Definition of marketing: The American Marketing association defines marketing as: Marketing management is the process of planning and

d executing the conception, pricing and promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organization goals. Core concepts of marketing: a. Needs, wants and demands: Need is the basic human requirement, can be food, air, water, clothing etc. Wants are needs directed to specific objects to satisfy the need. Need is hunger, want is if the person specifically wants idli or paniyaram or pizza. Demands are wants for specific products backed by an ability to pay. b. Product or offering: it is anything that can satisfy a need or a want. The major types of basic offering are goods, ,services, experiences, events, persons, places, properties, organizations, information and ideas. c. Value and satisfaction: value is defined as a ratio between what the customer gets and what he gives. The customer gets benefits like functional benefit and emotional benefit and assumes cost like monetary cost, time cost, energy cost, and psychic cost. d. Exchange and transaction: it involves obtaining a desired product from someone offering something in return. For this to happen, the following five conditions must be met (i) There are at least two parties (ii) Each party has something that might be of value to the other party. (iii) Each party is capable of communication and delivery. (iv)Each party is free to accept or reject the exchange offer. (v) Each party believes it is appropriate or desirable to deal with the other party. e. Marketing channels: Following are the marketing channels used by a company: Communication channel: to deliver and receive message. Distribution channel: to display or deliver the physical products. Selling channels: to effect transactions with potential buyers. f. Supply chain: this describes a longer chain stretching from raw materials to components to final products that are carried to final buyers. g. Marketing mix: it is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. These are the four Ps Product, Price, Promotion and Place. Evolution of marketing: a. The production concept: It holds that the consumers will prefer products that are widely available and inexpensive. manufacturer concentrates on achieving higher production efficiency, low cost and mass distribution. b. The product concept: It holds that the consumer will favor those products that offer the most quality, performance or innovative features. Manufacturer concentrates on making superior products. They assume the buyers admire well made products. They do not take into account buyers needs, or customer inputs and they rarely examine competitor products, This leads to marketing myopia. a. The selling concept: a. It holds that consumers and businesses if left alone, will not ordinarily buy enough of the organizations product and hence the organization must take aggressive selling efforts. b. There is heavy reliance on promotional efforts. 1

c. It is practiced most often for unsought goods like insurance and encyclopedias. d. It is also practiced for fund raising and whenever there is over capacity. b. The marketing concept: It holds that the key to achieving organizational goals consists of the company being more effective than the competitor in creating, delivering and communicating customer value to its chosen target markets. This concept rests on four pillars target market, customer needs, integrated marketing and profitability. Selling 1. Emphasis is on the product. 2. Company first makes the product and then figures how to sell it. 3. Management is sales volume oriented. 4. Planning is short term oriented, in terms of todays products and markets. 5. Needs of sellers are stressed

Difference between marketing and selling: Marketing 1. emphasis is on customer wants 2. Company first determines wants and then figures out how to make and deliver a product to satisfy those wants. 3. Management is profit oriented. 4. Planning is long term oriented in terms of new products, tomorrows market and future growth. 5. Wants of buyers are stressed.

Macro features in the marketing environment: 1. Demographic environment: The statistical study of human population and its distribution is called demography. It is of special interest to marketing executives because of people constitute markets. India has more than a billion consumers. Life expectancy is more than 62 years thanks to improved health standards, lower infant mortality, fall in birth rates and the growth in medical facilities. Literacy : The nation's average literacy rate is 52.11% as per 1991 census. Male literacy - 63.86%, Female literacy - 39.42% There is a seven fold increase in the number of literates. India has a 2.5 million strong pool of engineers, scientists and technically educated persons. Geographic distribution of consumers : Out of the billion consumers in India, 30% only fall in urban centers and rest 70% come in rural areas. Even in the urban centers, the concentration is more in the metres. Striking diversity in language, religion and social customs: Religious diversity : The seven major religions are Hinduism, Islam, Christianity, Sikhism, Buddhism, Jainism and Zorashrtrian. In these religions, there are other sects and sub sects, castes and sub castes. The culture and customs and traditions all vary according to this diversity. Linguistic diversity : There are 16 major languages specified in the Indian constitution as national languages. Apart from this, there are hundreds of dialects. This linguistic diversity is a major challenge to any national marketer. Diversity in dress, food habits: Each religious community has its own style of dressing, ornaments, foods etc. 2

Diversity in literacy level: There is wide disparity in literacy level like 90% in Kerala, 63% in T. N. 41% in U P And 38% in Bihar and Rajasthan. Diversity in density of population : The density varies from 766 sq km in West Bengal to 8 sq km in Arunachal Pradesh, 747n in Kerala, 402 in Bihar, 377 in U P, 372 in T. N., 100 in Rajasthan, 77 in Himachal Pradesh, 64 in Manipur, 60 in Meghalaya, 47 in Nagaland 45 in Sikkim. 2. Economic Environment: Markets require purchasing power as well as people. The people must have money to spend and be willing to spend it. Thus, the economic environment is a significant force that affects the marketing activities of about any organization. The available purchasing power depends on current income, prices, savings debts and credit availability.. Income distribution ; Nations vary greatly in level of income and distribution and industrial structure. The following are the different categories in it:-a Subsistence Economies: Majority of people engage in simple agriculture. They consume most of the output They barter the rest for other simple goods and services. There is very few opportunities for marketers. b. Raw material exporting economies : These economies are rich in one or more natural resources but poor in other respects. Much of their revenue comes from exporting these resources. c. Industrializing economies : Here manufacturing accounts for 10 to 20% of the GDP. E.g. India. Industrialization results in increase in imports of raw materials etc and decrease in import of finished goods. It creates a new rich class and a small but growing middle class, both demanding new types of goods. d. Industrialized economies: They are major exporters of manufactured goods and investment funds. They buy manufactured goods from one another and also export them to other types of economies in exchange for raw materials and semi finished goods. Income distribution pattern: a Very low income b. Mostly low income c. Very low, very high incomes ' d. Low, medium, high incomes e. Mostly medium incomes The economic status of Indian consumer can be classified into the following three groups :-a The Affluent group : They form a negligible minority. They can afford pompous consumption of high order but do not form a demand base for companies to depend on them. b. The middle class : This class constitutes the largest segment of consumers of manufactured goods in the country. c. The Poor: Their size is also large but purchasing power is low. Stages of business cycle : The traditional business cycle goes through four stages : Prosperity, Recession, Depression and Recovery. Marketing executives need to know which stage of the business cycle the economy currently is in, because a company usually operates its marketing system quite differently during each economic stage. Inflation :- Inflation is a rise in the price of goods and services. When prices rise at a faster rate than personal incomes, consumer buying power declines. Managing a marketing program becomes challenging when inflation is high especially regarding pricing and cost control. Consumer spends less because their power of buying declines but sometimes they spend more 3

fearing that the prices will be still high tomorrow. Interest rates : This is another economic factor that influence marketing program. When interest rates are high people post pond their long term purchases such as housing. 3. Social Environment: The social and cultural forces are changing much more quickly than it used to like, lifestyle changes, social values, beliefs etc. With respect to India, the major change on the social scenario is the middle class explosion. The rise in the middle class is due to the increasing number of industrial units with increased number of engineers, managers, a sizeable portion of doctors, teachers and also govt staff both in the center as well as states. The members of this class are better educated and exposed to the lifestyle of rich. They often spend more than what they earn at any given point in time to cope with their new social image. Their expenditure on non food items, premium brands of toiletries and cosmetics has gone up. Synthetic fabrics, ready made garments, furniture, fans, stereo - music systems, t v, electric mixers and grinders, pressure cookers, gas stoves and other modem household appliances have become essential items. Breakdown of joint family system : there is a rise in nuclear families. Working class women : is also increasing. There is a new life style among the middle class requiring several time saving conveniences. 4. Technological environment: One of the most dramatic forces shaping people's lives is technology., every new technology is a force for " creative destruction". E.g. Xerography hurt carbon paper, autos hurt rail road etc. The marketer should monitor the following trends in technology : a. Accelerating pace of technological change : - Many of today's common products like computers, digital watches etc were not available 40 years ago. - The time lag between new ideas and their successful implementation is decreasing rapidly. - The time between introduction and peak production is shortening considerably. - All this has a substantial impact on shopping behavior and marketing performance. b. Unlimited opportunities for innovation : Scientists are working upon a whole range of new technologies - E.g. in fields of biotechnology, solid state electronics, robotics and material sciences. - With the advent of new technology, the challenge will be to develop the affordable version. c. Varying R& D budgets : , - USA has the highest R & D budget followed by Japan. - In India, most of the companies have their own R & D dept but the focus mostly is on imitating competitor product or making slight changes rather than creating or innovating new products altogether. d. Increased regulation of technological change : When new products are coming on it becomes mandatory for the govt to regulate the products and make laws so that unsafe products are kept away from the market etc - Marketers must be aware of these regulations when proposing, developing and launching new products. Technological breakthroughs affect the market in three ways :1. Start entirely new industries such as computers, lasers etc 2. radically alter or virtually destroy existing industries e.g. calculators affected slide rules, t v crippled radio and movies. 3. stimulate markets and industries not related to the new technology. E.g convenience goods provide time for additional activities. Micro factors in the Marketing Environment: There are three external factors that are a part of company's marketing system. Though they are generally uncontrollable but they can be influenced more than the external macro factors. These factors are a company's suppliers, market and its marketing intermediaries. 4

The market: A market may be defined as a place where buyer and seller meet, goods or services are offered for sale and transfer of ownership occurs. For business purpose, market is defined as people or organizations with wants (needs) to satisfy, money to spend and the willingness to spend it. Suppliers : A product cannot be sold if it cannot be made or bought. Thus people who supply goods or services that is required to produce a product becomes important. Thus suppliers also form a part of its marketing system. Shortages may arise if cooperative relationship is not maintained with the suppliers. Marketing intermediaries : These are independent business organizations that directly aid the flow of goods and services between a marketing organization and its market. There are two type of intermediaries : a. the firms we call middlemen - wholesalers and retailers b. various facilitating organizations that provide such services as transportation, warehousing and financing etc. these intermediaries operate between a company and its suppliers. They are also called channels of distributions. Organization's internal environment: These include a firm's production, financial and personnel activities. E.g if a new brand of soap needs to be introduced, it has to be seen whether the existing production capabilities can be used or not or otherwise if a new plant needs to be set up, proper finance should be available. Other non marketing forces are -company's location - its R & D strength - image in the public eye. Unit II PRODUCT FEATURES Product classification: The products are classified on the basis of - durability & tangibility - consumer goods - industrial goods I. Durability and tangibility: Products are classified into three groups, according to durability and tangibility. a. Non durable goods: these are tangible goods consumed in one or few uses. They are consumed quickly and purchased frequently. They are made available in many locations, the margins are less and advertising is heavy. b. Durable goods: These are tangible goods that normally survive many uses. E.g. Refrigerator. They require more personal selling and service, command a higher margin and require more seller guarantees. c. Services: These are intangible, inseparable, variable and perishable products. They require more quality control, supplier credibility and adaptability. E.g. haircut. II. Consumer goods: Consumer goods are further classified into the following : a. Convenience goods: These are the goods that the customer usually purchases frequently, immediately and with minimum efforts. Customer does not feel like putting extra efforts to buy them and is ready to 5

accept one of the many brands available. These goods have low unit price and are not bulky. They are further divided into # staples consumer purchases this on regular basis. E.g. grocery # impulse goods they are purchased without any proper planning. E.g. chocolates, magazines. # emergency goods these are purchased when a need is urgent. E.g. umbrella during rainy season. b. Shopping goods: These are the goods for which consumers want to compare quality, prices and sometimes style in several stores before making a purchase. E.g. furniture, clothing etc. The process of searching and comparing continues as long as the customer believes that the potential benefits from a better purchase more than offset the additional time and effort spent in shopping. c. Specialty goods: these are the goods with unique characteristics or brand identification for which a sufficient number of buyers are willing to make a special purchasing effort. E.g. cars d. Unsought goods: Consumers usually do not know about such product and they must be made aware about the product to buy it. E.g. Insurance III. Industrial goods : Industrial goods are classified in terms of how they enter the production process and their relative costliness. They are generally divided into the following categories: a. Raw materials: These are the goods that are processes and become part of another finished product. It includes goods that are found in their natural state, e.g. minerals or agricultural products such as cotton, fruits or livestock like chicken, egg etc b. Fabricating materials and parts: They become part of the finished product after being processed to some extent. The difference between raw materials and fabricating materials is that raw materials are not at all processed whereas fabricating materials are somewhat processed. E.g. flour being part of a bread. Fabricating parts are assembled with no further change in their form. E.g. zipper in clothing. c. Installations or capital items: these are the manufactured products that are an organizations major, expensive and long lived equipments. E.g. large generators, blast furnace etc. d. Accessory equipments: these are tangible products that have substantial value and are used in an organizations operations. E.g. small power tools, fork lift trucks etc. they are not part of the finished product. e. Operating supplies: these are those goods that aid in an organizations operations without becoming part of the finished product. E.g lubricating oil, stationary items etc. PRODUCT MIX: It is the set of all those products and items that a particular seller offers for sale. Any companys product mix has width, length, depth and consistency: Width: It refers to how many product lines the company carries. E.g. detergents, bar soap, paste etc Length: it refers to the total number of items in the product mix. Depth: it refers to how many variants are offered for each product in the line. Consistency: it refers to how closely related the various product lines are in end use, production requirements, distribution channel or some other way. BRAND: 6

A brand is a name, term, sign or symbol or a combination of them intended to identify the goods or services of one seller or group of sellers to differentiate them from those of competitors. Reasons for branding: Easy to identify goods and services. Assurance that a minimum level of quality will be provided Reduces price comparison Adds prestige to otherwise ordinary commodities. Responsibility attached with branding to promote and maintain consistent quality of output. Difficulty to differentiate e.g. nails, raw materials Should suggest something about the product, particularly benefits & uses. Easy to pronounce, spell and remember. Distinctive Should be adaptable to new products when they may be added to product line. Capable of registration & legal protection. To decide whether to brand or not Selecting a good brand name as more and more new products are coming but the words available are fixed. To see whether the brand name chosen already exists or resembles some existing ones.

Reasons for not branding:

Essential/desirable characteristics of a brand name:

Challenges to branding:

Brand Equity: It denotes the value a brand name adds to the product. E.g. Sony, Reebok etc Brand name decision: a. Individual names: It means individual name for all the products. Benefits: if one of the product fails, it will not affect other products. If the company wants to introduce low quality products, its overall image will not be tarnished The firm can search the best name for each product.

b. Blanket family name: All the products carry the same name. E.g. Maggi, Bajaj etc Benefits: Development cost is less as no money needs to be spent on name research or for heavy advertising for brand recognition. Initial awareness is easily achieved due to manufacturers image

c. Separate family name for all product lines: Different family names are invented for different quality lines within the same product class. E.g. Lakme, Elle

d. Company trade name combined with individual product name: Some manufacturers tie their company name to an individual brand name for each product. The company name legitimizes and the individual name individualizes the product. Brand strategy decision: A company can choose the following five strategies: 1. Line extension: Existing brand name extended to new sizes or flavors in the existing product category. Companies may also introduce brand variants which are specific brand lines supplied to specific retailers or distribution channels. 2. Brand extension: Using the existing brand name to launch new products in other categories. E.g. Tata, Honda etc 3. Multi Brands: A company can also introduce additional brands in the same category. The company may be trying to establish different features or appeals to different buying motives. 4. New brand: If none of the existing brand names suit a new product, the company can come up with a new brand name. 5. Co Brand: Two or more well known brands are combined in an offer. E.g. Bajaj Kawasaki, Kinetic Honda, Kotak Mahindra PACKAGING: A package is the actual container or wrapper. Packaging is a business function. It includes the activities of designing and producing container for a product. Purpose/Importance of packaging: To protect the product on its way to the consumer. Provide protection after the product is purchased to the time it is consumed. Be part of the companys trade marketing program to meet the needs of wholesalers and retailers. Be part of a companys consumer marketing program for identification by consumers. To face competition. To act as a five second commercial for the product. Retailers prefer products with attractive package. Rising consumer affluence is making people willing to pay extra for convenience, appearance and dependability of the package. Helps in building company and brand image. Innovation opportunity in packaging brings benefits to customers and profits to producers.

Packaging strategies: a. Packaging the product line: A company has to decide whether to develop a family resemblance when packaging related products. Family packaging uses either highly similar packaging for all products or packages with a common and clearly noticeable feature. b. Multiple packaging: This is the practice of placing several units of the same product in one container. It also helps in increasing the sale. E.g towels, toffees etc c. Changing the packaging: This may be done in order to 8

- correct a poor feature in an existing package - take advantage of a new development in packaging - less expensive to design an attractive package than going for heavy advertising campaign. Criticism of packaging: Packaging depletes natural resources if it is not recycled or biodegraded Packaging is too expensive Some forms of plastic packaging & aerosol cans are causing health hazards. Packaging is deceptive Used and discarded packaging contributes significantly to solid waste problem.

Recent developments in Packaging: 1. Aseptic container made of lamination of paper, aluminum foils and plastic ( tetra pack ). Keep perishables fresh up to 5 months without refrigeration. It costs about of that of cans and 1/3 of bottles. It is not bio degradable. 2. Sachet Packaging LABELLING: A label is that part of a product that carries information about the product and the seller. A label may be a part of the package or it may be a tag attached to the product. There are some legal requirements also. Types of label: A brand label: simply the brand alone will be written on the product or the package. A descriptive label gives objective information about the products use, construction, care, performance and/or other features. A grade label identify the products judged quality.

Functions of a label: Identifies the product or brand Grade the product Describe the product Promote the product NEW PRODUCT DEVELOPMENT: Every company must develop new products. New product development shapes the companys future. Booz, Allen and Hamilton identified 6 categories of new products. (a) New to the world product (b) New product line: product is new for the company but an established market is there (c) Addition to existing product line: products that supplement a companys existing product line. (d) Improvements and revision for existing product: provide improved performance or greater perceived value. (e) Repositioning: existing products targeted to new market segments 9

(f) Cost reduction : provide similar performance at lower price/cost. Steps in new product development: 1. Idea generation: New product development starts with new ideas. A system must be designed for stimulating new ideas within the organization and acknowledging and reviewing them properly and promptly. The sources for new ideas can be company employees, customers, suppliers, universities, inventors, advertising or market research agencies etc. 2. Idea screening: New product ideas are evaluated to determine which one wants further study. The ideas are sorted out into three categories promising, marginal and rejects. Care must be taken to avoid the following two types of errors: Go error permitting a poor idea to further processing and Drop error dropping an otherwise good idea. 3. Concept development and testing: Attractive ideas must be refined into testable product concepts. A product concept is an elaborated version of the idea expressed in meaningful consumer terms. Concept testing involves presenting the product concept to appropriate target consumers and getting their reactions. Conjoint analysis is a method for deriving the utility values that consumers attach to varying levels of product attributes. It is used to measure consumer preferences for alternative product concepts. 4. Marketing strategy development: After testing, the new product manager must develop a preliminary market strategy for introducing the new product which should include the target market size, structure, behavior, planned product positioning, price, distribution strategy and marketing budget etc for the first year. 5. Business analysis: To evaluate the proposals business attractiveness, the company should know the sales, cost and profit projections. They do this by - Estimating total sales = first time sales + replacement sales + repeat sales. This in turn depends upon whether the product is a one time purchase or infrequently purchases or frequently purchased. - Estimating cost and profits 6. Product development: If the product concept passes the business test, it moves to R&D or engineering department to be developed into a physical product. The target customer requirements is translated into a working prototype by a set of methods known as QFD or Quality Function Deployment wherein the list of customer attributes are converted into engineering attributes. Along with the products functional characteristics the lab scientists must also communicate the products psychological aspects through physical cues. Testing of the products: There are two types of tests a. Alpha testing done within the firm to see how it performs b. Beta testing testing is done with a set of customers & their feedback taken. 7. Market testing: After the management becomes satisfied with the functional and psychological performance of the product, the product is decorated with a brand name and packaging, it goes for market testing. This is once again divided into two categories a. Consumer goods market testing can be done by # Sales wave research initial trial is provided for free of cost and later the same product along with competitors product is provided at a reduced price to see how many purchase this brand. # Simulated test marketing 30 to 40 qualified shoppers are invited to a shop for purchasing any goods after showing them the screening of ads which contains the ad for the new product also. Those who dont buy the new product are given free samples and feedback taken. 10

# Controlled test marketing: a market research agency conducts the test marketing for the product in selected cities. # Test marketing: full blown test marketing is conducted in selected cities. b. Business goods market testing this also undergoes Alpha testing and Beta testing. Other methods are introducing the new product at a trade show or testing by means of displaying at the distributor or dealers display room. 8. Commercialization: The factors that are to be considered for commercialization are When or timing - here they can adopt the following strategies a. First entry entering before competitors b. Parallel entry entering along with competitors c. Late entering entering after the competitors Where or geographic strategy: the company must decide whether to launch the product in a single locality, a region, several regions or the national market. To whom or target market prospect: the company must target its product to early adopters, opinion leaders, heavy users and those who can be reached at a low cost. How or introductory market strategy: to coordinate the many activities included in a new product launch, management can use network planning technique such as critical path scheduling i.e. developing a master chart showing the simultaneous and sequential activities that must take place to launch the product and the estimated time for each activity.

11

Idea Gen erati on = wor th of idea

Idea screeni ng = match with compan ys objectiv es

Concept testing = to test customer acceptanc e

Marketi ng strategy = afforda ble plan

Busines s analysis = profitab ility

Product develop ment

Mark et testin g

com mer ciali zati on

Shoul d we send idea back

Is it possible to modify marketin g program

DROP

NEW PRODUCT DEVELOPMENT PRODUCT LIFE CYCLE Concept: It means the product has the following four things a. Products have a limited life. b. Product sale passes through distinct stages, each posing different challenges, opportunities and problems to the seller. c. Profits rise and fall at different stages of PLC d. Product require different marketing, financial, manufacturing, purchasing and human resource strategies in each stage of their life cycle.

A life cycle can be graphed by plotting aggregate sales volume for a product category over time usually years.. most PLCs curves are portrayed as bell shaped. The four stages are introduction, growth, maturity and decline. a. Introduction: Characteristics 12

A period of slow sales growth as the product is just introduced in the market. Profits are non existent because of heavy expenses incurred in the product introduction. Strategy to be adopted: promotion Low Price high low Slow Skimming high rapid skimming

Slow rapid Penetration penetration

a. Rapid skimming: launching the new product at a high price and promotion this is done when a large segment is unaware of the product and they are eager to buy when they know about it. There is a chance for potential competition.

b. Slow skimming: High price and low promotion Market is limited in size and aware of the product. Buyers are willing to pay the high price. No potential competition.

c. Rapid penetration: Low price, high promotion. Market is large, unaware of the product. Buyers are price sensitive Strong potential competition. Low price, low promotion. Market is large aware of the product. Price sensitive Some potential competition.

d. slow penetration:

b. Growth stage: Characteristics : A period of rapid market acceptance and substantial profit improvement. Strategy: 13

Improve product quality, add new product features & improve styling. Add new models and flanker products( products of different size and flavors) Enter new market segments . Increase distribution coverage and enter new distribution channel. Shift from product awareness advertising to product preference advertising. Lower prices to attract the next layer of price sensitive buyers.

c. Maturity stage: Characteristics: A period of slow down in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition. Strategy: # Market modification: The company tries to increase the volume by increasing the number of users and usage. Increasing number of users convert non users, enter new market segment or win competitors consumers Increasing usage use more frequently, or use more per occasion or invent new uses. Quality improvement increases the products functional performance, durability, reliability, speed or taste Its called a plus launch or bigger or stronger etc Feature improvement adding new features such as size, weight, materials, accessories etc Price price cut, special offers, easier credit terms, early purchase discount etc Distribution more display, more outlets, new distribution channels etc Advertising increase ad expense, change message or copy, ,media mix, time, frequency etc. Sales promotion trade deals, coupons, rebates, warranties etc Personal selling number & quality of sales force, sales incentives, revision of sales territories etc Services speed up delivery, more technical assistance, more credit etc.

# Product modification:

# Marketing mix modification

d. Decline stage: Characteristics: The period when sales show a downward drift & profits erode. Strategy: Increasing the firms investment ( to dominate the market or strengthen its competitive position). Maintaining the firms investment level until the uncertainties about the industry are resolved 14

Decreasing the firms investment level selectively by dropping unprofitable customer groups while simultaneously strengthening the firms investment in lucrative niches. Harvesting the firms investment to recover cash quickly. Divesting the business quickly by disposing off its assets as advantageously as follows.

Meaning of price: Price is the amount of money and/or other items with utility needed to acquire a product. Pricing objectives: Following can be the pricing objectives for any given company: a. Profit oriented goals: Profit goals may be set for the short or long. A company may select one or two profit oriented goals for its pricing policy: (i) Achieve a target return: A firm may price its product to achieve a target rate of return a specified percentage return on its sale or on its investment. An additional amount is added to the cost of the product called a mark up, to cover anticipated operating expenses and provide a desired profit for the period. (ii) Maximize profits: This is one of the most followed objectives. If profits become high in a particular industry then it will attract more capital which will increase the supply and hence lower the profit origin. b. Sales oriented goals: The pricing goal in this case may be to either increasing the sale or maintain or increase market share. (i) Increase sales volume: If the objective is to achieve rapid growth in sales, the company may put lower prices for the product or may adopt some other aggressive pricing strategy. (ii) Maintain or increase market share: The companies lower the prices if they want to maintain or increase the market share. c. Status quo goals: This is the most aggressive of all the pricing goals. It may be either one of the following two: (i) Stabilizing prices (ii) Meeting competition Different pricing policies: 1. Cost based pricing: In this method, the price is determined on the basis of cost of production plus an additional margin of cost. E.g. mark up pricing, target rate of return on investment pricing 2. Demand based pricing: the price is fixed on the basis of demand. If the demand is high, price will be high. If the demand is low, the price is low. E.g. Perceived value pricing 3. Cost and demand based pricing: this takes into consideration both the demand factor as well as the cost of production. E.g. Value pricing 4. Competitor based pricing: Here the pricing is based on what the competitor is pricing or is expected to price. E.g Going rate pricing, Sealed bid pricing Different types of pricing method: 1. Mark up pricing: In this method, a standard mark up is added to the products cost. E.g. suppose for a pen manufacturer Variable cost per unit = Rs 10/Fixed cost per unit = Rs 3, 00,000/Expected unit sales = 50, 000 Manufacturers unit cost = variable cost + fixed cost Unit sales 15

= 10 + 3,00,000 50,000 = Rs 16/suppose mark up is 20% then mark up price = unit cost 1 desired return on sales = 16 1 0.2 = Rs 20/Profit per unit = 20 16 = Rs 4/Mark ups are higher on seasonal items, specialty items, slow moving items, items with high storage and handling costs. 2. Target return pricing: The firm determines the price that would yield its target rate of return on investment ( ROI ). Suppose the pen manufacturer has invested 1 million rupees and wants to earn a 20% rate of return. Then: Target return price = unit cost + desired return * invested capital Unit sales = 16 + 0.2 * 1,000,000 50,000 = Rs 20/this target will be realized only if the sales reach 50,000 units. 3. Perceived value pricing: The price is based on the perception of the value not the seller cost, as the key to price. They use other marketing mix elements such as advertising and sales promotion activities to create an enhanced image of the product. E.g. gift articles. 4. Value pricing: Here a fairly low price is charged for a high quality offering. Value pricing says that the price should represent a high value offer to the customer. Value pricing is not about lowering the price but reengineering the companys operation to become a low cost producer without sacrificing quality or profit. 5. Going rate pricing: The firm bases its price on the competitors. In industries like steel, paper etc where the product is standardized, usually the leader sets the price and accordingly others also set. The individual firms do not charge on the basis of their cost or their demand. 6. Sealed bid pricing: The firm bases its price on the expectation of how competitors will price rather than on a rigid relation to their firms cost or demand. The firm wants to win a contract and that normally requires submitting a lower price bid at the same time price cannot be set lower than the cost. Pricing strategies: a. Geographical pricing: Here different prices are set for different markets situated at different locations based on the transportation and shipping costs. The mode of payment may be Barter exchange of goods of equal worth or compensation part payment in cash and part payment in the form of goods or buy back arrangement i.e. if the company is supplying technical know how to one country, it accepts 16

the goods back produced in that company or offset entire payment in cash but a part of the payment has to be spent in that country itself. b. Promotional pricing: Loss leader pricing: the prices of well known brands are lowered to stimulate store traffic. Special event pricing: establish special prices during special season like Deepawali etc Cash rebates: some discounts are given if the product is purchased during a specified time period. Low interest financing: e.g. automobiles arrange for low interest financing so that people do not have to take the botheration of arranging loans etc. Longer payment terms: helps in lowering monthly installments, thus lowering the monthly expense for people. Psychological discounting: set an artificial high price, then sell at a lower price. E.g.500 => 350/c. Discriminatory pricing: this is the practice of selling the same product to different customers at different prices. The discrimination can be on the following bases: Customer segment pricing: different customer groups charged differently. E.g. children charged half in buses, museums, train etc Product form pricing: different versions of the product are priced differently. E.g. liquid soap or bar soap. Image pricing: same product priced differently on the basis of difference in pricing. E.g. perfumes Location pricing: e.g.. theatres Time pricing: e.g hotels, airlines etc. d. Product mix pricing: following are the different ways of product mix pricing: Product line pricing: the companies usually produce a product range not a single product and thus have the same product in a range. E.g. shirt costing from 800/- to 1500/- from the same manufacturer. Optional feature pricing: many companies offer a basic product and other optional features for which the customer has to pay extra for only those features which the customers are opting. Captive product pricing: some products require the use of ancillary or captive products. The main or basic product will cost less, the captive product will cost more. E.g. camera, razors. Two part pricing: it consists of a fixed fee + variable fee depending on usage. E.g. telephone connection. By product pricing: the production of certain products like petroleum leads to production of by products like Vaseline. In such cases, the by products should be priced on their value. Product bundling pricing: sellers often bundle their product and features at a set price. CHANNELS OF DISTRIBUTION: Distribution management: It is concerned with the activities involved in transferring goods from producers or manufacturers to the ultimate buyers or consumers. Objectives of distribution management: Convenience of consumers to get the product Choice of selection of goods Minimum incidence of breakage or damage during transportation Optimal distribution cost Effective and sincere promotional activity. Effective display and storage of goods Effective location of godown and warehouses Various activities in distribution channels : 17

Physical flow flow of goods from one party to other. Title flow transference of ownership of goods from one party to other. Payment flow flow of money from one party to other. Communication flow flow of requirement of goods from one party to other. Advertising communication flow the members have to make themselves known.

Role and importance of distribution channels: Information : the channels provide information about the market and competitors to the seller. Price stability: they absorb the increase in price sometimes due to high intra middlemen competition thus resulting in price stability. Promotion: they also undertake some promotion activities for their shop as well as the goods. Financing: they provide working capital to the manufacturer in the form of advance payments and deposits etc. Title: they take the ownership for the goods once they come into their possession thereby reducing the risk of the manufacturer. Provide distributional efficiency: they bring together the makers and buyers effectively. Supply products in require assortment: the same middlemen operates as middlemen to so many manufacturers thus providing the products in assortment for the customer. Channels provide salesmanship: middlemen also have their own salesman who also canvass for orders. Help in merchandizing: by displaying the products, they increase awareness about the product. They act as change agents or generate demand: especially in the field of agriculture. Patterns of distribution channels: 1. Zero level Manufacturer --> User 2. One level: Manufacturer => mail order => user Manufacturer door to door salesman user Manufacturer manufacturers showroom user Manufacturer retailer user 3. Two level: Manufacturer wholesaler retailer user 4. Three level: Manufacturer stockist/distributor wholesaler retailer user 5. Four level: Manufacturer marketer stockist/ distributor wholesaler retailer user Manufacturer sole selling agent stockist/ distributor wholesaler retailer user Factors determining the length of the channel or factors affecting the distribution system: 1. Market characteristics: If there is requirement for high level of service, the distribution channel will be short. 2. Company characteristics: Companys long term objectives, financial resources, manufacturing capacity, marketing mix etc influence the distribution decision. 3. Product characteristics: If the product risk and product value is high, the distribution channel is short. If the product is perishable in nature, the distribution channel is short. 18

 If the product is standardized in nature, the distribution channel is long. If the product is bulky in nature, the distribution channel is short. 4. Middlemen characteristics: The kind of distribution channel also depends on middlemens aptitude for service, promotion & handling negotiations, storage, credit etc 5. Intensity of competition: Some firms adopt intensive distribution strategy & are indifferent to multiple brand outlet. 6. Environmental characteristics: The govt policy, statutory provisions, state of the economy, technological and infrastructural developments etc also affect the distribution decisions of the firm. Identifying major distribution alternatives: 1. Intensive distribution: This alternative involves all the possible outlets to distribute the product. E.g. soft drinks. The same product will be available from a small tea stall to a five star restaurant. 2. Selective distribution: This is the middle path approach to distribution. Here, the firm selects some outlets to distribute the product. This approach helps the manufacturing firm to focus its selling effort on a few outlet. Good working relationship is established with the channel members. Optimum market coverage & more control is possible here with lesser cost. 3. Exclusive distribution: Here the firm distributes its products through just one or two outlets in the market who exclusively deal in it and not all competing brands. This practice is usually in products and brands that seek high prestigious image. E.g. designer wear, major domestic appliances etc. By giving exclusive distribution rights, the manufacturer hopes to have control over the intermediaries price, promotion, credit inventory & service policies. The firm also hopes to get the benefit of aggressive selling by such outlets Unit III Communication process steps in the development of effective communication, designing message, selection of communication channels, deciding promotion mix and measuring results. Advertising decisions setting advertising objectives, advertising budget, deciding on the message, media mix, evaluating effectiveness Sales management & personal selling, designing the sales force, objective, strategy, size, compensation. Managing the sales force, recruiting, training, motivating sales force, personal selling principles. Communication process: Communication is the verbal or non verbal transmission of information between someone wanting to express an idea and someone else expected or expecting to get that idea. There are 9 fundamental elements in any effective communication process: 1. Sender --| 2. Receiver | Major parties in the communication process 3. Message | Major communication tools 4. Media | 5. Encoding | 6. Decoding | 7. Response | Major communication functions 19

8. Feedback | 9. Noise - random and competing messages that interfere with the intended communication. The information the sending source wants to share must first be encoded into a transmittable form Once the message has been transmitted through some common channel, the symbol must be decoded or given meaning by the receiver. If the message has been transmitted successfully, there is some change in the receivers knowledge, belief or faith. As a result, the receiver formulates a response. The response serves as a feedback telling the sender whether the message was received & how it was perceived by the recipient. All the above stages are affected by noise. sender encoding

message media

decoding

receiver

noise feedback response

Communication model Sometimes the receiver does not receive the intended message because of the following reasons: a. Selective attention: People are bombarded by thousands of commercial messages a day of which hardly an 80 are consciously noted and about 12 provoke some reaction. b. Selective distortion: Receivers will hear what fits into their belief system. As a result, receiver often add things to the message that is not there and do not notice other things that are there. Thus, the communication should be simple, clear, interesting and should be repeated to get the main points across. c. Selective retention: People will retain in their long term memory only a small fraction of the messages that reach them. If the receivers initial attitude towards the message is positive and he or she rehearses support arguments, the message is likely to be accepted & have high recall. Factors influencing the effectiveness of a communication as given by Fiske and Hartley: Greater the monopoly of the source over the receiver, greater the receivers change or affect in favor of the source. Communication effects are greatest if the message is consistent with the receivers existing opinions, beliefs and disposition. Communication can produce effective shifts on peripheral issues, which do not lie at the recipients value system. The expertise, high status, objectivity or likeability of the source effects the effectiveness of the communication considerably. The social context group or reference group will mediate the communication and influence whether or not the communication is accepted. Steps in the development of effective communication: 1. Identify the target audience 2. Determine the communication objectives 3. Design the message 4. Select the communication channels 20

5. Establish the total communication budget 6. Decide on the communication mix 7. Measure the results 8. Manage the integrated marketing communication process. 1. Identify the target audience: The target audience will include: - Potential buyers - Current users - Deciders or influencers - Individuals - Groups - Particular public - General public Image analysis: A major part of audience analysis is assessing the current image of the company; its products and its competitors. Image is the set of beliefs, ideas, impressions a person holds regarding an object. Image analysis is done by First step Familiarity scale Measure the target audiences knowledge about the object using the following scale: Never heard of Heard of know a little know a fair amount know very well Second step Favorability scale To measure the feelings towards the product Very unfavorable somewhat unfavorable indifferent somewhat favorable very favorable Another tool is semantic differential: It involves the following steps: 1. Developing a set of relevant dimensions: The researcher asks people to identify the dimensions they would use in thinking about the object. 2. Reducing the set of relevant dimensions: The number of dimensions should be kept small in order to avoid respondent fatigue. There are 3 types of scale - evaluation scale ( good bad ) - potency scale - ( strong weak ) - activity scale ( Active passive) 3. Administering the instrument to a sample of respondents: The respondents are asked to rate one object at a time. 4. Averaging the results 5. Checking on the image variance 2. Determining the communication objectives: The communication objective of any company can be understood by any of the following four models: Stages AIDA model Hierarchy of effects Innovation Adoption Communication Model model model --------------------------------------------------------------------------------------------------------------------------------Cognitive attention awareness awareness exposure stage knowledge reception cognitive response -------------------------------------------------------------------------------------------------------------------------------------Affective Stage interest liking 21 interest attitude

Desire

preference Conviction

evaluation

intention

Behavior stage

action

purchase

trial adoption

behavior

3. Design the message: Formulating the message requires solving four problems: - What to say ( message content ) - How to say it logically ( message structure ) - How to say it symbolically ( message format ) - Who should say it ( message source ) Message content: Here the management searches for appeal, theme, idea or USP. There are two types of appeals: a. Rational appeal b. Emotional appeal (i)Logical Appeals or Rational Appeals :-It aims for the buyers head. It tries to sell the products on the basis of performance, features or the ability to solve the problems. (ii)Emotional Appeal :-It aims for the buyers heart. It tries to sell product on the basis of satisfaction that comes from purchasing and then either owning or giving the product as a gift. For e.g. the ad for diamonds - one for diamond rings and the other for industrial diamonds. An emotional appeal would be more effective for first case and logical for the second case. DeBeers ad - " diamonds are forever ". The ad draws commitment between the product and the need for love commitment and emotional security. On the other hand ad for industrial diamonds will talk of performance and features. There can be lot of other appeals also :1. Price or value appeal :-It tells the customer that they will get more than what they are spending. e.g. lowering the price and making them aware of the new price, or keeping the price same but offering more, keeping the price and the product same but convincing the people the product is worth the charge. 2. Quality Appeal :-An appeal to quality includes guarantee for say 20 years or telling the product history. An appeal to quality works only if the product possesses the right level of quality e.g. Raymonds - since 1925. 3. Star Appeals and Testimonials :-The public fascination for sports superstars and entertainers is the foundation of celebrity endorsement advertisement. The presumed pull of the star appeal is that people like to identify with their favorite stars and will therefore be positively influenced by a star's appearance in the ad. E.g. Sachin Tendulkar in Boosts ad. A related appeal is testimonials, in which real users of the product celebrities or not make the sales pitch by showing the product in use, discussing the benefits they got from it. It is a powerful advertising because the core message comes from satisfied customers, and not the advertiser. e.g. Vim bar 4. Ego Appeal :- Most consumers are open to their ego appeals whether the appeal relates to their physical appearance, intellect, sense of humor or any other real or imaginary personal quality. E.g. the L'oreal ad featuring Miss World Diana Hyden where she admits the product is expensive but says " I am worth it"She is appealing to the egos of the potential buyers to think the same of themselves. The ego appeal has to happen in private, so it works without embarrassing the audience. 5. Fear or Anger Appeal :-Extreme cases of emotional appeals are those based on fear or anger. However appeals to fear have to be managed carefully. Extreme appeals to fear can anger the audience or even cause them to block the message completely. On the other hand, reducing somebody's fear or anxiety, rather than artificially increasing it, can be effective. e.g. LIC's fire insurance policy. 22

6. Sensory appeal: Whenever the advertiser chooses to make an ad that appeals to any of our five senses i.e. eyes, ears, smell, touch or taste, its called sensory appeal i.e the ad should use a beautiful scenery or melodious music etc 7. Social appeal: these kind of ads use love, friendship, emotions, feelings etc to portray the message. 8. Novelty appeal: Whenever the ad uses some creative thinking or imaginative thinking to show something unusual to promote the product, its called novelty appeal. Message structure: The message can have one sided presentation that is praising a product or it can have two sided arguments that also mentions shortcomings. Finally the order of presentation is also important i.e the order in which the arguments are presented. The strongest argument can be presented first if the idea is to catch the attention of the audience. In case of a captive audience, strongest argument can be presented in the last. Message format: The communicator has to decide on headline, copy, illustration and color. For radio they have to choose words, voice, qualities and vocalizations. In case of TV all the above + body language have to be planned ( facial expressions, gestures, dress, posture, hair style etc) Message source: Message delivered by an attractive or popular source achieve higher attention & recall. The factors that underlie the sources credibility are Expertise- the specialized knowledge the communicator possesses Trustworthiness how objective and honest the source is Likeability describes the sources attractiveness 4. Selecting the communication channels: Communication channels are of 2 types: (i) Personal (ii) Non personal Personal Communication channels: It involves two or more persons communicating directly with each other, face to face, person to audience, over the telephone or through emails. It can be further divided into Advocate channels Company salespeople contacting buyers in the target market Expert channels independent experts making statements to target buyers Social channels neighbors, friends, family members & associates talking to target buyers. Non personal communication channels: It includes media, atmosphere and events: Media print media ( newspaper, magazines, direct mail), broadcast media ( radio, TV), electronic media ( audio tapes, videotapes, video disks, CD ROM, web page) and display media ( bill boards, sign posters, etc) Atmosphere these are the packaged environment that create or reinforce the buyers leanings towards product purchase. E.g. luxury hotels using elegant chandeliers Events these are occurrences designed to communicate particular messages to target audience. 5. Establishing the total marketing communication budget: DESIGNING THE SALES FORCE: Designing the sales force involves the following activities: 1. Sales force objectives and strategy 2. Sales force structure, 3. sales force size 4. Sales force compensation. 23

1. Sales force objectives and strategy: Companies need to define the specific objectives they want their sales force to achieve. The sales representative has a variety of tasks to perform like Prospecting searching for prospects or leads Targeting deciding how to allocate their time among prospects and customers. Communicating information about the companys product and services. Selling approaching, presenting, answering objections and closing sales Servicing providing various services to the customers consulting on problems, rendering technical assistance, arranging finance, expediting delivery etc. Information gathering conducting market research & doing intelligence work Allocating deciding which customer will get scarce products during product shortages. The company should decide how much time should be spent on current customers and how much on new, how much for established products and how much on new. The sales job also varies as per state of economy i.e. product shortage and product abundance. 2. Sales force strategy: The sales force must be deployed strategically so that they call on the right customer at the right time and in the right way. It can adopt any of the following: Sales representative to buyer:- a sales representative discusses issues with a prospect or customer in person or over the phone. Sales representative to buyer group: Sales personnel gets to know as many members of the buyer group as possible. Sales team to buyer group: A company sales team works closely with the members of the buyer group. Conference selling: The sales personnel brings company resource people to discuss a major opportunity or problem. Seminar selling: A company team conducts an educational seminar for the customer company about the state of the art developments. Company can decide to use a direct or contractual sales force. A direct sales force consists of full time or part time paid employees who exclusively work for the company. This includes inside sales personnel conduct business from the office using the telephone and receive visits from prospective buyers and field sales personnel who travel and visit customers. 3. Sales force size: Once the company establishes the number of customers it wants to reach, it can use a workload approach to establish sales force size. There are five steps in doing this: a. Customers are grouped into size classes according to annual sales volume. b. Desirable call frequencies are established for each class. c. The number of accounts in each size class is multiplied by the corresponding call frequency to arrive at the total work load, in sales call per year. d. The average number of calls a sales representative can make a year is determined. e. The number of sales representatives needed is determined by dividing the total annual calls required by the average annual calls made by a sales representative. 4. Sales force compensation: The company must develop an attractive compensation package to attract and retain a top class sales force. For that, it must a. Determine the level and components of an effective compensation plan. The level must be somewhat in alliance to what is being given by the competitors in the same field. b. The components are a fixed amount, a variable amount, expense allowances and benefits. The fixed amount, that is the salary will satisfy the reps need for income stability. The variable amount, which might be commissions, bonus or profit sharing stimulates and rewards greater efforts. The expenses allowances covers the expense incurred in traveling, lodging, dining and entertaining. The benefits such as 24

paid vacations, accident and sickness benefits, pension, life insurance etc provide security and job satisfaction. A popular rule favors making 70% of the compensation fixed and 30% variable Types of compensation systems: a. Straight salary: it provides sales representatives with a secure income, make them more willing to perform non selling activities and give them less incentive to overstock customers. b. Straight commission: it attracts sales representatives with higher sales performance, provide more motivation, require less supervision and control selling costs. c. Combination: it provides the benefits of both the plans at same time reduces the disadvantages. MANAGING THE SALES FORCE : Managing the sales force includes the following: Recruiting and selecting Training Supervising Motivating Recruiting and selecting To select a good sales force, first the company must develop the selection criteria, that is what are the traits that must be looked in a sales candidate: Following are the traits identified by many people: 1. According to a survey of customers, successful sales representatives have the following quality- honest, reliable, knowledgeable and helpful. 2. According to a study by Charles Garfield about superacheivers, following are the qualities in super achievers risk taking, powerful sense of mission, problem solving bent, care for the customer, and careful call planners. 3. Robert McMurry added the following traits high level of energy, abounding self confidence, a chronic hunger for money, a well established habit of the industry and a state of mind that regards each obstacle, objection or resistance as a challenge. After the management develops the selection criteria, it must recruit. The sources for right candidates can be educational institutions, own employees, placing job ads or using employment agencies. Selection procedure may include Written test Interview Group discussion Medical tests Reference Interview of spouse. Training sales representatives : It is necessary to provide the new sales representatives with enough training before they go to the field so that they are well prepared in handling the customers. The Training Program goals are Sales representatives should know and identify the company. Sales representatives should know the company products. Sales representatives should know customer and competitor characteristics. Sales representatives should know to make effective presentations. Sales representatives should understand field procedures and responsibilities. The techniques or methods used for training are 25

Lecturing, role playing, sensitivity training, cassette tapes, video tapes, CD ROMS, programmed learning and films on selling. Supervising sales representatives: This is done by establishing norms for customer calls, norms for prospect calls and to see whether the sales time is used efficiently. Motivating sales representatives: Churchill, Ford and Walker gave a model which says that the higher the sales personnels motivation, the greater his/her efforts. Greater efforts will lead to greater performance, greater performance will lead to greater rewards, greater rewards will lead to greater satisfaction and greater satisfaction will reinforce motivation. This model thus implies the following: Sales managers must be able to convince sales personnel that they can sell more by working harder or by training them to work smarter. Sales managers must be able to convince sales personnel that the rewards for better performance are worth the extra efforts. The importance of various rewards with respect to motivation follows the following order highest is pay, followed by promotion, personal growth and sense of accomplishment. Sales quotas: Sales quotas prescribe what the sales representative must or should sell during the year. It can be set on rupee value, unit volume, margin, selling effort or activity and product type. Compensation is often tied to the degree of quota fulfillment. On the basis of sales forecast, sales quotas are set which will usually be higher than sales forecast to encourage managers and sales personnel to perform at their best level. There are three schools of quota setting: a. High quota school: Quotas are set more than what most of the reps achieve but that are attainable. It assumes that high quotas spur extra efforts. b. Modest quota school: Set quotas that majority of the sales force can achieve. It assumes that sales force will accept the quota as fair, achieve them and gain confidence. c. Variable quota school: it says that individual differences among sales representatives warrant high quota for some & modest quota for others. Supplementary motivators: Periodic sales meetings provide a social occasion, a break form routine, a chance to meet and talk with other company employees and a chance to put forth the feelings. Sales meetings are an important tool for communication, education and motivation. Sales contests spur the sales force to a special selling effort above than the average or what is normally expected. The contest period should not be announced in advance otherwise sometimes sales people defer their regular selling activities. Principles of personal selling: The principles of personal selling are professionalism, negotiation and relationship network. I. Professionalism: Companies are concentrating more and more in conducting sales training program so that the sales personnel transforms from a passive order taker to an active order getter. For this there are two basic approaches: a. Sales oriented approach: trains the person in age old high pressure techniques. b. Customer oriented approach: trains sales personnel in problem solving of the customer. The person learns how to listen and question in order to identify customer needs and come up with sound product solutions. The major steps involved in any effective sales process are as follows: Prospecting and qualifying | Pre approach | Approach 26

| Presentation and demonstration | Overcoming objections | Closing | Follow up and maintenance Major steps in effective selling 1. Prospecting and qualifying: The first step in selling is to identify and qualify prospects. Previously this was the job of the sales personnel but now mostly the companies do it and pass on to sales personnel. The source of identifying prospects are Examining data sources ( CD- ROMS, newspaper, directories ) in search of names Putting up a booth at tradeshows to encourage drop bys Inviting current customers to suggest names of prospects Cultivating other referral sources like suppliers, dealers etc Contacting organizations and associations to which prospects belong Using telephone, internet, mail etc These sources are then qualified by contacting them by mail or phone to assess their level of interest and financial capacity. The leads are categorized as hot prospects and warm prospects and cool prospects. Hot prospects are turned over to sales personnel and warm prospects to telemarketing units. 2. Pre approach: The sales personnel should learn as much as possible about the prospects. The sales personnel should set call objectives like to qualify the prospects, to gather information and making an immediate sales. Sales personnel should also decide on the best approach personal visit or a phone call or a letter and the best timing. The sales personnel has to plan an overall sales strategy for the account. 3. Approach: The sales personnel should know how to greet the customers, show courtesy and attention to buyers and avoid distracting mannerisms. The opening line should be positive followed by key questions and active listening to understand the buyers need. 4. Presentation and demonstration: The sales personnel details the product to the buyer following the AIDA formula of Attention, Interest, Desire and Action. The sales personnel uses Features, Advantages, Benefits and Value ( FABV ) approach. Features: describes the physical characteristics. Advantages : describe why the features provide advantages. Benefits : describe the economic, technical, service and social benefits delivered by the offering Value : describes the summative worth of the offering Companies have developed three different styles of sales presentation.: a. Canned approach: a memorized sales talk covering the main points. It is based on the stimulus response thinking that the buyer is passive and can be moved to purchase by the use of right stimulus, words, pictures, terms and actions. b. Formulated approach: also based on stimulus response thinking but first identifies the buyers needs and buyers buying style and then uses a formulated approach for this type of buyer. c. Need satisfaction approach: starts with the search of a customers real need by encouraging the customer to do most of the talking. Presentation can be improved by using aids such as demonstration aids, booklets, flip charts, slides, movies, audio and video cassettes, product samples and computer based simulations. 5. Overcoming objections: Customers pose objections and show the following resistance: 27

a. Psychological resistance: resistance to interference, preference for established sources or brands, apathy, reluctance to give up something, unpleasant associations created by the sales personnel, pre determined ideas, dislike of making decisions and neurotic attitude towards money. b. Logical resistance: objections to the price, delivery schedule, certain product or company characteristics. To handle these objections sales personnel has to maintain a positive approach, ask the buyer to clarify their objections, deny the validity of the objection or turn the objection into a reason for buying. 6. Closing: Sales personnel can use one of the several closing techniques Can ask for order Recapitulate the points of agreement Offer to help the secretary write up the order Ask whether the buyer wants A or B. Indicate what the buyer will loose if order is not placed now. Offer specific inducements such as special price, an extra quantity or a token gift. 7. Follow up and maintenance: This is necessary if the sales personnel wants to ensure customer satisfaction & repeat business. Immediately after the closing, the sales personnel should inform the customer about necessary details on delivery time, purchase terms and other matters that are important to the customers. The sales personnel should make a follow up call when the initial order is received to make sure there is proper installation, instruction and servicing. II. Negotiation: Marketing is concerned with exchange of activities & the manner in which the terms of exchange are established. The two parties need to reach agreement on the price and the other terms of sale. Sales personnel need to win the order without making deep concessions that will hurt profitability. Formulating a negotiation strategy: A negotiation strategy is a commitment to an overall approach that has a good chance of achieving the negotiators objectives. The principled Negotiation approach to bargaining: a. Separate the people from the problem: each party must understand the other sides viewpoint and the level of emotion with which they hold it. Active listening to opposing arguments and addressing the problems in response improve the chance of reaching a satisfactory conclusion. b. Focus on interest, not position: by focusing on interests, the negotiators are more likely to find a mutually agreeable means of achieving common interests. c. Invent options for mutual gains: Looking for options that offer mutual gains help identify shared interests. d. Insist on objective criteria: insist that the agreement reach fair objective criteria independent of either sides position. This approach avoids a situation in which one side must yield to the position of the other. III. Relationship Marketing: More companies are emphasizing on relationship marketing. It is based on the premise that important accounts need focused and continuous attention. Sales personnel working with key customers must do more than call when they think customer might be ready to place orders. They should call or visit at other times, take customers to dinner and make useful suggestions about their business. They should monitor key accounts, know their problems and be ready to serve them in a number of ways. ( Unit completed ) UNIT IV STP Marketing:

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Since a company cannot serve all the customers in a broad market such as computers and soft drinks, the company needs to identify the market segments that it can serve more effectively. STP stands for Segmentation, Targeting and Positioning Segmentation: identify and profile distinct groups of buyers who might require separate product or marketing mixes. Targeting select one or more market segments to enter Positioning establish and communicate the products key distinctive benefits in the market. MARKET SEGMENTATION: It is the process of disaggregating the total market for a given product into a number of sub-markets. The heterogeneous market is broken up in the process into a number of relatively homogeneous markets.. Benefits of market segmentation: Market segmentation helps the marketing man to distinguish one customer group from another in the given market. It enables him to decide which segment of the market should form his target market. It helps to develop the marketing program on a predictable and reliable basis. The product mix, the distribution mix, the promotion mix and the pricing policy that suits the particular customer group can be easily achieved. Marketing efforts become more efficient and economical. It helps to assess how far the existing offers in the market from competitors match the need of the customer segment. It helps in spotting out relatively less satisfied segments and uncovered segments.

Segmentation Approach: The segmentation can be practiced at any of the following levels: a. Segment marketing: it consists of a large identifiable group within a market with similar wants, purchasing power, geographical location, buying attitudes or buying habits. E.g. car manufacturers can concentrate on any one segment of the following car buyers basic transportation, high performance, luxury or safety. Assumptions: Each segments buyers are quite similar in wants and needs yet no two buyers are alike. The company should provide flexible offering providing a naked solution common to all and options that are additional features for which the customer should pay extra if they opt for it.

b. Niche marketing: A niche is more narrowly defined group typically a small market whose needs are not well served. Niches are identified by dividing a segment into subordinates segments or by defining a group seeking a distinctive mix of benefits. Assumptions: Segments attract large number of competitors but niches attract only one or two. Niche marketers understand their customers need well, so the customers are ready to pay the premium The customers in the niche have a distinctive set of needs. 29

Characteristics of an attractive niche:

They are ready to pay a premium to the firms that best satisfy their needs. There is no chance for much competition. Nicher gains certain economies through specialization. Niche has size, profit and growth potential.

c. Local marketing: Tailoring the products according to the needs & wants of a local customer group ( trading areas, neighborhoods etc). according to this approach, National advertising is a waste as it fails to address local needs. d. Individual marketing: this is the ultimate level of marketing, i.e., customized or one to one marketing. Business to business marketing today is customized, in that a manufacturer will customize the offer, logistics, communications and financial terms for each major account. Patterns of market segmentation: If the customers are asked to rank different product attributes, three different patterns of segmentation emerge: a. Homogenous preference: all the customers want roughly the same preference in the product attributes mentioned. It means the existing brands will be similar and cluster around the middle scale of both the attributes. b. Diffused preference: customers may show great variation in their preferences for the mentioned product attributes. c. Clustered preference: these are called the natural market segments. The first firm in this market may position themselves in the centre appealing to all the groups. It might position in the largest market segment ( concentrated marketing ). It might develop several brands, each positioned in a different segment. If the first firm develops only one brand, competitor would enter and introduce brands in other segment. Procedure of market segmentation: There are 3 steps in the process of identifying market segments: 1. Step one: Survey stage: Conduct an exploratory interview to gain insight into consumers motivation, attitudes and behavior. Prepare a questionnaire and collect data on attributes and their importance ratings. Brand awareness and ratings Product usage patterns Attitude towards the product category Demographics, geographic, psychographic and mediagraphic

2. Step two : Analysis stage: Apply Factor analysis to remove highly correlated variables. Apply cluster analysis to create a specified number of maximally different segments.

3. Step three: Profiling stage: Each cluster is profiled in terms of its distinguishing attitudes, behavior, demographics, psychographics and media patterns. Each segment is given a name based on its dominant characteristics. 30

Market segmentation must be redone periodically because market segments change. For segmentation to be useful the segments must be relevant, accessible, sizeable, measurable and profitable. Methods/ Bases of market segmentation: Markets can be segmented using several relevant bases. They can be based on the various characteristics of the customers such as age, sex, education and geographical aspects etc. Usually, the variables are divided into two broad categories: a. Consumer characteristics geographic, demographic, psychographic etc b. Consumer responses ( behavioral ) benefits sought, use occasions or brands Geographic segmentation: Segmentation is based on region, country, state, district, urban, rural and climatic characteristics of the area. The company can operate in one or few or all geographic areas but pay attention to local variations. Region: City or metro size - based on population size it can be divided into different classes Density: urban, suburban, rural Climate: northern, southern etc Demographic segmentation: Segmentation is based on the following parameters * Age under 6, 6 11, 12 19 etc * Family size 1 -2, 3-4, 5 + etc * Gender male, female * Income high income group, middle income group, low income group. * Occupation professional, technical, managerial, proprietor, clerical etc * Education under school, metric, +2, degree, etc * Religion Hindu, Muslim, Christian, Sikh, Buddhist, Jain etc * Nationality Indian, African, European, American etc * Social class high, middle, low Psychographic segmentation: (Lifestyles and attitudes) Variables such as personality types, lifestyles and value systems form the basis of psychographic segmentation. It facilitates the selection of people who en masse react in a particular manner to a particular emotional appeal & share common behavioral patterns or buyers. * Lifestyle * Personality - compulsive, gregarious, authoritarian, ambitious Behavioral segmentation: The basis for this segmentation is that different customer groups expect different benefits from the same product and as such their motivation in owning it and their behavior in buying it will be different. The variables in this are * Occasion regular, special * Benefits quality, economy, service, speed * User status non user, ex user, potential user, first time user, regular user. 31

* Usage rate light, medium, heavy * Loyalty status none, medium, strong, absolute * Readiness stage unaware, aware, informed, interested, desirous, intending to buy * Attitude towards the product enthusiastic, positive, indifferent, hostile Volume segmentation: The quantity or the potential quantity of purchase is the base for segmentation. The variables are bulk buyers, small scale buyers, regular buyers, one time buyers. Multi attribute segmentation ( Geo clustering ): Marketers these days combine several variables in an effort to identify smaller, better defined target groups. One of the developments in this area is called geoclustering and it yields richer description of consumers and neighborhoods than traditional demographics. TARGETING: It is the process of fixing ones target market. Following are the steps in the process of market targeting: a. Evaluating the market segments: the different market segments identified are evaluated on the basis of the following two parameters (i) the overall attractiveness of the segment size, growth, profitability, scale economies and low risk (ii) the companys objectives and resources b. Selecting the market segments: (i) Single segment concentration: the company decides to cater to one particular segment. By doing this, the company gains a strong knowledge of the segments needs and achieves a strong market presence. The firm enjoys operating economies through specializing its production, distribution and promotion. E.g. Loreal premium cosmetics only. But there is a high risk in that if a competitor comes and gets a major chunk of the market, the firm looses its sole way of earning. (ii) Selective specialization: here the firm selects a number of segments, each objectively attractive and appropriate. There may be little or no synergy among the segments but each segment promises to be a money maker. The firm has the advantage of diversifying the firms risk. E.g. HLL (iii) Product specialization: the firm in this case specializes in making a certain product and then sells it to different segments. E.g. microscope may be sold to school, colleges, hospitals, R&D labs, govt hospitals etc, Xerox machine. Through product specialization, the firm builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology. (iv) Market specialization: here the firm concentrates on serving many needs of a particular customer group. E.g. pharmaceutical companies. (v) Full market coverage: here the firm attempts to serve all customer groups with all the products they might need. The whole market can be covered by undifferentiated or differentiated marketing. Undifferentiated marketing: using the same product to all the segments. Focus is on: a basic buyer need not on difference among buyers. Makes a marketing program that will appeal to a broad no of buyers Relies on mass distribution and mass advertising. Advantages: the narrow product line minimizes cost of R&D, inventory, transportation, Marketing Research, Advertising etc Differentiated marketing: the firm operates in several market segments and designs different programs for each segment. Following costs increase in this case: 32

 Product modification cost Manufacturing cost Administrative cost to develop separate marketing plans for separate products Inventory cost Production cost Other considerations in targeting are: a. Ethical choice of market targets: e.g. children, minorities. The issue here is not who is targeted but how and for what? b. Segments interrelationship and super segment: a company carrying a fixed cost ( sales force, store outlet ) can add products to absorb and share some cost. The sales force will sell additional products and a fast food outlet can have additional things in their menu. Super segment: a set of segments sharing some exploitable similarity. c. Segment by segment invasion: a company enters a segment at a time without revealing its total expansion plan. The competitor must not know to what segment the firm will move next. d. Inter segment cooperation: segment managers may be appointed with sufficient authority & responsibility for building their segments business. POSITIONING : Positioning is the act of designing the companys offering and image to occupy a distinctive place in the target markets mind. The word positioning was popularized by two advertising executives Al Ries and JackTrout. Positioning according to Ries & Trout: According to them, the well known products hold a distinctive position in the consumers mind. It is hard for a competitor to claim them. E.g. Coca Cola the worlds largest soft drink company. It is hard for another firm to take this position. In such a situation, the competitor has four strategic alternatives: a. Strengthen the current position: e.g. Seven uu capitalized on not being a cola drink by advertising itself as the uncola. b. Grab an unoccupied position c. To depose or repose competition: here the company is directly taking on the competitor and trying to either remove them or reposition them. d. The exclusive club strategy: a company can promote itself as one of the leading firms. How many differences to promote? The company has to decide how many differences to promote. Many marketers advocate promoting only one central benefit. Rosser Reaves coined the term USP or Unique Selling Proposition. Double benefit positioning becomes necessary if two or more firm claim to be the best on the same attribute. Triple benefit positioning SmithKline Beecham successfully promoted three benefits in its tooth paste Aqua Fresh anticavity, better breath and whiter teeth. Whenever a company uses more benefits it faces the risk of disbelief. The company should avoid the following positioning errors: a. Under positioning : the customers have just a vague idea of the product b. Over positioning: buyers may have too narrow an image of the brand c. Confused positioning: buyers become confused if the company makes too many claims or changes the brand positioning frequently d. Doubtful positioning: buyers may find it hard to believe the brand claims in view of the products features, price or manufacturer. Positioning strategies: Attribute positioning: promoting the product on the basis of size or attributes. E.g. the worlds largest or biggest etc Benefit positioning: position as a leader in a certain benefit Use or application: position as best for some use or application. User positioning: position as best for some user group. Competitor positioning: the product claims to be better than a competitors product 33

 Product category positioning: position as leader in a certain category Quality or price positioning: position as offering the best value Communicating the Company positioning: Whatever attribute a company chooses to position its product, it must choose the physical signs and cues that people normally use to judge that attribute. E.g. Quality- high price symbols high quality, the way of packaging, distribution, advertising and promotion. Differentiation: It is the act of designing a set of meaningful differences to distinguish the companys offering from the competitors offering. Following can be the basis for differentiation: a. Product Differentiation: Product can be differentiated on the following aspects (i) Form: e.g. Aspirin dosage, size, shape, coating etc, i.e, the product is differentiated on the basis of difference in shape, size etc (ii) Features: the company can offer varying features, characteristics that supplement the basic product like automobiles. The customer has to pay extra for each additional feature opted for. (iii) Performance quality: the level at which the products primary characteristics operate, i.e., high, low, average or superior (iv) Conformance quality: this tells the degree to which all the products are identical & meet the promised specification. (v) Durability: this is the measure of the products expected operating life under stressful or natural conditions. (vi) Reliability: this is the measure of the probability that product will not malfunction or fail within a specified time period. (vii) Repair ability: this is the measure of the ease of fixing a product when it malfunctions or fails. (viii) Style: this tells about the products look and feel to the buyer. The customers are usually ready to pay extra for a stylish looking product. (ix) Design: According to Prof. Robert of Harvard, 15 years back, the competition was on price, today its on quality and tomorrow it will be on design. To the company a well designed product is the one that is easy to manufacture and distribute. To the customer it is the one that is pleasant to look at and easy to open, install, use, repair and dispose of. The designer has to take into account all these factors. Services differentiation: Ordering ease: how easy it is for the customer to place an order with the company. Delivery: how well the product is delivered to the customer i.e. the speed, accuracy and care attending the delivery process. Installation: the work done to make a product operational in its planned location. E.g. buyers of heavy equipment expect good installation service. Customer training: training the customers employees to use the vendors equipment properly and efficiently. Customer consulting : the data information system and advising services that the sellers offer to the buyer. Maintenance and repair: it describes the service program for helping the customer to keep the purchased product in good working conditions. Personnel differentiation: Companies gain a strong competitive advantage through having better trained people. Such people posses the following six characteristics: a. Competence possess the required skill and knowledge 34

b. c. d. e. f.

Courtesy friendly, respectful and considerate Credibility - trustworthy Reliability - perform consistently and accurately Responsiveness - quick Communication- make an effort to understand the customer and communicate clearly

Channel differentiation: This is the differentiation on the basis they design distribution channels coverage, expertise and performance. Image differentiation: This is on the basis of the following: a. Symbols: images can be amplified by strong symbols e.g apple for Apple computers b. Media: the chosen image must appear in media, ads, annual reports, brochures, catalogues etc c. Atmosphere: the way the physical layout of the company is designed also affects its image d. Events: by sponsoring certain events the company enhances its image. MARKETING INFORMATION SYSTEM: A marketing information system (MkIS) consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to the marketing decision makers. Role of MkIS: To assess the managers information need To develop the needed information To distribute the information in a timely fashion. The components of MkIS are Internal records system Marketing intelligence activities Marketing research system Marketing decision support system (MDSS) I. Internal record system: Important opportunities and problems can be spotted by analyzing internal reports on orders, sales, prices, costs, inventory levels, receivables, payables etc. a. The order to payment cycle: This is the core of the internal record system. Orders are dispatched to the firm. The sales department prepares the invoice and sends to various departments. Out of stock items are back ordered. Shipped items are accompanied by shipping and billing documents that are sent to various departments. b. Sales information system: Marketing managers need up to the minute report on current sales. Sales representatives have to access information about prospects and customers & provide immediate feedback & sales reports. New software for sales force automation called salesCTRL is helping a lot. II. Marketing Intelligence system: It is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. The internal records supply results data, whereas marketing intelligence supplies happening data. Sources of marketing intelligence: Marketing intelligence can be obtained through various sources like books, newspapers, trade publications, talking to customers, suppliers and distributors, meeting company managers etc. Steps to improve the quality of marketing intelligence: a. Train and motivate sales force to spot and report new developments. 35

b. Motivate distributors, retailers and other intermediaries to pass along important company intelligence c. Purchase competitor product to learn about their products, attending open houses, trade shows, stockholders meetings, collecting competitor ads etc d. Set up a customer advisory panel made up of representative customers or the companys largest customers or its most outspoken or sophisticated customers. e. Can purchase information from outside suppliers such as A. C. Nielsons & Company. f. Some companies establish a marketing information center to collect & circulate marketing intelligence. The staffs scan the internet and major publications, abstract relevant news and disseminates a news bulletin to marketing managers. III. Marketing Research system: Definition of marketing research is it is a systematic and objective process of identifying problems, setting research objectives and methodology and selecting sample, collecting, coding, editing, tabulating, evaluating, analyzing, interpreting and reporting the findings to find a justified solution to the problem. Marketing research process: Marketing research cannot be conducted abruptly. A researcher has to proceed systematically in the already planned direction, with the help of a no. of steps in a sequence. In general there are five major activities that collectively serve to define the marketing research procedure. Each stage consists of sub activities to be performed and decisions that need to be made. These essential five steps are :1. 2. 3. 4. 5. Problem definition Research design Field work Data analysis and interpretation Report presentation.

Problem definition :- The first step in the marketing research process is a clear definition of the problem. If the problem is stated vaguely, if the wrong problem is defined or if the uses of the research are not made clear then the research results may prove useless to the manager. In order to identify the research problem three categories of symptomatic situations should be studied, namely, 1. overt difficulties 2. latent difficulties 3. unnoticed opportunities Overt difficulties:- these are quite apparent and manifest themselves e.g. decline in sales Latent difficulties :- they are not so apparent, but if not checked, will soon become evident e.g. decline in sales will lead to demoralization of the sales staff. Unnoticed opportunities :- this indicates the potential growth in certain of marketing. It may not be clearly seen and some efforts are required to explore them. Once the researcher identifies two or more problems or opportunities, he is concerned with the selection of the problem. It should be done carefully, examining their importance to his organization. Choosing a less important problem will lead to wastage of limited resources. The problem which would give maximum value to the research should be selected. After a problem has been chosen, the next step is to formulate the problem clearly and precisely. A complete problem definition must specify the following :36

a. Unit of analysis :- This means the individuals or objects whose characteristics are to be measured. The universe has to be defined clearly, e.g. Womens dress buyers in Delhi stores in 30 Jan 1990, or, women living in Delhi metropolitan area shopping for one or more dresses in Jan 90. in the above example the universe is women dress buyers whereas in the second example the universe is the women living in Delhi metropolitan area. b. Time and space boundaries :- In the above example,30 Jan 90 or Jan 90 are the time boundaries. Delhi stores is the space boundary in the first example and Delhi metropolitan area is the space boundary in the second example. c. Characteristic of interest :- This includes both the results that are of concern to the management and the variables that are to be tested for their relationship to the result. This aspect identifies the focus of the problem, for e.g., characteristics of interest can be style and color preference, buying behavior, personality traits etc. The problem defined should always specify more than one variable. This will lead us to focus attention on the nature of relationship amongst the universe characteristics. d. Environmental conditions :- This aspect indicates the uniqueness or generality of the problem, i.e., if the management is interested in knowing how the units respond to change in prices, the problem definition should include the prices to be researched. The problem definition must spell out the environment for which the company wants research results. It may also spell out possibilities of change in the environment so that the results of the research should not become irrelevant. The problem definition in marketing research is a step towards identifying and structuring of the managements question. Hypothesis development :- A hypothesis is a proposition which the researcher wants to verify. Often there may be several hypothesis-specified or implied. One objective of research is to select among the possible hypothesis and to test them empirically with the help of statistical tools. A careful formulation of research problem would :a. help in providing a sense of direction to the staff b. specify the precise scope of the problem c. makes research meaningful and economical d. avoid confusions e. indicate the limitations of research. Research design :- Once the problem is defined, the next step is research design. It is the basic framework which provides guidelines for the rest of the research process. Research design provides with a clear set of research objectives and specifies the method of data collection and data analysis, research instrument and sampling plan. There are three thpes of research design :1. exploratory research :- its just a preliminary investigation using secondary data, and it may have to be changed by the end of the investigation. Its not well structured. 2. descriptive research :- its well structured and generally is a study on the characteristics of a certain group such as age sex, educational level , income, occupation etc. 3. causal research :- when researcher wants to know the cause and effect among two variables he goes for causal research. 1.Data collection method :- there are two types of data:Secondary :- which have been gathered for some purpose and are already available in the firms internal records Primary :- does not exist beforehand, the researcher has to gather data afresh for the specific study. It is always better if the researcher first studies the secondary data because time and money can be saved if secondary data is first searched and used for the study. If it is not sufficient then the researcher has to collect primary data. There are three methods to do it :37

1. Observation :- In this method either we can directly mix up with the respondents by telling them the purpose of the study or we can do observation by indirectly mixing up with the respondents without telling them about the purpose of the investigation. 2. Experimentation :- The experimentation method emphasizes the creation of a controlled environment where some variables are allowed to vary and the cause and effect relationship is studied, for e.g., Kirloskar diesel engines sales decline due to advertising effectiveness. Take 3 markets, Delhi, Mumbai, Chennai and vary the advertising expenditure and study the sales after a stipulated period of time. 3. Survey :- It is the most commonly and widely used method. A wide range of valuable information can be gathered using this method which the other two methods are not capable of yielding. Research Instruments:- If the researcher is using observation or experimentation method the research instruments will be cameras, tape recorders, VCRs, tally sheets etc. In survey methods the questionnaire is the most frequently used and yields the most satisfactory results. While preparing the questionnaire, great care must be taken regarding (i) the type of the questions to be asked, (ii) no. and form of the questions, (iii) wordings of the question, (iv) sequence of the questions. Sampling Plan :- A sampling plan consists of :a. sampling unit :- who to be surveyed b. sampling size :- how many units to be surveyed? The researcher has to select a relevant fraction of the population which is a representative of the entire population or universe,i.e., 10 % of the universe. c. Sampling procedure :- how to conduct the survey ? sampling procedure depends upon the research objective that has been set on the onset. There can be chance between probability and non probability sampling and it depends upon the nature of the research project and accuracy demanded that whether the probability or non probability sampling is better. d. Contact method :- how to approach the selected units ? The sampling unit can be contacted through telephones, mail or personal interview. Mails and personal interview are the commonly used methods. Personal interviews, though costly, yield the most satisfactory results in a research work. Field Work :- Field work is the actual collection of data. This is the most expensive step in the entire research process. The common problem faced during field work are :1. Not at home :- The people whom the researcher wants to contact may not be at home during his visit. The researcher then either chooses the next home or comes back again. 2. Refusal to cooperate :- The respondent may not provide with the desired cooperation. 3. Respondent bias :- Respondents may give biased or misleading information. The researcher must develop a good rapport and encourage them to give accurate information. 4. Interviewer bias :- The interviewer himself may introduce different type of bias because of his dishonesty. All these problems can be minimized or eliminated if the field force is carefully selected, trained, compensated, controlled, evaluated and maintained. Data Analysis :- The data are first edited, coded, and tabulated for the purpose of analyzing them. This is a must when a huge amount of data is collected on the research project. The analysis is basically aimed at giving inference of association or differences between the various variables present in the research. The analysis can be conducted by using simple statistical tools like percentages, averages and measures of dispersion or through graphs, charts, pictures so that the data may be cross tabulated to produce useful relationships among the variables involved. 38

Finally meaning of the data may be extracted from the analysis thus conducted. The conclusion, summary and recommendations of research based on the statistical analysis and inferences drawn. Report Preparation :- After the collected data is analysed and interpreted, the findings must be presented in the form of a systematically typed printed report. The standard format follows the following sequence :a. Title page. Table of contents. b. Preface. c. Foreword. d. Statement of objectives and hypothesis. e. Research methodology this includes research design, data collection method and instrument used, sampling plan, field work, scheme of analysis and interpretation of data, limitations and scope. f. Actual analysis and interpretation of data. g. Findings. h. Conclusion and recommendations. i. Appendices :- copies of forms used, details of samples and validation, data tables not directly related with the study . j. Bibliography. k. IV. Marketing Decision support system(MDSS) A MDSS is a coordinated collection of data, systems, tools and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action. Following are some models used by marketing mgrs: a. BRANDAID: A flexible marketing mix model focused on consumer packaged goods with sub models for advertising, pricing etc b. CALLPLAN: helps sales representatives to decide on the number of calls including the prospects and customers and also including the traveling time. c. DETAILER: To help in deciding which products to detail to the customer. d. GEOLINE: A model to help in designing the sales territories with equal work load, with adjacent territories and compact territories. e. MEDIAC: helps in deciding which media to buy for a year. f. PROMOTER: evaluated sales promotion by determining base line g. ADCAD: recommends the type of advertising appeal that should be used for the product. Following are some statistical tools used: a. Multiple regression: estimates a best fitting equation to show how the value of a dependant variable varies with changing values of the independent value. b. Discriminant analysis: classifies objects or persons into two or more groups. c. Factor analysis: determines the few underlying dimensions of a larger set of inter correlated variables. d. Cluster analysis: separates objects into a specified number of mutually exclusive groups e. Conjoint analysis: to rank preferences for different offers f. Multidimensional scaling: produce perceptual maps of competitive products or brands in a multi dimensional space of attributes. Models: a. MARKOV process model: shows the probability of moving from a current to any future state. b. Queuing model: shows waiting time and queue length in any system. c. New product pre test: estimates functional relationship between buyer state of awareness, trial, adoption etc 39

d. Sales response models: estimates functional relationship between one or more marketing variables like sales force size, advertising expenditure etc Optimization routines: a. Differential calculus: finding the maximum or minimum value along a well behaved function. b. Mathematical program: find values that will optimize the objective function c. Statistical decision theory: determine course of action that produces the maximum expected value. d. Game theory: determine course of action that will minimize the decision makers maximum loss. e. Heuristics: uses a set of rules of thumb that shorten the time or work required to find a reasonably good solution in a complex system. FORECASTING MARKET DEMAND: Market: a market is a set of all actual and potential buyers of a market offer Market demand: it is the total, volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program. Company demand: the companys estimated share of market demand at alternative levels of company marketing effort in a given time period. There are 3 steps in sales forecasting procedure: 1. Preparing a forecast for general economic conditions: this is measured by GDP or Gross Domestic Product of any country. GDP is the value of all the goods and services produced within a country in a given year. Other measures are BSE/ NSE indexes of common stock prices, personal income, personal consumption etc 2. Preparing a forecast of industry sales: Small firms usually do not go for preparing the industry forecast. Big firms have corporate economists who do this job. 3. Projecting the Company and product sales: there are many qualitative and quantitative techniques to do this which are as described below: Qualitative techniques: 1. Jury of executive opinion: There is a panel or committee charged with the development of sales forecast. The committee consists of people from varied department like Marketing Research, Sales, Advertising, Production etc. each member is asked to provide an estimation of future sales. The members have to provide a justification for their estimates. The opinions are then pooled and analyzed at a group meeting. 2. Delphi technique: This technique was developed by the Rand Corporation. A group of experts are assembled to make long term projections on issues such as the future direction of business condition, technology new product development etc. The experts are often leading authorities from universities, private foundations, govt or trade agencies etc. The experts are kept apart in order to ensure independence of opinions. The experts prepare individual anonymous forecasts that are compiled and returned for a second round of projections. The experts are informed about the average or typical opinion. The process continues until a consensus is reached. 3. Sales force composite or Poll of sales force opinion: This kind of forecast is arrived at by combining sales persons estimates of expected sales for their territories. Sales people forecast their expected sales & these forecasts are then combined to prepare a composite forecast. 40

4. Survey of Buyers intention: This method is used if there are limited number and well defined buyers as in case of industrial goods. This method may use simple recording of customer responses or application of advance sampling and probability concepts. 5. Factor listing: In this method the factors affecting sales and their specific impact in the forecast period are identified. The forecasters have to quantify the reasoning behind their judgment. A balance sheet showing positive and negative influences on sales is set up based on the factors identified. The positive and negative sales factors are then summed up and the differences in the sum is added or subtracted from current sales to arrive at the sales forecast figure. Quantitative techniques: 1. Projection of past sales: In this method the sales forecast for the coming year is arrived at by either keeping the figure same as that of current year or adding a set percentage to the current sales. e.g. next year sale = this year sale * this year sale last years sale 2. Continuity extrapolation: This technique attempts to project the last increment of sales change into the future. This can be done on money value basis or percentage basis. e.g If last year sale is 290 million and this year 310 million then the increment is 20 million so for next year 310 + 20 = 330 million. 3. Time series analysis: it is based on the business cycle theory and involves the construction and interpretation of business cycle. The process involves isolating and measuring four chief types of sales variation: # long term trends (T ) # cyclical changes ( C ) # Seasonal variations ( S ) # Irregular fluctuations ( I ) Sales is given as Sales = T * C * S * I The problem of uneven sales pattern can be accounted with a special type of moving average technique usually called as Box Jenkins model 4. Exponential smoothing: This is a modification of time series analysis or in other words a weighted average time series analysis technique. Actual sale of recent period is weighted more heavily than the average sale of earlier periods. The forecasting equation is represented as: Next years sale = a(this years sale) + (1- a ) (this years forecast) e.g a = 0.3 this year sale = 320 41

this year forecast = 350 then next year forecast = 0.3 * 320 + 0.7 * 350 = 341 5. Regression and correlation analysis: It is the simplest mathematical forecasting model. It involves fitting an equation that explains sales fluctuations in terms of related and generally causal variables. These variable values are substituted by other values considered likely during the period to be forecasted and the corresponding sales value is derived at. The basis formula is Y = a + bX Where, Y = the dependent variable (sale ) X = the independent variable a = the Y intercept value ( the value of Y when X = 0 ) b = the average increment of sales change. When more than one variable is considered it is called multi regression and the equation is Y = a + b1X1 + b2X2 + + bnXn Where X1, X2 etc are the independent variables. 6. Econometric models: It uses a set of equations to represent a set of relationships among sales and different demand determining independent variables. Then by putting value for each independent variable sales are forecast. ( unit completed )

Unit V Organization of marketing function and control strategies: Marketing organization and implementation Evolution Ways of organizing the marketing department Marketing relations with other department. Marketing control Annual plan control sales analysis, market share analysis. Profitability control, Marketing profitability analysis, Efficiency control, Strategic control. Marketing planning and strategies Marketing planning process Stages The nature and contents of marketing plan ( introductory aspects ) Marketing strategies for Leaders, Followers, Challengers, Niche marketers, for Global markets. The Evolution of the Marketing Department: Marketing departments have evolved through six stages. There are companies which may be in any one of the following six stages: Stage I: Simple Sales Department: Small companies typically have a Sales Vice President who manages a sales force and also do some selling. Whenever they need any marketing research or advertising, they hire help from outside. Stage II: Sales Department with Ancillary Marketing Functions: As the company expands, it needs to enlarge or add certain functions. For e.g. if the company wants to start its operation in a new market it should learn about the customer needs and market potential. It will have to advertise its name and product in that area. The Sales Vice President may hire a Marketing Research Manager and Advertising Manager and/may be a Marketing Director for these activities. 42

Stage III: Separate Marketing Department: The continued growth will require the company to invest in marketing research, New product development, advertising, sales promotion and consumer service. This will necessitate the creation of a separate marketing department headed by a Marketing Vice President who reports along with the Sales Vice President to the President or Executive Vice President. Now the sales & marketing department have become separate functions working closely together. Stage IV: Modern Marketing Department: Although the sales and marketing department should work together, mostly their relationships are strained & undergo frictions. Both of them try to undermine the importance of each other. The marketing manager rely on marketing research, try to identify and understand market segments, spend time in planning, think long term & aim to produce profit and gains in market share. Sales people rely on street experience, try to understand each buyer, spend time in face to face selling, think short term and try to meet their sales quotas. If there is too much friction, the CEO may place the Marketing activities under the Sales Vice President or place everything under the Marketing Vice President including the sales force. This is the basis of a modern marketing department headed by a Sales and Marketing Vice President with managers reporting from every marketing function including sales management. Stage V: Effective Marketing Company: When all the employees realize that their jobs are created by the customers, the company becomes an effective marketer. Stage VI: Process and Outcome based Company: Most companies are now focusing on the key processes rather than on the rigid department structure. Thus they are now identifying the fundamental business processes like New product development or customer acquisition and retention and are appointing process leaders who manage cross disciplinary teams. Ways of Organizing the Marketing Department: The marketing department may be organized by function, geographic area, products or customer markets. a. Functional Organization: This is the most common form of marketing organization. It consists of functional specialists reporting to a Marketing Vice President who coordinates their activities. Advantages: It is simple for administrative purposes. Disadvantages: Loose its effect when the products and market increase It leads to inadequate planning for specific products and markets Each functional group competes with other groups to gain budget and status.

43

Marketing Vice President

Marketing Administration Manager

Advertising & sales promotion Manager

Sales Manager

Marketing Research Manager

New Products Manager

b. Geographic organization: If a company is operating in a national market, it can organize its sales force along geographic lines. The National sales manager may supervise 4 Regional sales managers, who each supervise 6 Zonal sales managers who in turn supervise 8 District Sales managers who supervise 10 salesman. Advantages: Data from retail store scanners allow instant trafficking of product sales, helping companies pinpoint local problems and opportunities. Retailers also prefer local programs aimed at consumers in their cities and neighborhoods. Branchising: it means empowering the companys district or local offices to operate more like franchises. c. Product or Brand Management Organization: Companies manufacturing a variety of products & brands establish product or brand management organization. It serves as another layer of the management. A product management organization makes senses if the products are quite different or if the sheer number of products make it difficult for the functional organization to handle. Basic tasks of the Product Manager: Developing a long range and competitive strategy for the product. Preparing the annual plan and sales forecast. Working with the advertising and merchandizing agencies to develop advertising copy, programs and campaigns. Stimulating support for the product among the sales force and distribution Gathering continuous intelligence on the products performance, customer and dealer attitudes and new problems and opportunities Initiating product improvements to meet changing market needs. Advantages: The product manager can concentrate on developing cost effective marketing mix for the product. The product manager can react more quickly to a market problem. The smaller brands are not neglected. Disadvantages: Many a times, the product managers are not given sufficient authority to carry out their responsibilities effectively. They are burdened with great amount of paperwork. Product managers become expert in their products but they do not get functional expertise. It is costly Brand managers are involved with the brand for a short period of time which leads to short term marketing plans. Suggestions to make product management system work better: Clearly demarcate the limits of the role and responsibility of the product manager. 44

Build a strategy development and review process to provide a framework for the product managers operation. Take into account the potential areas of conflict between the functional specialists and the product managers. Establish a system of measuring the results consistent with the product managers responsibilities. An alternative approach to establish product teams: (i) Vertical Product team: Product manager, Associate Product Manager and Product Assistant together form a vertical product team. The Product Manager is the leader and deals with other managers to gain their cooperation. The Associate Product Manager assists in these works and does some paper work. The Product Assistant carries out most of the paper work & routine analysis. (ii) Horizontal Product team: Product Manager and several specialists from marketing and other functions together constitute the horizontal product team. (iii) Triangular Product team: Product Manager and two specialized Product assistants who take care of Marketing Research and other marketing communications form the Triangular product team. d. Market Management Organization: When customers fall into different user groups with distinct buying preferences and practices, a market management organization is desirable. A market manager supervises several market managers. Market managers are staff ( not line ) people with duties similar to that of a Product manager. They develop long range and annual plans for their markets. They must analyze where their market is going and what new products the company can offer. Performance is judged by their markets growth and profitability. Advantages: Marketing activities are organized to meet the distinct needs of the customer group. e. Product Management/Market Management Organization: Companies that produce many products in many market adopt this kind of organization that is the matrix kind of organization. E.g. DuPont. The company has separate product managers for rayon, nylon, orlon etc & separate market managers for mens wear, furnishings and industrial markets. Dilemma: How to organize the sales force on the basis of product or market? Who should set the price the product manager or the market manager. f. Corporate divisional organization: When the companies have too many products and too many markets, they often convert their larger product or market group into separate divisions. Now they have to decide what services, they can/should retain at corporate HQ. The alternatives are: No corporate marketing: each division has its own marketing team. Moderate corporate marketing: the company may have a skeletal marketing staff at the corporate performing the following functions: Assisting top management with overall opportunity evaluation. Providing divisions with consulting assistance on request. Helping divisions that have little or no marketing Promoting the marketing concept throughout the company Strong corporate marketing: advertising services, sales promotion services, Marketing research services, sales administration services & miscellaneous services are performed by the corporate marketing system. Marketing Relations with other departments: 1. Research and Development: 45

The success of any company depends on the number of successful new products that are brought in by the company. For this good coordination is required between the companys R & D & Marketing department. But usually, these two departments have contradictory approaches. For instance: R & D has scientific and technical staff who are more fascinated in solving complex technical problems and not much bothered about the immediate sales pay off whereas marketing people are business minded with more understanding of the market and want new products with promotable sales features. To facilitate better coordination, the following alternatives can be used Sponsor joint seminars to build understanding and respect for each others goals, working styles and problems. Assign each new project to the functional teams including a R & D person and a marketing person, who work together through the projects life. Encourage R & Ds participation into the selling period, including involvement in preparing technical manuals, participating in trade shows etc. Work out conflicts by going to higher management, following a clear procedure. 2. Engineering: Engineering department is responsible for designing new products, new production process & they are interested in achieving technical competence, manufacturing process simplification and cost economy. They come in conflict with the marketing department when the marketing people demand several models with product features requiring custom rather than standard components. 3. Purchasing: Purchase executives are responsible for obtaining materials and components in the right quantities & quality at the lowest possible cost. When marketing executives push for many models in a product line, they are forced to purchase many items in small quantities rather than purchasing few items in large quantities. 4. Manufacturing: Manufacturing people are responsible for the smooth running of a company. Marketers have little understanding of this & they keep on complaining about insufficient capacity, delays in production, poor quality control and poor customer service. Marketers often turn in inaccurate sales forecast, recommend features that are difficult to manufacture and promise more factory service than reasonable. Manufacturing driven companies assure smooth production at low cost. The company prefers simple products, narrow product line and high volume production. Sales campaign calling for quick production build up are kept to a minimum. Marketing driven companies go out of its way to satisfy customers. Companies need to develop a balanced orientation in which manufacturing and marketing jointly determine what is in the companys best interest. 5. Operations: The term manufacturing is used for industries making physical products. The term operation is used for industries that create and provide services. E.g. in case of hotels, the operation department includes the front desk people, doormen, waiters and waitresses. Marketing and operation must work well together because the marketing people go and promise about service levels that the operations people have to keep up. 6. Finance: Marketing executives ask for substantial budgets for advertising, sales promotion and sales force without being able to prove how much revenue these expenditures will bring. Finance people think that marketing people do not spend enough time relating the expenditures to results. Finance people claim, Marketers know the value of everything & the cost of nothing Marketing people claim, Finance people know the cost of everything & the value of nothing 46

The solution is giving more financial training to marketing and more marketing training to financial people. 7. Accounting: Accountants see marketing people as lax in providing sales reports on time. They dislike the special deals sales people make with customers because they require special accounting procedures. Marketers dislike the way accountants allocate fixed cost burdens in different product lines. They want accountants to prepare special reports on sales and profitability by segment, important customers, individual products, channels, territories, order sizes and so on. 8. Credit: Credit officers evaluate potential customers credit standing and deny or limit credit to the more doubtful ones. They think marketers will sell anything to anyone, including those from whom payment is doubtful. Marketers in contrast, often feel that credit standards are too high. Marketing Organization: Its not easy for any organization to start think customer overnight or change from sales driven or product centric to become a customer centered or market driven organization. The following steps can be taken by the CEO to create a market or customer focused company: 1. Convince the senior management team of the need to become customer focused: the CEO may personally emphasize on strong customer commitment. 2. Appoint a senior marketing officer & a marketing task force: the task force should include the CEO, the Vice Presidents of sales, R&D, manufacturing, Finance and HR. 3. Get outside help and guidance: take the help of consultancy firms. 4. Change the companys reward measurement system: if the finance and purchase department are rewarded for minimizing the cost, they will reject any project that will incur cost. 5. Hire strong marketing talents: the company should have a strong Marketing Vice President who not only manages the marketing department but also gets respect from other Vice Presidents. 6. Develop strong in house marketing training programs: the company should design well crafted marketing training programs that should include all the corporate as well as divisional employees working in all cadres. 7. Install a modern marketing planning system: the manager should analyze the marketing environment, opportunities, competitive trends and prepare marketing strategies, sales forecast and should be made accountable for their performance. 8. Establish an annual marketing excellence recognition program: business units that think they have developed extraordinary marketing program should submit a description of their plans and results. These should be reviewed and rewarded at a special ceremony. 9. Consider reorganizing from a product centered to a market centered company: it means the company should focus on its individual market and customer segment and coordinate the planning and providing of the products needed by each segment and major customer. 10. Shift from a department focus to process-outcome focus: the company should appoint process leaders & cross disciplinary teams to reengineer and implement the key process that have been identified. Marketing implementation: It is the process that turns marketing plans into action assignments and ensures that such assignments are executed in a manner that accomplishes the plans stated objectives. Four sets of skill are identified by Bonoma for implementing marketing programs: a. Diagnostic skills: it finds the reason for poor implementation. b. Identification of company level: to identify whether the problem is at the marketing function level or marketing program level or marketing policy level. 47

c. Implementation skills: to implement the program successfully, allocating skills for budgeting resources is required, Organizing skills to develop an effective organization and interactive skills to motivate others. d. Evaluation skills: monitoring skills to evaluate the results of marketing actions. Marketing control: Type of control 1. Annual plan control Prime responsibility Top management Middle management Purpose of control To examine whether the planned results are being achieved Approaches Sales analysis Market-share analysis Marketing expense-to-sales analysis Financial analysis Market-based scorecard analysis Profitability by Product Territory Customer Segment Trade channel Order size Efficiency of Sales force Advertising Sales promotion Distribution Marketingeffectiveness review Marketing audit Marketing excellence review Company ethical and social responsibility review

2. Profitability control

Marketing controller

To examine where the company is making and losing money

3. Efficiency control

Line and staff management Marketing controller

To evaluate and improve the spending efficiency and impact of marketing expenditures To examine whether the company is pursuing its best opportunities in markets, products and channels

4. Strategic control

Top management Marketing auditor

1. Annual plan control: Purpose: To ensure that the company achieves the sales, profit and other goals established in its annual plan. The control process consists of four steps: a. Goal setting: the management sets monthly or quarterly goals b. Performance measurement: monitoring the performance in the market place c. Performance diagnosis: determines the course of serious performance deviations 48

d. Corrective action: take corrective action to close the gaps between goals and performance. Five tools to check on plan performance: Sales analysis Market-share analysis Marketing expense-to-sales analysis Financial analysis Market-based scorecard analysis a. Sales analysis: It consists of measuring and evaluating actual sales in relation to sales goals. Two specific tools are used in sales analysis: (i) Sales variance analysis: it measures the relative contribution of different factors to a gap in sales performance. Suppose the annual plan called for selling 4000 units in the 1st quarter at Re 1/- unit. At the quarter end only 3000 units were sold at Rs 0.80 for a total revenue of Rs 2,400/-. The sales performance variance is Rs 1600/- or 40% of expected sales. Now it has to be seen how much of the variance is due to price decline and how much of the variance is due to volume decline? Variance due to price decline = Rs[ 1.00 0.8 ] [ 3000 ] = 600 = 37.5% Variance due to volume decline = Re 1.00 [ 4000 3000 ] = 1000 = 62.5% Total 1600 100% Almost 2/3 of variance is due to failure to achieve the volume target. The company should look closely at why it failed to achieve the expected sales volume. (ii) Micro sales analysis: it looks at specific products, territories and sales organization forth that failed to produce the expected sales. Suppose the company sells in three territories and expected sales were 1500 units, 500 units and 2000 units respectively. The actual sales were 1400, 525 and 1075. thus for territory 1 it is 7% decline, territory 2 it is 5% improvement and territory 3 it is 46% shortfall. So territory 3 is causing most of the trouble. The sales Vice President can check into territory 3 to see what explains the poor performance. b. Market- share analysis: By analyzing the sales, the company comes to know only about the individual sales but not the comparison with the competitors. For this purpose, the management needs to track down its market share. Ways of measuring market share: (i) Overall market share: the percentage of company sales to the total market sales. (ii) Served market share: the percentage of company sales to its served market. Served market is all the buyers who are able and willing to buy its product. (iii) Relative market share: it is expressed as the market share in relation to its largest competitor. However a company cannot conclude about its general health just on the basis of market share analysis because The assumption that the outside forces affect all companies in the same way is often not true. The assumption that a companys performance should be judged against the average performance of all companies is not always valid. If a new firm enters the industry, then every existing firms market share might fall. Sometimes a market share decline is deliberately engineered to improve market share Market share can fluctuate for many minor reasons also. c. Marketing expense to sales analysis The marketing expense to sales ration contains the following components sales force to sale, advertising to sale, sales promotion to sale, marketing research to sale and sales administration to sales. These ratios should be monitored and fluctuations outside the normal range are cause for concern. d. Financial analysis: 49

Financial analysis is used to find identify the factors that affect the companys rate of return on net worth. The return on net worth is the product of two ratios the companys return on assets and its financial leverage. The return on assets is a product of two ratios, the profit margin and the asset turnover. e. Market based scorecard analysis: Companies use two types of scorecards - customer performance scorecard - stakeholder performance scorecard a customer performance scorecard shows how well the company is doing year after year on such customer based measures as New customers Dissatisfied customers Lost customers Target market awareness Target market preference Relative product quality Relative service quality Using the stakeholder performance scorecard, the company tracks down the satisfaction of its stakeholders like employees, suppliers, banks, distributors, retailers, stockholders etc 2. Profitability control: Following are the steps in profitability analysis: a. Identifying functional expenses: the first task in profitability analysis is to measure how much expenses have been incurred in different activities. E.g. the activities are selling, advertising, packing & delivering, billing & collecting etc. if the total salary expense is Rs 1, 00,000/- it has to be seen how much each activity has incurred. If the total rent happens to be Rs 10,000/- it has to be allocated to advertising, packing & delivering, billing, but it can not be put for selling as selling is an outdoor activity. b. Assigning functional expenses to marketing entities: the next task is to measure how much functional expense was associated with selling through each type of channels. E.g. how many advertisement for each one of them & packing and delivering on the basis of number of orders received from each one of them. c. Preparing a profit and loss account: a profit and loss statement ahs to be prepared for each type of channel. First the cost of goods sold has to be deducted from the sales which gives the gross margin. From the gross margin, the various expenses have to be deducted which will give the net profit or loss for each of the entity. Determining corrective action: Based on the above, the company has to take a corrective action like dropping or continuing a loss making entity. But marketing profitability analysis indicates the relative profitability of different channels, products or territories but does not prove that the best course of action is to drop the un profitable marketing entity. Direct v/s full costing: the cost can be divided into the following categories: a. Direct cost: these costs can be assigned directly to the proper marketing activities. E.g. sales commission, advertising expenses, traveling expenses etc b. Traceable common cost: these costs can be assigned indirectly only. E.g. rent c. Non traceable common cost: these costs are the ones whose allocation to the marketing entity is highly arbitrary. E.g corporate image expenditure. It is difficult to tell which entity benefited how much out of it. Some companies will include everything while they are allocating the cost, i.e., the direct, traceable and non traceable cost. Such a practice is called full costing. 50

3. Efficiency control: Suppose from the profitability analysis it is found that the company is earning poor profit in certain product or territory it has to see are their any other efficient ways to manage the sales force, advertising, sales promotion and distribution in connection with these marketing entities. Some companies have established a marketing controller position to improve marketing efficiency. a. Sales force efficiency: The key indicators of efficiency for sales force are: Average number of calls per sales person per day Average sales call time per contact Average revenue per sales call Average cost per sales call Entertainment cost per sales call. Percentage of orders per 100 sales call Number of new customer per period Number of lost customers per period Sales force cost as a percentage of total sales. b. Advertising efficiency: Following statistics are collected to know about the advertising efficiency: Advertising cost per thousand target buyers reached by media vehicle Percentage of audience, who noted, saw or associated & read most of each print ad. Consumers opinion on the ads content & effectiveness Before and after measures of attitude towards the product Number of inquiries stimulated by the ad Cost per inquiry c. Sales promotion efficiency: The parameters here are: Percentage of sales sold on deal Display cost per sales rupee Percentage of coupon redeemed Number of inquiries resulting from a demo. d. Distribution efficiency: management needs to economize in inventory control, warehouse location and transportation modes. Usually a sales increase is followed by distribution inefficiency as the required stock will not be there to meet the increase in sales. This stock deficiency will lead to sales decrease and the cycle continues. 4. Strategic control: The company should keep on monitoring the marketing effectiveness review, marketing audit, marketing excellence review and ethical social responsibility reviews: The marketing effectiveness review: A companys or divisions marketing effectiveness is reflected in the degree to which it exhibits the five major attributes of a marketing orientation: (i) Customer philosophy: e.g is the company customer oriented ? does the company take the point of view of its customer, suppliers etc during planning stage ? (ii) Integrated marketing orientation: e.g. how well the marketing department works with other departments? How well the New product development is organized? (iii)Adequate marketing information: when were the latest marketing research activities conducted? How well does the management knows the sales potential, profitability of different segment etc (iv) strategic orientation: what is the extent of formal marketing planning? How impressive is the current marketing strategy etc? 51

the company has to keep on asking questions like this in order to know about its effectiveness. The marketing audit: A marketing audit is a comprehensive, systematic, independent & periodic examination of a companys or a business units marketing environment, objectives, strategies and activities with a view to determining problem areas and opportunities and recommending a plan of action to improve the companys marketing performance. Characteristics: Comprehensive: covers all the marketing activities, not just the trouble spots, if it is studying only the troublesome areas, it will become functional audit and not marketing audit. Systematic: it is an orderly examination of the companys macro & micro marketing environment, marketing objectives and strategies, marketing systems and specific activities. Independent: a marketing audit can be conducted in six ways self audit, audit from across, audit from above, company auditing office, companys task force audit and outsider audit. Periodic: Periodic: marketing audit should be conducted periodically. It should not be initiated whenever there is a problem in the company. The marketing excellence review: The various business practices are rated as poor, good and excellent. The company has to review that the practices followed by it comes under what rating and accordingly the excellence of the company is reviewed. e.g. Poor Good Excellent mass market oriented segment oriented niche oriented average product quality better than average legendary price driven quality driven value driven stockholder driven stakeholder driven societally driven The ethical and social responsibility review: The company needs to follow high standards of business and marketing conduct. They should keep away from practices like: Bribery or stealing trade secrets False and deceptive advertising Exclusive dealing and tying agreements No proper quality and safety of products Warranties and patent protection Inaccurate labeling Price fixing, discrimination etc To raise the social responsibility of companies, the following three things must happen: (i) Society must use the law to define the responsibility & practices of the company ( illegal, anti social or anticompetitive ) (ii) Companies must adopt and disseminate a written code of ethics, build a company tradition of ethical behavior. (iii) Individual marketers must practice a social conscience in their specific dealings with customers and various stakeholders MARKETING PLANNING: Corporate and divisional strategic planning: Following are the four planning activities undertaken in any corporate head quarter: (i) Define the corporate mission (ii) Establishing strategic business unit (iii) Assigning resource to each SBU (iv) Planning new business, downsizing older business (i) Define the corporate mission 52

Organizations develop mission statement to share with managers, employees and customers. A proper mission statement provides employees with a shared sense of purpose, direction and opportunity. There should also be a vision statement i.e an impossible dream where the company wants to reach ultilmately. Three essential characteristics of mission: a. they focus on limited number of goals b. mission statement stress the major policies and values that the company wants to honor c. they define the major competitive scope- industry scope, product and application scope, competence, market segment, vertical scope, geographical scope. (ii) Establishing strategic business units: Any business unit can be called SBU if it has the following three criteria: It is a single business or collection of related businesses that can be planned separately from the rest of the company. It has its own set of competitors. It has a manager who is responsible for strategic planning & profit performance and who controls most of the factors affecting profit. (iii) Assigning resources to each SBU: Following are the two approaches for this: a. Boston Consulting group approach: According to this approach, the different business units must be evaluated on the basis of their relative market share and percentage of growth. If the growth % is more than 10% it is considered as high growth. The growth share matrix is divided into four cells, each indicating a different type of business. The position of the circle represents the current position of the firm and the size of the circle is kept proportionate to the present size of the firm. 1. Question mark Star Question Mark

Cash cow

Dog

These are the businesses that operate in high growth market The relative market share is low. Most of the companys start as question mark as they enter into a market where there is a leader already. The company has to invest a lot of money in plant, equipment and personnel. The term question mark is given because the company ahs to think hard whether to keep on investing money or not. If the company has too many businesses in this category, it may be problematic. 2. Star: If the question mark business becomes successful, it becomes a star. A star is a market leader in a high growth market. A star may not necessarily produce positive cash flow, as the company has to keep on spending to keep with high market growth and fight off competition. 3. Cash cows: 53

When a companys market growth rate falls to less than 10%, the star becomes a cash cow if it still has the largest relative market share. A cash cow produces a lot of cash for the company The company doesnt have to spend on expansion as the market growth rate has slowed down. Since it is the market leader, it enjoys economies of scale and higher profit margin. The company uses its cash cow business to pay its bills & support its other business. 4. Dogs: These are the weak businesses. They have low market share and low growth rates. The company has to decide whether to hold these businesses or to divest. Once the company finds out what is the position of its strategic business units i.e. whether it is a question mark or a star or a cash cow or a dog, the company has to adopt the following strategies: 1. Build: here the company tries to increase the market share even at the cost of foregoing short term earnings. Appropriate for question marks in order to make them stars. 2. Hold: the objective here is to preserve the market share. It is appropriate for cash cows. 3. Harvest: the objective is to increase the short term cash flow regardless of long term effects. The company goes for cost retrenchment eliminate R&D expenditure, not replacing worn out plant equipments, not replacing sales people, reducing advertisement expenditure etc. Can be used for question mark and dogs. 4. Divest: The objective is to sell the business & use the resource elsewhere. Appropriate for dogs and question marks who are not performing. The company do not only monitor what is its present position, but they keep track of what is happening over a time period. If a SBU is not following the expected trajectory of question mark, star, cash cow and dog, the manager has to propose a new strategy to get that trajectory. b. The General Electric model: GE pioneered a model which has the following two parameters - business strength marketing attractiveness Business strength: the indicators of business strength are market share, growth, product quality, brand reputation, distribution network, promotional effectiveness, productive capacity, productive efficiency etc Market attractiveness: overall market size, annual market growth rate, historical profit margin, competitive intensity, technological requirement, inflationary vulnerability, energy requirements etc.

54

Protect Position Build Selectively

invest to build selectivity manage for Earnings manage for earnings

build selectively limited expansion or harvest divest

Protect And refocus

iv. Planning new business, downsizing old business: Whenever there is reduction in the companys present business, it has to start looking for new growth opportunities. These opportunities can be a growth within its current business ( intensive growth ) or it can be by acquiring new business in a related field ( integrative growth ) or it can be an altogether new area ( diversification). a. Intensive growth: Current New product Market Penetration Strategy Market Development Strategy Product Development Strategy

Diversification

The company can try the following four combination by mixing current and new product in current and new markets. Market penetration strategy: the company tries to increase the sale within its current market with the current products. This can be done by increasing the usage by current customers, by converting non users and by converting competitors customers. Market development strategy: the company tries to capture new markets with the old product. This can be done by attracting or focusing on new customer segment or using some new distribution channel or moving to a new geographic area. Product development strategy: the company tries to come up with new product. These new products can be new features in the existing product, different quality levels or altogether new product. b. Integrative growth: The sale or profit can also be increased by forward, backward or horizontal integration Backward integration: the company acquires one or more suppliers of raw materials or parts. Forward integration: company acquires some profitable wholesalers or retailers. Horizontal integration: the company acquires some competitors if there is no legal restriction. c. Diversification growth: 55

If there are good business opportunities outside the current business, the company tries to go for diversification. Concentric diversification: the company acquires a new product but the company can have technological or marketing synergies with the existing product line. E.g. sports shoe being manufactured by a leather shoe manufacturer. Horizontal diversification: the product acquired is new but it can be marketed for the same set of customers. E.g along with leather shoe, the company can market leather belts ( to the same customer ) Conglomerate diversification: here the new business does not have any relation to companys existing market, customer or technology. E.g leather goods manufacturer starting textile business. Downsizing older business: The older businesses have to be pruned, harvested or divested in order to release needed resource & reduce costs. BUSINESS STRATEGIC PLANNING: The business unit strategic planning process consists of the following steps: 1. Business mission: each business unit needs to define its specific mission within the broader company mission. 2. SWOT analysis: the overall evaluation of a companys strength, weakness, opportunities and threats is called SWOT analysis. External environment analysis: Opportunities: it is an area of buyer need in which a company can perform profitably. The opportunity is analyzed on the basis of high or low success probability as well as attractiveness.

Threat: it is a challenge posed by an unfavorable trend or development that would lead in the absence of defensive marketing action, to deterioration in sales or profits.

the threats are analyzed on the basis of high or low probability of occurrence as well as the seriousness. Accordingly, the business can be categorized into the following 4 categories: Ideal: opportunities are high, threats are low. Speculative: both opportunities and threats are high. Mature: opportunities as well as threats are low. Troubled: opportunities are low, threats are high. 56

Internal environment analysis: The company has to analyze various parameters in different departments like marketing, finance, manufacturing and the organization as a whole. The various parameters are ranked as major strength, minor strength, neutral, major weakness or minor weakness and also their importance is measured as high, medium or low. Area major minor neutral major minor high med low Strength strength weakness weakness Marketing 1. Company reputation 2. market share 3. customer satisfaction 4. customer retention 5. product quality 6. service quality 7. pricing effectiveness 8. distribution effeciveness 9. promotional effectiveness 10. sales force effectiveness Finance 11. cost of availability of cash 12. cash flow 13. financial stability Manufacturing 14. facilities 15. economies of scale 16. capacity 17. able, dedicated workforce 18. ability to produce on time Organization: 19. visionary, capable leadership 20. dedicated employees 21. entrepreneurial 57

orientation 22. flexible or responsive. 3. Goal formulation: once the company has performed a SWOT analysis, it can proceed to develop specific goals for the planning period. Goals are used to describe the objectives that are specific with respect to magnitude and time. The objectives must follow the following four criteria: Hierarchy: the objectives must be arranged in hierarchy, with the most important at the top and the least important at the bottom. Quantitatively: the objective must be stated in concrete figures sales organization that it can be assessed. E.g instead of just saying increase in sales, it should be stated as 10% increase in sales or likewise. Realistic: the objective should be realistic based on some research or facts, it should not be from wishful thinking. Consistent: the objective must be consistent, e.g., it is not possible to maximize both sales and profit. 4. Strategic formulation: goals indicate what the SBU wants to achieve, strategy is a game plan to achieve that. The strategies can be basically divided into three generic types: a. Overall cost leadership: The business tries to reduce the cost so that it can lower its price than its competitor and win a large market share. Firms pursuing this strategy must be good at engineering, purchasing, manufacturing and physical distribution. They need less skill in marketing. Its a dangerous strategy to pursue as other firms may emerge with still lower costs. b. Differentiation: The business concentrates on achieving superior performance in an important customer benefit area valued by a large customer segment. The company can try to be a style leader, quality leader, service leader or technology leader but it cannot be all at the same time. c. Focus: The business tries to focus on one or more narrow market segment and try to pursue either cost leadership or differentiation in this segment. Strategic alliance: Since the companies cannot be efficient in all the parameters, they enter into strategic alliance with others who may be highly efficient in an area where this company is not. Following can be the strategic alliances: Product or service alliance: one company licenses the other to produce its product or two companies jointly market their complementary products. E.g. Hutch and Kodak. Promotional alliance: one company agrees to carry a promotion for another companys product or service. Logistics alliance: one company offers logistical services for another companys products. E.g. one pharma company may supply another surgical companys product to the same customers. Pricing collaboration: one or more companies join in a special pricing collaboration. E.g. hotel and rental car companies. 5. Program formulation: once the principal strategies are developed, the supporting program must be worked out. E.g. if the company decides to be a technological leader, it has to strengthen its R&D department, technological intelligence etc. 6. Implementation: Mckinsey and company has given a 7S framework that the best managed companies exhibit namely strategy, structure, system, staff, shared values, skill and style. 58

7. Feedback and control: the firm needs to track the results and monitor new development after implementing the program as there will be new developments in the internal and external environment. The environment can be fairly stable or change slowly in a fairly predictable manner or change rapidly in a major and unpredictable manner. THE MARKETING PROCESS: According to the traditional view, the firm makes a product and then tries to sell it. So the process is design the product, procure, make, price, sell, advertise/promotion, distribution and service. According to this view, thus, marketing comes in the second half of the value delivery process. The traditional view assumes that the company knows what to make and that the market will buy enough units to produce more profits for the company. The modern view places marketing at the beginning of the planning process. According to this view, it is called value delivery sequence and this sequence consists of three phases a. Choosing the value: segmentation, targeting and positioning. b. Providing the value: product development, service development, pricing, making and distributing. c. Communicating the value: through sales force, sales promotion and advertising. Steps in the planning process: The marketing process consists of analyzing marketing opportunities, researching and selecting target markets, designing marketing strategies, planning marketing programs and organizing, implementing & controlling the marketing effort. 1. Analyzing market opportunities: The company has to scan its macro and micro environment. Understand the consumer and business market. Once the market opportunities are analyzed, the market should be segmented and targeted. 2. Developing marketing strategies: The company should develop its positioning strategy (before launch). After launch, the product strategy will need modification at the different stages in the PLC. The strategy will also differ depending on whether the company is the market leader, or challenger or follower or nicher. 3. Planning marketing programs: Establish the marketing budget. The company has to decide how to allocate the total marketing budget into various tools. The allocation has also to be decided on the basis of product, price, promotion and place. 4. Managing the marketing effort: The final step is organizing the marketing resources and then implementing and controlling the marketing plan. Small companies may have one person carrying out all the marketing functions. Big firms may have different marketing specialists i.e. sales people, sales manager, marketing research, advertising personnel, brand manager etc. The company also has to undertake control activities like annual plan control, profitability and strategic control. The nature and contents of a marketing plan: a. Executive summary and table of contents: a brief summary of the plans main goals and recommendations. b. Current marketing situation: this section presents relevant background data on sales, cost, profits, the market, competitors etc. 59

c. Opportunities and issue analysis: after summarizing the current situation, the opportunities, threats and strength/weakness are identified. d. Objectives: after summarizing the issues, the plans financial and marketing objectives are specified. e. Marketing strategy: the broad marketing strategy or game plan is outlined. This should be in concurrence with the purchasing and manufacturing department as well as with the sales manager. f. Action program: each marketing strategy is elaborated as what will be done? When will it be done? Who will do it? How much will it cost? g. Projected profit and loss statement: forecast the plans expected financial outcomes. h. Controls: indicates how the plan will be monitored. MARKET LEADER STRATEGIES: Market leader: Has the largest market share Leads the other firms in price changes, New product developments, distribution coverage and promotional intensity. Broadly speaking, the market leader has to adopt the following three strategies Expand the total market demand Defend its current market share Increase its market share a. Expand the total market demand When the total market expands, the market leader stands to gain the maximum. The market can be expanded by looking for new users, new uses and more usage of its products. New users: the potential buyers who are unaware of the product or are not buying because of price or lack of certain features. The new users can be from market penetration strategy, new market segment strategy or geographical expansion strategy. New uses: the market can also be expanded by discovering and promoting new uses for the product. E.g. cold drinks being promoted as a drink for guests too. More usage: the third strategy is to convince the people to use the product more per use occasion. E.g. shampoo. b. Defend its current market share: Even when the leader is trying to expand, it should continuously keep on defending its current market share against rival businesses. Sometimes the competitor is domestic, sometimes it is foreign. E.g. Ambassador vs Maruti. The constructive response is continuous innovation developing new products and customer services, distribution effectiveness and cost cutting. This increases the companys strength and value to customers. Following can be the defensive strategies: Position defense: this is the basic defense strategy building a concrete wall around ones current position. But it does not mean leaders should put all their resources in protecting the current product alone. Flank defense: the market leader should also defend its weak front or possibly make it an invasion base for counterattack. Preemptive defense: here the leader attacks even before the enemy start its offense. It can start attacking many competitors at a time or develop its market in a grand manner or decrease its price. Mobile defense: here the leader enters new territories that can serve as future centers for defense and offense. The leader can adopt the strategy of market broadening i.e shifting the focus from the current product to underlying generic need. Else the leader can adopt the strategy of market diversification i.e. entering into unrelated industry. Contraction defense: if the situation becomes such that it is no longer possible for the company to defend all its territories, it starts planned contraction or strategic withdrawal. It means giving up weaker territories & assigning the resources to strong territories. 60

c. Expanding market share: Market leaders can improve their profitability by increasing their market share. The company should consider three factors before pursuing increased market share strategy in order to ensure that increase in market share results in corresponding increase in profitability: It should not provoke antitrust action by the competitors. It should watch the cost incurred in increasing the market share. The company should not use the wrong marketing mix strategy in order to increase their market share. MARKET CHALLENGER STRATEGIES: The firms that occupy second, third or lower ranks are the challengers. They are large enough in themselves & they can adopt any one of the following two strategies attack the leader ( challenger) or follow the leader (follower) Defining the strategic objective & opponents: The main objective behind attacking another firm is to increase ones own market share. The challenger must decide whom to attack: It can attack the market leader: it involves high risk but potentially high pay off strategy and makes good sense if the leader is not serving the market well. It can attack firms of its own size that are not doing the job properly and are underfinanced: these firms may have aging products, prices will be high & the customer will not be satisfied. It can attack small, local & regional firms: Choosing the general attack strategy: a. Frontal attack: the attacker matches the opponents product, advertising, price and distribution. E.g Pepsi and Coke. Modified frontal attack: cutting the price vis--vis the competitors. It works well if the market leader does not retaliate by cutting the price. b. Flank attack: this means attacking the weak front because the opponents defense will be the strongest at its strong point. When the challenger attacks the leader at its strong point, all the resources of the leader are deployed there and then the challenger can launch the real attack at the side or rear. A flank attack can also be directed along two strategic dimensions geographic and segmental. In geographic, the challenger spots areas where the leader is under performing. Another flanking strategy is to serve uncovered market needs. Flanking strategy also identifies shift in market segments that develop gaps then rushing in to fill in the gap and develop them into strong segments. c. Encirclement attack: here the attacker launches a grand offensive on several fronts. It is appropriate provided the challenger commands superior resources and believes a swift encirclement will break the opponents will. d. Bypass attack: this is an indirect assault strategy. It means by passing the enemy and attacking easier markets to broaden ones resource base. The following three approaches can be there (i) diversifying into unrelated products, (ii) diversifying into new geographic markets, (iii) or leapfrogging into new technologies to supplant existing products. e. Guerilla attack: it consists of waging small, intermittent attacks to harass & demoralize the opponent and eventually secure permanent footholds. The attacks can be in the form of price cuts, intense promotional blitzes and occasional legal actions. Normally it is practiced by smaller firms. Choosing a specific attack strategy: (i) Price discount the company offers a lower price than the leader provided the company is able to convince the customers that the products and/or services are comparable, the buyers are price sensitive and the leader will not cut the price. (ii) Cheaper goods average or low quality products are provided at a lower price. (iii) Prestige goods higher quality products are provided at a higher price. (iv) Product proliferation provide a larger product variety. (v) Product innovation provide product improvements or breakthroughs. 61

(vi) (vii) (viii) (ix)

Improved services Distribution innovation Manufacturing cost reduction Intensive advertising promotion.

MARKET FOLLOWER STRATEGIES: The market leader goes for product innovation and bears the expense of developing a new product, educating the market and distributing the product. The returns for all this expense are the market leadership. The follower usually imitates the product or improves on the existing product. It cannot overtake the market leader by doing this but it can make substantial profit since it did not bear any of the innovation expense. Following are the strategies followed by a market follower: Counterfeiter: they duplicate the leaders product and packaging and sell it on the black market through disreputable dealers. Cloner: here they copy the leaders product, name and packaging with slight variations. E.g. Safari Safar Imitator: they copy something from the leader but maintain differentiation in terms of packaging, advertising, pricing and so on. Adaptor: the adaptor takes the leaders product and adapts or improves them. The adaptor may choose to sell to different markets but they often grow into future challengers. MARKET NICHER STRATEGIES: Instead of being a follower in a large market, some companies prefer to be a leader in a small market. They are called nichers. These firms have low market share of the total market but are highly profitable through smart niching. Such companies offer high value, charge a premium price, achieve lower manufacturing costs and shape a strong corporate culture and vision. Following specialization roles can be played by the nicher: End user specialist serving one type of end user segment. Vertical level specialist Customer size specialist usually they serve small size customers who are ignored by the majors. Specific customer specialist selling to one or very few customers. Geographic specialist selling only in a certain locality, region or area. Product or product line specialist produces and carries only one product or product line. Product feature specialist specialize in producing a certain type of product feature. Job shop specialist customizes the product for individual customer. Quality price specialist these firms operate either at the low end or high end of quality. Service specialist offer services that other firms do not. Channel specialist STRATEGIES FOR THE GLOBAL MARKET: The companies which are marketing to different countries can follow any of the following three strategies: a. Global strategy: this strategy treats the world as a single market. This is appropriate when the forces for global integration are strong and forces for national responsiveness are weak. E.g. electronic goods. b. A multinational strategy: here the world is treated as a portfolio of national opportunities. This is appropriate when the forces for global integration are weak and forces for national responsiveness are strong. E.g. Unilever c. A glocal strategy: it standardizes certain core elements and localizes other elements. The strategy makes sense for industries where each nation requires some adaptation of its equipments but the providing company can also standardize some of the core components. 62

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