Unit 1
Conceptual Foundation: Basic Concepts: Market, Marketing, Marketing Management,
Philosophy of Marketing, Company orientation towards market place.
Q.1 What is the nature & scope of marketing & why is marketing important?
Ans.: Nature & Scope of Marketing : Marketing is an ancient art & is everywhere.
Formally or informally, people & organizations engage in a vast numbers of activities that could be
called marketing. Good marketing has become anincreasingly vital ingredient for business success. It
is embedded in everything we do- from the clothes we wear, to the web sites we click on, to the ads
we see.
Marketing deals with identifying & meeting human & social needs or it can be defined as “meeting
needs profitably”.
The American Marketing Association has defined marketing as “an organizational function & a set
of processes for creating, communicating & delivering value to the customers & for managing
customer’s relations in ways that benefit the organization & the stake holders.
Or
Marketing management is the art & science of choosing target markets & getting, keeping & growing
customers through creating, delivering & communicating superior customer value.
Or
“Delivering a higher standard of living” For a managerial definition, marketing has been defined as
“the art of selling products” but people are surprised when they hear that the most important part
of marketing is not selling. Selling is only the tip of marketing iceberg. Peter Drucker says that the
aim of marketing is to know & understand the customer so well that the product or service fits him
& sells itself. All that should be needed is to make the product or the service available.
For example the success of Indica, the first indigenously designed car by Tata Motors. Backed by
strong customers delight, the company designed a vehicle with luggage space & legroom & offered it
a price easily available & affordable to middle class.
Importance of Marketing :
 Financial success of any organization depends upon marketing ability of that organization. There
should be sufficient demand for products & services so the company can make profit. Therefore
many companies created chief marketing officer (CMO) position to put marketing on a more
equal footing with other e-level executives.
 Marketing is tricky & large well known business such as Levi’s, Kodak, Xerox etc. had to rethink
their business models, Even Microsoft, Wal-Mart, Nike who are market leaders cannot relax.
 Thus, we can say that making the right decision is not easy & marketing managers must take
major decisions about the features of the product prices & design of the product, where to sell
products & expenditure on sales & advertising. Good marketing is no accident but a result of
careful planning & execution. Marketing practices are continuously being refined to increase the
chances of success. But marketing excellence is rare & difficult to achieve & is a never ending
task.
 For example, NIRMA – The brand icon of the young girl has adorned the package of Nirma
washing powder. The jingle has become one of the enduring times in Indian advertising.
What is a MARKET? What are the types of Markets?
Traditionally, a "market" was a physical place where buyers and sellers gathered to buy and sell
goods. Economists describe a market as a collection of buyers and sellers who transact over a
particular product or product class (e.g., the housing market or grain market).
Modern economies abound in such markets. Five basic markets and their connecting flows are
shown in Figure 1.1.
Figure 1.1
Manufacturers go to resource markets (raw material markets, labor markets, money markets), buy
resources and turn them into goods and services, and then sell finished products to intermediaries,
who sell them to consumers. Consumers sell their labor and receive money with which they pay for
goods and services. The government collects tax revenues to buy goods from resource,
manufacturer, and intermediary markets and uses these goods and services to provide public
services. Each nation's economy and the global economy consist of complex interacting sets of
markets linked through exchange processes.
On the other hand, marketers often use the term market to cover various groupings of customers.
They view the sellers as constituting the industry and the buyers as constituting the market. They
talk about need markets (the diet-seeking market), product markets (the shoe market), demographic
markets (the youth market), and geographic markets (the French market); or they extend the
concept to cover other markets, such as voter markets, labor markets, and donor markets. Figure 1.2
shows the relationship between the industry and the market.
Sellers and buyers are connected by four flows. The sellers send goods and services and
communications (ads, direct mail) to the market; in return they receive money and information
(attitudes, sales data). The inner loop shows an exchange of money for goods and services; the outer
loop shows an exchange of information.
KEY CUSTOMER MARKETS
Consider the following key customer markets: consumer, business, global, and nonprofit.
Consumer Markets Companies selling mass consumer goods and services such as soft drinks,
cosmetics, air travel, and athletic shoes and equipment spend a great deal of time trying to establish
a superior brand image. Much of a brand's strength depends on developing a superior product and
packaging, ensuring its availability, and backing it with engaging communications and reliable
service. Complicating this task is the always changing consumer market (see "Marketing Insight: New
Consumer Capabilities").
Business Markets Companies selling business goods and services often face well-trained and wellinformed professional buyers who are skilled in evaluating competitive offerings. Business buyers
buy goods in order to make or resell a product to others at a profit. Business marketers must
demonstrate how their products will help these buyers achieve higher revenue or lower costs.
Advertising can play a role, but a stronger role may be played by the sales force, price, and the
company's reputation for reliability and quality.
Global Markets Companies selling goods and services in the global marketplace face additional
decisions and challenges. They must decide which countries to enter; how toenter each country (as
an exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer); how to
adapt their product and service features to each country; how to price their products in different
countries; and how to adapt their communications to fit different cultures. These decisions must be
made in the face of different requirements for buying, negotiating, owning, and disposing of
property; different culture, language, and legal and political systems; and a currency that might
fluctuate in value.
Nonprofit and Governmental Markets Companies selling their goods to nonprofit organizations
such as churches, universities, charitable organizations, or government agencies need to price
carefully because these organizations have limited purchasing power. Lower prices affect the
features and quality that the seller can build into the offering. Much government purchasing calls for
bids, with the lowest bid being favored, in the absence of extenuating factors.
Q.2 What are some fundamental marketing concept?
OR: Explain Traditional and Modern Concepts of Marketing
OR: Elaborate on Philosophies of Marketing
Ans.: The various fundamental concepts are :(1) Production Concept : The production concept is one of the oldest concepts in business. It holds
that consumers will prefer products that are widely available & not expensive. Manager of
production oriented business concentrate on achieving high production efficiency, low cost per unit
& mass distribution. Eg. Haier in China take advantage of the country’s huge inexpensive labor pool
to dominate the market, to manufacture PC & domestic appliances.
(2) Product Concept : This concept holds that consumers will prefer those products that are high in
quality, performance or innovative features. Managers who apply this concept focus on making
superior products & improving them. Sometimes, this concept leads to marketing myopia, Marketing
myopia is a short sightedness about business. Excessive attention to production or the product or
selling aspects at the cost of customer & his actual needs creates this myopia.
(3) Selling Concepts : This concept focuses on aggressively promoting & pushing its products, it
cannot expect its products to get picked up naturally by the customer. The purpose is basically to sell
more stuff to more people, in order to make more profits. Eg. Coca Cola
(4) Marketing Concept : The marketing concept emerged in the mid 1950’s. The business generally
shifted from a product – centered, make & sell philosophy, to a customer centered, sense & respond
philosophy. The job is not to find the right customers for your product, but to find right products for
your customers. The marketing concept holds that the key to achieving organizational goals consist
of the company being more effective than competitors in creating, delivering & communicating
superior customers value. This concept puts the customers at both the beginning & the end of the
business cycle. Every department & every worker should think customer & act customer.
Distinguishing Features of the Marketing Concept :
(i) Consumer Orientation : The purpose of any business is to create a customer. It is the customer
who determines what a business is
(ii) Integrated Management with Marketing as the support:
Integrated management means that all the different functions of a business must be tightly
integrated with one another. This is essential because every function has a bearing on the
consumers & the aim is to see that all the functions make a favorable impact on the consumer.
(iii) Consumers Satisfaction : The marketing concept emphasizes that it is not enough if a firm has
consumer orientation, it is essential that with such an orientation, it should lead to consumer
satisfaction.
(iv) Realization of all Organizational Goals, Including Profits : The firm should not forget its own
interests. It treats consumer satisfaction as the pathway to the attainment of goals of the
organization. In short the marketing concept essentially represents a shift in orientation.
 From production orientation to marketing orientation.
 From product orientation to customers orientation.
 From supply orientation to demand orientation.
 From sales orientation to satisfaction orientation
 From internal orientation to external orientation.
(5) Holistic Marketing Concept : This concept is based on the development, design &
implementation of marketing programs, processes & activities that recognizes their breadth. Holistic
concept realizes that “everything matters” with marketing. So instead of sticking to one particular
philosophy or concept, apply which is required and suitable for achieving marketing objectives.
Unit 2
Buyer Behaviour: Consumer Market and Industrial Market, Factors influencing Behaviour
Buying Decision Process, Characteristics of Industrial Market, major influencing factors on industrial
buying Behaviour, Types of buying decision
Q.1 Explain the need of studying buyer’s behavior & what influences consumer behaviors?
Ans.: The study of buyer’s behavior is basic to marketing as to who motivates the buyers? What
induces him to buy? Why does he buy specific brand? Why does he buy from a particular shop? Why
does he shift from one shop to other? How does he react to a new product in the market? These
questions are of central interest to the marketing man & above all a buyer is a riddle. His needs &
desire are often at a different stage of emergence & actualization.
The buyer has a selective perception & is exposed to a variety of products & information. He may
ignore certain piece of information whereas actually seek out some other information whereas
actively seek out some other information Therefore; marketers must fully understand both the
theory & reality of consumer behavior. A consumer’s buying behavior is influenced by cultural, social
& personal factors & they are a part of the buyer as an individual.
(1) Cultural Factors : Culture is the fundamental determination of a person’s wants & behaviour. The
growing child acquires a set of values perceptions, Preferences & Behaviors through his or her
family. Each culture consists of various subcultures that provide more specific identification. It
includes nationalities, religions, social groups & geographic regions.
Every culture dictates its own unique patterns of social conduct. Within each religion there may be
several sects & sub sects, there may be orthodox group & cosmopolitan groups. The do’s & don’ts
listed out by religion & culture impacts the individual’s lifestyle & buying behaviour. Eg. Kellogg India
launched cornflakes in Indian market, the response from the consumers was not so encouraging.
The company conducted a market research & found that Indians prefer hot milk with cornflakes,
whereas the crispiness benefit that it was claiming could be delivered only when the cornflakes were
mixed with cold milk.
Indian marketer use a term called socio economic classification (SEC) which uses a combination of
the education & occupation of their chief wage earner of the household to classify buyers in the
urban areas.
(2) Social Factors : Consumer’s behaviour is influenced by social factors such as reference groups,
family, social roles & status. The buyer is living in a society, is influenced & There is a constant
interaction between the individual & the groups to which he belongs. All these interactions effects
him in his day to day life.
Reference Groups : A person’s reference groups consist of all the groups that have a direct or
indirect influence on his attitude. They can be family friends, neighbours, co-worker, religious,
professional & trade union groups. Reference groups expose an individual to new behaviours &
lifestyles & influence attitude & self concept. Brands like Levi, Prologue & Planet M used teenage
icon as brand Ambassadors for in store promotions.
Family : The family is the most important buying organization in society. From parents a person
acquires an orientation toward religion politics & a sense of personal ambition, self worth & love. Eg.
In traditional joint families, the influence of grandparents on major purchase decisions affect the
lifestyles of younger generations. In urban India with the growth of nuclear families & both husband
and wife working the role of women in major family decisions is prominent. Children & teenagers
are being targeted by companies using the internet as an interactive device.
Role & Status : The person’s position in each group can be defined in terms of role & status. A role
consist of all activities that a person is expected to perform. Each role carries a status. A Vice
President of marketing has more status than a sales manager & a sales manager has more status
than an office clerk & people choose those products that reflect & communicate their role & desired
status in society.
(3) Personal Factors : The personal factors include the buyer’s age & stage in the life cycle,
occupation & economic position, personality & self concept & lifestyle & values.
Age & Stage in the Life Cycle : People buy different products like food, cloths furniture & this is
often age related. Trends like delayed marriages, children migrating to distant cities, tendency of
professionals has resulted in different opportunities for marketers at different stages in consumer
life cycle.
Occupation & Economic Position : Occupation also influences buyer’s behaviour. A blue collar
worker will buy work clothes, work shoes & lunch boxes, a company president will buy dress suits,
air travel & club membership’s. Marketers try to identify the occupational groups & then make
products according to their needs & demands. Product choice is greatly affected by economic
circumstances – spendable income, savings & assets & attitude towards spending & savings.
Personality & Self Concept : Each person has personality characteristics that influence his / her
buying behaviour. Personality means a set of distinguishing psychological traits that has to response
to environmental stimuli. Personality can be a useful variable in analyzing consumer brand choice.
The idea is that brands also have personalities & consumers like to choose those brands which suits
or match their personality
Q.2 Explain briefly the steps in buying decision process.
Ans.: The marketing scholars have developed a “stage model” of the buying process. The consumer
passes through 5 stages: problem recognition information search, evaluation of alternatives;
purchase decision, & post purchase behavior. But consumers do not always pass through all five
stages in buying a product. They may skip some stages.
(1) Problem Recognition: The buying process starts when the buyer recognizes a problem or need.
The need can be triggered by internal or external stimulus. With an internal stimulus, one of the
person’s normal needs hunger thirst etc. become a drive or a need can be aroused by external
stimuli. Marketers need to identify the circumstances that trigger a particular need by gathering
information from a number of consumers.
(2) Information Search: An aroused consumer will be inclined to search for more information. A
person at times simply becomes receptive to information about a product or he may enter looking
for a reading material, phoning friends, going online etc. Through gathering information, the
consumer learns about competing brands & other features.
(3) Evaluation of Alternatives: The information search & comprehension (evaluation) stages
represent the information processing stage. These 2 stages constitute the cognitive field of the
purchase process. Cognition refers to acquisition of knowledge.
Some basic concepts help us in understanding consumer evaluation: first the consumer is trying to
satisfy a need, second the consumer is looking for certain benefits & third the consumer views each
product as a bundle of attributes to satisfy this need.
(4) Purchase Decision: The buyer must be convinced that the purchase of the product is the
legitimate course of action. This stage stands as a barrier between a favorable attitude towards the
product & actual purchase. Only if the buyer is convinced about the correctness of the purchase
decision, will be proceed. At this stage, he may seek further information regarding the product or
attempt to assess the information already available.
(5) Post Purchase Behavior: The purchase leads to specific post purchase behavior; usually it
creates some restlessness in the mind of the individual. He is not sure about the product. He may
feel that the other brand would have been better. It can be defined in terms of satisfaction. If the
performance of the product falls short of expectations, the consumers is disappointed, if it meets
expectations, the consumer is satisfied, it is exceeds expectations, the consumer is delighted. These
feelings make a difference in whether the customer buys the product again & talks favorably or
unfavorably about it to others.
Unit 3
Target Marketing, Market Segmentation on different basis, target marketing strategies
Q.1 Define the term market segmentation? What is the need to segment the markets?
OR
Elucidate the term market segmentation & briefly explain the need to segment the market
Ans.: “THERE IS NO UNIVERSAL PRODUCT THAT CAN SATISFY NEEDS OF EACH CUSTOMER OF THE
MARKET WITH EQUAL SATISFACTION VALUE”
Markets are not homogenous & they are made of several segments. A market is the aggregate of
consumers of a given product and consumers vary in their characteristics buying behaviour. It is
feasible to disaggregate the consumers into segments in such a manner that in needs characteristics
& buying behaviour, the members vary significantly among segments. Segmentation benefits the
marketer as :(1) Facilitates Proper Choice of Target Market: Segmentation helps in distinguishing one customer
group from another & thereby unables him to decide which segment should form his target market.
(2) Facilitates Taping of the Market, Adopting the Offer to the Target: Segmentation also enables
the marketer to crystallize the needs of the target buyers. It also helps him to generate an accurate
prediction of the likely responses from each segment of the target buyers.
Eg. Ford Strategy – Through segmentation car manufacturers have gained useful insights on the
product features to be provided to different segments of car buyers.
(3) Makes the Marketing Effort More Efficient & Economic: Segmentation makes the marketing
effort more efficient & economic. It ensures that the marketing effort is concentrated on well
defined & carefully chooses segments. After all, the resources of any firm are limited & no firm can
normally afford to attack & tap the entire market.
(4) Helps spots the less satisfied segments & succeed by satisfying such segments.
(5) Helps achieve the specialization required in product, distribution, promotion & pricing for
matching the customer group & develop marketing offers.
Therefore, to compete more effectively, many companies go for target marketing which can
establish & communicate the distinctive benefits of the company’s market offering. This process is
called as market segmentation.
Eg.: GM has identified 40 different customer needs & 40 different market segments in which it
would be present with its vehicle.
Q.2 how can a company divide a market into segments?
OR
What are the bases for market segmentation?
Ans.: Market can be segmented using several relevant bases they are :(i) Geographic Segmentation: Geographic segmentation calls for dividing the market into different
geographical units such as nations, regions, countries, cites or neighborhood. One of the major
geographic segmentation in India is the division of rural & urban areas. The need to segment the
market geographically becomes clearer when we look at some of the characteristics of the market.
In India, there are more than 5000 towns & over 6,38,000 villages. Nearly 87% of these villages have
a population of less than 2000 people. This variation in population is important for the marketer
while formulating marketing strategy & plans. In addition to this products penetration, income levels
& availability of infrastructure like roads & electricity make the task of geographic segmentation
important. For most products, penetration levels in rural areas are lower than in urban areas.
Income & lifestyle issues influence the penetration rate of products & services.
Eg.: Haats & mandis serve important roles in the exchange of goods & services in rural areas.
(ii) Demographic Segmentation: In demographic segmentation, the market is divided into groups on
the basis of variables such as age, family size, family life cycle, gender, income occupation, education
religion, race generation, nationality & social class.
Age & Life Cycle Stage: Consumer wants & abilities change with age. Eg: Hindustan Uni Level
introduced Pears soap in pink color specially for children. Johnson & Johnson Baby Powder & Talcum
Powder are classic examples of products for infants & children. Television channels in India
Indicate the segmentation based on age & life cycle. There are channels like Aastha & Sanskaar
target which towards the old generation, cartoon network, Disney are channels for children etc.
Gender: Men & women have different behavioral orientation. Gender differentiation has been long
applied to product categories such as clothing, cosmetics & magazines. Eg: Axe deodorant is
positioned as a masculine product. Park Avenue from Raymond is positioned as masculine brand.
Bajaj wave is a brand specifically designed for women in the scooter segment.
Income: Income segmentation is a long standing practice in a variety of products & services & is a
basic segmentation variable. Eg: Nirma Washing Powder was launched as the lowest priced
detergent in India primarily targeted at middle income group. Markets for many consumers’
products in India are showing rapid growth due to low unit price packaging.
Generation: Each generation is profoundly influenced by the time in which it grows- the music
movies, politics.
Social Class: Social class has a strong influence on preference in cars, clothing, home, furnishings,
leisure activities, reading habits, retailers etc.
(iii) Psychographic Segmentation: In psychographic segmentation, elements like personality traits,
attitude lifestyle & value system form the base. The strict norms that consumers follow with respect
to good habits or dress codes are representative examples. Eg: Mr. Donald’s changed their menu
in India to adopt to consumer preference. The market for Wrist Watches provides example of
segmentation. Titan watches have a wide range of sub brands such as Raga, fast track, edge etc. or
instant noodle markers, fast to cook food brands such as Maggi, Top Ramen or Femina, women’s
magazine is targeted for modern women.
(iv) Behavioral Segmentation: Markets can be segmented on the basis of buyer behavior as well.
The primary idea in buyer behavior is that different customer groups expect different benefits from
the same product & accordingly they will be different in their motives in owning it. In buyer behavior
based segmentation also, several sub factors form the basis. Eg: Purchase occasion can be one base,
buyer can be segmented on the basis of whether they are regular buyers or special occasion buyers.
Degree of use can be another base, they can be segmented on the basis of whether they are light,
medium or heavy users of the product or whether they are enthusiastic or indifferent or negative
towards the product.
Q2 What is a target Market? What are the strategies of target marketing?
Target Markets and Market Segmentation
The market selected by a company as the target for their marketing efforts (i.e., target market) is
critical since all subsequent marketing decisions will be directed toward satisfying the needs of these
customers. But what approach should be taken to select markets the company will target?
One approach is to target at a very broad level by identifying the market as consisting of qualified
customers who have a basic need that must be satisfied. For example, one could consider the
beverage market as consisting of all customers that want to purchase liquid refreshment products to
solve a thirst need. While this may be the largest possible market a company could hope for (it
would seem to contain just about everyone in the world!) in reality there are no commercial
products that would appeal to everyone in the world since individual nutritional needs, tastes,
purchase situations, economic conditions, and many other issues lead to differences in what people
seek to satisfy their thirst needs.
Because people are different and seek different ways to satisfy their needs, nearly all organizations,
whether for-profits or not-for-profits, industrial or consumer, domestic or international, must use
a Market Segmentation approach to target marketing. This approach divides broad markets,
consisting of customers possessing different characteristics, into smaller market segments in which
customers are grouped by characteristic shared by others in the segment.
To successfully target markets using a segmentation approach, organizations should engage in the
following three-step process.
1. Identify segments within the overall market
2. Choose the segment(s) that fits best with the organization’s objectives and goals
3. Develop a marketing strategy that appeals to the selected target market(s)
Target Market Strategies
There are several different target-market strategies that may be followed. Targeting strategies
usually can be categorized as one of the following:
 Single-segment strategy - also known as a concentrated strategy. One market segment (not
the entire market) is served with one marketing mix. A single-segment approach often is the
strategy of choice for smaller companies with limited resources.
 Selective specialization- this is a multiple-segment strategy, also known as a differentiated
strategy. Different marketing mixes are offered to different segments. The product itself
may or may not be different - in many cases only the promotional message or distribution
channels vary.
 Product specialization- the firm specializes in a particular product and tailors it to different
market segments.
 Market specialization- the firm specializes in serving a particular market segment and offers
that segment an array of different products.
 Full market coverage - the firm attempts to serve the entire market. This coverage can be
achieved by means of either a mass market strategy in which a single undifferentiated
marketing mix is offered to the entire market, or by a differentiated strategy in which a
separate marketing mix is offered to each segment.
The following diagrams show examples of the five market selection patterns given three market
segments S1, S2, and S3, and three products P1, P2, and P3.
Single
Segment
S1 S2 S3
Selective
Specialization
Product
Specialization
S1 S2 S3
P1
P2
P1
P2
P3
P3
S1 S2 S3
P1
P2
P3
Market
Specialization
S1 S2 S3
Full Market
Coverage
S1 S2 S3
P1
P2
P1
P2
P3
P3
A firm that is seeking to enter a market and grow should first target the most attractive segment
that matches its capabilities. Once it gains a foothold, it can expand by pursuing a product
specialization strategy, tailoring the product for different segments, or by pursuing a market
specialization strategy and offering new products to its existing market segment.
Another strategy whose use is increasing is individual marketing, in which the marketing mix is
tailored on an individual consumer basis. While in the past impractical, individual marketing is
becoming more viable thanks to advances in technology.
EXTRA READING:
Major Factors Influencing Consumer Behavior
Consumers do not make their decisions in a vacuum. Their purchases are highly influenced by
cultural social, personal, and psychological factors. For the most part, they are “non controllable” by
the marketer but must be taken in to account. We want to examine the influence of each factor on a
buyer’s behavior.
______________________________________________________________________________
Cultural Factors
In a diversified country like India cultural factors exert the broadest and deepest influence on
consumer behavior; we will look at the role played by the buyer’s culture, subculture, and social
class.
Culture: Culture is the most fundamental determinant of a person’s wants and behavior. Whereas
lower creatures are governed by instinct, human behavior is largely learned. The child growing up in
a society leans a basic set of values, perceptions, preferences and behaviors through a process of
socialization involving the family and other key institution .Thus a child growing up in America is
exposed to the following values: Achievement and success, activity , efficiency and practicality,
progress, material comfort, individualism, freedom, external comfort, humanitarianism, and
youthfulness.
Subculture:
Each culture contain smaller group of subculture that provide more specific identification and
socialization for its members. Four types of subculture can be distinguished .Nationality groups such
as the Irish, polish, Italians, and Puerto Ricans are found with in large communities and exhibits
distinct ethnic tastes and Jews represent subculture with specific culture preference and taboos.
Social Class:
Virtually all human societies exhibit social stratification. Stratification sometimes takes the form of a
caste system where the member of different caste are reared for certain roles and cannot change
their caste membership .More frequently, stratification takes the form of social classes .
Social Classes have several characteristics. First, Person with in each social class tend to behave more
alike than persons from two different social classes. Second, persons are perceived as occupying
inferior or superior positions according to their social class. Third, a person’s social class is indicated
by a number of variables, such as occupation, income, wealth, education , and value orientation,
rather than by any single variable , fourth, individuals are able to move from one social class to
another up or down during their lifetime. The Extent of this mobility varies according to the rigidity
of social stratification a given society.
Social Factors:
A consumer’s behavior is also influenced by social factors, such as the consumer’s reference group,
family, and social roles and statuses.
Reference Group : A person’s behavior is strongly influenced by many group .A persons reference
group are those groups that have a direct (face to face) or indirect influence on the person’s
attitudes or behavior. Group having a direct influence on a person are called membership group.
These are group to which the person belongs and interacts. Some are primary groups. With which
there is fairly continuous interaction, such as family, friends, neighbors, and co-workers. Primary
group tend to be informal. The person also belong to secondary group, which tend to be more
formal and where there is less continuous interaction: they include religious organizations,
professional associations, and trade unions.
Family Group:
Members of the buyer’s family can exercise a strong influence on the buyer’s behavior. we can
distinguish between two families in the buyer’s life . The family of orientation consists of one’s
parents. From parents a persons acquires an orientation towards religious, politics, and economics
and a sense of personal ambitions, self –worth, and love. Even if the buyer no longer interacts very
much with his or her parents, the parents influence on the unconscious behavior of the buyer can be
significant. In countries where parents continue to live with their children, their influence can be
substantial.
In case of expensive products and services, husband and wives engage in more joint decision
making. The market needs to determine which member normally has the greater influence in the
purchase of a particular products or services. either the husband or the wife , or they have equal
influence . The following products and services fall under such:
Husband – dominant: life insurance, automobiles, television
Wife – dominant: washing machines, carpeting, non –living – room furniture, kitchenware
Equal: Living – room furniture, vacation, Housing, outside entertainment.
How to succeed:
Companies like Nokia, Reebok, Coke, PepsiCo and major automobile giants like Toyota, Suzuki, Ford,
Chevrolet, Mercedes etc.. has made a market for themselves in India. How did they establish their
own individual market in a country like India which is prone to diverse cultures? Let’s take the
example of Ford. Before establishing their base in India, they engaged in a lot of researches. Their
researches were made on the Indian people’s social life, personal tastes and preferences, way of life,
how they identify an effective product and what makes them get attracted towards a product. The
social and economic conditions were analyzed.
The general economy of India was also researched on. They had modified their product to suit the
Indian conditions. Their technology had to be adjusted and suited to such an extent that their car is
adaptable to Indian conditions. Indians are generally prone to be rough and tough customers and
especially taking into account the road conditions and other social factors they designed the product
in such a way that it’s best suited to the conditions and it’s received by the target customers. Today
Ford is enjoying a huge market in India. If an automobile company from a different country can make
wonders why cannot our own manufacturers adapt to these techniques.
A customer’s want has to be identified and his expectations must be matched with the other
economic and social factors so that their product is receptive. This can be related to any product.
Reebok today is enjoying a huge market in India even though they have hired a company which is
phoenix to manufacture shoes and operate under Reebok. How did they achieve this? Adapting to
social conditions play the most important role in establishing your brand in the market.
This also means that customers are open to new and different products from time to time. It’s just
that they want the product to be flexible and adaptable to their needs and preferences. People are
changing from time to time, so do their tastes and preferences. Identifying those is the first step
towards achieving success and the rest depends on the performance of the product.
Target Market Selection
Target marketing contrasts with mass marketing, which offers a single product to the entire market.
Two important factors to consider when selecting a target market segment are the attractiveness of
the segment and the fit between the segment and the firm's objectives, resources, and capabilities.
Attractiveness of a Market Segment
The following are some examples of aspects that should be considered when evaluating the
attractiveness of a market segment:
 Size of the segment (number of customers and/or number of units)
 Growth rate of the segment
 Competition in the segment
 Brand loyalty of existing customers in the segment
 Attainable market share given promotional budget and competitors' expenditures
 Required market share to break even
 Sales potential for the firm in the segment
 Expected profit margins in the segment
Market research and analysis is instrumental in obtaining this information. For example, buyer
intentions, salesforce estimates, test marketing, and statistical demand analysis are useful for
determining sales potential. The impact of applicable micro-environmental and macroenvironmental variables on the market segment should be considered.
Note that larger segments are not necessarily the most profitable to target since they likely will have
more competition. It may be more profitable to serve one or more smaller segments that have little
competition. On the other hand, if the firm can develop a competitive advantage, for example, via
patent protection, it may find it profitable to pursue a larger market segment.
Suitability of Market Segments to the Firm
Market segments also should be evaluated according to how they fit the firm's objectives, resources,
and capabilities. Some aspects of fit include:
 Whether the firm can offer superior value to the customers in the segment
 The impact of serving the segment on the firm's image
 Access to distribution channels required to serve the segment
 The firm's resources vs. capital investment required to serve the segment
The better the firm's fit to a market segment, and the more attractive the market segment, the
greater the profit potential to the firm.
Unit 4
Marketing Mix: Product Decisions: Concept of product, Product Mix, Developing a New product
Product life Cycle
Q1 What is a product?
Simply putting, a product is “set of tangible or intangible benefits offered to customer by an
exchange process” We can also say, a product can be anything that is offered to a market for
attention, acquisition, use or consumption and that might satisfy a want or need. Products include
more than just tangible goods. Broadly defined, products include physical objects, services, persons,
places, organizations, ideas or mixes of these entities.
Product Classifications
Products can be classified according to their durability and tangibility Non-durable products are
goods that are normally consumed quickly and used on one or a few usage occasions, such as beer,
soap and food products. Durable products are products used over an extended period of time and
normally survive for many years. Examples are refrigerators, cars and furniture. Services are
activities, benefits and satisfactions offered for sale which are essentially intangible and do not
result in the ownership of anything. Examples include haircuts, holiday packages and banking
services. Marketers have also divided products and services into two broad classes based on the
types of customer that use them - consumer products and industrial products
Q2 explain types of prouducts
OR
What are the consumer goods and industrial goods?
Categories of Consumer Products
In addition to categorizing by type of offering, most products intended for consumer use can be
further categorized by how frequently and where they are purchased.
 Convenience Products – These are products that appeal to a very large market segment.
They are generally consumed regularly and purchased frequently. Examples include most
household items such as food, cleaning products, and personal care products. Because of
the high purchase volume, pricing per item tends to be relatively low and consumers often
see little value in shopping around since additional effort yields minimal savings. From the
marketer’s perspective the low price of convenience products means that profit per unit
sold is very low. In order to make high profits marketers must sell in large volume.
Consequently, marketers attempt to distribute these products in mass through as many
retail outlets as possible.
 Shopping Products – These are products consumers purchase and consume on a less
frequent schedule compared to convenience products. Consumers are willing to spend more
time locating these products since they are relatively more expensive than convenience
products and because these may possess additional psychological benefits for the purchaser,
such as raising their perceived status level within their social group. Examples include many
clothing products, personal services, electronic products, and household furnishings.
Because consumers are purchasing less frequently and are willing to shop to locate these
products, the target market is much smaller than that of convenience goods. Consequently,
marketers often are more selective when choosing distribution outlets to sell their products.
 Specialty Products – These are products that tend to carry a high price tag relative to
convenience and shopping products. Consumption may occur at about the same rate as
shopping products but consumers are much more selective. In fact, in many cases
consumers know in advance which product they prefer and will not shop to compare
products. But they may shop at retailers that provide the best value. Examples include high-
end luxury automobiles, expensive champagne, and celebrity hair care experts. The target
markets are generally very small and outlets selling the products are very limited to the
point of being exclusive.
In addition to the three main categories above, products are classified in at least two additional
ways:
 Emergency Products – These are products a customer seeks due to sudden events and for
which pre-purchase planning is not considered. Often the decision is one of convenience
(e.g., whatever works to fix a problem) or personal fulfillment (e.g., perceived to improve
purchaser’s image).
 Unsought Products – These are products whose purchase is unplanned by the consumer but
occur as a result of marketer’s actions. Such purchase decisions are made when the
customer is exposed to promotional activity, such as a salesperson’s persuasion or purchase
incentives like special discounts offered to certain online shoppers. These promotional
activities often lead customers to engage inImpulse Purchasing.
Categories of Industrial Products
The amount spent on business purchasing far exceeds consumer purchasing. Products sold within
the b-to-b market fall into one of the following categories:
 Raw Materials – These are products obtained through mining, harvesting, fishing, etc., that
are key ingredients in the production of higher-order products.
 Processed Materials – These are products created through the processing of basic raw
materials. In some cases the processing refines original raw materials while in other cases
the process combines different raw materials to create something new. For instance, several
crops including corn and sugar cane can be processed to create ethanol which has many
uses including as a fuel to power car and truck engines.
 Equipment – These are products used to help with production or operations activities.
Examples range from conveyor belts used on an assembly line to large buildings used to
house the headquarters staff of a multi-national company.
 Basic Components – These are products used within more advanced components. These are
often built with raw material or processed material. Electrical wire is an example.
 Advanced Components – These are products that use basic components to produce
products that offer a significant function needed within a larger product. Yet by itself an
advanced component does not stand alone as a final product. In computers the
motherboard would be an example since it contains many basic components but without
the inclusion of other products (e.g., memory chips, microprocessor, etc.) would have little
value.
 Product Component – These are products used in the assembly of a final product though
these could also function as stand alone products. Dice included as part of a children’s board
game would be an example.
 MRO (Maintenance, Repair and Operating) Products – These are products used to assist with
the operation of the organization but are not directly used in producing goods or services.
Office supplies, parts for a truck fleet and natural gas to heat a factory would fall into this
category.
Q3 Explain Levels of Products:
(The following passage in bold/italics is extra reading, you can avoid while writing answer)
In the 1960's, the economist and Marketing Guru Philip Kotler changed the perception of
marketing. He described what marketing is rather than what marketers do, thereby changing
marketing from a departmental specialisation into a corporate wide doctrine. For Kotler,
marketing was a 'social process by which individuals and groups obtain what they need and want
through creating and exchanging products and value with others'.
For him, a product is more than physical. A product is anything that can be offered to a market for
attention, acquisition, or use, or something that can satisfy a need or want. Therefore, a product
can be a physical good, a service, a retail store, a person, an organisation, a place or even an idea.
Products are the means to an end wherein the end is the satisfaction of customer needs or wants.
Kotler distinguished three components:
need: a lack of a basic requirement;
want: a specific requirement for products or services to match a need;
demand: a set of wants plus the desire and ability to pay for the exchange.
Customers will choose a product based on their perceived value of it. Satisfaction is the degree to
which the actual use of a product matches the perceived value at the time of the purchase. A
customer is satisfied only if the actual value is the same or exceeds the perceived value.
Kotler defined five levels to a product: (lets take the example of a car to explain these levels)
1. Core Benefit
The fundamental need or want that consumers satisfy by consuming the product or service. In case
of a car Transportation from one place to another.
2. Actual Product
A version of the product containing only those attributes or characteristics absolutely necessary for
it to function. Brand of the car, looks and design of the car etc.
3. Expected Product
The set of attributes or characteristics that buyers normally expect and agree to when they purchase
a product. Decent mileage, proper engine, inflated tires etc.
4. Augmented Product
Inclusion of additional features, benefits, attributes or related services that serve to differentiate the
product from its competitors. After-sale services, insurance policy etc for the car is included in this
level.
5. Potential Product
All the augmentations and transformations a product that might undergo in the future. In our car
example, the features such as May run more smoothly as it wears off a little etc are counted as
potential product.
Kotler noted that much competition
takes place at the Augmented Product
level rather than at the Core Benefit
level or, as Levitt put it: 'New
competition is not between what
companies produce in their factories,
but between what they add to their
factory output in the form of packaging,
services, advertising, customer advice,
financing, delivery arrangements,
warehousing, and other things that
people value.'
Kotler's model provides a tool to assess
how the organisation and their
customers view their relationship and
which aspects create value.
Q4 Explain: New Product Development
Developing New Products
By its nature marketing requires new ideas. Unlike some organizational functions, where basic
processes follow a fairly consistent routine (e.g., accounting), successful marketers are constantly
making adjustments to their marketing efforts. New ideas are essential for responding to changing
demand by the target market and by pressure exerted by competitors. These changes are
manifested in decisions in all marketing areas including the development of new products.
In addition to being responsive to changing customer tastes and competitive forces, there are many
other reasons why new product development is vital. These include:
 Many new products earn higher profits than older products. This is often the case for
products considered innovative or unique which, for a period of time, may enjoy success and
initially face little or no competition.
 New products can help reposition the company in customer’s minds. For instance, a
company that traditionally sold low priced products with few features may shift customers’
perceptions about the company by introducing products with more features and slightly
higher pricing.
 Fierce global competition and technological developments make it much easier for
competitors to learn about products and replicate them. To stay ahead of competitors
marketers must innovate and often create and introduce new products on a consistent
schedule.
 Companies with limited depth in a product line may miss out on more sales unless they can
add new products to fill out the line.
 Some firms market seasonal products that garner their highest sales during a certain time of
the year or sell cyclical products whose sales fluctuate depending on economic or market
factors. Expanding the firm’s product mix into new areas may help offset these fluctuations.
For manufacturing firms an additional benefit is realized as new products utilize existing
production capacity that is under-used when seasonal or cyclical products are not being
produced.
New Product Development Process
Because introducing new products on a consistent basis is important to the future success of many
organizations, marketers in charge of product decisions often follow set procedures for bringing
products to market. In the scientific area that may mean the establishment of ongoing laboratory
research programs for discovering new products (e.g., medicines) while less scientific companies
may pull together resources for product development on a less structured timetable.
In this section we present a 7-step process comprising the key elements of new product
development. While some companies may not follow a deliberate step-by-step approach, the steps
are useful in showing the information input and decision making that must be done in order to
successfully develop new products. The process also shows the importance market research plays in
developing products.
We should note that while the 7-step process works for most industries, it is less effective in
developing radically new products. The main reason lies in the inability of the target market to
provide sufficient feedback on advanced product concepts since they often find it difficult to
understand radically different ideas. So while many of these steps are used to research
breakthrough ideas, the marketer should exercise caution when interpreting the results.
Product Development Steps 1-3
Step 1. IDEA GENERATION
The first step of new product development requires gathering ideas to be evaluated as potential
product options. For many companies idea generation is an ongoing process with contributions from
inside and outside the organization. Many market research techniques are used to encourage ideas
including: running focus groups with consumers, channel members, and the company’s sales force;
encouraging customer comments and suggestions via toll-free telephone numbers and website
forms; and gaining insight on competitive product developments through secondary data sources.
One important research technique used to generate ideas is brainstorming where open-minded,
creative thinkers from inside and outside the company gather and share ideas. The dynamic nature
of group members floating ideas, where one idea often sparks another idea, can yield a wide range
of possible products that can be further pursued.
Step 2. SCREENING
In Step 2 the ideas generated in Step 1 are critically evaluated by company personnel to isolate the
most attractive options. Depending on the number of ideas, screening may be done in rounds with
the first round involving company executives judging the feasibility of ideas while successive rounds
may utilize more advanced research techniques. As the ideas are whittled down to a few attractive
options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit
potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the
next step.
Step 3. CONCEPT DEVELOPMENT AND TESTING
With a few ideas in hand the marketer now attempts to obtain initial feedback from customers,
distributors and its own employees. Generally, focus groups are convened where the ideas are
presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in
actual working form. For instance, customers may be shown a concept board displaying drawings of
a product idea or even an advertisement featuring the product. In some cases focus groups are
exposed to a mock-up of the ideas, which is a physical but generally non-functional version of
product idea. During focus groups with customers the marketer seeks information that may include:
likes and dislike of the concept; level of interest in purchasing the product; frequency of purchase
(used to help forecast demand); and price points to determine how much customers are willing to
spend to acquire the product.
Step 4. BUSINESS ANALYSIS
At this point in the new product development process the marketer has reduced a potentially large
number of ideas down to one or two options. Now in Step 4 the process becomes very dependent
on market research as efforts are made to analyze the viability of the product ideas. (Note, in many
cases the product has not been produced and still remains only an idea.) The key objective at this
stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g.,
production costs) and financial projections (e.g., sales and profits). Additionally, the organization
must determine if the product will fit within the company’s overall mission and strategy. Much effort
is directed at both internal research, such as discussions with production and purchasing personnel,
and external marketing research, such as customer and distributor surveys, secondary research, and
competitor analysis.
Step 5. PRODUCT AND MARKETING MIX DEVELOPMENT
Ideas passing through business analysis are given serious consideration for development. Companies
direct their research and development teams to construct an initial design or prototype of the idea.
Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the
marketer seeks customer input. However, unlike the concept testing stage where customers were
only exposed to the idea, in this step the customer gets to experience the real product as well as
other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail
store, direct from company, etc.). Favorable customer reaction helps solidify the marketer’s decision
to introduce the product and also provides other valuable information such as estimated purchase
rates and understanding how the product will be used by the customer. Reaction that is less
favorable may suggest the need for adjustments to elements of the marketing mix. Once these are
made the marketer may again have the customer test the product. In addition to gaining customer
feedback, this step is used to gauge the feasibility of large-scale, cost effective production for
manufactured products.
Step 6. MARKET TESTING
Products surviving to Step 6 are ready to be tested as real products. In some cases the marketer
accepts what was learned from concept testing and skips over market testing to launch the idea as a
fully marketed product. But other companies may seek more input from a larger group before
moving to commercialization. The most common type of market testing makes the product available
to a selective small segment of the target market (e.g., one city), which is exposed to the full
marketing effort as they would be to any product they could purchase. In some cases, especially with
consumer products sold at retail stores, the marketer must work hard to get the product into the
test market by convincing distributors to agree to purchase and place the product on their store
shelves. In more controlled test markets distributors may be paid a fee if they agree to place the
product on their shelves to allow for testing. Another form of market testing found with consumer
products is even more controlled with customers recruited to a “laboratory” store where they are
given shopping instructions. Product interest can then be measured based on customer’s shopping
response. Finally, there are several high-tech approaches to market testing including virtual reality
and computer simulations. With virtual reality testing customers are exposed to a computerprojected environment, such as a store, and are asked to locate and select products. With computer
simulations customers may not be directly involved at all. Instead certain variables are entered into
a sophisticated computer program and estimates of a target market’s response are calculated.
Step 7. COMMERCIALIZATION
If market testing displays promising results the product is ready to be introduced to a wider market.
Some firms introduce or roll-out the product in waves with parts of the market receiving the product
on different schedules. This allows the company to ramp up production in a more controlled way
and to fine tune the marketing mix as the product is distributed to new areas.
Q5 explain “product Life Cycle”
The Product Life Cycle
DECLINE
MATURITY
GROWTH
INTRODUCTION
A product's life cycle (PLC) can be divided into several stages characterized by the revenue generated
by the product. If a curve is drawn showing product revenue over time, it may take one of many
different shapes, an example of which is shown below:
Product Life Cycle Curve
Sales
SALES CURVE
PROFIT CURVE
Time
The life cycle concept may apply to a brand or to a category of product. Its duration may be as short
as a few months for a fad item or a century or more for product categories such as the gasolinepowered automobile.
Product development is the incubation stage of the product life cycle. There are no sales and the
firm prepares to introduce the product. As the product progresses through its life cycle, changes in
the marketing mix usually are required in order to adjust to the evolving challenges and
opportunities.
Introduction Stage
When the product is introduced, sales will be low until customers become aware of the product and
its benefits. Some firms may announce their product before it is introduced, but such
announcements also alert competitors and remove the element of surprise. Advertising costs
typically are high during this stage in order to rapidly increase customer awareness of the product
and to target the early adopters. During the introductory stage the firm is likely to incur additional
costs associated with the initial distribution of the product. These higher costs coupled with a low
sales volume usually make the introduction stage a period of negative profits.
During the introduction stage, the primary goal is to establish a market and build primary demand
for the product class. The following are some of the marketing mix implications of the introduction
stage:
 Product - one or few products, relatively undifferentiated
 Price - Generally high, assuming a skim pricing strategy for a high profit margin as the early
adopters buy the product and the firm seeks to recoup development costs quickly. In some
cases a penetration pricing strategy is used and introductory prices are set low to gain
market share rapidly.
 Distribution - Distribution is selective and scattered as the firm commences implementation
of the distribution plan.
 Promotion - Promotion is aimed at building brand awareness. Samples or trial incentives
may be directed toward early adopters. The introductory promotion also is intended to
convince potential resellers to carry the product.
Growth Stage
The growth stage is a period of rapid revenue growth. Sales increase as more customers become
aware of the product and its benefits and additional market segments are targeted. Once the
product has been proven a success and customers begin asking for it, sales will increase further as
more retailers become interested in carrying it. The marketing team may expand the distribution at
this point. When competitors enter the market, often during the later part of the growth stage,
there may be price competition and/or increased promotional costs in order to convince consumers
that the firm's product is better than that of the competition.
During the growth stage, the goal is to gain consumer preference and increase sales. The marketing
mix may be modified as follows:
 Product - New product features and packaging options; improvement of product quality.
 Price - Maintained at a high level if demand is high, or reduced to capture additional
customers.
 Distribution - Distribution becomes more intensive. Trade discounts are minimal if resellers
show a strong interest in the product.
 Promotion - Increased advertising to build brand preference.
Maturity Stage
The maturity stage is the most profitable. While sales continue to increase into this stage, they do so
at a slower pace. Because brand awareness is strong, advertising expenditures will be reduced.
Competition may result in decreased market share and/or prices. The competing products may be
very similar at this point, increasing the difficulty of differentiating the product. The firm places
effort into encouraging competitors' customers to switch, increasing usage per customer, and
converting non-users into customers. Sales promotions may be offered to encourage retailers to give
the product more shelf space over competing products.
During the maturity stage, the primary goal is to maintain market share and extend the product life
cycle. Marketing mix decisions may include:
 Product - Modifications are made and features are added in order to differentiate the
product from competing products that may have been introduced.
 Price - Possible price reductions in response to competition while avoiding a price war.
 Distribution - New distribution channels and incentives to resellers in order to avoid losing
shelf space.
 Promotion - Emphasis on differentiation and building of brand loyalty. Incentives to get
competitors' customers to switch.
Decline Stage
Eventually sales begin to decline as the market becomes saturated, the product becomes
technologically obsolete, or customer tastes change. If the product has developed brand loyalty, the
profitability may be maintained longer. Unit costs may increase with the declining production
volumes and eventually no more profit can be made.
During the decline phase, the firm generally has three options:
 Maintain the product in hopes that competitors will exit. Reduce costs and find new uses for
the product.
 Harvest it, reducing marketing support and coasting along until no more profit can be made.
 Discontinue the product when no more profit can be made or there is a successor product.
The marketing mix may be modified as follows:
 Product - The number of products in the product line may be reduced. Rejuvenate surviving
products to make them look new again.
 Price - Prices may be lowered to liquidate inventory of discontinued products. Prices may be
maintained for continued products serving a niche market.


Distribution - Distribution becomes more selective. Channels that no longer are profitable
are phased out.
Promotion - Expenditures are lower and aimed at reinforcing the brand image for continued
products.
Limitations of the Product Life Cycle Concept
The term "life cycle" implies a well-defined life cycle as observed in living organisms, but products do
not have such a predictable life and the specific life cycle curves followed by different products vary
substantially. Consequently, the life cycle concept is not well-suited for the forecasting of product
sales. Furthermore, critics have argued that the product life cycle may become self-fulfilling. For
example, if sales peak and then decline, managers may conclude that the product is in the decline
phase and therefore cut the advertising budget, thus precipitating a further decline.
Nonetheless, the product life cycle concept helps marketing managers to plan alternate marketing
strategies to address the challenges that their products are likely to face. It also is useful for
monitoring sales results over time and comparing them to those of products having a similar life
cycle.
Unit 5
Pricing Decisions: Objectives, orientations and strategies
Q.1 Illustrate briefly the concept of pricing & the factors that influence pricing.
Ans.: Price is all around us. We pay rent for our apartment, tuition for our education, airline,
railways; buses charge you a fare, local bank charge interest for the money a fee to your doctor etc.
Thus price is not just a number on a tag or an item.
Traditionally, price has been the major determinant of a buyer’s choice & is the only element in the
marketing mix that generates revenue. Pricing acquires its importance on account of yet another
factor. It is a highly risky decision area & mistakes in pricing seriously affects the firm, its profits,
growth & future.
Factors Influencing Pricing : There are internal as well as external factors that affect pricing :Internal Factors :
(i) Corporate & marketing objectives of the firm.
(ii) The characteristic of the product
(iii) Price elasticity of demand of the product.
(iv) Stage of product in its life cycle.
(v) Use pattern & turnaround rate of the product.
(vi) Cost of manufacturing & marketing
(vii) Composition of the product line of the firm.
External Factors :
(i) Market characteristics (relative to demand, customer & competition)
(ii) Buyer behaviour in respect of the product
(iii) Bargaining power of major customers
(iv) Bargaining power of major suppliers
(v) Competitor’s pricing policy
(vi) Government controls / regulation on pricing
(vii) Other relevant legal aspects
(viii) Societal consideration
Q.2 Illustrate importance of Price (OBJECTIVE OF SETTING PRICE)
When marketers talk about what they do as part of their responsibilities for marketing products, the
tasks associated with setting price are often not at the top of the list. Marketers are much more
likely to discuss their activities related to promotion, product development, market research and
other tasks that are viewed as the more interesting and exciting parts of the job.
Yet pricing decisions can have important consequences for the marketing organization and the
attention given by the marketer to pricing is just as important as the attention given to more
recognizable marketing activities. Some reasons pricing is important include:
 Most Flexible Marketing Mix Variable – For marketers price is the most adjustable of all
marketing decisions. Unlike product and distribution decisions, which can take months or
years to change, or some forms of promotion which can be time consuming to alter (e.g.,
television advertisement), price can be changed very rapidly. The flexibility of pricing
decisions is particularly important in times when the marketer seeks to quickly stimulate
demand or respond to competitor price actions. For instance, a marketer can agree to a field
salesperson’s request to lower price for a potential prospect during a phone conversation.
Likewise a marketer in charge of online operations can raise prices on hot selling products
with the click of a few website buttons.
 Setting the Right Price – Pricing decisions made hastily without sufficient research, analysis,
and strategic evaluation can lead to the marketing organization losing revenue. Prices set
too low may mean the company is missing out on additional profits that could be earned if


the target market is willing to spend more to acquire the product. Additionally, attempts to
raise an initially low priced product to a higher price may be met by customer resistance as
they may feel the marketer is attempting to take advantage of their customers. Prices set
too high can also impact revenue as it prevents interested customers from purchasing the
product. Setting the right price level often takes considerable market knowledge and,
especially with new products, testing of different pricing options.
Trigger of First Impressions - Often times customers’ perception of a product is formed as
soon as they learn the price, such as when a product is first seen when walking down the
aisle of a store. While the final decision to make a purchase may be based on the value
offered by the entire marketing offering (i.e., entire product), it is possible the customer will
not evaluate a marketer’s product at all based on price alone. It is important for marketers
to know if customers are more likely to dismiss a product when all they know is its price. If
so, pricing may become the most important of all marketing decisions if it can be shown that
customers are avoiding learning more about the product because of the price.
Important Part of Sales Promotion – Many times price adjustments are part of sales
promotions that lower price for a short term to stimulate interest in the product. However,
as we noted in our discussion of promotional pricing in the Sales Promotion tutorial,
marketers must guard against the temptation to adjust prices too frequently since
continually increasing and decreasing price can lead customers to be conditioned to
anticipate price reductions and, consequently, withhold purchase until the price reduction
occurs again.
Q.3 What are the various routes taken by the firm in fixing the prices?
OR
What are the various methods of pricing?
OR
Explain the different pricing strategies.
Ans.: There are several methods of pricing & they can be grouped into few broad categories :(1) Cost Based Pricing
(2) Demand Based Pricing
(3) Competition Oriented Pricing
(4) Value Pricing
(5) Affordability Based Pricing
(6) Differentiated Pricing.
(1) Cost Based Pricing : Under the cost based pricing, different methods used are :· Mark Up Pricing
· Target Rate of Return Pricing
· Marginal Cost Pricing
Mark Up Pricing : It refers to the pricing methods in which the selling price of the product is fixed by
adding a margin to its cost price. The mark ups may vary depending on the nature of the product &
the market. Usually, the higher the value of the product, the larger is the mark up.
Again, the slower the turnaround of the product, the larger is the mark up. Mark-up pricing proceeds
on the assumption that demand cannot be known accurately, but costs are known.
Target Rate of Return Pricing : The rate of return pricing uses a rational approach to arrive at the
mark up. It is arrived in such a way that the ROI criteria of the firm is met in the process. Since the
rate of return on the funds employed is a function of mark up as well as turnaround of capital
employed, rate of return pricing constantly reminds the firm that there are 2 routes for profitsimprovement in the capital turnover & increase in the mark up. The main limitation of the
method is that the rate of return is linked to the level of production & sales assumed.
Marginal Cost Pricing: It aims at maximizing the contribution towards fixed costs. Marginal costs
include all the direct variable costs of the product. In marginal cost pricing, these direct variable
costs are fully realized. In addition, a portion of the fixed costs is also realized under competitive
market conditions marginal cost pricing is more useful. Moreover, when a firm has a number of
product lines marginal cost pricing is useful. This method is also useful in quoting for competitive
tenders & in export marketing. On the demerits side, marginal costing makes certain assumptions,
regarding cost & revenue behaviors which can turn out to be incorrect in some cases. Moreover,
while marginal costing rests on a two fold classification of cost into fixed costs & variable costs, in
reality there can be a third class of costs – The Semi variable costs.
(2) Demand Based Pricing : The following methods belong to the category of demand / market
based pricing :· Skimming Pricing
· Penetration Pricing
Skimming Pricing : This method aims at high price & high profits in the early stage of marketing the
product. It profitably taps the opportunity for selling at high prices to those segments of the market,
which do not bother much about the price. This method is very useful in the pricing of new products,
especially those that have a luxury or specialty elements.
Penetration Pricing : Penetration pricing seeks to achieve greater market penetration through
relatively low price. This method is also useful in pricing of new products under certain
circumstances. For eg. when the new product is capable of bringing in large volume of sales, but it is
not a luxury item & there is no affluent / price insensitive segment, the firm can choose the
penetration pricing & make large size sales at a reasonable price before competitors enter the
market with a similar product. Penetration pricing in such cases will help the firm have a good
coverage of the market & keep competition out for some time. In all demand based pricing methods,
the price elasticity of demand is taken into account directly or indirectly. Price elasticity of demand
refers to the relative sensitivity of demand for a product to changes in its price in other words how
significantly the sales of the product are affected when price is changed. If an increase or decrease in
the price of the product results in significant decrease or increase the product is said to be price
elastic conversely, if price change does not significantly affect the sales volume, a product is said to
be price inelastic.
(3) Competition Oriented Pricing : In a competitive economy, competitive oriented pricing methods
are common. The methods in this category rest on the principle of competitive parity in the matter
of pricing. Three policy options are available to the firm under this pricing method :· Premium Pricing
· Discount Pricing
· Parity Pricing
Premium pricing means pricing above the level adopted by competitors. Discount pricing means
pricing below such level & parity pricing means matching competitors pricing.
(4) Value Pricing : Value pricing is a modern innovative & distinctive method of pricing. Value pricing
rests on the premise that the purpose of pricing is not to recover costs, but to capture the value of
the product perceived by the customer. Analysis will readily show that the following scenarios are
possible with the cost value price chain.
· Value > Price > Costs
· Price > Value > Costs
· Price > Costs > Value
· Price > Value > Costs
Under Scenario :
(i) Marketer recovers his costs through price, but fails to recover the value of his product.
(ii) He recovers his costs as well as the value.
(iii) The value that he passes on to the customer is still lesser.
(iv) He matches the value & price & wins customer loyalty & since the value created is larger then his
costs, he ensures his profits.
(5) Affordability Based Pricing : The affordability based pricing is relevant in respect of essential
commodities, which meet the basic needs of all sections of people. Idea here is to set prices in such
a way that all sections of the population are in a position to buy & consume the products to the
required extent.
(6) Differentiated pricing - Some firms charge different prices for the same product in different
zones/ areas of the market. Sometimes, the differentiation in pricing is made on the basis of
customer class rather than marketing territory.