UNIT III MARKETING MIX DECISIONS

Segmentation, Targeting, and Positioning

Segmentation, targeting, and positioning together comprise a three stage process. We first (1)
determine which kinds of customers exist, then (2) select which ones we are best off trying to
serve and, finally, (3) implement our segmentation by optimizing our products/services for that
segment and communicating that we have made the choice to distinguish ourselves that way.

Segmenting
Segmenting is the process of dividing the market into segments based on customer
characteristics and needs.
The main activity segmenting consists of four sub activities. These are:
1. determining who the actual and potential customers are
2. identifying segments
3. analyzing the intensity of competitors in the market
4. selecting the attractive customer segments.
The first, second and fourth steps are described as market segmentation. The third step of
analyzing the intensity of the competitors is added to the process of segmenting in this process
description. When different segments are identified, it is not necessary that these segments are
attractive to target. A company is almost never alone in a market -- competitors have a great

influence on the attractiveness of entering a certain market. When there is a high intensity of
competitors, it is hard to obtain a profitable market share and a company may decide not to enter
a certain market. The third step of segmenting is the first part of the topic of competitor analysis.
The need for segmenting a market is based on the fact that no market is homogeneous. For one
product the market can be divided in different customer groups. The variables used for this
segmenting in these groups are usually geographical, psychographical, behavioral and
demographic variables. This results in segments which are homogeneous within and
heterogeneous between each other. When these segments are known, it is important to decide on
which market to target. Not every market is an attractive market to enter. A little filtering has
been done in this activity, but there are more factors to take in account before targeting a certain
market segment. This process is called targeting.
Targeting
After the most attractive segments are selected, a company should not directly start targeting all
these segments -- other important factors come into play in defining a target market. Four sub
activities form the basis for deciding on which segments will actually be targeted.
The four sub activities within targeting are:
1. defining the abilities of the company and resources needed to enter a market
2. analyzing competitors on their resources and skills
3. considering the companys abilities compared to the competitors' abilities
4. deciding on the actual target markets.
The first three sub activities are described as the topic competitor analysis. The last sub activity
of deciding on the actual target market is an analysis of the company's abilities to those of its
competitors. The results of this analysis leads to a list of segments which are most attractive to
target and have a good chance of leading to a profitable market share.
Obviously, targeting can only be done when segments have been defined, as these segments
allow firms to analyze the competitors in this market. When the process of targeting is ended, the
markets to target are selected, but the way to use marketing in these markets is not yet defined.
To decide on the actual marketing strategy, knowledge of the differential advantages of each
segment is needed.

Positioning
When the list of target markets is made, a company might want to start on deciding on a good
marketing mix directly. But an important step before developing the marketing mix is deciding
on how to create an identity or image of the product in the mind of the customer. Every segment
is different from the others, so different customers with different ideas of what they expect from
the product. In the process of positioning the company:
1. identifies the differential advantages in each segment
2. decides on a different positioning concept for each of these segments. This process is
described at the topic positioning, here different concepts of positioning are given.
The process-data model shows the concepts resulting from the different activities before and
within positioning. The model shows how the predefined concepts are the basis for the
positioning statement. The analyses done of the market, competitors and abilities of the company
are necessary to create a good positioning statement. When the positioning statement is created,
one can start on creating the marketing mix.

INTRODUCTION TO PRODUCT MANAGEMENT:

Product management is an organizational lifecycle function within a company dealing
with the planning or forecasting or marketing of a product or products at all stages of the product
lifecycle. Product management (inbound focused) and product marketing (outbound focused)
are different yet complementary efforts with the objective of maximizing sales revenues, market
share, and profit margins. The role of product management spans many activities from strategic
to tactical and varies based on the organizational structure of the company.
Product management can be a function separate on its own and a member of marketing or
engineering. While involved with the entire product lifecycle, product management's main focus
is on driving new product development.

According to the Product Development and

Management Association (PDMA), superior and differentiated new products ones that deliver
unique benefits and superior value to the customer is the number one driver of success and
product profitability. Product management may be defined as the entrepreneurial management of
a piece of business (product, product line, service, brand, segment etc.) as a virtual company,
with a goal of ling-term customer satisfaction and competitive advantage.

OBJECTIVES OF PRODUCT MANAGEMENT:

Products are the basis of any organization. Sales are realized through sales of the products.
Thus the overall success of the organization depends upon the planning and development of
products. Product Management is the holistic job of product managers, including planning,
forecasting and marketing products or services. Product management is an organizational
function within a company dealing with the planning marketing of a product or products at all
stages of the product lifecycle. Product Management is also a collective term used to describe the
broad sum of diverse activities performed in the interest of delivering a particular product to
market.
1. To design product strategies with respect to customer, industry and competition analysis.
2. To spot marketing opportunities, and to see whether they are exploitable.
3. To seek growth through new product development.
4. To plan strategies for each stage of product life cycle.
5. To generate new product ideas, and develop them further.
6. To consolidate existing product profile and to do portfolio analysis.
7. To improve and modify existing products and to introduce brand extensions and line
extensions.
8. To identify the brand identity, build a brand image, position a brand, build a brand, to
develop brand equity and measure it.
PRODUCT PLANNING:
According to W.J.Stanton, product planning embraces all activities which enable
producers and middlemen to determine what should constitute a companys line of products.

According to Johnson, product planning determines the characteristics of product best

meeting the consumers numerous desires, characteristics that add stability to products and
incorporates these characteristics into the finished product.
Elements of Product Planning:
1. RESEARCH BEFORE PRODUCTION: before taking a decision to produce a new
item, market research should be carried-out extensively. The company should decide the
characteristics of the product that can meet the requirement of the people.
2. POSSIBILITY OF PRODUCTION METHOD: The possibility of production method
which would be followed and is practicable to develop a product exactly what the
consumer wants should be examined before taking a decision of producing a new
product.
3. MODIFICATION IN EXISTING LINES: The existing product lines should also be
examined whether they can be improved and to what extent to meet the new requirements
of the consumer or a new product is to be developed.
4. ELIMINATION OF THE PRODUCT: product planning also involves the decision
regarding the elimination of the unprofitable product lines so that resources may be used
to some other product profitably.
5. IMPROVEMENT IN THE PRODUCT: Product planning includes regarding the
improvement of the existing product in terms of quality, packaging, etc, taking in view of
the competitors strategies in the market.
PRODUCT:
Anything that can be offered to a market to satisfy a want or need.
Features of Product:
1. Tangibility.
2. Intangible attributes

3. Associated attributes.
4. Exchange value.
5. Consumer satisfaction:
Levels of Product

Core Benefit : rest & sleep

Basic

: bed, bathroom, towel

Expected

: attributes like clean bed, fresh towel, working fan

Augmented : exceeds customer expectation remote control television,

Potential

: benefits not only satisfy but also delight them

Product Hierarchy
Need Family Core need that underlies the existence of a product family. Eg. Security
Product Family Product classes that can satisfy a core need with reasonable effectiveness.
Eg. Savings & Income
Product Class A group of products within a product family recognized as having a certain
functional coherence. Eg. financial instrument

 Product line Group of products within a product class that are closely related because they
perform a similar function, are sold to same customer group, are marketed through the same
channel. Eg. life insurance

Product type group of items within a product line that share one of several possible
forms, of the product. Eg. term life

Brand The name associated with one or more items in the product line that is used to
identify the source or character of the item. Eg. Prudential

Item A distinct unit within a brand or product line distinguishable by size, price,
appearance, or some other attribute. Eg. Prudential renewable term life insurance

Product Classifications - Consumer Goods

1. Convenience Products
Buy frequently & immediately
Low priced
Mass advertising
Many purchase locations
i.e Candy, newspapers
2. Shopping Products
Buy less frequently
Higher price
Fewer purchase locations
Comparison shop
i.e Clothing, appliances
3. Specialty Products
Special purchase efforts

 High price
Unique characteristics
Brand identification
Few purchase locations
i.e can be anything
4. Unsought Products
New innovations
Products consumers dont want to think about these products
Require much advertising & personal selling
i.e Life insurance, blood donation
Industrial Goods Classification:
1. Materials and parts
a) farm products
b) natural products
c) Manufactured material & parts
d) Compound material
e) Compound parts
2. Capital items
a) installations
b) equipment
3. Supplies & business services
a) maintenance and repair service
b) operating supplies
c) maintenance & repair services
d) Business advisory services
Brand

Brand is a name , term , sign, symbol or design or a combination of them intended to

identify the goods or services of one seller or group of sellers and to differentiate from those of
competitors. In essence the brand identifies the seller or maker. Brand is considered to be a
trademark or distinctive name identifying a product or manufacture. The brand must be a bridge
between the customer and owner of the brand. Both functional and emotional satisfaction is
attainted through branding. A brand has the power to create interest and command an immediate
second look. The value of a business is directly related to the strength of its brand . A string
brand will evoke a number of images in the mind of the prospects.
A brand is essential a sellers promise to deliver a specific set of features benefits services
consistently to the buyers. The best brand conveys warranty of quality Brands convey even more
meanings up to six levels.
Attributes
Benefits
Producers values
Culture
Personality
User
Benefits of branding
1. Branding makes it causes for the seller to process orders and track down problem.
2. The sellers brand name and trademark provide legal protection of unique product
features
3. Branding gives the seller the opportunity to attract a loyal profitable set of customers.
Brand loyalty gives some protection from competition
4. Branding helps the seller segment markets
5. Strong brands help build the corporate image, making it easier to launch new brands and
gain acceptance by distributers and consumers
Use of a successful brand
With a successful brand, a company will usually have:
1. Improved margins through higher realizations leading to higher profits

2. Generated better cash flows and improved management and productivity of assets
3. Reduced or even eliminated the need for regular infusion of fresh capital investment
needs can be met out of internal accruals and extensions of a successful brand can give
the benefits of new benefits of new product launch at reduced cost.
4. Created an entry barrier for would be rivals, who must now spend heavily to counter the
brand and
5. Insulated the brand from economic cycles, since a successful brand immediately reduces
the impact of prices alone on demand.
There are certain basic categories of brand or corporate name:
1. Descriptive name
2. Associative name
3. Freestanding name
4. Abstract name
5. Coined name

BRAND STRATEGY
A company has five choices with regards to brand strategy. They are

1. Line Extensions:
Existing brand name extended to new sizes of flavors in the existing product category
like Cinthol Cologne , Cinthol Lime. Extension may lead to brand name losing in
specific meaning. However there is a much higher chance of survival than brand new
products
2. Brand Extensions:
Where a company may use its existing brand name to launch new products in other
categories like the brand Rin being extended to both detergent powders, detergent cakes.
The new product may disappoint buyers and damage their report for companys other
products. The brand name may be in appropriate to the new product. The brand name
may also lose its special positioning in consumers mind though over extension. Brand
dilution occurs when consumers mind trough over extension. Brand dilution occurs when
consumers no longer associate a brand with a specific product ore highly similar products
3. Multi brands:
A company will often introduce additional brand in the same product category.
Sometimes the company is trying to establish different features or appeal to different
buying motives. A multi- branding strategy also enables the company to lock up more
distributors shelf space and to protect its major brand by setting up flanker brand.
Hindustan lever limited produces three different brands of detergent powders. Company
inherits different brand name in the process of acquiring competitors Smithkline beecham
consumer health care owns the acquired brand names like brook bond. Hamam Kissan A
major pitfall introducing multi-brand entries is that each might obtain only a small market
share and none may be particularly profitable. The company will have dissipated its
resources over several brands instead of building a few highly profitable brands
4. New Brands:

New brands are created when company launches products in a new category it may find
that none of its current brand names are appropriate. Yet the cost of establishing a new
brand name in the market place is costly.
5. Co-brands:
A Co brand is a combination of two or more well known brands in an offer like the
combination of SBI and GE Capital in the issue of SBI credit cards.
Brand Repositioning
However well a brand is currently positioned, the company may have to reposition it
later when facing new competitors or changing customer preferences. Consider 7-Up,
which was one of several soft drinks bought primarily by older people who wanted a
bland, lemon-flavored drink. Research indicated that although a majority of soft-drink
consumers preferred a cola, they did not prefer it all of the time, and many other consumers were
non cola drinkers.
Brand stretching
Brand stretching is applying an existing brand to a completely different business area or a
new product or service- such as Cadburys entry into cola market. The risk attached to brand
stretching is that failure in the new field may affect the core product
Brand equity:
Brand equity is a set of assets and liabilities linked to a brands name and symbol that add
to subtract from the value provided by a product or service to ad firm and / or that firms
customers.
PACKAGING
Packaging includes the activities of designing and producing the container for a product.
The container is called the package, and it might include up to three levels of material. Old Spice
aftershave lotion is in a bottle (primary package) that is in a cardboard box (secondary package)
that is in a corrugated box (shipping package) containing six dozen boxes of Old Spice.

Reasons For the development of packaging:

Self-service: The typical supermarket shopper passes by some 300 items per minute.
Given that 53 percent of all purchases are made on impulse, an effective package
attracts attention, describes features, creates confidence, and makes a favorable
impression.
Consumer affluence: Rising consumer affluence means consumers are willing to pay a little
more for the convenience, appearance, dependability, and prestige of better
packages.
Company and brand image: Packages contribute to instant recognition of the company or brand.
Campbell Soup estimates that the average shopper sees its red and white can 76 times a year, the
equivalent of $26 million worth of advertising.
Innovation opportunity: Innovative packaging can bring benefits to consumers and
profits to producers. Toothpaste pump dispensers, for example, have captured 12
percent of the toothpaste market because they are more convenient and less
messy.
LABELING
Every physical product must carry a label, which may be a simple tag attached to the
product or an elaborately designed graphic that is part of the package. Labels perform several
functions. First, the label identifies the product or brandfor instance, the name Sunkist stamped
on oranges. The label might also grade the product, the way canned peaches are grade labeled A,
B, and C. The label might describe the product: who made it, where it was made, when it was
made, what it contains, how it is to be used, and how to use it safely. Finally, the label might
promote the product through attractive graphics.
PRODUCT LIFE CYCLE
Describes the stages a product goes through in the marketplace including introduction, growth,
maturity, and decline.
I. Introductory Stage:

During the market introductory stage, there may not be ready market for the product.
Sales are low; the product undergoes teething troubles, profits seem a demand has to be created
and developed ; customers have to be prompted to try out the product. This stage poses several
problems for the marketer. The complexity of the problems and the duration of the stage depend
upon the nature of the product, its price, its technological newness and the consumers view of
the product. the management can pursue one of the four strategies
1. Rapid skimming :
Launching the new product at a high price and a high promotion level. It will take advantage of
early entry and the realitive novelty of the product in the market introduction stage. Those who
became aware of the product are eager to have it and can pay the asking price and the firm faces
potential competition and wants to build brand preferences.
2.Rapid Penetration : Launching the product at a low price and spending heavily on
promotion. This strategy make sense when the market is large, the market is unaware of the
product, most buyers are price sensitive, there is strong potential competition, and the unit
manufacturing costs fall with the companys scale of production and accumulated manufacturing
experience.
3 Slow penetration : Launching the product at a low price and low level of promotion.
This strategy make sense when the market is large, is highly aware of the product, is price
sensitive, and there is some potential competition. Another crucial area demanding attention at
this stage is market development and promotion. In this stage, demand has to be created and
developed. The firm has to invest heavily in promotion and visit for the reward
4. Slow Skimming : Launching the new product at a high and low promotion. This
strategy make sense when the market is limited in size. Most of the markets are aware of the
product, buyers are willing to pay a high price and potential competition is not imminent
A.

Characteristics
Low sales volume

High costs
No or little direct competition
Basic product configuration
B.

Strategies
Develop primary demand by building awareness and educating consumers
Stimulate opinion leaders to buy the product
Build channels of distribution (selective in the beginning)
Two pricing strategies:
price skimming introduce at high price
price penetration introduce at low price

II Growth Stage
During this stage, the demand for the product increase and the size of the market grows.
There is a rapid increase in sales. Early adopters like the product and additional consumers start
buying it. Now competitors enter attacked by the opportunities. They introduce new product
features and expand distribution. Price remain where they are or fall slightly depending on how
fast demand increase. Profits increase during this stage as promotion cost are spread over a large
volume and unit manufacturing costs fall faster than price decline owing to the producer learning
effect.
During this stage the firm uses several strategies to sustain rapid market growth as long as
possible.
It improves product quality and adds new features and improved styling
It adds new models and flanker, products i.e products of different size, flavours
It enters new market segments
It increases its distribution coverage
It shifts from product awareness advertising to product preference advertising
It lowers price to attract the next layer of price sensitive buyers.
A.

Characteristics
Sales volume increases significantly

Costs per unit decrease

Competition increases
More product variation
B.

Strategies
Engage in product modification
Build selective demand; stress differentiation
Move toward intensive distribution
Practice more aggressive pricing
III Maturity Stage
In the maturity stage the demand for the product reach a saturation point Price
competition become intense and pioneer tries to distinguish his brand by subtle company.
Maturity divides into 3 phases:
I.

Growth Phase

II.

Stable Phase

III.

Decaying Maturity

Market Modification
The company might try to expand the market for its mature brand by working with the two
factors that makeup sales volume.
Volume = Number of brand users * usage rate per user
The company can try to expand the number of brand users in three ways
I.

Convert non users

II.

Enter new market segments

III.

Win competitors customers

A. Characteristics
Sales growth slows then levels off
Profits decline for the industry
Marginal competitors leave marketplace
B. Strategies
Rejuvenate product change packaging, new

models, line extensions

Stimulate usage rate
Maintain brand loyalty through reminder promotions
Continue aggressive pricing
Continue intensive distribution
IV Decline Stage :
In this stage, sales begin to fall. The demand for the product shrinks probably due to new and
functionally advanced products becoming available in the market/ market being more saturated
to the product. In any case, price and margins get depressed: total sales and profits diminish .
Firms do perceive the impounding total decline and prepare for the gradual phasing out of the
product. Successful firms quite often keep new products ready in the queue to fill the vacuum
created by the decline of existing products
A. Characteristics
Strong downward shift in sales
Profits stay low and continue to decline
Only a few strong competitors remain
Back to basic product configurations
B. Strategies
Distribution reduced to fewer outlets
Promotional support reduced
Prices lowered
Use harvesting strategy

Product life cycles vary in length

Product life cycles are getting shorter

Life Cycle Length

Because of

technology and

globalization

the introduction stage is getting very short

some cycles more quickly to maturity, then have many product modifications so the
decline stage drags on and on

Fashions - currently popular products that tend to follow recurring life cycles

Fads(A fashion that is taken up with great enthusiasm for a brief period of time; a craze )
- Fashions with abbreviated life cycles - only popular with certain groups
- Music
- Fast food
- Childrens toys
- adult toys

Product Life Cycle Considerations in Marketing Strategy

Understand that profits have a predictable pattern

in the early stages, focus is on product information

in the later stages, focus is on brand promotion

use market segmentation in maturity stage to maintain strong core customer basis

NEW PRODUCT DEVELOPMENT AND MANAGEMENT:

New product development (NPD) is the term used to describe the complete process of
bringing a new product or service to market. There are two parallel paths involved in the NPD
process: one involves the idea generation, product design and detail engineering; the other
involves market research and marketing analysis. Companies typically see new product

development as the first stage in generating and commercializing new products within the overall
strategic process of product life cycle management used to maintain or grow their market share.

The process/ Steps :

Stage 1 Idea Generation is often called the "fuzzy front end" of the NPD process
Ideas for new products can be obtained from basic research using a SWOT analysis
(Strengths, Weaknesses, Opportunities & Threats), Market and consumer trends,
company's R&D department, competitors, focus groups, employees, salespeople,
corporate spies, trade shows, or Ethnographic discovery methods (searching for user
patterns and habits) may also be used to get an insight into new product lines or product
features.
Lots of ideas are being generated about the new product. Out of these ideas many ideas
are being implemented. The ideas use to generate in many forms and their generating
places are also various. Many reasons are responsible for generation of an idea.
Idea Generation or Brainstorming of new product, service, or store concepts - idea
generation techniques can begin when you have done your OPPORTUNITY ANALYSIS
to support your ideas in the Idea Screening Phase (shown in the next development step).
Stage 2. Idea Screening
This process involves shifting through the ideas generated above and selecting ones which are
feasible and workable to develop. Pursing non feasible ideas can clearly be costly for the
company. The object is to eliminate unsound concepts prior to devoting resources to them. The
screeners should ask several questions:
Will the customer in the target market benefit from the product?
What is the size and growth forecasts of the market segment/target market?

What is the current or expected competitive pressure for the product idea?
What are the industry sales and market trends the product idea is based on?
Is it technically feasible to manufacture the product?
Will the product be profitable when manufactured and delivered to the customer at the target
price?

Stage 3. Concept Development and Testing

The organization may have come across what they believe to be a feasible idea, however, the
idea needs to be taken to the target audience. What do they think about the idea? Will it be
practical and feasible? Will it offer the benefit that the organization hopes it will? or have they
overlooked certain issues? Note the idea and concept is taken to the target audience not a
working prototype at this stage. Develop the marketing and engineering details like
Investigate intellectual property issues and search patent data bases
Who is the target market and who is the decision maker in the purchasing process?
What product features must the product incorporate?
What benefits will the product provide?
How will consumers react to the product?
How will the product be produced most cost effectively?
Prove feasibility through virtual computer aided rendering, and rapid prototyping
What will it cost to produce it?

Testing the Concept by asking a sample of prospective customers what they think of the idea.
Usually via Choice Modeling.
Stage 4. Business Analysis
The company has a great idea, the marketing strategy seems feasible, but will the product be
financially worth while in the long run? The business analysis stage looks more deeply into the
cashflow the product could generate, what the cost will be, how much market shares the product
may achieve and the expected life of the product.
o

Estimate likely selling price based upon competition and customer feedback

Estimate profitability and break-even point

Stage 5 . Marketing Strategy

A proposed marketing strategy will be written laying out the marketing mix strategy of the
product, the segmentation, targeting and positioning strategy sales and profits that are expected.
Stage 6: Product Development
Finally it is at this stage that a prototype is finally produced. The prototype will clearly run
through all the desired tests, and be presented to the target audience to see if changes need to be
made.
Stage 7: Test Marketing
Test marketing means testing the product within a specific area. The product will be launched
within a particular region so the marketing mix strategy can be monitored and if needed, be
modified before national launch.
Stage 8: Commercialization

If the test marketing stage has been successful then the product will go for national launch. There
are certain factors that need to be taken into consideration before a product is launched
nationally. These are timing, how the product will be launched, where the product will be
launched, will there be a national roll out or will it be region by region?
New Product Pricing
o

Impact of new product on the entire product portfolio

Value Analysis (internal & external)

Competition and alternative competitive technologies

Differing value segments (price, value, and need)

Product Costs (fixed & variable)

Forecast of unit volumes, revenue, and profit

Integrated Marketing communication:

Integrated Marketing Communications (IMC) is the coordination and integration of all
marketing communication tools, avenues, functions and sources within a company into a
seamless program that maximizes the impact on consumers and other end users at a minimal cost
Marketing Communication Objectives:

Behaviour Modification

Modify behaviour & Thoughts

Reinforce existing behaviour- To strengthen by adding extra support or

material.

To Inform

To persuade- To influence or gain over by argument, advice.

To remind

Specific Objectives

Shift the demand

To change the pattern of demand

Factors determining marketing Communication Mix:

Type of product

Nature of market

Stage in Product Life cycle

Budget availability

Company policies

Type of Product Market

Buyer Readiness

CHANNEL MANAGEMENT
According to Philip Kotler, Every producer seeks to link together the set of marketing
intermediaries that best fulfill the firms objectives. This set of marketing intermediaries is called
the marketing channel (also called as trade channel or channel of distribution.)
A system of marketing institutions that promotes the physical flow of goods and services, along
with ownership title, from producers to consumer or business user; also called a distribution
channel
For marketers the distribution decision is primarily concerned with the supply chains front-end
or channels of distribution that are designed to move the product (goods or services) from the
hands of the company to the hands of the customers
Characteristics of Distribution channel:
1) Route or pathway:
2) Flow:
3) Composition:
4) Functions:

5) Remuneration:
6) Time Utility:
7) Convenience Value:
8) Possession Value:
9) Marketing tools:
10) Supply-demand Linkage:
Channel Functions:
1) Information Provider
2) Price stability.
3) Promotion
4) Financing
5) Title
6) Help in Production Function
7) Matching demand and supply.
- Contractual: Finding out buyers and sellers.
- Merchandising: Producing goods that will satisfy market requirements.
- Pricing: Process of attaching value to the product in monetary terms.
- Propaganda: Sales promotion activities.
-

Physical Distribution: Distribution activities.

- Termination: Settlement of contract, i.e., paying the value and receiving the goods.
8) Pricing
9) Standardizing Transactions.
10) Matching Buyers and Sellers.
Concepts of Channel Management:

Designing channel structure

Ex-ante phase
Distribution Channel Strategy:
Establishing the channel
i) Channel objective
ii) Activity Finalization.
iii) Organizing the activities.
iv) Developing policy guidelines. Motivating channel members
Ex-paste phase
Resolving conflicts among channel members

1. The Ex Ante phase: The ex ante phase involves all the activities that are associated with the
design and establishment of the distribution channel actually starts functioning.
i) Designing channel structure.
ii) Establishing the channel.
a) Appointing processing Entities.
b) Infrastructure Development.
c ) Miscellaneous Functions.
2. The Ex-paste Phase:
While these activities are just preparatory activities, the main task of a channel manager
starts only after the channel is set up and starts functioning. It comprises following two set of
activities:
i) Motivating Channel Members:
ii) Resolving Conflicts among Channel Members.
The Role of Marketing Channels in Marketing Strategy
Channels provide the means by which the firm moves the goods and services it produces to
ultimate users

Facilitate the exchange process by cutting the number of contacts necessary

Adjust for discrepancies in the markets assortment of goods and services via
sorting

Standardize exchange transactions

Facilitate searches by both buyers and sellers

Factors Influencing Channel Decisions

1. Relating to Product Characteristics
Perishability
Industrial / consumer products
Unit values
Style obsolescence
Weight & technicality
Standardized Products
Purchase Frequency
Newness & Market Acceptance
Seasonally
Product Breadth
II Relating to Company Characteristics
Financial Strength
Marketing Policies
Size of the company
Past Channel Experience
Product Mix
Reputation
III Factors relating to Market or consumer Characteristics
Consumer Buying habits
Location of the market
Number of customer
Size of orders

IV Factors relating to middleman consideration

Sales volume potential
Availability of middleman
Middlemens Attitude
Service provided by middlemen
Cost of channel
V Factors relating to environmental characteristics
Economic conditions
Legal restriction
Competitors channel
Fiscal structure
Channels Using Marketing Intermediaries

Wholesaler / Stockiest/ Distributor

Retailer

Sole Selling Agent

C & F Agents

Semi- Wholesaler

Value added resellers

Types of Marketing Channels

Hybrid/Multi/Dual Distribution: Network that moves products to a firms target market

through more than one marketing channel
Reverse Channels: Channels designed to return goods to their producers

Determining Distribution Intensity

Number of intermediaries through which a manufacturer distributes its goods
Intensive distribution: channel policy in which a manufacturer of a convenience product
attempts to saturate the market
Selective distribution: channel policy in which a firm chooses only a limited number of
retailers to handle its product line
Exclusive distribution: channel policy in which a firm grants exclusive rights to a single
wholesaler or retailer to sell its products in a particular geographic area
Channel Management
The administration of existing channels to secure the cooperation of channel members in
achieving the firms distribution objectives.

Emergence of distribution channel could be

attributed to the need for facilitating exchanges by speeding up the time consuming matching
process between buyers and sellers.
Channel Management Decisions
1. Selecting Channel Members
During the selection process, producers should determine what characteristics distinguish the
better intermediaries. They will want to evaluate number of years in business, other lines carried,
growth and profit record, solvency, cooperativeness, and reputation. If the intermediaries are
sales agents, producers will want to evaluate the
number and character of other lines carried and the size and quality of the sales force.
2. Training Channel Members
Companies need to plan and implement careful training programs for their distributors
and dealers because the intermediaries will be viewed as the company by end

users. Microsoft, for example, requires third-party service engineers who work with its software
applications to complete a number of courses and take certification exams. Those who pass are
formally recognized as Microsoft Certified Professionals, and they can use this designation to
promote business.
3. Motivating Channel Members
The most successful firms view their channel members in the same way they view their end
users. This means determining their intermediaries needs and then tailoring the channel
positioning to provide superior value to these intermediaries. To improve
intermediaries performance, the company should provide training, market research,
and other capability-building programs. And the company must constantly reinforce
that its intermediaries are partners in the joint effort to satisfy customers.
4. Evaluating Channel Members
Producers must periodically evaluate intermediaries performance against such standards as
sales-quota attainment, average inventory levels, customer delivery time,
treatment of damaged and lost goods, and cooperation in promotional and training
programs. A producer will occasionally discover that it is paying too much to particular
intermediaries for what they are actually doing
5. Modifying Channel Arrangements
Channel arrangements must be reviewed periodically and modified when distribution
is not working as planned, consumer buying patterns change, the market expands,
new competition arises, innovative distribution channels emerge, or the product
moves into later stages in the product life cycle.
CHANNEL CONFLICT
Horizontal Conflict
Most often, horizontal conflict causes sparks between different types of marketing intermediaries
that handle similar products. Sometimes results from disagreements among channel members at
the same level.

Vertical Conflict
Channel members at different levels find many reasons for disputes
Example: when retailers develop private brands to compete with producers brands or when
producers establish their own retail outlets or WWW Sites.

Multichannel conflict
Exists when the manufacture has established two or more channels that sell to the same market
Causes of channel conflict
Goals incompatibility
Unclear roles & rights
Managing Channel conflict
Super ordinate goals
Exchange persons
Cooptation
Mediation
Diplomacy
Vertical Marketing Systems
Vertical marketing system (VMS): planned channel system designed to improve distribution
efficiency and cost effectiveness by integrating various functions throughout the distribution
chain
Types of VMS
Administered marketing system: VMS that achieves channel coordination when a dominant
channel member exercises its power

Corporate marketing system: a VMS in which a single owner operates at each stage in its
marketing channel
Contractual marketing system: VMS that coordinates channel activities through formal
agreements among channel members like:

Wholesaler-Sponsored Voluntary Chains

Retail Cooperatives

Franchises

Horizontal Marketing Systems

Two or more unrelated companies put together resources or programs to exploit an emerging
marketing opportunity
Multichannel Marketing System
Occurs when a single firm uses two or more marketing channels to reach one or more customer
segmentations.
Integrated Marketing communication
Is the coordination and integration of all marketing communication tools, avenues, functions and
sources within a company into a seamless program that maximizes the impact on consumers and
other end users at a minimal cost
Marketing Communication Objectives
Behaviour Modification
Modify behaviour & Thoughts
Reinforce existing behaviour
To Inform
To persuade
To remind
Specific Objectives
Shift the demand

 To change the pattern of demand

Factors determining marketing Communication Mix
Type of product
Nature of market
Stage in Product Life cycle
Budget availability
Company policies
Type of Product Market
Buyer Readiness
PROMOTION:

It compasses all the tools in the marketing mix whose major role is persuasive

communications - Philip Kotler.

Elements of Marketing Communication Mix
Advertisement
Publicity
Personal Selling
Sales Promotion
Public Relations
Promotion Methods
-

Nonpersonal communication paid for by a clearly identified sponsor promoting ideas,

organizations, or products

Most familiar outlets are broadcast (TV, radio) and print (newspapers, magazines) media

However, there are many other advertising vehicles, from billboards to T-Shirts and, more
recently, the Internet

ADVERTISING:

According to American Marketing Association, Advertising is any paid form of nonpersonal presentation of ideas, goods or services by an identified sponsor.
Features of Advertising:
(i)

It is Mass-Communication Process.

(ii)

It is Informative in Action.

(iii)

It is a Persuasive Act.

(iv)

It is a Competitive Act.

(v)

It is a Paid-For.

(vi)

It has an Identified Sponsor.

(vii)

It is Non-personal Presentation.

Purpose / Objectives of Advertising:

(i)

To increase Demand.

(ii)

To sell a new product and to build

(iii)

To educate the masses.

(iv)

To build Brand Preference.

(v)

To build Goodwill.

(vi)

To attract and to help Middlemen.

(vii)

To support Salesmen.

(viii)

To remind the customers of the Product and company.

(ix)

To inform about changes in marketing Mix.

(x)

To Neutralize.

(xi)

To enter in New Geographical Area.

(xii)

To do Entire Selling Job.

(xiii)

To overcome Dissonance of buyers.

Classification of Advertising:
Basis of Geographical Area
National Advertising
Local advertising

 Global advertising
Basis of Target Groups

Consumer Advertising

Industrial Advertising

Trade Advertising

Professional Advertising
Basis of demand influence level

Primary Demand

Selective Demand
Institutional or Product Advertising

Product Advertising

Informative Product Advertising

persuasive Product Advertising

Remainder-oriented Advertising

Institutional Advertising

Criteria For selecting advertising Media

Communication Effectiveness
Geographic Selectivity
Audience Selectivity
Flexibility
Impact
Prestige
Message life
Coverage
Cost
Frequency
Lead times

Advantages of advertising
1. To Manufacturers
Increased sales
Steady demand
Lower Costs
Greater dealer interest
Quick Turnover and smaller inventories
Supplementing salesmanship
Encouragement to better performance
Creation of goodwill
2. Advantages to Consumers
Facility of Purchasing
Improvement in Quality
Elimination of unnecessary intermediaries
Consumers surplus
Education of consumers
3. Advantages to Middleman:
Guarantees Quick sales
Acts as a salesman
It makes possible retail price maintenance
4.Advantages to the society
Encouragement to Research
Sustaining the press
Change in motivation
Disadvantages
Multiplication of needs
Misrepresentation of Facts
Consumers deficit
Increased cost
Wastage of national resources

 Barriers to entry
Product proliferation
Deferred revenue expenditure
Managerial difficulties
SALES PROMOTION
-

A sponsor-funded, demand-stimulating activity designed to supplement advertising and

facilitate personal selling

Frequently consists of a temporary incentive to encourage a sale or purchase

Included are a wide spectrum of activities, such as event sponsorships, frequency

programs, contests, trade shows, in-store displays, rebates, samples, premiums, discounts,
and coupons

Marketing activities , other than personal selling , advertising and publicity that stimulate
consumer purchasing and dealer effectiveness such as display shows and exhibitions,
demonstration and various non-recurrent selling efforts not in the ordinary routine
Characteristics of sales Promotion
Sales Promotion does not include personal selling , advertising and publicity
Activities are not regular
Makes advertisement & Personal Selling more effective
It encourages dealers, distributors and consumers.
Methods/ tools of Sales Promotion
1. Consumer Promotion
Free Samples
Coupons
Money Refund offer
Temporary price Reduction/ price Off
Contests/sweepstakes
Bonus offer
Draw
After Sales service

 P-O-P material
Exchange Offer
Product placements/tie-ins
2. Middleman Promotion
Buying allowance Discount
Buy-back allowance
Display & Advertising allowances
Dealer listed Promotions
Push Money
Sales Contest
Free Gifts
Advertising materials
Credit Facility
3. Sales Force Promotions
Bonus to Sales Force
Sales force Contest
Sales Meetings
Advantages of Sales Promotion:
Introduction of new brands
During inflationary stage, to increase sales
For stimulating demand
Disadvantages
Creates feeling that it is intended to sell sub-standard product
Discounts are artificial as price is inflated
Activities are short-lived and so the result is also short-lives
Brand image may be affected
Effective activities easily copied by competitors

PERSONAL SELLING
Personal selling involves the two-way flow of communication between a buyer and seller, often
in a face-to-face encounter, designed to influence a persons or groups purchase decision.
Advantages of Personal Selling
Provides a detailed explanation or demonstration
of product
Message can be varied to fit the needs of each
prospective customer
Can be directed to specific qualified prospects
Instant feedback
Personal persuasion can be used

A good salesman can get you to buy ice in winter

Characteristics of Personal Selling
Pro
1. Flexibility
Adapt to situations
Engage in dialog
2. Builds Relationships
Long term
Assure buyers receive appropriate services
Solves customers problems

Con
Can not reach mass audience
Expensive per contact
Numerous calls needed to generate sale
Labor intensive

PUBLIC RELATIONS
Public Relations involves a variety of programs designed to promote or protect a companys
image or its individual products. PR can take many forms, including newspapers, annual reports,
lobbying, and support of charitable or civic events
Functions of PR
Promoting goodwill
Promoting product, service, corporate image
Corporate communications
Lobbying
Counteracting negative publicity
Major Decisions in PR
Establishing the marketing Objectives
Build Awareness
Build Credibility
Stimulate sales force and dealers
Build a core consumer base
Hold down promotion Cost
Build one-one relationship with customers
Influence the influential
Choosing Messages and vehicles
Implementing the plan
Evaluating Results

Advantages of PR
Very credible and inexpensive

 PR can hold down promotion costs

Disadvantages of PR
Difficult to quantify PR benefits
Lack of control
Deft management required
Public Relations
publications (annual reports, brochures, News latter)
Events (Conference, exhibitions, Anniversaries)
news (press releases)
Speeches
Service activities
Online Public Relation
Videoconferencing
Satellite Media tour
Video new release
Streaming video of live events
Website
email
Publicity
o is a special form of PR that involves news stories about an organization or its
products
o Like advertising, it consists of an impersonal message that reaches a mass audience
o But: Placement is not paid for, the organization that is the subject of the publicity has
little or no control over it, it appears as news and therefore has greater credibility than
advertising
o Organizations should try to provide the material for good publicity

PRICE
The sum or amount of money at which a thing is valued, or the value which a seller sets on his
goods in market; that for which something is bought or sold, or offered for sale
Objectives of Pricing
To maximize the profits
Competitive Situation
Capturing the Market
Long-run Welfare of the Firm
Price Stability
Achieving a Target-Return
Ability to Pay
Margin of profit to Middlemen.
Resource mobilization.
Factors Affecting the Pricing Decisions:
1. Internal factors:
(a) Organizational Factors: pricing decisions occur on two levels in the organization. Overall
Price strategy is with the top executives. They determine the basic ranges that the product falls
into in terms of market segments.
The actual mechanics of pricing are dealt with at lower levels in the firm and focus on
individual product strategies.
(b) Marketing Mix: Marketing experts view prices as only one of the many important elements
of the marketing mix. A shift in any one of the elements has an immediate effect on the other
three- production, Promotion and distribution.
(c) Product Differentiation: The price of the product also depends upon the characteristics of the
product. In order to attract the customers, differentiation
Pricing Process

1. Set Pricing Objectives

2. Analyze demand
3. Estimating Cost
4. Analyzing Competitors Costs, Prices and Offers
5. Select pricing Method
6. Selecting the final price
I Pricing Objectives

Profit objectives e.g.

Targeted profit return

Volume objectives e.g.

Dollar or unit sales growth

Market share growth

Other objectives e.g.

Match competitors price

Non-price competition

II Demand Analysis
Measure the impact of price change on total revenue
Predicts unit sales volume and total revenue for various price levels
Different customers have different price sensitivities and needs
Price Sensitivity

Unique-Value Effect

Substitute awareness effect

Difficult-Comparison Effect

Total-Expenditure Effect

End-Benefit Effect

Shared-Cost Effect

Sunk-Investment Effect

Price-quality Effect

Inventory Effect

Estimating Demand Curve

Statistical analyzing past prices, quantities sold etc.
Conduct price experiments
Ask buyer to state how many units they would buy at different proposed prices.
Price Elasticity of Demand
Marketers need to know how responsive or elastic, demand would be to a change in price.
III Estimating Cost
Demand sets a ceiling on the price the company can charge for its product.
Cost set the floor.
The company wants to change a price that covers its costs of producing, distribution and
selling the product, including a fair return for its effort and risk.
Types of costs and levels of production
Fixed Cost
Variable Cost
Total cost
Decline in the average cost with accumulated production experience is called the experience
curve or learning curve.
Accumulated Production
Differentiated Marketing Offers
Todays companies try to adapt their offers and terms to different buyers.
Thus, a manufacturer will negotiate different terms with different retail chains, meaning
the costs and profits will differ with each chain.
To estimate the real profitability of dealing with
different retailers, the manufacturer needs to use activity-based cost (ABC) accounting
instead of standard cost accounting

Target Costing
Cost can also change as a result of a concentrated effort by the companys designers,
engineers, and purchasing agents to reduce them.
Many Japanese firms use a method called target costing.
First, they use market research to establish a new products desired functions, then they
determine the price at which the product will sell given its appeal and competitors prices.
They deduct the desired profit margin from this price, and this leaves the target cost they
must achieve.
IV Analyzing Competitors Costs, Prices, and Offers
Within the range of possible prices determined by market demand and company costs, the
firm must take into account its competitors costs, prices, and possible price reactions.
If the firms offer is similar to a major competitors offer, then the firm will have to price
close to the competitor or lose sales.
If the firms offer is inferior, it will not be able to charge more than the competitor
charges.
If the firms offer is superior, it can charge more than does the competitorremembering,
however, that competitors might change their prices in response at any time.
V Selecting a Pricing Method
Customers demand schedule,
Cost function, and
Competitors
Pricing Method

Mark up Pricing: The practice of adding a constant percentage to the cost price
of an item to arrive at its selling price.

Target- Return Pricing: is a pricing method used almost exclusively by market

leaders or monopolists.

Perceived- value Pricing: is an open line pricing technique where respondents

estimate the price of a new product compared to those who are already in the
market.

Value Pricing: Occurs when prices are set on the basis of fair value for both the
service provider and the consumer.

Going-Rate Pricing: Establishing the price for a product or service based on

prevalent market prices. (steel or meat ).

Sealed Bid Pricing: Price quotes solicited by governmental and other public
agencies to ensure objective consideration of competitive bids.

Selecting the final price

Psychological Pricing

The influence of other Marketing-mix Elements

Company pricing policies

Impact of Price on other parties

Adapting the price

Geographical Pricing- (Barter, Compensation deal, Buyback arrangement, Offset).

Price discounts & allowances

Cash Discounts

Quantity Discounts

Functional Discounts/ trade discounts.

Seasonal Discounts - price reduction to buyers who buy merchandise.

Allowances / Trade-in allowances. (turning in an old item when buying a

new one

Promotional Pricing

Loss-Leader Pricing

Special-event Pricing

Cash Rebates

Low-interest financing

Longer Payment terms

Warranties & Service Contracts

Discriminatory Pricing

Customer-segment pricing - Museums often charge a lower admission fee

to students and senior students.

Product form pricing : Different versions of the product are priced

differently but not proportionately to their respective costs.

Image pricing: Some companies price the same product at two different
levels based on image differences.

Location pricing

Time Pricing: varied by season, day, or hour.

Product-Mix Pricing

Product-Line Pricing - Companies normally develop product lines rather than single
products and introduce price steps. Rs.200, 400, and 600.

Optional-feature Pricing Many companies optional products ,features.

Captive-product Pricing- Some products require the use of ancillary or captive products.
Manufacturers of razors, digital phones and cameras often price them low and set high
markups on razor blades and film, respectively.

Two-part Pricing - Service firms often engage in two-part pricing, consisting of fixed fee
plus a variable usage fee. Amusement parks charge an admission fee plus fees for rides
over a certain minimum.

By-product Pricing- Any income earned on the by-products will make it easier for the
company to charge a lower price on its main product if competition forces it to do so.

Product- Bundling Pricing- is a marketing strategy that involves offering several products
for sale as one combined product. This strategy is very common in the software business
(for example: bundle a word processor, a spreadsheet, and a database into a single office
suite )

Initiating & Responding to Price Changes:

Initiating Price Cuts

Excess plant capacity

Declining market Share

Dominating the market

Results in various traps like low-quality,

Fragile market:
A low price buys market share but not market loyalty. and shallow-pocket traps

Initiating price increases

Cost inflation

Over demand

Reactions to price Changes

Customers reactions

Competitors

Distribution / Marketing Channels: