Marketing Management (PDFDrive)

Marketing Management
Developed By
Prof. S. Rajagopalan
On behalf of
Prin. L.N.Welingkar Institute of Management Development & Research
About the Author
Prof.S.Rajagopalan after graduating from Delhi University’ joined UDCT for

Chemical Technology. He has a MBA with specialization in Marketing from Bajaj
Institute of Management studies and advanced diploma in Management from
Darden, University of Virginia, one of top ten B schools of USA.
He has a professional experience of over 35 yrs mostly in MNC’s like Binnys,

Hoechst and Ciba Geigy. He has also served on international assignments with
Ciba for two yrs in Switzerland. In Ciba he has handled Division Head positions
for Consumer products, HRD and Corporate planning. His last assignment was
with Ciba as Divisional Head of industrial chemicals.
He has a passion for teaching and has been teaching for over 30 yrs first as
visiting faculty for Bajaj and IIM’s and now as full time faculty of Welingkars. He is
also a visiting faculty for marketing and strategic management at Darden and
OSU in USA. He has attended a special course on CRM techniques run by M/S
Patricia Seybold.
Currently he is Dean Marketing & Academics and heads centers of Excellence in

Marketing and Retail studies.
He has put in extensive efforts to develop subject book for our distance learning
PGDBA syllabus. We are sure that the book will be extremely useful to the
students in their Marketing career.
Prof.Dr.Uday Salunkhe 
Director 
Welingkar Institute of Management Development & Research
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1
The Nature of Marketing
Objectives
After completing this chapter, you will be able to understand:
• The term Marketing.
• Marketing management Philosophies.
• Sales and Marketing Orientation.
• Macro and Micro Marketing.
• Marketing Process.
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Structure:
1.1 Introduction
1.2 How many of these are marketing activities?
1.3 Definition of Marketing
1.4 Marketing Management Philosophies
1.5 The Organization's Focus
1.6 Customer Value
1.7 The Firm's Business
1.8 Tools the Organization uses to Achieve its Goals
1.9 Marketing in non Profit Organizations
1.10 Macro and Micro Marketing Defined
1.11 Marketing Process
1.12 Reasons for Studying Marketing
1.13 Key Terms
1.14 Summary
1.15 Self Assessment Questions
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1.1 INTRODUCTION
Many people are surprised when they realize how many different ideas and
activities are included in the term “marketing.” If someone were to ask a
large group of people to describe what they think of when they hear the term,
“marketing,” most of the people in the group would probably say that
marketing involves selling and advertising. However, one of the most
important things people learn from studying marketing is that it is a very
wide-ranging term and that marketing is much more than selling or
advertising.
As an example, think about a manufacturer of bicycles. If you have ever
been to a bicycle shop, or a sporting goods store, or even a big chain store
like Akbarallys, you know that there are many different bicycles produced
under many brand names. At the same time, there are many types of
bicycles having various features. Prices range from relatively low to very
high.
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By focusing on the many tasks involved in producing a bicycle, it is possible

to get a feel for the wider range of marketing activities.
Among the different things a firm must do in producing a bicycle, it must:
Analyze the needs of people for various types of bicycles;
Predict the types of bicycles consumers will want and decide which
consumers to satisfy;
Estimate the number of bicycle riders and how many bicycles they might
buy;
Predict when consumers will want to buy;
Determine where the consumers will be and how to get bicycles to them;
Estimate the price consumers are willing to pay for a bicycle, and if that price
will result in a profit for the firm;
Decide what kinds of promotion should be used to inform consumers about
the firm and its bicycles;
Estimate the impact of competition from other bicycle producers;
Figure out how to provide warranty service after a customer purchases a
bike.
1.2 HOW MANY OF THESE ACTIVITIES ARE MARKETING ACTIVITIES?

Production and marketing are both fundamental economic activities.
However, some people misunderstand the relationship between them. Thus,
it helps to have a clear picture of how production and marketing interact with
each other.
Production involves making goods, such as manufacturing bicycles, or
performing services, such as providing repair services for the bicycles.
Clearly, production makes it possible for people to have a higher standard of
living than they would have without it.
Marketing is just as necessary as production, because products do not sell
themselves!
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Marketing makes sure that the right goods and services are produced.
Marketing also creates customer satisfaction: the extent to which an
organization fulfills a customer’s needs, desires and expectations.
Production and marketing work together to create utility: the power to satisfy
human needs.
There are five kinds of economic utility.
Form utility is provided when an organization or individual produces
something tangible—like making a bicycle.
Task utility is provided when an organization or individual performs a task
for someone else.
An example would be a bank handling financial transactions.
Both form and task utility result mainly from production processes, but they
are guided by marketing. The product must be something that consumers
want or there is no need to be satisfied—and no utility.
Time utility means having the product available when the consumer wants
it.
Place utility means having the product available where consumers want it.
Both time and place utility have become more important to consumers over
the past several years, because the demands that people have for
convenience are greater than they used to be.
1.3 DEFINITION OF ‘MARKETING’
• Marketing is not the same as selling or advertising.

• Marketing includes selling, advertising, making products available in stores,
arranging displays, maintaining inventories, and much more.
• Marketing is a philosophy or a management orientation that stresses the

importance of customer satisfaction, as well as the set of activities used to
implement this philosophy.
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• The American Marketing Association definition of marketing: 

 
“Marketing is the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods, and services to
create exchanges that satisfy individual and organizational goals.” 
 
“There will always, one can assume, be the need for some selling. But the
aim of marketing is to make selling superfluous. The aim of marketing is to
know and understand the customer so well that the product or service fits
him and sells itself. Ideally, marketing should result in a customer who is
ready to buy. All that should be needed then is to make the product or
service available....” Peter F. Drucker, Management: Tasks,
Responsibilities, Practices (New York: Harper & Row,1973), pp. 64-65.
Activity A
List five activities that are carried now under customer based marketing in
your industry, that were absent in the product based marketing of the past.
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The Concept of Exchange
The concept of exchange means that people give up something in order to

receive something that they would rather have. The usual medium of
exchange is money. Exchange can also be fostered through barter or trade
of items or services.
Five conditions must be satisfied for an exchange to take place:
• There must be at least two parties.

• Each party must have something the other party values.
• Each party must be able to communicate with the other party and deliver
the goods or services sought by the other trading party.
• Each party must be free to accept or reject the other's offer

• Each party must want to deal with the other party.
Exchange may not take place even if all of these conditions exist, but these
conditions are necessary for exchange to be possible. It is important to
understand that marketing can occur even if exchange does not take place.
Marketing makes exchange possible but does not guarantee it. For instance,
not everyone who sees an advertisement or enters a retail location (bricks or
clicks) actually makes a purchase.
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1.4 MARKETING MANAGEMENT PHILOSOPHIES

Four competing philosophies strongly influence an organization's marketing
activities. These philosophies are commonly referred to as production, sales,
marketing, and societal orientations.
A) Production Orientation
The production orientation focuses on internal capabilities of the firm
rather than on the desires and needs of the marketplace. The firm is
concerned with what it does best, based on its resources and experience,
rather than with what consumers want.
The production orientation is most likely to work for firms producing generic
products that compete almost solely on price. An excellent example of this
situation is the fast food industry. For years the focus of competition was
price. Then, as a marketing orientation was adopted fast food sought
consumer input regarding how they liked their food prepared and what menu
items they really desired However, firms in a competitive market must have a
clear understanding of what customers want and then produce it in order to
be successful.
Philosophy Key Ideas

Production Focus on efficiency of internal operations
Focus on aggressive techniques for overcoming
Sales
customer resistance
Market Focus on satisfying customer needs and wants
Focus on satisfying customer needs and wants while
Societal
enhancing individual and societal well-being
B) Sales Orientation
A sales orientation assumes that more goods and services will be
purchased if aggressive sales techniques are used and that high sales result
in high profits.
The sales orientation is often used with unsought products like life insurance,
burial plots, and real estate time shares. The fundamental problem with a
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sales orientation is a lack of understanding of the needs and wants of the

marketplace.
C) Market Orientation
The marketing concept states that the social and economic justification for
an organization’s existence is the satisfaction of customer wants and needs
while meeting organizational objectives.
The marketing concept involves:
• Focusing on customer wants and needs so the organization can

differentiate its product(s) from competitors’ offerings
• Integrating all the organization’s activities, including production, to satisfy

these wants and needs
• Achieving long-term goals for the organization by satisfying customer wants

and needs legally and responsibly
A market orientation assumes that a sale does not depend on an
aggressive sales force but rather on a customer’s desire to purchase a
product. Market orientation requires
• Top management leadership

• A customer focus
• Competitor intelligence
• Interfunctional coordination to meet customer wants and needs and deliver
superior values
Understanding your competitive arena and competitor’s strengths and
weaknesses is a critical component of market orientation. Market-
oriented companies are successful in getting all business functions
together to deliver customer value.
The differences between sales and marketing orientations
• Sales trying to get the customer to want what the company produces
• Marketing trying to get the company to produce what the customer wants
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Levi’s concentrated on the baby boomer market and lost sight of the wants of
younger market groups. As a result, they virtually lost that market share to
other manufacturer’s jeans styles.
D) Societal Marketing Orientation
• The philosophy called a societal marketing orientation states that an

organization exists not only to satisfy customer wants and needs and to
meet organizational but also to preserve or enhance individual’s and
society’s long-term best interests.
• This orientation extends the marketing concept to serve three bodies rather
than two: customers, the organization itself, and society as a whole
The societal marketing orientation has led many firms to develop more
environmentally sound products such as concentrated soaps and
detergents sold in smaller amounts. Many newspapers use soy-based
inks and recycled paper in an effort to be more environmentally
sensitive.
Evolution of the role of marketing function in a company
As marketing has evolved, its focus has changed from a focus on products to
a focus on customer needs. An important point to remember is that some
managers have not made it all the way to the final stages of marketing
evolution.
In the simple trade era, as specialization develops, families trade or sell
their output to local middlemen. Local middlemen, in turn, resell these goods
to other consumers or more distant middlemen. This early role of marketing
is still the focus of much of the marketing activity in the less developed areas
of the world.
During the production era, the company focuses on production of a few
specific products. The firm often sees little competition, so in reality, there is
no ceiling on the demand for the firm’s products. Firms with a production
orientation focus on producing more efficiently, and selling what it’s easy to
produce.
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In the sales era, as production rises, competition increases. There is finite

demand for an individual firm’s products and services, so a surplus of
products for sale soon develops. The focus is on pushing products via
advertising, personal selling, or other promotional techniques in order to sell
down the surplus stocks and beat the competition.
Some organizations have evolved into the marketing department era. They
recognize that there are several functions of marketing that need to be
performed. So the emphasis is on coordinating these activities in a marketing
department.
Some organizations have advanced to the marketing company era. In a
company that is truly marketing-oriented, marketing is not just a series of
functions, but an overall philosophy.
Everyone in the organization is involved in helping to increase customer
satisfaction, leading to long term relationships between the organization and
its customers.
The cornerstone of the marketing-oriented company is the marketing
concept. Specific businesses and their managers may still focus on more
narrow concerns than satisfying customers. Thus, if the organization is to
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adopt a marketing orientation, it must find out, through research, what

customer needs are in advance of designing marketing activities and
programs that will meet those needs. Successful implementation of the
marketing concept means that customer satisfaction guides the whole
organization. Managers lead all individuals within the organization to work
together to accomplish this goal.
Profit refers to the difference between a firm’s revenue and its total costs.
Identifying, developing, and implementing the products and product changes
that consumer’s demand requires that the company be profitable. Profits
provide the resources to pay for satisfying customers.
In a firm that has adopted the marketing concept, everyone focuses on
customer satisfaction.The organization offers superior customer value.
Value, in turn, helps attract customers and keeps them satisfied after they
buy.
1.5 THE ORGANIZATION’S FOCUS
• Sales-oriented firms tend to be inward-looking. They focus on satisfying

their own needs rather than those of customers.
• Market-oriented firms derive their competitive advantage from an external

focus.
Departments in these firms coordinate their activities and focus on satisfying
customers.
1.6 CUSTOMER VALUE
• Customer value is the ratio of benefits to the sacrifice necessary to obtain

those benefits.
• Creating customer value is a core business strategy of many successful

firms.
Customer value is the difference between the benefits a customer sees from
a market offering and the costs of obtaining those benefits. The customer is
likely to be more satisfied when the customer value is higher—when benefits
exceed costs by a larger margin. On the other hand, a customer who sees
the costs as greater than the benefits isn’t likely to become a customer. One
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complication is that different customers may see the benefits and costs in
different ways, making it difficult to satisfy everyone with the same offering.
In addition, the customer may not always dwell on value as a key
determinant of buying behavior.
Marketers interested in customer value
• Offer products that perform

• Give consumers more than they expect
• Avoid unrealistic pricing
• Give the buyer facts
• Offer organization wide commitment in service and after- sales support
The firm will best meet its own goals by satisfying the needs and wants
(and expectations) of its customers. The ratio of perceived benefits to
perceived costs will determine whether the firm has succeeded in
creating value for its customers.
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Customer Satisfaction
Customer satisfaction is the feeling that a product has met or exceeded the
customer’s expectations. The organizational culture focuses on delighting
customers rather than on selling products. To better understand what it takes
to satisfy a customer, it’s useful to take the customer’s point of view. This
satisfaction then leads to repeat purchase.
As the firm maintains this profitable relationship with its customers, the profit
gives the firm the incentive and the resources to find new and better ways to
offer superior customer value. Therefore, adopting the marketing concept is
a “win-win” situation for marketers and consumers, in that both parties will
benefit!
Building Relationships
Relationship marketing is a strategy that entails forging long-term
partnerships with customers and contributing to their success.
• The Internet is an effective tool for generating relationships with customers.

• Customers benefit from stable relationships with suppliers.
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• A sense of well-being occurs when one establishes an ongoing relationship

with provider.
• Most successful relationship marketing strategies depend upon:
a. customer-oriented personnel who focus on building relationships
with customers,
b. effective training programs teach employees and managers how to
treat customers,
c. employees with more authority to solve customer problems on the
spot (empowerment)
d. and teamwork.
Anyone who buys from a company is a customer, whether that is an
individual or another company. Developing long-term relationships with
suppliers and customers is seen as one of the most important areas for
improving firm performance.
Activity B
Prepare a customer feedback form for a five star hotel or a beauty parlour.
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1.7 THE FIRM’S BUSINESS
• A sales-oriented firm defines its business in terms of the goods and

services it offers, like a encyclopedia publisher defining itself simply as a
book publisher/seller.
• A market-orientated firm defines its business based on the benefits

customers seek.
• Why is this customer benefit definition so important?

a. It ensures the firm keeps focusing on customers
b. It encourages innovation and creativity by reminding people that there
are many ways to satisfy customer wants.
c. It stimulates an awareness of changes in customer desires and
preferences.
• Focusing on customer wants does not mean that customers will always
receive the specific goods and services they want.
a. Giving the customer exactly what he or she wants is not practical if
doing so threatens the survival of the firm.
b. Sound professional judgment must influence the decision about which
goods or services should be offered. Perhaps the most prudent
course will be to alter the way consumers perceive their needs and
means of satisfaction.
Those for Whom the Product Is Directed
• A sales-oriented organization targets its products at “everybody” or “the

average customer.” However, few “average” customers exist.
Many businesses make the mistake of trying to be everything to
everyone. Without a clear idea of what they are and who the potential
customers are, the firm will have trouble developing an image or
communicating with consumers efficiently. These firms often do not
realize that limiting themselves to one market is actually more effective
and will be more profitable than attempting to serve everyone.
• The market-oriented firm
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a. Recognizes that different customer groups have different wants

b. Targets specific subgroups of customers
c. Designs special products and marketing programs for these groups
The Firm’s Primary Goal
• The goal of a sales-oriented firm is profitability through sales volume. The

focus is on making the sale rather than developing a long-term relationship
with a customer.
• The ultimate goal of most market-oriented organizations is to make a profit

from satisfying customers. Superior customer service enables a firm to
have large amounts of repeat business, customer loyalty, and higher profit
margins.
1.8 TOOLS THE ORGANIZATION USES TO ACHIEVE ITS GOALS
• Sales-oriented firms seek to generate sales volume through intensive

promotional activities, mainly personal selling and advertising.
• Market-oriented organizations recognize that promotion is only one of the

four basic tools that comprise the marketing mix. The tools are the
marketing mix elements (the four P’s): product, place (distribution),
promotion, and price.
The important distinction is that market-oriented firms recognize that each of
the four components of the marketing mix is of equal importance: sales-
oriented organizations view promotion as the primary means of achieving
their goals.
Marketing is so basic that it cannot be considered a separate
function......It is the whole business seen from the customer’s point of
view.” - Peter Drucker
Where does competition fit? Customers have choices about how to meet
their needs. So, a firm that offers superior customer value is likely to win
customers. Moreover, the firm will be likely to keep customers because
customer value builds relationships. Understanding customer value is
especially important when the products and services different firms offer are
very similar.
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This model summarizes the important ideas presented to this point.
1.9 MARKETING IN NON PROFIT ORGANIZATIONS

The marketing concept is also applicable to nonprofit organizations such as
museums Issues. Nonprofit organizations are relative newcomers to
marketing. To some extent, these organizations have been forced to become
more customer-oriented, as public financing for these nonprofit organizations
has declined. While the objectives of nonprofit organizations are not strictly
economic, they may still be operated much as for-profit businesses.
However, they differ in several ways:
Nonprofit organizations often have a different idea of support and
“satisfied customers” than do business firms. Nonprofits often exist to
accomplish a goal unrelated to traditional customer satisfaction. In fact,
many nonprofits specifically raise money from non-customer groups and
then spend it on “customers” who define a cause. They may not have a
traditional “bottom line” economic measure of success, such as profit or
return on investment. While the costs associated with achieving nonprofit
success may be measured, objectives usually require a measure of success
other than profit.
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Partly due to the nature of nonprofit organizations, they may not be

organized for marketing, or to take advantage of and use marketing-related
concepts and tools. Each nonprofit organization is trying to satisfy some
group of consumers in some way. So, the marketing concept provides a
focus on what is really needed.
1.10 MACRO AND MICRO MARKETING DEFINED
Marketing is more than selling and advertising, but it also possible to define
marketing too broadly. In defining marketing, there are really two alternative
views—micro-marketing or macro-marketing.
Micro-marketing is the performance of activities that seek to accomplish an
organization’s objectives, by anticipating customer needs and directing flows
of goods and services to customers that will satisfy those needs. In other
words, micro-marketing is a set of activities performed by organizations.
Micro-marketing is done by organizations; beyond that general definition,
there are several specific aspects of micro-marketing that marketers should
consider. Micro-marketing is more than persuasion. There are many other
marketing activities that lead to customer satisfaction, outside of advertising
and selling. Micro-marketing begins with customer needs—marketing
activities should precede and guide the production of goods and services
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that satisfy needs, instead of taking place only after the production process
has ended. Marketing does not do it alone. It does not take the place of other
business activities—it gives them a unifying focus— customer satisfaction.
Micro-marketing builds a relationship with the customer that will lead to
repeat purchases over time—not simply a single transaction.
The focus is on management-oriented micro-marketing—what managers
can do to create greater need satisfaction and loyalty among consumers.
Macro-marketing is a somewhat broader view. It refers to the social
process that directs goods and services in an economy from producers to
consumers in a way that accomplishes the objectives of society by effectively
matching supply and demand. In other words, macromarketing is concerned
with how marketing activities affect society, and vice versa. In contrast to
micro-marketing, macro-marketing’s emphasis is on how the whole
marketing system works.
Every economy needs a macro-marketing system, because every consumer
has a different set of needs. At the same time, there is a great deal of
variation among the types of producers that are available to meet
consumers’ needs. It is the job of the macro-marketing system to match the
outputs of producers to the needs of consumers in an efficient way.
Efficiency must also be combined with effectiveness and fairness. How
effective or fair an economy’s macro-marketing system is depends, to some
extent, on how it is perceived in the context of that particular economy.
People in one country may view their macro-marketing system as very
effective and fair, while people from other countries may think that nation’s
system is not.
1.11 MARKETING PROCESS

Marketing Is So Basic That It Cannot Be Considered a Separate
Function. It Is the Whole Business Seen From the Customer’s Point of
View.”
- Peter Drucker
• Understanding the organization’s mission and vision, and the role

marketing plays.
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• Setting marketing objectives

• Gathering, analyzing, and interpreting information about the organizations
situation, including its strengths and weaknesses, as well as opportunities
and threats in the environment.
• Developing marketing strategy by deciding exactly which wants and whose

wants the organization will try to satisfy, and by developing appropriate
marketing activities to satisfy the desires of selected target markets.
• Implementing the marketing strategy

• Designing performance measures
• Periodically evaluating marketing efforts and making changes if needed.
Who performs marketing activities?
Individuals and organizations perform marketing functions. It is often easiest
to think of producers, such as manufacturers of tangible products and
providers of intangible services. However, there are many other marketing
performers.
Consumers are actively involved in performing marketing. Their needs drive
the marketing responses of many organizations. Consumers also provide
marketing information to organizations wishing to serve them better.
Marketing specialists, such as wholesalers, retailers, and other
intermediaries, execute specific marketing tasks related to buying and
selling.
Facilitators are firms that provide one or more of the marketing functions
other than buying and selling. They include advertising agencies, marketing
research firms, independent producttesting laboratories, Internet service
providers, and transporting firms, to name a few.
As macro-marketing systems develop, the universal functions of marketing
need to be performed by someone. However, from a micro perspective, there
can be specialization in the performance of these functions. The functions
can also be shared and shifted among the marketing performers. For
instance, a large manufacturer that maintains a large, in-house marketing
research function, may outsource that function to a marketing specialist—an
external marketing research firm.
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1.12 REASONS FOR STUDYING MARKETING
• Marketing Plays an Important Role in Society
๏ Marketing provides a delivery system for a complex standard of living.

The number of transactions needed everyday in order to feed, clothe,
and shelter a population the size of the one in the United States is
enormous and requires a sophisticated exchange mechanism.
• Marketing Is Important to Businesses

The fundamental objectives of most businesses are survival, profits, and
growth. Marketing contributes directly to achieving these objectives.
Marketing provides the following vital business activities
★Assessing the wants and satisfactions of present and potential
customers
★Designing and managing product offerings
★Determining prices and pricing policies
• Marketing Offers Outstanding Career Opportunities

★Between one-fourth and one-third of the entire civilian work force in the
United States performs marketing activities.
★Marketing offers career opportunities in areas such as professional
selling, marketing research, advertising, retail buying, distribution
management, product management, product development, and
wholesaling.
★Increasing importance of the global marketplace.
• Marketing Affects Your Life Every Day

★As consumers of goods and services, we participate in the marketing
process every day.
★Almost 50 paise of every rupee consumers spend goes to pay
marketing costs such as market research, product research and
development, packaging, transportation, storage, advertising, and
sales-force expenses.
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Marketing activities affect everyone every day. Approximately half of

everything we spend pays for marketing costs, such as research and
product development, packaging costs, distribution (including
transportation, storage, and merchandising), and promotions
(including advertising, sales expenses, and so on).
1.13 KEY TERMS

Production: actually making goods or performing services.
Customer satisfaction: the extent to which a firm fulfills a consumer’s
needs, desires, and expectations.
Utility: the power to satisfy human needs.
Form utility: provided when someone produces something tangible.
Task utility: provided when someone performs a task for someone else—for
instance when a bank handles financial transaction.
Time utility: having the product available when the customer wants it.
Place utility: having the product available where the customer wants it.
Possession utility: obtaining a good or service and having the right to use
or consume it.
Micro-marketing: the performance of activities that seek to accomplish an
organization’s objectives by anticipating customer or client needs and
directing a flow of need-satisfying goods and services from producer.
Macro-marketing: a social process that directs an economy’s flow of goods
and services from producers to consumers in a way that effectively matches
supply and demand and accomplishes the objectives of society.
Economic system: the way an economy organizes to use scarce resources
to produce goods and services and distribute them for consumption by
various people.
Planned economy: government planners decide what and how much is to
be produced and distributed by whom, when, to whom, and why.
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Micro-macro dilemma: what is good for some producers

Pure subsistence economy: each family unit produces everything it
consumes.
Market: a group of potential customers with similar needs who are willing to
exchange something of value with sellers offering various goods and/or
services—that is, ways of satisfying those needs.
1.14 SUMMARY
Marketing involves many activities in addition to selling and advertising.
Marketing is the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to create exchanges
that satisfy individual and organizational goals.
There are four philosophies of marketing namely Production Orientation,
Sales Orientation, Market Orientation and Societal Marketing Orientation.
Marketing has evolved from its focus on products to focus on long run
customer satisfaction. Relationship marketing is a strategy that entails
forging long term partnerships with customers and contributing to their
success. Production, place (distribution), promotion and price are tools that
organization uses to achieve its goals.
Micro marketing covers a set of activities performed by organizations. While
Macro marketing emphasizes how the whole marketing system works in a
society by a social process that directs goods and services from producers to
consumers.
1.15 SELF ASSESSMENT QUESTIONS

1. Define the term Marketing.
2. Describe four marketing philosophies.
3. What is the difference between Sales and Marketing orientations?
4. Describe how focus of marketing has shifted from simple trade era to
present marketing era.
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
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2
Marketing Planning
Objectives
• Marketing Management Process
• Planning Marketing Strategy
• Target Marketing
• Four Ps in Marketing Mix
• Marketing Strategy, Plan and Program
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Marketing Planning
Structure:
2.1 Introduction
2.2 Marketing Management
2.3 The Nature of Strategic Planning
2.4 Marketing Plan Elements
2.5 Defining Business Mission
2.6 McDonald's Business Mission
2.7 Set Marketing Plan Objectives
2.8 Sources of Competitive Advantage
2.9 Cost Advantage
2.10 Differential Advantage
2.11 Building Tomorrow's Competitive Advantage
2.12 Strategic Directions
2.13 Product Development
2.14 Diversification
2.15 Selecting Strategic alternative
2.16 Marketing Strategies
2.17 Target Market
2.18 Target Market Strategy
2.19 Following up Marketing Plan
2.20 Marketing Audit
2.21 Key Terms
2.22 Summary
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Marketing Planning
2.1 INTRODUCTION
A major challenge for marketing-oriented companies as they respond to the
rapidly changing marketplace is to engage continuously in market-oriented
strategic planning. They must learn how to develop and maintain a viable fit
among their objectives, resources, skills, and opportunities. The strategic
planning process is carried out at the corporate level, business level, and
product level. The objectives developed at the corporate level move down to
lower levels where business strategic plans and marketing plans are
prepared to guide the company’s activities. Strategic planning involves
repeated cycles of planning, implementation, and control.
Marketing plans focuses on a product/market and consists of the detailed
marketing strategies and programs for achieving the product’s objectives in a
target market. Marketing plans are the central instrument for directing and
coordinating the mar programs, the tactical marketing activities likely will not
be as successful as when the coordination effort starts from the beginning.
The distinction between the strategic and tactical marketing plans and efforts
is very important, because if the firm and its marketing organization fail to
recognize the interdependent yet separate activities involved in the strategic
and tactical marketing efforts, the results will be less than expected. Without
effective value development in the strategy planning, which come from the
firm’s research and analysis.
2.2 MARKETING MANAGEMENT

The marketing management process refers to the planning,
implementation, and control of marketing activities. These activities are
continuous, and decisions made in the past in one area can have
implications on the other areas as well.
The ongoing process of marketing management requires attention to three
areas:
Planning is required because marketing managers must seek attractive new
opportunities. Customers’ needs and wants change. Marketing managers
must anticipate such changes, seek new opportunities, and plan how the
firm will move to meet them with satisfying products.
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Marketing Planning
Implementation is the process of putting marketing plans into action.

Control deals with assessing and evaluating marketing performance.
Marketing managers are responsible for determining if everything is working
out as planned. Goals and objectives are typically set and one or more
measures of progress are taken to assess performance. When performance
falls short of expectations, it is up to the marketing manager to take
corrective action.
At the company-wide level, strategic (management) planning is the
managerial process of developing and maintaining a match between an
organization’s resources and its market opportunities. Within any
organization, marketing planning is a part of the strategic management
planning for the entire company. The more marketing-oriented a firm is, the
larger a role marketing planning will play in the strategic planning of the
entire organization.
Strategic marketing planning is the basis for all marketing strategies and
decisions. The marketing plan is a written document that acts as a
guidebook of marketing activities for the marketing manager. By specifying
objectives and defining the actions required to attain them, a marketing plan
provides the basis on which actual and expected performance can be
compared.
2.3 THE NATURE OF STRATEGIC PLANNING

Strategic planning is the managerial process of creating and maintaining a
fit between the organization’s objectives and resources and evolving market
opportunities.
• Marketing managers must plan, organize, and control marketing activities.

They must develop both long-range (strategic) and short-range (tactical)
plans.
• Strategic decisions require long-term resource commitments with major

financial consequences. A good strategic plan can help to protect a firm’s
resources against competitive onslaughts.
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Marketing Planning
• Strategic marketing management addresses two questions: What is the

organization’s main activity at a particular time? And how will it reach its
goals?
Marketing plan
• Planning is the process of anticipating future events and determining

strategies to achieve organizational objectives in the future.
• Marketing planning involves designing activities relating to marketing

objectives and the changing marketing environment.
Why write a marketing plan?
• The marketing plan is a written document that acts as a guidebook of

marketing activities for the marketing manager .
• The marketing plan allows you to examine the external marketing

environment in conjunction with the inner workings of the business,
allowing the firm to enter the marketplace with an awareness of possibilities
and problems.
2.4 MARKETING PLAN ELEMENTS

There are elements common to all marketing plans, such as defining the
business mission and objectives, performing a situation analysis, delineating
a target market, and establishing components of the marketing mix.
Writing the Marketing Plan
Creating a complete marketing plan is not a simple or quick effort. And the
plan is only as good as the information it contains and the effort, creativity,
and thought that went into its creation.
• Many of the elements in the plan are decided upon simultaneously and in
conjunction with one another.
• Every marketing plan is unique to the firm for which it was created.
• Basic factors that should be covered include business mission, setting
objectives, performing a situation analysis, selecting target markets,
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Marketing Planning
delineating a marketing mix, and establishing ways to implement, evaluate,

and control the plan.
2.5 DEFINING THE BUSINESS MISSION

The firm’s mission statement is the long-term vision based on a careful
analysis of benefits sought by present and potential customers and analysis
of existing and anticipated environmental conditions.
Defining the business in terms of goods and services rather than in terms of
the benefits customers seek is sometimes called marketing myopia. In this
context, the term myopia means narrow, short-term thinking, which can
threaten an organization’s survival.
Business Mission answers the question: What business are we in and where
are we going? Focuses on markets rather than the good or service.
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Marketing Planning
2.6 MCDONALD’S BUSINESS MISSION
Serving a limited menu of hot, tasty food quickly in a clean, friendly

restaurant for a good value to a broad base of fast - food customers
worldwide.
The organization may need to define a mission statement and objectives for
a strategic business unit (SBU), which is a subgroup of a single business,
or collection of related businesses within the larger organization.
Strategic business units will have the following characteristics:
• A distinct mission and a specific target market

• Control over their resources
• Their own competitors
• Plans independent of the other businesses in the organization
2.7 SET MARKETING PLAN OBJECTIVES

A marketing objective is a statement of what is to be accomplished through
marketing activities. Marketing objectives should be realistic, measurable,
and time specific.
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Marketing Planning
When Mountain Dew Sport was introduced the company’s goal was to
have a 5 percent share of the sports drink market within three years.
“Our objective is to increase market share by 40% and to obtain
customer satisfaction ratings of at least 90% in 2001.”
Objectives communicate marketing management philosophies, provide
direction, serve as motivators, are a basis for control, and force executives to
clarify their thinking
Conducting a Situation Analysis
A situation analysis is sometimes referred to as a SWOT analysis. that is,

the firm should identify its internal strengths (S) and weaknesses (W) and
also examine external opportunities (O) and threats (T)
Environmental scanning is the collection and interpretation of information
about forces, events, and relationships in the external environments that may
affect the future of the organization.
Environmental scanning helps identify market opportunities and threats and
provides guidelines for the design of marketing strategy.
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Marketing Planning
The six most often studied macro environmental forces are social,
demographic, economic, technological, political/legal, and competitive.
A strategic window is the limited period of time during which the “fit”
between the key requirements of a market and the particular competencies
of a firm are at an optimum.
Activity A
Prepare a swot analysis chart as shown in this chapter for your educational
institute.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
2.8 SOURCES OF COMPETITIVE ADVANTAGE
• Competitive advantage consists of a set of unique features of a company

and its products that are perceived by the target market as significant and
superior to the competition.
• Factor or factors which cause customers to patronize a firm and not the
competition.
The key to creating an effective competitive advantage is having an in-depth
understanding of the targeted market’s needs so that the company’s
products/services satisfy those needs more completely than the
competition’s products/services.
• There are three types of competitive advantages.
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Marketing Planning
2.9 COST ADVANTAGE

A cost-competitive advantage results from being the low cost
competitor in an industry while maintaining satisfactory profits.
Sources of cost-competitive advantages include:
• Experience curves tell us that costs decline at a predictable rate as

experience with a product increases.
• Efficient labor resulting from pools of cheap labor.

• Removing frills and options from a product or service.
• Government subsides which effectively lower the cost of production by the
amount of the subsidies
• Designing products for ease of production or using reverse engineering to

cut research and design costs.
• Reengineering through downsizing, deleting unprofitable product lines,

closing obsolete factories, or renegotiating supplier contractors
• Use of production innovations as new technology and simplified production

techniques.
• Developing new, more efficient, methods of service delivery.
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Marketing Planning
2.10 DIFFERENTIATION ADVANTAGE

A differential competitive advantage exists when a firm provides
something unique that is valuable to buyers.
Sources of differential advantage include:
• Brand names offer enduring competitive advantage.

• Firms fiercely defend brand names and brand dress (color and design).
Brand identity conveys attributes such as company image and reputation
and product quality.
• Value impressions are features that signal value to the customer.

• Augmented products where features are added that are not expected by
the customer.
Nicher’s Strategy
A niche competitive advantage seeks to target and effectively serve a
single segment of the market. Advantages of using this strategy include:
Small companies having limited resources segment with good growth
potential.
2.11 BUILDING TOMORROW’S COMPETITIVE ADVANTAGE
• The sources of future competitive advantages are the skills and assets of
the organization.
• A sustainable competitive advantage is a function of the speed with which

competitors can imitate a leading company’s strategy plans.
2.12 STRATEGIC DIRECTIONS

One technique for identifying opportunities is to seek strategic windows, the
limited period during which the “fit” between the key requirements of a
market and the particular competencies of a firm are at an optimum.
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Marketing Planning
To discover a marketing opportunity or strategic window, management must

know how to identify the strategic alternatives. One method is the strategic
opportunity matrix. Also known as Ansoff Matrix
geographically. The ideal solution is finding new uses for old products that
will stimulate additional sales among existing customers while also bringing
in new buyers.
Whirlpool is seeking to be the world leader in the sales of home
appliances with its expansion into European and Asian markets..
2.13 PRODUCT DEVELOPMENT

A Product development strategy entails the creation of new products for
present markets. Advantages of this strategy are current knowledge of the
target market and established distribution channels
Tatas and Mahindras entering passenger car market after excelling in
Commercial vehicles and MUV sectors respectively.
2.14 DIVERSIFICATION
Diversification involves creation of new products for new markets. One tends
to pursue this approach when they find opportunities beyond their current
product market scope far more attractive and they have the resources and
capabilities to capitalize the opportunities.
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Marketing Planning
2.15 SELECTING A STRATEGIC ALTERNATIVE

Several tools aid corporate decision makers in selecting a strategic
alternative. A portfolio matrix is a tool for allocating resources among
product or strategic business units on the basis of relative market share and
market growth rate.
It is also important to recognize several factors that affect the selection,
including corporate philosophy and culture:
BCG Portfolio Matrix
The Boston Consulting Group’s portfolio matrix allows a firm to visually
display information about each of its SBUs. The BCG matrix has as its axes
the market growth rate (broken into “high” and “low” growth) and the relative
market share as compared to the largest competitor (“high” and low relative
market share). The relative size of the circles in the matrix represents dollar
sales of the SBU relative to other SBUs.
It allows the company to achieve a well-balanced portfolio of new products,
cash-generating existing products, and declining product. Let us consider for
IBM , portfolio of their business could be illustrated by following figure
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Marketing Planning
The portfolio matrix from the Boston Consulting group specifies four share/
growth categories for SBUs:
a. Stars are market leaders and growing fast. Stars have large reported
profits but require a lot of cash to finance the rapid growth.
SUVs are examples of stars in the auto industry. Viagra is an excellent
example in the pharmaceutical industry.
b. A cash cow usually generates more cash than is required to maintain its
market share. It is in a low-growth market but has a dominant market share.
Amul butter, Lifebuoy and Colgate Dental Creamt toothpaste are
examples of cash cows.
c. Problem children, also called question marks, exhibit rapid growth but poor
profit margins. They have a low market share in a high-growth
industry.Problem children require a tremendous amount of cash to obtain
better market share.
Problem children are usually new products such as DVD players that
have not yet caught on in the market.
d. A dog has low growth potential and a small market share. Most dogs
eventually leave the marketplace. The firm often harvests them by cutting all
support costs to a bare minimum.
Pringle’s potato chips have been a dog for Procter & Gamble for years.
3. After classifying the various SBUs into the matrix, the next step is to
allocate future resources for each.
Build: Invest in whatever the firm thinks has the potential to be a star, often a
problem child.
Hold: Support the product so that it continues to perform at current levels.
Cash cows are the most appropriate targets of this strategy.
Harvest: Increase short-term cash returns without necessarily thinking about
long-term effects. This option is appropriate for all SBUs except stars, that
the firm does not think are long-term prospects. It is often used with cash
cows in declining industries (“milking the cow”).
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Marketing Planning
Divest: This option is most appropriate for problem children the firm can’t
afford to support adequately and dogs that have had their day.
GE Model
The General Electric model for selecting strategic alternatives is known as
the market attractiveness/company strength matrix. This tool allocates
resources among strategic business units on the basis of how attractive a
market is, and how well the firm is positioned to take advantage of
opportunities in that market. These dimensions are:
a. richer and more complete than the portfolio matrix
b. much harder to quantify
Just because an industry is attractive doesn’t mean the firm has the
strengths to take advantage of the opportunity in that industry. Therefore, the
business strengths dimension deals with the resources of the organization
that can be brought to bear. They might include people skills, technological
position, growth, market share or profitability, among others.
Using industry attractiveness and business strengths, a manager can show
where any opportunity appears on this grid.
Opportunities occupying the green area of this matrix are growth
opportunities and should be pursued.
In the middle, the yellow areas are borderline opportunities that the firm
needs to analyze more fully in order to determine if they are worthwhile.
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Marketing Planning
Opportunities falling in the red area are opportunities that the firm should
avoid.
2.16 MARKETING STRATEGIES

Marketing strategy planning means finding opportunities and developing
profitable marketing strategies that the company can use to capitalize on
them.
Marketing strategy involves selecting and describing one or more target
markets, and developing and maintaining a marketing mix that will produce
mutually satisfying exchanges with target markets.
A marketing strategy specifies a target market and a related marketing mix.
This provides the “big picture” of what the firm will do in some market. The
two interrelated parts are:
A target market —a fairly homogeneous (similar) group of customers to
whom a company wishes to appeal.
A marketing mix—consisting of the controllable variables the company puts
together to satisfies this target market.
The importance of target customers cannot be over-emphasized.
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Marketing Planning
Through the years, Titan had captured a large share of market among
consumers who wanted inexpensive, reliable watches. The company
combined low price and dependability with a catchy advertising slogan and
intensive distribution through unconventional outlets.
In the 1990s and 2000s, Titan faced competition from other manufacturers
aiming at the same market.By the year 2000, Titan designers were refining
the product to include other uses in addition to telling time.The case history
demonstrates that changes in the market are always occurring and that
planning must be ongoing in order to update and revise marketing strategies.
2.17 TARGET MARKET

The process then narrows down from this broad view to a more specific
focus on a target market. Marketers must understand the diversity of
consumer needs in the broader market and use segmentation techniques
that help pinpoint target groups of similar consumers.
In order to narrow down to a superior marketing mix, one that is better than
what current competitors offer, marketers need differentiation. Marketers
must fine-tune the elements of the marketing mix to the unique needs of the
target market.
Since there are many opportunities to serve different target markets,
marketers must apply screening criteria to make it clear why a particular
opportunity is pursued. The marketer considers these screening criteria in a
S.W.O.T. analysis of strengths, weaknesses, opportunities and threats. This
analysis highlights the advantages and disadvantages of each strategy.
Target markets could be smokers who are concerned about white teeth
(the target of Colgate Ultrabrite toothpaste), people concerned about
sugar and calories in their hot beverages (Equal), or college students
needing inexpensive cosmetics (Elle 18).
The difference between target marketing and mass marketing is directly
linked to the concept of a marketing strategy, because a marketing strategy
specifies some particular target customers.
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Marketing Planning
In target marketing, the organization tailors the marketing mix to meet the
needs of a specific group of target customers. A company may need a
different marketing mix for each distinct group of customers.
Mass marketing treats all customers as the same, offering a single marketing
mix combination to everyone.
Do not confuse the terms mass marketer and mass marketing. Mass
marketers may still do target marketing. Wal-Mart is a mass marketer,
because it serves a well-defined target market that happens to be large.
Mass marketing, on the other hand, is the practice of attempting to serve all
consumers in the same way, regardless of their different needs.
2.18 TARGET MARKET STRATEGY

1. A market segment is a group of individuals or organizations that share one
or more characteristics. Market opportunity analysis is the description and
estimation of the size and sales potential of market segments that are of
interest to the firm.
2. Target market(s) can be selected by appealing to the entire market,
3. concentrating on one segment, or appealing to multiple market segments
using multiple marketing mixes.
The Marketing Mix
The term marketing mix refers to a unique blend of product, distribution,
promotion, and pricing strategies designed to produce mutually satisfying
exchanges with a target market. Marketers have to make many decisions in
developing a marketing mix that will satisfy their target customers. However,
all of the variables that make up the marketing mix can be reduced to four
basic categories.
Distribution is sometimes referred to as place, thus giving us the “four P’s” of
the marketing mix: product, place, promotion, and price.
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Marketing Planning
All of the four Ps—product, place, promotion and price—have an

impact on satisfying the needs of consumers in the target market. No
single area is more important than the others—they are all
interconnected.
Example:
Target market: people commute to work
Product: Fuel economy car
Place: especially larger urban and suburban areas
Promotion: Automotive magazines, TV, Newspapers, Magazine
Price: under Rs200,000
• Product Strategies 
The heart of the marketing mix, the starting point, is the product offering
and product strategy. The product includes its package, warranty, after-sale
service, brand name, company image, and many other factors.
• Distribution Strategies 
Distribution strategies, which usually involve wholesalers and retailers, are
concerned with making products available when and where customers want
them. Physical distribution also involves all the business activities that are
concerned with storing and transporting raw materials or finished products.
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Marketing Planning
• Promotion Strategies 
Promotion includes personal selling, advertising, sales promotion, and
public relations. Promotion’s role in the marketing mix is to inform, educate,
persuade, and remind target markets about the benefits of an organization
or a product.
• Pricing Strategies 
Price is what a buyer must give up to obtain a product. Price is often the
most flexible of the four marketing mix elements, the quickest element to
change. Price is a very important competitive weapon and very important to
the organization, because price multiplied by the number of units sold
equals total revenue for the firm.
2.19 FOLLOWING UP THE MARKETING PLAN

Marketing plans should make clear the following:
What marketing mix will be offered, to whom, and for how long.
What company resources will be needed at what rate.
What results are expected (this should also specify some means of control).
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Marketing Planning
Implementation involves putting the marketing plan into action. During

implementation, marketing managers make many operational decisions —
short-run, often “on-the-spot,” decisions to help implement strategies.
Control is an ongoing process of analyzing and correcting the actions taken
in implementation. Control provides feedback to managers that leads them to
modify their marketing strategies. Control is not a punishment mechanism to
be used only when someone makes mistakes.
Businesses expect that all marketing plans need planning and control and
even more when competitive forces change quickly.
A firm that serves several target markets may have more than one marketing
plan operating at one time.
A marketing program blends all of the firm’s marketing plans into one “big”
plan. The marketing program combines strategy and tactics, ideas and
actions, and serves as the link among planning and implementation and
control.
2.20 MARKETING AUDIT

A marketing audit is a thorough, systematic, periodic evaluation of the
goals, strategies, structure, and performance of the marketing organization.
The marketing audit has four characteristics
Comprehensive - The marketing audit covers all the major marketing issues
facing an organization and not just trouble spots.
Systematic - The marketing audit takes place in an orderly sequence and
covers the organization’s marketing environment, internal marketing system,
and specific marketing activities. The diagnosis is followed by an action plan
with both short-run and long-run proposals for improving overall marketing
effectiveness.
Independent - The marketing audit is normally conducted by an inside or
outside party who is independent enough to have top management’s
confidence and to be objective.
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Marketing Planning
Periodic - The marketing audit should be carried out on a regular schedule

instead of only in a crisis.
Effective Strategic Planning
Effective strategic planning requires continual attention, creativity, and
management commitment.
• It is not an annual but an ongoing process.

• Sound planning is based on creativity. The firm needs to challenge existing
assumption.
• Perhaps the most critical element is the support and participation of top
management
2.21 KEY TERMS

Simple trade era: a time when families traded or sold their surplus output to
local middlemen who resold these goods to other consumers or distant
middlemen.
Production era: a time when a company focuses on production of a few
specific products— perhaps because few of these products are available in
the market.
Sales era: a time when a company emphasizes selling because of increased
competition.
Marketing department era: a time when all marketing activities are brought
under the control of one department to improve short-run policy planning and
to try to integrate the firm’s activities.
Marketing company era: a time when, in addition to short-run marketing
planning, marketing people develop long range plans—sometimes 10 or
more years ahead—and the whole company effort is guided by the
marketing concept.
Marketing concept: the idea that an organization should aim all its efforts at
satisfying its customers—at a profit.
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Marketing Planning
Production orientation: making whatever products are easy to produce and

then trying to sell them.
Marketing orientation: trying to carry out the marketing concept.
Customer value: the difference between the benefits a customer sees from
a market offering and the costs of obtaining those benefits.
Social responsibility: a firm’s obligation to improve its positive effects on
society and reduce its negative effects.
Marketing management process: the process of (1) planning marketing
activities, (2) directing the implementation of the plans, and (3) controlling
these plans.
Strategic (management) planning: the managerial process of developing
and maintaining a match between an organization’s resources and its market
opportunities.
Marketing strategy: specifies a target market and a related marketing mix.
Target market: a fairly homogeneous (similar) group of customers to whom
a company wishes to appeal.
Marketing mix: the controllable variables that the company puts together to
satisfy a target group.
Target marketing: a marketing mix is tailored to fit some specific target
customers.
Mass marketing: the typical production-oriented approach that vaguely aims
at everyone with the same marketing mix.
Channel of distribution: any series of firms or individuals who participate in
the flow of products from producer to final user or consumer.
Personal selling: direct spoken communication between sellers and
potential customers, usually in person but sometimes over the telephone.
Mass selling: communicating with large numbers of potential customers at
the same time.
Advertising: any paid form of non personal presentation of ideas, goods, or
services by an identified sponsor.
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Marketing Planning
Publicity: any unpaid form of non personal presentation of ideas, goods, or

services.
Sales promotion: those promotion activities—other than advertising,
publicity, and personal selling—that stimulate interest, trial, or purchase by
final customers or others in the channel.
Marketing plan: a written statement of a marketing strategy and the time-
related details for carrying out the strategy.
Implementation: putting marketing plans into operation.
Operational decisions: short-run decisions to help implement strategies.
Marketing program: blends all of the firm’s marketing plans into one big
plan.
2.22 SUMMARY
Marketing oriented companies have to continuously engage in strategic
planning to survive in dynamic environment. This involves planning,
implementation and control of marketing activities. Its objective is to match
organization's resources with market opportunities. The steps in writing the
plan are; define business mission, set objectives, perform a situation
analysis, select target markets, delineate a marketing mix and establish
ways to implement, evaluate and control the plan.
Firms create competitive advantage through cost, product/service
differentiation and niche strategies.
Marketing Managers create a portfolio matrix to show 'star' products that
have high market share and high growth where they want to invest. Next is a
'problem child' that has a high growth but low market share, where managers
invest to cash on their star potential or divest if they cannot support them.
Third category is 'cash cows' that have high market share but low growth.
Managers harvest this segment to milk cows. The last category is 'dogs',
which have low market share as well as low growth. These are candidates
for divestment.
The strategy often narrows down from this broad view to a more specific
focus on a target market. Customer needs in the broader markets are
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Marketing Planning
segmented to help pinpoint target groups. In target marketing, the

organization tailors the marketing mix to meet specific needs of target
customers. Strategies are woven around four Ps of the marketing mix known
as product, place, promotion and price.
Marketing plans, to be successful, need to be controlled during
implementation to arrange corrective action. Comprehensive, systematic,
independent and periodic audits are mandatory for effective strategic
planning.

1. Describe marketing management process.
2. What are major steps in preparation of Marketing Plan?
3. What is SWOT analysis? How does it help marketing plans?
4. What are four Ps of marketing? How are strategies determined for each of
them?
5. What is a Target market? What is its role in Marketing planning?
51
Marketing Planning
REFERENCE MATERIAL
Summary
PPT
MCQ
Video
52
3
The Marketing Environment and
Marketing Ethics
Objectives
• Effects of External Environment of Marketing on a Firm.
• Effects of Social Factors on Marketing
• Multiculturalism and Ethnic Markets.
• Political and Legal Environment in Marketing.
• Ethics and Ethical Decisions in Marketing.
53
The Marketing Environment and Marketing Ethics
Structure:
3.1 External Environment of Marketing
3.2 Marketing Environment
3.3 Competitive Environment
3.4 Economic Environment
3.5 Economic Factors
3.6 Technological environment
3.7 Political Environment
3.8 Consumerism
3.9 Natural Environment
3.10 Marketing-oriented Values of Today
3.11 Poverty of Time
3.12 Growth of Component Lifestyles
3.13 The changing role of families and working women
3.14 Ethical Decision making
3.15 Morality levels
3.16 Ethical Decision making
3.17 Ethical Guidelines
3.18 Key Terms
3.19 Summary
54
3.1 EXTERNAL ENVIRONMENT OF MARKETING

The external environment continually molds and reshapes the target market.
The marketing mix influences purchasers: product, place, promotion, and
price, all of which are controlled by the marketing manager. Uncontrollable
external elements also influence purchasers.
A critical task for the firm is the process of environmental scanning, the
collection and interpretation of information about forces, events, and
relationships that may affect the future of an organization. An organization’s
environmental scanning is performed by a group of specialists who collect
and evaluate environmental data on a continuing basis.
Environmental Management
Although marketing managers consider the external environment to be
uncontrollable, they may be able to influence certain aspects. A company
may attempt to influence evolving external factors with environmental
management, the implementation of strategies that attempt to shape the
external environment within which a firm operates.
3.2 MARKETING ENVIRONMENT

The five basic areas of the marketing environment are shown in the following
diagram. Marketers should consider each area and how it interacts with the
others when planning strategies.
One of the things that makes marketing so challenging is that there are many
variables in the marketing environment that impact the opportunities
marketers have. These environmental forces are divided into two main parts:
The direct market environment includes customers, the resources and
objectives of the company, and the firms’ competitors.
The external market environment includes the economic environment,
the technological environment, political legal environment, cultural and
the social environment.
Marketers make decisions about the four Ps in the context of the marketing
environment. In the short run, marketers can try to influence the
environment, but they can’t directly control it. The impact of the environment
55
is potentially so significant that marketers must continually scan the

environment and search for potential opportunities and threats.
3.3 COMPETITIVE ENVIRONMENT

The competitive environment affects the number and types of competitors
the marketing manager must face — and how they may behave. Prudent
managers choose strategies that avoid head-on competition and/or plan for
competition when it is inevitable.
Marketers should understand the differences among types of market
situations:
In a monopoly, one company serves the entire customer base. Competitor-
free environments are rare, and in India, often subject to government
scrutiny.
In monopolistic competition, a number of different firms offer marketing mixes
that at least some customers see as different. Monopolistic competition is
typical, and a challenge. Changing customer tastes may affect how different
consumers see each offering and various alternatives may be considered
substitutes.
56
Hindustan lever holds a monopolistic position in toilet soaps market in

India.
In an oligopoly, a small number of firms control the market. Their marketing
mixes may overlap but demand is sufficient to sustain them. Barriers to
competitive entry are high
In detergents market, HLL along with Nirma and P&G virtually control
the market..
Activity A
Prepare a swot analysis chart as shown in this chapter for your educational
institute.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
57
In pure competition, a large number of firms compete with essentially similar

(commodity) products. Price is typically the key factor in making a purchase.
Competition Analysis
Competitor analysis is an organized approach for evaluating the strengths
and weaknesses of current or potential competitors’ marketing strategies.
Marketers do this by gathering information on the competitors from a variety
of internal and external sources.
As part of competitor analysis, marketers need to take several specific
issues into account in a search for competitive advantage—new or better
ways to satisfy customer needs and provide better value than the
competition offers.
Most marketing managers narrow competitor analysis to concentrate on a
few competitive rivals—the firms that will be the closest competitors. Even
if there don’t appear to any current competitors, marketing managers must
anticipate future competition. Successful marketers naturally attract
competition.
Competitor analysis also considers competitive barriers—the conditions
that make it difficult or impossible for a firm to compete in a given market.
Marketing managers should seek out information on competitive
practices.
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Although competitors’ marketing plans are typically secret, publicly available

news stories and events coverage may provide clues to new strategic moves
by competitors. Corporate websites and Internet-based search services now
make it possible to search and acquire information quickly and easily from
thousands of sources.
3.4 ECONOMIC ENVIRONMENT

The economic and technological environment affects the way firms and the
whole economy use resources. The economic environment is affected by the
way all the elements of the macro-economic system interact. Marketing
managers must take the complex web of economic forces affecting business
into consideration.
Key areas of consideration include:
The economic environment can change very rapidly. In periods of rapid
business decline, even a well-planned marketing strategy may fail.
Interest rates and inflation affect consumer buying processes. Interest
rates are the charge for borrowing money that lenders use to make a profit.
Interest rates can go up sharply in times of high inflation, which makes the
cost of all goods more expensive. Even “cash purchases” are affected
because the worth of cash in terms of buying power declines during high
inflation.
The global economy is increasingly connected. Whereas managers
traditionally looked to their home countries for key competitors, now
competition can come from almost anywhere. Further, global trade is
affected by exchange rates — how much one country’s currency is worth in
another country’s money. These rates change daily and their relative levels
have implications for planning strategy in relation to profit, countertrade, and
even barter.
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3.5 ECONOMIC FACTORS

Rising Incomes
One fourth of Indian households earn a “middle-class” income, and this
accounted for increased demand of consumer durables. The rise in
consumer income provides more discretionary income (income after taxes
and necessities) for higher-quality, higher-priced goods and services.
In order to determine how to price products, marketers must have an
understanding of how a variety of economic factors can influence
target markets.
Inflation
Inflation is a general rise in prices resulting in decreased purchasing power.
Inflation generally causes consumers to do two things:
• Decrease their brand loyalty as they search for the lowest prices, taking
advantage of coupons and sales to stock up on items
• Unwillingness to pay more for a product than the subjective value placed on
it
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Recession
A recession is a period of economic activity when income, production, and
employment tend to fall—all of which reduce demand. The effects of reduced
demand can be countered by
• Improving existing products and introducing new ones.

• Maintaining and expanding customer services.
• Emphasizing top-of-the-line products and promoting product value.
 
Some industries, such as construction, are more quickly affected in a
recession. A city’s ability to weather a recession is at least partially
dependent on the industries, which make up its job base
3.6 TECHNOLOGICAL ENVIRONMENT

Technology is the application of science to convert an economy’s resources
to output. Technology affects marketing in two basic ways: with new products
and with new processes. In modern economies, the rate of technological
change is very rapid.
Changes in technological and resource factors can have a momentous effect
on an entire industry. New technology can assist a firm in coping with many
of the other environmental factors. For example, new processes can reduce
production costs and help a firm fight inflation and recession.
For example, technological advances create new market opportunities.
As a result, technology transfer is rapid from one country to the next.
Internet technologies are reshaping marketing
Of increasing importance in the technological environment is the role of
intellectual capital, such as a software programmer’s skill, in developing new
products.
Technology also poses challenges. Sometimes, new technological
breakthroughs are rushed to market in a manner similar to what would be
characteristic of a production orientation. Technology also speeds up
obsolescence. As products have shorter life cycles before they are replaced
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it’s even more important for proactive marketers to anticipate emerging

consumer needs.
Technology has also raised ethical issues about the privacy of personal
information, ecological concerns, and the intrusiveness of telemarketing and
Internet advertising.
3.7 POLITICAL ENVIRONMENT

The political environment refers to the way societies order their governments
and the attitudes of the government and people toward business.
Nationalism is an emphasis on a country’s interests before anything else.
Nationalism can be limiting in international markets, by reducing sales
and blocking marketing activity.
Nationalism is a complex factor in international business because a strong
feeling of identity can obscure a larger picture of more products at lower
prices for consumers.
Regional economic groupings are becoming more important. Economic
communities bind together several countries in the same geographic area
under (ideally) a single set of laws and regulations regarding trade. For
example, the European Union has unified European markets, and the
SAARC is for South Asian countries. This practice effectively increases the
size of a given market, and lowers costs within the community, while raising
costs for those outside the boundary trying to gain access to the larger
markets.
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3.8 CONSUMERISM
Consumerism is a social movement that seeks to increase the rights and
powers of consumers. Companies that practice the marketing concept are
increasingly sensitive to the rights of consumers and see this movement as
an ally for better products and higher customer satisfaction.
Legal environment
The legal environment refers to the rules and laws that set standards for
conduct that are enforced by legal power. This exhibit shows some of the
important legislation governing marketing in India. While related, the legal
environment is distinguishable from the political environment. Marketing
managers need to know the relevant laws affecting business, but they also
need to be aware of the policies toward enforcement of those laws.
The Food and Drug Administration (FDA) is charged with enforcing
regulations against selling and distributing adulterated, misbranded, or
hazardous food and drug products.
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3.9 NATURAL ENVIRONMENT
• Shortage of raw materials—infinite, finite renewable, and finite

nonrenewable
• Increased cost of energy—oil is a finite nonrenewable resource

• Increased levels of pollution—industrial activity will inevitably harm the
environment
• Changing role of governments—environmental concern varies by country

Social Factors
3.10 MARKETING-ORIENTED VALUES OF TODAY
• Cultural Creatives
a. Involves a shift in values, world views, and ways of life
b. Increased interest in new kinds of products and services
c. These consumers are good at synthesizing information into the “big
picture”
• Heartlanders
a. Market by traditionalism
b. Nostalgic image of small towns and strong churches
• Modernists
a. Value personal success, consumerism, materialism, and technological
rationality
• Environmentalists
a. Willing to pay more for the use of recyclable or biodegradable
packaging
b. Emphasis on environmentally friendly products
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3.11 POVERTY OF TIME
• Value more control over their lives

• Decrease time spent doing things they dislike
• Growth in home-based self-employment
3.12 GROWTH OF COMPONENT LIFESTYLES

Component lifestyles are the result of choosing products and services that
meet diverse needs and interests rather than conforming to traditional
stereotypes.
The growth in the number of SUV’s who are in professions such as
medicine, law, and business highlights the individuality of the person
who lives a component lifestyle.
• Increase the complexity of consumers’ buying habits

• Require a different marketing mix
3.13 THE CHANGING ROLE OF FAMILIES AND WORKING WOMEN

The rapid increase in the percentage of women employed in urban
cities compared to rural India. These changes affect the types of
products demanded (child-care facilities, products to reduce the time
required for housekeeping, convenience products, and so on).
One of the changes with the most dramatic impact on consumers has been
the increase in working women and dual-career families.
• Approximately 58 percent of all females between 16 and 65 are in the work

force.
• Women’s level of expertise, experience and authority are growing

There has been a surge in the growth of day-care centers, preschools,
and adult-care services for the elderly as more women have left the
traditional caregiver roles and taken jobs outside the home.
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• Two-career families have greater household incomes but less available

time for family activities. Their purchase roles are changing, as well as their
purchase patterns. Women are the principle buyers for 70 percent of all
house hold products in metro cities.
• Increased demand for new household services

Examples of services targeted to busy families and single
householders include daycare, home delivery of groceries, errand
services, and child transportation services.
3.14 ETHICAL DECISION MAKING

Morality and Business Ethics
• Ethics refers to moral principles or values that generally govern the

conduct of an individual or a group.
• Morals are rules or habits, typically stated as good or bad, that people
develop as a result of cultural values and norms.
• Business ethics are actually a subset of the values held by society as a

whole. These values are acquired through family, and through educational
and religious institutions.
• Ethics can be very situation-specific and time-oriented.
3.15 MORALITY LEVELS

There are three levels of morality:
Preconventional morality is childlike in nature, calculating, self-centered,
and selfish.
Conventional morality is concerned with the expectations of society.
Loyalty and obedience are paramount.
Postconventional morality represents the morality of the mature adult.
People at this level are concerned with how they see and judge themselves
and their acts over the long run.
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Sales of home medical-testing kits, such as blood-glucose strips and

pregnancy tests, are soaring. The technology exists to manufacture home
test kits for AIDS, some types of cancer, and many of the sexually
transmitted diseases. But the Food and Drug Administration will not consider
approving these other kits. Is this a moral or ethical issue?
3.16 ETHICAL DECISION MAKING

Following factors which influence ethical decision making and judgments:
• The extent of ethical problems within the organization

• Top-management actions on ethics
• Potential magnitude of the consequences
3.17 ETHICAL GUIDELINES
• Many firms have developed a specific code of ethics to help employees

make better decisions. The American Marketing Association has such a
code.
An explicit code helps
a. Identify acceptable business practices
b. Internally control behavior
c. Reduce employee confusion in decision making
d. Facilitate discussion about right and wrong in issues that may arise
 
Although many companies have issued policies on ethical behavior,
marketing managers must put them into effect. These managers must
address the “matter of degree” issue in many situations.
3.18 KEY TERMS

Mission statement: sets out the organization’s basic purpose for being.
Competitive environment: the number and types of competitors the
marketing manager must face, and how they may behave.
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Competitor analysis: an organized approach for evaluating the strengths

and weaknesses of current or potential competitors’ marketing strategies.
Competitive rivals: a firm’s closest competitors.
Competitive barriers: the conditions that may make it difficult, or even
impossible, for a firm to compete in a market.
Economic and technological environment: affects the way firms—and the
whole economy— use resources.
Technology: the application of science to convert an economy’s resources
to output.
Internet: a system for linking computers around the world.
Consumerism: a social movement that seeks to increase the rights and
powers of consumers.
Cultural and social environment: affects how and why people live and
behave as they do.
Strategic business unit (SBU): an organizational unit (within a larger
company) that focuses its efforts on some product-markets and is treated as
a separate profit center.
Portfolio management: treats alternative products, divisions, or strategic
business units (SBUs) as though they are stock investments to be bought
and sold using financial criteria.
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3.19 SUMMARY
When planning strategies, Marketers need to study direct effects of
competitive and indirect effects of economic, technological, political and
legal, cultural and social environment on their markets.
Competitor analysis is evaluation of strengths and weaknesses of current
and potential competitors, which helps marketers in their search for
competitive advantage.
Economic environment affects rates of interest and inflation. They in turn
change buyers' purchasing powers and demand for firm's products.
Recession immediately affects general capital goods market and
construction industry.
Technological environment offers marketer new products and processes. It
also speeds up threats of obsolescence.
Political environment poses challenges of nationalism, regional grouping and
consumerism.
Cultural environment is reflected in changing roles of earning women, new
lifestyles, and complex consumer habits.
Ethical environment reflects changing moral values of the Society in which
the firm operates. Marketer needs to issue ethical guidelines on ethics to
employees to avoid confusion.
Business ethics is a subset of the values held by the society. Many firms
develop a code of ethics which marketing manager has to put into effect.

1. What are main areas of environment that affect firm's marketing strategy?
2. What are contents of competitor analysis?
3. Describe impact of technology on a firm.
4. How do economic factors affect a firm' markets?
5. What is business ethics?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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4
Consumer Decision Making
Objectives
• Consumer Behaviour and Decision Making Process.
• Different Factors that Affect Consumer Buying Decisions.
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Structure:
4.1 Introduction
4.2 The Consumer Decision-Making Process
4.3 Factors Determining the Level of Consumer Involvement
4.4 Marketing Implications of Involvement
4.5 Cultural Influences on Consumer Buying Decisions
4.6 Reference Groups
4.7 Psychological Influences on Consumer Buying Decisions
4.8 Finally to Summarise
4.9 Key Terms
4.10 Summary
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4.1 INTRODUCTION
Demographics help marketers to understand the who, what, when and where
aspects of consumer buying behavior. However, demographics don’t
necessarily explain why consumers behave as they do, so marketers have
turned to the social and behavioral sciences in order to consider the full
range of buying influences.
How does the purchase of a car for an individual’s private use differ from the
purchase of a car by a business outfitting its fleet of “company cars”? In
which case would economic needs be more important? Why?
Economics and psychology are often cited as the main sources of marketing
thought, but marketing also derives a great deal of knowledge about
consumer behavior from sociology, anthropology, and communication theory.
The basic model of consumer behavior shown here integrates many of these
influences. These influences include psychological variables, social
influences, and events in the purchase situation.
Psychological variables are things that are going on in the mind of the
consumer that affect purchase. Attitudes, personality, learning processes,
and perceptions are among these psychological influences.There are also
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influences from outside the consumer, such as social influences, that have to
do with the associations that the buyer might have with other people.
Culture, social class, and family influences are examples.
Purchase situation factors also exist, such as the reason for the purchase,
the time pressure involved, and the surroundings of the purchase.
You need to consider how consumer’s purchase of a product be
different if he/she has little time to make decision as opposed to having
unlimited time.
Marketing mixes and other stimuli also affect this process. Taken together, all
the influences have an impact on the problem solving process that a
consumer enters into when it’s determined that there is a purchase need.
The outcome of this entire process might be a purchase, or it might be a
decision not to purchase. Marketers who follow the marketing concept are
concerned with satisfying the needs of consumers, but what exactly are
needs, and what types of needs are there?
Needs are the basic forces that motivate consumers to do something.

Wants are learned needs; that is, they are needs expressed as a desire for a
particular need-satisfier: For example, consider the statement, “I need food,”
compared to, “I want a thali.”
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Drive is a strong internal stimulus that encourages action to reduce a need.

When a drive is strong enough, it compels a person to seek satisfaction for a
need and often in the form of a preferred want.
Consumers seek benefits to meet their needs and wants. In other words,
when consumers evaluate the marketing mix for a product or service, they
do so in relation to how well that particular product or service will help to
meet their needs.
4.2 THE CONSUMER DECISION-MAKING PROCESS

The consumer decision-making process is a step-by-step method used
by consumers when buying goods or services.
Need recognition occurs when consumers are faced with an imbalance
between actual and desired states.
A stimulus is any unit of input affecting the five senses. Stimuli can be either
internal or external.
• Internal stimuli are a person’s normal needs.

• External stimuli stem from sources outside one’s self.
Advertisements are common external stimuli.
• A want exists when someone has an unfulfilled need and has determined
which product will satisfy it.
• Consumers recognize unfulfilled wants in a number of ways. Recognition

occurs when the consumer
a. Has a current product that isn’t performing properly
b. Is about to run out of a product that is generally kept on hand
c. Sees a product that appears to be superior to the one currently being used
Example: The rapid changes in computer technology lead computer
owners to recognize an unfilled need.
Information search can occur internally, externally, or both.
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• Internal information search is the process of recalling information stored

in the memory.
• External information search seeks information in the outside
environment.
a. Nonmarketing-controlled information sources, such as personal
experience, personal sources such as friends, and public sources
(Consumer Reports), are product information sources that are not
associated with advertising or promotion.
b. Marketing-controlled information sources, such as mass media
advertising, sales promotion, salespeople, and product labels and
packaging, are biased toward a specific product because they originate
with marketers promoting the product.
• The factors influencing an external search are the consumer’s perceived

risk, knowledge, prior experience, and interest level in the good or service.
• The search yields an evoked set (also called a consideration set), a group
of brands resulting from the information search from which a buyer can
choose.
Evaluation of Alternatives and Purchase
Evaluation involves the development of a set of criteria. These standards
help the consumer evaluate and compare alternatives.
• Consumers often set minimum or maximum levels of an attribute (cutoffs)

that determine whether a product will be considered as a viable choice.
• Adding new brands to an evoked set affects the consumer’s evaluation of

the existing brands in that set.
• The goal of the marketing manager is to determine which attributes are

most important in influencing a consumer’s choice.
An example of evaluation and purchase is when the automobile
purchaser has determined the attributes which must be present in the
new automobile, determines which brands contain the requisite
attributes, and makes their selection based on these attributes.
Post purchase Behavior
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Expectations of value affect satisfaction.
• When buying products, consumers expect certain outcomes from the

purchase. How well these expectations are met determines whether the
consumer is satisfied or dissatisfied with the purchase.
• Cognitive dissonance is a state of inner tension felt when consumers are

aware of a lack of consistency between their values or opinions and their
behavior. Consumers can reduce cognitive dissonance by
a) Finding new information that reinforces positive ideas about the
purchase
b) Avoiding information that contradicts their decision
c) Revoking the original decision by returning the product
Finally, the automobile purchaser reinforces his or her decision by
seeking positive feedback from friends and other automobile owners.
Types of Consumer Decision Behavior and Consumer Involvement
• Involvement refers to the amount of time and effort a buyer invests in the
search, evaluation, and decision processes of consumer behavior.
• Routine response behavior is used for frequently purchased, low-cost

goods and services that require very little decision effort. These can also be
called low-involvement products.
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Examples include toothpaste, soft drinks, and gasoline.
• Limited decision making typically occurs when a consumer has previous

product experience, but is unfamiliar with the current brands available. It is
also associated with lower levels of involvement.
Examples include books, clothing, and home furnishings.
• Extensive decision making is used for an unfamiliar, expensive, or

infrequently bought item. It is the most complex type of consumer buying
decision and is associated with high involvement on the part of the
consumer.
Examples include a college education, house, or car.
4.3 FACTORS DETERMINING THE LEVEL OF CONSUMER

INVOLVEMENT
The time, effort, and source of information used in making a purchase can be
influenced by the relative level of involvement the consumer experiences.
In extensive problem solving, a consumer attempts to satisfy a completely

new or important need. Here, much information is needed, because the
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consumer has no experience, and the decision — and risk of making a

wrong decision — is important. The purchase process usually takes more
time, because of the additional time needed for information search and
evaluation of alternatives. Because these purchases are very important and
have high relevance to the consumer, these purchases are often referred to
as high involvement purchases.
Activity A
Find out any purchases that had high buyer involvement your group made?
Which elements of the purchase were responsible for involvement?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
In limited problem solving, the consumer is willing to put forth some effort,
perhaps to update or add to previous experience or because the problem is
moderately important. The consumer proceeds through all the stages of the
purchase process, but the process takes less time.
In routinized response behavior, a consumer resorts to habit to solve a
problem. This behavior is especially appropriate for low-involvement
purchases that have little importance or relevance to the consumer. For
routinized purchases, a consumer does little, if any, information search and
evaluation of alternatives.
For example, purchasing a computer or a car usually carries a high
amount of perceived risk, whereas most convenience products are low-
risk purchases. However, experience working with or purchasing
computers or cars may lower the perceived risk and therefore lower the
involvement level.
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• Previous experience: Previous experience tends to lead to low

involvement.
• Interest: A high level of interest in a product leads to high-involvement
decision making.
• Perceived risk of negative consequences: The higher the perceived risk

of making the decision, the more involved the consumer will be.
• Situation: The circumstances of the situation may change a low-

involvement situation into a high-involvement situation because of
increased risks.
For instance, a birthday card (which costs only Rs 15 ) can be a high-
involvement product if it is being purchased for a new boyfriend or
girlfriend. Also, the presence of other people while shopping, the decor
and music, the time of day, and mood can all affect the involvement
level to a certain degree.
• Social visibility: Involvement increases as the social visibility of the product

increases.
4.4 MARKETING IMPLICATIONS OF INVOLVEMENT
• Marketing managers must offer extensive and informative promotion for

high-involvement products.
• In-store promotion is important for low-involvement products.

• Linking a low-involvement product to a higher-involvement issue is another
tactic that can increase sales.
The consumer decision-making process does not occur in a vacuum.
On the contrary, underlying cultural, social, individual, and
psychological factors strongly influence the decision process.
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4.5 CULTURAL INFLUENCES ON CONSUMER BUYING DECISIONS

Cultural factors exert the broadest and deepest influence over a person’s
consumer behavior and decision making.
Culture and Values
• Culture is the essential character of a society that distinguishes it from

other cultural groups. It is defined as the set of values, norms, attitudes,
and other meaningful symbolsthat shape human behavior and the elements
of culture ,values, language, myths, customs, rituals, and laws as well as
artifacts or products, as they are transmitted from one generation to the
next.
• Culture is pervasive, functional, learned, and dynamic.

• Values are the enduring beliefs that a specific model of conduct is
personally or socially preferable to another mode of conduct. Values
represent what is most important in people’s lives.
• The personal values of consumers have important implications for

marketers as they seek to target their message more effectively.
Understanding Culture Differences
• Underlying core values can vary across cultures.

• Products have cultural values and rules that influence their perception and
use. Elements such as the meaning of colors and language can impact the
perceptions of a product.
Subculture is a homogeneous group of people who share elements of
the overall culture as well as unique elements of their own group.
• Subcultures may be geographically concentrated such as teenagers

• Subcultures may be geographically dispersed such as Harley-Davidson
owners (HOGs)
1. Identification of subcultures makes the design of special marketing
programs possible.
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Social class is a group of people who are nearly equal in status of

community esteem, regularly socialize among themselves both formally and
informally, and who share behavioral norms.
• Social class is typically measured as a combination of occupation, income,

education, wealth, and other variables.
• Lifestyle distinctions between social classes are greater than the

distinctions within a given class.
Marketers are interested in social class because:
• it often indicates which medium to use for advertising,

• knowing what products appeal to which social classes can help marketers
best determine where to distribute their products.
Social Influences on Consumer Buying Decisions
Social factors include all effects on buyer behavior that result from
interactions between a consumer and the external environment.
4.6 REFERENCE GROUPS

Reference groups are all of the formal and informal groups in society that
influence an individual’s purchasing behavior.
Everyone is a member of several reference groups at any given time.
Common reference groups include the following: primary (family,
friends, other students); secondary (religious groups, governing
bodies, clubs); aspirational groups (sorority or fraternity everyone
would like to join); non aspirational groups (stereotypical “nerd”
groups, sorority or fraternity the people find distasteful).
• Reference groups are an important concept to marketers because

consumers may use products to establish identity with a group or to gain
membership into it. Reference groups also provide cues for consumption
behavior.
Products whose choice is affected by reference groups include
automobiles, televisions, beer, cigarettes, and clothing.
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• Direct membership groups are face-to-face membership groups that touch

people’s lives directly.
a. Primary membership groups are reference groups with which
people interact regularly in an informal, face-to-face manner, such as
family, friends, or fellow employees.
b. Secondary membership groups are reference groups with which
people associate less consistently and more formally, such as clubs,
professional groups, and religious groups.
• Indirect membership groups are groups of which one is not a member.

a. Aspirational groups are groups one would like join. To gain membership
one must conform to group norms (the attitudes and values deemed
acceptable by| the group).
b. Nonaspirational reference groups (dissociative groups) are groups the
individual does not want to associate or be identified with.
Opinion Leader
An opinion leader is an individual who influences the opinion of others.
a. An opinion leader may not be influential across product categories.
b. The product endorsement of an opinion leader is most likely to
succeed if an association between the spokesperson and the product
can be established.
c. Opinion leaders are often the first to try new products and services.
Family
The family is the most important social institution for many consumers; it
strongly influences our values, attitudes, self-concept, and socialization
process (the passing down of cultural values and norms to children).
• Purchase and information roles within the family:

a. Initiators: suggest, initiate, or plant the seed for the purchase process
b. Influencers: provide valued opinions
c. Decision makers: actually make the decision to buy
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d. Purchasers: makes the actual purchase

e. Consumers: the users 
• Children today have a great influence over the purchase decisions of their
parents.
For many food items, the children are initiators, influencers, and
consumers, and the parents are decision-makers and purchasers
Individual Influences on Consumer Buying Decisions
A person’s buying decisions are also influenced by personal characteristics
that are unique to each individual.
Gender
• Gender differences include the obvious physiological differences, and

distinct cultural, social and economic roles.
• Different shopping behavior

Age and Family Life Cycle Stage
• Consumer tastes in food, clothing, cars, furniture and recreation are often
age related.
• The family life cycle defines an orderly series of stages through which
consumer’s attitudes and behavioral tendencies evolve. The family life
cycle is often used as an indicator of consumer purchase priorities.
However, marketers should be aware of the many non-traditional life cycle
paths common today.
Personality, Self-Concept, and Lifestyle
• Personality is a way of organizing and grouping the consistencies of an

individual’s reactions to situations.
• Personality includes a person’s underlying dispositions, especially their

most dominant characteristics.
Personality is not often used by marketers, because it varies by
individual, and because targeting and communicating with only a
certain personality segment is hard to do.
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Self-concept is how a consumer perceives himself or herself in terms of

attitudes, perceptions, beliefs, and self-evaluations. Self-concept provides for
consistent and coherent behavior.
• The ideal self-image is the way an individual would like to be.

• The real self-image is the way an individual actually perceives himself or
herself.
• Another important component of self-concept is body image, the perception

of one’s own physical features.
Lifestyle is a person’s mode of living as identified by activities, interests, and
opinions.
• Personality and self-concept are reflected in lifestyle.

• Psychographics is the analytic technique used to examine consumer
lifestyles and to categorize consumers.
• Lifestyle analysis has proved valuable in segmenting and targeting

consumers
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Marketers have often studied the relationship between personality variables

and consumer behavior, because personality affects how people see
things. The influences are present, but marketers have found it difficult to
incorporate personality into the marketing mix.
Instead, marketers have found it more useful to concentrate on
psychographics or lifestyle analysis. A typical lifestyle analysis examines a
person’s day-to-day pattern of living as expressed in AIO statements—
Activities, Interests, and Opinions. When this information is linked to
demographic information, marketers have the basis for very accurate
segmentation of markets for some products.
Activities identify what people do. Activities are an important variable
because behavior is objectively observable.
People also have interests. Stronger interests tend to create stronger drives
that may pinpoint market opportunities.
Opinions, or the ways in which people feel about things, also affect their
relative motivation to take action. By combining these opinions with interests
and activities, marketers can develop a robust view of certain target market
segments.
4.7 PSYCHOLOGICAL INFLUENCES ON CONSUMER BUYING

DECISIONS
Perception
Perception is the process by which people select, organize, and interpret
stimuli to create a meaningful and coherent picture. Perception is how we
recognize that we have a consumption problem.
• Selective exposure is the process whereby a consumer notices certain

stimuli (such as advertisements) and ignores other stimuli.
• Selective distortion is the process whereby a consumer changes or

distorts information that conflicts with his or her feelings or beliefs
It is estimated that a consumer encounters over 1,600 marketing stimuli
(packages, media ads, promotions, signs, and so on) each day
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Selective retention
• Selective retention is the process whereby a consumer remembers only

the information that supports his or her personal feelings or beliefs.
• Marketers must recognize the importance of cues in consumers’ perception

of products; such cues as package design or brand name may affect
consumer perception of product quality.
• The threshold level of perception is referred to by experts as the level of

change required to make a “just noticeable difference” in consumer
perception. Experts estimate that at least a 20 percent change in the
stimulus is required
• Consumer perceptions of products can have a considerable impact when

marketing on a global basis.
Sending messages subconsciously to consumers is what is known as
subliminal perception
Activity A
List five major purchases made in your group in the last year. Discuss and
find out one single significant factor that resulted in a decision to buy.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Motivation
Motives are the driving forces that cause a person to take action to satisfy
specific needs.
Maslow’s hierarchy of needs is a method of classifying human needs and
motivations into five categories (in ascending order of importance):
• Physiological needs: food, water, shelter

• Safety needs: security, freedom from pain and discomfort
• Social needs: love, sense of belonging
• Self-esteem needs: self-respect, accomplishment, prestige, fame,
recognition of one’s accomplishments
• Self-actualization: self-fulfillment, self-expression
In marketing we may visualize customers looking for more than one need.
While searching for a house which may constitute a basic need ,might
also require a locality which is socially acceptable and providing
excellent schooling facilities for children.
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Learning
Learning is the process that creates changes in behavior, immediate or
expected, through experience and practice.
We learn how to make purchase decisions. Many commercials take
advantage of our capacity to learn by showing successful product use
• Experiential learning is learning by doing.

• Conceptual learning is learning by applying previously learned concepts to
a new situation.
a. Reinforcement and repetition boost learning.
b. Stimulus generalization occurs when one response is extended to a
second stimulus similar to the first.
Stimulus generalization is the reason that many companies choose to
use family branding, in which different products are offered under the
same brand name.
• Stimulus discrimination is the learned ability to differentiate among

stimuli
This is the strategy that Coke used in its advertising campaign: “
Thanda means Coca Cola”
Product differentiation is a marketing tactic designed to distinguish
one product from another.
Beliefs and Attitudes
Peoples attitudes regarding the use of tobacco, firearms, and the
purchase of products that come from countries with a poor human
rights history have led to the creation of social conscience mutual
funds
Beliefs
a. Beliefs are organized patterns of knowledge that an individual holds as
true about his or her world.
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b. Consumers tend to develop a set of beliefs about a product’s attributes

and through these beliefs, form a brand image, a set of beliefs about a
particular brand.
Attitude
An attitude is a learned tendency to respond consistently toward a given
object. Beliefs help form the basis for attitudes, as do values.
Often the marketer’s goal is to change attitudes toward a brand. This goal
might be accomplished in three ways:
• Changing beliefs about the brand’s attributes

A famous ad campaign by Honda in the 1960s attempted to change
consumer attitudes about motorcycles (and did a very good job): “You
meet the nicest people on a Honda.”
• Changing the relative importance of these beliefs

Arial changed the importance of washing by bringing upfront the need
of stain removal during usage of detergents.
• Adding new beliefs

Mobile phone manufacturers are positioning mobile phones against
computers as devise for internet connectivity
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4.8 FINALLY TO SUMMARISE

Consumer buyer behavior holds the key for marketing. For greater
understanding marketing people need to have good appreciation of different
steps of consumer purchase process from the angle of problem solving.
4.9 KEY TERMS

Economic buyers: people who know all the facts and logically compare
choices in terms of cost and value received—to get the greatest satisfaction
from spending their time and money.
Economic needs: needs concerned with making the best use of a
consumer’s time and money—as the consumer judges it.
Needs: the basic forces that motivate a person to do something.
Wants: needs that are learned during a person’s life.
Drive: a strong stimulus that encourages action to reduce a need.
Physiological needs: biological needs such as the need for food, drink,
rest, and sex.
Safety needs: needs concerned with protection and physical well-being.
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Social needs: needs concerned with love, friendship, status, and esteem—
things that involve a person’s interaction with others.
Personal needs: an individual’s need for personal satisfaction unrelated to
what others think or do.
Perception: how we gather and interpret information from the world around
us.
Selective exposure: our eyes and minds seek out and notice only
information that interests us.
Selective perception: people screen out or modify ideas, messages, and
information that conflict with previously learned attitudes and beliefs.
Selective retention: people remember only what they want to remember.
Learning: a change in a person’s thought processes caused by prior
experience.
Cues: products, signs, ads, and other stimuli in the environment.
Response: an effort to satisfy a drive.
Reinforcement: occurs in the learning process when the consumer’s
response is followed by satisfaction—that is, reduction in the drive.
Attitude: a person’s point of view toward something.
Belief: a person’s opinion about something.
Expectation: an outcome or event that a person anticipates or looks forward
to.
Psychographics: the analysis of a person’s day-to-day pattern of living as
expressed in that person’s Activities, Interests, and Opinions—sometimes
referred to as AIOs or lifestyle analysis.
Lifestyle analysis: the analysis of a person’s day-to-day pattern of living as
expressed in that person’s Activities, Interests, and Opinions—sometimes
referred to as AIOs or psychographics.
Social class: a group of people who have approximately equal social
position as viewed by others in the society.
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Reference group: the people to whom an individual looks when forming

attitudes about a particular topic.
Opinion leader: a person who influences others.
Culture: the whole set of beliefs, attitudes, and ways of doing things of a
reasonably homogeneous set of people.
Extensive problem solving: the type of problem solving consumers use for
a completely new or important need—when they put much effort into
deciding how to satisfy it.
Limited problem solving: when a consumer is willing to put some effort into
deciding the best way to satisfy a need.
Routine response behavior: when consumers regularly select a particular
way of satisfying a need when it occurs.
Low-involvement purchases: purchases that have little importance or
relevance for the customer.
Adoption process: the steps individuals go through on the way to accepting
or rejecting a new idea.
Dissonance: tension caused by uncertainty about the rightness of a
decision.
4.10 SUMMARY
Marketing Managers study social and behavioral sciences to understand full
range of buying influences. The reason for the purchase, time pressure
involved and surroundings of the purchase decide consumer decision
process. Needs are basic forces that motivate consumers. Wants are desire
for a particular need satisfier. Drive is a strong internal force that encourages
action to reduce the need. Consumers seek benefits from a product mix that
satisfies this need.
Need recognition, information search, evaluation of alternatives and
purchase are steps in consumer decision making process.
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For frequently purchased, inexpensive products that have less risk or need
for information, consumer involvement in decision making is low. It is high for
a product that is infrequently purchased, is expensive, has high risk and
requires more information.
Marketing must offer extensive and informative promotion for high
involvement products and in-store promotion for low involvement products
that have a short cycle of decision making process.
Study of cultural, social factors allows marketing to decide what products
appeal consumers and which media for promotion is appropriate.
Reference groups like family, clubs, and friends influence individual's
purchasing behavior.
Activities, interests and opinions of consumers can be identified through
personality and lifestyle analysis.
Perception, Motivation, Learning, Beliefs and Attitudes cause main
psychological influences on consumer buying decisions.

1. Explain why marketing managers should understand consumer behavior?
2. What are components of the consumer decision making process?
3. What are social and cultural factors that affect consumer buying
decisions?
4. What are psychological factors that affect consumer buying decisions?
5. What are marketing implications of type consumer involvement?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
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5
Business Marketing
Objectives
• What is Business Marketing.
• Business Market Customers.
• Business and Consumer Market.
• Business Goods and Services.
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Business Marketing
Structure:
5.1 Introduction
5.2 Business Marketing on Internet
5.3 Relationship Marketing and Strategic Alliances
5.4 Relationships in other Cultures
5.5 Major Categories of Business Customers
5.6 Business versus Consumer Markets
5.7 Demand
5.8 Types of Business Products
5.9 Business Services
5.10 Nature of Buying
5.11 Type of Negotiations
5.12 Use of Reciprocity
5.13 Use of Leasing
5.14 Primary Promotional Method
5.15 Evaluative Criteria
5.16 Buying Situations
5.17 Purchasing Ethics
5.18 Key Terms
5.19 Summary
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Business Marketing
5.1 INTRODUCTION
Individual people make purchases to satisfy their needs, but so do
organizations. In fact, the organizational market is actually bigger than the
final consumer market, at least in terms of the number of purchases made.
Thus, it presents significant opportunities for marketers.
Business marketing is the marketing of goods and services to
individuals and organizations for purposes other than personal
consumption.
Business products include those that:
• Are used to manufacture other products

• Become part of another product
• Aid the normal operations of an organization
• Are acquired for resale without substantial change in form
The key characteristic distinguishing business products is intended
use, not physical characteristics.
5.2 BUSINESS MARKETING ON THE INTERNET

The process of selling goods and services on the Internet is called electronic
commerce (e-commerce) or electronic business (e-business).
• Business e-commerce involves transactions between companies

• Consumer e-commerce, or e-tailing involves transactions between
businesses and individuals for personal consumption.
E-commerce is just not for large corporations
• Includes all aspects of the supply chain

• All types of manufacturing and service companies are becoming active
participants
• Use of extranets is increasing. An extranet is a private network that uses

Internet technology and a browser interface.
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Business Marketing
Benefits of Business E-commerce
• Lower prices
• Greater selection of products and vendors
• Access to customer and product sales data
• Around-the-clock ordering and customer service
• Lower costs
• Customized products
5.3 RELATIONSHIP MARKETING AND STRATEGIC ALLIANCES
• Relationship marketing entails seeking and establishing strategic alliances

or partnerships with customers. It has become an important business
marketing strategy as customers have become more demanding and
competition has become more intense.
• A strategic alliance is a cooperative agreement between firms. It may take

the form of licensing or distribution agreements, joint ventures, R&D
consortia, or multinational partnerships.
Caterpillar uses different forms of alliances as conditions require
gaining entrance and maintaining market share in various countries.
Benefits of Strategic Alliances
Benefits include access to markets or to technology, economics of scale that
might be gained by combining manufacturing, R&D, or marketing activities,
faster entry of new products to markets, and sharing of risks.
5.4 RELATIONSHIPS IN OTHER CULTURES
• Businesses in other countries rely on personal relationships to facilitate

exchange between firms, Reciprocity and personal relationships contribute
• to amas which is the feeling of nurturing concern for, and dependence upon
another.
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Business Marketing
• A network of interlocking corporate affiliates known as a keiretsu trade with

each other whenever possible.
Even though buyers and sellers may work toward a cooperative relationship,
sometimes there is an imbalance of power favoring one of the partners.
This power may arise from the sheer size of one the partners, or because a
partner represents a large proportion of the other partner’s business volume.
For example, a powerful customer may control the relationship, by
compelling a supplier to do something the supplier might not ordinarily do,
such as provide information, lower prices, or modify service standards.
As a result, a partner may not want to become too dependent on a single
organization, regardless of how good the relationship is. Buyers may still use
several sources to reduce their risk, instead of placing all of their orders
with a single supplier. The more turbulent the industry environment is, the
greater the chance that a business partner may suddenly face bankruptcy or
acquisition.
The concept of reciprocity may also influence a relationship. Reciprocity
means trading sales for sales; in other words, “If you buy from me, I will buy
from you.” To the extent that this can reduce legitimate competition from
other competent partners, purchasing managers tend to resist reciprocity, but
may be pressured into it by their sales departments.
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5.5 MAJOR CATEGORIES OF BUSINESS CUSTOMERS

The organizational consumer market is often referred to as the industrial
market, or the business to business (B2B) market. Business and
organizational customers buy for resale or to produce other goods and
services.
The business market consists of four major categories of customers:
producers, resellers, governments, and institutions
Producers
The producer segment is quite large and consists of individuals and
organizations that buy goods and services used in producing other products,
incorporating into other products, or facilitating the organization’s daily
operations.
Resellers
• The reseller market consists of retail and wholesale businesses that buy
finished goods and resell them for a profit.
• Many retailers and most wholesalers carry large numbers of items.

Big Bazaar a grocery Hypermarket may carry up to 20,000 different
items. Manufacturers try to introduce another 5,000 or more products
and variations each year.
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Business Marketing
Governments
Government organizations include thousands of central, state, and local
buying units and represent what is considered to be the largest single market
for goods and services in the world.
The Central Government
The Indian government is one of the world’s largest customer. It purchases
almost every imaginable good and service.
Examples of purchases include defense, education, welfare, national
parks, highways, health and hospitals, postal services, space
exploration, and scientific research
Many different agencies and departments handle government purchasing, as
if they were separate companies.
State, Municipal and City Corporations
A business marketer may find over 50,000 state, municipal, and city
corporation units likely to buy its wares. The paperwork and regulations
involved in selling to these government agencies may be less complicated
than selling to the Central government, but the sheer volume of potential
clients may be frustrating.
The Small Business Administration has free brochures and classes on
government purchasing procedures. They show firms how to become
bidders for contracts
Institutions
• The fourth major segment of the business market consists of institutions

that seek to achieve goals different from such ordinary business goals as
profit, market share, and return on investment.
• This segment includes many schools, hospitals, churches, civic clubs, and
private nonprofit organizations.
The organizations in the institutional market differ substantially from
the other business markets in terms of buying behavior. Many rely
heavily on donations for their needed goods and services.
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Sales to institutional markets are generally larger in both rupeess and

quantities than sales to end-user consumers.
5.6 BUSINESS VERSUS CONSUMER MARKETS

There are important differences between how businesses and organizations
make purchase decisions and how individual consumers make those
decisions. Many characteristics of business markets are different from those
of consumer markets. Most organizations buy for a basic purpose: they
buy goods and services that will help them meet the demand for the goods
and services that they in turn supply to their markets.
Basic purchasing needs are economic. Organizational buyers are usually
less emotional in their buying behavior than are final consumers. They
usually focus on economic needs, such as increasing sales, when making
buying decisions. In today’s online shopping environment, intelligent search
tools can help online sellers improve sales.
Small differences are important. Every organization has a unique identity and
the differences between organizations are important. Marketers must never
assume that a marketing mix that is successful for one company will
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Business Marketing
automatically fit the needs of other companies—even in the same industry.

Thus marketing strategies are dissimilar.
Activity A
Prepare a list of five products with large volume traded in consumer and
business markets respectively.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
5.7 DEMAND
Derived Demand
Derived demand is the demand for business products that results from the
demand for consumer products.Because demand for business products is
derived, business marketers must carefully monitor demand patterns and
changing preferences in final consumer markets.
For instance, the demand for leather by shoe manufacturers is derived
from customer demand for shoes
Inelastic Demand
Inelastic demand means that an increase or a decrease in the price of a
product will not significantly affect demand or it. The demand for many
business products is inelastic because the price of many products used in
the production of a final product has an insignificant effect on the total price
of the final consumer product. The result is that demand for the final
consumer product is not affected
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Business Marketing
If the price of shoelaces doubled, the demand for shoes would not be
affected.
Joint Demand
Joint demand occurs when two or more items are used together in a final
product. An increase in demand for the final product will affect all of the
jointly demanded products.
Fluctuating Demand
The demand for business products tends to be more volatile than the
demand for consumer products. A small increase or decrease in consumer
demand produces a much larger change in demand for the facilities and
equipment needed to manufacture the consumer product. This is known as
the multiplier effect or accelerator principle.
A huge increase in demand for compact discs has created an
apparently larger increase in demand for machines that manufacture
the discs, because of the current shortage
Purchase Volume
Business customers buy in much larger quantities than consumers.
Number of Customers
Business marketers typically have far fewer customers than consumer
marketers.
• Business marketers may have an advantage in identifying prospective

customers, monitoring their needs, and providing personal attention.
• The reduced number of customers can also be a disadvantage, because

each customer is so overwhelmingly important to the business.
Most Bridgestone tires are sold to the five large automobile
manufacturers, not to the car owners
Location of Buyers
Business customers tend to be much more geographically concentrated than
consumers.
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Business Marketing
More than half the nation’s industrial purchasers are located in just seven
states: Maharashtra. Gujarat, Tamilnadu, Karnataka, Delhi, Haryana and
West Bengal
Distribution Structure
Direct channels are much more common in business marketing than in
consumer marketing. Direct channels are more common because
products are often customized, sold in large quantities, or are highly
technical in nature.
5.8 TYPES OF BUSINESS PRODUCTS

Major Equipment
Major equipment (installations) consists of capital goods, such as large or
expensive machines, mainframe computers, blast furnaces, generators,
airplanes, and buildings.
• Major equipment is also called an installation.

• Major equipment always depreciates over time.
• Major equipment is often leased, custom-designed, and sold direct from the
producer.
Accessory Equipment
Accessory equipment is generally less expensive and shorter-lived than
major equipment. It consists of goods such as portable tools and office
equipment.
• Accessories include such items as power tools, word processors, and fax
machines.
• Accessories are often standardized.

• Accessories are sold to a broad array of businesses.
• Accessories use less direct sales channels.
• Accessories use advertising as an important promotional tool.
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Business Marketing
Raw Materials
Raw materials are unprocessed extractive or agricultural products, such as
mineral ore, lumber, wheat, vegetables, and fish, which become part of the
final product.
• Personal selling is very important.

• Channels of distribution are usually direct from the producer to the business
user.
Component Parts
Component parts are either finished items ready for assembly or products
that need very little processing before becoming part of some other product;
examples include spark plugs, tires, and electric motors.
• Component parts often retain their identity after becoming part of some
other product.
• Component parts may wear out and need to be replaced during the life of a
product.
• The two markets for component parts are the original equipment
manufacturer (OEM) market and the replacement market.
Processed Materials
Processed materials are used directly in manufacturing other products;
unlike raw materials, they have had some processing. Examples include
sheet metal, lumber, chemicals, corn syrup, and plastics.
• Processed materials do not retain their original identity in the final product.
• Processed materials are usually marketed to OEMs or to distributors
servicing the OEM market.
Supplies
Supplies are consumable items that do not become part of the final product,
such as lubricants, detergents, paper towels, pencils, and paper.
• Supplies are normally standardized, inexpensive items sold through local

distributors.
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Business Marketing
• This category is often referred to as MRO items, because supplies

generally fall into one of three categories: maintenance, repair, or operating
supplies.
5.9 BUSINESS SERVICES

Business services are expense items that do not become part of a final
product. Businesses retain outside providers to perform such tasks as
advertising, janitorial, payroll, legal, market research, maintenance, or other
services.
5.10 NATURE OF BUYING

Unlike the individual consumer market, organizational buyers tend to focus
more on quality and exacting purchase specifications. Organizational
customers often buy on the basis of purchasing specifications—written or
electronic descriptions of what the firm wants to buy. The specifications
describe the needs that organizational buyers have. Specifications may be
fairly simple, as is the case for many agricultural commodities, or they may
be very detailed. Highly technical products, and many services, tend to have
more detailed specifications.
Business buyers, who are often professionally trained purchasing agents or
buyers, normally take a more formal approach to buying compared to
consumers.
Organizational buyers often concentrate on quality certification in making
purchases. Differences between standards across national boundaries may
be an issue. ISO 9000 is a way for a supplier to document its quality
procedures according to internationally recognized standards.
Often business buyers require more technical data
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Business Marketing
Activity B
You are offering high quality bike for young customers. Which characteristics
of the two wheeler you will include in your promotion?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Nature of Buying Influence

More people are usually involved in a single business purchase decision
than in a consumer purchase decision. Some purchase decisions rest with a
buying center, which is a panel of experts from a variety of fields within an
organization.
Buying Center concept
A buying center includes all those persons in an organization who
become involved in the purchase decision.
Membership in the buying center and relative influence of the participants
vary widely from organization to organization. Buying centers do not appear
on the formal organizational chart and members informal yet important roles.
In a lengthy decision process people may move in and out of the buying
center.
Roles in the Buying Center
They are similar except that there typically is no gatekeeper role for
consumer decision making. An individual in a buying center may take
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Business Marketing
more than one role (as in small fims) and that many people may share
one role
One of the differences is the fact that organizations use professional buyers.
Purchasing managers are specialists in buying activities for their

employers. Further, organizations are characterized by multiple buying
influences — which mean that several people share in making a purchase
decision. When marketing to organizations, it is useful to think of the
collection of these influences as a buying center.
In the buying center, there can be:
Buyers—the purchasing managers who are responsible for working with
suppliers and arranging for the terms of the sale.
Users—the people who will actually use the product. They may be
production workers or support staff.
Influencers—people whose expertise is used to help determine which
products are needed. Influencers are often technical people who help write
specifications.
Gatekeepers—people in key positions who control the flow of information.
Gatekeepers can include receptionists, secretaries, researchers, and others.
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Business Marketing
Deciders—the people who have the power to select or approve the supplier.
To be successful in the B2B market, marketers must identify and market to
every buying center member, not just the purchasing manager. One difficulty
is that the members of the buying center may change from purchase to
purchase.
Sellers often send sales teams, with experts from different areas of the
selling company, to deal with buying centers.
5.11 TYPE OF NEGOTIATIONS

Negotiation of price, product specifications, delivery dates, payment terms,
and a variety of other conditions of sale is common in business marketing.
The negotiation and buying process can take many months or even
several years for complex industrial products
5.12 USE OF RECIPROCITY

Business purchasers often choose to buy from their own customers, a
practice known as reciprocity. Reciprocity is neither illegal nor unethical
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Business Marketing
unless one party coerces the other; it is generally considered a reasonable

business practice.
5.13 USE OF LEASING

Consumers normally buy products rather than lease them. But businesses
commonly lease expensive equipment, such as computers, construction
equipment and vehicles, and automobiles.
5.14 PRIMARY PROMOTIONAL METHOD

Personal selling tends to be emphasized by business marketers in their
promotion efforts. Many business products are expensive, require
customization, are ordered in large volumes, or involve intricate negotiations.
All these situations necessitate a great deal of personal contact.
In addition, supplier-customer relationships are usually close in
business markets. Companies don’t just make purchases; they
establish relationships
Companies in the pharmaceutical industry frequently sponsor medical
symposia and conferences, bringing in speakers for panels that
discuss new treatments for various diseases and illnesses. It is no
coincidence that the drug companies’ new products are often promoted
at these events. The drug industry maintains that it supports medical
education out of concern for the safe use of its products and for the
professional advancement of its customers. This is one type of
business promotion that has been heavily criticized by people and
groups outside of the pharmaceutical industry.
5.15 EVALUATIVE CRITERIA

Although most buyers in organizational markets are professionals, a
comprehensive vendor analysis considers all influences on purchase
decisions.
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Vendor analysis is a formal rating of suppliers on all relevant areas of

performance. The goal of a vendor analysis is not necessarily to get the
lowest possible price for a product or service, but to lower the total costs
associated with a purchase. For example, a vendor charging a relatively high
price may offset it with value-added services that produce savings for the
buyer.
A buyer’s behavioral needs are relevant, too. For example, if the buyer’s
main contact with the supplier is through a sales representative who is
uncooperative, the supplier is less attractive to the buyer than it would be
otherwise.
Ethical conflicts may arise in relationships between buyers and potential
suppliers. As a result, some organizations have provisions in their codes of
conduct governing these interactions.
The three most important and commonly used criteria are quality, service,
and price—in that order.
• Quality refers to technical suitability, the salesperson, and the

salesperson’s firm.
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• Service may range from pre-purchase needs surveys to installation to

dependability of supply.
• Price is extremely important in most business purchases.
5.16 BUYING SITUATIONS

Like individual consumers, organizational buyers are problem-solvers. In
organizational problem-solving, three kinds of buying processes are useful.
Often business firms must decide whether to make a certain item or to buy it
from an outside supplier. Essentially, this is an economic decision,
concerning price and use of company resources. If a firm does choose to
purchase a product, it will do so under one of three basic conditions: new
buy, modified rebuy, or straight rebuy.
New-task buying occurs when an organization has a new need and the
customer wants a great deal of information. New-task buying often involves
setting product specifications, evaluating sources of supply, and establishing
an order routine to follow in the future if the initial purchase is successful at
solving the problem. New-task buying is typically reserved for situations
where some risk is involved in making the right decision. If successful,
newtask buying can lead to strong relationships because the supplier is
helping the customer solve problems.
A new buy situation requires the purchase of a product for the first time.
• A new buy situation is the greatest opportunity for a new vendor to sell to a
business purchaser because no previous relationship with a vendor has
been established.
• New buys often result from value engineering, a systematic search for
less-expensive substitute goods or services.
Technical information is very important in a new-buy situation. New
buys can be very time-consuming as the purchaser researches
alternatives and sets up specifications
A modified rebuy is the in-between process. Some review of the buying
process is done but not as much as in a new-task buy. With this buying
process, it is essential for the supplier to identify the criteria that are being
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Business Marketing
used for the buying review and to make sure that the right people in the
organization know about the supplier’s performance on those dimensions. A
modified rebuy is normally less critical and time-consuming than a new buy.
• In a modified rebuy situation, the purchaser wants some change in the

original good or service.
• In some cases the purchaser just works with the original vendor, but in
other cases the modified rebuy is opened to outside bidders.
Example: A small trailer manufacturer wants to purchase hydraulic
cylinders that will extend twenty-four inches rather than the current
ones that extend eighteen inches
A straight rebuy is a routine repurchase that uses existing suppliers to fill a
standard order. For many organizations, the straight rebuy is virtually
automatic and may have been made many times before. Today, many
straight rebuys are made by computers linking the buyer and the supplier
directly. What buying procedure becomes routine is critical.
• In a straight rebuy, the purchaser reorders the same goods or services

without looking for new information or investigating other suppliers.
• One common technique in a straight rebuy is the use of a purchasing

contract for items that are purchased often and in high volume, which
further automates the purchase process.
Example: These are usually products that are purchased frequently,
low in value, and don’t require contract re-negotiation
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5.17 PURCHASING ETHICS

The ethics of business buyer and seller relationships are often scrutinized
and sometimes criticized by superiors, associates, other prospective
suppliers, the general public, and the news media.
Ethics in Marketing: Gifts Policy
5.18 KEY TERMS

Business and organizational customers: any buyers who buy for resale or
to produce other goods and services.
Purchasing specifications: a written or electronic description of what a firm
wants to buy.
Multiple buying influence: several people share in making a purchase
decision—perhaps even top management.
Buying center: all the people who participate in or influence a purchase.
Vendor analysis: formal rating of suppliers on all relevant areas of
performance.
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New-task buying: when an organization has a new need and the buyer
wants a great deal of information.
Requisition: a request to buy something.
Straight rebuy: a routine repurchase that may have been made many times
before.
Modified rebuy: the in-between process where some review of the buying
situation is done— though not as much as in new-task buying or as little as
in straight rebuys.
Just-in-time delivery: reliably getting products there just before the
customer needs them.
Negotiated contract buying: agreeing to a contract that allows for changes
in the purchase arrangements.
Reciprocity: trading sales for sales—that is, “if you buy from me, I’ll buy
from you.”
Competitive bids: terms of sale offered by different suppliers in response to
the buyer’s purchase specifications.
Open to buy: a buyer has budgeted funds that he can spend during the
current time period.
5.19 SUMMARY
Business marketing is the marketing of goods and services to individuals and
organizations for purposes other than personal consumption.
When it is carried on internet, it is known as e-commerce.
E-commerce is not limited only to large companies. It has several benefits
like lower costs, larger access and selection, customized products and 24-
hours service.
Relationships and strategic alliances are formed in business marketing as it
is beneficial to all members. There is a problem of imbalance of power in an
alliance, so buyers still use several sources. But reciprocity involved in
relationships means more business to members.
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Business Marketing
Business customers normally can be categorized as Producers, Resellers,

Government and Institutes.
Characteristics like demand, volume, location, number of customers,
reciprocity, negotiations differentiate business and consumer market.
Major equipment, accessory equipment, raw materials, components,
processed materials; supplies are different types of business products.
Business buying is conducted by professionals who focus on specifications
and take a very formal route for buying process. Vendor analysis and
approval evaluates buying process.
More time, multiple influence, long review of suppliers and comprehensive
data is required for new task buying and not for straight rebuys.

1. Describe Business Marketing.
2. What is role played by internet in business markets? To what benefits?
3. List and describe types ob business market customers.
4. How does consumer market differ from business market?
5. What are unique aspects of business buying behavior?
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Business Marketing
REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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6
Marketing Information Systems
and Marketing Research
Objectives
• Marketing Information Systems.
• Marketing Research.
• Methods adopted in Marketing Research.
• Competitive Intelligence.
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Marketing Information Systems and Marketing Research
Structure:
6.1 Introduction
6.2 Marketing Information System (MIS)
6.3 Marketing Decision Support Systems
6.4 Competitive Intelligence
6.5 The Role of Marketing Research
6.6 Steps in Marketing Research Project
6.7 Problem/Opportunity Identification and Formulation
6.8 Planning the Research Design and Gathering Primary Data
6.9 Primary Data Collection Techniques
6.10 Questioning
6.11 Observation
6.12 Sampling
6.13 Data Analysis and Interpretation
6.14 Prepare & Present Report
6.15 Follow Up
6.16 Key Terms
6.17 Summary
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6.1 INTRODUCTION
Accurate and timely information is the lifeblood of marketing decision-
making. Marketing information is everyday information about
developments in the marketing environment that managers use to prepare
and adjust marketing plans. The system for gathering marketing intelligence
is called a marketing decision support system (DSS).
Marketing managers need information about:
• Customers and their responses to the marketing mix

• Targeting and segmentation
• Competitors
• Marketing environment.
• Information that will allow them to do detailed cost analysis for the purposes
of implementation and control.
6.2 MARKETING INFORMATION SYSTEM (MIS)

Marketing information systems (MIS) help make this information available
and accessible. An MIS allows a manager to get more information, faster and
easier, by making it readily available in an easy-to-use format, often via
personal computers. Many firms, even small ones, now have their own
intranet—a system for linking computers within a company that works like
the Internet. An intranet is easily accessible by managers and is also easy to
update.
In conjunction with MIS managers, marketing managers must help develop
an MIS, especially in designing what types of data should be included in the
system. Although the exact information and questions that will be asked of
the MIS may not be known, the general categories of data and information
can be identified.
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This diagram of a typical MIS shows how its key components fit together to
meet a manager’s information needs.
Information sources for an MIS may include formal marketing research
studies, as well as previously published internal or external data. All of this
information is organized in a data warehouse—a place where databases are
stored so that they are available when needed.
The growth in the popularity of marketing information systems has had a
tremendous impact on the decision-making capabilities in many
organizations. A vast amount of information is funneled into a firm’s
marketing information system (MIS). Internal data can come from anywhere
within the firm: past credit records, internal sales reports, competitive
products analyses, and so on. External data can also come from a variety of
sources: marketing research, economic forecasts, government reports, trade
shows, and the like. A common problem is that the MIS can overwhelm
managers with information, making it difficult to answer specific questions.
This problem is illustrated by the MIS user who wants only a small glassful of
information but whose MIS deluges the user with data and information.
The availability of information makes managers greedy for more of it. The
more they use the MIS, they see more possible applications in all areas of
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the marketing strategy planning process. Additional advancements in

technology will make the MIS even more of a necessity in the future. Many
firms are not there yet, either because they don’t have an MIS, or don’t know
how to fully use the one they have.
MIS use is growing rapidly. With the growing power of microcomputers and
the accompanying PC software, even very small firms can develop an MIS.
However, marketing managers need to think about the problems they need
to solve, decide what information is needed to solve the problems, and to
ask for it from the MIS in the right form.
New questions require new answers, meaning that an MIS must be
continually updated with information from the marketing environment in order
to be useful.
6.3 MARKETING DECISION SUPPORT SYSTEMS

Marketing information is everyday information about developments in the
marketing environment that managers use to prepare and adjust marketing
plans. The system for gathering marketing intelligence is called a marketing
decision support system (DSS).
A marketing decision support system (DSS) is an interactive, flexible
information system that enables managers to obtain and manipulate
information as they are making decisions.
Some MISs has a decision support system that puts managers online. A
DSS is a computer program that makes it easy for a marketing manager to
get and use information while he or she is making decisions. This “real time”
availability helps keep decisions as up-to-date as possible. A DSS usually
contains some type of search engine— a computer program that helps
marketing manager find information that is needed.
Some DSSs provide managers with the option of even more interactivity. A
marketing model is a statement of relationships among marketing variables.
It allows a manager to see how answers to questions might change in
various what-if situations.
The outcomes of the decisions become feedback to the process and are
entered into the data warehouse. Therefore, the MIS continues to evolve
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over time, as it in effect learns from the outcomes of decisions that marketing
managers make. The database is continually refreshed with new information,
making it an up-to-the-minute management tool.
DSS bypasses the information-processing specialist and gives managers
access to the data from their terminals. The four characteristics of a DSS are
that it is interactive, flexible, discovery-oriented, and accessible.
Perhaps the fastest growing use of DSS is for database marketing which is
the creation of a large computerized file of customers’ and potential
customers’ profiles and purchase patterns.
6.4 COMPETITIVE INTELLIGENCE

Competitive intelligence is the creation of a system that helps managers
assess their competitors and their vendors in order to become a more
efficient and effective competitor.
Advantages of using competitive intelligence
• helps managers assess their competition and their vendors

• allows managers to predict changes in business relationships
• helps identify marketplace opportunities
• helps guard against threats
• forecasts a competitors strategy
• discover new or potential competitors
6.5 THE ROLE OF MARKETING RESEARCH

Marketing research is the planning, collection, and analysis of data relevant
to marketing decision making. It plays a key role in the marketing system.
• provides managers with data on the effectiveness of the current marketing

mix
• provides insights for changes
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• is the primary data source for and DSS

Roles of Marketing Research
• Descriptive: gathering and presenting statements of fact.
" Who buys Diet Pepsi?
• Diagnostic: explaining data

" Why did the sales of Diet Pepsi not pick up in Mumbai?
• Predictive: attempting to estimate the results of a planned marketing

decision
Management Uses of Marketing Research
• Marketing research improves the quality of marketing decision making.

• Marketing research is also used to discover what went wrong with a
marketing plan.
• Marketing research is used to retain customers by having an intimate

understanding of their needs.
• Marketing research helps managers understand what is going on in the

marketplace and take advantage of opportunities.
Marketing research helps marketers understand the dynamics of the
marketplace. To satisfy consumer needs and wants, marketers must
first understand them. Marketing research can give marketers insight
into consumer attitudes, product loyalty, purchase rates, media usage,
lifestyles, and a wide range of other factors that help determine what
products consumers will buy.
Many marketing managers are isolated in their offices and have few means
to relate to potential customers other than marketing research. Marketing
research is a collection of procedures to develop and analyze new
information to help marketing manager make decisions.
Without marketing research, it would be hard to imagine an isolated, middle-
aged manager recognizing the need for a product that would provide all of
the features offered by their product. Even if the manager were able to come
up with these features, he/she would still need research to see if the demand
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was widespread enough to invest the huge sums necessary to develop and
market the product or product line. Marketing research would also prove
useful in other marketing tasks, for example, the development and
placement of their advertisement.
Many different individuals and organizations are involved in marketing
research. Some large organizations have their own internal marketing
research departments, so they can take care of a lot of the research work in
house. However, most organizations needing marketing research use
external suppliers, such as custom marketing research firms. These firms
can either be very general in their approach or they can be very specialized.
Some firms are “full-service” agencies providing a broad range of research
services, while others have a narrower focus, such as data collection or
tabulation.
In order to have good marketing research, it is extremely important for the
marketing manager and the marketing researcher to develop a good working
relationship.
Sometimes developing a good relationship is difficult, because the marketing
manager and the researcher come from somewhat different professional
worlds. Marketing managers need research because they have problems
they want to solve, but they sometimes have trouble explaining what they
need to a researcher.
On the other hand, researchers who are very skilled in the technical aspects
of marketing research may not completely understand the decision situation
facing the manager. The bottom line? Collaboration between the researcher
and the manager is absolutely necessary if the research effort is going to be
successful.
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6.6 STEPS IN A MARKETING RESEARCH PROJECT

Virtually all firms that have adopted the marketing concept engage in
marketing research, which can range from a very formal study to an informal
interview with a few customers. An MIS or DSS typically makes use of
regularly collected recurring information, but marketing research develops
unique information to solve a new problem.
The marketing research process is a scientific approach to decision making
that maximizes the chance for getting accurate and meaningful results.
Marketing research is based upon the scientific method — a decision-
making approach that is objective and orderly in testing ideas before
accepting them. A key feature of scientific investigation is the development of
hypotheses — educated guesses about likely causes and effects that can
be measured objectively to help eliminate unnecessary risk taking in making
decisions.
The marketing research process is a five-step application of the scientific
method:
Step 1 is defining the problem: the manager and the researcher determine
the key decision issues requiring information.
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Step 2 is analyzing the situation: an informal study of information that is

already available in the problem area.
Step 3 is getting problem-specific data: the collection of data that is
customized to the decision maker’s unique needs.
Step 4 is interpreting the data: the process of deciding what it all means; it
is a transformation of raw data to useful information.
Step 5 is solving the problem: the delivery of recommendations to the
marketing manager, who is ultimately responsible for implementing the
recommendations.
6.7 PROBLEM/OPPORTUNITY IDENTIFICATION AND FORMULATION
• The research process begins with the recognition of a marketing problem or

opportunity. It may be used to evaluate product, promotion, distribution or
pricing alternatives, and/ or find and evaluate new market opportunities.
• The marketing research problem involves determining what information is

needed and how that information can be obtained efficiently and effectively.
• The marketing research objective is to provide insightful decision-making

information. This requires specific pieces of information needed to answer
the marketing research problem.
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• The management decision problem is broader in scope and far more

general. It is action oriented.
This is the most important and often the most difficult step in the research
process. Often, the researcher must help the manager to flesh out the real
problem facing the organization and the types of information needed to solve
the problem.
Finding the right problem level almost solves the problem, in many cases. In
order to find the right problem, the marketing strategy planning framework
can be useful. The marketing manager should understand the target market
and the needs that the organization can satisfy. Then, the manager can
focus on how sensitive the target market is to changes in the elements of the
marketing mix.
A good piece of advice for both researchers and managers is, “Don’t
confuse problems with symptoms.” In much the same way that a cough or
a fever might be symptoms of a physical ailment, key performance indicators
in marketing may be symptoms of other more fundamental problems.
When researchers and managers have grasped the problem that requires a
solution, they can set goals for the research effort. Setting research
objectives may require more understanding. The researcher and manager
can develop a list of research questions that includes all the possible
problem areas, and then narrow the list down to the questions that are most
important. A single research project may not be adequate for answering all of
the questions.
Even a huge company can make a mistake in defining the problem. Coca-
Cola thought the problem was “which new formula tasted best.” Actually, one
of the research questions should have been “How will our customers react if
we replace our formula with a new one?”
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Situation analysis is basically an informal study in answer to the question,

“What information do we already have in the problem area?”
Situation analysis often begins by picking the brains of informed people,
such as experts within the organization, key middlemen, or other
knowledgeable people.
Situation analysis helps educate a researcher, by providing background
about unfamiliar problem areas. As mentioned previously, it is very important
for the researcher to go beyond comprehending the technical aspects of a
research study. The researcher must be able to relate to the manager by
understanding the manager’s problem. Otherwise, the researcher may rush
ahead and make costly mistakes or simply discover facts that are already
known.
The situation analysis may uncover information that leads to an early
identification of a solution, or it may help to determine what other types of
information are really necessary.
Secondary data is information that has already been collected or published.
It is different from primary data, which is information specifically collected to
solve a current problem. In other words, secondary data is information that
has already been gathered for some other purpose, but it might be useful to
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the researcher. Primary data is custom-designed to the researcher’s

immediate need. Disadvantages include the lack of fit between this unique
problem and the data that have already been collected, and the difficulty of
assessing the quality and accuracy of secondary data.
Much secondary data is available. Examples of secondary data sources
from inside the company might be data from the MIS, financial information
from the accounting department, or reports from the field sales force.
Information from outside the company might include government information,
trade association studies, or information available in magazines or journal
articles.
Since many organizations are now putting information online, search

engines can help researchers find information on the Internet. These
search engines are available in Web browsers, or as stand-alone entities,
such as Yahoo. Many other computerized database and index services are
also available on the Internet.
The Internet is a world-wide telecommunications network.
The World Wide Web (or Web) is one component of the Internet which was
designed to simplify transmission of text and images. The Internet provides a
new source of secondary data.
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• A web address or URL (Uniform Reference Locator) is similar to a street

address in that it identifies a particular location.
• Search engines contain collections of links to documents throughout the
world. You can use the search engine to locate sites that include
information that meets your requirements.
• Discussion Groups include newsgroups that function much like bulletin

boards for a particular topic or interest
In getting problem-specific data, marketers collect primary data that is

customized to their unique needs. In most cases, researchers try to learn
what customers think about a particular topic, or they try to see how they
behave under certain conditions. Primary data is usually classified into two
main categories:
The research design specifies which research questions must be answered
using primary data, how and when the data will be gathered, and how the
data will be analyzed.
Primary Data
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Primary data are pieces of information collected for the first time and used
for solving the particular problem under investigation.
• Must be collected if the specific research question cannot be answered by
available secondary data. It is designed to answer specific questions, is
current, is gathered using methodology specified by the researcher, and
can be gathered in such a way as to maintain accuracy and secrecy.
• A major disadvantage of primary data collection is the expense
6.9 PRIMARY DATA COLLECTION TECHNIQUES

Techniques for primary data collection include. Surveys, observation, and
experiments.
Surveys
The most popular technique for gathering primary data is survey research, in
which a researcher interacts with people to obtain facts, opinions, and
attitudes.
Interviewing
• In-home interviews often provide high-quality information, offer the

opportunity to gain indepth responses, but are extremely expensive
because of the interviewer’s time and mileage.
• Mall intercept interviews are a survey research method that involves

interviewing people in the common areas of shopping malls. They must be
briefer than in-home interviews, often do not provide a representative
sample of consumers, provide an overall quality of information similar to
that of telephone interviews, and are less costly than in-home interviews.
Mall intercept interviews are convenience samples and thus have potential
for a great deal of sampling error.
• Another technique is computer-assisted personal interviewing, with the

interviewer reading the questions from a computer screen and entering the
respondent comments. A second approach is computer-assisted self
interviewing.
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• Telephone interviews offer the advantage of lower cost than personal

interviews, and Have the potential for the best sample among interview
types. Sometimes interviews are conducted from the interviewer’s home,
but most often are executed from a central-location telephone (CLT)
facility, which is a specially designed room for conducting telephone
interviews for survey research. These facilities have a number of phone
lines and monitoring equipment in one location. Many CLT facilities offer
computer assisted interviewing, in which interviewers read questions
from a screen and input responses directly into the computer.
• Mail surveys, have relatively low costs, eliminate interviewers and field
supervisors, centralize control, provide (or promise) anonymity for
respondents, and produce low response rates.
• Mail panels consist of a sample of households recruited to participate by

mail for a given period, responding repeatedly over time.
• Executive interviewing is used by marketing researchers to refer to the

individual equivalent of door to door interviewing
• Focus groups:
A focus group interview involves interviewing 6 to 10 people with desired
characteristics who participate in a group discussion about a subject of
interest to a marketing organization in an informal group setting. A skilled
moderator leads the discussion, asking open-ended questions on topics of
interest and taking advantage of group dynamics to pursue comments in-
depth. Sessions are usually videotaped. The group dynamics and interaction
are essential to the success of this method. Focus group interviewing can be
relatively inexpensive, and it can be conducted quickly. However, the
conclusions drawn from a focus group depend on who watches it. Focus
groups involve so few people as participants that they may not be
representative of the entire target market.
Focus groups can also be overused and mistaken for “market facts.”
Sometimes, they generate more questions than answers. As a result, many
researchers use focus groups as preparation for more formal quantitative
research utilizing a larger, scientifically selected group of respondents.
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6.10 QUESTIONING
Questioning means asking consumers about their ideas, attitudes, interests,
or behaviors. Questioning may be done formally or informally. All of the
methods of questioning have strengths and weaknesses, and the researcher
has to select the method that best achieves the research objectives within
the constraints of time and cost. All forms of survey research require a
questionnaire to ensure that all participants are asked the same series of
questions.
a. Open-ended questions are those worded to encourage unlimited
answers phrased in the respondent’s own words. Qualitative questioning
is open-ended, with a hidden purpose. It aims for in-depth, detailed
responses—not yes or no answers. Asking people questions in an open-
ended fashion allows them to elaborate on their answers. So, the main
advantage of qualitative questioning is the depth of the responses provided.
It tends to work best in research situations that require the generation of a lot
of ideas as opposed to firm conclusions.
b. Closed-ended questions are those in which the respondent is provided
with a list of responses and is requested to make a selection from that list.
These questions may be dichotomous (only two possible answers) or
multiple choices.
• A scaled-response question is a closed-ended question designed to

measure the intensity of a respondent’s answer.
• Qualities of good questionnaires include clearness, conciseness,

objectiveness, and reasonable terminology.
• Care should be taken to ask only one question at a time

• The purpose of the survey and expectations of the participants’ behavior
should be stated up front
Many companies fall into the trap of asking loaded questions in order to get
the results they want: “Do you think it is all right for the government to tax
airline tickets and deprive a lot of people of the chance to fly?”
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Activity A
Prepare a questionnaire to collect data on what students expect from a good
writing instrument, say a ball pen. Include three questions that are open
ended and three that are not.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
6.11 OBSERVATION
Observation research is a research method that relies on three types of
observation: people watching people, people watching physical phenomena,
and machines watching people. Observing involves monitoring behaviors.
Observation may be done by humans or by machines. The cost of
observation methods has gone down due to technological advancements, so
they are becoming more important sources of primary data for marketers.
In observation research, researchers try to see or record the behaviors of
people. Most observation is done without the knowledge of the people being
observed, because researchers do not want to influence the things people
do. Observation can be done by machine, such as a videotape machine that
records shoppers in a store. Trained people might also be the observers, as
is the case when “secret shoppers” report on their shopping experiences in
various stores.
Observation methods are common in advertising research. Nielsen
Media Research gathers data on television viewer ship by using “people
meters” that record the channels watched by a selected sample of
consumers.
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a. People watching people is one form of observation research. Mystery

shoppers are researchers who pose as customers to observe the quality of
service being offered.
The use of mystery shoppers is a standard practice for many fast-food
restaurants.
b. One-way mirror observations are used to see how consumers use and
react to products.
Experiment
• In an experiment, the researcher changes one or more variables (such as

price or package design) while measuring the effects of those changes on
another variable (usually sales).
Experiments are the only way to determine causality.
Experiments can be performed in the field or in a laboratory.
6.12 SAMPLING
When specifying the sampling procedures, the sample or subset of the
larger population to be drawn for interviewing must be determined.
• First, the population from which a sample is drawn, or universe of interest,

must be defined.
• Next, the researcher must determine if the sample for this study should be
representative of the population as a whole.
• If yes, then a probability sample is called for.

1. With a probability sample, every element in the population has a known
nonzero probability of being selected. Scientific rules are used to ensure that
the sample represents the population.
a. A random sample is set up so that every element of the population
has an equal chance of being selected as part of the sample.
b. Often a random sample is selected by using random numbers from a
table found in statistics books.
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2. A non probability sample is any sample in which little or no attempt is

made to get a representative cross section of the population.
a. A convenience sample uses respondents who are readily accessible
to the researcher.
b. Non probability samples are frequently used in market research,
because they cost less than probability samples.
3. Several types of errors are associated with sampling.
a. Measurement error occurs when the information desired by the
researcher differs from the information provided by the measurement
process.
b. Sampling error occurs when a sample is not representative of the
target population in certain respects.
1) Nonresponse error, occurs when certain members of the sample refuse to
respond and their responses may have differed from the sample as a
whole. 
 
People who refuse to fill out mail surveys or people with unlisted phones
may somehow be different from the rest of the population.
2) Frame error arises if the sample drawn from a population differs from the
target population.
3) Random error occurs when the selected sample does not represent the
overall population.
Data collection
Marketing research field services does most data collection.
a. Field service firms specialize in interviewing respondents on a
subcontract basis.
b. Field service firms also conduct focus groups, mall intercepts, retail audits,
and other data-collection services.
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6.13 DATA ANALYSIS AND INTERPRETATION
The first question a marketing researcher must answer is, “Is your sample
really representative of the population?” A population is the total group of
interest to the researcher or marketing manager. A sample is a smaller group
selected to represent the population. The key here is to ensure that the
sample selected represents the larger population, and to estimate the
likelihood that it does not.
In random sampling each member of the population has the same chance of
being included in the sample. Random samples tend to be representative.
Research results are not exact. An estimate from a sample usually varies
from the true population value. Researchers assess the accuracy of their
sample estimates by using confidence intervals. A confidence interval is the
range on either side of an estimate that is likely to contain the true population
value.
Validity problems can destroy research. Validity concerns the extent to which
data measures what it is intended to measure. Because the wording of a
survey can lead to misunderstandings about what a question means, it is
very important to construct questions carefully to ensure validity in subjects’
responses.
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Poor interpretation can also destroy research. Problems can arise if the
researcher does not understand the management problem, so the marketing
manager and researcher should work together closely.
Three types of analysis are common in marketing research.
• One-way frequency counts are the simplest, noting how many respondents
answered a question a certain way. This method provides a general picture
of the study’s results.
• Cross tabulations relate the responses to one question to the responses

to one or more other questions.
An example of cross-tabulated results would be the statement that the
customers who have owned the product two-to-four years reported the
greatest amount of satisfaction.
• Statistical analysis, the most sophisticated type, offers a variety of

techniques for examining the data.
6.14 PREPARE AND PRESENT THE REPORT

The research must communicate the conclusions and recommendations to
management. Usually both oral and written reports are required.
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6.15 FOLLOW UP
The researcher should determine if management followed the
recommendations and why or why not. Market research is not always the
correct solution to a problem. In several situations
it may be best not to conduct market research:
• When decision-making information already exists

• When the costs of conducting research are greater than the benefits
• learn from the success or failure of others
6.16 KEY TERMS

Marketing information system (MIS): an organized way of continually
gathering, accessing, and analyzing information that marketing managers
need to make decisions.
Intranet: a system for linking computers within a company.
Data warehouse: a place where databases are stored so that they are
available where needed.
Decision support system (DSS): a computer program that makes it easy
for marketing managers to get and use information as they are making
decisions.
Search engine: a computer program that helps a marketing manager find
information that is needed.
Marketing model: a statement of relationships among marketing variables.
Marketing research: procedures to develop and analyze new information to
help marketing managers make decisions.
Scientific method: a decision-making approach that focuses on being
objective and orderly in testing ideas before accepting them.
Hypotheses: educated guesses about the relationships between things or
about what will happen in the future.
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Marketing research process: a five-step application of the scientific method

that includes
(1) defining the problem, (2) analyzing the situation, (3) getting problem- 
specific data, (4) interpreting the data, and (5) solving the problem.
Situation analysis: an informal study of what information is already
available in the problem area.
Secondary data: information that has been collected or published already.
Primary data: information specifically collected to solve a current problem.
Research proposal: a plan that specifies what marketing research
information will be obtained and how.
Qualitative research: seeks in depth, open-ended responses, not yes or no
answers.
Focus group interview: an interview of 6 to 10 people in an informal group
setting.
Quantitative research: seeks structured responses that can be summarized
in numbers like percentages, averages, or other statistics.
Response rate: the percent of people contacted in a research sample who
complete the questionnaire.
Consumer panel: a group of consumers who provide information on a
continuing basis.
Experimental method: a research approach in which researchers compare
the responses of two or more groups that are similar except on the
characteristic being tested.
Statistical packages: easy to use computer programs that analyze data.
Population: in marketing research, the total group you are interested in.
Sample: a part of the relevant population.
Random sampling: each member of the research population has the same
chance of being included in the sample.
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Confidence interval: the range on either side of an estimate from a sample

that is likely to contain the true value for the whole population.
Validity: the extent to which data measures what it is intended to measure.
6.17 SUMMARY
Information about customers, their responses to marketing mix, targeting and
segmentation, competitors, marketing environment are essential for
marketing managers.
System that gathers this information for managers is called marketing
information system (MIS).
Information sources are identified, questioned and answers obtained. These
are used to take marketing decisions that when implemented yield sales,
profits and customer satisfaction. This method of gathering data is called
marketing decision support system (DSS).
System that helps managers assess their competitors and their vendors is
called 'competitive intelligence'. Competitive intelligence helps managers
assess competition, predict changes in market environment, identify market
opportunities and threats and prepare fruitful action plan.
Marketing research is the planning, collection and analysis of data relevant
to marketing decision making. It has descriptive, diagnostic and predictive
characteristics. This allows marketing to strategize for customer satisfaction.
The first important step in marketing research is to identify problem /
opportunity. Many times symptoms are assumed to be the problem, and this
needs to be avoided. The next step is to collect relevant data already
available. This is called secondary data. Step three is to collect primary data
specific to the problem. Techniques of surveys, interviewing ( in home, malls,
computer assisted self interviews, focus groups ), questioning, observation,
experiment, sampling, data collection etc are used for this purpose. The next
step involves analysis and interpretation of the data.
Final results of the research provide some results that are actionable, some
showing failures of the strategy to impact the market. Whatever the results,
these need to be communicated to the managers.
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1. Describe Marketing Information System (MIS).
2. Define Market Research and explain its importance to marketing decision
making.
3. How is the market research conducted?
4. What do you understand by primary and secondary data?
5. What is competitive intelligence? What is its role in Marketing?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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7
Marketing Pillars - Segmentation,
Targeting Positioning and
Differentiation
Objectives
• Characteristics of Markets and Market Segments.
• Bases for Market Segmentation.
• Product Differentiation.
• Positioning as a Marketing Pillar.
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Marketing Pillars - Segmentation, Targeting Positioning and Differentiation
Structure:
7.1 Introduction
7.2 Market
7.3 Market Segment
7.4 Demographic Segmentation
7.5 Psychographic Segmentation
7.6 Benefit Segmentation
7.7 Usage Segmentation
7.8 Bases for Segmenting Business markets
7.9 Purchasing Strategies
7.10 Marketing Segmentation Process
7.11 Criteria for Successful Segmentation
7.12 Steps in Segmenting a market
7.13 Strategies for Selecting Target Markets
7.14 Product Differentiation
7.15 Positioning
7.16 Key Terms
7.17 Summary
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7.1 INTRODUCTION
The marketing strategy planning process guides the selection of a target
market and the development of a marketing mix. The process will be affected
by the information gathered about customers, the information gathered about
the mission, objectives, and resources of the company, and the information
gathered about its competitors. In addition, the marketer has to take into
account other trends in the external environment. Among these trends are
technological trends, political and legal trends, social and cultural trends, or
economic trends.
The process then narrows down from this broad view to a more specific
focus on a target market. Marketers must understand the diversity of
consumer needs in the broader market and use segmentation techniques
that help pinpoint target groups of similar consumers. In order to narrow
down to a superior marketing mix, one that is better than what current
competitors offer, marketers need differentiation.
Marketers must fine-tune the elements of the marketing mix to the unique
needs of the target market. Since there are many opportunities to serve
different target markets, marketers must apply screening criteria to make it
clear why a particular opportunity is pursued. The marketer considers these
screening criteria in a S.W.O.T. analysis of strengths, weaknesses,
opportunities and threats. This analysis highlights the advantages and
disadvantages of each strategy.
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7.2 MARKET
Searching for opportunities needs to be a systematic process to ensure that
firms don’t overlook important prospects or waste resources. Opportunities,
especially breakthrough opportunities, come from understanding
markets thoroughly.
A market is composed of individuals or organizations with the ability,
willingness, and authority to exchange their purchasing power for the product
offered.
College students may have wants and needs (for example, an expensive
sports car) and yet not be considered a market by the manufacturer,
because they lack the means to purchase the products.
A company’s market is a group of potential customers with similar needs
who are willing to exchange something of value with sellers offering various
goods and/or services that satisfy the customers’ needs. Defining the market
means that marketers should not just focus on products that they sell. This
strategic error is called marketing myopia.
Instead, marketers should define generic markets first.
A generic market is a market with broadly similar needs and sellers offering
various, often diverse, ways of satisfying those needs. Defining the market
broadly at first can help the marketer to uncover some potential new
opportunities outside of the firm’s current offerings. In defining generic
markets, there is no product type; the definition consists of the customer
needs, customer type, and geographic area.
After defining the generic market in terms of customer needs, the marketer
can then narrow down to specific product-markets. In contrast to a generic
market, a product market is a market with very similar needs and sellers
offering various close substitute ways of satisfying those needs.
A complete product-market definition includes four parts:
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Product type—the type of good and/or service offered. It should meet

customer needs.
Customer needs—the needs of the customer (user) that are being met by
the product.
Customer types—identify who specifically is using the product.
Geographic area—identifies where the market is located.
In defining product-markets, marketers provide names for each level of
definition that distinguish it from other possible markets. This process helps
focus the attention of the company on meeting customer needs.
7.3 MARKET SEGMENT

A market segment is a subgroup of people or organizations sharing one or
more characteristics that cause them to have similar product needs.
Market segmentation
Market segmentation is the process of dividing a market into meaningful
groups that are relatively similar and identifiable. Market segmentation is a
process based on factual information rather than marketer intuition. The
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value of market segmentation is obvious. Customers are different and are

likely to be attracted to different products throughout various stages in their
lifetimes.
The segmentation process involves dividing a market into distinct groups of
buyers who might require separate products or marketing mixes, recognizing
that all buyers have unique needs and wants. Still, it is usually possible in
consumer markets to identify relatively homogeneous portions or segments
of the total market according to shared preferences, attitudes, or behaviors
that distinguish them from the rest of the market. These segments may
require different products and/or separate mixes, and in the contemporary
one-to-one marketing approach segmentation is a critical step.The purpose
of segmentation is to enable the marketer to tailor marketing mixes to meet
the needs of one or more specific segments.
The Importance of Market Segmentation
Market segmentation developed in the 1960s in response to growing
markets with a variety of needs and in response to increasing competition.
Market segmentation assists marketers in developing more precise
definitions of customer needs and wants. Segmentation helps decision-
makers more accurately define marketing objectives and better allocate
resources.
Market segmentation is used to develop a competitive advantage.
Bases for Segmenting Consumer Markets
A segmentation base (or variable) is a characteristic of individuals, groups,
or organizations that is used to divide a total market into segments. Markets
can be segmented using a single or multiple variables.
Geographic Segmentation
Geographic segmentation is a method of dividing markets based on the
region of the country or world, market size, market density (number of people
within a unit of land), or climate.
Climate is frequently used because of its dramatic impact on residents’
needs and purchasing behavior.
Examples include Worsted suiting, Air conditioners etc
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Regional marketing, using specialized marketing mixes in different parts of

the country, has become prevalent among consumer goods companies for
four principal reasons:
• Many firms need to find new ways to generate sales because of sluggish or
intensely competitive markets.
• Computerized checkout stations enable retailers to accurately assess

which products and brands are selling best in each region.
• New regional brands have been introduced that are intended to appeal to
local preferences.
• A regional approach allows consumer goods companies to react more

quickly to competition.
Regional marketing is very common in the food industry.
7.4 DEMOGRAPHIC SEGMENTATION

Demographic segmentation is the method of dividing markets on the basis
of demographic variables, such as age, gender, income, ethnic background.
• Age segmentation: Specific age groups are tremendously attractive

markets for a variety of product categories.
Age segmentation is even used for pets (Children’s toys, dress),
pharmaceuticals advertising, diapers (Depends vs Pampers), etc
• Gender segmentation: Marketers of many items, such as clothes, footwear,

personal care items, magazines, and cosmetics, commonly segment by
gender.
• Income segmentation: Income level influences consumers’ wants and

determines their buying power.
• Ethnic Segmentation: Many companies are segmenting their markets by

ethnicity, such as Hindus, Jains, Muslims and Christian’s markets.
a. Researchers have found differences in consumption patterns between
ethnic groups.
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b. Even packaging choices differ between ethnic groups.

c. At least half of all Fortune 500 companies have launched some ethnic
marketing activities.
• Family life cycle segmentation: The family life cycle (FLC) is a series of
life stages, which are defined by a combination of age, marital status, and
the presence or absence of children.
7.5 PSYCHOGRAPHIC SEGMENTATION

Psychographic segmentation is the method of dividing markets based on
personality, motives, lifestyle, and geodemographics.
• Personality: Individual characteristics reflect traits, attitudes, and habits.

• Motives: Consumers have motives for purchasing products. Marketers
often try to appeal to such motives as safety, rationality, or status.
• Lifestyles: Lifestyle segmentation divides individuals into groups according

to activities, interests, and opinions. Often certain socioeconomic
characteristics, such as income and education, are included.
SUV’s are marketed as fitting a particular lifestyle. Scorpio believes its
customer is a “youth with self-confidence and individuality.”
• Geodemographics:
Geodemographic segmentation is the method of dividing markets on the
basis of neighborhood lifestyle categories and is a combination of
geographic, demographic, and lifestyle segmentation.
• VALS approach:
The Values and Lifestyles Program, or VALS is a consumer
psychographic segmentation tool developed by SRI International to
categorize U.S. consumers is
a. VALS categorizes U.S. consumers by their values, beliefs, and lifestyles
rather than by traditional demographic segmentation variables.
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b. The VALS groups are described by the intersection of two dimensions:

resources and self-orientation.
c. The eight VALS segments are Actualizes, Fulfillers, Believers, Achievers,
Strivers, Experiencers, Makers, and Strugglers.
The Values and Lifestyles (VALS) program is a psychographic segmentation
tool used for categorizing consumers by their lifestyles instead of more
traditional demographic variables. The eight VALS categories define
segments of adult consumers with different attitudes and distinctive behavior
and decision-making patterns. Exhibit 6.4 in the textbook describes the eight
segments in detail.
7.6 BENEFIT SEGMENTATION

Benefit segmentation is the method of dividing markets on the basis of
benefits consumers seeks from the product.
a. By matching demographic information to interest in particular types of
benefits, typical customer profiles can be built.
b. Customer profiles can be matched to certain types or times of media
usage to develop promotional strategies for reaching these target markets.
One benefit of buying a particular model of car may be safety. What
kind of customer would be likely to seek this benefit rather than the
benefit of style or price?
Certain consumers seek watches as an accessory. Others seek
watches as a status symbol or special gift.
7.7 USAGE RATE SEGMENTATION

Usage rate segmentation is the method of dividing a market based on the
amount of product purchased or consumed.
a. The most common usage-rate categories are former users, potential
users, first-time users, light users, medium users, and heavy users.
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b. The 80/20 principle is a business heuristic (rule of thumb) stating that 20

percent of all customers generate 80 percent of the demand. Although the
percentages are not always exact, a close approximation of this rule is
often true. This principle reinforces the concept that heavy users, usually
the most important and profitable part of a business, are actually a small
percentage of the total number of customers.
Who does the soft drink like Pepsi target? Males and females who are
aged 18 to 30 and watch movies and sporting events drink 80 percent
of the soft drink consumed in India.
Heavy users are so important that the airlines developed frequent-flyer
programs for them. An estimated 7 percent of air travelers generate 80
percent of the ticket sales.
7.8 BASES FOR SEGMENTING BUSINESS MARKETS

Business market segmentation variables can be classified into two
major categories.
Macro segmentation
The first category, macro segmentation, entails dividing business markets
into segments based on general characteristics:
a. Geographic location: The demand for some business products varies
considerably from one region to another.
b. Customer type: Segmentation by customer type allows business
marketers to tailor their marketing mixes to the unique needs of particular
organization types or industries.
c. Customer size: An organization’s size may affect its purchasing
procedures, the types and quantities of products that it needs, and its
responses to different marketing mixes.
d. Product use: How customers use a product, particularly raw materials,
may have a great deal of influence on the amount they buy, their buying
criteria, and their selection of vendors.
Micro segmentation
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The second category in business market segmentation is micro

segmentation, the process of dividing business markets into segments
based on characteristics of decision-making units within a macro segment.
Some of the more commonly used micro segmentation variables are the
following:
7.9 PURCHASING STRATEGIES:

a. Satisfiers usually contact familiar suppliers and place an order with the
first to satisfy product and delivery requirements.
b. Optimizers consider numerous suppliers, both familiar and unfamiliar, and
then solicit bids and analyze options.
Key purchasing criteria: Each business places various amounts of
importance on factors such as quality, delivery, technical support, and price.
Importance of purchase: Classifying business customers according to the
significance they attach to the purchase of a product is appropriate when the
purchase is considered routine by some customers but very important for
others.
7.10 MARKET SEGMENTATION PROCESS

This process fails too often because marketers do not realize the
complexities of consumer behavior and they attempt to categorize a market
around too few consumer-related variables of distinction.
Naming broad product-markets, or disaggregating, is the first step. Marketers
must break apart all possible needs into some generic markets and broad
product-markets in which the firm may be able to operate profitably.
The next step is segmenting these broad product-markets in order to select
target markets and develop suitable marketing mixes to serve them.
Segmenting is an aggregating process— clustering people with similar
needs into individual market segments. A market segment is a relatively
homogeneous group of consumers who will respond to a marketing mix in a
similar way.
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One can segment a market into any number of segments, but how far should
a marketer go in aggregating similar consumers into target markets?
Another difficulty with segmenting is that some customers may not fit into
any market segments. So, the question of how far to go when segmenting a
market often comes down to applying several criteria for segmenting.
7.11 CRITERIA FOR SUCCESSFUL SEGMENTATION
• Substantiality: A selected segment must be large enough to justify the

development and maintenance of a special marketing mix. Serving the
specific needs of this segment, whatever its size, must be profitable.
However, a market segment does not have to be huge in order to be
profitable. Segments are becoming smaller and more numerous because of
the ability of marketers to collect, manage, and analyze massive amounts
of consumer information.
A very specific market segment - such as Haj pilgrims desiring to fly
directly to Jeddah on an airline that emphasizes prayers, religious in-
flight movies, and no alcohol - may not be substantial enough to
support an airline.
Identifiability and measurability: The segments must be identifiable and
their size measurable. The segment should be homogeneous within. In
other words, the customers in a market segment should be as similar as
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possible with respect to their likely responses to marketing mix variables and
their segmenting dimensions.
The segment should be heterogeneous between. That is, the customers in
different segments should be as different as possible with respect to their
likely responses to marketing mix variables and their segmenting
dimensions.
Accessibility: The firm must be able to reach members of targeted
segments with customized marketing mixes. The segment should be
operational. The segmenting dimensions should be useful for identifying
customers and deciding on marketing mix variables.
• Responsiveness: A market segment must respond differently to some

aspect of the marketing mix than do other segments.
7.12 STEPS IN SEGMENTING A MARKET

The purpose of market segmentation is to identify marketing opportunities
(and eventually target markets) for existing or potential markets.
• Select a market or product category for study, whether it is an existing,

related, or new market.
• Choose a basis or bases for segmenting the market

a. The decision is a combination of managerial insight, creativity, and market
knowledge; no scientific procedure has been developed for selecting
segmentation variables.
b. The number of segmentation bases is limited only by the decision maker’s
imagination and creativity.
Possible bases in the snack chip market could be usage rate or
benefits sought
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• Select segmentation descriptors
• Profile and evaluate segments

A profile should include a segment’s size, expected growth rates, purchase
frequency, current brand usage, brand loyalty, and overall long-term sales
and profit potential.
The analysis stage can rank potential market segments by profit opportunity,
risk, and consistency with the organizational mission and objectives.
The healthy snackers might be profiled as women, ages 25 to 39,
median household income Rs35,000 and up, college-educated, working
outside the home, purchasing approximately fourteen to twenty-four
bags of snack chips per year. The size of this market and other factors
would also be determined
• Select target markets

• Design, implement, and maintain appropriate marketing mix
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Activity A
How many market segments are there in textile industry? List them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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7.13 Strategies for Selecting Target Markets
A target market is a group of people or organizations for which an

organization designs, implements, and maintains a marketing mix to fit the
needs of that group or groups, resulting in mutually satisfying exchanges.
• Undifferentiated Targeting
The undifferentiated targeting strategy is a marketing approach based on
the assumption that the market has no individual segments and thus requires
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a single marketing mix. It is a mass-market philosophy, viewing the world as

one big market with no individual segments.
a. There is only one marketing mix with an undifferentiated strategy.
b. It assumes that individual customers have similar needs.
c. The first firm in an industry sometimes uses this targeting strategy,
because no competition exists.
d. With this strategy, production and marketing costs are often at their
lowest.
e. This strategy leaves opportunities for competitors to enter the market with
more specialized products and appeals to specific parts of the market.
Undifferentiated targeting is also called the shotgun strategy.
• Concentrated Targeting
The concentrated targeting strategy is a marketing approach based on
appealing to a single segment of a market.
a. It focuses a firm’s marketing efforts on a single segment or market niche.
Niches can be very profitable; gourmet coffee, mountain bikes, and Rolls
Royce automobiles are examples
b. A firm can concentrate on understanding the needs, motives, and
satisfactions of the members of one segment and on developing and
maintaining a highly specialized marketing mix.
c. A concentrated strategy allows small firms to be competitive with very
large firms because of a small firm’s expertise in one area of the market.
d. Concentrated targeting is called a rifle strategy because of its precision
i. The dangers associated with this type of strategy include changes in
the competitive environment which could destroy the only segment
targeted.
ii.The concentrated targeting strategy can lead to the fatal mistake of the
“majority fallacy,” which is the selection of the largest, most profitable
segment regardless of the number or strength of the competitors.
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• Multisegment Targeting
The multisegment targeting strategy is a marketing approach based on
serving two or more well-defined market segments, with a distinct marketing
mix for each.
a. Some companies have very specialized marketing mixes for each
segment, including a specialized product; other companies may only
customize the promotional message for each target market.
b. The multisegment strategy offers many benefits, including potentially
greater sales volume, higher profits, larger market share, and economies
of scale in marketing and manufacturing.
c. This strategy also includes many extra costs, such as:
i. Product design costs
ii. Production costs
iii. Promotion costs
iv. Inventory costs
v. Marketing research costs
vi. Management costs
vii. Cannibalization, which occurs when sales of a new product cut into 
 
sales of a firm’s existing products.
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7.14 PRODUCT DIFFERENTIATION

Differentiation refers to how the marketer tries to distinguish his or her
offer in the marketplace — how it is set off from the competition in
hopefully meaningful ways. However, even if a marketer tries to
differentiate a product or service from competitive offerings, it’s
important to adopt the customer’s point of view. What really matters is
that the consumer perceives the product to be different.
• Which market segments or group of customers/users is it primarily aimed

at?
• How is it designed and offered to meet the specific needs of the target
audience?
• What specific reasons (or benefits) are offered to justify its purchase?
Product differentiation provides:
• On supply side allows companies to minimise competition and earn

higher profits
• On demand side provides customers with greater variety of goods &

services
Product differentiation can be.
• Tangibles can be fundamental product features and Cosmetic product

features
• Intangibles refer to brand image, warranty, after sales service.

Specific differentiation strategies can be based on:
Higher quality
Higher status and image
Brand names
Convenience
Changing distribution channels
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7.15 POSITIONING
Since all elements of the marketing plan can potentially affect the
position, it is usually necessary to use a positioning strategy as a
focus for development of marketing plan. A clear positioning statement
can insure that the elements of marketing plan are consistent and
supportive.
Segmentation and Target Market Selection Influences …..
• If we pursue a segment, how should we approach it and how we want

potential buyers to see us against competition?
• A positioning statement of a product, service, or a brand should

specify the position that we want to occupy in the market, i.e.
customers to facilitate the process of consumer choice.
Positioning Is not what you do to the product; It’s what you do to the
customer’s mind.
- Al Ries & Jack Trout
Positioning is arranging for a product to occupy a clear, distinctive and
desirable place in the market place i.e. the target consumer. Success of
a product within a chosen target market depends on how well it is
positioned within that market ; how well it is perceived to perform
relative to competitive offerings and customer needs in the target
segment.
Positioning Statement
For [target segment], the [concept] is [most important claim] because
[single most important support].
Example:
For coffee drinkers , BRU is the INSTANT coffee closest to the FILTER
coffee.
Positioning approaches can be based on:
• Attribute
• Price / quality
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• Use or applications
• Product – user
• Product class
• Competitor
7.16 KEY TERMS

Breakthrough opportunities: opportunities that help innovators develop
hard-to-copy marketing strategies that will be very profitable for a long time.
Competitive advantage: a firm has a marketing mix that the target market
sees as better than a competitor’s mix.
Differentiation: the marketing mix is distinct from and better than what’s
available from a competitor.
Market: a group of potential customers with similar needs who are willing to
exchange something of value with sellers offering various goods and/or
services—that is, ways of satisfying those needs.
Generic market: a market with broadly similar needs—and sellers offering
various and often diverse ways of satisfying those needs.
Product-market: a market with very similar needs—and sellers offering
various close substitute ways of satisfying those needs.
Market segmentation: a two-step process of: (1) naming broad product-
markets and (2) segmenting these broad product-markets in order to select
target markets and develop suitable marketing mixes.
Segmenting: an aggregating process that clusters people with similar needs
into a market segment.
Market segment: a relatively homogeneous group of customers who will
respond to a marketing mix in a similar way.
Single target market approach: segmenting the market and picking one of
the homogeneous segments as the firm’s target market.
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Multiple target market approach: segmenting the market and choosing two
or more segments, then treating each as a separate target market needing a
different marketing mix.
Combined target market approach: combining two or more submarkets
into one larger target market as a basis for one strategy.
Combiners: firms that try to increase the size of their target markets by
combining two or more segments.
Segmenters: aim at one or more homogeneous segments and try to
develop a different marketing mix for each segment.
Qualifying dimensions: the dimensions that are relevant to including a
customer-type in a product-market.
Determining dimensions: the dimensions that actually affect the customer’s
purchase of a specific product or brand in a product-market.
Clustering techniques: approaches used to try to find similar patterns
within sets of data.
Positioning: an approach that refers to how customers think about proposed
and/or present brands in a market.
7.17 SUMMARY
The marketing strategy planning process guides the selection of a target
market and the development of marketing mix. The process narrows down
from this broad view to a more specific focus through market segmentation
and product differentiation.
Marketers, in marketing myopia, should not just focus on products they sell.
Searching for opportunities in the market needs to be a systematic process
to identify important prospects and stop waste of resources.
A market segment is a subgroup of people or organizations sharing one or
more characteristics that cause them to have similar product needs. The
market segmentation is used to gain competitive advantage through
identifying target markets.
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Segmentation can be Geographic, Demographic, Psychographic, or based

on benefit, rate of usage. Segmentation to be effective must pass criteria of
substantiality, identifiability, measurability and accessibility.
Product differentiation refers to how marketer tries to distinguish his product
in the market. This distinction is in higher quality, status, image, brand
names, convenience or changing distribution channels.
Positioning is arranging for a product to occupy a clear, distinctive and
desirable place in the market place i.e. the target consumer. Proper
positioning indicates how well the product is perceived to perform, relative to
competitive offerings and customer needs. Positioning is not what you do to
the product but it is what you do to the customer's mind.

1. Describe characteristics of markets and market segments.
2. Why is market segmentation important?
3. What are criteria for effective market segmentation?
4. How are markets segmented?
5. What is product differentiation? How is it used?
6. Why is positioning called marketing pillar?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
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8
Product Concepts
Objectives
• Goods and Services.
• Consumer and Business Product Classes.
• Use of Product Classes.
• Product Branding.
• Role of Packaging in Marketing.
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Product Concepts
Structure:
8.1 Introduction
8.2 Product Definition
8.3 Product Levels
8.4 Product Classification
8.5 Product categories in Consumer Products
8.6 Business products
8.7 Difference between Goods and Services
8.8 Benefits of Product Lines
8.9 Product Width and Depth
8.10 Adjustments to Product Items, Lines and Mixes.
8.11 Branding
8.12 Branding Objectives
8.13 Conditions favourable to Branding
8.14 Brand name
8.15 Trademarks
8.16 Types of Brands
8.17 Branding Strategies
8.18 Packaging
8.19 Labeling
8.20 Product Quality and Customer Needs
8.21 Key Terms
8.22 Summary
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Product Concepts
8.1 INTRODUCTION
“The customer never buys a product but only a bundle of satisfaction.”
Consumers do not just buy the physical product. They buy the benefits the
product offers and its packaging, quality, brand name, styling, warranty, after-
sale service, and more. The most important task for the marketer is to
understand what benefit consumers seek from this product. Information is an
increasingly important product for many marketers.
Prof. Theodore Levitt mentioned in his classical article “Marketing success
through differentiation of anything” in HBR, product represents anticipated
and even unanticipated solutions to customer’s problems.
Product is the first and most important element of the marketing mix..
Product strategy calls or making coordinated decisions on product mixes,
product lines, brands, packaging, and labeling.
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Product Concepts
The product area of the marketing mix involves many strategy decisions,
many of which have implications for the other elements of the marketing mix.
As shown in this diagram, there are four main product areas covered in this
presentation:
The product idea encompasses many attributes of a physical good or
service: its features, benefits, and quality level, as well as its accessories,
installation requirements and instructions. Any product must also be
positioned relative to the other offerings of the organization in its product line.
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Product Concepts
Branding is another key product strategy area. Marketers need to decide

what types of brands they wish to produce.
The package is more than just a means of protecting the product. It can help
to promote the product or enhance its use.
The warranty is the last product consideration. Marketers must decide if they
want to offer product warranties, and if they do, how extensive the warranties
will be.
8.2 PRODUCT DEFINITION

A product may be defined as everything, both favorable and unfavorable,
that one receives in an exchange. It can be a tangible good, a service, an
idea, people, places, organizations, and ideas. or a combination of these
things.
A product is anything that can be offered to a market for attention,
acquisition, use, or consumption and that might satisfy a want or need.
Product means the need satisfying offering of a firm. This definition is
important because it reminds managers to focus on consumers and not on
the technical and managerial details involved in producing products.
8.3 PRODUCT LEVELS

A product can be considered on five levels.
The core benefit is the essential use-benefit, problem-solving service that
the buyer primarily buys when purchasing a product.
The generic product is the basic version of the product.
The expected product is the set of attributes and conditions that the buyer
normally expects in buying the product.
The augmented product is additional services and benefits that the seller
adds to distinguish the offer from competitors.
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Product Concepts
The potential product is the set of possible new features and services that
might eventually be added to the offer.
8.4 PRODUCT CLASSIFICATION

All products can be classified according to their durability (nondurable goods,
durable goods, and services)
Products are classified as either business or consumer products depending

on the buyer’s intentions for the product’s use. Classifying a firm’s products
helps to guide the marketing mix strategy. Developing product strategies is
simplified somewhat because some product classes require similar
marketing mixes. Understanding the product classes is a useful strategic
starting point.
A consumer product is purchased to satisfy an individual’s wants. It
can be classified on the basis of the amount of effort that is normally
expended in the shopping process.
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Product Concepts
8.5 PRODUCT CATEGORIES IN CONSUMER PRODUCTS
Consumer product classes are based on how consumers think and

shop.
A convenience product is an item that requires little shopping effort
Convenience products are purchased quickly with little effort. They may be
inexpensive, bought often, require little service or selling, and bought by
habit. These products are purchased regularly, usually with little planning,
and require wide distribution.
Consumers will usually accept substitutes for a convenience product.
Staples are bought often, routinely, and without much thought. Branding is
used for many staples to make them easier to remember and find.
Impulse products are bought quickly, as unplanned purchases, because of
a strongly felt need. They may be strongly affected by the immediate
situation.
Emergency products are purchased immediately when the need is great.
Consumers don’t shop around for these products or ask how much they cost.
A shopping product requires comparison-shopping, because it is usually
more expensive than convenience products and is found in fewer stores.
Consumers usually compare items across brands or stores.
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Product Concepts
Homogeneous shopping products are products that consumers see as

being basically the same, and consumers shop for the lowest price.
Heterogeneous shopping products are seen by consumers to differ in
quality, style, suitability, and lifestyle compatibility. Comparisons between
heterogeneous shopping products are often quite difficult because they may
have unique features and different levels of quality and price.
Specialty products are ones that the consumer really wants, because there
are no acceptable. A specialty product is searched for extensively, and
substitutes are not acceptable. These products may be quite expensive, and
often distribution is very limited. Substitutes. They are characterized by the
consumer’s willingness to search.
Brand loyalty tends to be very strong for specialty products.
Examples of specialty products include Rolex watches, Mercedes-Benz cars,
Nikon cameras, Armani suits etc
An unsought product is a product that is not known about or not actively
sought by consumers. Unsought products require aggressive personal
selling and highly persuasive advertising.
Unsought products need promotion; they are those that customers don’t
want yet or know that they can buy.
New unsought products represent ideas potential customers don’t know
about yet. Regularly unsought products are ones that just don’t motivate
customers to seek them out, even though they may need them.
Insurance, encyclopedias are examples of unsought products.
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Product Concepts
8.6 BUSINESS PRODUCTS

A business product (industrial product) is used to manufacture other goods
or services, to facilitate an organization’s operations, or to resell to other
customers.
In the business market, it is often the case that one demand is derived from
another. Derived demand means that the demand for business products
derives from the demand for the final consumer products they are used to
make.
This also means that total industry demand tends to be inelastic — a change
in price doesn’t have much effect on the quantity ordered. As a result, price
increases might not reduce the quantity purchased. However, the
demand facing individual business suppliers may be extremely elastic—a
situation approaching pure competition.
Tax treatments affect buying, too. An expense item is deducted as a
business expense in the year it is bought.
A capital item lasts for years and is depreciated over its life, and is often
very expensive. Customers pay for the capital item in the year it is
purchased, but for tax purposes, the cost is spread over several years,
reducing the cash available for other purchases.
Business product classes are based on how buyers see products and
their uses.
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Product Concepts
The classification scheme includes seven categories: major equipment,

accessory equipment, component parts, processed materials, raw
materials, services, and supplies.
Installations are important capital items. One-of-a-kind installations such as

office buildings and custom-made equipment require special negotiations for
each sale. Installations are a boom-or-bust business. Economic upturns spur
expansion while downturns cause sales of installations to fall off sharply.
Accessories are important but short-lived capital items, such as tools and
production equipment.
Raw materials are unprocessed expense items that become a physical part
of a physical good the firm makes. Farm products are grown or raised by
farmers. Natural products are those that occur in nature, such as wood and
mineral ores.
Components are processed expense items that become part of a finished
product. Component parts are finished or nearly finished products that go
into other products. Component materials require more processing before
becoming part of the final product. Both component parts and materials must
meet the specifications of the buyer.
Supplies for Maintenance, Repair, and Operating (MRO) are another
category. Maintenance supplies include products like paint and light bulbs.
Repair supplies are parts needed to fix worn or broken equipment. Operating
supplies include things needed to do work, like copier toner and paper clips.
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Product Concepts
Professional services are specialized services that support a firm’s

operations, like consulting services. Outsiders instead of employees provide
them.
Activity A
To take care of growing business in industrial products, you have appointed
a marketing manager for your branch office. His earlier experience is in
cosmetic industry.
Write a letter highlighting changes in marketing approach the new manager
has to bring about in his new job.
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8.7 DIFFERENCES BETWEEN GOODS AND SERVICES
• Customers do not obtain ownership of services

• Service products are intangible performances—not objects
• Customers often actively involved in production process
• Other people may form part of product experience
• More variability in operational inputs and outputs—harder to improve
productivity, control quality
• Often difficult for customers to evaluate
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Product Concepts
• Absence of inventories after production

• Time factor is more important—speed may be key
It is easy for marketers to focus solely on the physical aspects of a product.
This diagram shows how one can position products in terms of their physical
good emphasis or their service emphasis.
Some products, such as canned soup, steel pipe, and paper towels, have an
emphasis that is almost completely physical. Other products have both
physical and service components, such as a restaurant meal, a cellular
phone, or an automobile tune-up. Still other products have an emphasis
mainly on the service component, such as an Internet service provider, a hair
stylist, or a postal service.
Consumers will continue to demand more services with the goods they buy.
Both the physical good and the service make up the total product the
customer buys. If a firm’s objective is to satisfy customer needs, service can
be part of its product – or service alone may be the product.
How tangible is the product? Goods have a physical existence. Services
are deeds performed for a customer.
Is the product produced before it’s sold? Services are produced and
consumed at the same time. Goods are produced first, and then sold for later
consumption.
How perishable is it? Services cannot be stored or transported to another
location for sale. The service not performed today is gone forever.
Does the service require customer presence? Many services require the
presence, and even participation, of the customer. Service suppliers often
need to have duplicate equipment and staff in places where the service is
actually provided.
Marketing managers must think about the whole product they provide, and
then make sure that all of the elements work well with the rest of the
strategy.
Product Items, Lines, and Mixes
Most companies handle more than one product, and accordingly product mix
can be described as possessing a certain width, length, depth, and
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Product Concepts
consistency. These four dimensions are the tools for developing the
company’s product strategy. The various lines making up the product mix
have to be periodically evaluated for profitability and growth potential. The
company’s better lines should receive disproportionate support; weaker lines
should be phased down or out; and new lines should be added to fill the
profit gap.
A product mix is the set of all product lines and individual products that a
firm sells. The more dissimilar the product lines and individual products are,
the wider the product assortment.
Tata Motors offers several lines of cars and trucks: Indica, Indigo,
Sumo, Safari, S210, S310 etc.
A product line is a set of individual products that are closely related. They
may be related because they are produced or operate in a similar way. They
may be sold to the same target market, through similar types of outlets, or
they may be similarly priced. Product lines can be organized by product
function, customer group targeted, retail outlets used, and price range.
Some of the product lines at HLL are bar soaps, detergents,
toothpastes, toilet soaps, cosmetics, skin lotions, and deodorants.
A product item is a specific version of a product that can be designated as a
distinct offering among an organization’s products. An individual product is a
particular product within a product line. It is usually differentiated by brand,
level of service offered, price, or some other characteristic. Each individual
product and target market may require a separate strategy.
8.8 BENEFITS OF PRODUCT LINES

1. Advertising economies occur when several products can be advertised
under the umbrella of the line.
2. Package uniformity increases customer familiarity, and the different items
actually help to advertise one another.
3. Product lines provide an opportunity for standardizing components, thus
reducing manufacturing and inventory costs.
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Product Concepts
4. Product lines facilitate efficient sales and distribution, leading to

economies of scale for managing the sales force, warehousing, and
transportation. A full range of product alternatives is offered to the
consumer, often making retailers more willing to stock the line.
5. Product lines based on a brand name help consumers evaluate quality.
Consumers usually believe that all products in a line will be of similar
quality.
Activity B
Draw product lines for Personal Computers, Paints, Writing Instruments,
Mobile Phones and Jewellery.
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8.9 PRODUCT WIDTH AND DEPTH

Product mix width refers to the number of product lines that an organization
offers. Firms increase product mix width to
a. Spread risk across multiple lines
b. Capitalize on established reputations
Product line depth is the number of product items in a product line. Firms
increase product line depth to
a. Attract buyers with widely different preferences
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Product Concepts
b. Capitalize on economies of scale

c. Increase sales and profits by further segmenting the market
d. Even out seasonal sales patterns
8.10 ADJUSTMENTS TO PRODUCT ITEMS, LINES, AND MIXES

Modifying Existing Products
Product modification involves changing one or more of a product’s
characteristics.
a. A quality modification entails changing a product’s dependability or
durability.
b. A functional modification is a change in a product’s versatility,
effectiveness, convenience, or safety.
c. A style modification is an aesthetic product change rather than a quality
or functional modification. Planned obsolescence is the practice of
causing products to become obsolete before they actually need
replacement. It is often implemented through style modifications
Repositioning involves changing customers’ perceptions of a product.
An entire line may be repositioned with a new name, packaging, and
advertising to revitalize sales.
Product line extension is the practice of adding products to an existing
product line in order to compete more broadly in the industry.
Several boat manufacturers, such as SeaRay and Bayliner, have slowly
been extending their lines upward. Originally offering only small power boats
under twenty feet in length, the firms now offer broad lines including fifty-foot
luxury yachts.
The danger of line extension is cannibalization of other products in the same
line.
Product line contraction may be undertaken if the line is overextended.
Symptoms of overextension include:
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Product Concepts
a. Some products are not contributing to profit because of low sales or

cannibalization.
b. Manufacturing or marketing resources are being disproportionately
allocated to slow-moving products.
c. Items in the line have become obsolete because of new product entries in
the line.
8.11 BRANDING
Companies should develop brand policies for the individual product items in
their lines. They must decide on product attributes (quality, features, design),
whether to brand at all, whether to do producer or distributor branding,
whether to use family brand names or individual brand names, whether to
extend the brand name to new products, whether to create multiple brands,
and whether to reposition any of them.
Brand is a name, term, symbol, design, or combination thereof that identifies
a seller’s products and differentiates them from competitors’ products.
Branding means the use of a name, term, symbol, or design to identify a
product. Some companies use a combination of some or all of these when
branding.
A brand name is that part of the brand that can be spoken, including letters,
words, and numbers. Ujala, Dettol, Ayush , Zen are brand names.
A trademark includes only those words, symbols, or marks that are legally
registered for use by a single company.
A service mark is a trademark that refers to a service offering.
The brand mark is the element of the brand that cannot be spoken, such as
symbols.
Amul girl (for Amul butter) and Maharaja for Air India are brand marks.
Benefits of Branding
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Product Concepts
Brands meet consumer needs. For example, brands make shopping easier,
because consumers can identify levels of quality with specific products and
shorten the time needed for information search.
Branding also helps marketers, because it can reduce selling time and cost,
improve the company’s image, and provide a unique identity for offerings that
competitors can’t copy.
8.12 BRANDING OBJECTIVES

1. Identification is the most important objective. The brand allows the product
to be differentiated from others and serves as an indicator of quality to
consumers.
2. Branding helps customers identify products they are satisfied with ,
promoting repeat sales. Brand loyalty, a consistent preference for one
brand over all others, is quite high in some product categories. 
 
The term master brand refers to a brand so dominant in consumers’
minds that they think of it immediately when a product category, use
situation, product attribute, or customer benefit is mentioned.
3. An established brand name can facilitate the introduction of new products
because consumers more quickly accept a familiar brand.
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Product Concepts
8.13 CONDITIONS FAVORABLE TO BRANDING
There are several conditions favorable to successful branding

The product is easy to identify by brand or trademark.
The product quality is the best value for the price and the quality is easy to
maintain.
dependable, widespread availability is possible.
Demand is strong enough that the market price can be high enough to
make the branding effort profitable.
There are economies of scale. If branding is really successful, costs should
drop and profits should increase.
Favorable shelf locations or display space in stores will help.
In general, these conditions are less common in less-developed economies.
Brand familiarity
Brand familiarity means how well customers recognize and accept a
company’s brand.
Five levels of brand familiarity are useful for strategy planning:
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Product Concepts
Brand rejection means that potential customers won’t buy a brand unless
its image is changed.
Brand nonrecognition means final consumers don’t recognize a brand at
all, even though middlemen may use it for identification and control.
Brand recognition means that customers remember the brand.
Brand preference means that target customers usually choose the brand
over other brands.
Brand insistence means customers insist on a firm’s branded product and
are willing to search for it. Most marketers seek to develop brand insistence
for their products.
8.14 BRAND NAME

There are several characteristics of a good brand name. Some successful
brand names are exceptions to all or many of these guidelines, but many of
them originated when they faced little competition.
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Product Concepts
A respected name builds brand equity—the value of the brand’s overall

strength in the market.
Brand name protection
8.15 TRADEMARKS
1. A trademark is a legal term indicating the owner’s exclusive right to use
the brand or part of the brand. Others are prohibited from using the brand
without permission. A service mark performs the same functions for service
businesses.
a. Many parts of a brand (such as phrases and abbreviations) and
symbols associated with product identification (such as shapes and
color combinations) qualify for trademark protection.
b. The mark has to be used continuously to be protected.
c. Rights to a trademark continue for as long as it is used
2. Companies must guard against the unauthorized use of their brands,
slight alterations to the brand by mimics, and counterfeit merchandise that is
labeled with the brand.
a. The Trademark Revision Act of 1988 allows organizations to register
trademarks based on the intention to use them for 10 years.
b. Companies that fail to protect their trademarks face the problem of
their product names becoming generic. A generic product name
identifies a product by class or type and cannot be trademarked. A brand
can be a real asset to a company, but each company must protect its
own. If a brand becomes a generic descriptive word for a product
category, protection is lost and the brand becomes public property.
Former brand names that have become generic product names include
cellophane, shredded wheat, aspirin, and escalator. Products with
brand names that are strongly identified with the product category
itself include Kleenex, Levi’s, Jell-O, Scotch tape, Fiberglas, Xerox, and
Frigidaire.
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Product Concepts
Even if brands are registered, counterfeiting is accepted in some cultures,

especially in developing nations. Many popular branded products, such as
Levi’s jeans and Rolex watches, have been copied without authorization.
8.16 TYPES OF BRANDS

In addition to the type of brand, the brand’s creation and ownership are also
part of the overall product strategy.
Manufacturer brands are brands created by producers. This approach is
used to help develop demand for the same product across many markets.
Manufacturer brands are sometimes called national brands because of their
wide appeal.
Dealer brands are also called private brands. Middlemen, such as
wholesalers and retailers, create these brands. An example would be
Akbarallys furniture , available only in Akbarallys stores. Dealer brands are
typically used to generate higher margins for middlemen than they can get
by selling the manufacturer brand.
Over the past several years, this conflict has led to a “battle of the brands”
— a competition between manufacturer and dealer brands. Many retailers
have expanded the lines of products sold under their store brands, while
reducing the amount of space given to manufacturer brands.
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8.17 BRANDING STRATEGIES

1. Generic products vs. branded products
a. A generic product is typically a no-frills, no-brand-name, low-cost product
that is identified by its product category
b. Are sold for 30 to 40 percent less than manufacturers’ brands and 20 to 25
percent less than retailer-owned brands
c. Are obtaining substantial market shares in some product categories, such

as pharmaceuticals
2. Manufacturer's brands vs. private brands
a. A manufacturer's brand strategy is used when manufacturers use their
own name on their products.
b. Private brand is a brand name that a wholesaler or retailer uses for the
products it sells.
3. Individual brands vs. family brands
a. Individual branding is the practice of using a different brand name for each
product.
b. Individual brands are used when products differ greatly in use or in
performance, quality, or targeted segment Nestle brands include
Milo,Maggi, Nescafe,Milkmaid.
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Product Concepts
c. A company that markets several different products under the same brand
name is using a family brand
d. Consumer familiarity with the brand name facilitates the introduction of
new products.
Heinz, General Electric, Godrej, Amul and Honda are family brands.
4. Co-branding
a. Co-branding entails placing two or more brands names on a product or its
package
1) Ingredient branding identifies the brand of a part that makes up the
product.
2) Cooperative branding is where tow brands receiving equal treatment
borrow each others brand equity.
3) Complementary branding is where products are advertised or
marketed together to suggest usage.
b. Co-branding may be used to identify product ingredients or components,
when two organizations wish to collaborate to offer a product, or to add
value to products that are generally perceived to be homogeneous
shopping goods Intel and Mattel have collaborated to produce Intel Play -
smart toys for children.
8.18 PACKAGING
Packaging is a container for protecting and promoting a product. Packaging
has traditionally been viewed as means of holding contents together and as
a way of protecting the physical good as it moves through the distribution
channel.Packages are very important in establishing the brand image. The
package is often the marketer's last chance to communicate with and sell to
the consumer
Packaging can enhance the product. Packaging can do more than contain
and protect the product. The package can make the product easier to use
and more convenient for the customer to store. Packaging can deter
shoplifting and it can also be designed to achieve ecological objectives.
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Product Concepts
Packaging sends a message. Creative use of design in packaging can

visually help to tie the product to other elements of the promotion mix.
Packages also convey information, such as the nutritional information on
food products. The package can also promote the brand at the point of
purchase or in use.
Packaging may lower distribution costs. Good packages save space and are
easier to handle and display. This helps distributors and end-sale retailers.
Universal Product Codes (UPC) speed handling. Using these bar codes with
register-based computers speeds checkout of customers and vastly
improves inventory monitoring.
Packaging Functions
1. Containing and Protecting Products
a. These are the most obvious functions of packaging.
Some packaging has to be quite sophisticated to protect the product from
spoilage, tampering, or children.
2. Promoting Products
a. Packaging can differentiate a product from the competition by its
convenience and utility.
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Product Concepts
b. Packages are the last opportunity marketers have to influence buyers

before they make purchase decisions.
L’eggs pantyhose and Pringles potato chips have used packaging as a
differential advantage.
3. Facilitating Storage, Use, and Convenience
a. Wholesalers and retailers prefer packages that are easy to ship, store,
and stock on shelves. They also like packages that protect the product,
prevent spoilage or breakage, and extend shelf life
b. Customers seek items that are easy to handle, open, and reclose.
c. Packaging is often used to segment markets, particularly by offering
different sizes for different segments.
4. Facilitating Recycling and Reducing Environmental Damage
An important recent issue is the compatibility of the package and
environmental concerns. Many consumers demand recyclable,
biodegradable, and reusable packages.
8.19 LABELING
1. Persuasive labeling focuses on a promotional theme or logo, and
consumer information is secondary.
2. Informational labeling is designed to help consumers in making proper
product selections and lower cognitive dissonance after the purchase.
3. The Nutrition Labeling and Education Act of 1990 directed the Food and
Drug Administration to require detailed nutritional information on most food
packages and to establish standards for health claims on food packaging.
8.20 PRODUCT QUALITY AND CUSTOMER NEEDS

From a marketing perspective, quality means a product’s ability to satisfy a
customer’s needs or requirements. Quality may be absolute or relative, but in
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Product Concepts
all cases the customer’s expectations for quality in a given product form the
basis for determining how to achieve customer satisfaction.
Marketing managers focus on relative quality when comparing their products
to competitors’ offerings. Many consumers consider safety a primary
requirement when purchasing an automobile. Such consumers would be
satisfied with a car that performed well in crash tests.
8.21 KEY TERMS

Product: the need satisfying offering of a firm.
Quality: a product’s ability to satisfy a customer’s needs or requirements.
Service: a deed performed by one party for another.
Product assortment: the set of all product lines and individual products that
a firm sells.
Product line: a set of individual products that are closely related.
Individual product: a particular product within a product line.
Consumer products: products meant for the final consumer.
Business products: products meant for use in producing other products.
Convenience products: products a consumer needs but isn’t willing to
spend much time or effort shopping for.
Staples: products that are bought often, routinely, and without much thought.
Impulse products: products that are bought quickly as unplanned
purchases because of a strongly felt need.
Emergency products: products that are purchased immediately when the
need is great.
Shopping products: products that a customer feels are worth the time and
effort to compare with competing products.
Homogeneous shopping products: shopping products the customer sees
as basically the same and wants at the lowest price.
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Product Concepts
Heterogeneous shopping products: shopping products the customer sees

as different and wants to inspect for quality and suitability.
Specialty products: consumer products that the customer really wants and
makes a special effort to find.
Unsought products: products that potential customers don’t yet want or
know they can buy.
New unsought products: products offering really new ideas that potential
customer don’t know about yet.
Regularly unsought products: products that stay unsought but not
unbought forever.
Derived demand: demand for business products derives from the demand
for final consumer products.
Expense item: a product whose total cost is treated as a business expense
in the period it’s purchased.
Capital item: a long-lasting product that can be used and depreciated for
many years.
Installations: important capital items such as buildings, land rights, and
major equipment.
Accessories: short lived capital items—tools and equipment used in
production or office activities.
Raw materials: unprocessed expense items such as logs, iron ore, wheat,
and cotton that are moved to the next production process with little handling.
Farm products: products grown by farmers, such as oranges, wheat, sugar
cane, cattle, poultry, eggs, and milk.
Natural products: products that occur in nature such as fish and game,
timber and maple
syrup, and copper, zinc, iron ore, oil, and coal.
Components: processed expense items that become part of a finished
product.
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Product Concepts
Supplies: expense items that do not become part of a finished product.

Professional services: specialized services that support a firm’s operations.
Branding: the use of a name, term, symbol, or design or a combination of
these to identify a product.
Brand name: a word, letter, or a group of words or letters.
Trademark: those words, symbols, or marks that are legally registered for
use by a single company.
Service mark: those words, symbols, or marks that are legally registered for
use by a single company to refer to a service offering.
Brand familiarity: how well customers recognize and accept a company’s
brand.
Brand rejection: potential customers won’t buy a brand unless its image is
changed.
Brand nonrecognition: final customers don’t recognize a brand at all even
though middlemen may use the brand name for identification and inventory
control.
Brand recognition: customers remember the brand.
Brand preference: target customers usually choose the brand over other
brands, perhaps because of habit or favorable past experience.
Brand insistence: customers insist on a firm’s branded product and are
willing to search for it.
Brand equity: the value of a brand’s overall strength in the market.
Lanham Act: a 1946 law that spells out what kinds of marks (including brand
names) can be protected and the exact method of protecting them.
Family brand: a brand name that is used for several products.
Licensed brand: a well-known brand that sellers pay a fee to use.
Individual brands: separate brand names used for each product.
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Product Concepts
Generic products: products that have no brand at all other than

identification of their contents and the manufacturer or middleman.
Manufacturer brands: brands created by producers.
Dealer brands: brands created by middlemen—sometimes referred to as
private brands.
Private brands: brands created by middlemen—sometimes referred to as
dealer brands.
Battle of the brands: the competition between dealer brands and
manufacturer brands.
Packaging: promoting and protecting the product.
Universal product code (UPC): special identifying marks for each product
readable by electronic scanners.
Federal Fair Packaging and Labeling Act: a 1966 law requiring that
consumer goods be clearly labeled in easy to understand terms.
Unit pricing: placing the price per ounce (or some other standard measure)
on or near the product.
Warranty: what the seller promises about its product.
8.22 SUMMARY
In marketing product has a widespread meaning. It encompasses many
attributes of a physical good or services: its features, benefits, and quality
levels, as well as its accessories, installation requirements and instructions.
It is everything, both favourable and unfavourable that is one receives in an
exchange.
Consumer products classes, like convenience, impulse, specialty, sought,
stable etc., are based on how consumers think and shop. Business product
classes, like equipment, accessories, services, supplies etc., are based on
how buyers see products and their uses.
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Product Concepts
From marketing point of view, there are several differences between goods
and services in relation to ownership, tangibility, variability in inputs/outputs
etc.
Brand is a name, term, symbol, design or a combination thereof that
determines identification of seller's products and differentiates them from
competitor's products. These brands can be legally protected from misuse by
others by Trade Marks.
Packaging is also used in marketing to perform functions, in addition to
protecting goods, like enhancing the product, sending message, speed
handling and lower distribution costs.

1. What is a broad definition of 'Product' in Marketing?
2. How do goods differ from Services?
3. Describe different Consumer and Business product classes.
4. What is branding? Describe its role in marketing.
5. What are functions served by effective packaging?
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Product Concepts
REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
200
9
Developing and Managing
Products
Objectives
• Development of New products.
• New Product Development Process.
• The concept of Product Life Cycles.
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Developing and Managing Products
Structure:
9.1 Introduction
9.2 Importance of New Products
9.3 Categories of New Products
9.4 New Product Strategy
9.5 Step 1: Idea Generation
9.6 Step 2: Screening
9.7 Step 3: Idea Evaluation
9.8 Step 4: Development
9.9 Test marketing
9.10 Step 5: Commercialization
9.11 Product Success and Failure
9.12 The Spread of New Products
9.13 Product Characteristics and the Rate of Adoption
9.14 Product Life Cycles
9.15 Introductory Stage
9.16 Growth Stage
9.17 Maturity Stage
9.18 Decline Stage
9.19 Product Cycles Vary in Length
9.20 Key Terms
9.21 Summary
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9.1 INTRODUCTION
A strategy for new product development is one of the most important
activities for any firm in the contemporary marketplace. Reasons for this
include the fact that if the firm does not obsolete its own products, a
competitor will obsolete them. In creating a new product approach and
strategy, there are some very important questions to consider in the process.
Throughout the effort, it is useful to remember that a good idea may not be a
good investment.
For example, one of the most important but overlooked questions is: Is there
a current need for the product? This question may appear obvious, because
the text has focused heavily on developing a clear understanding of the need
for a customer-oriented and integrated marketing concept and orientation.
However, for firms in the middle of many daily problems and crises, it is
sometimes difficult to get beyond the challenge of staying alive in business
by concentrating on currently available products.
Another important question relates to the size of the market. Is it big enough
for the company and its current or future competitors to operate in and make
a profit? This appears to be an easy question to deal with, especially with all
of the research available on the Internet and many other readily available
resources. However, here again we find that most firms take a local and
narrow product specific perspective without thinking where the future might
lead, and the competition that can come from within, or even outside, the
product category.
Other questions include the number and types of customers that the firm
plans to target, as well as the attitudes of the potential customers toward the
product category. Each of these activities requires looking beyond the
obvious and general descriptions of people and numbers, and toward
sources such as Markets and Audits.
Not only is the size of the market a major issue, but the firm should consider
how much of the market it can capture (%), whether the volume is attractive
and whether the firm can be the best in the market or likely will be a quality
or value follower. These are important issues that if ignored could lead to
numerous problems down the road. Likewise, it is important to note whether
the market for the product category is growing or declining. This can be a
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critical indicator because it indicates the amount and type of inertia the firm
will have to deal with in the marketplace.
9.2 THE IMPORTANCE OF NEW PRODUCTS

A new product can be new-to-the-world, to the market, to the producer or
seller, or to some combination of these.
9.3 CATEGORIES OF NEW PRODUCTS

1. New-to-the-world products are also called discontinuous innovations. The
product category itself is new.
2. New product lines are products the firm has not offered in the past that
allow it to enter an established market.
3. Additions to existing product lines are new products that supplement a
firm’s established line.
4. Improvements or revisions of existing products result in new products.
Examples of product improvements include faster computer chips and
new flavors of potato chips.
5. Repositioned products are existing products and targeted at new markets
or market segments.
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An example of repositioning would be advertising Horlicks as a

refreshing drink for any time of the day.
6. Lower-priced products are products that provide similar performance to
competing brands at a lower cost.
Only a small portion of new product ideas result in product
introductions, and the development process can take several years and
millions of rupees.
The New Product Development Process
New-product development is essential, but risky. An organized new-product
development process may help.
New-product development is expensive. Consumer packaged goods
companies spend at least three to five crores to introduce a new brand, and
70 to 80 percent of these new brands fail!
New products can fail for a variety of reasons. Some products don’t offer a
unique benefit, or competition is underestimated. Design and cost problems,
or poor timing—either too quick an introduction or too slow—may doom a
product to failure. The new-product development process is an organized
approach for bringing new products to market. It has five stages:
Idea generation;
Screening;
Idea evaluation;
Development;
and Commercialization
The process tries to kill new products, economically, by progressively
weeding out products that have a low likelihood of success before they are
introduced to the entire target market.
The cone represents how money, time, and energy are funneled into new
product development. The funnel is widest at the top, indicating that many
new product ideas can be considered in the initial stages. Further research
narrows the number of ideas considered acceptable at any given time. Only
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ideas with the greatest potential are considered further. Only a few ideas are
supported all the way through testing to commercialization. The initial stages
of this research
are important; the earlier management identifies an idea as inappropriate

and the less money, time, and effort devoted to that idea, the easier it is to
cut losses.
9.4 NEW PRODUCT STRATEGY

A new product strategy links the new product development process and the
objectives of the marketing department, business unit, and corporation. All
these objectives must be consistent.
1. New product strategy is a subset of the organization’s overall marketing
strategy.
2. New product strategy specifies the roles that new products must play in
the organization’s overall plan and describes the characteristics of the
products the organization wishes to offer and the markets that it wishes to
serve.
The three most common strategic roles for new products are (1) to maintain
a position in the industry as a product innovator, (2) to defend market share
position, and (3) to establish a foothold in a new market.
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9.5 STEP 1: IDEA GENERATION
New product ideas come from all over — salespeople, production workers,
customers, competitors — anyone! Sharp companies keep an open mind
and eye to many relevant sources of new product ideas.
Customers are a tremendous source of new ideas. Marketing research can
help in gaining the perspectives of customers, middlemen, and competitors.
Idea generation can’t be left to chance. It depends on having a formal
procedure for seeking new ideas, so there is a constant influx of new
possibilities.
New product ideas can come from a many sources:
1. Customers: The marketing concept suggests that customers’ needs and
wants should be the springboard for developing new products.
New product ideas suggested by customers include Hewlett Packard’s touch
screen for computers
2. Employees: Because of their involvement in and analysis of the
marketplace, employees who are not in the research and development
department often come up with new product ideas.
Examples of product ideas created by non-R&D employees include
Pampers, Texas Instruments’ Speak & Spell talking computer, and
Nature Valley granola bars.
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3. A distributor is often more aware of customer needs than the

manufacturer because the distributor or dealer is closer to end users.
4. Competitors may have new products that can or should be a source of
new product ideas.
Automobile manufacturers commonly dissect competing automobiles
for ideas.
5. Research and development (R&D) may be a source of new product
ideas and innovation. R&D is carried out in four ways:
a. Applied research attempts to find useful applications for new
technologies.
b. Product development is the process of converting applications for
new technologies into marketable products.
c. Sometimes research and development involves product modification,
cosmetic changes in products or functional product improvements.
Examples of products developed through R&D include DuPont
KEVLAR synthetic material and pharmaceutical drugs.
6. Consultant groups are available to examine a business and recommend
product ideas.
A variety of approaches and techniques have been used to stimulate
creative thinking and generate product ideas:
a. Brainstorming is a process for getting a group to think of unlimited
ways to vary a product or solve a problem.  
 
At Bausch & Lomb (a firm that markets contact lenses), scientists
meet regularly in the “tiger den,” a special room set aside for
brainstorming. The member of the “tiger team” who suggests an idea
that makes it to market is rewarded with cash or stock.
b. Excellent new product ideas are often generated by focus groups.
These interviews usually consist of seven to ten consumers
interacting in a structured discussion.
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9.6 STEP 2: SCREENING
Screening involves evaluating the new idea in relation to strengths,

weaknesses, opportunities, and threats facing the company—and also the
company’s objectives and resources.
Some marketers screen based on immediate satisfaction and consumer
welfare in the long run. In this vein, there are four types of new product
opportunities:
Desirable products offer both long-run consumer welfare benefits and
immediate customer satisfaction.
Salutary products offer long-run consumer welfare, but not much in the way
of immediate satisfaction, so their degree of overall market acceptance is
limited.
Pleasing products provide a high level of immediate satisfaction and sell
well, but they don’t provide much long term improvement in the consumer’s
welfare.
Deficient products are low in customer satisfaction and long-term consumer
welfare. Companies should avoid products in this category.
Product safety must be considered. The Consumer Product Safety Act
encourages safety in product design and better quality control. Unsafe
products can turn into liabilities. Product liability means that the company has
the legal obligation to pay damages to persons injured by defective or unsafe
products.
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Finally, return on investment (ROI) is a crucial screening criterion, and ROI

forecasts can help prioritize product ideas.
Screening is the first filter in the product development process which
eliminates ideas that are inconsistent with the organization’s new product
strategy or are obviously inappropriate for some other reason.
1. Most new product ideas are rejected at this stage.
2. Concept tests are often used to rate concept (product) alternatives. A
concept test is the evaluation of a new product idea, usually before a
prototype has been created.
In the idea evaluation stage, the product ideas that survive the screening
process are scrutinized more carefully.
9.7 STEP 3: IDEA EVALUATION
For help in idea evaluation, firms use concept testing — getting reactions
from customers about how well a new product idea fits their needs. Informal
studies may include focus groups of customers who are asked to react to
various aspects of the product idea. More formal studies may involve
surveys in which consumers rate different dimensions of the product idea
and then the likelihood that they would purchase such a product.
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Concept to strategy
Concept development
1. Attractive ideas must be refined into testable product concepts
2. A product concept is an elaborate version of the idea expressed in
meaningful consumer terms
Concept testing
3. Product concepts should be presented to an appropriate group of target
consumers to gauge their reactions
4. Customer-driven engineering is an engineering effort that attaches high
importance to incorporating customer preferences in the final design.
Consumer preferences can be measured through conjoint analysis Conjoint
analysis—deriving the utility values that consumers attach to varying levels
of a product’s attributes
Business Analysis
In the idea evaluation stage, companies often make rough estimates of
costs, revenue, and profitability. They do so based not only on the reactions
of final consumers, but of middlemen such as wholesalers and retailers. The
business analysis is the second stage of the screening process where
preliminary figures for demand, cost, sales, and profitability are calculated.
At the end of this stage, management should have a good idea of the market
potential for the product.
In business markets, idea evaluation is often more precise, because
potential customers are well informed, and because they often focus on
satisfying economic needs in purchasing. Derived demand also means that
many needs are already being satisfied, so marketers can compare the cost
advantages and disadvantages of a new product with products currently
being used.
The idea evaluation stage should gather enough information to determine if
there is a real opportunity, if it fits with the firm’s resources, and if there is the
potential to create a real competitive advantage.
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The business analysis stage is also the time to calculate the impact of the
new product on the company’s existing products. The introduction of Liquid
Tide cannibalized sales of powdered Tide detergent.
The business analysis stage is also when someone should check to see if
the product can be patented.
Activity A
New Frontiers wish to introduce educational CDs, so that students can study
at places convenient to them. Write steps required to evaluate this idea of
product development.
_____________________________________________________________
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_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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9.8 DEVELOPMENT
In the development stage, the product idea is translated into a tangible

prototype, in the case of a physical good. For a service, the organization
works out the details of the training, equipment, and staff required to deliver
the service In the development stage of the product development process,
a prototype is developed and a marketing strategy is outlined.
Costs increase dramatically as the new product idea moves into the
development stage.
1. In the early stages of development, the research and development or
engineering department may develop a prototype or working model.
2. Decisions such as packaging, branding, and labeling will be made.
Preliminary promotion, price, and distribution strategies should be
established.
3. During the development stage, the technical feasibility of manufacturing
the product at a reasonable cost is thoroughly examined, and the product
may be modified.
4. Laboratory tests subject the product to much more severe or critical
treatment than is anticipated by end users.
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5. Many products that test well in the laboratory are next subjected to use
tests, in which they are placed in consumers’ homes or businesses for
trial.
6. The development process works best when all the involved areas
(departments) work together rather than sequentially. This process is
called parallel engineering, simultaneous engineering, or concurrent
engineering.
Development can be a very long stage. Procter & Gamble spent 400,000
laboratory hours in three countries developing Liquid Tide.
9.9 TEST MARKETING

After products and marketing programs have been developed, they are
usually tested in the marketplace
1. Test marketing is a limited introduction of a product and a marketing
program to determine the reactions of potential customers in a market
situation.
2. Selection of test market cities should ensure that they reflect market
conditions in the new product’s projected market area. There is no one
“perfect” city that reflects the market as a whole, and selecting a test
market city is a very difficult task.
3. Costs of test marketing are very high. Some companies choose to forgo
this procedure altogether, especially for line extensions of well-known
brands. Test marketing can take twelve to eighteen months and cost in
excess of $1 million.
4. Many firms are looking for cheaper or faster alternatives to test
marketing. 
 
a. Supermarket scanner testing (single-source data) keeps track of
the sales response to marketing mix alternatives. 
 
b. Another alternative is simulated (laboratory) market tests, which
usually entail showing members of the target market advertising for
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a variety of products. Purchase behavior, in a mock or real store, is

then monitored.
5. One drawback of test marketing is that the product and its marketing mix
are exposed to competitors before its introduction. Competitors may
sabotage the test or rush an imitation of the new product to market.
6. Despite the problems associated with test marketing, most firms still
consider it essential for new products. The high price of failure prohibits
the widespread introduction of a product that might fail.
9.10 COMMERCIALIZATION
The final stage in the new product development process is

commercialization, consisting of tasks necessary to begin marketing the
product.
A product that survives the first four stages of the new-product development
process is ready for commercialization—introduction to the full target market
As the marketing organization prepares to commercialize the new product,
several things happen:
The new product personnel decide exactly which product form or line to sell.
Then the staff completes the marketing mix.
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Top management has to approve the estimate of ROI.

The product emerges from the new-product development process.
Due to the cost and complexity of a product rollout, some companies prefer
to do it gradually, perhaps by geographic area, until the whole market is
covered. This approach may give the marketing staff an opportunity to
recognize and correct marketing mix problems before they appear in all
areas.
1. Several tas ks are set in motion: ordering production materials and
equipment, starting production, building inventories, shipping the product
to field distribution points, training the sales force, announcing to the trade,
and advertising to potential customers.
2. The total cost of development and introduction can be staggering, and the
time period for commercialization can range from weeks to years.
Gillette Co. spent nearly $1 billion on the development and initial
marketing of the Mach 3 razor..
9.11 PRODUCT SUCCESS AND FAILURE

A. Products fail for many reasons
1. They do not offer any discernible benefit
2. Poor match between product features and customer desire
3. Overestimation of market size
4. Incorrect positioning
5. Incorrect pricing
6. Inadequate distribution
7. Poor promotion
8. Inferior product
B. Degrees of failure
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1. Absolute failure when a company actually loses money

2. Relative failure when marketing goals are not met, but the product returns
a profit
C. The most important factor in successful new-product introduction is
a good match between the product and market needs.
9.12 THE SPREAD OF NEW PRODUCTS

An adopter is a consumer who was happy enough with his or her trial
experience with a product to use it again.
Diffusion of Innovation
1. An innovation is a product perceived as new by a potential adopter.
2. Diffusion is the process by which the adoption of an innovation spreads.
Five categories of adopters participate in the diffusion process:
1. Innovators are eager to try new ideas and products, have higher incomes,
and are better educated than noninnovators, and represent the first 2.5
percent of all those who will adopt.
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2. Early adopters represent the next 13.5 percent to adopt the product. Early
adopters are much more reliant on group norms, are oriented to the local
community, and tend to be opinion leaders.
3. The early majority, the next 34 percent to adopt, collect more information
and evaluate more brands than do early adopters. They rely on friends,
neighbors, and opinion leaders for information and norms.
4. The late majority, the next 34 percent to adopt, do so because most of
their friends have already done so. For them, adoption is the result of
pressure to conform. This group is older than the others and tends to be
below average in income and education.
5. Laggards, the final 16 percent to adopt, are similar to innovators in that
they do not rely on the norms of the group. They are independent,
however, because they are traditionbound. Laggards tend to have the
lowest socioeconomic status, are suspicious of new products, and are
alienated from a rapidly advancing society.
9.13 PRODUCT CHARACTERISTICS AND THE RATE OF ADOPTION

Five product characteristics to predict and explain the rate of acceptance and
diffusion of new products.
1. Complexity refers to the degree of difficulty involved in understanding and
using a new product. The more complex the product, the slower its
diffusion.
2. Compatibility refers to the degree to which the new product is consistent
with existing values and product knowledge, past experiences, and current
needs. Incompatible products diffuse more slowly than compatible
products.
3. Relative advantage is the degree to which a product is perceived to be
superior to existing substitutes.
4. Observability refers to the degree to which the benefits and other results
of using a new product can be observed by others and communicated to
target customers.
5. Trialability is the degree to which a product can be tried on a limited basis.
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Marketing Implications of the Adoption Process

1. Two types of communication, word-of-mouth communication among
consumers and communication directly from the marketer to potential
adopters, aid the diffusion process.
2. The effectiveness of different messages and appeals depends on the type
of adopter targeted.
9.14 PRODUCT LIFE CYCLES

The product life cycle is a concept that provides a way to trace the stages of
a product’s acceptance from its introduction to its decline.
It is useful to think of product concepts as passing through various stages in
their “life.”
The product life cycle describes the stages a really new product idea goes
through from beginning to end. Marketing managers can identify specific
types of decisions for strategy planning that characterize each stage.
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The product life cycle has four major stages:

market introduction;
market growth;
market maturity; and
decline.
The marketing mix usually changes throughout the product life cycle,
in response to changes in customer needs or attitudes, repositioning
of the product, or changes in the competitive structure of the industry.
Profits can also change during the life cycle, but not in tandem with
industry sales. Industry profits decline while industry sales are still
rising.
In the product life cycle, the sales line starts at zero, at time zero, because
no sales dollars come in until the product is sold. After introduction, sales
then typically increase rapidly for a time (growth stage) and may remain
stable for some time (maturity) before dropping off (decline). Point out that
the time axis has no units; some products complete the life cycle in a few
years, but others may remain in maturity for decades. The profit curve is
lower than the sales curve, because profit (measured in dollars) can never
exceed sales (also in dollars). Note that the profit curve is negative at time
zero (introduction) because of the money spent on R&D and production
before a single unit is sold. Profits increase rapidly as sales increase, but
profits peak in the growth stage, before sales have peaked (in the maturity
stage), because of growing competition. Throughout maturity, even though
profits are decreasing, they are still positive, so the product is still profitable
1. The product life cycle refers to the life of the product category, which
includes all brands that satisfy a particular type of need.
2. The length of time a product category spends in any one stage of the
product life cycle may vary dramatically, from a few weeks to decades.
3. The life cycle concept does not predict how long a product category
remains in any one stage, rather, it is an analytical tool to help marketers
understand where their product is what may happen, and which strategies
are appropriate.
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The length of the product life cycle is usually related to the type of benefit the
product offers its consumers. A fad or fashion offers limited value in contrast
to a consumer durable like a washing machine.
Stages in the Product Life Cycle
9.15 INTRODUCTORY STAGE

In the market introduction stage, sales are low as the idea is first
introduced to the market. Informative promotion is needed to tell
potential customers about the advantages and uses of the new
product. Because the process of informing and educating consumers
takes time, company resources are being spent in market introduction,
but revenues are not very large. They may even be nonexistent.
a. The introductory stage of the product life cycle represents the full-scale
launch of a new product into the marketplace.
b. The introductory stage is typified by a high failure rate, little competition,
frequent product modification, and limited distribution
c. The introductory stage usually has high marketing and production costs
and negative profits as sales increase slowly
d. Promotion strategy in this stage focuses on developing product awareness
and informing customers of product benefits. The aim is to stimulate
primary demand for the product category.
e. Intensive personal selling to retailers and wholesalers is required.
Close up gel moved rapidly from introduction to growth. Nescafe took
over ten years to take off. There is a real benefit in being the first into a
market. This results from setting the standard in the eyes of the
consumer. The benefit is lasting market share dominance even after
competitors enter and the product moves into maturity.
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9.16 GROWTH STAGE

In the market growth stage, industry sales grow fast but industry
profits rise and then start falling. The innovator realizes big profits and
attracts competition. Competitors may try to copy the innovator, or to
improve on what the innovator has introduced. Some competitors may
try to offer a product to a more narrowly defined target market.
As competitors enter, monopolistic competition develops, leading to
downward sloping demand curves. Industry profits reach their peak in this
stage, but then begin to decline with more competition and increasing
consumer price sensitivity. During this stage, competitor analysis is
especially useful to the marketing manager as an aid to appropriate strategy
planning. Too much focus on current profits while ignoring long-term
competitive trends is a common mistake
a. The growth stage of the life cycle is characterized by sales growing at an

increasing rate, the entrance of competitors into the market, market
consolidation, and healthy profits.
b. Promotion in the growth stage emphasizes heavy brand advertising and
the differences between brands.
c. Gaining wider distribution is a key goal in this stage.
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d. Toward the end of the growth stage, prices normally fall and profits reach
their peak.
e. Development costs should have been recovered by the end of the growth
stage, and sales volume has created economies of scale.
During the growth stage, the product is offered in more sizes, flavors, and
models.
9.17 MATURITY STAGE
In the market maturity stage, sales level off and competition continues
to increase. Most of the products we use everyday are mature
products.
Promotion costs increase and price competition in some segments cuts into
profits. As a result, some firms that are less efficient are forced to drop out of
the market. Some new firms may enter the market in the maturity phase, but
competing with established strong competitors is difficult.
The thrust of promotion changes in market maturity. Persuasive promotion
becomes more important, as competitors try to encourage consumers to buy
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one brand over another. In addition, promotion may also concentrate on

getting consumers to switch brands.
Differences among the competing brands tend to be less pronounced as
market maturity continues. Therefore, as consumers view the brands as
being more and more similar, they become more price sensitive, and
demand becomes increasingly elastic.
The maturity phase may last many years, until a new product idea comes
along.
a. The maturity stage of the life cycle is characterized by declining sales
growth rates, markets approaching saturation, annual product changes
that are more cosmetic that substantial, and a move toward the widening
or extension of the product line .
b. During the maturity stage, marginal competitors begin dropping out of the
market. Heavy promotions to both the dealers and consumers are
required. Prices and profits begin to fall.
c. Emergence of “niche marketers” that target narrow, well-defined, under-
served segments of a market.
Many familiar consumer products are in the maturity stage and seem to be
there indefinitely. Procter & Gamble argues that there is no product life cycle
and points to Ivory and Camay soaps as examples.
9.18 DECLINE STAGE

During the sales decline stage, new products replace older ones. Sales
decline does not necessarily mean the absence of profits. Strong brands
may continue to be profitable, especially if marketers cut back on their
expenditures and lower the costs of production and marketing. The residual
demand can generate profits for some time.
a. The decline stage is signaled by a long-run drop in sales.
b. The rate of decline is governed by how rapidly consumer tastes change or
how rapidly substitute products are adopted.
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c. Falling demand forces many competitors out of the market, often leaving a
few small specialty firms manufacturing the product.
Strategies used by marketing managers to prevent products from slipping
into the decline stage include
a. Promoting more frequent use of the product by current customers Finding
new target markets for the product
b. Finding new uses for the product
c. Pricing the product below the market
d. Developing new distribution channels
e. Adding new ingredients or deleting old ingredients
f. Making a dramatic new guarantee
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Activity B
List five products which according you are at a) Introductory, b) Maturity and
c) Decline stage of their life cycle.
_____________________________________________________________
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_____________________________________________________________
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Implications of PLC for Marketing Management

It’s important to remember that the product life cycle concept applies mainly
to product ideas within a particular product-market. It is often the case that
sales and profits for an individual brand will not follow the classic life cycle
pattern.
Individual brands may not follow the pattern. For example, a new brand
may be introduced as a “me-too” product in the growth stage in order to
capture a piece of a fast-growing market. As we have learned in earlier
presentations, all brands are not created equal, and some are stronger that
others. Thus, even if industry sales and profits
Length of Product life cycle
How long a product life cycle takes may vary considerably across different
product categories. Managers can estimate the likely length based on the life
cycles for similar products, if there are any. Marketing research can also
help. It is more important to expect and plan for the different stages than to
know the precise length of each stage.
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9.19 PRODUCT OF LIFE CYCLE VARY IN LENGTH
Some products move fast through their life cycles. Several factors contribute
to the speed with which a product moves through its life cycle.
The greater the comparative advantage that a product has over others that
are already on the market, the more quickly its sales will grow.
Sales also grow faster if the product is easy to use and its advantages are
easy to communicate.
If consumers can try the product with little risk, then the product can proceed
more quickly through market introduction.
If the product is compatible with the values and experiences of the target
customers, they will be more likely to purchase it, thus quickening the pace
of sales.
There are several other issues contributing to the length of product life
cycles.
Product life cycles are getting shorter, in general. Much of this trend is due to
rapidly changing technology. More innovation yields more new products
available to replace older ones. If there are many firms that attempt to copy a
new product concept, the product can mature quickly. Patent protection is
not always an effective barrier to competition, because wily competitors can
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often copy the basic idea without violating a specific patent. Foreign
competitors are especially likely to violate patents.
The early bird usually makes the profits, because being first in the market
can give a firm a chance to gain a critical foothold in market share. However,
marketers must also be flexible enough to respond to the competitors that
will try to enter the market during the market growth stage.
The nature of the product—whether it is a fashion or fad product—can also

affect the length of the life cycle. Fashion is the currently accepted or popular
style. A fad, on the other hand, is an idea that is fashionable only to certain
groups who are enthusiastic about it.
The product life cycles for fashions and fads tend to be happy, but short, in
that they may sell extremely well for a limited period of time. The key
distinction between fashions and fads is that fashions that are in style one
season and gone the next may someday return. When fad products leave
the market, they tend to be gone permanently.
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9.20 KEY TERMS

Product life cycle: the stages a new product idea goes through from
beginning to end.
Market introduction: a stage of the product life cycle when sales are low as
a new idea is first introduced to a market.
Market growth: a stage of the product life cycle when industry sales grow
fast but industry profits rise and then start falling.
Market maturity: a stage of the product life cycle when industry sales level
off and competition gets tougher.
Sales decline: a stage of the product life cycle when new products replace
the old.
Fashion: currently accepted or popular style.
Fad: an idea that is fashionable only to certain groups who are enthusiastic
about it but these groups are so fickle that a fad is even more short lived
than a regular fashion.
New product: a product that is new in any way for the company concerned.
Product liability: the legal obligation of sellers to pay damages to
individuals who are injured by defective or unsafe products.
Concept testing: getting reactions from customers about how well a new
product idea fits their needs.
Product managers: manage specific products, often taking over the jobs
formerly handled by an advertising manager—sometimes called brand
managers.
Brand managers: manage specific products, often taking over the jobs
formerly handled by an advertising manager—sometimes called product
managers.
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9.21 SUMMARY
New Product Development is an important subject that does not get its share
of resources by firms which are in the middle of many problems. But the
activity is essential to stay alive in business of currently available products.
Is there a current need for a new product? Is the size of the market large
enough? How much of the market share can be captured? What are types of
current and future customers, their attitudes? These are the questions to be
addressed before new product development.
New products could be new to the world, new product lines, additions,
improvements/revisions, repositioned products or lower priced products.
New Product strategy should be consistent with marketing objectives.
Idea generation, screening, evaluation, developing, test marketing,
commercialization are the steps in new product development.
The products have their own life cycle consisting of stages of Introduction,
Growth, Maturity and Decline. This cycle can be short or long like for
products which stay in maturity stage for decades. In general product life
cycles are getting shorter.

1. Why is development of new products important?
2. Describe product development process.
3. What are the categories of New Products?
4. What are stages in product life cycle?
5. Do all products have same length of Life Cycle? Why?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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10
Integrated Marketing
Communications
Objectives
• Promotion and Marketing Mix.
• Goals and Tasks of promotion.
• AIDA Concept.
• Integrated Marketing Communications.
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Integrated Marketing Communications
Structure:
10.1 The role of Promotion in Marketing Mix
10.2 The Promotional Mix
10.3 Marketing Communication
10.4 The Communication Process and the Promotional Mix
10.5 Informative Promotion
10.6 Persuasive Promotion
10.7 Reminder Promotion
10.8 Promotional Goals and the AIDA Concept
10.9 AIDA and the Promotional Mix
10.10 Nature o the Product
10.11 Stage in the Product Life Cycle
10.12 Target Market Characteristics
10.13 Type of Buying Decision
10.14 Available Funds
10.15 Push and Pull Strategies
10.16 Integrated Marketing Communications
10.17 Setting the Promotion budget
10.18 Key Terms
10.19 Summary
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10.1 THE ROLE OF PROMOTION IN THE MARKETING MIX

Promotion is communication by marketers that informs, persuades, and
reminds potential buyers of a product in order to influence an opinion or elicit
a response.
Promotion is communicating information between seller and potential buyer
or others in the channel to influence attitudes and behavior.
Promotion seeks to demand the shift curve
• Promotional strategy is a coordinated plan for the optimal use of the

elements of promotion: advertising, personal selling, sales promotion, and
public relations.
• The main function of promotion is to convince target customers that the

goods and services offered provide a differential advantage over the
competition.
• A differential advantage is a set of unique features of a company and its

products that are perceived by the target market as significant and superior
to the competition.
Dell Computers is known for its direct marketing of PC’s through
online. These are both differential advantages for Dell Computers.
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10.2 THE PROMOTIONAL MIX

A combination of the various promotional tools is called the promotional
mix. It includes advertising, personal selling, sales promotion, and public
relations.
• Advertising
Advertising is an impersonal one-way mass communication about a product
or organization that is paid for by the sponsor.
a) Cost per contact is very low because advertising can reach such a large
number of people.
b) The total cost to advertise, however, is typically very high.
Advertising is the main route to building a quality, differentiated image
for a product.
• Public Relations
Public relations is the marketing function that evaluates public attitudes,
identifies areas within the organization that the public may be interested in,
and executes a program of action to earn public understanding and
acceptance.
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a) A good public relations program can generate favorable publicity.

b) Publicity is public information about a company, good, or service
appearing in the mass media as a news item. Although publicity does not
require paid media space or time, public relations employees who
organize and distribute news generate a cost.
• Sales Promotion
Sales promotion consists of all marketing activities - other than personal
selling, advertising, and public relations - that stimulate consumer purchasing
and dealer effectiveness.
a) Promotion is used to improve the effectiveness of other ingredients in the
promotional mix.
b) Sales promotion can be aimed at either the end consumers, trade
customers, or a company’s employees. Examples include free samples,
contests, bonuses, trade shows, and coupons.
Sales promotion is often used during both the introduction and
maturity stages of the product life cycle.
• Personal Selling
Personal selling is a situation in which two people communicate in an
attempt to influence each other in a purchase situation. Personal selling is
the direct spoken communication between sellers and potential customers.
Flexibility is the strength of personal selling in communications mix.
a) Traditional methods of personal selling include a planned, face-to-face
presentation to one or more prospective buyers for the purpose of making
a sale.
b) More current notions on the subject of personal selling emphasize the
relationship that develops between a salesperson and a buyer.
Personal selling can also be expensive. The cost of an average industrial
sales call is Rs 500.
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10.3 MARKETING COMMUNICATION

Communication is the process by which we exchange or share meanings
through a common set of symbols.
Categories of Communication
a) Interpersonal communication is direct, face-to-face communication
between two or more people.
Interpersonal communication is extremely effective because it is
immediate and allows two-way feedback. However, it is able to reach
only a small audience and is very expensive.
b) Mass communication refers to communicating to large audiences,
usually through a mass medium such as television or newspaper.
c) For effective communication between two communicators (sender and
receiver), common understanding or overlapping frames of reference
are required.
For an example of the importance of common understanding, suppose

you overhear someone saying, “Did you hear about the new CD?” Do
you assume the person is talking about a compact disc or a certificate
of deposit?
a) The Communication Process
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The communication process involves both a sender and a receiver, and

begins when the sender has a thought or idea and wants to share it with one
or more receivers.
a) Sender: a marketing manager, manufacturer, or any intermediary

encoding the message could be any of the promotional elements. The
sender is the originator, or source, of the message in the communication
process.
b) Message channel: could be the medium chosen. Transmission of a
message requires a channel, such as a voice, gesture, or newspaper, for
transmitting the message.
c) Encoding is the conversion of the sender’s ideas and thoughts into a
message, usually in the form of words or signs.
d) Receiver: could be the target audience and is the person who decodes
the message.
e) Decoding the message: how the target audience interprets the message.
Decoding is the interpretation of the language and symbols sent by the
source through a channel. Even though the message is received, it may not
be properly understood and decoded.
f) Feedback: sales, complaints, and messages to the sender of the
message. In interpersonal communication, the receiver’s response to a
message is direct feedback to the source. Mass communicators are cut off
from direct feedback and must rely on market research or sales trends for
indirect feedback.
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g) Noise: anything that interferes with the target audience’s reception or

interpretation of the message. Although transmitted, the desired target
audience may not receive the message. Noise is anything that interferes
with, distorts, or slows the transmission of information.
Noise can be competing ads, newspaper stories, light, other sounds,
location, the presence of other people, or any other factor that might
impede communication. The act of driving your car is noise that
interferes with receiving the message of a billboard.
10.4 THE COMMUNICATION PROCESS AND THE PROMOTIONAL MIX

The four elements in the promotional mix differ in their ability to affect the
target audience. The elements also differ in how they interact with the
communication process.
Marketing managers work out the roles of the various promotional elements
in the marketing mix and monitor results. Promotion seeks to modify
behavior and thoughts in some way and to reinforce existing behavior. Thus,
the goal of promotion is to inform, persuade, and remind.
10.5 INFORMATIVE PROMOTION

Informative promotion is generally more prevalent during the early stages of
the product life cycle, when it can increase demand for a product category.
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• Informative promotion explains the purpose and benefits of a good or

service.
• More complex products often require informative promotion that explains
technical benefits.
IBM has decided to use more informative ads because it is now trying to sell
individual computer models rather than just acceptance of the product
category. Also, enough of the public is now computer literate and capable of
digesting detailed technical information.
10.6 PERSUASIVE PROMOTION

Persuasion, the second promotional task, is simply attempting to motivate a
consumer to purchase or use more of a product.
• Persuasion normally becomes the primary promotion goal when the

product enters the growth stage of the product life cycle.
• The aim of persuasion is to convince the customer to buy the company’s

brand rather than the competitor’s brand
Most new-car advertising is persuasive. Santro ads show that it is a fun,
easily maneuverable, sufficient head room and inexpensive little car,
compared to other small cars.
10.7 REMINDER PROMOTION

Reminder promotion is used to keep the product and brand name in the
public’s mind.
• This type of advertising is common during the maturity stage of the product
life cycle.
• The purpose of these ads is to trigger memory.

“There’s always room for Jell-O.” This is a classic reminder ad that
assumes the target market already has been persuaded of the good’s
merits.
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10.8 PROMOTIONAL GOALS AND THE AIDA CONCEP

A classic model for reaching promotional goals is called the AIDA concept,
standing for Attention-Interest-Desire-Action. It outlines the stages of
consumer involvement with a promotional message.
Although the AIDA model was originally developed in the context of personal
selling, advertising can also be evaluated in terms of its ability to grab
attention, generate and hold interest, arouse desire, and obtain action. Ads
designed with the purpose of grabbing attention typically use unusual or
visually arresting graphics, unusual or unexpected sound effects (such as
musical print ads), or provocative headlines. Advertisements that attempt to
hold and generate interest do so through well-written and interesting copy.
Desire is often stimulated by the use of celebrity endorsers, competitive
comparisons, or emotional appeals. Calls to action are presented by ads
listing phone numbers, website addresses, special promotional offers,
coupons, and other offers or copy statements that attempt to move the
reader to do something. While many ads may attempt to accomplish two or
more phases of the AIDA model concurrently, a predominant focus is usually
evident.
Each phase of the AIDA model can also be correlated to stages found in the
hierarchy of effects model of how advertising works. Attention matches well
with the awareness stage; interest correlates with knowledge and liking;
desire matches best with preference and conviction, and the action stage of
AIDA equates best to the purchase portion of the hierarchy of effects model.
The AIDA concept assumes that promotion propels consumers along four
steps in the purchase decision process.
• The advertiser must first gain the attention of the target market.
• The next step is to create an interest in the product.
• The desire to purchase the product is the third step in the process.
• Action is the final step in the purchase decision process.
The promoter’s task is to determine where on the purchase ladder most of
the target consumers are located and design a promotion plan to meet their
needs.
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10.9 AIDA AND THE PROMOTIONAL MIX

Each promotional tool is more effective at certain stages of the hierarchy of
effects model.
• Advertising is most effective in gaining attention for goods or services.

• Public relations have the greatest impact in gaining attention for a
company, good, or service.
• Sales promotion is most effective in creating strong desire and purchase

intent.
• Personal selling is most effective at creating customer interest for a product

and for creating desire.
• As the costs and risks of the product increase, so does the need for
personal selling. Risks can be financial or social.
The different elements of the promotional mix are not equally effective when
buyers are at different stages in the hierarchy of effects model, as noted in
this transparency.
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10.10 NATURE OF THE PRODUCT
• The characteristics of the product influence the promotional mix.

a. Industrial or business products are often expensive, complex, and
customized, requiring personal selling.
b. Consumer products are promoted mainly through advertising to create
brand familiarity.
• As the costs and risks of the product increase, so does the need for
personal selling. Risks can be financial or social.
The purchase of an automobile is an example of a situation that
requires personal selling because of the risk.
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10.11 STAGE IN THE PRODUCT LIFE CYCLE

Before introduction, small amounts of advertising and publicity inform the
public that the product is coming. During introduction, the company heavily
promotes the product in advertising, public relations, sales promotion, and
personal selling to inform the target market of the product, to build
awareness, to induce trial, and to obtain distribution. As the product enters
the growth phase, brand loyalty becomes the focus, as the company
attempts to persuade the market to buy this brand over all others. Sales
promotions drop off for a while. In maturity, advertising and public relations
decrease slightly and focus on persuasion and reminders, and sales
promotions increase to build market share. Once a product moves into
decline, advertising and public relations are dramatically reduced, although
sales promotions and personal selling may be maintained at low levels.
The product’s stage in its life cycle can also affect the promotional mix.
• During the introduction stage in the product life cycle, both advertising and
publicity are very important in informing the target audience that the product
is available.
• During the growth stage of the product life cycle, the promotional strategy is
designed to build and maintain brand loyalty. Advertising and public
relations continue to be major elements, but sales promotion can be
reduced.
• As a product reaches the maturity stage of its life cycle, increased

competition mandates the emphasis of persuasive and reminder
advertising and the increased focus on sales promotion.
• During the decline stage, personal selling and sales promotion may be
maintained but other forms of promotion, especially advertising, are
reduced.
When Reliance Infocom introduced their mobile and landline service,
the manufacturer sent information about their products and services to
the hosts of many of the major news and talk shows, along with stories
about how much Dhirubhai Ambani’s lifelong vision of information in
every Indian’s reach with catchy slogan “kar lo duniya mutti mein”..
The resulting flood of publicity helped to introduce the product.
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10.12 TARGET MARKET CHARACTERISTICS

The characteristics of the target market influence the blend of promotion
tools.
Widely scattered markets, highly informed buyers, and brand-loyal repeat
purchasers generally respond to a blend of advertising and sales promotion
with less personal selling.
Even expensive consumer products like personal computers use a
great deal of advertising because the market is so scattered and well
informed. Some computers are sold only through catalogs, with no
face-to-face contact with a salesperson.
10.13 TYPE OF BUYING DECISION

The type of buying decision - whether routine or complex - also affects the
promotional activities.
• Advertising and sales promotion are most effective for routine decisions.
• For decisions, which are neither routine nor complex, advertising and public
relations help establish awareness.
• Personal selling is used in complex buying situations.
10.14 AVAILABLE FUNDS
• Available (or unavailable) funds may be the most important factor in

determining the promotional mix.
• A lack of money may force a firm to rely on publicity or commission-only

manufacturers’ sales agents.
• When funds are available a firm will generally try to optimize its return on
promotion dollars while minimizing the cost per contact, the cost of
reaching one member of the target market.
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10.15 PUSH AND PULL STRATEGIES
• Some manufacturers employ a push strategy, which uses aggressive

personal selling and trade advertising to convince wholesalers and retailers
to carry and sell the merchandise.
• At the other extreme, a pull strategy stimulates consumer demand with

consumer advertising and special promotions and thus obtains product
distribution.
Activity A
You propose to put hoardings on main roads to promote your product.
Discuss factors you considered to arrive at this decision.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
With a push strategy, the manufacturer promotes directly to the next level in
the distribution channel. That intermediary buys the product and promotes it
to the next level in the channel. The final step is the retailer promoting the
product to consumers. The product is therefore “pushed” through the
distribution channel to consumers. With a pull strategy, the manufacturer
promotes directly to consumers. Consumers then go to retailers and demand
the product. The retailers then go to the next level up in the channel and
demand the product. The final step is an intermediary demanding the
product from the manufacturer. The product has been “pulled” through the
distribution channel by the consumer; consumer demand was stimulated by
the manufacturer’s promotions.
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10.16 INTEGRATED MARKETING COMMUNICATIONS
• Communications from each promotional mix element should be integrated

with a common message reaching the consumer B.
• Integrated Marketing Communications (IMC) is the method of carefully

coordinating all promotional activities to produce a consistent, unified
message that is customer focused.
• Interest in integrated marketing communications is largely a reaction to the

scrutiny that marketing communications has come under and to
suggestions that the lack of coordination leads to waste and inefficiency
• New electronic media encourage consumers to search for information
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• Consumer decides how much information to get – Marketing information

not just in 30-second sound bytes
• Action (response)—including purchase—may be immediate

• Communication with customers is becoming more customized
(personalized)
Adoption processes guides promotion planning
• Promotion must vary for different adopter groups

Adoption curve shows when different groups accept ideas.
• Innovators—the first group to adopt new products. Innovators don’t mind

taking some risks
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• Early adopters—the second group in the adoption curve to adopt a new

product, these people are usually well respected by their peers and often
are opinion leaders. Opinion leaders help spread the word. Early adopters
are often opinion leaders.
• Early Majority—a group in the adoption curve that avoids risk and waits to
consider a new idea after many early adopters have tried it—and liked it.
Early majority group is deliberate
• Late Majority—a group of adopters who are cautious about new ideas.
Late majority is cautious
• Laggards—prefer to do things the way they’ve been done in the past and
are very suspicious of new ideas. Laggards or non-adopters hang on to
tradition.
10.17 SETTING THE PROMOTION BUDGET

There are several methods adopted by marketers for setting promotion
budgets
• Size of budget affects promotion efficiency and blend
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• Budgeting for promotion—50 percent, 30 percent, or 10 percent is better

than nothing
• Find the task, budget for it
• Objectives & Task method—an approach to developing a budget—basing
the budget on the tasks to be done based on the objectives.
• Task method can lead to budgeting without agony.
10.18 KEY TERMS

Promotion: communicating information between seller and potential buyer
or others in the channel to influence attitudes and behavior.
Personal selling: direct spoken communication between sellers and
potential customers.
Mass selling: communicating with large numbers of potential customers at
the same time.
Advertising: any paid form of non personal presentation of ideas, goods, or
services by an identified sponsor.
Publicity: any unpaid form of non personal presentation of ideas, goods, or
services
Sales promotion: promotion activities—other than advertising, publicity, and
personal selling— that stimulate interest, trial, or purchase by final customers
or others in the channel.
Public relations: any unpaid form of non-personal presentation of ideas,
goods, or services.
Integrated marketing communications: the intentional coordination of
every communication from a firm to a target customer to convey a consistent
and complete message.
AIDA model: consists of four promotion jobs—(1) to get Attention, (2) to hold
Interest, (3) to arouse Desire, and (4) to obtain Action.
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Communication process: a source trying to reach a receiver with a

message.
Source: the sender of a message.
Receiver: the target of a message in the communication process, usually a
potential customer.
Noise: any distraction that reduces the effectiveness of the communication
process.
Encoding: the source in the communication process deciding what it wants
to say and translating it into words or symbols that will have the same
meaning to the receiver.
Decoding: the receiver in the communication process translating the
message.
Message channel: the carrier of the message.
Pushing: using normal promotion effort—personal selling, advertising, and
sales promotion— to help sell the whole marketing mix to possible channel
members.
Pulling: getting customers to ask middlemen for the product.
Adoption curve: shows when different groups accept ideas
Innovators: the first group to adopt new products.
Early adopters: the second group in the adoption curve to adopt a new
product, these people are usually well respected by their peers and often are
opinion leaders.
Early majority: a group in the adoption curve that avoids risk and waits to
consider a new idea after many early adopters have tried it—and liked it.
Late majority: a group of adopters who are cautious about new ideas.
Laggards: prefer to do things the way they’ve been done in the past and are
very suspicious of new ideas.
Primary demand: demand for the general product idea, not just the
company’s own brand.
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Selective demand: demand for a company’s own brand rather than a

product category.
Task method: an approach to developing a budget—basing the budget on
the job to be done.
10.19 SUMMARY
Promotion is communication by marketers that informs, persuades, and
reminds potential buyers of a product in order to influence an opinion or elicit
a response. Promotional strategy is a coordinated plan for optimal use of the
elements of promotion, advertising, personal selling, sales promotion and
public relations. A combination of various tools is called promotional mix and
it includes advertising, public relations, personal selling and sales promotion.
All these tools depend upon communication process which starts from
sender to receiver through message channel. Four elements of promotional
mix interact in a different manner with the communication process.
Informative promotion is more prevalent during early stage of introduction in
the product life cycle and quite relevant to complex products. Persuasive
promotion is the primary goal during growth cycle of the product. Reminder
promotion suits maturity stage of the product and is the goal of advertising
element of the mix.
A classic model for reaching promotional goals is the concept of Attention,
Interest, Desire and Action (ADIA). Each phase of AIDA model can be
correlated to stages found in the hierarchy of effects model of how
advertising works. Attention matches with awareness stage, Interest with
knowledge and liking, desire with preference and conviction and Action with
purchase.
Nature of product, stage in life cycle, target market factors, type of buying
decision, promotion funds and push or pull strategy all affect choice of
promotional mix.
Communications from each promotional mix element should be integrated
with a common message reaching the consumer. Integrated Marketing
Communications (IMC) is the method of carefully coordinating all
promotional activities to produce a consistent, unified message that is
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customer focused. IMC is required to meet constant scrutiny that marketing

communications face, avoid waste and inefficiency caused by lack of
coordination.

1. Discuss the role of promotion in the marketing mix.
2. What are elements of promotional mix?
3. Discuss AIDA concept used in promotional mix.
4. What are factors that affect the promotional mix?
5. What are concepts of Integrated Marketing Communications (IMC)?
6. Why is IMC essential for marketing?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
254
11
Advertising and Sales
Promotions Decisions
Objectives
• How Advertising Affects Market Share.
• Types of Advertising.
• Sales Promotion.
• Sales Promotion Tools.
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Advertising and Sales Promotions Decisions
Structure:
11.1 Effects of Advertising
11.2 Advertising and Market Share
11.3 Major Types of Advertising
11.4 Institutional Advertising
11.5 Product Advertising
11.6 Advertising Campaign
11.7 Identifying Product Benefits
11.8 Developing and Evaluating Advertising Appeals
11.9 Executing the Message
11.10 Media Decisions
11.11 Media Selection Considerations
11.12 Media Scheduling
11.13 Sales Promotion
11.14 Sales Promotion Objectives
11.15 Tools for Consumer sales Promotion
11.16 Role of Trade Promotions
11.17 Tools for Trade Sales Promotion
11.18 Key Terms
11.19 Summary
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11.1 INTRODUCTION
Effects of Advertising
Advertising is any form of impersonal, paid communication in which
the sponsor or company is identified.
Advertising—the use of paid media by a seller to communicate persuasive
information about its products, services, or organization—is a potent
promotional tool. Advertising affects everyone’s lives and influences many
purchases. Consumers turn to advertising for its informativeness as well as
its entertainment value. Advertising can affect the way consumers rank a
brand’s attributes, such as color, taste, smell, and texture. Advertising can
also influence the order in which these attitudes are valued and the relative
magnitude of the attribute importance.
The traditional use of advertising has fallen victim to new technologies and
changing priorities in the marketplace. As a result, advertising agencies
realize that in order to survive, they must adapt. Future success depends on
the ability to understand not just advertising but all areas of promotion, and
to assist clients in developing and implementing Integrated Marketing
Communications programs. In this context, sales promotion, direct marketing
and public relations have all gained prominence, due to the relative
advantages of each tool.
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It is no secret that consumers historically have been bombarded with too

many advertising messages and likely cannot remember them all. This glut
of promotion has led to a marketplace that is very skeptical of the traditional
advertising pitch. As a result, advertisers have begun to disguise their sales
messages, abandoning the familiar pitch and embedding messages subtly
into popular culture. Products have begun appearing more regularly in
television shows, on video and board games, and in movies.
11.2 ADVERTISING AND MARKET SHARE
• New brands with a small market share tend to spend proportionately more
for advertising and sales promotion than those with a large market share..A
certain level of exposure is needed to affect purchase habits. Beyond a
certain level, diminishing returns set in.
According to estimates, Indians are exposed to hundreds of advertisements
a day from the various types of advertising media.
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Selective perception means we only notice a portion of the ads we’re

exposed to.
• Attitudes and values are deeply rooted within an individual’s psychological
makeup. Advertising seldom succeeds in changing an attitude that stems
from a person’s moral code or culture. But advertising does attempt to
change attitudes toward brands and to create an attitude toward the
advertisement itself.
• Advertising can affect the way consumers rank a brand’s attributes such as
color, taste, smell, and texture.
11.3 MAJOR TYPES OF ADVERTISING

The two major types of advertising are institutional advertising and product
advertising. Product advertising touts the benefits of a specific good or
service. Institutional advertising is used if the goal of the campaign is to build
the image of the company rather than promote a particular product.
11.4 INSTITUTIONAL ADVERTISING
• Promotes corporation as a whole.

• Designed to influence corporate identity.
• Is not usually action oriented
• Promotes good corporate citizenship
• Institutional advertising has four important audiences: the public, the
investment community, customers, and employees.
• A unique form of institutional advertising called advocacy advertising is a

way for corporations to express their views on controversial issues.
Examples of institutional advertising include Aditya Birla Group’s corporate
campaign ads spotlighting their diverse businesses , locations and their
public service efforts
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11.5 PRODUCT ADVERTISING
• Pioneering advertising is intended to stimulate primary demand for a new

product or product category.
The first advertisements for camera phones are an example of pioneering
advertising.
• The goal of competitive advertising is to influence demand for a specific

brand; it is often used when a product enters the growth phase of the
product life cycle.
• Comparative advertising compares two or more specifically named or

shown competing brands on one or more specific product attributes.
a. Advertisers often make taste, price, and preference claims in reference to
the competition.
b. Before the 1970s, advertisements were not allowed to show or identify the
competition by name. But the Federal Trade Commission changed its
stance to allow direct comparisons, prohibiting only false descriptions.
c. These ads attract attention, enhance purchase intentions, increase
consumers’ message perception, generate positive attitudes, and increase
personal relevance.
Examples of comparative advertising include the “burger wars” ads and ads
for painkillers and automobiles.
11.6 ADVERTISING CAMPAIGN

The advertising campaign is a series of related advertisements focusing on
a common theme, slogan, and set of advertising appeals that extends for a
defined time period.
As with most planning processes, creating and planning an advertising
campaign can be broken down into a series of steps, as this transparency
depicts. In practice, the creative and media steps are often done
simultaneously, but they are easier to discuss in class as independent steps.
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This transparency can be used as the outline for the remaining advertising
topics in this chapter.
• Before any creative work can begin on an advertising campaign, it is

important to determine the advertising objective, the specific
communication task a campaign should accomplish for a specified target
audience during a specified period of time.
• The DAGMAR approach (Defining Advertising Goals for Measured

Advertising Results) is one method that stresses defining the objective as a
percent of change.
a) Define target audience
b) Define desired percentage change
c) Define time frame for change
• Once objectives are defined, work can begin on the advertising campaign
• Advertising campaigns often follow the AIDA model
A new music store near your college may set a goal of raising awareness of
its extensive CD selection from 30 percent to 50 percent among college
students within six months.
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Creative Decisions
11.7 IDENTIFYING PRODUCT BENEFITS

Marketers strive to identify product benefits, not product attributes that will be
the message to the consumers. A benefit should answer “What’s in it for
me?” Ask “So?” to determine if it is a benefit. Marketing research and
creative intuition are usually used to list the perceived benefits of a product
and to rank these benefits.
What is the benefit of Lite beer? Less filling? Tastes great?
11.8 DEVELOPING AND EVALUATING ADVERTISING APPEALS

After identifying product benefits, possible advertising appeals are
developed. An advertising appeal identifies a reason a person should
purchase a product.
a) Advertising campaigns can focus on one or more appeals, which are
developed by the creative people in the advertising agency.
b) Typical appeals are profit, health, love, fear, convenience, and fun.
• The next step is to evaluate the proposed appeals. An appeal needs to be

desirable, exclusive, and believable.
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For most ads, dozens of appeals and messages were created before the
options were narrowed to one.
• The dominant appeal for the campaign will be the unique selling
proposition, and it usually becomes the campaign slogan.
11.9 EXECUTING THE MESSAGE
• Message execution is the way the advertisement will be portrayed.

Examples of message execution style include fantasy, humor,
demonstration, and slice of life.
• Executional styles for foreign advertising are often quite different from those
we are accustomed to in the India.
• Global advertising managers are increasingly concerned with the issue of

standardization vs. customization.
• Evaluating an advertising campaign can be the most demanding task facing

advertisers.
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11.10 MEDIA DECISIONS

A medium is the channel used to convey a message to the target market.
Media planning is the series of decisions advertisers make regarding the
selection and use of media to communicate the advertising message to the
target audience. Six major types of advertising media are available:
newspapers, magazines, radio, television, outdoor advertising, and the
Internet. Marketers can also use alternative media to reach their target
market.
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For example, traditional “mass” media, such as national newspapers and

television networks, offer large audiences but are limited in demographic
selectivity. More targeted media, such as radio and magazines, can provide
a more closely defined target audience. Magazines offer excellent
reproduction capabilities but cannot offer movement. Outdoor advertising
offers geographic selectivity but high noise levels and requires a very short
message.
Newspaper advertising has the advantage of geographic flexibility and
timeliness. Newspapers reach a very broad mass market.
Cooperative advertising is an arrangement in which the manufacturer and
retailer split the costs of advertising the manufacturer’s brand.
Newspaper ads have a very short life.
Magazines are often targeted to a very narrow market. Although they may
offer a very high cost per contact, the cost per potential customer may be
much lower.
Radio can be directed to very specific audiences, has a large out-of-home
audience, has low unit and production costs, is timely, and can have
geographic flexibility.
Television can be divided into networks (Zee, Sony, Sahara, Star, NDTv,
Cartoon Network ), independent stations, cable channels, and direct
broadcast satellite television.
a. Cable television is the largest growth market; over two thirds of all
households subscribe to cable. It can be useful for reaching specific
markets.
b. Television reaches a huge market, but both the advertising time and
production costs are very expensive.
c. The Teleshopping is a thirty minute or longer advertisement. They are
popular because of the cheap air time and the relatively small production
costs.
Outdoor, or out-of-home, advertising is a flexible, low-cost medium that may
take a variety of forms, such as billboards, skywriting, ads in and on modes
of transportation. It reaches a broad and diverse market.
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With increase in Internet usage, the Internet has established itself as a solid
advertising medium.
a. Popular Internet sites and search engines generally sell advertising space,
called “banners.” Banner ads are judged to be as or more effective for
boosting brand and advertising awareness.
b. Web advertisers are also becoming more targeted with their approach to
advertising by studying click stream data.
Advertisers are looking for new media vehicles to help promote their
products. Some of these include facsimile (fax) machines, video shopping
carts, electronic “place-based” media, interactive computer advertising, and
cinema and video advertising.
11.11 MEDIA SELECTION CONSIDERATIONS

The media mix is the combination of media to be used for a promotional
campaign.
Media decisions are typically based on cost per thousand, reach, and
frequency.
• Cost per contact is the cost of reaching one member of the target market.
• Reach refers to the number of target consumers exposed to a commercial
at least once over a period of time, such as four weeks.
• Frequency measures the intensity of coverage in a specific medium.

Frequency is the number of times an individual is exposed to a brand
message during a specific time period.
• Another consideration is audience selectivity, the medium’s ability to reach

a precisely defined market.
• The flexibility of a medium can be extremely important to an advertiser.

• Noise level is the level of distraction to the target audience in a medium.
• Life span means that messages can either quickly fade or persist as
tangible copy to be carefully studied.
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The media regularly do market research on their audiences and build a

market profile that includes demographic details.
Activity A
You decide to advertise your product on FM radio station. How did you arrive
at this decision? Explain.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
11.12 MEDIA SCHEDULING

After selecting the media, a media schedule - which designates the
vehicles, the specific publications or programs, and the dates and times -
must be set. There are three basic types of media schedules:
• With a continuous media schedule, advertising runs steadily throughout

the advertising period.
• With a flighted media schedule, the advertiser schedules ads heavily

every other time period (such as every other month or every two weeks).
• A pulsing media schedule combines continuous scheduling with flighting,

resulting in a base advertising level with heavier periods of advertising.
• A seasonal media schedule is used for products that are sold more during
certain times of the year.
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11.13 SALES PROMOTION

Sales promotion is an activity in which a short-term incentive is offered to
consumers or channel members to induce the purchase of a particular good
or service.
Sales promotion comprises those marketing communications activities, other

than advertising, personal selling, and public relations, in which a short-term
incentive motivates consumers or members of the distribution channel to
purchase a good or service immediately, either by lowering the price or
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adding value. The primary objectives of sales promotion are to increase trial
purchasing of products, consumer inventories, and repurchasing. Sales
promotion is also designed to support advertising activities.
• Consumer sales promotion is aimed at the ultimate consumer of a good.

Consumer forms of sales promotion includes coupons and rebates,
premiums, loyalty marketing programs, contests and sweepstakes,
sampling, and point-of-purchase displays. Coupons are certificates entitling
consumers to an immediate price reduction when they purchase the
product or service. Rebates provide purchasers with a price reduction when
they mail in a rebate form with a proof of purchase. Premiums offer an extra
item or incentive to the consumer for buying the product or service. Loyalty
programs are extremely effective at building long-term, mutually beneficial
relationships between a company and its key customers. Contests and
sweepstakes are generally designed to create interest. Sampling is an
effective for encouraging consumers to try a ne product. Point-of-purchase
displays advertise the product and induce impulse buying.
• Trade sales promotion is directed to members of the marketing channel,

such as wholesalers and retailers. Manufacturers use many of the same
sales promotion tools used in consumer promotions, such as sales
contests, premiums, and point-of-purchase displays. In addition,
manufacturers and channel intermediaries use several unique promotional
strategies: trade allowances, push money, training programs, free
merchandise, store demonstrations, and meetings, conventions, and trade
shows.
11.14 SALES PROMOTION OBJECTIVES

The objectives of sales promotion center around immediate purchase.
Specific objectives may be to:
• Increase trial
• Boost consumer inventory
• Encourage repurchase
• Support and increase the effectiveness of advertising
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• Sales promotion may also encourage brand switching in some instances

(coupons) and brand loyalty in others (frequent-buyer clubs).
Advertising provides the customer with a reason to buy; sales
promotion provides an incentive to buy.
Consumer product manufacturers spend about 50 percent of their promotion

budgets on advertising and about 50 percent on consumer and trade sales
promotion.
Some experts say this trend will reverse in the next few years, because
marketers are becoming disillusioned with the short-term effects of
sales promotion
11.15 TOOLS FOR CONSUMER SALES PROMOTION

Consumer sales promotion tools are used to create new users of the
product, as well as to entice current customers to buy more.
• A coupon is a certificate that entitles consumers to an immediate price

reduction when they purchase the item.
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a) Coupons are effective for product trial and repeat purchase. They are also
useful for increasing the amount of product a customer will buy.
b) High costs and low redemption rates are causing marketers to reevaluate
their use of coupons
c) In-store couponing is most likely to affect customer-buying decisions.
• Rebates offer the purchaser a price reduction but the reward is not as
immediate as the rebate form and proof-of-purchase must be mailed in.
• Premium is an extra item offered, usually with proof of purchase, to the

consumer. Sometimes it may be a small item, such as a T-shirt or coffee
mug, or it may be free air travel or hotel stays. Frequent-buyer clubs and
programs offer premiums.
• Loyalty marketing programs or frequent-buyer programs, reward loyal

consumers for making multiple purchases. Loyalty programs are designed
to build long-term, mutually beneficial relationships between a company
and its key customers. Frequent buyer programs reward loyal customers
for making multiple purchases of a particular good or service.
• Contests and sweepstakes are promotions that give away prizes and
awards. A contest is based on some skill or ability, but sweepstakes rely on
chance and luck.
• Sampling is a way to reduce the amount of risk a consumer perceives in

trying a new product. For sampling to be beneficial, the new product must
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have benefits that are clearly superior to existing products and must have a
unique new attribute that the consumer must experience to believe in.
Distributing samples to specific location types where consumers regularly
meet for a common objective or interest, is one of the most cost-efficient
methods of sampling.
Sampling is popular for some food and household products but very
expensive for the marketer
• Point-of-purchase promotion includes any point of purchase display set

up at the retailer’s location to build traffic, advertise the product, or induce
impulse buying. Point-of-purchase displays include shelf talkers, shelf
extenders, ads on grocery carts and bags, end-aisle and floor-stand
displays, in-store audio messages, and audiovisual displays.
11.16 ROLE OF TRADE PROMOTIONS
• Gain new distributors

• Obtain support for consumer promotions
• Build or support dealer inventories
• Improve trade relations
11.17 TOOLS FOR TRADE SALES PROMOTION

Trade promotions push a product through the distribution channel. When
selling to members of the distribution channel, manufacturers use many of
the same sales promotion tools used in consumer promotions. Several tools,
however, are unique to intermediaries.
• A trade allowance is a price reduction offered by manufacturers to

intermediaries, such as wholesalers or retailers, in exchange for the
performance of specified promotion activities.
• Intermediaries receive push money as a bonus for pushing the

manufacturer’s brand. Often the push money is directed at the retailer’s
salespeople.
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Trade loading is an example of a consequence of using trade

allowances.
• Sometimes a manufacturer will provide free training for the personnel of an
intermediary if the product is complex.
Manufacturer training is common in the automobile and motorcycle
industries.
• Another trade promotion is free merchandise offered in lieu of quantity

discounts.
• In-store demonstrations are sometimes provided by manufacturers as a

sales promotion for retailers
• Trade association meetings, conventions and trade shows are an important

aspect of trade promotion and an opportunity to meet and interact with
current and potential customers.
These meetings provide an opportunity to make sales approaches and
appointments for sales presentation. They also provide the opportunity to
see what the competition has in the way of new products and promotions.
11.18 KEY TERMS

Product advertising: advertising that tries to sell a specific product.
Institutional advertising: advertising that tries to promote an organization’s
image, reputation, or ideas—rather than a specific product.
Pioneering advertising: advertising that tries to develop primary demand
for a product category rather than demand for a specific brand.
Competitive advertising: advertising that tries to develop selective demand
for a specific brand rather than a product category.
Direct type advertising: competitive advertising that aims for immediate
buying action.
Indirect type advertising: competitive advertising that aims for immediate
buying action..
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Comparative advertising: advertising that makes specific brand

comparisons—using actual product names.
Reminder advertising: advertising to keep the product’s name before the
public.
Advertising allowances: price reductions to firms further along in the
channel to encourage them to advertise or otherwise promote the firm’s
products locally.
Cooperative advertising: middlemen and producers sharing in the cost of
ads.
Copy thrust: what the words and illustrations of an ad should communicate.
Advertising agencies: specialists in planning and handling mass-selling
details for advertisers.
Corrective advertising: ads to correct deceptive advertising.
11.19 SUMMARY
Advertising is any form of impersonal, paid communication in which the
sponsor or company is identified. It affects everyone's life and influences
many purchases. It has, however, fallen victim to new technologies in
Marketing Communication programs.
New brands with a small market share tend to spend proportionately more
for advertising and sales promotion than those with a large market share.
Institutional type of advertising promotes corporation as a whole and
addresses public, investment community, customers and employees; and is
not action oriented. Product Advertising is intended to stimulate primary
demand for a product.
Marketers strive to identify product benefits, not product attributes, that will
be the message to the consumers. The next step is developing advertising
appeals that identify a reason a person should purchase a product. Appeals
need to be desirable, exclusive and believable. From among the several
appeals developed, one dominant appeal is chosen for the advertising
campaign which is known as unique selling proposition (USP). This becomes
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a campaign slogan. The way this is portrayed in the advertisement is called

message.
Appropriate media for this message is/are to be chosen from Newspapers,
Magazines, Radio, TV, Outdoor, Internet and Alternative media. Factors
considered in selecting media are cost, reach, frequency, audience
selectivity flexibility, noise level and life span. The media can be scheduled in
a continuous, flighted, pulsing or seasonal manner.
Sales promotion is an activity in which a short term incentive is offered to
consumers or trade. Free samples, contests, premiums, trade shows,
vacation give aways and coupons are a few popular tools of sales promotion.

1. Discuss the effect advertising has on market share and consumers.
2. What are media evaluation and selection techniques?
3. What are major types of advertising media? What are their
characteristics?
4. What is media scheduling? Describe alternatives available.
5. Describe tools for sales promotion.
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
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12
Distribution Decisions
Objectives
• Marketing Intermediaries.
• Channel Intermediaries.
• Channel Relationships.
• Supply Channel Management.
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Structure:
12.1 Introduction
12.2 Marketing Channels
12.3 Overcoming Discrepancies
12.4 Contact Efficiency
12.5 Channel Intermediaries and Their Functions
12.6 Alternative Channel Arrangements
12.7 Making Channel Strategy Decisions
12.8 Factors Affecting Channel Choice
12.9 Levels of Distribution Intensity
12.10 Managing Channel Relationships
12.11 Channel Conflict
12.12 Channel Partnering
12.13 Strategy Decision Areas in Place
12.14 Major Strategy Planning Decisions for Place
12.15 Physical Distribution Decisions
12.16 The Physical Distribution Concept
12.17 Total Cost Approach
12.18 Factors Affecting Distribution Service Levels
12.19 Coordinating Logistics Activities Among Firms
12.20 Chain of Supply
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12.21 Transporting Function
12.22 The Storing Function
12.23 Supply Chain Management
12.24 Managing the Logistical Components of the Supply Chain
12.25 Supply Chain Managers choose a Mode on the Basis of
12.26 Trends in Supply Chain Management
12.27 Channels and Distribution Decisions for Services
12.28 Key Terms
12.29 Summary
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12.1 INTRODUCTION
Place is the part of the marketing mix that deals with making goods and
services available in the right quantities and locations when customers want
them.
A marketing channel is a business structure of interdependent organizations
which reach from the point of product origin to the consumer with the
purpose of physically moving products to their final consumption destination,
representing “place” in the marketing mix and encompassing the processes
involved in getting the right product to the right place at the right time.
A channel of distribution refers to any series of firms or individuals who
participate in the flow of products from producer to final user or consumer.
Members of a marketing channel create a continuous and seamless supply
chain that performs or supports the marketing channel functions. Channel
members provide economies to the distribution process in the form of
specialization and division of labor, overcoming discrepancies in quantity,
assortment, time and space, and providing contact efficiency.
12.2 MARKETING CHANNELS

The term channel is derived from the Latin word canalis, which means canal.
A marketing channel can be viewed as a canal or pipeline for products.
A marketing channel or channel of distribution is the set of
interdependent organizations that facilitate the transfer of ownership as
products move from producer to business user or consumer. Many different
types of organizations participate in marketing channels.
• Channel members, also called intermediaries, resellers, and middlemen

negotiate with one another, buy and sell products, and facilitate the change
of ownership between buyer and seller.
• The supply chain is the connected chain of all of the business entities that
perform or support the marketing channel functions.
You can eliminate middlemen, but you cannot eliminate the services
they provide; someone must perform those activities.
Channel Functions
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• Providing Specialization and Division of Labor

Essentially producers hire channels members to perform tasks and activities
(such as transportation or selling to the consumer) that the producer is not
prepared to perform or that the intermediary is better prepared to perform.
Channel members are needed to provide utilities
a) Time utility: product available when needed
b) Place utility: product available where needed
c) Form utility: product available in the form (quantity) needed
d) Possession utility: willing to exchange something for product
12.3 OVERCOMING DISCREPANCIES

A discrepancy of quantity is the difference between the amount of product
produced and the amount an end user wants to buy.
Most consumers are unwilling to buy food in case lots or truckloads.
a) A discrepancy of assortment is the lack of all the items necessary to
receive full satisfaction from a product or products. A manufacturer may
produce only one product, yet it may require the addition of several more
products to actually use the first product.
The computer dealer brings together hardware, software, paper, disks,
printer ribbons, and so on.
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a) A temporal discrepancy is created when a product is produced and a

consumer is not ready to purchase it.
Wholesalers warehouse seasonal items such as Umbrellas, School
books and stationary items.
b) A spatial discrepancy is the difference between the location of the
producer and the location of widely scattered markets.
Customers do not want to go to the nearest automobile factory to buy a
car.
12.4 CONTACT EFFICIENCY

Marketing channels simplify distribution by reducing the amount of
transactions required to get products from manufacturers to consumers.
Retailers assemble a selection of merchandise so that one contact (buying
trip) can result in the purchase of many different items.
Imagine what your lives would be like if there were no retailers or
wholesalers. You have to go to a dairy for milk, a refinery for gasoline,
several different publishers for textbooks, etc. You would spend all
your time in transit, or you would make all the products you consume..
In the simplified world of five producers and four consumers, each
consumer must purchase directly from each producer, requiring 20
transactions to meet everyone’s needs. If one intermediary is
introduced, each player in this model must only make one transaction
to sell or buy all the required products. This reduces the number of
required transactions to nine. If introducing only one intermediary can
reduce the number of transactions by over half, just imagine what
happens in a more complex setting!
12.5 CHANNEL INTERMEDIARIES AND THEIR FUNCTIONS
• Types of Channel Intermediaries

The primary difference separating intermediaries is whether or not they take
title to the product
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a) Retailers are firms that sell mainly to consumers. They take title to the
goods which they sell.
b) Merchant wholesalers facilitate the movement of products and services
from the manufacturer to producers, resellers, government institutions and
retailers. Merchant wholesalers take title to the goods which they sell.
c) Agents and brokers facilitate the sale of a product from producer to end
user by representing retailers, wholesalers, or manufacturers. Agents and
brokers do not take title
• Channel Functions Performed by Intermediaries

a) Transactional functions include contacting and communicating with
prospective buyers to make them aware of existing products and explain
their features, advantages, and benefits
b) Logistics is the process of strategically managing the efficient flow and
storage of raw materials, in-process inventory, and finished goods from point
of origin to point of consumption. Logistical functions include transporting,
storing, sorting out, accumulating, allocating, and assorting products.
Many wholesalers are experts in transportation and have their own fleet
of trucks, sorting diamonds by clarity is an example of the sorting out
function, and purchasing grain from a large assortment of farmers is an
example of accumulating.
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a) Facilitating functions include research and financing.

Individual members can be added or eliminated from a channel, but
someone must perform these functions. It could be the producer,
wholesaler, retailer, or end user.
Channel Structures
The appropriate configuration of channel members to move a product from
the producer to the end user may differ greatly by product.
Channels for Consumer Products
a) One channel is the direct channel, which entails producers selling
directly to consumers. This includes telemarketing, mail order, and catalog
shopping and forms of electronic retailing.
Direct channels include Avon, World Book encyclopedia, and the Times
Music.
b) The longest typical channel found for consumer products is the agent/
broker channel, in which agents or brokers bring manufacturers and
wholesalers together for negotiation. Ownership then passes from one or
more wholesalers to retailers, and finally retailers sell to the consumer.
c) Most consumer products are sold through the retailer and the wholesaler
channel
o A retailer channel is used when the retailer is large and can buy in
large quantities direct from the manufacturer.
A wholesaler channel is often used for low-cost, frequently purchased items
such as candy and gum. The wholesalers purchase large quantities and
break it into smaller lots, which are sold to retailers.
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• Channels for Business-to-Business and Industrial Products

a) Channels for business and industrial markets are usually characterized by
fewer intermediaries.
b) Many producers sell directly, in large quantities, to the large
manufacturers that are their customers.
c) The channel from producer to government buyers is direct. This is usually
because of specialized products and bidding.
d) For standardized items of moderate or low value, an intermediary is often
used. This is usually an industrial distributor or manufacturers’
representative.
e) The Internet is increasingly being used in business-to-business channels
as a more direct and efficient means of purchasing and selling supplies
and raw materials.
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Activity A
List supply chain members involved in sale of Tractors to farmers in India.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
12.6 ALTERNATIVE CHANNEL ARRANGEMENTS

a) Some producers select two or more channels to distribute the same
products to target markets, a practice called multiple distribution or dual
distribution. A variation of this practice is the marketing of similar
products using different brand names.
b) Often nontraditional channel arrangements help differentiate a firm’s
product from the competitions.
c) Strategic channel alliances are sometimes formed to use another
manufacturer’s already established channel.
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12.7 MAKING CHANNEL STRATEGY DECISIONS

Supply chain channel strategy is substantially influenced by channel
objectives, which in turn should reflect marketing objectives and organization
objectives.
The marketing manager faces two important issues: what factors will
influence the channel(s) and what level of distribution intensity will be
appropriate.
12.8 FACTORS AFFECTING CHANNEL CHOICE
• Market Factors
• These include target customer profiles and preferences, geographic
location, size of market, and competition.
• Product Factors
• These include whether products are complex, customized, standard, the
price, stage of product life cycle, and delicacy of the product.
• Producer Factors
• Producer factors that impact channel choice include size of managerial,
financial, and marketing resources, number of product lines, and desire for
control of pricing, positioning, brand image, and customer support.
12.9 LEVELS OF DISTRIBUTION INTENSITY
• Intensive distribution is distribution aimed at having a product available in

every outlet where target consumers might want to buy it.
a) Many convenience goods and supplies have intensive distribution.
b) Low-value, frequently purchased products may require a long channel
of distribution.
Gum is a product that is distributed in as many outlets as possible
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• Selective distribution is distribution achieved by screening dealers to

eliminate all but a few in any single area.
a) Selective distribution strategies often hinge on a manufacturer’s
desire to maintain superior product image to be able to charge a
premium price.
b) Shopping goods usually have selective distribution, as do some
products.
• The most restrictive form of distribution, exclusive distribution, entails

establishing one or a few dealers within a given area.
a) Consumer specialty goods, a few shopping goods, and major
industrial equipment use exclusive distribution.
b) This limited distribution aids in establishing an image of exclusiveness
for the product.
Rolex watches and prestige designer clothing are examples.
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12.10 MANAGING CHANNEL RELATIONSHIPS

Social relationships play an important role in building unity among channel
members.
• Channel Power, Control, and Leadership

a) Channel power is a channel member’s capacity to control or
influence the behavior of another member’s behavior.
b) Channel control is a situation that occurs when one channel member
affects another member’s behavior.
12.11 CHANNEL CONFLICT

a) Inequitable channel relationships often lead to channel conflict which is a
clash of goals and methods between distribution channel members.
b) Sources of conflict may be conflicting goals, failure to fulfill the
expectations of other channel members, ideological differences, and
different perceptions of reality.
c) Horizontal conflict occurs among channel members on the same level.
d) Vertical conflict occurs between different levels in a marketing channel.
12.12 CHANNEL PARTNERING
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a) Channel partnering or channel cooperation is the joint effort of all channel

members to create a supply chain that serves customers and creates a
competitive advantage.
b) This is in contrast to the adversarial relationships of the past.
c) Channel alliances and partnerships are created as firms try to leverage
the intellectual, material and marketing resources of the channel, and
make entry into far flung markets easier and more cost effective.
12.13 STRATEGY DECISION AREAS IN PLACE

Among the key strategy decision areas in distribution are:
The organization must develop objectives for Place.
There must be a choice among the alternative types of channels that might
be used, such as direct-to-customer, or indirect—involving middlemen. If the
chosen channel is indirect, the marketer must determine the degree of
market exposure, or market coverage, that is desired. In addition, the
marketer must decide on the types of middlemen needed, how many of them
are needed, and how to manage them.
The type of channel is also related to the level of customer service
required by the target audience.
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Finally, given the type of channel selected and the customer service level
needed, physical distribution activities must be developed and managed
in order to achieve the distribution objectives.
12.14 MAJOR STRATEGY PLANNING DECISIONS FOR PLACE
• Distribution availability goals

• Ideal market exposure level
• Distribution customer service level
• Channel type (direct, indirect)
• Who manages the overall channel
• How to manage transportation, storage and materials handling
• Kinds of middlemen
12.15 PHYSICAL DISTRIBUTION DECISIONS

Logistics is the transporting, storing, and handling of goods to match target
customers’ needs with a firm’s marketing mix. Physical distribution (PD) is
another name for logistics. Whenever the product includes a physical good,
Place requires decisions about logistics.
12.16 THE PHYSICAL DISTRIBUTION CONCEPT

In physical distribution, there are always trade-offs among costs, the
customer service level, and sales. As place utility becomes greater so does
the cost of creating it. Because physical distribution cost savings can be
substantial for each level of service, marketers must determine what level of
service is possible and appropriate for each target market.
Physical Distribution Concept—all transporting, storing, and product-
handling activities of a business and a whole channel system should be
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coordinated as one system which seeks to minimize the cost of distribution

for a given customer service level.
• Decide what service level to offer
• Finding the lowest total cost for the right service level
Simply focusing on individual costs may increase total costs—since a total
system is involved requires that the manager decide what aspects of service
are most important to customers
Examples: order delivery time, availability of products, order status
information
12.17 TOTAL COST APPROACH

Evaluating each possible PD system—and identifying all of the costs of each
alternative.
• A cost comparison of alternative systems

• Identifying all the alternatives is sometimes difficult
12.18 FACTORS AFFECTING DISTRIBUTION SERVICE LEVELS
• Advance information on product availability

• Time to enter and process orders
• Backorder procedures
• Where inventory is stored
• Accuracy in filling orders
• Damage in shipping, storing, and handling
• Online order status information
• Advance information on delays
• Time needed to deliver an order
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• Reliability in meeting delivery date

• Complying with customer’s instructions
• Defect-free deliveries
Procedures for handling returns and needed adjustments
12.19 COORDINATING LOGISTICS ACTIVITIES AMONG FIRMS
• Functions can be shifted and shared in the channel

• How PD is shared affects the rest of a strategy
• A coordinated effort reduces conflict
• JIT requires a close, cooperative relationship
• Chain of supply may involve even more firms
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12.20 CHAIN OF SUPPLY

The complete set of firms and facilities and logistics activities that are
involved in procuring materials, transforming them into intermediate or
finished products, and distributing them to customers.
• Better information helps coordinate PD

• Electronic data interchange sets a standard
Electronic Data Interchange -an approach that puts information in a
standardized format easily shared between different computer systems.
• Ethical issues may arise
12.21 TRANSPORTING FUNCTION

Transporting -the marketing function of moving goods.
• Transporting aids economic development and exchange

• Transporting can be costly
• Governments may influence transportation
Transporting alternatives
• Transporting function must fit the whole strategy

• Railroads—large loads moved at low cost
• Trucks are more expensive, but flexible and essential
• Ship it overseas—but slowly
• Inland waterways are important too
• Pipelines move oil and gas
• Airfreight is expensive but fast and growing
• But airplanes may cut the total cost of distribution
• Put it in a container—and move between modes easily
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Containerization- grouping individual items into an economical shipping

quantity and sealing them in protective containers for transit to the final
destination.
• Piggyback—a ride on two or more modes
PIGGYBACK SERVICE—loading truck trailers—or flat-bed trailers carrying
containers—on railcars to provide both speed and flexibility.
• Transportation choices affect environmental costs too

• Economies of scale in transporting
a) Freight forwarders—transportation “wholesalers” who combine the
small shipments of many shippers into more economical shipping
quantities.
b) Should you do it yourself?
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12.22 THE STORING FUNCTION
• Store it and smooth out sales, increase profits and consumer satisfaction
a) Storing -the marketing function of holding goods.
b) Inventory—the amount of goods being stored.
• Storing varies the channel system

• Goods are stored at a cost
• Rapid response cuts inventory costs
• Specialized storing facilities may be required
• Warehousing facilities cut handling costs too
12.23 SUPPLY CHAIN MANAGEMENT

Supply chain management coordinates and integrates all of the activities
performed by supply chain members into a seamless process, from the
source to the point of consumption.
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• Philosophy that seeks to unify the competencies and resources of business

functions both within the firm and outside in the firm’s allied channel
partners.
• Completely customer driven

• Flow of demand changed from “push” to “pull”.
• Supply chain management is a communication of customer demand
• Supply chain management is a physical flow process
• Supply Chain management activities include:
a) Determining channel strategy and level of distribution intensity
b) Managing relationships in the supply chain
c) Managing the logistical components of the supply chain
d) Balancing the costs with the customer service level
• Benefits of supply chain management include:

a) Reduced costs
b) Improved service
12.24 MANAGING THE LOGISTICAL COMPONENTS OF THE SUPPLY

CHAIN
The logistics information system integrates and links all of the
components of the supply chain.
The supply chain team orchestrates the movement of goods, services and
information from the source to the consumer. They typically cut across
organizational boundaries and may include participants from external
members of the supply chain.
• Sourcing and procurement links the manufacturer and the supplier. They
are responsible for the vendor relations and for reducing the cost of raw
materials and supplies.
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• Production scheduling may be based on pushing products into the supply

chain and waiting for customers to place their orders, or by allowing
customer orders to pull the production of goods and services.
• The mass customization or build-to-order process is a production

method whereby products are not made until an order is placed by the
customer; products are made according to customer specifications,
uniquely tailoring mass-market goods and services to the needs of the
individuals who buy them.
• Just-in-time production (JIT), sometimes called lean production, is a

process that redefines and simplifies manufacturing by reducing inventory
levels by delivering raw materials just when they are needed on the
production line.
• The order processing system processes the requirements of the

customer and sends the information into the supply chain via the logistics
information system.
• Electronic data interchange (EDI) uses computer technology to replace

the paper documents that usually accompany business transactions.
• An inventory control system develops and maintains an adequate

assortment of materials or products to meet a manufacturer’s or a
customer’s needs.
a) An inventory control system that manages inventory from the
supplier to the manufacturer is called materials requirement planning
(MRP) or materials management.
b) An inventory control system that manages the finished goods
inventory from the manufacturer to end user is commonly referred to as
distribution resource planning (DRP).Enhanced versions of DRP
common in the retailing and supermarket industries are continuous
replenishment (CR), efficient consumer response (ECR), and vendor
managed inventory (VMI).
• Storage helps manufacturers manage supply and demand, and provides

time utility to buyers and sellers. A materials-handling system moves
inventory into, within, and out of the warehouse.
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• The five major modes of transportation are railroads, motor carriers,

pipelines, water transportation, and airways.
12.25 SUPPLY CHAIN MANAGERS CHOOSE A MODE ON THE BASIS

OF:
• Cost: total amount a specific carrier charges to move the product from the
point of origin to the destination.
• Transit time: total time a carrier has possession of goods.

• Reliability: consistency with which the carrier delivers goods on time and in
acceptable condition.
• Capability: ability of the carrier to provide the appropriate equipment and

conditions for moving goods.
• Accessibility: carrier’s ability to move goods over a specific route or

network.
• Traceability: relative ease with which a shipment can be located and

transferred
Activity B
You propose that Biscuits which are distributed to the shops by road be first
sent by air to main cities. Prepare justification.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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12.26 TRENDS IN SUPPLY CHAIN MANAGEMENT
• Technology
• Computer technology has boosted the efficiency of logistics dramatically
with tools such as automatic identification systems using bar coding and
radio frequency technology, and supply chain software systems that help
synchronize the flow of goods and information with customer demand.
• Outsourcing Logistics Functions

a) In outsourcing or contract logistics, a manufacturer or supplier
turns over the entire function of buying and managing transportation to a
third party.
b) Third-party contact logistics allows companies to cut inventories,
locate stock at fewer plants and distribution centers, and still provide the
same level of service or better.
c) Outsourcing may even lead to firms allowing business partners to take
over the final assembly of their product or its packaging in an effort to
reduce inventory costs, speed of delivery, or meet customer
requirements better.
• Electronic Distribution
Electronic distribution is the most recent development in the physical
distribution arena.
a) This will include any product or service that can be distributed
electronically, whether through traditional cable or through satellite
transmission.
b) In the future movies, music, books, newspapers and more may use these
methods.
12.27 CHANNELS AND DISTRIBUTION DECISIONS FOR SERVICES

The fastest-growing part of the Indian economy is the service sector. The
same skills, techniques, and strategies used to manage inventory can be
used to manage service inventory.
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Service Industries’ Distribution Opportunities
• Service distribution means getting the right service and the right people and
the right information to the right place at the right time.
• Production and consumption are simultaneous

• Service distribution attempts to minimize wait times, manage service
capacity, and improve delivery through new distribution channels
• The Internet is fast becoming an alternative channel through which to

deliver services
12.28 KEY TERMS

Logistics: the transporting, storing, and handling of goods to match target
customers’ needs with a firm’s marketing mix—both within individual firms
and along a channel of distribution (i.e., another name for physical
distribution).
Physical distribution (physical distribution): the transporting, storing, and
handling of goods to match target customers’ needs with a firm’s marketing
mix—both within individual firms and along a channel of distribution.
Customer service level: how rapidly and dependably a firm can deliver
what customers want.
Physical distribution (physical distribution) concept: all transporting,
storing, and product handling activities of a business and a whole channel
system should be coordinated as one system which seeks to minimize the
cost of distribution for a given customer service level.
Total cost approach: evaluating each possible physical distribution system
and identifying all of the costs of each alternative.
Chain of supply: the complete set of firms and facilities and logistics
activities that are involved in procuring materials, transforming them into
intermediate and finished products, and distributing them to customers.
Electronic data interchange (EDI): an approach that puts information in a
standardized format easily shared between different computer systems.
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Transporting: the marketing function of moving goods.

Containerization: grouping individual items into an economical shipping
quantity and sealing them in protective containers for transit to the final
destination.
Piggyback service: loading truck trailers or flat-bed trailers carrying
containers on railcars to provide both speed and flexibility.
Freight forwarders: transportation wholesalers who combine the small
shipments of many shippers into more economical shipping quantities.
Storing: the marketing function of holding goods.
Inventory: the amount of goods being stored.
Private warehouses: storing facilities owned or leased by companies for
their own use.
Public warehouses: independent storing facilities.
Distribution center: a special kind of warehouse designed to speed the flow
of goods and avoid unnecessary storing costs.
Channel of distribution: any series of firms or individuals who participate in
the flow of products from producer to final user or consumer.
Direct marketing: direct communication between a seller and an individual
customer using a promotion method other than face-to-face personal selling.
Discrepancy of quantity: the difference between the quantity of products it
is economical for a producer to make and the quantity final users or
consumers normally want.
Discrepancy of assortment: the difference between the lines a typical
producer makes and the assortment final consumers or users want.
Regrouping activities: adjusting the quantities and/or assortments of
products handled at each level in a channel of distribution.
Accumulating: collecting products from many small producers.
Bulk breaking: dividing larger quantities into smaller quantities as products
get closer to the final market.
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Sorting: separating products into grades and qualities desired by different

target markets.
Assorting: putting together a variety of products to give a target market what
it wants.
Traditional channel systems: a channel in which the various channel
members make little or no effort to cooperate with each other.
Channel captain: a manager who helps direct the activities of a whole
channel and tries to avoid or solve channel conflicts.
Vertical marketing systems: channel systems in which the whole channel
focuses on the same target market at the end of the channel.
Corporate channel systems: corporate ownership all along the channel.
Vertical integration: acquiring firms at different levels of channel activity.
Administered channel systems: various channel members informally
agree to cooperate with each other.
Contractual channel systems: various channel members agree by contract
to cooperate with each other.
Ideal market exposure: when a product is available widely enough to satisfy
target customers’ needs but not exceed them.
Intensive distribution: selling a product through all responsible and suitable
wholesalers or retailers who will stock and/or sell the product.
Selective distribution: selling through only those middlemen who will give
the product special attention.
Exclusive distribution: selling through only one middleman in a particular
geographic area.
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12.29 SUMMARY
Place is a term for distribution part of marketing mix that deals with making
goods and services available in the right quantities and locations when
customers want them. A channel of distribution refers to any series of firms
or individuals who participate in the flow of materials from
Producer, to final user or consumer. These firms are known as channel
members and the flow is called the supply chain.
Channel members offer specialization and division of labour. They provide
goods in the size, configuration, timeliness and accessibility to consumers
which producers are not equipped to provide. Channel members offer
transactional functions in the form of contacts, promotion, negotiation and
risk taking. They offer logistical functions by physically distributing, sorting
and storing goods. They carry facilitation functions of research and financing.
Channel strategy is considered by review of Market, Product and Producer
factors as well as whether distribution is intensive, selective or exclusive.
Channel relationships have social dimensions of Power, Control, Leadership,
Conflict and Partnering.
Supply chain management coordinates and integrates all of the activities
performed by supply chain members into a seamless process, from the
source to the point of consumption. Logistical information system integrates
and links all of the components of the supply chain.
Use of computer technology, outsourcing and electronic distribution are
innovative trends visible in supply chain management.

1. Who are market intermediaries? What is their role in Marketing?
2. Which are three important functions fulfilled by Supply channels?
3. Describe issues that influence channel strategy.
4. What do you understand by channel partnering?
5. What is supply chain management? What are new trends in supply chain
management
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
305
13
Personal Selling and Sales
Management
Objectives
• The Role of Personal Selling.
• Steps in Personal Selling.
• Sales Management.
• Publicity versus Public Relations.
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Personal Selling and Sales Management
Structure:
13.1 Personal Selling
13.2 Relationship Selling
13.3 Basic Sales Tasks
13.4 Steps in Selling Process
13.5 Sales Management
13.6 Impact of Technology on Personal Selling
13.7 Public Relations
13.8 Key Terms
13.9 Summary
13.10 Self Assessment Terms
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13.1 PERSONAL SELLING

Personal selling is direct communication between a sales representative and
one or more prospective purchasers, for the purpose of making a sale. This
can be accomplished through a face-to-face, personal sales call or over the
telephone, called telemarketing.
The importance and role of Personal selling
• Personal selling requires strategy decisions

• Personal selling is important
• Helping to buy is good selling
• Salespeople represent the whole company—and customers too
• Sales force aids in market information function as well
• Salespeople can be strategy planners too
Advantages of Personal Selling
• Personal selling can be used to provide a detailed explanation or

demonstration of the product.
• The message can be varied by the salesperson to fit the motivations and
interests of each prospective customer.
• Personal selling can be directed to specific qualified prospects.

• Personal selling costs can be controlled by adjusting the size of the sales
force.
• Personal selling is most effective in obtaining a sale and gaining a satisfied

customer.
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Certain customer and product characteristics indicate that personal selling

might work better than other forms of promotion. In general, personal selling
is more important if the product has a high value, the product is custom-
made, the product is technically complex, there are few customers, and
customers are concentrated.
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13.2 RELATIONSHIP SELLING
• Traditional selling, on the other hand, is transaction-focused. That is, the

salesperson is most concerned with making one-time sales and moving on
to the next prospect.
• Relationship selling, or consultive selling, is a multi-stage process that

emphasizes personalization and empathy as key ingredients in identifying
prospects and developing them as long-term, satisfied customers.
Salespeople practicing relationship selling spend more time understanding a
prospect’s needs and developing solutions to meet those needs.
13.3 BASIC SALES TASKS

Order getting, order taking, and supporting.
Order getters develop new business relationships
Order getters—salespeople concerned with establishing relationships with
new customers and developing new business.
Order getting—seeking possible buyers with a well-organized sales
presentation designed to sell a good, service, or idea.
• Producers’ order getters—find new opportunities
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• Wholesalers’ order getters—almost hand it to the customer

• Retail order getters influence consumer behavior
Sales job may involve

a blend of sales tasks
Order takers nurture relationships to keep the business coming.

Order takers—salespeople who sell to the regular or established customers,
complete most transactions, and maintain relationships with their customers.
Order taking—the routine completion of sales made regularly to the target
customers.
• Producers’ order takers—train, explain, and collaborate

• Wholesalers’ order takers—not getting orders but keeping them
• Retail order takers—often they are poor salesclerks
Supporting sales force informs and promotes in the channel
Supporting sales people—salespeople who help the order-oriented
salespeople—but don’t try to get orders themselves.
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Missionary sales people—supporting salespeople who work for producers

by calling on their middlemen and their customers.
• Missionary salespeople can increase sales
Technical specialists—supporting salespeople who provide technical
assistance to order oriented salespeople.
• Technical specialists are experts who know product applications

Team selling —different sales reps working together on a specific account.
• Three tasks may have to be blended
13.4 STEPS IN THE SELLING PROCESS

The sales process or sales cycle is the set of steps a salesperson goes
through to sell a particular product or service.The steps of selling follow the
AIDA concept. Traditional selling and relationship selling follow the same
basic steps. The difference is the relative importance placed on key steps.
Generating Leads
• Lead generation, or prospecting, is the identification of those firms and

people most likely to buy the seller’s offerings.
• Sales leads come from advertising and other media, favorable publicity,
direct mail and telemarketing, cold calling, Internet Web sites, client
referrals, salesperson networking, trade shows and conventions, and
internal company records.
a. A referral is a recommendation from a customer or business
associate.
b. Networking is finding out about potential clients from friends,
business contacts, coworkers, acquaintances, and fellow members in
professional and civic organizations.
c. Cold calling occurs when the salesperson approaches potential
buyers without any prior knowledge of the prospects’ needs or
financial status.
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Qualifying Leads
The next step is lead qualification, which determines the prospects who
have: a recognized need, buying power (ability and authority to purchase),
receptivity and accessibility
• Often the task of lead qualification is handled by a telemarketing group or a

sales support person who pre-qualifies the lead for the salespe
• With more and more companies setting up web sites on the Internet,
qualifying online leads has also received some attention.
Approaching the Customer and Probing Needs
• Prior to approaching the customer, the salesperson should learn as much

as possible about the prospects’ organization and its buyers. This process
is called the preapproach.
• During the approach, the salesperson’s ultimate goal is to conduct a needs

assessment in which he finds out as much as possible about the
prospects’ situation.
Creating a customer profile during the approach helps salespeople optimize
their time and resources.
Developing and Proposing Solutions
A sales proposal is a written document or professional presentation that
outlines how the company’s product or service will meet or exceed the
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client’s needs. The sales presentation is the face-to-face explanation of a

product’s benefits to a prospective buyer; it is the heart of the selling
process.
• The quality of both the sales proposal and presentation can make or break
the sale.
• The selling presentation can be enhanced by allowing customers to touch

or hold the product, using visual aids, and emphasizing important selling
points of the product.
• Technology has become an important part to presenting solutions.

Handling Objections
Objections should be viewed positively as a request or need for more
information. Anticipating objections is the best way to prepare for them.
Objections can be psychological (resistance to change, apathy, dislike
of salesperson, and dislike for making decisions) or logical (price,
delivery schedule, and product or company characteristics).
Closing the Sale
• At the end of the presentation, the salesperson attempts to close the sale.
This requires skill and courage on the part of the salesperson.
• Negotiation often plays a key role in the closing of the sale. The
salesperson offers special concessions at the end of the selling process
and uses it in closing the sale. Examples include price cuts, free
installation, free service, or trials.
The secret to closing is to recognize what fits this customer and situation.
• Accepted closing techniques may differ greatly from country to country.

• Rarely is a sale closed on the first call.
Following Up
Most businesses rely on repeat sales, and repeat sales depend on thorough
follow-up. Salespeople must ensure that:
• Delivery schedules are met.
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• Goods or services perform as promised.

• The buyer’s employees are properly trained to use the products.
Many salespeople use relationship management, which emphasizes is
on developing and maintaining close ties and communication between
companies. In relationship management, firms operate with a “partner”
attitude.
13.5 SALES MANAGEMENT

Sales management is one of marketing’s most critical areas. It has several
important functions.
Defining Sales Objectives and the Sales Process
• Sales goals should be clear, precise, measurable and time specific.

• Overall sales force objectives are usually stated in terms of desired rupee
sales volume, market share, or profit level.
• Individual salespeople are also assigned objectives in terms of quotas. A

quota is simply a statement of sales objectives, usually based on sales
volume but sometimes including key accounts, new accounts, and specific
products
A sales manager needs to formally define the specific procedures
salespeople go through to do their jobs, examine the sales process in their
business.
Determining the Sales Force Structure
• Sales departments are most commonly organized by geographic regions by

product lines, by marketing function performed, by market or industry, or by
individual client or account.
• Market or industry based structure and key account structures are gaining
in popularity with today’s emphasis on relationship selling.
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Recruiting and Training the Sales Force
• Sales force recruitment should be based on an accurate, detailed

description of the sales task as defined by the sales manager.
• Important traits of top performers are ego strength, a sense of urgency and
competitiveness, desire to close the sale, assertiveness, willingness to take
risks, creativity, and empathy.
• Training includes company policies, product knowledge, selling techniques,

and nonselling activities
• Training is an ongoing process.

Compensating and Motivating the Salesforce
• Compensation planning is one of the sales manager’s toughest jobs.

a. The straight commission system provides salespeople with a specified
percentage of their sales revenue as income. No compensation is received
until a sale is made. This system encourages salespeople to spend as much
time as possible selling and may make them reluctant to perform nonselling
activities.
Automobile salespeople are usually compensated with a commission-
only system.
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b. The straight salary system compensates salespeople with a stated salary

regardless of sales productivity. It may provide little incentive to produce
but is useful in sales situations that require spending a great deal of time
on prospecting, doing paperwork, training customers, and performing
other nonselling tasks.
c. Combination systems offer a base salary plus an incentive, usually a
bonus based on sales. This system provides selling incentives while
allowing managers to control the activities of their sales forces.
Combination systems are the most popular compensation method with
both salespeople and their companies
d. Sales incentives: recognition at ceremonies, premiums, awards,
merchandise, vacations, and cash bonuses are often used to motivate
salespersons
An effective sales manager inspires his or her salespeople to achieve their
goals through clear and enthusiastic communications
Evaluation of salesman
Evaluating the sales force requires regular feedback. Typical performance
measures include sales volume, contribution to profit, calls per order, sales
or profits per call or percentage of calls achieving specific goals.
Activity A
Draft a 'Sales Person Appraisal Form' that can be filled by managers for
appraisal of his staff at the time of determining annual performance bonus.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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13.6 IMPACT OF TECHNOLOGY ON PERSONAL SELLING
• Automation emphasizes speed and accessibility via laptop computers,

mobile phones, pagers, personal data assistants and emailE-business,
using the Internet, is being used for gaining information regarding products,
pricing, availability, and order status
13.7 PUBLIC RELATIONS

Public relations evaluates public attitudes, identifies issues that may elicit
public concern, and executes programs to gain public understanding and
acceptance.
Publicity is the effort to capture media attention
Public relations is a component of the promotional mix. A company fosters
good publicity to enhance its image and promote its products. An equally
important aspect of public relations is crisis management, or managing bad
publicity in a way that is least detrimental to a firm’s image.
With press relations, firms typically try to place information that has some
news value into the news media. As with all public relations tools, however,
the firm cannot dictate what the resulting publicity will be (that’s illegal) but
can only hope to influence publicity. Corporate communication may be
internal or external, depending on the public targeted. Lobbying means
dealing specifically with legislators and other government officials to
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influence regulations or legislation that can affect the firm. Counseling is a

proactive tool to position the firm on public issues.
Public relations campaigns strive to achieve and maintain a corporation’s

positive image in the eyes of the public.
• The first task of public relations management is to set objectives that fit with
the corporation’s overall marketing program.
• Public relations tools include press relations, product publicity, corporate

communication (internal and external), public affairs,lobbying, employee
and investor relations, and crisis management.
Major Public Relations Tools
• New Product Publicity 

Public relations can help differentiate new products by creating free news
stories about the product and its uses, garnering valuable exposure.
• Product Placement
Marketers can garner publicity by making sure their products appear at
special events or in movies and on television shows.
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13.8 KEY TERMS

Basic sales tasks: Order-getting, order-taking, and supporting.
Order getters: salespeople concerned with establishing relationships with
new customers and developing new business
Order-getting: seeking possible buyers with a well-organized sales
presentation designed to sell a good, service, or idea.
Order takers: salespeople who sell to the regular or established customers,
complete most transactions, and maintain relationships with their customers.
Order-taking: the routine completion of sales made regularly to the target
customers.
Supporting salespeople: salespeople who help the order-oriented
salespeople—but don’t try to get orders themselves.
Missionary salespeople: supporting salespeople who work for producers by
calling on their middlemen and their customers
Technical specialists: supporting salespeople who provide technical
assistance to order oriented salespeople.
Team selling: different sales reps working together on a specific account.
Major accounts sales force: salespeople who sell directly to large accounts
such as major retail chain stores.
Telemarketing: using the telephone to “call” on customers or prospects
Sales territory: a geographic area that is the responsibility of one
salesperson or several working together
Job description: a written statement of what a salesperson is expected to
do.
Sales quota: the specific sales or profit objective a salesperson is expected
to achieve.
Prospecting: following all the leads in the target market to identify potential
customers.
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Sales presentation: a salesperson’s effort to make a sale or address a

customer’s problem.
Consultative selling approach: a type of sales presentation in which the
salesperson develops a good understanding of the individual customer’s
needs before trying to close the sale.
Selling formula approach: a sales presentation that starts with a prepared
presentation outline—much like the prepared approach—and leads the
customer through some logical steps to a final close.
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13.9 SUMMARY
Personal selling is direct communication between a sales representative and
one or more prospective purchasers, for the purpose of making a sale.
Detailed explanation about the product including demonstration is provided
in personal selling. It can fit requirements of specific customer and message
can be tailored to prospects. Therefore, it can result in a sale and satisfied
customer. Its costs are controllable as sales staff can be varied.
Basic steps in the personal selling process are Generate leads, Qualify
leads, Probe customer needs, Develop solutions, Handle objections, Close
the sale and Follow up.
Sales Management involves defining sales goals and process, determination
of sales force structure, recruitment and training, compensating and
motivating the force and its evaluation.
Public relations evaluate public attitudes, identifies issues that may elicit
public concern and executes programs to gain public understanding and
acceptance. It strives to achieve and maintain a company's positive image. It
plays a crucial role in crisis management.
Publicity is the effort to catch media attention.

1. Define personal selling. Why does it result in a sale?
2. List and describe steps in the selling process.
3. What functions are included in sales management?
4. In what way relationship selling is superior to traditional selling?
5. What do you understand by public relations?
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
323
14
Pricing Decisions
Objectives
• Pricing Decisions.
• Pricing Determinants.
• Pricing Objectives.
• Pricing Methods.
324
Pricing Decisions
Structure:
14.1 Introduction
14.2 What is Price?
14.3 Role of Pricing in Marketing Mix
14.4 The importance of Price to marketing Managers
14.5 Pricing Decision within the Company
14.6 Factors affecting Pricing Decisions
14.7 The Demand Determinant of Price
14.8 The Cost Determinant of Price
14.9 Other Price Determinants
14.10 The Competition
14.11 Distribution Strategy
14.12 Promotion Strategy
14.13 Demands of Large Customers
14.14 Relationship of Price to Quality
14.15 Pricing Limits
14.16 Pricing Objectives
14.17 Profit Oriented Pricing Objectives
14.18 Sales Oriented Pricing Objectives
14.19 Status quo Pricing Objectives
14.20 Pricing Policy
14.21 Pricing Methods
14.22 Demand Oriented Pricing Approaches
14.23 Price Setting
14.24 Key Terms
14.25 Summary
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Pricing Decisions
14.1 INTRODUCTION
Price has become one of the more important marketing variables. Despite
the increased role of non price factors in the modern marketing process,
price is a critical marketing element, especially in markets characterized by
monopolistic competition or oligopoly. Competition and buyers that are more
sophisticated has forced many retailers to lower prices and in turn place
pressure on manufacturers. Further, there has been increasing buyer
awareness of costs and pricing, and growing competition within the
channels, which in turn provides the consumer with even more awareness of
the pricing process.
14.2 WHAT IS PRICE?
• Price is that which is given in an exchange to acquire a good or service.

• Price—the amount of money that is charged for “something” of value.
• Prices are the key to company revenues.
• Price is related to the perceived value at the time of the transaction and is
based on the amount of expected satisfaction to be received from the good
or service, not the actual satisfaction.
14.3 ROLE OF PRICING IN MARKETING MIX
• While Product, Price, Personal selling, Promotion and Distribution all

contribute towards sales volume, It is only Price which determines Profit
for the product.
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Pricing Decisions
• Pricing is the most visible variable to the customer and is often considered
by them as the most flexible variable for the marketers
Price has many strategy dimensions
14.4 THE IMPORTANCE OF PRICE TO MARKETING MANAGERS
• Prices charged to customers multiplied by the number of units sold equals

revenue for the firm. Revenue pays for every activity of the firm. Whatever
is left over after paying for company activities is profit.
All the other elements in the marketing mix represent costs; price represents
revenues.
• If a price is too high in the minds of consumers, sales will be lost. If a price
is too low, revenues may not meet the company’s goals for return on
investment.
• Trying to set the right price can be one of the most stressful and pressure-
filled tasks for a marketing manager.
a. The high rate of new product introductions leads buyers to continually
reevaluate the price of a new item against the value of existing
products.
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Pricing Decisions
b. The increased availability of bargain-priced dealer and generic brands

puts overall downward pressure on prices.
c. Many firms with a large market share try to maintain or regain share
by cutting prices when competition heats up.
• In the business-to-business market, buyers are becoming more efficient

and better informed.
Pricing can and does help a company attain its other marketing objectives.
As a result, pricing strategy should be tied closely and carefully to the overall
business, competitive and marketing strategy. Further, the pricing program
should be supported with a focused plan of implementation. Pricing enables
the marketer to segment markets, define products, create customer
incentives, and even send signals to competitors.
Many marketing professionals argue that pricing is a valuable strategic
weapon that helps companies enhance and capitalize on competitive
vulnerability, and there is no question that pricing decisions have an
immediate impact on a company’s bottom line. From this perspective, it is
easy to argue that to a large degree, pricing decisions can determine
whether a product or a company will succeed or fail.
14.5 PRICING DECISION WITHIN THE COMPANY

Major controversy in every company is always the starting point for setting
prices. The role of pricing as perceived within the company varies from
function to function.
• To finance it is always financial parameters such as ROI , ROS etc.

• To production capacity utilization is a major parameter.
• To marketing competition and capacity of customers to pay are the major
criteria.
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Pricing Decisions
14.6 FACTORS AFFECTING PRICING DECISIONS (4 C’S OF PRICING)
• Customers - demand situations

• Company -cost / marketing objectives
• Channels
• Competition
14.7 THE DEMAND DETERMINANT OF PRICE

The Nature of Demand
Demand is the quantity of a product that will be sold in the market at various
prices for a specified period. Ordinarily, the quantity demanded increases as
the price decreases and decreases as the price increases.
• The demand curve graphs the demand for a product at various prices. The
line usually curves down and to the right
• The demand schedule is a chart that shows quantity demanded at selected

prices.
• Supply is the quantity of product that will be offered to the market by

suppliers at various prices for a specified period. This is represented by the
supply curve.
• Competitive market prices are determined by a combination of supply and

demand. The supply schedule shows the amount of product suppliers will
produce at different prices.
• When supply and demand are equal, a state called equilibrium is

achieved. At equilibrium there is no inclination for prices to rise or fall.
Elasticity of Demand
Elasticity of demand refers to consumers’ responsiveness or sensitivity to
changes in price. Elastic demand occurs when consumers are sensitive to
price changes, whereas inelastic demand means that an increase or
decrease in price will not significantly affect demand for a product
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Pricing Decisions
Elasticity of demand is defined as the percentage change in quantity

demanded of a product divided by the percentage change in the price
of that product. Elasticity measures consumer sensitivity to changes in
price.
• If price goes down and revenue goes up, demand is elastic

When the price of presweetened cereals went down 10 percent the quantity
demanded increased about 15 percent, leading to an overall rise in revenue.
• If price goes down and revenue goes down, demand is inelastic.

• If price goes up and revenue goes up, demand is inelastic.
Beer and wine prices tend to be price inelastic. Demand stays
approximately the same even with small increases or decreases in
price. Factors other than price seem to affect alcohol demand. It has
typically been referred to as a recession-proof product.
• If price goes up and revenue goes down, demand is elastic.

When steel producers announced an 8 percent price increase, they saw
sales drop by an even larger percent.
• If price goes up or down and revenue remains the same, the demand
elasticity is unitary.
A marketing manager needs to know whether a product has elastic or
inelastic demand to estimate the effect of a price change on sales.
The travel and tourism industry is price elastic. Price decreases are greeted
with large jumps in sales for products such as airline tickets.
Unitary elasticity means an increase in sales exactly offsets a decrease in
price so that total revenue remains the same.
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Pricing Decisions
Factors affecting elasticity
• The availability of substitute goods and services

A rise in prices often drives the market to find or develop substitutes if none
exist. As the price of steel rose, many manufacturing plants experimented
with using other metals and plastics.
• The price relative to a consumer’s purchasing power

• Product durability
• The existence of other product uses
The existence of any of these factors makes a product elastic.
14.8 THE COST DETERMINANT OF PRICE

Some companies price their products largely or solely on the basis of costs.
This method can lead to overpricing and lost sales or to under pricing and
lower returns on sales than necessary.
Costs usually serve as a floor below which a good must not be priced.
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Pricing Decisions
Types of Costs
• Variable costs are those that vary with changes in the level of output, for
example, the cost of materials.
Labor, raw materials, utilities, and maintenance are examples.
• Fixed costs, such as rent and executive salaries, do not change as output
is increased or decreased.
Rent, executive salaries, insurance for the building, vehicles, and
computer leases are examples.
It is helpful to calculate costs per unit or average costs. Average variable
cost (AVC) is total variable costs divided by quantity of output. Average
total cost (ATC) is total costs divided by output.
• Marginal cost is the change in total costs associated with a one-unit

change in output.
All these costs have a definite relationship and can be represented by curves
on a cost-quantity graph
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Pricing Decisions
14.9 OTHER PRICE DETERMINANTS
Activity A
Your Finance Manager calculates costs accurately and with commitment to
propose sale price. Write a letter to her on necessity of considering more
factors before price decision can be taken. Forward a copy to your MD.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Stages in the Product’s Life Cycle

As the product moves through its life cycle, the demand for the product and
the competitive conditions usually change, affecting price.
• Prices are usually high during the introductory stage to recover

development costs and take advantage of high demand originating in the
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Pricing Decisions
core of the market. Setting prices high during the introduction stage is the
strategy of price skimming
Good examples of prices set higher during introduction include electronics
such as mobile phones, microwave ovens, personal computers, and
calculators.
• Prices generally begin to lower and stabilize as the product enters the
growth stage and competitors enter the market. Economies of scale lead
to lower prices.
• The maturity stage brings further price decreases, because competition is

strong and weaker firms have been eliminated.
• The decline stage may bring even more price decreases as firms attempt
to salvage the last vestiges of demand. But when only one firm is left in the
market, the prices may actually rise again as the product becomes a
specialty good.
14.10 THE COMPETITION
• High selling prices can attract other firms to enter a profitable market,
usually at a slightly lower price.
• When a firm enters a market, it has to decide whether to price at, below, or
above market prices.
a. A firm can price its product below the market price to gain quick
market share.
b. The new competitor can price above the market price if it has a
distinct competitive advantage.
c. The new competitor may choose to enter a market at the “going
market price” and avoid crippling price wars, assuming it will succeed
through non-price competition.
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Pricing Decisions
14.11 DISTRIBUTION STRATEGY
• Adequate distribution depends on convincing distributors to carry the

product. This can be accomplished by:
a. Offering a larger-than-usual profit margin
b. Giving dealers a large trade allowance
• Manufacturers have been losing control of the distribution channel to

wholesalers and retailers. Some distributors engage in selling against the
brand where well-known brands are priced higher than the distributor’s
own private-label brand.
• Purchasing goods through unauthorized channels allows wholesalers and

retailers to obtain higher-than-normal margins.
• Manufacturers try to maintain price control by using:

a. Exclusive channels
b. Pre-priced packaging
Convenience stores price their goods 20 to 50 percent higher than traditional
grocery stores do.
14.12 PROMOTION STRATEGY
• Price is often used as a promotional tool. Sales and coupons can increase
consumer interest.
• Pricing can be a tool for trade promotions
14.13 DEMANDS OF LARGE CUSTOMERS

Large customers of manufacturers often make specific pricing demands.
• Guaranteed profit margins

• Ticketing, packing, and shipping requirements
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Pricing Decisions
14.14 RELATIONSHIP OF PRICE TO QUALITY

• Consumers tend to rely on a high price as a predictor of good quality when
they have great uncertainty about the purchase decision. This reliance on
price as an indicator of quality seems to exist for all products, but exists
more strongly for some items than for others.
• Marketing managers can use high prices to enhance the image of their
product in some cases. This is a prestige pricing strategy.
• Consumers expect dealer or store brands to be cheaper than national

brands. But if the savings are too great, consumers tend to believe that the
dealer brand is inferior in quality.
14.15 PRICING LIMITS

One of the first things a pricing strategy process can determine is that there
is an upper and lower price boundary, and each has to be considered. The
upper boundary, the economic value of the product, is the most an informed
consumer is willing to pay for the product. Marketers determine this
boundary by comparing the product with a reference product, and asking
what attributes the product has that are above, or below, the value of the
product offered by the competitors. Clearly, if a product is below the value of
the competition, it is almost impossible to set the price higher than the
competitive price.
Next, the marketer should identify the best available alternative product for
the most important customer market or segment. The marketer could ask:
“Other than the obvious benefit, what additional benefits does this product
provide?” Many times the benefit is labor savings or additional productivity.
Other times there could be emotional benefits, or some other intangible
benefit.
Once the list of benefits is completed, it is time to assign a value to each
benefit. Some benefits are quantifiable directly, such as labor savings. The
analyst can calculate the number of hours saved times the wage rate. If
there is another specific benefit, the firm may try to determine the value. For
example, the marketer may analyze possible substitute products to
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Pricing Decisions
determine if there are other benefits that related products might have that
eventually prove important in the competitive process. It is appropriate to
make an effort to determine the approximate value of each such benefit to
determine when prices should be adjusted.
Another technique that can be useful in determining the upper boundary of a
particular product’s price is a conjoint study, or survey, of various customers.
With this approach, prospects are invited to select from a series of pricing
options for the product. In the survey, the researcher attempts to determine
the value of the product’s particular attributes. Once the firm has obtained
this data, it has identified the upper boundary of the product’s potential price.
It is critical to approach the process from the customer perspective,
separating what the company thinks is the economic value and the
customer’s perceived economic value. Unfortunately, some companies care
so much about the product that they consider every benefit at the high end.
The result is that the survey research has to determine whether people will
believe what the company believes concerning price and value.
14.16 PRICING OBJECTIVES

Objectives should guide strategy planning for price. Companies set pricing
objectives that are specific, attainable, and measurable. These goals require
periodic monitoring to determine the effectiveness of the strategy.
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Pricing Decisions
14.17 PROFIT-ORIENTED PRICING OBJECTIVES
• Profit maximization means setting prices so total revenue is as large as

possible relative to total costs for a given item. Competitors’ prices and the
product’s perceived value mediate profit-oriented pricing.
• Another goal of profit-oriented pricing is satisfactory profits, a

reasonable level of profits that is satisfactory to stockholders and
management.
• The most common of the profit objectives is target return on investment

(ROI) sometimes called the firm’s return on total assets. ROI measures the
effectiveness of management in generating profits with its available assets.
14.18 SALES-ORIENTED PRICING OBJECTIVES

The sales-oriented pricing objectives, market share and sales maximization,
both depend on actual sales of the product, rather than on the firm’s overall
cost structures or production efficiencies. Although these objectives may be
measured in either dollar sales or unit sales, measurement in terms of
revenues is most common.
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Pricing Decisions
• Market share refers to a company’s product sales as a percentage of total

sales for that industry. Market share can be expressed in dollars of sales or
units of product. Comparisons vary depending on the terms used.
• Rather than strive for market share, some companies try to maximize dollar
or unit sales. A firm may use this strategy in an attempt to generate a
maximum amount of cash in the short run or to sell off excess inventory, but
this strategy may produce little or no profit.
Market-share goals may also apply to a small segment of an industry. BMW
has a very small share of the automobile market but has the goal of being
the number-one luxury import in India (in units).
14.19 STATUS QUO PRICING OBJECTIVES

Status quo pricing seeks to maintain existing prices or simply to meet the
competition. This strategy requires little planning other than monitoring
competitors’ prices.
Retailers such as Shoppers stop and Pantaloon constantly send
“mystery shoppers” to prowl one another’s aisles, checking prices to
avoid being undersold.
14.20 PRICING POLICY

Most firms set specific pricing policies to reach objectives.
• Flexibility: Policies should explain how flexible the company would be

toward altering the price.
• Level over the product life cycle. Price policies across the product life
cycle must be developed.
• Use of discounts and allowances. Where, when, and to whom discounts

and allowances are to be offered must be decided.
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Pricing Decisions
14.21 PRICING METHODS

Cost oriented pricing
Markup pricing
Markup percent—the percentage of selling price that is added to the
cost to get the selling price.
• Markups guide pricing by middlemen.

• Markup percent is based on selling price—a convenient rule.
• Markups are related to gross margins.
• Markup chain may be used in channel pricing
Keystoning
Practice of marking up prices by 100% or doubling the cost
Profit Maximization
A method of setting prices that occurs when marginal revenue equals
marginal cost. Marginal revenue is the extra revenue associated with selling
an extra unit of output, or the change in total revenue with a one-unit change
in output. Marginal Cost is the change in total cost that results from
producing one more unit.
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Pricing Decisions
Break even pricing

Break-even analysis can evaluate possible prices. This is an approach to
determine whether the firm will be able to break-even i.e., cover all its costs
with a particular price.
Break- even point is the sales quantity where the total cost will just equal its
total revenue.
• BEP can be stated in rupees too

• Each possible price has its own break-even poin
• A target profit can be included
• Break-even analysis shows the effect of cutting cost
• Break-even analysis is helpful—but not a pricing solution
Target return pricing
Target return pricing focuses on a pricing to cover all costs and achieve a
target return. Some firms add a target return to cost.
• Target return pricing scores sometimes

• Hitting the target in the long run
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Pricing Decisions
12.22 DEMAND ORIENTED PRICING APPROACHES

One of the realistic approach for setting prices is based on demand largely
driven by customers.
Evaluating the customer’s price sensitivity
• Are there substitute ways of meeting a need?

• Is it easy to compare prices?
• Who pays the bill?
• How great is the total expenditure?
• How significant is the end benefit?
• Is there already a sunk investment related to the purchase?
Value in use pricing
Value in pricing focuses on how much will the customer save. This means
setting prices that will capture some of what customers will save by
substituting the firm’s product for the one currently being used.
Example: A construction firm that buys a new, more efficient bulldozer at a
higher price might still save money on:
• Labor (operator) expenses

• “Down-time” for repairs
• Fuel consumption
• Maintenance costs
Reference prices
Reference prices are the price the consumer expects to pay and customers
may have reference prices.
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Pricing Decisions
Bait pricing
Bait pricing, a deceptive and illegal practice, tries to get customers into a
store through false or misleading price advertising and then uses high-
pressure sales tactics to persuade customers to buy more expensive
merchandise. In short bait pricing – offer a steal, but sell under protest
e.g. Baron electronics while launching Akai TV offered their TV with Rs.
9950/- but with hidden costs of Rs.2500/- towards freight and handling
charges revealed to customers at the time of purchase.
Auctions
Auctions are coming online fast e.g. airlines tickets on times.com
Leader pricing
Leader pricing (or loss-leader pricing) is an attempt to attract customers
by selling a product near cost or even below cost, hoping customers will buy
other products while in the store.
Leader pricing is very common with featured items in grocery stores. Leader
pricing objective is to make it low to attract customers. In many cases they
set some low prices – real bargains, to get customers in to retail stores e.g.
Dollar stores
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Pricing Decisions
Psychological pricing
Psychological pricing means setting prices that have special appeal to target
customers. - Some prices just seem right.
• Price lining is the practice of offering a product line with several items
placed in the line at specific price points. This series of prices for a type of
merchandise creates a price line. e.g. HLL offers range of toilet soaps and
laundry detergents at various price points
• Odd-Even Pricing—setting prices that end in certain numbers. e.g. Bata

pricing. Odd-even pricing means using odd-numbered prices to denote
bargains and even-numbered prices to imply quality.
Prestige pricing
Prestige pricing is setting a rather high price to suggest high quality or high
status.
Pricing a full line
Full line pricing—setting prices for a whole line of products.
• Full-line pricing—market- or firm-oriented?

• Costs are complicated in full-line pricing
• Complementary product pricing - setting prices on several related products
as a group.
• Product-bundle pricing—one price for several products

Bid pricing
Bid pricing—offering a specific price for each possible job rather than setting
a price that applies for all customers.
Negotiated pricing
Negotiated price —a price that is set based on bargaining between the buyer
and seller.
Negotiated prices heavily depend on what will a specific customer pay?
Bid pricing and negotiated pricing depend heavily on costs.
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Pricing Decisions
• A new price for every job

• Ethical issues in cost-plus bid pricing
• Demand must be considered too
• Sometimes bids are negotiated
Demand backward pricing
Demand backward pricing-setting an acceptable final consumer price and
working backward to what a producer can charge.
e.g. Gillette offering Gillette presto at an affordable price to customers – a
price which is acceptable to majority customers.
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Pricing Decisions
14.23 PRICE SETTING
Price setting is a key strategic decision.

Marketing professionals have tended to ignore pricing theories and concepts,
and in the past they did not even consider it as an equal part of the
marketing equation. Accordingly, pricing and the impact of price have been
studied very little, but clearly it is and should be one of the more important
aspects of the marketing process. To most contemporary marketing
professionals, pricing is a final and very important marketing strategy focal
point. Without an effective pricing analysis and price decision, the rest of the
marketing process is left unfinished.
Establish Pricing Goals
The first step in setting a price is to establish pricing goals, which may be
profit-oriented, sales-oriented, or status quo. These goals are derived from
the firm’s overall objectives.
Estimate Demand, Costs, and Profits
• After establishing pricing goals, managers should estimate revenues at a

variety of prices.
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Pricing Decisions
• Next, corresponding costs should be determined and profit estimated. This

information can help determine which price can best meet the firm’s pricing
goals.
Choose a Price Strategy
A price strategy defines the initial price and gives direction for price
movements over the product life cycle. It is a basic long-term pricing
framework which establishes the initial price for a product and the intended
direction for price movements over the product life cycle.The price policy is
set for a specific market segment, based on a well-defined positioning
strategy.
The price must fit the overall marketing strategy and image.
The degree of freedom a company has in setting a price strategy

depends on market conditions and other elements of the marketing
mix. Three basic policies for setting a price on a new good or service
are price skimming, penetration pricing, and status quo pricing.
• Price skimming is a pricing policy whereby a firm charges a high

introductory price, often coupled with heavy promotion. As the product
progresses through its life cycle, the firm may lower the price to reach
successively larger markets.
a) Price skimming is successful when demand is relatively inelastic,
when a product is legally protected, when it represents a technological
breakthrough, or when production is limited because of technological
difficulties, shortages, or a lack of skilled craftspeople.
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Pricing Decisions
Patented prescription drugs are good candidates for price skimming.

b) A successful skimming strategy enables management to recover
product development costs quickly. And management can lower the
price if it is perceived as too high by the customers.
The original Polaroid instant camera was brought out at a skimming
price, and then, over time, lower-priced versions were introduced.
c) Services use skimming policies too.
Exclusive clubs and restaurants are examples of services that use
skimming policies
• Penetration pricing sets a relatively low price for a product as a way to

reach the mass market in the early stages of the product life cycle.
a) Penetration pricing is designed to capture a large market share,
resulting in lower production costs.
b) Effective in price sensitive markets
c) Firms with a fixed cost structure gain from increased volume
d) Firms with a large experience curve will profit from reduced per-unit
costs as volume increases 
LG is a well-known user of penetration pricing for its calculators and

small electronic devices.
e) A successful penetration pricing strategy can block entry into the
market by competitors, because they cannot gain a large enough
share of the market to be cost-effective.
• Status quo pricing means maintaining existing prices or simply meeting

the competition. Sometimes this policy can be the safest route to long-term
survival if the firm is comparatively small.
Tactics for Fine-Tuning the Base Price
• The base price is the general price level at which the company expects to
sell the good or service and is either above the market (price skimming),
below the market (price penetration), or at the market (status quo).
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Pricing Decisions
• Fine-tuning techniques are short-run approaches that do not alter the

general price level but allow the firm to adjust for competition in certain
markets, meet ever-changing government regulations, take advantage of
unique demand situations, and meet promotional and positioning goals.
• Discounts, Allowances, Rebates, and Value Pricing When buyers receive a

lower price for purchasing in multiple units or above a specified dollar
amount, they are receiving a quantity discount, the most common form of
discount.
a) A cumulative quantity discount, a deduction from list price that
applies to the buyer’s total purchases made during a specific period,
is intended to encourage customer loyalty. The amount of the discount
depends on the total amount purchased during the period, and the
discount increases as the quantity purchased increases.
b) A deduction from list price that applies to a single order is a non
cumulative quantity discount. This discount encourages larger
orders.
c) A cash discount is a price reduction offered to a consumer, industrial
user, or marketing intermediary in return for prompt payment of a bill.
It saves the seller carrying costs and billing expenses, and it reduces
the risk of bad debt.
d) A functional discount (or trade discount) is a discount to a
wholesaler or retailer for performing channel functions.
e) A seasonal discount is a price reduction for buying merchandise out
of season. It shifts the storage function forward to the purchaser. 
A promotional allowance (trade allowance) is a payment to a dealer

f) for promoting the manufacturer’s products. It is both a pricing tool and
a promotional device.
g) A rebate is a cash refund given for the purchase of a product during a
specified period. A rebate is a temporary inducement that can be
taken away without altering the basic price structure.
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Pricing Decisions
h) Price bundling is marketing two or more goods or services in a single

package for a special price. The opposite approach, unbundling,
reduces the add-ons that come with the basic product and charges for
each separately.
14.24 KEY TERMS

Price: the amount of money that is charged for “something” of value.
Target return objective: a specific level of profit as an objective.
Profit maximization objective: an objective to get as much profit as
possible.
Sales-oriented objective: an objective to get some level of unit sales, dollar
sales, or share of market—without referring to profit.
Status quo objectives: —”don’t-rock-the-pricing-boat” objectives.
Nonprime competition: aggressive action on one or more of the Ps other
than Price.
Administered prices: consciously set prices aimed at reaching the firm’s
objectives.
One-price policy: offering the same price to all customers who purchase
products under essentially the same conditions and in the same quantities.
Flexible-price policy: offering the same product and quantities to different
customers at different prices.
Skimming price policy: trying to sell the top of the market —the top of the
demand curve— at a high price before aiming at more price-sensitive
customers.
Penetration pricing policy: trying to sell the whole market at one low price.
Introductory price dealing: temporary price cuts to speed new products
into a market.
Trade (functional) discount: a list price reduction given to channel
members for the job they are going to do.
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Pricing Decisions
Sale price: a temporary discount from the list price.

Everyday low pricing: setting a low list price rather than relying on a high
list price that frequently changes with various discounts or allowances.
Allowances: reductions in price given to final consumers, customers, or
channel members for doing something or accepting less of something.
Advertising allowances: price reductions to firms in the channel to
encourage them to advertise or otherwise promote the firm’s products locally.
Stocking allowances: allowances given to middlemen to get shelf space for
a product— sometimes called slotting allowances.
Push money allowances: allowances (sometimes called “PMs” or “spiffs”)
given to retailers by manufacturers or wholesalers to pass on to the retailers’
salesclerks for aggressively selling certain items.
Trade-in allowance: a price reduction given for used products when similar
new products are bought.
Uniform delivered pricing: making an average freight charge to all buyers.
Value pricing: setting a fair price level for a marketing mix that really gives
the target market superior customer value.
Markup chain: the sequence of markups firms use at different levels in a
channel—determining the price structure in the whole channel.
Stock turn rate: the number of times the average inventory is sold in a year.
Experience curve pricing: average-cost pricing using an estimate of future
average costs.
Target return pricing: pricing to cover all costs and achieve a target return.
Break-even analysis: an approach to determine whether the firm will be
able to break even— that is, cover all its costs—with a particular price.
Break-even point (BEP): the sales quantity where the firm’s total cost will
just equal its total revenue.
Fixed-cost (FC) contribution per unit: the selling price per unit minus the
variable cost per unit.
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Pricing Decisions
Marginal analysis: evaluating the change in total revenue and total cost
from selling one more unit—to find the most profitable price and quantity.
Marginal revenue: the change in total revenue that results from the sale of
one more unit of a product.
Price leader: a seller who sets a price that all others in the industry follow.
Value in use pricing: setting prices that will capture some of what
customers will save by substituting the firm’s product for the one currently
being used.
Reference price: the price a consumer expects to pay.
Leader pricing: setting some very low prices—real bargains—to get
customers into retail stores.
Bait pricing: setting some very low prices to attract customers—but trying to
sell more expensive models or brands once the customer is in the store.
Psychological pricing: setting prices that have special appeal to target
customers.
Odd-even pricing: setting prices that end in certain numbers.
Price lining: setting a few price levels for a product line and then marking all
items at these prices.
Demand-backward pricing: setting an acceptable final consumer price and
working backward to what a producer can charge.
Prestige pricing: setting a rather high price to suggest high quality or high
status.
Full-line pricing: setting prices for a whole line of products
Complementary product pricing: setting prices on several related products
as a group.
Product-bundle pricing: setting one price for a set of products.
Bid pricing: offering a specific price for each possible job rather than setting
a price that applies for all customers.
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Pricing Decisions
Negotiated price: a price that is set based on bargaining between the buyer
and seller.
14.25 SUMMARY
Despite the increased role of non-price factors in the modern marketing
process, price is a critical marketing element. While product, Price, Personal
Selling, Promotion and Distribution all add towards sales volume, it is only
price that decides profits.
Within company, finance department wants price to satisfy parameters like
return on sales or investment, production wants it to fill their installed
capacity and to marketing it wants to overcome competition.
In addition to demand and costs, price is affected by stages of the product
life cycle, competition, distribution and promotion strategy and perceived
quality.
Price needs to be fixed between highest price at which there will be no
demand and lowest one where there will be no profits.
Objective of pricing is profit or sales orientation or to maintain a status quo
which allows to face competition.
Mark up pricing, key stoning, profit maximization, break even or target return
are methods used to set prices. The realistic approach to price setting is
based on demand largely driven by customers.
Steps in setting prices are to establish pricing goals, estimate demand, costs
and profits; chose a price strategy, fine-tune with pricing tactics and these
steps lead to the right price.
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Pricing Decisions

1. Discuss various price determinants.
2. Discuss the role of price determinants other than costs and demand.
3. What are pricing limits? How are they determined?
4. What are methods used to set prices?
5. Describe steps in setting the right price.
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Pricing Decisions
REFERENCE MATERIAL
Summary
PPT
MCQ
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Marketing Management

Prof.S.Rajagopalan after graduating from Delhi University’ joined UDCT for

He has a professional experience of over 35 yrs mostly in MNC’s like Binnys,

Currently he is Dean Marketing & Academics and heads centers of Excellence in

After completing this chapter, you will be able to understand:

• The term Marketing.

• Marketing management Philosophies.

• Sales and Marketing Orientation.

• Macro and Micro Marketing.

1.2 How many of these are marketing activities?

1.3 Definition of Marketing

1.4 Marketing Management Philosophies

1.5 The Organization's Focus

1.6 Customer Value

1.7 The Firm's Business

1.8 Tools the Organization uses to Achieve its Goals

1.9 Marketing in non Profit Organizations

1.10 Macro and Micro Marketing Defined

1.11 Marketing Process

1.12 Reasons for Studying Marketing

1.13 Key Terms

1.15 Self Assessment Questions

By focusing on the many tasks involved in producing a bicycle, it is possible

1.2 HOW MANY OF THESE ACTIVITIES ARE MARKETING ACTIVITIES?

1.3 DEFINITION OF ‘MARKETING’

• Marketing is not the same as selling or advertising.

• Marketing is a philosophy or a management orientation that stresses the

• The American Marketing Association definition of marketing:

The Concept of Exchange

The concept of exchange means that people give up something in order to

• There must be at least two parties.

• Each party must be free to accept or reject the other's offer

1.4 MARKETING MANAGEMENT PHILOSOPHIES

Philosophy Key Ideas

sales orientation is a lack of understanding of the needs and wants of the

• Focusing on customer wants and needs so the organization can

• Integrating all the organization’s activities, including production, to satisfy

• Achieving long-term goals for the organization by satisfying customer wants

• Top management leadership

• The philosophy called a societal marketing orientation states that an

In the sales era, as production rises, competition increases. There is finite

adopt a marketing orientation, it must find out, through research, what

1.5 THE ORGANIZATION’S FOCUS

• Sales-oriented firms tend to be inward-looking. They focus on satisfying

• Market-oriented firms derive their competitive advantage from an external

• Customer value is the ratio of benefits to the sacrifice necessary to obtain

• Creating customer value is a core business strategy of many successful

• Offer products that perform

• The Internet is an effective tool for generating relationships with customers.

• A sense of well-being occurs when one establishes an ongoing relationship

1.7 THE FIRM’S BUSINESS

• A sales-oriented firm defines its business in terms of the goods and

• A market-orientated firm defines its business based on the benefits

• Why is this customer benefit definition so important?

• A sales-oriented organization targets its products at “everybody” or “the

• The market-oriented firm

a. Recognizes that different customer groups have different wants

• The goal of a sales-oriented firm is profitability through sales volume. The

• The ultimate goal of most market-oriented organizations is to make a profit

• The American Marketing Association definition of marketing: 