MARKETING

MBAZC411

Sajin John
2020HB58042
TABLE OF CONTENTS
PART 1 – UNDERSTANDING MARKETING MANAGEMENT ............................................................................................... 3
CH 1 – DEFINING MARKETING FOR THE NEW REALITIES .............................................................................................................................3
What is Marketing? ......................................................................................................................................................................................................... 3
The Value of Marketing ................................................................................................................................................................................................. 3
The Scope of Marketing ................................................................................................................................................................................................. 3
Core Marketing Concepts ............................................................................................................................................................................................. 4
Four P’s of Marketing ..................................................................................................................................................................................................... 6
Four Concepts of Marketing........................................................................................................................................................................................ 6
CH 2 – DEVELOPING MARKETING STRATEGIES AND PLAN ...........................................................................................................................7
Marketing and Customer Value ................................................................................................................................................................................ 7
Strategic Planning ........................................................................................................................................................................................................... 8
Establishing Strategic Business Units ................................................................................................................................................................. 10
Assessing Group Opportunities ............................................................................................................................................................................... 10
Business Unit Strategic Planning .......................................................................................................................................................................... 12
PART 3 – CONNECTING TO CUSTOMERS ............................................................................................................................. 15
CH 6 – ANALYSING CONSUMER MARKETS ................................................................................................................................................... 15
What Influences Consumer Behaviour? ............................................................................................................................................................. 15
Influence of Psychological Processes ................................................................................................................................................................... 17
The Buying Decision Process ................................................................................................................................................................................... 19
Legal and Ethical Issues ............................................................................................................................................................................................. 22
PART 4 – BUILDING STRONG BRANDS ................................................................................................................................ 23
CH9 – IDENTIFYING MARKET SEGMENTS AND TARGETS ........................................................................................................................... 23
Segmentation................................................................................................................................................................................................................... 23
Geographic Segmentation......................................................................................................................................................................................... 23
Demographic Segmentation .................................................................................................................................................................................... 23
Psychographic Segmentation.................................................................................................................................................................................. 25
Behavioural Segmentation ....................................................................................................................................................................................... 26
User and Usage – Related Variables .................................................................................................................................................................... 26
How Should Business Markets Be Segmented? .............................................................................................................................................. 27
Market Targeting .......................................................................................................................................................................................................... 27
Porter’s Five Forces ...................................................................................................................................................................................................... 28
CH10 – CRAFTING THE BRAND POSITIONING ............................................................................................................................................. 30
Competitive Frame of Reference............................................................................................................................................................................ 30
Point-of-Difference and Points-of-Parity .......................................................................................................................................................... 30
PART 5 – CREATING VALIE ..................................................................................................................................................... 34
CH13 – SETTING PRODUCT STRATEGY ........................................................................................................................................................ 34
Product Levels: The Customer-Value Hierarchy ........................................................................................................................................... 34
Product Classification ................................................................................................................................................................................................. 34
Product Differentiation .............................................................................................................................................................................................. 36
Service Differentiation ................................................................................................................................................................................................ 36
Design .................................................................................................................................................................................................................................. 37
The Product Hirarchy .................................................................................................................................................................................................. 38
Product Line Analysis .................................................................................................................................................................................................. 38
Product Line Length..................................................................................................................................................................................................... 39
Product Mix Pricing ...................................................................................................................................................................................................... 39
Co-Branding ..................................................................................................................................................................................................................... 40
Packaging .......................................................................................................................................................................................................................... 40
Labeling, Warranties, and Gaurantees .............................................................................................................................................................. 41
CH16 – DEVELOPING PRICING STRATEGIES AND PROGRAMS .................................................................................................................... 42
Consumer Psychology and Pricing ....................................................................................................................................................................... 42
Step 1 – Selecting Pricing Objective ..................................................................................................................................................................... 43
Step 2 – Determining Demand ................................................................................................................................................................................ 43
Step 3 – Estimating Costs .......................................................................................................................................................................................... 44
Step 4 – Analyzing Competitors’ Prices.............................................................................................................................................................. 45
Step 5 – Selecting a Pricing Method .................................................................................................................................................................... 45

SAJIN JOHN 1
 Step 6 – Selecting the Final Price...........................................................................................................................................................................46
Adapting The Price ........................................................................................................................................................................................................47
Initiating and Responding to Price Changes ...................................................................................................................................................48
PART 6 – DELIVERING VALUE ................................................................................................................................................ 50
CH17 – DESIGNING AND MANAGING INTEGRATED MARKETING CHANNELS ........................................................................................... 50
Marketing Channels & Value Networks .............................................................................................................................................................50
The Role of Marketing Channels ............................................................................................................................................................................52
Channel Design ................................................................................................................................................................................................................52
Identifying Major Channel Alternatives .............................................................................................................................................................53
Vertical Marketing Systems ......................................................................................................................................................................................55
Conflict, Cooperation, and Competition .............................................................................................................................................................56

SAJIN JOHN 2
PART 1 – UNDERSTANDING MARKETING MANAGEMENT
CH 1 – DEFINING MARKETING FOR THE NEW REALITIES
Marketing is the profitable management of the
interface between the market and its needs, and an
THE SCOPE OF MARKETING
organisation’s ability to meet those needs for the
• Marketing is about identifying and meeting human
purpose of producing mutual benefit.
and social needs in a profitable manner for the
Marketing, the discipline, is all about understanding the
firm.
market at an intimate level and using that information
to guide marketing strategy, which is indistinct from • Marketing is the activity, set of institutions and
business strategy. Marketing, the function, is operational processed for creating, communicating, delivering
in nature and supports the company’s ability to meet the and exchanging offerings that have value for
customers, clients, partners and society at large.
objective of marketing, the discipline: delivering value to
customers • Marketing is the art and science of choosing target
markets and getting, keeping and growing
customers through creating, delivering and
WHAT IS MARKETING? communicating superior customer value.
Marketing is the science and art of exploring, creating, • Marketing is a societal process by which
and delivering value to satisfy the needs of a target individuals and groups obtain what they need and
market at a profit. want through creating, offering and freely
• Marketing identifies unfulfilled needs and desires. exchanging products and services of value with
It defines, measures and quantifies the size of the others.
identified market and the profit potential. It
pinpoints which segments the company is capable What is Marketed?
of serving best and it designs and promotes the
appropriate products and services. • Goods (Cars, cosmetics, medicines)
• Important concepts of marketing are: • Services (Education, Healthcare)
segmentation, targeting, positioning, needs, wants, • Events (FIFA, A concert, IPL)
demand, offerings, brands, value and satisfaction, • Person ( a politician, an author)
exchange, transactions, relationships and • Properties (Real Estate, Gold)
networks, marketing channels, supply chain, • Information (Big Data, News)
competition, the marketing environment, and • Experiences (Vipassana, Adventure)
marketing programs. • Places (Kerala, Goa)
• Marketing’s key processes are: • Organization
o opportunity identification, • Ideas
o new product development
o customer attraction, Who markets?
o customer retention and loyalty building, • Marketers and prospects
and • A marketer is someone who seeks a response –
o order fulfilment attention, purchase, vote or a donation – from
• A company that handles all of these processes well another party called prospect.
will normally enjoy success. But when a company
fails at any one of these processes, it will not
survive.

THE VALUE OF MARKETING

• Marketing works in conjunction with other
departments like finance, operations, accounts and
other business activities to generate demand for
products and services so that the firm can earn a Demand States
profit.
1. Negative demand—Consumers dislike the
• The goal of marketing is to build brands and a loyal
product and may even pay to avoid it.
customer base for the company; intangible assets
2. Non-existent demand—Consumers may be
which contribute heavily to the value of a firm.
unaware of or uninterested in the product.
• Skilled marketing is a never ending pursuit. It
3. Latent demand—Consumers may share a strong
involves the art of adaptability as companies and
need that cannot be satisfied by an existing
organizations need to navigate their ways through
product.
changing customer needs, technology and
4. Declining demand—Consumers begin to buy the
environmental factors among other things.
product less frequently or not at all.

SAJIN JOHN 3
5. Irregular demand—Consumer purchases vary on • Values and Satisfaction
a seasonal, monthly, weekly, daily, or even hourly • Supply Chain
basis. • Competition
6. Full demand—Consumers are adequately buying • Marketing Environment
all products put into the marketplace.
7. Overfull demand—More consumers would like to
Needs, Wants and Demands
buy the product than can be satisfied.
8. Unwholesome demand—Consumers may be • Needs
attracted to products that have undesirable social o Needs are the basic human requirements such
consequences. as for air, food, water, clothing, and shelter.
o E.g.: I need food
o Types of needs:
What is a market? Stated Needs (want an inexpensive car)
• The word market traditionally refers to the market Real Needs (wants a car whose operating
place – the location or area where buyers and cost is low)
sellers meet. Unstated Needs (expects good service
• In economics, market is described as a collection of from dealer)
buyers and sellers who transact over a particular Delight Needs (would like the dealer to
product or product class. include an onboard GPS system)
• In marketing the word “market” is used to describe Secret Needs (wants friends to see him or
various grouping of customers. For example while her as a savvy consumer. Or Am I getting a
referring to the automobile market we mean the good deal?)
set of people interested in buying an automobile. • Wants
o Needs become wants when directed to specific
objects that might satisfy the need.
o Desire
o E.g.: I would like to have biriyani
• Demands
o Demands are wants for specific products
backed by an ability to pay.
o What I actually buy.
o E.g.: Please get me two roti’s

Target Markets, Positioning and Segmentation

• Segmentation, Targeting, Positioning (STP)
• Marketers identify distinct segments of buyers by
identifying demographic, psychographic, and
Key Customer Markets
behavioural differences between them.
• Consumer Markets – Companies selling mass • For each of these target markets, the firm develops
consumer goods and services such as juices, a market offering that it positions in target buyers’
cosmetics, athletic shoes, and air travel minds as delivering some key benefit(s).
• Business Markets – Companies selling business • E.g.: Volvo develops its cars for the buyer to whom
goods and services often face well-informed safety is a major concern, positioning them as the
professional buyers skilled at evaluating safest a customer can buy.
competitive offerings.
• E.g.: Porsche targets buyers who seek pleasure and
• Global Markets – Companies in the global excitement in driving and want to make a
marketplace navigate cultural, language, legal, and statement about their wheels.
political differences
• Non-profit and Governmental Markets –
Companies in the global marketplace navigate Offering and brands
cultural, language, legal, and political differences • Value proposition
o A set of benefits which satisfy needs of the
customer
CORE MARKETING CONCEPTS • Offering
• Needs , Wants and Demands o A combination of products, services,
• Target Markets, Positioning and Segmentation information and experiences
• Offerings and Brands o Offering gives a ‘physical shape’ to the value
• Marketing Channels proposition
• Paid, Owned, Earned Media • Brand
• Impressions and Engagement o Brand is an offering from a known source.

SAJIN JOHN 4
Marketing Channels o Qn: Is ecommerce popularity a competitor for
• Channel of Distribution car companies, Michelin tyre manufacturing
o Dealers, Distributors, Retailers company rating restaurants? Car customers
o Help display, sell, deliver physical goods and encouraged to try the restaurants consuming
services tyres
• Channel of Service For Example:
o Warehouses, Transportation companies. o Toyota is a rival of Honda
Banks, insurance companies o Tesla is a potential rival of Honda in India
• Channel of communication o Metro Rail is a substitute for both.
o Deliver and Receive messages to/from o The internet is a potential substitute.
customers
o Print media, electronic media, digital media, Marketing Environment
stores New Realities of Marketing
• Technology – eCommerce technology on
Classification of Media manufactures and distributors, people go to shop
• Paid Media and check it out but buy online
o Advertisements, TV, Newspaper, Magazine, • Globalization – Cheap Chinese products flooding
SEM, Social Media Marketing the markets, environmental norms – Volkswagen
• Owned media lawsuits
o Company’s brochures, web site, SEO, Face • Social Responsibility
book, Twitter.
• Earned media New consumer capabilities
o Word of Mouth, Viral Marketing • Can use the internet as a powerful information and
purchasing aid
• Can search, communicate, and purchase on the
Impression and Engagement
move
Three screens to reach the customer • Can tap into social media o share opinions and
• TV, Internet, Mobile, (Print) express loyalty
• An impression occurs when a consumer views a • Can actively interact with companies
communication. • Can reject marketing they find inappropriate
• Engagement is the extent of a customer’s attention
and action involvement in a communication. New Company Capabilities
• Can use the Internet as a powerful information and
Value and Satisfaction sales channel, including for individually
• Value of a product is a combination of features, differentiated goods
quality, service and price. • Can collect fuller and richer information about
• Satisfaction reflects a person’s judgment of a markets, customers, prospects, and competitors
product’s perceived performance in relationship to • Can reach customers quickly and efficiently via
expectation. social media and mobile marketing, sending targeted
ads, coupons, and information
Supply Chain • Can improve purchasing, recruiting, training, and
internal and external communications
• Supply Chain is the channel from raw material to
• Can improve cost efficiency
component to finished product to final buyer.
Changing channels
• Retail Transformation – Malls in place instead of
shops
• Disintermediation – Number of intermediaries is
reduce in supply chain, increasing efficiency.

Competition
• All actual and potential rival offerings or
substitutes a buyer might consider.
o Car Industry faces a challenge from Uber and
the rapid induction of Metro Services.
o Would you see eCommerce emerging as a
potential competition for the car industry?

SAJIN JOHN 5
 o Apple
• Selling Concept
o Consumers need hard selling to buy a product
FOUR P’S OF MARKETING
o Insurance sector
• Marketing Concept
Product o Right product for the customer
• Product variety o Creating, communicating and delivering a
• Quality Price
• Design
superior value to a customer
• List Price
• Features • Discounts
• Brand name • Allowances
• Packaging The Holistic Marketing Concept
• Payment period
• Sizes • Credit terms Relationship Marketing
• Services o Relationship marketing aims to build mutually
• Warranties satisfying long-term relationships with key
• Return
constituents in order to earn and retain their
business.
o Includes customers, employees, marketing
Promotion Place partners, financial community.
• Sale Promotion • Channels Integrated Marketing
• Advertising • Coverage o Devise marketing activities and programs that
• Sales force • Assorments create, communicate, and deliver value such that
• Public relations • Locations
• Direct Marketing • Inventory
“the whole is greater than the sum of its parts”
• Transport Internal Marketing
o The task of hiring, training and motivating able
employees who what to serve customers well
Performance Marketing
o Financial Accountability, Environmental Impact,
Social Impact

People, Processes Physical Evidence – parts of Service

Marketing.

FOUR CONCEPTS OF MARKETING

Company Orientation towards the Marketplace
• Production Concept
o Consumer prefer the most inexpensive and
widely available product.
o Such companies focus on high production
efficiency, low costs, mass distribution
o Steel Industry, Chinese Companies
• Product Concept
o Consumer prefers quality and variety

SAJIN JOHN 6
CH 2 – DEVELOPING MARKETING STRATEGIES AND PLAN
• Procurement, Technology development, Human
resource Management, Firm Infrastructure
MARKETING AND CUSTOMER VALUE
(General Management, Planning, Finance,
• The value delivery process
Accounting etc.)
o Value is the sum total of a products features,
• Nine strategically relevant activities—five primary
quality, service and price. Value =benefit – cost
and four support activities— create value and cost
(price). (QSP – quality, service, price)
in a specific business.
• The value chains
• The primary activities are
o Set of activities performed by a firm to deliver
1. inbound logistics or bringing materials into the
a valuable good or service.
business.
o E.g.: manufacturing car from design till after
2. operations, or converting materials into final
sales service/feedback
products.
• Core competencies
3. outbound logistics or shipping out final
o A defining ability or advantage that
products.
distinguishes a firm from its competitors.
4. marketing, which includes sales; and
o E.g.: hospital – deliver quality healthcare
5. service.
service at minimum cost (Maruti Suzuki held
• Specialized departments handle the support
90% market but Honda came in with Honda
activities—
city – sedan with boot, Maruti did not have any
1. procurement,
similar product)
2. technology development,
• The central role of strategic planning
3. human resource management, and
4. firm infrastructure.
The Value Delivery Process • Infrastructure covers the costs of general
We can divide the value creation and delivery sequence management, planning, finance, accounting, legal,
into three phases. and government affairs.
• First, choosing the value is the “homework”
marketers must do before any product exists. They Core business processes
must segment the market, select the appropriate
The firm’s success depends not only on how well each
target, and develop the offering’s value positioning.
department performs its work, but also on how well
The formula “segmentation, targeting, positioning
the company coordinates departmental activities to
(STP)” is the essence of strategic marketing.
conduct core business processes.
E.g.: Volvo offers a “SAFE CAR”,
These processes include:
Coaching Centre – Efficient Education, Less effort,
Market-sensing process
Better outcome
• Understanding customer’s needs, wants, desires
• The second phase is providing the value.
and shifts within them; competition moves etc.
Marketing must identify specific product features,
• Based on market sensing, firms move to new
prices, and distribution.
offering realization. gathering and acting upon
E.g.: Volvo – Safety Features (Air Bags, ABS, etc).
information about the market
Nearly zero manufacturing defects Quick Service.
New-offering realization process
Coaching Centre – Good Teachers, Study material
Streamlined systems • Product or service development, manufacturing
etc. design, produce, process—researching,
• The task in the third phase is communicating the
developing, and launching new high-quality
value by utilizing the Internet, advertising, sales
offerings quickly and within budget
force, and any other communication tools to
Customer acquisition process
announce and promote the product. The value
delivery process begins before there is a product • Sales and marketing, process—defining target
and continues through development and after markets and prospecting for new customers
launch. Customer relationship management process
E.g.: Volva Ads carry message of Safety • CRM, after sales, customer engagement, building
deeper understanding, relationships, and offerings
to individual customers
The Value Chain Fulfillment management process
A tool for identifying ways to create more customer • Receive/ approve orders, ship goods on time,
value accept payments – do all above activities in
• Every firm is a synthesis of activities performed to efficient and profiting manner
design, produce, market, deliver, and support its
product
• In-bound logistics, Operations, Outbound
Logistics, Marketing, Service (Primary activities)

SAJIN JOHN 7
Activities and Processes
Business Process is defined as a set of linked tasks
which find their end in the delivery of a service or a STRATEGIC PLANNING
product to the Customer.
Selection Admission Education Placement
Central role of Strategic Planning
Example:
1. BITSAT Exam • Managing the businesses as an investment
2. Receipt and vetting of applications portfolio – invest money where you will get max
3. Placement of Ad profits
4. Setting of questions • Assessing the market’s growth rate and the
company’s position in that market
Core Competencies • Establishing a strategy.
• Most large companies consist of four
• A source of competitive advantage and makes a
organizational levels: (1) corporate, (2) division,
significant contribution to perceived customer
(3) business unit, and (4) product.
benefits.
o Corporate headquarters is responsible for
• Core competency is a strength associated with a designing a corporate strategic plan to guide
company which helps it deliver something that the the whole enterprise; it makes decisions on the
customer values better than the competition. number of resources to allocate to each
• Applications in a wide variety of markets division as well as on which businesses to start
• Difficult for competitors to imitate or eliminate.
• Competitive advantage also accompanies o Each division establishes a plan covering the
distinctive capabilities or excellence in broader allocation of funds to each business unit within
business processes. the division.
• Wharton’s George Day sees market-driven o Each business unit develops a strategic plan
organizations as excelling in three distinctive to carry that business unit into a profitable
capabilities: market sensing, customer linking, and future.
channel bonding. o Finally, each product level (product line,
E.g.: Hindustan Lever has a core competency in brand) develops a marketing plan for
distribution and branding. achieving its objectives.
E.g.: has a core competency in distribution which
they are using to build a channel for non-cigarette
Marketing Plan
products like stationery (Classmate)
E.g.: What do you think is Bosch’s core • The central instrument for directing and
competency? coordinating the marketing effort.
• The marketing plan operates at two levels:
strategic and tactical.
Maximizing Core Competencies
• Strategic
• (Re)define the business concept o The strategic marketing plan lays out the
o Amazon and retailing. Amazon used its core target markets and the firm’s value
competency in IT to redefine retailing by proposition, based on an analysis of the best
improving the overall customer experience. market opportunities.
o ITC is redefining its business concept with o Tata Motors getting to mini segment
falling demand in cigarette business. • Tactical
• (Re)shaping the business scope o The tactical marketing plan specifies the
o Apollo expanding business scope by getting marketing tactics, including product features,
into pharma retail. promotion, merchandising, pricing, sales
o Apollo used its core competency in healthcare channels, and service.
management (the drugs commonly used for o Design, Make and market Nano
example) and its brand name in the sector to
create Apollo pharmacies.
Strategic Planning, Implementation, and
• (Re)positioning the company’s brand identity
Control Processes
o Bajaj as a motorcycle manufacturer, Bullet
o Peabody Energy implemented a new global • Only a select group of companies have historically
organizational structure—creating geographic stood out as master marketers.
business units in the Americas, Australia, and • These companies focus on the customer and are
Asia—to reflect its growing global footprint. organized to respond effectively to changing
Changes in business fortunes often necessitate needs.
realignment and restructuring, as Panasonic • They all have well-staffed marketing departments,
and other Japanese technology and electronic and their other departments accept that the
companies found. customer is king.

SAJIN JOHN 8
• They also often have strong marketing leadership • Transportation is a need: the horse and carriage,
in the form of a successful CMO. automobile, railroad, airline, ship, and truck are
products that meet that need.
• A target market definition tends to focus on selling
a product or service to a current market.
• A strategic market definition, however, also
focuses on the potential market.
• Xerox lost it as they got stuck with their mission of
making photocopiers (product). They would have
evolved into an IBM, Microsoft or Apple had they
defined their businesses in terms of the market
Corporate and Division Strategic Planning
(office productivity).
• Defining the corporate mission
o “Our mission is to bring healthcare of Company Product Market
International standards within the reach of
every individual. We are committed to the Missouri- We run a We are a people-
achievement and maintenance of excellence in Pacific railroad and-goods mover
education, research and healthcare for the Railroad
benefit of humanity”. - Apollo Hospital Xerox We make We improve office
• Establishing strategic business units copying productivity
o Apollo Medical Colleges, Apollo Labs, Apollo equipment
Hospitals, Apollo Clinics
• Assigning resources to each strategic business unit Standard Oil We sell We supply energy
• Assessing growth opportunities gasoline
Columbia We make We market
Pictures movies entertainment
Tata Motor – Mission
• To earn the affection of customers by offering
superior experience and customer value, thereby Good Mission Statements
making them ambassadors of the brand. A clear, thoughtful mission statement developed
• Driving competitiveness by offering our business collaboratively with and shared with managers,
at benchmark levels. employees, and often customers, provides a shared
• Executing businesses safely with predictable sense of purpose, direction, and opportunity.
benchmark quality, cost and time…. At its best it reflects a vision, an almost “impossible
dream,” that provides direction for the next 10 to 20
Defining the corporate Mission years.
• What is our business?
o Generic Healthcare • Focus on a limited number of goals
o International standards in healthcare,
• Who is the customer?
excellence in education, research
o Every individual
• Stress the company’s major policies and values
• What is of value to the customer?
o To reach individual, to maintain the above
o Health care of international standards
standards.
• What will our business be?
• Define the major competitive spheres within which
o Education, Research
the company will operate
• What should our business be?
o Healthcare, education, research
o Benefit of humanity
• Take a long-term view
These simple-sounding questions are among the most
difficult a company will ever face. Successful • Are as short, memorable, and meaningful as
companies continuously ask and answer them. possible

Product Orientation v/s Market Orientation

• Companies often define themselves in terms of
products: They are in the “auto business” or the
“clothing business.”
• Market definitions of a business, however,
describe the business as a customer satisfying
process.
• Products are transient; basic needs and customer
groups endure forever.

SAJIN JOHN 9
ESTABLISHING STRATEGIC BUSINESS UNITS ASSESSING GROUP OPPORTUNITIES
Large companies normally manage quite different
businesses, each requiring its own strategy.
The purpose of identifying the company’s strategic
business units is to develop separate strategies and
assign appropriate funding.
Senior management knows its portfolio of businesses
usually includes a number of “yesterday’s has-beens”
as well as “tomorrow’s winners.”
• A single business or collection of related
businesses
• Has its own set of competitors
• Has a leader responsible for strategic planning and
profitability
• LG: CTV, Refrigerator, Room Air Conditioner • Assessing growth opportunities includes planning
new businesses, downsizing, and terminating
Assigning Resources to Each SBU older businesses.
Portfolio-planning models like these have largely fallen • If there is a gap between future desired sales and
out of favor as oversimplified and subjective. projected sales, corporate management will need
Newer methods rely on shareholder value analysis and to develop or acquire new businesses to fill it.
on whether the market value of a company is greater • Above figure illustrates this strategic-planning gap
with an SBU or without it. for a hypothetical manufacturer of blank DVD discs
These value calculations assess the potential of a called Cineview.
business based on growth opportunities from global The lowest curve projects expected sales from the
expansion, repositioning or retargeting, and strategic current business portfolio over the next five years.
outsourcing. The highest describes desired sales over the same
• Management must decide how to allocate period.
corporate resources to each SBU • Evidently, the company wants to grow much faster
o Portfolio-planning models than its current businesses will permit. How can it
o Shareholder/market value analysis fill the strategic planning gap?
o The first option is to identify opportunities for
growth within current businesses (intensive
opportunities)
Current Product in current Markets –
Market Penetration Strategy.
New Market for Current Products – Market
Development Strategy.
New Product for Current Markets –
Product Development Strategy
New Product for new Markets –
Product/Market Diversification
o The second is to identify opportunities to build
or acquire businesses related to current
businesses (integrative opportunities).
Backward Integration, Forward
Integration, Horizontal Integration
o The third is to identify opportunities to add
attractive unrelated businesses
(diversification opportunities)
Opportunities outside Present Businesses
o Downsizing and Divesting older Businesses

Intensive Growth
• Corporate management should first review
opportunities for improving existing businesses
• One useful framework is a “product-market
expansion grid,” which considers the strategic
growth opportunities for a firm in terms of current
and new products and markets.

SAJIN JOHN 10
• The company first considers whether it could gain health and poultry genetics businesses to form
more market share with its current products in Merial Limited, a fully integrated animal health
their current markets, using a market-penetration company. Finally, Merck acquired Schering-
strategy. Plough in 2009.
• Next it considers whether it can find or develop
new markets for its current products, in a market- Diversification Growth
development strategy. • Diversification growth makes sense when good
• Then it considers whether it can develop new opportunities exist outside the present businesses.
products for its current markets with a product- • The industry is highly attractive, and the company
development strategy. has the right mix of business strengths to succeed
• Later the firm will also review opportunities to Example:
develop new products for new markets in a o From its origins as an animated film producer,
diversification strategy. The Walt Disney Company has moved into
Example: licensing characters for merchandised goods,
ESPN Growth Opportunities publishing general interest fiction books under
the Hyperion imprint, entering the broadcast
industry with its own Disney Channel as well
as ABC and ESPN, developing theme parks and
vacation and resort properties, and offering
cruise and commercial theatre experiences.

Downsizing and Divesting older Businesses

• Companies must carefully prune, harvest, or divest
tired old businesses to release needed resources
for other uses and reduce costs
Example:
o To focus on its travel and credit card
operations, American Express spun off
American Express Financial Advisors, which
o ESPN has pursued a variety of growth provided insurance, mutual funds, investment
opportunities. advice, and brokerage and asset management
o Through its singular focus on sports services (it was renamed Ameriprise
programming and news, ESPN grew from a Financial).
small regional broadcaster into the biggest o American International Group (AIG) agreed to
name in sports. sell two of its subunits—American General
o In the early 1990s, the company crafted a well- Indemnity Co. and American General Property
thought-out plan: Wherever sports fans Insurance Co.—to White Mountains Insurance
watched, read, and discussed sports, ESPN Group as part of a long-term growth strategy
would be there. to discard redundant assets and focus on its
o It pursued this strategy by expanding its brand core operations.
and now encompasses 10 cable channels, a
Web site, a magazine, a few restaurants (ESPN Organization and Organizational Culture
Zone), more than 600 local radio affiliates, • A company’s organization consists of its
original movies and television series, book structures, policies, and corporate culture, all of
publishing, a sports merchandise catalog and which can become dysfunctional in a rapidly
online store, music and video games, and a changing business environment
mobile service. • Whereas managers can change structures and
policies (though with difficulty), the company’s
Integrative Growth culture is very hard to change. Yet adapting the
• A business can increase sales and profits through culture is often the key to successfully
backward, forward, or horizontal integration implementing a new strategy.
within its industry • Corporate culture: “The shared experiences,
Example: stories, beliefs, and norms that characterize an
o Merck formed joint ventures as far back as organization”
1989 with Johnson & Johnson to sell over-the- • Walk into any company and the first thing that
counter pharmaceuticals and 1991 with strikes you is the corporate culture—the way
DuPont to expand basic research. people dress, talk to one another, and greet
o In 1997, Merck and Rhône-Poulenc S.A. (now customers.
Sanofi-Aventis S.A.) combined their animal

SAJIN JOHN 11
Marketing Innovation • This last method can often lead to a totally new
• Innovation in marketing is critical product or service, which is the third main source
o Imaginative ideas on strategy exist in many of market opportunities.
places within a company. Environmental threat: challenge posed by an
• Employees can challenge company orthodoxy and unfavorable trend or development that, in the absence
stimulate new ideas of defensive marketing action, would lead to lower
o Senior management should identify and sales or profit. To deal with environmental threats, the
encourage fresh ideas from three generally company needs contingency plans.
underrepresented groups: employees with
youthful or diverse perspectives, employees Market Opportunity Analysis (MOA)
far removed from company headquarters, and To evaluate opportunities, companies can use market
employees new to the industry. opportunity analysis (MOA) to ask questions like those
• Firms develop strategy by choosing their view of posed on this slide and the next one.
the future • Can we articulate the benefits convincingly to a
o Scenario analysis, which develops plausible defined target market(s)?
representations of a firm’s possible future • Can we locate the target market(s) and reach them
using assumptions about forces driving the with cost-effective media and trade channels?
market and different uncertainties. Managers • Does our company possess or have access to the
think through each scenario with the question, critical capabilities and resources we need to
“What will we do if it happens?” adopt one deliver the customer benefits?
scenario as the most probable and watch for • Can we deliver the benefits better than any actual
signposts that might confirm or disconfirm it. or potential competitors?
• Will the financial rate of return meet or exceed our
BUSINESS UNIT STRATEGIC PLANNING required threshold for investment?

Opportunity and Threat Matrices

• By using the SWOT analysis and market
opportunity analysis, we can create opportunity
and threat matrices.
• In the opportunity matrix in Figure, the best
marketing opportunities facing the TV-lighting-
SWOT Analysis equipment company appear in the upper-left cell
• The overall evaluation of a company’s strengths, (#1). The opportunities in the lower-right cell (#4)
weaknesses, opportunities, and threats is called are too minor to consider. The opportunities in the
SWOT analysis. upper-right cell (#2) and the lower-left cell (#3)
• It’s a way of monitoring the external and internal are worth monitoring in the event that any
marketing environment. improve in attractiveness and potential.
• Internal – Strengths, Weaknesses
• External – Opportunities, Threats

External Environment
Marketing opportunity: an area of buyer needs and
interest that a company has a high probability of
profitably satisfying.
There are three main sources of market opportunities.
• The first is to offer something that is in short
supply. This requires little marketing talent, as the
need is fairly obvious.
• The second is to supply an existing product or
service in a new or superior way. How?
• The problem detection method asks consumers for Example: Mahindra
their suggestions, the ideal method has them Develops a
Electric
Competiton
Economic
more builds a better
imagine an ideal version of the product or service, powerful SUV
Vehicle (KUV)
vehicle
Depression
and the consumption chain method asks them to Opportun Threat
chart their steps in acquiring, using, and disposing ity Matrix Matrix
of a product.
Car Driving Environmenta
Accessories Higher Costs
Institutes l Legislation

SAJIN JOHN 12
Internal Environment Strategic Formulation: Strategic Alliances
It’s one thing to find attractive opportunities and Even giant companies often cannot achieve leadership,
another to be able to take advantage of them. Each either nationally or globally, without forming alliances
business needs to evaluate its internal strengths and with domestic or multinational companies that
weaknesses. complement or leverage their capabilities and
resources.
Goal Formation (MBO) Many strategic alliances take the form of marketing
alliances. These fall into four major categories.
Once the company has performed a SWOT analysis, it
can proceed to goal formulation, developing specific 1. Product or service alliances—One company
goals for the planning period. Goals are objectives that license another to produce its product, or two
are specific with respect to magnitude and time. companies jointly market their
complementary products or a new product.
• Unit’s objectives must be arranged hierarchically
o SBI-Visa card, PNB-MetLife insurance
• Objectives should be quantitative
o Research Alliances in the Pharma Industry
• Goals should be realistic
2. Promotional alliances—One company agrees
• Objectives must be consistent to carry a promotion for another company’s
product or service.
Smart Goals o Airtel - Apple
• Specific Goals 3. Logistics alliances—One company offers
o We shall increase our market share from 10% logistical services for another company’s
to 12% in the SUV segment during the current product.
financial year. o Tata Motors – Fiat collaboration, Maruti –
• Measurable Toyota collaboration
• Achievable 4. Pricing collaborations—One or more
o The three Targets at LG (Basic, Super Achiever, companies join in a special pricing
Tear Down Reengineering(TDR)) collaboration.
• Relevant o Bundling Offers (Airline – Hotel offers)
• Time Bound
Program Formulation and Implementation
Strategic Formulation: Porter’s Generic McKinsey’s Elements of Success (McKinsey 7S)
Strategies • According to McKinsey & Company, strategy is
Michael Porter has proposed three generic strategies only one of seven elements—all of which start with
that provide a good starting point for strategic the letter s—in successful business practice.
thinking: overall cost leadership, differentiation, • The first three—strategy, structure, and systems—
and focus. are considered the “hardware” of success.
• With overall cost leadership, firms work to achieve o Strategy – What to do?
the lowest production and distribution costs so o Structure – Organization Structure (flat and
they can underprice competitors and win market horizontal, vertical and many layers)
share. o Systems – Are all information available?
E.g.: Cheapest Burger in market Properly organized?
• With differentiation, the business concentrates on • The next four—style, skills, staff, and shared
achieving superior performance in an important values—are the “software.”
customer benefit area valued by a large part of the o The first “soft” element, style, means company
market. employees share a common way of thinking
E.g.: Not cheap, but tasty/spicy and behaving.
• With focus, the business focuses on one or more o The second, skills, means employees have the
narrow market segments, gets to know them skills needed to carry out the company’s
intimately, and pursues either cost leadership or strategy.
differentiation within the target segment. o Staffing means the company has hired able
E.g.: Vegetarian Burger people, trained them well, and assigned them
According to Porter, competing firms directing the to the right jobs.
same strategy to the same target market constitute a o The fourth element, shared values, means
strategic group. employees share the same guiding values.
The firm that carries out the strategy best will make the • When these elements are present, companies are
most profits. usually more successful at strategy
implementation.

SAJIN JOHN 13
Feedback and Control Marketing Plan Contents
• A company’s strategic fit with the environment will • Although the exact length and layout varies from
inevitably erode because the market environment company to company, most marketing plans cover
changes faster than the company’s seven Ss. one year in anywhere from 5 to 50 pages.
• Thus, a company might remain efficient yet lose • Smaller businesses may create shorter or less
effectiveness. organizations can be changed formal marketing plans, whereas corporations
through strong leadership, preferably in advance generally require highly structured documents.
of a crisis. • A marketing plan usually contains the sections
• The key to organizational health is willingness to listed below
examine the changing environment and adopt new o Executive Summary
goals and behaviors. o Table of Contents
• Peter Drucker: it is more important to “do the right o Situation Analysis
thing”—to be effective—than “to do things right”— o Marketing Strategy
to be efficient o Marketing Tactics
• The most successful companies, however, excel at o Financial Projections
both o Implementation controls
• Effectiveness is judged in terms of goal or the end.
o Coaching Centre is very effective if it could Evaluating a Marketing Plan
place my child in the top 1000 list of JEE, In the Marketing Memo, these questions are suggested
moderately effective if he/she gets a rank in for evaluating the quality of the marketing plan.
the top 20,000. o Is the plan simple/succinct?
• Efficiency is measured against the resources or o Is the plan complete?
means used to achieve the goal. o Is the plan specific?
o Coaching centre is efficient if it has done it with o Is the plan realistic?
minimal cost and effort (on part of the student,
parents etc.)
Other Marketing Plan Contents
AN ILLUSTRATION • The marketing plan should outline what
Goal: To achieve a 10% market share in the passenger marketing research will be conducted and when,
car market in India during the current financial year. as well as how the findings will be applied.
(market size=100,000) • Although the marketing plan shows how the
Strategy: Differentiate with higher quality. company will establish and maintain profitable
Program: 5 year free warranty on the car. customer relationships, it also affects both
Implementation: Worker on the shop floor internal and external relationships.
• Manufacture 350 components in day. • The marketing plan typically outlines budgets,
• Ensure it is 99% defect free. schedules, and marketing metrics for
• Ensure less than 1% rework. monitoring and evaluating results.
• Check the worker’s performance daily.
• Prepare a performance chart and place it at the
machine.
• Institute a reward, recognition scheme

SAJIN JOHN 14
PART 3 – CONNECTING TO CUSTOMERS
CH 6 – ANALYSING CONSUMER MARKETS
Consumer behavior is the study of how individuals, • Cliques are small groups whose members interact
groups, and organizations select, buy, use, and dispose of frequently.
goods, services, ideas, or experiences to satisfy their • The family is the most important consumer buying
needs and wants. organization in society, and family members
A consumer’s buying behavior is influenced by cultural, constitute the most influential primary reference
social, and personal factors. group.
Of these, cultural factors exert the broadest and • We each participate in many groups—family,
deepest influence. clubs, organizations—and these are often an
important source of information and help to define
WHAT INFLUENCES CONSUMER BEHAVIOUR? norms for behavior.
• Culture, subculture, and social class are • We can define a person’s position in each group in
particularly important influences on consumer terms of role and status. A role consists of the
buying behavior. activities a person is expected to perform. Each
• Culture is the fundamental determinant of a role in turn connotes a status.
person’s wants and behavior.
• Culture – Ideas, customs and social behavior of a Reference Groups
particular people of society. • Group with whom the individuals have face to face
• Each culture consists of smaller subcultures that interaction.
provide more specific identification and • Groups having a direct influence are called
socialization for their members. membership groups.
• Subcultures include nationalities, religions, racial • Some of these are primary groups with whom the
groups, and geographic regions. person interacts fairly continuously and
• Virtually all human societies exhibit social informally, such as family, friends, neighbors, and
stratification, most often in the form of social coworkers.
classes, relatively homogeneous and enduring • People also belong to secondary groups, such as
divisions in a society, hierarchically ordered and religious, professional, and trade-union groups,
with members who share similar values, interests, which tend to be more formal and require less
and behavior. continuous interaction.
• Aspirational groups are those a person hopes to
Social Classes join; dissociative groups are those whose values
A division of society based on economic and social or behavior an individual reject.
status • Where reference group influence is strong,
Lower, middle class, upper class, rich marketers must determine how to reach and
Socio-economic classification influence the group’s opinion leaders.
• Originally created by Indian Market Research • An opinion leader is the person who offers
Bureau (IMRB) in 1988 informal advice or information about a specific
• Urban Grid product or product category, such as which of
o Education and Occupational criteria (old, 9 several brands is best or how a particular product
groups) may be used.
o Education and ownership of consumer E.g.: Dentist for dental hygiene, IT professional for
durables (new, 12 groups, govt. of India) a PC, Painter for paints, Mason for cement, sanitary
Electricity, gas connection, ceiling fan, 2- ware.
wheeler, CTV, Ref, WM. Computer, Car, Air
conditioner, Land Cliques
• Rural Grid (4 groups) Cliques are small groups whose members interact
o Education frequently.
o Type of Dwelling (pucca, semi-pucca, Katcha) • Professionals
• Mavens
Social Factors o People who are knowledgeable.
In addition to cultural factors, social factors such as • Connectors
reference groups, cliques, family, and social roles o Connect with many people (press)
and statuses affect our buying behavior. • Salesmen
• A person’s reference groups are all the groups that o Persuasive skills. (insurance salesmen)
have a direct (face-to-face) or indirect influence on • Stickiness of ideas
their attitudes or behavior.

SAJIN JOHN 15
 concept (how we view ourselves), though the
match may instead be based on the consumer’s
ideal self-concept (how we would like to view
Family ourselves) or even on others’ self-concept (how we
think others see us).
• There are two families in the buyer’s life.
• People from the same subculture, social class, and
• The family of orientation consists of parents and
occupation may adopt quite different lifestyles. A
siblings. – Inherited ideas.
lifestyle is a person’s pattern of living in the world
• From parents a person acquires an orientation
as expressed in activities, interests, and opinions.
toward religion, politics, and economics and a
sense of personal ambition, self-worth, and love.
• A more direct influence on everyday buying Personality and Self Concept
behavior is the family of procreation—namely, People choose brands which are consistent with their
the person’s spouse and children. actual or ideal self-concept.
• In the United States, in a traditional husband–wife • Personality
relationship, engagement in purchases has varied o A set of distinguishing human psychological
widely by product category. characteristics that lead to relatively
• The wife has usually acted as the family’s main consistent and enduring responses to
purchasing agent, especially for food, sundries, and environmental stimuli.
staple clothing items. • Brand Personality
• Now traditional purchasing roles are changing, and o The sincere brand – Peter England (the honest
marketers would be wise to see both men and shirt)
women as possible targets. o Excitement – the adventure bike
• Children as influencers – Mobile phones, PCs, o Competence – The fuel efficient bike, Hero
movies, vacations. Honda
o Sophistication – The complete man. Raymond
o Ruggedness – ruf n’ tuf jeans
Personal Factors
• Our taste in food, clothes, furniture, and recreation
Lifestyle and Values
is often related to our age.
Lifestyle is a person’s pattern of living in the world as
• Consumption is also shaped by the family life cycle
and the number, age, and gender of people in the expressed in activities, interests and opinions.
household at any point in time. • Achievers
o Personal computers
• In addition, psychological life-cycle stages may
matter. • Money constrained
• Adults experience certain passages or • Time constrained
transformations as they go through life. o Packaged food industry
• Marketers try to identify the occupational groups
that have above-average interest in their products
and services and even tailor products for certain
occupational groups: Computer software
companies,
for example, design different products for brand
managers, engineers, lawyers, and physicians.
• As the recent prolonged recession clearly
indicated, both product and brand choice are
greatly affected by economic circumstances like
spendable income (level, stability, and pattern
over time), savings and assets (including the
percentage that is liquid), debts, borrowing power,
and attitudes toward spending and saving.
• By personality, we mean a set of distinguishing
human psychological traits that lead to relatively
consistent and enduring responses to
environmental stimuli including buying behavior.
We often describe personality in terms of such
traits as self-confidence, dominance, autonomy,
deference, sociability, defensiveness, and
adaptability.
• Consumers often choose and use brands with a
brand personality consistent with their actual self-

SAJIN JOHN 16
INFLUENCE OF PSYCHOLOGICAL PROCESSES • Sigmund Freud assumed the psychological forces
• Marketing and environmental stimuli enter the shaping people’s behavior are largely unconscious
consumer’s consciousness, and a set of and that a person cannot fully understand his or
psychological processes combine with certain her own motivations.
consumer characteristics to result in decision • Abraham Maslow sought to explain why people
processes and purchase decisions. are driven by particular needs at particular times.
• The marketer’s task is to understand what His answer is that human needs are arranged in a
happens in the consumer’s consciousness between hierarchy from most to least pressing—from
the arrival of the outside marketing stimuli and the physiological needs to safety needs, social needs,
ultimate purchase decisions. Five key esteem needs, and self-actualization needs.
psychological processes—motivation,
perception, learning, emotions, and memory—
fundamentally influence consumer responses.

Motivation

Memory Perception

• People will try to satisfy their most important need

first and then move to the next.
Emotions Learning Example, a starving man (need 1) will not take an
interest in the latest happenings in the art world
(need 5), nor in the way he is viewed by others (need
3 or 4), nor even in whether he is breathing clean air
Model of Consumer Behavior
(need 2), but when he has enough food and water,
The starting point for understanding consumer the next most important need will become salient.
behavior is the stimulus-response model shown in • Frederick Herzberg developed a two-factor
figure: theory that distinguishes dissatisfiers (factors that
cause dissatisfaction) from satisfiers (factors that
cause satisfaction).
• The absence of dissatisfiers is not enough to
motivate a purchase; satisfiers must be present.
For example, a computer that does not come with
a warranty is a dissatisfier.
• Yet the presence of a product warranty does not
act as a satisfier or motivator of a purchase because
it is not a source of intrinsic satisfaction.
Motivation • Ease of use is a satisfier.
A need becomes a motive when it is aroused to a
sufficient level of intensity to drive us to act. Perception
The process by which we select, organize, and interpret
information inputs to create a meaningful picture of
the world.
Freud's Maslow's Herzberg's • A motivated person is ready to act—how is
Theory Hierarchy Two-Factor influenced by his or her perception of the situation.
•Behaviour is of Needs Theory In marketing, perceptions are more important
guided by •Behaviour is •Behaviour is than reality because they affect consumers’ actual
subconscious driven by guided by behavior.
motivations lowest, dissatisfiers • We screen most stimuli out—a process called
projection unmet need and satisfiers selective attention.
techniques
• Selective attention means that marketers must
work hard to attract consumers’ notice.
o Relevance - People are more likely to notice
stimuli that relate to a current need.

SAJIN JOHN 17
 o People are more likely to notice stimuli they Emotions
anticipate. • Marketers are increasingly recognizing the power
E.g.: A bar of chocolate would not be noticeable of emotional appeals—especially if these are
in a chemist shop. rooted in some functional or rational aspects of the
o People are more likely to notice stimuli whose brand.
deviations are large in relationship to the • An emotion-filled brand story has been shown to
normal size of the stimuli. trigger’s people desire to pass along things they
E.g.: Kotak Mahindra Bank Ad. hear about brands, through either word of mouth
• Selective distortion is the tendency to interpret or online sharing.
information in a way that fits our preconceptions. • Firms are giving their communications a stronger
o Consumers will often distort information to be human appeal to engage consumers in their brand
consistent with prior brand and product stories.
beliefs and expectations. • Many different kinds of emotions can be linked to
o Selective distortion can work to the advantage brands.
of marketers with strong brands when
consumers distort neutral or ambiguous brand
information to make it more positive.
Memory
o In other words, coffee may seem to taste • Cognitive psychologists distinguish between
better, a car may seem to drive more smoothly, short-term memory (STM)—a temporary and
and the wait in a bank line may seem shorter, limited repository of information—and long-term
depending on the brand. memory (LTM)—a more permanent, essentially
• Selective Retention – Most of us don’t remember unlimited repository.
much of the information to which we’re exposed, • The associative network memory model views
but we do retain information that supports our LTM as a set of nodes and links. Nodes are stored
attitudes and beliefs. information connected by links that vary in
o Because of selective retention, we’re likely to strength. Any type of information can be stored in
remember good points about a product we like the memory network, including verbal, visual,
and forget good points about competing abstract, and contextual.
products. o A spreading activation process from node to
o Like, Smart one liners or catchy jingles node determines how much we retrieve and
• Subliminal perception has long fascinated what information we can actually recall in any
armchair marketers, who argue that marketers given situation.
embed covert, subliminal (subconscious) messages • Brand associations consist of all brand-related
in ads or packaging. Consumers are not thoughts, feelings, perceptions, images,
consciously aware of them, yet they affect experiences, beliefs, attitudes, and so on, that
behavior. become linked to the brand node.
• Memory encoding describes how and where
information gets into memory.
Learning
o The strength of the resulting association
• Most human behavior is learned, though much depends on how much we process the
learning is incidental. information at encoding (how much we think
• Learning theorists believe learning is produced about it, for instance) and in what way.
through the interplay of drives, stimuli, cues, o In general, the more attention we pay to the
responses, and reinforcement. meaning of information during encoding, the
• Drive and Cues stronger the resulting associations in memory
o A drive is a strong internal stimulus impelling will be.
action. • Memory retrieval is the way information gets out
o Cues are minor stimuli that determine when, of memory.
where, and how a person responds. o The presence of other product information in
• Generalization and Discrimination memory can produce interference effects and
o A new company can enter the market by cause us to either overlook or confuse new
appealing to the same drives’ competitors use data.
and providing similar cues because buyers are o The time between exposure to information
more likely to transfer loyalty to similar and encoding has been shown generally to
brands (generalization). produce only gradual decay.
o the company might design its brand to appeal o Information may be available in memory but
to a different set of drives and offer strong cue not be accessible for recall without the proper
inducements to switch (discrimination). retrieval cues or reminders.

SAJIN JOHN 18
THE BUYING DECISION PROCESS • Sets Involved in Decision Making:
• The buying process starts
long before the actual
purchase and has
consequences long
afterward.
• Some consumers passively
shop and may decide to
make a purchase from
unsolicited information
they encounter in the
normal course of events. • By gathering information, the consumer learns
• Consumers don’t always about competing brands and their features.
pass through all five • The first box in above figure shows the total set of
stages—they may skip or brands available.
reverse some. • The individual consumer will come to know a
• The model in Figure subset of these, the awareness set.
provides a good frame of • Only some, the consideration set, will meet initial
reference, however, buying criteria.
because it captures the full • As the consumer gathers more information, just a
range of considerations few, the choice set, will remain strong contenders.
that arise when a • The consumer makes a final choice from these.
consumer faces a highly • Marketers need to identify the hierarchy of
involving or new purchase. attributes that guide consumer decision making in
order to understand different competitive forces
Problem Recognition and how these various sets get formed.
• The buyer recognizes a problem/need triggered by • This process of identifying the hierarchy is called
internal/external stimuli. market partitioning.
• With an internal stimulus, one of the person’s
normal needs—hunger, thirst, sex—rises to a Evaluation of Alternatives
threshold level and becomes a drive. • How does the consumer process competitive
• A need can also be aroused by an external stimulus. brand information and make a final value
Marketers need to identify the circumstances that judgment?
trigger a particular need by gathering information • Through experience and learning, people acquire
from a number of consumers. beliefs and attitudes.
• They can then develop marketing strategies that • These in turn influence buying behavior.
spark consumer interest. • A belief is a descriptive thought that a person holds
about something.
Information Search • Just as important are attitudes, a person’s enduring
• The relative amount of information and influence favorable or unfavorable evaluations, emotional
of these sources vary with the product category feelings, and action tendencies toward some object
and the buyer’s characteristics. or idea.
• Generally speaking, although consumers receive • The consumer arrives at attitudes toward various
the greatest amount of information about a brands through an attribute-evaluation procedure,
product from commercial—that is, marketer- developing a set of beliefs about where each brand
dominated—sources, the most effective stands on each attribute.
information often comes from personal or • The expectancy-value model of attitude formation
experiential sources or public sources that are posits that consumers evaluate products and
independent authorities. services by combining their brand beliefs—the
• Major information sources to which consumers positives and negatives—according to importance.
will turn fall into four groups:
o Personal – Family, friends, neighbours,
acquaintances
o Commercial – Advertising, Web sites, e-mails,
salespersons, dealers, packaging, displays
o Public – Mass media, social media, consumer-
rating organizations
o Experiential – Handling, examining, using the
product

SAJIN JOHN 19
• To find Linda’s perceived value for each laptop • The influence on us of another person’s attitude
according to the expectancy-value model, we depends on two things:
multiply her weights by her beliefs about each 1. the intensity of the other person’s negative
computer’s attributes. attitude toward our preferred alternative and
• This computation leads to the following perceived 2. our motivation to comply with the other
values: person’s wishes.
Laptop A = 0.4(8) + 0.3(9) + 0.2(6) + 0.1(9) = 8.0 • The more intense the other person’s negativism
Laptop B = 0.4(7) + 0.3(7) + 0.2(7) + 0.1(7) = 7.0 and the closer he or she is to us, the more we will
Laptop C = 0.4(10) + 0.3(4) + 0.2(3) + 0.1(2) = 6.0 adjust our purchase intention.
Laptop D = 0.4(5) + 0.3(3) + 0.2(8) + 0.1(5) = 5.0 • The converse is also true.
• An expectancy-model formulation predicts that • The second factor is unanticipated situational
Linda will favor laptop A, which (at 8.0) has the factors that may erupt to change the purchase
highest perceived Value. intention.

Purchase Decision Types of perceived risk

• The expectancy-value model is a compensatory A consumer’s decision to modify, postpone, or avoid a
model. purchase decision is heavily influenced by one or more
• With non-compensatory models of consumer types of perceived risk:
choice, positive and negative attribute • Functional risk—The product does not perform to
considerations don’t necessarily net out. expectations.
• Physical risk—The product poses a threat to the
Conjunctive heuristic physical well-being or health of the user or others.
• Financial risk—The product is not worth the price
Lexicographic heuristic paid.
• Social risk—The product results in embarrassment
in front of others.
Elimination-by-aspects heuristic • Psychological risk—The product affects the mental
well-being of the user.
• Using the conjunctive heuristic, the consumer sets a
• Time risk—The failure of the product results in an
minimum acceptable cutoff level for each attribute
opportunity cost of finding another satisfactory
and chooses the first alternative that meets the
product.
minimum standard for all attributes.
• With the lexicographic heuristic, the consumer
chooses the best brand on the basis of its perceived Post-purchase Behaviour
most important attribute. • Satisfaction is a function of the closeness between
• Using the elimination-by-aspects heuristic, the expectations and the product’s perceived
consumer compares brands on an attribute performance.
selected probabilistically—where the probability • If performance falls short of expectations, the
of choosing an attribute is positively related to its consumer is disappointed; if it meets expectations,
importance—and eliminates brands that do not the consumer is satisfied; if it exceeds
meet minimum acceptable cutoffs. expectations, the consumer is delighted.
• A satisfied consumer is more likely to purchase the
product again and will also tend to say good things
Intervening Factors about the brand to others.
• Even if
• Dissatisfied consumers may abandon or return the
consumers form product.
brand
• They may seek information that confirms its high
evaluations, two
value.
general factors
• They may take public action by complaining to the
can intervene
company, going to a lawyer, or complaining
between the
directly to other groups (such as business, private,
purchase
or government agencies) or to many others online.
intention and the
• Private actions include deciding to stop buying the
purchase
product (exit option) or warning friends (voice
decision.
option).
• Marketers should also monitor how buyers use
• The first factor is
and dispose of the product.
the attitudes of
others. • A key driver of sales frequency is product
consumption rate—the more quickly buyers

SAJIN JOHN 20
 consume a product, the sooner they may be back in o If an example comes to mind too easily,
the market to repurchase it. consumers might overestimate the likelihood
• If consumers throw the product away, the of its happening.
marketer needs to know how they dispose of it, o For example, a recent product failure may lead
especially if—like batteries, beverage containers, consumers to inflate the likelihood of a future
electronic equipment, and disposable diapers—it product failure and make them more inclined
can damage the environment. to purchase a product warranty.
• There also may be product opportunities in 2. The representativeness heuristic—
disposed products. o Consumers base their predictions on how
representative or similar the outcome is to
other examples.
Customer Product Use/Disposal o One reason package appearance may be so
Marketers should also monitor how buyers use and similar for different brands in the same
dispose of the product
product category is that marketers want their
products to be seen as representative of the
category as a whole.
3. The anchoring and adjustment heuristic—
o Consumers arrive at an initial judgment and
then adjust it—sometimes only reluctantly—
based on additional information. For services
marketers, a strong first impression is critical
to establishing a favorable anchor so
subsequent experiences will be interpreted in
a more favorable light.

Decision framing is the manner in which choices are

Moderating Effects on Consumer Decision presented to and seen by a decision maker.
Making Mental accounting describes the way consumers code,
• The expectancy-value model assumes a high level categorize, and evaluate financial outcomes of choices.
of consumer involvement, or engagement and Mental accounting is based on a set of core principles:
active processing the consumer undertakes in 1. Consumers tend to segregate gains.
responding to a marketing stimulus. o When a seller has a product with more than
• We buy many products under conditions of low one positive dimension, it’s desirable to have
involvement and without significant brand the consumer evaluate each dimension
differences. Consider salt. separately.
• If consumers keep reaching for the same brand in o Listing multiple benefits of a large industrial
this category, it may be out of habit, not strong product,
brand loyalty. for example, can make the sum of the parts
• Evidence suggests we have low involvement with seem greater than the whole.
most low-cost, frequently purchased products. 2. Consumers tend to integrate losses.
• Marketers use techniques to try to convert a low- o Marketers have a distinct advantage in selling
involvement product into one of higher something if its cost can be added to another
involvement. large purchase.
• Some buying situations are characterized by low o House buyers are more inclined to view
involvement but significant brand differences. additional expenditures favorably given the
Here consumers often do a lot of brand switching. already high price of buying a house.
3. Consumers tend to integrate smaller losses with
larger gains.
Behavioral Economics o The“cancellation” principle might explain why
One of the most active academic research areas in withholding taxes from monthly paychecks is
marketing over the past three decades has been less painful than making large, lump-sum tax
behavioral decision theory (BDT). payments—the smaller withholdings are more
Behavioral decision theorists have identified many likely to be overshadowed by the larger pay
situations in which consumers make seemingly amount.
irrational choices. 4. Consumers tend to segregate small gains from large
1. The availability heuristic— losses.
o Consumers base their predictions on the o The “silver lining” principle might explain the
quickness and ease with which a particular popularity of rebates on big-ticket purchases
example of an outcome comes to mind. such as cars.

SAJIN JOHN 21
One-to-one marketing LEGAL AND ETHICAL ISSUES
• Early pioneers in individual marketing Don • Some consumers resist being labeled.
Peppers and Martha Rogers outlined a four-step • Marketers must avoid consumer backlash
framework for what they called one-to-one • Singles may reject single-serve food packaging if
marketing. they don’t want to be reminded, they are eating
• One-to-one marketing is not for every company. alone.
• It works best for firms that normally collect a great • Elderly consumers who don’t feel their age may not
deal of individual customer information and carry appreciate products that label them “old.”
a lot of products that can be cross sold, need • Market targeting also can generate public
periodic replacement or upgrading, and offer high controversy when marketers take unfair
value. advantage of vulnerable groups (such as children)
• For others, the required investment in information or disadvantaged groups (such as inner-city
collection, hardware, and software may exceed the residents) or promote potentially harmful
payout. products.
• The cost of goods is raised beyond what the • The cereal industry has been criticized through the
customer is willing to pays. years for marketing efforts directed toward
• Example : Saloon children.
• Avoid promoting potential harmful products.
Identify your prospects and customers

Differentiate customers in terms of their needs

and value to your company

Interact to improve your knowledge about

customers' needs and to build relationships

Customize products, services, and messages to

each customer

SAJIN JOHN 22
PART 4 – BUILDING STRONG BRANDS
CH9 – IDENTIFYING MARKET SEGMENTS AND TARGETS
• Similar characteristics.
SEGMENTATION • A Retail chain. School etc. would find such a
It is nearly impossible for a company to connect with segmentation useful.
all customers in large, broad, or diverse markets. They • Geoclustering captures the increasing diversity of
need to identify the market segments they can serve the U.S. population. PRIZM has been used to
effectively. answer questions such as:
o Which neighborhoods or zip codes contain our
most valuable customers?
Bases for Segmenting Consumer Markets o How deeply have we already penetrated these
• Market segmentation divides a market into well- segments?
defined slices. o Which distribution channels and promotional
• A market segment consists of a group of customers media work best in reaching our target
who share a similar set of needs and wants. clusters in each area?
• The marketer’s task is to identify the appropriate • Below are examples of three PRIZM clusters:
number and nature of market segments and decide o Young Digerati. Young Digerati are the
which one(s) to target. nation’s tech-savvy singles and couples living
• The major segmentation variables in fashionable neighbourhoods on the urban
o geographic, fringe. Affluent, highly educated, and
o demographic, ethnically mixed, they live in areas typically
o psychographic, and filled with trendy apartments and condos,
o behavioral segmentation— fitness clubs and clothing boutiques, casual
restaurants, and all types of bars— from juice
GEOGRAPHIC SEGMENTATION to coffee to microbrew.
o Beltway Boomers. One segment of the huge
• The company can operate in one or a few areas, or
baby boomer cohort—college-educated,
it can operate in all but pay attention to local
upper-middle-class, and home-owning—is
variations. In that way it can tailor marketing
Beltway Boomers. Like many of their peers
programs to the needs and wants of local customer
who married late, these boomers are still
groups in trading areas, neighborhoods, even
raising children in comfortable suburban
individual stores.
subdivisions and pursuing kid-cantered
• In a growing trend called grassroots marketing,
lifestyles.
marketers concentrate on making such activities
o The Cosmopolitans. Educated, midscale, and
as personally relevant to individual customers as
multi-ethnic, the Cosmopolitans are urbane
possible.
couples in America’s fast-growing cities.
• More and more, regional marketing means
Concentrated in a handful of metros—such as
marketing right down to a specific zip code.
Las Vegas, Miami, and Albuquerque—these
• Nielsen Claritas has developed a geoclustering households feature older homeowners, empty
approach called PRIZM (Potential Rating Index by nesters, and college graduates. A vibrant social
Zip Markets) NE that classifies more than half a scene surrounds their older homes and
million U.S. residential neighborhoods into 14 apartments, and residents love the nightlife
distinct groups and 66 distinct lifestyle segments and enjoy leisure-intensive lifestyles.
called PRIZM Clusters.
• Based on following - Education and affluence,
Family life cycle, Urbanization, Race and ethnicity, DEMOGRAPHIC SEGMENTATION
Mobility • One reason demographic variable such as age,
• The groupings take into consideration 39 factors in family size, family life cycle, gender, income,
five broad categories. occupation, education, religion, race, generation,
• The clusters have descriptive titles such as Blue nationality, and social class are so popular with
Blood Estates, Winner’s Circle, Hometown Retired, marketers is that they’re often associated with
Shotguns and Pickups, and Back Country Folks. consumer needs and wants.
• The inhabitants in a cluster tend to lead similar • Another is that they’re easy to measure.
lives, drive similar cars, have similar jobs, and read • Age and life cycle can be tricky variables. The
similar magazines. target market for some products may be the
• Nariman Point,Cuffe Parade, Peddar Road, (all psychologically Young.
Mumbai) o Childhood, Adolescence, Adulthood, Middle
• Panchsheel Park, Amrita Shergill Marg (all Delhi) Age, Old
may have o Our wants and abilities change with age

SAJIN JOHN 23
• Life stage - People in the same part of the life cycle between 1964 and 1978. Gen Xers prize self-
may still differ in their life stage. sufficiency and the ability to handle any
o Life stage defines a person’s major concern, circumstance. Technology is an enabler for
such as going through a divorce, going into a them, not a barrier. Unlike the more optimistic,
second marriage, taking care of an older team-oriented Gen Yers, Gen Xers are more
parent, deciding to cohabit with another pragmatic and individualistic. As consumers,
person, buying a new home, and so on. they are wary of hype and pitches that seem
o A person’s major concern like job, marriage, inauthentic.
children’s education, children’s marriage etc. o Baby boomers are the approximately 76
• Gender - Research shows that women have million U.S. consumers born between 1946
traditionally tended to be more communal-minded and 1964. Though they represent a wealthy
and men more self-expressive and goal-directed; target, possessing $1.2 trillion in annual
women have tended to take in more of the data in spending power and controlling three-
their immediate environment and men to focus on quarters of the country’s wealth, marketers
the part of the environment that helps them often overlook them. With many baby boomers
achieve a goal. Gender differences are shrinking in approaching their 70s and even the last and
some other areas as men and women expand their youngest wave cresting 50, demand has
roles. exploded for products to turn back the hands
• Income does not always predict the best of time.
customers for a given product. Blue-collar workers o Those born between 1925 and 1945—the
were among the first purchasers of color television “Silent Generation”—are redefining what old
sets; it was cheaper for them to buy a television age means. To start with, many people whose
than to go to movies and restaurants. Many chronological age puts them in this category
marketers are deliberately going after lower don’t see themselves as old. Advertisers have
income groups, in some cases discovering fewer learned that older consumers don’t mind
competitive pressures or greater consumer seeing other older consumers in ads targeting
loyalty. Increasingly, companies are finding their them, as long as they appear to be leading
markets are hourglass-shaped, as middle-market vibrant lives. But marketers have learned to
U.S. consumers migrate toward both discount and avoid clichés like happy older couples riding
premium products. bikes or strolling hand in hand on a beach at
• Each generation or cohort is profoundly sunset.
influenced by the times in which it grows up—the • Race and culture - Multicultural marketing is an
music, movies, politics, and defining events of that approach recognizing that different ethnic and
period. Members share the same major cultural, cultural segments have sufficiently different needs
political, and economic experiences and often have and wants to require targeted marketing activities
similar outlooks and values. Marketers may choose and that a mass market approach is not refined
to advertise to a cohort by using the icons and enough for the diversity of the marketplace. The
images prominent in its experiences. They can also Hispanic American, African American, and Asian
try to develop products and services that uniquely American markets are all growing at two to three
meet the particular interests or needs of a times the rate of no multicultural populations, with
generational target. numerous submarkets, and their buying power is
o Although different age splits are used to define expanding.
Millennials, or Gen Y, the term usually means o Accounting for more than half the growth in
people born between 1977 and 1994. Also the U.S. population from 2000 to 2010,
known as the Echo Boomers, “digital native” Hispanic Americans have become the largest
Millennials have been wired almost from minority in the country. It’s projected that by
birth—playing computer games, navigating 2020, 17 percent of U.S. residents will be of
the Internet, downloading music, and Hispanic origin. With annual purchasing
connecting with friends via texting and social power of more than $1 trillion in 2010—and
media. Although they may have a sense of expected to rise to $1.5 trillion by 2015—
entitlement and abundance from growing up Hispanic Americans would be the world’s
during the economic boom and being ninth-largest market if they were a separate
pampered by their boomer parents, nation. Hispanic Americans often share strong
Millennials are also often highly socially family values—several generations may reside
conscious, concerned about environmental in one household—and strong ties to their
issues, and receptive to cause marketing country of origin.
efforts. o According to the U.S. Census Bureau, “Asian”
o Often lost in the demographic shuffle, the 50 refers to people having origins in any of the
million or so Gen X consumers, named for a original peoples of the Far East, Southeast Asia,
1991 novel by Douglas Coupland, were born or the Indian subcontinent. Six countries

SAJIN JOHN 24
 represent 79 percent of the Asian American responses to a questionnaire featuring four
population: China (21 percent), the Philippines demographic and 35 attitudinal questions.
(18 percent), India (11 percent), Vietnam (10 • The main dimensions of the VALS segmentation
percent), Korea (10 percent), and Japan (9 framework are consumer motivation (the
percent). Telecommunications and financial horizontal dimension) and consumer resources
services are a few of the industries more (the vertical dimension).
actively targeting Asian Americans. Asian • Consumers are inspired by one of three primary
Americans tend to be more brand-conscious motivations: ideals, achievement, and self-
than other minority groups yet are the least expression.
loyal to particular brands. They also tend to • Those primarily motivated by ideals are guided by
care more about what others think (for knowledge and principles.
instance, whether their neighbors will approve • Those motivated by achievement look for products
of them) and share core values of safety and and services that demonstrate success to their
education. peers. Consumers whose motivation is self-
o African Americans are projected to have a expression desire social or physical activity,
combined spending power of $1.1 trillion by variety, and risk.
2015. Like many cultural segments, they are • Personality traits such as energy, self-confidence,
deeply rooted in the U.S. landscape while also intellectualism, novelty seeking, innovativeness,
proud of their heritage and respectful of family impulsiveness, leadership, and vanity—in
ties. African Americans are the most fashion- conjunction with key demographics—determine
conscious of all racial and ethnic groups but an individual’s resources. Different levels of
are strongly motivated by quality and resources enhance or constrain a person’s
selection. They’re also more likely to be expression of his or her primary motivation.
influenced by their children when selecting a • Innovators - High income, High self-esteem, Image
product and less likely to buy unfamiliar conscious, prefer the finer things of life.
brands. African Americans watch television • Thinkers - Mature, Responsible, Well educated ,
and listen to the radio more than other groups Well informed Practical Customers, Willing to
and are heavy users of mobile data. Nearly experiment
three-fourths have a profile on more than one • Believers - Conservative, Family centric, Brand
social network, with Twitter being extremely Loyal
popular. • Survivors - Low Income, Older, stick to their
o The lesbian, gay, bisexual, and transgender lifestyles
(LGBT) market is estimated to make up 5
• Marker - Low income, Self-sufficient, Family
percent to 10 percent of the population and
centric, Family, Work, Recreation
have approximately $700 billion in buying
• Experiencer - Young, Energetic, Eager to spend
power. Many firms have recently created
and consumer
initiatives to target this market. Some firms
worry about backlash from organizations that
will criticize or even boycott firms supporting
gay and lesbian causes. Although Pepsi,
Campbell’s, and Wells Fargo all experienced
such boycotts in the past, they continue to
advertise to the gay community.

PSYCHOGRAPHIC SEGMENTATION
• Psychographics is the science of using psychology
and demographics to better understand
consumers.
• People within the same demographic group can
exhibit very different psychographic profiles.
• Buyers are divided into groups on the basis of
psychological/personality traits, lifestyle, or
values
• One of the most popular commercially available
classification systems based on psychographic
measurements is Strategic Business Insight’s
(SBI) VALS™ framework. VALS is based on
psychological traits for people and classifies U.S.
adults into eight primary groups based on

SAJIN JOHN 25
BEHAVIOURAL SEGMENTATION • User Status - Every product has its nonusers, ex-
• Although psychographic segmentation can provide users, potential users, first-time users, and regular
a richer understanding of consumers, some users. Included in the potential-user group are
marketers fault it for being somewhat removed consumers who will become users in connection
from actual consumer behavior. with some life stage or event.
• Marketers separate buyers into groups on the Example: Non-user, Ex-user, Potential User, First
basis of their knowledge of, attitude toward, use of, time user, Regular user.
or response to a product Many 5 star hotels offer memberships to non-users
• Needs-based or benefit-based segmentation who can be potential users.
identifies distinct market segments with clear Many portals run campaigns to attract ex-users.
marketing implications. (Linkedin)
• People play five roles in a buying decision: • Usage Rate - We can segment markets into light,
Initiator, Influencer, Decider, Buyer, and User. medium, and heavy product users. Heavy users are
• For example, assume a wife initiates a purchase by often a small slice but account for a high
percentage of total consumption.
requesting a new treadmill for her birthday. The
husband may then seek information from many • Some people are unaware of the product, some are
sources, including his best friend who has a aware, some are informed, some are interested,
treadmill and is a key influencer in what models to some desire the product, and some intend to buy.
consider. After presenting the alternative choices To help characterize how many people are at
to his wife, he purchases her preferred model, different stages and how well they have converted
which ends up being used by the entire family. people from one stage to another, marketers can
employ a marketing funnel to break the market
• Different people are playing different roles, but all
are crucial in the decision process and ultimate into buyer-readiness stages.
consumer satisfaction. Below figure displays a funnel for two hypothetical
brands. Compared with Brand B, Brand A performs
• Combining different behavioral bases can provide
poorly at converting one-time users to more recent
a more comprehensive and cohesive view of a
users (only 46 percent convert for Brand A
market and its segments.
compared with 61 percent for Brand B).
• Below Figure depicts one possible way to break
Depending on the reasons consumers didn’t use
down a target market by various behavioral
again, a marketing campaign could introduce more
segmentation bases.
relevant products, find more accessible retail
outlets, or dispel rumors or incorrect beliefs
consumers hold.

USER AND USAGE – RELATED VARIABLES

• Many marketers believe variables related to users
or their usage—occasions, user status, usage • Loyalty Status Marketers usually envision four
rate, buyer-readiness stage, and loyalty status— groups based on brand loyalty status:
are good starting points for constructing market o Hard-core loyals—Consumers who buy only
segments. one brand all the time
• Occasions mark a time of day, week, month, year, o Split loyals—Consumers who are loyal to two
or other well-defined temporal aspects of a or three brands
consumer’s life. We can distinguish buyers o Shifting loyals—Consumers who shift loyalty
according to the occasions when they develop a from one brand to another
need, purchase a product, or use a product. • Switchers—Consumers who show no loyalty to
Example: Stay in a hotel for business (Taj Mahal any brand
hotel), leisure(Taj Holiday Village), experience • Five consumer attitudes about products are
(Oberoi Vilas hotels – experience of staying in a enthusiastic, positive, indifferent, negative, and
Fort) hostile.

SAJIN JOHN 26
HOW SHOULD BUSINESS MARKETS BE segments depending on current income, assets,
SEGMENTED? savings, and risk preferences.
We can segment business markets with some of the This has led some market researchers to advocate a
same variables we use in consumer markets, such as needs-based market segmentation approach.
geography, benefits sought, and usage rate, but Roger Best proposed the seven-step approach shown
business marketers also use other variables. in below table:
The demographic variables are the most important,
followed by the operating variables—down to the Description
personal characteristics of the buyer. 1 Needs-Based Group customers into segments based on
Business marketers generally identify segments Segmentation similar needs and benefits sought by
through a sequential process. customers in solving
a particular consumption problem.
• Demographic
2 Segment For each needs-based segment, determine
o What industries?
Identification which demographics, lifestyles, and usage
o What company size? behaviors make
o What geographical location? the segment distinct and identifiable
English Medium Schools. Schools with (actionable).
over 1000 students. Schools in urban 3 Segment Using predetermined segment
areas. Attractiveness attractiveness criteria (such as market
• Operating variables growth, competitive intensity,
o What technology? and market access), determine the overall
o User status? attractiveness of each segment.
o Customer Capability? 4 Segment Determine segment profitability.
Chalk and Talk? New to digital classes? Profitability
What is the level of IT awareness among its 5 Segment For each segment, create a “value
teachers? Positioning proposition” and product-price positioning
• Purchasing approaches strategy based on that
segment’s unique customer needs and
o Centralized Purchase, Decentralized
characteristics.
Purchases
6 Segment Create “segment storyboard” to test the
Are all purchase decisions centralized for a “Acid Test” attractiveness of each segment’s
school chain? positioning strategy.
Are individual schools allowed the option 7 Marketing- Expand segment positioning strategy to
of choosing their own digital classrooms? Mix Strategy include all aspects of the marketing mix:
• Situational factors product, price,
o Large order/ Small order promotion, and place.
25+ Classrooms? Less than 5 classrooms?
o Specific Application or All application
Would they use it for teaching all subjects Effective Segmentation Criteria
or only science? To be useful, market segments must rate favorably on
five key criteria:
• Personal characteristics
Measurable.
o Buyer-Seller similarity
o The size, purchasing power, and characteristics of
PSUs selling to PSUs, German/Jap
the segments can be measured.
companies?
Substantial.
o Attitude towards risk.
o The segments are large and profitable enough to
PSU banks financing startups?
serve.
o Loyalty
o A segment should be the largest possible
Is the customer expected to stay loyal?
homogeneous group worth going after with a
tailored marketing program.
MARKET TARGETING o It would not pay, for example, for an automobile
There are many statistical techniques for developing manufacturer to develop cars for people who are
market segments. under four feet tall.
Once the firm has identified its market-segment Accessible.
opportunities, it must decide how many and which o The segments can be effectively reached and
ones to target. served.
Marketers are increasingly combining several Differentiable.
variables in an effort to identify smaller, better-defined o The segments are conceptually distinguishable and
target groups. respond differently to different marketing mix
Thus, a bank may not only identify a group of wealthy elements and programs.
retired adults but within that group distinguish several

SAJIN JOHN 27
o If married and single women respond similarly to o Suppliers tend to be powerful when they are
a sale on perfume, they do not constitute separate concentrated or organized, when they can
segments. integrate downstream, when there are few
Actionable. substitutes, when the supplied product is an
o Effective programs can be formulated for important input, and when the costs of switching
attracting and serving the segments. suppliers are high.
o The best defenses are to build win-win
relationships with suppliers or use multiple supply
PORTER’S FIVE FORCES
sources.
Michael Porter has identified five forces that determine
the intrinsic long-run attractiveness of a market or
market segment: industry competitors, potential Evaluating & Selecting the Market Segments
entrants, substitutes, buyers, and suppliers. Marketers have a range or continuum of possible levels
Threat of intense segment rivalry of segmentation that can guide their target market
o A segment is unattractive if it already contains decisions. As in Figure shows, at one end is a mass
numerous, strong, or aggressive competitors. market of essentially one segment; at the other are
o These conditions will lead to frequent price wars, individuals or segments of one person each. Between
advertising battles, and new-product lie multiple segments and single segments.
introductions and will make it expensive to
compete.
Threat of new entrants
o The most attractive segment is one in which entry
barriers are high and exit barriers are low.
o Few new firms can enter the industry, and poorly
performing firms can easily exit.
o When both entry and exit barriers are high, profit Full market coverage,
potential is high, but firms face more risk because o a firm attempt to serve all customer groups with all
the products they might need. Only very large
poorer-performing firms stay in and fight it out.
o When both entry and exit barriers are low, firms firms such as Microsoft (software market), General
easily enter and leave the industry, and returns are Motors (vehicle market), and Coca-Cola
stable but low. (nonalcoholic beverage market) can undertake a
full market coverage strategy.
o The worst case occurs when entry barriers are low
o Large firms can cover a whole market in two broad
and exit barriers are high: Here firms enter during
ways: through differentiated or undifferentiated
good times but find it hard to leave during bad
times. marketing.
Multiple Segment
Threat of substitute products
o Multiple Segment Specialization With selective
o A segment is unattractive when there are actual or
specialization, a firm selects a subset of all the
potential substitutes for the product.
o Substitutes place a limit on prices and on profits. If possible segments, each objectively attractive and
appropriate.
technology advances or competition increases in
o There may be little or no synergy among the
these substitute industries, prices and profits are
segments, but each promise to be a moneymaker.
likely to fall.
Threat of buyers’ growing bargaining power o Keeping synergies in mind, companies can try to
operate in supersegments rather than in isolated
o A segment is unattractive if buyers possess strong
segments.
or growing bargaining power.
o Buyers’ bargaining power grows when they o A supersegment is a set of segments sharing some
become more concentrated or organized, when the exploitable similarity.
product represents a significant fraction of their o With product specialization, the firm sells a certain
product to several different market segments.
costs, when the product is undifferentiated, when
o With market specialization, the firm concentrates
buyers’ switching costs are low, or when they can
integrate upstream. on serving many needs of a particular customer
o To protect themselves, sellers might select buyers group, such as by selling an assortment of products
only to university laboratories.
who have the least power to negotiate or switch
Singe Segment
suppliers.
o A better defense is developing superior offers that o With single-segment concentration, the firm
strong buyers cannot refuse. markets to only one particular segment.
o Through concentrated marketing, the firm gains
Threat of suppliers’ growing bargaining power
deep knowledge of the segment’s needs and
o A segment is unattractive if the company’s
suppliers are able to raise prices or reduce achieves a strong market presence.
quantity supplied. o It also enjoys operating economies by specializing
its production, distribution, and promotion.

SAJIN JOHN 28
o If it captures segment leadership, the firm can earn o As companies have grown proficient at gathering
a high return on its investment. information about individual customers and
o A niche is a more narrowly defined customer group business partners (suppliers, distributors,
seeking a distinctive mix of benefits within a retailers), and as their factories are being designed
segment. more flexibly, they have increased their ability to
o Marketers usually identify niches by dividing a individualize market offerings, messages, and
segment into subsegments. media.
Individual Marketing o Mass customization is the ability of a company to
o The ultimate level of segmentation leads to meet each customer’s requirements—to prepare
“segments of one,” “customized marketing,” or on a mass basis individually designed products,
“one-to-one marketing.” services, programs, and communications.

SAJIN JOHN 29
CH10 – CRAFTING THE BRAND POSITIONING
The goal is to locate the brand in the minds of products with which a brand competes and that
consumers to maximize the potential benefit to the function as close substitutes.
firm. • The range of a company’s actual and potential
A good brand positioning helps guide marketing competitors, however, can be much broader than
strategy by clarifying the brand’s essence, identifying the obvious.
the goals it helps the consumer achieve, and showing • Using the market approach, we define competitors
how it does so in a unique way. as companies that satisfy the same customer need.
One result of positioning is the successful creation of a A SWOT-analysis that includes a competitive
customer-focused value proposition, a cogent reason analysis.
why the target market should buy a product or service. • A company needs to gather information about each
Positioning competitor’s real and perceived strengths and
The act of designing a company’s offering and image to weaknesses.
occupy a distinctive place in the minds of the target • Once a company has identified its main
market competitors and their strategies, it must ask: What
Value Proposition is each competitor seeking in the marketplace?
A cogent reason why a target segment should buy a What drives each competitor’s behavior?
product or service.
A value proposition captures the way a product or
service’s key benefits provide value to customers by
satisfying their needs.
Example of Value Proposition:
Company Target Value
& Product Customers Proposition
Hertz (car Busy Fast, convenient way Above table shows the results of a company survey that
rental) professionals to rent the right type
asked customers to rate its three competitors, A, B, and
of a car at an airport
C, on five attributes.
Volvo Safety-conscious The safest, most
(station upscale families durable wagon in Competitor A turns out to be well known and respected
wagon) which for producing high-quality products sold by a good
your family can ride sales force, but poor at providing product availability
Domino’s Convenience- A delicious hot and technical assistance.
(pizza) minded pizza pizza, delivered Competitor B is good across the board and excellent in
lovers promptly to product availability and sales force.
your door Competitor C rates poor to fair on most attributes.
Cuttack Lower middle Medical treatment This result suggests that in its positioning, the
Nursing class for minor ailments at company could attack Competitor A on product
Home affordable price. availability and technical assistance and Competitor C
Located in the on almost anything, but it should not attack B, which
outskirts of Cuttack has no glaring weaknesses.
city. As part of this competitive analysis for positioning, the
firm should also ascertain the strategies and objectives
COMPETITIVE FRAME OF REFERENCE of its primary competitors.
• Defines which other brands a brand competes with Competitive Analysis – Hospital:
and which should thus be the focus of competitive Hospital Specialty Location Customer Care Cost
analysis A Multi Central Poor (crowded) Low
• Identifying and analyzing competitors B Multi Central Fair High
• Decisions about the competitive frame of reference C Multi Outskirts Excellent High
are closely linked to target market decisions.
• Deciding to target a certain type of consumer can
POINT-OF-DIFFERENCE AND POINTS -OF-
define the nature of competition because certain
PARITY
firms have decided to target that segment in the
Points-of-parity (POPs)
past (or plan to do so in the future) or because
• Attribute/benefit associations that are not
consumers in that segment may already look to
necessarily unique to the brand but may in fact be
certain products or brands in their purchase
shared with other brands
decisions.
• Regardless of the source of perceived weaknesses,
• A good starting point in defining a competitive
if, in the eyes of consumers, a brand can “break
frame of reference for brand positioning is
even” in those areas where it appears to be at a
category membership—the products or sets of
disadvantage and achieve advantages in other

SAJIN JOHN 30
 areas, it should be in a strong—and perhaps POPs and PODs as a result: some potential POPs
unbeatable—competitive position. and PODs for Starbucks are shared across
• Consider the introduction of Miller Lite beer—the competitors; others are unique to a particular
first major light beer in North America. competitor.
• Did Tata Nano have point of parity with new cars? o Also examples like – Normal School, Competitive
• POP associations come in three basic forms (or Coaching.
criteria): category, correlational, and
competitive. Straddle Positioning
• Category points-of-parity are attributes or o Occasionally, a company will be able to straddle
benefits that consumers view as essential to a two frames of reference with one set of points-of-
legitimate and credible offering within a certain difference and points-of-parity.
product or service category. In other words, they o In these cases, the points-of-difference for one
represent necessary—but not sufficient— category become points-of-parity for the other and
conditions for brand choice. vice versa.
E.g.: Sports ground etc. for a school. o Straddle positions allow brands to expand their
• Correlational points-of-parity are potentially market coverage and potential customer base.
negative associations that arise from the existence o Example: Amity Education Group - runs a number
of positive associations for the brand. of schools and Universities in India and abroad.
These are the associations that follow as a They offer a Synchro-Learning Program that
consequence of establishing a point of parity. combines school and competitive syllabi.
Cheap products often are considered to be bad
quality.
• Competitive points-of-parity are associations Choosing Specific POPs and PODs
designed to overcome perceived weaknesses of the o Michael Porter urged companies to build a
brand in light of competitors’ points-of-difference. sustainable competitive advantage.
Measures taken to overcome possible weaknesses o Competitive advantage is a company’s ability to
vis-à-vis competition. 10 years warranty. perform in one or more ways that competitors
Points-of-difference (PODs) cannot or will not match.
• Attributes/benefits that consumers strongly o But few competitive advantages are inherently
associate with a brand, positively evaluate, and sustainable.
believe they could not find to the same extent with o At best, they may be leverageable.
a competitive brand. o A leverageable advantage is one that a company
• Associations that make up points-of-difference can can use as a springboard to new advantages, much
be based on virtually any type of attribute or as Microsoft has leveraged its operating system to
benefit. Microsoft Office and then to networking
• Strong brands often have multiple points-of- applications.
difference. o In general, a company that hopes to endure must
• Three criteria determine whether a brand be in the business of continuously inventing new
association can truly function as a point-of- advantages that can serve as the basis of points-of-
difference: desirability, deliverability, and difference.
differentiability. o Any product or service benefit that is sufficiently
• Desirable to consumer - Consumers must see the desirable, deliverable, and differentiating can
brand association as personally relevant to them. serve as a point-of-difference for a brand.
• Deliverable by the company - The company must o The obvious, and often the most compelling,
have the internal resources and commitment to means of differentiation for consumers are
feasibly and profitably create and maintain the benefits related to performance.
brand association in the minds of consumers. The o For choosing specific benefits as POPs and PODs to
product design and marketing offering must position a brand, perceptual maps may be useful.
support the desired association. o Perceptual maps are visual representations of
• Differentiating from competitors - Finally, consumer perceptions and preferences.
consumers must see the brand association as o They provide quantitative pictures of market
distinctive and superior to relevant competitors. situations and the way consumers view different
products, services, and brands along various
dimensions.
Multi Frames of Reference
o By overlaying consumer preferences with brand
o It is not uncommon for a brand to identify more perceptions, marketers can reveal “holes” or
than one actual or potential competitive frame of “openings” that suggest unmet consumer needs
reference, if competition widens or the firm plans and marketing opportunities.
to expand into new categories.
o For example, Starbucks could define very distinct
sets of competitors, suggesting different possible

SAJIN JOHN 31
o Many marketing experts believe a brand valid member of the category. Brands are
positioning should have both rational and sometimes affiliated with categories in which they
emotional components. do not hold membership.
o In other words, it should contain points-of- o There are three main ways to convey a brand’s
difference and points-of-parity that appeal to both category membership:
the head and the heart. 1. Announcing category benefits—To reassure
o A person’s emotional response to a brand and its consumers that a brand will deliver on the
marketing will depend on many factors. An fundamental reason for using a category,
increasingly important one is the brand’s marketers frequently use benefits to announce
authenticity. category membership.
Ex: A premium hotel can mention its luxurious
Brand Mantras rooms, restaurant,
o To further focus brand positioning and guide the Bar, swimming pool. Spa etc.
way their marketers help consumers think about 2. Comparing to exemplars—Well-known,
the brand, firms can define a brand mantra. noteworthy brands in a category can also help
o A brand mantra is a three- to five-word articulation a brand specify its category Membership.
of the heart and soul of the brand and is closely Ex: A comparison with other premium hotels
related to other branding concepts like “brand in the city.
essence” and “core brand promise.” 3. Relying on the product descriptor—The
o Brand mantras are short statements articulating product descriptor that follows the brand
the heart and soul of the brand and are generally name is often a concise means of conveying
category origin.
meant for internal purposes (for example:
employees). Brand slogans are for Ex: Airbnb - Online platform for rental
o External purposes (customers) accommodations
o Here are the three key criteria for a brand mantra:
o Communicate. A good brand mantra should Brand-Positioning Bull’s-eye
clarify what is unique about the brand. It may also Once they have fashioned the brand positioning
need to Define the category (or categories) of strategy, marketers should communicate it to
business for the brand and set brand boundaries. everyone in the organization, so it guides their words
o Simplify. An effective brand mantra should be and actions.
memorable. For that, it should be short, crisp, and One helpful schematic with which to do so is a brand-
vivid in meaning. positioning bull’s-eye. “Marketing Memo: Constructing
o Inspire. Ideally, the brand mantra should also a Brand Positioning Bull’s-eye” outlines one-way
stake out ground that is personally meaningful and marketers can formally express brand positioning
relevant to as many employees as possible. without skipping any steps.
o For example: Health, Hygiene and Heart
(compassion) for a hospital.

Establishing a Brand Position

o Often a good positioning will have several PODs
and POPs.
o Of those, often two or three really define the
competitive battlefield and should be analyzed and
developed carefully.
o A good positioning should also follow the “90–10”
rule and be highly applicable to 90 percent (or at
least 80 percent) of the products in the brand.
Attempting to position to all 100 percent of a
brand’s product often yields an unsatisfactory
“lowest common denominator” result.
o The remaining 10 percent or 20 percent of
products should be reviewed to ensure they have
the proper branding strategy and to see how they Communicating POPs and PODs
could be changed to better reflect the brand
o One common challenge in positioning is that many
positioning.
of the benefits that make up points-of-parity and
o When a product is new, marketers must inform
points-of-difference are negatively correlated.
consumers of the brand’s category membership.
o ConAgra must convince consumers that Healthy
Sometimes consumers may know the category
Choice frozen foods both taste good and are good
membership but not be convinced the brand is a
for you.

SAJIN JOHN 32
o Unfortunately, consumers typically want to o The way the narrative logic unfolds over time,
maximize both the negatively correlated attributes including actions, desired experiences, defining
and benefits. events, and the moment of epiphany Language.
o Much of the art and science of marketing consists o The authenticating voice, metaphors, symbols,
of dealing with trade-offs, and positioning is no themes, and leitmotifs Douglass Holt believes that
different. for companies to build iconic, leadership brands,
o The best approach clearly is to develop a product they must assemble cultural knowledge, strategize
or service that performs well on both dimensions. according to cultural branding principles, and hire
o Negative correlated attributes/benefits Instances: and train cultural experts.
o Low price vs. high quality o Experts who see consumers actively cocreating
o Taste vs. low calories brand meaning and positioning even refer to this
o Powerful vs. safe as “Brand Wikification,” given that wikis are
o Ubiquitous vs. exclusive written by contributors from all walks of life and
o Varied vs. simple points of view.
o Example for Cultural branding:
Monitoring Competition o Fair and lovely taps into the cultural
o It is important to regularly research the notion of beauty.
desirability, deliverability, and differentiability of o Bullet feeds notions of machismo.
the brand’s POPs and PODs in the marketplace to o Hero Honda is about thrift.
understand how the brand positioning might need
to evolve or, in relatively rare cases, be completely Positioning/Branding for a Small Business
replaced. o Building brands is a challenge for a small business
o In assessing potential threats from competitors, with limited resources and budgets.
three high-level variables are useful: o Nevertheless, numerous success stories exist of
o Share of market—The competitor’s share of entrepreneurs who have built their brands up
the target market. essentially from scratch to become powerhouse
o Share of mind—The percentage of customers brands.
who named the competitor in responding to o When resources are limited, focus and consistency
the statement “Name the first company that in marketing programs become critically
comes to mind in this industry.” important.
o Share of heart—The percentage of customers o Creativity is also paramount—finding new ways to
who named the competitor in responding to market new ideas about products to consumers.
the statement “Name the company from which o Here are some specific branding guidelines for
you would prefer to buy the product.” small businesses.
• Find compelling product performance
Alternative Approaches to Positioning advantage
o Rather than outlining specific attributes or • Focus on building one or two strong brands
benefits, some marketing experts describe based on one or two key associations
positioning a brand as telling a narrative or story. • Encourage product trial in any way possible
o Companies like the richness and imagination they • Develop cohesive digital strategy to make the
can derive from thinking of the story behind a brand “bigger and better”
product or service. • Create buzz and a loyal brand community
o Based on literary convention and brand • Employ a well-integrated set of brand
experience, the following framework is offered for elements
a brand story: Setting. The time, place, and context • Leverage as many secondary associations as
Cast. possible
o The brand as a character, including its role in the • Creatively conduct low-cost marketing
life of the audience, its relationships and research
responsibilities, and its history or creation myth
Narrative arc.

SAJIN JOHN 33
PART 5 – CREATING VALIE
CH13 – SETTING PRODUCT STRATEGY
Many people think a product is tangible, but technically and transformations the product or offering might
a product is anything that can be offered to a market to undergo in the future. Here companies search for
satisfy a want or need, including physical goods, new ways to satisfy customers and distinguish
services, experiences, events, persons, places, their offering.
properties, organizations, information, and ideas. Example for Product Levels – CAR
For Instance: • Core Benefit
• Physical Goods: Car o Transportation
• Service: healthcare, coaching • Basic Product
• Experience: Vacation o A chassis on wheels
• Event: IPL • Expected Product
• Person: Rahul Gandhi o Reasonable speed
• Place: Kerala, God’s own country. o Roomy
• Properties: Real Estate, Gold. o Safe
• Organization: Helpage o Environment Friendly
• Information: Covid Guidelines o Economical
• Ideas: Beti Bachao, Beti padhao. • Augmented Product
o Air conditioner, Climatic Control
Marketing planning o Power Steering
begins with formulating o Power Windows
an offering to meet target o Armoured Car
customers’ needs or • Potential Product
wants. o Electric Car
The customer will judge o Amphibian Car?
the offering on three o Flying Car?
basic elements: product
features and quality,
PRODUCT CLASSIFICATION
service mix and quality,
Marketers classify products on the basis of durability,
and price
tangibility, and use (consumer or industrial).
Each type has an appropriate marketing-mix strategy.

Products fall into three groups according to durability

PRODUCT LEVELS: THE CUSTOMER-VALUE and tangibility:
HIERARCHY 1. Nondurable goods are tangible goods normally
In planning its market offering, the marketer needs to consumed in one or a few uses, such as beer and
address five product levels. Each level adds more shampoo.
customer value, and together the five constitute a Because these goods are purchased frequently, the
customer-value hierarchy. appropriate strategy is to make them available in
• The fundamental level is the core benefit: the many locations, charge only a small markup, and
service or benefit the customer is really buying. A advertise heavily to induce trial and build
hotel guest is buying rest and sleep. preference.
• At the second level, the marketer must turn the Ex: Frequently purchased, Soap, Toothpaste
core benefit into a basic product. Thus a hotel Heavy Distribution, Low mark-up, heavy
room includes a bed, bathroom, towels, desk, advertising
dresser, and closet. 2. Durable goods are tangible goods that normally
• At the third level, the marketer prepares an survive many uses: refrigerators, machine tools,
expected product, a set of attributes and and clothing.
conditions buyers normally expect when they They normally require more personal selling and
purchase this product. Hotel guests minimally service, command a higher margin, and require
expect a clean bed, fresh towels, working lamps, more seller guarantees.
and a relative degree of quiet. Ex: Infrequently purchased: TVs, Refs, Personal
• At the fourth level, the marketer prepares an Selling, Service, Higher margin, Warranty
augmented product that exceeds customer 3. Services are intangible, inseparable, variable, and
expectations. In developed countries, brand perishable products that normally require more
positioning and competition take place at this quality control, supplier credibility, and
level. adaptability.
• At the fifth level stands the potential product, Examples include haircuts, legal advice, and
which encompasses all the possible augmentations appliance repairs.

SAJIN JOHN 34
 Intangible, Inseparable, variable, perishable Industrial – Goods Classification
Quality Control, Supplier Credibility, Adaptability We classify industrial goods in terms of their relative
Doctor’s consultation, Education, Hospitality cost and the way they enter the production process:
materials and parts, capital items, and supplies and
Consumer – Goods Classification business services.
When we classify the vast array of consumer goods on • Materials and parts are goods that enter the
the basis of shopping habits, we distinguish among manufacturer’s product completely.
convenience, shopping, specialty, and unsought • They fall into two classes: raw materials and
goods. manufactured materials and parts.
• The consumer usually purchases convenience • Raw materials in turn fall into two major groups:
goods frequently, immediately, and with minimal farm products (wheat, cotton, livestock, fruits, and
effort. vegetables) and natural products (fish, lumber,
• Examples include soft drinks, soaps, and crude petroleum, iron ore).
newspapers. • Manufactured materials and parts fall into two
• Staples are convenience goods consumers categories: component materials (iron, yarn,
purchase on a regular basis. cement, wires) and component parts (small
• A buyer might routinely purchase Heinz ketchup, motors, tires, castings).
Crest toothpaste, and Ritz crackers. • Component materials are usually fabricated
• Impulse goods are purchased without any further—pig iron is made into steel, and yarn is
planning or search effort, like candy bars and woven into cloth.
magazines. • The standardized nature of component materials
• Emergency goods are purchased when a need is usually makes price and supplier reliability key
urgent umbrellas during a rainstorm, boots and purchase factors.
shovels during the first winter snow. • Component parts enter the finished product with
• Frequent purchase, Immediate purchase, Minimal no further change in form, as when small motors
Effort. Staples: Regular purchases (Soap), Impulse are put into vacuum cleaners and tires are put on
Goods: Random purchases (Chewing Gum), automobiles.
Emergency Goods: Painkillers • Capital items are long-lasting goods that facilitate
• Shopping goods are those the consumer developing or managing the finished product.
characteristically compares on such bases as • They fall into two groups: installations and
suitability, quality, price, and style. equipment.
• Examples include furniture, clothing, and major • Installations consist of buildings (factories, offices)
appliances. and heavy equipment (generators, drill presses,
• Homogeneous shopping goods are similar in mainframe computers, elevators).
quality but different enough in price to justify • Equipment includes portable factory equipment
shopping comparisons. and tools (hand tools, lift trucks) and office
• Heterogeneous shopping goods differ in product equipment (desktop computers, desks).
features and services that may be more important • These types of equipment don’t become part of a
than price. finished product.
• Customer spends time and energy to check • Supplies and business services are short-term
suitability, quality, price and style. Clothing, goods and services that facilitate developing or
Furniture, Appliances. managing the finished product.
• Specialty goods have unique characteristics or • Supplies are of two kinds: maintenance and repair
brand identification for which enough buyers are items (paint, nails, brooms) and operating supplies
willing to make a special purchasing effort. (lubricants, coal, writing paper, pencils).
• Examples include cars, audio-video components, • Together, they go under the name of MRO goods.
and men’s suits. • Business services include maintenance and repair
• Products known for their unique characteristics, services (window cleaning, copier repair) and
deodorants, nail polish, cigarettes, suits, high value business advisory services (legal, management
pens consulting, advertising).
• Unsought goods are those the consumer does not
know about or normally think of buying, such as
smoke detectors.
• Other classic examples are life insurance, cemetery
plots, and gravestones.
• Ex: Life insurance policies

SAJIN JOHN 35
PRODUCT DIFFERENTIATION • Customer training helps the customer’s employees
Form use the vendor’s equipment properly and
• Many products can be differentiated in form—the efficiently.
size, shape, or physical structure of a product. Customer Consulting
Features • Customer consulting includes data, information
• Most products can be offered with varying features systems, and advice services the seller offers to
that supplement their basic function. buyers.
Performance Quality Maintenance and Repair
• Most products occupy one of four performance • Maintenance and repair programs help customers
levels: low, average, high, or superior. keep purchased products in good working order.
• Performance quality is the level at which the These services are critical in business-to-business
product’s primary characteristics operate. settings.
Conformance Quality Returns
• Buyers expect a high conformance quality, the • A nuisance to customers, manufacturers, retailers,
degree to which all produced units are identical and distributors alike, product returns are also an
and meet promised specifications. unavoidable reality of doing business, especially in
Durability online purchases.
• Durability, a measure of the product’s expected • Free shipping, growing more popular, makes it
operating life under natural or stressful conditions, easier for customers to try out an item, but it also
is a valued attribute for vehicles, kitchen increases the likelihood of returns.
appliances, and other durable goods. • Controllable returns result from problems or
Reliability errors made by the seller or customer and can
• Buyers normally will pay a premium for more mostly be eliminated with improved handling or
reliable products. storage, better packaging, and improved
• Reliability is a measure of the probability that a transportation and forward logistics by the seller,
product will not malfunction or fail within a or its supply chain partners.
specified time period. • Uncontrollable returns result from the need for
Repairability customers to actually see, try, or experience
• Repairability measures the ease of fixing a product products in person to determine suitability and
when it malfunctions or fails. can’t be eliminated by the company in the short
• Ideal repairability would exist if users could fix the run.
product themselves with little cost in money or Example: Service Differentiation – CAR
time. • Ordering ease
Style o The ease with which a car can be ordered.
• Style describes the product’s look and feel to the o Convenient location of dealer showrooms
buyer and creates distinctiveness that is hard to o Trial facility at home
copy. o Finance, Registration and Insurance
Customization Services
• customized products and marketing allow firms to • Delivery
be highly relevant and differentiating by finding o Low waiting period
out exactly what a person wants—and doesn’t o Scratch less vehicle
want—and delivering on that. o Display of all facilities
• Installation
o Matching Upholstery, interior
SERVICE DIFFERENTIATION o Accessories (Audio system, Gear Lock,
The main service differentiators are ordering ease, Central locking)
delivery, installation, customer training, customer • Customer training
consulting, maintenance and repair, and returns. o Efficient, Safe Driving (economical speed,
Ordering Ease safety features)
• Ordering ease describes how easy it is for the
• Customer consulting
customer to place an order with the company.
o What is the best model suitable to a
Delivery
customer?
• Delivery refers to how well the product or service
• Maintenance and repair
is brought to the customer, including speed,
• Returns
accuracy, and care throughout the process.
o Controllable (preventable)
Installation
Product flaws (AC not working)
• Installation refers to the work done to make a
product operational in its planned location. o Uncontrollable (not preventable in the
short term)
Customer Training
o Product unsuitability which follows
customer experience

SAJIN JOHN 36
 o Customer returns a garment bought online Ex:
because of poor feel • Coca cola bottle - Hobble Skirt Design -
Ergonomics, Distinctive
Example: Services Differentiation – OYO • The round rimmed glasses became a distinctive
• Ordering ease feature of John Lennon’s Persona.
o Online ordering • Jelly Bean Design – Roomier (car), More
o Customer feedback helps selection aerodynamic, More fuel efficient
o Pictures
o Room Details, Prices Luxury Brands
• Delivery
• Design is often an important aspect of luxury
o GPS guided navigation
products, though these products also face some
o Nonstandard delivery - The previous
unique issues.
occupant has not vacated. (“Room is
• They are perhaps one of the purest examples of the
getting ready.”)
role of branding because the brand and its image
• Installation
are often key competitive advantages that create
o Basic yet standardized (liquid soap)
enormous value and wealth.
• Customer training
• A luxury shopper must feel he or she is getting
o Generally, not applicable
something truly special.
o Use of AC and TV remote, switches
• Thus, the common denominators of luxury brands
• Customer consulting
are quality and uniqueness.
o Variety of choices. Locations, Distances,
• A winning formula for many is craftsmanship,
Room Details
heritage, authenticity, and history, often critical to
• Maintenance and repair
justifying a sometimes-extravagant price.
o Customer feedback helps
• Example: Aditya Birla Fashions
• Returns
o Louis Phillippe - Super premium
o Controllable
o Van Heusen - Premium
Misleading pictures, Room Size
o LP - Young professionals
o Uncontrollable
o Allen Solley - Smart Casuals
Product unsuitability which follows
customer experience(room size, location,
room view etc. for a hotel) GUIDELINES FOR MARKETING LUXURY
BRANDS
1. Maintaining a premium image for luxury brands is
DESIGN
crucial; controlling that image is thus a priority.
As competition intensifies, design offers a potent way
2. Luxury branding typically includes the creation of
to differentiate and position a company’s products and
many intangible brand associations and an
services.
aspirational image.
The totality of features that affect the way a product
3. All aspects of the marketing program for luxury
looks, feels, and functions to a consumer.
brands must be aligned to ensure high-quality
Design offers functional and aesthetic benefits and
products and services and pleasurable purchase
appeals to both our rational and emotional sides.
and consumption experiences.
• Is emotionally powerful 4. Besides brand names, other brand elements—
• Transmits brand meaning/positioning logos, symbols, packaging, signage—can be
• Is important with durable goods important drivers of brand equity for luxury
• Makes brand experiences rewarding products.
• Can transform an entire enterprise 5. Secondary associations from linked personalities,
• Facilitates manufacturing/distribution events, countries, and other entities can boost
• Can take on various approaches luxury-brand equity as well.
• Design thinking 6. Luxury brands must carefully control distribution
A kitchen appliances manufacturer studies via a selective channel strategy.
how different people cook, the shapes of their 7. Luxury brands must employ a premium pricing
kitchen, utensils While designing their strategy, with strong quality cues and few
products. discounts and markdowns.
• Many firms are considering ways to reduce the 8. Brand architecture for luxury brands must be
negative environmental consequences of managed carefully.
conducting business, and some are changing the 9. Competition for luxury brands must be defined
manufacture of their products or the ingredients broadly because it often comes from other
that go into them. categories.
Ex: Sigg makes reusable bottles with embedded 10. Luxury brands must legally protect all trademarks
micro filters. and aggressively combat counterfeits.

SAJIN JOHN 37
THE PRODUCT HIRARCHY • The length of a product mix refers to the total
The product hierarchy stretches from basic needs to number of items in the mix.
particular items that satisfy those needs. We can o Y has 10 products, X has only 5 (Y has a longer
identify six levels of the product hierarchy, using life line-up
insurance as an example: • The depth of a product mix refers to how many
1. Need family—The core need that underlies the variants are offered of each product in the line.
existence of a product family. o Presence of more variants (alto Lx, alto vx)
Example: security, Home Convenience o Mahindra has greater depth in SUVs
2. Product family—All the product classes that can • The consistency of the product mix describes how
satisfy a core need with reasonable effectiveness. closely related the various product lines are in end
Example: savings and income, Home Appliances use, production requirements, distribution
3. Product class—A group of products within the channels, or some other way.
product family recognized as having a certain o Does the line-up make sense?
functional coherence, also known as a product o Customer point of view
category. o Manufacturing point of view
Example: financial instruments, Washing Machines o Distribution point of View
4. Product line—A group of products within a
product class that are closely related because they PRODUCT LINE ANALYSIS
perform a similar function, are sold to the same • In offering a product line, companies normally
customer groups, are marketed through the same develop a basic platform and modules that can be
outlets or channels, or fall within given price added to meet different customer requirements
ranges. A product line may consist of different and lower production costs.
brands, a single-family brand, or an individual
• Product line managers need to know the sales and
brand that has been line extended.
profits of each item in their line to determine which
Example: life insurance, semi-automatic, front load
items to build, maintain, harvest, or divest.
5. Product type—A group of items within a product
• They also need to understand each product line’s
line that share one of several possible forms of the
market profile and image.
product.
Example: term life insurance, 5Kg/6Kg load
6. Item (also called stock-keeping unit or product
variant)—A distinct unit within a brand or product
line distinguishable by size, price, appearance, or
some other attribute.
Example: Prudential renewable term life
insurance, 5Kg – Model A

Above figure shows a sales and profit report for a five-

Product Systems and Mixes
item product line. The first item accounts for 50
Product System
percent of total sales and 30 percent of total profits.
• A product system is a group of diverse but related
The first two items account for 80 percent of total sales
items that function in a compatible manner.
and 60 percent of total profits. If these two items were
• A product mix (also called a product assortment) is suddenly hurt by a competitor, the line’s sales and
the set of all products and items a particular seller profitability could collapse. These items must be
offers for sale. carefully monitored and protected. At the other end,
• A product mix consists of various product lines. the last item delivers only 5 percent of the product
Product Mix/Assortment line’s sales and profits. The product line manager may
• A company’s product mix has a certain width, consider dropping this item unless it has strong growth
length, depth, and consistency. potential.
• Set of all products and items a particular seller Market Profile & Image
offers for sale. • The product line manager must review how the
• Maruti 800, Alto, Wagon R, Ignis, Swift, Swift Dzire line is positioned against competitors’ lines.
etc. • Consider paper company X with a paperboard
• The width of a product mix refers to how many product line.
different product lines the company carries. • Two paperboard attributes are weight and finish
o Car maker X has one model each in quality.
hatchback(A), premium hatchback(B), Entry • Paper is usually offered at standard levels of 90,
sedan (C), Premium Sedan (D) and SUV (Wide) 120, 150, and 180 weights.
o Car maker Y has does not have an SUV, but has
• Finish quality is offered at low, medium, and high
all other models. levels.

SAJIN JOHN 38
 • Down-Market Stretch A company positioned in the
middle market may want to introduce a lower-
priced line.
• Up-Market Stretch Companies may wish to enter
the high end of the market to achieve more growth,
realize higher margins, or simply position
themselves as full-line manufacturers.
• Two-Way Stretch Companies serving the middle
market might stretch their line in both directions.
The product map in above figure shows the location of Line Filling
the various product line items of company X and four • A firm can also lengthen its product line by adding
competitors, A, B, C, and D. more items within the present range.
• Competitor A sells two product items in the extra- • Motives for line filling include reaching for
high weight class ranging from medium to low incremental profits, satisfying dealers who
finish quality. complain about lost sales because of items missing
• Competitor B sells four items that vary in weight from the line, utilizing excess capacity, trying to
and finish quality. become the leading full-line company, and
• Competitor C sells three items in which the greater plugging holes to keep out competitors.
the weight, the greater the finish quality. Line Modernization, Featuring, and Pruning
• Competitor D sells three items, all lightweight but Product lines regularly need to be modernized.
varying in finish quality. • Modernization - Upgrading to electronic power
• Company X offers three items that vary in weight Steering from a hydraulic one
and finish quality. • Featuring - Adding new features to the existing
• The product map also shows which competitors’ range of products or Introducing ABS
items are competing against company X’s items. • Pruning – Discontinuing some models
Another benefit of product mapping is that it The product line manager typically selects one or a few
identifies market segments. items in the line to feature.
• Figure shows the types of paper, by weight and Using sales and cost analysis, product line managers
quality, preferred by the general printing industry, must periodically review the line for deadwood that
the point-of-purchase display industry, and the depresses profits.
office supply industry.
Example: Hatchback Cars PRODUCT MIX PRICING
A car manufacturer can have a tie up with them and We can distinguish six situations calling for product-
make an exclusive model for this segment. mix pricing: product line pricing, optional- feature
pricing, captive-product pricing, two-part pricing, by-
product pricing, and product-bundling pricing.
Product Line Pricing
• Companies normally develop product lines rather
than single products, so they introduce price steps.
Optional-Feature
• Pricing Many companies offer optional products,
features, and services with their main product.
Captive-Product
• Pricing Some products require the use of ancillary
or captive products.
Two-Part Pricing
• Service firms engage in two-part pricing,
consisting of a fixed fee plus a variable usage fee.
PRODUCT LINE LENGTH By-Product Pricing
Product lines tend to lengthen over time. • The production of certain goods—meats,
Excess manufacturing capacity puts pressure on the petroleum products, and other chemicals—often
product line manager to develop new items. yields by-products that should be priced on their
A company lengthens its product line in two ways: line value.
stretching and line filling. Product-Bundling
Line stretching occurs when a company lengthens its • Pricing Sellers often bundle products and features.
product line beyond its current range, whether down- Pure bundling occurs when a firm offers its
market, up-market, or both ways. products only as a bundle.
• In mixed bundling, the seller offers goods both
individually and in bundles, normally charging less

SAJIN JOHN 39
 for the bundle than if the items were purchased • A good package draws the consumer in and
separately. encourages product choice.
• In effect, it can act as a “five-second commercial”
CO-BRANDING for the product.
• Marketers often combine their products with • It also affects consumers’ later product
products from other companies in various ways. experiences when they open it and use what’s
inside.
• Two or more well-known brands are combined
into a joint product or marketed together in some • Some packages can even be attractively displayed
fashion at home.
• In co-branding—also called dual branding or • Distinctive packaging like that for Kiwi shoe polish,
brand bundling—two or more well-known brands Altoids mints, and Absolut vodka is an important
are combined into a joint product or marketed part of a brand’s equity.
together in some fashion. Several factors contribute to the growing use of
packaging as a marketing tool.
• One form of co-branding is same-company co-
branding, as when General Mills advertises Trix • Self-service. In an average supermarket, which
cereal and Yoplait yogurt. may stock 15,000 items, the typical shopper passes
Ex: Combines school and competition preparation some 300 products per minute. Given that 50
percent to 70 percent of all purchases are made in
• Another form is joint-venture co-branding, such
as General Electric and Hitachi lightbulbs in Japan the store, the effective package must perform
many sales tasks: attract attention, describe the
or the Citi Platinum Select Advantage Visa
product’s features, create consumer confidence,
Signature credit card in which three different
and make a favorable overall impression.
parties are involved.
Ex: Hero Honda • Consumer affluence. Rising affluence means
consumers are willing to pay a little more for the
• There is multiple-sponsor co-branding, such as
convenience, appearance, dependability, and
Taligent, a one-time technological alliance of
prestige of better packages.
Apple, IBM, and Motorola.
Ex: Events marketed by multiple sponsors • Company and brand image. Packages contribute
to instant recognition of the company or brand. In
• Finally, there is retail co-branding in which two
the store, they can create a billboard effect, as
retail establishments use the same location to
Garnier Fructis does with its bright green
optimize space and profits, such as jointly owned
packaging in the hair care aisle.
Pizza Hut, KFC, and Taco Bell restaurants.
Ex: Samsung Phone on Amazon • Innovation opportunity. Unique or innovative
packaging can bring big benefits to consumers and
profits to producers. Companies are always
Ingredient Branding looking for a way to make their products more
• For host products whose brands are not that convenient and easier to use—often charging a
strong, ingredient brands can provide premium when they do so.
differentiation and important signals of quality. Packaging must achieve a number of objectives as
• Co-branding that creates brand equity for parts below. To achieve these packaging objectives and
that are necessarily contained within other satisfy consumers’ desires, marketers must choose the
branded products (Intel-Inside campaign.) functional and aesthetic components of packaging
• An interesting take on ingredient branding is self- correctly.
branded ingredients that companies advertise and • Identify the brand
even trademark. Westin Hotels advertises its own • Convey descriptive and persuasive information
“Heavenly Bed”—a critically important ingredient • Facilitate product transportation and protection
to a guest’s good night’s sleep. • Assist at-home storage
• The brand has been so successful that Westin now • Aid product consumption
sells the bed, pillows, sheets, and blankets via an
online catalog, along with other “Heavenly” gifts, The Color Wheel of Branding and Packaging
bath products, and even pet items. Color is a particularly important aspect of packaging
• Ingredient brands try to create enough awareness and carries different meanings in different cultures
and preference for their product so consumers will and market segments.
not buy a host product that doesn’t contain it. Color can define a brand, from Tiffany’s blue box to
Cadbury’s purple wrapping and UPS’s brown trucks.
PACKAGING Orange, the telecom mobile operator, uses color as
• Packaging is important because it is the buyer’s both its name and its look. Below list summarizes the
first encounter with the product. beliefs of some visual marketing experts about the role
• All the activities of designing and producing the of color in Western culture.
container for a product

SAJIN JOHN 40
Red symbolizes excitement, energy, passion, courage, • It might also grade the product; canned peaches
and being bold. are grade-labeled A, B, and C.
Orange connotes friendliness and fun. It combines the • The label might describe the product: who made it,
energy of red and the warmth of yellow. where and when, what it contains, how it is to be
Yellow, as the color of the sun, is equated with warmth, used, and how to use it safely.
joy, and happiness. • Finally, the label might promote the product
Green, as the color of nature, connotes health, growth, through attractive graphics.
freshness, and renewal. Warranties
Blue, as the color of the sky and sea, is associated with • All sellers are legally responsible for fulfilling a
dependability, trust, competence, and integrity. buyer’s normal or reasonable expectations.
Purple has symbolized nobility, wealth, and wisdom. It • Products under warranty can be returned to the
combines the stability of blue and the energy of red. manufacturer or designated repair center for
Pink is considered to have soft, peaceful, comforting repair, replacement, or refund.
qualities. • Whether expressed or implied, warranties are
Brown, as the color of the earth, connotes honesty and legally enforceable.
dependability. Guarantees
Black is seen as classic, strong, and balanced. • Many sellers offer either general or specific
White connotes purity, innocence, and cleanliness. guarantees.
• Guarantees reduce the buyer’s perceived risk.
LABELING, WARRANTIES, AND GAURANTEES • They suggest that the product is of high quality and
Labelling the company and its service performance are
• A label performs several functions. dependable.
• First, it identifies the product or brand—for • They can be especially helpful when the company
instance, the name Sunkist stamped on oranges. or product is not well known or when the product’s
quality is superior to that of competitors.

SAJIN JOHN 41
CH16 – DEVELOPING PRICING STRATEGIES AND PROGRAMS
For some years now, the Internet has been changing prices are prohibitive and the product appears not
the way buyers and sellers interact. worth the money. Different people interpret prices
A short list of how the Internet allows sellers to in different ways.
discriminate between buyers and buyers to Reference Prices
discriminate between sellers: • Although consumers may have fairly good
• Get instant vendor price comparisons knowledge of price ranges, surprisingly few can
o Amazon accurately recall specific prices.
• Check prices at the point of purchase • When examining products, however, they often
o Prices of Restaurant (Zomato) employ reference prices, comparing an observed
• Name your price and have it met price to an internal reference price they remember
• Get products free or an external frame of reference such as a posted
• Monitor customer behavior & tailor offers “regular retail price.”
o Air line offers • When consumers evoke one or more of these
• Give customers access to special prices frames of reference, their perceived price can vary
o Cash Back offers, Schemes. Discounts etc from the stated price.
• Negotiate prices online or even in person Price-Quality Inferences
• Many consumers use price as an indicator of
Pricing practices have changed significantly, thanks in quality. Image pricing is especially effective with
part to a severe recession in 2008–2009, a slow ego-sensitive products such as perfumes,
recovery, and rapid technological advances. expensive cars, and designer clothing.
But the new millennial generation also brings new Price Endings
attitudes and values to consumption. • Many sellers believe prices should end in an odd
Renting, borrowing, and sharing are valid options to number.
many. • Customers perceive an item priced at $299 to be in
Some say these new behaviors are creating a sharing the $200 rather than the $300 range; they tend to
economy in which consumers share bikes, cars, process prices “left to right” rather than by
clothes, couches, apartments, tools, and skills and rounding.
extracting more value from what they already own. • Price encoding in this fashion is important if there
Bartering, one of the oldest ways of acquiring goods, is a mental price break at the higher, rounded
is making a comeback through transactions estimated price.
to total $12 billion annually in the United States. • Another explanation for the popularity of “9”
Trade exchange companies like Florida Barter and endings is that they suggest a discount or bargain,
Web sites like www.swap.com connect people and so if a company wants a high-price image, it should
businesses seeking win-win solutions. probably avoid the odd-ending tactic.
The sector of the new sharing economy that is really
exploding is rentals.
How companies should price?
Possible Consumer Reference Prices
In small companies, the boss often sets prices. In large
• “Fair Price” (what consumers feel the product
companies, division and product line managers do.
should cost)
Even here, top management sets general pricing
• Typical Price
objectives and policies and often approves lower
• Last Price Paid
management’s proposals.
• Upper-Bound Price (reservation price or the
Many companies do not handle pricing well and fall
maximum most consumers would pay)
back on “strategies” such as: “We calculate our costs
• Lower-Bound Price (lower threshold price or the
and add our industry’s traditional margins.” Other
minimum most consumers would pay)
common mistakes are not revising price often enough
• Historical Competitor Prices
to capitalize on market changes; setting price
• Expected Future Price
independently of the rest of the marketing program
• Usual Discounted Price
rather than as an intrinsic element of market-
positioning strategy; and not varying price enough for
CONSUMER PSYCHOLOGY AND PRICING different product items, market segments, distribution
• Purchase decisions are based on how consumers channels, and purchase occasions.
perceive prices and what they consider the current For any organization, effectively designing and
actual price to be—not on the marketer’s stated implementing pricing strategies requires a thorough
price. understanding of consumer pricing psychology and a
• Customers may have a lower price threshold, systematic approach to setting, adapting, and changing
below which prices signal inferior or unacceptable prices.
quality, and an upper price threshold, above which

SAJIN JOHN 42
STEP 1 – SELECTING PRICING OBJECTIVE STEP 2 – DETERMINING DEMAND
The company first decides where it wants to position Price Sensitivity
its market offering. The clearer a firm’s objectives, the • The demand curve shows the market’s probable
easier it is to set price. Five major objectives are: purchase quantity at alternative prices, summing
survival, maximum current profit, maximum market the reactions of many individuals with different
share, maximum market skimming, and product-quality price sensitivities.
leadership. • The first step in estimating demand is to
Survival Companies understand what affects price sensitivity.
• pursue survival as their major objective if they are Generally speaking, customers are less price
plagued with overcapacity, intense competition, or sensitive to low-cost items or items they buy
changing consumer wants. infrequently.
As long as prices cover variable costs and some • They are also less price sensitive when
fixed costs, the company stays in business. 1. there are few or no substitutes or competitors
Maximum Current Profit 2. they do not readily notice the higher price
• Many companies try to set a price that will 3. they are slow to change their buying habits
maximize current profits. 4. they think the higher prices are justified
• They estimate the demand and costs associated 5. price is only a small part of the total cost of
with alternative prices and choose the price that obtaining, operating, and servicing the product
produces maximum current profit, cash flow, or over its lifetime.
rate of return on investment. • Factors that reduce Price Sensitivity
Maximum Market Share • The product is more distinctive.
• Some companies want to maximize their market • Buyers are less aware of substitutes.
share. • Buyers cannot easily compare the quality of
• They believe a higher sales volume will lead to substitutes.
lower unit costs and higher long-run profit, so they • The expenditure is a smaller part of the buyer’s
set the lowest price, assuming the market is price total income.
sensitive. • The expenditure is small compared to the total
• Texas Instruments famously practiced this cost of the end product.
market-penetration pricing for years. • Part of the cost is borne by another party.
• The company would build a large plant, set its price • The product is used in conjunction with assets
as low as possible, win a large market share, previously bought.
experience falling costs, and cut its price further as • The product is assumed to have more quality,
costs fell. prestige, or exclusiveness.
Maximum Market Skimming • Buyers cannot store the product.
• Companies unveiling a new technology favor Estimating Demand Curves
setting high prices to maximize market skimming. • Most companies attempt to measure their demand
• Sony has been a frequent practitioner of market- curves using several different methods.
skimming pricing, in which prices start high and • Surveys can explore how many units’ consumers
slowly drop over time. would buy at different proposed prices.
Product-Quality Leadership • Price experiments can vary the prices of different
• A company might aim to be the product-quality products in a store or of the same product in
leader in the market. similar territories to see how the change affects
• Many brands strive to be “affordable luxuries”— sales.
products or services characterized by high levels of • Statistical analysis of past prices, quantities sold,
perceived quality, taste, and status with a price just and other factors can reveal their relationships.
high enough not to be out of consumers’ reach. Price Elasticity of Demand
Other Objectives • Marketers need to know how responsive, or
• Nonprofit and public organizations may have other elastic, demand is to a change in price.
pricing objectives. • Each price will lead to a different level of demand
• A university aims for partial cost recovery, and have a different impact on a company’s
knowing that it must rely on private gifts and marketing objectives.
public grants to cover its remaining costs. • The normally inverse relationship between price
• A nonprofit hospital may aim for full cost recovery and demand is captured in a demand curve
in its pricing. • The higher the price, the lower the demand. For
• A nonprofit theater company may price its prestige goods, the demand curve sometimes
productions to fill the maximum number of seats. slopes upward. Some consumers take the higher
• A social service agency may set a service price price to signify a better product.
geared to client income. • However, if the price is too high, demand may fall.

SAJIN JOHN 43
• If demand hardly changes with a small change in • If Samsung believes it can sell
price, we say it is inelastic. 2,000 units per day, it should
• If demand changes considerably, it is elastic. consider building a larger plant.
The plant will use more efficient
machinery and work
arrangements, and the unit cost
of producing 2,000 tablets per
day will be lower than the unit
cost of producing 1,000 per day.
This is shown in the long-run
average cost curve (LRAC) in Figure 16.2(b). In
fact, a 3,000-capacity plant would be even more
STEP 3 – ESTIMATING COSTS efficient according to Figure 16.2(b), but a 4,000-
• Demand sets a ceiling on the price the company can daily production plant would be less so because of
charge for its product. increasing diseconomies of scale: There are too
• Costs set the floor. many workers to manage, and paperwork slows
• The company wants to charge a price that covers things down. Figure 16.2(b) indicates that a 3,000-
its cost of producing, distributing, and selling the daily production plant is the optimal size if demand
product, including a fair return for its effort and is strong enough to support this level of
risk. production.
• A company’s costs take two forms, fixed and • Suppose Samsung runs a plant that produces 3,000
variable. tablet computers per day. As the company gains
• Fixed costs, also known as overhead, are costs experience producing tablets, its methods
that do not vary with production level or sales improve. Workers learn shortcuts, materials flow
revenue. more smoothly, and procurement costs fall. The
• A company must pay bills each month for rent, result, as Figure shows, is that average cost falls
heat, interest, salaries, and so on, regardless of with accumulated production experience. Thus
output. the average cost of producing the first 100,000
• Variable costs vary directly with the level of tablets is $100 per tablet. When the company has
production. produced the first 200,000 tablets, the average
• For example, each tablet computer produced by cost has fallen to $90. After its accumulated
Samsung incurs the cost of plastic and glass, production experience doubles again to 400,000,
microprocessor chips and other electronics, and the average cost is $80. This decline in the average
packaging. cost with accumulated production experience is
• Total costs consist of the sum of the fixed and called the experience curve or learning curve.
variable costs for any given level of production.
• Average cost is the cost per unit at that level of
production; it equals total costs divided by
production.
• Management wants to charge a price that will at
least cover the total production costs at a given
level of production.
• To price intelligently, management needs to know • Now suppose three firms compete in this
how its costs vary with different levels of particular tablet market, Samsung, A, and B.
production. Samsung is the lowest cost producer at $80, having
• Take the case in which a produced 400,000 units in the past. If all three
company such as Samsung firms sell the tablet for $100, Samsung makes $20
has built a fixed-size plant to profit per unit, A makes $10 per unit, and B breaks
produce 1,000 tablet even. The smart move for Samsung would be to
computers a day. The cost lower its price to $90. This will drive B out of the
per unit is high if few units market, and even A may consider leaving. Samsung
are produced per day. As will pick up the business that would have gone to B
production approaches 1,000 (and possibly A). Furthermore, price-sensitive
units per day, the average customers will enter the market at the lower price.
cost falls because the fixed As production increases beyond 400,000 units,
costs are spread over more units. Short-run Samsung’s costs will drop still further and faster,
average cost increases after 1,000 units, however, more than restoring its profits, even at a price of
because the plant becomes inefficient: Workers $90.
must line up for machines, getting in each other’s • Costs change with production scale and
way, and machines break down more often. experience. They can also change as a result of a

SAJIN JOHN 44
 concentrated effort by designers, engineers, and o Competitors’ prices = orienting point
purchasing agents to reduce them through target o Customers’ assessment of unique features =
costing. Market research establishes a new price ceiling
product’s desired functions and the price at which • The most elementary pricing method is to add a
it will sell, given its appeal and competitors’ prices. standard markup to the product’s cost.
This price less desired profit margin leaves the Construction companies submit job bids by
target cost the marketer must achieve. estimating the total project cost and adding a
• The firm must examine each cost element—design, standard markup for profit.
engineering, manufacturing, sales—and bring 𝑢𝑛𝑖𝑡 𝑐𝑜𝑠𝑡
𝑀𝑎𝑟𝑘𝑢𝑝 𝑝𝑟𝑖𝑐𝑒 =
down costs so the final cost projections are in the 1 − 𝑑𝑒𝑠𝑖𝑟𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑠𝑎𝑙𝑒𝑠
target range. Cost cutting cannot go so deep as to • Lawyers and accountants typically price by adding
compromise the brand promise and value a standard markup on their time and costs.
delivered. Despite the early success of the PT • Assume the manufacturer wants to earn a 20
Cruiser, Chrysler chose to squeeze out more profit percent markup on sales.
by avoiding certain redesigns and cutting costs • The manufacturer will charge dealers $20 per
with cheaper radios and inferior materials. Once a toaster and make a profit of $4 per unit. If dealers
best-selling car, the PT Cruiser was eventually want to earn 50 percent on their selling price, they
discontinued. will mark up the toaster 100 percent to $40.

STEP 4 – ANALYZING COMPETITORS’ PRICES • In target-return pricing, the firm determines the
price that yields its target rate of return on
• If the firm’s offer contains features not offered by
investment. Public utilities, which need to make a
the nearest competitor, it should evaluate their
fair return on investment, often use this method.
worth to the customer and add that value to the
competitor’s price. • Suppose the toaster manufacturer has invested $1
million in the business and wants to set a price to
• If the competitor’s offer contains some features not
offered by the firm, the firm should subtract their earn a 20 percent ROI, specifically $200,000.
value from its own price. • The target-return price of $20 is calculated by the
formula:
• Now the firm can decide whether it can charge
𝑇𝑎𝑟𝑔𝑒𝑡 𝑟𝑒𝑡𝑢𝑟𝑛 𝑝𝑟𝑖𝑐𝑒
more, the same, or less than the competitor.
= 𝑢𝑛𝑖𝑡 𝑐𝑜𝑠𝑡
• Value-priced competitors - Companies offering 𝑑𝑒𝑠𝑖𝑟𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛 × 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
the powerful combination of low price and high +
quality are capturing the hearts and wallets of 𝑢𝑛𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
• The manufacturer can prepare a break-even chart
consumers all over the world.
to learn what would happen at other sales levels.
• Value players, such as Aldi, E*TRADE Financial,
JetBlue Airways, Southwest Airlines, Target, and
Walmart, are transforming the way consumers of
nearly every age and income level purchase
groceries, apparel, airline tickets, financial
services, and other goods and services.

STEP 5 – SELECTING A PRICING METHOD

Given the customers’ demand
schedule, the cost function, and
competitors’ prices, the company is
now ready to select a price. • Fixed costs are $300,000 regardless of sales
• Companies select a pricing volume.
method that includes one or • Variable costs, not shown in the figure, rise with
more of these three volume.
considerations. • Total costs equal the sum of fixed and variable
• We will examine seven price- costs.
setting methods: markup • The total revenue curve starts at zero and rises
pricing, target-return pricing, with each unit sold.
perceived-value pricing, value • The total revenue and total cost curves cross at
pricing, EDLP, going-rate 30,000 units.
pricing, and auction-type • This is the break-even volume.
pricing. 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
• Three major considerations in 𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 =
𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
price
o Costs = price floor

SAJIN JOHN 45
Perceived-value Pricing Going-Rate Pricing
• An increasing number of companies now base their • In going-rate pricing, the firm bases its price
price on the customer’s perceived value. largely on competitors’ prices.
Companies must deliver the value promised by • Going-rate pricing is quite popular.
their value proposition, and the customer must • Where costs are difficult to measure or competitive
perceive this value. response is uncertain, firms feel it is a good
• Firms use the other marketing program elements, solution because they believe it reflects the
such as advertising, sales force, and the Internet, to industry’s collective wisdom.
communicate and enhance perceived value in
buyers’ minds. Auction-type pricing
• Ensuring that customers appreciate the total value • Auction-type pricing is growing more popular,
of a product or service offering is crucial. especially with scores of electronic marketplaces
• The key to perceived-value pricing is to deliver selling everything from pigs to used cars as firms
more unique value than competitors and to dispose of excess inventories or used goods.
demonstrate this to prospective buyers. • These are the three major types of auctions and
• The company can try to determine the value of its their separate pricing procedures:
offering in several ways: managerial judgments • English auctions (ascending bids) have one seller
within the company, value of similar products, and many buyers. On sites such as eBay and
focus groups, surveys, experimentation, analysis of Amazon.com, the seller puts up an item and
historical data, and conjoint analysis. bidders raise their offer prices until the top price is
• Example of Perceived Value Pricing reached.
Our bike gives mileage of 80 km per liter of petrol, • Dutch auctions (descending bids) feature one seller
the salesman at the showroom said. The and many buyers or one buyer and many sellers. In
competitor’s bike, in comparison gives 60 km per the first kind, an auctioneer announces a high price
liter of petrol. Secondly, our bikes are built to for a product and then slowly decreases the price
99.9% Japanese reliability, which would mean 0.3 until a bidder accepts. In the other, the buyer
days of maintenance work in a year. The other bike, announces something he or she wants to buy, and
if I choose to say something nice about it, would potential sellers compete to offer the lowest price.
probably have 99% reliability which means nearly • Sealed-bid auctions let would-be suppliers submit
3.5 days in the service center. only one bid; they cannot know the other bids. The
If you drive for 40 km in a day, that is 15000 km in U.S. and other governments often use this method
a year. That is saving 50-liter petrol in just one to procure supplies or to grant licenses.
year. That is equal to Rs. 3500. If you keep the bike
for 5 years, you have saved, Rs. 17,500.
Then you save three days at the service center, STEP 6 – SELECTING THE FINAL PRICE
Pricing methods narrow the range from which the
which is equal to Rs. 2500. That more than explains
company must select its final price.
why my bike is costlier by Rs. 10,000.

Value Pricing Impact of Other Marketing Activities

• Companies that adopt value pricing win loyal • The final price must take into account the brand’s
customers by charging a fairly low price for a high- quality and advertising relative to the competition.
quality offering. • High advertising fetches a price premium.
• Value pricing is thus not a matter of simply setting
lower prices; it is a matter of reengineering the Company Pricing Policies
company’s operations to become a low-cost • The price must be consistent with company pricing
producer without sacrificing quality to attract a policies.
large number of value-conscious customers. • Yet companies are not averse to establishing
pricing penalties under certain circumstances.
EDLP • Ola charges for cancellations
• A retailer using everyday low pricing (EDLP) • OYO penalizes hotels for deviations.
charges a constant low price with little or no price
promotion or special sales. Gain-and-Risk-Sharing
• Constant prices eliminate week-to-week price • Pricing Buyers may resist accepting a seller’s
uncertainty and the high-low pricing of promotion- proposal because they perceive a high level of risk,
oriented competitors. such as in a big computer hardware purchase or a
• In high-low pricing, the retailer charges higher company health plan.
prices on an everyday basis but runs frequent • The seller then has the option of offering to absorb
promotions with prices temporarily lower than the part or all the risk if it does not deliver the full
EDLP level. promised value.

SAJIN JOHN 46
• Extended warranty, Lawyer’s Fees in US as a - Discount - A price reduction to buyers who
proportion of damage won. pay bills promptly. A typical example is “2/10,
net 30,” which means payment is due within 30
Impact of Price on Other Parties days and the buyer can deduct 2 percent by
• How will distributors and dealers feel about the paying within 10 days.
contemplated price? - Quantity Discount - A price reduction to those
• If they don’t make enough profit, they may choose who buy large volumes. A typical example is
not to bring the product to market. “$10 per unit for fewer than 100 units; $9 per
• Will the sales force be willing to sell at that price? unit for 100 or more units.” Quantity discounts
• How will competitors react? must be offered equally to all customers and
• Will suppliers raise their prices when they see the must not exceed the cost savings to the seller.
company’s price? They can be offered on each order placed or on
• Will the government intervene and prevent this the number of units ordered over a given
price from being charged? period.
• Sales Team, Dealers, competitors - Functional Discount - Discount (also called
trade discount ) offered by a manufacturer to
trade-channel members if they perform
ADAPTING THE PRICE certain functions, such as selling, storing, and
• Companies usually do not set a single price but record keeping. Manufacturers must offer the
rather develop a pricing structure that reflects same functional discounts within each
variations in geographical demand and costs, channel.
market-segment requirements, purchase timing, - Seasonal Discount - A price reduction to
order levels, delivery frequency, guarantees, those who buy merchandise or services out of
service contracts, and other factors. season. Hotels, motels, and airlines offer
• As a result of discounts, allowances, and seasonal discounts in slow selling periods.
promotional support, a company rarely realizes - Allowance - An extra payment designed to
the same profit from each unit of a product that it gain reseller participation in special programs.
sells. Trade-in allowances are granted for turning in
• In geographical pricing, the company decides how an old item when buying a new one.
to price its products to different customers in Promotional allowances reward dealers for
different locations and countries. participating in advertising and sales support
• Countertrade may account for 15 percent to 20 programs.
percent of world trade and takes several forms:
• Barter. The buyer and seller directly exchange Companies can use several pricing techniques to
goods, with no money and no third party involved. stimulate early purchase:
• Compensation deal. The seller receives some Promotional Pricing
percentage of the payment in cash and the rest in • Ex: 2 garments, 30% discount
products. Loss-leader pricing.
• Buyback arrangement. The seller sells a plant, • Supermarkets and department stores often drop
equipment, or technology to a company in another the price on well-known brands to stimulate
country and agrees to accept as partial payment additional store traffic.
products manufactured with the supplied • This pays if the revenue on the additional sales
equipment. compensates for the lower margins on the loss-
• Offset. The seller receives full payment in cash for leader items.
a sale overseas but agrees to spend a substantial • A product is sold at a very low price, sometimes
amount of the money in that country within a incurring a loss, so that the firm could attract
stated time period. customers and make profit on other items.
• In the Gorbachev era, PepsiCo sold its cola syrup to Special event pricing.
the government of the Soviet Union for rubles and • Sellers will establish special prices in certain
agreed to buy Russian vodka at a certain rate for seasons to draw in more customers.
sale in the United States. • Every August, there are back-to-school sales.
• Most companies will adjust their list price and give • Diwali discounts
discounts and allowances for early payment, Special customer pricing.
volume purchases, and off-season buying. • Sellers will offer special prices exclusively to
• Companies must do this carefully or find their certain customers.
profits much lower than planned. Cash rebates.
• Discount pricing has become the modus operandi • Auto companies and other consumer-goods
of a surprising number of companies offering both companies offer cash rebates to encourage
products and services. purchase of the manufacturers’ products within a
• Price Discounts and Allowances: specified time period.

SAJIN JOHN 47
Low-interest financing. • Yielding pricing. The airline and hospitality
• Instead of cutting its price, the company can offer industries use yield management systems and
low-interest financing. yield pricing, by which they offer discounted but
Longer payment terms. limited early purchases, higher-priced late
• Sellers, especially mortgage banks and auto purchases, and the lowest rates on unsold
companies, stretch loans over longer periods and inventory just before it expires.
thus lower the monthly payments.
Warranties and service contracts.
INITIATING AND RESPONDING TO PRICE
• Companies can promote sales by adding a free or CHANGES
low-cost warranty or service contract. Several circumstances might lead a firm to cut prices.
Psychological discounting.
One is excess plant capacity:
• This strategy sets an artificially high price and then The firm needs additional business and cannot
offers the product at substantial savings. generate it through increased sales effort, product
• for example, “Was $359, now $299.” improvement, or other measures.
Companies sometimes initiate price cuts in a drive to
Price discrimination dominate the market through lower costs.
Price discrimination occurs when a company sells a Either the company starts with lower costs than its
product or service at two or more prices that do not competitors, or it initiates price cuts in the hope of
reflect a proportional difference in costs. gaining market share and lower costs.
In first-degree price discrimination, the seller charges Cutting prices to keep customers or beat competitors
a separate price to each customer depending on the often encourages customers to demand price
intensity of his or her demand. In second-degree price concessions, however, and trains salespeople to offer
discrimination, the seller charges less to buyers of them.
larger volumes. A price-cutting strategy can lead to other possible
In third-degree price discrimination, the seller charges traps:
different amounts to different classes of buyers, as in • Low-quality trap. Consumers assume quality is
the following cases low.
• Customer-segment pricing. Different customer • Fragile-market-share trap. A low price buys
groups pay different prices for the same product or market share but not market loyalty. The same
service. For example, museums often charge a customers will shift to any lower-priced firm that
lower admission fee to students and senior comes along.
citizens.
• Shallow-pockets trap. Higher-priced competitors
• Product-form pricing. Different versions of the match the lower prices but have longer staying
product are priced differently, but not in power because of deeper cash reserves.
proportion to their costs. Evian prices a 2-liter
• Price-war trap. Competitors respond by lowering
bottle of its mineral water as low as $1 but 5
their prices even more, triggering a price war.
ounces of the same water in a moisturizer spray for
as much as $12.
Initiating Price Increases
• Image pricing. Some companies price the same A successful price increase can raise profits
product at two different levels based on image considerably.
differences. A perfume manufacturer can put a A major circumstance provoking price increases is cost
scent in one bottle, give it a name and image, and inflation.
price it at $10 an ounce. The same scent in another Rising costs unmatched by productivity gains squeeze
bottle with a different name and image can sell for profit margins and lead companies to regular rounds of
$30 an ounce. price increases.
• Channel pricing. Coca-Cola carries a different Companies often raise their prices by more than the
price depending on whether the consumer cost increase, in anticipation of further inflation or
purchases it from a fine restaurant, a fast-food government price controls, in a practice called
restaurant, or a vending machine. anticipatory pricing.
• Location pricing. The same product is priced Another factor leading to price increases is
differently at different locations even though the overdemand.
cost of offering it at each location is the same. A When a company cannot supply all its customers, it can
theater varies its seat prices according to audience raise its prices, ration supplies, or both.
preferences for different locations. It can increase price in the following ways, each of
• Time pricing. Prices vary by season, day, or hour. which has a different impact on buyers.
Restaurants charge less to “early bird” customers, Delayed quotation pricing.
and some hotels charge less on weekends. Retail • The company does not set a final price until the
prices for roses increase by as much as 200 percent product is finished or delivered.
in the lead-up to Valentine’s Day.

SAJIN JOHN 48
• This pricing is prevalent in industries with long The assumption is that a company charged $10 and
production lead times, such as industrial sold 100 units and had costs of $970, leaving a profit of
construction and heavy equipment. $30, or 3 percent on sales.
Escalator clauses. By raising its price by 10 cents (a 1 percent price
• The company requires the customer to pay today’s increase), it boosted its profits by 33 percent, assuming
price plus all or part of any inflation increase that the same sales volume.
takes place before delivery.
• Escalator clauses base price increases on some Anticipating Competitive Responses
specified price index. • The introduction or change of any price can
• They are found in contracts for major industrial provoke a response from customers, competitors,
projects, such as aircraft construction and bridge distributors, suppliers, and even government.
building. • Competitors are most likely to react when the
Unbundling. number of firms is few, the product is
• The company maintains its price but removes or homogeneous, and buyers are highly informed.
prices separately one or more elements that were • How can a firm anticipate a competitor’s reactions?
formerly part of the offer, such as delivery or • One way is to assume the competitor reacts in the
installation. standard way to a price being set or changed.
• Car companies sometimes add higher-end audio • Another is to assume the competitor treats each
entertainment systems or GPS navigation systems price difference or change as a fresh challenge and
to their vehicles as separately priced extras. reacts according to self-interest at the time.
Reduction of discounts.
• The company instructs its sales force not to offer Responding to competitor’s price change
its normal cash and quantity discounts. • How should a firm respond to a competitor’s price
cut?
• It depends on the situation.
• The company must consider the product’s stage in
the life cycle, its importance in the company’s
portfolio, the competitor’s intentions and
resources, the market’s price and quality
sensitivity, the behavior of costs with volume, and
the company’s alternative opportunities.
If the company’s profit margin is 3 percent of sales, a 1
percent price increase will increase profits by 33
percent if sales volume is unaffected.

SAJIN JOHN 49
PART 6 – DELIVERING VALUE
CH17 – DESIGNING AND MANAGING INTEGRATED MARKETING CHANNELS
Place – The ‘Invisible’ P of Marketing • To customers, the channels are the company. To
• Invisible, yet crucial facilitate channel member selection, producers
• Product is tangible, price hits the pocket, promotion should determine what characteristics distinguish
catches the eye the better intermediaries—number of years in
• Only those product sell which are available. business, other lines carried, growth and profit
• A firm might do saturation advertising and record, financial strength, cooperativeness, and
stimulate the sale of the competition if its products service reputation.
are not available. • Carefully implemented training, market research,
• A dissatisfied dealer or channel partner can kill and other capability-building programs can
sales by badmouthing a brand. motivate and improve intermediaries’
• We need to understand how the channel works, performance. The company must constantly
there concerns and issues and Find ways to handle communicate that intermediaries are crucial
them. partners in a joint effort to satisfy end users of the
product.
MARKETING CHANNELS & VALUE NETWORKS • Producers must periodically evaluate
• Most producers do not sell their goods directly to intermediaries’ performance against such
the final users; between them stands a set of standards as sales-quota attainment, average
intermediaries performing a variety of functions. inventory levels, customer delivery time,
treatment of damaged and lost goods, and
• These intermediaries constitute a marketing
cooperation in promotional and training
channel (also called a trade channel or distribution
programs.
channel).
• No channel strategy remains effective over the
• Some intermediaries—such as wholesalers and
whole product life cycle. In competitive markets
retailers—buy, take title to, and resell the
with low entry barriers, the optimal channel
merchandise; they are called merchants.
structure will inevitably change over time. Channel
• Others—brokers, manufacturers’ representatives,
Evolution A new firm typically starts as a local
sales agents—search for customers and may
operation selling in a fairly circumscribed market,
negotiate on the producer’s behalf but do not take
using a few existing intermediaries. Identifying the
title to the goods; they are called agents.
best channels might not be a problem; the problem
• Still others— transportation companies,
is often to convince the available intermediaries to
independent warehouses, banks, advertising
handle the firm’s line. In short, the channel system
agencies—assist in the distribution process but
evolves as a function of local opportunities and
neither take title to goods nor negotiate purchases
conditions, emerging threats and opportunities,
or sales; they are called facilitators.
and company resources and capabilities.
• A producer must periodically review and modify
Intermediary Stocks Owns Sell Affiliated
its channel design and arrangements.
Distributor Y Y Y Y • International markets pose distinct challenges,
including variations in customers’ shopping habits
Stockist Y Y N Y and the need to gain social acceptance or
legitimacy among others, but opportunities do
Wholesaler* Y Y Y N exist.

Carrying and Y N N Y Channel Functions

Forwarding • Address spatial discrepancy
Agent o Covers the distance between manufacturer
and buyer.
Dealer Y Y Y Y/N
• Address temporal discrepancy
(Retailer)
o Covers the time gap between manufacturing
and consumption
• Bulk Breaking
• After a company has chosen a channel system, it o Reduces lot sizes to achieve scale economies
must select, train, motivate, and evaluate o Provides credit to smaller retailers and
intermediaries for each channel. It must also working capital to company
modify channel design and arrangements over • Assortment
time, including the possibility of expansion into o Provide options to the customer.
international markets. • Information and promotion

SAJIN JOHN 50
 o Information about product, customer Multichannel Marketing
promotion gifts etc. (manufacturer to • Each channel can target a different segment of
customer) buyers, or different need states for one buyer, to
o Customer and competitor information deliver the right products in the right places in the
(customer to manufacturer) right way at the least cost.
• Service • When this doesn’t happen, channel conflict,
o Providing after sales service to customers excessive cost, or insufficient demand can result.
• Spares and Returned Goods logistics • Research has shown that multichannel customers
• Managing Relationships can be more valuable to marketers.
o B2B segment • Most companies today have adopted multichannel
marketing.
Channel Member Functions • Companies are increasingly employing digital
A marketing channel performs the work of moving distribution strategies, selling directly online to
goods from producers to consumers. customers or through e-merchants who have their
It overcomes the time, place, and possession gaps that own Web sites.
separate goods and services from those who need or
want them.
Members of the marketing channel perform a number
of key functions:
• Gather information about potential and current
customers, competitors, and other actors and
forces in the marketing environment.
• Develop and disseminate persuasive
communications to stimulate purchasing. • In doing so, these companies are seeking to achieve
• Negotiate and reach agreements on price and other omni-channel marketing, in which multiple
terms so that transfer of ownership or possession channels work seamlessly together and match
can be affected. each target customer’s preferred ways of doing
• Place orders with manufacturers. business, delivering the right product information
• Acquire the funds to finance inventories at and customer service regardless of whether
different levels in the marketing channel. customers are online, in the store, or on the phone.
• Assume risks connected with carrying out channel • An integrated marketing channel system is one in
work. which the strategies and tactics of selling through
• Provide for the successive storage and movement one channel reflect the strategies and tactics of
of physical products. selling through one or more other channels.
• Provide for buyers’ payment of their bills through • Challenges of multi-channel
banks and other financial institutions. o Price Imbalance
• Oversee actual transfer of ownership from one o Territory Poaching
organization or person to another. o Margin Cutting

Digital Channels Revolution

• The digital revolution is profoundly transforming
Marketing Channel distribution strategies.
• One of the chief roles of marketing channels is to • With customers—both individuals and
convert potential buyers into profitable customers. businesses—becoming more comfortable buying
• Marketing channels must not just serve markets, online and the use of smart phones exploding,
they must also make them. traditional brick-and-mortar channel strategies
• In managing its intermediaries, the firm must are being modified or even replaced.
decide how much effort to devote to push and to • Customers want the advantages both of digital—
pull marketing. vast product selection, abundant product
• A push strategy uses the manufacturer’s sales information, helpful customer reviews and tips—
force, trade promotion money, or other means to and of physical stores—highly personalized
induce intermediaries to carry, promote, and sell service, detailed physical examination of products,
the product to end users. an overall event and experience.
• In a pull strategy the manufacturer uses • Customer support in store/online/phone
advertising, promotion, and other forms of • Check online for product availability at local stores
communication to persuade consumers to demand • Order product online to pick up at store
the product from intermediaries, thus inducing the • Return a product purchased online to a nearby
intermediaries to order it. store
• Pull strategy has a higher element of risk.

SAJIN JOHN 51
Value Network • These institutions must figure out agencies and
• A value network includes a firm’s suppliers and its locations for reaching a far-flung population.
suppliers’ suppliers and its immediate customers
and their end customers.
• It also incorporates valued relationships with
others such as university researchers and
government approval agencies.
• A supply chain view of a firm sees markets as
destination points and amounts to a linear view of
the flow of ingredients and components through
the production process to their ultimate sale to
customers. Above figure illustrates several consumer-goods
The company should first think of the target marketing channels of different lengths.
market, however, and then design the supply chain Also, shows channels commonly used in B-to-B
backward from that point. marketing.
• This strategy has been called demand chain An industrial-goods manufacturer can use its sales
planning. force to sell directly to industrial customers, or it can
sell to industrial distributors who sell to industrial
THE ROLE OF MARKETING CHANNELS customers, or it can sell through manufacturer’s
The producer and the final customer are part of every representatives or its own sales branches directly to
channel. industrial customers or indirectly to industrial
We will use the number of intermediary levels to customers through industrial distributors. Zero-, one-,
designate the length of a channel. and two-level marketing channels are quite common.
• A zero-level channel, also called a direct
marketing channel, consists of a manufacturer CHANNEL DESIGN
selling directly to the final customer. • We need to design a channel that would carry our
• The major examples are mail order, online selling, products and services to our customers.
TV selling, telemarketing, door-to-door sales, • Channel decisions are taken at many different
home parties, and manufacturer-owned stores. levels within the organization.
• A one-level channel contains one selling • Dell operated on the Direct from Dell principle
intermediary, such as a retailer. globally for decades till the emergence of the
• A two-level channel contains two intermediaries, consumer sector forced them to change their tack.
typically a wholesaler and a retailer, and • Samsung in the IT business worked with National
• a three-level channel contains three. Distributors who supplied to Regional Distributors
• Channels normally describe a forward movement who in turn made the products available to local
of products from source to user, but reverse-flow retailers. LG its competitor chose to work with
channels are also important Regional Distributors and ignored the national
(1) to reuse products or containers (such as distributors.
refillable chemical-carrying drums), • A sales executive posted to a city often has to
(2) to refurbish products for resale (such as circuit design the channel for his market.
boards or computers), Consumers may choose the channels they prefer based
(3) to recycle products, and on price, product assortment, and convenience as well
(4) to dispose of products and packaging. Reverse- as their own shopping goals (economic, social, or
flow intermediaries include manufacturers’ experiential).
redemption centers, community groups, trash- Channel segmentation exists, and marketers must be
collection specialists, recycling centers, trash- aware that different consumers have different needs
recycling brokers, and central processing during the purchase process.
warehousing. Channels produce five service outputs:
• Many of the most successful new banks, insurance 1. Desired lot size—The number of units the
and travel companies, and stock brokerages have channel permits a typical customer to purchase on
emerged with strictly or largely online operations, one occasion.
such as Ally banking, Esurance insurance, Expedia One car, a packet of ten biscuits for the end
travel, and E*TRADE investments. customer.
• Marketing channels also keep changing for “person A carton of biscuits for a retailer
marketing.” Nonprofit service organizations such 2. Waiting and delivery time—The average time
as schools develop education-dissemination customers wait for receipt of goods. Customers
systems and hospitals develop health-delivery increasingly prefer faster delivery channels.
systems. Low waiting time would call for (costly) intensive
distribution.

SAJIN JOHN 52
3. Spatial convenience—The degree to which the • Selective distribution relies on only some of the
marketing channel makes it easy for customers to intermediaries willing to carry a particular
purchase the product. product.
If the customer is not willing to travel far, intensive • Whether established or new, the company does not
distribution need to worry about having too many outlets; it
4. Product variety—The assortment provided by can gain adequate market coverage with more
the marketing channel. Normally, customers control and less cost than intensive distribution.
prefer a greater assortment because more choices Intensive distribution places the goods or services
increase the chance of finding what they need, in as many outlets as possible.
though too many choices can sometimes create a
negative effect. The main elements in the “trade relations mix” are price
5. Service backup—Add-on services (credit, policies, conditions of sale, territorial rights, and
delivery, installation, repairs) provided by the specific services to be performed by each party.
channel. The more service backup, the greater the • Price policy calls for the producer to establish a
benefit provided by the channel. price list and schedule of discounts and allowances
Marketers should state their channel objectives in that intermediaries see as equitable and sufficient.
terms of the service output levels they want to provide • Conditions of sale refers to payment terms and
and the associated cost and support levels. producer guarantees. Most producers grant cash
Channel objectives vary with product characteristics. discounts to distributors for early payment. They
Marketers must adapt their channel objectives to the might also offer a guarantee against defective
larger environment. merchandise or price declines, creating an
When economic conditions are depressed, producers incentive to buy larger quantities.
want to move goods to market using shorter channels • Distributors’ territorial rights define the
and without services that add to the final price. distributors’ territories and the terms under which
Legal regulations and restrictions also affect channel the producer will enfranchise other distributors.
design. Distributors normally expect to receive full credit
Objective for all sales in their territory, whether or not they
• The products must reach the customer without did the selling.
damage. • Mutual services and responsibilities must be
• The products must be sold by honest retailers. Due carefully spelled out, especially in franchised and
care must be taken to avoid it falling into exclusive agency Channels. Sales Support, Product
unscrupulous middlemen. Return Terms
• The channel must allow for reverse flow for
damaged or defective goods. Economic Criteria.
• The operation of the channel should generate • Each channel alternative needs to be evaluated
profit for all. against economic, control, and adaptive criteria.
Constraints • Every channel member will produce a different
• During the first year, we can employ 100 sales level of sales and costs.
personnel to service this channel.
• Figure shows how six different sales channels
• We cannot allow for credit. stack up in terms of the value added per sale and
the cost per transaction.

IDENTIFYING MAJOR CHANNEL

ALTERNATIVES
Each channel—from sales forces to agents, distributors,
dealers, direct mail, telemarketing, and the Internet—
has unique strengths and weaknesses.
Channel alternatives differ in three ways: the types of
intermediaries, the number needed, and the terms
• A Zero level channel where the Company directly
and responsibilities of channel members.
sells to customer is also called a direct marketing
Larger the number of intermediaries, the greater
channel.
would-be price competition among them Leading to
• Retail stores mentioned above are company
erosion of profits.
owned retail stores.
Three strategies based on the number of
Control and Adaptive Criteria
intermediaries are exclusive, selective, and intensive
distribution. • Using a sales agency can pose a control problem.
Agents may concentrate on the customers who buy
• Exclusive distribution severely limits the number
the most, not necessarily those who buy the
of intermediaries.
manufacturer’s goods.

SAJIN JOHN 53
• They might not master the technical details of the • Coercive power.
company’s product or handle its promotion • A manufacturer threatens to withdraw a resource
materials effectively. or terminate a relationship if intermediaries fail to
• To develop a channel, members must commit to cooperate.
each other for a specified period of time. • Power of force
• Yet these commitments invariably reduce the • This power can be effective, but its exercise
producer’s ability to respond to change and produces resentment and can lead the
uncertainty. intermediaries to organize countervailing power.
• The producer needs channel structures and Reward power.
policies that provide high adaptability. • The manufacturer offers intermediaries an extra
benefit for performing specific acts or functions.
Control • Power to reward
• It is easier to control channels owned by the • Reward power typically produces better results
company or where the channel partner is an than coercive power, but intermediaries may come
employees to expect a reward every time the manufacturer
Company owned outlets wants a certain behavior to occur.
Sales set-ups Legitimate power.
Less control on Retailers, wholesalers • The manufacturer requests a behavior that is
Adaptable warranted under the contract.
Channel should be able to deal with changes in • Power that follows a contract
product lines, prices, changes in design. • As long as the intermediaries view the
manufacturer as a legitimate leader, legitimate
power works.
Expert power.
• The manufacturer has special knowledge the
intermediaries value.
• Power of knowledge
• Once the intermediaries acquire this expertise,
however, expert power weakens.
• The manufacturer must continue to develop new
expertise so intermediaries will want to continue
cooperating.
Referent power.
• The next step is to estimate the costs of selling • The manufacturer is so highly respected that
different volumes through each channel. The cost intermediaries are proud to be associated with it.
schedules are shown in figure. • Power of association
• Engaging a sales agency is less expensive, but costs • Companies such as IBM, Caterpillar, and Hewlett-
rise faster because sales agents get larger Packard have high referent power.
commissions. The final step is comparing sales and
costs. More sophisticated companies try to forge a long-term
• As Figure shows, there is one sales level (SB) at partnership with distributors.
which selling costs for the two channels are the To streamline the supply chain and cut costs, many
same. manufacturers and retailers have adopted efficient
• The sales agency is thus the better channel for any consumer response (ECR) practices to organize their
sales volume below SB, and the company sales relationships in three areas:
branch is better at any volume above SB. (1) demand-side management, or collaborative
• Given this information, it is not surprising that practices to stimulate consumer demand by promoting
sales agents tend to be used by smaller firms or by joint marketing and sales activities,
large firms in smaller territories where the volume (2) supply-side management, or collaborative
is low. practices to optimize supply (with a focus on joint
logistics and supply chain activities), and
(3) enablers and integrators, or collaborative
Training and Motivated Channel Members information technology and process improvement
• Producers vary greatly in their skill in managing tools to support joint activities that reduce operational
distributors. problems, allow greater standardization, and so on.
• Channel power is the ability to alter channel Research has shown that although ECR has a positive
members’ behavior so they take actions they impact on manufacturers’ economic performance and
would not have taken otherwise. capability development, manufacturers may also feel
• Manufacturers can draw on the following types of they are inequitably sharing the burdens of adopting it
power to elicit cooperation:

SAJIN JOHN 54
and not getting as much as they deserve from o Retailer cooperatives—Retailers take the
retailers. initiative and organize a new business
• A conventional marketing channel consists of an entity to carry on wholesaling and possibly
independent producer, wholesaler(s), and some production. Members concentrate
retailer(s). their purchases through the retailer co-op
• Each is a separate business seeking to maximize its and plan their advertising jointly, sharing
own profits, even if this goal reduces profit for the in profits in proportion to their purchases.
system as a whole. Nonmember retailers can also buy through
• No channel member has completed or substantial the co-op but do not share in the profits.
control over other members. o Franchise organizations—A channel
• A vertical marketing system (VMS), by contrast, member called a franchisor might link
includes the producer, wholesaler(s), and several successive stages in the
retailer(s) acting as a unified system. One channel production-distribution process.
member, the channel captain, sometimes called a Franchising has been the fastest-growing
channel steward, owns or franchises the others or retailing development in recent years.
has so much power that they all cooperate. • Many independent retailers that have not joined
• Stewards accomplish channel coordination VMSs have developed specialty stores serving
without issuing commands or directives by special market segments.
persuading channel partners to act in the best • The result is a polarization in retailing between
interest of all. large vertical marketing organizations and
• Another channel development is the horizontal independent specialty stores, which creates a
marketing system, in which two or more unrelated problem for manufacturers.
companies put together resources or programs to • The new competition in retailing is no longer
exploit an emerging marketing opportunity. between independent business units but between
• Each company lacks the capital, know-how, whole systems of centrally programmed networks
production, or marketing resources to venture (corporate, administered, and contractual),
alone, or it is afraid of the risk. competing against one another to achieve the best
• The companies might work together on a cost economies and customer response.
temporary or permanent basis or create a joint
venture company.
eCommerce
VERTICAL MARKETING SYSTEMS We can distinguish between pure-click companies,
• A corporate VMS combines successive stages of those that have launched a Web site without any
production and distribution under single previous existence as a firm, and brick-and-click
ownership. companies, existing companies that have added an
• An administered VMS coordinates successive online site for information or e-commerce.
stages of production and distribution through the • Uses a Web site to transact or facilitate the sale of
products and services online
size and power of one of the members.
Manufacturers of dominant brands can secure
strong trade cooperation and support from mCommerce
resellers. The most advanced supply-distributor • By mid-2013, more than half of all online U.S.
arrangement for administered VMSs relies on buyers had made a purchase on a mobile device,
distribution programming, which builds a planned, and m-commerce accounted for more than 11
professionally managed, vertical marketing system percent of all e-commerce.
that meets the needs of both manufacturer and • In the United States, mobile marketing is becoming
distributors. more prevalent and taking all forms.
• A contractual VMS consists of independent firms • Consumers are fundamentally changing the way
at different levels of production and distribution they shop in stores, increasingly using a cell phone
integrating their programs on a contractual basis to text a friend or relative about a product while
to obtain more economies or sales impact than shopping in stores. Fifty percent of all Google
they could achieve alone. Sometimes thought of as searches are done on mobile phones.
“value-adding partnerships” (VAPs), contractual • Companies are trying to give their customers more
VMSs come in three types: control over their shopping experiences by
o Wholesaler-sponsored voluntary chains— bringing Web technologies into the store,
Wholesalers organize voluntary chains of especially via mobile apps.
independent retailers to help standardize • Marketers are using a number of new and
their selling practices and achieve buying traditional practices in m-marketing.
economies in competing with large chain Understanding how consumers want to use their
organizations. smart phones is critical to understanding the role

SAJIN JOHN 55
 of advertising. Given the small screen and fleeting Differences in perception.
attention paid, fulfilling advertising’s traditional • The manufacturer may be optimistic about the
role of informing and persuading is more short-term economic outlook and want dealers to
challenging for m-commerce marketers. carry higher inventory, while the dealers may be
• Consumers often use their smart phones to find pessimistic.
deals or capitalize on them: the redemption rate • In the beverage category, it is not uncommon for
for mobile coupons (10 percent) far exceeds that of disputes to arise between manufacturers and their
paper coupons (1 percent). distributors about the optimal advertising
• The idea of geofencing is to target customers with strategy.
a mobile promotion when they are within a defined Intermediaries’ dependence on the manufacturer.
geographical space, typically near or in a store. • The fortunes of exclusive dealers, such as auto
• The local-based service requires just an app and dealers, are profoundly affected by the
GPS coordinates, but consumers have to opt in. manufacturer’s product and pricing decisions. This
• The fact that a company can pinpoint a customer’s situation creates a high potential for conflict.
or employee’s location with GPS technology raises
privacy issues.
• Like so many new technologies, such location- Strategies to Manage Channel Conflict
based services have potential for good and harm Below are the lists of some mechanisms for effective
and will ultimately warrant public scrutiny and conflict management that we discuss next.
regulation. Strategic Justification
• In some cases, a convincing strategic justification
that they serve distinctive segments and do not
compete as much as they might think can reduce
CONFLICT, COOPERATION, AND potential for conflict among channel members.
COMPETITION Dual Compensation
Channel conflict • Dual compensation pays existing channels for sales
• Generated when one channel member’s actions made through new channels.
prevent another channel member from achieving Superordinate Goals
its goal • Channel members can come to an agreement on
• The classic channel conflict between the the fundamental or superordinate goal they are
manufacturer and the reseller. jointly seeking, whether it is survival, market
• Horizontal channel conflict occurs between share, high quality, or customer satisfaction.
channel members at the same level. Employee Exchange
• Vertical channel conflict occurs between different • A useful step is to exchange persons between two
levels of the channel. or more channel levels.
• Multichannel conflict exists when the • Thus participants can grow to appreciate each
manufacturer has established two or more other’s point of view.
channels that sell to the same market. It’s likely to Joint Memberships
be especially intense when the members of one • Similarly, marketers can encourage joint
channel get a lower price (based on larger-volume memberships in trade associations.
purchases) or work with a lower margin. • Co-optation is an effort by one organization to win
the support of the leaders of another by including
Channel coordination them in advisory councils, boards of directors, and
• Occurs when channel members are brought the like.
together to advance the goals of the channel Diplomacy, Mediation, and Arbitration
instead of their own potentially incompatible goals • When conflict is chronic or acute, the parties may
need to resort to stronger means.
Causes of Channel conflict • Diplomacy takes place when each side sends a
Goal incompatibility. person or group to meet with its counterpart to
• The manufacturer may want to achieve rapid resolve the conflict.
market penetration through a low-price policy. • Mediation relies on a neutral third party skilled in
• Dealers, in contrast, may prefer to work with high conciliating the two parties’ interests.
margins and pursue short-run profitability. • In arbitration, two parties agree to present their
Unclear roles and rights. arguments to one or more arbitrators and accept
• HP may sell laptops to large accounts through its their decision.
own sales force, but its licensed dealers may also Legal Recourse
be trying to sell to large accounts. • If nothing else proves effective, a channel partner
• Territory boundaries and credit for sales often may choose to file a lawsuit.
produce conflict.

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 • Exclusive dealing often includes exclusive
• Calvin Klein and Tommy Hilfiger both took a hit territorial agreements. The producer may agree
when they sold too many of their products in not to sell to other dealers in a given area (which is
discount channels. perfectly legal), or the buyer may agree to sell only
• Given the lengths to which they go to pamper in its own territory (which has become a major
customers in their stores—with doormen, glasses legal issue).
of champagne, and extravagant surroundings— • Producers of a strong brand sometimes sell it to
luxury brands have had to work hard to provide a dealers only if they will take some or all of the rest
high-quality digital experience. of the line.
• We saw earlier that in exclusive distribution, only • This practice is called full-line forcing.
certain outlets are allowed to carry a seller’s • Such tying agreements are not necessarily illegal,
products, and that requiring these dealers not to but they do violate U.S. law if they tend to lessen
handle competitors’ products is called exclusive competition substantially.
dealing. • Producers are free to select their dealers, but their
• Exclusive arrangements are legal as long as they do right to terminate them is somewhat restricted. In
not substantially lessen competition or tend to general, sellers can drop dealers “for cause,” but
create a monopoly and as long as both parties enter not if, for example, a dealer refuses to cooperate in
into them voluntarily. a doubtful legal arrangement, such as exclusive
dealing or tying agreements.

SAJIN JOHN 57