of a good, service, and idea that you have
recently purchased.

CASE STUDY
Sporting as a brand
It rarely happens that a football team becomes an iconic brand. Manchester

United is more than a football team. Over the years, it has developed into
non-business unit with exemplary marketing. It would be interesting to
dissect the marketing mix of Manchester United. First of all, the product
includes providing an excellent football team that plays and wins in an
exciting way. The product also relates to television rights, and Manchester
United’s own television channel. In one respect the place is Old Trafford
where home games are played, but Manchester United also plays at a range
of other venues. The club also engages in a range of joint promotional
activities, for example with the mobile phone company Vodafone.
Manchester United books, shirts, programmes, key rings and other
merchandise that are sold and promoted through its website. Price for the
product is charged in the form of ticket sales, revenue form merchandise sale,
television rights and transfer fees of the players to other clubs. The place in
this context may vary from the venue of the football match to its home
ground. Promotions of the club include charity matches, mobile applications,
and computer games. Very often the team’s players appear in the televised
advertisements of their sponsors like Apollo Tyres.
Questions:
1. Can you identify what made Manchester United a well recognised
name?
2. What benefits can be enjoyed by the team due to this name
recognition?
CASE 2
Amazon.com could well go down in history as a love child born of the heady
fling that the stock market had with dotcoms in the late 1990s. But the

company, founded by Jeff Bezos in July 1995 when the internet was still an
NOTES
untested business medium, is a survivor-par-excellence. It floundered a bit in
the swirl of the dotcom bust, but unlike thousands that were swept away,
Amazon.com reinvented itself and emerged stronger.
The 40-year old Bezos, a computer science grad from Princeton University, is
the pioneer of Internet Retailing. His compelling vision introduced a new
paradigm for retail, the click-and-buy model; buy goods from a website
instead of a physical store, from wherever there is an internet connection:
home, office or cyber-café. A model that gave convenience to buyers, and
mind-boggling market reach to sellers.
Named after the mighty Amazon river and its numerous tributaries that
surge through dense rain forests, Amazon.com was started with an initial
investment of a few thousand dollars. In less than three weeks after the
website went live, Bezos and his wife Mackenzie were pulling in sales of over
$20,000 a week. And soon after going public in 1997, the company had a
market capitalization higher than that of its brick-and-mortar rivals. In 1999,
Bezos was chosen as Time Magazine’s ‘Person of the Year’. But things
changed soon after and the dotcom bust saw Amazon.com lose almost 90
percent of its market cap in 2000.
Bezos didn’t give up on his vision. He set about transforming Amazon.com

from a website selling books into something much bigger: the world’s largest
online retailing platform. A series of tie-ups with companies like Toys R Us
and Target helped give the website the feel of an online supermall where a
customer could buy almost anything.
Marketing initiatives followed – from free shipping to highly discounted

prices to very customized offerings (based on customer profile) to wide
distribution through sites which can divert traffic to Amazon.com for a small
commission. But the biggest move was Bezos’ decision to make the site ‘more
global’.

The moves have paid off. The company announced its first full- year profit in
2003. It has been making money now for three straight quarters and revenues
have exceeded a billion dollars for the last six quarters. If proof was needed
that there is money to be made in online retailing, this is it. And Bezos has
proved that the right idea, coupled with perseverance, pays in the end.
Questions
1. How does Amazon.com bring utility or create value for its customers?
2. Explain the marketing framework of Amazon.com?
3. What do you learn about marketing from the Amazon story?
GLOSSARY OF IMPORTANT TERMS
Needs: It refers to the state of felt deprivation. How individuals go about

satisfying a particular need is conditioned by the cultural values of that
society which he/she belongs to.
Wants: Wants are the specific satisfiers to satisfy a particular need. For
example, transportation is a need and a car is a satisfier.
Value: Value is represented by the ratio of perceived benefits to the price

paid. Value can be added by better specifying a product offer in accordance
with consumer’s expectations.
Market: Market consists of potential buyers and sellers where they interact
for an exchange process. Earlier people used to describe it as a place only.
Marketing myopia: It means a wrong perception about marketing where

excessive attention is given to the quality without taking care of the actual
needs of the consumers.

NOTES
MODULE 2
Structure
2.0 Introduction
2.2 Elements of Marketing environment
2.4 Market Competition
2.0 INTRODUCTION
Marketing function is carried out in a complex environment both

within the organization and without. Managers face difficult and exciting
challenges today. A global economy in which world-class quality is the ticket
to ride, increased diversity in the work force, and calls for more ethical
conduct promise to keep things interesting. The challenge for today’s and
tomorrow’s managers is to be aware of specific changes, along with the
factors effecting such changes and their likely impact on the business
organisations. The world is shrinking rapidly where cross-cultural skills are a
must. Coverage of product and service quality has been significantly
increased. Diversity among consumers has also increased by leaps and
bounds where managers are challenged to manage this diversity by keeping
themselves abreast of the latest happenings. Managers who know more than
just management are required today. Those who can value people,
communicate well, solve problems, see the big picture and work hard are the
precious human material wanted by the organisations. A manager, who can
visualise these changes and understand the dynamic character of marketing
environment can survive in the industry.
2.1 MODULE OBJECTIVES

This module focuses on the internal and external forces from the
environment for marketing, explain the concept of ethics in marketing, how
Corporate Social Responsibility helps in the marketing area and the nature of
competition in marketing.
2.2 ELEMENTS OF MARKETING ENVIRONMENT
The basic elements of a marketing strategy consist of (1) the target

market, and (2) the marketing mix variables of product, price, place and
promotion that combine to satisfy the needs of the target market. The outer
circle in Figure 2.1 lists environmental characteristics that provide the
framework within which marketing strategies are planned.
Figure :2.1 ELEMENTS OF MARKETING ENVIRONMENT
Target consumers
Marketing activities focus on the consumer. Therefore, a market- driven

organization begins its overall strategy with a detailed description of its
target market: the group of people toward whom the firm decides to direct its
marketing efforts.

Marketing mix
NOTES
After marketers select a target market, they direct their activities towards
profitably satisfying that target segment. Although they must manipulate
many variables to reach this goal, marketing decision making can be divided
into four areas: product, price, place (distribution) and promotion (marketing
communication). These 4 Ps of marketing are referred to as the marketing
mix. The 4 Ps blend to fit the needs and preferences of a specific target
market. These are the four variables that a marketer can use and control in
different combinations to create value for customers.
Environmental factors. Unlike the controllable marketing mix elements, the

environmental variables frequently lie outside the control of marketers.
Marketers do not make decisions about target markets and marketing mix
variables in a vacuum. They must take into account the dynamic nature of the
five marketing environmental dimensions as shown in Figure 2.1 –
competitive, political-legal, economic, technological and social-cultural
dimensions.
Ֆ Marketers compete for the same consumers. So the developments in

the competitive environment will have lot of repercussions.
Ֆ The political-legal environment includes the governing and regulatory
bodies that impose guidelines to the marketers.
Adherence to the law of the land is an imperative for a marketer to be a good

and responsible corporate citizen.
Ֆ The economic environment dictates the mood in the target market
participants who take decisions such as to buy or save, to buy now or later.
Ֆ The technological environment can spell life or death for a marketer with
break-through technologies. Marketers often leap forward or get left behind
owing to the changes in the technological environment.
Ֆ The social-cultural environment offers cues for the marketers to
‘connect’ well with the target market. Failure on part of the marketer to

understand the social-cultural environment will have serious consequences.
Marketers can not afford to rub a society/culture on the wrong side!
Marketing in different sectors
Until fairly recently, marketing focused primarily on exchanges of goods

between individuals (business-to-consumer (B2C) marketing) and businesses
(business-to- business (B2B) marketing). A new area of marketing has
recently emerged. It is services. Consumer marketing deals with good and
services targeted to households for individual consumption. Industrial
marketing deals with the organizational purchases of goods to support
production of other goods or daily operations or for resale. Services deal with
intangible products offered to both consumer markets and industrial markets.
Table 1.1.2 highlights the differences between consumer marketing and
industrial marketing.
The marketing of services require additional effort. With the growth of the
services sector, marketers realized that services cannot be marketed in the
same way as the products. Certain characteristics of services posed serious
problems for marketers who realized that services marketing must be done
differently and not with the same marketing mix (4 Ps) variables. Services
have unique characteristics like :
Ֆ Intangibility (service firms don’t sell a tangible thing, but a promise)

inseparability (production and consumption of services take place at about
the same time),
Ֆ Heterogeneity (the problem due to the fact that no two service providers
are like, nor are the service consumers) and
Ֆ Perishability (service providers cannot maintain inventories of their
products)
To cope with these challenges, service marketers broadened the 4-Ps

marketing mix to make it 7-Ps marketing mix. They suggested additional 3 Ps
– process, physical evidence and people.

NOTES
Ֆ The process is aimed at solving the heterogeneity or variability problem
associated with the services by providing a service blueprint.
Ֆ The physical evidence solves some of the problems associated with the
intangible nature of services. The physical evidence in terms of service
environment, equipment, personnel and so on attempts to tangibilize the
intangible.
Ֆ The final P – People – gives lot of attention to the service providers because
they are, strictly speaking, part of the service provided. They can influence
the perceived service quality in a big way.
The relationship between the product 4-Ps and the additional 3-Ps of Services
are depicted in the picture below.
Fig. 2.2 The 7 P-s of Services Marketing
With the world becoming a global village, marketers started targeting global
audience for their products and services. International marketers implement
the basic marketing framework discussed earlier. However transactions that
cross national boundaries encounter an additional set of environmental
factors. For example, differences in laws, economic conditions, cultural and
business norms and consumer preferences other demand variations in
marketing strategies. The biggest challenge in international marketing is
managing the international business environment. With many uncontrollable
factors, sharing complex relationships among them, the international

marketer faces the dilemma of whether to standardize or differentiate his
marketing mix.
Non-profit organizations encounter a special set of characteristics that

influence their marketing activities. Like for-profit firms, non-profit firms
may market tangible goods and/or intangible services and operate in B2C
and B2B markets. An important distinction is that profit-seeking businesses
tend to focus their marketing on just one public – their customers. Non-profit
businesses however must often market to multiple publics (say, their clients
and sponsors), which complicates decision making regarding the markets to
target. Also a customer or service user may wield less control over the
organization’s destiny than would be true for customers of a profit-seeking
firm. As a result, non-profit marketing must fine tune its marketing variables
to adjust to these conditions.
Industry competition, legal constraints, the impact of technology on product

design and social concerns are some of the many important conditions that
shape the business environment. This lesson examines the forces that define
marketing’s external environment. Every organization needs to think
seriously about the environments in which it operates. All firms must
identify, analyze and monitor external forces and assess their potential
impacts on the firm’s goods and services. Although external forces frequently
operate outside the marketing manager’s control, decision makers still must
consider those ‘uncontrollable’ influences together with the variables of the
marketing mix in developing the firm’s marketing plan and strategies.
Environmental Scanning and Environmental Management
Marketers must carefully and continually monitor crucial trends and

developments in the business environment. Environmental scanning is the
process of collecting information about the external marketing environment
to identify and interpret potential trends. This activity then seeks to
analyze the collected information and determine whether identified trends
represent opportunities or threats to the company. This judgment, in turn,

allows a firm to determine the best response to a particular environmental
NOTES
change.
Environmental scanning is a vital component of effective environmental

management. Environmental management is the effort to attain
organizational objectives by predicting and influencing the firm’s
competitive, political-legal, economic, technological and social- cultural
environments. The development of a global marketplace has complicated
environmental scanning and environmental management. These processes
may now need to track political developments, economic trends and cultural
influences anywhere in the world.
While the marketing environment may exceed the confines of the firm and its
marketing mix components, effective marketers continually seek to predict its
impact on marketing decisions and to modify its conditions whenever
possible.
The Political-Legal Environment
No one should start playing a new game without first understanding the
rules, yet some businesses exhibit remarkably limited knowledge about
marketing’s political-legal environment – the laws and their interpretations
that require firms to operate under certain competitive conditions and to
protect consumer rights. Ignorance of laws, ordinances and regulations or
failure to comply with them can result in fines, embarrassing negative
publicity and possibly expensive civil damage suits.
Businesses need considerable diligence to understand the legal framework for

their marketing decisions. Numerous laws and regulations affect those
decisions, many of them vaguely stated and inconsistently enforced by a
multitude of different authorities. Regulations affect marketing practices, as
do the actions of independent regulatory agencies. These requirement and
prohibitions touch on all aspects of marketing decision making – designing,

labelling, packaging, distributing, advertising and promoting goods and
services. To cope with the vast, complex and changing political-legal
environment, many large firms have in-house legal department; small firms
often seek professional advice from legal experts. All marketers, however,
should be aware of the major regulations that affect their activities. Consumer
Protection Act(COPRA), Sale of Goods Act, Contract Act, Copy Right Act,
and others are to be kept in mind while taking decisions.
Some of potential issues from the political-legal environment to affect

businesses include:
The national foreign policy can dominate the international business

decisions of the local firms. EXIM policy and FOREX policy restrict the flow
of goods and monies from India or into India.
The political ideology of the Government can affect the international
brands wanting to enter a market. When Janata Party was in power during
1960s, ,Coco cola was asked to leave our country. After liberalization policy in
1990s, it reentered India. Today MNCs have free entry into our country.
The competitors who work closely with the government can help erect
trade barriers for a firm. Reliance could lobby against TATAs when Rajiv
Gandhi was Prime Minister.
Global trade organizations can enforce trade barriers when their
regulations and guidelines are not observed. WTO is now deciding the rules
of game for trade world over.
A host nation may levy anti-dumping duties on a foreign firm and

such a decision may be dominated by the local businesses lobbying with the
government. When
Copyright infringements, trademark and intellectual property rights
violations. Intellectual Property rights of basmati was contested by India
when USA made claim for it.
Direct comparative advertisements may not be allowed in few
countries

Use of children is advertising and advertising to children are banned
NOTES
in certain countries.
Price regulations pre-empt any pricing strategy of a firm. Steel
industry is India is subject to price regulation.
A detailed displaying of the ingredients in product labels is
mandatory in most countries. In India, Packaging Acts specify such
conditions. The Infant Milk Substitutes, Feeding Bottles and Infant Foods
(Regulation of production, Supply and Distribution) Act, 1992, The Edible
Oils Packaging (Regulation) Order, 1998 etc govern the packaging decisions.
Industry watch dogs and consumer groups are always on the prowl
for any unethical trade practices. In India consumer associations like Mumbai
Grahak Panchayat,Consumer Guidance Society of India, Common Cause
and Voluntary Organisation in Interest of Consumer Education are active.
Also environmentalists and animal lovers from time to time protest
exploitation of nature and animals.
Each one of the above issues has serious implications for the marketer in his
marketing decision making. Ignorance of the law is no excuse and breaking of
the law is an offence.
The Economic Environment
Marketing’s economic environment consists of forces that influence consumer

buying power and marketing strategies. They include the stage of the
business cycle, inflation, unemployment, resource availability and income.
(i) Stage of business cycle:
Historically, a nation’s economy tends to follow a cyclical pattern consisting

of four stages: prosperity, recession, depression and recovery. Consumer
buying differs in each stage of the business cycle and marketers must adjust
their strategies accordingly.

Ֆ In times of prosperity, consumer spending maintains a brisk pace.
Marketers respond by expanding product lines, increasing promotional
efforts and expanding distribution in order to raise market share and raising
prices to widen their profit margins.
Ֆ During recessions, consumers frequently shift their buying patterns to

emphasize basic, functional products that carry low price tags. During such
times, marketers should consider lowering prices, eliminating marginal
products, improving customer service, and increasing promotional outlays to
stimulate demand. Consumer spending sinks to its lowest during a
depression.
Ֆ In the recovery stage of the business cycle, the economy emerges from
recession and consumer purchasing power increases. While consumers’
ability to buy increases, caution often restrains their willingness to buy. They
may prefer to save than to spend or buy on credit. In this stage marketers can
attract consumers by offering incentives like price –off, buy one and get
another free, and so on.
Fig. 2.3 Business Cycle stages
Business cycles, like other aspects of the economy, are complex phenomena
that seem to defy the control of marketers. Success depends on flexible plans
that can be adjusted to satisfy consumer demands during the various
business cycle stages.

NOTES
(ii) Inflation
Inflation devalues money by reducing the products it can buy through

persistent price increases. It would restrict purchases less severely if income
were to keep pace with rising prices, but often it does not. Inflation increases
marketers’ costs such as expenditures for wages and raw materials and the
resultant higher prices may therefore negatively affect sales. Inflation makes
consumers conscious of prices, especially during periods of high inflation.
This influence can lead to three possible outcomes, all of them are important
to marketers.
(1) Consumers can elect to buy now, in the belief that prices will rise
later. Attractive offers by marketers will tempt them to buy. Marketers should
design offers to like discounts, extra good or price vouchers for future
purchase and so on.
(2) They can decide to alter their purchasing patterns- This results in
switching from high price product to low price substitutes. This can be
stopped by offering he product in small packages, gift schemes for buying a
certain number of times, bonus or bumper prizes schemes etc.
(3) They can postpone certain purchases. Marketers can counter this by
offering buy now and get one pack free, extra large packs at same price, gift
vouchers to buy related products, combi-packs ( two products offered
together) and so on.
(iii) Unemployment -Unemployment is defined as the proportion of

people in the economy who do not have jobs and are actively looking for
work. It rises during recessions and declines in the recovery and prosperity
stages of the business cycle. Like inflation, unemployment affects marketing
by modifying consumer behaviour. Instead of buying, consumers may choose
to build their savings. Marketers can attract the low income consumers by

offering low priced products, small packs of high priced ones, discounts and
instalment schemes.
(iv) Income -Income is another important determinant of marketing’s

economic environment, because it influences consumer buying power. By
studying income statistics and trends, marketers can estimate market
potential and develop plans for targeting specific market segments. For
marketers, a rise in income represents a potential for increasing overall sales.
But they are most interested in the disposable income, which is the amount
of money that people have to spend after they have paid for necessities.
Consumers’ disposable income varies greatly by demographic variables such
as age group and educational levels. High income groups look for high price-
high quality products (Surf excel, Lux, Colgate Tartar) where as low income
groups prefer (Nirma, Lifebuoy, Dabur dantmanjan). Accordingly marketers
have to develop and offer products. For people with less disposable income
‘buy now pay later’ or ‘instalment schemes’, ‘save and buy schemes’ etc.
(v) Resources availability Resources are not unlimited. Brisk demand may
bring in orders that exceed manufacturing capacity or outpace the response
time required to gear up a production line. A shortage may also reflect a
lack of raw materials, component parts, energy or labour. Regardless of the
cause, shortages require marketers to reorient their thinking. One reaction is
demarketing, the process of reducing consumer demand for a product to a
level that the firm can reasonably supply. Demarketing is found in case of
petroleum products in India.
The Technological Environment
Technology is revolutionizing the marketing environment.
(i) New products/ new processes
The technological environment represents the application to marketing of

discoveries in science, inventions and innovations. New technology results in

new goods and services for consumers; it also improves existing products,
NOTES
strengthens customer service and often reduces prices through new, cost-
efficient production and distribution methods. To gain competitive advantage
marketers have to be innovative, focusing on new product development.
Companies like Nokia, Microsoft, Wipro, HUL, are seen introducing new
models with new features and new designs.
(ii) Threat of obsolescence
Technology can quickly make products obsolete. Marketers consider planned

obsolescence as a strategy to outdate their own products by launching new
models on a regular basis. Maruti models include Maruti Suzuki Grand
vitara, launched in 2003, Maruti Versa, launched in 2004, Maruti Suzuki
Swift, launched in 2005, Maruti Zen Estilo and Maruti Suzuki SX4, launched
in 2007.
(iii) New industries
Technological innovations not just create new products but also whole new
industries. Recently, the Internet has been transforming the way
companies collaborate with different stakeholders to create more value for
the customers. E-commerce and online marketing have revolutionized the
style of marketing. Software companies and their packages for CRM and
SCM are changing the way firms operate today.
(iv) Green products
Technology can sometimes address social and environmental concerns by

offering a cheap, non-polluting, energy-conserving, safe product and also
create parity among consumers by providing equal access and opportunity.
Companies are reducing the production of plastic materials and switching to
paper products which are biodegradable. Paper making companies are
encouraging social forestry to save forests. Organic waste is converted into
biogas to be used as fuel.

Marketers must closely monitor the technological environment for a number
of reasons. Creative applications of new technologies give a firm a definite
competitive advantage. Marketers who monitor new technology and
successfully apply it may also enhance customer service. These three major
varieties of green marketing is depicted in the figure below.
Fig. 2.4 Green Marketing Types
The Social-Cultural Environment
The social-cultural environment of marketing describes the relationship

between marketing and society and its culture. Marketers must cultivate
sensitivity to society’s changing values and to demographic shifts such as
population growth and age distribution changes. These changing variables
affect consumers’ reactions to different products and marketing practices. The
social-cultural context often exerts a more pronounced influence on
marketing decision making in the international arena than in the domestic
arena. Learning about cultural and social differences among countries proves
a paramount condition for a firm’s success abroad. Marketing strategies that
work in one country often fail when directly applied in other countries. In
many cases, marketers must redesign packages and modify products and
advertising messages to suit the tastes and preferences of different cultures.
It is estimated that over a billion Barbie dolls have been sold worldwide in
over 150 countries, with Mattel claiming that three Barbie dolls are sold every
second. Barbie dolls are made to fit into different cultures. Barbie wears saree

and bridal costume of India to attract Indian girls. Fulla is marketed as an
NOTES
alternative to Barbie in Middle Eastern countries. Black Barbie and Hispanic
Barbie were launched in 1980.
Changing social values have led to the consumerism movement which is a

social force within the environment designed to aid and protect buyers by
exerting legal, moral and economic pressures on business. Consumerism also
advocates the rights of the consumers such as:
1. The right to choose freely – consumers should be able to choose

among a range of goods and services
2. The right to be informed – consumers should have access to enough
education and product information to make responsible buying decisions
3. The right to be heard – consumers should be able to express legitimate
complaints to appropriate parties – be it manufacturers, sellers, consumer
assistance groups and consumer courts.
4. The right to be safe – consumers should feel assured that the goods
and services they purchase will not cause injuries in normal use. Product
designs should allow average consumers to use them safely.
The social-cultural environment for marketing decisions at home and abroad

is expanding in scope and importance. Today no marketer can initiate a
strategic decision without taking into account the society’s norms, values,
culture and demographics. Marketers must understand how these variables
affect their decisions. The constant influx of social input requires that
marketing managers focus on addressing these questions instead of
concerning themselves only with the standard marketing tools.
Societal Marketing Concept
Marketing concept was accepted widely among companies in developed and

some developing countries and continued to evolve and take on new

meanings. Not long after this, criticism started about the nature of its social
responsibility. The emphasis shifted to how marketing affected society as a
whole in an age of depleting and increasingly scarce resources,
environmental deterioration, etc. It was good enough to produce what
customers needed or wanted, and for achieving organisational objectives, but
in certain cases the concept could be in conflict with customers' and society's
best long-run interests. Societal marketing concept is a management
philosophy that takes into account the welfare of society, the organisation,
and its customers.
Adoption of this concept requires that marketing decisions be made in an
ethical and socially responsible manner. Companies must pay attention not
only to the short-term needs of customers but also to their long-term well
being. This includes, for instance, excess fat content in ready-to- eat foods,
toxic wastes, and environmental issues.
The need is to strike a balance between the interest of customers, the

company itself, and the society in which operations are conducted. Some
responsible firms have started using recyclable packaging materials and
products that do not harm the environment. Among the marketing tasks,
demarketing is an approach that reflects the societal marketing philosophy.
Many companies encounter several hurdles in adopting the marketing
concept. For some firms, it is simply too difficult to understand the
underlying philosophy and they fail to implement it. Other companies face a
conflict between short-term and long-term objectives and have no inclination
to sacrifice short-term gains for the sake of customer satisfaction, simply
because the customer is not the major priority of top management.
Example: The route taken by TATA Steel in their recent promotions is that of
Societal marketing, in which the company is trying to make the society
believe in it and its efforts of improving the society and providing the people
from the society a chance to realize their dreams and get a status in society
and thereby gaining the acceptance from the society. Examples ranging from
that of Bachendri Pal – First Indian woman to scale Mount Everest (Head of
TATA Steel Adventure foundation), then Commonwealth Games Archery

Gold medalist – Deepika Kumari, of their Tejasvini Project in which the
NOTES
women have been provided empowerment by providing them jobs in works
mainly believed in society to be suited to be done by men, and the ad
showing their Chief of R&D Mark Denys sharing his experiences about how
R&D is the success mantra at TATA Steel.
Sustainable marketing Concept
Sustainable marketing is way of marketing that combines the needs of the

customer, the organisation and the society, in general, over a long term. It
means designing and marketing products and services that can be used
unanimously by all the consumers across the globe over long periods,
without causing any harm to the consumers or the environment. It is
becoming more common for companies to achieve this status to generate
favourability amongst their customers. However, there are no strict
guidelines that can categorize a company as a sustainable company.
Some authors associate sustainable marketing with concepts like social

responsibility and ethical marketing. These concepts are based on the thought
that the company’s task is to determine the needs, wants and interests of the
target markets and to deliver the desired level of satisfaction in an efficient
manner. Preserving or enhancing the consumer’s and society’s well-being is
the key. In this unit, you are going to learn about the ethical and social
responsibility issues in marketing.
Ethical Behaviour of Firms

Ethics refer to values and choices and focuses on standards, rules and codes
of moral conduct that control individual behaviour. Erik N. Berkowitz et al.
maintain that: ethics are moral principles and values that govern the actions
and decisions of an individual or group. In the marketing context, ethics is
the moral evaluation of marketing activities and decisions as right or wrong.
Whether a marketing behaviour is ethical or unethical is determined on the
basis of commonly accepted principles of behaviour established by the
society’s expectations of conduct, various interest groups, competitors,

company’s own management, and personal and moral values of the
individual. Each individual decides how to behave on the basis of these
principles, and the public at large and various interest groups evaluate if the
actions are ethical or unethical.
Understanding the Ethical Conduct
Among other reasons, one reason for many instances of unethical behaviour
is that businesses generally do not understand how people make decisions
when they face ethical dilemmas leading to ethical conflict and it is not clear
whether to use one’s personal values or the company’s in a particular
decision situation. An understanding of how people shape their ethical
standards and what induces them to get involved in unethical conduct may
be helpful in decreasing instances of unethical conduct. See a witty picture of
how unethical behaviour is being encouraged in a social setup in figure 2.1.
Figure 2.5 Behaviour shapers (source:Fluentu.com)
Individual Factors

When marketing managers face ethically challenging situations and are
NOTES
unable to resolve them all alone, they experience ethical conflict, though they
make decisions in their everyday lives based on their personal concepts of
right or wrong. It is true that individuals can freely make – and do make –
ethical choices in business situations. However, much depends on an
individual’s moral philosophies. According to O. C. Ferrell and John
Fraderick, moral philosophies refer to rules or principles that individuals use
to decide what is right or wrong. People learn these moral philosophies in the
course of socialisation by family, religion, formal education, and social
groups. The two major concepts relevant to marketing situations are
utilitarianism and ethical formalism.
1. Utilitarianism is focused on maximising the greatest good for the

maximum possible number of people. Marketing managers
believing in utilitarianism are inclined to compare all possible
options and choose the one that ensures the best outcomes for the
maximum possible people. Here the outcome of a decision is
judged by the consequences for all those affected by it.
2. Ethical formalism is concerned with intentions of an individual

associated with a specific conduct and on the rights of the concerned
individual. F. Neil Brady says that ethical formalism develops particular
standards of conduct by examining whether an action can be viewed as
consistent and adopted as a general rule without evaluating alternative
outcomes. Here, the right or wrong is judged on the basis of whether the
decision infringes on individual rights or universal rules.
Organisational Factors
One must appreciate that people do not function in a vacuum. In most

situations, choices are made in work groups or committees, or during
everyday discussions with other employees. Interaction with associates
serves as a learning process and influences how individuals resolve ethical
issues. The extent of influence of this learning process depends on the

strength of an individual’s own values, perception of available opportunity,
and the assessment of others’ ethical or unethical conduct such as seniors,
peers, and subordinates who influence the ethical aspect of decision-making
process. Marketing managers face several ethical issues almost every day as a
result of pressures arising from the marketing environment. A majority of
managers involved in decision-making experience constant pressures to
compromise ethics to accomplish company and personal objectives. Besides
family and friends, the prevailing organisational culture is also a significant
force that influences ethical decisions. Corporate culture refers to a set of
values, beliefs, goals, norms, etc., shared by its members and expressed in
every day working through work habits, and other activities. To a large
extent, the attitude and behaviour of top management toward an
organisation’s commitment to ethics in its functioning heavily influences the
ethical practices in an organisation.
Caution The role of other company employees also influences decisions

concerning ethical choices. If others expose an individual to rampant
unethical behaviour in an organisation, it is very likely that the individual
will behave unethically, particularly in ethically grey areas. It is no wonder
that marketers learn the norms of organizationally acceptable behaviour from
colleagues.
Perceived Opportunity
Opportunity refers to a set of conditions perceived as favourable that limit

barriers or provide rewards. Most managers in marketing do not deliberately
take advantage of every opportunity for unethical conduct in their
companies. Of course, individual and organisational values do play an
important role. In case an individual takes advantage of an opportunity to
behave unethically and is not penalised or actually gets rewarded, the
behaviour gets reinforced, and likelihood of repetition of unethical behaviour
increases as other opportunities arise.

Example: When a salesperson submits a false report of his day’s number of
NOTES
calls and is not reprimanded, chances are such behaviour would be repeated
in future. It may appear a hypothetical situation, but is often true in India that
good firms allow their marketing executives
to travel comfortably on company work and allow AC rail fares, but often
others see them travelling in buses or in lower class rail compartments. The
reason, they offer is that everybody else in the company does the same thing.
Sales people are known to make false promises with customers to conclude a
sale. Some products do not measure up to the claims made in the ads. O. C.
Ferrell, Larry G. Gresham, and John Fraedrich report that opportunity to
behave unethically is often a better predictor of unethical conduct than
personal values. These are real life experiences but ultimately it is the
organisation that suffers and also the credibility of the concerned individual
takes a plunge.
Marketing Related Ethical Issues
Ethics in marketing practices is an important issue and needs developing

understanding and awareness to bring improvement in its application.
Ethical issue refers to some situation, problem, or opportunity that can be
recognised and requires a person or organisation to select from among
different actions that must be evaluated as right or wrong, or ethical or
unethical. For instance when marketing managers or consumers feel
manipulated or cheated, it becomes an ethical issue, irrespective of the fact
that the action happens to be legally right.
Whatever the reasons for unethical instances, what is necessary after the issue
is identified is that marketing managers must decide how to resolve it. This
requires knowing most of the ethical issues related to marketing that often
arise. In general, most issues relating to unethical behaviour occur in case of
products and promotions.
Caution Product-related ethical issues may include little or no information

about safety, function, value, or use instructions. One example can be used of

inferior materials, or components to cut costs without any information to
customers. It is ethically wrong not to inform customers about the changes in
product quality, as this failure is apparently a form of dishonesty. Issuing
false medical certificates is unethical for medical practitioners as it raises
questions about their honesty in general.
Promotion of products and services, etc., often furnishes a number of
instances of a variety of situations that involve ethical issues, such as false
and misleading advertising, and manipulative or deceptive sales promotions.
There have been instances of misleading ads about obesity control and
weight reduction programmes that mislead customers – and some went to
the courts.
Many ads are criticised for using excessive nudity to attract an audience. Use
of bribery or false promises in personal selling situations is an ethical issue.
Occasionally, media reports highlight cases of unethical practices by
organisations involved in offering bribes to procure large orders. Such
practices damage trust and fairness and ultimately harm the concerned
organisation and tarnish its image.
Example: Set Wet Deodorant ads, Amul Macho ads, VIP innerwear ads, etc.
were called unethical for showing excess nudity. Even advertisers, such as
Calvin Klein, and L’Oreal etc., have been criticised for using overt sex appeals
showing women as sex object in their ads. A few years ago, Calvin Klein was
even boycotted for featuring objectionable snapshots of teenagers in states of
undress.
2.4 MARKET COMPETITION
The Competitive Environment
The interactive exchange in the marketplace as organizations vie with one

another to satisfy customers creates the competitive environment. Marketing
decisions by each individual firm influence consumer responses in the
marketplace. They also affect the marketing strategies of competitors. As a

consequence, decision makers must continually monitor competitors’
NOTES
marketing activities – their products, channels, prices and promotions.
Structurally, competition can be viewed in the following way.
(i) Monopoly
Few organizations enjoy monopoly positions in the marketplace. In India,

Indian Railways is a monopoly firm. Utilities such as electricity, water and
cooking gas accept considerable regulation from local authorities. Other
firms, such as manufacturers of pharmaceutical products, sometimes achieve
temporary monopolies as a result of patents.
(ii) Oligopoly
When competitors are few and each one exercises some influence on market
dynamics, it is called oligopoly. Firms in telecom, cement, and steel are
examples. Prices and production levels are fixed by formation of cartels or
pools.
(iii) Monopolistic competition
When competitors are many and each one has a unique product to offer same
needs the competition is termed as monopolistic competition. It is called non-
price competition and features competition. Products like toothpastes,
shampoos, fairness creams, have number of brands rolled out by companies
like P&G, Coke, Pepsi, Nestle etc.. They compete within a price range offering
a different feature.
In case of consumer products as we can see from the picture below, a few
companies are able to have a better share of the market for many product
varieties as compared to many other small firms.

Fig. 2.6 How a Monopolistic Competition looks in perception
Yet another way of looking at competition is by considering the three types of

competition.
Generic competition
Every product is in competition with every other product. The income of a

consumer is divided into savings, consumption and investment.
Therefore, TV is in competition with products of savings like insurance or

savings bonds, investment options like shares of companies, interest
payments for housing loan, or consumption products like refrigerator, micro
oven, Steel cupboard, scooter and holiday trip.
Form competition
The second type of competition involves products that users can substitute
for one another. In the transportation industry, the no-frills, low- cost
airliners compete with train and luxury bus services.

A change such as a price increase or an improvement in a product’s
NOTES
capabilities can directly affect demand for substitute products.
Brand competition Direct competition occurs among marketers of similar

products, as when an insurance firm competes with other insurance firms.
LIC competes with Postal department , Reliance, Birla and others.
Traditional economic analysis views competition as a battle among

companies in a single industry or among firms that product substitute goods
and services. Marketers must, however, accept the argument that all firms
compete for a limited pool of discretionary buying power.
Because the competitive environment often determines the success or failure

of a product, marketers must continually assess competitors’ marketing
strategies. A firm must carefully monitor new product offerings with
technological advances, price reductions, special promotions or other
competitive variations, and the firm’s marketing mix may require
adjustments to counter these changes.
Every firm’s marketers must develop an effective strategy for dealing with its
competitive environment. One company may compete in a broad range of
markets in many areas of the world. Another may specialize in particular
market segments, such as those determined by customers’ geographic, age or
income characteristics. Determining a competitive strategy involves
answering three questions:
(1) Should we compete?
The answer to this questions depends on the firm’s resources, objectives and
expectations for the market’s profit potential. A firm may decide not to
pursue or continue operating a potentially successful venture that does not
mesh with its resources, objectives or profit expectations.

(2) If so, in what markets should we compete?
The answer requires marketers to acknowledge their limited resources (sales

personnel, advertising budgets, product development capabilities and so on).
They must accept responsibility for allocating these resources to the areas of
greatest opportunity.
(3) How should we compete?
This requires marketers to make product, pricing, distribution and

promotional decisions that give their firm a competitive advantage in the
marketplace. Firms can compete on a wide variety of claims, including
product quality, price and customer service. For example, a retailer may gain
competitive advantage by providing superior customer service, while another
retailer competes by providing low prices.
With increased international competition and rapid changes in technology,

many firms are using time as a strategic competitive weapon. A time-based
competition strategy seeks to develop and distribute goods and services
more quickly than competitors. The flexibility and responsiveness of a time-
based strategy enables the firm to improve product quality, reduce costs,
respond to competition and expand the variety of its products to cover new
market segments and enhance customer satisfaction.
SUMMARY
In this module we saw the marketing environment variables, had an

understanding of ethics in marketing including marketing with social
responsibility and the various types of competition in markets.
SELF ASSESSMENT

NOTES
a. Marketing Myopia
b. Selling
c. Exchange
d. Delivery
a. Conventional
b. Contemporary
c. Competitive
a. Demand
b. Need
c. Want
d. Customer
example of …
a. Need
b. Want
c. Demand
d. Status
example of…
b. Selling Concept
d. Product Concept

a. Demand.

b. Idea.
c. Product.
d. Service
B. Detailed Answers
1. What is marketing environment? Write down its main ingredients.
2. Define marketing environment? Discuss in brief the factors that

constitute marketing environment.
3. “Firms which systematically analyse and diagnose the environment

are more effective than those which don’t”. Elucidate.
4. Discuss the demographic and technological trends that can affect

the future of the business.
CASE STUDY
Delhi saw a change of guard in the last state legislative election. The story of
the meteoric rise of the Aam Admi Party from inception to winning the
election makes for some very interesting observations from the marketing
perspective.
Delhi, the highest seat of power in Indian politics has traditionally been
dominated by the big two political parties of India. A band of civilians with
no prior experience in politics and governance form different occupations
joined hands in the year 2011, to form the Aam Admi Party. Sensing that
elections would shortly take place in Delhi, the party had to work on its
political marketing.
The founding members of the party began with the nomenclature that was
unique- the “Aam Admi” meaning common person. The logo of a broom
symbolised the purpose, goals and vision of the founders – to cleanse the
system of corruption. Learning from the past movement of Anna Hazare,
the party was confident of swaying the youth to its side. An urban population

comprising of a cross section of ethnic origins that was tech savvy motivated
NOTES
the party to strive for innovations in marketing. Database of voters of Delhi
was collected and then began the personalised process of communication by
email. The founding leader of the party Arvind Kejriwal, surrounded by his
top aides and band of activists went door to door identifying themselves with
fresh brand of corruption free politics. The party came up with a massive
mobile messaging campaign to lure voters with their agenda. Print, electronic
and social media were leveraged to get the message across. The electoral
campaign of the party made unprecedented use of information technology
platforms to connect with the voters. The electorate rewarded the party with
an astounding number of seats in the legislative assembly of Delhi. For a
newly formed party, it was a big achievement to come to power in its first
electoral contest.
Question: Analyse the case facts and identify the demographic and
environmental factors spurring the change in Delhi.
CASE STUDY 2
Michael Eisner joined the Walt Disney company as the chairman of the board
in 1984, after his successes at the ABC television network and Paramount. The
same year, Tokyo Disney was completing its first year of operations after five
years of planning and construction, when the Walt Disney Co. entered into an
agreement with Oriental Land Company in Japan. More than 10 million
people visited the park that year, spending
$355 million.
This was $155 million more than had been expected and was partially
attributed to the average expenditure per visitor being $35, rather than the
estimated $21. The timing of the Tokyo Disneyland opening coincided with a
rise in income and leisure time among the Japanese. Tokyo Disneyland thus
became quickly profitable.

Growth continued, and by 1990 more than 14 million people visited the park,
a figure slightly higher than the attendance at Disneyland in California and
about half the attendance at Walt Disney World in Florida.
Though, Disney was not a financial partner in the Tokyo venture, it was
reaping the profit from its franchise (10% royalty from admission and 5%
from merchandise and food sales).
The Tokyo park was in some ways a paradox. Tokyo Disneyland is nearly a
replica of the two parks in US. Signs are in English, and most food is
American style. The management of the Oriental Land Company demanded
this because they wanted visitors to feel they were getting the real thing and
because they had noted that such franchises as McDonald’s have enormous
success in Japan, as Japanese youth embraced American- style culture.
Yet, a few changes were necessary, such as the addition of a Japanese

restaurant. The product was readily accepted by the Japanese, an acceptance
attributed by some to the enthusiastic assimilation of the Japanese to Western
ways. The success of the Tokyo Disneyland led the company to consider
expansion into Europe.
In 1984, a few months after his arrival at Disney, Eisner decided to create a
Disney resort in Europe. In 1985, Disney announced that it had narrowed its
locational choice to two countries, Spain and France. The park was scheduled
to open in 1992 at either location. Since the park was estimated to provide
about 40,000 permanent jobs and would draw large numbers of tourists, the
two countries openly courted Disney.
If Disney opted for a Spanish location, the park would have to be like the
ones in the U.S, where the visitors are outside for almost all amusements.
However, Disney had learnt from the Tokyo experience that the cold weather
does not necessarily impede attendance. But the colder climate in Paris area
would require more indoor shows. Furthermore, France would require more
focus on technology and historical themes.

NOTES
After three years of discussions, the search culminated with the selection of a
site at the heart of Europe: Marna-la-Vallee, France. Euro Disney was
officially born. The total investment by 1992 was estimated at between $2.4 to
3 billion. Disney opted for a 49% stake. France was in full economic crisis and
Disney was taking advantage of this crisis. In a real estate coup, the French
Government sold Disney some very expensive land at a bargain price and. In
spite of the economic benefits the park was
expected to bring, many people in France feared that the Park would be one
more step toward the replacement of the French culture with that of the US.
Critics called EuroDisney “a cultural Chernobyl”.
Disney headed off the criticism by explaining in the French press that Walt
Disney was of French Huguenot descent, with an original name of D’Isigny
rather than Disney. Disney also agreed to make French the first language in
the park, although relying heavily on visual symbols. Disney would build an
attraction, Discovery Land, based on the science fiction of France’s Jules
Verne; and a movie theater featuring European history. Many concessions
were made to soothe the French resistance. Disney admitted that it may have
to alter its no-alcohol policy for this park, but it didn’t. The park also
emphasized that Pinocchio was Italian, Cinderalla was French and Peter Pan
flew in London.
The marketing campaign began in October, 1991. The sales division began
ambitious programs to inspire European families to mark the Euro Disney
resort on their vacation agendas. The Sales division established a strong
presence in all the major markets through special partnerships with leading
companies in the travel industry.
On April 12, 1992, Euro Disney hosted the biggest event in Disney history, the
official opening of the Euro Disney resort. Looking at the future, Euro Disney
had two primary objectives : to achieve profitability as quickly as possible
and to better integrate Euro Disney into its European environment while

reinforcing its greatest asset – Disney heritage. Disney announced plans to
add a second theme park, the Disney MGM Studios- Europe and a water
park. Disney was so optimistic that it was negotiating the possibility of
creation of creating a third theme park at the beginning of the new
millennium.
The Park admission fee cost US $45 for an adult and $30 for a child under 11,
a price about 50% higher than the corresponding Disney World price. The US
Disney park’s formula in terms of inelasticity of demand did not apply and
the demand fell sharply (a 15% decrease in attendance for a 10% increase in
price.)
Attendance figures were kept secret, but this attitude reinforced the idea that
even in terms of attendance, the objectives were not reached.
The financial results were not as strong as hoped and the very difficult
economic environment contributed to not meeting the ambitious objectives.
As Eisner started an interview with Larry King, he quipped, “Everybody is

giving us 42 reasons why we’ve made a mistake, because we have financial
problems… We are not either responsible for the real estate crisis nor the
high French interest rate, which are dreadfully penalizing us. Not a single
manager, whomever he be, could manage so many uncontrollable forces.”
Questions
1. Describe the importance of environmental scanning for Disney in its

EuroDisney venture.
2. How does the marketing environment affect Disney’s marketing?
3. Single out each of these environmental variables and suggest ways for
Disney to manage them.

GLOSARRY OF IMPORTANT TERMS
NOTES
Exchange Process: It occurs when the buyer with a demand and a

seller with a product offering confront each other.
Marketing Concept: It proposes that the reason for success lies in the
company’s ability to create, deliver and communicate a better value
proposition through its marketing offer in comparison to the competitors for
its chosen target market.
Marketing Mix: It is a set of actions that a company uses to create an
interface with the consumer to enable exchange of value.
Marketing Orientation: It requires the firm to look for consumer needs
and the necessity to search for new opportunities to satisfy the consumers in a
better way than the competitor.
Marketing: A societal process, by which individuals and groups
obtain what they need and want through creating, offering and freely
exchanging products and services of value with others.

MODULE 3
Structure
3.0 Introduction
3.2 Consumer Behaviour
3.3 Market Segmentation
3.4 Target/ Consumer Oriented Marketing
3.0 INTRODUCTION
Why do people buy one product and not another? Answering this question is
the basic task of every marketer. The answer directly affects every aspect of
marketing strategy, from product development to pricing and promotion.
Discovering that answer requires an understanding of buyer behaviour, the
process by which consumers and business-to-business buyers make purchase
decisions. Buyer behaviour is a broad term that covers both individual
consumers who buy goods and services for their own use and organizational
buyers who purchase business products. A variety of influences affect both
individuals buying products for themselves and professional buyers
purchasing products for their firms. This lesson focuses predominantly on
individual consumer behaviour.
In this module, the process through which the ultimate buyer makes
purchase decisions is described. It will cover:
Ֆ Identify what stimulates a consumer to consider buying

Ֆ Describe the buyer’s decision making process and the several factors which
influence this decision
Ֆ Understand the response of the buyer to the marketing and other stimuli

Ֆ How Consumers can be segmented using these factors
NOTES
Ֆ Understand how the modern conception of consumer oriented markets
function
3.2 CONSUMER BEHAVIOUR
Consumer behaviour is the process through which the ultimate buyer makes
purchase decisions. Here is a sample of popular definitions for consumer
behaviour : ‘… the study of the buying units and the exchange processes
involved in acquiring, consuming, and disposing of goods, services,
experiences, and ideas’ (Mowen)
‘… the decision process and physical activity individuals engage in when

evaluating, acquiring, using or disposing of goods and services’ (Loudon and
Della Bitta)
‘… reflects the totality of consumers’ decisions with respect to the acquisition,

usage and disposition of goods, services, time and ideas by (human) decision
making units (over time)’ (Jacob Jacoby)
The definition by Jacoby can be further illustrated.
• The totality of consumers’ decisions include whether to buy or not,

what to buy, why to buy, how to buy, when to buy, where to buy and also
how much/ how often/ how long. The idea of consumption not only
includes purchasing and using, but also disposing. The marketer’s offering
can mean many things – be it product, service, time, ideas, people and so on.
• The term decision making units obviously refer to people involved. In

a typical purchase, many people may be involved and they play different
roles such as information gatherer, influencer, decider, purchaser and user. In
a consumer buying context, it may mean a family or group influence where
as in the industrial buying context, it means a cross-functional team with each
member of the team performing a particular role in the buying decision.

• The word ‘time’ could mean different units of time like hours, days,
weeks, months and years.
Models of Consumer/Buyer Behaviour
Consumer behaviour is a dynamic, multi-disciplinary process. The study of

consumer behaviour builds upon an understanding of human behaviour in
general. In an effort to understand why and how consumers make buying
decisions, marketers borrow extensively from the sciences of psychology and
sociology.
The work of psychologist Kurt Lewin provides a useful classification scheme

for influences on buying behaviour. Lewin’s proposition is B = f(P,E) which
means that behaviour (B) is a function (f) of the interactions of personal
influences (P) and pressures exerted by outside environmental forces (E).
This statement is rewritten to apply to consumer behaviour as B

= f(I,P) (i.e.) consumer behaviour (B) is a function (f) of the interactions of
interpersonal influences (I) such as culture, role models, friends and family –
and personal factors (P) such as attitudes, learning and perception. Therefore
inputs from others and an individual’s psychological makeup both affect a
consumer’s purchasing behaviour. This model is further explained in the
following sections of this lesson.
There are many other models of consumer behaviour. The most generic
model of consumer behaviour suggests a stimulus-response pattern of
understanding the consumer’s behaviour (Figure 1.3). The stimulus can be
marketing stimuli (which can be manipulated by the marketer) and other
external stimuli (like the economy, culture, technology and so on). The
response includes the decision to buy, product choice, dealer choice and
choices regarding time, quantity, etc.

The consumer is at the centre of this model. The stimulus is applied to this
NOTES
consumer who in turn comes up with a response. The consumer has his/her
own characteristics and a multi-staged decision-making process. There are
also several influencing factors acting upon the consumer. The influencing
factors may include personal and interpersonal influences.
Fig.3.1 Model of Consumer Behaviour
Determinants of Consumer Behaviour
Consumers don’t make purchase decisions in a vacuum; rather, they respond

to a number of external, interpersonal influences and internal, personal
factors.
Consumer often decide to buy goods and services based on what they believe
others expect of them. They may want to project positive images to peers or
satisfy the unspoken desires of family members. Marketers recognize three
broad categories of interpersonal influences on consumer behaviour:
1. Cultural influences,
2. Group influences and
3. Family influences.
Cultural influences
Culture can be defined as the values, beliefs, preferences and tastes handed
down from one generation to the next. Culture is the broadest environmental
determinant of consumer behaviour. Therefore, marketers need to

understand its role in customer decision making. They must also monitor
trends to spot changes in cultural values. Marketing strategies and business
practices that work in one country may be offensive or ineffective elsewhere
because of cultural variations. Hence cultural differences are particularly
important and complex to understand for international marketers. Cultures
are not homogeneous entities with universal values. Each culture includes
numerous subcultures – groups with their own distinct modes of behaviour.
Group (Social) influences
Every consumer belongs to a number of social groups. Group membership

influences an individual’s purchase decisions and behaviour in both overt
and subtle ways. The influences may be informational and/ or normative.
Every group establishes certain norms of behaviour. Group members are
expected to comply with these norms. Difference in group status and roles
can also affect buying behaviour.
The surprising impact of groups and group norms on individual behaviour

has been called the Asch phenomenon because it was first documented by
psychologist S.E.Asch. Discussions of the Asch phenomenon raises the
subject of reference groups – groups whose value structures and standards
influence a person’s behaviour. Consumers usually try to coordinate their
purchase behaviour with their perceptions of the values of their reference
groups. Children are especially vulnerable to the influence of reference
groups.
They often base their buying decisions on outside forces – what is popular
with their friends, what is fashionable and trendy, what is popular, what are
their heroes and role models (usually, celebrities) using. In nearly every
reference group, a few members act as opinion leaders. They are the
trendsetters who are likely to purchase new products before others in the
group and they share their experiences and opinions via word of mouth.
Other members’ purchase decisions are affected by the reports of the opinion
leaders. Closely related to reference groups is the concept of social class.

NOTES
A social class is an identifiable group of individuals who tend to share similar
values and behavior patterns different from those of other classes. These
values and behaviour patterns affect the purchase decisions.
Family influences
The family group is perhaps the most important determinant of consumer

behaviour because of the close, continuing interactions among family
members. Like other groups, each family typically has norms of expected
behaviour and different roles and status relationships for its members. The
traditional family structure consists of a husband and wife. Although these
and other members can play a variety of roles in household decision making,
marketers have created four categories to describe the role of each spouse: (1)
Autonomic, in which the partners independently make equal numbers of
decisions (e.g. personal-care items) (2) Husband-dominant, in which the
husband makes most of the decisions (e.g. insurance) (3) Wife-dominant, in
which the wife makes most of the decisions (e.g. children’s clothing) and (4)
Syncretic in which both partners jointly make most decisions (e.g. vacation).
Consumer behaviour is affected by many internal, personal factors, as well as

interpersonal ones. The factors are:
Ֆ Unique needs, Ֆ Motives,

Ֆ Perceptions, Ֆ Attitudes,
Ֆ Learning and Ֆ Self-concept.
Needs and motives
Individual purchase behaviour is driven by the motivation to fill a need. A

need is an imbalance between the consumer’s actual and desired states.
Someone who recognizes or feels a significant or urgent need then seeks to
correct the imbalance. Marketers attempt to arouse this sense of urgency by
making a need ‘felt’ and then influence consumers’ motivation to satisfy their

needs by purchasing specific products. Motives are inner states that direct a
person toward the goal of satisfying a felt need. The individual takes action to
reduce the state of tension and return to a condition of equilibrium.
A company executive may buy Maruti car to fulfil the need of convenient
personal transport, where as a millionaire may buy it to gift it to his young
daughter. A career woman may buy a micro oven to save cooking time,
whereas a housewife may buy it to enhance her status.
Perceptions
Perception is the meaning that a person attributes to incoming stimuli

gathered through the five senses – sight, hearing, touch, taste and smell.
Certainly a buyer’s behaviour is influenced by his or her perceptions of a
good or service.
Mobile phone is viewed as a necessary communication device by traditional

persons whereas the modern youth see it as a multipurpose gadget for
communication, photography, music, news , TV and status.
Attitudes
Perception of incoming stimuli is greatly affected by attitudes. In fact, the

decision to purchase a product is strongly based on currently held attitudes
about the product brand, store or salesperson. Attitudes are a person’s
enduring favourable or unfavourable evaluations, emotional feelings or
action tendencies toward some object. Because favourable attitudes likely
affect brand preferences, marketers are interested in determining consumer
attitudes toward their products.
People with happy go lucky attitudes would buy cars, cell phones, coco- cola,
club membership, and credit cards . With outsourcing opportunities on the
rise, English is now favoured as an important language for communication in
India. As a result, the Institutes offering such courses are now benefited.

NOTES
Learning
In a marketing context, refers to immediate or expected changes in consumer
behaviour as a result of experience (that of self or others’). Consumer learning
is the process by which individuals acquire the purchase and consumption
knowledge and experience that they apply to future related behaviour.
Marketers are interested in understanding how consumers learn so that they
can influence consumers’ learning and subsequently, their buying behaviour.
Computers were threatening to many. With increased application of

computers it has become a household product. People are learning to quote
specifications while buying and use important software.
Self-concept: The consumer’s self-concept – a person’s multifaceted picture of

himself or herself – plays an important role in consumer behaviour. The
concept of self emerges from an interaction of many of the influences
– both personal and interpersonal – that affect buying behaviour.
The macho image of motor cycles match the self concept of many young
.Hence they buy motor cycles and not the family image holding scooters. Surf
excel has the personality of upper middle income housewife, who likes clean,
fragrant clothe. Woman buys surf excel when she identifies herself with such
image.
The Consumer Decision Process
Consumers complete a step-by-step process to make purchasing decisions.

The length of time and the amount of effort they devote to a particular
purchasing decision depends on the importance of the desired good or
service to the consumer.
Purchases with high levels of potential social or economic consequences are

said to be high-involvement purchase decisions. Routine purchases that pose
little risk to the consumer are low- involvement decisions. Consumer

generally invest more time and effort to purchase decisions for high-
involvement products than to those for low-involvement products.
For example, a car buyer will probably compare prices, spend time visiting
dealer showrooms, read auto reviews and ask for advice from friends before
making the final decision.
Few buyers invest that much effort in choosing between two brands of
candies. They will still go through the steps of the consumer decision process
but on a more compressed scale. Purchase decisions can be thought-based
(cognitive) or feeling-based (emotive). While it is true that both cognition and
emotion will be present in every purchase decision, either one of them will
dominate the decision. As a result, we can construct a grid as follows to
analyze different consumer purchase decisions.
Table 3.1 Types of Consumer Purchase
Thought-based Feeling-based
Example: Example: Jewellery
Investment decisions
Example: Example: Snacks
Home maintenance
products
All the decisions taken by consumers will be affected by many of the concepts
we have seen so far. The process and factors and how they interact are given
below.

NOTES
Fig. 3.2 A model for Consumer Decision Making process
Figure 3.2 shows the five steps in the consumer decision process.
1. Problem recognition
During the first stage in the consumer decision making process, the consumer
becomes aware of the discrepancy between the actual state (‘where we are
now’ and the ideal state (‘where we want to be’). Problem recognition
motivates the individual to achieve the desired state of affairs. A marketer
can stimulate problem recognition either by creating a new ideal state or by
creating dissatisfaction with the actual state.
2. Information search
In the second stage, the consumer gathers information related to his/her

attainment of a desired state of affairs. This search identifies alternative
means of problem solution. High-involvement purchases may elicit extensive
information searches, while low-involvement purchases require little search
activity. The search may cover internal or external sources of information.

During internal search, stored information, feelings and experiences
relevant to the problem-solving situation are recalled from the consumer’s
memory. An external search gathers information from outside sources, which
may include family members, associates, store displays, sales representatives,
advertisements and product reviews. The external search may be a general
on-going search or a specific pre-purchase search. The search identifies
alternative brands for consideration and possible purchase. The number of
brands that a consumer actually considers in making a purchase decision is
known as the evoked set. Marketers try to influence consumer decisions
during the search process by providing persuasive information about their
goods or services in a format useful to consumers.
3. Evaluation of alternatives
The third step in the consumer decision making process is to evaluate the
evoked set of options identified during the search step. The outcome of the
evaluation stage is the choice of a brand or product in the evoked set or
possibly a decision to renew the search for additional alternatives, should all
those identified during the initial search prove unsatisfactory. To complete
this analysis, the consumers develop a set of evaluative criteria to guide the
selection. These criteria can either be objective facts or subjective
impressions. Marketers can attempt to influence the outcome from this stage
in many ways. First, they can try to educate consumers about attributes
that they view as important in evaluating a particular class of goods. They
can also identify which evaluative criteria are important to an individual and
attempt to show why a specific brand fulfills those criteria. They can try to
induce a customer to expand his/her evoked set to include the product they
are marketing.
4. Purchase Decision and Action
The search and alternative evaluation stages of the decision process result in
the eventual purchase decision and the act of making the purchase. At this
stage, the consumer has evaluated each alternative in the evoked set based

on his/her personal set of evaluative criteria and narrowed the alternatives
NOTES
down to one. Marketers can smooth the purchase decision and action by
helping consumers through financing, delivery, installation and so on.
5. Post-Purchase Evaluation
The purchase act produces one of two results.
Satisfaction
The buyer feels either satisfaction at the removal of the discrepancy between
the actual and the ideal states or dissatisfaction with the purchase.
Consumers are generally satisfied if purchases meet their expectations.
Dissatisfaction
Sometimes, however, consumers experience some post purchase anxieties,

called cognitive dissonance. It is a perception that one has not made the right
decision. The consumer attempts to reduce this dissonance by searching for
additional information that confirms his/her choice. The marketer can help
by providing reassuring information to the buyer and also by positive
marketing communications.
Consumer behaviour and implications to marketer
Here are some specific real-life examples
Needs and wants
Itchguard represents a classic case of the creation of a new product category.

The consumer need was always there until this brand arrived and addressed
this need exquisitely and exclusively.

Competition
While designing the competitive marketing strategy, one question that

bothers marketers is ‘Who am I competing with?’
For instance, is Xerox competing with other photocopier makers or computer

printer makers or printers? With a positioning as ‘the Document company’ it
protects itself from marketing myopia and positions itself to take on
competition even from the substitute products. If Style-Spa, the high-end
home furniture retailer considers itself as a home expressions company, it
invites competition from antique furniture shops. Similarly, Archies, a social
expressions company selling cards and gifts, in reality competes with florists!
These insights emerge from an understanding of the consumer needs and
motives which is central to consumer behaviour. Perception Marketers are
concerned about how consumers perceive their products.
For example, brands like Strepsil (with all its colours and flavours), Crocin
(with interesting mass media campaigns) can possible confuse the
consumers – are they pharmaceutical products? self-help relievers? Are they
specialty or common-place products. Consumer perception determines the
evoked set for the problem. No brand wants to be categorized with wrong
competition in the evoked set! In many markets, orange juice enjoys different
perceptions – as a breakfast drink, as a refresher drink, as a health drink and
as a health recovery drink. Same product but different consumer perceptions!
This understanding is vital for a brand like Tropicana which sells orange juice
in different markets. Also the use of celebrity endorsements (as reference
groups, opinion leaders) is attributed to its role in consumer behaviour.
The use of cricketers like Sachin Tendulkar and Bollywood stars like
Aishwarya Rai in advertisements attempts to shape and influence consumer
behaviour in favour of the brands they endorse. Another classic example is
the ‘Got milk?’ campaign featuring several celebrities in support of milk as a
healthy drink and endorsing its consumption.

Check out for more about this campaign at www.whymilk.com. In Eastern
NOTES
cultures, group values are stressed over the individual’s. So the appeal to
normative beliefs takes on greater significance while designing marketing
communications in the Eastern cultures.
• Positioning Remember the classic ad campaign for CoffeeBite. It talks

about the positioning identities - What am I and Who am I. The Axe Deo
campaigns strongly bring out the positioning identity of ‘For whom am I?’.
Also the positioning of different supermarkets like FoodWorld, Nilgris,
ApnaBazar and Subiksha answer the question ‘For whom am I?’
• Learning A study of consumer learning reveals how consumers

generalize related marketing stimuli. Based on this, there are several
marketing applications – product-line extension (Pepsi Lemon), product-
form extension (Pepsi can), product-category extension (Aquafina), Family
branding (Nestle’s Maggi, HP Pavillion), Licensing (Tommy, CK, Disney – in
several product categories to several merchandisers), usage situation
generalization (an all-hair shampoo).
Consumer Behaviour and strategy development
The study of consumer behaviour is a very exciting field of marketing.

Marketing begins and ends with consumers. As a result, the study of
consumer behaviour forms the basis for marketing decisions and actions– be
it in marketing strategy (as defined by market segmentation, targeting and
positioning) formulation or in designing the marketing mix (defined by the
4 Ps of marketing, viz., product, price, place and promotion). The following is
a list of questions related to marketing strategy and marketing mix. The
answers obviously arise from insights and findings from the study of
consumer behaviour. Chief among them is the concept of creating customer
value.
Customer Value

Total Customer Value, is the perceived monetary value of the bundle of
economic, functional and psychological benefits that consumers expect from a
given market offering. Customer’s perceived value is the difference between
the prospective customer’s evaluation of all the benefits and all the costs of an
offering and the available perceived alternatives. Total customer cost is the
bundle of costs that customers expect to incur in evaluating, obtaining, using
and disposing of the given market offering.
Figure 3.3 is an explanation of various benefits and costs desired by
customers in the market. His evaluation of cost benefit will result in a
perceived value map, which will help the customer to go in favour of a brand.
A customer expects different kinds of benefits in purchasing a product. The
basic benefit is the feature or physical product benefit. When he is buying a
brand, he is also getting some amount of brand and company name benefits.
These benefits are explained as given below:
Emotional Benefit: Benefits that are specifically attached to brands,
their particular features, and advertising, which arouses the customer’s
interest in buying that product or availing the services.
Example: Cadbury usually comes up with advertisements which arouse the
customers’ instincts emotionally to buy the chocolate. The emotional benefits
of product’s purchase such as occasion of Rakshabandhan, eating sets after
dinner etc. showcases numerous reasons for buyers to make a purchase.
Service Benefit: Benefit derived from a service which provide the
customer time, place and ease of task as the convenience in form of benefit.
Example: Banks started ATM service at convenient locations of customers.
This made accessing money 24×7 possible for customer without standing in
long queues for customers.
Performance Benefits: Benefits on the basis of which a customer can

measure the value of product. Customer lays various attributes of a product
based on which he compares his purchase with the ones of competitor. Those
attributes defines the performance of the product.
Example: When Samsung launched low priced mobile phones and having
more features as compared to competitor’s mobiles phones, it became a hit in

the market due to its performance and other mobile players faced stiff
NOTES
competition from Samsung.
Brand/Company Benefits: The benefits offered by the company’s
brand name, symbols, product attributes, and the distinct features which
make the product/service distinct from that of competitors product is the
brand/company benefit.
Example: McDonald’s sells burgers which are preferred by all the segments of
Indian customers as the brand carries an assurance of quality snacking in it.
People buy the burgers from this brand as it has been proved and tested for
making available quality food at affordable prices.
Product Benefit: Actual factor of product i.e. its design, usage and
performance and the perceived factors of a product i.e. its brand image,
popularity etc. when satisfies customer’s needs and wants is termed as
product benefit.
Example: When a new product is launched in the market customer develops
an expectation of some benefit which he/she will derive from that product.
When after using that product, his perceived level of expectation matches the
actual derived benefit, customer is said to be satisfied.
Performance related benefits are utilitarian benefits. Each product comes with
a certain level of service benefit also. Above all these benefits, customers get
emotional and self-expressive benefits. In the purchase of an LG refrigerator,
ownership of the refrigerator is the product related benefit, followed by
benefits arising out of the brand being from LG group of industries. Then
comes the service level benefit through after-sales service of the company
and finally self-expressive benefits of acquiring an LG refrigerator, which is
one of the best brands in the Indian market. The brand itself shows the class
of people who buy such a premium product. Associated with this set of
benefits comes a set of costs. Customer has to pay for the product, which
includes the price that covers the company’s price and margin of the dealer.
Ownership of the product also involves costs that include cost of acquisition
and inventorying, cost of maintaining and repairing the product, cost
associated with using and disposing off the product.
A person who purchases an LG television set has to pay for the product,
transportation of the product to his own premise, cost of electricity in running

the television, cost of maintenance and repair of the set beyond the warranty
period, cost of buying a proper display for keeping the television and cost of
insulation of the television from frequent electricity fluctuations. A customer
will take into account all these costs with the cost of procuring the product
from the marketer. So customer value is the net of benefit over all the costs
involved in the purchase. A marketer needs to evaluate this cost assertion
beyond the mere price of the product while delivering his product
proposition in the market. In a market like India, customers are likely to
compare prices with the final product value before they take a decision.
Fig. 3. 3 Cost, Benefit and Value to Customer
Types of Customer Values
Customer Delivered Value

It is the difference between total customer value and the total customer cost.
Total customer value is the bundle of benefits that customers expect form
given product or service.

Total Customer Cost
NOTES
It is the bundle of costs customer expect to incur in evaluating, obtaining,
using, and disposing of the product or service.
We have defined the concept of value as the net of customer’s expected
benefits over the cost of the product as explained in the Figure 3.1. We will
now try to classify consumer expectations and find out consumer relevant
values that explain why consumers choose one product type over another
type or brand. The three central propositions behind this classification
include the following:
Consumer choice is a function of a small number of consumption
values.
Specific consumption values make differential contributions in any
given choice of situations.
All the consumption values are independent of each other.
These set of values are classified as functional or utilitarian value, social
value, emotional value, epistemic value and conditional value. These values
are often found in the purchase of categories like food, grocery, computer
peripherals, sporting events and games.
Functional Value: The functional value of a consumer choice is the
perceived functional, utilitarian or physical performance utility received from
the choice product’s attributes. It is associated with economic utility theory,
popularly expressed in terms of rational economic reason. At the heart of
such a value definition is the set of attributes like reliability, durability and
price.
Example: When somebody purchases a bar of soap, he is buying it for the
purpose of washing.
Social Value: The social value of a choice is the perceived utility
acquired because of the associations between one or more specific social
groups and consumer choice. A consumer’s choice gains social value by being
linked with positively or negatively stereotyped demographic socio-economic
and cultural-ethnic groups i.e. reference groups.
Choices involving highly visible products like bicycles and food, and services
to be socially shared like gifts, products used in entertainment are often
driven by social values.

Example: When someone is buying a washing soap, he also expects that the
soap will make him presentable in a societal setting.
Emotional Value: The emotional value of a choice is the perceived

utility acquired from its capacity to stimulate the consumer’s emotions or
feelings. A choice acquires emotional value when associated with specific
feelings or when it triggers or sustains those feelings. Products and services
are frequently associated with emotional responses. What can be the
emotional value associated with a detergent cake? It is definitely related to
the health of the consumer’s children and the protection that it provides to
his/her family members.
Example: A consumer buying ‘Dettol’ or ‘Lifebuoy’ soap in lieu of
safeguarding the health of his children is an emotional value of the product.
Fig. 3.4 Types of Customer Value
Epistemic Value: The epistemic value of a choice is the perceived

utility that comes from the choice’s ability to foster curiosity, provide novelty
and satisfy a desire for knowledge. New purchase and consumption
experiences, especially, offer epistemic value. However, even a simple change
like a shift from one ice cream flavour to another also provides the consumer

with epistemic value. Since all new products provide some novelty,
NOTES
marketers should try to build some novelty around the product.
Example: Companies such as Amul keeps on adding new milk products to it
are to its portfolio for customer offerings. It keeps brand young and fulfills
epistemic value.
Conditional value: Conditional value of a choice is the perceived

utility acquired by a choice as an outcome of some particular situation or
circumstances facing the customer. Products associated with a particular time
or event like coffee at breakfast.
Some products have specific climate or location benefit like sunscreen lotions;
some are associated with once-in-a-lifetime events like purchase of first car.
And some are used only in emergency situations like a dentist on a Sunday
afternoon. Conditional value is served best when we associate the brand with
usage situations.
Example: Nescafe, which is served at the end of a hard day or on a lazy
afternoon. The ambience and service delivery in stores and restaurants is an
example of how conditional value can be served with core product or service
to enhance the product value.
Value is also defined as a quantitative measure of the power one good or
service has to attract another good or service in an exchange. But this
definition is very primitive and is defined in the context of a physical
exchange, known as barter system.
Customer value is summarised as ‘the be all and the end all’ of business
activity; the only purpose of all organisations, all business enterprises. It is
the only path for sustained growth and for winning the battle for market
leadership. A market value is the potential of a product or service to satisfy
consumer needs and wants. Customer value is created only if the product or
service has the capability to satisfy a customer’s needs and wants. A product
may be very valuable for one customer and less for another, so it is difficult to
standardise the offer for all. The marketer can look at majority of customers
and create a customer context to make the product more valuable.
For example, a bicycle in an urban area has lesser value proposition
compared to a rural area. So when marketers have to create a context for

increasing the value proposition, they need to make it more trendy, catchy
and fashionable for urban markets. The sturdy nature of the cycle can be kept
as it is for rural markets.
The value expectation may undergo a change depending on what role the
consumer is playing. According to Seth and Mittal, customers can play three
roles namely user, payer and customer. The user is the person who actually
consumes the product or receives the benefits of the product and service. The
payer is the person who finances the purchase and the buyer is the person
who participates in the procurement of the product from the marketplace.
Each of these roles may be carried out by same person or can be done by
different people. A person can be a buyer for the family and pay the money
whereas a child may be the user of the product. Marketers are aware about
such roles and target their marketing programs to each of the roles. Customer
value can be classified on the basis of customer roles and values.
TABLE 3.2: CLASSIFICATION ON VALUES

AND CUSTOMER ROLES
Universal Values User Payer Buyer
Performance Performance Price Value Service Value

Values Value
Group Specific Social Value Credit Value Convenience Value
Individual Emotional Financing Personalization

Specific Value Value Value
Seth and Mittal have classified product or service values to be universal,

personal or both. Universal values are defined as values that satisfy the needs
of the consumer. This universal value is related with the basic purpose of
buying a product or service or for doing business with the organisation. They
are termed as universal because all customers invariably seek them in a
product or service. Personal values are those that satisfy the wants of the
customer. This value is something beyond the basic or universal reason for
which the customer transacts with the firm. They are more diverse and differ

from person to person and are least similar in a segment. Other personal
NOTES
values called individual specific are more individualised, more internal, and
more related to one’s personal comfort.
Performance value: Performance value is the quality of physical
outcome of using the product or service. It refers to how well the product fits
into its desired physical function consistently. It comes from the physical
composition of the product or from the design of services. For example, fuel
efficiency is one of the key expectations in a 100 CC bike. The level of
personal value is also moderated by social value and emotional value.
Example: A strong tea provides emotional value whereas all the tea brands
should deliver similar performance value.
Market value sought by payers is price proposition. He looks at fair price
and other financial costs incurred in acquiring the product or service. In the
role of a payer, customers expect the freedom to acquire the product by
paying cash or taking credit. They receive a credit value when the seller gives
the product with a promise that he will collect the cash at a future period of
time. It provides convenience to the payer in making the payment.
Financing Value: Financing value consists of offering the terms of
purchase that make the payment more affordable by distributing the liability
over an extended period of time. It allows customised payment schedules,
designed to suit individual payer’s convenience. Universal value sought by
the buyer is the service value. This is the assistance customers seek in
purchasing a product or service. This has three elements viz. Pre-purchase
advice and assistance, post purchase advice and assistance in maintaining the
product’s use, worthiness and freedom from the risk of a mis-purchase by
being able to refund or exchange the product or service.
Personal Values: Personal values expected by the buyers are

convenience and personalisation. Acquiring a product or service requires
time and effort. The effort includes the distance travelled between residence
and shop; time spent in selecting the product and completing the transaction.
Customers also seek for convenience value in the way the service is delivered.
Today banks are open for longer hours for providing convenience to
customers so that they can transact for longer hours.

Example: The hero in the movie ‘The Cable Guy’ is popular because he
provides convenience in his service to his customers. Buyers also want
personal attention, as they would like to consummate the transaction in a
personalised or individualised manner. Personalisation value has two
dimensions viz. customisation and interpersonal relation.
Customisation refers to receiving the product or service in a manner tailored
to an individual customer’s expectations. The customer expects that he
should be treated properly and through a pleasant and interpersonal
interaction. Customers seek this value in the form of positive experience in
interacting with the sales or customer service employees. Behaviour, attitude
and training of employees interacting with the customers determine this
value. Shoppers always expect positive interpersonal experience while
shopping.
Characteristics of Customer Value
Customer values are typical in nature because they show distinctive

characteristics viz. they are instrumental, dynamic, hierarchical, diverse, and
synergistic and vary across customers. Customer satisfaction is the end state
value, whereas product value is an instrumental value through which
customers reach at end state value. These values are instrumental in fulfilling
customer needs and wants. So it is not only important to create values in their
offerings but also need to associate these values with products and services.
A customer will find instrumental value of a product when he can establish
the usefulness of the product in achieving the desired value from the
exchange. Market values are dynamic in nature because they change over a
period of time. As customer undergoes change in his life cycle and
availability of financial resources, his need structure also changes. The
product or service value should remain relevant over the period of time and
should evolve over a period of time to match customer expectations. A
product needs to satisfy the basic reason of its existence. If it does not deliver
the universal value, then other values will not be well perceived by
customers. If the universal values are not found in the product, customers

will not care for the next levels of value. Hence, value is hierarchical in
NOTES
nature.
A market segment, which is presumed to be homogenous, is often found to
consist of customers whose value expectations match at universal level. In a
fragmented and heterogenous market, there may exist differences in
customer expectations of universal value, making other values complex and
diverse. For example, all commodities and necessities show universal value
whereas brands show personal and other situation specific values. Existence
of one value is not detrimental to another value. One value enhances the
utility of another value. Performance value, service value and price value are
at an optimum level when there is no trade off between them. When social
and emotional value, convenience and personalisation and credit financing
value are not in trade off, the personal value is found to be optimum.
Values are specific to the role of the customer. So the roles differ among
customers as buyer, payer and user of the product or service. Consumers may
change their value priorities depending on the kind of role they play in the
exchange process. For example, when people buy things for their own
consumption, the value expectation will be different than when they buy for
their children. It is also observed that when people travel on government or
company purse, their choice of hotel or a restaurant will be different than
when they travel on their own. We have already pointed out that what is
important to a customer or a set of customers may be useless or of lesser
importance for other customers. A product or service is more versatile if it
can generate a larger set of value for a variety of customers and satisfy their
different needs.
Customer Satisfaction
Customers make decisions about products and brands. Decision- making is a

matching of customer’s cognitive evaluation of expectations with the likely
performance expectation from the product. To make it simpler, when a
customer buys a product, he has certain expectations out of it. In his
evaluation of alternatives in the market, he places a particular brand, let us
say X, higher than other brands because he expects that brand X will give him

more value compared to others in the market and the cost of ownership
matches his choice. Then the customer is likely to use the product and
compare the value expected from it and the amount delivered by the brand. If
the performance of the product matches with the expectation, then the
customer is satisfied; if it exceeds the expectation of the consumer, then the
customer is delighted; if it falls below the expectation, then the customer is
dissatisfied.
Marketing communication does a value promise to the customer and
customers tend to compare the real performance of the product with this
value promise. It is often observed that when a customer is satisfied, he
speaks to a few people, but if he is dissatisfied then he is likely to speak to
many people. In the event of satisfaction, the customer will re-buy the
product and will become brand loyal, a brand ambassador or an advocate of
the brand. He will spontaneously speak in favour of the brand to his peers
and others and would be willing to express his satisfaction in social
gatherings. Similarly, if he is dissatisfied, he will withdraw his own
consumption, will suggest others not to buy or will complain to the authority
or government about his dissatisfaction.
It is important to manage customer satisfaction/dissatisfaction, as they
influence long-term profitability of the firm. Customer satisfaction has
become the sole goal of organisations because if customers are satisfied
then an exponential revenue stream will follow and profitability will increase.
As customer acquisition was the sole goal of the organisation in the past,
customer retention has come to be the sole goal in today’s competitive
market. But high level of customer satisfaction is not the sole responsibility of
the marketing department; the whole organisation should be geared up for
satisfying customers and retaining most profitable customers of the firm.
Customer satisfaction and retention programs bring back customers to the
organisation for repeat purchase. Frequent flyer programs of airlines, credit
points of credit card companies and turbo miles of BPCL are examples of
customer retention programs. Customer satisfaction is a dynamic concept
because over a period of time, customers increase their baseline of satisfaction
and expect that firms will learn from experience and deliver higher product
and service standards to them. Many successful marketing companies guide

the customers in the value hierarchy and educate them about new values that
NOTES
they should find with their products.
It is generally agreed that consumer satisfaction (goods or services) results
from a subjective comparison of expected and perceived attribute levels. This
model highlights that where perceived performance meets or exceeds
expectations, the customer is satisfied, even, perhaps delighted; where
performance falls short of expectations the customer is dissatisfied.
Customer Delight
Every customer has some level of expectation from the product and its
performance. It is up to the firm to reach at least the lowest point of this level.
This concept can be explained in terms of a zone of tolerance, which is the
level of performance, which a customer expects and the curve showing a
minimum acceptability level. This is illustrated in Figure 3.5 and shows that
service should be at least adequate. Anything below this level is
unacceptable. Conversely, if the organisation can provide a degree of service
that is above the desired level, this will result in customer delight and
typically ensures that the customer will return again and again.
Fig. 3.5 Degrees of Expectations of Customer

When customer’s perceived benefits of the product exceed the actual derived
benefits he is availing, it leads to delight. It is usually an unexpected or
spontaneous value addition to the customer in his already chosen package.
Marketer sometimes must target his few loyal customers to surprise them by
offering an element of delight. It makes customers feel ‘valued’. This may
increase the customer’s retention period with the company and they feel
more attached with the brand.
By using this element as an interregnal part of marketing strategies
companies can increase their profits substantially. A positive word of mouth
will spread about the brand leading to increase in customer base in future for
the brand.
According to a recent IPSOS Loyalty Report “in a business to business
engagement, ‘delighted’ customers are FIVE TIMES more likely to plan on
repurchasing than merely satisfied customers.”
(Ipsos is a global market research company with worldwide headquarters in
Paris, France)
Example: There is a hospital in Guwahati named GNRC. The organisation has
come up with an additional pleasant surprise for their customers. One of the
customer delight activity adopted by them is prevalent in their parking
facility as it has everything that a customer expects from a parking area in a
large hospital. However, the surprise element is disclosed when the customer
comes back to take his car. He finds that the car has been cleaned and wiped!
The windshield is shining and spotless.
Another example of customer delight is for say a supermarket satisfies
customers’ expectations if its produce and meat are of good quality; the floor
and shelves are clean; and the staff is courteous. But customers are delighted
if the supermarket offers help in loading their groceries into their cars; free
delivery for out-of-stock goods; an in-store dietician to help shoppers plan
healthy meals; and fruits and vegetables from local farms to maximize
freshness.
3.3 MARKET SEGMENTATION

Development of a successful marketing strategy begins with an
NOTES
understanding of the market for the good or service. A market is composed of
people or institutions with need, sufficient purchasing power and willingness
to buy. The market place is heterogeneous with differing wants and varying
purchase power. The heterogeneous marketplace can be divided into many
homogeneous customer segments along several segmentation variable. The
division of the total market into smaller relatively homogeneous groups is
called market segmentation. Products seldom succeed by appealing to
everybody.
The reasons are simple: not every customer is profitable nor worth retaining,
not every product appeals to every customer. Hence the organizations look
for a fit between their competencies and the segments’ profitability. The
identified segments are then targeted with clear marketing communications.
Such communications are referred to as positioning the product or service in
the mind of the customer so as to occupy a unique place. This involves
identifying different points of differentiation and formulating a unique
selling proposition (USP). In today’s marketplace, differentiation holds the
key to marketing success. This lesson is about marketing strategy formulation
which consists of market segmentation, targeting and positioning.
Market segmentation can be defined as the process of dividing a market into

distinct subsets of consumers with common needs or characteristics and
selecting one or more segments to target with a distinct marketing mix. –
Schiffman and Kanuk
As per S.J. Skinner: Market segmentation is the process of dividing a total

market into groups of consumers who have relatively similar product needs.
Rajan Saxena defines segmentation as the process of dividing a
heterogeneous market into homogenous sub units.
So, on the basis of the above definitions, it can be concluded that
segmentation is to divide a market consists of consumers with diverse
characteristic and behaviours into homogenous segments that contain
persons who will all respond similarly to a firm’s marketing effort. When this

is done, the company is in a position to answer “What are our target
markets.”
The logic of Segmentation
The concept of market segmentation has helped marketing decision making

since the evolution of marketing. The goal of market segmentation is to
partition the total market for a product or service into smaller groups of
customer segments based on their characteristics, their potential as customers
for the specific product or service in question and their differential reactions
to marketing programs. Because segmentation seeks to isolate significant
differences among groups of individuals in the market, it can aid marketing
decision making in at least four ways:
1. Segmentation helps the marketer by identifying groups of customers

to whom he could more effectively ‘target’ marketing efforts for the product
or service
2. Segmentation helps the marketer avoid ‘trial-and-error’ methods of
strategy formulation by providing an understanding of these customers upon
which he can tailor the strategy
3. In helping the marketer to address and satisfy customer needs more
effectively, segmentation aids in the implementation of the marketing concept
4. On-going customer analysis and market segmentation provides
important data on which long-range planning (for market growth or product
development) can be based.
Although it is a very useful technique, segmentation is not appropriate in
every marketing situation. If, for instance, a marketer has evidence that all
customers within a market have similar needs to be fulfilled by the product
or service in question (i.e. an undifferentiated market), one ‘mass’ marketing
strategy would probably be appropriate for the entire market. However, in
today’s market environment, it is unlikely that one would find either an
entirely homogeneous market,
Criteria for Segmentation

NOTES
If segmentation has to be useful in marketing decision making, then it must
possess the following characteristics:
1. Segments must be internally homogeneous --- consumers within the

segment will be more similar to each other in characteristics and behaviour
than they are to consumers in other segments.
2. Segments must be identifiable --- individuals can be ‘placed’ within or

outside each segment based on a measurable and meaningful factor
3. Segments must be accessible --- can be reached by advertising media
as well as distribution channels. Only then, the segments can be acted upon.
4. Segments must have an effective demand --- the segment consists of a
large group of consumers and they have the necessary disposable income and
ability to purchase the good or service.
Segmentation Analysis
Here is a list of few general steps, referred to as segmentation analysis, that

will be most often followed after the decision to employ market segmentation
has been made. Examples of questions to be answered during each step are
also given.
Step-1 Define the purpose and scope of the segmentation
Ֆ What are our Marketing Objectives?

Ֆ Are we looking for new segments or determining how to better satisfy
existing ones?
Ֆ Will we use existing data or invest time and money in new research?
Ֆ What level of detail will be needed in the segmentation analysis?
Step-2 Analyze total Market Data
Ֆ What is the character of the total market? (e.g. size)

Ֆ Are there basic differences between users and non-users of the
product class?
Ֆ Are there any factors which clearly distinguish users from nonusers
or users of different brands?
Ֆ What is our competitive position in the market now?
Step-3 Develop segment profiles
Ֆ What factor seems to differentiate groups of consumers most clearly?

Ֆ Are the profiles of each segment internally consistent?
Step-4 Evaluate segmentation
Ֆ What are the major similarities and differences among segments?

Ֆ Should the number of segments described be reduced or increased?
Ֆ How sensitive is this segmentation of the market to growth?
Step-5 Select target segment(s)
Ֆ Which segment(s) represent our best market opportunity?

Ֆ What further details do we know about the target segment’s
characteristics and market behaviour?
Ֆ If complete data on market behaviour for the target segment are not
available, can we make reasonable assumptions?
Ֆ Are we alone in competing for this target segment?
Step-6 Designing the marketing strategy for the target segment
Ֆ What type of product do these consumers want?

Ֆ What kinds of price, promotion or distribution tactics will best suit
their needs?
Ֆ Would other segments react positively to a similar strategy? (if so, the
segments should probably be merged)

NOTES
Step-7 Reappraisal of segmentation
Ֆ Do we have the resources to carry out this strategy?

Ֆ If we wish to broaden or change our target definition in the future,
how flexible is the strategy?
Ֆ If we wish to change some element of the strategy in the future, how

would that change probably influence the target segment?
Ֆ Does the target segment/strategic plan meet our objective? Does it fit
our corporate strengths?
Segmenting the Consumer Markets
Consumer markets are those where the products are purchased by ultimate
consumers for personal use. Industrial markets are those where the goods
and services are purchased for use either directly or indirectly in the
production of other goods and services for resale. Market segmentation of
these markets use different variables.
The consumer market segmentation variables appear to fall into two broad
classes: consumers’ background characteristics and consumers’ market
history. The following tables illustrate the most important factors and
variables that have been found useful for market segmentation.
Table 3.4 Segmentation based on Consumer Characteristics
Segmentation Some examples of

Comments
variable variables Measured

Geography Region of product Geographic segmentation is
distribution one of the oldest and most
Cultural basic of market descriptors.
differences In most cases, it alone is note
Mobility of sufficient for a meaningful
consumers consumer segmentation
Demographic Age Also basic and included as a
Sex variable in most segmentation
Income analyses. Demographic pro-

files of segments are important
Educational level
especially when making later
Social status
advertising media decisions
Psychographic Personality traits Psychographic variables are
Perceptual styles more useful because there is

often no direct link between
Attitudes
demographic and market
Reference groups
behavior variables. These
Social roles consumer profiles are often
tied more directly to purchase
motivation and product usage
General Correlation of Provides a rich, multi-dimen-

lifestyle demographic and sional profile of consumers that
psychographic integrates individual

variables variables into clearer pattern
Activities and that describes the consumer’s
interests routines and general ‘way of
life’
Table 3.5 Segmentation using consumers’ market history

Segmentation Some examples of NOTES
Comments
variable variables measured
Product Frequency of Segmenting the market into

usage brand/produc heavy, medium, light and non-
t use users gives good understanding
Brand loyalty of present situation in market
Attitudes
toward product
Product Expectations Very useful if product can be

benefit of product positioned in a number of ways.
performance Primary use of this variable
Needs segments the market into groups
product must that look for different product
fill benefits
Perceptions of
brands
Satisfaction
(dissatisfaction
measures)
Decision- Shoppin Use of this variable segments the

process g market into price/non-price
patterns sensitive, shoppers/impulse
Media- buyers and other segments which
use characterize the market behaviour
patterns of each group.
Product Must be used in conjunction with
information analysis of consumer
searches characteristics to allow
Sensitivitie identification of the individuals
s to price, involved
to
promotion

and to
place
(channel)
Segmenting the Industrial Markets
Industrial marketing needs to consider two important sets of characteristics of

the business buyers: (1) the characteristics of the buyer as a consuming
organization and (2) the behavioural characteristics of the buyer. The first set
includes such factors as the type of the organization, the size, the product
requirements, the end use of the product, the organization capabilities and so
on. The second set includes factors like the buying decision making process
and considers the fact that it is in effect people and the organization, who take
the decision.
These characteristics have led to a two-stage approach to industrial market

segmentation starting with a macro segmentation and then going into a micro
segmentation. Between the macro and micro bases of industrial market
segmentation, there lie some useful bases of segmentation, as suggested by
Shapiro and Bonoma in the Nested approach to segmenting the industrial
markets.
These intermediate bases of segmentation, viz., demographics, operating

variables, purchasing approaches, situational factors and personal
characteristics, are explained in Table 1.6.3. The table lists major questions
that business marketers should ask in determining which customers they
want to serve. By targeting these segments instead of the whole market,

companies have a much better chance to deliver value to customers and to
NOTES
receive maximum rewards for close attention to their needs.
Table 3.6 Major Segmentation variables for Industrial Markets
Segmentation Examples of vari-

Comments
variable ables measured
Industry Which industries that buy this

product should we focus us?
Company size What size companies should we
Demographics focus on?
Location
What geographical areas should
we focus on?
Technology What customer technologies

should we focus on?
User/non- Should we focus on heavy,

Operating user status medium or light users or non-
variables Customer users?
capabilities Should we focus on customers
needing many or few services?
Organization Should we focus on companies

with centralized or decentralized
Power structure purchasing?

Should we focus on engineering
Nature of or finance or marketing –domi-
existing nated companies?
relationship Should we focus on companies

General with which we already have
Purchasing purchase strong relationships or just go
approaches policies after the most desirable
Purchasing companies?
criteria Should we go after companies
that prefer leasing? Service
contracts? Systems purchases?
Sealed bidding?
Should we focus on companies
that are seeking Quality? Ser-
vice? Price?
Urgency Should we focus on companies

that need quick delivery or
Specific service?
Situational application Should we focus on certain
factors Size of order applications of our product rather
than all applications?
Should we focus on small or large
orders?
Buyer-seller Should we focus on companies

similarity whose people and value are
Attitudes similar to ours?
Personal toward risk Should we focus on risk-taking or
characteristics Loyalty risk-avoiding customers?
Should we focus on companies
that show high loyalty to their
suppliers?
Targeting Approaches
Target market selection is the next logical step following segmentation. Once
the market-segment opportunities have been identified, the organization got
to decide how many and which ones to target. Lot of marketing effort is

dedicated to developing strategies that will best match the firm’s product
NOTES
offerings to the needs of particular target segments. The firm should look for
a match between the value requirements of each segment and its distinctive
capabilities. Marketers have identified four basic approaches to do this:
1. Undifferentiated Marketing
A firm may produce only one product or product line and offer it to all
customers with a single marketing mix. Such a firm is said to practice
undifferentiated marketing, also called mass marketing. It used to be much
more common in the past than it is today. A common example is the case of
Model T built by Henry Ford and sold for one price to everyone who wanted
to buy. He agreed to paint his cars any colour that consumers wanted, ‘as
long as it is black’. While undifferentiated marketing is efficient from a
production viewpoint (offering the benefits of economies of scale), it also
brings in inherent dangers. A firm that attempts to satisfy everyone in the
market with one standard product may suffer if competitors offer specialized
units to smaller segments of the total market and better satisfy individual
segments.
2. Differentiated Marketing
Firms that promote numerous products with different marketing mixes

designed to satisfy smaller segments are said to practice differentiated
marketing. It is still aimed at satisfying a large part of the total market.
Instead of marketing one product with a single marketing program, the firm
markets a number of products designed to appeal to individual parts of the
total market. By providing increased satisfaction for each of many target
markets, a company can produce more sales by following a differentiated
marketing approach. In general, it also raises production, inventory and
promotional costs. Despite higher marketing costs, a company may be forced
to practice differentiated marketing in order to remain competitive.
2. Concentrated Marketing

Rather than trying to market its products separately to several segments, a
firm may opt for a concentrated marketing approach. With concentrated
marketing (also known as niche marketing), a firm focuses its efforts on
profitably satisfying only one market segment. It may be a small segment, but
a profitable segment. This approach can appeal to a small firm that lacks the
financial resources of its competitors and to a company that offers highly
specialized good and services. Along with its benefits, concentrated
marketing has its dangers. Since this approach ties a firm’s growth to a
particular segment, changes in the size of that segment or in customer
buying patterns may result in severe financial problems. Sales may also drop
if new competitors appeal successfully to the same segment. Niche marketing
leaves the fortunes of a firm to depend on one small target segment.
3. Micro Marketing
This approach is still more narrowly focused than concentrated marketing.

Micro marketing involves targeting potential customers at a very basic level,
such as by the postal code, specific occupation or lifestyle. Ultimately,
micromarketing may
even target individuals themselves. It is referred to as marketing to segments

of one. The internet allows marketers to boost the effectiveness of
micromarketing. With the ability to customize (individualization attempts by
the firm) and to personalize (individualization attempts by the customer), the
internet offers the benefit of mass customization – by reaching the mass
market with individualized offers for the customers.

NOTES
Fig. 3.6 Market Targeting Approaches
3.4 TARGET/CONSUMER ORIENTED MARKETING
When a firm decides to design a new product, it makes decisions that it

knows it will appeal to some consumers and not to others. Marketers such as
P&G and HUL offer many products in the same category, each of which is
designed to appeal to a specific consumer segment, so that the company can
profit from sales to many diverse segments. Such multiple product marketers
must understand the consumer segments and which appeals to each of man
so not they can design their products accordingly. In doing so, marketers
must adopt three steps of target marketing:
(a) Identify and profile different group of consumers who differ in their
preferences (segmentation).
(b) Select one or more market to enter (market targeting)

(c) For each target segment, establish and communicate the major
distinctive benefits of the company’s market offering (market positioning)
(Source: Philip Kotler, Marketing Management)
We can have different approaches to take up targeting for marketing

purposes. The following diagram provides the overall view of the different
approaches.
Table 3.7 Target Market Approaches
The planning a target market strategy consists of choosing the proper

approach and selecting the target market. A firm may select undifferentiated
marketing, concentrated marketing or differentiated marketing.
i. Undifferentiated Marketing (Mass Marketing):

The firm tries to reach a wide range of consumers with one basic marketing
plan. These consumers are assumed to have a desire for similar good and
service attributes. Henry Ford, sold one standard car at a reasonable price to
many customers. The Original Model T had no options and came only in
black. Undifferentiated marketing maximises sales.
ii. Concentrated Marketing:

The firm concentrates on one group of consumers with a distinct set of needs
NOTES
and uses a tailor-made marketing plan to attract this single group.
Concentrated marketing can let a firm maximise per unit profits, but not total
profits, since only one segment is sought. A firm with low resources may vie
effectively for specialised markets. Shree Leathers, Shoe maker in Kolkata
targets middle class customers segment for all of its shoes.
iii. Differentiated Marketing (Multiple Segmentation):

Differentiated Marketing enables a firm to appeal to two or more distinct
market segments, with a different marketing plan for each. It combines the
best aspects of undifferentiated marketing and concentrated marketing.
Firms may use both mass marketing and concentrated marketing in their
multiple segmentation strategies. Microsoft has complete lines of software
targeted separately at final consumers (for home use) and organisational
consumers (for business use).
P&G, a leader in laundry detergents has various brands such as Tide, Bold,
Drift, Cheer, Gain, Ivory Snow & Ariel. Multiple segmentation lets a firm
diversify and minimise risks because all emphasis is not placed on one
segment. Indian auto makers like Maruti-Suzuki and others are also pursuing
multi-brand strategy.
SUMMARY
This module presented the behavioural aspects of consumers which helps in

market/consumer segmentation and thereby enable identification of target
consumer for marketing.
SELF ASSESSMENT


a. Marketing Myopia
b. Selling
c. Exchange
d. Delivery
a. Conventional
b. Contemporary
c. Competitive
a. Demand
b. Need
c. Want
d. Customer
example of …
a. Need
b. Want
c. Demand
d. Status
example of…
b. Selling Concept
d. Product Concept

a. Demand.
b. Idea.
c. Product.

d. Service
NOTES
Detailed Answers
1. What is marketing environment? Write down its main ingredients.

2. Define marketing environment? Discuss in brief the factors that
constitute marketing environment.
3. “Firms which systematically analyse and diagnose the environment
are more effective than those which don’t”. Elucidate.
4. Discuss the demographic and technological trends that can affect
the future of the business.
CASE STUDY
India's Refrigerator market estimated at Rs. 2750 Cr. is catered mainly by 10

brands. The annual capacity is estimated at around 4.15 million units is
running head of demand of 1.5 millions.
As there is a demand and a surplus supply, all the manufacturers are trying
out for new strategies in the market.
Times have changed and also the buying behaviour of the customer. Earlier it
was cash and carry system. Now dealers play an important role in selling;
now the systems is exchange for old “bring your old refrigerator and take a
new one with many gifts”. A new company by name Electrolux has entered
the market which has acquired
Allwyn, Kelvinator and Voltas brand.
Researchers have revealed that urban and city sales are declining and hence
all manufacturers are trying to concentrate on rural markets.
Electrolux strategy is customisation of market, with special attention to the
Northern and Southern India markets, while Godrej the main player thinks
that dealer network in rural market for sales and service will be beneficial
and is trying to give more emphasis on dealer network, whereas Whirlpool
has adopted the strategy of increasing the dealer network by 30%.
The market shares of the major players are as follows:

• Godrej 30%
• Videocon 13%
• Kelvinator 12%
• Allwyn 10%
• Voltas 5%
• Whirlpool 27%
• Daewoo 1%
• L.G 1%
• Others 1%
Questions
1. Analyse the micro and macro environment for refrigerator . market in

India.
2 . Kioni is a Chinese Electronics company planning to enter Indian market
with its refrigerator. As the company’s marketing advisor what would be
your advice to the company?
CASE 2
The Price of Success
One year after Apple Inc. CEO Steve Jobs announced the company’s
industry-changing iPhone on January 9, 2007, at the Macworld convention in
San Francisco, the share price of Apple’s stock has more than doubled to a
January 9, 2008, value of $179.40. This stock price incorporates all of Apple’s
business, but a large part of the rise in value can be attributed to the launch of
the cutting-edge iPhone, of which four million have already been sold
through mid-January 2008. Based on this simple observation of the stock
price, the iPhone can so far be declared a success, at least from a shareholder
standpoint.
THE ANNOUNCEMENT BY CEO STEVE JOBS

Jobs' announcement was an example of the intelligent use of trade shows and
NOTES
Apple's experience with generating press coverage and buzz about new
products through them. The conference capped off the two-year development
period for the iPhone, a period during which Jobs embarked on a campaign
to sign a wireless company as the exclusive carrier for the iPhone. Eventually,
he was able to convince AT&T to abandon almost all control over the
development of the iPhone to the point where only three executives at AT&T
had seen the iPhone before it was announced. This situation gave Apple the
liberty to develop its product on its own terms and to keep its features under
tight wraps. In an industry that changes as rapidly as the wireless
communication industry, the ability to be as autonomous
and secretive as possible is very important in the development of a product
like the iPhone, and Steve Jobs was able to recognize and use it to Apple’s
advantage.
THE PRODUCT AND TARGET MARKET

The iPhone could be described as a combination of Apple’s popular iPod
music player and a smart phone designed to surf the Web. Its highly-touted
feature is a 3.5-inch, touch-sensitive screen that consumers use to make calls,
navigate their music collection, and write messages on a virtual onscreen
keyboard At the time of the announcement this innovative feature set the
iPhone apart from the competition in the wireless-phone market. Apple
parlayed the strong reputation of the Apple brand and the iPod’s success to
enter a lucrative cell-phone market, a step that may ward off a potential
threat to Apple as other companies introduce devices that have strong music-
storing and playback capabilities.
All of these benefits and features of the iPhone come for a price though; the
initial price of the 4GB model was $499 and the 8GB model cost $599. Aimed
at the high-end, tech-savvy consumer, who is often a business user, the
iPhone is marketed to a sizable, fast-growing market. Before the recent fears
of a pending recession, analysts predicted that the aim to sell 10 million
iPhones through 2008 would be an attainable goal

The picture below shows a section of the crowd that had been waiting
overnight in front of a store to buy a pricey launched iPhone10 in Europe.
Fig. 3.6 Customers waiting for iPhone store to open
THE AGREEMENT WITH AT&T AND OTHER STRATEGIC PARTNERS

In addition to the hefty price tag, iPhone customers are required to commit to
a two-year wireless agreement with AT&T Inc. to make calls or use the
phone’s other features. (One caveat: owners may choose to use the phone as
an iPod, in which case they do not need to activate the device through
AT&T.)
This set-up creates some unique difficulties that Apple and AT&T will have
to address. Any potential customer of the iPhone must be prepared to sign a
contract with AT&T as their service provider. People who do not like AT&T’s
service or are not in an area where it is provided may be hesitant to purchase
an iPhone, which narrows the potential market.
The two-year wireless agreement may also be a deterrent for those people
who are already locked into a wireless contract with a different provider, but
at least one study reported that 12 percent of respondents indicated they
postponed their wireless phone or MP3 player purchase to wait for the
release of the iPhone, evidencing that this obstacle can be overcome. This
contract also means that Apple does not have to deal with network problems

and all of the consumer complaints that often go with them, but instead focus
NOTES
on a top-notch hardware and software design.
AT&T is not the only company that stands to benefit from the production of
the iPhone. The companies that supply the parts and assemble the iPhone,
many of which are speculated to be Taiwanese, may enjoy financial success as
well. By hiring overseas manufacturing specialists to make the iPhone, both
Apple and the suppliers win. The suppliers are able to benefit through the
revenue generated by increased business, and Apple is freed from running
complicated, labor-intensive manufacturing operations. Additionally, third-
party companies who produce accessories for the iPhone stand to profit from
its introduction as customers will pay a premium to protect and show off
their new investment.
Apple also struck deals with Viacom, Disney, Google and Yahoo, all
strategically selected to bring internet features to the iPhone. Although
primarily highlighted in iPhone TV ads that show internet search features
(google) or the ability to view movies such as Pirates of the Caribbean
(Disney), Apple sagely chose visible
and powerful partners for the iPhone.
REVIEW AND JUSTIFICATION OF iPHONE FEATURES

The Wall Street Journal’s technology guru, Walter Mossberg, finally
published his review of the iPhone only two days before its launch. Overall,
he described the iPhone as a breakthrough handheld computer despite some
shortcomings. The iPhone’s design is creating problems with some iPhone
accessories. For example, the headphone jack is deeply recessed on the
multimedia device, meaning an adapter will be needed in order to use certain
headphones with the iPhone.
Secondly, the device does not have the ability to cut, copy, and paste text,
which could be extremely annoying if people are going to use the device to
send and receive emails throughout their workday. The iPhone is also
missing instant messaging software, but it still has the ability to send and
receive standard text messages. Though the phone has a two-megapixel

camera, it lacks the ability to record videos, a common feature on competing
smart phones. Finally, when the iPhone is first released it will not have the
ability to play most video on the Internet because it does not utilize Adobe’s
Flash technology.
Mossberg still has plenty of features to brag about on the iPhone, starting
with the gorgeous 3.5-inch screen. Most importantly, during the two-week
test the device lacked any protection and it never received a single scratch on
the screen or on any other part of the device. This is potentially very
important to the early majority adopters because the iPod plastic screen
scratched easily. The highly touted virtual keyboard lived up to the hype as
Mossberg found it to be functional during the test. One important question
mark regarding the iPhone is its battery life; consumers are concerned the
battery will not be sufficient to last all day and still utilize all of the iPhone’s
capabilities. But Mossberg writes that the battery is adequate and gave him
seven hours and 18 minutes of continuous talk time while retrieving email
constantly.
Apple is still trying to justify to consumers why the device will use AT&T’s
EDGE network instead using 3G, which is the fastest wireless technology
from AT&T. Jobs is quick to admit the iPhone will not surf the internet as fast
as most users would like, but just as quickly he says that is why the device
has the ability to seamlessly switch to WI-FI, giving the consumer the best of
both worlds. AT&T’s CEO and Chairman Randall Stephenson says the
utilization of the EDGE network is common among smart phones. He notes,
“EDGE is the only ubiquitous nationwide broadband network deployed
today” The two executives believe users will find the EDGE network to be
sufficient, at least initially.
DIFFERENTIATION FROM COMPETITORS
Apple has been working hard since Jobs made the announcement to
differentiate itself from other smart phone on the market. Newspaper articles
are constantly mentioning the 3.5-inch screen as an industry first. Also, Mr.
Jobs has been obdurate from the beginning that the phone must have a
touchsensitive keyboard because he dislikes the keyboards on Research in

Motion’s BlackBerry and Palm’s Treo. Since January, Apple has worked hard
NOTES
to make sure that their iPhone stays on the front page of newspapers across
the country. This has severely limited competitors from fighting back with
their new smart phones. Nokia is selling the N95, which is a smart phone
geared to compete against the iPhone with its ability to play music and DVD-
quality video. The N95 has more features than the iPhone, but it lacks a major
U.S. partner for widespread distribution and carries a $749 price tag in the
U.S. market. Other competitors such as LG Electronics are also rushing high-
end smart phones to the market in an attempt to keep customers using their
devices instead of switching to Apple’s iPhone.
Software compatibility is one smart phone aspect in which competitors have
a definite edge overthe first generation iPhone. Software developers currently
must develop programs that are optimized for the iPhone’s Safari Internet
browser and wireless capabilities, which severely limit their ability to
introduce to the device applications in high demand. At the top of
consumer’s wish lists is access to Microsoft’s Outlook and Exchange server.
The absence of Outlook and other communications software, such as chat
applications like AOL’s AIM, has limited the iPhone’s appeal to corporate
customers, as many companies rely on these applications for secure corporate
messaging. To address this issue, Steve Jobs has announced that in February
2008 Apple will release a platform to give third-party programmers access to
the iPhone’s locked software. The rationale provided by Apple for locking the
phone’s software in the first place was largely security related, but Jobs has
said that the security of the iPhone is planned to be overhauled and the
software platform provided to programmers will have features that protect
the iPhone from malicious programs. Although viruses are a legitimate threat
to the iPhone, bigger threats may come in the form of Research in Motion,
Palm, and Motorola if new applications for the iPhone do not materialize
soon.
APPLE UPSETS EARLY ADOPTERS AND INNOVATORS
Though Steve Jobs’ introduction of the iPhone to the world was nearly
flawless, the recent price cut on the iPhone upset many of his most loyal
customers. After being on the market for only two months, Apple cut the
iPhone’s price tag by 33 percent ($200). Jobs received hundreds of emails

from angry customers who purchased the iPhone because they did not
believe Apple would reduce the price so quickly.
As a response to the overwhelming amount of negative reaction on the part
of iPhone owners, Jobs released a short letter describing the sound reasons for
the reduction in price. He systematically went through the reasons for the
price cut and expressed to the customers how important they are to Apple’s
success and future. Jobs’ attempt to quell the outrage came in the form of a
$100 store credit that customers can use to purchase any product at an Apple
Retail Store or the Apple Online Store. Although Jobs quickly suppressed
customer outrage regarding the price cut, his reaction and subsequent store
credit to customers may set a precedent that could come back to haunt Apple
when it releases new technology in the future.
Innovators became further upset when, in January, Apple announced that the
storage capacity for the highest-end iPhone would be doubled to 16 GB for an
additional $100. But at least one journalist does not feel sorry for the first
purchasers of the iPhone and admonishes consumers not to purchase an
iPhone now if they will regret it when a better version is released. “The signs
are all there,” says Brian Caulfield, speaking of the rumblings that Apple will
release an iPhone that works on AT&T’s faster 3G network. “If anyone
complains when Apple introduces faster, better iPhones later this year, they’ll
have only themselves to blame” These issues highlight the problem faced by
Apple and Jobs of quickly and effectively bringing improved iPhones to
market without rankling innovators. As Caulfield points out, consumers
should be aware of the looming 3G upgrade, but moves like the $200 iPhone
price cut and January’s unexpected software update for the iPod Touch that
cost owners $20 may result in consumer distrust toward the Apple brand.
PROMOTIONAL OUTLAYS
According to Harvard Business Professor David Yoffie, Apple has garnered

approximately $400 million in publicity since Job's announcement in January
2007. Coverage by traditional business publications such as the Wall Street
Journal to online pundits like Gizmodo to a Time writer gushing, "Steve Jobs
has said, repeatedly, that this is the best iPod that Apple has ever made, and

it is. It's also the best phone that anybody has ever made," have covered the
NOTES
revolutionary phone's introduction and launch . Apple also supported the
phone in a flurry of television, web-based and print ads designed to show off
the disappearing and reappearing touch keypad. Jobs focused on this feature
during his Macworld announcement, and subsequent Apple advertising
efforts have showcased this feature repeatedly in initial "how-to" TV spots
created by TBWA\Chiat\Day (squidoo.com). The first advertisement for
iPhone, titled "Hello," aired during the 79th Academy Awards and took place
on February 25, 2007, on ABC. The ad featured clips from dozens of notable
films and television shows over the last 70 years, showing iconic characters
answering phones. The iPhone is shown at the end with the caption: "Hello.
Coming in June."
One blogger (www.blogs.business2.com) was so interested in Apple's iPhone

advertising schedule, he conducted a Nexis search for newspaper stories that
mentioned the iPhone between June 23 and August 18, 2007. During that
timeframe, Apple had aired nine new TV ads. The week the iPhone was
launched, 1,547 stories appeared in the media, compared to 206 in mid
August. Apple's advertising schedule appears to reinforce the iPhone's
presence in media during times when the buzz or free media has tapered off.
This combination of paid and free media gives consumers the impression that
the iPhone is a constant presence in the popular media.
One of the most influential periodicals dedicated to advertising, Advertising
Age, in 2007 selected Apple as a runner-up for the annual Marketer of the
Year award. This status was conveyed because of Apple's "rare
accomplishment of successfully bringing a new product into an already
crowded and competitive market. Apple's agreement with cellular telephone
service provider AT&T gave it an upper hand in their relationship older
cellular telephone firms have yet to acquire" (Bulik and Cuneo, 2007).
While Apple's advertising budget and schedule aren't readily available,

Adweek's Andrew McMains estimated the Apple global account was worth
$250 million in 2006 to agency TBWA Worldwide (2006). Other pundits have
guessed that Apple will spend at least $20 million to launch the iPhone in

Europe and easily surpassed that figure in the United States during the
summer of 2007 alone.
DISTRIBUTION CHANGES
Apple made some changes in its traditional consumer distribution channels,

choosing to eschew third-party dealers/retailers such as Best Buy and
RadioShack Corp. when planning where to sell the iPhone. AT&T offers the
phones in its roughly 1,800 company-owned stores; iPhones are also available
in Apple stores or through Apple's website (Sharma, 2007). While impossible
to predict a possible backlash for Apple as it continues to market its entire
product line, altering established distribution channels can confuse customers
and risk future distribution plans with those retailers who were cut out of the
iPhone plan.
THE IPHONE GOES GLOBAL

The excitement surrounding the release of the iPhone was not contained
solely in the U.S. Long lines outside stores and enthusiastic countdowns
accompanied the iPhone’s release in the U.K. and France as well. Apple has
chosen to take a marketing and distribution approach in these European
countries that is similar to its U.S. strategy. In France, Apple struck a deal
with France Telecom’s mobile subsidiary, Orange, to be the exclusive carrier
in that country. In the U.K., Telefonica’s mobile subsidiary, O2, was tapped to
be the exclusive wireless carrier, and, as AT&T has done, it is requiring
minimum two-year contracts from its iPhone customers.
This strategy in Europe creates many of the same opportunities and problems
found in the U.S. but with a few added complications. As hackers continue to
unlock iPhones, the revenue for these exclusive wireless networks is put into
jeopardy if customers are able to easily unlock their phones. While this could
boost sales for Apple by allowing customers to access more wireless carriers,
Apple will still need to protect its partners by countering any new hacks,
which takes considerable time and resources. Apple also has to contend with
differing consumer protection laws throughout Europe. For example, it is

illegal to sell a locked mobile phone through a single operator more than six
NOTES
months after its initial release.
UNLOCKED iPHONES
The allure of Apple’s iPhone has become a double edged sword for the
company as its popularity has created a huge black market for unlocked
iPhones. When Apple announced it had sold 3.7 million iPhones by the end
of December, and AT&T reported it had less than 2 million account
activations in the same period more than a few analysts took notice. Sales in
the U.K., France, and Germany account for part of the variation, but their
sales have been sluggish and only account for approximately one-fifth of the
difference. That being said, roughly 1.4 million iPhones are currently
unaccounted for. This is a problem for Apple because the iPhone must be
activated on AT&T’s network in order for Apple to receive the additional
revenue. Apple has taken notice and said the number of unlocked iPhones
“was significant in the quarter, but we’re unsure how to reliably estimate the
number. If the current trend continues it could have a significant effect on
Apple’s bottom line for years to come. Research analyst Toni Sacconaghi has
said that if Apple meets their goal of selling 10 million units by the end of
2008 and 30 percent of the phones are unlocked it could mean as much as $1
billion in lost revenue to Apple over the next two years.
The problems created by unlocked iPhones do not stop with Apple. Instead,
every carrier that has signed an exclusive agreement with the company is
being hurt. For example, AT&T is also losing out on the monthly revenues
from lost iPhones, and they are more likely than Apple to try to stem the flow
of unlocked iPhones through legal action. AT&T is more apt to target the
companies who are unlocking the devices and then selling them rather than
taking Apple to court. Mark Siegel, who is an AT&T spokesman, has said that
the iPhone is ' "meant for use by the person who buys it,’ and not to be resold
for commercial purposes”

After all, AT&T is hurt more by losing account activations because their
revenue only comes from one source, monthly fees, where Apple has the
profit from iPhone sales to offset the losses from unlocked units.
iPHONE SALES
Since the release of Apple’s iPhone on June 29, 2007, it has sold an astounding
four million units. The hype surrounding its release helped it become the
fourth most popular handset in the U.S., and by the end of the October, Apple
reported selling 1.12 million units. Additionally, it has become AT&T’s most
popular handset, commanding nearly 13 percent of its overall sales. During
Apple’s 2008 Macworld keynote address Jobs announced that the iPhone had
a 19.5 percent share of the smart phone market in the same quarter.
Consumer satisfaction with the iPhone has been significantly higher than its
competitors, according to a 2008 ChangeWave survey. Additionally, the
survey shows the iPhone is the top choice among those planning to buy a
new phone in the next six months . Despite the fears of a looming consumer-
led economic recession, Apple executives still believe the goal of selling 10
million iPhones by the end of 2008 is attainable.
Reaching this goal, however, will depend on future modifications to the

iPhone and marketing efforts in the slowing economic conditions. The
normally secretive Jobs let it slip in September that consumers can expect a
3G iPhone in 2008. He expects that improvements in technology will allow for
the faster network without affecting the battery life of the device. The recent
release of a 16 gigabyte iPhone demonstrates Apple’s continued ability to
recreate their products and spur sales as market conditions change.
Additionally, Apple is releasing a software development kit (SDK) which will
allow third parties to market software for the iPhone. This is an excellent
example of the emerging two-party platform business model.
Questions:
1. Examine the Macro and Micro Business environment for Apple Inc.

2. ‘Customer Satisfaction for Apple had been very high, even though it
NOTES
was a pricey product’. How do you justify this paradox?
GLOSSARY
Business Planning: Business planning is a continuous process of

making present entrepreneurial decisions systematically and with best
possible knowledge of their futurity, and organizing systematically the effort
needed to carry out these decisions against expectations through organized
feedback.
Corporate Objectives: Corporate objectives help in identifying and
achieving the desired future positions or destinations.
Corporate Planning: Corporate planning is a term used to denote a
formal, comprehensive and systematic appraisal and internal environment to
achieve organizational objectives.
Differentiation Strategy: A strategy whereby a marketer offers a
product that is unique in the industry, provides a distinct advantage or is
otherwise set apart from competitors brands in some way or the other,
besides price.
Market-Product Matrix: A matrix that includes the four possible
combinations of old and new products, and old and new markets.
Operational Planning: Planning that focuses on day-to-day operations
of the business such as supervision of the sales force, and compensation to
intermediaries.
Strategic Business Unit: A Strategic Business Unit (SBU) is a
distinct business unit of the business organization in the form of a subsidiary
company, department, division or product line with a specific product-
market focus and independent authority and responsibility of the manager to
take business decisions.
Strategic Marketing Process: The entire sequence of managerial and
operational activities required to create and sustain effective and efficient
marketing strategies.

MODULE - 4
______________________________________________________________
COMPETITIVE STRATEGIES
Structure
4.0 Introduction
4.1 Unit objectives
4.3 Marketing Mix Decisions
4.4 Marketing Strategies
4.5 Positioning
4.6 Competitive Advantage
4.7 Market Information
4.8 Innovation
4.0 INTRODUCTION
Many firms think that they have a marketing plan whereas what they
actually have is a business plan. A marketing plan is a broad set of guidelines
as to how the firm is going to accomplish its strategic goals. It’s a blueprint
for the future course of action and it guides all the marketing actions of the
firm. A successful marketing organization needs to deliver a good value
proposition and develop market oriented strategic planning to make this
value offer unique and adaptable to the changing environment. Market
planning helps in maintaining a viable fit between the organization goals,
objectives, targets, skills and resources with its changing market
opportunities. The objective is to shape the product or service offer through a
marketing plan to help the organization realize its targets and profit
objectives. Today’s marketing managers face extraordinary challenges due to
changes in the external competitive environment. So they should be flexible
and adaptable enough to respond to the growing complex world of
competition and achieve the desired results.

Marketing planning of an organization is planning for that
NOTES
organization’s revenue-earning activities. Marketing managers have to face
changes everyday in the market place. So a successful marketing
management process should be continuous, involving a cycle of planning,
implementation and control. There should be a strategic orientation to the
marketing management process. A marketing strategy should stem from the
broad corporate and business plan of the organization. It consists of a plan
identifying what basic goals and objectives will be pursued and how they will
be achieved within a specific time frame. It is a commitment to certain
courses of action and allocation of resources necessary to achieve the desired
goals of the organization. While strategic decisions are taken at a higher
level with long-term horizon; tactics are short term, specific actions intended
to implement the strategy. Tactics are closely associated with the execution of
a plan.
_________________________________________________________________
4.1 OBJECTIVES
This module covers the marketing process, various strategies that

drive the marketing planning and implementation to achieve a competitive
advantage. It also discusses the relationship marketing and positioning.
After reading this unit, you should be able to
Identify the parts of the marketing process
Understand the relationships among the parts of the
marketing process
Explain how the marketing process creates, captures and
sustains value for the customer
Evaluate how the various elements of marketing plans can be
formulated based on a strategic choice including positioning
and approach.
Implement a marketing plan based in the real world situations.
_______________________________________________________________

4.2 MARKETING PROCESS
While there is lot of focus on the substance of marketing, particularly

the marketing mix, an equally important aspect of marketing is the marketing
process – how marketers do their job. The process is equal in importance to
the substance because the process determines the nature and quality of the
decisions made. A good process is likely to lead to a good decision. On the
other hand, a faulty process will produce a good decision only on a random
or accidental basis.
The marketing process can be divided in several different ways.

One popular conceptualization of marketing tasks is:
1. Strategy formulation – the development of the broadest

marketing/business strategies with the longest term impact.
2. Marketing planning – the development of longer-term plans
which have generally stronger impact than the short-term programs.
3. Marketing programming, allocating and budgeting – the
development of short-term programs which generally focus on integrated
approaches for a given product and on the allocation of scarce resources.
4. Marketing implementation – the actual task of getting the
marketing job done.
5. Monitoring and auditing – the review and analysis of
programs, plans and strategies to assess their success and to determine what
changes must be made
6. Analysis and research – the deliberate and careful acquisition
and examination of qualitative and quantitative data to improve decision
making
Though implied and considered as part of the overall corporate

planning, the importance of situation analysis can never be undermined
during marketing strategy formulation. Especially under product policies,
but throughout the marketing mix elements, the company, customer and
competitive scanning is so essential to marketing success. Situation analysis

describes the process by which environmental assessment, marketing
NOTES
research and market size/growth estimates get done. It pays particular
attention to environment scanning skills useful in forecasting and modelling
consumer behaviour.
It is important to note that each part of the process is intimately

related to the other parts of the process. Figure 4.1 is an attempt to capture the
more important relationships. The dividing lines between any two parts of
the process are vague and unclear. This is particularly true of those elements
of the processes which are clearly connected. For example, the distinction
between a marketing plan and a marketing program is very unclear for
many. But the precise boundaries are not as important as the general
concept. Each element can be divided into smaller sub elements. For example,
marketing planning includes market assessment which is the evaluation and
selection to serve specific customer markets. Product line planning is another
sub element of marketing planning.

Fig 4.1: INTERRELATIONS BETWEEN ELEMENTS OF MARKETING
PROCESS
Strategy formulation is the broadest, longest-term marketing activity.

At this stage, complex and subtle integration with other corporate functions is
The strategic process is one of working with market dynamics (a

particular segment or selection of the market) to achieve a solid positioning of
the product/service offering that contains a clear ‘benefit promise’ to the
actions.
For instance, a going company may choose strategies like

diversification or expansion to achieve growth. It implies that marketers go
either for product development or market development strategies.
Marketing Planning
Marketing planning involves objectives and plans with a 2-5 year

time horizon and is thus further from day-to-day activity of implementation.
Because of their broader nature and longer-term impact, plans are typically
developed by a combination of higher-level line managers and staff
specialists. If the specialists take over the process, it loses the commitment
and expertise of the line managers who are responsible for carrying out the
plan. The planning process is probably more important than the final
planning document. The process ensures that a realistic, sensible, consistent

document is produced and leads to important organizational learning and
NOTES
development in its own right.
In accordance with the strategy chosen, a long term plan of financing

the project of expansion or diversification with details of acquisition of
machinery and equipment, searching and choosing sources of materials,
recruiting and training of human resources, on operational side and on the
marketing side the development of four Ps, for a product or product line.
Marketing Programming, Allocating and Budgeting
This part of the marketing process involves a good deal of detail and
focuses generally on the one-year time horizon.
Programs will be determined by the nature of the company’s

organization. They can be related to either one element of the marketing mix
such as distribution for one or more products or to all elements of the mix for
a single product or market.
• In functional type of organization (i.e. separation of marketing

functions such as advertising, sales, etc.), programs will focus on one aspect
of the mix across all products and markets.
• In product or market type organization, programs tend to be
for each of the product or market.
Allocating is a necessary function because there is never enough of

any scarce resource such as advertising budget or distribution effort to meet
the ‘needs’ of all products, markets and programs. In many ways, marketing
is deciding what not to do: which prospects not to sell to, which products not
to produce to, etc. Allocation is the formal process of choosing what to do and
what not to do, as well as choosing how much to do. Because marketers tend
to be optimists, they often underestimate the amount of effort which will be
required to accomplish a goal. Allocation requires the stark realism to

separate the clearly feasible from the hopeful. It forces the marketer to set
explicit priorities and to make hard decisions.
Budgeting reflects the programs and allocations in a set of

quantitative forecasts or estimates which are important within and beyond
the marketing function. The budgets generally include:
(i) Financial proformas which are used by the control and finance
functions to forecast cash flows and needs.
(ii) Unit sales forecasts.
Marketing Strategy Implementation
This is the execution phase which, in part produces the actual results.
Poor implementation can ruin even the best strategies, plans and programs.
The total purpose of all that goes before implementation is to ensure excellent
execution.
Implementation means different things to different people in the

organization.
To the salesperson, it means going through all of the steps of the

selling process to obtain the desired results. It involves understanding the
time bound targets tied to budgets, and performing activities like
prospecting, contacting, presenting the products, convincing the prospects
and clinching the sale. The progress is monitored by standards like sales calls
/day, costs/call, sales orders /sales calls, and others.
Because of the relatively short time frame involved in most

implementation activities, monitoring and auditing are generally easier than
for the longer-term strategies and plans. Marketing implementation focuses
on prospects, customers, distributors, retailers, centers of influence (who are
the influencers in a buying decision – they specify but do not purchase).
Marketing implementation also includes dealing with other functional areas

to gain support and to develop coordination. For example, product managers
NOTES
must implement their plans and programs through product development,
production, service and logistics personnel in other functional areas.
Marketing implementation involves a very interesting tension

between the structures the firm puts in place to guide marketing efforts and
the skills of the managers doing the marketing job. In most firms, what
happens is that over time the structures become rigid and dysfunctional to
changing marketplace needs, which guides the firm to destinations it does
not want to reach! It is only by the timely intervention of the marketers, using
their personal skills to ‘subvert the organization toward quality’ that good
marketing actions result.
Monitoring and Auditing
While auditing normally refers to an activity which is done only on

certain occasions, monitoring generally refers to a more day-to-day review
activity. It also often refers more to a review of external data than internal
activities. It, too, is an important part of the total marketing process because it
provides a frequent check of progress against plans and programs.
One reason to develop plans, programs and budgets is to have a set of

goals or standards against which to measure performance. Marketing audits
usually include two parts. The first is an assessment of performance against
quantitative goals. The second part of a comprehensive audit reviews the
processes and other non-quantifiable aspects of the marketing operation.
Because marketing is a mixture of art and science, quantitative and
qualitative, and because it involves so many interactive variables, it is hard to
audit. Standards are few and comparisons are difficult.
The audit raises a variety of important topics:
1. Who should perform the audit? Can the planners,

programmers and executors audit their own performance without bias? If

they cannot, who knows enough about the operation to perform the audit?
Should outsiders such as consultants be involved and in what capacity?
2. How often should the audit be performed? Should it be on a
regular basis or only at certain important points?
3. How comprehensive should the audit be? Should it involve all
aspects of marketing or just some?
Analysis and Research
All marketing decisions should be based upon knowledge and careful

analysis. Knowledge can be sourced either from intelligence or from
research. While formal analysis and research are important, nothing replaces
common sense and good judgment. It implies that managers should develop
intelligence- a knowledge base- by observing the developments in the
environment. When intelligence is inadequate formal research becomes
necessary. The analysis and research need not be quantitative, but it should
be deliberate and should be matched to the magnitude of the decision being
made.
The marketer’s kit has some very powerful analytical tools and the
rapid development of decision support systems, mathematics including
statistics, and other supporting disciplines such as psychology and sociology
insure that the diversity and power of the tools will continue to increase. All
of the tools must be applied carefully and intelligently to the decision at
hand. It is a fine line, indeed between healthy skepticism and arrogant neglect
of useful tools. The right analytical tool well applied can substantially
improve marketing decision making.
Table 4.1 has two dimensions. The first is temporal – it shows the
natural development from strategy formulation through planning,
programming, allocating and budgeting on to implementation. This process
is not nearly as ‘clean and separated’ as the table implies. The activities are
interrelated and contemporaneous.

Table 4.1 Marketing Plan Activities and their Connections
NOTES

The second dimension is the lateral connection to other functional
parts of the organization, such as production and operations, finance, control
and human resources management. Each step has a company or business
counterpart in the right-hand column. The marketing strategy thus becomes
part of the total corporate strategy, which includes all functional areas.
The marketing plan is often part of a broader corporate business plan.

The marketing plan is usually the ‘front end’ of the corporate plan, because it
spells out the operation, human and financial resources needed to support the
organization’s approach to its markets.
Marketing programs and budgets are usually part of the
organization’s fundamental operating documents. For example, the sales
forecasts in the programs and budgets become the production schedule for
the manufacturing function. Those, in turn, become the staffing programs for
the human resource function and indicate the working capital needs to be
supported by the financial function. If finance cannot support such a high
level of inventory and accounts receivable, the sales forecast, production
schedule and staffing program must be scaled down. In most organizations,
great effort must be devoted to such lateral connections. The coordination
needs are very high and the amount of conflict often great. Risk aversion and
opportunity sensitivity differ among functions. Varying reward systems
sometimes encourage different types of behaviour. The organization must
develop formal and informal ways to foster good, open lateral connections.
Schematic of Marketing Process

Figure 4.2 represents a schematic describing a general process of
marketing strategy development. As shown, five major areas of analysis (5
Cs) underlie marketing decision making – customers, company, competitors,
collaborators and context. The questions to raise in each of these areas are:
Customer needs - What needs do we seek to satisfy?
Fig. 4.2 Schematic of Marketing Process

Note: 1 – Creating value; 2 – Capturing value; 3 – Sustaining value

Company skills - What special competencies do
NOTES
we possess to meet those needs?

Competition - Who competes with us in meeting these
needs?
Collaborators - Who should we enlist to help us and
how do we motivate them?
Context - What environmental (say, cultural,
technological or legal) factors limit what is possible?
This leads first to specification of a target market and desired
positioning and then to the marketing mix (4 Ps). This results in customer
acquisition and retention strategies driving the firm’s profitability. In this
schematic, value creation happens by identifying target segment, establishing
a product/service positioning and developing the suitable product, place
(distribution) and promotion for the chosen market segment. The pricing
decision helps to capture value – for the company and for the customer.
Value is sustained by acquiring and retaining the customers at a profit for the
firm.
4.3 MARKETING MIX DECISIONS

A marketing mix is the combination of the elements of marketing and
what roles each element plays in promoting your products and services and
delivering those products and services to your customers. The term
‘marketing mix’ became popular when Neil H Borden published his 1964
article ‘The Concept of Marketing Mix’.
The 4 P’s of marketing that are the elements of a marketing mix are
mentioned below:
Product: The products or services offered to your customer – Their
physical attributes what they do, how they differ from your competitors and
what benefits they provide.
Price: How you price your product or service so that your price
remains competitive but allows you to make a good profit. How price plays a
role in your marketing strategy with respect to differentiating your products
or services from your competitors’.
Place (also referred to as Distribution): Where your business sells its
products or services and how it gets those products or services to your
customers may also be used in your marketing strategy to differentiate you
from your competition.
Promotion: The methods used to communicate the features and
benefits of your products or services to your target customers.
The Diagram 4.3 represents the key inputs for a typical Marketing Mix
These are the four variables that a marketer can use and control in
different combinations to create value for customers.
1. The product strategy involves deciding what goods and

services the firm should offer to a group of consumers and also making
decisions about customer service, brand name, packaging, labeling, product
life cycles and new product development.

NOTES
Fig. 4.3 Marketing Mix
2. The pricing strategy deals with the methods of setting

profitable and justifiable prices. Marketers develop place (distribution)
strategy to ensure that consumers find their products available in the proper
quantities at the right times and places.
3. Place strategy involve decisions related to the distribution

functions and marketing intermediaries (channel members).
4. In the promotional strategy, marketers blend together the

various elements of promotion to communicate most effectively with their
target market. Many firms use an approach called Integrated Marketing
Communications (IMC) to coordinate all promotional activities so that the
consumer receives a unified, consistent and effective message.

Extended Mix for Services Marketing
In services marketing, we have an extended mix, which has three

other elements in addition to the four given above. They are:
People: An essential ingredient to any service provision is the
use of appropriate staff and people. Recruiting the right staff and training
them appropriately in the delivery of their service is essential if the
organisation wants to obtain a form of competitive advantage. Consumers
make judgments and deliver perceptions of the service based on the
employees they interact with. Staff should have the appropriate interpersonal
skills, aptitude, and service knowledge to provide the service that consumers
are paying for.
Process: It refers to the systems used to assist the organisation
in delivering the service. Imagine you walk into Burger King and you order a
Whopper Meal and you get it delivered within 2 minutes. What was the
process that allowed you to obtain an efficient service delivery? Banks that
send out Credit Cards automatically when their customers old one has
expired again require an efficient process to identify expiry dates and
renewal. An efficient service that replaces old credit cards will foster
consumer loyalty and confidence in the company.
Physical Evidence: Where is the service being delivered? Physical
Evidence is the element of the service mix which allows the consumer again
to make judgments on the organisation. If you walk into a restaurant your
expectations are of a clean, friendly environment. On an aircraft if you travel
first class you expect enough room to be able to lay down!
Physical evidence is an essential ingredient of the service mix;
consumers will make perceptions based on their sight of the service provision
which will have an impact on the organisations perceptual plan of the service.
On a lighter note the cartoon below (Fig. 4.4) obviously represents the
old way of marketing, i.e. using a Push strategy with a hard sell rather than
the modern strategy of creating a customer pull.

NOTES
Fig. 4.4 A wrong use of 4Ps by Hardselling approach
4.4 MARKETING STRATEGIES

Marketing Strategy drives the marketing plan and infact the whole
business.
Definitions of Marketing Strategy:
By Philip Kotler, “Marketing Strategy is the marketing logic by which
the business unit expects to achieve its marketing objectives.”
By Dibb and Simkin, “Marketing Strategy indicates the specific
markets towards which activities are to be targeted and the types of
competitive advantage to be exploited.”
By Piercy, “Choosing market targets and a strong market position
base on differentiating capabilities to create a robust and sustainable value
proposition to customers and networks of critical relationships.”
Thus from the above definitions one can assert that a marketing
strategy is a process that can allow an organization to concentrate its limited
resources on the greatest opportunities to increase sales and achieve a
sustainable competitive advantage.
A marketing strategy should be centred around the key concept that
customer satisfaction is the main goal. Fulfilment of wants of the prospects is
one the important goals of marketing activities. A prospective buyer is known
as a prospect

Strategy formulation is the broadest, longest-term marketing activity.
At this stage, complex and subtle integration with other corporate functions is
The strategic process is one of working with market dynamics (a

particular segment or selection of the market) to achieve a solid positioning of
the product/service offering that contains a clear ‘benefit promise’ to the
actions.
For instance, a going company may choose strategies like

diversification or expansion to achieve growth. It implies that marketers go
either for product development or market development strategies.
Process of Marketing Strategy Development
To run a successful business, you must first get the word about your
products and services. Successful marketing requires a winning strategy.
Understanding marketing strategy formulation lets you properly evaluate
your organization's marketing needs. You can then gear your marketing
strategies to achieve maximum effectiveness.
Marketing strategy formulation is the process of defining an

organization's marketing goals and objectives. This allows formulators to
create a guide. They examine the market and in doing so, use that
information to determine what marketing approaches will be best at reaching
clients and enticing them to seek out the business' services.

As a general rule, a good first step in a marketing strategy formulation
NOTES
is determining what you want to accomplish in terms of marketing. It could
be as simple as letting potential customers know what you sell, and how your
product can benefit them. The next step is to examine internal and external
trends. These could include spreading the word about a next-generation
version of one of your products (internal), and how it improves upon other
products in the industry (external). After that, assign a value to the strategy's
outcome. This can be a dollar value, such as how much revenue you expect
your marketing strategy to generate over a specified period of time. Or it
could be an opportunity value, such as getting face-to-face meetings with a
certain number of potential clients. Once the targets are set, marketers assign
certain tasks to each department to identify the role each will play in reaching
the strategy's goals. The idea is to get a firm idea of where you business is
now and where it will be after the strategy is implemented. Finally, take all
the information you gathered throughout the process and choose which
strategy best fits your goals and needs.
The process of strategy formulation basically involves six main steps.

Though these steps do not follow a rigid chronological order, however they
are very rational and can be easily followed in this order.
Setting Organizations’ objectives - The key component of any strategy

statement is to set the long-term objectives of the organization. It is known
that strategy is generally a medium for realization of organizational
objectives. Objectives stress the state of being there whereas Strategy stresses
upon the process of reaching there. Strategy includes both the fixation of
objectives as well the medium to be used to realize those objectives. Thus,
strategy is a wider term which believes in the manner of deployment of
resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the
factors which influence the selection of objectives must be analyzed before the
selection of objectives. Once the objectives and the factors influencing
strategic decisions have been determined, it is easy to take strategic decisions.

Evaluating the Organizational Environment - The next step is to
evaluate the general economic and industrial environment in which the
organization operates. This includes a review of the organizations
competitive position. It is essential to conduct a qualitative and quantitative
review of an organizations existing product line. The purpose of such a
review is to make sure that the factors important for competitive success in
the market can be discovered so that the management can identify their own
strengths and weaknesses as well as their competitors’ strengths and
weaknesses.
After identifying its strengths and weaknesses, an organization must
keep a track of competitors’ moves and actions so as to discover probable
opportunities of threats to its market or supply sources.
Setting Quantitative Targets - In this step, an organization must

practically fix the quantitative target values for some of the organizational
objectives. The idea behind this is to compare with long term customers, so as
to evaluate the contribution that might be made by various product zones or
operating departments.
Aiming in context with the divisional plans - In this step, the
contributions made by each department or division or product category
within the organization is identified and accordingly strategic planning is
done for each sub-unit. This requires a careful analysis of macroeconomic
trends.
Performance Analysis - Performance analysis includes discovering
and analyzing the gap between the planned or desired performance. A
critical evaluation of the organizations past performance, present condition
and the desired future conditions must be done by the organization. This
critical evaluation identifies the degree of gap that persists between the actual
reality and the long-term aspirations of the organization. An attempt is made
by the organization to estimate its probable future condition if the current
trends persist.
Choice of Strategy - This is the ultimate step in Strategy Formulation.
The best course of action is actually chosen after considering organizational

goals, organizatio
onal strengths, potenttial and lim
mitations as
a well as the
NOTES
externaal opportuniities.
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Fig. 4.5 Marketing Strategy Fo

ormulation Process
nd Market Analysis
Firm an A
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Firm an
To desiign an effeective mark

keting strattegy, it is necessary
n t considerr the
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141 SRMIST DDE MB

BA Self Instructional Maaterial
Mission statement is a statement that provides information about
company’s goals, major policies, values, and competitive advantage.
A mission statement is often based on a vision which describes a
desired outcome of the company’s performance in the future. Service
companies stress different competitive advantages than
manufacturers.
Service mission statements are generally less comprehensive, they put

less emphasis on technology, philosophy, location, and self-concept
and they are mostly focused on customers and a public image.
Mission statement is crucial for development of marketing strategy
and designing a marketing program, which should reflect company’s
values and competitive advantage.
Growth strategy is a strategy aimed at winning larger market share.
There are four ways in which a company can develop its products and
markets. Market penetration strategy is focused on existing markets
and the same products, which means that the company can use a wide
range of promotional activities or develop distribution network to
increase sales. A firm pursuing a product development strategy
introduces new products and sells them into current markets usually
through existing channels, taking advantage of gained experience, and
often of brand awareness and brand loyalty. Market development
strategy means that a company enters new markets and offers the
same products. In this case it needs to conduct market research, then
design promotional campaign, and develop distribution network.
Diversification strategy is a high risk strategy, since a company enters
new markets and sells new products, thus it cannot benefit from any
experience.
Competitive strategy is a strategy which is focused on gaining
competitive advantage in the market. There are three generic
competitive strategies which are aimed at winning competitive
advantage: overall cost leadership, differentiation and focus.

The first option for a firm to build a sustainable competitive advantage over
NOTES
its rivals is overall cost leadership. Here, the main effort is put on lowering
the production and distribution cost, so that a company can gain competitive
advantage by charging lower prices. A firm can also pursue a differentiation
strategy which means that it delivers something valuable to customers and
charges a higher price for added value.
There are many ways of differentiation the market offering. It is possible to

achieve an excellence in service quality, speed of delivery, customer service,
brand exclusivity, and other factors.
A company may focus on the whole market or on a narrow segment. A focus

strategy means that a company concentrates on a small segment and it gains
competitive advantage either through cost leadership or through
differentiation.
• Strategic objectives specify what a company expects to achieve as a result of

the implementation of its strategy. Strategic objectives are long-term and can
be classified into a number of categories, including financial objectives which
focus on improving a company’s profitability, sales and market share
objectives aiming at growing market share and increasing sales, human
resources objectives which concentrate on the selection and development of
the workforce, and internal processes objectives putting stress on enhancing
operational efficiency
Organizational resources are used to accomplish company’s goals. They

include market resources like products, brands, distribution channels; human
resources which are the people within a company; physical resources, such as
buildings, vehicles, and equipment; and financial resources, for example cash,
loans and equity. The analysis of the organizational resources compared with
the resources of competitors results in the identification of the company’s
strengths and weaknesses.

Market analysis. The analysis of the marketing environment is considered
with the identification of the circumstances outside the company which have
an impact on its performance.
Each company is affected by a wide range of external factors, however, some

of them are of relatively high importance and may considerably influence the
achievement of company’s marketing objectives, and some are less significant
or of little importance. The key objective of the marketing environment
analysis is to distinguish those factors which are crucial, thus because of its
complexity, it is reasonable to reduce the market analysis to two main
categories: the macro-environment and the competitive environment.
• Macro-environment comprises factors outside the competitive environment

that may influence the company’s performance and achievement of its
objectives. The macro-environmental trends may lead to new opportunities
and threats and for this reason they should be carefully examined. Typically,
they can be classified into six main groups: demographic, economic, political-
legal, social-cultural, technological, and natural.
Demographic analysis refers to the monitoring of population, its size, growth

rate, age distribution, ethnic groups, as well as household patterns, and
educational levels. Unlike other environmental factors, demographic changes
take effect gradually, so they can be forecast quiet precisely.
Economic environment can be considered in two dimensions: macroeconomic

and microeconomic. Macroeconomic conditions, such as economic growth,
inflation, exchange rates, and interest rates provide information about major
economic trends, whereas microeconomic conditions refer to the factors that
influence consumer expenditures including income, savings, debt, and credit
availability. Marketers should also monitor technological trends, as new
technologies may have a considerable impact on consumption patterns and
even change customers’ habits. Political and legal environment, which is
composed of laws, government agencies, and pressure groups, may also
affect marketing decisions. Marketers should possess knowledge about laws

regulating business and pay attention to the special interest groups. Social
NOTES
and cultural factors, like core beliefs, values, subcultures, and shifts in values
over time affect consumption patterns and provide important marketing
implications. The environmental trends related to the deterioration of the
natural environment and the shortage of raw materials need also to be
examined carefully, since they can be sources of many opportunities and
threats.
Competitive environment consists of those factors with which the company

comes into closest contact and which have direct impact on its success.
The competitive environment is divided into five groups: competitors,

potential entrants, substitutes,
buyers, and suppliers. The Porter five forces’ analysis is used to determine the
long run profit attractiveness of a market or a specific segment. A segment is
perceived unattractive and expensive to compete if it already contains
numerous and strong competitors. Firms that may enter the market cause
also potential threat. The higher the entry barriers are, the more difficult is to
enter the market and do business within a given industry. Beyond the
companies that compete directly, and those which may enter the market,
there are actual or potential substitutes for the product. If the competition
from substitutes intensifies, it has an impact on prices and profits in the
market. Buyers possess a significant bargaining power and might
considerably affect the attractiveness of a segment. When buyers become
concentrated or organized, their bargaining power grows. Another threat
comes from suppliers who also influence the competition within an industry.
A segment is considered unattractive when suppliers are powerful and
switching costs are high. After conducting competitive environment analysis,
it is necessary to identify primary competitors, their objectives, strengths,
weaknesses, and strategies.
SWOT analysis. The purpose of SWOT analysis, which is the overall

evaluation of a company’s strengths, weaknesses, opportunities and threats,
is to identify the key information from data gathered by the marketing audit.

Strengths and weaknesses are the outcome of internal analysis of company’s
resources in the field of marketing, personnel, finance and organization, and
should be compared with the competitors’ resources.
Opportunities and threats are identified on the basis of the analysis of the
company’s external environment. The essence of the SWOT analysis is
usually presented in a table under four headings in order to highlight the
external opportunities and threats and weigh them against a company’s
strengths and weaknesses. SWOT analysis provides the basis for setting
objectives and developing marketing strategies.
Segmentation and Target Marketing in service market
The segmentation process starts with the definition of the market and
identification of customer needs. The choice of the market refers to the
specification of customers to which the firm intends to market its services, as
well as understanding customer preferences and attitudes.
Once the market has been identified, alternative approaches to segmentation

should be examined in order to select the best bases for segmentation. There
are many ways by which a service firm can approach market segmentation.
As shown in figure 4.6, these approaches fall into two main groups; one is
based on customer characteristics and the other on customer
Responses
Customer characteristics. This category includes descriptors of the customers

who are buying services what enables to understand who the customers are.
Using this approach, markets can be segmented on the basis of the following
characteristics:
• Demographics and socio-economic variables are very commonly used

descriptors of customers. In consumer service markets demographic
segmentation refers to such factors as sex, age, family size, while in business
markets the typical demographic characteristics include the company size,
organizational form and the type of services offered.

NOTES
• Socio-economic factors can include income, occupation, education, social
class and ethnic origins.
• Psychographics is a more developed form of segmentation and is concerned

with people’s behavior and lifestyles. People differ in attitudes, personality
types, interests, values, and these affect the services they purchase. As
customers within the same demographics group can exhibit different
psychographic profiles, it is necessary to consider psychographic variables in
conjunction with demographic characteristics.
• Geography refers to dividing customers according to where they work or

live. Dividing market into geographical units, such as countries, states or
cities helps to identify local and regional trends. Other factors like population
density or climate related factors can be useful in determining sales potential
in different regions. Geographic segmentation is typically considered as a
first base for segmentation, yet it should be examined in correlation with
other variables.
Customer responses. This category includes descriptors of the customers’

behavior which enables to understand what and why customers buy. Using
this approach, segmentation can be carried out on the basis of the following
characteristics:
• Benefits are related to the reasons why customers buy products. However,
people vary regarding their preferences and the benefits they seek from the
same market offering.
Thus, the key issue is to identify the segment which desires a common set of
benefits and design a service providing these benefits.
• Usage refers to the type and extent of usage patterns. Using this variable,
customers are typically divided into heavy, medium, occasional and non-
users of the service. By concentrating on usage patterns of a particular

service, a company can develop loyalty programs and reinforce relationships
with current users.
• Promotional response considers how customers respond to various types of

promotional activities, such as advertising, sales promotion, exhibitions, and
others. This information can be used to ensure that a particular segment
receives an adequate form of communications or adjust promotional activities
to customer preferences.
• Loyalty means commitment to re-buy a preferred product or service in the

future. Customers can be characterized by their degree of loyalty and thereby
classified into four groups: ”hard-core loyals” – those who buy one brand all
the time, ”split loyals” –remain loyal most of the time, ”shifting loyals” – shift
from one brand to another, and ”switchers” – showing little or no loyalty.
Service itself and consideration of how customers respond to various service

offerings can also serve as a basis for segmentation. Measuring the
importance of various service elements to particular customer groups,
enables a service company to design service packages appropriate to different
market segments, see Fig.4.6.
Fig. 4.6 Approaches to Market Segmentation
Marketing strategy refers to the policies and key decisions in the field
of marketing adopted by management that have impact on company’s

performance. Marketing strategy focuses primarily on products, markets, and
NOTES
the relationships with customers. Unlike corporate strategy which is
concerned with the decisions made in an organization comprising many
business units, marketing strategy is concerned with a particular business
unit strategy. The marketing strategy is based on the marketing concept
which holds that the key to achieving company’s organizational goals is
being more effective than competitors in creating, delivering, and
communicating superior customer value to target customers, and thereby
ensuring profits through customer satisfaction. When developing marketing
strategy, it is necessary to consider the following factors: the strategic
objectives, demand forecast, preferences of customers, macro-environmental
trends, competitive environment, the competitors’ strategies, the company’s
main resources and core competencies.
Table 4.3 Differentiation Variables for Services
Service Personnel Channel Image
Ordering ease Competence Coverage Symbols
Delivery Courtesy Expertise Media
Installation Credibility Performance Atmosphere
Customer Reliability Events
training Responsiveness
Customer Communication
consulting
Maintenance and
repair
Miscellaneous
4.5 POSITIONING
Having chosen an approach for reaching the firm’s target segment,

marketers must then decide how best to position the product in the market.
The concept of positioning seeks to place a product in a certain ‘position’ in
the minds of the prospective buyers. Positioning is the act of designing the
company’s offer so that it occupies a distinct and valued place in the target

customers’ minds. In a world that is getting more and more homogenized,
differentiation and positioning hold the key to marketing success!
The positioning gurus, Al Ries and Jack Trout define positioning as:
Positioning is … your product as the customer thinks of it. Positioning is not
what you do to your product, but what you do to the mind of your customer.
Every product must have a positioning statement. A general form of such a
statement is given below:
Product X is positioned as offering (benefit) to (target market) with the

competitive advantage of (competitive advantage) based on (basis for
competitive advantage)
For example, the positioning statement of toothpaste X may read as

follows:
Toothpaste X is positioned as offering to kids a toothpaste made

especially for those kids who don’t like to brush with the competitive
advantage of a mild fruit taste and lower foaming.
Product positioning is achieved through a wide variety of marketing

mix programmes in product design, pricing, distribution, and promotion
consumer background characteristics are addressed primarily by creating
advertising that features individuals who possess the characteristics of the
target segment, but pricing must also be suitable for the economic attributes
of the target market, and distribution must occur in the appropriate
geographical areas. For example, Mercedes Benz advertises in magazines that
reach upscale audiences and situates dealership in areas frequented by high
income consumers.
Motivation and needs shape the product design by dictating the
benefits the product must offer to its purchases. The level of motivation,
through its influence the effort consumers will exert in perceiving and
learning about the product as well as the strength of the attitudes they hold
about the product.

NOTES
Strategies to Position Products
Many ways exist for positioning a product or service (or even an

organisation). The following illustrate some of these approaches. It should be
noted that combinations of these approaches are also possible.
(i) Position on Product Features: The product may be positioned
on the basis of product features. For example, an advertisement may attempt
to position the product by reference to its specific features. Although this may
be a successful way to indicate product superiority, consumers are generally
more interested in what such features mean to them, that is, how they can
benefit by the product.
(ii) Position on Benefits: This approach is closely related to the
previous method. Toothpaste advertising often features the benefit approach,
as the examples of crest (decay prevention), close-up (sex appeal through
white teeth and fresh breath), and Aquafresh (a combination of these benefits)
illustrate.
Position on Usage: This technique is related to benefit positioning.
Many products are sold on the basis of their consumer usage situation.
Companies have sometimes sought to broaden their brand’s association with
a particular usage or situation. Campbells soup for many years was
positioned for use at lunch time and advertised extensively over noon time
radio. It now stresses a variety of uses for soup (recipes are on labels) and a
broader time for consumption, with the more general theme “Soup is good
food”.
(iv) Position on User: This approach associates the product with a
user or a class of users. Some cosmetics companies seek a successful, highly
visible model as their spokesperson as the association for their brand. Other
brands may pick a lesser known model to portray a certain lifestyle in its ads.
(Revlon’s Charlie cosmetic line, for example).
(v) Position Against Competition: Often, success for a company
involves looking for weak points in the positions of its competitors and them
launching marketing attacks• against those weak points. In this approach, the
marketer may either directly on indirectly make comparison with competing

products. For example, the famous “Uncola” campaign successfully
positioned up as an alternative to coke, Pepsi and other colas.
Repositioning
No matter how well a product appears to be positioned, the marketer

may be forced to decide on its repositioning in response to new opportunities
or threats. The product may be provided with some new features or it may be
associated with some new uses and offered to the existing or new markets. It
is often difficult to reposition a product or brand because of consumers’
entrenched perceptions and attitudes.
Positioning Errors
Common errors in positioning are:
Underpositioning: This refers to a state of buyers having only a vague

idea of the brand and considering it just another “me too” brand in a
crowded product category. The brand is not seen to have any distinctive
association.
Overpositioning: In this situation, buyers have too narrow an image of

the brand. Thus, buyers might think that Apple makes only very expensive
computers when, in fact, Apple offers several models at affordable prices.
Confused positioning: Sometimes, attempts to create too many

associations or to frequently reposition the brand only serves to confuse
buyers.
Doubtful positioning: This situation may arise when customers find

brand claims unbelievable keeping in view the product features, price, or the
manufacturer.
4.6 COMPETITIVE ADVANTAGE

NOTES
When a firm sustains profits that exceed the average for its industry,
the firm is said to possess a competitive advantage over its rivals. The goal of
much of business strategy is to achieve a sustainable competitive advantage.
Michael Porter identified two basic types of competitive advantage:
Cost advantage
Differentiation advantage
A competitive advantage exists when the firm is able to deliver the
same benefits as competitors but at a lower cost (cost advantage), or deliver
benefits that exceed those of competing products (differentiation advantage).
Thus, a competitive advantage enables the firm to create superior value for its
customers and superior profits for itself.
Cost and differentiation advantages are known as positional
advantages since they describe the firm’s position in the industry as a leader
in either cost or differentiation.
A resource-based view emphasises that a firm utilises its resources
and capabilities to create a competitive advantage that ultimately results in
superior value creation. Figure 4.7 combines the resource- based and
positioning views to illustrate the concept of competitive advantage.
Fig. 4.7 Model for Competitive Advantage

To be successful in the long run, every firm must possess some long-
lasting, unique competitive advantage that can’t be easily imitated by
competitors. The enduring competitive superiority enables the firm to get
ahead easily and emerge as a ‘winner’ on most occasions – at least till others
catch up and bridge the gap in terms of cost leadership or product
differentiation. C K Prahlad and Gary Hamel argued that it is not the product
that is at the root of such a competitive advantage. Behind the product, there

is the core competence, a fundamental, unique and far reaching strength of
the firm.
Once the skills that offer competitive advantage are developed, they
should be exploited. For example, Honda has exploited its skills at engine
design and technology. Core competencies must, however, be flexible and
responsive to changing customer needs. Canon has developed core
competencies in fibre optics, precision mechanics and microelectronics and
these are spread across a wide range of products such as cameras, calculators,
photocopiers and printers. There is continuous product innovation, keeping
pace with market requirements and customer expectations.
When all these components are integrated by the marketer keeping in
mind the needs and requirements of the consumer we can say that value is
being created in the most efficient and effective manner.
Criteria for a Good Differential Advantage

There are four important criteria that are the hallmarks of a good
differential advantage:
1. Importance—First a differential advantage must be important
to the buyer. A myriad of processes and elements are essential in the delivery
of high-quality care, but if they are not important to the buyer it is not a
differential advantage. For example, one hospital may have a more stringent
quality assurance or credentialing procedure than another. The clinicians may
recognize that this is a key in providing a certain standard of care, but again,
if the buyer does not value or understand the importance, it cannot be a
differential advantage.
2. Perceived—A second hallmark is related closely to the first. A
good differential advantage must be perceived by the buyer. Consider the
previous example concerning the credentialing procedure. If the buyer, in this
case the patient, does not perceive the value of a more stringent credentialing
procedure, it cannot be used as a point of difference from the competition.
Herein lies an important role of promotion from a marketing perspective.
When an organization has elements that it considers the market would view
as important, the requirement then is to ensure that these advantages are
perceived by the buyer.

3. Uniqueness—A third important component of a differential
NOTES
advantage is that it must be unique from other providers. This aspect of
uniqueness is particularly challenging in health care. Often a medical group
might state that it perceives its differential advantage to be that all the
physicians in the group are board eligible or board certified. However, when
an analysis is done of the second closest competing medical group, this
group also has all physicians who are board eligible or board certified. They
both have the board eligibility aspect as a strength, but because it is not
unique, there is not an operational differential advantage.
4. Sustainable—It is the dimension of uniqueness that leads to
the fourth major criterion of a good differential advantage—sustainable.
When seeking a differential advantage, it is essential that the organization
consider focusing on aspects of the operation or business that are sustainable
for some period of time. To a large degree, it is this last criterion that has
often led to the “marketing” function receiving the greatest criticism from
clinicians.
Sources of a Differential Advantage

Traditionally, in most industries there have been three areas in which
an organization can seek a differential advantage: (1) product, (2) market, or
(3) cost.12 Health care organizations should also consider or recognize a
fourth source of differential advantage—trust.
Table 4.4 Sources of Differential Advantage
Product-based Market-based Cost-based
Technological Targeted segment Operational

capability efficiency
Clinical expertise Narrow product Expense control

line
Name/image Geographic focus Experience curve

Distribution Government
network subsidy

As shown in Table 4.4, a product-based differential advantage is one
in which the company has a unique technological capability or clinical
expertise that allows it to establish a competitive position. In health care, the
establishment of a product-based differential advantage is difficult. To some
extent one might argue that M.D. Anderson in Houston has a differential
advantage that is product based with its specialized focus in cancer care. The
pace of technological change is such that the advantage goes to competitors
who have the resources to acquire a new technology.
A market-based differential advantage is available to those who focus
on a particular market segment. For example, in the Boston metropolitan
area, Children’s Hospital has been recognized as a leader in paediatric care.
Although other competitors also provide paediatric service, the differential
advantage rests with Children’s Hospital and its narrow market focus.
The third area in which to establish a differential advantage is cost. An

organization that is highly efficient, either through the use of technology or
with tight management control of expenses, can achieve this advantage.
Increasingly, in health care, as the marketplace focuses on the cost of care, a
cost differential advantage is becoming a strong competitive position. Kaiser
Permanente has traditionally tried to be a health care organization that is
efficient and priced to be a cost advantage relative to competing managed
care alternatives. The challenge for the organization, however, is that it must
strive for large market share in order to receive the margin lost from a cost
leadership position. Establishing a differential position in this area is closely
tied to the pricing strategies the organization pursues in the market.
Another differential advantage that should be recognized is trust.
Trust has been found to be a source of a competitive differential advantage.
Although it has many definitions, a useful operative one is that trust is the
mutual confidence that no party will exploit another’s vulnerabilities. One
can immediately consider the value of this perspective. Patients trust that
physicians will not only do no harm, but that they also have the patients’ best
interests at heart and have no conflict of interest when prescribing a
particular medicine. Trust has also been described as a principal–agent

relationship. In such a relationship, one individual gives the agent the
NOTES
authority or power to make the appropriate decisions on his or her behalf.
4.7 MARKET INFORMATION
Where do marketing managers and marketing researchers get the

information they need? All marketing management information comes either
from sources internal to the firm or from external sources. External sources of
information can be further broken down into primary and secondary sources.
Thus marketing management information comes from (1) sources internal to
the firm, (2) primary sources external to the firm, and (3) secondary sources
external to the firm (see table 4.5).
Some sources are internal to the firm, such as information generated
by the marketing, accounting, and production departments. Their normal
operating responsibilities require that they compile some of the sales and cost
data needed by management. There are also data sources external to the firm,
and these can be further classified as primary or secondary data sources.
Secondary data are those that have been collected by other
organizations; for example, government agencies such as the Commerce and
Labour departments of the federal government, financial organizations such
as Reserve Bank of India, IMF and IBRD; newspapers and magazines such as
the Economic Times and Finance India, trade associations such as the CCI.
Data from these sources are called secondary because these organizations
collect original data, analyse and tabulate these data, but then publish only
summary tables and charts. Users of such data are limited to what is
presented in the summary tables and charts; the original data are not
available to them. As secondary data typically are compiled for some general
audience- not just for a specific manager- it is unlikely that their form and
content will perfectly satisfy a specific manager’s information needs.
Table 4.5 Sources of Marketing Information

Internal to Firm External to Firm

Sales and costs broken down Primary sources:
by products, markets, and
Consumers
types of marketing activities
Retailers and wholesalers
(advertising, promotion,
Other business firms
personal selling, etc.)
Secondary sources:
Government publications Trade

association publications
Commercial services
Other publications
Primary data are those collected specifically by, or for, the data users.
There is no intervening party to summarize the original data. As the original
data from each unit or respondent are available, they can be retabulated or re-
analysed in as many different ways as managers choose. Most important,
however, is that the data collected are specified in advance by managers who
will use the data; this assures managers that the data will be tailored to their
needs.
Frequently, manager’s need would result in the use of information
from both external and internal sources. For example, the “share of market”
and “percent distribution” may be derived from either primary or secondary
sources. In addition, if both brand awareness and attitude and performance
data are used, they will be primary data. In effect, there may be numerous
management information needs that can be satisfied only by a systematic
integration of external primary and secondary data with the firm’s internal
data.
4.8 INNOVATION
Innovation in marketing is critical. Imaginative ideas on strategy exist

in many places within a company.
Senior management should identify and encourage fresh ideas from
three generally underrepresented groups: employees with youthful or diverse
perspectives, employees far removed from company headquarters, and

employees new to the industry. Each group can challenge company
NOTES
orthodoxy and stimulate new ideas.
British-based Reckitt Benckiser has been an innovator in the staid
household cleaning products industry by generating 35 percent of sales from
products under three years old.27 Its multinational staff is encouraged to dig
deep into consumer habits and is well rewarded for excellent performance.
Slovenia-based Krka, makers of prescription pharmaceuticals, non-
prescription products and animal health products—aims to generate more
than 40 percent of its total sales from new products.28 “Marketing Insight:
Creating Innovative Marketing” describes how some leading companies
approach innovation.
Firms develop strategy by choosing their view of the future. The
Royal Dutch/Shell Group has pioneered scenario analysis, which develops
plausible representations of a firm’s possible future using assumptions about
forces driving the market and different uncertainties. Managers think
through each scenario with the question, “What will we do if it happens?,”
adopt one scenario as the most probable, and watch for signposts that might
confirm or disconfirm it.29 Consider the strategic challenges faced by the
movie industry In an economy of rapid change, continuous innovation is a
necessity. Companies that fail to develop new products leave themselves
vulnerable to changing customer needs and tastes, shortened product life
cycles, increased domestic and foreign competition, and especially new
technologies. Google, Dropbox, and Box update their software daily.
Highly innovative firms are able to repeatedly identify and quickly

seize new market opportunities. They create a positive attitude toward
innovation and risk taking, routinize the innovation process, practice
teamwork, and allow their people to experiment and even fail. One such firm
is W. L. Gore.
The main purpose of innovation marketing is to open up new markets

and ultimately lead to an increase in the business’ sales. Innovation
marketing also aims at newly positioning the business’ products as well as

addressing the customers’ needs. As the dynamics of business keep changing
on a daily basis, so are the marketing strategies.
However, the old conventional marketing strategies are no longer

effective due advancement of the business world more so propelled by
advancement in technology.
One of the main features that distinguishes innovation marketing is

the fact that it signifies the company’s or business departure from the old
marketing strategies. Thus, innovation marketing should be able to highlight
the progress in business by using new marketing methods that have not been
used before.
These new methods can be adopted from other businesses, basically

by learning the market trends and adapting to change, or, it can be a totally
new marketing idea brought in by the business. These new marketing
methods can also be implemented on both new and existing products and
services.
Examples of some of the innovation marketing strategies used by

some world renowned companies to great success are:
Virgin America – This is an American airline that has been operation

since 2007. The air travel industry is considered one of the most challenging
and demanding industries in business. One important aspect that keeps
airlines going is customer service and brand loyalty. However, this is not
enough anymore and that is why Virgin America went ahead and introduced
a focus group program comprising of 30 frequent flyers and customers who
give feedbacks and generate ideas on how the airline can improve its services.
The focus group is in turn given discounts and rewards. One direct impact of
the customers’ feedback was the development of an in-flight social network
which enables customers to connect during flights. The company again went
ahead and released a six-hour video detailing an in-flight experience. This

video won the award for being the longest ad but it surely had an impact in
NOTES
propelling the name of the company.
L’Oréal – This is a French cosmetics company with a strong foothold
in the cosmetics industry all over the world. One way in which cosmetic
companies market their products is by having exhibitions where people get to
sample makeup as well as other cosmetics for free. In order to reach a wider
customer base in this digital world, L’Oréal developed an App called the
L’Oréal makeup genius. This app allowed users to do a digital makeover and
by doing so they were able to sample the best makeups that suited their skin
tones. The app was a huge success, being downloaded more than seven
millions times.
Netflix – Currently Netflix is a household name. Within a very short

period of time Netflix has transformed to one of the largest companies in the
world. It is no longer a video streaming channel only as they have been able
to produce some of the best movies in the recent past. Before growing and
becoming one of the most influential companies in the entertainment
industry, Netflix embarked on a strategy they called “reverse engineering
Hollywood.” This involved collecting a large stockpile of data on the
emerging trends and marketing directly to satisfy customer needs as well as
building a brand of their own.
SUMMARY
This module focused on the most important component of marketing,
the marketing mix and its drivers like strategies and positioning to achieve
competitive advantage using market information and innovation.
SELF ASSESSMENT
1. ..........is the process of dividing the market into distinct
homogenous sub-groups of consumers with similar needs or
characteristics that lead them to respond in similar ways to particular
marketing programmes.

2. A ……………… needs to create a differentiation among his customers
and then make his product proposition fit each of the segments so that
he can understand the homogeneous customer needs and their
evolution better than an ……………..
marketer.
3. In ……………………, the marketer divides the target market into
different geographical units such as nations, states and regions.
4. ................include factors like age, gender, family size, family, life cycle,
income, occupation, education, marital status, religion, race,
generation, nationality, language and social class.
5. Other than the demographic methods of market segmentation,
segmentation on the basis of ..........is another popular
method among marketers.
6. A..........is defined as a set of buyers sharing common
needs or characteristics that the company decides to serve.
7. The.........should be accessible to the marketer so that he can develop a
distribution network and use available media to reach potential
customers.
8. The selection of target markets helps the.......to correctly identify
the markets and the group of target customers for whom the
products/services are produced.
9. ………………. helps marketing managers to understand the consumer
needs and behaviour better so that a marketer can plan accordingly.
10. The........largely depends on the kind of productC market coverage
that the firm plans for the future.
The product market coverage strategies are broadly classified as
……………….., and…………….. strategies
B. Detailed Answers
8. Discuss the importance of market segmentation in marketing
decisions and explain the basic methods of market segmentation.
9. Define market segmentation and discuss the significance of
market segmentation in India.
10. Discuss various methods of segmenting the consumer markets.

11. What is meant by marketing segmentation? What will be the
NOTES
suitable base for the marketing of Televisions?
12. What are the different target marketing strategies?
CASE STUDY
Fighting Giants Innovatively
Ryka manufactures women's shoes for aerobics and excercise activities.

Knowing well that they cannot compete with giants like Nike and Reebok for
a new firm like Ryka in the athletic footwear segment, they resorted to some
unusual marketing strategies. For example, she had her footwear British
distributor deliver several pairs of Rykas with a personal note to fitness
enthusiast Princess Diana. The royal trainer told Ryka that the princess not
only liked the fit, but was also moved by the company’s donation of part of
its profits toward stopping violence against women. Ryka is Poe’s way of
fulfilling her dream - running a business and also helping women who are
victims of rape, assault, and abuse.
The Ryka phenomenon began when Poe and several of her aerobics
classmates realised that they were experiencing back pain because their shoes
didn’t fit right. Poe surveyed department stores and athletic footwear shops,
asking customers and sales people what kind of shoes they wanted. She
discovered that no one was paying attention to the women’s market. The
majority of the women’s shoes were designed simply as scaled-down
versions of men’s shoes. To get a proper and painless fit, women needed
athletic shoes with higher arches and thinner heels, but couldn’t find them.
Poe decided that there was a future for a company that made athletic shoes
just for women.
Rather than cater to the whims of fashion, Ryka concentrates on
manufacturing only high- performance athletic shoes that fit a women’s foot.
Rykas are anatomically correct for women’s feet, and the company’s patented
Nitrogen E/S system provides cushioning and shock absorption for the heel
and ball of the foot. Ryka Ultra-Lite aerobics shoes weigh only 7.7 ounces,
about one-third that of regular aerobics shoes. Ryka was the first athletic shoe

producer to develop market lightweight shoes specifically designed for the
ups and downs of step aerobics.
CASE 2
Club Méditerranée or Club Med is a French company founded in 1950 by

Gérard Blitz and Gilbert Trigano with the objective of offering holidays to
customers with an innovative “all-inclusive” formula. The idea of happiness
was at the heart of the concept. Today, Club Med has 72 resorts in more than
30 countries, including the Mediterranean, the tropics, and even the snow-
covered Alps. In 2013, more than 1.5 million customers chose Club Med for
their holidays.
Club Med has revolutionized holidays with its all inclusive formula. At the
time of its creation, the company aimed to give people a sense of freedom
through nature and sports that allowed them to be happy and one with the
others. Club Med proposed a new social link that was more festive and less
binding on the client. It wanted to reconcile individual liberty and social life.
At that time, in the holiday villages, customers could do what they wanted
without the concept of money being present.
Upon arrival, customers were provided with necklaces made out of beads
that allowed customers to pay for their drinks (which would later be
patented). Big tables allowed customers to share their meals and get
acquainted with each other. The notions of freedom and equality were and
still remain fundamental to the culture of Club Med. Since its creation, Club
Med has never ceased to innovate. New and unknown destinations were
added to the portfolio—Tahiti in 1955 and Leysin in Switzerland in 1956. In
1967, Club Med created the first mini clubs for children.
In the years 1980−1990, decline of the attractiveness of the concept of holiday

homes and the sharp rise of competition at lower prices weakened Club
Med’s position.

The company’s strategy at that point was unclear—it was neither a volume
NOTES
nor a value strategy.
In addition, the economic crisis of 1993, a result of the Gulf war, and the
events of September 2001 severely affected Club Med in the same way it
affected all kinds of tourism.
In 2004, Club Med decided to redirect to a value strategy in order to target an

international clientele that wanted comfort, elegance, service, and
customization. The holiday package offer was therefore repositioned with the
closure of entry-level vacation villages (classified 2 trident), renovation of
other villages in 4 trident to 5 trident, and the creation of a new range of
luxury 5 trident (villages, villas, and chalets).
Club Med now offers an all-inclusive premium with a high range of services
and an extension of the à la carte services that come with gourmet food and
high quality drinks. Starting at 4 trident, all clubs offer a spa in partnership
with a famous brand. The shows in the resorts are all designed by specialized
companies. Clubs for children have dedicated spaces with an emphasis on
nature and local culture. The sports schools offer up to 10 different disciplines
with qualified coaches and quality equipment.
For its 5 trident resorts, Club Med chooses sites of exception in the most
beautiful destinations of the world, such as Cancun in Mexico, Punta Cana in
the Dominican Republic, and Kani in the Maldives. The development of these
resorts is entrusted to renowned architects and designers. The services
developed are high-end with all-day room service, a concierge service, and
champagne offered after 6 p.m. Private villas come with a butler.
In the 5 trident resorts in the Maldives, the villas are placed on stilts; clients
have private access to the sea, and can observe marine life through a
transparent floor in the room. This repositioning to the high-end has also
necessitated a change in the relationship between customers, called Gentle
Members, and staff, called Gentle Organizers. Club Med has 15,000 Gentle
Organizers of 100 different nationalities to meet the requirements of its

international clientele. They are qualified in various fields and specialize in
cooking, sport, amusement, and client servicing.
Trainings to inculcate precision and a sense of premium service have been

developed. A resort school has even been created in Vittel, France; it
welcomes 10,000 trainees every year. Club Med is always looking to recruit
real talent and unique personalities.
The organization’s customer relationship has also evolved through the

development of customer relationship management tools for a finer
segmentation of customers. In some agencies, a concept of sale side-by-side
has been developed to allow clients to customize their holiday packages
along with the sellers.
Club Med’s communication campaign “and what’s your idea of happiness?”

highlights this upmarket strategy. This campaign has been deployed in 47
countries and in 22 languages. The positioning of Club Med’s resorts, from 3
trident to 5 trident, allows for a broader coverage of the competition field—
from standardization, and luxury services to all-inclusive offers. No other
company offers this. Club Med’s 4 trident resorts are in competition with the
Swiss Mövenpick (69 hotels in 23 countries) and the Jamaican Sandals (12
resorts in Jamaica and the Bahamas). Club Med’s 5 trident resorts compete
with the Singaporean Banyan Tree (30 hotels and 60 spas all over the world).
Finally, the Club Med luxury villas are in competition with the villas of the
Mauritius company Beachcomber that works on the philosophy “dream is a
serious thing” (9 hotels, resorts, and luxury villas), Aman Resorts (25 hotels in
15 countries), and the Ritz-Carlton (80 hotels in 27 countries).
With the range and quality of its service, Club Med turns holidays into a one-
of-a-kind experience. The focus on a globalized customer strategy helped
Club Med grow and ensured its unique positioning in the market. As of
January 2015, the proposed takeover of Club Med by the Chinese investor

Fosun will help accelerate the internationalization of the brand and its
NOTES
development in Asia.
Questions
1. How did Club Med reach an upscale positioning and achieve excellence in
the quality of service?
2. Was Club Med’s upmarket positioning the only one viable strategy?
3. Do you think that Club Med takes a risk by not in specializing in a
particular range level, such as 4 trident or 5 trident?
Behavioural Segmentation: Market segmentation based on consumer’s

product related behaviour; typically the benefits desired from a product
Clustered Preference: A preference pattern in which the market
reveals distinct clusters of consumer preferences
Demography: The statistical study of human population and its
distribution
Diffused Preference: A preference pattern in which consumer
preferences are scattered throughout the market indicating that consumers
vary in their preference pattern
Homogeneous Preference: A preference pattern where all customers
have similar preference
Market Fragmentation: The identification of smaller and smaller
market segments
Market Specialisation: The firm selects a product and launches in
different markets without any alteration to the product.
Market Targeting: The Process of segmenting, targeting and
positioning an offer in the market
Product Specialisation: The firm selects specific products and markets
each one of them in a different segment
Psychographics: It is the science of using psychology and
demographics to study the lifestyle patterns of consumers

Segmentation: The process of segregating a heterogeneous market into
a set of homogeneous groups of customers

MODULE - 5
NOTES
______________________________________________________________
PRODUCT AND SERVICE DECISIONS
Structure
5.0 Introduction
5.2 Product and Services
5.3 Product Mix
5.4 Product Life Cycle
5.5 Branding
5.6 New Product Development
5.0 INTRODUCTION
It is a fact that product/service is a ‘mixer of ingredients’ where in the

manufacturer / service provider who blends various marketing activities in a
manner that strengthen the business the interests of the firm. As we seen in
previous module, the crux of any marketing strategy is to bring about the
desired operation in the light of prevailing circumstances. We also learned
from the previous lesson that the planned manipulated to get optimum
results in limiting environments. This lesson narrates the important concepts
like marketing mix, products, brand, trademark, packing and labelling with
suitable examples and case studies.
_________________________________________________________________
5.1 OBJECTIVES
This module covers the product / service decisions, various

characteristics of products/services to achieve brand equity. It also discusses
the relationship of products and positioning.
After reading this lesson, you must be able to discuss

• the concept of product and the importance of product decisions in
the overall business strategy of the enterprise;
• how the products are classified;
• to focus attention on product life cycle and the strategies that the
firms adopt at each stage of the life cycle; and
• the concept of product line and product mix and strategies to
manage them.
_______________________________________________________________
5.2 PRODUCTS AND SERVICES
A product is anything that can be offered to a market to satisfy a want

or need. The term ‘product’ is widely used to refer a market offering of any
kind. In its broadest sense this may be anything from the physical to the
abstract – an idea or a moral issue. Generally, however, most products are
made up of a combination of physical elements and services. This is true in
services marketing, where the service offering can include tangible features,
such as food in a restaurant, or be a ‘pure’ service, intangible in nature.
A service product refers to an activity or activities that a marketer
offers to perform, which results in satisfaction of a need or want of
predetermined target customers. It is the offering of a firm in the form of
activities that satisfies needs such as hair styling done by a barber.
Consumers will buy only what suits them. As customers, we buy
different kinds of products and services to satisfy our various needs. We buy
toothpaste, butter, shaving cream, pen, scooter, and ticket for the U.S.A and
many other such items in our daily life.
As we understand, our decision to buy an item is based not only on its
tangible attributes but also on psychological attributes such as services,
brand, package, warranty, image, and etc. discussions about the marketing of
goods apply to services as well. Services have special characteristics that
make them different than products.
A product is “a set of tangible and intangible attributes, including

packaging, colour, price, manufacturer’s prestige, retailer’s prestige,

manufacturer’s and retailer’s services, which the buyer may accept as offering
NOTES
satisfaction of wants or needs.
According to Alderson, W., “Product is a bundle of utilities consisting
of various product features and accompanying services”, according to
Schwarte, D.J., “A product is something a firm markets that will satisfy a
personal want or fill a business or commercial need”.
It may be emphasized, as brought out in these definitions, that

customers buy a product not only for “what it is” but also for “what it
means” to them. A person buys a refrigerator not only for what it will do for
him in terms of providing him physical need satisfaction but also for the
social prestige and ego satisfaction that he derives from its possession. People
buy things which agree with their self-image and self-concept. If a person
perceives himself as a upper class professional, he will buy a product which
will reinforce this self-concept.
Products that are marketed include physical goods, services,
experiences, events, persons, places, properties, organizations, information,
and ideas.
Product Levels
According to Kotler, In planning its market offering, the marketer

needs to think through five levels of the product. This is captured in Fig. 5.1
below. Each level adds more customer value, and the five levels constitute a
customer value hierarchy.
The most fundamental level is the core benefit: the fundamental

service or benefit that the customer is really buying. A hotel guest is buying
“rest and sleep”. The purchaser of a drill is buying “holes”. Marketers must
see themselves as benefit providers. what does the product mean to the
customer? For example, a bread offers core benefit of reducing hunger.
At the second level, the marketer has to turn the core benefit into a
basic product. The Generic product is the unbranded and undifferentiated

commodity. Examples are: like rice, bread, flour or cloth. Thus a hotel room
includes a bed, bathroom, towels, desk, etc.
At the third level, the marketer prepares an expected product, a set of

attributes and conditions buyers normally expect when they purchase this
product. The branded product gets an identity through a ’name’. Modern
bread, Harvest are branded products. Hotel guests expect a clean bed, fresh
towels, working lamps, and a relative degree of quiet. Because most hotels
can meet this minimum expectation, the traveller normally will settle for
whichever hotel is the most convenient or least expensive.
Fig.5.1 Five Levels of Product

At the fourth level, the marketer prepares an augmented product that
exceeds customer expectations. A hotel can include a remote-control
television set, fresh flowers, rapid check-in, express checkout, and fine dining
and room service.
The augmented product is the result of voluntary improvements
brought about by the manufacturer in order to enhance the value of the
product, which are neither suggested by the customer nor expected by them.
The marketer on his own augments the product, by adding an extra facility or
an extra feature to the product.
Today’s competition essentially takes place at the product
augmentation level. Some important points should be noted about product

augmentation strategy. First, each augmentation adds cost. The marketer has
NOTES
to ask whether customers will pay enough to cover the extra cost. Second,
augmented benefits soon become expected benefits. Today’s hotel guests
expect a remote-control television set and other amenities. This means that
competitors will have to search for still other features and benefits. Third, as
companies raise the price of their augmented product, some competitors can
offer a “stripped-down” version at a much lower price.
At the fifth level stands the potential product, which encompasses all
the possible augmentations and transformations the product might undergo
in the future. Here is where companies search for new ways to satisfy
customers and distinguish their offer. All-suite hotels where the guest
occupies a set of rooms represent an innovative transformation of the
traditional hotel product. Some variations include differentiated and
customised products.
The differentiated product - The differentiated product enjoys a

distinction from other similar products/brands in the market. The differential
claimed may be ‘real’, with a real distinction on ingredient, quality, utility, or
service, or it may be ‘psychological’ brought about through subtle sales
appeals.
Close-up tooth paste offers freshness and bold intimate social

interactions among youth, whereas its rival Colgate offers prevention of tooth
decay with freshness.
Product differentiation is the act of designing a set of meaningful

differences to distinguish the companies offering from competitor’s offerings?
The number of differentiation opportunities varies with the type of industry.
The Boston consulting group has distinguished four types of industries based
on the number of available competitive advantages and their size.
1. Volume industry : One in which companies can gain only a

few, but rather large, competitive advantages.

2. Stalemated industry : One in which there are a few potential
competitive advantages and each is small.
3. Fragmented industry: One in which companies face many

opportunities for differentiation, but each opportunity for competitive
advantage is small.
4. Specialised industry : One in which companies face many

differentiation opportunities, and each differentiation can have a high payoff.
Theodore Levitt in one of his books “Marketing Success, through

differentiation of anything” explains that in a market place, there is no such
thing as commodity .All goods and services are differentiable. In a market
place differentiation is everywhere .All the companies try to distinguish their
offer from that of their competitor. This is true of even those who produce
and deal in primary metals, grains, chemicals, plastics and money. Starting
from technology to plant location to post sale service firms to the
personnel/procedures employed for various functions like sales, production
etc., and companies can differ their offers in many ways.
Companies usually choose those functions, which give them greatest

relative advantage.
The customized product - Customer specific requirements are taken

into account while developing the product. Commonly practiced in the
industrial product marketing, where the manufacturer and the user are in
direct contact and the product gets customized to the requirements of the
customer.
A readymade garment represents customization for a group of
people; when you buy one, you ask for alterations to suit your shape and size.
On the other hand, if you give cloth to the tailor for stitching, the garment is
customized to you.

Successful companies add benefits to their offering that not only
NOTES
satisfy customers but also surprise and delight them. Delighting is a matter of
exceeding expectations.
Product Offer Can Range from the Generic to the Potential At the
beginning of this chapter, we thought of product as a ‘need satisfying entity’.
Now, after analysing the various components that actually build up the
product, we have a better idea of what a product means. A product has a
personality consisting of several components;—the basic material, its
associated features, the brand name, the package and the labelling, the price
range, the positioning, speciality of the sale outlets, the quality of promotion
and the corporate image and prestige. A product that is finally offered in the
market is a combination of all these elements.
In fact, the crucial task in product management lies in working out the
best possible alignment among the myriad factors mentioned above. The
marketing man is constantly at it, always engaged in enriching his product
offer. In his attempt to satisfy the customer and score over competition, he
brings out refinement upon refinement on his basic product offer, and takes
the product to higher levels of evolution.
PRODUCT HIERARCHY
Each product is related to certain other products. The product

hierarchy stretches from basic needs to particular items that satisfy those
needs. We can identify seven levels of the product hierarchy (here for life
insurance service and an electronic computing device) :
1. Need family : The core need that underlies the existence of a

product family.
Example : security or computing.
2. Product family : All the product classes that can satisfy a core need
with reasonable effectiveness. Example : savings and income, all of the
products like computer, calculator or abacus can do computation.

3. Product class : A group of products within the product family
recognized as having a certain functional coherence. Example : financial
instruments or personal computer (PC) is one product class.
4. Product line : A group of products within a product class that are

closely related because they perform a similar function, are sold to the same
customer groups, are marketed through the same channels, or fall within
given price ranges.
Example : life insurance or portable wire-less PC is one product line.
5. Product type:
A group of items within a product line that share one of several

possible forms of the product. For instance, palm top is one product type.
6. Brand:
The name associated with one or more items in the product line that is
used to identify the source or character of the items. For example, Palm Pilot
is one brand of palmtop.
7. Item/stock-keeping unit/product variant:
A distinct unit within a brand or product line distinguishable by size,

price, appearance or some other attributes. For instance, LCD, CD- ROM
drive and joystick are various items under palm top product type.
Importance of Product in Marketing-Mix
Product is the most powerful competitive tool in the hands of a

marketing manager. It lies at the heart of marketing mix, and all its other
elements including pricing, distribution and promotion depend on the
product positioning in the market. Product types, quality, features and design

largely determine production and marketing cost, and consequently exercise
NOTES
a major influence on price. These aspects of a product also playa major role in
the determination of a firm’s competitive strategy. If a manufacturer’s
product cannot be differentiated from that of his competitors, he may have to
take recourse to price competition in order to attain the targeted sales volume
or market share. On the other hand, if the product is of a type which can be
differentiated from competing products as in the case of radios, refrigerators,
soaps, etc., a marketing manager may put his major trust in non-price
competition. He may seek to attract customers to his product by building
style, special features, reliability, quality, etc., in the product.
Product also acts as a determining factor in the choice of channel of

distribution. If the product is a complex industrial machine or component
part used by other manufacturers, it is likely to be sold directly by the
manufacturer without using any middlemen. A mass consumption product
such as toothpaste needs a very wide network of distribution, and every
grocer and general merchandiser will have to be contacted either by the
manufacturer’s salesman or wholesaler. Speciality goods such as fans and
transistors need a different kind ~f distribution channel than shopping goods.
Finally, promotion strategy also revolves around the product.

Whether major thrust in promotion will be on personal selling, advertising or
sales promotion significantly depends on the product type. Industrial goods
generally need major emphasis on personal selling. Mass consumption
products need major emphasis on advertising and sales promotion.
The basic purpose of the existence of a business enterprise is to

produce and market a product that will provide satisfaction to its customers.
If a company is unable to perform this basic function efficiently and
effectively, it will be driven out of business by competition. Thus, a firm
which fails to perform its social function of providing need satisfaction to
consumers loses social patronage and ceases to exist.
In the final analysis its ability to meet customers’ need depends on the
product which it supplies to the market.

A firm’s products thus play a crucial role not only in its marketing
success but also in its existence as a competitive business entity. It should,
therefore, devotes considerable attention to the determination of its product
objectives and formulation of its product strategy.
Product Classification
The nature of product is found to have considerable impact on the

method of product positing. There are two classes of products consumer
goods, and industrial goods, and this classification is useful in product
positioning. Some of the key attributes of products/goods are as below.
Tangible / Intangible Attributes
Tangible
Touch
See
Taste
Smell
Intangible
Can’t see
Can’t touch
Can’t smell
Can’t taste
Durability And Tangibility
(a)Non – durable goods: Non-durable goods are tangible goods

normally consumed in one or a few uses. For example, soap, salt and biscuits.
(b) Durable goods: Durable goods are those which can be used over a
period of time. Examples are: Colour TV, Refrigerator, washing machine and
Vacuum cleaners.

(c) Services: services rate intangible, inseparable, variable and
NOTES
perishable products, Airlines and Railways offer travel services. Post and
telegraph offer communication services. Hospital and diagnostic centers offer
medical services.
Using these attributes the products are classified as per the diagram
(Fig. 5.2)below.
Fig. 5.2 Classification of Products
Consumer Goods Classification
a. Convenience Goods:
These are goods that the customer usually purchases frequently

immediately and with a minimum of efforts, example includes soaps and
newspapers.
Convenience goods can be further classification into three categories:

Ֆ Ֆ Staple goods: consumer purchase on regular basis. Rice,wheat,
oils etc.
Ֆ Ֆ Impulse goods: consumer purchase without any planning or
search efforts. Chocolates, soft drinks, biscuits, toys, magazines,etc.
Ֆ Ֆ Emergency goods: consumer purchase on urgent need. Certain
drugs, ambulance services, tatkal reservation of rail tickets, come under this
category.
b. Shopping Goods
These are goods that the customer, in the process of selection and
purchase characteristically compare on such bases as suitability and quality.
Example: furniture, kitchen equipment, electrical appliances, clothing, etc.
c. Specialty goods
These are goods with unique characteristic or brand identification for

which a sufficient number of buyers are willing to make a special purchasing
effort. For example apartments, cars, jewellery, greeting cards, gift articles etc.
d. Unsought goods
These are goods the consumer does not know about or does not
normally think of buying. The classic example of known but unsought goods
is life insurance and ambulance services.
Industrial Goods Classification
a. Material and Parts

These are goods that enter the manufacturer’s product completely.
NOTES
They fall into two classes. Raw material and manufactured material parts.
Iron,zinc, sulphur, jute, fruits, wheat, nuts, bolts, transistors, chips, etc.
b. Capital Items
These are long lasting goods that facilitate developing or managing

the finished products. They include two groups: installation and equipments.
Blast furnaces, lathe machines, computers, fax machines, etc.
C. Supplies and Business Services
These are short-listing goods and services that facilitate developing or

managing the finished products. Lubricating oils, cotton, brushes, stationery
items, etc.
5.3 PRODUCT MIX
Most companies, whether large or small, whether in manufacturing or

retailing generally handle a multitude of products and product varieties. In
course of time, the companies may expand new lines or contract the old lines
after the existing product or develop new uses for the existing products.
These activities involve managerial strategies and policy making with respect
to the company’s line of products and services. A product mix is also called
product assortment, which is the set of all products and items a particular

seller offers for sale. It consists of various product lines. Godrej has multiple
product lines namely soaps, office equipments, edible oil, computers and
other products through different manufacturing processes and targeted
towards different markets.
The proliferation of products within the company means that product
policy decisions are made at three different levels of product aggregation, viz.
product item, product line and product mix.
Product Item: It is a specific version of a product that has a
separate designation in the seller’s list.
Example: Chicken Maggi Noodles is one product of Maggi’s offerings.
Product Lines: A group of products that are closely related
either because they satisfy a class of need, or used together, or sold to the
same customer group, or marketed through the same types of outlets, or fall
within given price ranges or are considered a unit because of marketing,
technical, or end-use considerations. In other words, a broad group of
products, which are meant for essentially similar uses and possess reasonably
similar physical characteristics, constitute product line.
Example: Product line of Maggi includes sauces, soups, noodles,
cooking aids and pasta.
Product Mix: Products offered for sale by a firm or a business
unit. In other words, product mix is the full list of all products offered for sale
by a company.
Example: Product Mix of all the products offered under all its product
lines.

Fig. 5.3 Product Mix Aggregation of Maggi Brand Ready to Cook
NOTES
products
Product Length: this concept refers to the number of products

in a particular product line.
In Figure 5.3 we can see that Maggi is having longest product line of
Maggi noodles out of all the other given product lines.
Product Width: It refers to number of product lines that a
company offers.
We can see that Maggi offers five product lines hence its product
width is good.
Product Depth: Depth is the different varieties of product in
the product line.
Maggi is offering a depth in its Noodles category by offering cuppa
noodles, atta noodles and 2 minutes noodles.
ORGANISATIONAL GOALS AND PRODUCT MIX
The efficient fulfilment of the marketer’s goal to supply goods and

services to consumer for satisfaction of their needs can be possible if due
attention is given to three issues which govern the product mix, namely sales
growth, sales stability and profits.
Sales Growth can be achieved either by increasing its share in existing
markets or by finding new markets. Following are the four ways in which
product mix can be adjusted to achieve organisational goals.
Market Penetration, under which market share is increased by
expanding sales of present products in existing uses;
Market Development, under which markets are expanded by
creating new uses of present products;
Product Development, where market share is increased by
developing new products to satisfy existing needs;
Diversification, where market is expanded by developing new
products to satisfy new consumer needs.

Sales stability: Stable sales allow for more efficient planning in all
phases of production and distribution. It is also desirable to maintain a
proper balance in total sales and product mix so that a market share losing
product can be counteracted by another picking up market share. Sales
stability is also possible by making an entry into a new market.
Profits are determined by the components of the product mix. Some
items are usually more profitable than others. Low profit items may be
performing a valuable part in helping to sell company’s more profitable
products; and they may also prove as insurance against an unforeseen failure
in profitable products. Theoretically speaking, though one should keep
highly profitable products only, yet one needs to understand the cross linking
between products within a product mix.
A product system for a farm is the group of diverse but related items
that function in a compatible manner. A product mix constitutes the set of all
products and services offered by a marketer. The constituents of a typical
product mix include dimensions of width, depth and length and consistency.
Appraisal of the product line and the individual products
No product line is perfect and also does not run for all times to come.
Changes happen in the business environment, customer tastes and
preferences, extent of competition that pressurise the product policy of the
firm. New, changed, advanced products are introduced or even old products
are withdrawn from the market by the companies to revive the lost market
image, to overcome the treat of functional obsolescence due to new improved
/substitute products introduced by competitors, to regain profitability or
when the product has entered a stage of decline. Firm needs to constantly
monitor the company’s product policy.
This topic of Product Mix & Product Line is very important so
concentrate on it.
When we say a firm’s product mix we are actually discussing about
all product items it offers.
Hindustan Lever’s product mix includes agro-chemical products,

soaps, detergents, toothpaste, shampoos, Talcum powders, cosmetics and
now, frozen foods

NOTES
Just suppose any organization is marketing more than one product
then it has a product mix.
Product item—a single product
Product line—all items of the same type
Product mix—total group of products that an organization markets
Now if I say a product line what do you understand from this?
It is basically a group of products that are related because of customer,
marketing and or production considerations.
Rin, Wheel, Rin Solarox, Rin detergent powder, Surf, and Surf Ultra
are part of Lever’s detergents line and Le Sancy, Lux, Rexona, Lifebuoy, are
part of its soaps line.
When we are discussing about a typical large multi-product firm’s
product mix includes new, growing, maturing and declining products.
Reasons many firms do not want to limit themselves to one product.
Ֆ Ֆ To counteract the effects of the PLC on a one product firm.
Ֆ Ֆ To even out seasonal sales patterns.
Ֆ Ֆ To use company resources and capabilities more effectively.
Ֆ Ֆ To capitalize on middlemen and consumer acceptance of
established products.
Ֆ Ֆ To spread production and marketing costs over a wider product
mix.
Ֆ Ֆ To become better known and respected by middlemen and
consumers.
Breadth & Depth
Now you have a fair idea on what is a product mix. In product you
have to define the structural dimensions of breadth (or width) and depth.
Breadth refers to the number of different product lines. Depth refers to
the number of product items within each line. A firm can expand its product
mix by increasing the number of product lines or the depth within one or
more product lines.
HLL expanded in breadth when it entered the agro-chemical business.

It expanded in depth when it bought TOMCO a soaps and detergents
company.
Width of product mix
The ‘depth of the product mix’ refers to the average number of items
offered by the company within each product line. In other words, the depth is
measured by assortment of sizes, colours, models, prices and quality offered
within each product line. For example, HLL produces ten variants of
shampoo in shampoo line. So depth is ten for the company in shampoo line.
Fig. 5.4 Part of Product Mix of Unilever
The length refers to the total number of items produced by the

company in all the product lines. This is the sum total of number of items in
each product lines.
The ‘consistency of product mix’ refers to how closely related are the
various product lines in terms of consumer behaviour, production
requirements, channels of distribution or in some other way. For example, the
products produced by the General Electric Company have an overall
consistency in that most products involve electricity in one way or the other.
The four dimensions of width, depth, length and consistency have a
strong marketing implication. As the company increases the width of the
product mix, the company plans to capitalise on its good reputation and skills

in present markets by increasing its presence in other product categories. As
NOTES
the company increases the depth of its product mix, the company plans to
entice the patronage of buyers of widely differing tastes and needs. As the
company increases the consistency of its product mix, the company hopes to
acquire an unparalleled reputation in a particular area of endeavour. As the
company increases its length in different product lines, it plans to enter
deeper into each of the product market segment it serves.
The dimensions of the product mix, and the ways in which they relate
to each other are important for the marketing manager. Changing the product
item involves the issues whether to modify, add or drop product items.
Changing the width of the product mix involves altering policy at the
product-line level, whether to deepen or shorten an existing product line.
Changing the product mix involves the issues as to what product-markets the
marketer should enter or leave and how to handle communications for the
various product lines or items.
In case of Wipro, their partial set of product mix would be what?

Wipro basically operates in diverse fields, and has broad product mix.
Fig. 5.5 Partial List of Product Lines of Wipro
You can see in market that each product mix has a depth, which is
given by models, colours, sizes, available in each individual product lines.

As all of us know that a pharmaceutical company has a product line of
antibiotics. It has several dosage forms like it can be in the form of capsules,
dispersible tablets for children, vaginal suppositories, injections, eardrops,
eye drops and Syrups under the dosage form and then the size of the package
can be different. The company has several brands of antibiotics, and each
brand has several dosage forms and sizes. We can say, that its product mix
has depth. On the contrary, a few products, in one size only as one brand is
an example of a shallow product depth.
All the decisions related to product lines offers are from company’s
strategic plan and marketing plan. It considers the segmentation of the
market and targeting. Just suppose an organization wishes to target young’
children, it can add a whole new product line for it.
New product lines are either a matter internal development or can be
acquire. Each product line also can be expanded. The important idea is that
the product line of a company reflects the objectives of the organization, the
targeting decided upon and the buyer behaviour in a given market.
You can modify existing Product lines:
We have a number of reasons to alter either an existing product or a
product line. The reasons could be to support marketing strategy, to improve
sales, to improve profits, to expand market share. We can also consider what
the product as such contributes to the product portfolio. We can modify a
product line by altering either one or more than one of the following
attributes:
(1) Composition of the product line

(2) Expansion or contraction of product line
(3) Value addition process
(4) Brand
(5) Packaging
(6) Physical characteristics
(7) Positioning
The first two attributes are relevant to a set of products in the product
line. The rest are relevant to either individual products or product lines.

Expanding and Reducing the Product Line:
NOTES
Companies do not, in general, offer single product and single model.

As you are aware that there are many models of TV available in the market.
There is a large variety of radio sets from Sony.
Syrups and crushes are available in many flavours, e.g., Rasna
concentrates and Mala’s crushes.
There are technical products with higher and lesser sophistication.
We find many product categories where consumers prefer to have a
great variety for their satisfaction. Marketers are adopting strategies of
adding new versions with new specifications, while retaining the old versions
for the less sophisticated consumers.
Sometimes this addition of new products to existing line is done to
include complementary products, e.g., a toothpaste marketer may add
toothbrushes to the product line. Camel may introduce paintbrushes, which
go well with its watercolours.
Sometimes, there are occasion to delete a product/products from the
line. A product, which shows decline in terms of sales, may be abandoned.
Non-contributing products may be eliminated. While doing so, it
should be seen that other products in the product line are not affected. HUL
has removed Lifebuoy carbolic soap from its line. It upgraded Lifebuoy to
compete with other beauty soaps.
Product line length

Now you should ask a question what is the optimum size of a product
line?
A line is too long if after eliminating a product is results into increased
profits. A line is too short when any addition to it results into increased
profits.
One thing should be clear to you that the Company’s overall
objectives do affect the length of its product line. For instance, a company
may have the objective of expanding its market share. It will then have a
longer product line. Contribution of individual products to profits may be
ignored. However, a company whose objective is to have larger profits will

have a shorter product line consisting of those items, which contribute to
profits substantially Product lines have a tendency, to lengthen over a period
of time. Many a time, a firm may, have extra capacity, which is used for
developing new items. . Sales people and trade put pressure on management
to keep on adding items to a product line so as, to satisfy their customers.
Lengthening of the line shoot up costs; at some point, this must come
to halt. Loss making items are then eliminated. The contribution of items to
profits is studied. Thus in the life of an organization, there is a cycle of longer
product line followed by a pruned product line. This cycle is repeated again
arid again.
Line stretching
Line stretching occurs when this range is lengthened. This stretching
could be upward, downward or both ways.
Most of the companies have range of products in its existing product
lines, like Videocon has a range of TVs in its product line, right from budget
TVs to premium TVs. Videocon entered the market targeting elite consumers.
Later, it introduced 14 inch private to yuppies, Bazooka for Richie,
Turbo tough to middle income aspirants, and Budget line to the low income
price conscious.
Upward stretching : Here a company operates in the lower end of the
market. By upward stretch, it proposes to enter the higher end. Perhaps, it is
motivated by higher margin of profits, higher growth rate or a position of a
full-range marketer. This decision has its own risks.
A well-established high-end marketer might assault the stretcher by
stretching downwards. Besides, it is a question of credibility of a lower end
marketer -whether he will be able to produce high quality products.
There is one more risk. The existing infrastructure of a low-end
marketer may not be competent to deal with the high-end market.
Hindustan Lever introduced Surf Ultra to match Ariel of P&G and
then introduced Surf excel-all in the premium category. Philips had its two in
ones in the price range of Rs.1000-2000. To entice high quality conscious
upend end consumers it introduced Power house a in the price range of
Rs.6000-9000 range and powerplay in Rs 15,000-25,000.
Downward stretch

Lets start with an example: all of you know parker, parker started
NOTES
with pens only at high price but if we look at parker today we can see
products available in the range of 50 Rupees which no one could have though
of in older times.
Many companies start with high-end products, but later stretch
downwards by adding 1ow-priced products. The down-end products are
advertised heavily so as to pull customers to the whole line on the basis of
price.
Hindusthan Lever introduced Wheel a low priced detergent to
compete with Nirma when it found that Surf had lost its market share to
Nirma. When Ariel Microsystems did not generate expected revenues, P&G
introduced a green alternate at a reduced price and new products like New
Ariel Super soaker at much lower price.
This strategy needs careful handling. The budget brand being
promoted should not dilute the overall brand image. Besides, the budget
brand must be available. Consumers should not get a feeling that they were
hooked to bait, for switching later. Downward stretch is practiced in the
following situations:
A competitor stretches upward and challenges the marketer. He
counter-attacks him stretching downwards
Ֆ Ֆ Most companies start at the upper end, and then roll downwards.
Ֆ Ֆ The high-end market has a slow growth rate.
Ֆ Ֆ By filling the gap at the low-end, new competition is avoided.
Ֆ Ֆ Downward stretch has its own risks. The down-end item might
cannibalize the high-end items. Besides, our downward stretch might

provoke a competitor to move upward. Down-end product may not be
managed properly as the company may not have that capacity. It may dilute
the brand image of the company’s products.
It is, however, needs careful consideration - a product line should not
have a gap at the lower-end. It exposes the company to competition, e.g.,
American car companies faced the competition from small-sized, Japanese
cars at the lower-end of the market.
Two way stretch

Beside upward and downward stretch you can even stretch in two
ways like several companies serve the middle-end market. They can stretch
their product line in both the directions.
A hotel company operating hotels in the comfort category where each
room has a tariff 2000-3000 a day might decide to have elite upper-end hotels
with tariffs of Rs. 5000-7000 a lower-end budget hotels with tariffs of Rs. 600-
1500 a day. Ashoka group of ITC has thus elite 5-Star hotels, at the upper-end
comfort hotels at the middle-end and budget hotels like Ashoka Yatri Niwas
at lower end.
5.4 PRODUCT LIFE CYCLE

The idea of a product life cycle (PLC) is central to product strategy. It
is based on the premise that a new product enters a ‘life cycle’ once it is
launched in the market. The product has a ‘birth’ and a ‘death’- its
introduction and decline. The intervening period is characterized by growth
and maturity. By considering a product’s course through the market in this
way, it is possible to design marketing strategies appropriate to the relevant
stage in the product’s life. In addition to the stages outlined, an additional
stage is often discussed- that of saturation, a levelling off in sales once
maturity is reached and prior to decline.

Fig. 5.7 Product Life Cycle
NOTES
Figure 5.7 shows the courses for the hypothetical life cycles of two
different products. Because the marketing environment is essentially
dynamic, even basically similar products are likely to react differently during
their life span. The PLC is influenced by the following factors:
1. The intrinsic nature of the product itself
2. Changes in the macro-environment
3. Changes in consumer preferences, which are affected by the macro-

and micro-environment
4. Competitive action
In strategic terms, the task of marketing management is to:
1. Estimate the likely shape of the total curve
2. Design an appropriate strategy for each stage
3. Identify the product’s movement from one stage to another
The last task is perhaps the most difficult, because the designation of
each stage is somewhat arbitrary. The value of the concept is that once the
stage has been identified, markets can be seen to display certain
characteristics which suggest specific strategic reactions.
Life Cycle Stages and their Associated Strategies

1. Introductory Stage: This is the period relating to a new product
launch and its duration depends- on the product’s rate of penetration through
the market segment concerned. The period ends when awareness of the
product is high enough to attract wider user groups so that sales are
correspondingly increased. The typical conditions associated with the
introduction stage are:
• A high product failure rate
• Relatively few competitors
• Limited distribution (often exclusive or selective distribution)
• Frequent product modifications

Company losses, because development costs have not yet been
recouped, promotional expenditure is relatively high in relation to sales and
economies of scale are not yet possible.
The prime goal at this stage is to create awareness. This usually
involves a disproportionate level of marketing expenditure relative to sales
revenue. Clearly, this must be regarded as an investment in the product’s
future.
The introductory pricing strategy will depend on the type of product
in terms of its degree of distinctiveness. The company may wish to achieve
high sales levels in a short span of time or slowly establish a profitable niche
in the market place.
The firm has two basic strategic options open to it.
1. A skimming pricing strategy involves the application of a high price
to a small target group of consumers, the innovators and early adopters.
While the product remains distinctive, growth can be encouraged by a
planned series of progressive price reductions.
2. A penetration pricing strategy is employed to attract the largest
possible number of new buyers early in the product’s life. It involves pricing
the product at a low level and is appropriate where demand is elastic and
where there is a high level of competitive activity.
In both cases, the role of pricing at this stage of the life cycle is to
establish the product in such a way as to permit further strategy to be
implemented in the subsequent stages. A skimming approach, for example,
should ‘set the scene’ for product distinctiveness to be retained for as long as
possible. While profits are not necessarily forthcoming during introduction,
the introductory pricing strategy should prepare for profitability in the
future.
Distribution decisions will be determined by expected penetration or
skimming. In all cases, it is of paramount importance that the product is
available to the intended market. Ineffective distribution has invalidated the
costly efforts of the other marketing functions of many companies. Out-of-
stock situations provide competitors with opportunities to take market share
and it can be costly to win it back.

2. Growth Stage: During growth stage the product is still vulnerable to
NOTES
failure (although most failures occur early in the product’s life). Competitive
products, perhaps launched by more powerful firms, can enter the market at
this stage. These may pose a threat sufficient to cause some firms to withdraw
from the market. In general, the characteristics of growth are:
• More competitors and less product distinctiveness
• More profitable returns
• Rising sales
• Company or product acquisition by larger competitors
Promotional expenditure should still feature highly in the marketing
budget at this stage because this is the best time to acquire market share. It
should, however, be at a level which does not drain profits, although it is not
unusual for very high levels of expenditure to continue throughout growth in
order to achieve profitable market dominance during the maturity stage.
Distribution retains its importance during growth. In consumer
markets, in particular success will depend on finding shelf space in retail
outlets, which now tends to be controlled by a small number of powerful
mu1tiple operators. Once a ‘hierarchy’ of brand leaders has been established,
powerful buyers in retail multiples will attempt to rationalize their list of
suppliers. Distribution will be a key factor in such decisions, because retailers
will wish to keep their stock levels to a minimum. In other markets,
distribution is equally important because during growth, suppliers will be in
competition with each other to acquire dealership and distributive outlets.
A company must attempt to optimize the product’s price during
growth and it is likely that towards the end of this period, there is the
opportunity to maximize profits. Paradoxically, the end of growth is
sometimes characterized by reduced prices (even though profits may be still
high). This is because the full effect of economies of scale is often passed on to
customers. As the growth period tends towards maturity, market shares will
tend to stabilize and a hierarchy of brand or market leaders will probably
have emerged.
3. Maturity Stage: Due to the time-scales of PLCs, at anyone time, the
majority of products are in the maturity stage of the life cycle. Much

marketing activity is devoted to this stage. The major characteristics of the
maturity stage are:
• Sales continuing to grow, but at a very much decreased rate
• Attempts to differentiate and re-differentiate the product
• Prices beginning to fall in battles to retain market share. Profits
begin to fall correspondingly
• Increasing brand and inventory rationalization amongst retailers
and distributors
• Marginal manufacturers retiring from the market when faced with
severe com-petition and reduced margins
It should be emphasized that market growth has ceased by this stage.
Any growth can only be achieved at the expense of competitors. There is,
therefore, a need for sustained promotional activity, even if only to retain
existing customers. Deciding the level of promotional expenditure can be a
problem in view of contracting profit margins.
In line with the aims of promotion, distribution strategy should be
designed to retain outlets. A retail outlet or distributorship which is lost
during maturity is unlikely to be easily regained at a later stage. To this end,
the major thrust of promotional effort may move from the consumer to the
distributor.
Price war should be avoided where possible, because the usual result
of initiating price cuts is to reduce revenue for all market participants. The
aim of price cutting should be to increase purchases sufficiently to offset any
revenue loss.
4. Decline Stage: While the shape of the PLC curve is theoretical and
should never be regarded as inevitable, persistently falling sales signify the
decline stage of the product. Market intelligence should be able to identify the
cause of this phenomenon. Consumer preferences may have changed or
innovative product may have displaced the existing product.
• Sales falling continually for the total period
• Intensification of price cutting
• Producers deciding to abandon the market
As stated earlier, the decision to abandon a product poses problems
for the firm and is often not made early enough. On the other hand, it may be

worth extending the product’s life well into decline while the number of
NOTES
competitors is falling.
While continuing in the market place” management’s attention is
likely to move from active marketing to very strict cost control. Cost control
and cost reduction is, of course, always an important element of management
activity, but during decline this may be the only method of maintaining
profitability.
The Product Life-Cycle as a Management Tool
The key to the successful use of the PLC concept is the ability to
identify accurately the transition from one stage to another. This requires the
company to be highly marketing-oriented and marketing-motivated, making
extensive use of relatively sophisticated marketing research and marketing
intelligence techniques. Once such a situation is feasible, management has the
basic framework for a long term strategic-planning tool. In particular, use of
the PLC provides two valuable benefits.
1. A predictable course of product development for which appropriate
strategies can be planned and budgeted.
2. The scope to plan beyond the life of the existing product.
An important point about the product life cycle is that although every
product goes through various stages in the cycle, the length of various stages
varies from product to product. Mass consumption products which are
repeatedly purchased time and again generally have much longer periods of
growth and maturity than durable consumption goods. For example,
toothpaste has been in the market since a long time and will probably remain
there during the foreseeable future, whereas durable goods like radios have
been replaced by television and transistors to a great extent. Secondly, a firm
may, through effective product strategy, prolong the growth and maturity
stages in the life cycle of its products. This can be done in various ways: (i) by
modifying the product; (ii) by encouraging the frequency of use of the
product; (Hi) by cultivating a new market for it; and (iv) by finding new users
in the existing market. Stimulating new uses and new users and product
modification to increase sales is called product re-launch.

One of the major strategies for extending the growth and maturity
stages of a product is to modify it. Product modification may be aimed at
improving its functional utility, quality, style, etc.
Functional modification of a product involves improving its
efficiency, reducing its cost, funding its new applications, adding safety
features, increasing ease of handling, etc. For example, redesigning of sofas
into sofas convertible into beds gave a tremendous boost to their sales in
cities like Bombay where lots of people have only a limited living space
available to them. It may be emphasized that such product modification
should fill a real customer need and be so perceived by him. The real problem
with functional modification is that it may add to the cost of production, and
consequent increase in price may have an adverse effect on its sales.
Moreover, functional modification made by one firm, if successful, is going to
be copied soon by its competi-tors, and the innovator may soon lose the
initial competitive edge over them. Nevertheless, expansion in the primary
demand of the modi-fied product is going to benefit it if it can maintain or
increase its market share.
Many companies seek to extend the growth and maturity stages of
their products by making changes in their quality. This change in quality may
affect its durability, performance, operational cost, operation time, etc.
Quality may be improved or reduced as part of product modification
strategy. Negative change in quality may be made when it is intended to
position the product in the lower income group mar-ket by reducing its price.
On the other hand, improvement in quality is aimed at holding its present
customers as well as to attract the existing customers of a competing superior
brand.
Style changes play an important role in expanding the market of a
product. This product strategy has been most successfully followed by the
automobile makers in the U.S., where annual models of cars have become an
accepted part of the automobile market. In India, style changes in products
are most common in textiles and shoes. Many other products such as fans,
transistors, refrigerators, furniture, etc., have undergone so much style
modification during the last one decade or so that it is hard to conceive what
will be the style at the end of the next decade.

Sometimes a firm may seek to expand its market just by creating an
NOTES
illusion of product modification without making any significant change in the
product itself. This is often done by making changes in packaging and
advertising appeal. Manufacturers of some pain relievers like Aspro and
Anacin are claiming better product effectiveness even though they have made
hardly any significant chemical improvements in their products.
5.5 BRANDING
According to legend, the practice of branding products originated

when an ancient ruler decided that products should bear some sort of symbol
so that, if something should go wrong, buyers and the authorities would
know who was to blame. Forced to identify their products with themselves,
the story goes, producers began to take greater pride in their products and to
make them better than those of their competitors, thus reversing the negative
intent of the king’s order. Whether the story is true or not, it makes the point
that branding serves many purposes, both for the buyer and for the seller.
Branding helps buyers to determine which manufacturer’s products

are to be avoided and which are to be sought. Without branding, a buyer
would have difficulty recognizing products that have proved satisfactory in
the past. Many consumers are not able to analyze competing items strictly on
the basis of physical characteristics. They rely, therefore, on a brand’s or
firm’s reputation as an assurance that the product being purchased meets
certain standards. For example, the computer chip marketer’s “Intel Inside”
stickers on personal computers offer consumers reassurance when they feel
confusion and anxiety about making a computer purchase.
Branding helps sellers to develop loyal customers and to show that
the firm stands behind what it offers. A brand that has earned a reputation
for high quality may pave the way for the introduction of new products. Part
of the attraction of Kellogg’s Honey Crunch Corn Flakes, for example, is its
connection with the original Kellogg’s Corn Flakes, a branded product with a
long record of public acceptance.

In large measure, the free enterprise system, with its accent on letting
the market decide which firms will succeed and which fail, depends on
branding. Even societies that have tried to do away with branding, such as
China, have found that citizens somehow determine which products are good
and which are bad, even if they have to use product serial numbers or other
bits of information to differentiate among products.
BRANDS AND TRADEMARKS

Despite the common practice of speaking of brands, brand names, and
trademarks as if all these terms meant the same thing, there are some
technical differences among them.
Brand : An identifying feature that distinguishes one product from

another; more specifically, any
name, term, symbol, sign, or design or a unifying combination of
these.
Brand name : The verbal part of a brand—the part that can be spoken
or written.
Brand mark : A unique symbol that is part of a brand.
Logo : A brand name or company name written in a distinctive way;
short for logotype.
Brands: A brand is any name, term, symbol, sign, design, or unifying
combination of these. A brand name is the verbal part of the brand. For
example, Lux, Usha and Rediff.com are brands. When these words are
spoken or written, they are brand names. Many branded goods and services
rely heavily on some symbol for indentification. Asian Paints, makes
considerable use of a boy named Gattu and Microsoft Windows is
represented by a window that materializes out of an expanding pattern of
rectangles floating to its left. Such unique symbols are referred to as brand
marks: A brand name or company name written in a distinctive way—for
example, Coca-Cola written in white script letters on a red background—is
called a logo, short for logotype.
Perhaps the most distinctive skill of professional marketers is their
ability to create, maintain, protect, and enhance brands. Marketers say that

“branding is the art and cornerstone of marketing.” The American Marketing
NOTES
Association defines a brand as follows :
l A brand is a name, term, sign, symbol, or design, or a combination of
them, intended to identify the goods or services of one seller or group of
sellers and to differentiate them from those of competitors.
In essence, a brand identifies the seller or maker. It can be a name,
trademark, logo, or other symbol. Under trademark law, the seller is granted
exclusive right to the use of the brand name in perpetuity. Brands differ from
other assets such as patents and copyrights, which have expiration dates.
A brand is essentially a seller’s promise to deliver a specific set of
features, benefits, and services consistently to the buyers. The best brands
convey a warranty of quality.
But a brand is an even more complex symbol. It can convey up to six
levels of meaning:
1. Attributes: A brand brings to mind certain attributes. Mercedes
suggests expensive, well-built, well-engineered, durable, high-prestige
automobiles.
2. Benefits: Attributes must be translated into functional and
emotional benefits.
The attribute “durable” could translate into the functional benefit “I
won’t have to buy another car for several years.” The attribute “expensive”
translates into the emotional benefit “The car makes me feel important and
admired.”
3. Values: The brand also says something about the producer’s values.
Mercedes stands for high performance, safety, and prestige.
4. Culture: The brand may represent a certain culture. The Mercedes
represents German culture; organized, efficient, high quality.
5. Personality: The brand can project a certain personality. Mercedes
may suggest a no-nonsense boss (person), a reigning lion (animal), or an
austere palace (object).
6. User: The brand suggests the kind of consumer who buys or uses
the product.
We would expect to see a 55 year-old top executive behind the wheel
of a Mercedes, not a 20-year-old secretary.

If a company treats a brand only as a name, it misses the point. The
branding challenge is to develop a deep set of positive associations for the
brand. Marketers must decide at which level(s) to anchor the brand’s identity.
One mistake would be to promote only attributes. First, the buyer is not as
interested in attributes as in benefits. Second, Branding, Packaging and
Labelling competitors can easily copy attributes. Third, the current attributes
may become less desirable later.
Promoting the brand only on one benefit can also be risky. Suppose
Mercedes touts its main benefit as “high performance”. Then several
competitive brands emerge with high or higher performance. Or suppose car
buyers start placing less importance on high performance as compared to
other benefits. Mercedes needs the freedom to manoeuvre into a new benefit
positioning.
The most enduring meanings of a brand are its values, culture, and
personality. They define the brand’s essence. The Mercedes stands for high
technology, performance, and success. Mercedes must project this in its brand
strategy. Mercedes must resist marketing an inexpensive car bearing the
name; doing so would dilute the value and personality Mercedes has built up
over the years.
Trademark: A legally protected brand name or brand mark. Its owner
has exclusive rights to its use. Trademarks are registered with the U.S. Patent
and Trademark Office.
Trademarks: A brand or brand name can be almost anything a
marketer wants to be, but it does not have any legal status. A trademark, on
the other hand, is a legally protected brand name or brand mark. The owners
of trademarks have exclusive rights to their use. Thus, the word trademark is
a legally defined term. Either a brand name is a registered trademark or it is
not.
The registered trademark gives a marketer proprietary rights to
exclusive use of a symbol or name. The NBC peacock is a registered
trademark. So is the name Coca-Cola, the script style in which it is written,
and the product’s distinctive bottle design.

Since the holder of a trademark has exclusive rights to use the
NOTES
trademarked name or symbol, a certain amount of protection is provided to
the trademark holder.
Pizza Hut had not changed its brand mark for many years. When the
pizza restaurant decided to update its brand mark, it realized the importance
of capitalizing on its unique “red roof” symbol. The new brand mark
symbolically communicates the casual and enjoyable eating experience
provided at Pizza Hut. The vibrant green and yellow colors are intended to
reflect freshness and fun.
Service mark: A symbol that identifies a service. It distinguishes a
service in the way a trade-mark identifies a good.
Service Marks: Service marks provide the same identifying function
for services that trademarks provide for goods. Like brands, they can be
legally protected by registration.
The NBC chimes and GM’s Mr. Goodwrench are thus legally
protected. Service marks may also include slogans like “Let’s make things
better.”
Generic Names
Generic name: A brand name so commonly used that it is part of
everyday language and is used to describe a product class rather than a
particular manufacturer’s product.
Some words are so obviously part of everyday language that no one
should be permitted to use them exclusively. These generic names describes
products or items in terms that are part of our standard vocabulary—for
example, flower and food. Other words and terms, such as nylon, kerosene,
escalator, cellophane and formica, were originally invented to name
particular products but have become legally generic through common usage.
Therefore, the 3M Company can call its tape Scotch Brand cellophane tape
but can no longer claim that it is the one and only cellophane tape. In many
instances, a brand name become a generic term when a judge determines that
a word, such as formica, is in such common usage that the original formulator
of the word can no longer hold the right to it.

Rollerblade advertisements call attention to the fact that Rollerblade is
a brand name and it is technically incorrect to use “rollerblading” as a verb.
Coca-Cola exerts every effort to make certain that you do not get a Pepsi
when you ask a waiter for a Coke.
Vaseline, Dalda, Frisbee and other commonly used names—names
that are in fact employed to mean a generic product class—may one day be
legally declared generic.
One clever marketer of waterproof, all-purpose sealing tape turned
the generic issue around. An executive at Manco recognized that most
customers pronounced the generic duct tape as “duck” tape. So the company
registered the trademark Duck brand tape and used a friendly yellow duck as
its brand symbol. Today, it is the market leader for this product.
What Makes a “Good” Brand Name ?
What constitutes a good brand name? Instant Ocean, a synthetic sea
salt for use in aquariums, has a good brand name. It is easy to remember. It is
easy to say. It is pronounceable, at least in English, in only one way. It has a
positive connotation. And it suggests what the product is supposed to do.
Denim deodorant soap, Orange Crush soda, and Hotshot cameras are also
excellent names in that they associate the product with an image that is
meaningful to consumers. Brand names also are often useful in reinforcing an
overall product concept. Brands like Land O’ Lakes butter, L’Eggs, Duracell,
Moist and Easy, and Nature Fresh may communicate product attributes far
better than any other variable in the marketing mix.
Notice that brand names and symbols say something about the
product. Jiffy cake mix is quick. Ocean Freeze fish are fresh-frozen. Toast ‘Em
Pop-Ups tells both what they are and how to cook them. Spic and Span,
Dustbuster, and Beautyrest tell what to expect from these products. But brand
names also say something about the buyers for whom the products are
intended. Right Guard Xtreme Sport is a deodorant for active young guys
who try to realize their personal best in sports. Eve and Virginia Slims are
cigarette brand names that appeal to certain types of women.
A good brand name has some quality that makes it distinctive and
easy to remember. It sticks in buyers’ minds. Most brand names are short,
easy to pronounce, and unique.

Exxon and Citgo, words coined by petroleum companies, are good
NOTES
brand names. In contrast, Exxon’s failed office systems division offered
products called Qwip. Qyz, and Vydec—names that were unique but also
something of a problem to pronounce.
Toys “R” Us employs backward Rs to conjure an image of children, as
well as to make the name unique. When the sign appeared on the first store,
which opened in 1954, many customers informed the manager that the R on
the sign was backward. That told the founder of the firm he had hit on a
name that people noticed and remembered. In fact, the R had been used
instead of the word Are simply to shorten the store’s name so that bigger
letters could be used on the first outlet’s sign, since local ordinances
prohibited enlarging the sign itself.
The Fig.5.8 provides an over view of the branding decisions and their
sequence.
5.8 Branding Decisions Overview
Importance of Branding
* Product identification is eased. A customer can order a product by
name instead of description.

* Customers are assured that a good or service has a certain level of
quality and that they will obtained comparable quality if the same brand is
reordered.
* The firm responsible for the product is known. Unbranded items
cannot be as directly identified.
* Price comparisons are reduced when customers perceive distinct
brands. This is most likely if special attributes are linked to different brands.
* A firm can advertise (position) its products and associate each brand
and its characteristics in the buyer’s mind. This aids the consumer in forming
a brand image, which is the perception a person has of a particular brand.
* Branding helps segment markets by creating tailored images. By
using two or more brands, multiple market segments can be attracted.
* For socially-visible goods and services, a product’s prestige is
enhanced via a strong brand name.
* People feel less risk when buying a brand with which they are
familiar and for which they have a favourable attitude. This is why brand
loyalty occurs.
* Cooperation from resellers is greater for well-known brands. A
strong brand also may let its producer exert more control in the distribution
channel.
* A brand may help sell an entire line of products, such as Britannia
Biscuits.
* A brand may help enter a new product category, like Sansung
Mobile.
Ultimately, the power of a brand lies in the minds of consumers, in

what, they have experienced and learned about the brand over time.
Consumer knowledge is really at the heart of brand equity.
Brand Equity
Brands vary in the amount of power and value they have in the
marketplace. At one extreme are brands that are not known by most buyers.
Then there are brands for which buyers have a fairly high degree of brand
awareness. Beyond this are brands with a high degree of brand acceptability.

Then there are brands that enjoy a high degree of brand preference. Finally
NOTES
there are brands that command a high degree of brand loyalty. Tony O’Reilly,
former CEO of H.J. Heinz, proposed this test of brand loyalty. “My acid
test..... is whether a housewife, intending to buy Heinz tomato ketchup in a
store, finding it to be out of stock, will walk out of the store to buy it
elsewhere.”
Few customers are as brand-loyal as O’Reilly hopes Heinz’s customers
will be. Aaker distinguished five levels of customer attitude toward his or her
brand, from lowest to highest :
1. Customer will change brands, especially for price reasons. No
brand loyalty.
2. Customer is satisfied. No reason to change the brand.
3. Customer is satisfied and would incur costs by changing brand.
4. Customer values the brand and sees it as a friend.
5. Customer is devoted to the brand.
Brand equity is highly related to how many customers are in classes 3,
4 or 5. It is also related, according to Aaker, to the degree of brand-name
recognition, perceived brand quality, strong mental and emotional
associations and other assets such as patents, trademarks and channel
relationships.
Companies do not normally list brand equity on their balance sheets
because of the arbitrariness of the estimate. But clearly brand equity relates to
the price premium the brand commands times the extra volume it moves
over an average brand.
The world’s 10 most valuable brands in 1997 were (in rank order):
Coca-Cola, Marlboro, IBM, McDonald’s Disney, Sony, Kodak, Intel, Gillette
and Budweiser. Coca-Cola’s brand equity was $48 billion, Marlboro’s $47
billion, and IBM’s $24 billion.
High brand equity provides a number of competitive advantages :
* The company will enjoy reduced marketing costs because of
consumer brand awareness and loyalty.
* The company will have more trade leverage in bargaining with
distributors and retailers because customers expect them to carry the brand.

* The company can charge a higher price than its competitors because
the brand has higher perceived quality.
* The company can more easily launch extensions because the brand
name carries high credibility.
The brand offers the company some defense against price
competition.
A brand name needs to be carefully managed so that its equity doesn’t
depreciate.
This requires maintaining or improving brand awareness, perceived
quality and functionality, and positive associations. These tasks require
continuous R&D investment, skillful advertising, and excellent trade and
consumer service. Canada Dry and Colgate-Palmolive have appointed
“brand equity managers” to guard the brand’s image, associations, and
quality and prevent short-term tactical actions by overzealous brand
managers from hurting the brand. That’s why some companies put their
branding in the hands of an entirely different company that can focus only on
brand management and nothing else.
P&G believes that well-managed brands are not subject to a brand life
cycle. Many brand leaders of 70 years ago are still today’s brand leaders :
Kodak, Wrigley’s, Gillette, Coca-Cola, Heinz, and Campbell Soup.
Some analysts see brands as outlasting a company’s specific products
and facilities.
They see brands as the company’s major enduring asset. Yet every
powerful brand really represents a set of loyal customers. Therefore, the
fundamental asset underlying brand equity is customer equity. This suggests
that the proper focus of marketing planning is that of extending loyal
customer lifetime value, with brand management serving as a major
marketing tool.
Unfortunately, many companies have mismanaged their greatest
asset—their brands.
In the quest for ever increasing profits, it’s easy for a brand to lose its
focus.
Branding Challenges

NOTES
Branding poses several challenges to the marketer. The key decisions
are shown in Fig. 7.9, and discussed in the following sections.
Branding Decision : To Brand or Not to Brand ?
The first decision is whether the company should develop a brand
name for its product.
In the past, most products went unbranded. Producers and
intermediaries sold their goods out of barrels, bins, and cases, without any
supplier identification. Buyers depended on the seller’s integrity. The earliest
signs of branding were the medieval guilds’ efforts to require craftspeople to
put trademarks on their products to protect themselves and consumers
against inferior quality. In the fine arts, too, branding began with artists
signing their works.
Today, branding is such a strong force that hardly anything goes
unbranded. Salt is packaged in distinctive manufacturers’ containers, oranges
are stamped with growers’ names, nuts and bolts are packaged in cellophane
with a distributor’s label, and automobile components—spark plugs, tires,
filters—bear separate brand names from the automakers.
Fresh food products—such as chicken, turkey and salmon—are
increasingly being sold under strongly advertised brand names.
In some cases, there has been a return to “no branding” of certain
staple consumer goods and pharmaceuticals. Carrefours, the originator of the
French hypermarket, introduced a line of “no brands” or generics in its stores
in the early 1970s. Generics are unbranded, plainly packaged, less expensive
versions of common products such as spaghetti, paper towels and canned
peaches. They offer standard or lower quality at a price that may be as much
as 20 percent to 40 percent lower than nationally advertised brands and 10
percent to 20 percent lower than retailer private-label brands. The lower price
is made possible by lower-quality ingredients, lower-cost labelling and
packaging and minimal advertising.
Why do sellers brand their products when doing so clearly involves
costs ? Branding gives the seller several advantages.
* The brand name makes it easier for the seller to process orders and
track down problems.

* The seller’s brand name and trademark provide legal protection of
unique product features.
* Branding gives the seller the opportunity to attract a loyal and
profitable set of customers. Brand loyalty gives sellers some protection from
competition.
* Branding helps the seller segment markets. Instead of P&G’s selling
a simple detergent, it can offer eight detergent brands, each formulated
differently and aimed at specific benefit-seeking segments.
* Strong brands help build the corporate image, making it easier to
launch new brands and gain acceptance by distributors and consumers.
Distributors and retailers want brand names because brands make the
product easier to handle, hold production to certain quality standards,
strengthen buyer preferences, and make it easier to identify suppliers.
Consumers want brand names to help them identify quality differences and
shop more efficiently.
Brand-Sponsor Decision
A manufacturer has several options with respect to brand
sponsorship. The product may be launched as a manufacturer brand
(sometimes called a national brand), a distributor brand (also called reseller,
store, house, or private brand); or a licensed brand name. Another alternative
is for the manufacturer to produce some output under its own name and
some under reseller labels. Maruti, Eicher Tractor and Bajaj sell virtually all of
their output under their own brand names. Hart Schaffner & Marx sells some
of its manufactured clothes under licensed names such as Christian Dior,
Pierre Cardin, and Johnny Carson. Whirlpool produces both under its own
name and under distributors’ names (Sears Kenmore appliances).
Although manufacturers’ brands dominate, large retailers and
wholesalers have been developing their own brands by contracting
production from willing manufacturers.
Sears has created several names—Diehard batteries, Craftsman tools,
Kenmore appliances—that command brand preference and even brand
loyalty. Retailers such as The Limited, Benetton, Gap and Marks & Spencer
carry mostly own-brand merchandise. In Britain, two large supermarket

chains have developed popular storebrand colas—Sainsbury Cola (from
NOTES
Sainsbury) and Classic Cola (from Tesco) Sainsbury, Britain’s largest food
chain, sells 50 percent store-label goods; its operating margins are six times
that of U.S. retailer operating margins. U.S. supermarkets average 19.7
percent private-brand sales. Some experts believe that 50 percent is the
natural limit for carrying private brands because
(1) consumers prefer certain national brands, and
(2) many product categories are not feasible or attractive on a private-
brand basis.
Why middlemen bother to sponsor their own brands ? They have to
hunt down qualified suppliers who can deliver consistent quality, order large
quantities and tie up their capital in inventories, and spend money promoting
a private label. Nevertheless, private brands offer two advantages. First, they
are more profitable. Intermediaries search for manufacturers with excess
capacity who will produce the private label at a low cost.
Other costs, such as research and development, advertising, sales
promotion, and physical distribution are also much lower. This means that
the private brander can charge a lower price and yet make a higher profit
margin. Second, retailers develop exclusive store brands to differentiate
themselves from competitors. Many consumers don’t distinguish between
national and store brands.
In the confrontation between manufacturers’ and private brands,
retailers have many advantages and increasing market power. Because shelf
space is scarce, many supermarkets now charge a slotting fee for accepting a
new brand to cover the cost of listing and stocking it. Retailers also charge for
special display space and in-store advertising space. They typically give more
prominent display to their own brands and make sure they are well stocked.
Retailers are now building better quality in their store brands.
Manufacturers of national brands are frustrated by the growing
power of retailer brands.
Kevin Price put it well : “A decade ago, the retailer was a small
puppy nipping at the manufacturer’s heels—a nuisance, yes, but only a minor
irritant; you fed it and it went away. Today it’s a wolf and it wants to rip your
arms and legs off. You’d like to see it defeated, but you’re too busy defending

yourself to even try.” Some marketing commentators predict that private
brands will eventually knock out all but the strongest manufacturers’ brands.
In years past, consumers viewed the brands in a category arranged in
a brand ladder, with their favourite brand at the top and remaining brands in
descending order of preference. There are now signs that this ladder is being
replaced with a consumer perception of brand parity—that many brands are
equivalent. Instead of a strongly preferred brand, consumers buy from a set
of acceptable brands, choosing whichever is on sale that day. “People don’t
think the world will come to a screeching half if they use Tide instead of
Ariel.”
The growing power of store brands is not the only factor weakening
national brands.
Consumers are more price sensitive. They are noting more quality
equivalence as competing manufacturers and national retailers copy and
duplicate the qualities of the best brands. The continuous barrage of coupons
and price specials has trained a generation of shoppers to buy on price. The
fact that companies have reduced advertising to 30 percent of their total
promotion budget has weakened their brand equity. The endless stream of
brand extensions and line extensions has blurred brand identity and led to a
confusing amount of product proliferation. Of course, one of the newest
factors that is not necessarily weakening national brands but changing the
entire branding landscape is the Internet.
Spencer’s : Spencer’s is a middleman’s brand (store brand). Many
products ranging from bread and soda to consumer durables like storage
water heaters are sold by the Spencer’s distribution chain under the brand
name Spencer’s.
Stop is another store brand; it is the brand of the retail chain Shopper’s
Stop. Basic Blues is the store brand of Tata’s Westside retail chain.
Foodworld is a store brand owned by the Foodworld chain store.
Manufacturers have reacted by spending substantial amounts of
money on consumer directed advertising and promotion to maintain strong
brand preference. Their price has to be somewhat higher to cover the higher
promotion cost. At the same time, mass distributors pressure manufacturers
to put more promotional money into trade allowances and deals if they want

adequate shelf space. Once manufacturers start giving in, they have less to
NOTES
spend on advertising and consumer promotion, and their brand leadership
starts spiraling down. This is the national brand manufacturers’ dilemma. To
maintain their power vis-a-vis the trade, leading brand marketers need to
invest in heavy and continuous R&D to bring out new brands, line
extensions, features, and quality improvements. They must sustain a strong
“pull” advertising program to maintain high consumer brand recognition
and preference. They must find ways to “partner” with major mass
distributors in a joint search for logistical economies and competitive
strategies that produce savings
Table 5.1 Differences between Manufacturer, Private and Generic

Brands
Characteristics Manufacturer Private Brand Generic Brand

Brand
Target market Risk avoider, Price conscious, Price conscious,
quality comparison careful shopper,
conscious, brand shopper, quality willing to accept
loyal, status conscious, lower quality,
conscious, quick moderate risk large family or
shopper. taker, dealer organization.
loyal
Product Well known, Same overall
Usually less
trusted, best quality as
overall
quality control, manufacturer,
quality than
clearly less emphasis on
manufacturer,
identifiable, packaging, less
little
deep product assortment, not
emphasis on
line known to non-
packaging, very
shoppers of the
limited
dealer.
assortment, not
well known.

Distribution Often sold at Usually only
Varies
many competing available from
dealers a particular
dealer in the
market
Promotion Manufacturer- Dealer-
Few ads,
sponsored ads, sponsored ads
secondary
cooperative ads
shelf space
Price Highest, usually Moderate,
Lowest,
suggested by usually
usually
manufacturer. controlled by
controlled by
dealer
dealer.
Marketing Focus To generate To generate
To offer a
brand loyalty dealer loyalty
low-priced,
and and control
lesser- quality
manufacturer
item to those
control
desiring
Brand-name Decision
Manufacturers and service companies who brand their products must
choose which brand names to use. Four strategies are available :
1. Individual names: The policy is followed by Hindustan Liver
Limited (Dove, Lux, Hamam, Lifebuoy). A major advantage of an individual-
names strategy is that the company does not tie its reputation to the
product’s. If the product fails or appears to have low quality, the company’s
name or image is not hurt. A manufacturer of good-quality watches, such as
Seiko, can introduce a lower quality line of watches (called Pulsar) without
diluting the Seiko name. The strategy permits the firm to search for the best
name for each new product.
Prescription for Brand Awareness : Nine Brand Strengtheners : As
companies become more aware of the importance of brand power, they

wonder how they can strengthen their brands. Most managers think the
NOTES
answer lies in increasing the advertising budget.
But advertising is expensive and it isn’t always effective. Advertising
is only one of nine ways to build more brand awareness and brand preference
:
1. Develop creative advertising : Absolute vodka, United Colors of
Benetton, Fevicol.
2. Sponsor well-regarded events: IBM sponsoring art shows, ITC
classic sponsoring golf tournaments.
3. Invite your customers to join a club: Nestle’s Casa Buitoni Club,
Harley-Davidson’s HOG Club.
4. Invite the public to visit your factory or offices: Cadbury’s theme
park, Kellogg’s Cereal City.
5. Create your own retail units: Niketown, Sony, Raymonds.
6. Provide well-appreciated public services: Permier exercise trails,
Nestle Nestops.
7. Give visible support to some social causes: The Body Shop’s
support for helping the homeless, Ben & Jerrys giving 7½ percent of profits to
charity.
8. Be known as a value leader: IKEA, Home Depot.
9. Develop a strong spokesperson or symbol to represent the company
: Richard Branson (Virgin) Anita Roddick (The Body Shop), Colonel Sanders
(KFC).
HLL-individual brands: In its bathing soaps line, HLL has several
brands like Dove,
Lux, Pears, Lifebuoy, Liril and Hamam. In detergents, it has Surf, Rin
and Wheel. The washing soaps line carry brand names like Sunlight and 501.
In toothpastes, it has brands like Close-up and Pepsodent. Its coconut hair oil
has the name Nihar. Its cooking oil is Dalda. So HLL has built numerous
brands in its different lines. They are individual brands, each moving in its
own right, independently.
Nestle: Nestle is another company going in for individual brand
names. Nescafe is its premium coffee brand, Maggi is its brand of noodles,
Kitkat its chocolate brand and Milo its chocolate beverage brand. It has

Milkmaid as its brand in condensed milk and Cerelac in baby food. Of late,
Nestle is also going in for umbrella branding in select categories. For instance,
Maggi is now becoming an umbrella brand for several food items like soups,
sauces, pickles, ketchups and jams.
When an individual brand name is given for each product, there is no
question of any joint responsibility among the different products. Each brand
gets promoted separately and moves by itself. The promotional expenditure
tends to be high with individual brands. Still, many companies follow
individual branding as they want to reap the associated benefits.
Blanket family names: This policy is followed by Heinz and General
Electric. A blanket family name also has advantages. Development cost is less
because there is no need for “name” research or heavy advertising
expenditures to create brand-name recognition. Furthermore, sales of the new
product are likely to be strong if the manufacturer’s name is good.
Campbell’s introduces new soups under its brand name with extreme
simplicity and achieves instant recognition.
Separate family names for all products : This policy is followed by
Sears (Kenmore for appliances, Craftsman for tools and Homart for major
home installations). Where a company produces quite different products, it is
not desirable to use one blanket family name.
HLL has umbrella brands, too: However, it does not mean that HLL is
totally dependant on individual branding. HLL has also developed a couple
of umbrella brands for certain product categories. Brooke Bond is being
developed as an umbrella brand for its tea and coffee products. And, Kissan
is becoming an umbrella brand for its foods line. Under Kissan, Annapurna is
being developed as another brand to cover a variety of raw food items. In the
make-up line, Lakme is being developed as an umbrella brand to cover a
variety of products, ranging from nail polish to perfumes.
4. Company trade name combined with individual product names :
The policy is followed by Kellogg (Kellogg’s Rice Krispies, Kellogg’s Raisin
Bran, and Kellogg’s Corn Flakes). Some manufacturers tie their company
name to an individual brand name for each product. The company name
legitimizes, and the individual name individualizes, the new product.

Once a company decides on its brand-name strategy, it faces the task
NOTES
of choosing a specific brand name. The company could choose the name of a
person (Honda, Estee Lauder), location (American Airlines, Kentucky Fried
Chicken), quality (Safeway, Duracell), lifestyle (Weight Watchers, Healthy
Choice), or an artificial name (Exxon, Kodak). Among the desirable qualities
for a brand name are the following :
* It should suggest something about the product’s benefits : Examples
: Beautyrest, Craftsman, Accutron.
It should suggest product qualities such as action or colour: Examples;
Sunkist, Spic and Span, Firebird.
* It should be easy to pronounce, recognize and remember: Short
names help.
Examples : Tide Crest, Puffs.
* It should be distinctive: Examples: Mustang, Kodak, Exxon.
* It should not carry poor meanings in other countries and languages :
Examples : Nova is a poor name for a car to be sold in Spanish-
speaking countries: it means “doesn’t go.”
Normally, companies choose brand names by generating a list of
possible names, debating their merits, eliminating all but a few, testing them
with target consumers, and making a final choice. Today many companies
hire a marketing research firm to develop and test names. These companies
use human brainstorming sessions and vast computer databases, catalogued
by association, sounds, and other qualities. Name-research procedures
include association tests (What images come to mind ?), learning test (How
easily is the name pronounced ?), memory tests (How well is the name
remembered ?), and preference tests (Which names are preferred ?). Of
course, the firm must also conduct searches through other databases to make
sure the chosen name hasn’t already been registered. The whole process,
however, isn’t cheap.
Many firms strive to build a unique brand name that eventually will
become intimately identified with the product category. Examples are
Frigidaire, Kleenex, Kitty Litter, Levis, Jell-O, Popsicle, Scotch Tape, Xerox,
and Fiberglas. In 1994 Federal Express officially shortened its marketing
identity to FedEx, a term that has become a synonym for “to ship overnight.”

Yet identifying a brand name with a product category may threaten the
company’s exclusive rights to that name. Cellophane and shredded wheat are
now in the public domain and available for any manufacturer to use.
Given the rapid growth of the global marketplace, companies should
choose brand names that work globally. These names should be meaningful
and pronounceable in other language. One thing Compaq liked about the
name Presario for its line of home computers is that it conjures up similar
meanings in various Latin-influenced languages.
In French, Spanish, Latin, or Portuguese, Presario has the same, or
similar, association that it does in English. It makes one immediately think of
an “Impresario,” the magical master of the whirl and fantasy of a stage
production. Companies also should not change names owned by someone in
another country. For example, Anheuser-Busch cannot use the name
“Budweiser” in Germany.
Choosing a Brand Name
There are several potential sources when a firm chooses brand names :
1. Under brand extension, an existing name is used with a new
product (Business Today)
2. For a private brand, the reseller specifies the name (St. John’s Bay—
an apparel brand of J.C. Penney).
3. If a new name is sought, these alternatives are available :
(a) Initials (HBO).
(b) Invented name (Kleenex).
(c) Numbers (Century 21).
(d) Mythological character (Samsonite luggage).
(e) Personal name (Heineken)
(f) Geographical name (Air France)
(g) Dictionary word (Scope mouthwash)
(h) Foreign word (Nestle)
(i) Combination of words, initials, numbers, etc. (Head & Shoulders
shampoo).
4. With a licensing agreement, a company pays a fee to use a name or
logo whose trademark rights are held by another firm. Due to the high
consumer recognition of many popular trademarks, sales for a product may

be raised by paying a royalty fee to use one. Examples of names used in
NOTES
licensing are Coca-Cola, Dallas Cowboys, and George Foreman.
5. In co-branding, two or more brand names are used with the same
product to gain from the brand images of each. Typically, a company uses
one of its own brand names in conjunction with another firm’s—often, via a
licensing agreement.
Name Communicating the Functions/Attributes of the Product
Most companies select brand names, which communicate the
functions/some key attributes of the product. In the above cited examples,
Goodknight, the mosquito repellant, offers a good night’s sleep; Boost is the
energy booster drink; Aquaguard gives protected water and Fair & Lovely
promises fair and lovely skin. To cite a few more examples,
When Wipro Systems offered a software programme on astrology, the
name chosen was: Jyothishi.
TVS named its tyre : Srichakra.
Shinex was the name chosen for an instant polish.
A paint for wooden furniture was named Touchwood.
The first portable stereo player was named Walkman.
Names, Which Communicate the Speciality of the Product
Some others try to communicate the speciality of the product through
the chosen name.
GM’s Opel, Ford’s Ikon, Mitsubishi’s Lancer, Suzuki’s Zen are names
intended to communicate the speciality of the respective brands. Shampoos
with names Halo, Sunsilk, and Velvette, are also trying to communicate
certain special product effects/claims. The name Taj given to the hotel chain
of Indian Hotels is an attempt to recapture and reflect the Moghul splendour.
Use of Acronyms
Sometimes brand names are acronyms. Amul originated from Anand
Milk Union Ltd.
MRF originated from Madras Rubber Factory. FIAT too has similar
origin.
Use of the Company Name

The temptation to use the company name as a brand name is also
strong. Some of the most famous brand names belong to this category : Bata,
Cadbury’s, Samsung, Philips and Sony are good examples.
Whatever is the approach in selecting a brand name, there is always a
search for some meaning/associations. It is natural because the name is the
first tool for the owner of the brand to communicate his brand’s
properties/uniqueness. The name is important because it really does some
selling.
A good brand name has several attributes, depending on the situation
: It suggests something about a product’s use or attributes (Cleanwipes moist
cleansing tissues). It is easy to spell and remember and is pronounceable in
only one way). It can be applied to a whole line of products (Eicher tractors).
It is capable of legal protection from use by others Perrier
(www.perrierusa.com). It has a pleasant or at least neutral meaning
internationally (Onvia—the business-to-business marketplace). It conveys a
differential advantage (Pert Plus).
As firms expand globally, branding takes on special significance.
Regardless of whether brands are “global” or tailored to particular markets,
their meanings must not have negative connotations or violate cultural
taboos. To make sure that this does not happen, such specialized firms as
Namestormers can devise names for clients that are acceptable around the
world. But outside of the leading power brands, which firms may want to
make into global brands, brands often must reflect the cultural and societal
diversity in the way products are positioned and used in different nations.
When branding, a firm should plan for the stage in the consumer’s
brand decision process. For a new brand, a consumer begins with non-
recognition of the name; the seller must make the person aware of it. He or
she then moves to recognition, where the brand and its attributes are known;
the seller stresses persuasion.
Next, the person develops a preference (or dislike) for a brand and
buys it (or opts not to buy); the seller’s task is to gain brand loyalty. Last,
some people show a brand insistence (or aversion) and become loyal (or
never buy); the seller’s role is to maintain loyalty. Often times, people form

preferences toward several brands but do not buy or insist upon one brand
NOTES
exclusively.
By using brand extension, a new product would begin at the
recognition, preference, or insistence stage of the brand decision process
because of the carryover effect of the established name. However, consumers
who dislike the existing product line would be unlikely to try a new product
under the same name, but they might try another company product under a
different brand.
Brand-strategy Decision
A company has five choices when it comes to brand strategy. The
company can introduce line extensions (existing brand name extended to new
sizes or flavours in the existing product category), brand extensions (brand
names extended to new-product categories), multibrands (new brand names
introduced in the same product category), new brands (new brand name for a
new category product), and cobrands (brands bearing two or more well-
known brand names).
Line Extensions. Line extensions consist of introducing additional
items in the same product category under the same brand name, such as new
flavour, forms, colours, added ingredients, and package sizes. The vast
majority of new-product introductions consists of line extensions.
Many companies are now introducing branded variants, which are
specific brand lines supplied to specific retailers or distribution channels.
They result from the pressure retailers put on manufacturers to enable the
retailers to provide distinctive offerings. A camera company may supply its
low-end cameras to mass merchandisers while limiting its higher-priced
items to specialty camera shops.
Line extension involves risks and has provoked heated debate among
marketing professionals. On the downside, extensions may lead to the brand
name losing its specific meaning; Ries and Trout call this the “line-extension
trap.” When a person asked for a Coke in the past, she received a 6.5-ounce
bottle. Today the seller will have to ask : New, Classic or Cherry Coke ?
Regular or diet ? Caffeine or caffeinefree ? Bottle or can ? Sometimes the
original brand identity is so strong that its line extensions serve only to
confuse and don’t sell enough to cover development and promotion costs.

However, line extensions can and often do have a positive side. They
have a much higher chance of survival than brand-new products. Some
marketing executives defend line extensions as the best way to build a
business.
Line extensions are also fueled by fierce competition in the
marketplace, calling for matching competitors’ new offerings. Nabisco has
had such success with its Snackwell Fat Free cookies that every competitor
has had to extend its product line in defence.
One study, by Reddy, Holak, and Bhat, examined what makes a line
extension succeed or fail. Data on 75 line extensions of 34 cigarette brands
over a 20-year period yielded these findings : Line extensions of strong
brands, symbolic brands, brands given strong advertising and promotion
support, and those entering earlier into a project subcategory are more
successful. The size of the company and its marketing competence also play a
role.
Surf: In detergents, HLL launched Surf Ultra, Surf Excel, Surf
Excelmatic and International Surf Excel as line extensions of Surf.
Colgate: There are many line extensions of Colgate, Salt, Vedshakti
being the new additions. All of them exist under the strength of the mother
brand Colgate and simultaneously contribute to the spreading of the Colgate
tentacles to new market segments. What Colgate alone could not do—
fighting competition, increasing corporate revenue and profits—is now being
accomplished by the new Colgate additions, especially Colgate Gel, Herbal
and Cibaca Top.
Lifebuoy Gold : One more extension appeared for the urban
consumer, Lifebuoy Gold; it broke away from the traditional red colour of
Lifebuoy; it was pure white, had different fragrance and was higher priced.
Liquid Lifebuoy : By this time, Liquid Lifebuoy also staged its entry to
strengthen the brands’ presence in the urban market. It was a modern
product form.
In the rural markets, Lifebuoy continued its dominance in spite of
competition; there was the stubborn Lifebuoy user in the rural areas, who
continued to patronise the brand. The line extensions—Lifebuoy Personal,

Lifebuoy Plus and Lifebuoy Gold and the campaigns around them helped
NOTES
strengthen the brand name Lifebuoy to a great extent.
Lifebuoy Active : But by the late 1990s, Lifebuoy was again under
pressure. To quote HLL : ‘Lifebuoy has been facing pressure; Carbolic soaps
are being challenged by cheap fatty-matter based soaps. We are taking a
series of measures to counter it.’
HLL then came out with another extension, Lifebuoy Active, to take
on the challenge posed by non-carbolics.
While Lifebuoy continues its fight into the next century of its growth,
HLL is endeavouring to keep Lifebuoy young and novel. The parent brand
and the extensions together enhance the competitiveness of HLL’s soaps line.
Lifebuoy remains the largest selling soap brand in India and a big
revenue/profit earner for HLL.
Advantages of Line Extension :
* Line extensions help strengthen brand power and keep the brand
live, modern and contemporary. Surf Ultra and Surf Excel help Surf remain
modern and also strengthen its claim as a major player in detergents.
* Changing consumer tastes can be accommodated through line
extensions. Every change in consumer tastes may not warrant an altogether
new brand.
* Usually, mounting advertising and promotion costs necessitate a
reduction in the brand portfolio of any firm. Line extensions help the firm to
contain its brand portfolio.
* Line extensions provide a convenient route for infusing new values
into an ongoing brand and gaining presence in new markets.
* Sometimes, companies add independent brands to a product line,
but later they find these brands cannot stand independently and then they
bring it under an ongoing strong brand, i.e., they revert to line extensions.
Nestle, for example, first made Sunrise an independent brand and later
reverted it as a line extension of Nescafe and called it Nescafe Sunrise.
Brand Extensions. A company may use its existing brand name to
launch new products in other categories. Honda uses its company name to
cover such different products as automobiles, motorcycle, snowblowers, lawn

mowers, marine engines, and snowmobiles. This allows Honda to advertise
that it can fit “six Hondas in a two-car garage.”
Brand-extension strategy offers many of the same advantages as line
extensions. Sony puts its name on most of its new electronic products and
instantly establishes the new product’s high quality. Like line extension,
brand extension also involves risks. The new product might disappoint
buyers and damage their respect for the company’s other products. The
brand name may be inappropriate to the new product—consider buying
Castrol Oil ketchup, Drano milk, or Boeing cologne. The brand name may
lose its special positioning in the consumer’s mind through overextension.
Brand dilution occurs when consumers no longer associate a brand with a
specific product or highly similar products. A brand is stronger the more
narrow its focus.
Companies that are tempted to transfer their brand name must
research how well the brand’s associations fit the new product. The best
result would occur when the brand name builds the sales of both the new
product and the existing product. An acceptable result would be one in which
the new product sells well without affecting the sales of the existing product.
The worst result would be one in which the new product fails and hurts the
sales of the existing product.
Maggi initially was a brand of noodles. Later, the brand name was
extended to other product lines in the related category food—Maggi Ketchup,
Maggi Soup, etc. It is a case of related brand extension. Maggi’s ‘Instant
culinary’ expertise was extended to related food items. This is called related
brand extension or category extension.
Dettol : For years, Dettol has been a well-known brand of antiseptic
lotion. When the company, Reckitt & Colman, decided to expand into new
antiseptic products, they decided to launch them under the Dettol brand
name, i.e., as brand extensions in related category. They felt that it would
enable the new products to gain immediate identification as sister products of
Dettol and they would easily move under the Dettol name. The Dettol brand
name was extended to a number of related products as shown follow :
Dettol Soap—antiseptic soap
Dettol Plaster—antiseptic bandage

Dettol Handwash—antiseptic wash
NOTES
Why Firms Opt for Brand Extension ?

* Helps the new item to acquire instant brand recognition.
* Saves costs; a brand extension costs much less than launching a new
brand; today, for sheer economic reasons, more and more firms are resorting
to brand extensions.
* Helps leverage the strength of the existing brand to new additions
within the line, within the category and outside the category.
* When a brand lends for premium pricing, benefit of brand extension
is all the more significant.
* If an existing brand name can be extended across totally new and
unrelated categories of products, the benefit is particularly large. It’s a
tremendously less expensive way of introducing new products.
* Extensions also help built the brand into a ‘superbrand’ in the minds
of consumers.
It creates an extendable brand canopy with high scaope for profits.
Main Requirements for Success of Brand Extension
For brand extension to succeed, three basic requirements covering the

mother brand and the extensions must be met. These are :
(i) In customer’s perception, there must be consistency between the
parent brand and the extensions.
(ii) Extension should be in the brand’s area of expertise, so that there
is scope for leverage.
(iii) Benefit transfer.
Let us discuss them one by one.

(i) Consistency Factor
Consumers must perceive the extended item to be consistent with the
mother brand.
This is difficult to achieve when the extension is to unrelated/outside
the category products.

In the case of Pond’s, in consumer’s perception, there was no
consistency between the ‘mother’, Pond’s talcum powder, and the extension,
Pond’s toothpaste. This extension suffered in the market.
(ii) Brand’s Area of Expertise
As a rule, extension of brand name has a better chance of success
when it is to a product, which is within the brand’s area of expertise.
Consumers then find the extension credible. For example, Surf’s extension to
Surf Ultra and Lifebuoy’s extension to Lifebuoy Plus were within the parent
brand’s area of expertise. Similarly, Lipton had great expertise in tea. But, in
the consumers’ perception, biscuits needed a different expertise altogether.
On the contrary. Maggi’s extension of its ‘instant culinary’ expertise across
food categories—from noodles to ketchups, soups, and pickles—looked
natural to the consumer.
(iii) Benefit Transfer
Another tenet in brand extensions is that the mother brand’s benefit
must be transferable and be transferred to extensions, because consumers
expect and desire the benefit offered by the parent brand in the extensions.
Thus, users of 5-Star ice cream will expect the same kind of gratification as
they have received from 5-Star chocolate.
In unrelated/outside category extensions, all the three conditions
mentioned above are under strain; it is difficult to fulfill these conditions.
And that is why the risk of brand extension is higher in such cases.
Multibrands. A company will often introduce additional brands in the
same product category. Sometimes the company is trying to establish
different features or appeal to different buying motives. Thus, P&G produces
nine different brands of detergents. A multibranding strategy also enables the
company to lock up more distributor shelf space and to protect its major
brand by setting up flanker brands. Seiko establishes different brand names
for its higher-priced (Seiko Lasalle) and lower-priced watches (Pulsar) to
protect its flanks. Sometimes the company inherits different brand names in
the process of acquiring competitors.
A major pitfall in introducing multibrand entries is that each might
obtain only a small market share, and none may be particularly profitable.

The company will have dissipated its resources over several brands instead of
NOTES
building a few highly profitable brands.
Ideally, a company’s brands within a category should cannibalize the
competitor’s brands and not each other. At the very least the net profits with
multibrands should be larger even if some cannibalism occurs.
New Brands. When a company launches products in a new category,
it may find that none of its current brand names are appropriate. If Timex
decides to make toothbrushes, it is not likely to call them Timex toothbrushes.
Yet establishing a new brand name in the U.S. marketplace for a mass-
consumer packaged good can cost anywhere from $50 million to $100 million.
Cobrands. A rising phenomenon is the emergence of cobranding (also
called dual branding), in which two or more well-known brands are
combined in an offer. Each brand sponsor expects that the other brand name
will strengthen preference or purchase intention. In the case of copackaged
products, each brand hopes it might be reaching a new audience by
associating with the other brand.
Many manufacturers make components—motors, computer chips,
carpet fibers—that enter into final branded products, and whose individual
identity normally gets lost. These manufacturers hope their brand will be
featured as part of the final product. Among the few component branders
that have succeeded in building a separate identity is Intel. Intel’s consumer-
directed brand compaign convinced many personal computer buyers to buy
only computer brands with “Intel Inside”. As a result, major PC
manufacturers—IBM, Dell, Compaq—purchase their chips from Intel at a
premium price rather than buy equivalent chips from an unknown supplier.
Despite these success stories, most component manufactures find it hard to
convince buyers to insist on a certain component, material, or ingredient in
the final product. A consumer is not likely to choose a car because it features
Champion spark plugs or Stainmaster upholstery.
Brand Repositioning
However well a brand is currently positioned, the company may have
to reposition it later when facing new competitors or changing customer
preferences. Consider the following repositioning story :

* 7-up. 7-up was one of several soft drinks bought primarily by older
people who wanted a bland, lemon-flavoured drink. Research indicated that
although a majority of soft drink consumers preferred a cola, they did not
prefer it all the time, and many other consumers were non-cola drinkers. 7-
Up went for leadership in the noncola market by calling itself the Uncola. The
campaign featured the Uncola as a youthful and refreshing drink, the one to
reach for instead of a cola. 7-Up established itself as the alternative to colas,
not just another soft drink.
Logo
Selecting the Logo

Along with the brand name, companies also use a logo for visual
identification. Logo enhances recognition by the provision of a symbol of
identity. A logo is a pictorial symbol intended to communicate with the
consumers. It is an accompaniment to the brand name and the two together
identify a company’s product. Flags, mascots, pictures, graphic designs or
plain alphabets are all used as logos. The logo is a piece of creativity.
Marketers have understood that a logo/mascot, with a well-defined
personality, can greatly increase memorability, aid recall and help sales. The
mascot’s special traits tend to have a rub off on the brand and help sales. And
over time, the symbol and the brand become inseparable. Exhibit presents
some well-known logos.
The logo can be made of anything—words, alphabets, pictures,
graphics or even a splash of colours.
Dos and Don’ts in Logo Selection
The logo should fulfil the requirements of media suitability. It has to
be reproduced on various media like the print, television and other electronic
vehicles. It should also lend for attractive reproduction on different surfaces
like glass and plastics. It should also have the flexibility to accommodate
national/global and business-to-business marketing contexts.
The memory value of the logo is also very important. If one attempts
to pack everything into the logo, then people may not remember anything.

So, one has to be very choosy about the features to be incorporated in the
NOTES
logo. The design must aid memorability.
Uniqueness is another aspect. The more exclusive the symbol, the
better the identification and response.
Changing the Logo
Though a logo is a relatively permanent entity for a company,
sometimes changes are warranted. And, companies do change logos with the
passage of time. They completely alter the logo or modify it depending on the
need.
Eicher : Eicher had the head of a horse as their logo for over three
decades. The logo served its purpose as long as Eicher remained a one-
product company, making only tractors; the logo stood for the power and
sturdiness of the tractor. When Eicher diversified into many unrelated fields,
including financial services and consultancy, there was a need to show the
company’s new face. The logo was modified subtly to show the fast pace set
by the company; the new logo showed the movement of a galloping horse.
Singer : The 150-year-old American company Singer had the alphabet
‘S’ and the picture of a lady in bonnet using the sewing machine as its logo.
Almost a century later, this was dropped, instead the name ‘Singer’ was
adopted. The earlier logo was more appropriate when the company was
manufacturing only sewing machines. After diversifying into a variety of
house-hold appliances, the company had to adopt a new logo, relevant to the
company’s altered range of products.
Goodlass Nerolac : When the paint company Goodlass Nerolac chose
a tiger as its mascot, it fitted its requirements : it stood for bright lasting
colours. Goody, as the mascot was called, figured in all communications of
the company. But today, it is played down. ‘We have deliberately
underplayed him to avoid tedium. Moreover,
Nerolac has built up a name for itself and today our priority is the
omnibus brand name ‘Nerolac itself.’
Brand Name, Logo and Slogan
The three go together; they must be compatible, one reinforcing the
other. Let us see a few examples.

PACKAGING
Packaging
Packaging is the part of product planning where a firm researches,
designs, and produces package(s). A package is a container used to protect,
promote, transport, and/or identify a product. It may consist of a product’s
physical container, an outer label, and/or inserts. The physical container may
be a cardboard, metal, plastic, or wooden box; a cellophane, waxpaper, or
cloth wrapper; a glass, aluminium, or plastic jar or can; a paper bag;
styrofoam; some other material; or a combination of these. Products may
have more than one container : Cereal is individually packaged in small
boxes, with inner waxpaper wrapping, and shipped in large corrugated
boxes; watches are usually covered with cloth linings and shipped in plastic
boxes. The label indicates a product’s brand name, the company logo,
ingredients, promotional messages, inventory codes, and/or instructions for
use. Inserts are (1) instructions and safety information placed in drug, toy,
and other packages or (2) coupons, prizes, or recipe booklets. They are used
as appropriate.
About 10 percent of a typical product’s final selling price goes for its
packaging. The amount is higher for such products as cosmetics (as much as
40 percent or more). The complete package redesign of a major product might
cost millions of dollars for machine and production. Packaging decisions
must serve both resellers and consumers. Plan are often made in conjunction
with production, logistics, and legal personnel. Errors in packaging can be
costly.
A package involves decisions as to a product’s physical container,
label, and inserts.
Package redesign may occur when a firm’s current packaging receives
a poor response from channel members and customers or becomes too
expensive; the firm seeks a new market segment, reformulates a product, or
changes or updates its product positioning, or new technology is available.
We define packaging as follows :
* Packaging includes the activities of designing and producing the
container for a product.

The container is called the package, and it might include up to three
NOTES
levels of material.
Old Spice aftershave lotion is in a bottle (primary package) that is in a
cardboard box (secondary package) that is in a corrugated box (shipping
package) containing six dozen boxes of Old Spice.
Packaging has become a potent marketing tool. Well-designed
packages can create convenience and promotional value. Various factors have
contributed to packaging’s growing use as a marketing tool :
* Self-service : An increasing number of products are sold on a self-
service basis.
In an average supermarket, which stocks 15,000 items, the typical
shopper passes by some 300 items per minute. Given that 53 percent of all
purchases are made on impulse, the effective package operates as a “five-
second commercial.” The package must perform many of the sales tasks :
attract attention, describe the product’s features, create consumer confidence,
and make a favourable overall impression.
* Consumer affluence : Rising consumer affluence means consumers
are willing to pay a little more for the convenience, appearance,
dependability and prestige of better packages.
* Company and brand image : Packages contribute to instant
recognition of the company or brand. The Campbell Soup Company
estimates that the average shopper sees its familiar red and white can 76
times a year, creating the equivalent of $26 million worth of advertising.
* Innovation opportunity : Innovative packaging can bring large
benefits to consumers and profits to producers. Softsoap cornered the market
on pumps for dispersing soap. Toothpaste pump dispensers have captured 12
percent of the toothpaste market because they are more convenient and less
messy.
Chesebrough-Pond’s increased its overall nail-polish sales by 22
percent after introducing its novel Aziza Polishing Pen for fingernails.
Developing an effective package for a new product requires several
decisions. The first task is to establish the packaging concept : defining what
the package should basically be or do for the particular product. Decisions
must now be made on additional elements—size, shape, materials, colour,

text, and brand mark. Decisions must be made on the amount of text, on
cellophane or other transparent films, on a plastic or a laminate tray, and so
on. Decisions must be made on “tamperproof” devices. The various
packaging elements must be harmonized. The packaging elements must also
be harmonized with decisions on pricing, advertising, and other marketing
elements.
After the packaging is designed, it must be tested. Engineering tests
are conducted to ensure that the package stands up under normal conditions;
visual tests, to ensure that the script is legible and the colours harmonious;
dealer tests, to ensure that dealers find the packages attractive and easy to
handle; and consumer tests, to ensure favourable consumer response.
Developing effective packaging may cost several hundred thousand
dollars and take several months to complete. Companies must pay attention
to growing environmental and safety concerns about packaging. Shortages of
paper, aluminium, and other materials suggest that marketers should try to
reduce packaging. Many packages end up as broken bottles and crumpled
cans littering the streets and countryside. All of this packaging creates a major
problem in solid waste disposal, requiring huge amounts of labor and energy.
Fortunately, many companies have gone “green” : S.C. Johnson repackaged
Agree Plus shampoo in a stand-up pouch using 80 percent less plastic.
P&G eliminated outer cartons from its Secret and Sure deodorants,
saving 3.4 million pounds of paper broad per year.
* Tetra Pak. Tetra Pak, a major Swedish multinational, provides an
example of the power of innovative packaging and customer thinking. Tetra
Pak invented an “aseptic” package that enables milk, fruit juice, and other
perishable liquid foods to be distributed without refrigeration. This allows
dairies to distribute milk over a wider area without investing in refrigerated
trucks and facilities. Supermarkets can carry Tetra Pak packaged products on
ordinary shelves, allowing them to save expensive refrigerator space. Tetra’s
motto is “the package should save more than it cost.” Tetra Pak advertises the
benefits of its packaging to consumers directly and even initiates recycling
programs to save the environment.
Basic Packaging functions

The basic packaging functions are containment and protection, usage,
NOTES
communication, segmentation, channel cooperation, and new-product
planning :
Packaging functions range from containment and protection to
product planning.
* Containment and protection—Packaging enables liquid, granular
and other divisible products to be contained in a given quantity and form. It
protects a product while it is shipped, stored, and handled.
* Usage—Packaging lets a product be easily used and re-stored. It
may even be reusable after a product is depleted. Packaging must also be safe
for all, from a young child to a senior.
* Communication—Packaging communicates a brand image, provides
ingredients and directions, and displays the product. It is a major promotion
tool.
* Segmentation—Packaging can be tailor-made for a specific market
group. If a firm offers two or more package shapes, sizes, colours, or designs,
it may employ differentiated marketing.
* Channel cooperation—Packaging can address wholesaler and
retailer needs with regard to shipping, storing, promotion and so on.
* New-product planning—New packaging can be a key innovation for
a firm and stimulate sales.
Factors Considered in Packaging Decisions
Several factors must be weighed in making packaging decisions.
Because package design affects the image a firm seeks for its products,
the colour, shape and material all influence consumer perceptions. Thus,
“After 115 years, Listerine Antiseptic changed from glass to plastic in its most
popular bottle sizes, as well as redesigned the classic barbell-shaped package
that signified amber mouthwash—and ‘medicine-y’ taste to generations of
consumers. The product inside is the same. We wanted to modernize it from
the package in your grandmother’s cabinet.
In family packaging, a firm uses a common element on each package
in a product line.
It parallels family branding. Campbell has virtually identical packages
for its traditional soups, distinguished only by flavour or content

identification. American Home Products, maker of Advil and Anacin pain
medicine, does not use family packaging with these brands; they have
distinct packages to lure different segments.
A global firm must decide if a standardized package can be used
worldwide (with only a language change on the label). Standardization
boosts global recognition. Thus, Coke and Pepsi have standard packages
when possible. Yet, some colours, symbols, and shapes have negative
meanings in some nations. For example, white can mean purity or mourning,
two vastly different images. Tide detergent has different packaging in
Shanghai, China, than in the United States.
Package costs must be considered on both a total and per-unit basis.
As noted earlier, total costs can run into the millions of dollars, and per-unit
costs can go as high as 40 percent or more of a product’s price—depending on
the purpose and extend of packaging A firm has many packaging materials
from which to select, such as paperboard, plastic, metal, glass, styrofoam, and
cellophane. In the choice, trade-offs are probably needed:
Cellophane allows products to be attractively displayed, but it is
highly susceptible to tearing: paperboard is relatively inexpensive, but it is
hard to open. A firm must also decide how innovative it wants its packaging
to be. Aseptic packaging (for milk and juice boxes) allows beverages to be
stored in special boxes without refrigeration. They are more popular in
Europe than in the United States.
There is a wide range of package features from which to choose,
depending on the product. These features include pour spouts, hinged lids,
screw-on tops, pop-tops, seethrough bags, tuck or seal-end cartons, carry
handles, product testers (for items like batteries), and freshness dating. They
may provide a firm with a differential advantage.
A firm has to select the specific sizes, colours, and shapes of its
packages. In picking a package size, shelf life (how long a product stays
fresh), convenience, tradition, and competition must be considered. In the
food industry, new and larger sizes have captured high sales. The choice of
package colour depends on the image sought. Mello Yello, a citrus soft drink
by Coca-Cola, has a label with bright orange and green lettering on a lemon-
yellow background, Package shape also affects a product’s image. Hanes

created a mystique for L’eggs pantyhose via the egg-shaped package. The
NOTES
number of packages used with any one product depends on competition and
the firm’s use of differentiated marketing. By selling small, medium, and
large sizes, a firm may ensure maximum shelf space, appeal to different
consumers, and make it difficult and expensive for a new company to gain
channel access.
The placement, content, size, and prominence of the label must be set.
Both company and brand names (if appropriate) need to appear on the label.
The existence of package inserts and others useful information (some
required by law) should be noted on the label. Sometimes, a redesigned label
may be confusing to customers and hurt a product’s sales.
Multiple packaging couples two or more product items in one
container. It may involve the same product (such as razor blades) or combine
different ones (such as a first-aid kit). The goal is to increase usage (hoarding
may be a problem), get people to buy an assortment of items, or have people
try a new item (such as a new toothpaste packaged with an established
toothbrush brand). Many multiple packs, like cereal, are versatile— they can
be sold as shipped or broken into single units.
Individually wrapping portions of a divisible product may offer a
competitive advantage.
It may also be costly. Kraft has done well with its individually
wrapped cheese slices.
Alka-Seltzer sells tablets in individually wrapped tin-foil containers,
as well as in a bottle without wrapping.
For certain items (such as shirts, magazines, watches and candy),
some resellers may want pre-printed prices. They then have the option of
charging those prices or adhering their own labels. Other resellers prefer only
a space for the price on the package and insert their own price label
automatically. Because of the growing use of computer technology by
resellers in monitoring their inventory levels, more of them are insisting on
pre-marked inventory codes on packages. The National Retail Federation
endorses the Universal Product Code as the voluntary vendor marking
standard in the United States.

With the Universal Product Code (UPC), manufacturers pre-mark
items with a series of thick and thin vertical lines. Price and inventory data
bar codes are represented by these lines, which appear on outer package
labels but are not readable by employees and customers. Lines are “read” by
computerized scanning equipment at the checkout counter; the cashier does
not have to ring up a transaction manually and inventory data are instantly
transmitted to the main computer of the retailer (or manufacturer). In the
UPC system, human-readable prices must still be marked, either by the
manufacturer or the reseller.
Last, a firm must be sure the package design fits in with the rest of its
marketing mix.
A well-known perfume may be extravagantly packaged, distributed
in select stores, advertised in upscale magazines, and sold at a high price. In
contrast, a firm making perfumes that imitate leading brands has more basic
packages, distributes in discount stores, does not advertise, and uses low
prices. The two brands may cost an identical amount to make, but the
imitator would spend only a fraction as much on packaging.
At its Web site, Chamber Biz (www.chamberbiz.com) has a very good
discussion about package design, including its relationship with brand
positioning, the use of graphics, and reflecting target market values. In the
tool bar at the left of the screen, go to “Expand Your Business” and click on
“Sales/Marketing,” Then, scroll down to “Packaging and pricing your
product.”
Criticisms of Packaging
The packaging practices of some industries and firms have been
heavily criticized and regulated due to their impact (or potential impact) on
the environment and scarce resources, the high expenditures on packaging,
questions about the honesty of labels and the confusion caused by
inconsistent designations of package sizes (such as large, family, super), and
critics perceptions of inadequate package safety.
Yet, consumers—as well as business—must bear part of the
responsibility for the negative results of packaging. Throwaway bottles
(highly preferred by consumers) use almost three times the energy of

returnable ones. Shoplifting annually adds to packaging costs because firms
NOTES
must add security tags and otherwise alter packages.
In planning their packaging programs, firms need to weigh the short-
term and longterm benefits and costs of providing environmentally safer
(“green”), less confusing, and more tamper-resistant packages. Generally,
firms are responding quite positively to the criticisms raised here.
Package Materials
Changing trends—from wood to paper and plastics : Over the years a
great deal of changes have taken place in the materials used for packaging. In
the earlier days, wood was the main material used. It has slowly given place
to paper and paperboard, especially on account of the shortage in wood
supplies. Paperboard cartons, paper bags and corrugated boards have
become popular forms of packaging for a variety of products, from groceries
to garments.
Metal containers are also popular. Metal containers are an excellent
packaging medium for processed foods, fruit, vegetables, meat products, oil,
paint, etc. However, the acute shortage of tin in India makes metal packaging
rather costly. In recent years, aluminium-based packaging has become
popular. It is used in the form of foil, foilbased laminates, cans, pilfer-proof
caps, etc. Products like tea, coffee, and spices have adopted aluminium foil
packaging.
Plastics, the new packing medium : With the growth of the
petrochemical industry; a new range of packaging materials have entered the
marketing scene. Films of lowdensity and high-density polyethylene (LDPE
and HDPE), metalised polyester film, metalised polyester laminates and
polypropylene have become the preferred packaging medium for several
products. In fact, such packaging materials have to a large extent replaced the
traditional medium of paper, metal and jute.
This new family of synthetic packaging materials, generally known as
‘plastics’, have several merits such as : (i) waterproof and moisture proof
property, (ii) capacity to provide effective barrier to vapour, (iii) greater
resistance to sun exposure, (iv) thermal stability, (v) light weight, (vi) alkali
and acid proof property, and (vii) attractiveness and transparency.

They also allow attractive printing/branding on them. Plastics as a
group are now dominating the packaging field in India. They are now used in
a variety of packaging applications—from simple grocery bags to
sophisticated stretch blown bottles. Popular brands like Tata Tea, Nescafe,
Dalda, Amul milk chocolates and even agricultural inputs like chemical
fertilisers have all gone in for plastic packaging materials.
More innovations in packaging : The continuous search for improved
types of packing has led to a stream of innovations. These innovations have
embraced packaging materials, package design, package a esthetics and
package convenience. Also, the innovations have been brought in with a view
to reducing the costs of packaging and enhancing the shelf life of the product.
Tetrapacks : Tetrapacks or aseptic packaging is the new development
in food packaging. Here, the package as well as the contents are sterilised and
human handling dispensed with. The package consists of several thin layers
of polyethylene foil and paper. Several manufacturers of fruit juices and fruit
drinks are now using tetrapacks.
Tetrapacks have an edge over cans since their contents have a shelf
life of three months without the addition of preservatives.
Parle’s Frooti and Godrej’s Jump in were the early ones to go in for
aseptic tetrapacks.
Fruit juice brands like Onjus and Tropicana have joined them and
now many other brands are opting for tetrapacks.
Package Aesthetics
For enhancing the sales appeal of the package, more and more
attention is now being given to package aesthetics. Marketing men are always
in search of packaging materials, package designs and package sizes and
shapes that will enhance the sales appeal of their products. Marketing men,
especially in consumer products, rely heavily on package aesthetics as a
powerful tool for sales appeal, brand identification and product
differentiation.
When the shape and looks of the product is integral to its appeal,
innovative packaging can greatly help in generating trials. Hindustan Lever’s
LeSancy soap, with its unique bean shape, was packaged in transparent
polythene to exhibit the shape. For the first time in soap category, the

customer could see the unique shape, colour and appearance of the product.
NOTES
The packaging strongly influence high trial purchases.
In some cases, packaging also facilitates merchandising. The package
as a silent salesman and in projecting the right image of the product is
discussed in the chapter.
Suffice here to say that the size and shape of the package, the material
used, the finish, the colour, the labelling, etc., are all influential components
of the total sales appeal of the product.
Package Size and Convenience
Along with packaging aesthetics, package size and convenience also
contribute to the total product appeal.
Pond’s cold cream and Brylcream in tubes : Earlier, Pond’s cold cream
was coming in a bottle container. And, it was intended and used as a dressing
table item.
Subsequently, Pond’s introduced the cream in a handy plastic tube.
The new package changed the very concept of the product. From a dressing
table item, it also became a carry-along product. This change in package
increased the sales of Pond’s cold cream.
The same was the case with Brylcream. Earlier, this hair-cream used to
come only in bottle containers. Later, Brylcream appeared in a convenient
tube, Brylcream in the new package became a convenient, carry-along,
dressing item.
Application convenience of Harpic : Harpic liquid toilet cleaner is
another product that has successfully exploited the concept of customer
convenience in packaging.
The container, fitted with a nozzle for cleaning the toilet, gives Harpic
an advantage over other similar products, which pose application problems
for consumers.
The beer can : The beer can serves as one of the best examples of
packaging convenience. Opening the can is so simple an action and requires
no instructions whatsoever. The design is based on an understanding of
people’s basic pattern of expectations. Confronted with the ring when given a
beer can, what would you do but pull it.

Fractional packaging : Providing ‘fractional package’ or small unit
package is also a method of going with customer preference and convenience.
Toothpastes are now available in 200 gm packing as well as in 50 gms
packing.
Economy pack : The economy or family package makes available the
product in larger size. Households with several members can buy the
economy packs and avoid the inconvenience of repeat purchases, making a
saving in the bargain.
Sachets : More recently, the tiny pack, sachet, is becoming popular.
Many consumer products like soups, beverages, candy, cough syrup,
toothpaste, digestive salts, hair oil and shampoo are now being popularised
through sachets. The use of sachets gained popularity with the arrival of pan
masala in the 1980s. Now, sachets have become a key marketing tool for
penetrating rural markets, for inducing product trials and even enticing the
casual user. Some estimates put the turnover of consumer goods marketed in
sachets at Rs. 500 crore per annum. In shampoo, brands like Sunsilk and
Velvette, were the pioneers; they gained a lot of penetration in the rural
markets through sachets.
The low unit price of sachets (e.g., Sunsilk Rs. 1.50, Velvette Rs. 1)
made them affordable even to the lower end of the market and helped in
speedy trial and adoption.
Today, almost all shampoo brands are available in sachets and more
than half the total shampoo sales is in sachets.
Reusable containers : Providing reusable containers is another way of
enhancing product appeal. Nescafe at a point of time came in a glass jar,
which could be later used as a glass. And the Nescafe campaigns persuaded
the customers to collect a set of such glasses. Plastic containers, (e.g., Rath and
Dalda) lend themselves for reuse in the kitchen store. Bournvita in the 200 gm
handle-jar was much sought after by the housewife. Bournvita was also sold
in smaller drinking mugs and pet jars. Cadbury’s cocoa was introduced in a
special ‘measuring glass cup’.
Refill packs : Refill packaging is also related to customer convenience
and economy.

Several product categories like health drinks, coffee and tea and
NOTES
cooking oils are now coming in refill packs. Brands like Nescafe, Bru,
Bournvita, Maltova, Suffola, etc., are examples. The refill packs are sold at a
slightly lesser price than the regular package and that itself serves as a sales
promotion support.
Quite often, marketers use packaging for product renovation too.
They change the package to give a new look to the product : no changes are
brought about in the product; only the package is changed in an attempt to
set right a declining trend in sales. The product is then advertised as new. In
some other cases, the package is changed even when the sales are going up.
The intention is to retain the interest of the existing customers and to attract
new groups of customers.
Labelling
Sellers must label products. The label may be a simple tag attached to
the product or an elaborately designed graphic that is part of the package.
The label might carry only the brand name or a great deal of information.
Even if the seller prefers a simple label, the law may require additional
information.
Labels perform several functions. First, the label identifies the product
or brand—for instance, the name Sunkist stamped on oranges. The label
might also grade the product; canned peaches are grade labelled A, B and C.
The label might describe the product : who made it, where it was made, when
it was made, what it contains, how it is to be used, and how to use it safely.
Finally, the label promote the product through its attractive graphics.
Labels eventually become outmoded and need freshening up. The
label on Ivory soap has been redone 18 times since the 1890s, with gradual
changes in the size and design of the letters. The label on Orange Crush soft
drink was substantially changed when competitors’ labels began to picture
fresh fruits, thereby pulling in more sales. In response, Orange Crush
developed a label with new symbols to suggest freshness and with much
stronger and deeper colours.
There is a long history of legal concerns surrounding labels, as well as
packaging. In 1914, the Federal Trade Commission Act held that false,
misleading, or deceptive labels or packages constitute unfair competition. The

Fair Packaging and Labeling Act, passed by Congress in 1967, set mandatory
labelling requirements, encouraged voluntary industry packaging standards,
and allowed federal agencies to set packaging regulations in specific
industries. The Food and Drug Administration (FDA) has required
processed-food producers to include nutritional labelling that clearly states
the amounts of protein, fat, carbohydrates, and calories contained in
products, as well as their vitamin and mineral content as a percentage of the
recommended daily allowance. The FDA recently launched a drive to control
health claims in food labeling by taking action against the potentially
misleading use of such descriptions as “light”, “high fiber” and “low fat.”
Consumerists have lobbied for additional labelling laws to require
open dating (to describe product freshness), unit pricing (to state the product
cost in standard measurement units), grade labelling (to rate the quality
level), and percentage labelling (to show the percentage of each important
ingredient).
LABELLING—TELLING ABOUT THE PRODUCT

Label : The paper or plastic sticker attached to a container to carry
product information. As packaging technology improves, labels become
incorporated into the protective aspects of the package rather than simply
being affixed to the package.
The paper or plastic sticker attached to a can of peas or a mustard jar
is technically called a label. But as packaging technology improves and cans
and bottles become less prominent, labels become incorporated into the
protective aspects of the package.
In the case of a box of frozen broccoli, for example, a good portion of
the vegetable’s protection comes from the label, which is more properly
called, in this case, the wrapper. Whether the label is a separate entity affixed
to a package or is, in effect, the package itself, it must perform certain tasks. It
carries the brand name and information concerning the contents of the
package, such as cooking instructions and information relating to safe and
proper use of the product. A label may also carry instructions for the proper
disposal of the product and its package, or at least a plea to consumers to
avoid littering.

The label must contain any specific nutritional information, warnings,
NOTES
or legal restrictions required by law. Some labels, such as those of Procter &
Gamble, also give an 800 telephone number that customers with ideas or
complaints can use. Consumers’ calls are a major source of Procter &
Gamble’s product improvement ideas.
Universal Product Code (UPC). The array of black bars, readable by
optical scanners, found on many products. The UPC permits computerization
of tasks such as checkout and compilation of sales volume information.
Most consumer packaged goods are labeled with an appropriate
Universal Product Code (UPC), and array of black bars readable by optical
scanners. The advantages of the UPC—which allow computerized checkout
and compiling of computer-generated sales volume information—have
become clear to distributors, retailers and consumers in recent years.
Global Implications and Legal Guidelines for Packaging

Package designers are relatively free to develop package designs.
However, when the package will be used in several countries, marketers
must determine whether to use a single package with one language, a single
package with two or more languages, or multiple packages tailored to the
separate countries. Decisions about use of colours and symbols, protection in
transit over long distances, etc. should also be made.
5.6 NEW PRODUCT DEVELOPMENT
. It is that observed in the Indian market between 40-50% of products

sold in the market did not exist some ten years ago. The market is flooded
with many new products like plasma television, dishwashers, more powerful
and stylish motorbikes and new generation cars. These products were not
available some ten years ago. In certain product categories like fast moving
consumer goods, products introduced in the last five years’ account for
twenty percentage of annual sales. Number of new products excluding
extensions and product modifications introduced to the market in last ten
years varies from one company to another. Companies like Sony, Nokia,

Microsoft, and Apple are known for introducing good quality products over
the years. It is the same case with business markets where more innovations
and new products have been introduced in the last few years.
The term ‘new product’ has many connotations. Most definitions of
new-product have a common feature that new products offer innovative
benefits. Everett M. Rogers observes that some researchers have favoured a
consumer-oriented approach in defining new products. Consulting firm of
Booz, Allen, and Hamilton in their survey found that products introduced by
700 US companies over a period of five years were not equally “new.” The
study identified six new product categories based on their degree of newness
as perceived by both the company and the customers in the target markets.
‘New to the World’ Products: 10 per cent were true innovations,
not just new to the company. Such products create an entirely new market.
Example: The Internet, when entered the market was a never seen and
accessed service in the history of the world. It had made data accessible and
available on, literally, a global basis. It created an entire industry of service
providers and retailers living in cyber space.
New Product Lines: 20 per cent constituted new product category
for the company introducing it, but the products were not new to customers
in the target market, as one or more competitive brands already existed.
Example: Apple introduced iPhone as a new product line in its
existing portfolio
Additions to Existing Product Lines: 26 per cent were actually new
items added in the existing product lines. These items may be moderately
new to both the company and the customers in its established product-
markets. They may help extend the market segments to which the product
line appeals.
Example: HP developed the PhotoSmart printer to go after the market
of printing photos at home.
Improvements in or Revisions of Existing Products: 26 per cent items
provide improved performance or enhanced perceived value brought out to
replace existing products. These items may present moderately new
marketing and production challenges to the company. Unless these items

represent technologically new generation of products, customers are likely to
NOTES
perceive them as similar to the products they replace.
Example: Microsoft introduced Windows 7 as a replacement for Vista.
Repositioning: 7 per cent products are targeted at new applications
and new market segments.
Example: Merck introduced Propecia, which is essentially a lower
dosage version of their popular prostate drug Proscar, when they found the
side effect of drug reduced the effects of male pattern baldness.
Cost Reductions: 11 per cent products are modifications providing
similar performance at low costs.
The degree of product newness to the company, its target customers,
or both all help determine the extent of complexity and uncertainty involved
in the engineering, operations, and marketing tasks necessary to make it
successful as a new product. A truly innovation both to the company and
customers requires great expenditure of resources and efforts and involves
high degree of risk.
Products new to consumers but not new to the company are often not
so innovative in design or manufacturing. However, they may require high
levels of marketing efforts to deal with uncertainty to build primary demand.
Finally, products new to the company but not new to target customers
generally do not pose much challenge or risk.
Example: Southwest Airlines was able to capture significant market
share from established airline companies by offering a no frills, low price
alternative flights on popular, domestic routes.
ROLE OF NEW PRODUCT DEVELOPMENT PROCESS IN AN

ORGANISATION
New product development process plays a crucial role in deciding the

future of the organisation. Whatever may be the size and nature of operation
of a firm, product planning and development is necessary for its survival and
growth in the long run. The life of an existing product is visualised like that
of a human life. Every product has a life of its own and it becomes obsolete
after a certain period of time. It is essential to develop new products or alter

or improve the existing ones to meet the oft-changing customer needs. The
role of new product development can be stated in the following terms:
Ensuring that the product-mix matches the changing
environmental conditions and that product obsolescence is avoided.
Enabling the marketer to compete in new and developing
segments of the market.
Reducing the marketer’s dependence on particular elements of
the product range or vulnerable market segments.
Filling excess capacity.
Achieving greater long-team growth and profit.
Introducing new products is rather a difficult strategic alternative as
it involves long-range planning. Customer’s need should be identified;
competing and substitute products should be evaluated. In the survey
conducted by Booze, Allen and Hamilton, it was revealed that firms with
well-organised product planning programs have only 40-50 per cent product
failures. When this percentage is compared with the overall industry product
failures (80 per cent), one can easily be convinced of the need for product
planning.
ROLE OF NEW PRODUCT DEVELOPMENT PROCESS IN AN

ORGANISATION
New product development process plays a crucial role in deciding the

future of the organisation. Whatever may be the size and nature of operation
of a firm, product planning and development is necessary for its survival and
growth in the long run. The life of an existing product is visualised like that
of a human life. Every product has a life of its own and it becomes obsolete
after a certain period of time. It is essential to develop new products or alter
or improve the existing ones to meet the oft-changing customer needs. The
role of new product development can be stated in the following terms:
Ensuring that the product-mix matches the changing
environmental conditions and that product obsolescence is avoided.
Enabling the marketer to compete in new and developing
segments of the market.

Reducing the marketer’s dependence on particular elements of
NOTES
the product range or vulnerable market segments.
Filling excess capacity.
Achieving greater long-team growth and profit.
Introducing new products is rather a difficult strategic alternative as
it involves long-range planning. Customer’s need should be identified;
competing and substitute products should be evaluated. In the survey
conducted by Booze, Allen and Hamilton, it was revealed that firms with
well-organised product planning programs have only 40-50 per cent product
failures. When this percentage is compared with the overall industry product
failures (80 per cent), one can easily be convinced of the need for product
planning.
NEW PRODUCT DEVELOPMENT PROCESS
Many companies follow different types of new product development

system. Though it is difficult to generalise a common process, the author has
tried to develop a standard new product development system. The diagram
on New Product Development Process (Figure 5.9) represents the various
work steps that occur. After defining the overall area of business
development, an effort is directed at concept generation and market structure
identification. If the go/no go screening criterion is met then advertising is
developed and the product formulation specified and tested. If these results
meet standards, pre-test market and test marketing activities are undertaken.
If successful, the product is launched. The system is an integration of
traditional qualitative research, which has been used in the package goods
field.

Fig. 5.9 New Product Process
CONCEPT GENERATION AND MARKET STRUCTURE

IDENTIFICATION
The first step in the new product development process centers on
concept generation and market identification. In this part of the new product
development process, there are four key activities namely idea generation,
structure identification, sales potential and concept screening.
IDEA GENERATION
The first stage of the new product’s evolution begins with an idea for
the product. Hence this stage is also termed as ‘Idea Generation’. Ideas may
originate from the following sources:
Sales Personnel
Marketing Personnel
Research and Development Department
Top Management Executives
Production Department
Customer Service Decisions
Employee Suggestion System
Customers
Competitive Products

Foreign Products
NOTES
Consultants
Advertising Agencies
Researchers
Distribution Channels
Public’s Unsolicited Ideas
New product ideas can be generated both directly and indirectly. Both
approaches can be undertaken simultaneously and can vary from highly
structured and loosely structured to unstructured procedures. Direct
methods rely heavily upon creativity of individuals as well as groups and
consumer survey data for techniques e.g. forced relationship, transfer
analysis, brainstorming, motivation research, multi-dimensional scaling etc.
Consumer ideas are obtained from focus group interview sessions, which
determine the consumer’s perceptions of brands, advertising and the way
products are used. The product manager searches for competitive
vulnerability and consumer trends in the category. How do consumers see
the category changing relative to the way they use the product now and how
they anticipate they will use the product in the future?
Indirect methods refer to the ‘synthetic’ methods; methods that are

used for other purposes but with little ingenuity, they can be employed just
as well in exploration, e.g. quadrant analysis and magnitude estimation have
been used in product testing. The result of the idea generation step is the
consumer’s view of the market in qualitative terms; an understanding of the
technical development potential and a possible list of new product ideas in
untested and raw idea form.
Market Structure Analysis

The next step in the process of new product development process is to
implement a market structure. This process delineates the consumer’s
perception of the market by building a map outlining critical consumer
dimensions, positioning existing brands on the perceptual map and
indicating favorable new product opportunities. This technique is extremely
helpful as it puts the new product thinking on the right track in terms of

consumer’s view of the market. This also helps in finding out the distance of
new product opportunity from ideal point. It helps the new product group to
focus on further technical and marketing development program. It helps in
identifying where the opportunity exists and gives a rough estimate of how
big is the new opportunity. In order to supplement the consumer’s perception
mapping, a fact book or business review document is made outlining all the
available knowledge about the particular category. Much of the syndicated
market data is included, so that the new product development group has all
the accurate and up to date information on overall market size, segmentation
data and market share data.
Sales Potential
In this step, the potential of a new product entry into the market
structure is estimated. Executive judgment and Delphi techniques are used to
develop a simulated market model, as most of the input data are available
with the new product team. The purpose of developing such a model helps in
establishing a rough estimate of the size of the business potential and to
establish a base case for use of this model for continuous monitoring of the
sales forecast and its advances throughout the new product development
process. This will help in continuously refining the market share and rupee
volume estimates of the size of new product opportunity.
Concept Screening
At this stage, the ideas collected are scrutinised to eliminate those
inconsistent with the product policies and objectives of the firm. Patents may
already protect some ideas and some others may not be fit for consideration
because of the non-availability of raw materials for production. Thus most of
the ideas screened need not essentially be good. They may be further
subjected to a more detailed examination. The main intention of this phase is
only to eliminate unsuitable ideas as quickly as possible.
Screening criteria are established as evaluative standards in new

product development. They make arbitrary decisions less likely. They
provide a unity of purpose and they provide a perspective for new product

planners. Screening criteria usually concern themselves with three factors –
NOTES
markets, products and finances. More frequently used market-criteria are
market size, market growth, market positioning, and distribution features,
etc. The following sets of ‘must have’ and ‘would like’ criteria have been
suggested for the planners of new products.
The ‘must have’ criteria include the following:
Fill a perceived need with a sufficiently defined group of
heavy users for the product.
Have unique product characteristics that offer distinctive
benefits to the user.
Be saleable in large, expanding territories.
The ‘would like to have’ criteria include the following:
Be compatible with and be able to carry the company’s brand
name.
Provide the basis for a continuing business.
Lend itself to mass media advertising.
The product manager is likely to make two mistakes during the
screening stage. The ideas generated at the earlier stage can be grouped as
good ideas and bad ideas. There are two strategic options that the manager
has, viz. to take an idea further or to drop an idea.
If the product manager continues with a bad idea and subsequently
launches products based on the bad idea, then he is likely to make a ‘go
error’. In the contrast event of dropping a good idea leading to loss of
opportunity, the product manager is likely to make ‘drop error’. The product
manager needs to evaluate the ideas by developing a fact book for each idea
and evaluating the relevance of ideas in the context of business opportunity
and competition. The focus group discussion will lead to development of
market research where the product concepts can be quantified and
preliminary product feasibility and development can be tested. This stage is
crucial for the product manager as he can take an idea from the stage of an
‘abstraction’ to a valuable product proposition. The concepts so generated can
also be put into ‘intend to buy’ tests to find out the primary points of test for
minor/major competitive advantage.

ADVERTISING DEVELOPMENT
This stage of new product development involves development of
advertising and formulation of product. All the advertising and technical
developments of the product concept have a greater focus due to the results
from the earlier stages. This stage typically involves two activities, viz.
development of advertising strategy and product formulation.
The main objective of advertising is creating advertising copy, which
can reflect the product’s points of difference to the consumer. Asking the
client servicing and creative team to observe the focus group discussion helps
in initiating advertising strategy development process. Both the teams get a
chance to look at the real consumers and listen to them talking about the
product category and product proposition. At this stage, three documents are
developed, namely a strategy statement, consumer profile and an end benefit
psychology statement.
The strategy statement helps in getting the selling message of the
product down to a straightforward statement, outlining the core advantage
of the product concept. It should be a declarative statement, which is an
expression of a specific set of symptoms within the defined target segment. In
addition to the strategy statement, a consumer profile is developed. It goes
beyond demographic profile and explains the psychological profile of the
user. The third statement is psychological description of how the consumer
views the end benefit of the new product and how it relates to the consumer
problem that the product aims to solve. These three statements constitute the
basis for creative platform. The client and agency should arrive at an
agreement related to the direction for the product concept through this
creative platform. The agency tries a number of platforms and storyboards to
arrive at a final proposition. The next step involves review of the storyboard.
Storyboards should be relevant to the consumer’s perceptions of the category,
identifying and pinpointing the differential advantage of concept to the
competing products. In a world of segmented markets, it is essentially to
communicate the points of difference for giving a ‘reason why’ for the
consumer to buy. Consumers buy products and services and for a specific set
of reasons and in many instances these reasons are ingrained in their thought
process. So the new product manager must demonstrate what he is offering is

better than the available offers in the market so that they will at least be
NOTES
willing to try the new product.
After the storyboards (normally four or five) are selected, they should
be pre-tested by potential consumers. They should be tested in animated
form as they cost less compared to the cost of completely developed multiple
shoots. They can be tested through methods like on air testing and in
theatre testing. In theatre testing is better because it is more diagnostic than
on air testing. The factors can be controlled better in ‘in theatre’ testing than
on air method. It helps in building greater insight into the development of the
advertisement leading to higher level of problem solving.
PRODUCT FORMULATION AND TESTING

While advertising formulation happens in the advertising agency, the
product formulation happens in the laboratory. During this stage, the ‘idea-
on-the-paper’ is turned into a ‘product-on-hand’. In other words, the idea is
converted into a product that can be produced and demonstrated. This stage
is also termed as ‘Technical Development’. It is during this period that all
developments of the product, from idea to final physical form, take place.
The final decision whether a product should be developed on a
commercial scale or not is decided at this stage because the time-lag required
to attain this stage is a long one and it is possible that some adverse
developments might have taken place during this period. Once the
management decides to go ahead with the product idea, the following
activities are undertaken:
Establishing development projects for each product
Building the product with the changed specifications, if
necessary
Completing laboratory evaluation and sending the product for
testing and then launching
The first stage in product formulation and development process is a
detailed product profile that outlines all the elements of the product and the
product’s points of difference so that the laboratory can formulate a product
prototype for limited consumer user testing. Then a detailed product
feasibility report is written and circulated to all staff groups inside the

company for their input. These staff groups include manufacturing, finance,
legal, medical and quality control departments involved in the new product
development process. Many conflicting interests and opinions will emerge at
this stage and this will lead to development of a formal business analysis.
Business analysis is only a continuation of the evaluative process that
began when the new-product idea was first generated. Once the product
concept is developed, business analysis can evaluate the business
attractiveness of the proposal. The purpose of business analysis is to serve as
a basis for a decision whether the corporate resources should be committed to
the development of the new product. As per Sachs and Benson, the decisions
of business analysis hinge on various factors like category demand,
profitability and targeted return on investment in the new product
proposition.
Information from advertising, creative evaluation and business
analysis helps in developing product prototypes and testing them in lab
conditions. Then a standard consumer usage testing is done for the
prototypes.
At this stage, the new product management team has got the
following information:
A product concept statement that has been developed by
market structure analysis and has been refined by focus group interviews.
Advertising has been developed which is strong enough to
launch the new product.
A physical product that consumers perceive as a successful

match between the claims made for it and the functionality of the product.
If the sales forecast meets the ‘go’ decision, then only product is put to
test.
TESTING THE PRODUCT

It is at this stage of product testing that the new product manager can
check the feasibility and accuracy of product performance. Thus, commercial
experiments are necessary to verify earlier business judgments. The objective
of this stage is to assess whether the product meets the technical and

commercial specifications developed at various levels of concept
NOTES
development for ascertaining product acceptability. There are three types of
tests conducted at this stage as mentioned below:
Concept Testing
Product Prototype Testing
Test Marketing
These are explained below:
Concept Testing
This step is conducted many times and also before developing the
prototype. We are presenting here for simplicity of understanding. This step
is concerned with measuring customer reactions to the idea or concept of a
product. In fact, it is a kind of research in which the product idea is screened
before any money, time or labor is committed to making the prototype
products. The idea of a product with as many details as possible is made
known to the customers either verbally or through the use of suitable
blueprints. The response of the customers is checked and only if it is found
encouraging, then the development of product prototype is taken up. For
instance, when the rest of the world had largely gone in for synthetic
detergent in powder form, it was decided by HLL to test a detergent bar as
a concept because in India most people do not use washing machines or even
buckets and are accustomed to using a bar to rub on the fabric. This led to the
launch of Rin bar in the Indian market. The idea of Ujala, Wheel, Aquaguard
and Vanish were found to be more fruitful when they were put to concept
testing.
Concept testing can tell whether the product is likely to be a success or
not. To achieve better results, however, the product concept should include
the finished product itself with all details viz., packaging, price range, the
brand name, etc. On the basis of these details, interviews are conducted to
collect opinion of the would-be purchasers. The major advantage of concept
testing is that the management can form early judgments on the likelihood of
the market success of the new ideas. The other objectives of concept testing
can be:

To evaluate the relative merits of several new product
proposals
To determine whether the product idea is to be abandoned or
modified
To determine the size of the potential market
To guide the management to adopt suitable marketing policies
in advance
Concept testing has the following limitations or drawbacks:
It entails some risk of disclosing the company plans to
competitors
There is a time lag in obtaining and assessing the results;
Respondents may overstate their interest and encourage
unsound development
The validity of any measure of potential market size obtained
through early stage concept testing may often be dubious;
Findings may also be misleading if the test is not carried out
properly.
Product Prototype Testing

Once the concept test of the product is successful, the next step is to
put the real product into a few selected markets. This test will prove whether
the product performs as expected and whether it lives up to the promise of
the concept. Such a test enables the management to pick out the likes and
dislikes of the consumers towards the product. It also gives an opportunity to
the buyers to compare the product with the competitive products.
The prototype is developed as the end result of a product
development process. This prototype is developed in the lab and is put under
technical testing. Then it is put under standard consumer usage test. The
concept statement used earlier is presented to the consumer with the product
so that the product manager is sure that the product’s benefit in use matches
with the way the product will be presented to the consumer through the
advertising. Product testing is done to assess proper product performance. It
is also done to minimise the risks attached to full-scale launching of a new
product. Product testing also helps in identifying most productive market

segments and to collect necessary data about the responsiveness of
NOTES
customers. However, this is not a foolproof system for predicting the future.
It cannot help in forecasting the market size, sales volume, brand share and
repeat buying. Correct pricing also cannot be assessed at this stage.
Test Marketing
Even the most favorable results from the two tests mentioned above
are not a conclusive evidence for the success of a new product. For instance,
even where the product is seen to possess high quality, market failure is still a
possibility if other important factors in the marketing mix show weakness. It
is, therefore, logical to examine how conducting test marketing may help in
testing the company’s total marketing mix. However, due to prohibitive cost
structure many product managers put the product under purchase
laboratories.
Purchase laboratories are most significant marketing research tools
for new product launches. The purchase lab generates the ultimate estimate
of magnitude of new product sales using completed packaging, product,
brand name and advertising. Purchase labs are run in shopping centers.
Interviewers approach users of a product category and they are asked if they
are willing to participate in the research study. They are interviewed about
purchase patterns, number and type of brands purchased, reasons for
purchase, attribute ratings for each brand and other questions related to the
category. The consumers are shown advertisements for the new product,
along with competitive advertising for the category and they are taken to a
shelf that is set up like a grocery store’s shelf space in a shop. Each of these
customers are given seed money for purchase and they check out paying for
the product with the seed money. The product is taken home and used. The
consumers are interviewed again to determine the product’s performance. All
of the data is put into the evaluation process through the simulated model,
which can generate an estimate of market share at various levels of
distribution and advertising outlays.
Once the purchase lab is cleared, the product is put for test marketing.
Under test marketing, the product is introduced in selected areas often at
different prices in different areas. These tests provide the management an

idea of the amount and elasticity of the demand for the product, the
competition it is likely to face and the expected sales volume and profits it
might yield at different prices. Experience shows that the chances of a new
product being successful are ‘significantly greater’ if it is first put into a
controlled test market where it is exposed to realistic competitive conditions.
The product managers use test marketing for various reasons. They
are used to evaluate a complete marketing plan including advertising
budgets, intensity of distribution, level of sales network and different levels
of pricing. It is also used to determine the promotional media mix, types of
channels and to forecast the likely sales volume. Test marketing has certain
limitations. Competitors’ response and their defensive action may not allow
test marketing to provide a conclusive result. Test marketing is a costly affair
and it is a time-consuming method. Many firms avoid test marketing since
they wish to be ‘the first in the market’.
Though test marketing is not a perfect simulation of full-scale
production and distribution, yet it may provide very useful information for
better planning of the full-scale effort. It also permits initial pricing mistakes
to be made on a small rather than large scale. However, test marketing does
not eliminate risks; it only improves market and product knowledge and
reduces chances of making expensive mistakes. Therefore, most firms resort
to test marketing. For example, Liril Soap, introduced by Hindustan Lever
Limited,
was originally tested in Hyderabad and Lucknow. These towns were
selected because of their different characteristics, which make them
representative of a large spectrum of towns in India. The product was
distributed in all normal outlets in both the towns and supported by
advertising to inform the customers. Results of the test enabled the company
to make several improvements, which were successfully incorporated before
the product was extended nationally.
To make test marketing more fruitful, a ‘post-test market launch’
survey should be conducted. The survey will reveal whether the earlier
satisfaction continues to be derived, whether people like the product and
make a repurchase and whether the advertising appeals to the target
audience. On the basis of the findings, changes in marketing mix will have to

be incorporated before the product is finally launched in the market. We
NOTES
present herewith a typical test marketing process in Figure 11.2.
FROM DEVELOPMENT TO COMMERCIALISATION

In this stage, the product is submitted to the market, and thus
commences its life cycle. Commercialisation is also the phase where
marketing is most active in connection with the new product. This stage is
considered to be a critical one for any new product and should therefore be
handled carefully. For instance, it should be checked whether advertising and
personal selling have been done effectively and whether proper outlets have
been arranged for the distribution.
Despite the care with which the previous development stages have
been planned, unforeseen events can impair commercialisation seriously. The
following activities are usually undertaken during this stage:
Completing final plans for production and marketing
Initiating coordinated production and selling programs
Checking results at regular intervals
It should be remembered that new products should be launched in the
market only stage by stage. In other words, introduction may be restricted
to a few regions in the first instance. This is to avoid short supply of the
product due to initial gaps in production and distribution. It is not prudent to
extend a product nationally and then not be able to meet the demand or to
come across some unexpected deficiency. ‘Gold Café’ was heavily advertised
nationally in 1987 but it was not available at retail stores. Many companies
decide to go for regional roll out than a full-scale launch. The company
divides the national market into smaller regional markets and launches the
new product in sequence one after the other. A regional roll out helps in
managing and covering the market one by one and managing the new
product launch with a limited budget. In the case of regional roll out,
advertising carries a catch line titled ‘only available in select cities’.
All the stages explained above stress the fact that the development of
a new product must pass through certain logical stages. Innovation is
necessarily an orderly and predictable process and can be performed only in

a sequence. For example, commercialisation cannot precede the development
stage of a product.
PRODUCT INNOVATION
Innovation in marketing is critical. Imaginative ideas on strategy exist

in many places within a company.
Senior management should identify and encourage fresh ideas from
three generally underrepresented groups: employees with youthful or diverse
perspectives, employees far removed from company headquarters, and
employees new to the industry. Each group can challenge company
orthodoxy and stimulate new ideas.
British-based Reckitt Benckiser has been an innovator in the staid
household cleaning products industry by generating 35 percent of sales from
products under three years old.27 Its multinational staff is encouraged to dig
deep into consumer habits and is well rewarded for excellent performance.
Slovenia-based Krka—makers of prescription pharmaceuticals, non-
prescription products and animal health products—aims to generate more
than 40 percent of its total sales from new products.28 “Marketing Insight:
Creating Innovative Marketing” describes how some leading companies
approach innovation.
Firms develop strategy by choosing their view of the future. The
Royal Dutch/Shell Group has pioneered scenario analysis, which develops
plausible representations of a firm’s possible future using assumptions about
forces driving the market and different uncertainties. Managers think
through each scenario with the question, “What will we do if it happens?,”
adopt one scenario as the most probable, and watch for signposts that might
confirm or disconfirm it.29 Consider the strategic challenges faced by the
movie industry. In an economy of rapid change, continuous innovation is a
necessity. Companies that fail to develop new products leave themselves
vulnerable to changing customer needs and tastes, shortened product life
cycles, increased domestic and foreign competition, and especially new
technologies. Google, Dropbox, and Box update their software daily.

Highly innovative firms are able to repeatedly identify and quickly
NOTES
seize new market opportunities.
They create a positive attitude toward innovation and risk taking,
routinize the innovation process, practice teamwork, and allow their people
to experiment and even fail. One such firm is Google.
The main purpose of innovation marketing is to open up new markets
and ultimately lead to an increase in the business’ sales. Innovation
marketing also aims at newly positioning the business’ products as well as
addressing the customers’ needs. As the dynamics of business keep changing
on a daily basis, so are the marketing strategies.
However, the old conventional marketing strategies are no longer

effective due advancement of the business world more so propelled by
advancement in technology.
One of the main features that distinguishes innovation marketing is

the fact that it signifies the company’s or business departure from the old
marketing strategies. Thus, innovation marketing should be able to highlight
the progress in business by using new marketing methods that have not been
used before.
These new methods can be adopted from other businesses, basically

by learning the market trends and adapting to change, or, it can be a totally
new marketing idea brought in by the business. These new marketing
methods can also be implemented on both new and existing products and
services.
Examples of some of the innovation marketing strategies used by
some world renowned companies to great success are:
Virgin America – This is an American airline that has been operation

since 2007. The air travel industry is considered one of the most challenging
and demanding industries in business. One important aspect that keeps
airlines going is customer service and brand loyalty. However, this is not
enough anymore and that is why Virgin America went ahead and introduced

a focus group program comprising of 30 frequent flyers and customers who
give feedbacks and generate ideas on how the airline can improve its services.
The focus group is in turn given discounts and rewards. One direct impact of
the customers’ feedback was the development of an in-flight social network
which enables customers to connect during flights. The company again went
ahead and released a six-hour video detailing an in-flight experience. This
video won the award for being the longest ad but it surely had an impact in
propelling the name of the company.
L’Oréal – This is a French cosmetics company with a strong foothold
in the cosmetics industry all over the world. One way in which cosmetic
companies market their products is by having exhibitions where people get to
sample makeup as well as other cosmetics for free. In order to reach a wider
customer base in this digital world, L’Oréal developed an App called the
L’Oréal makeup genius. This app allowed users to do a digital makeover and
by doing so they were able to sample the best makeups that suited their skin
tones. The app was a huge success, being downloaded more than seven
millions times.
Netflix – Currently Netflix is a household name. Within a very short
period of time Netflix has transformed to one of the largest companies in the
world. It is no longer a video streaming channel only as they have been able
to produce some of the best movies in the recent past. Before growing and
becoming one of the most influential companies in the entertainment
industry, Netflix embarked on a strategy they called “reverse engineering
Hollywood.” This involved collecting a large stockpile of data on the
emerging trends and marketing directly to satisfy customer needs as well as
building a brand of their own.
SUMMARY
This module dealt with the core of the 4Ps, namely the product or
service, the product mix including the core and packaging, its life cycle
stages, branding including labelling, logo, extension of brand and the new
product development process.
SELF ASSESSMENT

1. The of the product explains the reasons for which the
NOTES
customer is making the purchase.
2. ………….. and starts at farm level when all the products in a
market look similar.
3. The is a set of attributes and conditions buyers normally
expect out of the product.
4. ………….. can be classified on the basis of their shopping
habits.
5........are goods with unique characteristics or brand
identification for which the buyers need to make a special
purchasing effort.
6........are goods the consumer does not know about
or does not normally think of buying.
7. A …………… is also called product assortment, which is the set
of all products and items a particular seller offers for sale.
8. Under market share is increased by expanding sales of present
products in existing uses.
9. Under markets are expanded by creating new uses of present
products.
10. Under market share is increased by developing new products
to satisfy existing needs.
11. Under market is expanded by developing new products to
satisfy new consumer needs.
12. The traditional orientation of suggests that brand name is a
part of the brand consisting of words or letters that form a means
to identify and distinguish a firm’s offer.
13. A is the symbol or pictorial diagram that helps in the
identification of the product.
14. Many brand managers follow a strategy of, in which it
allows them to use the brand name of another company with a
payment.
B. Detailed Answers
1. What is meant by product line expansion? Are product line

expansion and diversification synonymous? What are the reasons
of going in for diversification? Explain with the help of examples.
2. What is Branding? What are the elements of Branding?
3. What factors guide the scope of product line decisions? Explain
the relevance of these factors in Indian marketing context.
4. What do you mean by branding decisions? Explain different
branding decisions.
5. Explain the concept of brand identity.
CASE STUDY
Fighting Giants Innovatively
Ryka manufactures women's shoes for aerobics and excercise

activities. Knowing well that they cannot compete with
with giants like Nike and Reebok for a new firm like Ryka in the
athletic footwear segment, they resorted to some unusual marketing
strategies. For example, she had her footwear British distributor deliver
several pairs of Rykas with a personal note to fitness enthusiast Princess
Diana. The royal trainer told Ryka that the princess not only liked the fit, but
was also moved by the company’s donation of part of its profits toward
stopping violence against women. Ryka is Poe’s way of fulfilling her dream -
running a business and also helping women who are victims of rape, assault,
and abuse.
The Ryka phenomenon began when Poe and several of her aerobics
classmates realised that they were experiencing back pain because their shoes
didn’t fit right. Poe surveyed department stores and athletic footwear shops,
asking customers and sales people what kind of shoes they wanted. She
discovered that no one was paying attention to the women’s market. The
majority of the women’s shoes were designed simply as scaled-down
versions of men’s shoes. To get a proper and painless fit, women needed
athletic shoes with higher arches and thinner heels, but couldn’t find them.
Poe decided that there was a future for a company that made athletic shoes
just for women.

Rather than cater to the whims of fashion, Ryka concentrates on
NOTES
manufacturing only high- performance athletic shoes that fit a women’s foot.
Rykas are anatomically correct for women’s feet, and the company’s patented
Nitrogen E/S system provides cushioning and shock absorption for the heel
and ball of the foot. Ryka Ultra-Lite aerobics shoes weigh only 7.7 ounces,
about one-third that of regular aerobics shoes. Ryka was the first athletic shoe
producer to develop market lightweight shoes specifically designed for the
ups and downs of step aerobics.
Question:
Analyse the case and find the product strategy followed by Ryka.
CASE 2
Club Méditerranée or Club Med is a French company founded in 1950

by Gérard Blitz and Gilbert Trigano with the objective of offering holidays to
customers with an innovative “all-inclusive” formula. The idea of happiness
was at the heart of the concept. Today, Club Med has 72 resorts in more than
30 countries, including the Mediterranean, the tropics, and even the snow-
covered Alps. In 2013, more than 1.5 million customers chose Club Med for
their holidays.
Club Med has revolutionized holidays with its all inclusive formula.
At the time of its creation, the company aimed to give people a sense of
freedom through nature and sports that allowed them to be happy and one
with the others. Club Med proposed a new social link that was more festive
and less binding on the client. It wanted to reconcile individual liberty and
social life. At that time, in the holiday villages, customers could do what they
wanted without the concept of money being present.
Upon arrival, customers were provided with necklaces made out of

beads that allowed customers to pay for their drinks (which would later be
patented). Big tables allowed customers to share their meals and get

acquainted with each other. The notions of freedom and equality were and
still remain fundamental to the culture of Club Med. Since its creation, Club
Med has never ceased to innovate. New and unknown destinations were
added to the portfolio—Tahiti in 1955 and Leysin in Switzerland in 1956. In
1967, Club Med created the first mini clubs for children.
In the years 1980−1990, decline of the attractiveness of the concept of
holiday homes and the sharp rise of competition at lower prices weakened
Club Med’s position.
The company’s strategy at that point was unclear—it was neither a
volume nor a value strategy.
In addition, the economic crisis of 1993, a result of the Gulf war, and
the events of September 2001 severely affected Club Med in the same way it
affected all kinds of tourism.
In 2004, Club Med decided to redirect to a value strategy in order to
target an international clientele that wanted comfort, elegance, service, and
customization.
The holiday package offer was therefore repositioned with the closure
of entry-level vacation villages (classified 2 trident), renovation of other
villages in 4 trident to 5 trident, and the creation of a new range of luxury 5
trident (villages, villas, and chalets).
Club Med now offers an all-inclusive premium with a high range of
services and an extension of the à la carte services that come with gourmet
food and high quality drinks. Starting at 4 trident, all clubs offer a spa in
partnership with a famous brand. The shows in the resorts are all designed by
specialized companies. Clubs for children have dedicated spaces with an
emphasis on nature and local culture. The sports schools offer up to 10
different disciplines with qualified coaches and quality equipment.
For its 5 trident resorts, Club Med chooses sites of exception in the
most beautiful destinations of the world, such as Cancun in Mexico, Punta
Cana in the Dominican Republic, and Kani in the Maldives. The development
of these resorts is entrusted to renowned architects and designers. The
services developed are high-end with all-day room service, a concierge
service, and champagne offered after 6 p.m. Private villas come with a butler.

In the 5 trident resorts in the Maldives, the villas are placed on stilts;
NOTES
clients have private access to the sea, and can observe marine life through a
transparent floor in the room.
This repositioning to the high-end has also necessitated a change in
the relationship between customers, called Gentle Members, and staff, called
Gentle Organizers. Club Med has 15,000 Gentle Organizers of 100 different
nationalities to meet the requirements of its international clientele. They are
qualified in various fields and specialize in cooking, sport, amusement, and
client servicing.
Trainings to inculcate precision and a sense of premium service have
been developed. A resort school has even been created in Vittel, France; it
welcomes 10,000 trainees every year. Club Med is always looking to recruit
real talent and unique personalities.
The organization’s customer relationship has also evolved through the
development of customer relationship management tools for a finer
segmentation of customers. In some agencies, a concept of sale side-by-side
has been developed to allow clients to customize their holiday packages
along with the sellers.
Club Med’s communication campaign “and what’s your idea of
happiness?” highlights this upmarket strategy.
This campaign has been deployed in 47 countries and in 22 languages.
The positioning of Club Med’s resorts, from 3 trident to 5 trident,
allows for a broader coverage of the competition field—from standardization,
and luxury services to all-inclusive offers. No other company offers this. Club
Med’s 4 trident resorts are in competition with the Swiss Mövenpick (69
hotels in 23 countries) and the Jamaican Sandals (12 resorts in Jamaica and the
Bahamas). Club Med’s 5 trident resorts compete with the Singaporean
Banyan Tree (30 hotels and 60 spas all over the world).
Finally, the Club Med luxury villas are in competition with the villas
of the Mauritius company Beachcomber that works on the philosophy
“dream is a serious thing” (9 hotels, resorts, and luxury villas), Aman Resorts
(25 hotels in 15 countries), and the Ritz-Carlton (80 hotels in 27 countries).

With the range and quality of its service, Club Med turns holidays
into a one-of-a-kind experience. The focus on a globalized customer strategy
helped Club Med grow and ensured its unique positioning in the market.
As of January 2015, the proposed takeover of Club Med by the
Chinese investor Fosun will help accelerate the internationalization of the
brand and its development in Asia.
Questions
1. How did Club Med reach an upscale positioning and achieve
excellence in the quality of service?
2. Was Club Med’s upmarket positioning the only one viable strategy?
3. Do you think that Club Med takes a risk by not in specializing in a
particular range level, such as 4 trident or
5 trident?
Market Development: Trying to increase sales by selling present

products in new markets.
New Product: A product that is new in any way for the company
concerned.
Product Development: Offering new or improved products for

present markets.
Test Marketing: This is a process of testing the feasibility of the

product and its marketing program in a limited and selected market.
Brand Equity: A set of brand assets and liabilities linked to a brand, its
name and symbol that add to or subtract from the value provided by a
product or service to a firm and/or to that firm’s customers.

Brand: A name, word, mark, symbol, device or a combination thereof,
NOTES
used to identify some product or service of one seller and to differentiate
them from those of competitors.
Capital Goods: These are long lasting goods that facilitate developing
and managing the finished goods.
Convenience Products: Products which satisfy needs but one isn’t

willing to spend much time or effort shopping for them.
Emergency Products: Products, which are purchased immediately

when the need is great.
Homogeneous Shopping Products: Products that customer sees as

basically the same and wants at the lowest price.
Impulse Products: Products bought quickly as unplanned purchases

because of a strongly felt need.
Industrial Products: Products, which are used in producing other

products.
Product Life Cycle: The market response to a new product idea after
the product is commercialised and till it eventually goes out of the market.
Product Line: A set of individual products that are closely related.
Product: A product is anything, which is offered to the market to

satisfy consumer needs and wants.
Shopping Products: These are the products that the consumer

compares in features and buying criteria with competing brands before
making a choice.
Specialty Products: These have unique characteristics and brand

image that the consumer purchases with less deliberations and evaluations.
Unsought Products: These are the products the consumer does not
wish to buy but has to buy like life insurance and fire safety equipments.

MODULE - 6
______________________________________________________________
PRICING DECISIONS
Structure
6.0 Introduction
6.2 Pricing of Product and Services
6.3 Pricing Objectives
6.4 Strategies and Tactics in Pricing
6.0 INTRODUCTION
A price is an expression of value. The value rests in the usefulness and

quality of the product itself, in the image that is conveyed through
advertising and promotion, in the availability of the product through
wholesale and retail distribution systems, and in the service that goes with it.
A price is the seller’s estimate of what all of this is worth to potential buyers,
recognizing the other options buyers will have for filling the need the product
is intended to satisfy.
To the extent that the product or service finds markets and is

profitable at given price levels, it provides a viable economic base for
building and maintaining a business.
In the competitive marketplace, pricing is a game. The struggle for

market share focuses critically on price. Pricing strategies of competing firms,
therefore, are highly interdependent. The price one competitor sets is a
function not only of what the market will pay but also of what other firms
charge. Prices set by individual firms respond to those of competitors; they
also are intended often to influence competitors’ pricing behaviour.

All of marketing comes to focus in the pricing decision.
NOTES
A way to think about making a pricing decision is that price should be

set somewhere between what the product costs to make and sell and its value
to the customer. If price exceeds the perceived value of the product to
potential purchasers, it has no market. If the price is below what the product
costs to produce, the business cannot survive for very long.
Where a price should be set between cost and customer value is a

strategic decision.
Many factors can influence this decision, viz., competitors’

product/price strategies, governmentally imposed constraints and the seller’s
and the buyer’s sense of what is fair. Finally the most important determinant
of price is the marketer’s objectives – what is the firm trying to do.
_________________________________________________________________
6.1 OBJECTIVES
This module covers the pricing decisions, various characteristics of

pricing.
After reading this lesson, you must be able to discuss
• the meaning and significance of price in marketing decisions
• the pricing objectives of different firms;
• methods for price determination;
• the pricing strategies used across different products and product life
cycle.
_______________________________________________________________
6.2 PRICING OF PRODUCTS AND SERVICES
Every product has a price, but each firm is not necessarily in a

position to determine the price at which it should sell its product. When

products are undifferentiated and competitors numerous, the firm has no
market power and must take the price level imposed by the market. But when
a firm has developed strategic marketing programme and thus has gained
some degree of market power, setting the price is a key decision which
conditions the success of its strategy, to a large extent. Until recently, pricing
decisions were considered from a purely financial viewpoint, and largely
determined by costs and profitability dimensions. This approach changed
because of the upheavals in the economic and competitive situation during
the crisis years: double digit inflation, increased costs of raw materials, high
interest rates, price controls, increased competition, lower purchasing power,
consumerism etc. All these factors play an important part in making pricing
decisions of strategic importance. Figure 6.1 describes the general overview of
price setting in a competitive environment.
From the firm’s point of view, the question of price has two aspects:
the price is an instrument to stimulate demand, much like advertising, and at
the same time price is a determinant factor of the firm’s long-term
profitability. Therefore, the choice of a pricing strategy must respect two
types of coherence: an internal coherence, i.e. setting a product price
respecting constraints of costs and profitability, and an external coherence,
i.e. setting the price level keeping in mind the market’s purchasing power
and the price of competing goods. Furthermore, pricing decisions must
remain coherent with other elements of marketing mix especially brand
positioning and distribution strategy, advertising etc.
Price is the monetary expression of value and as such occupies a

central role in competitive exchange. Purchasing behaviour can be seen as a
system of exchange in which searching for satisfaction and monetary
sacrifices compensate each other. This behaviour results from forces that
balance a need, characterized by the buyer’s attitude towards the product and
the product’s price. From the buyer’s point of view, the price he or she is
willing to pay measures the intensity of the need and the quantity and nature
of satisfaction that is expected; from the seller’s point of view, the price at

which he or she is willing to sell measures the value of inputs incorporated in
NOTES
the product, to which the seller adds the profit that is hoped to be achieved.
Fig. 6.1 Strategic Pricing Decisions
Formally, monetary price can be defined as a ratio indicating the

amount of money necessary for acquiring a given quantity of a good or
service:
Price=

Amount of money provided by the buyer /Quantity of good provided
by the seller
In this equation, both the numerator and the denominator are

important for price decisions. Typically, for example, if the buyer gets 5
kilograms of basmati rice for Rs. 125, then to the seller the price is Rs.125 and
to the buyer it is 5 kilograms of basmati rice. The seller can change this ratio
of Rs. 25 for 1kg basmati rice in different ways as mentioned below.
(a) Changing the customer’s value perception of the product: The
seller can change the customer’s value perception of the product by
modifying the presentation of the product, for example, a seller, who has till
now been marketing basmati rice as a commodity and selling it in bulk to the
wholesaler, now decides to clean, pack and brand the product. He also
decides to provide a recipe of different pulaos and biryanis and get the true
basmati flavour. All this makes the same product look different and the seller
is now investing resources to create brand equity for his brand of basmati
rice. He may charge premium of a rupee or two per kilogram, but will the
customer pay this differential? The answer to that will be in knowing how the
customer perceives these changes in the product.
(b) Change the quantity of money or goods and services to be

paid by the buyer: Another approach is to change the quantity of money or
goods and services to be paid for by the buyer. For example, the buyer has to
pay Rs. 32.50 per one kilogram of a well-known brand of sunflower edible oil.
This firm may offer 5 kilogram pack for just Rs. 160, thus giving a saving of 50
paise per kilogram. Another approach is to increase or reduce the price per
kilogram of edible oil without the customer having to necessarily buy a
bigger pack.
(c) Change the quality of goods and services offered: If the

quantity ratio does not change but the quality of the goods and services has
declined, then for the buyer, the real price has increased and vice- versa.

(d) Price changes through changes in sales promotion or discounts
NOTES
to be applied for quantity variations: Sales promotion serves to reduce the
actual price paid by the buyer. So does a discount. This is particularly true if
the quantity ratio remains constant.
(e) Changes in any of the following:
(i) Time and place of transfer of ownership
(ii) Place and time of payment
(iii) Acceptable form of payment-like accepting credit cards as a
mode of payment. This often provides to the customer four to six weeks (in
some cases even more) credit. The customer also, has the option to pay over
ten months.
Thus price is a complex decision that has a direct bearing on the

company’s profitability and the marketer needs to know the cost function and
also the customer perception of his and his competitors’ product value at
different price levels. To arrive at a good price strategy, the marketer should
be able to decide on the price objectives.
IMPORTANCE OF PRICING DECISIONS
The following points highlight the importance of pricing strategies in

the current marketing environment:
• The chosen price directly influences demand level and
determines the level of activity. A price set too high or too low can endanger
the product’s development.
• The selling price directly determines the profitability of the
operation, not only by the profit margin allowed, but also through quantities
sold by fixing the conditions under which fixed costs can be recovered over
the appropriate time• horizon. Thus, a small price difference may have a
major impact on profitability.
• The price set by the firm influences the product or the brand’s
general perception and helps in shaping brand’s image. The price quoted

invariably creates a notion of quality, and therefore is a component of the
brand image.
• More than any other marketing variable, the price is an easy
means of comparison between competing products or brands especially when
there is hardly any brand differentiation. The slightest change in price is
quickly perceived by the market, and because it is so visible it can suddenly
overturn the balance of forces.
• Pricing strategy must be compatible with the other
components of strategic marketing. Product packaging must reinforce high
quality and high price positioning; pricing strategy must respect distribution
strategy and allow the granting of necessary distribution margins to ensure
that the objectives of covering the market can be achieved.
• Acceleration of technological progress and shortening of
product life cycles means that a new activity must be made to pay over a
much shorter time span than previously. Given that correction is so much
more difficult, mistake in setting the initial price is that much more serious.
• Proliferation of brands or products which are weakly
differentiated, the regular appearance of new products and the range of
products all reinforce the importance of correct price positioning; yet small
differences can sometimes modify the market’s perception of a brand quite
significantly.
• Increased prices of some raw materials, inflationary pressures,
wage rigidities and price controls call for more rigorous economic
management.
• Legal constraints, as well as regulatory and social constraints,
such as price controls, setting maximum margins, authorization for increases
etc., limit the firm’s autonomy in determining prices.
• Reduced purchasing power in most economies makes buyers’
more aware of price differences, and this increased price sensitivity reinforces
the role of price as an instrument for stimulating sales and market share.
• Given the importance and complexity of these decisions,
pricing strategies are often elaborated by the firm’s management.

6.3 PRICING OBJECTIVES
NOTES
All firms aim to make their activities profitable and to generate the
possible economic surplus. This broad objective can in practice take different
forms and it is in the firm’s interest to clarify from the outset its strategic
priorities in setting prices. Generally speaking, possible objectives can be
classified in three categories, according to whether they are centred on
profits, volumes or competition.
Profit-oriented objectives are either profit maximization or

achievement of a sufficient return on invested capital. Profit maximization is
the model put forward by economists. In practice, it is difficult to apply this
model. Not only does it assume precise knowledge of cost and demand
functions for each product, it also assumes a stability which is seldom
enjoyed by environmental and competitive factors. The objective of target
return rate on investment (ROI) is widespread. In practice, it takes the form of
calculating a target price, or a sufficient price; that is, a price which, for a
given level of activity, ensures a fair return on invested capital. This
approach, often adopted by large enterprises, has the merit of simplicity, but
is incorrect. It ignores the fact that it is the price level that ultimately
determines demand level.
Volume-oriented objectives aim to maximize current revenue or

market share, or simply to ensure sufficient sales growth. Maximizing market
share implies adopting a penetration price, i.e. a relatively low price, which is
lower than competitors’ prices, in order to increase volume and consequently
market share as fast as possible. Once a dominant position is reached, the
objective changes to one of ‘satisfactory’ rate of return. This is a strategy often
used by firms having accumulated a high production volume and who expect
reduced costs due to economies of scale and learning effects. A totally
different strategy is that of skimming pricing. The goal here is to achieve high
sales revenue given that some buyers or market segments are prepared to pay
a high price because of the product’s distinctive (real or perceived) qualities.

The objective here is to achieve the highest possible turnover with a high
price rather than high volume.
Competition-oriented objectives either aim for price stability or to be

in line with competitors. In a number of industries dominated by a: leading
firm, the objective is to establish a stable relationship between prices of
various competing products and to avoid wide fluctuations in prices that
would undermine buyers’ confidence. The objective of keeping in line with
other firms reveals that the firm is aware of its inability to exercise any
influence on the market, especially when there is one dominant firm and
products are standardized, as in undifferentiated oligopolies. In this case, the
firm prefers to concentrate its efforts on competing over features other than
price. Forms of non-price competition will prevail in the market.
FACTORS INFLUENCING PRICING DECISIONS
Formulating price policies and setting the price are the most
important aspects of managerial decision-making. Price is the source of
revenue, which the firm seeks to maximise. It is the most important device a
firm can use to expand its market share. If the price is set too high, a seller
may price himself out. If it is too low, his income may not cover costs, or at
best, fall short of what it could have been. However, setting prices is a
complex problem and there is no fixed formula for doing so. Decision to set a
low price or a high price would depend upon a number of factors and a wide
variety of conditions. Moreover, the pricing decision is critical not only in the
beginning but it must be reviewed and reformulated from time to time.
In this connection, it may be pointed out that in economic theory, only
two parties are generally emphasised, i.e. buyers and sellers. In practice,
however, certain other parties are involved in the pricing process, i.e., rival
sellers, potential rivals, middlemen and government. All these parties also
exercise their influence in the process of price determination.
The factors governing prices may be divided into external factors and
internal factors. The external factors include elasticity of supply and demand,
goodwill of the company, extent of competition in the market, trend of the

market, purchasing power of the buyers, and the government policy towards
NOTES
prices. The internal factors include the costs and the management policy
towards gross margin and sales turnover. The following are the general
considerations for formulating pricing strategy.
Objectives of Business
Pricing is not an end in itself but a means to an end. The fundamental

guide to pricing, therefore, is the firm’s overall goals. The broadest of these is
survival or assured continued existence. On a more specific level, objectives
relate to rate of growth, market share, maintenance of control or ownership
and finally profit. Very often companies fix a target rate of profit; whether the
company will be able to achieve the target rate of the profit will depend upon
the forces of competition. The various objectives may not always be
compatible and hence there is a need for reconciliation. A pricing policy
should never be established without full consideration as to its impact on the
other policies and practices of the firm.
Example: Nirma wanted to gain huge share of market at the time
when HUL was an established player in the area of washing powders. Hence
it came up with a very low priced detergent to woo the target market.
Competitive Environment
An effective solution to the pricing problem requires an

understanding of the competitive environment. In perfect competition, sellers
have no pricing problems because they have no pricing discretion. Pricing
policy has practical significance only where there is a considerable degree of
imperfection in competitive structures and where there is some room for
managerial discretion. Under the present competitive conditions, it is more
important for the firm to offer the product which best satisfies the wants and
desires of the consumers than the one which sells at the lowest possible price.
As a result, pricing policy should be governed more by the relative than by
the absolute height of prices.

Example: Samsung floated mobiles in low price segment as Nokia
was generating good business from that segment. Samsung later launched
android versions which had more features in less price and became an
attractive option for customers, leaving Nokia behind in the competition.
Product and Promotional Policies of the Firm

Pricing is only one aspect of marketing strategy and a firm must
consider it together with its product and promotional policies. Thus, before
making a price change, the firm must be sure that the price is at fault and
not its sales promotion program or the quality of the product or some other
element.
Example: Luxury suites of plush hotels are priced high for ultra-rich
class to attract them. This satiates their esteem and status needs and the
pricing of suites is kept accordingly.
Nature of Price Sensitivity
Businessmen often tend to exaggerate the importance of price

sensitivity and ignore many identifiable factors at work that tend to minimise
its role. The various factors which may generate insensitivity to price changes
are variability in consumer behaviour, variation in the effectiveness of
marketing effort, nature of the product, importance of after sales service, the
existence of highly differentiated products which are difficult to compare and
multiple dimensions of product quality.
Example: Prices of essential drugs and basic food items such as sugar,
salt, wheat etc. affect the pockets of consumers a lot if there is a slight change
in prices. Whereas price of diamond and platinum doesn’t affect the pocket of
consumer too much as only people who can afford it will buy it.
Conflicting Interests between Manufacture and Intermediaries

The interests of manufacturers and middlemen (through whom the
former often sell) are sometimes in conflict. This is called vertical conflict. For
instance, the manufacturer would desire that the middleman should sell his
product at a minimum mark-up, whereas the middleman would like his

margin to be large enough to stimulate him to push up the product. The
NOTES
manufacturer may like to control the middleman’s prices and even the retail
prices; but the middlemen may seek to expand their sales through price-cuts
or obtain larger margin than allowed by the suggested prices. Further, if the
manufacturer reduces the price, the middlemen’s inventories may go down in
value thereby causing resentment among them. So, pricing decision in both
short and long term is influenced by the nature of the relationship between
manufacturer and intermediaries.
Routine Pricing Decision
Pricing in practice is often a routine though its extent may differ from
company to company and from product to product. For example, the
management may prefer to depend on suggested prices, which is a
mechanical formula for pricing decisions. The extend to which pricing is done
routinely depends on the following factors:
Number of Pricing Decisions: A firm may have to take thousands of
pricing decisions on a wide range of products, none of which provides a
substantial proportion of sales. In this case it will find that the costs of
separate analyses on each product are too high. It would, therefore, find it
economical to adopt relatively mechanical routine for pricing.
Speed in Making a Pricing Decision: Mechanical formulae, such as
a pre-determined mark-up on full cost, have the advantage of speed, though
flexibility and adaptability to special conditions is lost.
Quality of Available Information: If the data on demand and costs are
highly conjectural, the best the firm may be able to do is to rely on some
mechanical formula such as cost plus formulation.
Competitive Market: If a firm is selling its product in a highly
competitive market, it will have little scope for pricing discretion. This will
pave the way for routine pricing decisions.
Active Entry of Non-business Groups in Pricing Decisions

The government, acting on behalf of the public, seeks to prevent the
abuse of monopolistic power and collusion among businessmen. There is a
complex body of regulation and even more confusing series of judicial
decisions guiding pricing principles in every country. Very often, the
government elects to control certain prices. Collective bargaining and strikes
by the labour unions, attempt to raise wages. The entry of the government
into the pricing process, in alliance with farmers and labour interests, tends
to inject policies in price determination.
Pricing is not an exact science. There is no infallible formula for
determination of right price for a product. Every pricing situation is unique
and should be explored in its own right. The pricing decision should result
from the balancing of a number of considerations. In fact, pricing is a matter
of judgment. But to be effective, judgment should be based on sound
principles and the fullest information possible. A beginning has to be made
by a trial and error method. No matter how logical the price may seem to be,
if it attracts an insufficient number of customers, it is the wrong price.
COST FACTORS IN PRICING
Costs have to be taken into consideration like many other important

factors. In fact, in the long run, prices must cover costs. If, in the long run,
costs are not covered, manufacturers will withdraw from the market and
supply will be reduced which, in turn, may lead to higher prices. The point
that needs emphasis here is that cost is not the only factor in setting prices.
Cost must be regarded only as an indicator of the price, which ought to be set
after taking into consideration the demand and the competitive situation. It
must be noted, however, that cost at any given time represents a resistant
point to lowering of price. Again, costs determine the profit consequences of
the various pricing alternatives. Cost calculations also help in determining
whether the product whose price is determined by its demand is to be
included in the product line or not. What cost determines is not the price but
whether the product in question can be profitably produced or not.

But what are the relevant costs for pricing decisions? Problems are
NOTES
more complex in a multi-product firm. For pricing decisions, relevant costs
are those costs that are directly traceable to an individual product. Ordinarily,
the selling price must cover all direct costs – manufacturing and non-
manufacturing, variable and fixed – that are attributable to a product. In
addition, it must contribute to the common costs and realisation of profit. But
it may not always be possible to do so. For a short period of time, it is
tolerable for the price of a product to do no more than cover its direct costs
and even only the direct variable costs. This may be the case when a new
product is introduced. The initial direct promotional cost is usually high in
relation to the sales volume, and special price concessions are granted in
connection with introductory offers. In such a case, a negligible contribution
or a no contribution to common costs in the short run is accepted in
anticipation of long-run profits. In other cases, a very low contribution for
one or more products may be accepted for want of a more profitable
alternative. A low contribution is better than none at all.
In the long run the aggregate revenues from all products must cover
not only direct costs but also contribute towards common costs. Ideally, each
product should make significant contribution to common costs; but it is not
possible to state any general rule for determining satisfactory or
unsatisfactory contribution. If factors of demand and/or competition prevent
a firm from setting a price for one of its products that will cover direct costs,
there may be no alternative but to discontinue the product.
If a competitive price does cover direct costs and yield some

contribution towards common costs, the question arises: ‘how high must that
contribution be’ to justify the long-run continuance of a particular product in
a company’s product line? The question can be answered in the light of the
available alternatives. If the product is discontinued, are there others, which
may be substituted for it so that there is a higher contribution to common
costs? What effect will the discontinuance of this product have upon the
demand for other products in the line? The elimination of one product from
the line may cause the loss of sale of other complementary products. Product-

pricing decisions should, therefore, be made with a view to maximise
company profits in the long run.
An important question that arises at this stage is: ‘How can the
common costs be covered, if individual prices are set in consideration of
direct costs only?’ The point to be noted here is that covering of directs costs
is only a starting point in the pricing decision. Factors of supply and demand
and competition may permit prices, which will yield very substantial
contribution to common costs. Again, a low contribution from a single
product does not necessarily mean that the price is too low or that the
product ought to be discontinued.
If the economic determinants of price are such that the combined

prices for all of a company’s products are insufficient to cover common costs
in the long run, the conclusion is not that the individual prices are wrong but
rather that the firm is economically inefficient. Such a firm must either
improve its operating efficiency or cease operations and wind up.
Example:
Total cost of product = total variable cost + total fixed cost
= ` 200 + ` 50 = ` 250
Profit margin (Markup) = 25%
Selling price = Total cost of product + profit margin
= 250 + 250 (25/100) = ` 312.5
This ` 312.5 will be price floor. The price ceil will depend on the
competitive status, company’s situation and perceived value of the product
DEMAND FACTORS IN PRICING
Where cost factors are internal in nature, demand-based factors are

external factors and emerge out of marketing factors. The pricing policy of a
firm would depend upon the elasticity of demand as well. If the demand is
inelastic, it would not be profitable for the firm to reduce its prices. On the
other hand, a policy of price increase would prove profitable if the demand is
inelastic. Conversely, if the demand is elastic, it is a policy of price reduction

rather than a policy of price increase, which would be profitable for a firm to
NOTES
adopt.
6.4 PRICING STRATEGIES AND TACTICS
To elaborate on pricing methods, three groups of factors must be

taken into consideration: costs, demand and price elasticity: We will now
examine successively each of these methods and their implications for price
determination.
Cost-Based Pricing Method
Starting with costs analysis is certainly the most natural way to

approach the pricing problem, and it is also the one most familiar to firms.
Given that the manufacturer has undergone costs in order to produce and
commercialize a product, it is natural that its main preoccupation would be to
determine various price levels compatible with constraints such as covering
direct costs and fixed costs arid generating a fair profit. Figure 6.2 shows a.
typical cost structure in which the definitions of the main cost concepts are
given.
Prices which are based on costs and make no explicit reference to
market factors are called ‘cost-based prices’. Cost analysis identifies four
types of cost-based prices, each responding to specific cost and profit
requirements.

Fig. 6.2 Elements of Price
The floor price, or the minimum price, corresponds to direct variable

costs (C), also known as ‘out-of-pocket costs’. It is the price that only covers
the product’s replacement value, and, therefore, implies zero gross profit
margin.
Floor price = Direct variable costs
This price concept is useful for negotiating exceptional orders or for

second marketing discounting, when the firm has unused capacity and has
the possibility to sell in a new market such that there will be a negligible loss
of sales in its main market. Floor price, also called ‘marginal price’, is the
absolute minimum selling price the firm should accept. Any price above the
floor price can allow a firm to use its production capacity to a maximum and
still generate extra funds to cover overhead or improve profits. Exceptional
orders, generics for large retail chain and foreign markets, provide
opportunities for this form of discriminatory pricing strategy.
The break-even price (BEP) corresponds to the price where fixed costs
and direct costs are recovered, given the sales volume assumed. It ensures
that both the product’s replacement value as well as fixed costs (F) are
recovered where E(Q) denotes expected sales volume. The BEP corresponds

to the full cost concept, where the level of activity is used as criterion for
NOTES
allocating the fixed costs.
The mark-up price is set by adding a standard mark-up to the break-
even price. Assuming that the firm wants to earn a 20 per cent mark-up on
sales, the mark-up price is given by
Mark-up price = BEP/(l–desired mark-up)
This pricing method, popular for its simplicity, ignores demand and
competition. It will work only if the expected sales level is achieved.
The target price, or sufficient price, includes, apart from direct costs
and fixed costs, a profit constraint, which is normally determined by
reference to a ‘normal’ rate of return (r) on invested capital (K). This cost-
based price is also calculated with reference to an assumed level of activity.
Target price = C + F / E(Q) + rK/E(Q)
where K denotes invested capital and r the rate of return considered

as sufficient or normal. Like the break-even price, target price depends on the
activity volume being considered.
The same criticism must be formulated here. This pricing method will
work only if the expected sales volume is achieved.
Usefulness or cost-based pricing: Cost-oriented prices constitute a

starting point for setting a price. They cannot be the only basis for
determining prices because these pricing procedures ignore demand, product
perceived value and competition. However, they do have a real usefulness,
because they provide answers to ‘the following types of questions:
• What is the sales volume or sales revenue required to cover all
costs?
• How does the target price or the mark-up price compare with
prices of direct competition?
• To what level of market share does the level of sales at the
break-even point correspond?

• In the case of a price change, what is the necessary volume
change to maintain the present level of profitability?
• If prices go down, what is the minimum volume increases
required to offset the price decrease?
• If prices go up, what is the permissible volume decrease to
offset the price increase?
• What is the implied price elasticity necessary to enhance or
maintain profitability?
• What is the rate of return on Invested capital for different price
levels?
Cost analysis is a necessary step which helps to identify the problem
by focussing attention on the financial implications of various pricing
strategies. Armed with this information, the firm is better placed to approach
the more qualitative aspects of the problem, namely market sensitivity to
prices and competitive reactions.
Demand-Oriented Pricing Method
Pricing based exclusively on the firm’s own financial needs is

inappropriate. In a market economy, it is the buyer who ultimately decides
which products will sell. Consequently, in a. market-driven organization an
effective pricing procedure starts with the price the market is most likely to
accept, which in turn determines the target. cost. The main factors affecting
price sensitivity are described below:
Factors affecting price sensitivity: Buyers, in general, are sensitive to
prices, but this sensitivity can vary tremendously from one situation to
another, according to the importance of the satisfaction provided by the
product, or conversely depending on the sacrifices, other than price, imposed
by obtaining the product. Nagle (1987) has identified nine factors affecting
buyers’ price sensitivity:
• Unique-value effect: buyers are less price-sensitive when the
product is more unique.
• Substitute awareness effect: buyers are less price-sensitive
when they are less aware of substitutes.

• Difficult comparison effect: buyers are less price-sensitive
NOTES
when they cannot easily compare the quality of substitutes.
• Total expenditure effect: buyers are less price-sensitive the
lower the expenditure is to a ratio of their income.
• End benefit effect: buyers are less price-sensitive the lower the
expenditure is compared with the total cost of the end product.
• Shared cost effect: buyers are less price-sensitive when part of
the cost is borne by another party.
• Sunk investment effect: buyers are less price-sensitive when
the product is used in conjunction with assets previously bought.
• Price-quality effect: buyers are less price-sensitive when the

product is assumed to have more quality, prestige or exclusiveness.
• Inventory effect: buyers are less price-sensitive when they
cannot store the product.
Price Elasticity Method
A marketer for manufactured products needs to assess price elasticity

of demand. Price elasticity of demand refers to the changes in demand in
response to price changes. Specifically, this price elasticity of demand is given
by the following formula:
Price Elasticity=
Percent change in quantity demanded/ Percent change in price
For example, if the firm is to consider changing the price of its product
by five per cent, and the demand for its product is likely to go down by 10 per
cent then, the price elasticity of demand for this product is -2. In assessing the
price elasticity of demand, the marketer has to consider the following factors.
(a) Availability of substitutes and/or competitor products: If there
are substitutes of competitors which are perceived by the customer to be
identical or comparable, then the price elasticity of demand will be high. It is

important to note that the customers’ perception of compatibility of
competing products to satisfy the need is more relevant here than the
compatibility on tangible features. For example, if the customer perceives that
he or she can quench thirst by either a soft drink or a fruit juice, then, any
change in price of any of these products is bound to affect its demand. The
other side of this coin is that lack of substitutes or competitor products will
mean low price elasticity of demand. Again, the price elasticity of food
products like wheat, rice, edible oil, etc. is lower than manufactured product
like soft drinks, television, etc.
(b) Customer resistance to change: If the customers are resistant to
new product ideas and generally do not go shopping for prices, then the price
elasticity of demand for such product is going to be low. Mail order and
online or tele-shopping today is built around this assumption and its
communication is directed to motivate customers against price shopping.
(c) Price-Quality perception: Generally the quality of a product is
associated with its price. The thumb rule is that customers’ perceive premium
quality in the product if it is priced at a higher level. If the target customer
group has this perception of the product, then its price elasticity of demand is
going to be low. Many marketers seek to change a customer’s attitude
towards this direction.
(d) Buyers do not perceive or notice higher prices: If the buyers
are willing to buy the product ignoring its prices, then the price elasticity of
demand for such a product is going to be low.
Thus the nature of the product, competition and buyers’ value
perception play an important role in shaping the elasticity of demand for the
product at different price levels.
PRICING STRATEGIES
The different types of pricing strategies are discussed as under:
Value Pricing

Value pricing is a customer-based pricing procedure which is an
NOTES
outgrowth of the multi-attribute product concept. From the customer’s
viewpoint, a product is the total package of benefits that is received when
using the product. Therefore, the customer- oriented company should set its
price according to customers’ perceptions of product benefits and costs. To
determine the price, the marketer needs to understand the customers’
perceptions of benefits as well as their perceptions of the costs other than
price. Customers balance the benefits of a purchase against its costs. When
the product under consideration has the best relationship of benefit to cost,
the customer is inclined to buy the product (Shapiro and Jackson, 1978). This
customer-based pricing procedure can be implemented in different ways.
The maximum acceptable price
This approach is particularly useful for setting the price of industrial

products, whose core benefit to the buyer is a cost reduction. To evaluate
what the customer is prepared to pay, the procedure followed is to identify
and evaluate the different satisfactions or services provided by the product as
well as all the costs (other than price) it implies. Thus the procedure is the
following:
• Understand the total use of the product from the buyer’s point
of view.
• Analyse the benefits generated by the product.
• Analyse the costs implied by the acquisition and the use of the
product.
• Make cost-benefit trade-offs and determine the maximum
acceptable price.
The highest price that the customer will be willing to pay for the
product is given by:
Benefits – Costs other than price = Maximum Acceptable Price

(MAP)

The benefits to consider can be functional (the core service),
operational, financial or personal. Similarly, the costs implied other than
prices are just as diverse, acquisition costs, installation, risk of failure, custom
modification etc.
Price leadership
Price leadership strategy prevails in oligopolistic markets. One

member of the industry, because of its size or command over the market,
emerges as the leader of the industry.
The leading company then makes pricing moves which are duly
acknowledged by other members of the reference market.
Initiating a price increase is typically the role of the industry leader.
The presence of a leader helps to regulate the market and avoid too many
price changes. Oligopolistic markets, in which the number of competitors is
relatively low, favour the presence of a market leader who adopts an
anticipative behaviour and periodically determines prices. Other firms then
recognize the leader’s role and become followers by accepting prices. The
leadership strategy is designed to stave off price wars and ‘predatory’
competition, which tends to force down prices and hurt all competing firms.
There are different types of leadership.
• Leadership of the dominant firm is the firm with the highest
market share. The dominant firm establishes a price and the other producers
sell their products at this price. The leader must be powerful and undisputed
and must accept maintaining a high price.
• Barometric leadership which consists of initiating desirable
price cuts or price increases, taking into account changes in production costs
or demand growth. In this case the leader must have access to an effective
information system providing him or her with reliable information on supply
and demand, competition and technological change.
• Leadership by common accord, where one firm is tacitly
recognized as leader, without there being a formal understanding or accord.
The latter would in fact be illegal. Such a leader could be the most visible firm

in the sector, for example the firm that leads in technology. It should also
NOTES
have sensitivity to the price and profit needs of the rest of the industry.
According to Corey (1991) the effective exercise of leadership depends
on several factors:
The leader must have a superior market information system for
understanding what is going on in the market and reacting in a timely way.
• It should have a dear sense of strategy.
• The price leader should use long-term measures to assess
managerial performance.
• It should want to lead and to act responsibly.
• It should have a broad concern for the health of the industry.
• It will tend to behave in a way that preserves short-run market
share stability.
On the whole, the presence of a leader acts as a market stabilizer and
reduces the risk of a price war.
Pricing new products
The more a new product is unique and brings an innovative solution

to the satisfaction of a need, the more delicate it is to price. This price is a
fundamental choice upon which depends the commercial and financial
success of the operation. Once the firm has analyzed costs, demand and
competition, it must then choose between two very contradictory strategies:
(a) a high initial price strategy to skim the high end of the market, and (b) a
strategy of low price from the beginning in order to achieve fast and powerful
market penetration.
Skimming pricing strategy
This strategy consists of selling the new product at a high price and
thus limiting oneself to the upper end of the demand curve. This would
ensure significant financial returns soon after the launch. Many
considerations• support this strategy; furthermore, a number of conditions
need to be met for this strategy to prove successful.

• When there are reasons to believe that the new product
lifecyc1e will be short, or when competition is expected to copy and to market
a similar product in the near future, a skimming price strategy may be
recommended because a low price strategy would make the innovation
unprofitable.
• When a product is so innovative that the market is expected to
mature slowly and the buyer has no elements on which to compare it with
other products, demand is inelastic. It is tempting to exploit this situation by
setting a high price and then readjusting it progressively as the market
matures.
• Launching a new product at a high price is one way of
segmenting the mar-ket. The segments have different price elasticity. The
launching price skims the customers who are insensitive to price. Later price
cuts then allow• the firm to reach successively more elastic segments. This is
a form of time discriminatory pricing.
• When demand is hard to evaluate, it is risky to anticipate what
kind of demand growth or cost reduction can result from a low price. This is
particularly true when the manufacturing process is not yet stabilized and
costs are likely to be underestimated.
• To be effective, the introduction of a new product requires
heavy expenditure on advertising and promotion. When the firm does not
have the financial means necessary for a successful introduction, charging
high prices is one way of generating the resources.
Price Skimming strategy is definitely a cautious strategy which is
more financial than commercial. Its main advantage is that it leaves the door
open for a progressive price adjustment, depending on how the market and
competition develop. From a commercial point of view, it is always easier to
cut a price than to increase it.
Penetration price strategy
Penetration strategy, on the other hand, consists of setting low prices

in order to capture a larger share of the market right from the start. It
assumes the adoption of an intensive distribution system, the use of mass
advertising to develop market receptivity, and especially an adequate

production capacity from the beginning. In this case the outlook is more
NOTES
commercial than financial. The following general conditions must prevail to
justify its use.
• Demand must be price elastic over the entire demand curve;
there are no upper segments to be given priority and the only strategy is to
address the whole market at a price low enough to satisfy the greatest
number.
• It is possible to achieve lower unit costs by increasing volumes
significantly, either because of economies of scale or because of potential
experience effects.
• Soon after its introduction, the new product is threatened by
strong competition. This threat of new entrants is a powerful reason for
adopting low prices. The penetration strategy is used here to discourage
competitors from entering the market. Low prices act as very efficient barriers
to entry.
• The top range of the market is already satisfied; in this case,
penetration policy is the only valid policy to develop the market.
• Potential buyers can easily integrate the new product in their
consumption or production; the transfer costs of adopting the product other
than its price are relatively low and, therefore, a mass market can be
developed rapidly.
A penetration price strategy is therefore more risky than a skimming
price strategy. If the firm plans to make the new product profitable over a
long period, it may face the situation that new entrants might later use new
production techniques which will give them a cost advantage over the
innovating firm.
Product line pricing
Strategic marketing has led firms to adopt segmentation and

diversification strategies which have result in the multiplication of the
number of products sold by the same firm or under the same brand.
Generally a firm has several product lines, and within each product line there
are usually some products that are functional substitutes for each other and

some that are functionally complementary. This strategy of product
development brings about an interdependence between products, which is
reflected either by a substitution effect (or cannibalism) or by a
complementarily effect. Since the objective of the firm is to optimize the
overall outcome of its activities, it is clearly necessary to take this
interdependence into account when determining prices.
When a firm is selling a set of related products, the price of each
product must be set in such a way as to maximize the profit of the entire
product line rather than the profit of a single product. The pricing strategy
adopted will be different according to whether the related products are
complementary to or competitive with each other.
Price Bundling
When the products are related but are non-substitutes i.e.

complementary or independent, one strategic option for the firm is optional
price bundling, where the products can be bought separately, but also as a
package offered at a much lower price than the sum of the parts. Because the
products are not substitutes, it is possible to get consumers to buy the
package instead of only one product of the line. This pricing strategy is
common practice, for instance, in the’ automobile and audiovisual markets,
where packages of options are offered with the purchase of a car or of stereo
equipment.
Premium pricing
This pricing strategy applies to different versions of the same product,

a superior version and a basic or standard model. Potential buyers for the
standard model are very price sensitive, while buyers of the superior model
are not. If economies of scale exist, it is unprofitable for the firm to limit its
activity to one of the two market segments. The best solution is to exploit
jointly economies of scale and heterogeneity of demand by covering the two
segments, the lower end of the market with a low price and the high end with
a premium price.

The same pricing strategy can be applied in the service sector by
NOTES
modifying the service package. For example, airlines have used this pricing
strategy very successfully. Their market consists of both a price-insensitive
business traveller and a very price-sensitive holiday traveller. Business
people place a high value on flexible scheduling. In contrast, holiday makers
generally plan their trips far in advance.
Capitalizing on these differences, airlines set regular ticket prices high

and offer discounts only to buyers who purchase their tickets well before
departure. By offering lower fares only with inflexible schedules, airlines
have been able to price low enough to attract price-sensitive buyers without
making unnecessary concessions to those who are less price sensitive.
Image pricing
A variant of premium pricing is ‘image pricing’. The objective is the

same: to signal quality to uninformed buyers and use the profit made on the
higher priced version to subsidize the price on the lower priced version. The
difference is that there is no real difference between products or brands; it is
only in image or perceptual positioning. This is common practice in markets
like cosmetics, dresses, snacks etc., where the emotional and/ or social value
of a product or a brand is important for the consumer.
Marketing always involves the exchange of products, ideas, and

services of some value. Value, on the part of the marketers, is generally
represented by price. Price plays an important role in the marketing mix to
attain marketing objectives because it is the only ‘P’ of the marketing mix
which generates revenue for a firm. Price enables buyers and sellers to
express the value of the products and services they have to offer. In a good
marketing-mix, all the four Ps must be consistent with each other. For
example, moderate price represents moderate product quality and medium
sized budget for advertisements and product is available in multiple brand
shops whereas high price is consistent with high quality of the product.

In setting prices, it is important to determine the pricing objectives,
knowing the importance of pricing for target market, calculating the
approximate demand, and determining the pricing strategy. Organizational
objectives become the basis for pricing strategies. The price must suit to the
target audience. Marketers must know that how many people will buy their
product and how much it will cost to meet the exact demand. Cost provides
the basis on which to build a strategy. There are many strategies to achieve
the firm’s objectives like value pricing, loss-leadership product line pricing
etc. Some are presented here.
Going Rate Pricing: In this method, the firm bases its price on the
average price of the product in the industry or prices charged by competitors.
Sealed Bid Pricing: In this method, the firms submit bids in sealed
covers for the price of the job or the service. This is based on firm’s
expectation about the level at which the competitor is likely to set up prices
rather than on the cost structure of the firm.
Psychological Pricing: In this method, the marketer bases prices on the
psychology of consumers. Many consumers perceive price as an indicator of
quality. While evaluating products, buyers carry a reference price in their
mind and evaluate the alternatives on the basis of this reference price. Sellers
often manipulate these reference points and decide their pricing strategy.
Odd Pricing: In this method, the buyer charges an odd price to get
noticed by the consumer. A typical example of odd pricing is the pricing
strategy followed by Bata. Bata prices are always an odd number like ` 899.99,
etc.
Geographical Pricing: This is a method in which the marketer decides
pricing strategy depending on location of the customer like domestic pricing,
international pricing, third world pricing etc. Multinational firms follow such
a pricing strategy as they operate in different geographic locations.

Discriminatory Pricing: This is a method in which the marketer
NOTES
discriminates his pricing on certain basis like type of customer, location and
so on. It occurs when a company sells product or service at two or more
prices that do not reflect a proportional difference in the costs. One can sell at
different prices in different segments. Different prices for different forms of
the same product can sell the same product at two different levels depending
on the image differences.
High Price Medium Price LowPrice
High
Premium High-value Super-value
Strategies Strategy Strategy
Product Medium
Quality
1 2 3
Overcharging Medium-value Good-value

Strategy Strategy Strategy
Fig. 4 5 6 6.3 Pricing

Strategies and Quality
Rip off False Economy Economy
Strategy Strategy Strategy
7 8 9
PRICE QUALITY STRATEGIES
Companies can also follow a value pricing strategy. The customers

perceive the products to be either highly priced, medium priced or low
priced. Similarly they evaluate the product quality and place them as high,
medium and low. Correspondingly, companies can have nine pricing
strategies namely premium pricing strategy (high price and high quality
(type-1)); high value strategy (high quality and medium price (type-2)); super
value strategy (high quality and low price strategy (type-3)); over charging
strategy (medium quality and high price (type-4)); medium value strategy
(medium quality and medium value (type-5)); good value strategy (medium

quality and low price strategy (type-6)); rip off strategy (low product quality
and high price (type-7)); false economy strategy (low quality and medium
price strategy (type-8)) and economy strategy (low product quality and low
price strategy (type-9)).
The diagonal strategies 1, 5 and 9 can all coexist in the same market;
that is one firm offers a high quality product at a high price, another firm
offers an average quality product at an average price, and still another firm
offers a low quality product at a low price. All three competitors can coexist
as long as the market consists of three groups of buyers: those who insist on
quality, those who insist on price, and those who balance the two
considerations. Positioning strategies 2, 3 and 6 represent ways to attack the
diagonal position. Positioning strategies 4, 7 and 8 lead to overpricing the
product in relation to its quality.
Companies follow premium-pricing strategy when they wish to skim

the market. Both the quality of the product and price are high in this market.
Though the number of customers in this market are few but they buy only
premium products. A high value strategy is a case where the customers find
the product to be of high quality and medium price strategy and when the
quality is high and price is low, people find super value in the product. This
is a strategy where people are delighted due to high quality and affordable
price. When customers perceive the quality to be average and price to be
high, then they may not buy the product in a free economy. In this case the
seller is believed to be over charging the customer. A volume player who
wants to cater to a large part of the market without diluting the brand image
follows a medium value strategy. In many cases, though the quality is
medium but companies penetrate the market by charging a low price and
customers buy products on the rationale of getting good value from business.
Though they do not perceive the quality to be so great, still they buy due to
lower price perception. When the quality is perceived as low but the price is
high, it is an unsustainable strategy and is called ‘rip off’ strategy. When the
price is medium and the quality is low, many times customers get duped due
to a false perception of price being low. This is called false economy strategy.

When the marketer is at the bottom of the pyramid, he charges a low price for
NOTES
a low quality product to satisfy low value customers.
TECHNIQUES TO HANDLE PRICE WARFARE

Price warfare is defined as the usage of pricing strategy as a means to
secure competitive advantage in the market. Companies indulge in price
warfare to increase their consumer base, consumer loyalty and increase their
market share. However the usage of price as a means to secure competitive
advantage in the market is restricted by the probability of competing firms
following suit. Unless affirm has complete command on its cost structure and
is able to rationalise prices continuously, it is highly unlikely that it shall
succeed in the market by reducing prices.
At the heart of the rationale that works against the usage of price
warfare is the ability of competing firms to response with aggressive price
cuts, which may only lead to a status quo among competing firms with a
reduction in the overall profit levels for each firm.
Techniques to handle price warfare require the building of core
competencies that shall allow a firm to respond to a price cut announced by a
firm with further value creation. Doing so requires the firm to indulge in
product differentiation to stand out in the market by virtue of features,
technology, and service delivery or after sales service. Prices are easy to
compare when there are substitutes available in the market, allowing
consumers to compare the value proposition of each product keeping price as
a static factor. When price changes occur, it is only natural for consumers to
change tastes and preferences and consequently their demand for a product.
In order to avert this, firms should look to continuously upgrade the
functional vale and the value addition of its products. In terms of strategic
marketing, this amounts to a blue ocean strategy where by the firm does not
compete with its rival based on prices but looks to differentiate its products to
create a niche segment of loyal consumers which is hard to break into for
rival firms. In other words, the marketing strategy of the firms should enable
it to move from a cost-based model to a value-based model.

The other strategy to counter price warfare is to cooperate rather than
compete. Cooperation strategy works well in industries with a scope for joint
price determination. This ensures that price adjustments affect the entire
industry and not the select few companies. Cooperation strategy amount to
the formation of a cartel, where firms belonging to the industry shall in
codified terms decide not to attack each other based on price and output
changes. Examples of such cooperation exist in oligopoly.
SUMMARY
Pricing being the most immediate deciding factor after selection of
product by customer, plays a important role in competition. This module
briefly discussed some pricing methods as practiced, though in actual pricing
can take many more variations.
SELF ASSESSMENT
C. Fill in the blanks

1. ……………… are usually considered a part of the general
strategy for achieving a broadly defined goal.
2. In the firm may decide in favour of a lower price
to penetrate deeper into the market and to stimulate market
growth and capture a large market share.
3. Under , the firm may decide to charge high initial
price to take advantage of the fact that some buyers are willing to
pay a much higher price than others as the product is of high
value to them.
4. The ……………… is followed to cover up the product
development cost as early as possible before competitors enter into
the market.
5. Formulating and setting the price are the most
important aspects of managerial decision-making.
6. ……………… is the source of revenue, which the firm seeks to
maximise. It is the most important device a firm can use to expand
its market share.

7. ……………… is only one aspect of marketing strategy and a
NOTES
firm must consider it together with its product and promotional
policies
8. ……………… must be regarded only as an indicator of the
price, which ought to be set after taking into consideration the
demand and the competitive situation.
9. The initial direct ……………… is usually high in relation to the
sales volume, and special price concessions are granted in
connection with introductory offers.
10. ……………… is especially useful while deciding prices for
public utility and for tailored or customised products.
D. Detailed Answers
6. What do you understand by ‘price’ of a product? Discuss the
importance of pricing decisions.
7. Explain the various objectives which a firm can have while
deciding the price of its products.
8. Discuss the various pricing strategies available to an organisation.
9. Write a detailed note on ‘price elasticity’
CASE STUDY
The Indian IT industry has come off age. Top players like Tata
Consultancy Services, Infosys and Wipro among others have realised the
threat of new entrants into the industry. While the established IT firms look
to secure their position in the industry, new entrants in their bid to pull down
entry barriers are resorting to predatory pricing strategies.
Infosys, the second largest exporter of IT and software products in

India though refuses to entangle itself in price warfare. The former CEO of
the company and now UIDAI chief Nandan Nilekani, observes that the
industry is self-destroying itself. He opines that by resorting to aggressive
price cuts, the new entrants are luring away the clients of the blue chip
companies but in doing so they are reducing the overall profitability of the

industry. He says that Infosys has on many occasions missed big ticket
projects to its less illustrious rivals because they have refused to offer a lower
price. Nilekani opines that Infosys refuses to entangle itself in a price war that
may affect its corporate image and profitability prospects. Sticking to higher
prices while others go with discounted prices has a perilous effect on Infosys.
It may render Infosys with the tag of being an inflexible IT vendor. But
Nilekani and the top management believe that price cuts would dent its
corporate image.
He also agrees on the need to building resilience against such price

attacks by means of a higher value offering to its clients. This sentiment is
echoed in the new strategic blueprint of the company named Infosys 3.0.
Infosys is determined to move from a cost-based model to a value-based
model in response to price warfare. Infosys is looking at opportunities to
differentiate its product offerings with higher value addition rather than
opting for price cuts. He says that price warfare is likely to occur when there
are look-alikes of the product available in the market which amounts to
“commoditisation.” In the long term, product differentiation is the best
answer to commoditisation, the company feels.
Question: Identify the pricing strategy of Infosys and explain the advantages
of the same.
CASE 2
Starbucks is a master of employing value based pricing to maximize

profits, and they use research and customer analysis to formulate targeted
price increases that capture the greatest amount consumers are willing to pay
without driving them off. Profit maximization is the process by which a
company determines the price and product output level that generates the
most profit. While that may seem obvious to anyone involved in running a
business, it’s rare to see companies using a value based pricing approach to
effectively uncover the maximum amount a customer base is willing to spend

on their products. As such, let’s take a look at how Starbucks introduces price
NOTES
hikes and see how you can use their approach to generate higher profits.
The Right Customers and the Right Market
While cutting prices is widely accepted as the best way to keep

customers during tough times, the practice is rarely based on a deeper
analysis or testing of an actual customer base. In Starbucks’ case, price
increases throughout the company’s history have already deterred the most
price sensitive customers, leaving a loyal, higher-income consumer base that
perceives these coffee beverages as an affordable luxury. In order to
compensate for the customers lost to cheaper alternatives like Dunkin
Donuts, Starbucks raises prices to maximize profits from these price
insensitive customers who now depend on their strong gourmet coffee.
Rather than trying to compete with cheaper chains like Dunkin,

Starbucks uses price hikes to separate itself from the pack and reinforce the
premium image of their brand and products. Since their loyal following isn’t
especially price sensitive, Starbucks coffee maintains a fairly inelastic demand
curve, and a small price increase can have a huge positive impact on their
margins without decreasing demand for beverages. In addition, only certain
regions are targeted for each price increase, and prices vary across the U.S.
depending on the current markets in those areas (the most recent hike affects
the Northeast and Sunbelt regions, but Florida and California prices remain
the same).
Product Versioning & Price Communication
They also apply price increases to specific drinks and sizes rather than
the whole lot. By raising the price of the tall size brewed coffee exclusively,
Starbucks is able to capture consumer surplus from the customers who find
more value in upgrading to grande after witnessing the price of a small drip
with tax climb over the $2 mark. By versioning the product in this way, the

company can enjoy a slightly higher margin from these customers who were
persuaded by the price hike to purchase larger sizes.
Starbucks also expertly communicates their price increases to

manipulate consumer perception. The price hike might be based on an
analysis of the customer’s willingness to pay, but they associate the increase
with what appears to be a fair reason. Using increased commodity costs to
justify the price as well as statements that aim to make the hike look
insignificant (less than a third of beverages will be affected, for example) help
foster an attitude of acceptance.
What can Your Business Learn From Starbucks?
The profit maximizing tactics Starbucks implements in their pricing

strategy are vital components of a process anyone can use. Here are some of
the takeaways you can apply to your own business:
1. Study your customer personas. Starbucks understands that the

majority of their customer base is fairly insensitive to price, and uses small
price increases that everyday consumers barely notice to boost margins.
Quantify your buyer personas and the demand for your product or service
will help you choose a price that captures the maximum amount your
customers are willing to pay.
2. Justify the exchange rate for your product. Communicating price

increases effectively is crucial to a successful price hike, and managing
customer perception is a key part of the Starbucks strategy. Support your
price increases using changes in the market such as higher commodity costs
and ease the pain on the consumer by finding an attractive way to publicize
the new prices. Starbucks said their beverage prices were increasing by an
average of 1%, but that low average probably stemmed from including all of
their beverages in the equation, including ones that remained at the same
prices.

Question
NOTES
How do Starbucks maintain a high premium pricing in a competitive market?
Cost-plus Method: Under this method, the price is set to cover costs
(materials, labour and overhead) and pre-determined percentage or profit.
Going Rate Pricing: In this method, the firm adjusts its own pricing
policy to the general pricing structure in the industry.
Marginal Cost Pricing: Under marginal cost pricing, fixed costs are
ignored and prices are determined on the basis of marginal cost.
Perceived Value Pricing Method: In this method, prices are decided
on the basis of customer’s perceived value. They see the buyer’s
perceptions of value, not the seller’s cost as the key indicator of pricing. They
use various promotional methods like advertising and brand building for
creating this perception.
Price: Price is the exchange value of goods and services in terms of
money.
Psychological Pricing: In this method, the marketer bases prices on the
psychology of consumers. Many consumers perceive price as an indicator of
quality. While evaluating products, buyers carry a reference price in their
mind and evaluate the alternatives on the basis of this reference price. Sellers
often manipulate these reference points and decide their pricing strategy.

MODULE - 7
______________________________________________________________
DISTRIBUTION DECISIONS
Structure
7.0 Introduction
7.2 Placing of Product and Services
7.3 Marketing Channel Types and Participants
7.4 Channel Structure, Choosing Alliances
7.0 INTRODUCTION
Exchange is the core aspect of marketing. Ownership of a product has

to be transferred somehow from the individual or organisation that makes it
to the consumer who needs and buys it. Goods also must be physically
transported from where they are produced to where they are needed.
Services ordinarily can not be transported but rather are produced and
consumed simultaneously. Distribution’s role within marketing mix is getting
the product to its target market. The most important activity in getting a
product to market is arranging for its sale from producer to final consumer.
Other common activities are promoting the product, storing it, and assuming
some of the financial risk during the distribution process. A producer can
carry out these functions in exchange for an order from a customer. Typically,
however, firms called middlemen perform some of these activities on behalf
of the producer.
In today’s economy, most producers do not sell their goods directly to

the final users. Between them and the final users stand a host of marketing
intermediaries performing a variety of functions and bearing a variety of
names. Some intermediaries, such as wholesalers and retailers buy, take title

to, and resell the merchandise; they are called merchant middlemen. Others,
NOTES
such as brokers, manufacturer’s representatives, and sales agents, search for
customers and may negotiate on behalf of the producer but do not take title
to the goods; they are called agent middlemen. Still others, such as
transportation companies, independent warehouses, banks, and advertising
agencies, assist in the performance of distribution but neither take title to
goods nor negotiate purchases or sales; they are called facilitators.
Marketing-channel decisions are among the most critical decisions

faced by management. The company’s chosen channels ultimately affect all
the other marketing decisions. A distribution system is a key external
resource. Normally it takes years to build, and it is not easily changed. It
ranks in importance with key internal resources such as manufacturing,
research, engineering, and field sales personnel. It represents a significant
corporate commitment to large numbers of independent companies whose
business is distribution, and to the particular markets they serve. It represents
as well, a commitment to a set of policies and practices that constitute the
basic fabric on which is woven an extensive set of long term relationships.
Individual consumers and corporate buyers are aware that literally

thousands of goods and services are available through a very large number of
diverse channel outlets. What they might not be well aware of is the fact that
the channel structure, or the set of institutions, agencies, and establishments
through which the product must move to get to them, can be amazingly
complex.
_________________________________________________________________
7.1 OBJECTIVES
This module covers the distribution decisions, various characteristics

of distribution channels.
At the end of the chapter, you will be familiar with
Ֆ Ֆ What are marketing channels?

Ֆ Ֆ Types of channel flows
Ֆ Ֆ Functions of distribution channels
_______________________________________________________________
7.2 PLACING OF PRODUCTS AND SERVICES
A channel of distribution may be referred to by other names, and

terms vary from industry to industry. But whether channel, trade channel, or
some other variant of the term is used, the functions performed remain the
same. The term channel of distribution has its origins in the French word for
canal, suggesting a path that goods take as they flow from producers to
consumers. In this sense, a channel of distribution is defined by the
organizations or individuals along the route from producer to consumer.
Because the beginning and ending points of the route must be
included, both producer and consumer are always members of a channel of
distribution. However, there may be intermediate stops along the way.
Several marketing institutions have developed to facilitate the flow of the
physical product or the transfer of ownership (title) to the product from the
producer to the consumer. Organizations that serve as marketing
intermediaries (middlemen) specializing in distribution rather than
production are external to the producing organization. When these
intermediaries join with a manufacturer in a loose coalition aimed at
exploiting joint opportunities, a channel of distribution is formed.
Channel of distribution : The complete sequence of marketing
organizations involved in bringing a product from the producer to the
ultimate consumer or organizational user.
A channel of distribution, then, consists of producer, consumer and
any intermediary organizations that are aligned to provide a means of
transferring ownership (title) or possession of a product from producer to
consumer. The channel of distribution can also be seen as a system of
interdependent relationships among a set of organizations—a system that
facilitates the exchange process.
All discussions of distribution channels assume that the product in
question has taken on its final form. The channel of distribution for an

automobile begins with a finished automobile. It does not include the paths of
NOTES
raw materials (such as steel) or component parts (such as tires) to the
automobile manufacturer, which is an industrial user in these other channels.
It should be emphasized that the channel’s purpose in moving products to
people is more than a simple matter of transportation. The channel of
distribution must accomplish the task of transferring the title to the product
as well as facilitating the physical movement of the goods to their ultimate
destination. Although title transfer and the exchange of physical possession
(transportation) generally follow the same channel of distribution, they do
not necessarily need to follow the same path.
Merchant intermediary : A channel intermediary, such as a wholesaler
or a retailer, that takes title to the product.
Agent intermediary : A channel intermediary that does not take title
to the product. Agent intermediaries bring buyers and sellers together or
otherwise help complete a transaction.
All but the shortest of channels include one or more intermediaries—
individuals or organizations specializing in distribution rather than
production. (In the past, intermediaries were called middlemen). A
distinction may be made between merchant intermediaries, which take title to
the product, and agent intermediaries, which do not take title to the product.
Although agent intermediaries never own the goods, they perform a number
of marketing functions, such as selling, that facilitate further transactions in
the exchange process.
Most intermediaries are independent organizations tied to the
producers they deal with only by mutual agreement; they are not owned by
the producers. Some intermediaries are owned by producers, such as the
company-owned sales branches and sales offices that sell NCR point-of-sale
systems. However, these company-owned sales branches and offices are
clearly separate from the production facilities operated by the company.
In service marketing, it sometimes appears that there is no channel of
distribution.
When a beautician delivers a product, such as a haircut or make-up
advice, he or she deals directly with the customer. But even in these shortest
of distribution channels, involving no intermediaries, marketing functions are

being performed. The required activities are simply performed by the
provider of the service (or, in a self-service environment, by the ultimate
consumer).
When identifiable intermediaries are present, the channel members
form a coalition intended to act on joint opportunities in the marketplace.
Each channel member, from producer to retailer, must be rewarded or see
some opportunity for continued participation in the channel. Ultimately, for
the channel to work properly, the consumer, who is not an institutional
member of the channel but is the final link in the process, must also perceive
a likely reward. Thus, the large merchandise selection and low retail prices
offered by a Target store must be seen as compensation for driving an extra
mile or two to the store. The coalition between channel members may be a
loose one resulting from negotiation or a formal set of contractual
arrangements identifying each party’s role in the distribution process. The
conventional channel of distribution is characterized by loosely aligned,
relatively autonomous marketing organizations that have developed a system
to carry out a trade relationship. In contrast, formal vertical marketing
systems are more tightly organized system in which the channel members are
either owned by a manufacturer or a distributor, linked by contracts or other
legal agreements such as franchises, to informally managed and coordinated
as an integrated system through strategic alliances.
Not included in the channel of distribution are transportation
companies, financial institutions, and other functional specialists selling
services that assist the flow of products.
They are collaborators, playing a specialized role by providing a
limited facilitating service to channel members.
Marketing Functions Performed by Intermediaries
Perhaps the most neglected, most misunderstood, and most maligned
segment of the economy is the distribution segment. Retailers are seen by
some as the principal cause of high consumer prices, simply because retailers
are the marketers with whom consumers most frequently come into contact.
Retailers collect money from consumers, so even though much of that money
is passed to other distributors or manufacturers, retailers often bear the burnt
of customers’ complaints. Wholesalers are also seen as causing high prices,

perhaps because much of what they do is done outside the view of
NOTES
consumers. In either case, many suggest “cutting out the middleman” as a
means of lowering the prices of consumer goods. For thousands of years, the
activities of those who perform the distribution function have been
misunderstood, and this viewpoint persists today.
Students of marketing should understand that an efficient distribution
system must somehow be financed. Most of the time, “eliminating the
middleman” will not reduce prices, because the dollars that go to
intermediaries to compensate them for the performance of tasks that must be
accomplished regardless of whether or not an intermediary is present. In
other words, a company can eliminate intermediaries, but it cannot eliminate
the functions they perform.
How Intermediaries Fit into Distribution Channels
In the previous section we outlined a conventional channel of

distribution consisting of a manufacturer, a wholesaler, a retailer, and the
ultimate consumer. Not all channels include all of these marketing
institutions. In some cases, a unit of product may pass directly from
manufacturer to consumer. In others it may be handled by not just one but
two or more wholesalers. To show why these many variations exist, we will
examine the role of intermediaries in marketing channels.
Consider this conventional channel of distribution :
Manufacturer -> Retailer -> Ultimate consumer
It is possible, as shown here, to have a channel of distribution that
does not include a separate wholesaler. A manufacturer can choose to sell
directly to retailers, in effect eliminating the wholesaler. However, the
marketing functions performed by the wholesaler must then be shifted to one
of the other parties in the channel—the retailer or the manufacturer. For
instance, with the wholesaler out of the picture, the manufacturer may have
to create a sales force to call on the numerous retailers. If the manufacturer
assumes some or all of the marketing functions, they are said to have been
shifted back ward in the channel. If the retailer assumes them, they are said to
have been shifted forward in the channel. For example, the manufacturer may

decide to perform the function of breaking bulk by sending comparatively
small orders to individual retail customers. On the other hand, the retailer
may be willing to accept truckload lots of a product, store large quantities of
it, and perform the activity of breaking down these larger quantities into
smaller quantities.
In any case, the functions performed by the eliminated wholesaler do
not disappear; they are simply shifted to another channel member. The
channel member that assumes these functions expects to be compensated in
some way. The retailer may expect lower prices and higher margins for the
extra work performed. The manufacturer may expect larger purchase orders,
more aggressive retail promotion, or more control over the distribution
process.
The key to setting the structure of a channel of distribution is to
determine how the necessary marketing functions can be carried out most
efficiently and effectively. Certain variables, such as price, the complexity of
the product, and the number of customers to be served, can serve as guides to
the appropriate channel structure. However, the functions to be performed
should be the primary consideration in marketing manager’s distribution
plans. Let us consider some of the major functions performed by
intermediaries: physical distribution, communication, and facilitating
functions.
Physical Distribution Functions
Physical distribution functions include breaking bulk, accumulating

bulk, creating assortments, reducing transactions, and transporting and
storing.
Bulk-breaking function : An activity, performed by marketing
intermediaries, consisting of buying products in relatively large quantities
and selling in smaller quantities.
Breaking Bulk. With few exceptions, intermediaries perform a bulk-
breaking function.
The bulk-breaking function consists of buying in relatively large
quantities, such as truckloads, and then selling in smaller quantities, passing

the lesser amounts of merchandise on to retailers, organizational buyers,
NOTES
wholesalers, and other customers.
By accumulating large quantities of goods and then breaking them
into smaller amounts suitable for many buyers, intermediaries can reduce the
cost of distribution for both manufacturers and consumers. Consumers, do
not buy and store great amounts of merchandise, which would increase their
storage costs and the risks of spoilage, fire and theft. Manufacturers are spare
the necessity of dividing their outputs into the small order sizes retailers or
consumers might prefer. Bulk breaking is sometimes termed “resolution of
economic discrepancies,” because manufacturers, as a rule, turn out amounts
of merchandise that are vast compared with the quantity that an individual
buyer might be able to purchase. Breaking bulk resolves this discrepancy.
Bulk-accumulating function : An activity, performed by marketing
intermediaries, consisting of buying small quantities of a particular product
from many small producers and then selling the assembled larger quantities.
Assembler : A marketing intermediary that performs a bulk-
accumulating function.
Accumulating Bulk. In the majority of cases, it is the task of the
intermediary to break bulk. However, an intermediary may also create bulk,
buying units of the same product from many small producers and offering
the larger amount to those who prefer to purchase in large quantities. These
intermediaries are performing bulk-accumulating function. An intermediary
performing this function is called surprisingly, an assembler.
The classic examples of assemblers are in agriculture and fishing
businesses. A maker of tamato sauce, such as Maggie, would probably not
want to have to deal with many small farms. Assemblers gather large
quantities of apples or tuna or other products attractive to large buyers
Sorting function : An activity, performed by marketing intermediaries,
consisting of classifying accumulated products as to grade and size, and then
grouping them accordingly.
After accumulating bulk, marketers of agricultural products and raw
materials typically perform a sorting function, which involves identifying
differences in quality and breaking down the product into grade or size

categories. For example, eggs are sorted into jumbo grade AA, large grade
AA, and so on.
Assorting function : An activity, performed by marketing
intermediaries, consisting of combining products purchased from several
manufacturers to create assortments.
Creating Assortments : Another function that intermediaries perform
is the creation of assortments of merchandise that would otherwise not be
available. This assorting function resolves the economic discrepancy resulting
from the factory operator’s natural inclination to produce a large quantity of a
single product or a line of similar products and the consumer’s desire to
select from a wide variety of choices. Wholesalers that purchase many
different products from different manufacturers can offer retailers a greater
assortment of items than an individual manufacturer is able to provide.
Consider how magazine publishers and retailers use intermediaries to
solve a very big assorting problem. There are hundreds of magazine titles
available from Indian publishers. No newsstand operator or other retailer
carries anything like that number; a series of intermediaries is used to sort
these many titles into appropriate groupings for individual stores. National
wholesalers, move the hundreds of titles to hundreds of local wholesalers.
Their reward for fulfilling this huge task is about 6 percent of the magazines’
retail prices, out of which they must pay all expenses involved. The local
distributors continue the task of breaking bulk, moving the magazines to
countless supermarkets, new stands, and other retail spots. But there is more
to the local wholesaler’s task than simply breaking bulk and making delivery.
The local wholesaler must select, from among the hundreds of available titles
the ones that are appropriate for the individual retailers’ operations. Then,
this assortment of titles must be assembled in the proper numbers for each
retailer. The local wholesaler is paid about 20 percent of the cover prices.
Complicated as this sounds, the system is so efficient that, less than 36 hours
after a new Business Today is printed, it has arrived at all the retail
establishments that carry the business magazine. Although the influence of
wholesalers has declined in certain industries, it is obvious why wholesalers
remain very important in the magazine distribution business.

Reducing Transactions. There is one underlying reason why
NOTES
intermediaries can economically accumulate bulk and create assortments. The
presence of intermediaries in the distribution system actually reduces the
number of transactions necessary to accomplish the exchanges that keep the
economy moving and consumers satisfied.
As Figure 7.1, indicates, even if only four suppliers of grocery items
attempt to transact business with just four retail buying headquarters, the
number of interrelationships necessary is far greater than the number needed
once an intermediary, such as a wholesaler, is added to the system. Channel
intermediaries, in their dual roles as buying agents for their customers and
selling agents for the manufacturers with which they deal, simplify the
necessary transaction process considerably. (Of course, channels of
distribution can become too long. Such channels are common in Japan).
Intermediaries not only reduce the number of transactions but also reduce the
geographic distances that buyers and sellers must travel to complete
exchanges and spare manufacturers the trouble of locating and contacting
individual potential customers. These are some of the ways wholesalers and
retailers can reduce costs. If manufacturers and consumers had to perform all
these activities themselves, they would have to bear the costs involved.
Transporting and Storing. Intermediaries, in most cases, perform or

manage two other marketing functions : transporting and storing.
Merchandise must be physically moved from points of production to points
of consumption. This process often involves storing, or holding, the product
at various spots along the way. Intermediaries of all types, including retailers,
frequently store goods until they are demanded by customers further along in
the channel of distribution.

7.1 Reduction of Transactions by Intermediary
Consider Haldiram namkeen—a very popular namkeen in the Indian

market. If each person who wanted to buy (Haldiram namkeen) had to travel
from Chennai to the Haldiram namkeen manufacturing unit at New Delhi to
make a purchase, those hundreds of thousands of customers—or Haldiram’s
employees, if the company chose to make home deliveries—would travel an
incredible total distance. Wholesalers and retailers provide storage in the
Chennai market and enable Haldiram to send relatively few truckloads of
namkeen to that city, greatly reducing the total distance travelled. It is clear
that transportation and storage functions are necessary to satisfy the Chennai
area’s demand for Haldiram namkeen. Although this example may seem far-
fetched, it illustrates that one of the most important functions of
intermediaries is to provide regional and local storage. The local Haldiram

wholesaler, the neighborhood sweet shop, and the corner retailer all carry an
NOTES
inventory, and thus each performs the storage function.
We should mention that some types of intermediaries do not take
possession of the goods whose distribution they facilitate. In such cases, the
intermediary does not actually transport or store the merchandise. Instead,
the intermediary coordinates transportation Thus, you should think of
transportation and storage in a broad sense that includes the contribution of
wholesalers that, for example, arrange for shipment of goods from a
producer-owned place of storage to an organizational buyer’s place of
business.
Communication and Transaction Functions
Intermediaries perform a communication function, which includes
buying, selling, and other activities involving gathering or disseminating
information. The ultimate purpose of the communication link between the
manufacturer and the retailer or between the wholesaler and the retailer is to
transfer ownership—that is, to complete a transaction that results in an
exchange of title.
Selling function : Activities, performed by intermediaries, that are
associated with communicating ideas and making a sale and thus effecting
the transfer of ownership of a product.
Buying function : Activities, performed by intermediaries, that are
associated with making a purchase and thus effecting the transfer of
ownership of a product.
Wholesalers and retailers may perform an important promotional
function for manufacturers when they provide product information and price
quotes. Most frequently, this communication is carried out by a sales force.
However, intermediaries also use advertising and such sales promotion tools
as retail displays. In other words, intermediaries perform a selling function
for the manufacturer, often providing a sales force or other promotional
efforts that they can supply more efficiently than the manufacturer can. The
wholesaler provides a buying function for retailers, organizational users, and
other customers. A wholesaler’s contact with numerous manufacturers allows
it to evaluate the quality of a wide assortment of goods from competing
manufacturers, thus, retailers and other customers are freed of the burden of

evaluating every manufacturer’s product assortments. This allows them more
time to specialize in the retailing and merchandising of products.
Intermediaries further serve as channels of communication by
informing buyers how products are to be sold, used, repaired, or guaranteed.
They can even explain new product developments. (In fact, retailers should
pass along more of this information to their customers : unfortunately many
retail salespeople are not trained to provide information of this sort). Because
intermediaries typically deal with a number of manufacturers or other
suppliers of goods, they are in a unique position to serve as conduits of
information.
Intermediaries, being “in the middle”, are well placed not only to pass
information from producers to other channel members but also to collect
information from channel members or retail shoppers and return it to
producers. For example, suppose a retailer receives serious consumer
complaints about a product or some product-related matter such as repair
service. The retailer should pass this information backward in the channel to
the wholesaler, who can bring the matter to the attention of the producer.
Should is the key word here. Too often, whether because of apathy or the fear
of somehow being blamed for a problem, intermediaries fail to perform this
potentially valuable service. Marketers at all levels should encourage
communication throughout channels of distribution, because the satisfaction
of all channel members and consumers is at stake.
Facilitating Functions
The transportation and storage functions of channel intermediaries are

their most obvious contributions to the operation of the marketing system.
However, intermediaries perform additional, so-called facilitating functions,
which are not quite so apparent to observers of a channel in operation.
Because the tasks of a channel intermediary can be so varied, it is nearly
impossible to list all the facilitating functions a channel member might
perform. However, three major categories of facilitating functions should be
mentioned specifically : providing extra services, offering credit, and taking
risks.

Service function : Activities, performed by intermediaries, that
NOTES
increase the efficiency and effectiveness of the exchange process. Repair
services and management services provided by intermediaries are examples.
Extra Services. Channel member, particularly intermediaries, can and
do provide a range of extra services that increase the efficiency and
effectiveness of the channel; intermediatires thus perform a service function.
For many products, the availability of a post-sale repair service is an absolute
necessity. Office photocopiers, for examples, always seem to need either
routine maintenance or minor or major overhauls.
Wholesalers and retailers of such machines usually offer repair
services on either a contract or an emergency basis. They also carry necessary
supplies like paper. Other products—such as personal computers and cellular
phones—are not so prone to breakdowns, yet buyers like to know that repair
service is available should it ever be needed. Technical support is critical for
many Internet and software companies.
Honouring manufacturers’ guarantees can be another responsibility of
intermediaries.
Channel intermediaries can also provide a variety of management
services. In the food industry, for example, wholesalers offer such services as
computerized accounting systems, inventory planning, store site selection,
store layout planning and management training programs. The extra services
offered are good business for the wholesalers in that (1) they attract
customers and (2) they help their food retailer customers to stay in business
and to remain successful. The services, if not offered by every competing
wholesaler, can also provide a competitive advantage to the food wholesaler
willing to invest in them. Wholesalers may offer other services, too. They may
provide help in preparing advertisements, and they may offer a line of
private brand goods or a wholesaler-owned label that smaller retailers can
use to create an image similar to those of larger chains.
Credit function : Provision of credit to another member of a
distribution channel.
Credit Services : Most intermediaries perform a credit function by
offering credit service of one kind or another. Although some wholesalers
and retailers operate exclusively on a cash-and-carry basis, promising to pass

related savings on to the customers, they make up a relatively small
proportion of the millions of intermediaries operating in India.
Some credit services provided by channel members may not be
immediately obvious.
A retailer that accepts Master Card or Visa provides a credit service
that in fact, costs the retailer a percent of the sales fee, which it must pay to
the credit card company.
Many small/medium retailers offer their own credit plans, which
involve a more clear cut provision of service than accepting “outside” card.
Wholesalers and other nonretail channel members may provide credit
in a number of ways. Although a supplier may have a credit system so
unique that buyer pay particular notice, supplier credit systems are generally
so widespread throughout a trade that buyers scarcely see the credit system
as a true service Intermediaries in many fields routinely offer 30, 60 or more
days to pay for merchandise ordered. Often, the days do not start “counting”
until the goods are delivered to the buyer’s place of business. In effect, such a
service permits the buyer to make some money on a product before having to
pay for it.
Risk-taking function : Assumption of the responsibility for losses
when the future is uncertain.
Risk Taking. In almost everything they do, channel intermediaries
perform a risk taking function. When purchasing a product from a
manufacturer or supplier of any type, intermediaries run the risk of getting
stuck with an item that has fallen out of favour with the buying public
because of a shift in fashion or the death of a fad. It is also possible for a
product to spoil while it is in storage or lost through fire or some other
disaster. Intermediaries bear these risks in addition to market risk.
7.3 CHANNEL TYPES AND PARTICIPANTS
We have already suggested that not all channels of distribution are

alike. In fact, the variety of distribution channels is extensive indeed. That is
because marketers are constantly seeking new ways to perform the

distribution function. Both manufacturers and intermediaries have developed
NOTES
all sorts of variations on the basic theme of distribution. Each variation was
developed in an effort to perform the distribution function better and thereby
attract business.
Channels may be distinguished by the number of intermediaries they

include; the more intermediaries, the longer the channel. Some organizations
choose to sell their products directly to the consumer or organizational user;
others use long channels that include numbers of wholesalers, agents, and
retailers to reach buyers.
This discussion focuses on the most common of the numerous
channels of distribution available. Figure 7.2 below provides an overview of
major types of Channel types.
Fig. 7.2 Types of Distribution Channels

Marketers of consumer goods and services that promote their
products through mail- order catalogs, telemarketing (telephone sales), and
toll-free numbers listed in advertisements and that distribute directly to
consumers through the mail or a delivery service are also using direct
channels. The strategies of these direct marketers, which do not use retail
outlets or contact customers in person, rely largely on data-based
management and certain direct-response promotional strategies.
The Manufacturer (Producer)—Retailer—Consumer Channel. The

manufacturer—retailer—consumers channel is commonly employed when

the retailer involved is a sizable organization, such as a discount chain like
Wal-Mart. This type of retail marketing organization may prefer to deal
directly with manufacturers to be able to order specially made merchandise
or obtain discounts or other benefits.
Generally, the benefits must be important enough to make the retailer

willing to perform many wholesaling functions. However, in an effort to
please large retail customers, the manufacturer may agree to perform
wholesaler functions. The efficiencies a manufacturer gains from the large
orders placed by Sears or Wal-Mart can more than offset the wholesaling
costs the manufacturer may have to absorb.
Most of the private mobile phone service provides like Air Tel, Hutch, IDEA
use service provider Retailer Consumer channel to provide various pre-
paid and post paid service facilities to the consumers. This type of intensive
distribution helps in catering the customer requirements anywhere, anytime.
The Manufacturer—Wholesaler—Retailer—Consumer Channel. The
manufacturer—wholesaler—retailer—consumer channel of distribution is the
most commonly used structure for consumer goods. This is because most
consumer goods are so widely used. It would be virtually impossible for the
ITC, for example, to deal individually with every retailer stocking cigarettes,
let alone every consumer of cigarettes. Thus, a long channel, with at least two
intermediaries, is needed to distribute the product. Wholesalers can also be
used in the distribution of services.
Channels That Include Agents.

A familiar type of agent is the real estate agent. Consumers marketing
their homes or unconstructed plots often lack time and marketing skills, so
they hire agents. Manufacturers, especially those lacking expertise in
marketing a particular product line, may choose to permit manufacturer’s
agents or selling agents to handle the marketing of their products. Such
agents do not take title to the goods they sell and usually earn commissions
rather than a salary.

In marketing channels for consumer goods, agents may, depending on
NOTES
the circumstances and the product they offer, sell to retailers or wholesalers.
The manufacturer-agent- wholesaler-retailer-consumer channel is widely
used in the marketing of consumer products, especially convenience goods.
It might seem that travel agents used by airlines function as retailers.
Technically, however, they are part of a channel involving an agent. The
service producer-agent channel is common in marketing of consumer services
like insurance, tours travel, postal saving scheme etc.
Channels of Distribution for Business-to-business Marketing
Business-to-business marketers use channels that are similar to those used by
the marketers of consumer products. The primary channels are illustrated in
Figure 7.2.
The Direct Channel in Business-to-Business Marketing. The name

“business- to-business” suggests the importance of the direct channel in the
marketing of organizational products. Indeed, the direct channel is the one
most commonly used in the marketing of organizational goods. Direct
organizational sales of industrial machinery such as escalators, power-
generating machinery such as turbine engines, metals such as titanium, and
many other products require well-informed salespersons, and perhaps
engineers, who can help the buyer fit the product into its organizational
facility or manufacturing process. Otis Elevator, for example, it a business-to-
business marketer that uses a direct channel to reach multistorey construction
companies.
Many business-to-business marketers now use the Internet for

electronic commerce. This constitutes a direct channel.
The Manufacturer—Wholesaler—Organizational User Channel :
Because, by definition, retailers deal with consumers, there is no

distribution channel for organizational goods that directly parallels the
manufacturer—retailer channel. However, there is a trade channel for
organizational goods that relies on just one wholesale intermediary, which

performs a function much like that of a retailer. This is the manufacturer-
distribution-organizational user channel. The names for this type of
wholesaler vary from industry to industry; among the most common terms
used are jobber and distributor.
Jindal Steel, maker of not rolled & cold rolled steel, uses distributors
who, working out in a given area sell directly to small customers, like utensil
makers. Distributors selling to organizational users may also operate store-
like facilities that buyers such as electricians or plumbers may patronize. In
either format, organizational distributors peform storage and communication
functions. They may, as in the Jindal steel example, provide delivery, and
they may also supply credit or perform other functions. The organizational
distributor is classified as a merchant intermediary, because this distributor
takes title to the goods. Channels of distribution for organizational goods
sometimes include more than one merchant wholesaler. This arrangement is
most common in international marketing.
Business-to-Business Marketers Also Use Agents. The manufacturer-

agent- organizational user channel is commonly used in business-to-business
marketing by small manufacturers that market only one product to many
users. The wide range of customers to which agents sell suggests the main
attraction of agents for manufacturers : flexibility. One type of agent
intermediary, the broker, can be used on an occasional basis, as needed. No
continuing relationship—and therefore no continuing financial remuneration
or other obligation—is necessary. Similarly, manufacturers’ agents operate on
a commission basis within fixed geographic territories. Therefore, they appeal
to small organizations whose limited financial resources make it difficult for
them to fund their own sales forces. Manufacturers’ agents are also attractive
because they can be employed in “thin” market areas or in foreign countries
where potential sales do not seem to justify a manufacturer’s forming its own
sales force.
Disintermediation

Disintermediation : The compression, or ‘shortening’ of marketing channels
NOTES
because one or more intermediaries have been eliminated.
A shift in many channels of distribution is currently under way because of the
dramatic impact of e-commerce on business-to-consumer and business-to-
business distribution. Because the Internet allows direct communication with
customers and online selling, many channels are being disintermediated.
Disintermediation refers to the compression, or “shortening”, of marketing
channels because one or more intermediaries have been eliminated. When
IBM decided that it would market its Aptiva computers directly, on the
Internet, and no longer sell them in stores, it disintermediated a portion of its
distribution system.
Remember, however, that eliminating a “middleman“ does not eliminate the
need for that intermediary’s function. When a manufacturer decides to
disintermediate, it must itself perform those distribution functions previously
performed by the intermediary. Alternatively, it may choose to outsource
some distribution functions. For example, it may contract with UPS or FedEx
to provide transportation and storage services.
One of the most revolutionary changes resulting from disintermediation is
the growth of infomediaries, providing a new form of intermediation.
Infomediaries and Vertical Exchanges
The communication function of intermediaries has always been important,

because buyers and sellers need information to make decisions. In some
situations, buyers also need to search out organizations or individuals that
are marketing the product they desire. In the past, a consumer might read a
copy of Consumer Report to reduce the time spent searching for information
and to learn experts’
Informediaries can offer sophisticated and highly specific information

searches at a very low cost and evaluates products. The consumer would then
go to a store to purchase the desired item.

Infomediary : An intermediary that services as an electronic information
broker.
In today’s digital world, a new form of intermediary has emerged. An

infomediary serves as an electronic information broker, providing shopping
services or information buying assistance to help buyers and sellers find each
other. Infomediaries can offer sophisticated and highly specific information
searches at a very low cost. Auto-By- Tel, for example, supplies its customers
with the names of local automobile dealers that will provide the exact car the
buyer wants at a rock-bottom, no-negotiation price. Auto- By-Tel’s role as an
intermediary is to provide information. The physical transaction takes place
elsewhere.
In addition, another new breed of intermediaries is emerging to facilitate

business-to- business e-commerce. These new intermediaries are online
trading communities that specialize in vertical markets. (Vertical markets
focus on specific industries, such as chemicals, or specific business processes,
such as food processing.
Vertical exchange : A business-to-business intermediary that specializes in

using the internet to connect and assist numerous buyers and numerous
sellers in a vertical market.
Horizontal markets offer products, such as office supplies, that a wide range
of companies across industries use.) Such e-commerce intermediaries have
been called aggregators, vertical market makers, vertical marketplaces,
vortals, and several other names; however, we prefer the term vertical
exchanges. A vertical exchange specializes in using the Internet to connect
and assist numerous buyers and numerous sellers in a vertical market.
Vertical exchanges provide portals or electronic hubs that function as
electronic marketplaces; administer Web-based procurement systems that
allow for the transfer of title; and provide customized services such as online
tracking of shipments.

Most of the vertical exchanges operating these Web-based marketplaces do
NOTES
not take title to the products or physically handle them. They are just pure
information and Web-service intermediaries. They create value several ways.
The greatest benefit is created by bringing together a critical mass of buyers
and sellers and aggregating information from buyers and sellers. By
aggregating information for vertical market, the vertical exchange allows a
buyer to compare many suppliers simultaneously. Buyers benefit because
they have more choices. Sellers benefit because they have access to more
buyers. Geographical barriers and the need for extensive travel are
minimized. Overall, a vertical exchange improves matching for both buyers
and sellers. In addition, operating a standardized system, perhaps business-
to-business online auction, reduces search and information transfer costs.
Vertical exchanges create value because the costs related to doing business on
the Internet are “shared” by all participants and thus reduced for any
particular member of the vertical exchange’s trading community.
Consider an example. Chemdex is a vertical exchange for the life sciences
research industry. Through its Chemdex Marketplace, it exhibits 250,000
products from more than 120 suppliers, including biological chemicals and
reagents like antibodies, enzymes, and organic and inorganic chemicals.
Buyers are biotech and pharmaceutical companies, as well as academic and
research institutions. Buyers can access the market place via the Chemdex
Web site and search for specific products. Chemdex’s primary function as an
intermediary is to provide information and e-commerce solutions. Supplier
companies, such as SmithKline Beecham and Genetech, are connected to
potential buyers through the Chemdex portal, which contains an electronic
catalog, a search engine, and an easy-to-use ordering system. Once a
transaction occurs between trading partners, Chemdex provides services that
support order fulfilment and other after-the- sale activities.
Vertical Marketing Systems

In many industries, such as the fast-food restaurant industry, the dominant
distribution structure is the vertical marketing system. The concept of a
vertical marketing system emerged with the need to manage or administer

the functions performed by intermediaries at two or more levels of the
channel of distribution.
Vertical marketing system : A network of vertically aligned establishments

that are managed professionally as centrally administered distribution
systems.
Vertical marketing systems, or vertically integrated marketing systems, are
networks of vertically aligned establishments that are professionally
managed as centrally administered distribution systems. Central
administration is intended to provide technological, managerial, and
promotional economies of scale through the integration, coordination, and
synchronization of transactions and marketing activities necessary to the
distribution function. There are three types of vertical marketing systems :
corporate systems, contractual systems, and administered strategic alliances.
Corporate Systems—Total Ownership
Corporate vertical marketing system : A vertical marketing system in

which two or more channel members are connected through ownership.
The corporate vertical marketing system connects two or more
channel members through ownership. It is exemplified by a retailer, such as
Sears, that integrates backward into manufacturing to assure quality control
over production and corporate control over the distribution system. A
manufacturer may obtain complete control of the successive stages of
distribution by vertically integrating through ownership. Raymond’s
exclusive retail outlets. Arvind Mills is also doing the same through Newport
outlets.
Contractual Systems—Legal Relationships
Contractual vertical marketing system : A vertical marketing system
in which channel coordination and leadership are specified in a contractual
agreement.
In a contractual vertical marketing system, channel leadership is
assigned not by ownership but by a contractual agreement. In such a channel,
relationships are spelled out so that there is no questions about distribution

coordination. The relationship between McDonald’s franchise holders and
NOTES
McDonald’s headquarters is a contractual one wherein the rights and
responsibilities of both parties are clearly identified. The idea behind such an
approach to distribution is that if all parties live up to the agreement, the
system will work smoothly and well. In the main, this has certainly been the
case for McDonald’s, although the secret of McDonald’s success is not merely
the employment of a contractual vertical marketing system but also the hard
work required to make it succeed.
Retailer cooperative organization : A group of independent retailers
that combine resources and expertise to control their wholesaling needs
through use of a centralized wholesale buying center.
There are three subtypes of contractual systems; retailer cooperative
organizations, wholesaler-sponsored voluntary chains, and franchises. A
retailer cooperative organization is a group of independent retailers, that
maintains a centralized buying center to perform a wholesaling function.
These retailers have combined their financial resources and their expertise to
more effectively control their wholesaling needs. By capitalizing on
economies of scale they lower wholesaling costs with their cooperative effort.
At the same time, they retain independence.
Wholesaler-sponsored voluntary chain : A vertical marketing system,
initiated by a wholesaler, that links a group of independent retailers in a
relationship with the wholesale supplier.
The wholesaler-sponsored voluntary chain is similar to a cooperative
organisation except that the wholesaler initiates and manages the
collaborative effort so that it has a strong network or loyal retailers. The
independent retailers served agree to use only this one wholesaler, while the
wholesaler agrees to service all organized retailers. Ace Hardware is a
voluntary chain. Each of the stores uses common name and receives
marketing support that helps the independent retailer compete with chain
stores.
Franchise : A contractual agreement between a franchisor and a
franchisee by which the franchisee distributes the franchisor’s product.
A franchise is a contractual agreement between a fracnchisor, typically
a manufacturer or a wholesaler, and a number of independent retailers, or

franchisee. The franchise agreement often gives the franchisor much
discretion in controlling the operations of the small retailers. in exchange for
fees, royalties and a share of the profits, the franchisor offers assistance and,
often, supplies. Franchise assistance may take the form of marketing research
information or strategic marketing planning aids (for example, new product
planning) from franchisor experts. The franchisee is usually responsible for
paying for insurance, property taxes, labour and supplies.
The franchise has been popular and successful in the fast-food
industry. McDonald’s Wimpy’s, Nirula’s and many other familiar fast-food
restaurant are franchises. Subway is one of the fastest-growing fast-food
franchise operation. Franchising is prominent in the service industry as well.
Consider computer education institutes and universities distance education
centers.
One of the main advantages of the franchise system, as well as some
other contractual marketing systems, is that it offers brand identity and a
nationally recognizable storefront for a retail outlet. McDonald’s, Burger
Kings, and other franchise operations have strong identities. The person
driving down the highway has a very clear conception of what products or
services will be found at the franchise outlet.
Administered Strategic Alliances—Strong Leadership
Administrated strategic alliance : A vertical marketing system in
which a strong channel leader coordinates marketing activities at all levels in
the channel through planning and management of a mutually beneficial
program.
The third major type of vertical system is the administered strategic
alliance. Here, a strong position of leadership, rather than outright
ownership, may be source of influence over channel activities. The
“administrator” may be any channel member larger enough market clout to
dominate the others. Alternatively, a strategic alliance may be built on a
commitment to establish long-term relationship based on collaborative
efforts.
Caterpillar’s dealerships are all independently owned, but the heavy
equipment manufacturer considers its dealers as vital partners. Caterpillar is
as concerned about dealers’ performance as the dealers are, because the

company’s enormous and loyal dealer network is one of its major competitive
NOTES
advantages. According to Caterpillar’s president, “We have a tremendous
regard for our dealers. We cannot bypass or undercut them. Some of our
competitors do and their dealers quit Caterpillar’s dealers don’t quit : they
die rich.” Caterpillar’s strong focus on administering the strategic alliances
leads the company to offer a range of supplier and consulting services aimed
at helping dealers boost their profitability. Often Caterpillar service ensures
that dealers’ inventories are at the right level. An intranet connects all dealers
to the Caterpillar ordering system so that they can order any part they need
for next-day delivery. “When you buy the iron, you own the company,”
Caterpillar literature says.
Administered systems generally are constructed around a line of
merchandise rather than the complete manufacturing, wholesaling, or
retailing operations example, a manufacturer wishing to ensure that
wholesalers and retailers in its comprehensive program of marketing
activities might use an administered strategic alliance to coordinate
marketing activities and make them attractive to all parties (perhaps by
offering discounts or financial assistance). Administered strategic alliances
may include arrangements to share or pool inventory information or
exchange other databases so that purchase orders are executed automatically
by computers.
Channel-design Decisions
A new firm typically starts as a local operation selling in a limited
market. It usually uses existing intermediaries. The number of intermediaries
in any local market is apt to be limited; a few manufacturers’ sales agents, a
few wholesalers, several established retailers, a few trucking companies, and
a few warehouses. Deciding on the best channels might not be a problem. The
problem might be to convince the available intermediaries to handle the
firm’s line.
If the firm is successful, it might branch into new markets. It might
have to use different channels in different markets. In smaller markets, the
firm might sell directly to retailers; in larger markets, it might sell through
distributors. In rural areas, it might work with general-goods merchants; in
urban areas, with limited-line merchants. In one part of the country, it might

grant exclusive franchises; in another, it might sell through all outlets willing
to handle the merchandise. In one country it might use international sales
agents; in another, it might partner with a local firm. In short the channel
system evolves in response to local opportunities and conditions.
Designing a channel system calls for analyzing customer needs,
establishing channel objectives, and identifying and evaluating the major
channel alternatives.
Analyzing Customer’s Desired Service Output Levels
In designing the marketing channel, the marketer must understand
the service output levels desired by the target customers. Channels produce
five service outputs :
1. Lot size: The number of units the channel permits a typical
customer to purchase on one occasion. In buying cars for its fleet, a travel
agency prefers a channel from which it can buy a large lot size; a household
wants a channel that permits buying a lot size of one.
2. Waiting time: The average time customers of that channel wait
for receipt of the goods. Customers normally prefer fast delivery channels.
Customers are willing to wait only for made-to-order goods or those whose
early delivery is very expansive.
3. Spatial convenience: The degree of which the marketing
channel makes it easy for customers to purchase the product. Maruti Suzuki,
for example, offers greater spatial convenience than Ford, because there are
more Maruti dealers. Maruti’s greater market decentralization helps
customers save on transportation and search costs in buying and repairing an
automobile. Maruti even clain in one of its advertisement. Wherever you are
you are not far from Maruti Service Station.
4. Product variety: The assortment breadth provided by the
marketing channel. Normally customers prefer a greater assortment because
more choices increase the chance of finding what they need. So we find the
shops that deal exclusively in readymade garments or shoes.
5. Service backup: The add-on services (credit, delivery,
installation, repairs) provided by the channel. The greater the service backup,
the greater the work provided by the channel. For example computers,
commercial xerox machine etc. require frequent backup service.

The marketing-channel designer knows that providing greater service
NOTES
outputs means increased channel costs and higher prices for customers. The
success of discount stores indicates that many consumers are willing to accept
lower-service outputs if they can save money.
Establishing Objectives and Constraints
Channel objectives should be stated in terms of targeted service
output levels. According to Bucklin, under competitive conditions, channel
institutions should arrange their functional tasks to minimize total channel
costs with respect to desired levels of service outputs. Usually, several market
segments that desire differing service output levels can be identified.
Effective planning requires determining which market segments to serve and
the best channels to use in each case.
Channel objectives vary with product characteristics. Perishable
products require more direct marketing. Bulky products, such as building
materials, require channels that minimize the shipping distance and the
amount of handling in the movement from producer to consumers. Non-
standardized products, such as custom-built machinery and specialized
business forms, are sold directly by company sales representatives. Products
requiring installation or maintenance services such as heating and cooling
systems are usually sold and maintained by the company or exclusively
franchised dealers. High- unit-value products such as generators and turbines
are often sold through a company sales force rather than intermediaries.
Channel design must take into account the strengths and weaknesses
of different types of intermediaries. For example, manufacturer’s reps are
able to contact customers at a low cost per customer because the total cost is
shared by several clients. But the selling effort per customer is less intense
than if company sales reps did the selling. Channel design is also influenced
by competitors’ channels.
Channel design must adapt to the larger environment. When
economic conditions are depressed, producers want to move their goods to
market using shorter channels and without nonessential services that added
to the final price of the goods. Legal regulations and restrictions also affect
channel design.

7. 4 CHOOSING CHANNEL ALLIANCES
After a company has defined its target market and desired

positioning, it should identify its channel alternatives. A channel alternative
is described by three elements : the types of available business intermediaries,
the number of intermediaries needed, and the terms and responsibilities of
each channel member.
Types of Intermediaries
The firm needs to identify the types of intermediaries available to
carry on its channel work. Here are two examples :
A test-equipment manufacturer developed an audio device for
detecting poor mechanical connections in machines with moving parts.
Company executives felt this product would sell in all industries where
electric, combustion, or steam engines were used, such as aviation,
automobiles, railroads, food canning, construction, and oil. The sales force
was small. The problem was how to reach these diverse industries effectively.
The following alternatives were identified :
* Company sales force: Expand the company’s direct sales force.
Assign sales representatives to territories to contact all prospects in the area.
Or develop separate sales forces for the different industries. The first option
of assigning sales force to territories is better because in the second option
much higher number of sales persons will be needed and it’ll increase
marketing costs.
* Manufacturers’ agency: Hire manufacturer’s agents in different
regions or end- use industries to sell the new equipment. These agents know
well about the various companies and they also know whom to contact and
how to sell the product to different companies.
* Industrial distributors: Find distributors in the different regions or
end-use industries who will buy and carry the device. Give them exclusive
distribution, adequate margins, product training, and promotional support.
They will get the job done through their own sales force.
A consumer electronic company produces cellular car phones. It
identified the following channel alternatives :

* OEM market : The company could sell its car phones to automobile
NOTES
manufacturers to be installed as original equipment. OEM stands for original
equipment manufacturer. For e.g., NOKIA can sell car phones to Hindustan
Motors to install them in Ambassador cars.
* Auto-dealer market : The company could sell its car phones to
auto dealers.
The dealers can promote them as add-ons if the customer desires.
* Retail automotive-equipment dealers : The company could sell its
car phones to retail automotive-equipment dealers through a direct sales
force or through distributors.
* Car phone specialist dealers : The company could sell its car phones
to car phone specialist dealers through a direct sales force or dealers.
* Mail-order market : The company could sell its car phones through
mail-order catalogues.
Companies should search for innovative marketing channels. The
Conn Organ Company merchandises organs through department stores and
discount stores, thus drawing more attention than it ever enjoyed in small
music stores. The Book-of-the-Month Club merchandises books through the
mail. Other sellers have followed with record-of-the- month clubs, candy-of-
the-month clubs, flower-of-the-month clubs, fruit-of-the-month clubs, and
dozens of others.
Sometimes a company chooses an unconventional channel because of
the difficulty or cost of working with the dominant channel. The advantage is
that the company will encounter less competition during the initial move into
this channel. After trying to sell its inexpensive Timex watches through
regular jewellery stores, the U.S. Time Company placed its watches in fast-
growing mass-merchandise outlets. Avon chose door-to- door selling because
it was not able to break into regular department stores. The company made
more money than most firms selling through department stores.
Number of Intermediaries
Companies have to decide on the number of intermediaries to use at
each channel level. Three strategies are available; exclusive distribution,
selective distribution and intensive distribution.

Exclusive distribution means severely limiting the number of
intermediaries. It is used when the producer wants to maintain control over
the service level and service outputs offered by the resellers. often it involves
exclusive dealing arrangements, in which the resellers agree not to carry
competing brands. By granting exclusive distribution, the producer hopes to
obtain more dedicated and knowledgeable selling. It requires greater
partnership between seller and reseller and is used in the distribution of new
automobiles, some major appliances, and some women’s apparel brands.
Selective distribution involves the use of more than a few but less than
all of the intermediaries who are willing to carry a particular product. It is
used by established companies and by new companies seeking distributors.
The company does not have to dissipate its efforts over too many outlets; it
enables the producer to gain adequate market coverage with more control
and less cost than intensive distribution. Nike, the world’s largest athletic
shoe maker, is a good example of selective distribution:
Intensive distribution consists of the manufacturer placing the goods
or services in as many outlets as possible. This strategy is generally used for
items such as tobacco products, soap, snake foods, and gum, products for
which the consumer requires a great deal of location convenience.
Manufacturers are constantly tempted to move from exclusive or
selective distribution to more intensive distribution to increase coverage and
sales. This strategy may help in the short term but often hurts long-term
performance. If colorplus expanded from its current high-end retailers to
mass merchandisers, it would loss some control over the display
arrangements, the accompanying service levels, and the pricing. As the
product entered lower-cost retail outlets, they would undercut other retailers,
resulting in a price war. Buyers would attach less prestige to Colorplus
apparel, and the manufacturer’s ability to command premium prices would
be reduced.
Terms and Responsibilities of Channel Members
The producer must determine the rights and responsibilities of
participating channel members. Each channel member must be treated
respectfully and given the opportunity to be profitable. The main elements in

the “trade-relation mix” are price policies, conditions of sale, territorial rights,
NOTES
and specific services to be performed by each party.
Price policy calls for the producer to establish a price list and schedule
of discounts and allowances that intermediaries see as equitable and
sufficient.
Conditions of sale refers to payment terms and producer guarantees.
Most producers grant cash discounts to distributors for early payment.
Producers might also guarantee distributors against defective merchandise or
price declines. A guarantee against price declines gives distributors an
incentive to buy large quantities.
Distributors’ territorial rights define the distributor’s territories and
the terms under which the producer will enfranchise other distributors.
Distributors normally expect to receive full credit for all sales in their
territory, whether or not they did the selling.
Mutual services and responsibilities are conditions that must be
carefully spelled out, especially in franchised and exclusive-agency channels.
McDonald’s provides franchisees with a building, promotional support, a
record-keeping system, training, and general administrative and technical
assistance. In turn, franchisees are expected to satisfy company standards
regarding physical facilities, cooperate with new promotional programs,
furnish requested information, and buy supplies from specified vendors.
Evaluating the Major Alternatives
Each channel alternative needs to be evaluated against economic,
control and adaptive criteria. Consider the following situation :
Godrej furniture wants to sell its line to retailers in Western India. The
manufacturer is trying to decide between two alternatives :
1. One calls for hiring 10 new sales representatives who would
operate out of a sales office in Pune. They would receive a base salary plus
commissions.
2. The other alternative would use a Pune’s sales agency that has
extensive contacts with retailers. The agency has 30 sales representatives, who
would receive a commission based on their sales.
Economic Criteria

Each alternative will produce a different level of sales and costs. The
first step is to determine whether a company sales force or a sales agency will
produce more sales.
Most marketing managers believe that a company sales force will sell
more. They concentrate on the company’s products; they are better trained to
sell those products; they are more aggressie because their future depends on
the company’s success; and they are more successful because many
customers prefer to deal directly with the company.
However, the sales agency could conceivably sell more. First, the sales
agent has 30 representatives, not just 10. Second, the agency’s sales force
might be just as aggressive as a direct sales force, depending on the
commission level. Third, some customers prefer dealing with agents who
represent several manufacturers rather than with sales persons from one
company. Fourth, the agency has extensive contacts and market place
knowledge, whereas a company sales force would need to build these from
scratch.
The next step is to estimate the costs of selling different volumes
through each channel. The fixed costs of engaging a sales agency are lower
than those of establishing a company sales office. But costs rise faster through
a sales agency because sales agents get a larger commission than company
salespeople.
The sales agency is thus the better channel for any sales volume below
SB, and the company sales branch is better at any volume above SB. Given
this information, it is not surprising that sales agents tend to be used by
smaller firms, or by large firms in their smaller territories where the sales
volume is too low to support company sales people.
Control Criteria
Using a sales agency poses a control problem. A sales agency is an
independent firm seeking to maximize its profits. Agents may concentrate on
the customers who buy the most, not necessarily of the manufacturer’s goods.
Furthermore, agents might not master the technical details of the company’s
product or handle its promotion materials effectively.

Adaptive Criteria
NOTES
To develop a channel, members must make some degree of
commitment to each other for a specified period of time. Yet these
commitments invariably lead to a decrease in the producer’s ability to
respond to a changing marketplace. In rapidly changing, volatile, or
uncertain product markets, the producer needs channel structures and
policies that provide high adaptability.
Channel-management Decisions
After a company has chosen a channel alternative, individual
intermediaries must be selected, trained, motivated, and evaluated. Channel
arrangements must be modified over time.
Selecting Channel Members
Producers vary in their ability to attract qualified intermediaries.
Toyota was able to attract many new dealers for its new Lexus. However,
when Polaroid started, it could not get photographic-equipment stores to
carry its new cameras and was forced to use mass-merchandising outlets.
Whether producers find it easy or difficult to recruit intermediates,
they should at least determine what characteristics distinguish the better
intermediaries. They will want to evaluate number of years in business, other
lines carried, growth and profit record, solvency, cooperativeness, and
reputation. If the intermediaries are sales agent, producers will want to
evaluate the number and character of other lines carried and the size and
quality of the sales force. If the intermediaries are department stores that
want exclusive distribution, the producer will want to evaluate locations,
future growth potential, and type of clientele.
SUMMARY
Regardless of a great product at attractive price, the product needs to
reach the customer. Marketing channel plays that important role and we
covered some major types of such channels and the participants. New forms
of marketing channels are being forged as well as we progress.
SELF ASSESSMENT

A. State whether the following statements are true or false:
1. Marketing channel management refers to the choice and
control of the intermediaries.
2. The distribution channel is the route taken as they move from
the end user to the manufacturer.
3. The use or selection of a channel is not influenced by the type
of product under consideration.
4. The intermediaries act as middlemen between the producer
and the customer in the distribution system.
5. A distribution channel overcomes the ………, and

……… gaps that separate goods and services.
6. Some of the flows are forward flows whereas some are
from consumer to producer flows.
7. A manufacturer needs three kinds of channel, namely..........
,…….. and channel.
8. It is important to manage the
distribution channel intermediaries to minimise …………
customer and …………. the competitive advantage for the firm.
14. The channel management decisions involve ………., ,
………., ……….. and of channel members.
15. Channel strategies can be grouped into ……….., and
…………… factors
B.Detailed Answers
10. What is meant by a marketing channel? What are the objectives of

channel or distribution management?
11. Explain various types of channels with suitable Indian examples.
12. What are the various factors, which must be considered while
making channel selection?
13. What methods are used to motivate channel members? How is the
concept of cooperation and competition applicable here?
CASE STUDY

Project Shakti: Among the new channels is Project Shakti, which is already
NOTES
operational in 11 states. The vision is to reach over 100,000 small villages,
touching over 100 million rural Indians. Project Shakti provides micro-
enterprise opportunities for women from Self-help Groups, making them
direct-to-home distributors of HLL. The ‘Shaktiammas’ work as brand
ambassadors for HLL and they sell its products directly to village consumers
at their homes.
Hindustan Lever Network: Hindustan Lever Network leverages the

opportunity of Direct Selling, and already presents customized offerings in 11
Home & Personal Care and Foods categories. With a consultant base of over
250,000 entrepreneurs, it operates in over 1,500 towns and cities, covering
80% of the urban population.
Out-of-Home Opportunity: HLL is also aggressively responding to the

rapidly growing trend of out-of-home consumption. The company is already
the largest in hot beverages vending with over 15,000 tea and coffee vending
points. This is being aggressively expanded in offices, the burgeoning
services sector and, through specially designed kiosks, in the education,
entertainment, leisure and travel segments.
Health & Beauty Services: To respond to the increasing consumer need for
health and beauty services and products, HLL has pioneered Lakme Salons
and Ayush Therapy Centres. Lakme already has 64 salons in 26 cities,
servicing over 4 lakh consumers a year. The Ayush Therapy Centres provide
easy access to authentic Ayurvedic treatments and products, addressing the
ever-growing concern for health among consumers.
Mr. Banga of HLL concluded, “Our distribution initiatives create significant

employment and vocational opportunities. Our countrywide network of 7,000
Stockists and 6,000 sub-stockists employs over 60,000 people. In our current
channels, we work with the local retail trade, which has dispersed ownership
and already involves a large number of people.

HLL new initiatives by themselves create large vocational opportunities for
people. Hindustan Lever Network aims to create over a million self-
employed entrepreneurs. Project Shakti aims to engage 25,000
underprivileged rural women, giving them economic independence.
Services, by their very nature, are employment intensive and will also
provide significant employment. All our channel initiatives are thus
completely aligned with the national interest and priority of employment
generation.”
Question:
Identify the channel decisions of Unilevers in India.
CASE 2
Starbucks is a master of employing value based pricing to maximize profits,

and they use research and customer analysis to formulate targeted price
increases that capture the greatest amount consumers are willing to pay
without driving them off. Profit maximization is the process by which a
company determines the price and product output level that generates the
most profit. While that may seem obvious to anyone involved in running a
business, it’s rare to see companies using a value based pricing approach to
effectively uncover the maximum amount a customer base is willing to spend
on their products. As such, let’s take a look at how Starbucks introduces price
hikes and see how you can use their approach to generate higher profits.
The Right Customers and the Right Market
While cutting prices is widely accepted as the best way to keep customers
during tough times, the practice is rarely based on a deeper analysis or
testing of an actual customer base. In Starbucks’ case, price increases
throughout the company’s history have already deterred the most price
sensitive customers, leaving a loyal, higher-income consumer base that
perceives these coffee beverages as an affordable luxury. In order to
compensate for the customers lost to cheaper alternatives like Dunkin

Donuts, Starbucks raises prices to maximize profits from these price
NOTES
insensitive customers who now depend on their strong gourmet coffee.
Rather than trying to compete with cheaper chains like Dunkin, Starbucks
uses price hikes to separate itself from the pack and reinforce the premium
image of their brand and products. Since their loyal following isn’t especially
price sensitive, Starbucks coffee maintains a fairly inelastic demand curve,
and a small price increase can have a huge positive impact on their margins
without decreasing demand for beverages. In addition, only certain regions
are targeted for each price increase, and prices vary across the U.S. depending
on the current markets in those areas (the most recent hike affects the
Northeast and Sunbelt regions, but Florida and California prices remain the
same).
Product Versioning & Price Communication
They also apply price increases to specific drinks and sizes rather than the
whole lot. By raising the price of the tall size brewed coffee exclusively,
Starbucks is able to capture consumer surplus from the customers who find
more value in upgrading to grande after witnessing the price of a small drip
with tax climb over the $2 mark. By versioning the product in this way, the
company can enjoy a slightly higher margin from these customers who were
persuaded by the price hike to purchase larger sizes.
Starbucks also expertly communicates their price increases to manipulate

consumer perception. The price hike might be based on an analysis of the
customer’s willingness to pay, but they associate the increase with what
appears to be a fair reason. Using increased commodity costs to justify the
price as well as statements that aim to make the hike look insignificant (less
than a third of beverages will be affected, for example) help foster an attitude
of acceptance.
What can Your Business Learn From Starbucks?

The profit maximizing tactics Starbucks implements in their pricing strategy
are vital components of a process anyone can use. Here are some of the
takeaways you can apply to your own business:

1. Study your customer personas. Starbucks understands that the majority of
their customer base is fairly insensitive to price, and uses small price
increases that everyday consumers barely notice to boost margins. Quantify
your buyer personas and the demand for your product or service will help
you choose a price that captures the maximum amount your customers are
willing to pay.
2. Justify the exchange rate for your product. Communicating price increases
effectively is crucial to a successful price hike, and managing customer
perception is a key part of the Starbucks strategy. Support your price
increases using changes in the market such as higher commodity costs and
ease the pain on the consumer by finding an attractive way to publicize the
new prices. Starbucks said their beverage prices were increasing by an
average of 1%, but that low average probably stemmed from including all of
their beverages in the equation, including ones that remained at the same
prices.
Question
How do Starbucks maintain a high premium pricing in a competitive market?
Agent: Intermediaries with legal authority to market goods and

services and to perform other functions on behalf of the producer are called
agents or brokers.
Distribution Channel: A distribution channel for a product is the route
taken by the title to the goods as they move from the producer to the ultimate
customer.
E-Commerce: Conducting business on internet or web
Logistics: The process of strategically managing the physical
distribution through the firm and on to customers.

Middlemen: Middlemen refer to just about anybody acting as an
NOTES
intermediary between the producer and the consumer.

MODULE - 8
______________________________________________________________
PROMOTION DECISIONS
Structure
8.0 Introduction
8.2 Sales Promotion and Promotion Mix
8.3 Public Relation
8.4 Personal Selling
8.0 INTRODUCTION
Advertising is one element of marketing mix. It is a paid form of mass
communication and can be traced to an identified sponsor. It is in this sense
that advertising is different from publicity, which is also a mass
communication tool. Publicity is not paid for and its sponsor is not easily
identified. Over the years, advertising has grown from being just another
element in the marketing mix to a key strategic input in brand building and
image creation. Its growth in size is reflected by the gross expenditure on
advertising in a year, gross incomes of leading advertising agencies and the
number of advertising agencies. The media too has expanded and offers
significant opportunities to marketers. In terms of technology, too, the
advertising industry in India has come a long way from the early 1930s and
even 1980s.
This chapter focuses on the different elements that make up the

promotion mix- sales promotion, present selling and publicity.
At the end of the lesson the learner will be able to
Distinguish advertising from promotion
Understand the concept of Public Relations

When Personal Selling is relevant
NOTES
8.2 SALES PROMOTION AND PROMOTIONAL MIX
Coming back to advertising agencies, one observed that the

capitalised billings of 100 agencies (who participated in the 10th Agency
Survey by A & M) in 1998-99 grew to Rs. 9,146.20 million from Rs. 7,760.47
million in 1992-93, registering a growth of 17.87 percent. In 1994-95, the
agencies were expected to register a growth of about 40 per cent over 1993-94.
By 1999 the industry was poised to be a fat Rs. 10,000 crore and is expected to
double up to Rs. 20,000 crores five years down the line. However the
advertising industry growth which towered a high of 49 per cent in 1994-95 is
now settling down to about 17 per cent. This clearly shows that advertising
growth rate has reduced. This can be ascribed to the slow down in the
manufacturing sector which has registered a negative growth rate over the
last few years having now settled down to 2.5 per cent growth rate.
Advertising plays a significant role in awareness creation and attitude

formation. It can even generate a trial and purchase as long as all other
elements of the marketing mix play a contributory role. Thus, it has to be
appreciated that advertising has a limited role in marketing strategy. A
marketing plan and strategy takes into account several marketing tools to
achieve marketing objectives. These are product, packaging, customer
service, pricing, sales promotion and channel relationships.
A marketing plan should be based on specific problems or
opportunities uncovered by situation analysis, done by the brand manager.
The marketing mix and the allocation of resources across different elements
should reflect this perception of opportunities and threats. In other words, the
marketing budget should reflect this market reality. Conceptually, the
marketing budget should be split in such a way that the marginal value of an
extra budget increment is the same across all elements of the marketing mix
and hence money is put in that element which will produce the maximum
incremental sales. This is more so for advertising. Any increment in the
advertising budget should be carefully examined since there is no direct

relationship between the firm’s sales or advertising expenditure. This is in
contrast to distribution and personal selling or even customer services, where
one can establish a direct relationship between any of them and sales.
Hence the advertising role is limited to communication—awareness

creation or providing information and favourable attitude development.
While its role is limited, the marketer has to compare the costs of different
elements of his or her communication mix. One such yardstick is the cost per
exposure, per thousand people. This is the lowest in advertising. Personal
selling is comparatively the most expensive route to communicating with the
target audience.
Finally, we must also bear in mind that people are generally biased
against advertising and many still believe it to be a waste of organizational
resources, particularly in a country like India.
Hence advertising is important but it is as significant as any other

element in the marketing mix.
Institutional Framework in Advertising

Before we turn to advertising decisions, let us consider the institutions
involved in the advertising function. Aaker, Batra and Myer opine that the
advertiser’s decisions are influenced by controlling and facilitating
institutions, as also the markets and consumer behaviour.
At the centre of an advertising campaign is the advertiser. The

advertiser here refers to the organization that is interested in communicating
its ideas and changing the attitudes of the target audience. Besides the
corporate sector, which includes both public and private sectors, the
government, non-profit organizations like educational institutions, UNICEF,
cooperatives and even political parties are advertisers. The corporate sector,
the most important and the largest spender in advertising, includes
manufacturing and services firms. The latter consists of banks, the hospitality
industry, airlines and telecommunications like the Mahanagar Telephone

Nigam Ltd. and BSNL, as well as Cellphone companies like Airtel, Orange,
NOTES
BPL and Escotel. Over the last few years, the government has emerged a large
spender of money trying to change peoples’ values and attitudes towards
issues like family planning, health care, immunisation, the female child and
even national integration. The government and its agencies have been buying
prime time slots on television and space in the print media. The same holds
good for cooperative sector and invariably all other sections of the economy.
Industry conditions play a major role. Specifically, the intensity of

inter-firm rivalry and demand and supply conditions within the industry
play a major role in determining communication goals and strategy. For
example, in the oil industry where demand outstrips supply, the goal of any
oil company is to de-market oil and this involves educating customers on the
need to conserve oil and save energy. But the same is not true in the case of
the hospitality and air travel industry which has to even out the demand
fluctuations. Hence, demand creating advertising in lean period becomes
important for these firms.
The advertisers goals and strategy are influenced by government
policy. For example, cigarette and liquor cannot be advertised in the mass
media and hence companies making them find a new media or indirectly
advertise the brand. Besides playing a regulatory role, the government may
also play a facilitating role when it may decide to give prime time on its TV
channel to companies advocating social issues like campaigns against AIDS,
drugs or dowry. It may even sponsor news or films made by the corporate
sector on television. Hence government rules and regulations and electronic
media (TV, video, cable TV and radio) policies play a dominant role in the
advertiser’s decision- making.
The advertiser is facilitated by advertising agencies and the media in
translating its goals into action. Marketing research in turn assists
institutions, like the advertiser, advertising agencies and the media. Within
the advertisers organization, it is the product manager, or the brand manager
(as in soft drinks and personal products) whose task it is to co-ordinate
between the advertising agencies and the organization. In fact, in many
multinationals and large Indian firms, a product manager or brand manager

is a strategist who is responsible for developing communication goals for the
product or brand and evolving a marketing plan and strategy for it. The
advertising campaign, which is a part of this overall marketing strategy, is
often decided by the product manager. Where the product management
structure does not exist, it is the marketing manager’s job to evolve the
advertising strategy and also liaise with the advertising agencies.
While all large advertisers depend on advertising agencies to develop
the campaign, smaller advertisers, have to depend on their own internal
resources or take the services of freelance advertising personnel. Again, in a
large advertiser, its the marketing personnel who are involved in the
advertising campaign’s development, but in smaller firms it’s the owner or
the entrepreneur who has to decide on it. Thus, when we refer to an
advertiser, it is necessary to understand the decision making process in these
organizations as also the controlling influence of government and
competition. For, this will affect the quality of the advertising campaign.
Let’s now turn to the facilitating institutions.
ADVERTISING AGENCIES
An advertising agency’s major role is purchase of media time and
space. Besides it is directly responsible for development of an advertising
copy and/or the commercial. It should be noted that in both these tasks—
purchase of media time and space, and copy development—the advertising
agency is greatly assisted by market research. Many large advertisers like
Hindustan Lever, Procter and Gamble, ITC and GTC have their own internal
marketing research departments. With increasing competition and buyer
behaviour and decision processes becoming more complex, many

large industrial houses and companies are creating their own internal
marketing research departments. Even large advertising agencies and media
have their own research departments or affiliates. For example, Mudra
Communications, one of the leading advertising agencies in the country, has
an affiliate in SAMIR which does all the marketing research and provides
inputs to Mudra and client advertiser.

In areas like copy development and media buying, generally
NOTES
advertising agencies act independently. In an increasing number of cases,
agencies are going beyond their traditional role to get involved in a client
firm’s marketing planning and brand strategy development. The growing
feeling among agencies is that since advertising plays an important role in
attitude formation, they should take a strategic perspective of the brand and
hence their involvement in brand strategy. Rasna’s success is largely
attributed to this strategic role of advertising agencies.
In terms of compensation, most agencies generally work on a
commission and fee basis. They get a 15 per cent commission from the media
in which advertisements are placed. On “non commissionable” services like
brochure development and printing, agencies usually mark-up the suppliers
invoice cost. The agencies also charge fees for creative copy development or,
to put in commonly used term, the art work. A growing area of interest in
agency compensation is whether agencies could be made to commit to a
marketing goal in terms of market share or sale and then be given an
incentive in the form of a bonus once that goal has been achieved. This may
help create advertising that works.
Over the years agencies have grown in size with Hindustan
Thompson remaining in the lead even in 1998-99 with capitalised billings of
Rs. 152.4 crore. It was followed by Lintas (Rs. 105.7 crore) and O&M.
Another interesting development, following globalization and a free

market economy, is the increase in mergers, acquisitions and strategic
alliances by leading advertising agencies world wide. For example, Mudra
has a strategic alliance with DDB Needham and Trikaya with Grey
Advertising. Some of the reasons for this “megacorporation” of advertising
agencies is that their clients are also on a roller coaster in the game of mergers
and acquisitions. Many of them are already operating in the world market,
some of them are even market leaders in their spheres. To service these clients
world wide, agencies also need a world wide network. Moreover, advertising
agencies are evolving into full communication agencies as they realize that
advertising is just one part of the client’s communication mix. Other elements
that are important and perhaps equal, are direct marketing, sales promotion

and public relations. Today there is a growing movement in this direction.
More and more agencies see their role in the total communication strategy of
their client firms.
Organizationally, agencies have three groups of people working. One
is the creative group whose job is to create advertising copies. As the title of
this group suggests, it is the creative wing of the agency. The single most
important factor in agency evaluation is its creativity. It is no wonder then
that copy writers, art personnel and their like are the “blue-eyed” boys and
girls in the advertising industry. The other group consists of account
managers. These people are the client’s product manager, brand manager or
marketing manager’s counterpart in the advertising agency. This group also
performs the “selling” task as they liase with client firms. It is their
responsibility to ensure that a particular account grows with them and also
that the client remains satisfied. Over a period of time, client servicing and
account management have come to acquire a significant position in the
agencies’ organization structure. The third group is the media executives. As
media options increase and clients relook at the productivity of their rupees
spent in advertising, media planning is going to become a complex task.
Computer based media planning models are increasingly being used to
enhance the yield of every rupee spent in advertising, hence the role of media
planners. There is a fourth group emerging now mainly because of the
changing role of advertising agencies. This is the marketing services group
whose task is to examine and recommend the use of other communication
tools to help the client achieve the brand’s goals.
The Media
The media is another facilitating institution. Media refes to daily
newspapers, magazines, technical journals (called the print media),
hoardings, billboards, neon signs and so forth (called outdoor media) and
cinema and television, video, cable TV and radio (called the electronic
media). Media in India has come a long way, from advertising processions,
well and roof paintings and also shop paintings as is shown in Exhibit 15.4 on
media developments. The media choices have multiplied with the advent of
colour television, commercialization of Indian TV, cable TV and the launch of
STAR, Zee and other Hindi and regional language channels. Since rural

markets are important to any advertisers, rural communications form an
NOTES
important part of an advertising agency’s task. And this is where a rural
media like video-on-wheels plays a major role.
Today the Indian TV covers almost 82.5 per cent of the Indian
population and the radio reaches to almost 95 per cent of Indians. Zee TV has
the maximum reach in India among the private channels.
Electronic Media
The developments in this media have greatly exceeded expectations,
especially in India. While television started as a state owned medium in 1959,
by 1985 the scenario had changed dramatically and by October 1992 the
Doordarshan network (state owned television) included 22 programme-
producing centres and 533 transmitters. The physical coverage of TV is 82.5
per cent of the total population in the country. It was estimated that in 1994
there were about 33 million TV sets, of which two-thirds were in the urban
areas. The National Readership Survey IV and V has estimated that 77 per
cent of the urban population and 30 per cent of the rural population has
access to TV.
Urban India will continue to have more TV sets than in rural India
even though by 2020, the share of rural viewership is expected to go up to 45-
48 percent. However the TV programmes will continue to be dictated by the
preferences of urban customers. It is anticipated that there will be a
proliferation of channels to extent of 72 to 99 by 2001 and 200 by 2010.
As the number of TV sets increase, the Indian viewers’ appetite for
entertainment has increased dramatically and Doordarshan was not able to
fulfil this appetite. In quick succession we saw the growth and demise of
home video viewing and by 1992, cable TV emerged as the uncontested king.
But it soon came under threat from satellite TV. The Gulf war in 1991 made it
possible for satellite channels to enter the Indian home and in 1991. Star TV
was launched and lapped-up by the elite upper class viewers in major cities,
particularly Mumbai. Star TV programmes reached the houses of millions of
viewers through local cable networking. Star TV has five channels including
Star Plus, Star World, Star Movies. The Hindi Channel Zee was launched in
1992, and this was soon followed by ATN, CNN and several other channels.
ATN introduced Sun TV for Tamil and Sunga for Malayalam programmes. In

1994 Zee TV introduced two more channels, namely EL TV and ZED
Channel. EL TV is supposed to be a 100 per cent entertainment channel, while
ZED Channel is for taking education to the masses.
Radio : The radio was not to be left behind. In 1994 the All India Radio
introduced the FM Channel in the major cities like Mumbai and Delhi. This
medium has gained popularity today, as reflected by the decision taken in
June 1995 to make this a 24 hour channel in major cities.
Now the reach of channel has been initiated in several small cities.
Times of India channel branded Radio Mirchi has been launched in cities
likes Indore, Ahmedabad and Pune and even Mumbai. It is expected that the
future competition in radio will be among FM channels as the Government of
India has allowed private players to enter this market.
Multimedia : Research today indicates that it took almost 50 years for
the radio to be adopted by 68 percent of the Indian households. In the context
of television, it took 15 years to achieve 5 per cent penetration in the Indian
market but post 1985 the growth rate was indeed far steeper. Within 5 years
15 per cent of the households had a television but the last decade saw a much
higher growth rate as it grew from 15 per cent in 1990 to 45 per cent in 2000.
Today according to statistics put up by Doordarshan and several other
researchers, almost 500 million Indians, (nearly 50 percent of the population)
watch television regularly. On the other hand, cable television took much
lesser time to penetrate. It took less than 10 years for cable television to
achieve 21 percent adoption by the Indian household. Internet grew at a
much faster pace as it took just 4 years to achieve a user/subscriber base of 1
million. The internet took the least time to get diffused, even in the Indian
economy.
Further, a survey by NASSCOM indicates that there were 950,000

Internet subscribers in India as on May 31, 2000 and today this number stands
at 1.8 million. The actual number of consumers who had a ready access to the
Internet in May 2000 was almost 3.4 times that of the subscriber base which
was 3.25 million. NASSCOM had predicted that by the end of march 2001 the
number of Internet subscribers would go up to 1.6 million, which means
about 5 million Internet users. Further, this subscriber base will go up to 3.5

million in 2002 or 10 million users. Such massive growth and in such a short
NOTES
time has never before been witnessed by any medium of communication and
information in India. In less than seven years of its introduction in India, it is
expected to be used by 10 million consumers !
This has particularly happened after the emergence of cyber cafes in
the semi urban areas. The net has also enabled several government initiatives
to take off. Typically an Indian Internet user is young, educated, generally a
professional, urban (mostly a metro resident), who accesses the Internet either
at his/her officer/cybercafes/or at his educational institution. Males use the
Internet more than the females. Irrespective of the sex, the Internet users
generally uses the net for accessing information.
Print Media
According to the 1993 Annual Report of the Register of Newspapers
(RNI) there has been a growth in the total circulation of dailies in 1998 over
1997. The number of newspapers went up by 48.9 percent from 30,214 in 1991
to 44,997 in 1998 and the circulation increased from about 5.3 crore copies in
1991 to about 10.6 crore copies in 1998, or in other words, an increase of 100
percent. The highest number of newspapers published were in Hindi
(198,29,053), followed by English (64,04,774), Marathi (32,48,909) and Gujarati
(28,52,023). The number of daily newspapers increased from 3,229 in 1991 to
4,719 in 1998. In other words an overall increase of over 46.1 percent. The
newspapers were published in as many as 96 Indian languages and dialects.
Outdoor Media : Outdoor advertising has also changed dramatically
in India. Although, still relatively behind countries like USA, UK and Japan,
this media is also drawing the attention of industries. One of the latest forms
of advertising is the three-dimension hoarding used by firms like the Lloyds
Group.
Finally, the local area advertising on cable TV is also on the growth
path. It has been reported that many cable advertising companies rake in Rs,
50,000—Rs. 3,00,000 per month, depending on their operation. Cable TV
operators admit that they earn Rs. 20,000 extra every month without any
extra effort. Firms like Hindustan Lever, Pioma Industries. Parle Exports and
Kwality Ice Creams have been some of the major users.

With literacy increasing and a growth in the professional classes,
specialised magazines for different market segments are now being
published. Magazines like Business India, Business World, Business Today,
India Today, Society, Savvy, Femina, Reader’s Digest and their like are now
read by middle and higher income families.
All these developments heralds a more complex task even for the
media. Today large media houses, like the Times of India group, help
advertisers buy the optional media mix. Media marketing is going to be on
the increase as the target audience gets fragmented over multiple media
choices. Figure 8.1 sums up these advertising institutions and their
relationships in advertising management.
Fig. 8.1 Institutional Framework in Advertising
The Nature of Advertising

Advertising is defined as a persuasive message carried by a non-
personal medium and paid for by an identified sponsor. This definition
indicates two basic parts of advertising : the message and the medium. The
two work together to communicate the right ideas to the right audience.
Advertising promotes goods, services and ideas in mass media, such
as television, radio, newspapers and magazines, to reach a large number of

people at once. It serves as a substitute for a salesperson’s talking to an
NOTES
individual prospect. Mass media advertising is one-way communication and,
unlike a salesperson, cannot receive direct feedback and immediately handle
objections.
Advertisers, who must pay the mass media to present their
advertisements, or commercials, control the exact nature of the one-way
message that will be communicated to the target audience. The impersonal
nature of advertising also allows marketers to control the timing and degree
of repetition. These features often provide benefits that far outweigh the
disadvantages associated with lack of feedback.
Marketers of soft drinks, cosmetics, soaps and many other products
that do not require direct and immediate feedback often rely heavily on
advertising. For these marketers, the challenge is to present messages
effectively to an audience that may not be interested in seeing or hearing
them. They must contend with readers who quickly turn the magazine page
or viewers who tape-record television programs and then fast-forward
through commercials. They must cope with competitors that use advertising
to compare brands. Because of these demands, advertising is often highly
creative and innovative.
Creative advertising can stimulate people to talk about products,
services, and ideas. This word-of-mouth communication may be one of the
most effective means of communicating a message to prospective customers.
Advertising’s power to influence word-of-mouth communication can be a
great asset to a marketer.
Advertising supports other promotional efforts. It may communicate
information about a sales promotion or announce a public relations event.
Advertising helps the salesperson “get a foot in the door” by preselling
prospects. A salesperson’s job can be made much easier if advertising informs
prospects about unique product benefits or encourages prospects to contact a
salesperson. Without advertising, the salesperson’s efforts may be hindered
by the prospect’s lack of knowledge about the company or its products.
Advertising can be subdivided into many different categories. A very
basic scheme classifies advertising as product advertising or institutional
advertising.

Product Advertising
Product advertisement : An advertisement promoting a specific
product.
Advertisements for Liril, Home Trade, Oberoi Hotels, Colgate and
many other brands are clearly intended to persuade consumers to purchase a
particular product—indeed, a particular brand. These are product
advertisements. An advertisement for Maruti Suzuki that declares “Maruti
Service Station near you. No matter where you go” and suggests that viewers
go down to the Maruti dealership is a product advertisement because if
features a specific product.
Direct-action advertisement : An advertisement designed to stimulate
immediate purchase or encourage another direct response, also called a
direct-response advertisement.
If Hero Honda advertisement goes on to recommend that viewers go
to the showroom for a test drive during an inventory reduction sale—that is,
if it suggests an immediate purchase—it is also a direct-action
advertisements, or direct-response advertisement. Many television
advertisements and many direct-mail efforts are of this type. Those that
include both direct-action advertising and a direct channel of distribution are
a popular form of direct marketing. For example, record companies
frequently urge consumers to order special albums by calling a toll-free
number and using a credit card. The Book-of-the-Month Club by India Today
Group mails announcements of its latest offering to club members’ homes
and includes a return envelope so that the customer can order the latest
selections. Direct-action advertisements, in general, utilize coupons, toll-free
telephone numbers, or invitations to call collect in order to facilitate action
and encourage people to “buy now.” Much retail and Internet advertising
emphasizes direct action.
Indirect-action advertisement : An advertisement designed to
stimulate sales over the long run.
Less assertive forms of product advertising are designed to build
brand image or position a brand for an eventual sale rather than to sell
merchandise right this minute. For example, consider an advertisement
portraying the romance and adventure of Ladakh. The advertiser knows that

the consumer is not going to run directly to a travel agency after seeing such
NOTES
an advertisement. The objective is to provide information so that the next
time the family is considering a vacation, Ladakh will be among the spots
considered. Such so-called indirect-action advertisements use a soft-sell
approach calculated to stimulate sales in the long run.
Institutional Advertising
Institutional advertisement : An advertisement designed to promote
an organizational image, stimulate generic demand for a product, or build
goodwill for an industry.
Institutional Advertisements aim to promote an organizational image,
to stimulate generic demand for a product category, or to build goodwill or
an industry. “Sunday Ho Ya Monday Roz Khao Andey” is an institutional
advertising slogan. So are Phillip’s “Let’s make things better” and United
Artists’ “Escape ..... to the movies.” These institutional advertising slogans do
not stress a particular product, brand, or movie. Instead, they accent the
sponsoring institutions. The eggs advertisement, for example, attempts to
build demand for the eggs as a whole. The advertisements paid for by
Philip’s and United Artists stress how wonderful, responsible, or efficient
those companies are. Contrasting the “Drink milk campaign against the
advertisements for Amul Milk or Vita Milk” makes the difference between
institutional advertising and product advertising quite clear. Institutional
advertising is often part of a larger public relations effort.
Planning and Developing Advertising Campaigns
Developing an effective advertising campaign requires a stream of
interconnected decisions on such matters as budgeting and media. as well as
a strong creative strategy.
As you’ve seen throughout this book, goals and objectives must be
established before work on specific plans and actions is begun. This
relationship between objectives and plans holds true for advertising. Before
developing a single advertisement, management must ask what the
advertising is expected to do.
Of course, advertising is supposed to sell the product. That statement,
however, is too broad to be truly useful to marketing planners. Advertising
is, after all, only one element of the marketing mix. It affects and is affected by

the product, the price, the packaging, the distribution, and the other elements
of promotion. All these elements combine to sell the product; advertising
does not do the job alone. Regardless of the appeal and longevity of
advertising campaigns, such as those of De Beers diamonds, BMW, or United
Airlines, successful advertisements do not stand by themselves. Effective
advertising campaigns are developed as part of an overall marketing strategy
and are tightly coordinated with the other facets of the promotional mix.
Communication Goals for Advertising

Communication goals: In the context of marketing, what the marketer
wants a promotional message to accomplish; to gain attention, to be
understood, to be believed, and to be remembered.
What are appropriate goals for advertising? Because advertising is a
method of communication, objectives directly related to advertising should
be communication goals. In general, advertisers want to accomplish four
broad communication goals :
Advertisements are expected to generate attention, to be understood,
to be believed, and to be remembered. These goals relate to selling the
product, but they are primarily matters of communication.
If these broad communication objectives are not considered and met,
more specific objectives will not be met either. For example, if no one pays
attention to an advertisement, the advertisement cannot achieve its more
specific objective of, say, enhancing a brand image. Likewise, an
advertisement must be understood and believed if it is to reinforce or change
perceptions and attitudes about a brand’s characteristics. And if it is not
remembered, an advertisement will have little effect on buyer behaviour.
With these broad objectives in mind, marketers developing advertising
campaigns can set more specific objectives.
Specific Advertising Objectives

Encouraging increased consumption of a product by current users,
generating more sales leads, increasing brand awareness, increasing repeat
purchases, and supporting the personal selling effort are typical specific
objectives for advertisements. These objectives are developed from the

marketing strategy and provide the framework for creative strategy and
NOTES
media selection.
Many advertisements have disappeared from the media, even though
“everybody liked them,” because they did not contribute to accomplishment
of specific objectives. For example, almost everyone who saw it enjoyed a
unique television advertising campaign featuring a bus in Rajasthan’s rural
area which was full of passengers, moves up and down on the road and an
advertisement on the backside reads. “Fevicol Ka Majboot Jod Hai Tootega
Nahin”
However, some advertisements, while humorous and attention-

getting, did not sell the product. Because the ultimate objective is to sell the
product, the advertisements should be changed. A “great” advertisements
that does not contribute to success in increasing market share, introducing a
new product, or the like is only great in the creative sense. In the business
sense, it is far from great.
Opportunities in the marketplace, competitor’s advertising
campaigns, and prior marketing strategy decisions, such as selection of a
target market segment, all influence the development of specific advertising
objectives. An important influence is the product’s stage in the life cycle.
Advertising Objectives and the Product Life Cycle
Advertising objectives change with environmental conditions, as do
all other aspects of marketing. Marketing is dynamic; advertising, as one of
its most visible components, must be especially reflective of change.
Once again, the concept of the product life cycle can be used to
illustrate the changes. Advertising objectives change over the course of a
product’s life. During the introductory stage of the cycle, developing
consumer brand awareness and getting customers to try the product are
normal advertising objectives. Trade advertising, which is aimed at attracting
distributors and interesting them in carrying the product, is equally
important, although less obvious, during this stage. Additional trade
advertising may be developed later, with the objective of increasing the
numbers of distributors and retail outlets.

Primary demand : Demand for a product class as a whole, without
regard to brand, also known as generic demand.
Primary demand advertising : Advertising aimed at stimulating
primary demand; also known as pioneering advertising.
At the start of the product life cycle, it may be necessary to develop
primary demand or generic demand, for the product—that is, demand for the
product class as a whole. This kind of advertising, which often must be so
basic as to explain what a product is and how it works, is called primary
demand advertising. It seeks to introduce the product rather than to make
brand comparisons. Advertising of this sort is also called pioneering
advertising.
Advertising for a mature brand, such as Lifebuoy, may be aimed at
regular, brand-loyal users. Its purpose is substantially different from that of
advertising used to introduce a new product. Promotion to loyal customers
requires a campaign designed to remind them of the product’s image and of
their satisfaction with the product; regular buyers do not need detailed
information about the product. In the case of mature products, then,
advertisers give relatively little emphasis to explaining product features.
Messages become increasingly symbolic as the product “ages”. Partly,
this reflect the fact that mature products have found their niche in the
marketplace. They have been positioned, either by marketers or by the
competitive forces of the market itself, to appeal to smaller and more
specialized market segments than when they were new and lacked intense
competition.
Selective demand advertising : Advertising aimed at stimulating
demand for a particular brand.
An advertising campaign for a product in the maturity stage of the
product life cycle may not explain anything about the characteristics of the
product. Often the advertisements reflect the psychological or emotional
dimensions of the brand or the situations in which it is consumed. Because
most products on the market are in the maturity stage, much advertising uses
psychological benefits to differentiate brands. Such advertisements stress the
reasons a brand is better than its competitors, instead of emphasizing the
newness or uniqueness of the generic product, as is done at the start of the

product life cycle. Advertising of this kind is called selective demand
NOTES
advertising.
Define Develop Create Maintain and Minimal

Objectives Product product enhance advertising
and plan awareness, acceptance brand loyalty, expenses,
promotional stimulate and if there convert emphasize
campaign generic are buyers and low price,
Screen demand, competitors distributors of reduce
concepts and attract build brand competing inventory
plan media distributors preference. brands.
selection Primary Extensive Reminder and
demand advertising emotional
advertising, emphasize advertising.
inform about product and Promotions
product brand for repeat
advantage purchases,
brand
differentiation
-
Fig. 8. 2 Promotion Strategies and PLC
The most commonly encountered advertising objectives for mature

products may be summarized as follows :
1. Increase the number of buyers

• Convert buyers of competing brands by giving them strong
reason to buy.

• Appeal to new market segments by entering into foreign
markets.
• Reposition the brand by identifying some new use or more
usage per occasion.
2. Increase the rate of usage among current users
• Remind customers to use the brand more often. Drink orange
juice three times a day.
• Inform regular consumers of new uses to increase the
consumption. Print new recipes on the pack to increase consumption of food
products.
• Enhance brand loyalty and reduce brand switching among
current customers by making them club members or by supplying something
of value to the loyal customers.
After determining the advertising campaign’s objective, marketing
managers begin to develop a creative strategy and to select advertising
media. These activities are inter-related. In fact, the inter-relationship
between advertisement and medium is so strong that it is often impossible to
tell whether the selection of the medium or the development of the
advertisement comes first. For the purposes of our discussion, we will first
examine how marketers create and produce advertisements and commercials.
Creative Strategy
Creative process : In the context of advertising, the generation of ideas
and the development of the advertising message or concept.
In advertising, the generation of ideas and the development of the
advertising message or concept make up the creative process. Actually,
creativity is necessary to all aspects of the marketing mix, but the term has
come to be particularly associated with the work of the people who actually
develop and construct advertisements. Whether creative activity is based on
information gathered by marketing research or on analysis by mangement,
the basic thrust of an advertising message is developed primarily by the
creative departments of advertising agencies.

Advertising copy writers, art directors, and other creative people are
NOTES
responsible for the task of answering two questions : “What to say ?” and
“How to say it ?” These questions reflect the two basic parts of the creative
strategy.
What to Say—The Appeal
Advertising appeal : The central theme or idea of an advertising
message.
The central idea of an advertising message is referred to as the
advertising appeal. The purpose of the appeal, and of the advertisement, is to
tell potential buyers what the product offers and why the product is or
should be appealing to them. Thinking about advertisements you have seen
will bring to mind the many kinds of appeals advertisers employ. It may be
that the product has sex appeal, is compatible with the target customer’s
lifestyle (or desired lifestyle), or solves some particular problem such as
“morning mouth,” “medicine breath,” or the need for healthy gums.
Commercial messages that make firm promises, like “NOKIA1100 : Made for
India shock resistant and dust resistant” are not uncommon. Many
advertisers believe that specifically describing the answer to a problem in this
manner is the most effective approach. Other advertisements, such as those
for cosmetics, bathing soap and motor bikes, are built around less
straightforward appeals that stress brand image.
Advertising theme : An advertising appeal used in several different
advertisements to give continuity to an advertising campaign.
When the same advertising appeal is used in several different
advertisements to provide continuity in an advertising campaign it is referred
to as an advertising theme. The Indian Army, for example, uses the theme
“Do you have it in you” in its advertising.
To get a feel for how creative advertising appeals vary across an
industry, it is useful to consider several brands of the same product and the
advertisements developed for each.
The Visa credit card is positioned and advertised as the most widely
accepted card. Advertising communicates the message that, because Visa is
accepted at more places, it is “Everywhere you want to be.”

MasterCard takes a different approach, advertising itself as a smart
payment method for almost every type of good or service. For instance, one
MasterCard commercial shows a father and a son at a base ball game. It
explains that tickets cost $28 and hot dogs, popcorn and soda cost $18, but
“real conversation with an 11-year-old is priceless.” The ad concludes :
“These are some things money can’t buy. For everything else there’s
MasterCard.”
American Express reminds customers that its cards “Do more” It Blue
Card includes a smart card feature that stores data.
The important thing to note here is that the advertisements for these
products, as well as those for many others, feature different appeals. If every
credit card company simply said, “Our credit card is more convenient than
paying with cash,” no brand’s advertising would be unique or memorable.
Creativity is responsible for this uniqueness.
But there’s more to creativity than that. Many advertising appeals,
such as the appeals for credit cards just described, are part of positioning
promotional campaigns. Advertisers create these appeals so that consumers
will perceive their brand as holding a distinctive competitive position. This
strategy may be so successful that perfectly true claims made by the producer
of one brand are not believable because of the competitive positions other
brands hold in consumers’ minds. Creativity, then, is more than an
advertising tool. It is a competitive tool.
How to Say It—Execution of the Appeal
Even when a copy writer or artist has an important and meaningful
message to relate, its effect can be lost if it is not presented in the right way
and in the right context. Marketing research can help in this regard. For
example, an advertising agency’s research indicated that many women who
buy ready to cook dinners lead hectic lives and, because of time constraints,
have trouble coping with everyday problems. So far so good. On this basis,
the agency developed an advertisement for Swanson ready to cook dinners
showing a rundown woman flopping into a chair just before her family is to
arrive home demanding dinner. Suddenly realizing that she has a problem,
the woman gets the bright idea of cooking a frozen dinner.

The problem was real enough, but the appeal was wrong. The last
NOTES
thing harried women want is to be reminded of how tired they are. Television
viewers are fond of pointing out that married women in commercials are
almost always smart and well groomed, even when they are doing the
laundry or washing the floor. Advertisers use such images to focus the target
customer’s attention on the solution to a problem without making her feel
like cursing the laundry or the dirty floor. Realizing this, Swanson changed
its advertising appeal.
How to say something is as important as—and sometimes more
important than—what to say. This is perhaps doubly true in advertising. The
person delivering the message, the emotional tone, and the situation in which
the action takes place all influence the effectiveness of the advertisement.
Remember the ad for Britannia’s 50–50 during the cricket matches, when the
third umpire has to take the decision.
Although some advertisements are simple, straightforward

statements about the characteristics of a product, creating advertisements that
grab the intended audience’s attention often requires some embellishment.
Advertisements must say things to people both with and without words, and
the creative spark clearly is vital to accomplishing this goal. The Fevicol’s
slogan “Fevicol Ka Majboot Jod Hai—Tootega Nahin” tells the target
customer something about the brands glue ability. “I’m stuck on Band-Aid,
and Band-Aid’s stuck on me” is a catchy phrase. The Air India’s Maharaja is a
symbol rich in meaning; so are the Marlboro man’s cowboy hat and horse.
One mark of the talent and success of creative individuals is that much of
their work is so powerful that it can be used effectively in advertisements for
decades. Many slogans, pictures and other components of advertisements can
be immediately identified with particular products by generations of
consumers. Success depends on the creative person’s ability to capture a
feeling or fact with just the right phrase and the right symbols. Compare
these common advertising phrases with the way they might have been
written :
“Bharat Ka Namak—Dandi Namak”

“Ghari Detergent : Pehle Istemaal Karen, Phir Vishwas Karen”
“Colgate Ka Suraksha Chakra.”
“Lifebuoy Hai Jahan, Tandurusti Hai Wahan”
Bajaj Auto’s legendary “Hamara Bajaj Campaign”.
Creative platform : The style in which the advertising message is
delivered, also known as the execution format.
How an advertisement says something is its creative platform, or
execution format. The creative platform is influenced by the medium that is
used to convey the message. Obviously, a newspaper advertisement cannot
duplicate the sound of a railroad train, but that sound might be used
effectively in a radio advertisement. Determining how to communicate the
message, then, is interrelated with selecting advertising media. Nevertheless,
advertisers can present or creatively implement a basic appeal in a number of
ways.
Looking at some of the major creative platforms used in
advertisements, especially TV commercials, helps put the creative strategies
behind advertisements into perspective. The major creative platforms include
storyline, product use and problem solution, slice of life, demonstration,
testimonial and spokesperson, lifestyle, still life, association, montage and
jingle.
Storyline creative platform : An advertising creative platform that
gives a history or tells a story about a product.
Storyline : The storyline creative platform gives a history or tells a
story about the product. For example, the advertisement of Lux Soap focus on
the concept of beauty soap for the heroines, since its launch. Simiarly, certain
European vacation spots are shown in all their historical glory from the
Middle Ages to the present.
In television commercials that use the storyline creative platform, an
unseen announcer (in a technique called voice-over) often narrates a story
with a recognizable beginning, middle and end. Some copy writers attempt to
make the product the “hero” of the story.
Product Use and Problem Solution : Straightforward discussion of a

product’s uses, attributes, benefits, or availability is a creative platform

frequently utilized in advertising. A unique selling proposition, is the central
NOTES
focus of such an advertisement. Comparatively simple advertisements for
products ranging from Colgate toothpaste to Eureka Forbes Vaccum cleaner
explain uses of the product and how the product can solve a problem.
Colgate toothpaste fights tooth decay. Eureka Forbes Vacuum cleaner keeps
your home neat and clean. A maker of exercise equipment may point out that
being fat and out of shape is a problem (“your chest doesn’t belong on your
stomach”) and may show that its product is a solution to the problems.
Slice-of-life creative platform: An advertising creative platform that
dramatizes a “typical” setting wherein people use a product.
Slice of life: The slice-of-life creative platform dramatizes a “typical”
setting wherein people use the product being advertised. Most of these
commercials center on some personal, household, or business situation—for
example, over worked husband asking for strong tea—“Tej Ho Chai, To Josh
Aa Jaye”, Kapil Dev during a net practice claiming—“Boost is the secret of
my energy” or mother-in-law & daughter-in-law talking about a laundry
problem.
The slice-of-life commercial often begins just before a character
discovers an answer to a problem. Whether the trouble is dandruff, bad
breath, or not being home for a holiday, emotions are running high. The
protagonist may know of the problem or may be told about it by another
character. The product is then introduced and recommended, and the needy
person gives it a try. Just before the end of the commercial, we are told—and,
indeed, we can see for ourselves—that the new user of the product is now a
more satisfied, happier person. This creative platform is most common in TV
commercials, but similar real-life stories can be developed in print media
through the use of a series of pictures and in radio advertisements through
the use of character voices. The slice-of-life creative platform is essentially a
dramatized variation on the problem-solution creative platform.
Demonstration : An advertising creative platform in which a clear-cut
example of product superiority or consumer benefits is presented.
Certain products lend themselves to a demonstration creative
platform. For example, a Master Lock advertisement in which bullets are
repeatedly fired into a lock that does not open is suspenseful and self-

explanatory. The demonstration creative platform makes its sales pitch by
showing a clear-cut example of how the product can be used to benefit the
consumer. It does this by either dramatically illustrating product features on
proving some advertised claim. The Master Lock advertisement certainly
seems to prove that product’s claim to toughness.
Unusual situations, occasionally bordering on the fantastic, can draw
attention to product benefits. The shadow of a walker gets pasted on a shop
shutter which carries the name Fevicol or girl fell down in a ditch when the
worker removes a can of Fevicol from the top of the television. These novel
situations draw viewers’ attention.
Infomercial : A television commercial, usually 30 minutes long, that
has the appearance of a program.
Many demonstrations occur in infomercials. Infomercials are
television commercials, usually 30 minutes long, that have appearance of
regular programs, such as cooking shows or talk shows. The product is
repeatedly demonstrated on the infomercial. Often, a telephone number
flashes on the screen so that the viewer can order the item.
Comparative advertising : A type of demonstration advertising in
which the brand being advertised is directly compared with a competing
brand.
Comparative advertising, which directly contrasts one brand of a
product with another, is a form of demonstration advertising. In a
comparative advertisement, the sponsor’s product is shown to be superior to
other brands or to Brand X in a taste test, laundry whiteness test, toughness
test, or other appropriate contest. This creative platform is somewhat
controversial on two counts.
First, some advertisers believe that calling attention to another
company’s brand helps that competing product by giving it free exposure.
Certainly, the competing brand receives some attention, but this fact itself can
be advantageous. Brands that do not have a high market share are
intentionally compared with the best known poducts to suggest that the two
brands are equal. Pepsi, the challenger, thus urges comparisons with market
leader Coke. For example, in one television commercial, delivery-truck
drivers for both Coca-Cola and Pepsi-Cola order a meal at a dinner. The

Coca-Cola driver offers his competitor a sip from his Coke can. The Pepsi
NOTES
driver takes a sip, returns the Coke can, and then offers the Coke driver a sip
of his Pepsi. After the Coke driver takes a single sip of Pepsi, he wants more.
He refuses to return the Pepsi, causing a commotion at the dinner.
This commercial suggests a second point of controversy : Some people
do not feel that such comparisons are fair or sporting. On the whole,
however, advertisements using the direct-comparison creative platform have
been increasing in number in recent years. The honest comparisons will help
the consumer to make choices.
Testimonial : A type of advertising in which a person, usually a well-
known or public figure, states that he or she owns, uses, or supports the
product being advertised.
Testimonial : Testimonials and endorsements show a person, usually a
prominent show business (Amitabh Bachchan) or sports figure (Sachin
Tendulkar), making a statement establishing that he or she owns uses, or
supports the brand (Reid & Taylor suitings or Victor motorcycle) advertised.
The idea is that people who identify with the celebrity will want to be like
that person and use the same product. Alternatively, the advertiser hopes
that consumers will see the endorser as an honest person (Amitabh Bachchan)
who would not lend his or her name to a product that (ICICI) is not good.
Testimonials may also use speakers who, by virtue of their training or
abilities, are seen as “experts” on the products being advertised. For e.g., a
Doctor recommending a particular brand of cough syrup.
Spokesperson: A person who represents an advertiser and directly
addresses the audience members to urge them to buy the advertiser’s
product. Using a spokesperson is a variation on the testimonial.
A variation on the testimonial appeal is the use of a spokesperson. The
spokesperson represents the company and addresses the audience members
directly, urging them to buy the company’s product. The spokesperson is
often the commercial’s central character, need not be a real person.
Life style creative platform: An advertising creative platform that
reflects a target market’s lifestyle or hoped-for lifestyle.
Lifestyles: The lifestyle creative platform combines scenes or
sequences intended to reflect a particular target market’s lifestyle. Soft-drink

and fast-food advertisements, as well as those for many other consumer
goods, frequently show product users in a sequence of daily activities. Young
people might be shown enjoying some extreme sports activity and topping
off a perfect day with a Thums Up. Thus, the enjoyable aspects of teenage life
are shown in association with the product usage. Important to such
advertisements are the sorts of people actors portray.
Still-life creative platform : An advertising creative platform that
makes the product or package its focal point, emphasizing a visually
attractive presentation and the product’s brand name.
Still Life : The still-life creative platform portrays the product in a
visually attractive setting. The product or package is the focal point of the
advertisement. Reminder advertising often uses a still-life creative platform
because the most important purpose of the message is to reinforce the brand
name. Absolute vodka and Bata’s recently launched high priced casual shoes
has used this creative platform with great success.
Association creative platform : An advertising creative platform that
uses an analogy or other relationship to stimulate interest and convey
information.
Association : The association creative platform concentrates on an
analogy or other relationship to convey its message. This creative strategy
often “borrows interest” from another, more exciting product or situation.
Thrilling activities, such as skydiving or windsurfing, and scenes of beautiful
places, such as the Kerala’s backwaters or a mountain wilderness of Ladakh,
are associated with a product in some way. The purpose of such analogies,
which are often accompanied by music, is to create an emotional mood. The
psychological benefits of the product are communicated through the
associations drawn by the viewer. More everyday analogies are used to make
a product and its benefits easier for the consumer to understand. For
example, Lysol uses an analogy when it says, “It’s like having a brush in a
bottle.”
Fantasy creative platform : In the context of advertising, a type of
association creative platform used to link a product with the target buyer
wildest dreams and hopes.

Fantasy is a special associative creative approach. The long-lived
NOTES
series of advertisements for Axe deodorant is a perfect example of the use of
the fantasy creative platform. The fantasy appeal seeks to associate the
product not merely with a glamorous setting but with the target buyer’s
wildest dreams and hopes. This creative platform allows audience members
to fantasize about themselves in the position of the rich, famous, or
adventurous.
Jingle : A song or other short verse used in an advertisement as a
memory aid.
Jingle : “Hamara Kal......Hamara Aaj, Buland Bharat Ki Buland
Tasveer” Can you remember the rest of this jingle ? What event do you think
of when you hear “Britannia Khao, ........... Jao” ? What does one have to do if
one wants to “Humko Binnies Mangta” ? Commercial jingles, many of them
written by well-known composers, have what is termed “memory value.”
You literally cannot get them out of your head. You may find yourself
thinking of them—or, at least, able to remember them almost word for word
once your memory is jarred—years after they have been withdrawn from the
market. People often remember product names, phone numbers, and
addresses in jingle form. Thus, jingles serve best as a memory aid; they can
have a significant effect on product recall.
Montage : An advertising creative platform that blends a number of
situations, demonstrations, and other visual effects into one commercial to
emphasize the array of possibilities associated with product usage.
Montage: The montage creative platform blends as number of

situations, demonstrations and other visual effects into one commercial. The
effect may be one of a swirl of colours or an exciting array of possibilities
associated with product usage. Typical of such a creative platform are travel
advertisements for places like Kerala or Singapore. In these TV spots, the
varied sights and sounds of an island paradise are strong together not only to
show the many activities that are to be found there but also to suggest the
excitement of the place and the sense that there is so much to do that the trip
will surely be worth the investment. Several of Pepsi’s Generation Next
advertisements use this creative platform.

Other Creative Platforms: This short list of advertising creative
platforms is far from exhaustive. Pure information, humour, sex appeal,
computer graphics, and special effects, for example, have not been
mentioned. However, the discussion should help you to think of other
advertising creative platforms and of the ways they work in an effective
marketing program.
Producing an Effective Advertisement

Advertisements can consist of verbal elements, graphic elements, and
auditory elements. The exact combination of these elements depends on the
people who design the advertisement—and, as suggested, their choices are
strongly influenced by the advertising medium to be used. However, the
ultimate consideration is that an advertisement must reflect the advertising
objectives. The promotional mix should be a unified whole, employing all
appropriate means of delivering a message. Thus, many TV, radio, and print
advertisements for a product advance virtually the same message or appeal,
even though each is constructed to fit the appropriate medium.
Copy—The Verbal Appeal
Copy : Any words contained in an advertisement.
The term copy refers to the words in an advertisement. The words
may be printed or they may be spoken by a character in a commercial or by
an announcer. In certain advertisements, such as radio advertisements, the
copy makes the biggest contribution to the advertisement’s effectiveness.
Even in a visual medium, such as television, copy is likely to retain its
supremacy, because many of the claims an advertiser makes must be
supported by the comments of the announcers or the characters. For example,
advertisements for laundry detergents may show two piles of wash, but it is
the copy that assures viewers that the pile washed in Surf Excel is the whitest.
Some advertisements are loaded with copy and have few illustrations.
For that type of advertisement to succeed, many members of the target
audience must be so interested in the product’s possible benefits that they are
willing to read long paragraphs of information. This type advertisements are
more suitable for print media for automobiles and electronic gadgets.

Art—The Visual Appeal
NOTES
Art : Any aspect of an advertisement other than copy, including
pictures, layout, and white space.
The term art is used broadly to mean all aspects of an advertisement
other than its verbal portions. Thus, drawings, photographs, computer
graphics, graphs and charts, layout (the arrangement of the graphic
elements), and even white space fall in the category of art.
The function of pictures in an advertisement is to illustrate a fact or an

idea or to attract attention. White space and layout have more subtle
purposes. Layout can be used effectively to focus the viewer’s attention on
the picture of the product. It can also be used to draw attention to the brand
name, the price, the place where, a product is sold, or the written portion of
the ad. White space can be used in similar ways, but it is more commonly
used to suggest high quality. Notice that many newspaper and magazine
advertisements employ considerable white space to accent the product. A
great deal of white space says that the pictured item is special, probably
expensive, and certainly high quality. It implies that the product deserves the
spotlight given it by a plain field that accents its appeal. Thus, many
advertisements for expensive jewellery picture the item on a plain-coloured
velvet cloth; only a few words are included so that consumers are not
distracted from the beauty and perfection of the jewellery. In contrast, a busy
advertisement featuring a jumble of words and pictures and a small amount
of white space may suggest low price and low quality. Look closely at the
advertisements in your newspaper or favourite magazines and notice how
layout is used.
Copy and Art Working Together—The Aida Formula

AIDA : An acronym for attention, interest, desire and action. The
AIDA formula is a hierarchy of communication effects model used as a
guideline in creating advertisements.
Most advertisements, with the exception of radio advertisements,
feature both copy and art. The two elements must work together to
accomplish the communication objectives set by management. To ensure that

copy and art complement each other, most advertisers follow a hierarchy of
effects model known as the AIDA formula. AIDA stands for attention,
interest, desire and action.
Attention: David Ogilvy, a famous advertising executive, once said,
“When you advertise fire extinguishers, open with fire.” He was speaking
about getting the prospect’s attention. An effective advertisement must draw
the viewer’s or listener’s attention from the very first glance or hearing.
Whatever follows will prove of little use if the member of the target audience
has not first been influenced to pay attention to the message. Copy can be
used to accomplish this, as when radio advertisements start out sounding like
soap operas or mystery stories to draw attention. The copy can be enhanced
by illustrations. Often people representing the target customers are shown in
situations that make the viewers wonder. “What’s going on here ?” or “What
happened to these people ?” For example, to attract the attention of luggage
users, the Samsonite luggage company has for years run advertisements
showing suitcases falling out of airplanes or suitcases supporting automobiles
that have flipped over on top of them. Humour is another attention-getting
device.
Interest: After the target consumer’s attention has been attracted
arousing interest is next. If the attention-getter is powerful enough, interest
should follow fairly automatically. However, it may be necessary to focus the
viewers’ or listeners’ attention on how the product or service being
advertised actually relates to them.
Desires: Immediately following the arousal of interest is the attempt to
create a desire for the product. In a TV commercial for ChemLawn, the
viewer first sees a homeowner carrying tools and bags of lawn chemicals.
One of the bags breaks, and the exhausted
do-it-yourselfer looks on helplessly. The viewer at home sees,

however, that the unfortunate fellow’s neighbour has a very nice-looking
lawn but does not look harried or sweaty. Certainly he has no piles of spilled
lawn-care products around his property. The viewer is interested in this story
: Why is one fellow miserable while his neighbour smilingly pities him ? The
contented home-owner is a subscriber to the ChemLawn service, of course.

The viewer is treated to some scenes of the ChemLawn man applying liquid
NOTES
lawn chemicals in one easy step. The ChemLawn people know what and
when to spray—another load off the homeowner’s mind. Thus, interest in
and desire for the product are established in nearly simultaneous steps.
Action : Action is the last part of the AIDA formula. In the ChemLawn
example, the commercial ends with a call to action. In effect, the
advertisement urges viewers to phone their local ChemLawn dealer for an
estimate of what it will take to make them as happy as the man who has been
able to get a nice lawn with no effort. Thus, the means to act is provided.
Usually, the advertiser makes the action seem as effortless as possible by
giving a phone number or closing with a note that credit cards are accepted.
How the AIDA Formula Works : The AIDA formula is based on a
consumer behaviour theory that closely parallels the hierarchy of
communication effects model. The formula describes consumers’ behaviour
and serves as a guideline for creating advertising. AIDA makes good sense as
an advertising tool and is widely known and followed.
Understand that is may not be possible for every advertisement to
move the reader or viewer through the four stages to action with a single
exposure. Repetition is usually necessary so that the advertisement’s message
can “sink in.” Repetition also increases the chance that the target customer
will see or hear the message at a time when there are no distractions. Finally
repetition recognizes the buyer’s changing environment. An advertisement
that he or she has seen before may be perceived in a different light by the
target buyer who has just been paid or has received a tax refund. Eventually,
if the advertisement is an effective one aimed at the proper people, buyers are
likely to move psychologically through the AIDA stages and then act.
As we have already seen, developing a creative strategy and
developing a media selection strategy are interrelated processes, and the
planning of these activities occurs simultaneously. We now turn our attention
to the selection of media.
Media Selection
Media selection strategy : Plan for determining which media are most
appropriate for an advertising campaign.

Suppose you are about to open a retail store. You have already
decided to have a Yellow Pages advertisement but are undecided about
whether to use radio, television, or newspaper advertising as well. This
choice is a matter of selecting a communication channel for your message. In
making the choice, you are determining a media selection strategy, which
must take into account the message you wish to transmit, the audience you
want to reach, the effect you want to have, and the budget you have to
support this effort.
Developing a media strategy requires answering two questions :

“Which media will get the message to the desired audience efficiently ?” and
“What scheduling of these media will neither bore people with too-frequent
repetition of the message nor let too many people forget the message ?”
Before we address these questions, let’s look briefly at what the term media
includes.
Which Media
The various media lend themselves to sepecific tasks. If we assume,
for the moment, that budget considerations can be set aside, certain factors
become dominant in choosing the medium to carry a sales message. If
demonstration or visual comparison of one brand with another (say Surf
Excel v/s Some other brand) is the goal, television becomes the most logical
contender. If a lengthy explanation of sales points (for automobiles etc.) is
required, print advertisements (magazines and newspapers) and the Internet
come to mind. If consumers need a message to remind them of package
identification or convey a short sales idea (Newport : Economy Jeans),
outdoor advertising (hoardings) makes sense. Thus, before a marketing
planner starts thinking about what medium to use, he or she must know what
is to be said. Once the marketer has decided what is to be said, attention can
turn to which medium can best say it. Ultimately, several different media
may be selected to carry the multiple messages the marketer wants to
communicate.
Several media may appear to be able to do a particular job. When this
is so, the marketing planner can narrow the choice by considering which

media will hit the all important target market. At this point, the media expert
NOTES
becomes a market expert. Knowing the target market (Kids 3–7 yrs.)—who
the heaviest users (Maggie Noodles) are, what their demographic (Urban;
Middle Income Groups and above) and psychographic (Avid watchers of
cartoons) charactertistics are—leads to a determination of which media will
deliver the message to these prospects. For example, a media planner in ICICI
Prudential insurance may be trying to target young males between the ages
of 18 and 34; Singapore Airlines may be targeting well-educated, high-income
men and women between the ages of 25 and 49; the primary customers for a
sun-screen cream may be youthful, fashion conscious urban women with
family income Rs. 10,000 + per month. What media will reach each of these
targets most effectively ?
Mass Media
Most products can be related to a demographic profile. Data
pertaining to mass media are geared to that same profile information. Thus, if
the target audience includes men and women and it has been decided that
television will do the best job and that the media budget permits such an
expensive choice, the media planner may go for prime- time television—from
8 p.m. to 11 p.m. or 7 p.m. to 10 p.m. depending on the time zone. The next
question is “Which television shows have audiences whose profiles must
clearly match those of the target customers ?”
Careful analysis of any organization’s marketing communication
efforts might show that what appears to be the most appropriate advertising
medium is, in fact inappropriate.
Electronic Interactive Media
It has been said that “Computing is not about computers anymore. It
is about living,” This observation certainly holds true with respect to the
media people use to gather information and entertain themselves. This
discussion of electronic interactive media will focus on advertising on the
Internet, but the same principles apply to other media.
Interactive media allow an individual to seek information, ask
questions, and get answers without the direct assistance of a human being.
We will focus our attention on Web sites.

A company Web site is one of the most common forms of Internet
advertising. For instance, The Lakme Web site offers online consultations
about skin type and the type of cream that is suitable. Consumers can find
answers to frequently asked questions about colour and makeup and get tips
on such topics as sun protection. As the consumer interactively learns about
skin care, she, of course, also learns which Lakme cosmetic products are
appropriate for her situation. A company Web site is an ideal way to reach
consumers who want details about specific products, as interactive media can
provide large amounts of information.
Of course, just because a company creates a Web site does not mean
people will visit the site. When a content provider, such as India Today
magazine, which also publishes on the Web, it faces three challenges; how to
get viewers to the Web site, how to get viewers to stay long enough to view
the content, and how to get viewers to return to the site. (If a Web site has the
ability to retain visitors, it is said to be sticky).
One way to get people to visit a Web site is to advertise on another
Web site. Advertising banners, another form of Internet advertising, are much
like mass media advertising in the sense that a company purchases “space”
on a search engine or on the commercial Web site of an information provider.
A typical objective for a banner ad is to increase brand name recognition.
However, banners can go beyond achieving brand awareness, because they
are hypertext links to the advertiser’s Web site. For example, a marketer of
furniture or fabrics might work out an arrangement with the Yahoo ! search
engine company to display its banner—which consists of a small flag-like
rectangle—at the top of the result page whenever a user enters the word
furniture or fabrics as a search term. The advantage of this type of Interest
advertising is that the audience has self- selected the topic, so the marketer’s
message reaches an involved, highly targeted market.
Pop-up boxes are windows, a refined version of banner advertising. A
visitor to the Fortune magazine Web site, for example, might find that a
window providing subscription information pops up after the Web page
loads. The viewer typically has to close the window or enter a response to the
advertisement.

Streaming media : Multimedia content, such as audio or video, that
NOTES
can be accessed on the Internet without being downloaded first.
Streaming Media : Certain software, such as Real Networks’ Real
Player and Apple’s Quick Time, allows Internet users to access multimedia
content such as audio or video without downloading it first. When visitors to
a site use such software to view a program or an advertisement, they are said
to be viewing streaming media.
Streaming ads may eventually prove to be more effective than current
ad banners. One study co-sponsored by Intel and Excite@Home found that
streaming-media advertisements provided 22 per cent higher recall and 35
per cent more chick-throughs (to the advertiser’s Web site) than banner ads.
Today, three-dimensional computer-generated video can create
photo-realistic results, which users can either watch linearly or interact with.
Interactive animated environments will take advertising on the Internet to a
whole new level. However, it will be some time before all Internet users have
access to these technologies. Streaming-media ads are predicted to become
more prevalent as broad-band technology with increased bandwidth become
more available. (Broadband refers to technology that allows for the transfer of
data over media such as the Internet at high speeds.)
Using Smart Agent Software to Reach Highly Targeted Audiences :
Information technology can be used to deliver personalized content to a
viewer’s desktop. Computer software programs known as smart agents, or
intelligent agents, find information without the user’s having to do any
searching; they then store that information— sometimes entire Web sites,
complete with images and links—on the user’s computer for later viewing.
Smart agent software that learns a user’s preferences and searches out
information is making advertising on the Internet and other interactive media
more targeted and effective. Advertisers can have certain banners delivered
to some target audiences, while other banners are served upto other users. An
ad will appear only when someone with the appropriate demographics and
entertainment preferences uses the service.
DIRECT MARKETING WITH DATABASES

Direct-marketing media, such as direct mail, can be very selective and
can reach a clearly defined market, such as all families within a certain Pin
Code area or all holders American Express cards or all the customers of
Airtel. But direct mail can also end up in the wastepaper basket.
Direct mail has been in existence for more than a century; however,
advances in digital technology have changed the nature of direct marketing
in recent years. In particular, modern computer technology has improved the
selectivity of this medium. Now computers can access databases to customize
materials sent to different market segments and to personalize the message
any individual consumer or household receives. For example, a personalized
greeting may appear on a letter that, in addition to conveying an advertising
message, indicates the name of a local retailer that sells the brand being
advertised. If the database records the ages of the children in households, an
advertiser using direct marketing can send coupons only to those households
with, say, children in diapers. Furthermore, if the database also indicates the
brand of diapers a consumer regularly purchases, an advertiser like Huggies
can limit the mailing list to consumers who are loyal to Pampers or other
competing brands.
E-MAIL AS AN ADVERTISING MEDIUM
The use of e-mail advertising as a promotional medium is growing
because it has the advantages of speed, personalization, and interactivity.
Advertising via e-mail has many things in common with traditional direct-
mail campaigns : Database management and data mining are extremely
important, as they allow marketers to create customer profiles and tailor
messages and products to them. In addition, use of e-mail permits an
advertiser to determine whether the customer responds to the
communication and thus measure the effectiveness of a particular ad.
A major disadvantage of e-mail advertising is that the receiver of the
message may not read it because he or she considers it spam, which is the
term for unsolicited and unwanted e-mail. Furthermore, if a company sends
too many e-mails to a customer, it may actually drive the customer away.
Effective marketers send e-mail only to customers who ask for it. Some have
called this approach “permission marketing.” because the consumer consents
to receive e-mail from the marketer. An executive at Williams- Sonoma

explained the logic of permission marketing this way : “Our catalog can cost
NOTES
us a dollar. E-mail doesn’t cost us anything, but it can cost us the relationship
if we mail customers too much.”
The general rule is to let the customer control what he or she receives.
This means that, in addition to asking for permission to send e-mail
advertising, marketers should provide an easy way for customers to opt out if
they no longer wish to receive e-mail.
Each Medium has Advantages and Disadvantages
Newspapers have the advantages of mass appeal within selected
geographical markets, a general respect in the community, and a short lead
time (that is, newspaper advertisements can be inserted, withdrawn, or
altered quickly). Magazines have relatively long lead times but offer the
advantages of selectivity of audience and far better reproduction of print and
pictures than can be found in newspapers. Radio provides geographic and
demographic selectivity because the programming of different stations
attracts different sorts of listeners. Its lead time is short, and its usefulness in
exposing listeners to frequent messages is obvious.
Television reaches the mass audience. However, specialization by
type of show is possible. For example, the World Wrestling Federation
appeals to boys and young men; serials like is Kusum, KSBKBT Friends
appeals to a range of young to middle aged adults. Television allows
advertisers to “show and tell” because television ads can involve sight,
sound, movement, cartoons, actors and announcers. The strengths of
television may be out-weighed by its expensiveness. Cable television, with
advertising rates lower than network television’s, can be a good alternative
for many products because it offers the advantage of greater psychographic
selectivity. Even when the advertising rates for a particular program or
station are relatively low, however, the costs to develop and produce a
commercial keep many potential users away from TV.
SALES PROMOTION
Sales promotion is a key ingredient in marketing campaigns. We
define it as follows :

‘Sales promotion consists of a diverse collection of incentive tools,
mostly short term, designed to stimulate quicker or greater purchase of
particular products or services by consumers or the trade.’
Whereas advertising offers a reason to buy, sales promotion offers an
incentive to buy. Sales promotion includes tools for consumer promotion
(samples, coupons, cash refund offers, prices off, premiums, prizes, patronage
rewards, free trials, warranties, tie-in promotions, cross-promotions, point-of-
purchase displays, and demonstrations); trade promotion (prices off,
advertising and display allowances, and free goods); and business- and sales
force promotion (trade shows and conventions, contests for sales
representatives and specialty advertising).
Sales-promotion tools are used by most organizations, including
manufacturers, distributors, retailers, trade associations, and non-profit
organizations.
A decade ago, the advertising-to-sales-promotion ratio was about 60 :
40. Today, in many consumer-packaged-goods companies, sales promotion
accounts for 65 to 75 per cent of the combined budget. Sales-promotion
expenditures have been increasing as a percentage of budget expenditure
annually for the last two decades mainly because of intense competition
between products and services.
Several factors contribute to the rapid growth of sales promotion,
particularly in consumer markets. Internal factors include the following :
Promotion is now more accepted by top management as an effective sales
tool; more product managers are qualified to use sales-promotion tools; and
product managers are under greater pressure to increase current sales.
External factors include the following : The number of brands has increased;
competitors use promotions frequently; many brands are seen as similar;
consumers are more price-oriented; the trade has demanded more deals from
manufacturers; and advertising efficiency has declined because of rising
costs, media clutter, and legal restraints.
The rapid growth of sales-promotion media has created a situation of
promotion clutter similar to advertising clutter. Consumers might start
tuning out, in which case coupons and other promotion media will weaken in
their ability to trigger purchase. Manufacturers will have to find ways to rise

above the clutter—for instance, by offering larger coupon- redemption values
NOTES
or using more dramatic point-of-purchase displays or demonstrations.
Purpose of Sales Promotion
Sales-promotion tools vary in their specific objectives. A free sample
stimulates consumer trial, whereas a free management-advisory service aims
at cementing a long-term relationship with a retailer.
Sellers use incentive-type promotions to attract new triers, to reward
loyal customers, and to increase the repurchase rates of occasional users. New
triers are of three types—users of another brand in the same category, users
in other categories, and frequent brand switchers. Sales promotions often
attract the brand switchers, because users to other brands and categories do
not always notice or act on a promotion. Brand switchers are primarily
looking for low price, good value, or premiums. Sales promotions are
unlikely to turn them into loyal users. Sales promotions used in markets of
high brand similarity produce a high sales response in the short run but little
permanent gain in market share. In markets of high brand dissimilarity, sales
promotions can alter market shares permanently because customers might
feel more satisfied with the brand under sales promotion.
Today, many marketing managers first estimate what they need to
spend in trade promotion, then what they need to spend in consumer
promotion. Whatever is left they will budget for advertising. There is a
danger, however, in letting advertising take a back seat to sales promotion
because advertising typically acts to build brand loyalty. But the question of
whether or not sales promotion weakens brand loyalty is subject to different
interpretations. Sales promotion, with its incessant prices off, coupons, deals,
premiums, and blaring quality may devalue the product offering in the
buyers, minds. Buyers learn that the list price is largely a fictions. But before
jumping to any conclusion, we need to distinguish between price promotions
and added-value promotions. These examples show how certain types of
sales promotion can actually enhance brand image:
- Akai, a Japanese manufacturer of stereo equipment and TV sets,
managed to become a TV set market leader in India by running value-added
sales promotions. It offered good trade-in value on black-and-white TV sets at
the purchase of a new colour TV set. At other times, it would offer a free

watch, or calculator or radio, along with the purchase of a new TV set. This
steady promotion made Akai a very popular brand in India, and competitors
such as Sony were not free to compete in the same way. But in the long run
Akai was not able to maintain its position in the Indian market, subsequently
marketing rights were bought by Videocon.
But usually, when a brand is price promoted too often, the consumer
begins to devalue it and buy it mainly when it goes on sale. So there is risk in
putting a well-known brand leader on promotion over 30 per cent of the time.
Dominant brands offer deals less frequently, because most deals only
subsidize current users. Brown’s study of 2,500 instant coffee buyers
concluded that :
- Sales promotions yield faster and more measurable responses in
sales than advertising does.
- Sales promotions do not tend to yield new, long-term buyers in
mature markets because they attract mainly deal-prone consumers who
switch among brands as deals become available on the different brands.
- Loyal brand buyers tend not to change their buying patterns as a
result of competitive promotion because they are highly satisfied with their
current brands or due to buying inertia.
- Advertising appears to be capable of deepening brand loaylty by
consistently sending the message to their target audience.
There is also evidence that price promotions do not build permanent
total category volume as the new customers are likely to shift toward other
brands when they go on sales promotion.
Small-share competitors find it advantageous to use sales promotion,
because they cannot afford to match the market leaders’ large advertising
budgets. Nor can they obtain shelf space without offering trade allowances or
stimulate consumer trial without offering incentives. Price competition is
often used by a small brand seeking to enlarge its share, but it is less effective
for a category leader whose growth lies in expanding the entire category.
The upshot is that many consumer-packaged-goods companies feel
they are forced to use more sales promotion than they wish. Kellogg, Kraft,
and other market leaders are trying to return to “pull” marketing by
increasing their advertising budgets. They blame the heavy use of sales

promotion for decreasing brand loyalty, increasing consumer price
NOTES
sensitivity, brand-quality-image dilution, and a focus on short-run marketing
planning.
Farris and Quelch, however, dispute this conclusion. They counter
that sales promotion provides a number of benefits that are important to
manufacturers as well as consumers.
Sales promotions enable manufacturers to adjust to short-term

variations in supply and demand. They enable manufacturers to test how
high a list price they can charge, because they can always discount it. They
induce consumers to try new products instead of never straying from current
ones. They lead to more varied retail formats, such as the everyday-low-price
store and the promotional-pricing store. They promote greater consumer
awareness of prices. They permit manufacturers to sell more than they would
normally sell at the list price. They help the manufacturer adapt programs to
different consumer segments. Consumers themselves enjoy some satisfaction
from being smart shoppers when they take advantage of price specials.
Major Decisions in Sales Promotion
In using sales promotion, a company must establish its objectives,
select the tools, develop the program. pretest the program, implement and
control it, and evaluate the results.
Establishing Objectives
Sales-promotion objectives are derived from broader promotion
objectives, which are derived from more basic marketing objectives
developed for the product. The specific objectives for sales promotion vary
with the target market. For consumers, objectives include encouraging
purchase of larger-size units, building trial among nonusers, and attracting
switchers away from competitor’s brand. For retailers, objectives include
persuading retailers to carry new items and higher levels of inventory,
encouraging off- seasons buying, encouraging stocking of related items,
offsetting competitive promotions, building brand loyalty, and gaining entry
into new retail outlets. For the sales force, objectives include encouraging

support of a new product or model, encouraging more prospecting and
stimulating off-season sales.
Selecting Consumer-Promotion Tools

The promotion planner should take into account the type of market,
sales-promotion objectives, competitive conditions, and each tool’s cost
effectiveness.
The main consumer-promotion tools are sponsored by manufacturer
or retailer. We can distinguish between manufacturer promotions and retailer
promotions. The former are illustrated by the soap industry’s frequent use of
additional units free, to motivate trials and purchases. The latter include price
cuts or buy two get one free offers (especially by garment retailers). We can
also distinguish between sales-promotion tools that are “consumer-franchise
building”, which reinforce the consumer’s brand understanding, and those
that are not. The former impart a selling message along with the deal, as in
the case of free samples, coupons when they include a selling message, and
premiums when they are related to the product. Sales-promotion tools that
are not consumer- franchise building include price-off packs, consumer
premiums not related to a product, contests, consumer refund offers, and
trade allowances.
Sales promotion seems most effective when used together with
advertising. In one study, a price promotion alone produced only a 15 per
cent increase in sales volume. When combined with feature advertising, sales
volume increased 19 per cent; when combined with feature advertising and a
point-of-purchase display, sales volume increased 24 per cent.
Many large companies have a sales-promotion manager whose job is

to help brand managers choose the right promotional tool. The following
example shows how one firm determined the appropriate tool :
A firm launched a new product and achieved a 20 per cent market
share within six months. Its penetration rate (the percentage of the target
market that purcahsed the brand at least once) is 40 per cent. Its repurchase
rate (the percentage of first-time triers who repurchased the brand one or
more times) is 10 per cent. This firm needs to create more loyal users. An in-

pack coupon would be appropriate to build repeat purchase. But if the
NOTES
repurchase rate has been high, say 50 per cent, then the company should try
to attract more new triers. Here a mailed coupon might be appropriate.
Some of the Popular Sales Promotion Tools are:

Samples : Offer of a free amount of a product or service delivered
door to door, sent in the mail, picked up in a store, attached to another
product, or featured in an advertising offer. For example a new brand of
detergent or tea will offer free samples to induce trials.
Coupons : Certificates entitling the bearer to a stated saving on the
purchase of a specific product mailed, enclosed in other products or attached
to them, or inserted in magazine and newspaper ads. Redemption rate varies
with mode of distribution. Coupons can be effective in stimulating sales of a
mature brand and inducing early trial of a new brand. Example : A water
park offered 20% off to those customers who bought newspaper
advertisement or information brochure.
Cash Refund Offers (rebates) : Provide a price reduction after
purchase rather than at the retail shop; consumer sends a specified “proof of
purchase” to the manufacturer who “refunds” part of the purchase price by
mail. Example : Toro ran a clever preseason promotion on specific
snowblower models, offering a rebate if the snowfall in the buyer’s market
area was below average.
Price Packs (rupees-off deals) : Offers to consumers of savings off the
regular price of a product, flagged on the label or package. A reduced-price
pack is a single package sold at a reduced price (such as three for the price of
two). A banded pack is two related products banded together (such as a
toothbrush and toothpaste) Example : Cadbury’s pack different chocolates in
a single big packet and offer it at discounted price.
Premiums (gifts) : Merchandise offered at a relatively low cost or free
as an incentive to purchase a particular product. A with-pack premium
accompanies the product inside or on the package. The package itself can
serve as a premium. A free in-the-mail premium is mailed to consumers who
send in a proof of purchase, such as a box top or package. A self-liquidating
premium is sold below its normal retail price to consumers who request it.

Example : Henko offered scratch and win cards in its 1 kg pack offering
discounts from Rs. 3/- to Rs. 1 lac.
Prizes (contests, sweepstakes, games) : Prizes are offers of the chance
to win cash, trips, or merchandise as a result of purchasing something. A
contest calls for consumers to submit an entry to be examined by a panel of
judges who will select the best entries. A sweepstake asks consumers to
submit their names in a drawing. A game presents consumers with
something every time they buy—bingo numbers, missing letters—which
might help them win a prize. Example : A number companies run contest in
which 2 or 3 questions were asked and the customer has to complete the
slogan.
Patronage Awards : Values in cash or in other forms that are
proportional to patronage of a certain vender or group of vendors. Example :
Most airlines offer frequent flier plans which awards points on the basis of
distance covered and the customers can get discount or other prizes on the
basis of points scored.
Free Trials : Inviting prospective purchasers to try the product
without cost in the hope that they will buy the product. Example : Motorcycle
dealers encourage free test-drives to stimulate purchase interest; America
Online offers free trials of its software.
Product Warranties : Explicit or implicit promises by sellers that the
product will perform as specified or that the seller will fix it or refund the
customer’s money during a specified period.
Example : Panasonic offers 7 year warranty on its television. Exide’s
offer of a lifetime warranty on its auto batteries “Freedom” certainly screams
quality to the buyers.
Tie-in Promotions : Two or more brands or companies team up on
coupons, refunds, and contests to increase pulling power. Multiple sales
forces push these promotions to retailers, giving them a better shot at extra
display and ad space. Example : Gillette offered shaving cream and Mach 3
Razor at reduced priced pack to attract customers.
Cross-Promotions : Using one brand to advertise another non-
competing brand.

Example : Computer brands are promoted with Intel Inside and offer
NOTES
discounts on the add-ons.
Point-of-Purchase (POP) Displays and Demonstrations : POP displays
and demonstrations take place at the point of purchase or sale. Many retailers
do not like to handle the hundreds of displays, signs and posters they receive
from manufacturers. Manufacturers are creating better POP materials, tying
them in with television or print messages and offering to set them up.
Example: The Gillette products are displayed in special racks in the
retail shops.
Selecting Trade-Promotion Tools

Manufacturers use a number of trade-promotion tools. Surprisingly, a
higher proportion of the promotion pie is devoted to trade-promotion tools
(46.9 per cent) than to consumer promotion (27.9 per cent), with media
advertising capturing the remaining 25.2 per cent. Manufacturers award
money to the trade for four reasons :
1. To persuade the retailer or wholesaler to carry the brand :
Shelf space is so scarce that manufacturers often have to offer prices off,
allowances, buyback guarantees, free goods, or outright payments (called
slotting allowances) to get on the shelf, and once there, to stay on the shelf.
2. To persuade the retailer or wholesaler to carry more units than
the normal amount : Manufacturers will offer volume discount to get the
trade to carry more in warehouses and stores. Manufacturers believe the
trade will work harder when they are “loaded” with the manufacturer’s
product.
3. To induce retailers to promote the brand by featuring, display,
and price reductions : Manufacturers might seek an end-of-aisle display,
increased shelf facings, or price reduction stickers and obtain them by
offering the retailers allowances paid on “proof performance.”
4. To stimulate retailers and their sales clerks to push the product
: Manufactures compete for retailer sales effort by offering push money, sales
aids, recognition programs, premiums, and sales contests.
Manufacturers spend more on trade promotion than they want to
spend. The growing power of large retailers has increased their ability to

demand trade promotion at the expense of consumer promotion and
advertising. These retailers depend on promotion money from the
manufacturers. No manufacturer could unilaterally stop offering trade
allowances without losing retailer support.
The company’s sales force and its brand managers are often at odds
over trade promotion. The sales force says that the local retailers will not keep
the company’s products on the shelf unless they receive more trade-
promotion money, whereas the brand managers want to spend the limited
funds on consumer promotion and advertising. Because the sales force knows
the local market better than do the brand managers sitting at headquarters,
companies have given substantial funds to the sales force to handle the trade
promotion.
Manufacturers face several challenges in managing trade promotions.

First, they often find it difficult to police retailers to make sure they are doing
what they agreed to do. Manufacturers are increasingly insisting on proof of
performance before paying any allowances. Second, more retailers are doing
forward buying—that is, buying a greater quantity during the deal period
than they can sell during the deal period. Retailers might respond to a 10 per
cent off-case allowance by buying a 12-week or longer supply. The
manufacturer has to schedule more production than planned and bear the
costs of extra work shifts and overtime. Third, retailers are doing more
diverting, buying more cases than needed in a region in which the
manufacturer offered a deal and shipping the surplus to their stores to non-
deal regions. Manufacturers are trying to handle forward buying and
diverting by limiting the amount they will sell at a discount, or producing
and delivering less than the full order in an effort to smooth production.
8.3 PUBLIC RELATIONS
Many people confuse public relations with publicity, which refers to

getting new media coverage. But public relations are broader in scope. As per
the definition of Public Relations Society of America (PRSA), public relations
help an organisation and its public to adapt mutually to each other. Public

relations focus on an organisation’s relationships with its public. By public
NOTES
we mean a group of people with whom the company or organisation has to
interact in creating and delivering value.
OBJECTIVES OF PUBLIC RELATIONS PROGRAM

Professional public relations programs help business organisations
accomplish their objectives. They can fulfil some of the objectives listed
below.
Presenting a favourable image and its benefits
Promotion of products or services
Detecting and dealing with its publics
Determining the organisation’s posture in dealing with its
publics
Goodwill of the employees or members
Prevention and solution of labour problems
Fostering the goodwill of communities in which the
organisation has units
Goodwill of the stockholders or constituents
Overcoming misconceptions and prejudices
TOOLS OF PUBLIC RELATIONS

Public relation has its origin in publicity with a broader focus as it
addresses a wider set of audience. publicity tools:
Press Releases: The press release is the basic building block of
a publicity program concerned with story placement.
Fact Sheets: Fact sheets include more detailed information on
the product, its origins, and its particular features.
Press Kits: The press kit pulls together all the press releases,
fact sheets, and accompanying photographs about the product into one neat
package.
Video News Releases: The Video News Release (VNR) is the
video equivalent of a press release.
Employee/Member Relation Program: Corporate public
relations people often spend a great deal of time developing employee

communication programs, including regular newsletters, informational
bulletin boards, and internet postings.
Community Relations Program: Many companies actively
encourage their employees to take part in community organisations, and local
corporations are often major sponsors of community events and activities
such as art presentations, blood donation drives, and educational activities.
Financial Relations Programs: Financial relations people
are responsible for establishing and maintaining relationships with the
investment community, including industry analysers stockbrokers, and
journalists specialising in financial reporting.
Industry Relations Programs: The primary public that industry
relations specialists deal with is other businesses operating within the same
industry, as well as trade associations.
Development/Fund-Raising Program: This is a particularly
important area for not-for-profit organisations such as art organisations,
educational institutions, and community service programs.
Special Events: Event marketing is rapidly gaining popularity.
Besides linking their brands to existing events, marketers are also creating
events of their own, designed to reach special targets.
House Ads: A company uses various media like newspapers,
magazines and broadcast stations to prepare advertisements
Advantages of PR
PR has the following advantages:
Credibility: The PR communication is not perceived in the
same light as advertising. This is because the public knows that the media is
not being compensated for providing information. Whereas the public knows
that advertisement money is paid to the medium and hence the content may
be true or may not be true.
Example: Automotive award given by CNBC for the best car is
considered to be very reliable information. This is because the company is not
advertising to promote its products.
Cost: Cost of PR is very low compared to cost of
advertisement.

Avoidance of clutter: Because PR is perceived as news items,
NOTES
the clutter effect of ad, will not be there. A story regarding a, new product
introduction or a breakthrough is treated as a news item and is likely to
receive attention. This can be clearly seen when the car manufacturers
introduce a new product through a slot in CNBC network rather than
newspaper advertisement.
Ability to reach specific groups: Because some products appeal
only to a small market segment, it is not feasible to engage in advertising. In
such a case, the PR is an easier way to communicate with this segment.
Lead generation: Information about medical breakthrough,
technological innovation can be well communicated through PR since a
number of questions, may have to be asked about the same.
Image building: Effective PR helps to develop a positive image
of the organization. People approach organizations due to its reliability,
consistency, and past experience. This is the basis for success of the company.
8.4 PERSONAL SELLING
Personal selling is a person-to-person dialogue between the
prospective buyer and the seller. Thus, it consists of human contact and direct
communication rather than impersonal mass communication. Personal selling
involves developing customer relationships, discovering and communicating
customer needs, matching the appropriate products with these needs, and
communicating benefits.
The salesperson’s job may be to remind, to inform, or to persuade. In
general the salesperson’s responsibility is to keep existing customers abreast
of information about the company’s products and services and to convey a
persuasive sales message to potential customers. Salespeople are also
expected to be aware of changes in the markets they serve and to report
important information to their home offices. Professional sales personnel are
vitally important as a direct link to the company’s customers. Salespeople
communicate a company’s offer and show prospective buyers how their
problems can be solved by the product. They finalize the sale by writing
orders.
Many different businesses—farms, factories, retailers, banks,
transportation companies, hotels, and other enterprises—use personal selling.

Each business faces personal selling tasks that are unique. Various methods
of personal selling may be used to accomplish these tasks.
We are all familiar with retail selling—selling to ultimate consumers.
In business-to- business transactions field selling telemarketing, and inside
selling are the three basic methods of personal selling. Field selling is
performed by an “outside” salesperson, who usually travels to the
prospective account’s place of business. Telemarketing involves using the
telephone as the primary means of communicating with prospective
customers. Inside selling is similar to retail selling by store clerks : a
salesperson using this approach sells in the company’s place of business and
deals with customers face to face. For example, the typical hardware
wholesaler employs inside sales personnel to assist customers—plumbers—
who travel to the wholesaler’s place of business to obtain fixtures, tools, or
parts.
Retail selling Selling to ultimate consumers.
Field selling Business-to-business selling that takes place outside the
employer’s place of business, usually in the prospective customer’s place of
business.
Telemarketing Using the telephone as the primary means of
communicating with prospective customers. Telemarketers often use
computers for order taking.
Inside selling Business-to-business selling in the salesperson’s place of
business.
The Importance of Personal Selling

Personal selling is the means most widely used by organizations to
communicate with their customers. In other words, it is the most commonly
used promotional tool.
It is possible to find for-profit and non-profit organizations that make

no use whatsoever of advertising. For example, small local level companies
did not advertise. Certainly, there are companies so obscure that they get no
publicity at all. It is , however, difficult to imagine any organization making
no personal contact with its clients. Even the one person machine shop deals

with clients through some kind of personal contact and sales effort. And
NOTES
although you may not have thought of them in this way, accountants,
stockbrokers, dentists, lawyers, and other professionals are personal
salespeople in that they deal with clients and sell a service. For example,
when hard-working accountants (who generally were not marketing majors)
get promoted to partnerships in accounting firms, many find they spend
more time trying to generate new business than working out accounting
problems. Robert Louis Stevenson was not far from the mark when he said,
“Everyone lives by selling something.”
In terms of rupees spent, personal selling is again the foremost
promotional tool. Money spent on personal selling far exceeds money spent
on advertising, despite advertising’s costs and visibility. This becomes clear if
you consider the number of people engaged in selling and the costs of
training, compensation and deployment of sales forces.
Personal selling is also the most significant promotional tool in terms
of the number of people employed. It is estimated that at least 12 million
people, or 10 per cent of the
U.S. work force, are engaged in sales. In contrast, fewer than 200,000
people work in advertising. As impressive as these statistics are, they
underestimate the importance of personal selling in the economy and in other
aspects of social life. Professional selling is an activity of many individuals
whose job titles may obscure this fact. For example, company presidents,
advertising executives and marketing researchers are frequently engaged in
personal selling.
Why is personal selling so important in the economy ? The answer is
that the salesperson is the catalyst that makes the economy function. The
adage “nothing happens until a sale is made” reflects the importance of
personal selling in all aspects of business. Few of us have ever purchased a
car from a plant engineer or a financial manager : we buy cars from
salespeople; build and maintain relationships that stimulate economic activity
and produce revenue for the organisation. They keep the economy going.
The Characteristics of Personal Selling

Two basic characteristics that contribute to the importance of personal
selling are its flexibility in adapting to the prospect’s needs and its value in
building relationships. We will look more closely at these characteristics
before discussing the disadvantages of personal selling.
Personal Selling is Flexible

The key to personal selling’s advantage over other means of
promotion is its flexibility. Personal selling is flexible because it allows the
carrier of an organization’s message to discover new sales prospects and
concentrate on the best ones. In contrast, a television advertisement might be
seen by just about anyone, including many people who will never be
interested in the product offered for sale. This “waste circulation,” as
marketers call it, can be reduced or even eliminated by effective personal
sellers. Salespeople can visit or call on large-volume buyers frequently.
Personal selling allows efforts to be concentrated on the profitable accounts
because it is a selective medium.
Another aspect of its flexibility is the salesperson’s ability to adapt a
sales presentation to a specific situation. When a sales prospect has a
particular problem or unique series of problems to solve, the professional
salesperson can adjust the presentation to show how the good or service
offered can solve these problems and satisfy the individual needs of the
potential customer. Similarly, the salesperson can answer questions and
overcome objections that may arise. The salesperson can even “read” the
customer. Sensing that the client agrees with a certain aspect of the
presentation or is not interested in a given point, for example, the salesperson
can shift gears and move to another benefit or adjust the sales talk in some
other way.
All this is possible because personal selling entails a two-way flow of
communication. Listening is important. Direct and immediate feedback is
elicited. Consider the following examples of how feedback allows the
salesperson to gather information as well as to impart it.
µ The salesperson discovers in casual conversation that potential
buyers have specific problems that no products on the market can solve.

µ A customer suggests how existing products can be modified to
NOTES
better suit customer needs.
µ A customer provides the salesperson with new sales leads by
mentioning other firms or friends that could use the salesperson’s
merchandise.
µ The salesperson obtains a customer’s view of the competition’s
sales message and uses it to good advantage.
Personal Selling Builds Relationships
The relationship between marketer and buyer does not end when the
sale is made. Long-term success often depends on the sales force’s ability to
build a lasting relationship with the buyer. This is especially true in business-
to-business marketing. For many business-to-business marketers, the
relationship intensifies after the sale is made. How well the market manages
the relationship becomes the critical factor in the buying decision the
customer makes the next time around.
Relationship management The sales function of managing the account
relaionship and ensuring that buyers receive appropriate services.
In the context of personal selling, relationship management is often
called relationship selling. We prefer the term relationship management
because it has a broader application, Relationship management refers to
managing the account relationship and ensuring that buyers receive the
appropriate services. The goal of relationship management is for the marketer
to help customers expand their own organizational resources and capacities
through the relationship. The salesperson is the key in relationship
management, for it is the salesperson who makes sure the product solves the
customer’s problems and contributes to the success of the customer’s
organization. When a salesperson understands and solves a customer’s
business problem, the relationship will deepen.
Some Limitations of Personal Selling
Our emphasis on the advantages of personal selling as an effective
communication tool should not overshadow its major limitations. Personal
selling cannot reach a mass audience economically and therefore cannot be
used efficiently in all marketing situations. For example, bathing soaps, such
as Lux and Liril, may be used by tens of millions of people; millions more are

potential users. Reaching these target customers by personal selling would be
too expensive. Advertising via mass media is the appropriate tool in cases
like this because it can reach a mass audience economically. (Personal selling
does, however, play a role in marketing such products when sales
representatives call on the major retailers and wholesalers that distribute
them.)
Personal selling is expensive because it involves one-on-one
communication. The cost per thousand viewers and cost per sale for a high-
priced TV advertisement are quite small because the ad is seen by a vast
audience. In contrast, the average cost per call for personal selling exceeds Rs.
1000/- for many organizational products. The high costs results from the fact
that recruiting, training, and paying salespeople costs the marketer a great
deal. Each salesperson, because of the nature of the job, talks to only one or a
few people at a time. Furthermore, a great deal of time may be spent just
driving to and from appointments and waiting in reception rooms. Because
numerous sales calls may be needed to generate a single sale, you can see that
the cost per sale can be tremendously large. The many advantages of personal
selling, however, often offset the high cost per sale. In some cases, as in
selling machinery that must be custom-made for the buyer, personal selling is
the only way a sale can be made. Fortunately, fax machines, e-mail, company
Web pages, and other advances in information technology are helping to
counter the cost of in-person sales calls.
The Types of Personal Selling Tasks

The importance of personal selling varies considerably across
organizations. Some organizations rely almost entirely on their sales forces to
generate sales; others use them to support a pull strategy based on
advertising. Some organizations employ salespeople who do little
professional selling, such as store clerks others employ engineers and
scientists as technical sales representatives. Clearly, these two types of sales
representatives are not comparable.
Because of this diversity, it is useful to differentiate among selling
tasks. The marketing manager must do this, for example, in deciding which
selling skills and job descriptions are appropriate to the sales objectives to be

accomplished. To assign a highly skilled salesperson to a task that could be
NOTES
accomplished as efficiently by a less skilled individual or an interactive data-
based marketing system is a waste of an important resource. Here, we discuss
three kinds of selling tasks : order taking, order getting, and sales support.
Order Taking
Millions of people are employed in routine sales jobs. These people,
who do very little creative selling, are called order takers. They write up
orders, check invoices for accuracy, and assure timely order processing. The
term order taking is appropriate here, because the customer decides what
products are to be purchased and then tells the salesperson what the order is
to be. The order taker’s job is to be pleasant and helpful and to ensure that the
order truly satisfies the customer’s needs. Further, the order taker should
spend adequate time with the customer and go out of his or her way to
solidify the long-term relationships between the company and the customer.
The order taker may engage in suggestive selling by suggesting that
the customer purchase an additional item (“Would you like French fries with
your hamburger ?”). Suggestive selling is important. However, the typical
order taker’s primary task is to keep selling existing products to well-
established accounts.
In general, order-taking salespeople are divided into the “inside” sales
group and the “outside,” or field sales group. Inside order takers are
exemplified by auto parts salespeople. The customer for auto parts comes to
the shop seeking the part; the salesperson does not seek out the customer.
The inside salesperson may provide some advice on product quality or
installation and may even suggest that additional parts or tools would make
the job easier or that the customer might as well change the oil filter while
handling the other repairs. However, the order taker typically does not
extensively modify the basic order presented by the customer.
Order taker A salesperosn who is primarily responsible for writing up
orders, checking invoices, and assuring prompt processing of orders.
Suggestive selling Suggesting to a customer who is making a purchase
that an additional item or service be purchased.
Telemarketing is becoming a major activity of many inside order-
taking sales representatives. Telemarketing involves the use of telephone

selling in conjunction with computers for taking orders. Of course, all
salespeople telephone prospects and customers, and telephone selling is an
important part of many order-getting sales jobs. However, here the term
telemarketing means using the telephone as the primary means of
communication. For e.g., a telemarketing executive may try to persuade a
prospect to open an account in ICICI Bank.
Outside, or field salespeople may also be order takers. Manufacturer
or wholesaler representatives selling such well-known products as Maggie
Noodles find themselves in this position. The question they ask their
customer is essentially “How much do you want ?” Because nearly every
general store stocks Maggie Noodles there is little need for aggressive selling.
Some sales representatives in sales positions of this sort do a better job than
others in enlarging order size, tying the product to special promotional
opportunities, and so on. Such efforts are likely to be rewarded with a
promotion or a bonus. Overall, however, taking orders requires less
persuasive skill than selling expensive computer systems to corporate
executives or new airplanes to the transportation industry. Thus, order takers
in general make less money than order getters.
SUMMARY
Sales Promotion is the final P in the marketing mix that gets the
maximum visibility through various media. This module touched briefly on
various promotional methods, advertising, promotions, public relations as
well as personal selling aspects of same.
TEST YOURSELF
1. It is necessary to identify the target before developing

any integrated marketing communication program.
2. The message covers the do-ability aspect of the message in
the form of copy, visuals, headlines, slogans and illustrations for a print
medium.
3. The objectives of marketing communication are two fold,
namely ……………… objectives and objectives.

4. ............ refers to the process in which various marketing
NOTES
communication programs are formulated as a direct function of marketing
goals, such as profit and market share.
5. Sales promotion programs are short term programs aimed at
……………… sales in a period of time.
DETAILED ANSWERS
1. What is integrated marketing communication? What are the

steps involved in developing the integrated marketing programme?
2. What is the role of marketing communication in the new
competitive scenario?
3. Explain the marketing communication process along with the
help of a diagram.
4. What are the different models of communication? Explain
AIDA model and Levidge and Steiner’s model in detail.
5. What is advertising? Explain the advertising management
process.
6. Discuss the various types of advertisements and sales
promotions.
7. Who are the major players in advertising? Give some examples
from the Indian scenario.
8. What are the objectives and tools of public relations?
CASE STUDY 1
PIZZA HUT: INNOVATIVE PROMOTIONAL ACTIVITIES
Pizza Hut has a sense of occasion, of being there at the right time. Be it
a heart-shaped pizza on Valentine’s Day or a special promotion during the
Cricket World Cup, Pizza Hut is on the ball – with eye catching promotions.
In the summer of 2000 in New Delhi, Pizza Hut launched its innovative Pizza

Pooch menu as well as a Birthday Party package exclusively for kids in the 6–
10 years age group. Senior marketing manager, Tricon Restaurants
International said, “There is a specific reason to cater to this segment.
Though, at this age children are under their parents’ guidance, they perceive
themselves to be teenagers and have the ability to choose or demand a
particular brand of their own choice.”
The $ 20 billion Tricon Restaurants that owns Pizza Hut, Taco Bell and
Kentucky Fried Chicken (KFC) has nearly 29,000 outlets globally. The largest
number of Pizza Hut outlets is in Paris, followed by Moscow and Hong Kong.
Pizza Hut started operations in India nearly seven years ago with just a single
outlet. It has realised the cultural differences in India and importance of
religion in the consumption pattern of certain sub-cultures. Today it has
spread in several cities and it also has a 100 per cent vegetarian restaurant in
Ahmedabad.
Innovative promotional activities and a popular logo have helped
Pizza Hut expanding. The senior marketing manager said, “Our focus is not
just on offering a great pizza but also on providing excitement and good
customer service.” The manager further emphasised on the customer focused
operations and intensive research done to find customer needs and
satisfaction. Besides, Pizza Hut conducted in-house research on
psychographics of Indian consumer that led to the use of cartoon characters
in campaigns. The Indian Market Research Bureau (IMRB) also carries out
regular surprise checks at different outlets to monitor the quality of service.
Moreover, a regular test, CHAMPS (Cleanliness, Hospitality, Accuracy of
order, Maintenance, Product quality and Speed of service) is conducted in-
house.
The company says that its Pizza Pooch birthday package is full of fun
and excitement. What is unique in the package is the nominal price of ` 125
per child that offers much more than only goodies in the main menu. The
birthday party includes a well-decorated area within the Pizza Hut outlet
with several gifts for the children. Moreover, the party is conducted by a
trained host with lots of games, prizes and a special gift for the birthday
child. Pizza Hut, better known as a family restaurant, takes the onus of
relieving parents of the cumbersome job of clearing up the mess after the

kiddies have enjoyed themselves thoroughly. The Pizza Pooch menu, on the
NOTES
other hand, includes a wholesome delicious meal and a gift for the child. The
menu has been intricately designed with pictorial games. A free set of
crayons is provided to keep the children occupied while their parents dine.
The campaigns created by HTA are eye-catching with cartoon characters on
the mailers, hoardings and print advertisements where the cartoon characters
are aimed at matching varying moods of kids. The birthday part concept is
not entirely original – local fast food major Nirula’s has been doing it for
years as does KFC.
Question:
Identify the Promotional strategies of Nirula.
Case 2
Haier is the world’s 4th largest white goods manufacturer and one of
China’s Top 100 electronics and IT companies. Haier has 240 subsidiary
companies and 30 design centers, plants and trade companies and more than
50,000 employees throughout the world. Haier specializes in technology
research, manufacture, trading and financial services. Haier’s 2005 global
revenue was RMB103.9 billion (USD12.8 billion).
Guided by business philosophy of CEO Zhang Ruimin, Haier has
experienced success in the three historic periods — Brand Building,
Diversification and Globalization. At the 21st anniversary of founding of the
Haier Group December 26, 2005, Haier announced its 4th strategic
development stage of Global Brand Building. In 1993, Haier brand was
officially recognized as a famous brand and in 2005 valued at RMB70.2
billion. Since 2002, Haier has consecutively been ranked first in the row of
China’s most valuable brands for manufacture of 15 products, including
refrigerators, air-conditioners, washing machines, televisions, water heaters,
personal computers, mobile phones and kitchen integrations. Haier was
ranked first of China’s Top 10 Global Brands by China State Bureau of
Quality and Technical Supervision (CSBQTS) for refrigerators and washing

machines. On August 30, 2005, Haier was ranked 1st of China’s Top 10 Global
Brands by the Financial Times.
Haier has been widely recognized as a leader of 9 products in terms of
domestic market shares and the 3rd player of 3 products in the world market
and world-class company in the fields of home integration, network
appliances, digital and large-scale integrated circuits and new materials.
Haier has long attached significance to innovation in satisfying the demands
of worldwide consumers and realizing win-win performance between Haier
and clients. Haier has currently obtained 6,189 patented technology
certificates (819 for inventions) and 589 software intellectual property rights.
Haier has hosted and taken part in modification of about 100 China’s
technological standards. Haier invented technology, incorporated in the Safe
Care water heaters and dual-drive washing machines, has been proposed to
the IEC Criteria.
Haier’s “OEC”, “Market-chain” and “Individual-goal combination”
management performances have been recognized worldwide. Haier’s
experiences have also been introduced into case studies of business mergers,
and to financial management and corporate cultures of many foreign
educational institutes, including Harvard University, University of Southern
California, Lausanne Management College, the European Business College
and Kobe University. Haier’s “Market-chain” management practice has also
been recommended to the EU for Case Studies, and its “Individual-goal
combination” management concept has been recognized by worldwide
management researchers as a feasible solution of commercial over stocks and
accounts overdue.
Facing fierce global market competition, Haier has launched the
global brand building strategy and updated the spirit, “Create resources,
worldwide prestige” and work style “Individual-goal combination, swift
action and success”, with an aim to gain global recognition and sustainable
development.
Haier is an example of how an Asian company can build a brand and
take it beyond its national market. Haier brand which is built on quality and
a commitment to offer innovative products at a competitive price, exports to
over 150 countries around the world, has 13 factories spreading from

Philippines to Iran to the US and recently became the no. 1 refrigerator maker
NOTES
in the world, overtaking Whirlpool.
Haier traces its history back to the Qingdao General Refrigerator
factory, which was founded in 1958 as a cooperative to repair and assemble
electric appliances. Till Chinese entrepreneur Ruimin Zhang took charge of
the factory in 1984, the company struggled with its quality and incurred huge
losses. Haier attracted tremendous publicity when Zhang smashed faulty
refrigerators with a sledgehammer, to send out a message about his
commitment to quality. Today, Haier commands approximately over 30%
share of the Chinese market in white goods and had revenues of US $10.7
billion as of 2003.
True to that event, Haier has built its brand on quality. Haier’s
strategy has been to establish a leadership position in the domestic market
before venturing into global markets. Unlike most players who concentrate
on the low end of the market by offering cheap products, Haier has focused
on offering innovative products at a competitive price and the brand is
starting to see results. A case in point is that Haier is the leading brand in
the US in mini-refrigerator category.
Haier’s commitment to quality and innovation is evident by the 18
international product design centers that it has established in Los Angeles
and Tokyo which are in turn supported by production facilities in US, Japan
and Italy.
Though it is common to see charismatic CEOs such as Sir Richard
Branson, Steve Jobs and Bill Gates leading the brands in the western world, it
is hardly the case in Asia. Many Asian executives shy away from publicity.
Ruimin Zhang has set an example to many Asian companies about how the
CEO can take charge of the brand and be the chief brand ambassador.
Zhang’s aggressiveness to build his brand, his commitment to quality and his
business acumen has attracted much deserved global accolades.
Ruimin Zhang was placed nineteenth among the twenty-five most
powerful people in business outside the US by Fortune magazine in 2003 and
Haier was ranked the most admired Chinese brand in 2004 by a Financial
Times/Pricewaterhouse Coopers survey.
Questions:

1. Haier is an example of how an Asian company can build a brand
and take it beyond its national market.” How far do you agree with this
statement? Throw some light upon this fact and analyse the case by
identifying significant issues.
2. Discuss Haier’s branding strategy.

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MBAD 2114 Marketing Management

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DIRECTORATE OF DISTANCE EDUCATION

SRM INSTITUTE OF SCIENCE AND TECHNOLOGY,

S.N NAME DESIGNATION ORGANISATION

Course Writer(s) Dr.S.K.Manivannan, Dr.M.Valliammal

DIRECTORATE OF DISTANCE EDUCATION

MBAD 1914 - MARKETING MANAGEMENT

Introduction to Marketing Management–concepts–scope–Marketing Management

Consumer Behavior– concepts–Evolution of consumer oriented markets– factor

Promotion Decisions –objectives–promotional mix– Factors affecting– sales

Regardless of the communications channels you choose to pursue, the

1 SRMIST DDE MBA Self Instructional Material

Eliason's example highlights another important point: Marketing

This is critical, since consumers are going to be turning to a lot of

2 SRMIST DDE MBA Self Instructional Material

“Think globally, act locally.” That phrase, when it first emerged

3 SRMIST DDE MBA Self Instructional Material

What “Act Locally” Is Really About Is Giving People A Sense Of

However to understand these trends we need a understanding of the

4 SRMIST DDE MBA Self Instructional Material

Marketing is as old as civilization. Though marketing is talked and

5 SRMIST DDE MBA Self Instructional Material

Production and marketing of goods and services are the essence of

6 SRMIST DDE MBA Self Instructional Material

Availability of goods and Dial-a-pizza;

7 SRMIST DDE MBA Self Instructional Material

8 SRMIST DDE MBA Self Instructional Material

Exchanges in marketing are consummated not just between any two

(i) Relating to buyers

1) Buyers outnumber sellers

(ii) Relating to sellers

4) The sellers compete to sway the largest number of buyers they

9 SRMIST DDE MBA Self Instructional Material

The expanded and dynamic concept has some characteristics.

• Holistic view -The concept of marketing activities permeates

1.4 EVOLUTION OF MARKETING PHILOSOPHIES

As noted earlier, exchange is the origin of marketing activity. When

10 SRMIST DDE MBA Self Instructional Material

Although marketing has always been a part of business, its

Table 1.2 EVOLUTION OF MARKETING PHILOSOPHIES

Era Prevailing attitude and approach

 Consumers favor products that are available

 Improve production and distribution

 ‘Availability and affordability is what the

 Consumers favor products that offer the most

 Consumers will buy products only if the

 ‘Creative advertising and selling will

 Focuses on needs/ wants of target markets

11 SRMIST DDE MBA Self Instructional Material

Production era(Mass production)

In the production era, the production orientation dominated business

Fig. 1.2 Mass production of T Model Ford Cars

Product era (Quality product)

12 SRMIST DDE MBA Self Instructional Material

Sales era (Pressure selling)

Marketing era (Satisfied customer)

Relationship marketing era (Relationships with customers)

13 SRMIST DDE MBA Self Instructional Material

This effort represented a major shift from the traditional concept of

Table 1.3 COMPARISON OF OLD TRANSACTIONAL MARKETING

Transaction-Based Relationship Marketing

Time orientation Short term Long term

Customer contact Low to moderate Frequent

Basis for seller-

Consumers favor products that are available

Improve production and distribution

‘Availability and affordability is what the

Consumers favor products that offer the most

Consumers will buy products only if the

‘Creative advertising and selling will

Focuses on needs/ wants of target markets