4.

Selecting Target Markets

4.1Maeasuring and Forecasting Demand

• Market - All actual and potential buyers of a product
• Market Demand - Total volume that would be bought by:
– a defined customer group
– in a defined time period
– in a defined geographic area
– in a defined marketing environment
– under a defined marketing program
• Market potential - The limit approached by market demand as industry marketing expenditures approach infinity, for a given environment and time
period.
Steps in Assessing Market Potential or Demand
1. Define a market segment to target.
2. Analyze customer behavior
3. Define externalities (Industry/Competition/Macroenvironment)
4. Declare and use several sets of assumptions
• Optimistic/Most Likely/Pessimistic
5. Use more than one method – and triangulate
• Expert opinion, trend analysis, market build-up, analogy, chain ratio

MBA622/FA/2009 1
 Potential vs. Demand
Maximum Number of Potential
Customers
Not Affordable
Lacks Benefits
Unable to Use
Not Available
Not Aware
Market
Sales Potential
Current
Market
Demand

Hint: Another ways to say “potential” is to say “maximum market demand.”

Total market demand as a product of:

- number of buyers in the market
- quantity purchased by an average buyer per year
- price of an average unit

Suppose RCA wants to estimate the total annual sales of audio cassette tapes. A common way to estimate total market demand is as follows:

Q=nxqxp (A-1)
Where:
Q = total market demand
n = number of buyers in the market
q = quantity purchased by an average buyer per year
p = price of an average unit

MBA622/FA/2009 2
e.g. If there are 100 million buyers of cassette tapes each year, and the average buyer buys six tapes a year, and the average price is $8, then the total market
demand for cassette tapes is $4.8 billion (= 100,000,000 x 6 x $8).

Scenario Analysis - Assessing Mkt Potential

Building Scenarios

1. Define a market segment to target.

e.g., all businesses in Ethiopia
vs. all businesses in Ethiopia Classified as
Medium enterprises
vs. all businesses in Ethiopia with
100-500 employees

2. Analyze Customer Behavior

– e.g., for innovative products, will customers perceive it to be a truly innovative product? (leading to rapid introduction vs. treating it as just
another product.)
– gives guidelines as to which growth rates are appropriate
3. Define Externalities
– What outside factors could have an effect?
• Government regulations
• Support industries will develop related products
– e.g., Macintosh computers - software products for Macintosh

MBA622/FA/2009 3
 4. Declare and Use Several Sets of Assumptions
Optimistic

Most Likely

Pessimistic
Develop forecasts based on each
5.
Use various methods – and triangulate
Market Research*(concept tests; test markets)
Expert opinion
Trend analysis
Market build-up method
Method of analogy
Chain ratio method

*e.g., concept tests – but often not practical

- Expert Opinion
• Discussion groups

MBA622/FA/2009 4
 • Synthesis of individuals’ opinions
• Delphi method
-Trend Analysis
• Historical data
– sales history
– penetration history on similar new products
• Analyze
– Regression Analysis
– Compound Annual Growth Rate (CAGR)
• Make assumption:
– e.g., growth rate will continue into the future
• Use rate to project into future

E.g. Chain ratio method: For example, suppose the Ethiopian Air Force wants to attract 112,000 new male recruits each year from Ethiopian high schools. The
question is whether this is a reasonable target in relation to the market potential. The air force estimates market potential using the following method:
Total number of male high school graduating students 10,000,000
Percentage who are militarily qualified (no physical, x.50
emotional, or mental handicaps)
Percentage of those qualified who are potentially
interested in military service x.15
Percentage of those qualified and interested in military
service who consider the Air force is the preferred service x.30

This chain of numbers shows a market potential of 225,000 recruits. Since this exceeds the target number of recruits sought, the Ethiopian Air force should have
little trouble meeting its target if it does a reasonable job of marketing the Air force.

Market- Factor Index Method

Consumer goods companies also have to estimate area market potentials. Consider the following example: A shirt manufacturer was interested in starting a
national system of franchised stores to sell T - shirts. Each store would carry several sizes and colors and would print an emblem chosen by the customer on each
T- shirt. The consumer could choose from hundreds of emblems. The manufacturer estimated that total national potential for T - shirts profitable in any town
where it might sell more than $ 120,000 a year. It would advertise in the selected Journal to attract potential franchisees, examine their business qualifications,
and make sure that the town had enough buying potential to justify a store.
The company received an application from a recent graduate of the University. This person wanted to buy a franchise with some inherited money. He had taken
some marketing and business courses at the university. The manufacture wondered whether a store in Addis could gross enough sales to reward both the
franchise and the manufacturer.

MBA622/FA/2009 5
The manufacturer wants to evaluate the market potential for T - shirt sales in Addis. A common method is to identify market factors that are correlated with area
market potential and combine them into a weighted index. The buying power index is based on three factors:
 the area's share of the nation's disposable personal income,
 retail sales, and
 Population.
The buying power index for a specific area is given by

Bi = 5yi + 3ri + 2pi (A-2)

Where
Bi = percentage of total national buying power in area i
Yi = percentage of national disposal personal income in area i
ri = parentage of national retail sales in area i
Pi = percentage of national population in area i
The three coefficients in the formula reflect the relative weights of the three factors.

The manufacturer looks up Addis and finds that this market has .0764 percent of the nation's disposable personal income, .0900 percent of the nation's retail
sales, and .0070 percent of the nation's population. The buying power index for Addis therefore would be:

B = 5(.0764) + .3(.0900) + .2(.0770) = .0806

That is, Addis could account for .0806 percent of the nation's total potential demand for T -shirts. Since the total potential is estimated to be $200 million
nationally each year, Addis share amounts to $161,200 ($200,000,00 x .000806). Since a successful store sells over 20,000 annually, the manufacturer leans
toward selling a franchise to this applicant. The manufacturer needs to make sure that other T - shirt companies are not already operating in the Addis market and
selling some of this volume of T -shirts.
The weights used in the buying power index are somewhat arbitrary.

MBA622/FA/2009 6
 Sales, ABC Coffee Company
(000’s of tons)
2003 2004 2005 2006 2007

115 127 124 137 150

Good?. . . . .

Or Bad?

MBA622/FA/2009 7
 Sales, ABC Coffee Company (000’s of tons)

2003 2004 2005 2006 2007

115 127 124 137 150

% Change = New-Old = Change

Old Old

127-115 = 12 = +10.4%
115 115

MBA622/FA/2009 8
 Sales, ABC Coffee Company (000’s of widgets)

2003 2004 2005 2006 2007

115 127 124 137 150
+10.4% -2.4% +10.5% +9.5%

2003-2007
+30.4%
Good?. . . . . . . . Or Bad?

Sales, ABC Coffee Company(000’s of Tons)

2003 2004 2005 2006 2007

Total Coffee Market (purchases)
1,050 1,090 1,270 1,500 1,850
+3.8% +16.5% +18.1% +23.3%
ABC Coffee
MBA622/FA/2009 9
115 127 124 137 150
 Sales, ABC Coffee Company(000’s of Tons)

2003 2004 2005 2006 2007

Total Coffee Market (purchases)
1,050 1,090 1,270 1,500 1,850
+3.8% +16.5% +18.1% +23.3%
ABC Coffee
115 127 124 137 150
+10.4% -2.4% +10.5% +9.5%
2003-2008
+76.2%
TRENDS? +30.4%

MBA622/FA/2009 10
 Share of Market
Purchases from Our Company vs. Total Market
Purchases (000’s tons)
150
500
8%
378
ABC
27% Widgworld
20%
Best Widge, Inc
AllWidge

45%
822

Total Market Purchases – 1,850,000

MBA622/FA/2009 11
 ABC Coffee Company
1995 1996 1997 1998 1999
Coffee Industry (000’s units)
1,050 1,090 1,270 1,500 1,850
+3.8% +16.5% +18.1% +23.3%
ABC Coffee
115 127 124 137 150
+10.4% -2.4% +10.5% +9.5%

ABC Coffee - Share of Market (Units)

10.9% 11.7%9.8% 9.1% 8.1%

MBA622/FA/2009 12
 Recall: Percent Change
Sales, ABC Coffee Company
(000’s of tons)

2003 2004 2005 2006 2007

115 127 124 137 150
+10.4% -2.4% +10.5% +9.5%

2003-2007
1999
+30.4%

MBA622/FA/2009 13
 Compound Annual Growth Rate (CAGR)
More precise than percent change if:
Don’t have data for every year
Want average yearly rate for projection purposes

Recall: Percent Change

Sales, ABC Coffee Company
(000’s of tons)

2003 - 2008
What if you don’t have numbers for
115 150 every year (e.g., study conducted every 5
years?)

2003-2007 2012
+30.4% + ?? %

MBA622/FA/2009 14
 Compound Annual Growth Rate Sales, ABC Coffee Company
(000’s of tons)
(CAGR)
Provides annual rate across a number of years. 2003 - 2007
Formula: 115 150
15
CAGR
1
1
( )
4
0
-1
( )
P
L 11
CAGR = F -1 = 5

Excel Formula = ((150/115)^(1/4)-1) = .06868 = 6.9%

Where:
L = last value in the series (the last, or final, year);
F = first value in the series (the first year);
P = number of growth periods (the number of years)

MBA622/FA/2009 15
 Sales, ABC Coffee Company
(000’s of tons)

2007 Sales = 150

Assume 6.9% increase per year into future
---------------------------Projections-------------------------
2008 2009 2010 2011 2012
?? ?? ?? ?? ??
171*1.069 183*1.069 196*1.069
150*1.069 160*1.069
18 19 20
160 171
3 6 9

MBA622/FA/2009 16
 - Method of Analogy - Market Build-Up Method
Identify all potential buyers in each market
Add up the estimated potential purchases of each
Pick a market (country) at a similar stage of
development as the one of interest
Assume the ratio between various products will be the
same.
+ = Total Purchasers

100 each + 125 each = Total Purchases

MBA622/FA/2009 17
 Method of Analogy
e.g., VCR's in Ethiopia vs. Kenya

?? VCR Demand Ethiopia = VCR Demand Kenya

Color TV Demand Ethiopia Color TV Demand Kenya

VCR Demand E = Color TV Demand E

( VCR Demand K
)
Color TV Demand K

Annual Retail Sales

Color TV VCR
(000s) (000s)
Ethiopia 455 177
Kenya 634 ???

Est. VCR Demand Kenya (Annual Retail Sales) =

634 (177/455) = 246,600

MBA622/FA/2009 18
 Chain Ratio Method
• Start with a rough base number as an estimate for market size (e.g., the entire population of a market/country)
• Systematically fine-tune it by applying a "chain" of percentages to get to a meaningful estimate of total market potential.
e.g. suppose the Ethiopian Air Force wants to attract 112,000 new male recruits each year from Ethiopian high schools. The question is whether this is a
reasonable target in relation to the market potential. The air force estimates market potential using the following method:
 Total number of male high school graduating students 10,000,000
 Percentage who are militarily qualified (no physical, x.50
emotional, or mental handicaps)
 Percentage of those qualified who are potentially
interested in military service x.15
 Percentage of those qualified and interested in military
service who consider the Air force is the preferred service x.30
This chain of numbers shows a market potential of 225,000 recruits. Since this exceeds the target number of recruits sought, the Ethiopian Air force should have
little trouble meeting its target if it does a reasonable job of marketing the Air force.

MBA622/FA/2009 19
 e.g., a firm makes baby monitors and is considering expansion into
China and/or India.
China India
Total Population (millions) 1,207.4 921.5 A
Urbanization Rate 30.3% 26.8% B
Urban Population (millions) 365.8 247.0 C=AxB
Birth Rates per 1000 17.8 28.4 D
Population (annual)
Market Potential Estimate 6.5 M 7.0 M E=CxD

Source: International Marketing Data and Statistics, 1997 - various tables.

Kotable & Helsen, 1998, p. 167

Steps in Assessing Market Common Errors in Market Sizing

Potential or Demand
Define a market segment to target. Defining the market too broadly.
Analyze customer behavior Using the birr/dollar value for an industry and
Define externalities using it to represent the size of your
(Industry/Competition/Macroenvironment)
Declare and use several sets of assumptions market.
Optimistic/Most Likely/Pessimistic Not updating assumptions
Use more than one method – and triangulate
Expert opinion, trend analysis, market build-up, analogy, chain ratio
MBA622/FA/2009 20
 Factors Affecting
Forecasting Accuracy
Recognizing importance – making commitment to be
accurate ($)
Selecting data sources closer to customer
Using more than one method
Anticipating:
-Volatility of market
-Behavior of buyers

MBA622/FA/2009 21
 Attributes
Characteristics of an idea/good/service that are of interest to the customer.
Cameras

. picture sharpness, speed, close-up distance , ruggedness, size, price

Tires

.tread life, safety, ride quality, price

Air travel

.departure time, speed, aircraft, preflight service, inflight service, price

MBA622/FA/2009 22
 Understanding Customers
Some Tools
•
Intangible Attributes
Psychological
.For gaining an understanding of customers
• Examples: Fishbein’s Multi-attribute Model
Conjoint Analysis
– Credibility/Reputation .For converting understanding into action
– System growth
House of Quality

– Vendors who understand your environment

– Continuous development by supplier

MBA622/FA/2009 23
 Fishbein’s Multiattribute Model Overall Brand Evaluation (Ao)

Evaluation of Product Beliefs about whether it will

Attributes (e) provide desired
Evaluation of Overall Intention Importance of Attributes or Benefits
Brand
Product Brand to Behavior attributes or (b)
Beliefs
Attributes Evaluations Buy benefits Merchandise quality
Variety of stores
Parking
(ei) (bi) (Ao) (BI) (B) Prices

Ao =  biei Ao = biei

Source: Fishbein, M. 1963

MBA622/FA/2009 24
 Measurement:
1. Consumers are asked to rate (evaluate) the value
(importance) of each attribute
Indicate how important each of the following is when
choosing a shopping mall:

Very
Unimportant Important
Merchandise Quality |_1__|_2__|_3__|_4__|_5__|_6__|

Variety of Stores |_1__|_2__|_3__|_4__|

_5__|_6__|

MBA622/FA/2009 25
 2. Consumers are asked about their beliefs regarding
Product alternatives
Rate each of the local shopping malls on the following:

ABC mall Poor Merchandise Excellent Merchandise

Quality |_-3_|_-2__|_-1__|_+1__|_+2__|_+3__| Quality

Limited Variety of Extensive Variety of

Stores |_-3_|_-2__|_-1__|_+1__|_+2__|_+3__| Stores

XYZ mall:
etc.

MBA622/FA/2009 26
 Beliefs (bi)

San Marcos
Northcross

Westgate
EFG Mall
ABC

XYZ
Attribute (xi) Eval. (ei)
Merchandise 5. 2. 2. 2. 1. 1. 0
Quality of
Variety 6
5. 8
0. 3
2. 1
2. 0
0. 7
1. -
Stores
Parking 4
5. 8
1. 3
1. 1
1. 2
1. 9
1. 0.7
1.
Facilities
Return and 4
5. 1
1. 9
1. 8
1. 6
1. 3
0. 0
1.
Service
Reasonable 2
4. -8 9
0. 7
1. 4
0. 2
2. 0
1.
Prices
Atmospheric 7
4. 0.6
2. 9
1. 2
1. 9
0. 2
0. -1
sLayou 6
4. 5
1. 8
1. 3
1. 3
0. 9
0. 0.6
-
t
“Specials 0
3. -0 3
1. 5
1. 7
0. 5
2. 0.3
0.
”Prestige of 9
3. 0.1
2. 3
2. 3
1. 8
0. 1
1. -8
Stores
Eating 2
2. 8
0. 8
0. 5
1. 2
0. -3 0.4
-
Facilities 9 8 6 3 3 0.2 0.9
Total biei 58.8 78.9 72. 9 35.6 55.8 7.3

MBA622/FA/2009 27
 Implications
What would be some of the important customer
attributes for laptop computers?
What would the questions look like to get at “e”
(evaluation/importance of attributes)?
What would the questions look like to get at “b”
(customer beliefs about alternatives)?

4.2 Market Segmentation, Targeting and Positioning

4.2.1 Definition of market segmentation

Market segmentation is a strategy that involves dividing a larger market into subsets of consumers who have common needs and applications for the goods and
services offered in the market. These subgroups of consumers can be identified by a number of different demographics, depending on the purposes behind
identifying the groups. Marketing campaigns are often designed and implemented based on this type of customer segmentation.
Segmentation: Means organizing all potential customers into groups of customers according to how they make buying decisions or buying habits – i.e. a market
segment is a group of customers that will respond similarly to a given offer, because they have common needs or values. For example customers who buy most
of their clothes from ordinary stores are different in some ways from those who buy most of their clothes from exclusive fashion stores. Segmentation involves
grouping customers into who buys what, where and why. Thus segmentation is the division of a market into different homogeneous groups of consumers.

Rather than offer the same marketing mix to vastly different customers, market segmentation makes it possible for firms to tailor the marketing mix for specific
target markets, thus better satisfying customer needs. Not all elements of the marketing mix are necessarily changed from one segment to the next. For example,
in some cases only the promotional campaigns would differ.

One of the main reasons for engaging in market segmentation is to help the company understand the needs of the customer base. Often the task of segregating
consumers by specific criteria will help the company identify other applications for their products that may or may not have been self evident before. Uncovering

MBA622/FA/2009 28
these other ideas for use of goods and services may help the company target a larger audience in that same demographic classification and thus increase market
share among a specific sub market base.

Market segmentation strategies can be developed over a wide range of characteristics found among consumers. One group within the market may be identified by
gender, while another group may be composed of consumers within a given age group. Location is another common component in market segmentation, as is
income level and education level. Generally, there will be at least a few established customers who fall into more than one category, but marketing strategists
normally allow for this phenomenon.

Along with playing a role in the development of new marketing approaches to attract a certain demographic within the market base, market segmentation can
also help a company understand ways to enhance customer loyalty with existing customers. As part of the process of identifying specific groups within the larger
client base, the company will often ask questions that lead to practical suggestions on how to make the products more desirable to customers. This activity may
lead to changes in packaging or other similar changes that do not impact the core product. However, making a few simple changes in the appearance of the
product sends a clear message to consumers that the company does listen to customers. This demonstration of good will can go a long way to strengthen the ties
between consumer and vendor.
At its most basic level, the term “market segmentation” refers to subdividing a market along some commonality, similarity, is, the members of a market segment
share something in common. The purpose of segmentation is the concentration of marketing energy and force on the subdivision (or the market segment) to gain
a competitive advantage within the segment.
To compete successfully in today’s volatile and competitive business markets, mass marketing is no longer a viable option for most companies. Marketers must
attack niche markets that exhibit unique needs & wants. Market segmentation is the process of partitioning markets into groups of potential customers with
similar needs or characteristics who are likely to exhibit similar purchase behavior.
Market segmentation is the foundation on which all other marketing actions can be based. It requires a major commitment by management to customer-oriented
planning, research, implementation & control.

The overall objective of using a market segmentation strategy is to improve your company’s competitive position and better serve the needs of your customers.
Some specific objectives may include increased sales, improved market share and enhanced image.

There are four major benefits of market segmentation analysis and strategy:

– Designing responsive products to meet the needs of the marketplace

– Developing effective and cost-efficient promotional tactics & campaigns

– Gauging your company’s market position — how your company is perceived by its customers and potential customers relative to the competition

MBA622/FA/2009 29
– Fine-tuning current marketing strategies

Market Segmentation Strategies

 Undifferentiated Marketing (Mass Marketing)

An undifferentiated marketing approach aims at a large, broad consumer market through one basic marketing plan.

A major objective of undifferentiated marketing is to maximize sales. TV Guide magazine is an example of undifferentiated marketing in action.
Uundifferentiated /Mass marketing approach treats the market as a whole and provides one version of the product and one marketing mix for all
buyers in the market.

 Concentrated Marketing

A concentrated marketing approach aims at a narrow, specific consumer group through one specialized marketing plan
catering to the needs of that segment.
Concentrated marketing is popular for small firms for these reasons:
1. Mass production, mass distribution, and mass advertising are not necessary.
2. It can succeed with limited resources and abilities by concentrating efforts.

If concentrated marketing is used, it is essential for a firm to do a better job than competitors in several areas.
1. The company needs to tailor its marketing program for its segment better than competitors.
2. Competitors’ strengths should be avoided and weaknesses exploited.
The majority fallacy, appealing to a large segment that is laden with competition, should be avoided.
PROS include
 It allows a firm to specialize
 Can focus all energies on satisfying one group's needs
 A firm with limited resources can compete with larger organizations.

CONS include
 Puts all eggs in one basket
 Small shift in the population or consumer tastes can greatly effect the firm
 May have trouble expanding into new markets (especially up-market)

MBA622/FA/2009 30
 Differentiated Marketing (Multiple Segmentation)
Differentiated marketing combines the best attributes of undifferentiated marketing and concentrated marketing. It appeals
to two or more distinct market segments, with a different marketing plan for each.
Company resources and abilities must be able to produce and market two or more different sizes, brands, or products.
Costs vary, depending on modifications needed.

Differentiated marketing should enable the firm to achieve several objectives:

1. Sales maximization.
2. Recognition as a specialist.
3. Diversification.
Differentiated marketing can be achieved without involvement in the majority fallacy.
Two or more sizable and distinct consumer groups are necessary. The more clusters facing the firm, the greater the opportunity for differentiated marketing..
Wholesalers and retailers usually find differentiated marketing to be desirable, because it enables them to reach
different consumers, offers a degree of exclusivity, allows orders to be concentrated, and encourages private labels.
Total profits should rise as the number of segments serviced increases.
A firm must balance revenues obtained from selling to multiple segments against the costs.
A company must be careful to maintain product distinctiveness in each consumer segment and to guard its image.

PROS include

 Shift excess production capacity

 Can achieve same market coverage as with mass marketing
 Price differentials among different brands can be maintained Contact Lens!!
 Consumers in each segment may be willing to pay a premium for the tailor-made product
 Less risk, not relying on one market

CONS include

 Demands a greater number of production processes

 Costs and resources and increased marketing costs through selling through different channels and promoting more brands, using different packaging etc.
You must be careful to maintain the product distinctiveness in each consumer group and guard its overall image (Contact lenses)

MBA622/FA/2009 31
4.2.2 Importance of Segmenting Markets

Market segmentation is an important element of every marketing strategy. It is the basis for developing the positioning and targeting strategy for
any brand, which, in turn, determines the marketing mix. A segment-orientated marketing approach generally offers a range of advantages for
businesses as well as customers. These include:

 Better understanding of consumers :

Consumers change their preferences and patterns of behavior over time. Segmentation allows marketers to understand these changes and
develop products and services that fulfill the need of a consumer at that particular stage. For example, many car manufacturers offer a product
range that caters to the needs of all phases of a consumer life cycle: first car for early teens, fun-car for young professionals, family car for young
families, etc. Segmentation also allows an organization to satisfy a variety of consumer needs through a limited product range by using different
forms, bundles, incentives, and promotional activities.

 Increased profitability:

Segmentation supports the development of niche strategies, allowing marketing activities to focus on the most attractive market segments.
Market leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, channel
partners, and customers, besides strengthening the brand and ensuring profitability.

 Identifying growth opportunities:

Segmentation allows an organization to approach consumer groups individually through targeted marketing activity. By segmenting markets,
organizations can create their own ‘niche products’ to attract additional customer groups.

 Stimulating innovation:

The identification of unique consumer needs through segmentation enables a planned development of new or improved products that better meet
the wishes of these consumer groups by offering distinctive products and delivering superior value.

MBA622/FA/2009 32
 Targeted communication:

Segmentation enables marketers to communicate effectively with the target market by identifying those criteria that are most relevant for each
particular segment (for example, price vs. reliability vs. prestige).

Uses of segmentation

Strategic planning
Segmentation plays a key role in the planning process of an organization, influencing all functions and processes. Segmentation is so central to
portfolio rationalization and new product development that often it is done before the strategic planning process begins.
With segmentation an organization can identify and target specific groups to achieve its long and short-term objectives by maximizing allocation
of resources. Effective segmentation allows it to develop and execute alternative business and marketing strategies and vary pricing,
communication strategy, promotion strategy, and distribution systems based on the selected target markets. It also provides direction to R&D in
executing product variations, and to manufacturing in producing those variations. In addition, segmentation provides guidelines in terms of
market development and potential areas for diversification.

Market potential assessment and refinement

Market segmentation serves as a basis for developing market size data for the category as a whole, for the brand, and for opportunities within the
category. This helps identify volume and profit potential for current or emerging segments. Market potential assessment can be based on any of
the following:

 Demographic stratification of data:

Numerous demographic factors can serve as the basis for a business opportunity – age, gender, income, education, employment, housing
size, location, etc. Demographic information is more easily accessible from secondary data sources compared to any other segmentation
variable; it is also the easiest to measure.
 Product usage behavior:
Category usage behavior can point to unique segments that offer opportunity. Among these behaviors are things such as frequency of use,

MBA622/FA/2009 33
 quantity of use, time of use, usage pattern (co-usage, switching behavior. loyalty). Unique usage behaviors are particularly powerful when
combined with consumer needs or desired benefits.
 Psychographic characteristics of segments:
This refers to segmenting the identified target audience on the basis of psychographic characteristics such as values, beliefs, desires, and
attitudes. The psychographic data is particularly valuable when it can be placed in the context of behavioral or demographic data. Some
studies provide the demographic profile of psychographic segments and vice-versa.
 Segmentation studies also help an organization refine market size estimates that may have undergone changes due to innovations in
technology, structural changes in society or new trends

For example

During the seventies, in the South Asian market, lighteneing skin color was identified as an important consumer need segment that had not been
exploited by any company. Market research revealed that consumers desiring a lighter skin tone were applying talcum powder to their face. Apart
from being a key input in designing the marketing program, the talcum powder category was identified as the source of business for subsequent
assessment of market potential.

The demographic profile of talc users (in terms of age, income, social class, geographic location, etc) was determined and used to size the need
segment of fairness. Data on product usage pattern was then used to determine trial, repeat, and conversion rates.

However, as the category matured, brands started using psychographic parameters to segment the market, targeting the segments with specific
communication and products.

Targeting and positioning

Positioning decisions are integral to brand strategy. In order to be relevant, they need to be based on an understanding of the target segment in
terms of demographics, psychographics, and behavioral data for your own as well as competing brands. The key to category share growth lies in
understanding all the unique segments in the category and crafting brands and positionings that appeal to the major segments.

Segmentation also allows organizations to adapt their product offering to the changing preferences and patterns of consumer behavior over time.
Organizations that serve different segments along a consumer’s life cycle can guide their consumers from stage to stage by always offering them

MBA622/FA/2009 34
a special solution for their particular needs. For example, many car manufacturers offer a product range that caters to the needs of all phases of a
consumer life cycle: first car for early teens, fun-car for young professionals, family car for young families, etc. Skin care cosmetics often offer
special series for babies, teens, normal skin, and elder skin.

For example
Nintendo attracted adult users to its electronic games by creating a campaign that would appeal to potential adult game players by promising
them “kid-like” fun – a notion that many adults find appealing.

Developing marketing plans and communication

Even if product features and brand identity are identical in all market segments, communication is geared to specific segments. Market
segmentation provides the brand with an opportunity to stress criteria that are most relevant for each particular segment (for example, price vs.
reliability vs. prestige).

Marketing mix elements like advertising, promotions, and retail strategy can be designed on the basis of segmentation. Consumer segmentation
studies help understand whom to target, what to say, where to say, how to say it, etc

New product development

Identifying the specific needs of various segments enables development of new or improved products that better meet the needs of these
consumer groups. If a product meets and exceeds a consumer’s expectations by adding superior value, consumers normally are willing to pay a
higher price for that product. Thus, profit margins and profitability of the innovating organization increases.

For example

Bayer, makers of the One-A-Day vitamins, has developed a variety of products that are designed to appeal directly to different age and gender
market segments in terms of their specific vitamin requirement.

The hotel industry has also used market segmentation to develop different chains for different target segments. Marriott operates the Fairfield
Inns (for short stays) and Residence Inns (apartment-like accommodations for extended stays) for the value-conscious or budget traveler;

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Courtyard for the price-conscious business person; Marriott Hotels for full service business travelers; Marriott Resorts for leisure and vacation
guests; Marriott Time Sharing for those seeking affordable resort ownership; and Marriott Senior Living environments for elderly people.

Media planning

Different sets of consumers have different ways of using, interacting, and valuing media. For example, while teenagers prefer interactive
communication with brands, seniors seek more information from brands. Segmentation studies identify these differences and allow marketers to
identify the most appropriate media vehicles to convey the brand message to the selected audience.

Almost all media vehicles – TV, radio, internet, newspapers, and magazines – use segmentation research to determine the characteristics of their
audience and to publicize their findings in order to attract advertisers seeking a similar audience. This information is used by the media-planning
agency for:

 Optimizing media deliveries– where the media objectives are varied as per the priority of the segments
 Media mix decisions – where the choice of media vehicles is based on the media usage pattern of the target segments.

For example

Time Warner has created a separate division to market magazines to baby boomers. The magazines are ‘In Health’, ‘Parenting’, ‘Cooking Light’
and ‘Martha Stewart Living’. The titles match the interest areas of baby boomers.

‘Business Week’ targets different segments with special editions of its magazines. The media planner can choose from geographically-based
editions – such as global, continental, regional, state and city versions of each issue – to meet the needs of the priority geo-demographic
segments. The magazine also offers an industrial/ technology edition specifically for those in the manufacturing and mining industries, and an
Elite edition targeting subscribers living in high-income zip codes and to senior management titles receiving the magazines at their offices.

Mode, a fashion magazine for the full-figured woman, has created clothing and advertising messages that stress the fashionability of its products,
which are targeted to a market segment consisting of full- figured women.

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Distribution strategy

Market segmentation data helps in developing a more focused distribution strategy. Effectively reaching the priority markets and allocating
manpower and sales planning budgets accordingly eliminates wasteful expenditures. Identifying the geographical location of the target segments
and their behavioral characteristics aids decisions on distribution strategy.

 Characteristics of geographical segments determine the prioritization of markets for extending distribution, stock management, and
resource planning.
 Information on consumer purchase behavior can be used in selecting the most effective distribution channel and defining visual
merchandising standards.

Marketing research design

Market segmentation data plays a secondary role in designing market research. It is used for sample-related decisions such as how to apportion
the sample by behavior (users, non-users, users of competitive products) and by various characteristics such as demographics or attitudes (age,
income, occupation, those preferring X,Y or Z , etc).

Segmentation by type of markets

A market can be segmented by various bases, and industrial markets are segmented somewhat differently from consumer markets, as described below.

Consumer Market Segmentation: What is consumer segmentation?

Consumer segmentation is the basis for understanding consumer orientation and differentiation. It is the process of dividing a market into groups or segments of
customers with similar needs or characteristics, who are likely to exhibit similar purchase behavior. Market segmentation acknowledges that different 'types' of
buyers may require different products or marketing approaches/ marketing mixes. Consumer segmentation is at the core of an organization’s marketing
strategy. With market segmentation a brand acknowledges that buyers of a product or service are not a homogenous group.

Every buyer has individual needs, preferences, resources, and behaviors. Because it is virtually impossible to cater to every individual consumer’s
characteristics, marketers find it productive to group consumers together in market segments on the basis of common variables. Such grouping

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allows marketers to tailor a marketing mix for all consumers in a particular segment, thus using marketing resources more efficiently and
effectively.

Segmentation creates discrete target markets and helps identify the core benefit of that market. This enables development of a unique brand
proposition. In some cases, segmentation may also dictate organizational structures. For example, certain CPG companies like Procter & Gamble
have been known to experiment with having separate marketing groups for women, teens, etc.

Segmentation allows an organization to satisfy the needs of its potential consumers better, thereby growing volume, profit, and market share. Segmentation
studies can be used in various aspects such as strategy, targeting and positioning, etc.

A basis for segmentation is a factor that varies among groups within a market, but that is consistent within groups. One can identify four primary
bases on which to segment a consumer market:

 Geographic segmentation is based on regional variables such as region, climate, population density, and population growth rate.
 Demographic segmentation is based on variables such as age, gender, ethnicity, education, occupation, income, and family status.

 Psychographic segmentation is based on variables such as values, attitudes, and lifestyle.

 Behavioral segmentation is based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought.

The optimal bases on which to segment the market depend on the particular situation and are determined by marketing research, market trends, and managerial
judgment.

Business Market Segmentation

While many of the consumer market segmentation bases can be applied to businesses and organizations, the different nature of business markets
often leads to segmentation on the following bases:

 Geographic segmentation - based on regional variables such as customer concentration, regional industrial growth rate, and
international macroeconomic factors.
 Customer type - based on factors such as the size of the organization, its industry, position in the value chain, etc.

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  Buyer behavior - based on factors such as loyalty to suppliers, usage patterns, and order size.

The main reason why you need to consider market segments is that customers are different. They want different things, they have different
problems and they will have different buying criteria.

So if you are going to compete effectively and make more money, you need to be tailoring your product offerings to meet the particular needs
of a particular market segment.

Once you have designed your offer you then need to make sure that customers in the market segment a) know about you and b) recognize
that you are the obvious first choice to meet their requirements.

Requirements for effective segmentation

To be useful, a segment must be:

 Different
 Relevant
 Significant
 Accessible
 Measurable
 Durable
 Suitable size

Difference

Difference is what really defines the segment.

There are a number of ways to define a segment. Some of the commonest ways are:

 Geographic (e.g. a town, county or region)

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  Industry or profession

 Consumer interest (e.g. discotheques, koi carp, classic cars)

The most suitable segment will depend on the type of business of the supplier.

Businesses like shops or restaurants mostly sell to customers within a certain area and geographical segments work well for them. Other
businesses like manufacturing or design are often more successful when they sell to a specific industry.

The terms vertical and horizontal markets are often used - a horizontal market refers to a geographical segment and a vertical market to an
industry one.

It may help to combine both geographic and industry, for example supplying builders in Hertfordshire, or garages in the Midlands. The important
thing is to define a segment of the right size.

There are other ways of defining segments.

Size of company is one. Few small companies supply companies of all sizes. Some specialize in selling to very large companies, some to small,
some to SMEs, and some to the public sector.

Price brackets are another. Supermarkets aim at customers in different spending brackets. Supermarkets take the trouble to attract their target
customers and make them feel comfortable in the stores.

Garages sell cars within price ranges, some sell new cars and second hand ones less than three years old, others sell cars from two to five years
old, others sell cars costing less than £3000.

The clothing industry tends to segment customers by age.

It is possible to break an industry or product type into further segments. The car market is a good example of this, there are several segments in
the motor industry, for example:

 Small cars - targeted at young adults and pensioners

 Family cars

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  Fleet cars (once dominated by Ford and Vauxhall)

 Executives (BMW, Mercedes)

 Low price sports cars

 Expensive sports cars (Porsche, Ferrari)

 Luxury cars (Jaguar, Rolls Royce)

 Off road and SUVs

There are even very specialist niches occupied by companies like Morgan.

Relevance and Significance

There must be something special about the needs or desires of the segment.

An entire industry will clearly have special requirements, but even then they can be broken down smaller.

Almost all farms need tractors. However dairy farms, pig farms, orchards, and grain farms all have very different specialist equipment. Chinese
restaurants need equipment that is not used by Italian restaurants.

Let us look at the case of a supplier of locks.

 The hotel sector needs pass keys that will open any of a group of rooms

 The domestic sector needs easily fitted locks - DIY

 Corrosion is a problem for the marine sector

 The business sector needs locks that conform to insurance industry demands

Each sector has its own special need that is not shared with the others.

Accessibility

It must be possible to identify the members of a community. A good segment will have some sort of "community".

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Perhaps a list of members of the community exists.

This could take the form of a trade directory. If that is the case, you can buy the directory or a mailing list and use direct mail or cold calling. If there
are journals or magazines, these will be suitable for press releases or advertisements. You could even write articles for the magazines.

If events and exhibitions are organised for that segment, these provide marketing opportunities, as do clubs and on line forums.

Local papers can be used for geographical segments, both for advertisements and press releases. For small geographic segments, leaflet drops
can be used.

Members of the best segments will talk to each other, allowing the best form of marketing: word of mouth. Geographical segments are good for
this. Industries tend to be less good because your customers can be competitors of each other. Customers like local councils, schools and
colleges can be excellent because they do not cooperate with each other rather than compete and it is easy to get referrals.

Measurable

One must be able to determine the values of the variables used for segmentation. This is especially important for demographic and geographic variables.

Durable

The segments should be relatively stable over time to minimize costs of frequent changes.

Size

Remember that the purpose of a segment is so you can be one of the major players there.

You should aim for a segment where you will be one of the top three suppliers. This means you need to supply at least a quarter of the market.
The ideal size of the segment should be from around three to ten times your target turnover. Smaller than that, you won't have room to grow,
larger; you will be one of the bit players.

Choosing a Segment

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Start by looking at your present customers. What can you say about them? Who are the customers? What do they have in common? Are they in
the same industry for example?
When you have asked these questions, you should be able to create a list of candidate segments. Next, ask how relevant they are and how easy it
is to reach them. Use the sections above for this.

Finally, consider the size of the segments. If it is too small, then ask how you could make it more general. If it is too big, repeat the first step to
break the candidate segment down into smaller chunks.

Market segments and the process of market segmentation are key issues in any marketing strategy and it brings together a lot of different issues. Sound market
segmentation is one that is internally homogeneous and externally heterogeneous.

4.2.3 Basis for Segmentation:

Demographic Segmentation

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender, family size, income, occupation, education,
religion, race and nationality.

As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups.

This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available
to help with the demographic segmentation process.

The main demographic segmentation variables are summarized below:

a. Age
Consumer needs and wants change with age although they may still wish to consumer the same types of product. So marketers design, package and promote
products differently to meet the wants of different age groups. Good examples include the marketing of toothpaste (contrast the branding of toothpaste for
children and adults) and toys (with many age-based segments).

b. Life-Cycle Stage
A consumer stage in the life cycle is an important variable particularly in markets such as leisure and tourism.

c. Gender
Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics.

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d. Income
Many companies target affluent consumers with luxury goods and convenience services.

e. Social Class
Many marketers believe that consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other
products & services. There is a clear link here with income-based segmentation.

f. Lifestyle
Marketers are increasingly interested in the effect of consumer "lifestyles" on demand. Unfortunately, there are many different lifestyle categorization
systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns.

Behavioral Segmentation

Behavioral segmentation divides customers into groups based on the way they respond to, use or know of a product.

Behavioral segments can group consumers in terms of:

a. Occasions
When a product is consumed or purchased. For example, cereals have traditionally been marketed as a breakfast-related product.

b. Usage
Some markets can be segmented into light, medium and heavy user groups

c. Loyalty
Loyal consumers those who buy one brand all or most of the time are valuable customers. Many companies try to segment their markets into those where
loyal customers can be found and retained compared with segments where customers rarely display any product loyalty. The airlines market is a very good
example in this case. Most of these airlines run very good frequent fliers programme to retail customer loyalty.

d. Benefits Sought
This is an important form of behavioral segmentation. Benefit segmentation requires marketers to understand and find the main benefits customers look for
in a product. An excellent example is the toothpaste market where research has found four main "benefit segments" economic; medicinal, cosmetic and taste.

Geographic Segmentation

Geographic segmentation tries to divide markets into different geographical units: these units include:

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  Regions: e.g. in Ethiopia these might be North, South East, Northeast and West.
 Countries: perhaps categorized by size, development or membership of geographic region
 City / Town size: e.g. population within ranges or above a certain level
 Population density: e.g. urban, suburban, rural, and semi-rural
 Climate: e.g. Northern, Southern

Geographic segmentation is an important process- particularly for multi-national and global businesses and brands. Many such companies have regional and
national marketing programmes, which alter their products, advertising and promotion to meet the individual needs of geographic units.
Firms need creative strategy planning to survive in our increasingly competitive markets.

Once a broad product-market is segmented, marketing managers can use one of three approaches to market-oriented strategy planning:

1. the single target market approach,

2. the multiple target market approach, and
3. the combined target market approach.

Product related
Geographic Demographics Psychographic consumer
characteristics
Potential Nation/Region Age, Sex, Buying Social class Amount of Usage
Consumer State/region Power, expenditure Personality Life Type of usage
Segments Climate/Terra in patterns, Occupation, Cycle Brand Loyalty
Population education, Race or Benefits sought.
Density, Market Nationality, family Life
density Cycle

Fig 1.1 Segmentation variables

Market segmentation is a two-step process of:

1. Naming broad product-markets and
2. Segmenting these broad product-markets in order to select target markets and develop suitable marketing mixes.

This two-step process isn't well understood. First-time market segmentation efforts often fail because beginners start with the whole mass market and try to find
one or two demographic characteristics to segment this market. Customer behavior is usually too complex to be explained in terms of just one or two
demographic it would not be a useful dimension for segmenting.

Criteria for segmenting a broad product-market and/or service

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Effective market segments generally meet the following criteria:

1. Homogeneous (similar) within the customers in a market segment should be as similar as possible with respect to their likely responses to marketing
mix variables and their segmenting dimensions.
2. Heterogeneous (different) between the customers in different segments should be as different as possible with respect to their likely responses to
marketing mix variables and their segmenting dimensions.
3. Substantial the segment should be big enough to be profitable.
4. Operational the segmenting dimensions should be useful for identifying customers and deciding on marketing mix variables.

It is especially important that segments be operational. This leads marketers to include demographic dimension such as age, income, location, and family size. In
fact, it is difficult to make some place and promotion decisions without such information. Avoid segmenting dimensions that have no practical operational use.
For example, you may find a personality trait such as moodiness among the traits of heavy buyers of a product, but how could you use this fact? Sales people
can't give a personality test to each buyer. Similarly, advertising couldn't make much use of this information although moodiness might be related in some way to
previous purchases.

4.2.4 Steps to Market Segmentation

Market segmentation is widely defined as being a complex process consisting in two main phases:

 identification of broad, large markets

 segmentation of these markets in order to select the most appropriate target markets and develop Marketing mixes accordingly.

Everyone within the Marketing world knows and speaks of segmentation yet not many truly understand its underlying mechanics, thus failure is just around the
corner. What causes this? It has been documented that most marketers fail the segmentation exam and start with a narrow mind and a bunch of misconceptions
such as "all teenagers are rebels", "all elderly women buy the same cosmetics brands" and so on. There are many dimensions to be considered, and uncovering
them is certainly an exercise of creativity.

The most widely employed model of market segmentation comprises 7 steps, each of them designed to encourage the marketer to come with a creative approach.

STEP 1: Identify and name the broad market

You have to have figured out by this moment what broad market your business aims at. If your company is already on a market, this can be a starting point; more
options are available for a new business but resources would normally be a little limited.

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The biggest challenge is to find the right balance for your business: use your experience, knowledge and common sense to estimate if the market you have just
identified earlier is not too narrow or too broad for you.

STEP 2: Identify and make an inventory of potential customers' needs

This step pushes the creativity challenge even farther, since it can be compared to a brainstorming session.

What you have to figure out is what needs the consumers from the broad market identified earlier might have. The more possible needs you can come up with,
the better.

Got yourself stuck in this stage of segmentation? Try to put yourself into the shoes of your potential customers: why would they buy your product, what could
possibly trigger a buying decision? Answering these questions can help you list most needs of potential customers on a given product market.

STEP 3: Formulate narrower markets

McCarthy and Perreault suggest forming sub-markets around what you would call your "typical customer", then aggregate similar people into this segment, on
the condition to be able to satisfy their needs using the same Marketing mix. Start building a column with dimensions of the major need you try to cover: this will
make it easier for you to decide if a given person should be included in the first segment or you should form a new segment. Also create a list of people-related
features, demographics included, for each narrow market you form - a further step will ask you to name them.

There is no exact formula on how to form narrow markets: use your best judgement and experience. Do not avoid asking opinions even from non-Marketing
professionals, as different people can have different opinions and you can usually count on at least those items most people agree on.

STEP 4: Identify the determining dimensions

Carefully review the list resulted form the previous step. You should have by now a list of need dimensions for each market segment: try to identify those that
carry a determining power.

Reviewing the needs and attitudes of those you included within each market segment can help you figure out the determining dimensions.

STEP 5: Name possible segment markets

You have identified the determining dimensions of your market segments, now review them one by one and give them an appropriate name. A good way of
naming these markets is to rely on the most important determining dimension.

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STEP 6: Evaluate the behavior of market segments

Once you are done naming each market segment, allow time to consider what other aspects you know about them. It is important for a marketer to understand
market behavior and what triggers it. You might notice that, while most segments have similar needs, they're still different needs: understanding the difference
and acting upon it is the key to achieve success using competitive offerings.

STEP 7: Estimate the size of each market segment

Each segment identified, named and studied during the previous stages should finally be given an estimate size, even if, for lack of data, it is only a rough
estimate.

Estimates of market segments will come in handy later, by offering a support for sales forecasts and help plan the Marketing mix: the more data we can gather at
this moment, the easier further planning and strategy will be.

These were the steps to segment a market, briefly presented. If performed correctly and thoroughly, you should now be able to have a glimpse of how to build
Marketing mixes for each market segment.

This 7 steps approach to market segmentation is very simple and practical and works for most marketers. However, if you are curious about other methods and
want to experiment, you should take a look at computer-aided techniques,

4.2.5 Target Marketing

It's important to remember that the focus of marketing is people. If you're concentrating your efforts on your product or profit
only, you'll miss the mark. The term "target market" is used because that market-that group of people-is the bull's eye at which
you aim all your marketing efforts. All businesses need to study and develop a thorough knowledge of the importance of target
markets.

So, don't forget that a market is people: people with common characteristics that set them apart as a group. The more
statistics you have about a target market, the more precisely you can develop your strategy. Understanding market
segmentation is crucial for working out a well-crafted marketing strategy in today's competitive world.

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The table below shows some examples of market segments (or groups).

Type of Market
Shared Group Characteristics
Segment

Demographic
Measurable statistics such as age, income, occupation, etc.
Segment

Psychographic Lifestyle preferences such as music lovers, city or urban

Segment dwellers, etc.

Frequency of usage such as recreational drinking, traveling,

Use-based Segment
etc.

Desire to obtain the same product benefits such as luxury,

Benefit Segment
thriftiness, comfort from food, etc.

Geographic Segment Location such as home address, business address, etc.

Here are examples of target segments that can be created using the above table:

 Women business owners between the ages of 25 and 60 earning more than $25,000 annually form a demographic
segment.
 People who drive compact cars due to their fuel efficiency form a benefit segment.

Be careful not to confuse a geographic market segment with a place. The market is the people who live in the Sunbelt area, not
the Sunbelt area itself. This is a common mistake made by business owners that causes them to lose a marketing focus on their
customers.

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Design Marketing Strategies with Your Target Market in Mind
The reason you must identify a target market is so that you can easily and cost-effectively create strategies for designing,
pricing, distributing, promoting, positioning, and improving your product, service, or idea.

For example, if research shows that a sturdy recyclable package with blue lettering appeals to your target market and if you're
focused on that target market, you should choose that type of packaging. If, however, you are product- or profit-oriented
rather than people oriented, you might simply make the package out of plain Styrofoam because it protects the product
(product-oriented) or because it's cheap (profit-oriented).

Here's another example: If you know your target market is 24- to 49-year-old men who like R&B music, frequently purchase
compact discs, and live in urban neighborhoods, you can create an advertising message to appeal to these buyers. Additionally,
you could buy spots on a specific radio station or TV show that is popular among these buyers, rather than buying general
media time to "kinda cover all the bases."

If the word "kinda" features anywhere in your making marketing decisions, you're costing your business money. Know who you
are aiming for (your target market) and create a strategy for a direct hit.

Limitations of Segmentation

Segmentation can be misused if:

1. Segments are too small.
2. Consumers are misinterpreted.
3. There are cost inefficiencies.
4. There are too many brands.
5. Firms become short-run, rather than long-run, oriented.
6. Media cannot be used.
7. Segments are too disparate.
8. Consumers are confused.
9. The firm is locked into a declining segment.
10. New product opportunities are sought out too slowly.
4.2.6 Positioning Products

What is positioning? Where did it come from? And how do you "do" it?

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It all started with a couple of guys named Trout and Reis. Beginning in 1969 and then into the early 70s, these two young marketing geniuses, Jack Trout and Al
Ries, wrote, spoke and disseminated to the advertising and PR world about a new concept in communications called positioning. Until then, agencies had
primarily been basing their media campaigns on internally conceived benefits of the client's product.

These campaigns may have been creative, they said, but they would simply no longer get the job done in what had become a heavily over communicated society.
There were too many products, being pushed by too many advertising money on too many media lines and the prospect's head was just too full of everyone's
noise for the old kind of advertising to get through and make any kind of impact.

The game had changed, said the boys. If you wanted to reach your prospect, the focus of your campaign could no longer be based on internally conceived
benefits,- what management thought was cool -, the target was now the mind of the prospect. You had to focus on the perceptions of the prospect. You had to
find a place in the mind of your public in which to put your product. This was positioning.

Positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position (place) the product in the mind of the
prospect.

The way you do that is to tie the product or service to something that is already in the mind. In so doing, you are able to instantly communicate to an audience
about something about which they had previously been unfamiliar.

The Easy Way to Position a Product

The easy way to position a product is to get into the mind first. The first product into the mind will usually dominate the category and be very difficult to
dislodge: Coke in COLAs, Coffee and Lucy in Ethiopia, Bayer in aspirin, Webster in dictionaries, and Gillette in razor blades to name a few. These guys got into
the mind first and their product itself becomes the icon of the category. As such, they are very difficult to dislodge as the leader.

In the old days you never even mentioned the competition. But again, positioning requires that you relate the product or issue to something that is already in the
prospect's mind--something with which they are familiar--and one way to do that is relate your product to the leader.

The most famous of the early positioning campaigns of this nature was the "against" position taken by Avis against Hertz. They wisely didn't try to take Hertz
head on, they said

"Avis is only No. 2 in rent-a-cars, so why go with us? We try harder."

Trying to take the leader head on usually results in marketing suicide. When no less a company than RCA announced that they were going to take on IBM in
computers in the 1970s, Robert Sarnoff said that he expected it would take them a year to get to be #2 in the computer industry. A year and $250 million dollars
later RCA walked away with its tail between it legs.

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Why? IBM had the computer position in the minds of the public. IBM meant computers. RCA meant radio, TV, records--they had the communication position in
the public's mind.

What If you’re Not First?

What if you're not Disney or Gillette or CNN? Is there a way to take market share from a leader? Yes there is, and that is by finding a position that is available in
the mind of your public.

To find a unique position, what you must do is look inside the prospect's mind. You won't find an 'uncola' idea inside a 7-Up can. You find it inside the cola
drinker's head.

Narrowing the Focus

One of the ways to facilitate a strong position is accomplished by doing the opposite of what most marketers want to do. Most sales and marketing staff want to
try to be all things to all people. This may provide some short-term benefit, but it clearly weakens the brand and the position in the long run. You strengthen your
brand by narrowing your focus.

"Coffee shops" used to have extensive food menus; Starbucks narrowed the focus to coffee.

Other examples of this kind of focused positioning include; The Gap = everyday causal clothing, Home Depot = home supplies, Victoria's Secret = ladies'
lingerie, PetsMart = pet supplies, Blockbuster Video = video rentals, Foot Locker= athletic shoes, Office Depot = office supplies.

Positioning is not about features and specifications. It's the core message that differentiates your product from everything else in the marketplace. A unique
product identity strengthens the market's perception of your product and in turn reinforces your company's overall positioning.

Managers make the graphs for positioning decisions by asking consumers to make judgments about different brands including their "ideal" brand and then use
computer programs to summarize the ratings and plot the results. The details of positioning techniques sometimes called "perceptual mapping".

Remember that positioning maps are based on customers' perceptions the actual characteristics of the products as detected by chemical tests might be quite
different.

Positioning is based on customers' views

Differentiation and Positioning Take the Customer Point of View
Opportunities Can Begin by Understanding Markets

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Targeting allows firms to channel its resources into those segments that are believed to be most profitable – i.e. focusing extra attention on some market
segments provides opportunity for making a bigger impact where it is most important.
Positioning allows firms Determining Differential Advantage: By identifying a segment market and targeting it, firm are searching for a differential advantage –
i.e. making product and services better than competitors.

4.3 The Marketing Mix

Marketing Mix is defined as a set of marketing tools that the firm uses to pursue its marketing objectives in the target market. The marketing mix
is an essential part of the formulation of a firm's marketing strategy.
Traditionally, the marketing mix consisted of four broad categories of variables known as the 4 P's of Marketing: product, price, place, and
promotion.
Product describes the product or service being offered. This includes product ideas and development, variety and assortment, quality, features,
style, brand name, packaging, warranties, product logos, trademarks, public perception, as well as supporting and complementary services.
Price describes the price charged and terms associated with the sale, such as list price, discounts, allowances, credit terms, payment period,
coupons, and sales policy.
Place is the distribution and logistics function that needs to be considered in making the product or service available, in particular distribution
channel strategies and plans, shelf space allocation and management, inventory and warehouse management, transportation, degree of vertical
and horizontal integration, service level policy and standards, facility location and convenience.
Under promotion we understand all promotion and communication activities associated with marketing the product or service, such as
advertising, personal selling, sales promotion, and public relations, also called the promotion mix.
The traditional 4 P's are widely used as an organizing concept both in planning corporate marketing strategies and formulating implementation
plans to achieve specified marketing objectives. A number of writers have suggested that the particular elements in the marketing mix will vary or
should be expanded beyond the 4 P's depending on the context in which they are used. The Expanded Marketing Mix includes the traditional
mix elements plus three new ones: people (participants), processes, and most important of all, provision of customer service. The expanded
marketing mix has been known as the 7 P's. Many writers refer the 7 P's as the Service Marketing Mix.
People- The limiting factor to a firm's success is far more predicated on the availability of skilled people to work in the organization than the
availability of other resources such as capital or raw materials. Companies must develop a marketing plan to increase the quality of staff. The
expression 'our employees are our greatest asset' is often heard, unfortunately however, this statement is often not more than a platitude. By
recognizing the contribution of people to getting and keeping customers within the overall marketing mix, the company's competitive
performance can be substantially enhanced.

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Processes assume a separate role within the marketing mix, as process management involves the procedures, task schedules, mechanisms,
activities and routines by which a product or service is delivered to the customer. Identification of process management as a separate activity is a
pre-requisite to quality improvement. While the people element is important in customer service, no amount of attention and effort from staff will
overcome continued unsatisfactory process performance.
Provision of customer service- Customer service is now often seen as falling in the province of the distribution and logistics function, having
significance in terms of the way in which products or services are delivered and the extent to which customers are satisfied in the context of
reliability and speed of delivery. Other service elements are warranties, unconditional service guarantees, intelligible instruction books and free
phone-in advice centers.
Service is essentially any back-up the firm gives to customers to win and maintain their loyalty. Several arguments support the choice of customer
service as a separate element in the marketing mix:
Changing customer expectations- In almost every market customers are becoming more demanding and more sophisticated than they have
been in the past. Industrial purchasers are more professional and make use of vendor appraisal systems. Very often they demand just-in-time
delivery performance.
Increased importances of customer service- With changing customer expectations, competitors are seeing customer service as a competitive
weapon to differentiate their sales.
The need for a relationship strategy. To ensure that a customer service strategy that will create a value, proposition for customers is
formulated, implemented and controlled. It is necessary to establish customer service as having a central role and not be one that is subsumed in
various elements of the marketing mix.
There is no doubt that the primary focus of marketing was and remains on the customers. More recently there has been a changing emphasis in
the focus of marketing from transactional marketing that emphasizes the individual sale to relationship marketing which emphasizes long-term
and lasting relationships. While a focus on gaining new customers is necessary to the development of any business, it is also essential to ensure
that ongoing marketing activity is directed at existing customers. By placing too much attention on finding new customers, companies often
experience the "leaking bucket effect", where customers are being lost because of insufficient marketing activity and poor customer service, such
as rudeness, out of stock, untrained employees, poor quality, poor selection, and poor value. Too many companies, having secured a customer's
order, then turn their attention to seeking new customers without understanding the importance of maintaining and enhancing the relationships
with their existing customer group.
Some writers have utilized the general value of the marketing mix by suggesting that it artificially limits the scope of marketing management. It is
also suggested that the new elements of the mix (physical evidence, people and process) may apply equally well to manufacturing companies.
It may be true that the marketing mix will not be the sole tool or framework in marketing management. These elements are mainly used to control
short term objectives in a given target market. To make the marketing mix continually useful and important to marketing management, total
quality should be added as an element of the marketing mix. Since the key objectives of marketing management are the attainment of customer
satisfaction, customer loyalty and long-term customer retention, total quality and continuous improvement enable a firm to align its effort to
achieve the perpetual renewal of strategic differences.

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Historically, much of the marketing theory has evolved from the study of consumer markets. However, international operations of individual
firms are not so much concerned with the manipulation of the "Four P's", as used in consumer goods marketing. Rather, they are concerned with
reaching a critical mass in terms of the relations with customers, distributors, suppliers, public, institutions, individuals, etc.
The problem with the traditional marketing mix is that most of the elements do not reflect the value from the customer's perspective. It means that
the traditional marketing mix concept is not customer-driven.
In a customer-driven organization, all the elements in the marketing mix must correspond to customer value. For example:

7 P's 7 C's

Product Customer needs and wants

Price Cost to customer
Place Convenience
Promotion Communication
Provision of Customer Service Conformance context
Participants’ Competent people
Process Continuous improvement process

If marketing mix is defined as the marketing tools to pursue the marketing objectives, then one can say that most of them have failed to do so. In
order to formulate a successful marketing strategy, the marketing mix must be lined up with the customer-driven critical success factors.
In order to meet the marketing objectives, a firm must create and deliver customer value, instead of product, price, promotion and distribution.
The
P's or 7 P's are of little importance to formulate a customer value strategy. For example, price is of no meaning unless it is benchmarked with other
competitors in relation to market-perceived quality.
Customers will only look at the quality attributes when making their purchasing decisions. In order to formulate the marketing strategies, we
have to consider first at least the following elements:
Quality
Cycle Time
Flexibility
Customer Service
Total relationship
One of the arguments supporting the choice of the above elements as the core marketing elements is that nowadays companies are competing on
capabilities, not product, price, or distribution. Capabilities are measured in terms of quality, cycle time or flexibility of the business processes.

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Another argument is the Need for an Interactive Strategy. To ensure that the marketing strategy will create customer value, it is necessary to
establish it in such a way that it can play a central role to be interactive with various elements of the traditional marketing mix.
One can, therefore, argue that quality, cycle time, flexibility, customer service, and total relationship are the Core Marketing Mix to formulate a
marketing strategy which creates customer value. The other elements of the traditional marketing mix could be called Augmented Marketing
Mix.
The elements of the Augmented Marketing Mix should be extended to more than the 7 P's and should include Marketing Research (fact finding
and analysis) as well.
Important is that they must be customer-driven. It means the customer must perceive value on them. To construct a total marketing mix system,
we must think in terms of customer value of each element. The case of marketing mix together with the augmented marketing mix must be listed
out and we should ask the customers to do the ranking and weighting of them. Depending on the nature of industry, their customer, and market
conditions, different companies can compose a set of marketing mix which is meaningful to them to formulate the marketing strategy.
Total Marketing Mix is a dynamic concept which depends on the customer valve as the major marketing mix element to drive the other
marketing variables towards total customer satisfaction.
This new reform is vastly more ambitious than the traditional 4 P's or the expanded 7 P's concepts of marketing mix. This concept is now broader
and more dynamic. The proposed offer can be enriched as the product evolves with time and matures on the product life-cycle and, since
competitive advantages do not last long (being rapidly copied by the ever present competition), the customer gradually gets more and more
value.

A Summary Table of the Marketing Mix

The following table summarizes the marketing mix decisions, including a list of some of the aspects of each of the 4Ps.

Summary of Marketing Mix Decisions

Product Price Place Promotion

Functionality List Price Channel members Advertising
Appearance Discounts Channel motivation Personal selling
Quality Allowances Market coverage Public relations
Packaging Financing Locations Message
Brand Leasing options Logistics Media
Warranty Service levels Budget
Service/Support

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5. Managing Product Lines and Brands

5.1 What Is a Product?

A “product” is a good, a service, or an idea received in an exchange.

 It can be either tangible or intangible and includes functional, social, and psychological utilities or benefits.
 It also includes supporting services, such as installation, guarantees, product information, and promises of repair or maintenance.
A product can be an idea, a service, a good, or any combination of the three.
 A good is a tangible physical entity.
 A service is an intangible result of the application of human and mechanical efforts to people or objects.
 An idea is a concept, philosophy, image, or issue.
Three Levels of product
It is helpful to think of a total product offering as having a combination of three interdependent elements:
 The core product consists of a product’s fundamental utility or main benefit.
 A product’s supplemental features provide added value or attributes in addition to its core utility or benefit.
1) Supplemental products can also provide installation, delivery, training, and financing.
2) These supplemental attributes are not required to make the core product function effectively, but they help differentiate one product
brand from another.
 Customers also receive benefits based on their experiences with the product; many products have symbolic meaning for buyers.
When buyers purchase a product, they are really buying the benefits and satisfactions that they think the product will provide.
Classifying Products
Products fall into two general categories—consumer products and business products.
Consumer Products
Consumer products are purchased to satisfy personal and family needs; they are categorized according to how buyers generally behave when
purchasing a specific item.

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  Convenience Products
Convenience products are relatively inexpensive, frequently purchased items for which buyers exert only minimal purchasing effort.
3) The buyer spends little time planning the purchase of a convenience item or comparing available brands or sellers.
4) A convenience product normally is marketed through many retail outlets.
5) Because sellers experience high inventory turnover, per-unit gross margins can be relatively low.
6) Producers of convenience products can expect little promotional effort at the retail level; the package may have to sell the product
because many convenience items are available only on a self-service basis at the retail level.
 Shopping Products
7) Shopping products are items for which buyers are willing to expend considerable effort in planning and making the purchase.
(1) Buyers allocate considerable time to comparing stores and brands in prices, product features, qualities, services, and perhaps
warranties.
(2) Although shopping products are purchased less frequently and are more expensive than convenience products, buyers of shopping
products are not extremely loyal to their brands.
8) Key marketing issues for shopping products:
(3) They require fewer retail outlets than convenience products.
(4) Because they are purchased less frequently, causing lower inventory turnover, marketing channel members expect to receive
higher gross margins.
(5) Usually, the producer and the marketing channel members expect some cooperation from each other in providing parts and repair
services and performing promotional activities.
 Specialty Products
Specialty products have one or more unique characteristics, and buyers are willing to expend considerable effort to obtain them.
9) Buyers actually plan the purchase of a specialty product; they know exactly what they want and will not accept a substitute.
10) Specialty items often are distributed through a limited number of retail outlets.
11) Like shopping products, specialty products are purchased infrequently, causing lower inventory turnover; thus gross margins must be
relatively high.
 Unsought Products
12) Unsought products are products purchased to solve a sudden problem, products of which customers are unaware, and products that
people do not necessarily think about buying.
13) Examples include emergency medical services and automobile repairs.
Business Products
Business products are purchased to use in a firm’s operations, to resell, or to use in the manufacture of other products; they are classified according to
their characteristics and intended uses in an organization.
1. Installations

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 Installations include facilities, such as office buildings, factories, and warehouses, and major equipment that are nonportable, such as
production lines and very large machines.
14) This equipment is usually expensive and intended to be used for a considerable period of time.
15) Marketers of installations frequently must provide a variety of services, including training, repairs, maintenance assistance, and may
even help finance the purchase.
2. Accessory Equipment
Accessory equipment does not become a part of the final physical product but is used in production or office activities.
16) Compared with major equipment, accessory items usually are much cheaper, purchased routinely with less negotiation, and treated as
expense items rather than as capital items because they are not expected to last as long.
17) Sellers do not have to provide the multitude of services expected of installations marketers.
3. Raw Materials
Raw materials are basic materials that become part of a physical product.
18) Other than the processing required to transport and physically handle the product, raw materials have not been processed when a firm
buys them.
19) Raw materials often are bought in large quantities according to grades and specifications.
4. Component Parts
Component parts become a part of the physical product and are either finished items ready for assembly or products that need little processing
before assembly.
20) Buyers purchase component parts according to their own specifications or industry standards.
21) Component parts suppliers must provide consistent quality and on-time deliveries.
5. Process Materials
Process materials are used directly in the production of other products.
22) Unlike component parts, process materials are not readily identifiable.
23) Process materials are purchased according to industry standards or the purchaser’s specifications.
6. MRO Supplies
24) MRO supplies are maintenance, repair, and operating items that facilitate an organization’s production and operations but do not become
part of the finished product.
25) Supplies are commonly sold through numerous outlets and are purchased routinely.
7. Business Services
Business services are the intangible products that many organizations use in their operations and include financial, legal, marketing research,
information technology, and janitorial services.
26) Purchasers must decide whether to provide their own services internally or to obtain them from outside the organization.
27) This decision depends largely on the costs associated with each alternative and how frequently the services are needed.

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A product can be defined as a collection of physical, service and symbolic attributes which yield satisfaction or benefits to a user or buyer. A
product is a combination of physical attributes say, size and shape; and subjective attributes say image or "quality". A customer purchases on both
dimensions.

A product's physical properties are characterised the same the world over. They can be convenience or shopping goods or durables and
nondurables; however, one can classify products according to their degree of potential for global marketing:

i) local products - seen as only suitable in one single market.

ii) international products - seen as having extension potential into other markets.

iii) multinational products - products adapted to the perceived unique characteristics of national markets.

iv) global products - products designed to meet global segments.

Quality, method of operation or use and maintenance (if necessary) are catchwords in international marketing. A failure to maintain these will lead
to consumer dissatisfaction. This is typified by agricultural machinery where the lack of spares and/or foreign exchange can lead to lengthy
downtimes. It is becoming increasingly important to maintain quality products based on the ISO 9000 standard, as a prerequisite to export
marketing.

Consumer beliefs or perceptions also affect the "world brand" concept. World brands are based on the same strategic principles, same positioning and same
marketing mix but there may be changes in message or other image. World brands in agriculture are legion. In fertilizers, brands like Norsk Hydro are universal;
in tractors, Massey Ferguson; in soups, Heinz; in tobacco, BAT; in chemicals, Bayer. These world brand names have been built up over the years with great
investments in marketing and production. Few world brands, however, have originated from developing countries. This is hardly surprising given the lack of
resources. In some markets product saturation has been reached, yet surprisingly the same product may not have reached saturation in other similar markets.
Whilst France has long been saturated by avocadoes, the UK market is not yet, hence raising the opportunity to enter deeper into this market.

5.2 Product Design and Development

Product design

Changes in design are largely dictated by whether they would improve the prospects of greater sales, and this, over the accompanying costs.
Changes in design are also subject to cultural pressures. The more culture-bound the product is, for example food, the more adaptation is

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necessary. Most products fall in between the spectrum of "standardisation" to "adaptation" extremes. The application the product is put to also
affects the design. In the UK, railway engines were designed from the outset to be sophisticated because of the degree of competition, but in the
US this was not the case. In order to burn the abundant wood and move the prairie debris, large smoke stacks and cowcatchers were necessary.
In agricultural implements a mechanised cultivator may be a convenience item in a UK garden, but in India and Africa it may be essential
equipment. As stated earlier "perceptions" of the product's benefits may also dictate the design. A refrigerator in Africa is a very necessary and
functional item, kept in the kitchen or the bar. In Mexico, the same item is a status symbol and, therefore, kept in the living room.

Factors encouraging standardisation are:

i) economies of scale in production and marketing

ii) consumer mobility - the more consumers travel the more is the demand
iii) technology
iv) image, for example "Japanese", "made in".

The latter can be a factor both to aid or to hinder global marketing development. Nagashima1 (1977) found the "made in USA" image has lost
ground to the "made in Japan" image. In some cases "foreign made" gives advantage over domestic products. In Zimbabwe one sees many
advertisements for "imported", which gives the product advertised a perceived advantage over domestic products. Often a price premium is
charged to reinforce the "imported means quality" image. If the foreign source is negative in effect, attempts are made to disguise or hide the fact
through, say, packaging or labelling. Mexicans are loathe to take products from Brazil. By putting a "made in elsewhere" label on the product this
can be overcome, provided the products are manufactured elsewhere even though its company maybe Brazilian.

Factors encouraging adaptation are:

i) Differing usage conditions. These may be due to climate, skills, level of literacy, culture or physical conditions. Maize, for example, would never
sell in Europe rolled and milled as in Africa. It is only eaten whole, on or off the cob. In Zimbabwe, kapenta fish can be used as a relish, but wilt
always be eaten as a "starter" to a meal in the developed countries.

ii) General market factors - incomes, tastes etc. Canned asparagus may be very affordable in the developed world, but may not sell well in the
developing world.

iii) Government - taxation, import quotas, non tariff barriers, labelling, health requirements. Non tariff barriers are an attempt, despite their
supposed impartiality, at restricting or eliminating competition. A good example of this is the Florida tomato growers, cited earlier, who successfully
got the US Department of Agriculture to issue regulations establishing a minimum size of tomatoes marketed in the United States. The effect of

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this was to eliminate the Mexican tomato industry which grew a tomato that fell under the minimum size specified. Some non-tariff barriers may be
legitimate attempts to protect the consumer, for example the ever stricter restrictions on horticultural produce insecticides and pesticides use may
cause African growers a headache, but they are deemed to be for the public good.

iv) History. Sometimes, as a result of colonialism, production facilities have been established overseas. Eastern and Southern Africa is littered with
examples. In Kenya, the tea industry is a colonial legacy, as is the sugar industry of Zimbabwe and the coffee industry of Malawi. These facilities
have long been adapted to local conditions.

v) Financial considerations. In order to maximise sales or profits the organisation may have no choice but to adapt its products to local conditions.

vi) Pressure. Sometimes, as in the case of the EU, suppliers are forced to adapt to the rules and regulations imposed on them if they wish to enter
into the market.

Production decisions

In decisions on producing or providing products and services in the international market it is essential that the production of the product or service
is well planned and coordinated, both within and with other functional area of the firm, particularly marketing. For example, in horticulture, it is
essential that any supplier or any of his "outgrower" (sub-contractor) can supply what he says he can. This is especially vital when contracts for
supply are finalised, as failure to supply could incur large penalties. The main elements to consider are the production process itself,
specifications, culture, the physical product, packaging, labelling, branding, warranty and service.

Production process

The key question is, can we ensure continuity of supply? In manufactured products this may include decisions on the type of manufacturing
process - artisanal, job, batch, flow line or group technology. However in many agricultural commodities factors like seasonality, perishability and
supply and demand have to be taken into consideration. Table 8.1 gives a checklist of questions on product requirements for horticultural products
as an example6

Table 5.1 Checklist of questions on product requirements by market

Existing sources of supply Recommendations for new suppliers, or increased supply

Current important suppliers? Best period of supply?

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Seasonality of supply, start of season, peak season and end of season? Type and size of packaging material? Grading and quality standards: *acceptable size
Packaging specifications, weight of produce per packaging unit, type of packaging? ranges?
Grading and quality standards? *whether different sized produce should be packed separately or jumble-packed?
Prices obtained and net profit returned to farmer, average price, maximum and minimum *state of ripeness and should produce of the same ripeness be packed together?
prices, effect of different quality standards on price? *acceptable level of blemishes?
Problems with existing suppliers and produce? *important appearance characteristics such as colour, variety, shape, presence of stalks,
Volumes sold daily, monthly, annually? bunch size? Budget gross and net prices?
Popularity trend? Volumes required?
Types of buyers and consumers? Frequency of shipment, best day and arrival time on market?
Use of crop? Transport arrangements, e.g. whose responsibility is it to arrange transport?
Factors affecting sales, e.g. weather, special festivals, day of arrival in market? Storage arrangements, if any?
Is the crop stored; if so where and by whom? Potential and techniques for developing sales?

Quantity and quality of horticultural crops are affected by a number of things. These include input supplies (or lack of them), finance and credit
availability, variety (choice), sowing dates, product range and investment advice. Many of these items will be catered for in the contract of supply.

Specification

Specification is very important in agricultural products. Some markets will not take produce unless it is within their specification. Specifications are
often set by the customer, but agents, standard authorities (like the EU or ITC Geneva) and trade associations can be useful sources. Quality
requirements often vary considerably. In the Middle East, red apples are preferred over green apples. In one example French red apples, well
boxed, are sold at 55 dinars per box, whilst not so attractive Iranian greens are sold for 28 dinars per box. In export the quality standards are set
by the importer. In Africa, Maritim (1991)2, found, generally, that there are no consistent standards for product quality and grading, making it
difficult to do international trade regionally.

Culture

Product packaging, labeling, physical characteristics and marketing have to adapt to the cultural requirements when necessary. Religion, values,
aesthetics, language and material culture all affect production decisions. Effects of culture on production decisions have been dealt with already in
chapter three.

Physical product

The physical product is made up of a variety of elements. These elements include the physical product and the subjective image of the product.
Consumers are looking for benefits and these must be conveyed in the total product package. Physical characteristics include range, shape, size,

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color, quality, quantity and compatibility. Subjective attributes are determined by advertising, self image, labelling and packaging. In manufacturing
or selling produce, cognisance has to be taken of cost and country legal requirements.

Again a number of these characteristics is governed by the customer or agent. For example, in beef products sold to the EU there are very strict quality
requirements to be observed. In fish products, the Japanese demand more "exotic" types than, say, would be sold in the UK. None of the dried fish products
produced by the Zambians on Lake Kariba, and sold into the Lusaka market, would ever pass the hygiene laws if sold internationally. In sophisticated markets
like seeds, the variety and range is so large that constant watch has to be kept on the new strains and varieties in order to be competitive.

I. Managing Existing Products

An organization can overcome weaknesses and gaps in its existing product mix through line extension or product modification.

A. Line Extensions

1. A line extension is the development of a product closely related to one or more products in the existing product line but designed specifically to meet
somewhat different needs of customers.

2. Line extensions are more common than new products because they are a less expensive, lower risk alternative for increasing sales.

3. A line extension may focus on a different market segment or on increasing sales within the same market segment by more precisely satisfying the needs of
people in that segment.

B. Product Modifications

1. Product modification means changing one or more characteristics of a firm’s product; it differs from a line extension in that the original product is removed
from the line.

2. Product modification is less risky than new-product development.

3. Three conditions must exist for product modification to improve the firm’s product mix.

a) The product must be modifiable.

b) The customer must be able to perceive that a modification has been made.

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c) The modification should make the product more consistent with customers’ desires.

4. There are three major ways to modify products.

a) Quality Modifications

(1) Quality modifications are changes relating to a product’s dependability and durability, usually executed by altering the materials or the production process.

(2) Reducing quality may allow the firm to lower its price and direct the item at a different target market.

(3) Increasing quality may allow the firm to charge a higher price by creating customer loyalty and lowering customer sensitivity to price.

(4) Some companies have been able to both increase quality and reduce cost of a product.

b) Functional Modifications

(1) Functional modifications are changes that affect a product’s versatility, effectiveness, convenience, or safety; they usually require that the product be
redesigned.

(2) These modifications can make a product useful to more people and thus enlarge its market.

(3) These changes can place the product in a favorable competitive position by providing benefits that other brands do not offer and help the firm achieve a
progressive image.

c) Aesthetic Modifications

(1) Aesthetic modifications change the sensory appeal of a product by altering its taste, texture, sound, smell, or appearance.

(2) Aesthetics of a product can differentiate it from competing brands to gain market share.

(3) The major drawback in using aesthetic modifications is that their value is subjective.

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II. Developing New Products

A. A firm develops new products as a means of enhancing its product mix and adding depth to a product line.

1. Developing and introducing new products is frequently risky and expensive.

2. Failure to introduce new products is also risky.

3. The term "new product" can have more than one meaning.

a) A new product can be an innovative product that has never been sold by any organization.

b) It can also be a product that a given firm has not marketed previously, although similar products may have been available from other companies.

c) A product can be viewed as new when it is brought to one or more markets from another market.

B. Before a product is introduced, it goes through the seven phases of the new-product development process; a product may be dropped at any stage of this
process.

1. Idea Generation

a) Idea generation, the first step in the development process, occurs when firms seek product ideas to achieve organizational objectives.

b) Firms trying to maximize product mixes effectively usually develop systematic approaches to new-product development.

c) New ideas may be generated internally or externally.

2. Screening

a) In phase two, screening, the most promising ideas are selected for further review.

b) Ideas are analyzed to determine whether they match the organization’s objectives, resources, and abilities.

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c) The potential market, the needs and wants of buyers, possible environmental changes, and possible cannibalizations of current products are also analyzed and
weighed.

d) Using a checklist of new-product requirements to ensure a systematic approach, more ideas are rejected during screening than in any other stage.

3. Concept Testing

a) Stage three is concept testing, in which a sample of potential buyers is presented with a product idea to determine their attitudes and initial buying intentions
regarding the product.

b) A firm can test more than one concept for the same product before it invests considerable resources in research and development.

c) The results of concept testing can be used to find out which aspects of the product are most important to potential customers.

d) Concept tests include a brief written or oral description of the concept followed by a series of questions on the product’s advantages, disadvantages, and price.

4. Business Analysis

a) During stage four, business analysis, the product idea is evaluated to determine its potential contribution to the firm’s sales, costs, and profits.

b) Marketers evaluate how well the product fits with the firm’s existing product mix, the strength of market demand for the product, the types of environmental
and competitive changes to be expected, and how these changes might affect the product’s future sales, costs, and profits.

c) For many product ideas, this analysis is challenging because forecasting accurately is difficult, especially for completely new products.

5. Product Development

a) In stage five, product development, the firm finds out if it is technically feasible to produce the product and if it can be produced at costs low enough to make
the final price reasonable.

(1) The idea or concept is converted into a prototype, or working model, that should reveal the tangible and intangible attributes associated with the product in
consumers’ minds.

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(2) The functionality of the prototype must be tested, including performance, safety, and convenience.

(3) The specific level of product quality is determined based on what price the target market views as acceptable and on the quality level of the firm’s own and
competing products.

b) This phase can be lengthy and expensive; thus a relatively small number of product ideas are put into development.

6. Test Marketing

a) Stage six, test marketing, is the limited introduction of the product in geographic areas chosen to represent the intended market to gauge the extent to which
potential customers will actually buy it.

b) Test marketing is not an extension of the development stage, but a sample launching of the entire marketing mix.

c) Test marketing provides several important benefits.

(1) It minimizes the risk of product failure.

(2) It lets marketers expose a product in a natural marketing environment to obtain a measure of its sales performance.

(3) It allows marketers to identify any weaknesses in the product itself or in other aspects of the marketing mix.

(4) Marketers can experiment in different test areas with advertising, price, and packaging variations.

d) Test marketing is also expensive and involves risks.

(1) Competitors may try to "jam" the testing program by increasing promotion of their own products.

(2) Competitors may copy the product in the testing stage and rush to introduce a similar product.

e) Many companies use simulated test marketing to avoid these risks.

f) Not all products that are test marketed are actually launched.

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7. Commercialization

a) Stage seven, commercialization, is the phase of planning for full-scale manufacturing and marketing and preparing budgets.

b) Marketing management analyzes the results of test marketing to find out what changes in the marketing mix are needed before the product is introduced.

c) The organization refines plans for production, quality control, distribution, and promotion.

d) Enormous amounts of money spent during this stage on marketing and manufacturing may not be recovered for several years.

e) Products are usually launched through an introduction process called a "roll-out"—stages that start in a set of geographic areas and gradually expand into
adjacent areas.

(1) Gradual introduction reduces the risk of introducing a new product and provides additional benefits.

(2) However, a gradual introduction allows competitors to monitor the product’s performance.

III. Product Differentiation through Quality, Design, and Support Services

Product differentiation is the process of creating and designing products so that customers perceive them as different from competing products. The three
physical aspects of product differentiation that companies must consider are product quality, product design and features, and product support services.

A. Product Quality

Product quality refers to the overall characteristics of a product that allow it to perform as expected in satisfying customer needs. Expectations and perceptions of
quality vary by customer.

1. Level of quality is the amount of quality possessed by a product.

2. Consistency of quality is the degree to which a product is the same level of quality over time. It can also be compared across competing products.

B. Product Design and Features

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1. Product design refers to how a product is conceived, planned, and produced; it involves the total sum of all the product’s physical characteristics.

a) One component of design is styling, the physical appearance of a product.

b) Most consumers seek out products that look good and function well.

2. Product features are specific design characteristics that allow a product to perform certain tasks. These can differentiate a firm’s products from those of its
competitors.

3. For a brand to have a sustainable competitive advantage, marketers must determine the product designs and features that customer’s desire.

C. Product Support Services

1. Customer services include any human or mechanical efforts or activities a company provides that add value to a product.

2. Customer services can include delivery, installation, financing, customer training, warranties, repairs, and more.

3. Providing good customer service may be the only way a firm can differentiate its products when all products in a market have essentially the same quality,
design, and features.

IV. Product Positioning and Repositioning

Product positioning refers to the decisions and activities intended to create and maintain a certain concept of a product in the customers’ minds. Marketers try to
position a product so that it seems to possess the characteristics most desired by the target market. Product position is the result of customers’ perceptions of a
product’s attributes relative to those of competing brands.

1. Marketers sometimes analyze product positions by developing perceptual maps; these are created by questioning a sample of consumers about their
perceptions of products, brands, and organizations with respect to two or more dimensions.

2. Using a perceptual map, marketers can compare how consumers perceive their brands compared to ideal points representing customer desires.

Product positioning is part of a natural progression when market segmentation is used. Positioning can be designed to compete head to head or to avoid it.

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1. Head-to-head positioning may be appropriate if the product’s performance characteristics are at least equal to those of competitive brands, if the product is
priced lower, or even when the price is higher if the product’s performance characteristics are superior.

2. Positioning to avoid competition may be best when the product’s performance characteristics do not differ significantly from competing brands, when the
brand has unique characteristics, or when marketers want to keep a new brand from cannibalizing sales of their existing brands.

If a product has been planned properly, its features and brand image will give it the distinct appeal needed. If buyers can easily identify the benefits, they are
more likely to purchase the product. Positioning decisions are not just for new products.

1. Evaluating the positions of existing products is important because a brand’s market share and profitability may be strengthened by product repositioning.

2. Repositioning can be accomplished by physically changing the product, its price, its distribution, or its promotion.

V. Product Deletion

Product deletion is the process of eliminating a product from the product mix when it no longer satisfies a sufficient number of customers.

A weak product is a drain on potential profitability and the marketer’s time and resources. It is often difficult to drop a product over the protests of management,
salespeople, and loyal customers. Instead of letting a weak product become a financial burden, a firm should periodically and systematically review and analyze
its contribution to the firm’s sales for a given time frame.

There are three ways to delete products.

1. A phase-out lets \the product decline without changing the marketing strategy.

2. A run-out calls for increased marketing efforts in core markets, deletion of some marketing expenditures, or price reductions to exploit any strengths left in the
product.

3. An immediate drop is the best strategy when losses are too great to prolong its life.

VI. Organizing to Develop and Manage Products

There are several alternatives to the traditional functional form of business organization.

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A. The Product Manager Approach

1. A product manager is the person within an organization responsible for a product, product line, or several distinct products that make up a group.

2. A brand manager is responsible for a single brand.

3. Product or brand managers operate cross-functionally to coordinate the activities, information, and strategies involved in marketing an assigned product.

4. This approach is used by many large, multiple-product companies in the consumer packaged-goods business.

B. The Market Manager Approach

1. A market manager is responsible for managing the marketing activities that serve a particular group of customers.

2. This approach is effective when a firm uses different types of activities to market products to diverse customer groups.

C. The Venture Team Approach

1. The venture team is a cross-functional team that creates entirely new products that may be aimed at new markets.

2. Venture teams, unlike product managers or market managers, are responsible for all aspects of a product’s development.

3. Venture teams work outside established organizational divisions and have greater flexibility to apply innovative approaches to new products and markets,
which lets the company take advantage of opportunities in highly segmented markets.

4. Companies are increasingly using such cross-functional teams for product development to boost product quality.

5.3 Product and Product Mix

A product item is a specific version of a product that can be designated as a distinct offering among an organization’s products.
A product line is a group of closely related product items that are considered a unit because of marketing, technical, or end-use considerations.
8. Marketers must understand buyers’ goals if they hope to come up with the optimal product line.

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 9. Specific items in a product line usually reflect the desires of different target markets or different consumer needs.
A product mix is the composite, or total, group of products that an organization makes available to customers.
10. The width of product mix is the number of product lines a company offers.
11. The depth of product mix is the average number of different products offered in each product line.

Product Line and Product Mix Strategies:

Product Line Strategies

A product line is a firm’s total product offering designed to satisfy a single need or desire of target customers. By developing product lines instead
of concentrating solely on individual products, companies can (1) grow, (2) enhance their position in the market, (3) make optimal use of company
resources, and (4) take advantage of the product life cycle. The number of separate items within the same product category determines the length
of the product line. A large number of variations in a product line is described as a full line that targets many customer segments to boost sales
potential. A limited-line strategy with fewer product variations can improve the firm’s image if it is perceived as a specialist with a clear, specific
position in the market.

When a company stretches its product line upward, it adds new higher-priced products and oftentimes claims more quality, features, etc. A
downward line stretch augments a line by adding items at the lower end. Companies stretching their product lines downward must be careful not to
dilute the images of their higher-priced, upper-end offerings. Sometimes companies may decide they are targeting too small a market and use a
two-way stretch strategy by adding products at both the upper and lower ends.

A filling-out strategy means adding sizes or styles not previously available in a product category. This is also known as line extension—using a
successful brand name to introduce additional items in a given product category under the same brand name, such as new flavors, forms, colors,
added ingredients, or package sizes. Line extension is the least risky way of introducing new products. A company can conversely use a
contracting strategy by removing sizes or styles, particularly when some of the items are not profitable.

Whenever a product line or a product family is extended, there is risk of cannibalization, the loss of sales of an existing brand when a new item in
a product line or product family is introduced.

Product Mix Strategies

A product mix is the total set of all products a firm offers for sale. In developing a product mix strategy, planners typically consider the width of the
product mix, the number of different product lines produced by the firm. By developing several different product lines, firms can reduce the risk
associated with putting all their eggs in one or a few baskets. Normally, firms develop a mix of product lines that have some things in common,
such as distribution channels or manufacturing facilities.

Quality as a Product Strategy:

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Companies often focus on product quality, the overall ability of the product to satisfy customers’ expectations. Quality is tied to how customers
think a product will perform and not necessarily to some technological level of perfection. Quality is a key component to a firm’s success in a
competitive marketplace. Product quality is one of the marketer’s major positioning tools. Most customer-centered companies define quality in
terms of customer satisfaction. Siemans defines quality as follows: “Quality is when our customers come back and our products don’t.”

Dimensions of Product Quality

Quality can mean many things: durability, reliability, high degree of precision, ease of use, maintenance and repair, product safety, and the degree
of aesthetic pleasure the product provides. Marketing planners often focus product objectives on one or both of two key aspects of quality: level
and consistency. Quality level is determined by comparing the product to other brands in the same product category. Consistency of quality means
that customers experience the same level of quality in a product time after time. Consistent quality is one of the major benefits of adopting total
quality management practices. Consumer perceptions can change overnight when quality is lacking.

E-Commerce and Product Quality

The Internet has made product quality even more important in product strategies. Consumers can interact directly with other people online. This new form of
communication cuts both ways since it lets people praise what they like and criticize what they don’t to an audience of thousands.

5.4 Product Line Decisions

Product lining is the marketing strategy of offering for sale several related products. Unlike product bundling, where several products are combined into one,
lining involves offering several related products individually. A line can comprise related products of various sizes, types, colors, qualities, or prices. Line depth
refers to the number of product variants in a line. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers
to the percentage of sales or profits that are derived from only a few products in the line.

The number of different product lines sold by a company is referred to as width of product mix. The total number of products sold in all lines is referred to as
length of product mix. If a line of products is sold with the same brand name, this is referred to as family branding. When you add a new product to a line, it is
referred to as a line extension. When you add a line extension that is of better quality than the other products in the line, this is referred to as trading up or
brand leveraging. When you add a line extension that is of lower quality than the other products of the line, this is referred to as trading down. When you trade
down, you will likely reduce your brand equity. You are gaining short-term sales at the expense of long term sales.

Image anchors are highly promoted products within a line that define the image of the whole line. Image anchors are usually from the higher end of the line's
range. When you add a new product within the current range of an incomplete line, this is referred to as line filling.

Price lining is the use of a limited number of prices for all your product offerings. This is a tradition started in the old five and dime stores in which everything
cost either 5 or 10 cents. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. It
has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices.

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There are many important decisions about product and service development and marketing. In the process of product development and marketing we should
focus on strategic decisions about product attributes, product branding, product packaging, product labeling and product support services. But product
strategy also calls for building a product line.

Product line extension is the use of an established product’s brand name for a new item in the same product category.
Line Extensions occur when a company introduces additional items in the same product category under the same brand name such as new flavors, forms, colors,
added ingredients, package sizes. Examples include: Surf, Surf Excel, Surf Excel Blue; Coke, Diet Coke,

Brand Strategy and Product Line and Mix decisions

A product line- Products in the same category with differing attributes and/or prices.
Note that some people will talk about lines and mixes slightly differently. That means that as always, you need to clarify what is meant when there is
any doubt.
Some of the ideas about product lines directly correspond to department stores.

Product and Brand Strategies

Existing New
Product Category Product Category
Existing Brand
Line Extension Brand Extension
Name
New
Brand Multi-Brands New Brands
Name
Product mix
A set of product lines measured by:
 length of the lines(# of different products in a line)
 width of the mix (# of lines)
 depth of each line (# of variants)
 consistency (how are products related eg. distribution, use, promotion)
5.5 The Product Life Cycle

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Products pass through stages as they age—just like people. Successful products progress through four basic stages: introduction, growth,
maturity, and decline. This progression is known as the product life cycle, a concept that explains the progression of a product through
introduction, growth, maturity, and decline. The product life cycle concept applies to products or product categories within an industry—not to
individual brands. Some products may move rapidly through the product life cycle, while others pass slowly through the four stages.

The Product Life Cycle: Stages and Implications

Introduction
The introduction stage is the product life cycle stage in which the new product is first distributed and made available for purchase. Introduction
takes time, and sales growth tends to be slow. The goal is to get first-time buyers to try the product. Since the product is unknown to the public,
promotional campaigns stress information about its features. Additional promotions directed toward distribution channel members try to induce
them to carry the product. In this stage, profits are negative or low because of the low sales and high distribution and promotion expenses and
R&D costs. At this stage the company and its few competitors produce basic versions of the product. These firms target buyers who are most
ready to buy. The introducing company must choose a launch strategy that is consistent with the intended product positioning. The length of time
for this stage is determined by marketplace acceptance of the new product and the producer’s willingness to support its product during start-up.
Not all products make it past the introduction stage. Nearly 40 percent of all new products fail.

Growth
The growth stage is the product life cycle stage in which a product’s sales start climbing quickly. If the new product satisfies the market in the
introduction stage, it will enter the growth stage. The early adopters will continue to buy, and later buyers will start following their lead, especially if
they hear positive word of mouth. Companies typically introduce new product features, and the market expands as new segments are attracted to
the product. New competitors enter the market during this stage because of the attraction of profit opportunities. Increased competition leads to an
increase in the number of distribution outlets. Sales increase as reseller inventories are built. Prices tend to be stable or fall slightly. Companies
maintain their levels of promotional spending or increase spending slightly. Educating the market remains a goal, but companies must also meet
the increased competition. When competitors appear, marketers must use heavy advertising and other types of promotion. Marketing’s goal here

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is to encourage brand loyalty by convincing the market that this brand is superior to others in the category. Profits increase during the growth
stage, as promotion costs are spread out over a large number of product units and as unit manufacturing costs fall. In order to sustain rapid market
growth as long a possible, companies improve product quality, and add new product features and models. They also enter new market segments
and distribution channels. Some advertising is shifted from building product awareness to building product conviction and purchase.

In the growth stage, the firm faces a tradeoff between high market share and high current profit. By spending large amounts of money on product
improvement, promotion, and distribution, the company can capture a dominant position. By doing this, however, it gives up maximum current
profit in order to make increased profits in the next stage.

Maturity
The maturity stage is the stage in the product life cycle in which sales growth slows or levels off. The maturity stage normally lasts longer than the
previous stages. Most products are in the maturity stage of the product life cycle. Most marketing management deals with the mature product. At
this stage, differences between competing products diminish as competitors discover the product and promotional characteristics most preferred
by customers. The slowdown in sales growth results in many producers with many products to sell. This overcapacity leads to greater competition.
Heavy promotional outlays emphasize any differences that still separate competing products. Brand competition intensifies. Some firms try to
differentiate their products by focusing on attributes such as quality, reliability, and service. Competitors lower prices, increase promotion, and
increase their R&D budgets in order to develop better versions of the product. Consequently, profits drop. At this point the weaker competitors
begin to drop out of the marketplace, leaving only well-established companies in the industry. During the maturity stage, firms will try to sell their
products through as many outlets as possible because availability is crucial in a competitive market. To remain competitive and maintain market
share during this stage, firms may tinker with the marketing mix. Attracting new users of the product is another strategy that marketers use in the
maturity stage. This is done by utilizing market penetration and market development strategies.

Decline
The decline stage is the product life cycle stage in which a product’s sales decline. The decline may be slow or rapid. Sales decline for a variety
of reasons: technological advances, shifts in consumer tastes, and increased competition. A firm’s major product decision in the decline stage is
whether or not to keep the product. As sales and profits decline, some companies withdraw from the market. The remaining firms may prune their
product offerings, dropping smaller market segments and marginal trade channels. They may also cut the promotion budget and reduce prices
further. Management may decide to maintain its brand without change in the hope that competitors will leave the industry. Companies may also
decide to reposition or reformulate brands in hopes of moving them back into the growth stage of the product life cycle.

Fashions and Fads

Fashions are currently popular products that tend to follow recurring life cycles. Fads, on the other hand, are fashions with abbreviated life cycles.
Most fads experience short-lived popularity and then quickly fade.

Few products go on and on.... so companies must plan ahead with innovations to stay in business. The PLC gives us a way to think about what needs to
be done at any given time. There are distinctly different implications for marketing mix tactics as a product matures.

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Fig, 5.1 Different activities at different stages of the Product Life Cycle

Product Life Cycles and Marketing Strategies

Product Adoption Process
The product adoption process includes the stages the buyers go through in accepting a product.
12. The five stages of the adoption process are awareness, interest, evaluation, trial, and adoption.
28) First stage: Awareness is when a buyer becomes aware of the product’s existence.
29) Second stage: Interest is when the buyer seeks information and is receptive to learning about the product.
30) Third stage: Evaluation is when the buyer considers the product’s benefits and decides whether to try it.
31) Fourth stage: Trial is when the buyer examines, tests, or tries the product to determine if it meets his or her needs.
32) Fifth stage: Adoption is when the buyer purchases the product and can be expected to use it again whenever the need for this general
type of product arises.
13. Entering the adoption process does not mean the person will eventually adopt the product—rejection can occur at any stage.
When an organization introduces a new product, people do not begin the adoption process at the same time, nor do they move through it at the same speed.

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 14. Innovators are the first adopters of new products. They enjoy trying new things and tend to be venturesome.
15. Early adopters are the careful choosers of new products. They are viewed as the people to check with by people in the remaining adopter
categories.
16. Early majority are those people adopting new products just before the average person. They are deliberate and cautious in trying new products.
17. Late majority includes skeptics who adopt new products when they feel it is necessary.
18. Laggards are the last adopters. They distrust new products, and when they finally adopt the innovation, it may have been replaced by a new
product.

Marketing Mix Decisions and the PLC

Introduction Stage
In the introduction stage, the firm seeks to build product awareness and develop a market for the product. The impact on the marketing mix is as follows.
 Product branding and quality level is established and intellectual property protection such as patents and trademarks are obtained.
 Pricing may be low penetration pricing to build market share rapidly, or high skim pricing to recover development costs.
 Distribution is selective until consumers show acceptance of the product.
 Promotion is aimed at innovators and early adopters. Marketing communications seeks to build product awareness and to educate potential
consumers about the product.

Growth Stage
In the growth stage, the firm seeks to build brand preference and increase market share.
 Product quality is maintained and additional features and support services may be added.
 Pricing is maintained as the firm enjoys increasing demand with little competition.
 Distribution channels are added as demand increases and customers accept the product.
 Promotion is aimed at a broader audience.

Maturity Stage
At maturity, the strong growth in sales diminishes. Competition may appear with similar products. The primary objective at this point is to defend market share
while maximizing profit.
 Product features may be enhanced to differentiate the product from that of competitors.
 Pricing may be lower because of the new competition.
 Distribution becomes more intensive and incentives may be offered to encourage preference over competing products.
 Promotion emphasizes product differentiation.
Decline Stage
As sales decline, the firm has several options:
 Maintain the product, possible rejuvenating it by adding new features and finding new uses.
 Harvest the product - reduce costs and continue to offer it, possible to a loyal niche segment.

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  Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to continue the product.

The marketing mix decisions in the decline phase will depend on the selected strategy. For example, the product may be changed if it is being rejuvenated, or left
unchanged if it is being harvested or liquidated. The price may be maintained if the product is harvested, or reduced drastically if liquidated.

Summary of the PLC Strategies

PRODUCT MANAGEMENT ISSUES

Ultimately, products and services are to provide value for buyers.
General observations:
1. Product management depends on where the product is in its current innovation-imitation life cycle. Much of the redesign and modification takes place during
the introductory and growth stages of the life cycle.
2. New product development is best viewed as an ongoing, continuous process
3. New ideas can come from many outside sources. An attitude that says "forget it if it's not invented here" is competitively irrational
4. When managing the development and introduction of new products, constantly test the new product idea with customers and get their feedback; keep
improving the product after it is introduced
5. A brand name is a valuable asset that needs to be carefully managed
6. The positioning of a new brand is enhanced by choosing a brand-name logo that is attention getting, distinctive, memorable, and communicates the products'
benefits

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7. When brand reputation is uncertain, performance guarantees or warranties are very important to assure customers of quality performance Marketing Product
Management 2
8. Package and product labeling persuade and educate the customer and distribution channel, thus providing communication that reduces risk and enhances the
ease of use
9. The product's packaging must meet the requirements of the distribution channel
10. It is easier to design and launch new services than new goods
11. Operations management plays a dominant role in new service developments because the operations' people work for and with customers. They are closest to
the customer. It is their job to also understand the human engineering involved in designing a service that delivers high satisfaction to the target market
12. Global marketing has greatly increased the rate of innovation and imitation in new product design. International marketing also poses special problems for
brand management, packaging, and labels

Why Some Products Fail and Others Succeed

In general, consumer products fail more often than business products.
Products fail for a variety of reasons.
19. One of the most common reasons a product fails is failure to match product offerings to customer needs.
20. Ineffective or inconsistent branding has also been blamed for product failures.
21. New products sometimes fail because of poor timing, technical or design problems, overestimation of market size, poor promotion, or
insufficient distribution.
When examining the problem of product failure, it is important to distinguish the degree of failure.
22. Absolute failure occurs when an organization loses money on a new product because it is unable to recover development, production, and
marketing costs; therefore, the product is usually deleted.
23. Relative product failure occurs when a product returns a profit, but does not meet a company’s profit or market share objectives; repositioning
or improving the product might make this product a success.
For a new product to be successful, it must provide a significant and perceivable benefit to a sizable number of customers.
Effective planning and management are also critical to launch a new product that will be successful.

Today successful product management is more important than ever before. Good product decisions are more critical than ever. Technology is
changing rapidly. Products are developed, get adopted, and are replaced by better products at a fast pace. In addition, competition in the global
marketplace makes it essential for firms to continuously offer new choices for consumers if they are to remain competitive with companies all
around the world.

Although small firms might be successful by offering only one product, larger companies often market sets of related products. Firms must think in
terms of their entire portfolio of products. Oftentimes the BCG Market Share/Market Growth Matrix is used when making strategic product
decisions. Product planning means developing product line and product mix strategies encompassing multiple offerings.

5.6 Brand Decisions

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Marketers recognize the powerful influence on customer behavior that creating and protecting a strong identity for products and product lines has.
Branding is the process of creating that identify. A brand is a name, a term, a symbol, a design, or any other unique element of a product that
identifies one firm’s product(s) and sets them apart from the competition. Though nearly 40 percent of all new products fail, new brands have a
failure rate that is much higher—up to 80 to 90 percent. Clearly, branding is an extremely important element of product strategy. Branding provides
the recognition factor products need to succeed in regional, national, and international markets.

Brand Loyalty
Consumers often rely on decision guidelines when weighing the claims that companies make. They use heuristics, mental rules of thumb that
lead to a speedy decision by simplifying the process. Perhaps the most common heuristic is brand loyalty, which assumes that people buy from
the same company repeatedly because they believe that the company makes superior products. Consumers sometimes feel that it’s not worth the
effort to consider competing options. Marketers measure brand loyalty in three stages: brand recognition, brand preference, and brand insistence.

Brand Recognition
Brand recognition is consumer awareness and identification of a brand. It is a company’s first objective for newly introduced products. Marketers
begin the promotion of new items by trying to make these items familiar to the public. Advertising offers one effective way for increasing consumer
awareness of a brand.

Brand Preference
Brand preference is consumer reliance on previous experiences with a product to choose that product again, if available, over competitors’
products.

Brand Insistence
Brand insistence is consumer refusals of alternatives and extensive search for desired merchandise. This is the ultimate stage in brand loyalty. A
product at this stage has achieved a monopoly position with its consumers. Few companies achieve this ambitious goal.

Choosing Brand Names, Brand Marks, and Trade Characters

Brand names, brand marks, and trade characters must have a positive connotation and must be memorable. A brand name is the part of a brand
consisting of words or letters that form a name that identifies and distinguishes a firm’s offerings from those of its competitors. A brand name is
probably the most used and recognized form of branding. Smart marketers use brand names to maintain relationships with consumers for the
customer’s “lifetime.” A good brand name may position a product by conveying a certain image or personality or by describing how it works. The
brand name should be: easy to say, easy to spell, easy to read, and easy to remember. It should fit the target market, fit the product’s benefits, fit
the customer’s culture, and fit legal requirements. Marketers sometimes try to overcome problems with easily mispronounced brand names by
teaching consumers the correct pronunciations. Graphics for brand symbols, brand names, or logos must be recognizable and memorable. They
should have visual impact.

Trademarks

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A trademark is a brand for which the owner claims exclusive legal protection. Trademark protection confers the exclusive legal right to use a
brand name, brand mark, and any slogan or product name abbreviation. Marketers register trademarks to make their use by competitors illegal. It
is possible for a firm to have protection for a brand even if it has not legally registered it. In the U.S. common-law protection exists if the firm has
used the name and established it over a period of time. Although a registered trademark prevents others from using it on a similar product, it may
not bar its use for a product in a completely different type of business. Firms can receive trademark protection for packaging elements and product
features such as shape, design, and typeface. Visual cues used in branding create an overall look sometimes referred to as trade dress. These
visual components may be related to color selections, sizes, package and label shapes, and similar factors. Trade dress disputes have led to
numerous lawsuits.

Brand Equity
Marketers spend huge sums of money on new-product development, advertising, and promotion to develop strong brands. If successful, this
investment creates value known as brand equity. Brand equity is the added value that a brand gives to a product in the marketplace—and
consequently the value of a brand to the organization that owns it. Brand equity means that a brand enjoys customer loyalty, perceived quality,
and brand name awareness. Brands with high equity confer financial advantages on a firm because they command comparatively large market
shares and consumers may pay little attention to differences in prices resulting in higher profit margins. Studies have linked brand equity to high
profits and stock returns.

Young & Rubicam, a global advertising agency, has developed a brand equity system after doing extensive research. According to this research, a
firm builds brand equity sequentially on four dimensions of brand personality: differentiation, relevance, esteem, and knowledge. Differentiation
refers to a brand’s ability to stand apart from competitors. Relevance refers to the real and perceived appropriateness of the brand to a big
consumer segment. Esteem is a combination of perceived quality and consumer perceptions about the growing or declining popularity of the
brand. Knowledge refers to the extent of customers’ awareness of the brand and understanding of what a good or service stands for.

Brand equity can be assisted by outside organizations. An example is the Good Housekeeping Seal of approval.

Brands with strong brand equity provide opportunities. A firm may leverage a brand’s equity by doing brand extensions, using a successful brand
name to launch a new or modified product in a new product category. Because of the existing brand equity, the firm is able to sell the brand
extension at a higher price than if it had given it a new brand, and the brand extension will attract new customers immediately. As a precaution, if
the brand extension does not live up to the quality or attractiveness of the original brand, brand equity will suffer, as will brand loyalty and sales.
Brand extension is more risky than line extension.

Brand Types
Companies have four brand type options. A product may be launched as a manufacturer’s brand (national brand), a private brand (store brand), a
licensed brand, or a co-brand.

Manufacturer’s Brands Versus Private Brands

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A manufacturer’s brand is a brand name owned by a manufacturer or other producer. Examples are Kellogg or IBM. Manufacturer’s brands have
long dominated the retail scene. In recent times, however, an increasing number of retailers and wholesalers have created their own private
brands. A private brand is a brand created and owned by a reseller of a product. Sears for example has a number of private brands: DieHard,
Craftsman, Kenmore, and Weatherbeater. Wal-Mart offers Sam’s Choice, Spring Valley, and Ol’ Roy private brands. Private brands can be hard to
establish and costly to stock and promote. They do, however, yield higher profit margins for the reseller. They give resellers exclusive products
that cannot be bought from competitors, resulting in greater store traffic and loyalty. In the battle of the brands between manufacturers’ and private
brands, retailers have many advantages. They control what products they stock, where they go on the shelf, and which ones they will feature in
promotions. Retailers price their store brands lower than comparable manufacturer’s brands, appealing to budget-conscious shoppers. Also, most
retailers charge manufacturers slotting fees before they will accept new products and find “slots” for them on the shelves. As private brands
improve in quality and as consumers gain confidence in their store chains, store brands are posing a strong challenge to manufacturer’s brands.

Why would manufacturers produce private-branded products for resellers and sell these products to the resellers for less than their own “identical”
branded products when the resellers’ store brands are in competition with the manufacturers’ brands? The answer is based on basic managerial
accounting. If a manufacturer has excess plant capacity, it can increase profits by selling private-branded products (private labels) to the resellers
at a discounted price. Let’s assume that the manufacturer covers its overhead expenses, direct manufacturing costs, and makes a profit when only
using 85 percent of its plant capacity. If a chain store (reseller) approaches the manufacturer and requests private-branded products be produced
by utilizing the remaining 15 percent of manufacturing capacity, the producer only needs to cover its direct manufacturing costs of the additional
private-branded units to break even. “All” of its overhead has already been covered by its national brand. Therefore, the manufacturer can sell the
private-label goods to the reseller at a discount and still increase its profits. If it wasn’t profitable, the manufacturer wouldn’t do it!

Multibrands (Individual Brands)

Manufacturers often introduce additional brands in the same category. These are known as multibrands or individual brands. Using multibrands
offers a way to establish different features and appeal to different buying motives. Each individual brand can be directed to a different target
market. It also allows a company to lock up more reseller shelf space. A major drawback of multibranding is that each brand might obtain only a
small market share, and none may be very profitable. The company may end up spreading its resources over many brands instead of building a
few brands to a highly profitable level.

Licensing
Most manufacturers spend much time and money creating their own brand names. Other companies, however, license names or symbols
previously created by other manufacturers, names of well-known celebrities, or characters from popular movies and books. For a fee, any of these
can provide an instant and proven brand name. Licensing is an agreement in which one firm sells another firm the right to use a brand name for a
specific purpose and for a specific period of time. The fastest-growing licensing category is corporate brand licensing, as more and more for-profit
and not-for-profit organizations are licensing their names to generate additional revenues and brand recognition.

Co-Branding
Co-branding is the practice of using the established brand names of two different companies on the same product. In most co-branding situations,
one company licenses another company’s well-known brand to use in combination with its own. Co-branding has many advantages. Because

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each brand dominates in a different category, the combined brands create broader consumer appeal and greater brand equity. Co-branding also
allows a company to expand its existing brand into a category it might otherwise have difficulty entering alone. Such relationships, however,
usually involve complex legal contracts and licenses. Co-branding partners must carefully coordinate their advertising, sales promotion, and other
marketing efforts. Both co-branding partners must also trust that the other party will take good care of its brand.

Benefits of Branding

Provides benefits to buyers and sellers

TO BUYER:
 Help buyers identify the product that they like/dislike.
 Identify marketer
 Helps reduce the time needed for purchase.
 Helps buyers evaluate quality of products especially if unable to judge a products characteristics.
 Helps reduce buyers perceived risk of purchase.
 Buyer may derive a psychological reward from owning the brand, IE Rolex or Mercedes.

TO SELLER:
 Differentiate product offering from competitors
 Helps segment market by creating tailored images, IE Contact lenses
 Brand identifies the companies products making repeat purchases easier for customers.
 Reduce price comparisons
 Brand helps firm introduce a new product that carries the name of one or more of its existing products...half as much as using a new brand, lower co.
designs, advertising and promotional costs.
EXAMPLE, Gummy Savers
 Easier cooperation with intermediaries with well known brands
 Facilitates promotional efforts.
 Helps foster brand loyalty helping to stabilize market share.
 Firms may be able to charge a premium for the brand.

5.7 Packaging and Labeling

A package is the covering or container for a product that provides product protection, facilitates product use and storage, and supplies important
marketing communication. Marketers who want to create great packaging that meets and exceeds consumers’ needs and that creates a
competitive advantage must understand all the things a package does for a product. Packaging serves a number of different functions: (1)

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Packaging protects the product; (2) Effective packaging makes it easy for consumers to handle and store the product; (3) The package plays an
important role in communicating brand personality. Effective product packaging uses colors, words, shapes, designs, and pictures to provide brand
and name identification for the product; and (4) Packaging provides specific information consumers want and need, such as information about the
specific variety, flavor or fragrance, directions for use, suggestions for alternative uses, product warnings, and product ingredients. Packaging may
also include warranty information and a toll-free telephone number for customer service. Packages today also have Universal Product Code (UPC)
information printed on the side or bottom.

Effective Packaging
Planners must consider the packaging of other brands in the same product category. Not all customers will accept radical changes, and retailers
may be reluctant to adjust their shelf space to accommodate new designs. In addition to functional benefits, the choice of packaging material has
aesthetic and environmental considerations. The shape and color are also important. Consumer behavior and merchandising courses examine
these factors in greater detail.

Packaging Functions include:

 Protect product and maintain functional form, IE milk.

 Foil shop lifting
 Offer convenience, Usage (dispersement)
 Promote product by communicating features
 Develop reusable package for alternative use.
 Segmentation, tailored to a specific group Contact Lenses

Major Packaging Considerations

Packaging decision serve the channel members and the final consumer.
 Cost--how much are customers willing to pay for the packaging?
 Preprinted cost, use UPC codes
 Must comply with the legal packaging regulations.
 Make product tampering evident to the reseller and customer, cost benefit with liability
 Need to consider consistency among package designs--Family packaging...category consistent...Pringles
 Need to inform potential buyers of new products content, features, uses, advantages and hazards.
 Need to create a desirable image through color etc. Can be designed to appear taller or shorter (thin vertical lines for taller) People associate specific
colors with certain feelings, Red with fire. Do not package meet in green!!
 Must meet the needs of resellers--transportation, storage and handling.
 Environmental responsibility.

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Packaging and Marketing Strategy

Packaging can be a major component of the marketing strategy--giving a product a competitive advantage. Need to reevaluate packaging periodically.

Altering the Package - must evolve with the times

Change style of package Coke, Pepsi
Pepsi freshness dating, need extensive marketing effort to communicate this.
Coke's new contoured bottle "feel the curves" "the ultimate form of refreshment", with a silhouette of a coke bottle on a bill board. Considering a contoured can
in the future!!

Multiple Packaging Twin packs, six packs etc...Won’t work for salt!! Stimulate extra use. Helps gain customer acceptance.

Handling Improved packaging

Packaging changes during distribution, IE Cartons

Criticism of Packaging

 Functional problems, Flour, sugar.

 Packages that are difficult to open.
 Recyclability. Safety issues (sharp)
 Package deception. Customer confusion IE different size designations, Giant, Econ etc.
 Increased costs attributed to packaging.

Packaging serves many purposes. It protects the product from damage which could be incurred in handling and transportation and also has a
promotional aspect. It can be very expensive. Size, unit type, weight and volume are very important in packaging. For aircraft cargo the package
needs to be light but strong, for sea cargo containers are often the best form. The customer may also decide the best form of packaging. In
horticultural produce, the developed countries often demand blister packs for mangetouts, beans, and strawberries and so on, whilst for products
like pineapples a sea container may suffice. Costs of packaging have always to be weighed against the advantage gained by it.

Increasingly, environmental aspects are coming into play. Packaging which is non-degradable - plastic, for example - is less in demanded. Bio-
degradable, recyclable, reusable packaging is now the order of the day. This can be both expensive and demanding for many developing
countries.

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Labeling

 Facilitates ID of a product
 Descriptive function
 Indicate the grade of the product
 Describe source of product, its content and major features
 How to use the product etc.
 Label can be a promotional tool
 Needs to fulfill legal obligations.
 Universal Product Code for Inventory and Information.

6. Designing and Managing Service

A service is the diametrically opposed non-material counterpiece of a physical good. A service provision comprises a sequence of activities that does not result in
ownership of the outcome, and this is what fundamentally differentiates it from furnishing someone with physical goods. Service provision is a process that
creates predetermined benefits by effectuating either a change of service consumers, a change in their physical possessions or a change in their (in)tangible
assets.

By composing and orchestrating the appropriate level of resources, skill, ingenuity,and experience for effecting specific benefits for service consumers, service
providers participate in an economy without the restrictions of carrying stock (inventory) or the need to concern themselves with bulky raw materials. On the
other hand, their investment in expertise does require consistent service marketing and upgrading in the face of competition which has equally few physical
restrictions.

Service characteristics

Services can be paraphrased in terms of their generic key characteristics.

1. Intangibility

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Services are intangible and insubstantial: they cannot be touched, gripped, handled, looked at, smelled, tasted or heard. Thus, there is neither potential nor need
for transport, storage or stocking of services. Furthermore, a service cannot be (re)sold or owned by somebody, neither can it be turned over from the service
provider to the service consumer nor returned from the service consumer to the service provider. Solely, the service delivery can be commissioned to a service
provider who must generate and render the service at the distinct request of an authorized service consumer.

2. Perishability

Services are perishable in two regards

 The service relevant resources, processes and systems are assigned for service delivery during a definite period in time. If the designated or scheduled
service consumer does not request and consume the service during this period, the service cannot be performed for him. From the perspective of the
service provider, this is a lost business opportunity as he cannot charge any service delivery; potentially, he can assign the resources, processes and
systems to another service consumer who requests a service. Examples: The hair dresser serves another client when the scheduled starting time or time
slot is over. An empty seat on a plane never can be utilized and charged after departure.
 When the service has been completely rendered to the requesting service consumer, this particular service irreversibly vanishes as it has been consumed
by the service consumer. Example: the passenger has been transported to the destination and cannot be transported again to this location at this point in
time.

3. Inseparability

The service provider is indispensable for service delivery as he must promptly generate and render the service to the requesting service consumer. In many cases
the service delivery is executed automatically but the service provider must preparatorily assign resources and systems and actively keep up appropriate service
delivery readiness and capabilities. Additionally, the service consumer is inseparable from service delivery because he is involved in it from requesting it up to
consuming the rendered benefits. Examples: The service consumser must sit in the hair dresser's shop & chair or in the plane & seat; correspondingly, the hair
dresser or the pilot must be in the same shop or plane, respectively, for delivering the service.

4. Simultaneity

Services are rendered and consumed during the same period of time. As soon as the service consumer has requested the service (delivery), the particular service
must be generated from scratch without any delay and friction and the service consumer instantaneously consumes the rendered benefits for executing his
upcoming activity or task.

5. Variability

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Each service is unique. It is one-time generated, rendered and consumed and can never be exactly repeated as the point in time, location, circumstances,
conditions, current configurations and/or assigned resources are different for the next delivery, even if the same service consumer requests the same service.
Many services are regarded as heterogeneous or lacking homogeneity and are typically modified for each service consumer or each new situation
(consumerised). Example: The taxi service which transports the service consumer from his home to the opera is different from the taxi service which transports
the same service consumer from the opera to his home - another point in time, the other direction, maybe another route, probably another taxi driver and cab.

Each of these characteristics is retractable per se and their inevitable coincidence complicates the consistent service conception and makes service delivery a
challenge in each and every case. Proper service marketing requires creative visualization to effectively evoke a concrete image in the service consumer's mind.
From the service consumer's point of view, these characteristics make it difficult, or even impossible, to evaluate or compare services prior to experiencing the
service delivery.

Mass generation and delivery of services is very difficult. This can be seen as a problem of inconsistent service quality. Both inputs and outputs to the processes
involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent service quality. For
many services there is labor intensity as services usually involve considerable human activity, rather than a precisely determined process; exceptions include
utilties. Human resource management is important. The human factor is often the key success factor in service economies. It is difficult to achieve economies of
scale or gain dominant market share. There are demand fluctuations and it can be difficult to forecast demand. Demand can vary by season, time of day, business
cycle, etc. There is consumer involvement as most service provision requires a high degree of interaction between service consumer and service provider. There
is a customer-based relationship based on creating long-term business relationships. Accountants, attorneys, and financial advisers maintain long-term
relationships with their clientes for decades. These repeat consumers refer friends and family, helping to create a client-based relationship.

Service Design

Service Design is the activity of planning and organizing people, infrastructure, communication and material components of a service, in order to improve its
quality, the interaction between service provider and customers and the customer's experience. The increasing relevance of the service sector, both in terms of
people employed and economic importance, requires services to be accurately designed. The design of the service may involve a re-organization of the activities
performed by the service provider (Back office) and/or the redesign of time and place in which customers come in contact with the service (Front office).

Components of Service Design

Service definition

The generic clear-cut, complete and concise definition of the service term reads as follows:

A service is a set of singular and perishable benefits

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  delivered from the accountable service provider, mostly in close coaction with his service suppliers,
 generated by functions of technical systems and/or by distinct activities of individuals, respectively,
 commissioned according to the needs of his service consumers by the service customer from the accountable service provider,
 rendered individually to an authorized service consumer at his/her dedicated request,
 and, finally, consumed and utilized by the requesting service consumer for executing and/or supporting his/her day-to-day business tasks or private
activities.

Service specification

Any service can be clearly, completely, consistently and concisely specified by means of the following 12 standard attributes.

1. Service Consumer Benefits

2. Service-specific Functional Parameter(s)
3. Service Delivery Point
4. Service Consumer Count
5. Service Readiness Times
6. Service Support Times
7. Service Support Language(s)
8. Service Fulfillment Target
9. Maximum Impairment Duration per Incident
10. Service Delivering Duration
11. Service Delivery Unit
12. Service Delivering Price

The meaning and content of these attributes are:

1. Service Consumer Benefits describe the (set of) benefits which are callable, receivable and effectively utilizable for any authorized service consumer and
which are provided to him as soon as he requests the offered service. The description of these benefits must be phrased in the terms and wording of the intended
service consumers.

2. Service-specific Functional Parameters specify the functional parameters which are essential and unique to the respective service and which describe the
most important dimension of the servicescape, the service output or outcome, e.g. maximum e-mailbox capacity per registered and authorized e-mail service
consumer.

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3. Service Delivery Point describes the physical location and/or logical interface where the benefits of the service are made accessible, callable, receivable and
utilzable to the authorized service consumers. At this point and/or interface, the preparedness for service delivery can be assessed as well as the effective delivery
of the service itself can be monitored and controlled.

4. Service Consumer Count specifies the number of intended, identified, named, registered and authorized service consumers which shall be and/or are allowed
and enabled to call and utilize the defined service for executing and/or supporting their business tasks or private activities.

5. Service Readiness Times specify the distinct agreed times of day when

 the described service consumer benefits are

o accessible and callable for the authorized service consumers at the defined service delivery point
o receivable and utilizable for the authorized service consumers at the respective agreed service level
 all service-relevant processes and resources are operative and effective
 all service-relevant technical systems are up and running and attended by the operating team
 the specified service benefits are comprehensively delivered to any authorized requesting service consumer without any delay or friction.

The time data are specified in 24 h format per local working day and local time, referring to the location of the intended service consumers.

6. Service Support Times specify the determined and agreed times of day when the usage and consumption of commissioned services is supported by the
service desk team for all identified, registered and authorized service consumers within the service customer's organizational unit or area. The service desk
is/shall be the so called the Single Point of Contact (SPoC) for any service consumer inquiry regarding the commissioned, requested and/or delivered services,
particularly in the event of service denial, i.e. an incident. During the defined service support times, the service desk can be reached by phone, e-mail, web-based
entries and/or fax, respectively. The time data are specified in 24 h format per local working day and local time, referring to the location of the intended service
consumers.

7. Service Support Languages specifies the national languages which are spoken by the service desk team(s) to the service consumers calling them.

8. Service Fulfillment Target specifies the service provider's promise of effective and seamless delivery of the defined benefits to any authorized service
consumer requesting the service within the defined service times. It is expressed as the promised minimum ratio of the counts of successful individual service
deliveries related to the counts of requested service deliveries. The effective service fulfillment ratio can be measured and calculated per single service consumer
or per consumer group and may be referred to different time periods (workday, calenderweek, workmonth, etc.)

9. Maximum Impairment Duration per Incident specifies the allowable maximum elapsing time [hh:mm] between

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  the first occurrence of a service impairment, i.e. service quality degradation or service delivery disruption, whilst the service consumer consumes and
utilizes the requested service,
 the full resumption and complete execution of the service delivery to the content of the affected service consumer.

10. Service Delivering Duration specifies the promised and agreed maximum period of time for effectively delivering all specified service consumer benefits to
the requesting service consumer at the currently chosen service delivery point.

11. Service Delivery Unit specifies the basic portion for delivering the defined service consumer benefits. The service delivery unit is the reference and mapping
object for all cost for service generation and delivery as well as for charging and billing the consumed service volume to the service customer who has
commissioned the service delivery.

12. Service Delivering Price specifies the amount of money the service customer has to pay for the distinct service volumes his authorized service consumers
have consumed. Normally, the service delivering price comprises two portions

 a fixed basic price portion for basic efforts and resources which provide accessibility and usability of the service delivery functions, i.e. service access
price
 a price portion covering the service consumption based on
o fixed flat rate price per authorized service consumer and delivery period without regard on the consumed service volumes,
o staged prices depending on consumed service volumes,
o fixed price per particularly consumed service delivering unit.

Service delivery

The delivery of a service typically involves six factors:

 The accountable service provider and his service suppliers (e.g. the people)
 Equipment used to provide the service (e.g. vehicles, cash registers, technical systems, computer systems)
 The physical facilities (e.g. buildings, parking, waiting rooms)
 The requesting service consumer
 Other customers at the service delivery location
 Customer contact

The service encounter is defined as all activities involved in the service delivery process. Some service managers use the term "moment of truth" to indicate that
defining point in a specific service encounter where interactions are most intense.

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Many business theorists view service provision as a performance or act (sometimes humorously referred to as dramalurgy, perhaps in reference to dramaturgy).
The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props. A script is a sequence of
behaviors followed by all those involved, including the client(s). Some service dramas are tightly scripted, others are more ad lib. Role congruence occurs when
each actor follows a script that harmonizes with the roles played by the other actors.

In some service industries, especially health care, dispute resolution, and social services, a popular concept is the idea of the caseload, which refers to the total
number of patients, clients, litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employees must balance
the needs of any individual case against the needs of all other current cases as well as their own personal needs.

The service-goods continuum

The dichotomy between physical goods and intangible services should not be given too much credence. These are not discrete categories. Most business theorists
see a continuum with pure service on one terminal point and pure commodity good on the other terminal point. Most products fall between these two extremes.
For example, a restaurant provides a physical good (the food), but also provides services in the form of ambience, the setting and clearing of the table, etc. And
although some utilities actually deliver physical goods — like water utilities which actually deliver water — utilities are usually treated as services.

In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular
usage occurs frequently in retailing.

Service Design Methodology

Together with the most traditional methods used for product design, service design requires methods and tools to control new elements of the design process,
such as the time and the interaction between actors. An overview of the methodologies for designing services is proposed by (Morelli 2006), who proposes three
main directions:

• Identification of the actors involved in the definition of the service, using appropriate analytical tools

• Definition of possible service scenarios, verifying use cases, sequences of actions and actors’ role, in order to define the requirements for the service and the
logical and its organisational structure

• Representation of the service, using techniques that illustrate all the components of the service, including physical elements, interactions, logical links and
temporal sequences

Analyitical tools refer to anthropology, social studies, ethnography and social construction of technology. Appropriate elaborations of those tools have been
proposed with video-ethnography (Buur, Binder et al. 2000; Buur and Soendergaard 2000), and different observation techniques to gather data about users’

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behaviour (Kumar 2004) . Other methods, such as cultural probes have been developed in the design discipline, which aim at capturing information on customers
in their context of use(Gaver, Dunne et al. 1999; Lindsay and Rocchi 2003).

Design tools aim at producing a blueprint of the service, which describes the nature and characteristics of the interaction in the service. Design tools include
service scenarios,which describe the interaction and use cases, which illustrate the detail of time sequences in a service encounter. Both those techniques are
already used in in software and systems engineering to capture the functional requirements of a system. However, when used in service design, they have been
adequately adapted, in order to include more information, concerning material and immaterial component of a service, time sequences and physical flows
(Morelli 2006). Other techniques, such as just in time and Total quality management are used to produce functional models of the service system and to control
its processes. Such tools, though, may prove too rigid to describe services in which customers are supposed to have an active role, because of the high level of
uncertainty related to the customer’s behaviour.

Representation techniques are critical in service design, because of the need to communicate the inner mechanisms of services to actors, such as final users,
which are not supposed to be familiar with any technical language or representation technique. For this reason storyboards are often used to illustrate the
interaction on the front office. Other representation techniques have been used to illustrate the system of interactions or a “platform” in a service (Manzini,
Collina et al. 2004). Recently, video sketching and video prototypes have also been used to produce quick and effective tools to stimulate customers’
participation in the development of the service and their involvement in the value production process.

Service Design in Marketing and Management

The active participation of customers and other actors traditionally considered as external to a firm’s boundary emphasize the need for a proper design activity
that organizes the interaction among those actors, thus planning sequences of events, material and information flows. Furthermore the involvement of “non
technical “actors, such as customers, implies that the activity of service design be analyzed not only from a functional perspective (with the aim of optimizing
flows and resources and reducing time of operations) but also from the emotional perspective (creating meaningful events, motivating customers, communicating
the service).

Benefits

The main drivers for a company to establish or optimize its Service Management practices are varied:

 High service costs can be reduced, i.e. by integrating the service and products supply chain.
 Inventory levels of service parts can be reduced and therefore reduce total inventory costs.
 Customer service or parts/service quality can be optimized.
 Increasing service revenue.
 Reduce obsolescence costs of service parts through improved forecasting.
 Improve customer satisfaction levels.

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  Reduce expediting costs - with optimized service parts inventory, there is no need to rush orders to customers.
 Minimize technician visits - if they have the right part in hand, they can fix the problem on the first visit.

Services marketing is marketing based on relationship and value. It may be used to market a service or a product.

Marketing a service-base business is different from marketing a goods-base business.

There are several major differences, including:

1. The buyer purchases are intangible

2. The service may be based on the reputation of a single person
3. It's more difficult to compare the quality of similar services
4. The buyer cannot return the service

Service Marketing mix adds 3 more p's, i.e. people, physical evidence, process service and follow-through are keys to a successful venture. The major difference
in the education of services marketing versus regular marketing is that instead of the traditional "4 P's," Product, Price, Place, Promotion, there are three
additional "P's" consisting of People, Physical evidence, and Process. Service marketing also includes the servicescape referring to but not limited to the aesthetic
appearance of the business from the outside, the inside, and the general appearance of the employees themselves. Service Marketing has been relatively gaining
ground in the overall spectrum of educational marketing as developed economies move farther away from industrial importance to service oriented economies.

References

 peter, S. and Rada, J. (1988) "Servicitization of business: Adding value by adding services", European Management Journalof, vol. 6, no. 4, 1988.Shamoon Malik
 Bitner, J. en Booms, B. "Marketing strategies and organizational structures for service firms", in Donnelly, J. en George, W. (1981) "Marketing of services", American Marketing
Association, Chicago
 Levitt, T. (1981) "Managing intangible products and product intangibles", Harvard Business Review, May-June, 1981, pp.94-102 P. Kotler, 'Marketing Management' (Prentice-Hall, 7th ed.,
1991)
 G. Lancaster and L. Massingham, 'Essentials of Marketing' (McGraw-Hill, 1988)
 Hutt, Michael & Speh, Thomas (2001), „Business Marketing Management – A Strategic View of Industrial and Organisational Markets“ Seventh Edition, Harcourt College Publishers
 Freytag Per Vagn & Clarke Ann Hojbjerg, Industrial Marketing Management 30, 473–486 (2001) Elsevier
 Hunter, Victor & Tietyen, David (1997), „Business to Business Marketing – Creating a Community of Customers, NTC Contemporary Publishing Company
 Palmer, R. A. & Millier, P (2003), “Segmentation: Identification, Intuition and Implementation”, Industrial Marketing Management, Elsevier
 Sudharshan, D (1998) „Strategic Segmentation of Industrial Markets“, Journal of Business and Industrial Marketing, Vol. 13, No. 1 1998, MCB University Press
 Porter, Michael (1998), “Competitive Advantage – Creating and Sustaining Superior Performance” The Free Press
 Webster, Fredrick (1991) „Industrial Marketing Strategy“, Third Edition, John Wiley & Sons

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  Bonoma & Shapiro (1984) Segmenting Industrial Markets, Lexington Books.
 Kalafatis, Stavros & Cheston, Vicki (1997), „Normative Models and Practical Applications of Segmentation in Business Markets“, Industrial Marketing Management 26, Elsevier

7. Designing Pricing Strategies and Programs

7.1 What is Price?

Price is the amount of money charged for a product or service, or the sum of the values that consumers exchange for he/she benefits of
having or using the product or service.

Pricing is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place. It is also a key variable in microeconomic price
allocation theory. Price is the only revenue generating element amongst the 4ps,the rest being cost centers. Pricing is the manual or automatic process of applying
prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing
on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may
prevent pricing errors.

Internal factors affecting pricing

The internal factors affecting price include: company objectives and strategies (with an emphasis on integration); costs and
classification (including fixed and variable costs); economies of scale; experience effects; price escalation; and the cost of
implementing various pricing schemes.

External influences on price

A core issue of pricing is the impact of price on demand and sales volume. Price-volume relationships relate to basic supply and
demand theory and include the effect of branding and stages in the PLC on demand. Recognition has to be given to the differences
between individual customers and industrial customers. The effect of the competitive environment on competitive activity is also
important including the structure of the market, level of market concentration and the existence of competitive advantage. The channel
environment, legal environment, consumer pricing regulations and the international setting are also key issues in the determination of
price

INTERNAL INFLUENCE
Cost—in the long run, the price should not fall below the cost of making and distribution the product or service

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Company and marketing objectives/resources—all marketing decisions including pricing decision, need to reflect and be consistent with overall
company and marketing objectives

EXTERNAL FACTORS
Demand—the price of the product should not exceed what the market will bear. Put another way, the price of the product and service exceed the value
of its benefit to the buyer.
Competition/market structure---companies must take cognizance of these factors before coming out with any price because this is the rock on which
on many company fonder
Social/legal aspects---legal and social consideration are also inputs to successful pricing decisions. They should be regarded as they can impact
positively or negatively on the company’s operations
Distribution/trade---since most company market their product via middlemen in the channel of distribution. Management must consider how this will
affect pricing decisions. For example, do we set price with the final consumer in mind? Or do we set price with the distributor in mind?

“PRICING PRODUCTS: PRICING CONSIDERATION & APPROACHES”

FACTORS TO CONSIDER WHEN SETTING PRICES:

INTERNAL FACTORS

(Positioning Objectives) PRINING DECISION (Target Market)

EXTERNAL FACTORS
INTERNAL FACTORS:
 Internal factors are related to the overall marketing objectives of the company or cost of the production.

EXTERNAL FACTORS:
 Competitors overall demand of market.

INTERNAL FACTORS AFFECTING PRICING DECISION:

1) Marketing Objectives.
2) Marketing Mix-Strategy.
3) Costs.
4) Organizational Considerations.

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1) MARKETING OBJECTIVES:
 Competition is very hard. Overall supply – so we less the demand.

SURVIVAL:
 Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business (To less price to continue).

CURRENT PROFIT MAXIMIZATION:

 Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI (Earn the profit in a shortcut  If zero product so
we have to pay the fixed cost).

MARKETSHARE LEADERSHIP:
 Low as Possible Prices to Become the Market Share Leader (You want to be the highest share of the market – To high the price).

PRODUCT QUALITY LEADERSHIP:

 High Prices to Cover Higher Performance Quality (High price – High Quality  Agha Khan Labs high price but better quality).

2) MARKETING MIX-STRATEGY:
 Pricing must be carefully coordinated with the other marketing mix elements.
 Target costing is often used to support product positioning strategies based on price.
 Non price positioning can also be used.
 PRODUCT DESIGN & QUALITY.
 PROMOTION  High promotion of the product to increase the cost.
 DISTRIBUTION.
 These are all price related.
 NON PRICE FACTORS.
3) COST:
 Those Factors which determines what your cost is.

TOTAL COSTS:
 Sum of the Fixed and Variable Costs for a Given Level of Production

FIXED COST: (OVERHEAD)

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 It remains constant.
 Costs that don’t vary with sales or production levels.
 E.g: Executive Salaries Rent

VARIABLE COST:

 It varies in total cost of production.

 Costs that do vary directly with the level of production.
 E.g: Raw materials

4) ORGANIZATION CONSIDERATION – COST CONSIDERATION:

LEVEL OF PRODUCTION  To repeatedly when u increase the level of production, so the learning curve will increase – increasing
productivity and decreasing the cost. (When u starts something it takes time to set cost).
 Who sets the price?
 Small companies: CEO or top management.
 Large companies: Divisional or product line managers.
 Price negotiation is common in industrial settings.
 Some industries have pricing departments.

 COST PER UNIT AT DIFFERENT LEVELS OF PRODUCTION PER PERIOD.

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EXTERNAL FACTORS AFFECTING PRICING DECISION:
1) Market and Demand.
2) Competitors Cost, Prices and Offers.
3) Other External Factors  Economic Conditions, Reseller Needs, Government Actions, Social Concerns.

1) MARKET DEMAND:
 Market Demand 100 Rs. But we can’t sell it on Rs. 150 because no one buys it there fore if we decrease the price according to the
market demand that is Rs. 80 – we can sell it.

DIFFERENT TYPES OF MARKET:

a) PURE COMPETITION:
 Many buyers and seller who have little affect on the price.
 Sugar, Price – Brand differentiation every one can change it – different identification.
b) OLIGOPOLISTIC COMPETITION:

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 Few Sellers Each Sensitive to Other’s pricing/ Marketing Strategies.
c) MONOPOLISTIC COMPETITION:
 Many Buyers and Sellers Trading Over a Range of Prices.
d) PURE MONOPOLY:
 Single Seller – What he can charge.

PRICE ELASTICITY OF DEMAND:

INCOME & PRICE ELASTICITY OF DEMAND.
 The income elasticity of demand is the percentage change in the quantity demanded Q resulting from a 1 percent increase in income
I:

 The price elasticity of demand is usually a negative number. When the price of good increases, the quantity demanded usually falls,
so ∆Q/ ∆P (the change in quantity for a change in price) is negative, and therefore Ep is negative.
PRICE ELASTICITY OF DEMAND WITH SUITABLE DIAGRAMS.
 IS EQUAL TO UNITY  Demand is constant.
 IS MORE THAN UNITY Demand is price elastic (Larger change in price with quantity demanded).
 IS LESS THAN UNITY  Demand is price inelastic (Smaller change in price with quantity demanded).

DEMAND CURVES:

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2) COMPETITORS COST, PRICES & OFFERS:
 Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy.
 Pricing strategy influences the nature of competition.
 Low-price low-margin strategies inhibit competition.
 High-price high-margin strategies attract competition.
 Benchmarking costs against the competition is recommended.

3) OTHER ENVIRONMENTAL ELEMENTS:

 Economic conditions.
 Affect production costs.
 Affect buyer perceptions of price and value.
 Reseller reactions to prices must be considered.
 Government may restrict or limit pricing options.
 Social considerations may be taken into account.

COST PLUS PRICING – WHY IT IS POPULAR?

 Adding a Standard Markup to the cost of the product.
 Sellers and more certain about costs than demand.

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 Minimizes prices competition.
 Perceived fairness to both buyers and sellers.
 20% of Profit – to find cost promoted to add profit margin and then sell it to the market.

BREAK EVEN OR TARGET PROFIT PRICING:

 Tries to determine the price which a firm will break even or a make a target profit.

Total Revenue = Total Cost

Total Revenue = Fixed Cost + Variable Cost

Q.P = F.C + QVc

QP-QVc = F.C
F.C = Q (P-Vc)
Q = F.C this is the formula of Break Even.
(P-Vc)
 The point which will meet the two points.
 Area above break even is the profit.
 Area below the break even is the cost.

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TARGETED COST STRATEGY:

 Assume Market Sell in Market @ 20 Rs.

Targeted Profit at least 20% above your cost.

Cost =?
If we manufacture it 16Rs. (20Rs.)

P + C x Markup
20 + C x 20%
20 + 1.2C
1.2C=20
C=20/1.2
C=16.67%

16.67 is your targeted cost

3.33
-------
20

GENERAL PRICING APPROACHES:

COST BASED PRICING:

 First Design Product.
 Then How much cost it would take to product the product.
 Then determined its price.
 What is it value according to the cost and price.
 What customer preferred.

VALUE BASED PRICING:

 What customer value and preferred.
 Its value.

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  And according to the value we set the price.
 Maximum what cost will get.
 Then Design the product (According to maintain the cost)
 Example  KFC’s (Charges) – If start a new restaurant name MAHS - so we have to lower the price than KFC’s.

COMPETITION BASED PRICING:

 Setting Price  First we set the price.
 Going Rate  Company Sets Prices Based on What Competitors Are Charging.
 Sealed Bid  Company Sets Prices Based on What They Think Competitors will Charge.

AUCTION:
 English Auction  Single sellers many buyers – Higher budget the product.
 Dutch Auction  Single sellers many buyers – sellers higher price – if there is a buyer so he decrease the bid unless hi get the
buyers.
 Sealed Bid  Lowest bid get the product.

Methods to Price Your Products

The pricing method you select provides direction on how to set your product price. The way you set prices in your business will
change over time, for many reasons. As you learn more about your customers and competition, you may decide to change your pricing
method. Use changes in the industry or the development stage of your product as an indicator that it's time to review your pricing
strategy.

Methods to Price your Product include:

Cost based pricing

 include a profit percentage with product cost

 add a percentage to an unknown product cost
 blend of total profit and product cost

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Competition based pricing
 price is the same as the competition
 set price to increase customer base
 seek larger market share through price

Customer based pricing

 use price to support product image
 set price to increase product sales
 design a price range to attract many consumer groups
 set price to increase volume sales
 price a bundle of products to reduce inventory or to excite customers

As you review each pricing method, think about your business, industry and customer. Before you select a pricing method, be sure
you understand the range of options available and their disadvantages and advantages. You may want to blend several pricing methods
to suit your business and the type of product(s) you sell.

Cost Based Pricing

Each of the three cost based pricing methods described begin with a product cost subtotal. To calculate product cost you need to
include the costs of production, promotion and distribution. Add the profit level you want from the business to the product cost
subtotal to determine your product price. The amount of profit you add to the product cost subtotal can be set according to three
different methods.

All types of cost based pricing will be more accurate if you use a complete product cost subtotal. The key to accuracy is to ensure all
cash and non-cash costs are included in the product cost subtotal. You need to set a value for your management expertise and labor.
Using your land or capital equipment also must be valued along with depreciation on your machinery and buildings. These values are
included in the product cost subtotal.

Include a profit percentage with product cost

Marketers call this method mark-up pricing. Mark-up pricing is favored by businesses with many products because it's simple to
calculate. The profit level you want for the business is expressed in a percentage. This percentage is added to the per unit cost to set

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product price. Mark-up pricing is common in retail business because it offers so many types of products and purchases goods from
many vendors.

Example
Wild Blue Preserves makes 15 different jams and jellies. They set up a small shop in a local mall to sell their products along side other
prepared foods. A jar of wild blueberry jelly costs $1.50 per 250 ml jar to produce. The mark-up pricing percentage Wild Blue
Preserves plans to use is 100 per cent. The jar of jam will cost $3.00 in the shop.

Add a percentage to an unknown product cost

This type of pricing is often called cost-plus pricing. Cost-plus pricing works well if you don't know your production costs. This
method is very similar to mark-up pricing. The big difference between mark-up pricing and cost-plus pricing is that both buyer and
seller settle on the profit figure or percentage, accepting that the cost of production is an unknown. If you produce custom order
products for other firms or individuals, a cost-plus pricing method could reduce your risk. Rather than take a risk on input costs
increasing during the project, you could use a cost-plus pricing agreement.

Example
You've agreed to act as a co-packer for a start-up snack food business, packaging and distributing low-fat energy bars. As co-packer,
you'll purchase ingredients through your suppliers, but are unsure of input costs. The snack food business signs a contract with you to
pay for materials costs plus a processing cost of $25 per case.

Price is a blend of total profit and product cost

Otherwise known as planned profit pricing, this method ensures you will earn a total profit for the business. It differs from the first
two types of cost based pricing as they focused on a per unit price. Planned profit pricing combines per unit costs with output
projections to calculate product price. Break-even analysis is used to calculate planned profit pricing. Planned profit pricing is suited
to manufacturing businesses. A manufacturer often has the ability to increase or lower production depending upon the demand or
profit available.

Example
A special order cake business could set prices according to the size of the orders they receive from various customers. A price break is
given to a customer who order 10 cakes at a time.

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The main advantage of planned profit pricing is that it allows the manufacturer to consider how various levels of output can affect the
product price. As well, the manufacturer can examine how various prices will affect the amount of output needed.

Disadvantages of cost based pricing

Before you select a cost based pricing option, you should consider the disadvantages. There are two important reasons why cost based
pricing doesn't work for some businesses.
 Cost based pricing doesn't consider how customer demand affects price. Demand for a product will directly affect how much
people will pay. If the customer believes a product may be in short supply, due to heavy demand, they may be willing to pay
more. On the other hand, if demand is very low the customer will look for a discount on the price.
 Competition is not included in cost-based pricing methods. Competition should affect how you price your product. The idea of
simply adding a profit level or percentage to a product price will only work in industries with limited competition. In a
competitive market, cost based pricing may encourage competitors to enter the market with a lower price.

Competition Based Pricing

The big advantage of competition based pricing is that you are focused on your industry and therefore your competition. It's often used
by U-pick businesses and at farmers' markets. An industry focus looks closely at the types of existing and emerging competition. Once
you know what your competitors are doing, you can better decide how you will manage your business.

Understanding your competition will take some research. You need to understand what you are selling, the types of companies you
compete with, the amount and types of substitutes and how companies operate in your industry. Check with Statistics Canada, the
business section of the local library, the local Chamber of Commerce, the yellow pages or the Internet to help find this information.
Use the following questions to learn more about your competition:
 How many competitors operate in my market?
 Are my competitors larger or smaller than me?
 Are my competitors close by or far away?
 Does my industry have barriers to entry such as legislation, extremely expensive or specialized capital equipment or unique
ingredients? Is it difficult for new competitors to enter the industry?
 What types and number of products do my competitors sell?
 What pricing method(s) do my competitors use?

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Three competition based pricing methods are detailed below.

Price your product the same as the competition

This market pricing method aims to make your product comparable to competitors. Scout out competitors and find out what they
charge for similar products. This type of pricing works well if you make standard products.

If you make unique products, you need to decide how specialized your product is. Products can be plotted on a scale according to how
unique they are. Homogeneous products are on one end of the scale. Highly differentiated products are on the other end. The term
highly differentiated is used to describe products which are unique and can't be compared to other products on the market. Examples
of homogeneous products include eggs, butter and bread. Highly differentiated products may begin as homogeneous products but they
have one or more layers of special features like packaging, trademarks, design, flavor, freshness, appearance, etc.

Example
Sugar based pancake syrups are homogeneous products. A highly differentiated product would be a birch syrup packaged in single-use
containers for the bed and breakfast industry.

Set your price to increase customer base

This method is also known as market penetration pricing. To improve your market penetration you need to select a price that will lure
customers away from the competition. This type of pricing intends to improve market share or penetrate the market. To motivate
customers to notice your product and to make a purchase decision you likely will need to lower the price.

Market penetration pricing works well in the introduction stage of the product life cycle. In highly competitive markets this strategy
will sell product quickly, creating economies of scale and market penetration. As you increase production, some of your costs will
decrease because of economies of scale. You'll save when you buy materials and ingredients in larger quantities. The lower costs per
unit may be due to bulk buying of raw materials, marketing costs spread over more units or more efficient labor.

Example
An established producer of beef jerky decides to use market penetration pricing at a local convenience store. A study of other
convenience stores show a price range for jerky of $2.00 to $3.00 per 100 gram package. The seller decides to sell their jerky at $1.50
per 100 gram package to sell larger volumes.

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Seek larger market share through price
This type of pricing is often called market share pricing. You need to select a price that will attract and hold as many customers as
possible. Most businesses would adopt market share pricing after market penetration is achieved. Market share happens when you sell
large volumes of product into a market.

Companies who seek market share describe the amount of market they supply as a percentage. Market share is calculated by dividing
the amount each company in an industry sells of the total market number.

Example
If Alberta Pasta, a fresh pasta processor, sells 1,000 kilograms of product daily into a market of 2,000 kilograms they hold a 50 per
cent market share. Marketers rely heavily on market share to evaluate their success in promotion, pricing, distribution and product
strategies.

This pricing method is used mainly by larger, established businesses. The typical user of market share has many economies of scale
and wants to measure the success of a marketing campaign.

Disadvantages of competition based pricing

While competition based pricing offers advantages, you need to consider the following disadvantages.
 You may ignore your own production costs if you focus too closely on the prices set by competitors.
 More time is needed to conduct and update market research.
 Competitors can easily mimic whatever price you select.

Customer-based Pricing

Most business owners want to know "at what price do my customers think my product offers good value?" Knowing your customer
ensures you take a market focus with your business. You need to find out how your customer feels about various product prices and
what they would do if the price changed.

Customers change their buying habits according to product price. As a seller you need to find out how your target customers view
your product. You also need to find out customer attitudes towards various prices or a price change. Think about your target customer
and try to answer the following questions:

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  Does your customer assume price indicates product quality?
 Will customers think they are getting their money's worth from your product?
 Do your customers care more about prestige than product price?
 What are target customers prepared to pay for your product?

If you are starting a business or targeting a new customer group you may have trouble answering the questions. To find answers you
could casually talk to potential customers or develop a more formal interview questionnaire. Before you decide to conduct a target
customer survey, check into the costs of the project, as they can be very expensive.

It's a good idea to have your customer survey reviewed by a marketing professional. They can be sure you aren't influencing customer
responses. A well designed survey gives you information you can use in your product choice and pricing. See the reference list for
more information on market research.

Five customer-based pricing methods are explained below.

Use price to support product image

The key to pricing is to be consistent. You want your price to say exactly the same thing as the product image. Prestige oriented
consumers believe a higher price means higher quality, while bargain seekers will only be happy with lower prices. Does your price
reflect your product image?

Example
Go Green Organic Vegetables targets a prestige oriented customer who shops at specialty organic shops. The price for a bag of
mesclun mix salad greens is $5. This is $1 above the competition that markets its salad greens through a major grocery store chain.

Set price to increase product sales

Promotional pricing uses lower prices to catch the attention of busy consumers. To attract as many new customers as possible you
need to be creative. Methods you can use to expand customer interest include: loss leaders (products at extremely low prices), coupon
books, holiday specials, buy one get one free or larger product containers.

Design a price range to attract many consumer groups

When you know a market really well, you can segment it. Segmentation slices a market into definable groups. Rather than pricing for

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one group, you could design a range of prices that would appeal to several or all the groups.

There are many ways you can segment the market. The groups could be: income levels, age, social class, geography, amount of
product consumed, willingness to switch to substitutes, etc.

Example
A processor of pie fillings has segmented its customer group according to volume consumed. The low volume user buys three to six
jars per year, mid-level users buy six to 10 jars per year while the large user buys 10 to 20 jars per year.

Set price to increase volume sales

Volume pricing is where sellers discount larger volume sales to sell more product. In most cases, large, well established customers are
offered volume pricing. This method makes sense when you have economies of scale.
Market gardeners may also find volume pricing useful during peak production times. It's far better to sell your perishable product at a
lower cost, than lose profits through high spoilage.

Example
During peak harvest season a saskatoon berry grower may sell a U-pick ice cream pail of berries for $6.00 or two pails for $10.00.

Price a bundle of products to reduce inventory or to excite customers

Slow moving inventory can get a boost when packaged in a group of popular items. Bargain seekers will be drawn to product bundles
that offer good value.

Example
A saskatoon berry grower bundles saskatoon preserves, syrup and chutney in a gift set. Normally, half as much saskatoon chutney is
sold compared to preserves and syrup. When packaged gift sets are offered for sale, chutney sales increase by 30 per cent.

Product bundling can also be designed for other segments of the market. Prestige seekers may choose product bundling if it offers a
service component with high quality products. For example: a mushroom grower packages various exotic mushrooms, mixed fresh hot
chilli peppers and marinade with a recipe for a mushroom appetizer.

Disadvantages of customer based pricing

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Before you implement a customer based pricing method, note the following disadvantages. If you are too focused on the customer,
you may:
 ignore production costs
 forget about the competition

There are other factors which may affect your pricing strategy. You need to decide how to set both wholesale and retail prices for your
product. Volume discounts and rebates much be considered. For more information you should refer to the Market Guide for Food
Processors.

Tips for Successful Pricing

Good product prices are important to any successful business. Pricing takes creativity, time, research, good recordkeeping and
flexibility. You need to balance the costs of producing a product with competition and the perceptions of your target customer to select
the right product price. Follow these tips to ensure greater pricing success.
 Be creative
Think of new ways to sell more to existing customers or to attract new customer groups.
 Listen to your customer
Make a point of noting customer comments in a journal or file. Review them periodically to glean new ideas.
 Do your homework
Keep good notes of how you arrived at a price so you can make similar assumptions in the future.
 Boost your records
Good recordkeeping will help you to set a price and to track the performance of your pricing.
 Cover the basics
The three basics of pricing involve product price, competition and customers. Blend pricing methods to ensure the three basics
are in balance.

Be flexible
Constantly review both internal and external factors and calculate how a price change would affect the new situation

Price is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition,
market condition and quality of product.

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What a price should do

A well chosen price should do three things:

 achieve the financial goals of the company (e.g., profitability)

 fit the realities of the marketplace (Will customers buy at that price?)
 support a product's positioning and be consistent with the other variables in the marketing mix
o price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product
 price will usually need to be relatively high if manufacturing is expensive, distribution is exclusive, and the product is supported by
extensive advertising and promotional campaigns
 a low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors

From the marketers’ point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a
price that shifts most of the consumer surplus to the producer. A good pricing strategy would be the one which could balance between the price floor (the price
below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).

Pricing Objectives

Many pricing objectives are available for careful consideration. The one you select will guide your choice of pricing strategy. You’ll need to have a firm
understanding of product attributes and the market to decide which pricing objective to employ. Your choice of an objective does not tie you to it for all time. As
business and market conditions change, adjusting your pricing objective may be necessary or appropriate.

How do you choose a pricing objective? Pricing objectives are selected with the business and financial goals in mind. Elements of your business plan can guide
your choices of a pricing objective and strategies. Consider your business’s mission statement and plans for the future. If one of your overall business goals is to
become a leader in terms of the market share that your product has, then you’ll want to consider the quantity maximization pricing objective as opposed to the
survival pricing objective. If your business mission is to be a leader in your industry, you may want to consider a quality leadership pricing objective. On the
other hand, profit margin maximization may be the most appropriate pricing objective if your business plan calls for growth in production in the near future since
you will need funding for facilities and labor. Some objectives, such as partial cost recovery, survival, and status quo, will be used when market conditions are
poor or unstable, when first entering a market, or when the business is experiencing hard times (for example, bankruptcy or restructuring). Brief definitions of the
pricing objectives are provided below. Partial cost recovery—a company that has sources of income other than from the sale of products may decide to
implement this pricing objective, which has the benefit of providing customers with a quality product at a cost lower than expected. Competitors without other
revenue streams to offset lower prices will likely not appreciate using this objective for products in direct competition with one another. Therefore, this pricing
objective is best reserved for special situations or products. Profit margin maximization—seeks to maximize the per-unit profit margin of a product. This
objective is typically applied when the total number of units sold is expected to be low. Profit maximization—seeks to garner the greatest dollar amount in
profits. This objective is not necessarily tied to the objective of profit margin maximization.

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Revenue maximization—seeks to maximize revenue from the sale of products without regard to profit. This objective can be useful when introducing a new
product into the market with the goals of growing market share and establishing long-term customer base.

Quality leadership—used to signal product quality to the consumer by placing prices on products that convey their quality.

Quantity maximization—seeks to maximize the number of items sold. This objective may be chosen if you have an underlying goal of taking advantage of
economies of scale that may be realized in the production or sales arenas.

Status quo—seeks to keep your product prices in line with the same or similar products offered by your competitors to avoid starting a price war or to maintain a
stable level of profit generated from a particular product.

Survival—put into place in situations where a business needs to price at a level that will just allow it to stay in business and cover essential costs. For a short
time, the goal of making a profit is set aside for the goal of survival. Survival pricing is meant only to be used on a short-term or temporary basis. Once the
situation that initiated the survival pricing has passed, product prices are returned to previous or more appropriate levels.

To help society— You might keep the price lower than "what the market will bear" in order to make essential products available to the consumers who would
otherwise be priced out of the market. Altruism has its place. You don't have to make as much money as possible, unless making money is your only goal.

Developing a pricing strategy

Pricing decisions are strategic and critical to the success of your company. The prices you charge for your products affect demand, thus causing a
ripple effect across your company's output, revenues, costs, and income.

With a sound pricing strategy, your company is in a better position to perform these important tasks:

 Launch and manage a product through its life cycle

 React more nimbly to competitive price moves

 Adapt to seasonal fluctuations

 Analyze special-order bids

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  Maximize profitability

Before you can develop a pricing strategy for your product, make sure that you have a thorough understanding of the important issues of customer
demand, competitive environment, product strategy, and product costs.

Customer demand

What is the price elasticity of demand (a measure of how price changes affect consumers' willingness to buy a product) for your product in
different customer segments?

How does seasonality affect customer demand and elasticity for your product? For example, how does the back-to-school season affect personal
computer demand and elasticity?

Is your company able to satisfy varying levels of customer demand for your product?

Competitive environment

Does your product offer clear and considerable benefits over competitive products? Or is your product a relative commodity in the marketplace?

Can you estimate the cost structure for your competitors?

What prices have already been established in the market for this type of product?

Product strategy

What strategic role do individual products play in your company's overall portfolio? For example, is the product a traffic driver?

Where does your product stand in its life cycle? That is, is it a growth product, a mature product, or a product that is in decline?

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Can prices of one product be set low in order to drive the sales of a complementary product that may have higher unit volume and profitability?
For example, will setting low prices for razors (relative to competitors) enhance sales of razor blades?

Product costs

What is the full cost per unit of your product (including both fixed and variable costs)?

Have you accounted for the expected and unexpected life-cycle costs, including the initial research and development costs, potential recalls,
litigation, warranty, and maintenance?

What are the risks to your cost structure? For example, an auto manufacturer should understand the impact of a sudden increase in
steel prices.

Review pricing alternatives

After you have gathered key pricing data, you should review pricing alternatives. Depending on your business and industry, it may be necessary
to select more than one pricing alternative. Also, keep in mind that the pricing alternatives you choose may have benefits or drawbacks,
depending on your industry and business situation.

Pricing alternative User example(s) Benefit(s) Drawback(s)

 Markups may change, depending on the
whims of customers and the competitive
Cost-plus pricing: Government contractors, consultants, and other Relatively easy to understand and
environment.
Determine product costs, and then add a professional services firms. implement.
markup to achieve a required rate of return.
 A "Catch-22" situation may arise: The
product price affects the quantity in
demand, which in turns causes the fixed
cost per unit to change, thereby affecting
the price charged.

Target pricing: Commodity products in highly competitive Provides company with a constant focus A company's ability to create differentiated

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Determine the price that the market will bear markets that are forced to accept a market-driven on satisfying customer needs, while products with premium-based pricing may be
for the product, and then calculate what the set price, such as entry-level television sets, personal eliminating non-value-added activities. hindered.
cost must be in order to earn a target profit computers, and soybeans.
level per unit.
 Implementing the service menu and
keeping it updated may be costly.
Activity-based pricing: Retailers, airlines, and other service providers that Enables customers to choose from a
A menu of services for a particular product, charge lower prices for online ordering than for variety of options and understand the cost
with different prices for each service. The telephone ordering. The pricier telephone ordering consequences of those alternatives.  Some customers may prefer one overall
prices for the services are based on the costs results from the cost of a customer service product price to cover all related services.
for the underlying activities of the services. representative.
 Enables better long-run strategic  Some life cycles may not be easily
planning and budgeting, including predictable, and therefore a company may
Life-cycle pricing: Industries, such as software and automotive
product portfolio planning. discount too early (or skim too late) in the
Acknowledges that prices will change over the companies that have somewhat predictable
life cycle.
life cycle of the product, largely in relation to product life cycles.
competitive moves.  Provides management with a
framework to evaluate the need for  Costs may not decline at the same rate that
new products and/or the extension of prices decline, thus limiting profitability.
existing product lives in order to
maintain or grow profits.
 Can be beneficial as long as prices  A precedent may be set with a customer for
can cover the incremental costs lower prices in the future.
Special-order pricing: A coffee roaster that receives a request for a
associated with the order.
A customer offers to buy an irregular amount special-order price to supply beans for five
of product for a price under full cost over a months to a coffee retailer that plans to start  The loyalty/trust of other customers may be
short-term period (generally less than one supplying its own beans thereafter.  Provides a method for enhancing damaged.
year). Considers fixed costs to be sunk in the profitability when excess capacity
short term. exists.
 Brand equity may be diluted.

Implement the pricing strategy

After you've selected the appropriate pricing strategy for your industry and business situation, you can implement your strategy by using these helpful tips:

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Identify product roles Work with marketing to identify specific strategic roles for products (and product lines) in your company's portfolio. For example, you
may price for low-unit margin and high-unit volume on an entry-level product, such as a Honda Civic. But you may price for high-unit margin and low-unit
volume on a product with luxury appeal, such as an Acura NSX.

Product roles may already be understood by key players in your company. But by bringing the discussion to the forefront, everyone will be more aware of how
product pricing can support your company strategy.

Tighten your relationship with sales Set up clear communication channels with your sales team. Salespeople out in the field can provide firsthand information
about how customer demand for your product changes in relation to shifting prices and competitive actions.

Track customer profitability Use spreadsheet software or a tracking tool to identify profit margins for a product that is based on customer, market, or geography
data. The tracking tool will reveal which products have exceptionally high margins. Tracking will also help forecast whether a drop in prices will increase overall
profitability.

The challenge with this task is to set up a process to effectively allocate indirect costs down to the product level. Without an effective way of allocating these
costs, you could undercost or overcost products, which would more than likely affect your pricing and your estimates or product profitability. Activity-based
costing (ABC) systems can help track the appropriate level of detail for product costing and pricing decisions.

Take a global view Understand how exchange rates and economic conditions in other countries could affect pricing. Keep in mind the recently weaker birr,
which has made Ethiopian exports cheaper abroad and foreign imports more expensive to Ethiopians. Another global consideration is the purchasing power of
different customers across different countries, which may dictate the need for different pricing strategies.

Consider the customer perspective Customers may not necessarily view specific product features as the only value they will receive. Be sure to take into
consideration all of the related costs a customer may incur such as installation, maintenance, and potential recalls when establishing prices.

Avoid illegal pricing strategies Be aware of pricing strategies that may unfairly limit competition. Some illegal pricing strategies include:

Predatory pricing. Companies that initially set prices below average variable costs to eliminate competition, and then increase prices.

Dumping Foreign companies that sell products in the Ethiopia at a price below the market price or at production cost in the country where the products are
produced.

Collusive pricing Companies within a particular industry that work together to set prices above the competitive price in order to hinder trade.

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Tying Companies that offer unconditional bundling of a second product with a more dominant and necessary product, without the customer ability to decouple
the products. This gives an unfair marketing advantage to the company with the dominant product, while placing other companies that sell the second product at
a distinct disadvantage.

By developing a formal pricing strategy, you can prepare your company for success. If you understand your customers, competitors, product roles, and the full
costs of your products, you can knowledgeably select and implement a pricing strategy across your product portfolio. The rationale and structure for the pricing
strategy you choose should be clearly communicated across your company.

Pricing is one of the major components of your marketing plan, which is a component of a full business plan. Assigning product prices is a strategic activity. The
price you assign will impact how consumers view your product and whether they will purchase it. Price also helps differentiate your product from those of your
competitors. However, the price you assign must be in line with your other marketing strategies and the product attributes. Whether or not you develop a formal
marketing plan, performing some of the research necessary for a marketing plan prior to determining the pricing strategies you will implement is important. The
knowledge gained from the research will help in assigning appropriate prices to your products or services—prices that reflect the quality and attributes your
product offers the consumer. Your marketing goals and knowledge of the industry, your competition, and the market are essential. Here are some questions you’ll
need to consider to help determine objectives and strategies that will contribute to the success of your business:

• What mix of products are you offering? The mix of products you have available will either limit or broaden the pricing strategies available for you to use. If you
feel that a particular strategy would assist you in achieving your pricing objective, then you may want to consider making changes to your product mix.

• Who or what is your target market? The demographics of your target market will help you identify appropriate pricing objectives and strategies. Are target
customers interested in value, quality, or low cost?

• Are you distributing your product wholesale or retail? Your method of product distribution can impact the pricing objectives and strategies you are able to use.

Direct marketing gives you more control than wholesale marketing over how products are grouped, displayed, and priced.

• What is the estimated life cycle of your product/service?

The life cycle of your product can impact your choice of pricing objectives and strategies. With a short estimated life cycle, it will be necessary to sell greater
quantities of product or generate larger profit margins than with products where the life cycle is longer. Longer life cycles give you more time to achieve your
pricing objective.

• What is the projected demand for the product? When demand for a product is expected to be high, you have more flexibility in choosing pricing strategies
because customers are less likely to be concerned with price and packaging since they really want your product. For example, consider the prices people are
willing to pay when new video game consoles debut.

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• Are there other entities, such as the government, that may dictate the price range for your product? Some products, such as milk, have government-imposed
regulations limiting the price that can be charged. Be familiar with any pricing regulations that apply to your industry or product.

Certain combinations of an objective and strategies work together while other combinations contradict each other. At the end of this publication you will find a
diagram illustrating pricing objectives and the strategies that can be employed to meet each objective. You’ll notice that some strategies can be employed with
more than one objective.

Types of Pricing Strategies

The most important element of an effective market strategy is the ability to maximize and protect the price of the product. Price is the final measure
of customer value and competitive advantage.

Strategic Pricing clarifies the relationship between market segmentation and price, and delivers the tools your organization needs to stay focused
on value as you determine break-even, define price elasticity, and analyze tradeoffs between features and price points. Using strategic pricing
tools yields a better positioning approach.

Strategic Pricing will help you determine the appropriate price to capture the value you provide to your customers:

 Understand how costs, competition, and customer values influence the price you choose
 Determine how customer values drive segmentation decisions, which in turn affect the benefits customers seek and the price they are willing to pay

 Use tools to conduct break-even analysis, measure price elasticity, and evaluate features/price trade-offs through relationship analysis

 Identify lifecycles to establish prices for current and future market conditions

 Decide when and how to raise prices

 Address price erosion situations

After selecting a pricing objective you will need to determine a pricing strategy. This will assist you when it comes time to actually price your products. As with
the pricing objectives, numerous pricing strategies are available from which to choose. Certain strategies work well with certain objectives, so make sure you
have taken your time selecting an objective. Careful selection of a pricing objective should lead you to the appropriate strategies. If the pricing strategy you
choose seems to contradict your chosen pricing objective, then you should revisit the questions posed in the introduction and your marketing plan. As a reminder,
the diagram at the end of this publication illustrates which pricing strategies work well with each of the pricing objectives previously discussed.

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Additionally, different pricing strategies can be used at different times to fit with changes in marketing strategies, market conditions, and product life cycles. For
example, if you’re working under a status quo pricing objective with competitive pricing as your strategy due to poor market conditions, and a year later you feel
that the market has improved, you may wish to change to a profit margin maximization objective using a premium pricing strategy. Brief definitions of some
pricing strategies follow.

Competitive pricing—pricing your product(s) based on the prices your competitors have on the same product(s).

This pricing strategy can be useful when differentiating your product from other products is difficult. So, let’s say you produce fruit jams such as blueberry,
strawberry, blackberry, and raspberry. You may consider using competitive pricing since there are many other jams on the market and you are unable to
differentiate your jams to an extent that customers may be willing to pay more for yours. Thus, if the price range for jams currently on the market is $1.45 to
$1.85 per jar, you may price your jams at $1.65 per jar to fall in line with the competition.

The strategy of competitive pricing can be used when the pricing objective is either survival or status quo. When the objective for pricing products is to allow the
business to either maintain status quo or simply survive a difficult period, competitive pricing will allow the business to maintain profit by avoiding price wars
(from pricing below the competition) or falling sales (from pricing above the competition).

Good, better, best pricing—charges more for products that have received more attention (for example, in packaging or sorting). The same product is offered in
three different formats, with the price for each level rising above that of the previous level. For example, the manager of a farm market that sells fresh apples may
place some portion of apples available for sale in a large container through which the customers have to sort to choose the apples they wish to purchase.

These apples would be priced at the “good” price. Another portion of apples could also be placed in a container from which customers can gather, but these
apples would have been presorted to remove less desirable apples, such as those with soft spots. These would be priced at the “better” price.

The “best” apples—those priced higher than the rest—may have been presorted, just as the “better” apples, but have also been prepackaged for customer
convenience. As demonstrated in this example, the “better” and “best” levels require more attention by management or labor but, if priced appropriately, may be
worth the extra effort.

This pricing strategy should be used when pursuing revenue maximization and quantity maximization objectives.

Revenue maximization should occur as a result of quantity maximization. Quantity maximization should occur from the use of this pricing strategy because
product is available to customers in three prices ranges.

Loss leader—refers to products having low prices placed on them in an attempt to lure customers to the business and to make further purchases. For example,
grocery stores might use bread as a loss leader product. It you come to their store to purchase your bread, you are very likely to purchase other grocery items at

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their store rather than going to another store. The goal of using a loss leader pricing strategy is to lure customers to your business with a low price on one product
with the expectation that the customer will purchase other products with larger profit margins.

The loss leader pricing strategy should be paired with either the quantity maximization or partial cost recovery pricing objectives. The low price placed on the
product should result in greater quantities of the product being sold while still recovering a portion of the production cost.

Multiple pricing—seeks to get customers to purchase a product in greater quantities by offering a slight discount on the greater quantity. In the display of prices,
a price for the purchase of just one item is displayed along with the price for a larger quantity. For example, a farm market may price one melon at $1.69 and two
at $3.00. Pricing in this way offers the customer an apparent discount (in this example $0.38) for purchasing the greater quantity. Customers feel like they’re
getting a discount since $1.50 ($3.00 ÷ 2) is less than the $1.69 price for one melon. However, $1.50 is the price you would typically charge if you were not
employing a multiple pricing strategy. If you think the majority of your customers will purchase the greater quantity, you will want to price the quantity so that
your costs are covered and your profit margin is maintained. A customer purchasing just one item will pay more for the item than what you would typically
charge if you were not using a multiple pricing strategy.

The multiple pricing strategies works well with the profit maximization and quantity maximization objectives. By enticing your customer to purchase more than
one item you are generating more profit since you have set the price for just one item so that you receive a greater profit margin than for which you would
typically price. Essentially, the customer is being penalized for purchasing just one item. In addition, multiple pricing should increase the quantity of items being
sold, hopefully resulting in less product loss or fewer unsold items.

Optional product pricing—used to attempt to get customers to spend a little extra on the product by purchasing options or extra features. For example, some
customers may be willing to spend a little extra to be assured that they receive product as soon as it becomes available. This can be an excellent strategy for
custom operators. Let’s say you are

a custom operator providing forage harvesting services. Your base service option provides producers with basic harvesting.

Available options that the producer could purchase in addition to the harvesting service could include trucking to the storage site, packing, preservative
application, and serving as a member of the producer’s advisory committee. The purchase of each of these options adds value to the service that the producer is
receiving. With this strategy it is important that the extra fee for the option(s) is reasonable; otherwise, you may lose business to a competitor with a more
appropriate pricing structure for the extra services offered.

Optional product pricing is best used when the pricing objective is revenue maximization or quality leadership. By enticing customers to purchase one or more of
the options offered to them, you will be increasing your revenue since the customers may not have purchased the option if it were not offered or may have gone
elsewhere to purchase it. By offering optional products to complement your base product or service, you are projecting an image of quality to your customers.

They will likely recognize your offer of additional products or services as awareness of and sensitivity to their needs.

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Penetration pricing—used to gain entry into a new market.

The objective for employing penetration pricing is to attract and grow market share. Once desired levels for these objectives are reached, product prices are
typically increased.

Penetration prices will not garner the profit that you may want; therefore, this pricing strategy must be used strategically. Let’s say you have created a new hot
and spicy mustard product. Your market research indicates that the price range for competitors’ mustards is $1.89 to $2.99. Since numerous mustards are already
available and you are new to the mustard market, you decide to use penetration pricing to entice customers to purchase your mustard. Therefore, you price your
mustard at $1.85 for the first six months because it covers your cost of production yet is lower than what you believe is a good price for your product and is
below the lower end of the market range, which should entice people to purchase your mustard over the other higher-priced mustards.

The strategy of penetration pricing can be used when your pricing objective is either revenue or quantity maximization. The lower price set on products by using
penetration pricing is done to entice the maximum number of customers possible to purchase your product. Large numbers of customers purchasing your product
should maximize your revenue and the quantity of product sold. If the price were higher, you would expect fewer purchases, thus leading to lower revenues.

Premium pricing—employed when the product you are selling is unique and of very high quality, but you only expect to sell a small amount. These attributes
demand that a high, or premium, price be attached to the product. Buyers of such products typically view them as luxuries and have little or no price sensitivity.
The advantage of this pricing strategy is that you can price high to recoup a large profit to make up for the small number of items being sold. To demonstrate,
let’s say that you have a flock of sheep and you shear, dye, and spin your own yarn. Your yarn is known in the industry as being of extremely high quality. Some
of that yarn you use to knit sweaters, blankets, and scarves. Since your yarn and knitting are very high quality and you know that you be making and selling a
large quantity of your knitted items, you decide to employ premium pricing. Your customers already know of the fine quality of your yarns or they are in higher
income brackets, so they will most likely pay a premium price for your premium knitted products.

Premium pricing can be employed with the profit margin maximization or quality leadership pricing objectives.

The premium price charged for the uniqueness and quality of your product allows you to generate large profit margins on each item sold. Your product will also
demonstrate your commitment to quality, and customers will think of you when they desire such quality.

Product bundle pricing—used to group several items together for sale. This is a useful pricing strategy for complementary, overstock, or older products.
Customers purchase the product they really want, but for a little extra they also receive one or more additional items. The advantage of this pricing strategy is the
ability to get rid of overstock items.

On the other hand, customers not wanting the extra items may decide not to purchase the bundle. This strategy is similar to product line pricing, except that the
items being grouped together do not need to be complementary. For example, you have remaining stock of Christmas-related items after the holidays. If you
prefer not to store these items until next year, you could put a variety of items in a small bag and sell the bag at a discounted price.

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Product bundle pricing can be employed with revenue maximization or quantity maximization objectives since bundling products may result in the sale of
products that may have gone unsold. Quality leadership can be achieved since some customers will appreciate having the opportunity to purchase a group of
items at a discount. The partial cost recovery or survival objectives can be fulfilled from a product bundling pricing strategy when products likely would have
gone unsold otherwise and selling the products at a discount allows you to recover some portion of the production cost or generates enough of a profit to stay in
business or keep from having to remove the product from market.

Product line pricing—used when a range of products or services complement each other and can be packaged together to reflect increasing value. This
pricing strategy is similar to the multiple pricing strategies. However, rather than purchasing a greater quantity of one item, the customer is purchasing a different
item or service at a higher price that is still perceived as a value when compared to the price for the individual product or service. Let’s say that in your farm
market you sell jams, syrups, and pancake mixes, among other items. These items can be considered complementary since people usually put jam and syrup on
pancakes. In addition to selling each of these items individually, you could create a gift box that packages one of each item together. Where there is a range of
product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole
package $6.

The price for this gift box would be slightly less than what a customer would pay in total when purchasing each of the same items individually.

The product line pricing works well with the profit maximization and quality leadership pricing objectives since you are increasing profit by encouraging the
purchase of a greater number of products that may not have been purchased individually.

Additionally, some customers will value the ability to purchase a group of complementary products.

Skim pricing—similar to premium pricing, calling for a high price to be placed on the product you are selling. However, with this strategy the price eventually
will be lowered as competitors enter the market. This strategy is mostly used on products that are new and have few, if any, direct competitors when first entering
the market. Let’s say you develop

a carbonated, flavored, milk-based beverage packaged in 10-ounce plastic bottles. Since there are few drinks of this sort on the market, you could use skim
pricing until more products come to market. Knowing that other similar beverage products will likely enter the market within a year or two, you may decide to
price at $1.95 per bottle when your product debuts. Assuming that other similar beverages have come to market after a year, you then lower the price of your
drink to $1.55 to remain competitive.

The skim pricing strategy should be reserved for when your pricing objective is profit maximization, revenue maximization, or profit margin maximization.
Employing this strategy when your product is new on the market and there is no competition generates greater revenue, profit, and profit margins since you are
the only one selling the product—customers must buy from you if they want what you are selling. You must use caution, though, so as to not price so high
though that customers aren’t willing to buy your product even though there are no competitors.

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Your pricing strategy for a product or service should meet the REQUIREMENT of both the buyer and the seller. Because when you find the right price, profits
will skyrocket; your customers will be happy; and your business will prosper.

Captive Product Pricing—where products have complements, companies will charge a premium price where the consumer is captured. For example a razor
manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.
Economy Pricing—this is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for
soups, spaghetti, etc.

Psychological Pricing—this approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example, ‘Price
point perspective of ' 99 cents instead of one birr.

Optional Product Pricing—Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of
the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

Promotional Pricing
Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One
Get One Free).

Geographical Pricing
Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where
shipping costs increase price.
Choosing a pricing objective and a related strategy requires you to carefully consider your business and financial goals, the state of the market (including its past
and future), and the products and prices of your competition (and possibly their business goals). You want to select objectives and strategies that will position
your product and business for success.
Choosing an objective and strategies that are appropriate for your business at the current time does not prevent you from changing objectives or employing
different strategies in the future as your business grows or changes.

Guide to strategy selection

Knowing and understanding production costs, profit objectives, customers and competition will help you select an appropriate pricing strategy. Pricing is difficult
but should reflect the value and benefits your product provides customers.

The following table can be used to select appropriate pricing strategies in specific market situations.

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Table 7.1
selecting an appropriate pricing strategy depends on market conditions.

Strategy Substitutes Entry barriers Price sensitivity Economies of scale Goal

Premium None Very high None None High per unit margin

Value Few High Low Low Profit

Cost/plus Some Medium Medium Medium Market share and profit

Competitive Many Low High High Protect market share

Penetration Many Low High High Market growth and leadership

Pricing Models

Four models for calculating your pricing

As we said earlier, there is no "one right way" to calculate your pricing. Once you've considered the various factors involved and
determined your objectives for your pricing strategy, now you need some way to crunch the actual numbers. Here are four
ways to calculate prices:
 Cost-plus pricing - Set the price at your production cost, including both cost of goods and fixed costs at your
current volume, plus a certain profit margin. For example, your widgets cost $20 in raw materials and production
costs, and at current sales volume (or anticipated initial sales volume), your fixed costs come to $30 per unit. Your
total cost is $50 per unit. You decide that you want to operate at a 20% markup, so you add $10 (20% x $50) to
the cost and come up with a price of $60 per unit. So long as you have your costs calculated correctly and have
accurately predicted your sales volume, you will always be operating at a profit.

 Target return pricing - Set your price to achieve a target return-on-investment (ROI). For example, let's use the
same situation as above, and assume that you have $10,000 invested in the company. Your expected sales volume
is 1,000 units in the first year. You want to recoup all your investment in the first year, so you need to make

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 $10,000 profit on 1,000 units, or $10 profit per unit, giving you again a price of $60 per unit.

 Value-based pricing - Price your product based on the value it creates for the customer. This is usually the most
profitable form of pricing, if you can achieve it. The most extreme variation on this is "pay for performance" pricing
for services, in which you charge on a variable scale according to the results you achieve. Let's say that your widget
above saves the typical customer $1,000 a year in, say, energy costs. In that case, $60 seems like a bargain -
maybe even too cheap. If your product reliably produced that kind of cost savings, you could easily charge $200,
$300 or more for it, and customers would gladly pay it, since they would get their money back in a matter of
months. However, there is one more major factor that must be considered.

 Psychological pricing - Ultimately, you must take into consideration the consumer's perception of your price,
figuring things like:

 Positioning - If you want to be the "low-cost leader", you must be priced lower than your competition.
If you want to signal high quality, you should probably be priced higher than most of your competition.

 Popular price points - There are certain "price points" (specific prices) at which people become much
more willing to buy a certain type of product. For example, "under $100" is a popular price point.
"Enough under $20 to be under $20 with sales tax" is another popular price point, because it's "one bill"
that people commonly carry. Meals under $5 are still a popular price point, as are entree or snack items
under $1 (notice how many fast-food places have a $0.99 "value menu"). Dropping your price to a
popular price point might mean a lower margin, but more than enough increase in sales to offset it.

 Fair pricing - Sometimes it simply doesn't matter what the value of the product is, even if you don't
have any direct competition. There is simply a limit to what consumers perceive as "fair". If it's obvious
that your product only cost $20 to manufacture, even if it delivered $10,000 in value, you'd have a hard
time charging two or three thousand dollars for it -- people would just feel like they were being gouged.
A little market testing will help you determine the maximum price consumers will perceive as fair.

Now, how do you combine all of these calculations to come up with a price? Here are some basic guidelines:
 Your price must be enough higher than costs to cover reasonable variations in sales volume. If your sales
forecast is inaccurate, how far off can you be and still be profitable? Ideally, you want to be able to be off by a
factor of two or more (your sales are half of your forecast) and still be profitable.

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  You have to make a living. Have you figured salary for yourself in your costs? If not, your profit has to be enough
for you to live on and still have money to reinvest in the company.

 Your price should almost never be lower than your costs or higher than what most consumers consider
"fair". This may seem obvious, but many entrepreneurs seem to miss this simple concept, either by miscalculating
costs or by inadequate market research to determine fair pricing. Simply put, if people won't readily pay enough
more than your cost to make you a fair profit, you need to reconsider your business model entirely. How can you
cut your costs substantially? Or change your product positioning to justify higher pricing?

Pricing is a tricky business. You're certainly entitled to make a fair profit on your product, and even a substantial one if you
create value for your customers. But remember, something is ultimately worth only what someone is willing to pay for it.

Retail Pricing Strategies

Set the Right Price

There are many outside influences that affect profitability and a retailer's bottom line. Setting the right price is a crucial step
toward achieving that profit. Retailers are in business to make a profit, but figuring out what and how to price products may not
come easily.

Before we can determine which retail pricing strategy to use in setting the right price, we must know the costs associated with
the products. Two key elements in factoring product cost is the cost of goods and the amount of operating expense.

The cost of goods includes the amount paid for the product, plus any shipping or handling expenses. The cost of operating the
business, or operating expense, includes overhead, payroll, marketing and office supplies.

Regardless of the pricing strategy used, the retail price of the products should more than cover the cost of obtaining the goods
plus the expenses related to operating the business. A retailer simply cannot succeed in business if they continue to sell their
products below cost.

Retail Pricing Strategies

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Now that we understand what our products actually cost, we should look at how our competition is pricing their products.
Retailers will also need to examine their channels of distribution and research what the market is willing to pay.

Many pricing strategies exist and each is used based on particular a set of circumstances. Here are a few of the more popular
pricing strategies to consider:

Mark-up Pricing

Markup on cost can be calculated by adding a pre-set (often industry standard) profit margin, or percentage, to the cost of
the merchandise.

Markup on retail is determined by dividing the dollar markup by retail.

Be sure to keep the initial mark-up high enough to cover price reductions, discounts, shrinkage and other anticipated expenses,
and still achieve a satisfactory profit. Retailers with a varied product selection can use different mark-ups on each product line.

Vendor Pricing

Manufacturer suggested retail price (MSRP) is a common strategy used by the smaller retail shops to avoid price wars and
still maintain a decent profit. Some suppliers have minimum advertised prices but also suggest the retail pricing. By pricing
products with the suggested retail prices supplied by the vendor, the retailer is out of the decision-making process. Another
issue with using pre-set prices is that it doesn't allow a retailer to have an advantage over the competition.

Competitive Pricing

Consumers have many choices and are generally willing to shop around to receive the best price. Retailers considering a
competitive pricing strategy will need to provide outstanding customer service to stand above the competition.

Pricing below competition simply means pricing products lower than the competitor's price. This strategy works well if the
retailer negotiates the best prices, reduces costs and develops a marketing strategy to focus on price specials.

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Prestige pricing, or pricing above competition, may be considered when location, exclusivity or unique customer service
can justify higher prices. Retailers that stock high-quality merchandise that isn't available at any other location may be quite
successful in pricing their products above competitors.

Psychological Pricing

Psychological pricing is used when prices are set to a certain level where the consumer perceives the price to be fair. The
most common method is odd-pricing using figures that end in 5, 7 or 9. It is believed that consumers tend to round down a
price of $9.95 to $9, rather than $10.

Other Pricing Strategies

Keystone pricing is not used as often as it once was. Doubling the cost paid for merchandise was once the rule of pricing
products, but very few products these days allow a retailer to keystone the product price.

Multiple pricing is a method which involves selling more than one product for one price, such as three items for $1.00. Not
only is this strategy great for markdowns or sales events, but retailers have noticed consumers tend to purchase in larger
amounts where the multiple pricing strategy is used.

Discount pricing and price reductions are a natural part of retailing. Discounting can include coupons, rebates, seasonal prices
and other promotional markdowns.

Merchandise priced below cost is referred to as loss leaders. Although retailers make no profit on these discounted items, the
hope is consumers will purchase other products at higher margins during their visit to the store.

As you develop the best pricing model for your retail business, understand the ideal pricing strategy will depend on more than
costs. It is difficult to say which component of pricing is more important than another. Just keep in mind, the right product price
is the price the consumer is willing to pay, while providing a profit to the retailer.

Product and Pricing Strategies

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“The price point defines the sales model. It has to be simple, and you have to know how to make money with it…” -- industry
pricing consultant

Pricing has far reaching effects beyond the cost of the product. Pricing is just as much a positioning statement as a definition of the cost to buy. Pricing defines
the entry threshold: who your buyers are and their sensitivities, which competitors you will encounter, who you will be negotiating with and what the customers’
expectations will be.
The most important thing in developing any marketing strategy, including pricing strategy, is to understand as much as possible about current and potential
customers. The more you know about their motivations, sensitivities, needs, and their own customers, the more likely you will be to maximize both the
effectiveness of your product as well as your own revenue stream.
The purpose of this article is to explore the interrelation between product and pricing.

7.2 Selecting the price

The process of setting the price involves the following steps:

Step 1: Selecting the Pricing Objective
– Survival
– Maximum current profits
– Maximum market share (market-penetration pricing)
– Market skimming - appeals to high end market segments
– Product-quality leadership - premium quality connotes premium price
– Other Pricing Objectives - cost recovery (partial or full) and social pricing)
Step 2: Determining Demand
• Price sensitivity - unique-value, substitution-awareness, difficult comparison, total-expenditure, end-benefit, shared-cost, sunk-investment, price-quality,
and inventory effects
• Estimating demand curves - statistical analysis, price experiments, and buyer input
• Price elasticity of demand
– Determination of the affect of a change in price on overall demand.
– If demand changes considerably with a change in price, it is elastic. If demand does not change significantly or in parallel with the price, it is inelastic.
Step 3: Estimating Costs
• Types of costs and levels of production - fixed, variable, and total costs too. Accumulated production - learning curve pricing

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• Differentiated marketing offers
• Target costing - determine price that must be charged according to market research
Step 4: Analyzing Competitors' Costs, Prices, and Offers
• (evaluate from customer perspective, compare, value and reaction)
Step 5: Selecting a Pricing Method
• Markup pricing - standard markup, but can vary according to product categories
• Target return pricing - to make a fair return on investment
• Perceived value pricing - based on buyer perceptions
• Value pricing - fairly low price for a high quality offering, everyday low pricing, etc.
• Going rate pricing - base price on that of competitors ("follow the leader")
• Auction-type pricing - ascending, descending and sealed-bid
• Group pricing - Internet-based methods for group buying, pool pricing
Step 6: Selecting Final Price
• Psychological pricing - indicator of quality, reference price, odd pricing
• Gain-and-risk sharing pricing - risk losing customers if it cannot deliver full promised value
• The Influence of other marketing-mix elements - note relationships between relative price, relative quality and relative advertising
• Company pricing policies - contemplated price must be consistent
• Impact of price on other parties - distributors, sales force, competitors, suppliers, government, etc.

7.3 Adapting the Price

ADAPTING THE PRICE – Companies usually do not set a single price, but a price structure that reflects several variables.

GEOGRAPHICAL PRICING – Company decides how to price its products to different customers in different locations and countries. The company must also
consider how they will get paid. Fifteen to twenty-five percent of world trade is paid for in COUNTERTRADE, where buyers offer items other than cash as
payment. Some forms of countertrade are:

*Barter – direct exchange of goods or services with no money and no third party involved

*Compensation deal – seller is paid partly in cash and partly in products

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 *Buyback arrangement – seller sells plant, equipment, technology and accepts products made with the equipment as partial payment

*Offset – seller received payment in cash but agrees to spend a substantial amount of it in that country within a specified time period

PRICE DISCOUNTS AND ALLOWANCES – Companies will adjust prices in certain circumstances.

*Cash Discounts – price reduction for buyers who pay their bills promptly

*Quantity Discounts – price reduction for buyers who buy in large volumes

*Functional Discounts – offered to trade-channel members if the perform certain functions (selling, storing, record keeping, etc.)

*Seasonal Discounts – price reduction for buyers who by merchandise or services out of season

*Allowances – extra payments designed to gain reseller participation in special programs (trade-in or promotional allowances)

PROMOTIONAL PRICING – Seven pricing techniques designed to stimulate early purchase:

*Loss-leader pricing – stores drop prices on brand name items to increase traffic

*Special-event pricing – special prices in certain seasons to draw in customers

*Cash rebates – rebates offered to encourage purchases within a specified period (inventory clearance)

*Low-interest financing – just what it says

*Longer payment terms – stretching loans over longer periods to result in lower payments

*Warranties and service contracts – addition of free or low-cost warranties

*Psychological discounting – offering the item at substantial savings from the normal price

DISCRIMINATORY PRICING – Selling at two or more prices that do not reflect a proportional cost difference. Price discrimination works when (1) the market
has segments that show different intensities of demand; (2) the lower-price segment cannot resell to the higher-price segment; (3) competitors cannot undersell

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the firm in the higher-price segment; (4) the cost of segmenting and policing the market does not exceed the extra revenue derived from price discrimination; (5)
the practice does not breed customer resentment; and(6) the price discrimination is not illegal (predatory pricing – selling below cost to destroy competition).

*Customer-segment pricing – certain customer groups pay different prices for same product/service (senior citizen discounts)

*Product-form pricing – different versions of same product sell for different price without regard to production cost

*Image pricing – same product sells for two different prices based on image differences

*Location pricing – same product is priced differently based on location (stadium seating)

*Time pricing – prices vary by season, day, or hour (cellular phones w/free weekends)

PRODUCT-MIX PRICING – Price-setting logic must be modified when the product is part of a product mix.

*Product-line pricing – price points that distinguish products in a product line. Perceived quality differences must justify price

*Optional-feature pricing – optional products, services, features offered along with the main product

*Captive-product pricing – some products require ancillary products (razors need blades) that allow greater markup

*Two-part pricing – consists of a fixed fee plus a variable usage fee (telephone service)

*By-product pricing – sales of by-products which may allow the product to be sold at a lower price if necessary

*Product-bundling pricing – selling a bundle of products for less than it would cost to buy the items separately

7.4 Initiating and Responding to Price Changes

Firms may need to cut or raise prices in certain situations.

INITIATING PRICE CUTS – Firms may cut prices due to excess plant capacity, declining market share, to dominate the market through lower costs. Items to
consider before initiating a price cut: could start a price war, customers may assume lower price means lower quality, low price buys market share but not
loyalty, competitors may cut prices and have longer staying power

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INITIATING PRICE INCREASES – Firms may increase prices to increase profit margin, to maintain profits in the face of cost inflation, in anticipation of cost
increases (anticipatory pricing), when the firm faces overdemand and cannot supply all of its customers.

REACTIONS TO PRICE CHANGES – Reaction to price changes are most likely when there are few firms offering the product, the product is homogeneous,
and buyers are highly informed.

RESPONDING TO COMPETITORS PRICE CHANGES – The best response varies with the situation. Firms must consider the product’s stage in the life cycle,
its importance to the firm’s portfolio, the competitor’s intentions and resources, the product’s price and quality sensitivity, the behavior of costs with volume, and
alternative opportunities.

8. Managing Marketing Channels

Definition: Derived from the Latin word canalis (canal). A marketing channel can be viewed as a canal or pipeline for products.
Individuals and firms involved in the process of making a product or service available for use or consumption by consumers or
industrial users. Channel/Distribution (or place) is one of the four elements of marketing mix. An organization or set of organizations
(go-betweens) involved in the process of making a product or service available for use or consumption by a consumer or business
user. The other three parts of the marketing mix are product, pricing, and promotion.

8.1. What work is performed by Marketing Channels

Transactional functions:

Contacting buyers

Promoting the product to be sold

Negotiating

transportation

Quantity

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Reduce contacts between producers and users.

Risk-taking (with possession of products.)

Logistical functions

Physical Distribution:

Moving products from production to consumer

Overcomes temporal discrepancies.

Overcomes spatial discrepancies.

Sorting Functions:

Overcome discrepancies of quantity

Overcome discrepancies assortment

Facilitating functions:

Research- Gathering information about other channel members and consumers

Financing- Some wholesalers give credit

-Inventories are financed as products flow through or are held in channels

-retailers may give credit for purchasers

Consumer Benefits from Intermediaries through the four utilities:

- Time utility- having a product or serviced when you want it.

- Place utility- having a product or service where you want it.

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 - Form utility- having a product or service in the form you want it by, for example, enhancing it to make it more appealing to buyers.

- Possession- utility–helping buyers to take possession of a product or service.

Consumer Channel Structures

The appropriate configuration of channel members.
Direct Retailer Wholesaler Agent Broker
Channel Channel Channel Channel
Producer Producer Producer Producer

Agent or Broker

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

a producer and ultimate consumers deal Large retailer low-cost, Many small manufacturers and
directly with each other. Cost of inventory makes it too expensive to low-unit value Many small retailers
use a wholesaler. frequently purchased Agent coordinates a large supply

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 Manufacturer sells to
wholesalers in large quantities; of the product.
Manufacturer uses agents to sell
Wholesalers break bulk to wholesalers, which then sell to
Retailers order in smaller many small retailers.
quantities.

B. Marketing Channels for Business Goods and Services

Industrial Product Channels

Direct Industrial Agent Broker Agent Broker
Channel Distributor Channel Industrial
Producer Producer Producer Producer

Agent or Broker Agent or Broker

Wholesaler

Distributor Distributor

Industrial Industrial Industrial Industrial

Consumer Consumer Consumer Consumer
Large,well defined buyers Distributor performs channel Agent, serves primarily as the Agents and distributors.
Extensive negotiations functions, selling, stocking, and independent selling arm of
High unit value products delivering a full product assortment producers
Hands-on expertise in terms and financing. Represents a producer to

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 Like wholesalers in consumer
of installation. industrial users.
channels.

Frequently there may be a chain of intermediaries; each passing the product down the chain to the next organization, before it finally reaches the consumer
or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which
the producer must take into account, along with those of the all-important end-user.

A number of alternate 'channels' of distribution may be available:

 Selling direct, such as with an outbound salesforce or via mail order, Internet and telephone sales
 Agent, who typically sells direct on behalf of the producer
 Distributor (also called wholesaler), who sells to retailers
 Retailer (also called dealer or reseller), who sells to end customers
 Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain
sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour
operators, airlines, tourist boards, centralized reservation systems, etc.

There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter
offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the
travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail
outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas.

Channel members

Distribution channels can thus have a number of levels. Kotler defined the simplest level, that a of direct contact with no intermediaries involved, as the 'zero-
level' channel.

The next level, the 'one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor. In small markets (such as
small countries) it is practical to reach the whole market using just one- and zero-level channels.

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In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small,
neighborhood retailers or dealers.

The internal market

Many of the marketing principles and techniques which are applied to the external customers of an organization can be just as effectively applied to each
subsidiary's, or each department's, 'internal' customers.

In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a `transfer price'. To
all intents and purposes, with the possible exception of the pricing mechanism itself, this process can and should be viewed as a normal buyer-seller relationship.
The fact that this is a captive market, resulting in a `monopoly price', should not discourage the participants from employing marketing techniques.

Less obvious, but just as practical, is the use of `marketing' by service and administrative departments; to optimize their contribution to their `customers' (the rest
of the organization in general, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non-profit organizations, in
dealing with their clients, offer a very useful parallel.

8.2 Channel Design Decisions

 Channel strategy
 Product (or service)<>Cost<>Consumer location

Managerial Concerns

The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly
lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. Many suppliers seem to
assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is
merely assuming a part of the supplier's responsibility; and, if they have any aspirations to be market-oriented, their job should really be extended to managing all
the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:

 Channel membership
 Channel motivation
 Monitoring and managing channels

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Channel membership
1. Intensive distribution - Where the majority of resellers stock the 'product' (with convenience products, for example, and particularly the brand leaders in
consumer goods markets) price competition may be evident.
2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where 'suitable' resellers stock the product.
3. Exclusive distribution - Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the 'product'.

Channel motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent
organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `incentive': the
supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors'
sales personnel, so that they are tempted to push the product. Dent defines this incentive as a Channel Value Proposition or business case, with which the supplier
sells the channel member on the commercial merits of doing business together. He describes this as selling business models not products.

Channel selection and deployment is one of the most critical issues facing companies today. Customers are in the drivers’ seats, as they should
be, when it comes to the buying relationship. Powerful products and, to some degree, great brands no longer provide sustainable differentiation to
customers. Customers are looking for superior value in all the solutions they consider. Increasingly, the sales channel creates the most powerful
and sustainable differentiation in delivering superior value to customers.

However, much of what companies do today in deploying sales channels keeps them from establishing the highest performance, most effective
channels. Many companies are not getting the sales growth, market penetration and customer share they should because of ineffective channel
design and deployment. In assessing the channel effectiveness of dozens of organizations worldwide, we find companies doing things backwards.
They are designing their sales channels from inside-out, that is, based on a company focused strategy. The easiest and most effective means of
designing and deploying high performance sales channels start with the customer.

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 Channel Design Considerations
1. Target Market Coverage
o Try to place its product or services in as many outlets as
possible.
o Little manufacturer control
o Convenience goods
Intensive distribution
o Supplies
o Low-value
o Frequently purchased
o may require a long channel of distribution
o Establish one or a few dealers within an area.
 Consumer specialty goods
 Some shopping goods
Exclusive distribution  Major industrial equipment.
 Creates image of exclusiveness for the product.
 Usually chosen for specialty goods.
 Maximum manufacturer control
o A few retail outlets
Selective distribution o Better coverage
o Some manufacturer control
2. Satisfying Buyer Requirements

Information
o Do buyers have limited knowledge or desire specific data about a
product or service?
o Proximity or driving time to a retail outlet

Convenience
o Amount of time and hassle.
o Websites must be easy to locate and navigate and downloads
must be fast.
o Buyers’ interest in having the choice of numerous items.
Variety
o Breadth and depth of products and brands.
Attendant services o Delivery requirements
o Installation requirements

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 o Credit requirements.
3. Profitability
o Distribution costs
o Advertising costs

o Selling expenses

Traditional Approaches

Unfortunately, many great companies are prisoners of their heritage. Their sales channel design and deployment is driven by their heritage. They
continue to do the same thing, only more and faster, not necessarily better. Those organizations that had a strong focus on company owned field
sales channels continue to expand that organization, often losing productivity, effectiveness, and profitability.

Other companies try to do everything, exploiting multiple channels to reach the same customers, confusing the customer, creating channel conflict,
eroding margins, losing share and opportunity. These companies have all the traditional channels in place and are adding all the new and
fashionable channels (internet, direct marketing, and others) without rationalizing the strategy and approach.

Others drive their channel strategies based solely on financial criteria, namely cost of selling, not treating their sales channels as investments
which are expected to produce a reasonable return. We see companies downsizing, shifting from a high fixed cost for their own organization to
the lower or variable costs of an indirect channel structure (distributors, resellers, representatives, outsourced telesales). Their decisions are
driven by expense criteria, not the ability of the channel to effectively reach the right customers at the right time with the right solutions.

Then there are those that can’t decide, every year changing their sales strategy to something different than before. Shifting from indirect sales to
company owned sales forces. Moving to inside sales. Moving to direct marketing. Moving to the internet. Then starting the whole process again
when each move fails to achieve the results needed.

All of these activities are driven by dozens of task forces, studies, organizational assessments and other research efforts to look at the right
channel design.

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These efforts all miss the point! Moreover, they make channel design and deployment more complicated than it really is. The easiest way to
design high performance sales channels is to start with the customer! Once you know who your customers are and how they want to buy, then
you can design the channel that most effectively reaches those customers in the way that is most effective.

Channel Design Is Not Rocket Science!

Customer focused channel design and deployment is not rocket science. Effective design, however, requires a disciplined approach to
understanding who your customers are and how they buy. Designing a customer-focused channel involves several simple steps:

 Start with the customer. Who are the customers we want to serve? Do we want to expand our relationships with our current customers?
Do we want to acquire new customers? What share of customer objectives do we have?
 How do we segment these customers and characterize each segment? What markets do we serve, which products and services are
directed to which customers or markets? Remember that customers in similar segments but different geographies may behave very
differently (i.e. are your French customers the same as your Chinese and Chilean customers?). What goals or objectives do we have with
each segment?
 How do these customers/segments buy solutions like those that we offer? What is involved in their buying process? What steps does the
customer go through in defining requirements and specifications, evaluating, selecting, and implementing a solution? Does it require close
and frequent interaction? Is it complex, with many people involved in the buying decisions? Does the buying process require close
involvement and contact with the “factory?” Is there a lot of customization and integration required? Are there complementary services or
products required to provide a complete solution?
 Who do they buy those solutions from? How do they buy the solutions? Direct field sales organization (hunters, farmers?), inside sales,
distribution, resellers, reps, Internet, catalog, OEM, integrator, retail, supplier chain relationship?
 What are their expectations of those solution providers? What level of service and support is important in the buying and implementation
process?
 How do these solution providers complement and add value to the offerings of the suppliers? They are part of the value delivery chain
and need to add value not cost.
 What is the profile of these solution providers, what are their characteristics? How are they organized to support the customers? What
programs and capabilities do they need to have? What relationship do they have with the manufacturer?
 What do those solution providers expect of their suppliers? What is the value proposition for channel partner (internal or external)? How
do we motivate them to wake up every morning excited about selling our products and services over those of any one else (including other
divisions within our organization)?
 How do we map our products and services into the channels that most effectively reach these customers? Which products and services
are we going to sell to which customers through which channel?
 What channel programs do we need to put in place to support the channels? What marketing programs are we going to direct to the
customer/segment and channel to drive sales growth in the desired area? What programs, policies, processes are needed by
segment/channel?

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Exploring these issues in the sequence outlined will help establish the design and the deployment of the correct sales resources to achieve your
objectives. The “right” channel design and structure becomes will start to become obvious with this analysis. Usually, a couple of alternatives that
emerge and a variety of criteria can be used in selecting the best alternative.

In addition to making the channel design and deployment process much easier, the tremendous power to this approach is that since it is customer
driven, it will become immediately obvious and easy for your customer to buy your products and solutions in a manner that is most closely tailored
to how they want to acquire solutions. This means you sell more stuff to more people more effectively and efficiently!

Critical Success Factors

Based on our experience, few companies can achieve their objectives with a single channel strategy approach. Most organizations must establish
a variety of different channels to reach their customers most effectively. Leading companies will have a combination of many different channels.
However, from the customer view, the sales channel should be very clear and easy to understand!

Rule 1: Don’t confuse the customer about how he acquires your solutions, keep it simple, intuitive and obvious!

There are too many alternatives for your customers to choose from. Their job is not to sort through how to buy your product, which channel to
work with, what price to pay, who is good, who is bad. They just want to procure a solution in the easiest manner possible.

If the customer is in any way confused about who they should buy from, the channel has been defined incorrectly. We need to make it very clear
and simple about how to buy our products. If the customer cannot easily understand who they should purchase the product from, they will go
somewhere else. Part of what we need to do is make our products and services easy to buy or acquire.

Rule 2: There will be overlap in channels, but this should be minimized and managed effectively. Focus your channels on competing
against the competition, not against each other.

The real world is not black and white, there are many shades of gray. It is impossible to define the channel structure cleanly. Design your channel
strategy in a way that your channels spend more time fighting the competition than they do fighting each other. The latter case will only produce
dissatisfaction with customer and the channels. Ultimately it leads to pricing/margin erosion and share erosion.

Rule 2A: Don’t over-distribute your products. Over-distribution means that you will compete against yourself not your competition.
You will lose the loyalty of your channel and lose customers.

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We like to recommend sufficient coverage of the market with your channels, not over-saturation. Too many outlets, ultimately, is a losing
proposition for all. Make sure there is a reasonable business proposition for your channel partners. Are the markets they address with your
solutions sufficient to support their investments and to provide an adequate return?

Rule 3: Remember your channel partners are your customers as well. What’s your value proposition to them?

Often we are very good at defining our value proposition to our end customers. However, we forget that we need to define the value proposition
for our channel partners, as well. How do we create excitement, awareness, and a high desire to sell our products, over other products that the
sales channel has to sell (This applies to field sales, as well.)? We need to think of how do we make our products and services compelling to for
them to sell.

Rule 4: Mindshare in the channel is based on how important your products and services are to their success. If you aren’t in the top
five, you won’t get sufficient attention.

Most sales organizations have a range of products and services on which they choose to spend their time. They will tend to focus on a few areas,
in which they can maximize the return on their investment in time. If your products and services will not be one of the top one’s in which they
focus, you will not get the attention that you need to achieve your goals. You will want to re-assess your channel strategy and programs to assure
that you get the right attention on your products. With a field-oriented channel, you may want to put in place special emphasis programs or even
an overlay, specialized sales organization. With indirect organizations, you may want to choose different partners. Web-based channels will
require other action.

Rule 5: Consider your customer and product life cycles in your channel design. Different channels are required depending on where
your customers are in their growth and maturity. Likewise, your product life cycles impact channel decisions.

Many companies make the mistake of determining the channel strategy at product launch, then never changing it as the product matures in the
market. Likewise, our customers will change their buying process over time. For example, as products get more commoditized, in the customer’s
mind, they will change how they procure these solutions. If we have not adopted our channel strategy to support this change, we may not be
reaching the right customers, with the right message. This impacts both the top and bottom line.

Rule 5A: Channel strategies cannot be cast in concrete. They must evolve, or sometimes, go through revolutionary change!

We must continue to reassess and tune our channel strategies based on how our customers and markets change. Not doing this will cause us to
be left in the dust, losing share, revenue and profits. Many industries are undergoing profound and radical change, which requires new thinking.

Designing The Channel Is Just The Start!

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Designing the channel is just the start, what counts is execution! The best channel design in the world, does not mean anything until we start implementing it and
tuning the strategy for reality. This includes putting the channel in place, putting the programs in place to support the channel, and putting the measurements in
place to assure they are accomplishing what we expected. Continually monitoring performance and tuning the organization in their execution of the strategy is
critical to achieving the business results we want.

8.3 Channel Management Decisions

Channel management involves more than just distribution, and has been described as management of how and where a product is used
and of how the customer and the product interact. Channel management covers processes for identifying key customers,
communicating with them, and continuing to create value after the first contact.
Channel management involves more than just distribution, and has been described as management of how and where a product is used
and of how the customer and the product interact. Channel management covers processes for identifying key customers,
communicating with them, and continuing to create value after the first contact.
In much the same way that the organization's own sales and distribution activities need to be monitored and managed, so will those of
the distribution chain.
In practice, many organizations use a mix of different channels; in particular, they may complement a direct salesforce, calling on the
larger accounts, with agents, covering the smaller customers and prospects.

CHANNEL CHOICE AND MANAGEMENT

o Factors Affecting Channel Choice and Management
Environmental Factors o General economic conditions
o Changing family lifestyles
o Technological advance
o Market size

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 o Competition
o Who are your customers?
Consumer Factors o Where do they buy?
o How do they buy?.
o Product sophistication
o Product Unit value
Product Factors o Product Standardization
o Stage in the life cycle
o Price
o Financial capabilities
o Human capabilities
o Technological capabilities.
o Managerial capabilities
Company Factors
o Marketing Resources
o Number of product lines

o Desire for control of marketing channels

Successive stages of production and distribution under a single ownership

Corporate Systems Forward integration o Producer owns an intermediary at the next level down in the channel.
Backward integration o Retailer owns a manufacturing operation.

Contractual Systems o Production & distribution firms integrate their efforts on a contractual basis
o Greater functional economies

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 o Greater marketing impact.
o Wholesaler develops a contractual
relationship retailers
o Standardize and coordinate
Wholesaler-sponsored voluntary chains  buying practices
 merchandising programs

 inventory management.

Retailer-sponsored cooperatives
o Retailers organize to operate a
wholesale facility.
Franchisor the parent company
Franchisee an individual or firm
Contractual arrangement lets the franchisee

Franchising
o Operate a specific business
o Under an established name
o According to specific rules.

Administered Systems o Size and influence of one channel member mandates cooperation.
o Similar to supply partnerships (Chapter 6).
o Agreements & procedures among channel members
 Ordering & physically distributing a producer's products through the channel to the ultimate
consumer.
Channel Partnerships  Collaborative use of information and communication technology
 Better serve customers

 Reduce the time and cost of performing channel functions.

8.4 Channel dynamics

With complex multi-channel marketing efforts come complex buying behaviors. However, most marketers undervalue the effectiveness of media
programs through inadequate tracking systems. They offer a fragmented picture of a comprehensive process that includes multiple purchasing
channels for consumers.

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Cookie-based tracking and other simple methods of evaluating media programs provide incomplete data that divides wide-ranging marketing
strategy into the sum of its parts. They ignore the cumulative effect of multiple brand impressions that lead to the final purchase. The evaluation of
a marketing strategy designed to engage the customer throughout the buying process should take into account all channels, including online, in-
store and call centers.

Channel Dynamics requires companies to use ICT (Information & Communications Technology) to sell more effectively, through superior channels supporting
them with sales training programs and marketing strategies.

The objective is to help organizations select the right partners, develop meaningful programs, and achieve great results.

In order to accomplish this, channel dynamics focus on improving two key areas:

1. Vendor to Channel engagement (ie. helping the vendor engage more effectively with the channel)

2. Channel to End-user sell through (ie. improving the channel's ability to sell the vendor's products)

Channel Dynamics is creating leverage through partnership

In Developing Dynamic Channel Strategy:

 Determine the players within your sales, product and service channels
 Consider how these channels impact operations, pricing and profitability
 Understand the dynamics of the Power-Trust balance
 Devise alternate channel scenarios as to sustain growth
 Make sure your marketing helps build demand

To develop channel strategy:

First, let's define the term. Simply put, channel strategy is a set of decisions that identifies the path a product must take from producer to end user. There are three channels
that must be considered: sales channel, product channel and service channel. Although some channel intermediaries may serve one or more of these three different
channel roles, it is essential to refine your new product's marketing strategy through each of these three lenses.

The sales channel. These are intermediaries involved in selling your product through each channel layer and ultimately to the end user. The key question is this: Who needs
to sell to whom for your product to be sold to your end user?

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The product channel- The product channel focuses on the series of intermediaries who physically handle the product on its path from its producer to the end user.

The service channel.-The service channel refers to the entities who provide necessary services to support your product launch, as it moves through the sales channel and
after purchase by the end user. The service channel is an important consideration for products that are complex in terms of installation or customer assistance.

In building an effective channel strategy, there are four key points to consider.

Internal capabilities.-Be honest and identify where you might need help. Do you have the resources to service end users directly? Do you have the ability to service all the
retailers who should be carrying your product? And what about your sales staff? Is it large enough to call on distributors who handle regional markets?

Margins and fees.-Every intermediary extracts a fee or reduces your profit margin. How will these costs impact your pricing to wholesalers? To direct-to-retail buyers? To
end consumers? What about the fees your channel partners charge each other? How will those affect the end user's price? And finally, how will your channel partners
handle discounts, coupons or rebates?

Market connections- Identify which channel partners have the necessary relationships to help place your product. Is your selection of channel partners consistent with your
brand identity and positioning? Do the best-connected distributors also carry your competitors' products? If you use multiple distributors in overlapping markets can you
manage conflicts over territories?

Alternative channels. Develop alternate channels to ensure continued sales growth. If key distributors or retailers refuse to carry your product, do you have other creative
but still strategic ways of reaching your targeted end users?

So where do youI start?

Having said all that, there is one additional factor that complicates even the best of plans: The Power-Trust balance between the producers and channel partners.

Here's what I mean. Let's say that you plan to use a certain wholesaler to sell your product into key retail outlets. Naturally, wholesalers and retailers prefer to handle
products with a proven level of demand. In fact, they may refuse to carry new products with insufficient demand, although that's a rare occurrence, since consumers like new
things. But ultimately, producers are in a weak bargaining position. They can only trust that their product will be marketed properly, while the channel players maintain the
power to dictate the terms of the relationship.

As demand increases, however, power shifts upstream to the producer, and reliance on trust shifts downstream to the retailer. Once a product reaches a high level of
demand, the producer gains the power to dictate how the product is marketed by its channel players. The downstream channel players have to trust that the producer will
deal with them equitably.

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Take Nike's dispute with Foot Locker stores in 2003 as an example. There is no doubt that there is high demand for Nike products in general, and for Air Jordan brand
shoes in particular. But that didn't keep Foot Locker from mistakenly thinking that it still had the power to dictate the terms of the relationship. They were sorely mistaken
when Nike decided to withhold inventory from them, putting a dent in their revenues and strengthening their competitors in the process.

Nike is clearly the power holder in that channel, but it takes years for most producers—especially for new ventures—to reach that point.

How then does a new product build demand in order to acquire this coveted power position? By utilizing effective consumer marketing communications (advertising and
direct mail) and promotions (discounts and special events) to generate increased demand to pull products through the channels.

Remember: Demand is the driver that changes the Power-Trust balance.

9. Managing Advertising, Sales Promotion and Public Relations

Promotion involves disseminating information about a product, product line, brand, or company. It is one of the four key aspects of the marketing mix. (The
other three elements are product marketing, pricing, and distribution.)

It is not enough to have good products sold at attractive prices. To generate sales and profits, the benefits of products have to be
communicated to customers.

Promotion is, therefore, about companies communicating with customers.

A business' total marketing communications programme is called the promotional mix and consists of a blend of:

•Advertising: Advertising is an important marketing technique. Advertising is a mass medium of sending product related messages.
The advert and the messages are designed to meet the specific needs of the target audience. The cost incurred is relatively low as a
large number of people are targeted with the same message.

• Direct marketing/ Personal Selling: The technique of selling which involves an individual salesperson to sell a product, service or
solution to a client is called personal selling. The benefits of the product offerings are matched to the specific needs of a client.
Personal selling involves the development of longstanding client relationships. Personal selling tends to use fewer resources, and

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pricing is often negotiated. This technique is mainly adopted when the products offered are fairly complex (e.g. financial services or
new cars) as client needs specific information due to involvement of large sums of money. There are no channel intermediaries i.e.
distributors, retailers or wholesalers involved.

• Personal selling

• Sales promotion: In order to promote an increase in sales of a product or service firms undertake various initiatives. Few examples
of popular sales promotions activities are:

(a) One plus one free

(b) Customer Relationship Management (CRM): Customers are offered incentives such as bonus points.

(c) Free gifts

(d) Discounted prices e.g. Budget airline, e-mail their customers with the latest low-price deals once new flights are released, or
additional destinations are announced.

• Public Relations (PR): generates goodwill about the organization by sending out purposeful communications to organizations
publicists. They are the stakeholders of the firms and public relations aims to build and maintain a positive perception of an
organization in the mind of its publics.

 Sponsorship: In order to create awareness about their brands firms often act as sponsors for major events across the nation. For
examples a firm could sponsor a sports event. In return for sponsorship the name of the sponsor will be mentioned prominently on
advertising billboards, publicity materials, programs and other literature associated with the event. This will create further brand
awareness and make the products more visible in the eyes of the consumers

Objectives of Promotion

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Promotion has several possible objectives and many pieces of marketing promotion aim to achieve several of the following objectives at the
same time:

Inform

Management may need to make their audience aware that their product exists, and to explain exactly what it does. This is a particularly
important objective for new products

Persuade

An important stage is creating favorable attitudes towards the business and its brands. Through persuasive promotion, management will seek
to persuade customers and the trade that their brand has benefits that are superior to competitors

Image creation

Sometimes, promoting a brand image is the only way to create differentiation in the mind of the consumer (e.g. lager advertising)

Reassurance

Much promotion (particularly advertising) is about reassuring customers that they have made the right choice and encouraging them to stay
loyal to a brand.

There are a large and growing number of promotional methods that businesses can use. The main instruments - advertising, direct response mailing, sales
promotion, public relations and direct selling, are often mixed together as part of the promotional mix. Each has different strengths.
What is important is that the promotional mix is carefully planned and the results monitored to ensure that the total promotional cost is controlled.

Promotion is generally sub-divided into two parts:

 Above the line promotion: Promotion in the media (e.g. TV, radio, newspapers, Internet and Mobile Phones) in which the advertiser pays an advertising
agency to place the ad
 Below the line promotion: All other promotion. Much of this is intended to be subtle enough for the consumer to be unaware that promotion is taking
place. E.g. sponsorship, product placement, endorsements, sales promotion, merchandising, direct mail, personal selling, public relations, trade shows

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The specification of these four variables creates a promotional mix or promotional plan. A promotional mix specifies how much attention to pay to each of the
four subcategories, and how much money to budget for each. A promotional plan can have a wide range of objectives, including: sales increases, new product
acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image.

The term "promotion" is usually an "in" expression used internally by the marketing company, but not normally to the public or the market - phrases like "special
offer" are more common.

Promotional techniques refer to the application of various tools such as print media, advertising etc to achieve the marketing
objectives of an organization. Traditional techniques include newspaper or magazine ads or direct mail. In continuation with that and
due to the advancement of technology Internet promotion techniques are gradually becoming popular. Internet promotion techniques
involves use of websites, e-mails etc.

9.1 Developing and Managing Advertising Program

Advertising: Paid form of non personal communication about an organization or its products that is transmitted to a target audience through a
mass/broadcast medium.

Pros

 Flexibility allows you to focus on a small, precisely defined segment (School newspapers) or a mass market (baseball show =
Males, 35-50).
 Cost efficient-reach a large number at a low cost per person, allows the message to be repeated, and can improve public image.
 Allows for repeating the message-lets the buyer receive and compare the messages of various competitors.
 Very expressive, allows for dramatization.
 Also used to build a long term image of a product.
 Trigger quick sales, Sears advertising a weekend sale.

Cons
 Absolute $ outlay very high
 Rarely provides quick feedback, or necessarily any feedback
 Less persuasive than personal selling
 Audience does not have to pay attention

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  Indirect feedback (without interactivity)

9.2 Deciding on Media and Measuring Effectiveness

9.3 Sales Promotion

Sales Promotion relates to materials that act as a direct inducement, offering added value, or incentive for the product, to resellers, sales persons
or consumers. It is designed for immediate (short term) increase in product sales.

9.3 Personal Selling

There are different kinds of salesperson. There is the product delivery salesperson. His or her main task is to deliver the product, and
selling is of less importance e.g. fast food, or mail. The second type is the order taker, and these may be either 'internal' or 'external.'
The internal sales person would take an order by telephone, e-mail or over a counter. The external sales person would be working in
the field. In both cases little selling is done. The next sort of sales person is the missionary.

Here, as with those missionaries that promote faith, the salesperson builds goodwill with customers with the longer-term aim of
generating orders. Again, actually closing the sale is not of great importance at this early stage. The forth type is the technical
salesperson, e.g. a technical sales engineer. Their in-depth knowledge supports them as they advise customers on the best purchase for
their needs. Finally, there are creative sellers. Creative sellers work to persuade buyers to give them an order. This is tough selling,
and tends to offer the biggest incentives. The skill is identifying the needs of a customer and persuading them that they need to satisfy
their previously unidentified need by giving an order.

Personal Selling: Occurs through personal communication in an exchange situation.

 More specific communication aimed at one or more persons.
 Effective at building buyers preferences, convictions and actions.
 Cost per person is high, most expensive promotional tool.
 Greater impact on consumers

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  Provides immediate feedback
 Allows marketers to adjust message quickly to improve communication.
 Buyer feels a great need to listen and respond.
 Long term commitment is needed to develop a sales force.

9.4 Public Relations

Public Relations/Publicity refers to news story form about an organization or its products or both , through mass medium at no charge.
Sponsor does not pay (generally), may be expected/required to run advertisements in the media. Can be positive and negative.

Selecting Promotional Tools

A marketer must do the following while planning and sending communications to a target audience:
1. Identify the Audience
Individuals, groups, special publics or the general public.
Intermediaries vs Consumer
2. Identify the Stage of Product Life Cycle
o Introductory Inform Publicity/Advertising/Sales force (interm.)/Sales promotion (free samples)
o Growth Persuade Differentiate from competitors offering
o Maturity Remind Reminder advertising, Sales promotion (coupons)
o Decline Cut budget
3. Product Characteristics
o Complexity How much information must be communicated. The more complex the message, the greater the need to use
personal selling.
o Risk Greater risk, greater need for personal selling
4. Stages of Buying Decision
In many cases the final response sought is purchase, but purchase is the result of a long process of consumer decision making.
Need to know where the target audience now stands (in the process), and what state they need to be moved to.

Adoption Process

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 o Not Aware--Advertising/Publicity
o Aware--no knowledge Advertising/Publicity
o Interest--how do they feel? Personal Selling/SalesPromotion/Advertising
o Evaluation--should they try? sales promotion/personal selling
o Trial--test drive/sales promotion
o Adoption--do they purchase? Reminder/reinforce--advertising

Communication programs goal must lead consumers to take the final step.

5. Channel Strategies
-Push Vs Pull Policy
o Push-promotes product only to the next institutions down the marketing channel. Stresses personal selling, can use
sales promotions and advertising used in conjunction.
o Pull-promotes directly to consumers, intention is to create a strong consumer demand, primarily advertising and sales
promotion. Since consumers are persuaded to seek products in retail stores, retailers will in turn go to wholesalers etc
(use channels overhead)

Nature of Sales Promotion

Encompasses all promotional activities and materials other than personal selling, advertising and publicity. Grown
dramatically in the last ten years due to short term focus on profits. Funds are usually earmarked for advertising are transferred
to sales promotion.
Often used in conjunction with other promotional efforts.

Importance of sales promotion:

o companies are looking to get a competitive edge

o quick returns are possible for short term profits
o more consumers are looking for promotions before purchase
o channel members putting pressure on mf. for promotions

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 o advances in tech. make SP easier (ie coupon redemption)

Sales Promotion Opportunities and Limitations

o Increase in sales by providing extra incentive to purchase. May focus on resellers (push), consumers (pull) or both.
o Objectives must be consistent with promotional objectives and overall company objectives.
o Balance between short term sales increase and long term need for desired reputation and brand image.
o Attract customer traffic and maintain brand/company loyalty.
o Reminder functions-calendars, T Shirts, match books etc.
o Impulse purchases increased by displays
o Contests generate excitement esp. with high payoffs.

Limitations

o Consumers may just wait for the incentives

o May diminish image of the firm, represent decline in the product quality.
o Reduces profit margins, customers may stock up during the promotion.
o Shift focus away from the product itself to secondary factors, therefore no product differential advantage.

Sales Promotion Methods

Consumer Sales Promotion Techniques

-encourage/stimulate customers to patronize a specific retail store or to try a specific product.

o Coupons:

Usually reduce the purchase price or offered as cash. Need to state the offer clearly and make it easy to recognize.

o Demonstrations:

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 Excellent attention getters. Labor costs are usually high.

o Frequent User Incentives:

Major airlines, helps foster customer loyalty to a specific company. Credit card companies. Trading stamps-Co-ops
back in England, foster retail loyalty.

Blockbuster's new credit card offers company products based on card usage. Cindy Crawford "Why wait for whats
coming to you" Co-Branded with immediate rewards...this is what is very appealing about this card...immediate reward,
as opposed to having to build up points for an air flight etc.

Airlines have had to raise the threshold of their award programs 35,000 from 20,000, 2 free round trip tickets due to
$3+trillion liabilities
Long Distance telephone also offer free air miles, >$25/mo = airmiles
Frequent User cards are used to collect information for companies enabling them to better target their customers.

o Point of Purchase Display:

Outside signs, window displays, counter pieces, display racks. 90% of retailers believe that point of purchase materials
sell products.

Essential for product introductions. Also with 2/3 of purchasing decisions made in the store, they are important.

o Free Samples:

Stimulate trial of product. Increase sales volume at the early stage of the product life cycle and obtain desirable
distribution.
Most expensive sales promotion technique.
Not appropriate for mature products and slow turnover products.

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 o Money Refunds/Rebates:

Submit proof of purchase and mail specific refund, usually need multiple purchase for refund. Helps promote trial use,
due to the complexity of the refund, it has little impact.
Customers have a poor perception of rebate offered products.
Used extensively in the Auto and Computer industry.

o Premium Items:

Offered free or at minimum cost as a bonus. Used to attract competitors customers, different sizes of established
products.
Gas stations give free glasses--basics buy!! McDonalds premium items are considered collectors items by some!
Flintstones program last year with McDonalds.
Burger King with the Lion King movie
Last summer the following tie-in premium programs.

 Casper with Pepsi, Pizza Hut, Choice Hotels

 Congo with Taco Bell
 Batman Forever with McDonalds, Kelloggs, Six Flags, Sears
 Pocahontas with Chrysler, Nestle,General Mills, Burger King
 Mighty Morphin with McDonalds
 Cents-off Offer:

Strong incentive for trying a product-very similar to coupons, but are a part of the package.

o Consumer Contests and Sweepstakes:

Consumers compete based on their analytical or creative skills. Must be accurate or you will anger customers/retailers.
Sweepstakes are prohibited in some states.

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 Trade Sales Promotion Techniques

Push Policy emphasizes promotions focused on the next intermediary.

Trade Sales Promotion Techniques-stimulate wholesalers and retailers to carry products and to market them aggressively.
Producers use sales promotion techniques to encourage resellers to carry their products and to promote them more effectively.

o Allowances and Discounts:

 Merchandise...reimburse for extra retail support, i.e. advertising, shelf space
 Case...discount on cases ordered in specific period.
 Finance...Paying for financial costs/losses associated with consumer sales promotions.
o Cooperative Advertising:

Manufacturer agrees to pay a certain amount of retailers media.

o Training of Sales Staff

Publicity

At no charge (most of the time) Part of public relations, a broad set of communication activities used to create and maintain
favorable relations between the organization and its publics:

o customers
o employees
o stockholders
o government officials
o society in general

Need to cultivate effective media relations, and targeting publicity to key markets are viewed as the highest priorities.

compared

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 o Publicity is primarily informative
o Advertising is informative and persuasive
o Publicity is more subdued
o Publicity does not identify the sponsor
o Publicity is free (??!)
o Publicity is part of a program or print story and appears more objective
o Publicity is not subject to repetition
o Publicity is more credible
o Little control over publicity

Limitations of Using Publicity

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Media must judge publicity to be news worthy, timely, interesting and accurate.
Cannot control the content or timing.
Comparing the Components of the Promotional Mix

10. International Marketing

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10.1 Meaning of International Marketing.

International marketing refers to marketing carried out by companies overseas or across national borderlines. This strategy uses an
extension of the techniques used in the home country of a firm. At its simplest level, international marketing involves the firm in
making one or more marketing mix decisions across national boundaries. At its most complex level, it involves the firm in establishing
manufacturing facilities overseas and coordinating marketing strategies across the globe. It is the application of marketing orientation
and marketing capabilities to international business.

According Keegan (1995) international marketing is defined as:

‘The process of focusing the resources (people, money, and physical assets) and objectives of an organisation on global market
opportunities and threats’

International marketing is often not as simple as marketing your product to more than one nation. Companies must consider language
barriers, ideals, and customs in the market they are approaching. Tailoring your marketing strategies to attract the specific group of
people you are attempting to sell to is highly important and can serve the number one cause of failure or success.

Evolution to global marketing

Global marketing is not a revolutionary shift, it is an evolutionary process. While the following does not apply to all companies, it
does apply to most companies that begin as domestic-only companies.

Domestic marketing

A company marketing only within its national boundaries only has to consider domestic competition. Even if that competition
includes companies from foreign markets, it still only has to focus on the competition that exists in its home market. Products and
services are developed for customers in the home market without thought of how the product or service could be used in other
markets. All marketing decisions are made at headquarters.

The biggest obstacle these marketers face is being blindsided by emerging global marketers. Because domestic marketers do not
generally focus on the changes in the global marketplace, they may not be aware of a potential competitor who is a market leader on

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three continents until they simultaneously open 20 stores in the Northeastern U.S. These marketers can be considered ethnocentric as
they are most concerned with how they are perceived in their home country.

Export marketing

Generally, companies began exporting, reluctantly, to the occasional foreign customer who sought them out. At the beginning of this
stage, filling these orders was considered a burden, not an opportunity. If there was enough interest, some companies became passive
or secondary exporters by hiring an export management company to deal with all the customs paperwork and language barriers.
Others became direct exporters, creating exporting departments at headquarters. Product development at this stage is still focused on
the needs of domestic customers. Thus, these marketers are also considered ethnocentric.

International marketing

If the exporting departments are becoming successful but the costs of doing business from headquarters plus time differences,
language barriers, and cultural ignorance are hindering the company’s competitiveness in the foreign market, then offices could be
built in the foreign countries. Sometimes companies buy firms in the foreign countries to take advantage of relationships, storefronts,
factories, and personnel already in place. These offices still report to headquarters in the home market but most of the marketing mix
decisions are made in the individual countries since that staff is the most knowledgeable about the target markets. Local product
development is based on the needs of local customers. These marketers are considered polycentric because they acknowledge that
each market/country has different needs.

Multinational marketing

At the multi-national stage, the company is marketing its products and services in many countries around the world and wants to
benefit from economies of scale. Consolidation of research, development, production, and marketing on a regional level is the next
step. An example of a region is Western Europe with the US. But, at the multi-national stage, consolidation, and thus product
planning, does not take place across regions; a regiocentric approach.

Global marketing

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When a company becomes a global marketer, it views the world as one market and creates products that will only require weeks to fit
into any regional marketplace. Marketing decisions are made by consulting with marketers in all the countries that will be affected.
The goal is to sell the same thing the same way everywhere.

Elements of the global marketing mix

The “Four P’s” of marketing: product, price, placement, and promotion are all affected as a company moves through the five
evolutionary phases to become a global company. Ultimately, at the global marketing level, a company trying to speak with one voice
is faced with many challenges when creating a worldwide marketing plan. Unless a company holds the same position against its
competition in all markets (market leader, low cost, etc.) it is impossible to launch identical marketing plans worldwide.

Product

A global company is one that can create a single product and only have to tweak elements for different markets. For example, Coca-
Cola uses two formulas (one with sugar, one with corn syrup) for all markets. The product packaging in every country incorporates the
contour bottle design and the dynamic ribbon in some way, shape, or form. However, the bottle or can also includes the country’s
native language and is the same size as other beverage bottles or cans in that country.

Price

Price will always vary from market to market. Price is affected by many variables: cost of product development (produced locally or
imported), cost of ingredients, cost of delivery (transportation, tariffs, etc.), and much more. Additionally, the product’s position in
relation to the competition influences the ultimate profit margin. Whether this product is considered the high-end, expensive choice,
the economical, low-cost choice, or something in-between helps determine the price point.

Placement

How the product is distributed is also a country-by-country decision influenced by how the competition is being offered to the target
market. Using Coca-Cola as an example again, not all cultures use vending machines. In the United States, beverages are sold by the
pallet via warehouse stores. In India, this is not an option. Placement decisions must also consider the product’s position in the market

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place. For example, a high-end product would not want to be distributed via a “dollar store” in the United States. Conversely, a
product promoted as the low-cost option in France would find limited success in a pricey boutique.

Promotion

After product research, development and creation, promotion (specifically advertising) is generally the largest line item in a global
company’s marketing budget. At this stage of a company’s development, integrated marketing is the goal. The global corporation
seeks to reduce costs, minimize redundancies in personnel and work, maximize speed of implementation, and to speak with one voice.
If the goal of a global company is to send the same message worldwide, then delivering that message in a relevant, engaging, and cost-
effective way is the challenge.

Effective global advertising techniques do exist. The key is testing advertising ideas using a marketing research system proven to
provide results that can be compared across countries. The ability to identify which elements or moments of an ad are contributing to
that success is how economies of scale are maximized. Market research measures such as Flow of Attention, Flow of Emotion and
branding moments provide insights into what is working in an ad in any country because the measures are based on visual, not verbal,
elements of the ad.

Global marketing Advantages and Disadvantages

Advantages

 Economies of scale in production and distribution

 Lower marketing costs

 Power and scope

 Consistency in brand image

 Ability to leverage good ideas quickly and efficiently

 Uniformity of marketing practices

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  Helps to establish relationships outside of the "political arena"

 Helps to encourage ancillary industries to be set up to cater for

the needs of the global player

Disadvantages

 Differences in consumer needs, wants, and usage patterns for products

 Differences in consumer response to marketing mix elements

 Differences in brand and product development and the competitive environment

 Differences in the legal environment, some of which may conflict with those of the home market

 Differences in the institutions available, some of which may call for the creation of entirely new ones (e.g. infrastructure)

 Differences in administrative procedures

 Differences in product placement.

Driving forces for International marketing

• ‘Global Village’ Mash all

• Market needs - X-Box for leisure

• Technology - Third Generation phones (3G)

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• Cost - low cost production e.g. Gap

• Quality - Is now taken for granted.

• Communications and Transportation

• Leverage (i.e. advantages of operating in numerous markets simultaneously)

– experience transfers

– systems transfers

– scale economies

– resource utilisation

– global strategy. Scanning the globe!

Restraining forces

• Market differences - diversity

• History

• Management myopia as a barrier

• Organisational culture as a barrier

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• National controls/Barriers to entry e.g tariffs and Quotas.

10.2 Objectives/Reasons of International Marketing

Objectives Of international Marketing

WHY SHOULD FIRMS THINK GLOBALLY?

Reasons to plan for global markets and to compete on a global basis can be summarized as follow:

Global Markets

Markets are one reason a firm should think globally. There is a convergence of national markets for certain products displaying
similar profiles. Hence, selling simultaneously to all of markets could maximize sales, especially if the company has introduced its
products ahead of competition. Overhead costs can be spread out over a large volume base, allowing a lower price to be charged. The
firm can capture a larger markets share in overseas markets by charging lower prices, because product-development costs have been
recovered. To have a global orientation requires a firm to look beyond its familiar markets and to recognize the need for a market
presence in all major national markets in order to protect the firm’s position in the critical markets. Certain markets are highly
innovative lead markets, and a presence in them helps firms refine their products and services and learn lessons that can be
transferred to other markets. Innovative ideas leverage new ideas across markets gives the global company an advantage over its
national or regional competitors.

Global Technology Markets

Technology is a critical element of the value-added chain and a resource, as are raw materials or skilled labor. Certainly, technology
is an essential factor for firms seeking to compete in world markets using a differentiated-product strategy thrust. Technology is
expensive to develop, but patents can protect the firm’s investment, allowing it to recoup development costs and make a profit.

Global Production Resources

Global sourcing of raw materials and scarce commodities can result in their timely delivery and reduced cost. A global strategy also
allows firms to plan manufacturing configuration across countries to take advantage of the availability of another resource- labor,
whether it is cheap unskilled labor or high-quality, technically skilled, and expensive labor.

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Global Competition
A global competitor that is strong and unchallenged in its home market can undercut its competitors in their strong markets
deliberately channeling resources into these markets. Such a competitor buys market share with price cuts and by accepting low
profits or even losses for a while. Such threats can be countered only by similar tactics from a similar global position. Such an
exchange of threats, or cross-patrolling, helps maintain the balance of power while firms go about further strengthening their
competitive advantages. A global presence helps firms plan for both offensive and defensive strategic responses, as circumstances
warrant.

Time is becoming an important factor in global competition. Speedy introduction of new products and rapid response to competitive
actions are essential to maintain competitive strength. The ability to respond speedily is heightened when a firm has a global presence
because it can draw on resources, ideas, and personnel from a variety of national markets.

Global Customers
Customers also play a role in influencing the firm’s global orientation. As customers themselves become global, their first impulse is
to continue to do business with established suppliers. To serve a potentially larger market, the companies expand product
development and marketing in the global market. Such relationship building is particularly important in industrial marketing. But
similar motivations can be found in consumer-oriented companies.

Government Actions

Government actions can be a very important influence on global strategy. For example, governments can strengthen competitive
advantage by subsidizing national firms. Such support can be most helpful in the early stages of the development of an industry,
reducing risk and augmenting scarce resources.

Government may also participate directly in competition through state-owned-enterprises (SOEs). SOEs often have objectives such as
maintaining employment and earning foreign exchange, which may lead to behavior quite at odds with profit-maximizing behavior.
Private firms competing against such government-owned enterprises must worry about maintaining long-term profitability. There are
tariff and non- tariff barriers that become the important activities of the government. It is clear that government help can be a major
factor in overseas market penetration.

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Thus, though specific goals and objectives will vary with the company, its current and desired market position, the show and the
products it takes to market. Some of the more common objectives for international marketing include:

1. Promote product sales, market exposure

2. Establish third-party networks for distribution, suppliers and customers.

3. Test export suitability and cultural acceptance of product.

4. Assess strength and scope of competition.

5. Conduct market research.

6. Enhance name recognition, corporate image and meet existing international clients.

Designing a Winning Global Strategy"

Nowadays, International marketing has played an important role to the company around the world for three reasons: Foreign Markets
constitute an increasing portion of the total world market, Foreign competitors are increasing their market share in one another’s
markets, and Foreign markets can be essential source of low-cost products, technology, and capital.
International marketing consists of findings and satisfying global customer needs better than the competition, both in domestic and
international and of coordinating marketing activities within the constraints of the global environment. In this definition, we can break
down the main objective off international marketing into five objectives:
1. finding global customer needs
- Customer needs can be identified by carrying out international marketing research
- Companies also need to analyze market segments across countries in order to position their products appropriately for entry into
international markets

2. Satisfying global customers

- The needs of people in each country are different, the company must consider how to adapt products, services, and elements of the
marketing mix to satisfy different customer needs across countries and regions

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- Including in manufacturing and technology decisions the implications of costs and prices, development of global customer
information databases, and distribution channel and logistics information

3. Being better than the competition

- Firms must contend with both domestic and global competitors. Global competitors could include large multinationals and state-
owned enterprises that might not be profit oriented as well as small local firms
- Assessing, monitoring, and responding to global competition by offering better value; developing superior brand image and product
positioning; broader product range; low prices; high quality; good performance, and superior distribution, advertising, and service

4. Coordinating marketing activities

- Coordinating and integrating marketing strategies and implementing them across countries, regions, and the global market, which
involves centralization, delegation, standardization, and local responsiveness

5. Recognizing the constraints of the global environment

- As firms attempt to market in the international area, they must cope with cultural and economic differences that exist in the
marketing infrastructure, such as the structure and sophistication of the distribution system, the financial constraints imposed be
exchange rate changes and varying inflation rates, and the impact of government policies
- International marketing involves exporting products to a few countries. Companies becomes more of an international marketer as it
increase its direct involvement in overseas market by participating in pricing, promotion, after sale service, and ultimately
manufacturing

International Marketing Management

The complexity of international marketing is largely due to two factors: global competition and the global environment. Competitors
with different strengths now come from all over the world. The companies must have an international marketing manager who has a
broad vision and also has a dual responsibility both foreign marketing (marketing within foreign countries) and global marketing
(coordinating marketing in multiple markets in the face of global competition).

The Major Concerns of Marketing Managers

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1. Developing new products
The pace of innovation is so high that every firm must be capable of launching new products in a timely fashion; time to market is a
critical variable in determining competitive advantage.

2. Developing relationship with suppliers, distributors, even customers

Complexity of technology and markets demands that companies develop long-term partnership relations with key suppliers to jointly
develop products and processes. The companies can join with distributors to launch detailed marketing campaigns in many
countries. These things can help customers to learn about the utility of their products in use and cooperatively develop product
modifications and new products.

3. Fewer but stronger global competitors

The resource and scale needs of global markets are leading to mergers and acquisitions and greater concentration which results in
fewer but larger competitors with greater resources and abilities to implement global strategies over a longer time horizon. This
places pressure on firms to grow themselves, to seek alliances, and to constantly scout for partners or acquisition candidates; the
alternative is to be swallowed up.

4. Greater regional Integration and government regulations

The European Union, NAFTA, and the ASEAN block are examples of the growing impact of regionalization on international
marketing. Government regulations affecting international market entry such as local content laws and non-tariff barriers are also
important influences on strategy.

5. Enhanced price competition

The faster commoditization of products, coupled with scale economies from being global, results in severe price competition. Firms
must either reduce costs themselves to withstand lower prices or innovate constantly to compete with differentiated products rather
than price.

6. Developing a marketing culture

Stressing that listening to the customer is paramount, that enhancing and using communication capabilities are essential to successful
international marketing, and those beyond the customer are other important constituencies, such as the environmental lobby; and
listening to their voices is much a part of the marketing function.

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Reasons to market products internationally

There are several reasons exist to market products internationally

1. The most obvious reason is the market potential of world market

2. Geographic diversification is another reason.

3. Using up excess production capacity and taking advantage of a low-cost position due to experience-curve economies and
economies of scale are other reasons.

4. A product can be near the end of its life cycle in the domestic market while beginning to generate growth abroad

5. Sometimes overseas markets can be the source of new products and ideas. Companies in foreign markets can become joint-venture
partners, providing capital and market access.

6. Tested market entry methods can work in emerging market

Global Marketing Strategy

The global strategies begin with the environmental factors that lead an industry to become global. The term of industry globalization
drivers include (1) market factors, (2) cost factors, (3) competitive moves, and (4) other environmental factors. In response to these
environmental changes pushing a firm to develop global strategies that include:
1. Participating in significant major markets.
2. Offering a range of mostly standardized products worldwide.
3. Configuring value-added activities across countries based on country comparative advantage.
4. Developing global marketing strategies.
5. Developing a program of competitive moves integrated across countries.
Global marketing strategy must form part of, and be consistent with, a firm’s overall global. Linkages exist between the two in areas
such as technology, manufacturing, organization structure, and finance.

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Formulating global strategy begins with corporate strategies that cut across product lines. The goals set for each country and for the
product line as a whole determine which strategies are selected. Then product-line strategies are formed, influenced by the industry,
the firm’s competitive advantage, and its value- added chain. Other important influences are the environment, competition,
government actions, and the firm’s customers and suppliers.

Competitive Advantage

Competitive advantage provides the basis for choosing a strategy. Competitive advantage is achieved by matching firm’s capabilities
with the chain of value-added activities. That is, a product line or service emerges following the completion of a series of activities
such as technology development, manufacturing, logistics, marketing, and after-sales service. A firm with a competitive advantage in
one or more activities that constitute the value- added chain is able to make a long- term profit by specializing in those activities.

In a global industry, the firm must decide not only which value- added activities it will carry out itself but also where such activities
will be carried out. Thus, two decisions are being made.

1. The firm decides which activities it will specialize in and which activities it will subcontract, thus adopting a make-or-buy decision
on each of the activities that constitute the value-added chain.

2. The firm must also decide where it will carry out the value -added activities it has chosen. The comparative advantage come into
play in deciding which activities are most appropriately carried out in which countries.

Combining value-added chain analysis with the complexities of global markets requires that firms make decision about both
configuration and coordination. Configuration refers to the decision about where a firm’s value- added activities are carried out.
Once the activities have been spread out in different countries, the firm must coordinate them to manage them effectively.
Configuration decisions can result in a company having a presence in more than one national market. We can distinguish between a
global perspective, a multi-domestic perspective, and a market-extension perspective.

A global perspective is one in which the firm directs special attention to the interdependence among national markets and
competitor’s actions in those markets when formulating its own strategic plans. A multi-domestic perspective represents a careful
consideration of foreign markets but with a clearly separate orientation toward each country market. That is, the firma approaches
each market on its own terms, and little effort is made to capitalize on interdependencies between various markets.

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The market-extension is typically the way in which a small firm becomes involved in international marketing, represents an unplanned
and short-tern exploitation of foreign markets while the domestic market remains the focus of the company.

It is unrealistic to discuss global marketing strategy without considering the extent of international business development within the
firm. A company must first decide whether to sell internationally, and if it does, which markets to enter, how to be competitive in the
global arena, and which mode of entry to adopt for a particular market. In the next stage, the firm must consider multiple
international markets, having to choose between consolidating its market position in foreign country markets where it already has a
presence or extending its sales and marketing reach to additional countries. In the third stage, the firm becomes truly global when it is
established in several countries and faces the task of developing synergies across markets in marketing, manufacturing, R&D, and
service and begins to evolve organization structures to coordinate marketing decisions and aspects of the marketing mix across
countries.

CORPORATE GOALS AND GLOBAL STRATEGY

Global strategy differs among multinational firms according to whether:
1.The dominant orientation is short term or long term.
2. Profits and return on investment are willingly sacrificed in return for higher market share.
3.Global or national competitive position is more important in determining competitive strategy and response.
4.Time is a key goal, with corporations giving strategic priority to the timely formulation and implementation of strategy.

Modes of Global Competition

1. Competing as a Low- cost Producer
If a firm can produce its product or service at a lower cost than competitors can, yet achieve comparable quality, it can lower its
prices and still make an adequate profit. Or it can charge the same prices as its competitors and make higher profits because its costs
are lower.

Low-cost production is typically linked to high-volume production. Economics of scale reduce costs, and learning and experience
curve factors also lead to cost reduction. Low cost and high market share are closely linked because the large market share allows
for large-volume production.

2. Competing with Differentiated Products

Some firms rely on attracting customers with products that their competitors do not have. Such differentiated products may have

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superior design or better performance, better quality and reliability, or more durability, or they may be backed by better service or
may simply appeal more to the consumer for aesthetic and psychological reasons.

Firms that compete on this basis must monitor world markets to ensure that the features differentiating their product have not been
copied by competitors. They must constantly work on new features because what is a differentiated product today will soon become a
commodity. The global competitor must constantly stay ahead of the pack or the basis of its competitive advantage disappears. Once
the product has become a commodity, the lowest-cost competitor will win out.

3. Competing by Seeking Protected Markets

As the government is a key factor affecting global competition, therefore, one mode of competition is to rely on government protection
against foreign competition. Such protection buys time by holding the efficient competitor at bay until the firm can lower its costs or
develop a differentiated product. If it fails in these attempts, it can at least make profits until the foreign competitor figures out a way
to evade the projectionist barrier, perhaps by setting up manufacturing and sale facilities within the protected sales market. Once that
happens, of course, the inefficient, protected firm disappears.

WHERE DO GLOBAL COMPETITORS COME FROM?

New firms are constantly augmenting the pool of potential competitors. They do so through market extension, extension of product
lines into new market segments, and forward or backward integration by suppliers. Competitors often emerge from their domestic
markets to begin challenging established firms in major foreign markets. Firms may also diversify into new product markets to emerge
as potent competitors. Or existing competitors may also extend their product lines to enter new market segments. Finally, competition
can also develop from forward and backward integration by suppliers.

ASSESSING GLOBAL COMPETITION

Global strategy must include careful study of sources of competition and the likely responses of individual competitors in global
markets. Such an analysis usually begins with an assessment of a competitor’s strengths and weaknesses, its goals, and how it should
respond to the firm’s actions. A special place is held in global competition by national champions- firms that have dominant positions
in their national markets and often receive government support. Sometimes national governments come to the aid of their national
champion firms, especially in industries in which a national presence is deemed important. Government intervention in international
business is quite common, however, and firms must temper their global strategies to accommodate government actions that serve to
fragment a global outlook. Yet political processes and the interventionist policies of governments require firms to modify their global
integration policies and accommodate government demands.

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GLOBAL MARKETING STRATEGIES
The global strategies cannot separate from overall corporate strategy. Thus, a corporate strategy focused on time-based competition
and speedy innovation requires that the marketing division plan for continued new-product introduction and relay feedback on
customer information to the product-development department to help speed the innovation process. If a firm decides to focus on being
the lowest-cost producer, low selling price becomes an essential element of the global marketing mix.

Impact of Differences among National Markets

A firm’s overall global strategy and global marketing strategy, a decision must be made between standardization versus adaptation to
local markets. Management complexity is reduced with a completely standardized marketing mix applied without change to all
national markets. Usually some local adaptations are necessary, however, to accommodate differences in consumer tastes, income
levels, government regulations, and differences in distribution channels and structure of competition.
In trying to decide what degree of adaptation is appropriate, the firm must consider the factors that distinguish different national
markets:

 Buyer profiles differ across countries: taste, income, culture, and buying decision processes are different.
 The marketing infrastructure differs from country to country; different kinds of media are available in different countries, and
differences exist in what products and messages are acceptable in advertising.

 Variations in countries’ transportation and communications systems affect marketing approaches such as the use of mail
order. Different legal provisions may govern conditions of sale.

 Distribution systems differ in the number of layers and in ease of access, and differences in the physical environment of
various national markets may dictate changes in product design and sale.

Some elements of the marketing mix are more likely to be standardized than others. The basic product itself probably needs to be
standardized in order to permit economies of scale in manufacture. Firms are also likely to standardize brand names and the basic
advertising message. Adaptation is more likely in areas such as packaging, pricing, sales promotion and media decisions, distribution
channels, and after sales service. Although management is motivated to standardize in order to reduce costs and management
complexity, satisfying consumers in different markets and responding to competition should be the main criteria. Government
restrictions could also circumscribe the degree of standardization possible.

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The Global Marketing System
The global marketing system has three components.
1. Presence in multiple markets in order to take advantage of their differences- that is, use high prices and cash flow in markets where
the firm is dominant and competition weak in order to subsidize market penetration by charging lower price in other markets.

2. Global brand presence and strong distribution to help achieve target prices in various markets

3. Deployment of extended product lines and product families across countries to gain economies of scope and greater competitive
strength and allow opportunities for cross- subsidization across businesses and across national markets.

Coordinating the Global Marketing System

Coordination of global marketing activities is as essential as configuring marketing activities across national markets.
1. Using similar methods to carry out marketing activities across countries.

2. Transferring marketing know-how and experience from one country to another. This is particularly true in transferring information
gained in lead markets to other countries.

3. Sequencing marketing programs so those successful elements are gradually introduced into different markets, often in conjunction
with evolution of the product life cycle there.

4. Integrating efforts across countries so that international client with operations in many countries can be offered the same service in
each country.

Targeting Individual Country Markets

Because management must determine the sequence in which various global markets should be entered, an essential ingredient of
global marketing is to assess their attractiveness. Criteria include current size and growth prospects, the product life cycle stage in
that market, level of competition, similarity to existing markets, and the extent of government restrictions.

The firm’s objectives help decide which markets are attractive. Firms primarily interested in profits seek high-growth markets where
they encounter less competition, obtain higher margins, and may consider early entry into protected markets.

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Firms that are aggressively challenging their competitors prioritize markets based on growth characteristics and market share held
by key competitors. They enter markets that offer a chance of achieving reasonable market share, which can then be used as a
deterrent in cross patrolling with key global competitors

Firms seeking to establish a presence in lead markets choose markets based on the growth prospects and product life cycle stage but
give little attention to competitors’ market share or their own profit and market-share prospects.

Last, firms seeking to enter protected markets first evaluate the likelihood of establishing cordial relations and favorable treatment
from local government.

A firm may have different objectives for different markets. Risk perception and risks balancing play a considerable part in foreign
market entry strategies, wherein balancing high- and low- risk areas such as political and financial risk is appropriate. In general,
multinationals seek market position in all three of the triad economy regions; the United States, Europe, and Japan.

Responding to Regional Integration

Changing economic and political circumstances within a country can affect a firm’s global strategies.

European Union and the Creation of the Euro

The Euro makes for European competition and requires firms to rethink European pricing and hedging strategies; cross-country
comparison shipping becomes easier, facilitating cross-border pan-European direct marketing, with prices quoted in Euro across
Euroland; and the Euro with a common monetary policy will provide impetus to common VAT tax rates and other forms of fiscal
harmonization.
Acquiring firms with a dominant market position in a national market allows the acquiring company to expand sales into neighboring
countries, capitalizing on and extending brand presence across national borders. It takes time to develop such brand presence and to
develop distribution channels in the various European countries. European union has added pressure on firms to establish a
significant pan-European brand presence before the competition does so. Sometimes this requires developing manufacturing facilities
across Europe, striking strategic alliances, or acquiring key firms in European nations where the firm has a weak market presence.

Pros and Cons of Global Marketing Strategy

Pros:

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  Cost reduction
 Enhance customer preference

 Improved product quality

 Improved Program effectiveness

 Increase competitive leverage

Cons:

 Significant management cost

 Reduced management effectiveness

 Loosened customer responsiveness and flexibility

 High initial cost of investment

 Risk of not be able to fully satisfy the customers

 Sacrifice on individual country’s required performance

International marketing consists of findings and satisfying global customer needs better than the competition, both in domestic and
international and of coordinating marketing activities within the constraints of the global environment. In this definition, we can
break down the main objective off international marketing into five objectives:
1. finding global customer needs
- Customer needs can be identified by carrying out international marketing research
- Companies also need to analyze market segments across countries in order to position their products appropriately for entry into
international markets

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2. Satisfying global customers
- The needs of people in each country are different, the company must consider how to adapt products, services, and elements of the
marketing mix to satisfy different customer needs across countries and regions
- Including in manufacturing and technology decisions the implications of costs and prices, development of global customer
information databases, and distribution channel and logistics information

3. Being better than the competition

- Firms must contend with both domestic and global competitors. Global competitors could include large multinationals and state-
owned enterprises that might not be profit oriented as well as small local firms
- Assessing, monitoring, and responding to global competition by offering better value; developing superior brand image and product
positioning; broader product range; low prices; high quality; good performance, and superior distribution, advertising, and service

4. Coordinating marketing activities

- Coordinating and integrating marketing strategies and implementing them across countries, regions, and the global market, which
involves centralization, delegation, standardization, and local responsiveness

5. Recognizing the constraints of the global environment

- As firms attempt to market in the international area, they must cope with cultural and economic differences that exist in the
marketing infrastructure, such as the structure and sophistication of the distribution system, the financial constraints imposed be
exchange rate changes and varying inflation rates, and the impact of government policies
- International marketing involves exporting products to a few countries. Companies becomes more of an international marketer as it
increase its direct involvement in overseas market by participating in pricing, promotion, after sale service, and ultimately
manufacturing

10.3 Firms Orientation to International Market opportunity

WHAT IS A MARKET ORIENTATION?

Management theorists have long suggested that the key to success in business lies in understanding and providing what customers
want and need, rather than in focusing on what the firm has to sell (e.g. Drucker 1973, Levitt 1960). The marketing literature has
encapsulated this notion as the marketing concept, stating that "the key to achieving organizational goals consists in determining the

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needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors" (Kotler
and Turner, 1989, p. 17). Until recently, however, operationalizations of what it means, in behavioral terms, to be "market oriented"
and assessments of the relationship between market orientation and performance have been lacking (Kohli and Jaworski 1990; Narver
and Slater 1990). Researchers attempting to address this gap between philosophy and implementation have identified three behavioral
elements of market orientation: customer orientation, competitor orientation and intra-functional coordination (Narver and Slater
1990). Customer orientation entails activities involved in acquiring and acting upon information about buyers; competitor orientation
entails activities involved in acquiring and acting upon information about competitors; and intra-functional coordination is comprised
of efforts to share internally the information and actions plans so as create customer value. Evidence suggests that these behaviors are
significantly positively associated with the performance of large industrial firms (Narver and Slater 1990, Slater and Narver 1994) but
no research has been conducted on how market orientation affects small, emerging businesses.

This paper is a first step toward determining a) what behaviors constitute a market orientation for small, emerging businesses; b) how
these behaviors are related to indicators of firm performance and c) what the determinants of emerging firms' market orientations
might be. To accomplish its goals, the paper first reviews the nature of the construct of market orientation. It next considers how it
might be manifest and how significant it might be for emergent firms. The paper then reports on an empirical study of the link
between proposed market orientation measures and the performance of emerging software firms, as well as of the predictors of these
market orientation behaviors. The paper closes with a discussion of the conceptual and methodological issues highlighted and the
practical implications suggested by the study for owner/managers.

WHAT IS MARKET ORIENTATION?

Until recently, there have beem many philosophical descriptions of the nature of market oriented businesses but few clear indications
of the specific activities that translate the philosophies into practice. Within the last five years, two sets of authors working
independently to address this gap published the results of exhaustive literature reviews, of extensive interviews with senior marketing
and non-marketing managers, and of survey research among Fortune 500 firms (Kohli and Jaworski 1990; Kohli, Jaworski and Kumar
1993; Narver and Slater 1990; Slater and Narver 1994). While the two research teams produced slightly differing insights into the
behavioral components of market research, they agreed on the following: being market oriented implies that firms

1) seek information about their customers' current and future needs, and take action based on this information (we will refer to this as
customer orientation);

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2) seek information about their competitors' current strengths and weaknesses and their long term capabilities and strategies, and take
action based on this information (we will refer to this as competitor orientation);

3) coordinate the actions taken by sharing customer and competitor information internally (we will refer to this as intra-firm
communication).

Thus far these authors have been concerned with assessing the nature and importance of market orientation for large firms in various
industries. They have found that while the three components of market orientation can be analytically separated, in practice they are so
interrelated as to be a single construct. That is, firms tend to manifest similar levels of behaviors associated with each of the three
components: for instance, firms which are highly customer oriented tend also to be highly competitor oriented and to place
considerable emphasis on intra-firm coordination. Thus market orientation is not considered to be a multi-part strategy. Rather, it is
considered to be a description of the firm's culture.

In addition to the nature of market orientation, the effects of market orientation on firm performance have also been investigated.
Narver and Slater (1990; Slater and Narver 1994) have found that, controlling for other factors which affect performance such as
market level growth, concentration, entry barriers, buyer power, seller power, and technological change, market orientation accounts
for a significant percentage of the variation in return on assets, sales growth and new product success among large, established firms
in diverse industries. They argue that being market oriented is appropriate for all firms regardless of the context in which they operate:
"becoming and remaining market oriented are essential to the continuous creation of superior value. . . . [B]usinesses that are more
market oriented are best positioned for success under any environmental conditions" (Slater and Narver 1994, p. 53).

The discussions of market orientation have implied that it applies equally to firms of any type, in any industry, and that the behavioral
manifestations of market orientation could be assessed in a similar fashion across different firm contexts. In the next section, we
consider whether these assumptions seem likely to be appropriate for emergent firms.

WHAT DOES MARKET ORIENTATION MEAN FOR EMERGENT FIRMS?

To our knowledge, no one has yet empirically investigated whether or how market orientation, as defined above, affects the
performance of small, emerging firms. A number of questions about the market orientation of small firms can be raised.

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First, what might some of the behavioral manifestations of market orientation be for small and/or emerging firms. It is possible that a
market oriented new, small firm exhibits different behaviors than a market oriented large firm. That is, the actual practices associated
with customer orientation, competitor orientation, and/or intra-firm communication may be distinctive for small firms.

Customer and competitor orientation for large businesses has been measured by assessing the extent to which the firm agrees that, for
instance, it "understands customer needs" or that it "targets opportunities for competitive advantage" (Narver and Slater 1990, p. 24).
This would seem to be a necessary but insufficient means of assessing customer and competitor orientation for emergent firms. As
with large, established firms, we might expect to see evidence that emergent firms are acting upon the customer information they
obtain if they indicate that they shape their offerings to reflect and anticipate customer needs. Similarly, we might expect that they are
acting upon the competitor information they gather if they indicate that they target market niches where they believe they have a
competitive advantage. And (particularly in the software industry) we anticipate that firms must act on a customer orientation by
beating competitors to market with innovations in their product categories.

While measures of the extent to which firms act on customer and competitor information may be similar regardless of firm size, there
may be an additional measurement requirement for small firms. Neither the Narver and Slater team nor the Kohli and Jaworski team
directly assess information gathering practices in their measures of customer and competitor orientation. It may be necessary to
measure actual information collecting behaviors to adequately assess customer and competitor orientation for small, new firms. The
literature on the marketing research practices and environmental scanning activities of new and/or small firms provides some insight
in this regard. Studies explicitly focused on these firms' market research practices suggest that although structured surveys of
customers are sometimes used they are often perceived as limited in value, while unstructured and informal means of obtaining
information about customers are used more frequently and valued more highly (Boag and Munro 1986; Fischer, Dyke, Reuber and
Tang 1990; Hills and Narayana 1989; Kao 1986; Teach and Tarpley 1989, Spitzer, Hills and Alpar 1989). Studies of the information
scanning practices of small/entrepreneurial firms also indicate that structured surveys of customers are much less frequently conducted
than are informal means of data collection such as personal networking (Brush 1992; Peters and Brush 1993; Smelzer, Fann and
Nikoliasen 1988). Similarly, the literature on information scanning by small and/or entrepreneurial firms indicates that the preferred
means of obtaining information about competitors appears to be informal networking with customers and business associates (Brush
1992; Peters and Brush 1993).

This literature would seem to have two implications for considering what behaviors might constitute competitor and customer
orientation for emergent firms. First, it suggests that we cannot assume as might be the case for large, established firms that new, small
firms actively seek market information. While many do, it appears that some do not. A necessary facet of assessing such firms' market

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orientation would thus seem to be gauging the extent to which they seek such information. And if we are to consider the ways such
firms seek information about customers and competitors, we must consider not only formal surveys but also more informal or
unstructured means such as personal interactions with customers.

Intra-firm communication for large firms has been measured by respondents' levels of agreement that "information is shared among
functions". Small/new firms are often not highly functionally divided. Even if they are, it is feasible that intra-firm communication is
not the critical issue for small organizations that it is for large ones because the manager can readily collect and disseminate
information to all members of the firm. However, it is plausible that even small firms can be more or less effective at intra-firm
communication depending on the extent to top management and/or those performing internal functions (e.g. developing software)
communicate with those performing external functions (e.g. selling software).

To summarize this discussion suggest that:

P1: Acting upon customer information will be reflected by firms' tendencies to shape offerings to meet customer needs, and will be
positively related to firm performance.

P2: Acting upon competitor information will be reflected by firms' tendencies to

a) target market niches where they have a competitive advantage and
b) introduce product innovations before competitors
and will be positively related to firm performance.

P3: Customer and competitor information gathering will be reflected by firms' tendencies to use formal and informal means of
gathering market-place information and will be positively related to firm performance.

P4: Intra-firm communication will be reflected by the extent to which those performing external functions communicate with other
members of the firm and will be positively related to firm performance.

The theory of market orientation suggests that the three facets identified are only separable analytically. In practice, it is suggested that
the various behaviors which constitute each facet of market orientation will be highly interrelated. If the measures suggested above are
valid, we should then expect to find them highly significantly correlated among themselves. Thus we suggest that:

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P5: Indicators of customer orientation, competitor orientation and intra-firm communication will be significantly and positively related
with one another.

10.4 Techniques of International Marketing

The International Market Entry Evaluation Process

DECIDING TO GO INTERNATIONAL
In our increasingly global society, many companies cannot afford to live with the illusion that their domestic markets will always be strong.
For this reason, many companies choose to market overseas as well. By taking a venture into international markets, a company can offset
seasonal fluctuations in sales and increase profits in general through exposure to a greater number of prospects. Further, technical
proficiency is often increased by expanding into markets with greater expertise in certain areas of technology. In addition, expanding into
foreign markets can minimize a company’s risk of losing market shares to customers who themselves take advantage of the Internet to look
for suppliers of goods and services in foreign markets.
The decision to go international must be made with care, as there are many risks and potential obstacles to consider. Cultural and language
barriers are among the most obvious of these considerations. Variations in religious beliefs, societal norms, and business negotiation styles
all have an impact on how business needs to be conducted when dealing with foreign counterparts. Language barriers may present an
obstacle when trying to communicate the benefits and advantages of a company’s products and services overseas.
Other difficulties inherent in expanding into foreign markets include economic and political risks. Shifting borders and the instability of
some foreign governments can pose a threat to the security of a business overseas. Foreign exchange and the issue of intellectual property
protection need to be considered as well. In international arenas, where legal and economic systems are not as developed in some countries
as they are in the United States, there is a risk of not being paid for your goods or services.

Even with all of the risks carefully considered, the benefits of going international often remain an advantage. An organization that wants to
expand overseas can strike a balance between risk and opportunity by being prepared. There are essentially two major steps in preparing for
an overseas effort: (1) develop a specific international marketing plan, and (2) decide how to enter the market. An international marketing
plan should outline and define the product or service to be sold and the country or countries in which it will be sold. In doing so, it is
essential to consider whether a product that works in the United States will work in other markets. For example, electrical outlets in Europe
and Asia operate at 220 volts, while those in the United States operate at 120 volts. Products designed for the American electrical system
would need to be modified for overseas markets.

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A company that wishes to expand internationally needs to be familiar with the target country’s culture and determine the feasibility of
marketing its product or service in that environment. Market conditions must be assessed to ensure that a new company can win a share of
the foreign market. Tariffs, duties and compliance with Ethiopian export administration regulations are other important issues to consider as
well. These considerations require some expertise in the financial and legal aspects of exporting.
Developing the required organizational processes and allocating appropriate resources to an international effort often requires creating a
separate export department within an organization that is responsible for all aspects of dealing with foreign markets. Many companies
attempt this by having a single sales manager and his or her assistants responsible for setting a budget, shipping goods and developing
international growth.

However, this can be an expensive alternative when overhead and liability costs are considered. Companies that “go it alone” may need
anywhere from three to five years to develop a sizeable market share. In many cases, assistance from an outside source can dramatically
reduce the time it will take to become established in foreign markets.
The use of an export management company (EMC) is often the most feasible way to break into an international market. In effect, an EMC
can be used to manage an entire international sales effort. A reputable company with existing overseas relationships and contacts can offer
access to key decision makers and buyers, allowing a company to break into overseas markets more quickly and efficiently. An EMC can
also provide localization services, which start with but go beyond simply translating language. Localization refers to adapting a company’s
entire image to fit another culture. Export management companies offer working capital, clearing customs paperwork, and trade insurance
for a fee and commission. Beyond the obvious value of intimate know-how and access to extensive overseas contacts that an EMC can
provide is the benefit of having after sales support. A good export management company has years of specialized experience in negotiating
with governments, freight forwarders and banks. This keeps suppliers and buyers working together without unethical circumvention of the
EMC.
Another route that organizations may consider when expanding into foreign markets is to establish a joint venture. This may be necessary to
enter certain markets, and it is often an effective way to offset any political or economic risks that may not be immediately apparent. Setting
up a joint venture can also dramatically reduce the time it will take to bring a product into a new market overseas because the burden of
marketing and sales is shared with another company already operating in the foreign market. When establishing a joint venture, though, it is
vital to find a trusted partner. This requires due diligence in the host market and performing checks and balances to ensure that foreign
partners can sufficiently cater to the needs of both an organization and its customers. To be effective, the proposed alliance must bring
enough value for both parties to invest directly in a joint venture. Sufficient financial, physical, and managerial resources must be available
to manage a new marketing effort.
One type of joint venture that is fairly easy to implement beneficially is a licensing arrangement. For a fee or royalty payment, a licensor
usually grants a license to a foreign manufacturer or service provider to use a process, trademark, patent, trade secret or other object of
value. The obvious drawback to any licensing arrangement is that it can be difficult to enforce proprieties in developing countries. Also, if

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the licensee becomes successful in establishing a market, the licensor can end up losing significant profit and control and might end up
competing with its creation. To implement a licensing agreement or joint venture successfully, knowledge of local trade practices, language
and cultural sensitivity remains an issue. In order to learn about a target country and how to best access it, companies can again use the
services of export management companies, rely on internal resources, or turn to available government-sponsored organizations for help.

How to Enter a Foreign Market?

This lesson gives an outline of the way in which an organization should select which foreign to enter. The International Marketing
Entry Evaluation Process is a five stage process, and its purpose is to gauge which international market or markets offer the best
opportunities for our products or services to succeed. The five steps are Country Identification, Preliminary Screening, In-Depth
Screening, Final Selection and Direct Experience. Let's take a look at each step in turn.

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 Major Decisions in International Marketing

Look at Decide to go Decide Which

Global International Markets to
Environment or Not Enter First

Decide on Decide on Decide How

Global Global to Enter the
Marketing Marketing Market
Organization Program

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Step One - Country Identification
The World is your oyster. You can choose any country to go into. So you conduct country identification - which means that you
undertake a general overview of potential new markets. There might be a simple match - for example two countries might share a
similar heritage e.g. the United Kingdom and Australia, a similar language e.g. the United States and Australia, or even a similar
culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is more straightforward. For example a country
is nearby e.g. Canada and the United States. Alternatively your export market is in the same trading zone e.g. the European Union.
Again at this point it is very early days and potential export markets could be included or discarded for any number of reasons.

Step Two - Preliminary Screening

At this second stage one takes a more serious look at those countries remaining after undergoing preliminary screening. Now you
begin to score, weight and rank nations based upon macro-economic factors such as currency stability, exchange rates, level of
domestiv consumption and so on. Now you have the basis to start calculating the nature of market entry costs. Some countries such as
China require that some fraction of the company entering the market is owned domestically - this would need to be taken into account.
There are some nations that are experiencing political instability and any company entering such a market would need to be rewarded
for the risk that they would take. At this point the marketing manager could decide upon a shorter list of countries that he or she would
wish to enter. Now in-depth screening can begin.

Step Three - In-Depth Screening

The countries that make it to stage three would all be considered feasible for market entry. So it is vital that detailed information on
the target market is obtained so that marketing decision-making can be accurate. Now one can deal with not only micro-economic
factors but also local conditions such as marketing research in relation to the marketing mix i.e. what prices can be charged in the
nation? - How does one distribute a product or service such as ours in the nation? How should we communicate with are target
segments in the nation? How does our product or service need to be adapted for the nation? All of this will information will for the
basis of segmentation, targeting and positioning. One could also take into account the value of the nation's market, any tariffs or
quotas in operation, and similar opportunities or threats to new entrants.

Step Four - Final Selection

Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic goals and look for a match in the
nations at hand. The company could look at close competitors or similar domestic companies that have already entered the market to
get firmer costs in relation to market entry. Managers could also look at other nations that it has entered to see if there are any
similarities, or learning that can be used to assist with decision-making in this instance. A final scoring, ranking and weighting can be

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undertaken based upon more focused criteria. After this exercise the marketing manager should probably try to visit the final handful
of nations remaining on the short, shortlist.

Step Five - Direct Experience

Personal experience is important. Marketing manager or their representatives should travel to a particular nation to experience
firsthand the nation's culture and business practices. On a first impressions basis at least one can ascertain in what ways the nation is
similar or dissimilar to your own domestic market or the others in which your company already trades. Now you will need to be
careful in respect of self-referencing. Remember that your experience to date is based upon your life mainly in your own nation and
your expectations will be based upon what your already know. Try to be flexible and experimental in new nations, and don't be
judgemental - it's about what's best for your company - happy hunting.
Modes of Entry into International Markets (Place)
How does an organization enter an overseas market?
Background
A mode of entry into an international market is the channel which your organization employs to gain entry to a new international
market. This lesson considers a number of key alternatives, but recognizes that alteratives are many and diverse. Here you will be
consider modes of entry into international markets such as the Internet, Exporting, Licensing, International Agents, International
Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and International Sales Subsidiaries. Finally we consider the
Stages of Internationalization.

It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. For example, some see
franchising as a stand alone mode, whilst others see franchising as part of licensing. In reality, the most important point is that you
consider all useful modes of entry into international markets - over and above which pigeon-hole it fits into. If in doubt, always clarify
your tutor's preferred view.

The Internet
The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. The
eMarketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing
companies that now employ eMarketing approaches as part of their overall marketing plan. For some companies the Internet is an
additional channel that enhances or replaces their traditional channel(s). For others the Internet has provided the opportunity for a new
online company. More

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Exporting
There are direct and indirect approaches to exporting to other nations. Direct exporting is straightforward. Essentially the organization
makes a commitment to market overseas on its own behalf. This gives it greater control over its brand and operations overseas, over
an above indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an exporting company from your
country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly.
Examples of indirect exporting include:

Piggybacking whereby your new product uses the existing distribution and logistics of another business.
Export Management Houses (EMHs) that act as a bolt on export department for your company. They offer a whole range of bespoke
or a la carte services to exporting organizations.
Consortia are groups of small or medium-sized organizations that group together to market related, or sometimes unrelated products in
international markets.
Trading companies were started when some nations decided that they wished to have overseas colonies. They date back to an
imperialist past that some nations might prefer to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as
mainstream businesses that use traditional business relationships as part of their competitive advantage.
Licensing
Licensing includes franchising, Turnkey contracts and contract manufacturing.

Licensing is where your own organization charges a fee and/or royalty for the use of its technology, brand and/or expertise.
Franchising involves the organization (franchiser) providing branding, concepts, expertise, and infact most facets that are needed to
operate in an overseas market, to the franchisee. Management tends to be controlled by the franchiser. Examples include Dominos
Pizza, Coffee Republic and McDonald's Restaurants.
Turnkey contracts are major strategies to build large plants. They often include a the training and development of key employees
where skills are sparse - for example, Toyota's car plant in Adapazari, Turkey. You would not own the plant once it is handed over.

International Agents and International Distributors

Agents are often an early step into international marketing. Put simply, agents are individuals or organizations that are contracted to
your business, and market on your behalf in a particular country. They rarely take ownership of products, and more commonly take a
commission on goods sold. Agents usually represent more than one organization. Agents are a low-cost, but low-control option. If you
intend to globalize, make sure that your contract allows you to regain direct control of product. Of course you need to set targets since

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you never know the level of commitment of your agent. Agents might also represent your competitors - so beware conflicts of interest.
They tend to be expensive to recruit, retain and train. Distributors are similar to agents, with the main difference that distributors take
ownership of the goods. Therefore they have an incentive to market products and to make a profit from them. Otherwise pros and cons
are similar to those of international agents.

Strategic Alliances (SA)

Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally.
Sometimes the relationships are between competitors. There are many examples including:

Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot.
Research and Development (R&D) arrangements.
Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.
Marketing agreements.
Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate.

Joint Ventures (JV)

Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a proportion of the new business. There are
many reasons why companies set up Joint Ventures to assist them to enter a new international market:

Access to technology, core competences or management skills. For example, Honda's relationship with Rover in the 1980's.
To gain entry to a foreign market. For example, any business wishing to enter China needs to source local Chinese partners.
Access to distribution channels, manufacturing and R&D are most common forms of Joint Venture.

Overseas Manufacture or International Sales Subsidiary

A business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i.e. the
organization invests in plant, machinery and labor in the overseas market. This is also known as Foreign Direct Investment (FDI). This
can be a new-build, or the company might acquire a current business that has suitable plant etc. Of course you could assemble
products in the new plant, and simply export components from the home market (or another country). The key benefit is that your
business becomes localized - you manufacture for customers in the market in which you are trading. You also will gain local market
knowledge and be able to adapt products and services to the needs of local consumers. The downside is that you take on the risk

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associated with the local domestic market. An International Sales Subsidiary would be similar, reducing the element of risk, and have
the same key benefit of course. However, it acts more like a distributor that is owned by your own company.

Internationalization Stages
So having considered the key modes of entry into international markets, we conclude by considering the Stages of Internationalization.
Some companies will never trade overseas and so do not go through a single stage. Others will start at a later or even final stage. Of
course some will go through each stage as summarized now:

Indirect exporting or licensing

Direct exporting via a local distributor
Your own foreign presences
Home manufacture, and foreign assembly
Foreign manufacture
International Marketing Communications (Promotion)
Media Choices for International Marketing

Marketing communications in international markets needs to be conducted with care. This lesson will consider some of the key issues
that you need to take into account when promoting products or services in overseas markets. There will be influences upon your media
choice, cultural issues to be considered, as well as the media choices themselves - personal selling, advertising, and others.

Influences upon International Media Choice.

There are a number of factors that will impact upon choice and availability of media such as:

The nature and level of competition for marcoms channels in your target market.
Whether or not there is a rich variety of media in your target market.
The level of economic development in your target market (for example, in remote regions of Africa there would be no mains
electricity on which to run TVs or radios).
The availability of other local resources to assist you with your campaign will also need to be investigated (for example, sales people
or local advertising expertise).
Local laws may not allow specific content or references to be made in adverts (for example, it is not acceptable to show naked legs in
adverts displayed in Muslim countries).

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And of course a lot depends upon the purpose of the international campaign in the first place. What are your international marketing
communications objectives?
Cultural Issues and International Marketing Communications.
There are a whole range of cultural issues that international marketers need to consider when communicating with target audiences in
different cultures.

Language will always be a challenge. One cannot use a single language for an international campaign. For example, there are between
six and twelve main regional variations of the Chinese languages, with the most popular being Mandarin (c 850 Million), followed by
Wu (c. 90 million), Min (c. 70 million) and Cantonese (c. 70 million). India has 22 languages including Assamese, Bengali, Bodo,
Dogri, Gujarati, Hindi, Punjabi, and Tamil to name but a few. Of course language choice could affect branding choices , and the
names of products and services. Hidden messages and humour would be especially tricky to convey. Famous examples include the
Vauxhall Corsa, which was called the Nova in the United Kingdom - of course No Va! Would not be an acceptable name in Spanish.
A similar problem was left unaddressed by Toyota, with their MR2 in France (think about it!).

Design, symbolism and aesthetics sometimes do not transcend international boundaries. For example Japanese aesthetics sometimes
focus upon taste and beauty. Also look at Japanese cars from the front - they have a smiling face.

The manner in which people present themselves in terms of dress and appearance changes from culture to culture. For example in
Maori culture, dress plays a central role with everyday clothing differing greatly from ceremonial costume. Whereas in Western
business-culture the standard 'uniform' tends to be a conservative collar and tie.

Other factors that need to be considered in relation to international marketing communications (Promotion) include:

The work ethic of employees and customers to be targeted by media.

Levels of literacy and the availability of education for the national population.
The similarity or diversity of beliefs, religion, morality and values in the target nation.
The similarity or diversity of beliefs, religion, morality and values in the target nation.
The family and the roles of those within it are factors to take into account.
Media Choices in International Marketing.
Personal Selling in International Marketing.
Personal selling has a number of pros and cons:

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It is beneficial where wages tend to be low, since staffing costs will be comparatively low.
Where there are many languages, you'll need trained sales personnel that can convey your message in specific tongues (see culture
above).
The sales force will need to be supported. Commercial administration staff will have to take care of sales enquiries, send out product
literature and samples, and make quotations - often online.
You'll need to invest time and effort in recruiting, motivating, organizing and training a local sales force. Recruits will need to know
about products and markets, language and culture, the location of target segments, customer buyer behaviour - and that's just the
beginning.
There is a dilemma as to whether to place expatriate employees into your international target market, or to recruit locally. Local is
best!
Where business etiquette varies from culture to culture, you'll need to train your people in what to expect - or recruit salesmen from
the local market.
Advertising in International Marketing.
Advertising has a number of pros and cons:

When considering press advertising try to anticipate the levels of literacy within the nation in question. Where literacy levels are
lower, perhaps you could use a more visual campaign.
Which language(s) is the press written in?
What is the split between regional and national press in your target market?
What types of television channels are available? Are they HDD, digital, analogue, satellite, cable, via the telephone, via a broadband
or ADSL connection?
Which TV channels do our target segments watch?
Is there space on the suitable TV channels when we want it, or at a price that we can afford?
Where visual communication is paramount, are there suitable poster locations?
What is the behaviour of the target population in relation to cinema? For example, Cinema is tremendously popular in India.
Radio has similar issues as TV and press. Which stations do your target groups listen to - news, sports or music? Is there space
available with the most suitable stations?
Other Media Choices in International Marketing.
Other potential media would include:

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Web-based marketing using your own domestic site, or one developed specifically for the target market. Chinese websites are very
different to Western sites. They are very busy and every single space is filled with images and text. Affiliate or pay-per-click
advertising may be available.
International tradeshows, trade missions, sponsorship (for example international sporting events), Public Relations (for example oil
companies) and a variety of other international marketing communications are available to the international marketer.
So, to finish, this lesson aimed to summarize the key options and issues that face the international marketer when dealing with
marketing communications and media choices in international markets. Of course it is by no means conclusive.
Which marketing topic are you studying?
Marketing Environment Marketing Strategy Marketing Tactics Marketing Planning Marketing Communications Services Marketing
eMarketing/Internet Marketing Customer Relationship Management (CRM) International Marketing Creative Marketing
International Marketing and Price
How should we set prices for international markets?

This lesson considers the basics of pricing for international marketing. As with all of the international marketing lessons, every
country and culture within it will influence price. So here we are going to look at some of the common influences upon pricing
decision-making, the impact of grey markets, international approaches to pricing, and more mainstream marketing approaches to
pricing that can be applied to an international context.

Influences on pricing for international marketing.

The cost of manufacturing, distributing and marketing your product.
The physical location of production plants might influence price. For example, Toyota have plants in their European market, in the
United Kingdom and Turkey.
Of course fluctuations in foreign currencies affect pricing. Many companies are benefiting from a relatively low US Dollar price
during the 2010s. This make imports to the United States expensive, but exports relatively cheap to other nations. However
fluctuations make it very difficult for companies to make long-term decisions - such as building large factories in global markets i.e.
costs of production are cheap today, but could be expensive in the future, impacting upon the price that your business is forced to
charge.
The price that the international consumer is willing to pay for your product.
Your own business objectives will influence price. For example, large international companies such as Starbucks may operate at a loss
in some locations but still need a local presence in order to maintain their economies of scale, as well as their reputation as a global
player.

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The price that competitors in international markets are already charging.
Business environment factors such as government policy and taxation.

International Pricing Approaches

Export Pricing - a price is set for by the home-based marketing managers for the international market. The pricing approach is based
upon a whole series of factors which are driven by the influences on pricing listed above. Then mainstream approaches to pricing may
be implemented - see below.
Non-cash payments - less and less popular these days, non-cash payments include counter-trade where goods are exchanged for goods
between companies from different parts of the World.
Transfer Pricing - prices are set in the home market, and goods are effectively sold to the international subsidiary which then attaches
its own margin based upon the best price that local managers decide that they could achieve. Then mainstream approaches to pricing
may be implemented - see below.
Standardization versus adaptation - do you use a standard, common approach to pricing in each market, or do you decide to adapt the
price to local conditions?
Generic Marketing Approaches to Pricing.
Premium Pricing.
Penetration Pricing.
Economy Pricing.
Price Skimming.
Psychological Pricing.
Product Line Pricing.
Optional Product Pricing.
Captive Product Pricing
Product Bundle Pricing.
Promotional Pricing.
Geographical Pricing.
Value Pricing.
More . . . . .

Products and International Marketing.

Standardization versus Adaptation.

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As you will see from this website, product is a focal element of the marketing mix. When considering the nature of products and
services in international marketing, the same models apply such as:

Product Life Cycle (PLC) - products could be at different points in the PLC in various nations, possibly creating new opportunities.
Ansoff's Matrix - market development could mean that an existing product is marketed in a new international market.
Three Levels of a Product - marketers would consider the local market's need for core, actual and augmented products.
Internet Marketing and Product - how do eMarketers make product decisions?
However, international product decision-making often centres around the standardization versus adaptation debate. Essentially, do we
market the same, standard product in an international market or segment, or do we localize it, and adapted it so that it pleases local
tastes? Here are some of the advantages and disadvantage of standardization.

Advantages of Standardization.
International uniformity has its own advantages. As people travel the World, they can be assured that wherever they go the product
that they buy from you will be same and that it will have the same, standard benefits. This could mean the components that they buy
from you in different local markets as they themselves become global.

Standardization reinforces positive consumer perceptions of your product. One of the payoffs of great quality for a single product
category is that the reputation of your product will help you sell more of it. Positive word-of-mouth pays dividends for brand owners.

Cost reduction will give economies of scale. Since you are making large quantities or the same, non-adapted product - you benefit
from the advantages associated with manufacturing in bulk. For example, components can be bought in large quantities, which
reduces the cost-per-unit. There are other benefits relating to economies of scale, including improved research and development,
marketing operational costs, lower costs of investment, and in an age where trade barriers are coming down - standardization is a
plausible product strategy.

Quality is improved since efforts are concentrated upon the single product. Staff can be trained to enhance the quality of the product
and manufacturers will invest in technology and equipment that can safeguard the quality of the standardized product offering.

Disadvantages of Standardization.

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Since the product is the same wherever you buy it, it is wholly undifferentiated. It is not unique in anyway. This leaves the obvious
opportunity for a competitor to design a tailor-made, differentiated or branded product that meets the needs of local segments. Of
course products have different uses in different countries (for example cycling is a leisure activity in some nations, and a form of
transport in others). Local markets have local needs and tastes. Therefore by standardizing, you could leave yourself vulnerable.

Another problem with standardization is that it depends largely upon economies of scale. With global businesses, your business will
manufacture in a number of nations. However, some countries implement trade barriers (and yes - this includes the USA and the
European Union). If this is the case, then localization and the resultant adaptation is inevitable.

What exactly do you intend to standardize? Is your whole product 'experience' to be standardized? Do you standardize customer
service and product support, marketing communications, pricing, and channels of distribution? Then you have a standardized
marketing mix - surely this cannot benefit your business

SUMMARY
As foreign economies continue to grow and account for a larger portion of the total world market, and as foreign
competitors actively seek market share in the global market, many firms are being forced into some degree of international marketing.
This may extend to foreign manufacturing, carrying out joint ventures with local partners, licensing, importing, and taking part in
counter trade transactions. The varied strengths of foreign competitors and the ramifications of dealing with different national
governments and economic and cultural differences in foreign markets contribute to the complexity of international marketing.

Companies compete globally because (1) strong market potential exists overseas, (2) selling internationally allows them
to enhance their long-run profitability, (3) low-cost production and quality are critical to successfully competing in global market,
and (4) they can achieve success by carefully choosing certain market segments.

A key element of strategic success in international marketing is a global marketing perspective of the world as one
market, with individual countries treated as submarkets and the focus on exploiting market opportunities wherever they may occur.

References

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  Kotabe, Masaki and Helsen, Kristiaan, Global Marketing Management – 3rd Edition, John Wiley & Sons, Inc – Publishers,
Copyright 2004, ISBN 0-471-23062-6
 Kotler & Keller, Marketing Management - 12th Edition, 2005, ISBN 81-203-2799-3
 Theodore Levitt, The Globalization of Markets, Harvard Business Review 61 (May-June 1983): 92-102
 Young, Charles E., The Advertising Research Handbook, Ideas in Flight, Seattle, WA, April 2005, ISBN 0-9765574-0-1

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