SHARDA UNIVERSITY
FUNDAMENTALS
OF MARKETING
COURSE MATERIAL
Instructor: Dr. Hari Shankar Shyam
Greater Noida, Term 2012
Marketing: the delivery of customer value at a profit
Marketing Vs Selling:
 Selling is seller oriented where marketing is buyer oriented.
 The end goal of selling is profit but in case of marketing it is customer
satisfaction.
 Selling occurs only after a product is produced.
 Marketing starts long before a company has a product.
Marketing Management: The analysis, planning, implementation and control of
programmes designed to help marketing.
MARKETING MANAGEMENT CONCEPTS
 The production concept
 The product concept
 The selling concept
 The Marketing concept
 The societal marketing concept
The production concept
It holds that management should focus on improving production and distribution
efficiency because customers favour products that are available and highly affordable (it
is behind selling). This concept works better when demand exceeds supply.
The product concept
Consumers favour goods that offer quality, performance and features. In that respect we
should devote our energy in improving products (companies that have good research and
development and technology follow this concept). It can lead to “marketing myopia”.
The selling concept
Consumers will not buy enough of a product unless we undertake a large-scale selling
and promotion effort (i.e. unsought goods: encyclopedias, insurance). It aims on creating
sales transactions in the short-term – not building relationships.
The Marketing concept
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Adding value to the customer more efficiently and more effectively than competitors.
The focus is on customer needs, and creating long term relationships (i.e. Toyota). It
works better when there is a clear need and when customers know what they want.
The societal marketing concept
Balancing company profits, customer wants with
society’s interests and the
environmental concerns. E.g. Mcdonalds using paper cups.
CORE MARKETING CONCEPTS
Products
Needs, Wants
Demands
Value,
Satisfaction,
Quality
Markets
Exchange,
Transactions,
relationships
NEEDS: Needs are states of felt deprivation. Abraham Maslow relates a hierarchy of
needs below:
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THE HIERARCHY OF NEEDS - MASLOW
SelfActualization
needs
Esteem needs
Social needs
Security needs
Physiological needs
WANTS: The form that a human need takes as shaped by culture and individual
personality. (A hungry person in Mauritius may want a mango and rice; a hungry person
in Hong Kong may want a bowl of noodles and jasmine tea; a hungry person in
Eindhoven may want a ham and cheese roll).
DEMANDS: human wants that are backed by buying power.
The relation between wants, resources and scarcity:
Wants are unlimited
Finite
(limited)
resources
Insatiable
(unlimited)
wants
Scarcity
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PRODUCTS: bunch of benefits
CUSTOMER VALUE: the consumers’ assessment of the product’s overall capacity to
satisfy his or her needs (i.e. A Mercedes car).
CUSTOMER SATISFACTION: the extent to which a product’s perceived performance
matches buyer expectations.
EXCHANGE: Obtaining an object by offering something in return. (Marketing occurs
when people decide to satisfy needs and wants by exchange).
TRANSACTION: trading of values between parties (either monetary or barter
transaction)
RELATIONSHIP MARKETING: the process of creating, maintaining and enhancing
strong value-laden relationships with customers and other stakeholders.
MARKETS: the set of all actual and potential buyers of a product or service.
The Industry and Markets
communications
Products / services
Industry
(sellers)
Market
(buyers)
Money
information
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PEST Analysis
The Economic Environment
The factors that affect consumer buying power and spending patterns. Nations vary
greatly in their level of distribution of income (subsistence or agricultural Vs industrial
economies).
 Purchasing power: when consumers' purchasing power is reduced (i.e., during
recession) they tend to spend more carefully and seek greater value in the products and
services they buy.
 Income Distribution: how income is distributed among the population (middle class,
working class, upper class etc.) In general middle income groups are more careful
about their spending.
 Changing consumer spending habits: people shift their spending as income rises
(Ernst Engel). For example as income rises people spend less for food and more for
investments.
The Natural Environment
Natural resources that are needed as inputs by marketers or that are affected by marketing
activities. These resources are:
 Shortages of raw materials: (forests, water, food, etc)
 Increased cost of energy: As oil reserves will become lesser companies are searching
for other forms of energy like solar energy, electricity, natural gas, nuclear energy,
wind etc. This also affects products and consumption patterns (i.e., from big cars to
small and economical cars)
 Increased pollution: the green movement makes companies think more about disposal
of chemicals, nuclear waste, mercury spills in seas, chemical pollutants and loitering
the environment. This enforces a trend toward “green marketing” in cosmetics,
detergents, catalysts, unleaded petrol etc.
 Government intervention in natural resources: governments enforce environmental
sustainability and environmental control (i.e., on pollution, global warming etc.)
Technological Environment
Forces that create new technologies, creating new product and market opportunities (i.e.,
the Internet creates opportunities for teleworking and e-commerce). These forces are:
 Fast pace of technological change: technology life-cycles are getting shorter (i.e., the
Pentium microprocessors). Companies that fail to anticipate and keep up with
technological change soon find their products outdated.
 Fast Research & Development budgets: Technology and innovations require more
investments in R&D (i.e., pharmaceutical firms spend 450 EURO to develop a new
drug)
 Concentration on minor improvements: as a result of the high cost of developing and
introducing new technologies companies make minor product improvements instead
of major innovations.
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 Increased regulations: government agencies investigate and ban unsafe products (i.e.,
in testing new drugs)
The Political Environment
Laws, government agencies and pressure groups that influence and limit various
organizations and individuals in a given society. Such issues are
 Legislation regulating businesses: well conceived regulation can encourage
competition and ensure fair markets for goods and services. This governments develop
public policies to guide commerce (laws, regulations etc.) Examples are: packaging
&labeling, pricing, truth in advertising, product standards, fair trade.
 Growth of public interest groups: growth of environmental, feminist groups, ethic
minorities, senior citizens and handicapped people.
 Increased stress on ethics and socially responsible actions: Beyond government
regulations companies are also governed by social codes and ethical rules (i.e. adult
oriented material to the Internet should not go to small children)
The Social Environment
Institutions and other forces that affect society’s basic values, perceptions, preferences
and behaviors. Here we have core beliefs against secondary beliefs that are open to
change.
Shifts in secondary cultural values:
 People’s views of themselves: different people buy different products and have
different interests.
 People’s views of others: more people want to be with and serve others.
 People’s views of organizations: in recent years there is decrease in confidence
towards businesses
 People’s views of society: different views exist in different countries and regions
(consumer patriotism in the Western countries)
 People’s views of nature: there is a growing trend toward people’s mastery over nature
through technology.
 People’s views of the universe: while the practice of religion remains strong in many
parts of the world, in western countries religious conviction and practice falls. Also
people move from consumerism to a search for inner spiritualism. This affects
everything from TV shows to food and books.
Example: PEST Analysis for the global airline industry
Political:
Socio-Cultural:
Economic:
Technological:
DeregulationWar and Terrorist Attack
People Perception of Airline Safety
Global Economic Slowdown
Internet
SAP (Strategic Advantage Profile)
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also called as internal analysis
FINANCE
PERSONNEL
MARKETING
Internal
analysis
OPERATIONS
R&D
FINANCE
 Does the firm has sufficient financial resources to fund its strategy?
 Is the mix of funding flexible?
 What is the cost of capital?
 Can the firm raise new capital?
 How effective is financial planning and control?
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ALTMANS SCORE
Z = 1.2A + 1.4B + 3.3c + 0.6d + 1.0E
Where
A = Current Assets-Current Liabilities / Total Assets
B = Retained Earnings / Total Assets
C = PBIT / Total Assets
D = Market Value of shares/Book Value of Total Liabilities
E = Sales / Total Assets
A score below 1.8 is considered bad. A company with a score over 2.99 is very
healthy while companies between 1.8 and 2,99 are in the grey area.
PERSONNEL
 Is the recruitment policy developing the number and quality of people required to
implement the strategy?
 Is the training policy developing the necessary new skills and improving existing
competencies?
 Is the management development programme providing the quality of management
necessary to implement the corporate strategy?
MARKETING
 How efficient and effective are the component parts of the marketing mix?
 How strong (in terms of market share) is the firm in the market served?
 How effective is product development?
 How good is the firm at market research and at identifying trends or gaps in the
market?
 What is the relationship between turnover and profits?
 What is the relationship between profits and the customer base?
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Strategic advantage profile
(+ indicates a strength, - a weakness, and 0 indicates the null position)
Internal Area
Competitive Strength/Weakness
Evaluation
Finance
High profitability, good cash flow, good budgeting
system
+
Marketing
Excellent New Product Development
international distribution.
Some problems in segmenting foreign markets
Limited insight about brand image
+
0
Production
Modern technology
Good operations management capabilities
Good Inventory management
+
+
+
R&D
Market research oriented R&D
+
HR
Good motivation, superior training
+
Corporate Resources
Company size good for industry
Good strategic ability
Strategies reviewed less often
+
+
-
with
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THE COMPANY MICROENVIRONMENT
Company
Marketing
intermediaries
Suppliers
Buyers
Competition
The public
ETOP (Environmental Threats and Opportunities profile
factors
Sub factors
O
T (Threats)
(Opportunities)
POLITICAL
Sovereignty
Stability etc.
ECONMOMICAL
Per
capita
income
Gdp growth
Etc.
SOCIOCULTURAL Social class
Religions
Language
Lifestyle
Etc.
TECHNOLOGICAL Use
of
technology
Change
in
technology
etc.
LEGAL
General laws
Business laws
Etc.
COMPETITION
Competitors
positioning
Market share
- (Neutral)
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etc.
OTHERS
SWOT Analysis
A final and necessary step of the strategic analysis involves bringing together the critical
strengths, Weaknesses, Opportunities and Threats in such a way that strategy options are
immediately obvious. To discover strengths and weaknesses we look at the internal
analysis. Similarly we can obtain a good indication of opportunities and threats by
looking at PEST analysis. The SWOT is a valuable tool in visualizing strategic options
and searching possible alternative strategies for the company.
Example of a SWOT analysis (Value Shops – Hellenic Duty Free Shops)
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S
W
Strong financial position
good financial management
Good product line/variety
Good trading abilityy
Good management team
Good marketing capabilities
Good distribution channels
Low price capability]
Company is growing
Satisfactory market share
Exclusivity at points of sale
Costs are rising
Need to see various futures
The Share is falling
Delays in privitisation
Conflict amon g different actors
Difficulty to forecast sales
Avoiding to reach decisions
Short-termism
Failure to attract investors
Inexperience with taxed goods
Inexperience with wholesaling
becoming selective
O Customers
Global market expands
Demand for Duty Free
Electronic commerce
New products/growing brands
Industry is growing
Industry growth profitability
Duty Free market stability
Duty Free as adventure shoping
Duty Free as sources of profit
Rise in tourism
T
Pressure to reduce prices
Increased competition
Threat of new entrants
Wholesalers’ growing power
Need to adjust quickly to change
Unpredictability of the future
Duty Free Abolition
Delay in EU integration
Delays in Fiscal Harmonisation
Instability of Money markets
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THE MARKETING PROCESS
1.
2.
3.
4.
5.
PEST (Political, Economic, Social, Technological forces)
Demand measurement and forecasting (marketing research)
Market segmentation (dividing into market segments)
Market targeting (evaluation of segment attractiveness)
Positioning (the marketing-mix – 4Ps)
The marketing mix (4Ps)
1.
2.
3.
4.
Product (it includes both products and services)
Price (how much we charge for the product or service)
Place (All the company activities that make a product available to customers)
Promotion (Activities that communicate the product or service)
The economic environment factors


Industrial structure (agriculture economies, raw materials economies, exporting
economies)
Income distribution
Political, Legal, and Environmental factors





Attitudes towards international buying (India toward US firms)
Government bureaucracy (is the system efficient for helping foreign companies?)
Political stability (democracy? dictatorship?)
Monetary regulations (how much local money government lets go away?)
Countertrade: paying with other items instead of cash (Boeing 747 with Rolls
Royce engines exchanged with Saudi oil).
The Cultural environment
Different cultures: a culture is a set of basic values, perceptions, wants and behavior
learned by a member of society from family and other important institutions.
 Class system in the UK
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



Caste system in India
Religion in Islam
Social welfare in Sweden
In Belgium baby girls wear blue and baby boys wear pink!
Technological
Characteristics
Demographic
Characteristics
•Skills
•Production tech
•Consumption
•Education
•Size
•Growth
•Urban/rural
•Density
•Age structure
Socio/cultural
Characteristics
•Values
•Lifestyles
•Ethnic groups
•Linguistic groups
Geographic
Characteristics
•Size’
•Topography
•climate
Economic
Factors
•GDP
•Income distribution
•Rate of growth
•Investments
National goals
•Industry priorities
•Infrastructure
•Investment plans
Consumer Buying Behaviour
The buying behaviour of final consumers that buy goods and services for personal
consumption.
Consumer market
All the individuals and households who buy or acquire goods and services for personal
consumption.
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MODEL OF BUYING BEHAVIOUR
Buyer’s
Responses
Marketing
Stimuli
Other
Stimuli
Product
Political
Economic
Price
Social
Place
Technological
Promotion
Buyer’s
Black
box
Buyer
Buyer
Characte- Decision
ristics
process
-Product
Choice
-Brand
Choice
-Dealer’s
Choice
-Purchase
Choice
-Purchase
ammount
Marketing Stimuli: The 4Ps (Product, Price, Place, Promotion)
Other Stimuli: the significant forces and events in the buyer’s environment, economic,
technological, political, cultural.
Buyer’s black box: where stimuli are changed into responses.
Buyer’s Responses: product choice, brand choice, etc.
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FACTORS INFLUENCING BEHAVIOUR
Cultural
Social
Culture
Reference
Groups
Subculture
Family
Social
Class
Roles &
Status
Personal
•Age
•Life-cycle
•Occupation
•Economic
circumstances
•Lifestyle
•Personality
•Self-consent
Psychological
•Motivation
•Perception
•Learning
•Beliefs
•Attitudes
Buyer
Cultural Factors
Culture: the set of values, perceptions, wants and behaviour learned by a member of
society from family and other important institutions (i.e., bringing green baseball cap
gifts to Taiwanese people when green is wore by men with unfaithful wives)
How culture helps us?
Marketers are always trying to spot cultural shifts in order to imagine new products (i.e.
the concern about health and fitness)
Subculture: each culture contains smaller subcultures or groups of people with shared
values based on common life experiences and situations (i.e., nationalities, religion, racial
groups).
How subculture helps us?
Subcultures make up important market segments and marketers often design products and
marketing programs tailored to their needs (i.e. Hispanics in USA)
Social Class: permanent and ordered divisions in a society whose members share similar
values, interests and behaviour. Examples are
 Social classification in Britain
 Pyramid – rich v poor in Latin America and Africa
 Diamond shaped classification (few people at the top and bottom with many in the
middle in developed countries)
 Caste system in India
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How social class helps marketers: It tells us about customer income and buying power
Social Factors

Membership groups: groups having a direct influence on a person’s behaviour and to
which a person belongs (primary {family) v secondary (religion) etc)

Reference groups: groups having a direct or indirect influence on the person’s attitude
and behaviour (i.e., a teenager following David Beckham – also called Aspiration
Groups)
Group Influence on Product/Brand Choice
Group influence
On brand choice
Strong
Public Luxuries
Strong
Group
Influence
On
Product
choice
A yacht
Public Necessities
Weak
Cars
Dress clothes
Weak
Private Luxuries
TV video games
Private Necessities
Refrigerator
Family


Family of orientation: the buyer’s parents providing with orientation toward religion,
politics, economics, self-worth and love.
Family of procreation: the buyer’s spouse and children have a direct influence on
everyday buying behaviour.
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Consumers’ buying roles
 Initiator: the person who first thinks about buying a product.




Influencer: the one who influences buying behaviour.
Decider: the person who decides to buy
Buyer: He who makes an actual purchase
User: he who uses the product.
Roles and Status
Role: the activities a person is expected to perform according to the people around him or
her.
Status: the general esteem given to a role in society.
Personal factors
Age and life cycle stage (family-life cycle)
Psychological life cycles
Adults experience certain passages as they go through life (weddings, graduations,
having children). Marketers must take advantage of that and market products related to
them.
Occupation
People, profession particulars (i.e. floor workers buy more work clothes while managers
buy more smart clothes)
Economic circumstances
Market growth or recession influence buying habits
Lifestyle
A person’s pattern of living as expressed in his/her activities, interests and opinions.
Some examples of lifestyle are:
 SINUS classification in Germany. It divides people according to the following
lifestyles:
o Traditional: to preserve
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o
o
o
o
Materialist: to have
Hedonist: to indulge
Postmaterialist: to be
Postmodernist: to have, to be and to indulge
Personality and self-concept


Personality: a person’s distinguishing psychological characteristics that lead to
responses to his/her environment.
Self-concept: self-image or the mental picture that one has of himself (we are
what we have)
Psychological factors
Motivation
A need that is sufficiently pressing to direct the person to seek satisfaction of the need.
Perception
The process by which people select, organize and interpret information to form a
meaningful picture of the world.
Learning
Changes in individual’s behaviour arising from experience. Learning happens through the
interplay of:
 Stimuli: a motive directing toward a particular thing
 Cues: stimuli saying when, where and how we respond.
 Responses: buying a product
Beliefs and attitudes
 Belief: A descriptive thought that a person holds about something (Marketers are
interested in the beliefs that people formulate about specific products and services
because these beliefs make up product and brand images that affect buying
behaviour).

Attitudes: favourable or unfavourable evaluation, feelings and tendencies toward
an object or idea.
The consumer decision process
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

Complex buying behaviour: consumer behaviour in situations characterized by
high consumer involvement in a purchase and significant perceived differences
among brands.
Dissonance-reducing behaviour: Consumer behaviour in situations
characterized by high involvement but few perceived differences among brand

Habitual buying behaviour: Consumer buying behaviour characterized by low
consumer involvement and few significant perceived brand differences.

Variety seeking buying behaviour: Consumer buying behaviour in situation
characterized by low consumer involvement but significant perceived brand
differences.
The Buyer decision process
1. Need
recognition
2. Information
Search
5. Post-purchase
behaviour
3. Evaluation of
alternatives
4. Purchase
decision
Need Recognition: the consumer recognizes a problem or need
Information search: the consumer searches for more information
Evaluation of alternatives: the consumer uses information to evaluate alternative brands
in the choice set.
Purchase decision: the buyer actually buys the product or service.
Post-purchase behaviour: when consumers take further action after the purchase based
on their satisfaction or dissatisfaction.
Perceived Value:
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To find the perceived value about a product (i.e. a camera) we multiply the importance
weights by how much each choice is rated:
CAMERA
PICTURE
QUALITY
EASE OF USE
SIZE
PRICE
Agfa
Ricoh
Canon
Mustek
10
6
8
4
6
8
7
6
6
6
8
8
3
6
6
9
Weights:
Agfa:
Ricoh:
Canon:
Mustek:
0.4 (10) + 0.3 (6) + 0.2 (6) + 0.1 (3) = 7.3
0.4 (6) + 0.3 (8) + 0.2 (6) + 0.1 (6) = 6.6
0.4 (8) + 0.3 (8) + 0.2 (8) + 0.1 (6) = 7.5
0.4 (4) + 0.3 (6) + 0.2 (8) + 0.1 (9) = 5.9
Market Research
Marketing Information System
A MIS consists of people, equipment and procedures to gather, sort, analyze, evaluate
and distribute needed, timely and accurate information to marketing decision makers.
Marketing
Managers
Analysis
Developing Information
Assessing
Information
Needs
Internal
records
Marketing
intelligence
Planning
Control
Target
Marketing
Marketing
channels
Implementation
Organization
Marketing
Environment
Distributing
Information
Information
analysis
Marketing
research
Competitors
Publics
Macroenvironment
Internal Records: it consists of information gathered from sources within the company
to evaluate marketing performance and detect marketing problems and opportunities (i.e.,
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financial statements, orders, cash flows, inventories). The problem with such information
is that it may be incomplete or in the wrong form. The benefit is that it is cheaper.
Marketing Intelligence: it is everyday information about developments in the marketing
environment that helps managers prepare and adjust marketing plans (i.e., sales force
reports, scientists, engineers, supplier, competitors or consultants firms like Dun &
Bradstreet or Nielsen)
Competitor Intelligence: information gathered that informs on what the competition is
doing or is about to do (i.e. In Japan they feed information about competitors back to
management). Some sources of marketing intelligence are:
 Getting information from published materials and public documents
 Searching the Internet – www.companysleath.com
 Getting information from people who do business with competitors
 Asking competitors’ employees and recruits
Marketing Research: the function linking the consumer to the marketer through
information that identifies and defines marketing opportunities, generating actions, and
monitors marketing performance in order to improve understanding of the marketing
process.
The Marketing Research Process
THE MARKETING RESEARCH PROCESS
2. Developing
Research plan
1 Defining
the problem
4. Interpret data/
Report findings
3. Implement
Research plan/
Collect, analyze data
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Types of data
 Primary: information collected for the specific purpose at hand
 Secondary: information that already exists by having been collected for another
purpose (i.e. a database etc.)
Primary Research Collections
Research
Methods
Contact
Methods
Sampling
Plan
Observations
Mail
Survey
Telephone
Sampling size
Experiments
Personal
Sampling
procedure
Research
Instruments
Sampling unit Questionnaire
Mechanical
instruments
Internet
Sample: a segment of the population selected for market research to represent the
population as a whole
Sampling unit: who is to be surveyed
Sampling size: How many people we include in the sample
Sampling procedure: (probability, non-probability samples)
TYPES OF SAMPLING
Probability Sampling



Simple random sampling: every member of the population has a known and equal
chance of selection
Stratified random sample: the population is divided into mutually exclusive
groups (i.e. age groups) and random sample is drawn from each group.
Cluster sample: the population is divided into mutually exclusive groups (i.e.
blocks) and the researcher draws a sample of the groups to interview.
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Non-probability sampling



Convenience sample: the researcher selects the easiest population members from
which to obtain information.
Judgment sample: the researcher uses his or her judgment to select population
members who are good prospects for accurate information.
Quota sample: the researcher finds and interviews a prescribed number of people
in each of several categories.
Questionnaires
 Closed end questions: questions including all the possible answers and allow
subjects to make choices among them.
 Open end questions: questions that allow respondents to answer in their own
words
Defining the market
 Target Market: the part of the qualifies available market that the company decides
to pursue.
 Market: the set of actual and potential buyers of a product or service.
Forecasting: qualitative methods




Buyers’ intentions: you ask customers directly to tell you about demand
Sales force estimates: you ask salesmen to estimate sales by product in their
territories
Group discussion method: you invite experts from various fields to prepare a
forecast. Experts exchange views and come up with a group estimate.
Delphi method: you invite experts and ask them to supply individual estimates
and assumptions. The estimates are reviewed by a company analyst and then send
back to experts for further reviewing. Here we pass through several rounds of
estimation before an estimate is reached.
Forecasting: quantitative methods

o
o
o
Time Series analysis: breaking down the original sales into four components:
Trend: a long-term pattern of growth or decline in sales
Cycle: the medium term wavelike move of sales resulting from economic changes
Seasonality: a consistent pattern of sales movements within the year (i.e. quarterly
sales patterns)
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o Erratic components: (strikes, earthquakes, riots, fires, etc.)
Types of Marketing Research
1. exploratory
2. descriptive
3. experimental
market segmentation, targeting and positioning
Target Marketing
Directing a company’s efforts towards serving one or more groups of customers sharing
common needs or characteristics.
Segmentation
Dividing a market into distinct groups of buyers with different needs, characteristics or
behaviour, who might require separate products or marketing mixes.
Market Targeting
Evaluating each segment attractiveness and selecting one or more segments to enter.
Market Positioning
Setting the competitive positioning for the product and creating a detailed marketing mix.
6 Steps in segmenting, targeting, positioning
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STEPS IN SEGMENTING, TARGETING, POSITIONING
1. IDENTIFY BASES FOR SEGMENTING THE MARKET
2. DEVELOP PROFILES OF RESULTING SEGMENTS
3. DEVELOP MEASURES OF SEGMENT ATTRACTIVENESS
4. SELECT THE TARGET SEGMENTS
5. DEVELOP POSITIONING FOR EACH TARGET SEGMENT
6. DEVELOP THE 4 P’s FOR EACH TARGET SEGMENT
Types of segmentation
Mass Marketing
(no segmentation)
Segment/niche
Micro-segmentation
(complete segmentation)
Mass marketing
Using almost the same product, promotion and distribution for all consumers (i.e.,
marketing the Model T Ford to all consumers: “you could have the car in any colour as
long as it is black”)
Segmenting markets
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Adapting a company’s offerings so they more closely match the needs of one or more
segments (i.e. BMW designing specific models for different groups of income/age)
Niche marketing
Adapting a company’s offerings to more closely matches the needs of one or more subsegments where there is often little competition (focusing on sub-groups within
segments) – (i.e. off-the-road vehicles like Land Rover and the G. Wagon). Niches are
today the norm.
o Local Marketing: tailoring brands and promotions to the needs and wants
of local customer groups, cities, neighbourhoods, stores (IKEA customizes
goods to sell in local clientele).
o Individual Marketing: tailoring products and marketing programmes to
the needs and preferences of individual customers (i.e. the tailor custommade the suit, the cobbler designed the shows)
Moving to mass customization
The ability to prepare on a mass basis individually designed products and
communications to meet each customer’s requirements (i.e. Hotel stays, holiday packages
etc.)
Moving to self-marketing Individual customers taking responsibility for determining
which products or brands to buy: (i.e., Internet buyers who are able to evaluate products
- interact with suppliers/users/product analysts)
SEGMENTING CONSUMER MARKETS
Geographic segmentation
Dividing a market into different geographical units such as nations, states, regions,
countries, cities or neighbourhoods (i.e., Scandinavia, Sweden, Stockholm or the North
and the South)
Demographic segmentation
Dividing the market into groups based on demographic variables such as age, sex, family
size, family life-cycle, income, occupation, education, religion, race and nationality.
o Age: (life-cycle segmentation): consumer needs and wants change with age. Lifecycle segmentation offers products or marketing approaches that recognize the
consumers’ changing needs at different stages in their life (i.e. Johnson & Johnson
Affinity Shampoo helps women over 40 overcome age-related hair problems)
o Ethnic segmentation: offering products or marketing approaches that recognize the
special strengths or needs of an ethnic community (i.e., Noon Products: ready made
Indian food)
28
o Life-cycle stage: important in recreation markets (i.e. Club 18-30 aims at young
singles seeking the four Ss = Sun, Sand, Sea and Sex). On the contrary Saga Holidays
caters for older people.
o Gender segmentation: dividing a market into different groups based on sex (i.e., in
clothing, hairdressing, cosmetics, magazines)
o Income segmentation: dividing a market into different income groups (i.e. yachts for
rich customers – luxury goods etc.)
o Geo-demographics: the study of the relationship between geographical location and
demographics
Psychographic segmentation
Dividing a market into different groups based on social class, lifestyle, or personality
characteristics:
o Social class: designing products or services for particular social classes, building in
features that appeal to them
o Lifestyle: segmenting the market by consumer lifestyles (i.e. off-the-shelf
{consumers separated to : fearful, confortable, apathetics, innovators, succeeders,
reformers, explorers, organizers etc} or customized methods)
o Personality: giving products personalities that correspond to consumer personalities
(i.e. Honda motorcycles target the 16 to 22 year olds that want to escape from
authority and do things their parents told them not to do)
Behavioural segmentation
Dividing a market into groups based on customer knowledge, attitude, use, or response to
a product.
o Occasion segmentation: dividing the market into groups according to occasions
when buyers get the idea to buy actually make their purchase, or use the
purchased item (i.e. Turkey at Christmas)
o Benefit Segmentation: dividing the market into groups according to the different
benefits that consumers seek from the product
o User status: segmenting into non-users, ex-users, potential users, first-time users
and regular users of a product.
o Usage rate: segmenting into light, medium and heavy user groups (heavy users
are a small percentage of the market but account for a high % of total buying –
eg., business class air tickets)
29
o Loyalty status: assuming that some buyers are more loyal than others (loyal – soso – non-loyal). Here we are seeking to build a relationship between seller and
user (i.e. the Swatch – building up a Swatch collection.
o Buyer readiness stage: the stages that consumers normally pass through on their
way to purchase, including awareness, knowledge, liking, preference, conviction
and purchase.
o Attitude towards product: people in a market can be enthusiastic, positive,
indifferent, negative or hostile about a product. (i.e. Door-to-door voter’s attitude
to determine how much time to spend with that voter)
TYPES OF CONSUMER SEGMENTATION
• Geographic (nations states, countries,
cities, etc)
• Demographic (age, sex, family size, family
life-cycle, income, occupation, education,
religion, race, nationality, geodemographics)
• Psychographic (social class, lifestyles,
personality)
• Behavioural (occasion, benefit, user status,
usage
rate, loyalty status, buyers readiness stage,
attitude towards product)
30
SEGMENTING BUSINESS MARKETS
1.
2.
3.
4.
5.
Demographics
•
Industry
•
company size
•
location
Operating variables
•
Technology
•
user.non user status
Purchasing approaches
•
purchasing function organizations centralized or decentralized
•
power structure – engineering, financially, or marketing
dominated
•
Nature of existing relationships (strong or weak?)
•
General purchase policies (leasing? Bidding?)
•
Purchasing criteria (quality? Service? price’?)
Situational factors
•
Urgency
•
Specific application (of a product/service)
•
Size of order (large or small?)
Personal circumstances
•
Buyer seller similarity (came or different values?)
•
Attitudes towards risk (risk avoiding or risk seeking buyers?)
•
Loyalty
Business to Business Segmentation Types (Signode Co)
Business to Business Segmentation Types
Programmed
buyers
(routine purchases)
Relationship
buyers
(they buy as long as
the price is
competitive)
Transaction
buyers
Bargain
hunters
(they are ready to
switch for a
better price)
(ready to switch
at the slightest
dissatisfaction)
31
SEGMENTING INTERNATIONAL MARKETS
• Geographical location segmentation
(i.e. USA, Canada etc)
• Economic factors
by level of economic development (I.e the G8
• Political/legal factors
(i.e. stability of government etc.)
• Cultural factors
(i.e. according to language or religion)
• Intermarket segmentation
(consumers with similar needs across
Markets I.e. BMW buyers)
Developing market segments
Qualitative research
o Focus group interviewing
o Elicitation interviews
o Repertory grid techniques
Quantitative research
o Personal interviews
o Statistical techniques (multivariate analysis)
Analysis
o
o
o
o
Factor analysis (removing highly correlated variables)
Cluster analysis
Conjoint analysis
Automatic interaction detection (AID)
Validation
o Cluster analysis (identifying interesting clusters)
32
Profiling
o Each cluster is profiles to show the distinguishing attitudes, behaviour etc)
Requirements for effective segmentation
o Measurability: the degree to which the size, purchasing power and profits of a
market segment can be measured.
o Accessibility: the degree to which a market segment can be reached and served
o Substantiality: the degree to which a market segment is sufficiently large or
profitable
o Actionability: the degree to which effective programmes can be designed for
attracting and serving a given market segment.
Market Targeting
MARKET TARGETING
SEGMENT ATTRACTIVENESS
COMPANY FIT
Segment attractiveness: the degree to which a segment is attractive depends on current
and potential competitors and the relative power of buyers and suppliers
Company fit: (business strengths)
o Market share
o Technology strength
o Marketing skills
o Management strengths
o Forward or backward integration
o Reputation
o Unique products
33
PORTFOLIO OF CUSTOMER SEGMENTS
100
S6
S1
Market
Attractiveness
S9
50
S13
S3
S17
S2
S12
0
Business Strenghts
100
Segment Strategy
o Undifferentiated marketing strategy: a firm decides to ignore market segment
differences and go after the whole market with one offer (i.e. Coca Cola)
o Differentiated marketing: a firm decides to target several market segments and
designs separate offers for each (i.e., Martini Bianco, Martini Rosso, Martini
Extra Dry)
o Concentrated Marketing : a firm goes after a large share of one or a few submarkets (the 4 x 4 land cruisers)
Positioning
Core strategy: Identifying customers for whom we have a differential advantage and
positioning ourselves in that market
Competitive advantage: an advantage over competitors gained by offering consumers
greater value, either through lower prices or by providing more benefits that justify
higher prices.
Differentiation: Positioning begins by differentiating the company’s marketing offer, so
that it will give consumers more value competitors offer.
34
THE BOSTON CONSULTING GROUP MATRIX
- COMPETITIVE ADVANTAGE
MANY
Specialization
Fragmented
Number of
approaches to
achieve
advantage
FEW
Stalemate
Volume
SMALL
LARGE
Size of the advantage
THE BOSTON CONSULTING GROUP MATRIX - PRODUCTS
Stars
Question Marks
High
Market
Growth
Rate %
Low
Cash Cows
High
Dogs
Low
Relative Market Value
Volume Industry: an industry characterized by few opportunities to create competitive
advantages but each advantage is huge and gives a high pay-of (i.e., Unilever, Hitachi)
35
Stalemate industry: an industry that produces commodities and is characterized by a few
opportunities to create competitive advantages with each advantage being small (i.e. steel
& bulk materials industries, oil, etc.)
Fragmented industry: an industry characterized by many opportunities to create
competitive advantages but each advantage is small (i.e. Pizza Hut)
Specialized Industry: an industry where there are many opportunities for firms to create
competitive advantages that are huge or give a high pay-off (i.e. Novartis)
DIFFERENTIATING MARKETS
Product Differentiation: a company can add or change features in its product or
enhance performance or create more style and design. Example are:
- Volvo provides new and better safety features into its cars
- Unilever formulates Radion to remove odours as well as dirt from washing
Services Differentiation: in addition to differentiating its physical product the firm can
also better the services that accompany the product by bettering delivery (Domino’s
Pizza) , adding installation features (IBM) or providing a customer training service (GE)
or adding speed of service (Vision Express’s 1 hour service for spectacles)
Personnel Differentiation: companies can get a competitive advantage through hiring
and training better people than their competitors do. (i.e. Singapore Airlines has
reputation for the grace of its flight attendants)
Image Differentiation: establishing images that differentiate us from competitors
(company or brand name). Here we can use symbols (logos or signs) to provide instance
recognition like (i.e. Mercedes, or JB), or use colours (Kodak) or build a brand around a
famous person (Passion: Liz Taylor) or by sponsoring events and fairs (Perrier) or
charities (Quaker)
Value Positioning: a range of positioning alternatives based on the value an offering
delivers and its price
36
VALUE POSITIONS
More
Benefits
Same
Less




More
For
less
The same
For
less
More
For the
same
More
For
More
ME TOO
Less for
much
less
More for the same: companies can attract a competitor’s more for more
positioning by introducing a brand offering compatible quality but at a lower price
(i.e. Lexus v Mercedes)
The same for less: offering the same for less is a good value proposition (i.e.
Amazon Books.com, Cyrix
Less for much less: in many cases consumers will set for less than optimal
performance at a much lower price.
More for less: this is a winning value proposition (i.e. Dell Computers)
DIFFERENTIATING MARKETS
PRODUCT
DIFFERENTIATION
PERSONNEL
DIFFERENTIATION
VALUE
POSISIONING
SERVICES
DIFFERENTATION
IMAGE
DIFFERENTIATION
37
Product positioning
The way the product is defined by consumers on important attributes – the place the
product occupies in consumers’ minds relative to competing products.
Positioning Alternatives:
o Strengthen a brand’s current position (Avis = “we’re No2)
o Search for a new unoccupied position (Wash & Go for people washing hair away
from home)
o Deposition or reposition the competition (Stolichnaya attacking Smirnoff on the
Russian Origin)
Perceptual Mapping: a product positioning tool that uses multidimensional scaling of
consumers’ perceptions and preferences to portray the psychological distance between
products and segments.
Perceptual map for the tourist market in Europe
Greece
Spain
UK
Ireland
France
Austria
Holland
Germany
Italy
Norway
Denmark
Switzerland
Sweden
Finland
VALUE
FOR
MONEY
ACCESS
Positioning Strategies
o Product Attributes: position technical products (Erisccon’s R380 Mobile
communications)
o Benefits offered: the needs they fill by the product (Crest Toothpaste reduces
cavities)
o Usage occasions: (Kit-Kat: Have a break)
o Users: positioning for different users (Johnson & Johnson baby shampoo)
38
o Activities: often used to sell expensive products (i.e., Longines watches in skiing
and aviation)
o Personalities: they help position prestigious brands (i.e. Jameson Irish Whiskey
uses sportmen in its positioning)
o Origin: we position the product by association with its place of manufacture
(Audi’s “Vorsprung durch Technik reminds of German origin)
o Other brands: helping to position products (i.e. Clinique’s advertising for its “skin
supplies for men” prominently features a Rolex Watch)
o Competitors: provide 2 alternatives: either positioning a product against a
competitor (Compaq v IBM) or away from a competitor (7UP positioning as the
uncola away from Pepsi or Coca)
o Product class: (i.e., Camay hand soap is positioned with bath oils rather than with
soap)
Avoiding wrong positioning strategies
o Underpositioning: a positioning error referring to failure to position a company,
its product or brand (i.e., with dark spirits – whiskey & brandy going to 25 years
old!)
o Overpositioning: giving buyers too narrow a picture of the company, its product
or brand (i.e., the Steuben Glass Company makes only glasses that cost Euro 100
+)
o Confused positioning: leaving buyers with a confused image of the company (i.e.
Burger Kind in UK = “the right food for the right times”)
o Implausible positioning: when the positioning strategy stretches the perception
of the buyers too far (i.e., the Lexus)
39
product
Product: bunch of benefits
anything that is offered to a market for attention, acquisition, use or consumption and
satisfies a want or need. It includes physical objects, services, persons, places,
organizations and ideas.
Services: Activities, benefits or satisfactions that offered for sale and are essentially
intangible (i.e., banking, haircuts, hotel etc.).
Basic 3 LEVELS OF A PRODUCT
Core Product: The problem-solving services or core benefits that consumers are buying
when they obtain the product.
Actual Product: a product’s parts, quality, features, design, brand name, packaging,
staling etc., that combine to deliver core product benefits.
Augmented product: additional consumer services and benefits built around the core
and actual products (installation, delivery etc. – for example , the Sony Camcorder)
40
The three levels of a product
Installation
Delivery
and
Credit
AUGMENTED
RPODUCT
Packaging
Brand
name
Core Benefit
Or service
After
Sales
service
Features
Quality
Staling
CORE
PRODUCT
ACTUAL
PRODUCT
Warranty
Another two more level of products
Expected level of product
Potential level of product
Industrial Product Decisions: Product Attributes

Product quality: the ability of a product to perform its functions; it includes the
product’s overall durability, precision, ease of operation and repair, and other
valued attributes.
o Total quality management (TQM) (Improve all product/process quality in
every phase of production)
o Conformance quality
o Freedom from defects/consistency in delivering a targeted level of
performance.
41


Product features: features are a competitive tool for differentiating the
company’s product from competitors’ products. Being the first producer to
introduce a valued new feature is one of the most effective ways to compete.
Product style and design: how a product is designed and how it appears.
Companies may have many designs for a product (i.e., Nike shoes – 500 footwear
designs each year)
Branding
Brand: a name, term, sign, symbol or design or a combination of these, intended to
identify the goods or services of one seller or group of sellers and to differentiate them
from those of competitors.
Brand levels:

Attributes: (i.e. Mercedes suggests such things as “well engineered, well-built”
etc.)

Benefits: attributes translated into functional and emotional benefits (i.e., the
attribute “well-built” translates into the benefit, “I am safe in the event of an
accident”)

Values: a brand may say something about the buyers values (i.e., Mercedes means
high
performance,
safety
and
prestige)

Personality: a brand also projects personality.
Brand Equity: The value of a brand based on the extent to which it has high brand
loyalty, name awareness, perceived quality, strong brand associations and other assets
such as patents, trademarks and channel relationships (i.e., Nestle and its Rowntree (UK),
Carnation (US), Stouffer (US), Buitoni-Perugina (Italy) and Perrier (France)).
Branding Decisions
42
BRANDING DECISIONS
To brand
or not
to brand
•Brand
•No brand
Brand
Name
Selection
•Selection
•Protection
Brand
sponsor
Brand
strategy
Brand
positioning
•Producer’s
Brand
•Private brand
•Licensed
Brand
•Co-branding
•New brands
•Line
Extensions
•Brand
Extensions
•Multi-brands
•Brand
Positioning
•No-brand
positioning
Brand Extension : it has three parts viz:
1. line extension (change in existing product, like shape, size, taste,
flavours, colours etc.).
2. brand extension (giving the brand name to different product like
LG has given the brand to tv, fridge, washing machine etc.
3. image transfer (required in case of strong brand image has to be
changed, like if haldiram will introduce haldiram
bikes(automobiles) then problem will come).
PACKAGING
Packaging involves designing and producing the container or wrapper for a product
Types of packaging
Primary (inner packing)
Secondary (outer packing)
Tertiary (shipper packing)
The parts of Packaging
 The product’s container (the tube holding Colgate toothpaste)
 Secondary package (the box containing the tube of Colgate toothpastes)
 Shipping package (a box carrying six dozen tubes of Colgates)
 Tube print (printed information)
 Unit pricing (stating the price per unit)
 Open dating: stating the expected shelf life of the product.
43

Nutritional labeling (stating the nutritional values in the product – low fat, light,
high-fibre)
New-Product Development: the development of original products, product
improvements, product modifications and new brands through the firm’s own R&D
efforts.
THE NEW PRODUCT DEVELOPMENT PROCESS
New Product
Strategy
Marketing
strategy
Idea
generation
Business
analysis
Product
development
Idea
screening
Test
marketing
Concept
Development
And testing
commercialization

NEW PRODUCT STRATEGY
o Giving direction to the new product team and focusing team effort
o Helping to integrate functional or departmental efforts
o Allowing tasks to be delegated to new product team members
o Proactive management introduction

PRODUCT INNOVATION CHARTER (PIC)
o A new product strategy statement formalizing management’s reasons or
rationale behind the firm’s search for innovation opportunities, the
product/market and technology to focus upon, and the goals and objectives
to be achieved.
44

IDEA GENERATION
o The systematic search for new-product ideas (a recent survey f product
managers found that of 100 proposed new product ideas, 39 begin the
product development process, 17 survive the development process, 8
actually reach the marketplace and only 1 eventually reaches its business
objectives.
Sources of New Product Ideas
 Internal sources: (from executives, scientists, engineers, designers,
manufacturers and salespeople – or – intrapreneurial programmes.)
 Customers: (analyzing customer questions and complaints to find new products
that better solve customer problems)
 Competitors: (watch competitor’s ads and other communications to get clues
about their own product, or buy their products and analyse them)
 Distributors: they are closer to the market
 Suppliers: they can tell us about new concepts, techniques and materials that can
be used to develop new products.
 Trade magazines, shows, seminars, government agencies, advertising agencies,
university and commercial laboratories, science parks, inventors, new product
consultants etc.

IDEA SCREENING
o Screening new-product ideas in order to spot good ideas and drop poor
ones as soon as possible.
Questions to ask during idea screening:
 Is the product useful to customers?
 Id the product good for our company?
 Does it mesh well with strategy/objectives?
 Do we have the people, skills and resources to make it succeed?
 Does it deliver more value to customers than competing products?
 Is it easy to advertise and distribute?

CONCEPT DEVELOPMENT AND TESTING
o Concept Development:
 Product concept: a detailed version of the new product idea
stated in meaningful consumer terms
 Product image: the way consumers perceive an actual or
potential product (i.e., the concept of Daimler Chrysler’s NECAR
4: an inexpensive subcompact ‘green’ car appealing to
environmentally conscious people who want practical
transportation and low pollution)
o Concept Testing: testing newproduct concepts with a group of target
consumers to find out if the concepts have strong consumer appeal (A
word, or picture description of the product, or using virtual reality to test
product concept. Also asking the consumer about new products)
45

MARKETING STRATEGY
o The marketing logic by which the business unit hopes to achieve its
marketing objectives. The marketing strategy statement outlines the
intended target market, the planned product positioning and the sales,
market share and profit goals for the first two years.

BUSINESS ANALYSIS
o A review of the sales, costs and profit projections for a new product to
find out whether these factors satisfy the company’s objectives.
The steps of business analysis:
 conducting surveys of market opinion
 estimate minimum/maximum sales to access the range of risk
 estimate costs / profits including marketing, R&D, manufacturing,
accounting and finance.
 use sales and costs figures to analyse the new product’s financial
attractiveness

PRODUCT DEVELOPMENT
o Developing the product concept into a physical product in order to ensure
that the product idea can be turned into a workable product
The Process:
 R&D develops a prototype
 Test the prototype in the laboratory to see if it performs effectively
and efficiently
 Apply often DEMA (Design for Manufacturing and Assembly).
Fashion products that are both satisfying and easy to manufacture
(results in lower costs / higher quality / more reliable products)

TEST MARKETING
o The stage of new product development where the product and marketing
programme are tested in more realistic market settings. It gives the
marketer experience with marketing the product before going to the great
expense of full introduction. It lets the company test the product and its
entire marketing programme – positioning strategy, advertising,
distribution, pricing, branding and packaging and budget levels – in real
market situations.
Ways for test marketing
 Standard test markets: finding a small number of representative test cities,
and conducting a full marketing campaign in these cities. (Using store
audits, customer and distributor surveys and other measures to gauge
product performance). Then using the results to forecast national sales and
profits. To discover potential product problems and fine-tune the
marketing programs (it involves the risk that competitors may beat the
product)
46


controlled test marketing: research firms keep controlled panels of stores
which have agreed to carry new products for a fee. The company with the
new product specifies the number of stores and geographical locations it
wants. The research firm delivers the product to the participating stores
and controls shelf location, amount of shelf space, displays and point-ofpurchase promotions, and pricing according to plan. Sales results are
tracked to determine the impact of these factors on demand. It takes less
time than standard test marketing (6 months to 1 year)
Simulated test-marketing: The company, or research firm shows to a
sample of consumers ads and promotions for a variety of products,
including the new product being tested. It gives consumers a small amount
of money and invited them to a real laboratory store, where they may keep
the money or buy the new product and competing brands. This simulation
provides a measure of trials and the commercials effectiveness against
competing commercials. (virtual reality tests and the Internet is done also
– Small shop by Gadd (a virtual reality approach that re-creates shopping
situations in which researchers can test consumer’s reactions to such
factors as product positioning, store layouts and package designs).
Test Marketing New Industrial Products
 Product-use tests: selecting a small group of potential customers who agree to use
the new product for a limited time.
 trade shows: drawing buyers to trade shows to view new products in a dew
concentrated days
 distributor and dealer display room: new product is places next to other company /
competitor’s products
 standard or controlled test markets: testing the product in real market situations.

COMMERCIALIZATION
o Introducing a new product into the market. Z(it is the most costly process
– beware of backlogs – i.e., Psion’s new series 5 palmtop organizer)
Commercialization decisions:
 When: is the right time to introduce the new product?
 Where: a single location? A region? Several regions? The national
market? Internationally?
 To whom: who are the customers?
 How: develop an action plan in introducing the new product into the
selected market. A costly process (i.e., Windows 95 spend $5 bn)
Sequential Versus Simultaneous New Product development:
 Sequential product development: a NPD approach in which one company
department works individually to complete its stage of the process before passing
the new product along to the next generation and stage )it has the problem of
being slow)
47

Simultaneous product development: an approach to developing a new product
in which various company departments work closely together, overlapping the
steps in the PD process to save time and increase effectiveness. It is faster to
market but creates confusion.
The Product Life Cycle
PRODUCT LIFE CYCLE: SALES AND PROFITS
SALES
Maturity
Product
development
Introduction
Growth
Decline
PROFITS
The product life cycle is the course of a product’s sales and profits over its lifetime. It
involves the 5 stages below:
 Product development: the company finds and develops a new product idea – costs
mount,
 Introduction: the product is being introduced in the market – profits are absent
 Growth: a period of rapid market acceptance – increased profits
 Maturity: the product has achieved acceptance – profits start to decline
 Decline: the period when sales fall off and profits drop.
Duration of PLC:
 Product class: (period –engined cars) we stay in the mature stage for a long time.
 Product form: people carrier 0 regular stages
 Brand: (Fiat Punto) – here life cycle can change quickly because of changing
competitive attacks and responses.
Style, Fashion Fad Products
 Style: a basic and distinctive mode of expression (i.e. British Homes, Victorian).
A style has a cycle showing several periods of renewed interest.
48


Fashion: a current accepted or popular style in a given field (i.e. loose and layered
look of the 1990s). Fashions tend to grow slowly, remain popular for a while and
then decline slowly.
Fads: fashions entered quickly, adopted with zeal, peak early and decline very fast
(yo yos)
PLC strategies




Skimming slowly: skimming the market slowly with high price and low
penetration
Skimming rapidly: skimming the market rapidly with high price and high
penetration
Rapid penetration: low price with heavy promotion
Slow penetration: low price with low promotion
PLC Stages
Growth: the product life cycle stage at which a product’s sales start climbing quickly.
Here we have high market share or high current profit.
Maturity: the stage where sales growth slows or levels off. A good offensive is the best
defense. (market development, product development or innovation)
Decline: here sales decline. Strategies are:
 Withdraw from the market
 Reduce the number of product offering
 Drop smaller market segments
 Cut promotion budget
 Maintain brand
 Reposition the brand
 Revitalize the business (book clubs reinvented themselves by using the Net)
49
Price
Price: The amount of money charged for a product or service, or the sum of the values
that consumers exchange for the benefits of having or using the product or service.
FACTORS TO CONSIDER WHEN SETING PRICE
INTERNAL FACTORS
•Marketing objectives
•Marketing-mix
•Costs
•Organization for pricing
PRICING
DECISIONS
EXTERNAL FACTORS
•Markets and demand
•Competition
•Environmental issues
(economy, resellers,
Government)
Pure competition: a market in which many buyers and sellers trade in a uniform
commodity – no single buyer or seller has much effect on the going market price.
Monopolistic competition: a market in which many buyers and sellers trade over a range
of prices rather than a single market price. (A range of prices occurs because sellers can
differentiate their offers to buyers – i.e., through branding).
50
Oligopolistic competition: a market in which there are a few sellers that are highly
sensitive to each other’s pricing and marketing strategies (each seller is alert to
competitor strategies and moves) – i.e., in cars, computers etc.
Pure Monopoly: a market in which there is a single seller – it may be a government
monopoly, a private regulated monopoly or a private non-regulated monopoly (a postal
service v a power company v Microsoft)

Government monopoly: price can be set either low or high according to the objective.

Regulated monopoly: the government permits the company to set rates that yield a
“fair return”, one that will get the company maintain and expand its operations as
needed.

Non- regulated monopoly: we are free to price at what the market will bear.
Market Demand and Elasticity
Market Demand
The quantity demanded of a good as a function of the values taken by a number
of variables:
ie., the demand for a good X can be expressed as :
q x d = Q(Px, P1, P2 … Pn, Y, T)
where:
q x d = the quantity demanded of good X per period
Px = the price of good X
P1, P2 … Pn = the prices of other n goods
Y = the aggregate consumers’ income
T = Consumers’ tastes or preferences
Q = the function relating the variables in parenthesis to q x d
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Consumer perceptions of price and value – exchange issues
When setting prices, the company must consider consumer perceptions of price and how
these perceptions affect consumer’s buying decisions. When consumers buy a product,
they exchange something of value (the price) to get something of value (the benefits of
having or using the product). If consumers perceive that the price is greater than the
product’s value, then they will not buy the product. If the opposite happens, the seller
loses money.
Basis of pricing
Demand based
Cost based
Competion based
Market based
Promotion





Advertising: any paid form of non-personal presentation and promotion of ideas,
goods or services by an identified sponsor.
Personal selling: personal presentation by the firm’s sale force for the purpose of
making sales and building customer relationships.
Sales promotion: short-term incentives to encourage the purchase or sale of a
product or service.
Public relations: building good relations with the company’s various publics by
obtaining favorable publicity, building up a good corporate image, and handling
or heading off unfavorable rumors, stories or events.
Direct marketing: direct connections with carefully targeted individual
consumers to both obtain an immediate response and cultivate lasting customer
relationships – the use of telephone, mail, fax, e-mail, the Internet and other tools
to communicate directly with specific consumers.
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TOOLS
Sales
Promotion
Advertising
•Print
•Radio
•TV
•Outdoor
Personal
Selling
•Sales
Presentations
•Fairs
•Trade shows
•Incentive
programs
•Point-of-sale
purchase
Displays
•Premiums
•Discounts
•Coupons
•Competitions
•Specialty
advertising
•demonstrations
Direct
Marketing
•Catalogues
•Telemarketing
•Fax
•Kiosks
•The Internet
•Databases
THE CHANGING COMMUNICATIONS ENVIRONMENT FACTORS



As mass markets have become fragmented, marketers are shifting away from
mass marketing towards micro-marketing.
Vast improvements in computer and IS are speeding the movement towards
segmented marketing (keep close track of customer needs).
We have a move toward one-to-one marketing. As we move toward a “wireless
world” there will be increasing opportunities to create more and more targeted
communications we move from broadcasting to narrowcasting ( wireless ads,
banners etc).
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TRENDS
Technology and
segmented
markets
Towards
Micro-marketing
One-to-one
Marketing
(wireless world)
From broadcasting
to narrowcasting
INTEGRATED MARKETING COMMUNICATIONS
Advertising
Personal
Selling
Sales
promotion
Consistent,
clear
compelling
company and
product
messages
Public
relations
Direct
Marketing
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Integrated Marketing Communications: the concept under which a company carefully
integrates and co-ordinates its many communications channels to deliver a clear,
consistent and compelling message about the organization and its products.
Steps in developing effective communication
Step 1: Identifying the target audience:
the audience may be potential buyers or current users, those who make the buying
decision or those who influence it. It affects the communicator’s decisions on
‘what’, ‘how’, ‘when’, ‘where’, will be said and ‘who’ will say it.
Step 2: Determining the communication objectives:
once the target audience has been defined, we must decide what response is
sought. We need to know where the target audience now stands and to what state
it needs to be moved.
Buyer readiness stages: the stages that consumers normally pass through their
way to purchase are the following:
SETTING THE PROMOTION MIX
Promotion tools: advantages and drawbacks
ADVERTISING
Benefits
 Reaches masses of geographically dispersed buyers
 It says something positive about the seller’s size and success.
 Consumers tend to see advertised products as legitimate and standard.
 It enables the seller to repeat the message many times
 It enables compare with message of competitors
 Helps build up a long term image for a product (i.e., Coke)
 It can trigger quick sales
Drawbacks
 It is impersonal and cannot be persuasive as salespeople.
 It is only able to carry on a one-way communication with the audience.
 It can be very costly.
PUBLICITY
Benefits
 Non paid form
 effective
Drawbacks
 can be misleading
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PERSONAL SELLING
Benefits
 It involves personal interaction between two or more people
 It allows relationships to spring up
 The buyer feels a greater need to listen / respond
Drawbacks
 It has high costs
 It requires a long-term commitment.
SALES PROMOTION
Benefits
 Attract customer attention / provide information leading to purchase
 Offers incentives to purchase
 Sales promotions invite and reward quick response (buy it now)
Drawbacks
 It is short-lived
 They are not effective in building long-run brand preference.

Type of product / market: the importance of different promotional tools varies
between consumer and business markets (see graph).
CONSUMER GOODS
Advertising
Sales Promotion
Personal Selling
PR
Relative Importance
INDUSTIAL GOODS
Personal Selling
Sales Promotion
Advertising
PR
Relative Importance
Push and Pull Strategies
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PUSH STRATEGY
Reseller
Marketing
activities
Producer
Marketing
activities
producer
Retailer/wholesaler
(Selling, trade,
Promotion, other)
consumer
(advertising,
sales promotion
other)
PULL STRATEGY
demand
producer
demand
Retailer/wholesaler
consumer
Producer marketing activities
Push strategy: it involves ‘pushing’ the product through distribution channels to final
consumers. (The producer promotes the product to wholesalers, the wholesalers promote
to retailers and the retailers promote to final customers)
Pull strategy: the producer directs its marketing activities (advertising and consumer
promotion) towards final consumers to induce them to buy the product. If the pull
strategy is effective, consumers will then demand the product from channel members,
who will in turn demand it from producers. (Generally, there is a shift from pull to push
strategies though. This has led to fierce price competition).
PROMOTION TOOLS AND THE PRODUCT-LIFE CYCLE
The effects of different promotion tools also vary with stages of the product life-cycle.
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PRODUCT LIFE CYCLE: SALES AND PROMOTION TOOLS
Growth
Product
Development
•Advertising
•PR
Introduction
Maturity
•Sales
Promotion
Decline
•Sales
Promotion
•Advertising
•PR
Distribution
Distribution Channel: a set of interdependent organizations involved in the process of
making a product or service available for use or consumption by the consumer or
industrial user.
The need for intermediaries: the use of intermediaries results from their greater
efficiency in making goods available to target markets. Through their contacts,
experience, specialization and scale of operation, intermediaries reduce the amount of
work that must be done in both producers and consumers.
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Direct Marketing
9 contacts
Intermediaries
6 contacts
The role of intermediaries in demand and supply: producers make assortments of
products in large quantities but consumers want broad assortments of products in small
quantities. In the distribution channels, intermediaries buy the large quantities of many
producers and break them down into the smaller quantities and broader assortments
wanted by consumers.
Distribution Channels and Services: producers of services and ideas also face the
problem of making their output available to target populations. Such may be:
 Retail stores
 Hotels
 Banks
 Service providers
 Public sector service organizations and agencies
 Hospitals
 Schools
 Communities
Marketing Channels Functions
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Functions helping to complete transactions
Information
Promotion
Contact
Negotiation
Matching
Information: gathering and distributing marketing research and intelligence information
about actors and forces in the marketing environment needed for planning and facilitating
exchange.
Promotion: Developing and spreading persuasive communications about an offer
.
Contact: shaping and fitting the offer to the buyer’s needs, including such activities as
manufacturing, grading, assembling and packaging.
Negotiation: reading the agreement by price and other terms of the offer, so that
ownership or possession can be transferred.
Marketing Channel Functions
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Marketing Channel Functions
FINANCING
PHYSICAL
DISTRIBUTION
RISK-TAKING
Physical Distribution: transporting and storing goods
Financing: acquiring and using funds to cover the costs of the channel work
Risk-taking: assuming the risks of carrying out the channel work.
Number of channel levels

Channel level: a layer of intermediaries that performs some work in bringing the
product and its ownership closer to the final consumer.
o Direct Marketing Channel: a marketing channel that has no intermediary levels
o Indirect marketing channel: having one or more intermediary levels.
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CONSUMER MARKETING CHANNELS
Producer
Consumer
Producer
Producer
Producer
Wholesaler
Wholesaler
Retailer
Consumer
Retailer
Consumer
Jobber
Retailer
Consumer
BUSINESS MARKETING CHANNELS
Producer
Industrial Buyer
Producer
distributor
Producer
Sales/Representative
Producer
Sales/Representative
Industrial Buyer
Industrial Buyer
distributor
Industrial Buyer
Channel Behavior: Ideally, because the success of individual channel members depends
on overall success, all channel firms should work together smoothly to secure healthy
margins or profitable sales.
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Identifying Alternatives
Direct
Marketing
•Telephone
•The Internet
•Radio
•Print
•TV
•Catalogues
Sales Force
•Own salesmen
•Another firm
•Contract sales force
Intermediaries
•Wholesalers
•Merchant
wholesalers
•Brokers
•Agents
•Retailers
Types of Channel Alternatives
Direct Marketing: Interacting directly with consumers, through various advertising
media and calling them to make a direct response.
Intermediaries: Distribution channel firms that help the company find customers or
make sales to them, including wholesalers / retailers that buy and resell the goods.
Sales force: A company can sell directly through its own sales force or deploy another
firm’s sales force.
Intermediaries




Wholesaler: selling goods and services to those buying for resale or business use.
Merchant wholesaler: independently owned business that makes title to the
merchandise it handles.
Broker: a wholesaler who does not take title to goods and whose function is to bring
buyers and sellers together to assist in negotiation.
Agent: a wholesaler who represents buyers or sellers on a relatively permanent basis,
performs only a few functions, and does not take title to goods.
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
Retailers: business whose sales come from retailing.
Amount of service (retailers)
 Self-Service Retailers: retailers that provide few or no services to shoppers; shoppers
perform their own locate – compare – select projects.
 Limited-service Retailers: Retailers that provide only a limited number of services to
shoppers (department stores)
 Full- service Retailers: (specialty stores) retailers that provide a full range of services
to shoppers.
AMOUNT OF SERVICE
Self-service
Retailer
•Supermarkets
•Discount stores
Limited-service
Retailers
•Department stores
Full-service
Retailers
•Specialty shops
•Up-market department
stores
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Number of marketing intermediaries
NUMBER OF MARKETING INTERMEDIARIES
Intensive
Distribution
Exclusive
Distribution
Selective
Distribution
Intensive Distribution: stocking the product in as many outlets as possible (Coca-Cola,
Nestle)
Exclusive Distribution: giving a limited number of dealers the exclusive right to
distribute the company’s products in their territories.
Selective Distribution: the use of more than one, but less than all of the intermediaries
that are willing to carry the company’s products (Braun, Electrolux)
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RETAILERS
WHOLESALERS
PRODUCERS
SUPPLIERS
The Supply Chain
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