University Of Lucknow

BCOM SEM III

Definition of Marketing

According to American Marketing Association (2004) – “Marketing is an organisational function and set of processes for creating, communicating and delivering value to customers and for managing relationships in a way that benefits both the organisation and the stakeholder.”

According to Eldridge (1970) – “Marketing is the combination of activities designed to produce profit through ascertaining, creating, stimulating, and satisfying the needs and/or wants of a selected segment of the market.”

According to Kotler (2000) – “A societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.”

Nature of Marketing

1. Marketing is an Economic Function

Marketing embraces all the business activities involved in getting goods and services

, from the hands of producers into the hands of final consumers. The business steps through which goods progress on their way to final consumers is the concern of marketing.

• Marketing is a Legal Process by which Ownership Transfers

In the process of marketing the ownership of goods transfers from seller to the purchaser or from producer to the end user.

• Marketing is a System of Interacting Business Activities

Marketing is that process through which a business enterprise, institution, or organisation interacts with the customers and stakeholders with the objective to earn profit, satisfy customers, and manage relationship. It is the performance of business activities that direct the flow of goods and services from producer to consumer or user.

• Marketing is a Managerial function

According to managerial or systems approach – “Marketing is the combination of activities designed to produce profit through ascertaining, creating, stimulating, and satisfying the needs and/or wants of a selected segment of the market.”

According to this approach the emphasis is on how the individual organisation processes marketing and develops the strategic dimensions of marketing activities.

• Marketing is a social process

Marketing  is  the  delivery  of   a   standard   of   living  to  society.   According   to Cunningham and Cunningham (1981) societal marketing performs three essential functions:-

1. Knowing and understanding the consumer’s changing needs and wants;
   1. Efficiently and effectively managing the supply and demand of products and services; and
   1. Efficient provision of distribution and payment processing systems.

• Marketing is a philosophy based on consumer orientation and satisfaction

• Marketing had dual objectives – profit making and consumer satisfaction

Scope of Marketing

1. Study of Consumer Wants and Needs

Goods are produced to satisfy consumer wants. Therefore study is done to identify consumer needs and wants. These needs and wants motivates consumer to purchase.

• Study of Consumer behaviour

Marketers performs study of consumer behaviour. Analysis of buyer behaviour helps marketer in market segmentation and targeting.

• Production planning and development

Product planning and development starts with the generation of product idea and ends with the product development and commercialisation. Product planning includes everything from branding and packaging to product line expansion and contraction.

• Pricing Policies

Marketer has to determine pricing policies for their products. Pricing policies differs form product to product. It depends on the level of competition, product life cycle, marketing goals and objectives, etc.

• Distribution

Study of distribution channel is important in marketing. For maximum sales and profit goods are required to be distributed to the maximum consumers at minimum cost.

• Promotion

Promotion includes personal selling, sales promotion, and advertising. Right promotion mix is crucial in accomplishment of marketing goals.

• Consumer Satisfaction

The product or service offered must satisfy consumer. Consumer satisfaction is the major objective of marketing.

• Marketing Control

Marketing audit is done to control the marketing activities.

Importance of Marketing:

The importance of marketing cannot be over emphasized. It has a special role to play in a developing country like India. Economic growth, export promotion, and generation of healthy competition are the direct outcome of marketing which has a far-reaching consequence on the economy of a country, particularly a developing country.

Marketing is a powerful source of foreign exchange eluding through export promotion. Scientific marketing helps in generating an atmosphere of genuine and healthy competition leading to efficiency both in production and distribution through better utilization of resources.

To sum up, marketing confers certain benefits that are vital to the economy of any country—developed and under-developed. It links agriculture with industry — both farms and factories are benefited. It helps continuous flow of goods from farm to the farm assuring farmer’s legitimate price for their toil and consumers a steady supply of goods at competitive price.

The importance of marketing can be summed up as follows:

• Creation of demand for goods and services,

• Betterment in the standard of living,

• Creation of social utility,

• Special benefit to developing countries,

• Maintenance of survival and mobility of business,

• Sense of security,

• Maintenance of balance between demand and supply,

• Means of living,

• Export promotion,

• Sales promotion,

• Increase in the risk bearing capacity.

Functions of Marketing:

1. Gathering and Analyzing Market Information:

The most important function of a marketer is to gather and analyze the market information.

This is essential to find out the needs of the customers and to take various decisions regarding successful marketing of products.

Marketer tries to understand what do customers want to buy and when, in what quantity and at what price etc.?

• Marketing Planning:

It involves making plans for increasing production and sales, promotion of product etc. and also laying down a course of action for achieving these objectives. For example, if a product has become popular in Punjab, the target of an organization should be to make it popular in rest of North India first, followed by remaining states. For this, proper plans are to be made.

• Product Designing and Development:

Another important function of marketing involves product designing and development. Product designing includes decision related to the quality standards to be used for shape or design of the product, packing, etc in order to make the product attractive to the target customers and better than the competitors’ product.

• Packaging and Labelling:

Packaging means designing the package for the product while labelling is concerned with putting label on the package. Packaging and labelling have been recognized as pillars of marketing. They not only provide protection to the product but also act as a promotional tool.

• Branding:

Branding is a process of giving a brand name to a product to differentiate it from competitor’s products, in building customers’ loyalty and in promoting the product. The most important decision under this strategy is whether to give a separate brand name or same brand to all products of a business firm.

• Customer Support Services:

The key to marketing success is the satisfaction of the customer. Therefore, an important function of marketing i.e. to provide various customer support services like after sales service, procuring credit services, handling customer complaints, consumer information etc. These services help in getting, keeping and growing the number of customers.

• Pricing of Products:

The amount of money which a customer is required to pay for purchasing the product is known as product price. Pricing has a great effect on the demand for a product. A little variation in price may increase the demand for competitor’s product. Thus, while determining the price for a product, various factors like, types of customers, their income, firm’s objective, product demand, and competitors’ policy etc should be considered.

• Promotion:

Promotion of product and services refers to providing information to the customers about the firm’s products, their features, uses, prices etc and persuading them to buy these products. Advertising, Personal selling. Publicity and Sales Promotion are the main tools of promotion. A marketer has to decide about the promotion budget, promotion mix (i.e. combination of promotional tools) etc.

1. Physical distribution:

Another important function to be performed by marketer is the physical distribution of goods and services. The important decision areas under this involve selection of channel of distribution, transportation, inventory levels, storage and warehousing.

1. Transportation:

Transportation means physical movement of goods from the place of production to the place of consumption. For example, Maruti cars are produced at Gurgaon but are available all over the country. Not only the finished goods are to be transported but also the raw material needs to be transported.

A business firm analyses its transportation needs on the basis of factors like nature of the product, cost, location of the target market etc. and then take decisions regarding mode of transportation and other related aspects.

1. Storage or Warehousing:

There is a time gap between production and consumption of goods. Thus it is an important function of marketing to provide for proper storage of such goods until they are demanded. For example, apples are produced in winter are stored in cold storages and sold even in summer.

Marketing Concepts – Traditional and Modern:

The marketing concept is the strategy that firms implement to satisfy customers’ needs, increase sales, maximize profit, and beat the competition.concept, and (5) societal marketing concept.

There are 5 marketing concepts that organizations adopt and execute. These are-

• production concept,
• product concept,
• selling concept,
• marketing concept,
• societal marketing concept.

These concepts are described below;

Production Concept:

The idea of production concept – “Consumers will favor products that are available and highly affordable.” This concept is one of the oldest Marketing management orientations that guide sellers.

If a firm decides to operate based on this concept, it will try to minimize production costs by making the production process efficient. Moreover, for its products to be favored by the consumers, it will try to make its distribution as extensive as possible.

Product Concept:

The product concept holds that consumers will favor products that offer the most quality, performance, and innovative features. Here. Marketing strategies are focused on making continuous product improvements.

The product concept assumes that consumers will favor those products that are superior in quality, performance, innovative features, designs, and so on.

This marketing concept is thought to have been simple: he who offered a standard product at the lowest price was going to win. A firm pursuing this philosophy tries to improve its products in terms of quality, performance, and any other perceptible feature.

Selling Concept:

The selling concept holds the idea-

“consumers will not buy enough of the firm’s products unless it undertakes a large-scale selling and promotion

effort.”

Here the management focuses on creating sales transactions rather than on building long-term, profitable customer relationships.

In other words, the aim is to sell what the company makes rather than making what the market wants. Such an aggressive selling program carries very high risks.

Marketing Concept:

The marketing concept holds- “achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do.”

Here marketing management takes a “customer first” approach. Under the marketing concept, customer focus and value are the routes to achieve sales and profits.

The end of the marketing concept is to make profits through customer satisfaction. This suggests that profit is to be made by satisfying customers’ needs.

As customers’ needs are changing day by day, a marketing concept-oriented company has to consider and modify its product, service, and activities with the change in needs and satisfy customers better than its competitors due to earn profit in the long run.

Societal Marketing Concept:

Societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare.

The societal marketing concept holds “marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s well-being.”

It calls for sustainable marketing, socially and environmentally responsible marketing that meets consumers’ and businesses’ present needs while also preserving or enhancing future generations’ ability to meet their needs.

The Societal Marketing Concept puts human welfare on top before profits and satisfying the wants.

Marketing Vs Selling

Marketing and selling are seen as analogues; however, there is a huge distinction between marketing and selling. Both create precise adjustments to the business; thus, the manager is anticipated to follow a various distinctive class of strategies for the success of their business. Selling has a product target and is often manufacturer driven. It is the only operational portion of the marketing and has an interim objective of attaining a certain level of income, gain or market share. More priority is given to “price variation” to close a sale where the aim can be framed as “I must anyhow sell the product to the consumer”. However, Marketing has a broad approach than selling and is productive in nature. Its emphasis is on the consumer instead of the product. Although selling depends on the needs and curiosity of the producer or marketer, marketing depends on the need of the customer.

Marketing Mix

Meaning:

The process of marketing or distribution of goods requires particular attention of management because production has no relevance unless products are sold.

Marketing mix is the process of designing and integrating various elements of marketing in such a way to ensure the achievement of enterprise objectives.

The elements of marketing mix have been classified under four heads—product, price, place and promotion. That is why marketing mix is said to be a combination of four P’s.

In short, marketing mix involves decisions regarding products to the made available, the price to be charged for the same, and the incentive to be provided to the consumers in the markets where products would be made available for sale.

These decisions are taken keeping in view the influence of marketing forces outside the organization (e.g., consumer behaviour, competitors’ strategy and government policy).

Definition:

According to Philip Kotler, ‘marketing mix is the mixture of controllable marketing variable that the firm uses to pursue the sought level of sales in the target market’

Therefore, the marketing mix indicates the appropriate combination of four P’s— product, price, promotion, and place—for achieving marketing objectives. The components are also known as marketing mix variables or controllable variables as they can be used according to business requirements. In 1960, E. Jerome McCarthy in his book, Basic Marketing, popularized a four-factor classification, the so-called four P’s—product, price, place, and promotion.

Characteristics/Features/Nature of Marketing Mix:

1. Marketing mix is the crux of marketing process:

Marketing mix involves many crucial decisions relating to each element of the mix. The impact of the mix will be the best when proper weightage is assigned to each element and they are integrated so that the combined effect leads to the best results.

• Marketing mix has to be reviewed constantly in order to meet the changing requirements:

The marketing manager has to constantly review the mix and conditions of the market and make necessary changes in the marketing mix according to changes in the conditions and complexity of the market.

• Changes in external environment necessitate alterations in the mix:

Changes keep on taking place in the external environment. For many industries, the customer is the most fluctuating variable of environment. Customers’ tastes and preferences change very fast. Brand loyalty and purchasing power also change over a period. The marketing manager has to carry out market analysis constantly to make necessary changes in the marketing mix.

• Changes taking place within the firm also necessitate changes in marketing mix:

Changes within the firm may take place due to technological changes, changes in the product line or changes in the size and scale of operation. Such changes call for similar changes in the marketing mix.

• Applicable to business and non-business organization:

Marketing mix is applicable not only to business organizations but also to non- business organizations, such as clubs and educational institutions. For instance, an educational institution is expected to provide the right courses (product), charge the right fees (price), promote the institution and the courses, and provide the courses at the right place.

• Helps to achieve organizational goals:

An application of an appropriate marketing mix helps to achieve organizational goals such as profits and market share.

• Concentrates on customers:

A thorough understanding of the customer is common to all the four elements. The focus point of marketing mix is the customer, and the marketing mix is expected to provide maximum customer satisfaction.

Importance of Marketing Mix:

There are several benefits of the marketing mix that makes it important to businesses;

• Helps understand what your product or service can offer to your customers
  • Helps plan a successful product offering
  • Helps with planning, developing and executing effective marketing strategies
  • Helps businesses make use of their strengths and avoid unnecessary costs
  • Helps be proactive in the face of risks
  • Help determine whether your product or service is suitable for your customers

• Helps identify and understand the requirements of customers
  • Helps learn when and how to promote your product or service to your customers

Elements of Marketing Mix:

Developing the correct marketing mix for your product or service starts with understanding the Ps of Marketing.

Marketing Mix 4 Ps-

Product – Product is a good (such as music players, shoes etc.) or service (such as hotels, airlines, etc.) that is offered as a solution to satisfy the needs of your customer.

When developing the product, you need to consider its life cycle and plan for different challenges that may arise during the stages of it. Once the product reaches its final stage (sales decline phase), it’s time to reinvent the item to win the demand of the customers again.

Price – The next element of the marketing mix is the price your customer is willing to pay for your product. This helps determine the profit you will be able to generate.

When setting a price for your product, consider how much you have spent on producing it, the price ranges of your competitors, and the perceived product value.

Place – This is about the distribution center of the product and the methods used in distributing it to the customer.

Wherever this is, it should be easily accessible to the customer. For example, if you have a physical store, it should be located in a place that can be easily discovered by the customer. If you own a website to market your product, make sure it is easily navigable.

Promotion – Promotion refers to the methods a business uses to gain the attention of the customers to their product. These includes sales promotions, customer service, public relations, advertising etc.

When creating your promotion strategy, consider the tactics used by your competitors, the channels that are most effective in reaching your customers, and whether they match the perceived value of your product.

Marketing Mix 4Cs-

The 4Cs marketing model was developed by Robert F. Lauterborn in 1990. It is a modification of the 4Ps model.

It is not a basic part of the marketing mix definition, but rather an extension. Here are the components of this marketing model:

• Cost – According to Lauterborn, price is not the only cost incurred when purchasing a product. Cost of conscience or opportunity cost is also part of the cost of product ownership.

• Consumer Wants and Needs – A company should only sell a product that addresses consumer demand. So, marketers and business researchers should carefully study the consumer wants and needs.

• Communication – According to Lauterborn, “promotion” is manipulative while communication is “cooperative”. Marketers should aim to create an open dialogue with potential clients based on their needs and wants.

• Convenience – The product should be readily available to the consumers. Marketers should strategically place the products in several visible distribution points.

Marketing Environment:

Marketing Environment is the combination of external and internal factors and forces which affect the company’s ability to establish a relationship and serve its customers.

The marketing environment of a business consists of an internal and an external environment. The internal environment is company-specific and includes owners, workers, machines, materials etc. The external environment is further divided into two components: micro & macro. The micro or the task environment is also specific to the business but external. It consists of factors engaged in producing, distributing, and promoting the offering. The macro or the broad environment includes larger societal forces which affect society as a whole. The broad environment is made up of six components: demographic, economic, physical, technological, political-legal, and social-cultural environment.

“A company’s marketing environment consists of the actors and forces outside of marketing that affect marketing management ability to build and maintain successful relationships with target customers” – Philip Kotler.

Components Of Marketing Environment

The marketing environment is made up of the internal and external environment of the business. While the internal environment can be controlled, the business has very less or no control over the external environment.

Internal Environment

The internal environment of the business includes all the forces and factors inside the organisation which affect its marketing operations. These components can be grouped under the Five Ms of the business, which are:

• Men: The people of the organisation including both skilled and unskilled workers.
  • Minutes: Time taken for the processes of the business to complete.
  • Machinery: Equipment required by the business to facilitate or complete the processes.

• Materials: The factors of production or supplies required by the business to complete the processes or production.
  • Money: Money is the financial resource used to purchase machinery, materials, , and pay the employees.

The internal environment is under the control of the marketer and can be changed with the changing external environment. Nevertheless, the internal marketing environment is as important for the business as the external marketing environment. This environment includes the sales department, the marketing department, the manufacturing unit, the human resource department, etc.

External Environment

The external environment constitutes factors and forces which are external to the business and on which the marketer has little or no control. The external environment is of two types:

Micro Environment

The micro-component of the external environment is also known as the task environment. It comprises of external forces and factors that are directly related to the business. These include suppliers, market intermediaries, customers, partners, competitors and the public

• Suppliers include all the parties which provide resources needed by the organisation.
  • Market intermediaries include parties involved in distributing the product or service of the organisation.
  • Partners are all the separate entities like advertising agencies, market research organisations, banking and insurance companies, transportation companies, brokers, etc. which conduct business with the organisation.
  • Customers comprise of the target group of the organisation.
  • Competitors are the players in the same market who targets similar customers as that of the organisation.
  • Public is made up of any other group that has an actual or potential interest or affects the company’s ability to serve its customers.

Macro Environment

The macro component of the marketing environment is also known as the broad environment. It constitutes the external factors and forces which affect the industry as a whole but don’t have a direct effect on the business. The macro-environment can be divided into 6 parts.

Demographic Environment

The demographic environment is made up of the people who constitute the market. It is characterised as the factual investigation and segregation of the population according to their size, density, location, age, gender, race, and occupation.

Economic Environment

The economic environment constitutes factors which influence customers’ purchasing power and spending patterns. These factors include the GDP, GNP, interest rates, inflation, income distribution, government funding and subsidies, and other major economic variables.

Physical Environment

The physical environment includes the natural environment in which the business operates. This includes the climatic conditions, environmental change, accessibility to water and raw materials, natural disasters, pollution etc.

Technological Environment

The technological environment constitutes innovation, research and development in technology, technological alternatives, innovation inducements also technological barriers to smooth operation. Technology is one of the biggest sources of threats and opportunities for the organisation and it is very dynamic.

Political-Legal Environment

The political & Legal environment includes laws and government’s policies prevailing in the country. It also includes other pressure groups and agencies which influence or limit the working of the industry and/or the business in the society.

Social-Cultural Environment

The social-cultural aspect of the macro-environment is made up of the lifestyle, values, culture, prejudice and beliefs of the people. This differs in different regions.

Importance Of Marketing Environment

Every business, no matter how big or small, operates within the marketing environment. Its present and future existence, profits, image,

and positioning depend on its internal and external environment. The business environment is one of the most dynamic aspects of the business. In order to operate and stay in the market for long, one has to understand and analyze

the marketing environment and its components properly.

Essential For Planning

An understanding of the external and internal environment is essential for planning for the future. A marketer needs to be fully aware of the current scenario, dynamism, and future predictions of the marketing environment if he wants his plans to succeed.

Understanding Customers

Thorough knowledge of the marketing environment helps marketers acknowledge and predict what the customer actually wants. In-depth analysis of the marketing environment reduces (and even removes) the noise between the marketer and customers and helps the marketer to understand consumer behaviour better.

Tapping Trends

Breaking into new markets and capitalizing on new trends requires a lot of insight about the marketing environment. The marketer needs to research about every aspect of the environment to create a foolproof plan.

Threats And Opportunities

Sound knowledge of the market environment often gives a first-mover advantage to the marketer as he makes sure that his business is safe from future threats and taps the future opportunities.

Understanding The Competitors

Every niche has different players fighting for the same spot. A better understanding of the marketing environment allows the marketer to understand more about the competitions and about what advantages do the competitors have over his business and vice versa.

E-Marketing :

E-Marketing (Electronic Marketing) are also known as Internet Marketing, Web Marketing, Digital Marketing, or Online Marketing. E-marketing is the process of marketing a product or service using the Internet. Emarkerting not only includes marketing on the Internet, but also includes marketing done via e-mail and wireless media. It uses a range of technologies to help connect businesses to their customers.

Like many other media channels, e-marketing is also a part of integrated marketing communications (IMC), which helps a brand grow across different channels. E- marketing has become a pivotal tactic in the marketing strategy adopted by companies using several digital media channels.

Advantages of E-marketing

Certain advantages of emarketing are discussed as below:

1. Much better return on investment from than that of traditional marketing as it helps increasing sales revenue.
2. E-marketing means reduced marketing campaign cost as the marketing is done through the internet
3. Fast result of the campaign as it helps to target the right customers.
4. Easy monitoring through the web tracking capabilities help make emarketing highly efficient
5. Using e-marketing, viral content can be made, which helps in viral marketing.

Types of e-marketing

There are several ways in which companies can use internet for marketing. Some ways of e-marketing are:

1. Article marketing
2. Affiliate marketing

• Video marketing
• Email marketing
• Blogging
• Content marketing

All these and other methods help a company or brand in e-marketing and reaching customer through the internet.

Unit-II

Buyer Behavior

Objectives

In this lesson, we will introduce you to the process through which the ultimate buyer makes purchase decisions. After you work out this lesson, you should be able to:

• Identify what stimulates a consumer to consider buying
  • Describe the buyer’s decision making process and the several factors which

influence this decision

• Understand the response of the buyer to the marketing and otherstimuli In this lesson, we will discuss the following:
  • What is buyer behaviour?
  • Models of consumer/buyer behaviour
  • Determinants of consumer behaviour
  • The consumer decision process
  • Marketing implications of consumer behaviour

Introduction

Why do people buy one product and not another? Answering this question is the basic task of every marketer. The answer directly affects every aspect of marketing strategy, from product development to pricing and promotion. Discovering that answer requires an understanding of buyer behaviour, the process by which consumers and business-to-business buyers make purchase decisions. Buyer behaviour is a broad term that covers both individual consumers who buy goods and services for their own use and organizational buyers who purchase business products. A variety of influences affect both individuals buying products for themselves and professional buyers purchasing products for their firms. This lesson focuses predominantly on individual consumer behaviour.

What is Buyer Behaviour?

Consumer behaviour is the process through which the ultimate buyer makes purchase decisions. Here is a sample of popular definitions for consumer behaviour:

‘… the study of the buying units and the exchange processes involved in acquiring, consuming, and disposing of goods, services, experiences, and ideas’ (Mowen)

‘… the decision process and physical activity individuals engage in when evaluating, acquiring, using or disposing of goods and services’ (Loudon and Della Bitta)

‘… reflects the totality of consumers’ decisions with respect to the acquisition, usage and disposition of goods, services, time and ideas by (human) decision making units (over time)’ (Jacob Jacoby)

The definition by Jacoby can be further illustrated. The totality of consumers’ decisions include whether to buy or not, what to buy, why to buy, how to buy, when to buy, where to buy and also how much/ how often/ how long. The idea of consumption not only includes purchasing and using, but also disposing. The marketer’s offering can mean many things – be it product, service, time, ideas, people and so on. The term decision making units obviously refers to people involved. In a typical purchase, many people may be involved and they play different roles such as information gatherer, influencer, decider, purchaser and user. In a consumer buying context, it may mean a family or group influence where as in the industrial buying context, it means a cross- functional team with each member of the team performing a particular role in the buying decision. The word ‘time’ could mean different units of time like hours, days, weeks, months and years.

Models of Consumer/Buyer Behaviour

Consumer behaviour is a dynamic, multi-disciplinary process. The study of consumer behaviour builds upon an understanding of human behaviour in general. In an effort to understand why and how consumers make buying decisions, marketers borrow extensively from the sciences of psychology and sociology. The work of psychologist Kurt Lewin provides a useful classification scheme for influences on buying behaviour. Lewin’s proposition is B = f(P,E) which means that behaviour (B) is a function (f) of the interactions of personal influences (P) and pressures exerted by outside environmental forces (E). This statement is rewritten to apply to consumer behaviour as B = f(I,P) (i.e.)

consumer behaviour (B) is a function (f) of the interactions of interpersonal influences (I) such as culture, role models, friends and family – and personal factors (P) such as attitudes, learning and perception. Therefore inputs from others and an individual’s psychological makeup both affect a consumer’s purchasing behaviour. This model is further explained in the following sections of this lesson. There are many other models of consumer behaviour. The most generic model of consumer behaviour suggests a stimulus-response pattern of understanding the consumer’s behaviour (Figure 1.5.1). The stimulus can be marketing stimuli (which can be manipulated by the marketer) and other external stimuli (like the economy, culture, technology and so on). The response includes the decision to buy, product choice, dealer choice and choices regarding time, quantity, etc. The consumer is at the center of this model. The stimulus is applied to this consumer who in turn comes up with a response. The consumer has his/her own characteristics and a multi-staged decision-making process. There are also several influencing factors acting upon the consumer. The influencing factors may include personal and interpersonal influences.

Determinants of Consumer Behaviour

Consumers don’t make purchase decisions in a vacuum; rather, they respond to a

number of external, interpersonal influences and internal, personal factors.

Consumer often decide to buy goods and services based on what they believe others expect of them. They may want to project positive images to peers or satisfy the

unspoken desires of family members. Marketers recognize three broad categories of interpersonal influences on consumer behaviour: cultural influences, group influences and family influences.

Cultural influences: Culture can be defined as the values, beliefs, preferences and tastes handed down from one generation to the next. Culture is the broadest environmental determinant of consumer behaviour. Therefore, marketers need to understand its role in customer decision making. They must also monitor trends to spot changes in cultural values. Marketing strategies and business practices that work in one country may be offensive or ineffective elsewhere because of cultural variations. Hence cultural differences are particularly important and complex to understand for international marketers. Cultures are not homogeneous entities with universal values. Each culture includes numerous subcultures – groups with their own distinct modes of behaviour.

Group (Social) influences: Every consumer belongs to a number of social groups. Group membership influences an individual’s purchase decisions and behaviour in both overt and subtle ways. The influences may be informational and/or normative. Every group establishes certain norms of behaviour. Group members are expected to comply with these norms. Difference in group status and roles can also affect buying behaviour. The surprising impact of groups and group norms on individual behaviour has been called the Asch phenomenon because it was first documented by psychologist S.E.Asch. Discussions of the Asch phenomenon raises the subject of reference groups – groups whose value structures and standards influence a person’s behaviour. Consumers usually try to coordinate their purchase behaviour with their perceptions of the values of their reference groups. Children are especially vulnerable to the influence of reference groups. They often base their buying decisions on outside forces – what is popular with their friends, what is fashionable and trendy, what is popular, what are their heroes and role models (usually, celebrities) using. In nearly every reference group, a few members act as opinion leaders. They are the trendsetters who are likely to purchase new products before others in the group and they share their experiences and opinions via word of mouth. Other members’ purchase decisions are affected by the reports of the opinion leaders. Closely related to reference groups is the concept of social class. A social class is an identifiable group of individuals who tend to share similar values and behavior patterns different from those of other classes. These values and behaviour patterns affect the purchase decisions.

Family influences: The family group is perhaps the most important determinant of consumer behaviour because of the close, continuing interactions among family members. Like other groups, each family typically has norms of expected behaviour and different roles and status relationships for its members. The traditional family structure consists of a husband and wife. Although these and other members can play a variety of roles in household decision making,

marketers have created four categories to describe the role of each spouse: (1) Autonomic, in which the partners independently make equal numbers of decisions (e.g. personal-care items) (2) Husband-dominant, in which the husband makes most of the decisions (e.g. insurance) (3) Wife-dominant, in which the wife makes most of the decisions (e.g. children’s clothing) and (4) Syncratic in which both partners jointly make most decisions (e.g. vacation).

Consumer behaviour is affected by many internal, personal factors, as well as interpersonal ones. Each individual brings unique needs, motives, perceptions, attitudes, learning and self-concepts to buying decisions.

Needs and motives: Individual purchase behaviour is driven by the motivation to fill a need. A need is an imbalance between the consumer’s actual and desired states. Someone who recognizes or feels a significant or urgent need then seeks to correct the imbalance. Marketers attempt to arouse this sense of urgency by making a need ‘felt’ and then influence consumers’ motivation to satisfy their needs by purchasing specific products. Motives are inner states that direct a person toward the goal of satisfying a felt need. The individual takes action to reduce the state of tension and return to a condition of equilibrium.

Perceptions: Perception is the meaning that a person attributes to incoming stimuli gathered through the five senses – sight, hearing, touch, taste and smell. Certainly a buyer’s behaviour is influenced by his or her perceptions of a good or service.

Attitudes: Perception of incoming stimuli is greatly affected by attitudes. In fact, the decision to purchase a product is strongly based on currently held attitudes about the product brand, store or salesperson. Attitudes are a person’s enduring favourable or unfavourable evaluations, emotional feelings or action tendencies toward some object. Because favourable attitudes likely affect brand preferences, marketers are interested in determining consumer attitudes toward their products.

Learning: In a marketing context, refers to immediate or expected changes in consumer behaviour as a result of experience (that of self or others’). Consumer learning is the process by which individuals acquire the purchase and consumption knowledge and experience that they apply to future related behaviour. Marketers are interested in understanding how consumers learn so that they can influence consumers’ learning and subsequently, their buying behaviour.

Self-concept: The consumer’s self-concept – a person’s multifaceted picture of himself or herself – plays an important role in consumer behaviour. The concept of self emerges from an interaction of many of the influences – both personal and interpersonal – that affect buying behaviour.

The Consumer Decision Process

Market Segmentation, Targeting and Positioning

Objectives

In this lesson, we will introduce you to the activities, viz., segmentation, targeting and positioning, that are collectively referred to as marketing strategy. After you work out this lesson, you should be able to:

• Segment the markets based on several segmentation variables
  • Target a segment by identifying the fit between segment profitability and organizational capability
  • Position your product/service so that it occupies a distinct and valued place in the

target customers’ minds

In this lesson, we will discuss the following:

• The logic of segmentation
  • Segmentation analysis
  • Segmentation variables for consumer markets and industrial markets
  • Targeting approaches
  • Positioning identities
  • Differentiation across the consumption chain

Introduction

Development of a successful marketing strategy begins with an understanding of the market for the good or service. A market is composed of people or institutions with need, sufficient purchasing power and willingness to buy. The market place is heterogeneous with differing wants and varying purchase power. The heterogeneous marketplace can be divided into many homogeneous customer segments along several segmentation variable. The division of the total market into smaller relatively homogeneous groups is called market segmentation. Products seldom succeed by appealing to everybody. The reasons are simple: not every customer is profitable nor worth retaining, not every product appeals to every customer. Hence the organizations look for a fit between their competencies and the segments’ profitability. The identified segments are then targeted with clear marketing communications. Such communications are referred to as positioning the product or service in the mind of the customer so as to

occupy a unique place. This involves identifying different points of differentiation and formulating a unique selling proposition (USP). In today’s marketplace, differentiation holds the key to marketing success. This lesson is about marketing strategy formulation which consists of market segmentation, targeting and positioning.

The logic of Segmentation

The concept of market segmentation has helped marketing decision making since the evolution of marketing. The goal of market segmentation is to partition the total market for a product or service into smaller groups of customer segments based on their characteristics, their potential as customers for the specific product or service in question and their differential reactions to marketing programs. Because segmentation seeks to isolate significant differences among groups of individuals in the market, it can aid marketing decision making in at least four ways:

1. Segmentation helps the marketer by identifying groups of customers to whom he

could more effectively ‘target’ marketing efforts for the product or service

• Segmentation helps the marketer avoid ‘trial-and-error’ methods of strategy formulation by providing an understanding of these customers upon which he can tailor the strategy
• In helping the marketer to address and satisfy customer needs more effectively, segmentation aids in the implementation of the marketing concept
• On-going customer analysis and market segmentation provides important data on which long-range planning (for market growth or product development) can be based.

The product is the most tangible and important single component of the marketing programme. The product policy and strategy is the cornerstone of a marketing mix. If the product fails to satisfy consumer demand, no additional cost on any of the other ingredients of the marketing mix will improve the product performance in the market Place.

To the marketer products are the building blocks of a marketing plan. Good products are key to market success. Product decisions are taken first by the marketers and these decisions are central to all other marketing decisions such as price, promotion and distribution.

It is the engine that pulls the rest of the marketing programme. Products fill in the needs of society. They represent a bundle of expectations to consumers and society.

The product concept has three dimensions:

1. Managerial Dimension:

It covers the core specifications or physical attributes, related service, brand, package, product life-cycle, and product planning and development. As a basis to planning, product is second only to market and marketing research.

The product offering must balance with consumer-citizen needs and desires. Product planning and development can assure normal rate of return on investment and continuous growth of the enterprise.

1. Consumer Dimension:

To the consumer a product is actually a group of symbols or meanings. People buy things not only for what they can do, but also for what they mean. Each symbol communicates a certain information. A product conveys a message indicating a bundle of expectations to a buyer.

Consumer’s perception of a product is critical to its success or failure. A relevant product is one that is perceived by the consumer as per intentions of the

marketer. Once a product is bought by a consumer and his evaluation, i.e., post- purchase experience is favourable, marketers can have repeat orders.

1. Social Dimension:

To the society salutary products and desirable products are always welcome as they fulfill the expectations of social welfare and social interests. Salutary products yield long-run advantages but may not have immediate appeal.

Desirable products offer both benefits, immediate satisfaction and long-run consumer welfare. Society dislikes the production of merely pleasing products which only give immediate satisfaction but which sacrifice social interests in the long-run.

• Meaning of Product:

The product is a bundle of all kinds of satisfaction of both a material and a non- material kinds, ranging from economic utilities to satisfaction of a social- psychological nature.

A product supplies two kinds of utility:

1. Economic utility.
   1. Supplementary utility in the form of social-psychological benefits.

The product may be a good, a service or just an idea. A product is all things offered to a market. Those things include physical objects, design, brand, package, label, price services, supportive literature, amenities and satisfaction not only from, physical product and services offered but also from ideas, personalities and organisations.

In short, a product is the sum total of physical, social and psychological benefits. Marketers must define their market in terms of product functions what the customer expects from the product.

Selling Points or Image Building Features of a Product:

1. Product quality and attributes,
2. Performance and utilities,
3. Brand, package and label,
4. Design, colour, size, shape, style, finish, beauty, etc.,
5. Price,
6. Services,
7. Company image,
8. Product warranty,
9. Safety to users.

Buyers are not interested in the composition of a product. They are concerned only with what the product does, what the product means to them and to what extent it satisfies their social and psychological needs. These needs will vary between one customer category and another. The needs and expectations are also changing.

PRODUCT CLASSIFICATIONS

Everything you need to know about the classification of products. Goods or products are classified as either consumer goods or industrial goods.

Consumer goods are produced for the personal use of the ultimate consumer, while industrial goods are produced for industrial purposes. There are many goods, such as typewriters and stationery can be classified as both industrial and consumer goods.

Marketers have traditionally classified products on the basis of three characteristics

– durability, tangibility and use.

Products can be classified as:- A. Consumer Products B. Industrial Products.

Some of the types of consumer goods are:- 1. Convenience Goods 2. Shopping Goods 3. Speciality Goods 4. Impulse Goods 5. Emergency Goods.

Some of the types of industrial goods are:- 1. Raw Materials 2. Fabricating Materials and Parts 3. Installations 4. Accessory Equipment 5. Supplies 6. Services.

Classification of Products: On the basis of Durability and Tangibility, On the basis of Consumer Shopping Habits and a Few Others

Classification of Products – 2 Major Classification: Consumer Products and Industrial Products

Products may be classified on the basis of users of the products, the type of consumers who use the product that is:

1. Consumer products, and
   1. Industrial products.

1. Consumer Products:

Consumer products are those products that are bought by the final customer for consumption.

Consumer products are of four types:

1. Convenience products,
   1. Shopping products,
   1. Speciality products, and
   1. Unsought products.

1. Convenience Products:

Convenience Products are usually low priced, easily available products that customer buys frequently, without any planning or search effort and with minimum comparison and buying effort. Such products are made available to the customers through widespread distribution channels-through every retail outlets. This category includes fast moving consumer goods (FMCG) like soap, toothpaste, detergents, food items like rice, wheat flour, salt, sugar, milk and so on.

1. Shopping Products:

Shopping products are high priced (compared to the convenience product), less frequently purchased consumer products and services. While buying such products or services, consumer spends much time and effort in gathering information about the product and purchases the product after a careful consideration of price, quality, features, style and suitability.

Such products are distributed through few selected distribution outlet. Examples include television, air conditioners, cars, furniture, hotel and airline services, tourism services.

1. Speciality Products:

Speciality Products are high priced branded product and services with unique features and the customers are convinced that this product is superior to all other

competing brands with regard to its features, quality and hence are willing to pay a high price for the product. These goods are not purchased frequently may be once or twice in lifetime and are distributed through one or few exclusive distribution outlets. The buyers do not compare speciality products.

1. Unsought Products:

Unsought product is consumer products that the consumer either does not know about or knows about but does not normally think of buying. In such a situation the marketer undertakes aggressive advertising, personal selling and other marketing effort. The product remains unsought until the consumer becomes aware of them through advertising. The price of such product varies. Examples of unsought product are cemetery plots, blood donation to Red Cross, umbilical cord stem cell banking services.

• Industrial Products:

Industrial Products are purchased by business firms for further processing or for use in conducting a business .The distinction between consumer product and industrial is based on the purpose for which the product is bought. Like a kitchen chimney purchased by a consumer is a consumer product but a kitchen chimney purchased by a hotel is an industrial product.

Business products include:

1. Material and parts,
2. Capital items,
3. Supplies, and
4. Services.

1. Material and parts – Material and parts include raw material like agricultural products, crude petroleum, iron ore, manufactured materials include iron, yarn, cement, wires and component parts include small motors, tires, and castings.
2. Capital items – Capital items help in production or operation and include installations like factories, offices, fixed equipments like generators, computer systems, elevators and accessory equipments like tools office equipments.
3. Supplies – Supplies include lubricants, coal, paper, pencils and repair maintenance like paint, nails brooms.
4. Services – Services include maintenance and repair services like computer repair services, legal services, consultancy services, and advertising services.

NEW PRODUCT DEVELOPMENT PROCESS

In order to stay successful in the face of maturing products, companies have to obtain new ones by a carefully executed new product development process. But they face a problem: although they must develop new products, the odds weigh heavily against success. Of thousands of products entering the process, only a handful reach the market. Therefore, it is of crucial importance to understand consumers, markets, and competitors in order to develop products that deliver superior value to customers. In other words, there is no way around a systematic, customer-driven new product development process for finding and growing new products. We will go into the eight major steps in the new product development process.

The 8 steps in the New Product Development Process: The 8 steps in the New Product Development Process

Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the systematic search for new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful of good ones in the end. Two sources of new ideas can be identified:

Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions from employees.

External idea sources: the company finds new ideas externally. This refers to all kinds of external sources, e.g. distributors and suppliers, but also competitors. The most important external source are customers, because the new product development process should focus on creating customer value.

Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good ones and drop poor ones as soon as possible. While the purpose of idea generation was to create a large number of ideas, the purpose of the succeeding stages is to reduce that number.

The reason is that product development costs rise greatly in later stages. Therefore, the company would like to go ahead only with those product ideas that will turn into profitable products. Dropping the poor ideas as soon as possible is, consequently, of crucial importance.

Concept development and Testing – The New Product Development Process

To go on in the new product development process, attractive ideas must be developed into a product concept. A product concept is a detailed version of the new-product idea stated in meaningful consumer terms. You should distinguish

A product idea is an idea for a possible product

A product concept is a detailed version of the idea stated in meaningful consumer terms

A product image is the way consumers perceive an actual or potential product.

Let’s investigate the two parts of this stage in more detail.

Concept development

Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea screening and must now be developed into a concept. The marketer’s task is to develop this new product into alternative product concepts. Then, the company can find out how attractive each concept is to customers and choose the best one. Possible product concepts for this electric car could be:

Concept 1: an affordably priced mid-size car designed as a second family car to be used around town for visiting friends and doing shopping.

Concept 2: a mid-priced sporty compact car appealing to young singles and couples.

Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs provide but also want an economical car.

As you can see, these concepts need to be quite precise in order to be meaningful. In the next sub-stage, each concept is tested.

Concept testing

New product concepts, such as those given above, need to be tested with groups of target consumers. The concepts can be presented to consumers either symbolically or physically. The question is always: does the particular concept have strong consumer appeal? For some concept tests, a word or picture description might be sufficient. However, to increase the reliability of the test, a more concrete and physical presentation of the product concept may be needed. After exposing the concept to the group of target consumers, they will be asked to answer questions in order to find out the consumer appeal and customer value of each concept.

Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy development. When a promising concept has been developed and tested, it is time to design an initial marketing strategy for the new product based on the product concept for introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

• A description of the target market, the planned value proposition, and the sales, market share and profit goals for the first few years
  • An outline of the product’s planned price, distribution and marketing

budget for the first year

• The planned long-term sales, profit goals and the marketing mix strategy.

Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business attractiveness of the proposed new product. The fifth step in the new product development process involves a review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the company’s objectives. If they do, the product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products and conduct market surveys. Then, it should be able to estimate minimum and maximum sales to assess the range of risk. When the sales forecast is prepared, the firm can estimate the expected costs and profits for a product, including marketing, R&D, operations etc. All the sales and costs figures together can eventually be used to analyse the new product’s financial attractiveness.

Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if the product concept passes the business test, it must be developed into a physical product to ensure that the product idea can be turned into a workable market offering. The problem is, though, that at this stage, R&D and engineering costs cause a huge jump in investment.

The R&D department will develop and test one or more physical versions of the product concept. Developing a successful prototype, however, can take days, weeks, months or even years, depending on the product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and work with pre-release products. Their experiences may be very useful in the product development stage.

Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage of the new product development process, the product and its proposed marketing programme are tested in realistic market settings.

Therefore, test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction. In fact, it allows the company to test the product and its entire marketing programme, including targeting and positioning strategy, advertising, distributions, packaging etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when introducing a new product requiring a large investment, when the risks are high, or when the firm is not sure of the product or its marketing programme, a lot of test marketing may be carried out.

Commercialisation

Test marketing has given management the information needed to make the final decision: launch or do not launch the new product. The final stage in the new product development process is commercialisation. Commercialisation means nothing else than introducing a new product into the market. At this point, the highest costs are incurred: the company may need to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

• Introduction timing. For instance, if the economy is down, it might be wise to wait until the following year to launch the product. However, if competitors are ready to introduce their own products, the company should push to introduce the new product sooner.
  • Introduction place. Where to launch the new product? Should it be launched in a single location, a region, the national market, or the international market? Normally, companies don’t have the confidence, capital and capacity to launch new products into full national or international distribution from the start. Instead, they usually develop a planned market rollout over time.

In all of these steps of the new product development process, the most important focus is on creating superior customer value. Only then, the product can become a success in the market. Only very few products actually get the chance to become a success. The risks and costs are simply too high to allow every product to pass every stage of the new product development process.

Stage 1. Introduction

This is when a new product is first brought to market, before there is a proved demand for it, and often before it has been fully proved out technically in all respects. Sales are low and creep along slowly.

Stage 2. Market Growth

Demand begins to accelerate and the size of the total market

expands rapidly. It might also be called the “Takeoff Stage.”

Stage 3. Market Maturity

Demand levels off and grows, for the most part, only at the replacement and new family-formation rate.

Stage 4. Market Decline

The product begins to lose consumer appeal and sales drift downward, such as when buggy whips lost out with the advent of automobiles and when silk lost out to nylon.

A brief further elaboration of each stage will be useful before dealing with these questions in detail.

Development Stage :-

Bringing a new product to market is

fraught with unknowns, uncertainties, and frequently

unknowable risks. Generally, demand has to be “created”

during the product’s initial market development stage. How long this takes depends on the product’s complexity, its degree of newness, its fit into consumer needs, and the presence of competitive substitutes of one form or another. A proved cancer cure would require virtually no market development; it would get immediate massive support. An alleged superior substitute for the lost-wax process of sculpture casting would take lots longer.

While it has been demonstrated time after time that properly customer-oriented new product development is one of the primary conditions of sales and profit growth, what have been

demonstrated even more conclusively are the ravaging costs and frequent fatalities associated with launching new products. Nothing seems to take more time, cost more money, involve more pitfalls, cause more anguish, or break more careers than do sincere and well-conceived new product

programs. The fact is, most new products don’t have any sort of classical life cycle curve at all. They have instead from the very outset an infinitely descending curve. The product not only doesn’t get off the ground; it goes quickly under ground— six feet under.

It is little wonder, therefore, that some disillusioned and badly burned companies have recently adopted a more conservative policy—what I call the “used apple policy.” Instead of aspiring to be the first company to see and seize an opportunity, they systematically avoid being first. They let others take the first bite of the supposedly juicy apple that tantalizes them. They let others do the pioneering. If the idea works, they quickly follow suit. They say, in effect, “The trouble with being a pioneer is

that the pioneers get killed by the Indians.” Hence, they say

(thoroughly mixing their metaphors), “We don’t have to get the first bite of the apple. The second one is good enough.”

They are willing to eat off a used apple, but they try to be alert enough to make sure it is only slightly used—that they at least get the second big bite, not the tenth skimpy one.

Growth Stage :-

The usual characteristic of a successful new

product is a gradual rise in its sales curve during the market development stage. At some point in this rise a marked increase in consumer demand occurs and sales take off. The boom is on. This is the beginning of Stage 2—the market growth stage. At this point potential competitors who have been watching developments during Stage I jump into the fray.

The first ones to get in are generally those with an

exceptionally effective “used apple policy.” Some enter the market with carbon-copies of the originator’s product. Others make functional and design improvements. And at this point product and brand differentiation begin to develop.

As the rate of consumer acceptance accelerates, it generally becomes increasingly easy to open new distribution channels and retail outlets. The consequent filling of distribution pipelines generally causes the entire industry’s factory sales to rise more rapidly than store sales. This creates an exaggerated impression of profit opportunity which, in turn, attracts more competitors.

Some of these will begin to charge lower prices because of later advances in technology, production shortcuts, the need to take lower margins in order to get distribution, and the like. All this in time inescapably moves the industry to the threshold of a new stage of competition.

Maturity Stage :-

This new stage is the market maturity stage.

The first sign of its advent is evidence of market saturation. This means that most consumer companies or households that are sales prospects will be owning or using the product. Sales now grow about on a par with population. No more distribution pipelines need be filled. Price competition now becomes intense. Competitive attempts to achieve and hold brand preference now involve making finer and finer differentiations in the product, in customer services, and in the promotional practices and claims made for the product.

The market maturity stage typically calls for a new kind of emphasis on competing more effectively. The originator is increasingly forced to appeal to the consumer on the basis of price, marginal product differences, or both. Depending on the product, services and deals offered in connection with it are often the clearest and most effective forms of differentiation. Beyond these, there will be attempts to create and promote fine product distinctions through packaging and advertising, and to appeal to special market segments. The market maturity stage can be passed through rapidly, as in the case of most women’s fashion fads, or it can persist for generations with per capita consumption neither rising nor falling, as in the case of such staples as men’s shoes and industrial fasteners. Or maturity can persist, but in a state of gradual but steady per capita decline, as in the case of beer and steel.

Decline Stage :-

When market maturity tapers off and consequently comes to an end, the product enters Stage 4— market decline. In all cases of maturity and decline the industry is transformed. Few companies are able to weather the competitive storm. As demand declines, the overcapacity that was already apparent during the period of maturity now becomes endemic. Some producers see the handwriting implacably on the wall but feel that with proper management and cunning they will be one of the survivors after the

industry-wide deluge they so clearly foresee. To hasten their competitors’ eclipse directly, or to frighten them into early voluntary withdrawal from the industry, they initiate a variety of aggressively depressive tactics, propose mergers or buy- outs, and generally engage in activities that make life thanklessly burdensome for all firms, and make death the inevitable consequence for most of them. A few companies do indeed weather the storm, sustaining life through the constant descent that now clearly characterizes the industry. Production gets concentrated into fewer hands. Prices and margins get depressed. Consumers get bored. The only cases where there is any relief from this boredom and gradual euthanasia are where styling and fashion play some constantly revivifying role

1. What is a brand?

A name, term, sign, symbol, or design used to identify the products of one firm and to differentiate them from competitive offerings.

Something used to show customers that one product is different then the products of another manufacturer. Worlds, letters, or symbols that make up a name used to identify and distinguish the firm’s offerings from those of its competitors.

2.      Generic Name Brand

A brand name over which the original owner has lost exclusive claim because all offerings in the associated class of products have become generally known by the brand name (usually that of the first or leading brand in that product class).

3.      Trademark

Brand that has been given legal protection and has been granted solely to its owner Originally helped trace the source of the guild producer

In modern era, makes it easier to identify all the products from a particular company. Makes shopping easier

Helps the companies launching new products

Brand Recognition – awareness, loyalty, quality, emotion “customers remember the brand”

Brand Preference / Loyalty – the degree to which customers are committed to further purchases e.g. “choose the brand over other brands”

Brand Insistence – “willing to search for it.” and if they don’t find the brand they want, will not but a substitute

Brand Equity – “… the values of a brand’s overall strength in the market…”

Brand Awareness – your product is the first that comes to mind in a certain product category e.g. Snapple ice tea, jeans – Levi’s, Walkman – SONY

Brand Awareness – your product is the first that comes to mind in a certain product category e.g., ice tea = Snapple, running shoes = Nike

Trademark

A brand that has been given exclusive legal protection – name and the design

PACKAGING

Earlier, packaging was considered a major expense in marketing. For some toiletries, packaging costs actually exceeded the costs of contents. Today, it is however, fully recognized that packaging helps in branding and promoting brand loyalty. It also enables the buyers to handle and carry their products with case. Moreover, packaging may cut marketing costs thus adding to profit.

QUALITIES OF GOOD PACKAGING

• Attractive appearance
  • Convenient for storage and display
  • Shield against damage or spoiling
  • Product description shown on the package

FUNCTION OF PACKAGING ESPECIALLY FOR CONSUMER GOODS

1. Protection and presentation are the basic functions of a packaging
2. Modern marketing methods demand that, package be convenient to handle transport requirements.
3. A package must be made to consistent and rigid quality standards. The consumer demands uniformity each time he purchases a product.
4. Transport economics
5. Every package must be recognizable and
6. Every package must have eye appeal

Packing to be satisfactory should satisfy the following conditions:

1. It should be capable of withstanding the hazards of handling and transport. The cargo may be handled manually and mechanically. The handling methods may differ between places. When manually handled, it may be tilted, draped, thrown, pulled, pushed, rolled etc. further it may also be subject to compression dude to stacking. The packing should, therefore, be capable of withstanding such hazards of handling and transportation.
   1. It should be easy to handle. To facilitate easy handling, bulk packs may be provided with handling facilities like books, handles, gripper’s etc. in case of products which shall not be turned upside down, the position should be clearly indicated like marking ‘this side up’. In case of fragile articles,

Objectives

Unit – III Lesson 3.2

Pricing Objectives and Approaches

In this lesson, we will introduce you to the pricing objectives and highlight the reasons because of which pricing has come to occupy center-stage in marketing rivalries. After you work out this lesson, you should be able to:

• Understand the different pricing objectives
• Identify the developments that have added to the importance of the pricing decision
• Classify the different pricing approaches In this lesson, we will discuss the following:
• Situations that have pushed pricing to marketing center-stage
• Pricing objectives
• Cost-bases pricing approach
• Buyer-based pricing approach
• Competition-based pricing approach

Introduction

Ancient philosophers recognized the importance of price in an economic system. Some early written accounts refer to attempts to determine fair and just prices. Price continues to serve as a means of regulating economic activity. All the four factors of production, viz. natural resources, capital, human resources and entrepreneurship, depends on the prices that those factors receive. An individual firm’s prices and the resulting purchases by its customers determine how much revenue the firm receives. Prices, therefore, influence a firm’s profits as well as its employment of the factors of production.

Traditionally, price has operated as the major determinant of buyer choice. This is still the case in the poorer economies and with commodity-type products. Although non- price factors have become more important in recent decades, price still remains one of the most important elements determining market share and profitability. Pricing has come to occupy center-stage in many marketing rivalries. Many reasons can be attributed to this. Some of them are outlined below:

• In some cases, product differentiation is getting blunted, thanks to the homogenization of technology. This is more relevant in the context of global business where the million dollar question is whether the firms should offer a standardized offering or a differentiated offering.
• There is intense inter-firm rivalry in some industries. It may be attributed to the removal of entry/exit barriers. Also the cost of fighting these marketing wars must be recovered and often, it is transferred to the customer.
• In certain industries, the products and the markets are mature. The only way to differentiate may be is through an augmented service or price cuts. Here again, pricing decisions are crucial to the survival of the firm.
• Customers’ value perception correlates with the quoted price. To a customer, price always represents product’s value. The price-quality perception must be taken into account during the product decision and the price decision.
• Inflation in the economy may also contribute to the significance of pricing decision in a marketing program. It lowers customer’s purchasing power and increases input costs. As a result, the marketer has to make the price decision after careful evaluation.

Pricing objectives

Just as price is a component of the total marketing mix, pricing objectives also represent components of the organization’s overall objectives. The objectives of the firm and its marketing organization guide the development of pricing objectives, which in turn lead to development and implementation of more specific pricing policies and procedures. For example, a firm might set a major overall objective of becoming the dominant producer in its domestic market. It might then develop a marketing objective of achieving maximum sales penetration in each region, followed by a related pricing objective to set prices at levels that maximize sales. These objectives might lead to adoption of a low- price policy implemented by offering substantial price discounts to channel members.

While pricing objectives vary from firm to firm, they can be classified into four major groups:

• Profitability objectives
• Volume objectives

• Meeting competition objectives, and
• Prestige objectives

Profitability objectives include profit maximization and target-return goals.

Volume objectives pursue either sales maximization or market-share goals.

Profitability objectives: Classical economic theory bases its conclusions on certain assumptions. It presumes that firms will behave rationally. Theorists expect that rational behaviour will result in an effort to maximize gains and minimize losses. Profits are a function of revenue and expenses.

Profits = Revenue – Expenses

Revenue is determined by the product’s selling price and number of units sold:

Total revenue = Price * Quantity sold

A profit maximizing price, therefore, rises to the point at which further increases will cause disproportionate decreases in the number of units sold. A 10% price increase that results in only an 8% cut in volume will add to the firm’s revenue. However, a 10% price hike that results in an 11% sales decline will reduce revenue. Profit maximization is identified as the point at which the addition to total revenue is just balanced by the increase in total cost. Consequently, marketers set target return objectives – short-run or long-run goals usually stated as percentages of sales or investments. Target return objectives offer several benefits for marketers in addition to resolving pricing questions. For example, they serve as tools for evaluating performance. They also satisfy desires to generate ‘fair’ profits as judged by management, stockholders and the public.

Volume objectives: Many marketers argue that pricing behaviour actually seeks to maximize sales within a given profit constraint. They set a minimum acceptable profit level and then seek to maximize sales in the belief that the increased sales are more important than immediate high profits to the long-run competitive picture. Such a firm continues to expand sales as long as its total profits do not drop below the minimum return acceptable to management. Another volume-related pricing objective – the market share objective – sets a goal to control a portion of the market for a firm’s good or service. The company’s specific goal may target maintaining its present share of a particular market or increasing its share. Volume-related goals such as sales

maximization and market share objectives play important roles in most firms’ pricing decisions.

Meeting competition objectives: A third set of pricing objectives seeks simply to meet competitor’s prices. In many lines of business, firms set their own prices to match those of established industry price leaders. These kinds of objectives de-emphasize the price element of the marketing mix and focus competitive rivalries more strongly on non-price variables. Pricing is a highly visible component of a firm’s marketing mix and an easy and effective tool for obtaining a differential advantage over competitors; still other firms can easily duplicate a price reduction themselves. Because such price changes directly affect overall profitability in an industry, many firms attempt to promote stable prices by meeting competitors’ prices and competing for market share by focusing on product strategies, promotional decisions and distribution – the non-price elements of the marketing mix. When price discounts become normal elements of a competitive marketplace, other marketing mix elements gain importance in purchase decisions. In such instances, overall product value, not just price, determines product choice. Value pricing emphasizes benefits a product provides in comparison to the price and quality levels of competing offerings. This strategy typically works best for relatively low-priced goods and services. Value-priced products generally cost less than premium brands, but marketers point out that value does not necessarily mean cheap. Value is not just price, but also is linked to the performance and meeting expectations and needs of consumers. The challenge for those who compete on value is to convince customers that low-priced brands offer quality comparable to that of a higher-priced product.

Prestige objectives: The final category of pricing objectives, unrelated to either profitability or sales volume, encompasses prestige objectives. Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness that appeals to status-conscious consumers. Such objectives reflect marketers’ recognition of the role of price in creating an overall image for the firm and its goods and services.

General pricing approaches

The price the firm charges will be somewhere between on that is too low to produce a profit and one that is too high to produce any demand. Product costs set a floor to the

price and consumer perceptions of the product’s value set the ceiling. The firm must consider competitors’ prices and other external and internal factors to find the best price between these two extremes. Firms set prices by selecting a general pricing approach that includes one or more of these three sets of factors. Let us examine the following approaches:

• Cost-based approach
• Buyer-based approach, and
• Competition-based approach

Cost-based approach

The simplest pricing method is cost-plus or markup pricing – adding a standard markup to the cost of the product. Markups vary greatly among different goods. Some common markups (on price, not cost) in supermarkets are 9% on baby foods, 14% on tobacco products, 27% on dried foods and vegetables and 50% on greeting cards. Markups are generally higher on seasonal items (to cover the risk of not selling) and on specialty items, slower moving items, items with high storage and handling costs and items with inelastic demand. It must be noted that any pricing method that ignores current demand and competition is not likely to lead to the best price. Hence markup pricing only works  if that price actually brings in the expected level of sales.

Advantages:

• It covers all the costs
• It is designed to provide the target rate of margin
• It is generally a rational and widely accepted method
• It is an easy to comprehend and simple method

Disadvantages:

• The cost calculations are based on a predetermined level of activity. If the actual level of activity varies from this estimated level, the costs may vary, rendering  this method unrealistic.
• If the costs of the firm are higher than its competitors, this method would render the firm passive in relation to price.
• Another drawback is that sometimes the opportunity to charge a high price is foregone.

• It ignores the price elasticity of demand.
• The cost-based pricing would not be helpful for some of the objectives or tasks like market penetration, fighting competition and so on.
• It imparts an in-built inflexibility to pricing decisions.

Another cost-based pricing approach is break even pricing, or a variation called target profit pricing. The firm tries to determine the price at which it will break even or make the target profit it is seeking.

Buyer-based approach

An increasing number of firms are basing their prices on the product’s perceived value. Perceived-value pricing uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing. The company uses the non-price variables in the marketing mix to build up perceived value in buyers’ minds. Price is set to match the perceived value. A company using perceived-value pricing must find out what value buyers assign to different competitive offers. Sometimes consumers are asked how much they would pay for each benefit added to the offer. If the seller charges more than the buyers’ perceived value, the firm’s sales will suffer. Many firms overprice their products, and their products sell poorly. Other firms underprice. Under-priced products sell very well, but they produce less revenue than they would if prices were raised to the perceived-value level.

Competition-based pricing

Many firms follow the dominant competitors, particularly the price leader, in setting the price. The main advantages of this method are:

• It is a very simple method
• It follows the main market trend
• It has relevance to the competitive standing of the firm
• Holding to the going price will prevent harmful price wars

The major disadvantages and limitations of following competitors are:

• If the competitors’ price decisions are unrealistic, the follower will also be going wrong on the price
• The cost factors of the follower may not be similar to that of the competitors’
• The pricing objective of the firm could be different from that of the competitors’
• Sometimes the competitor may initiate price change for wrong reasons

Competition-based pricing approach may take the form of going-rate pricing or sealed- bid pricing. In going-rate pricing, the firm bases its price largely on competitors’ prices, with less attention paid to its own cost or to demand. In oligopolistic industries that sell commodities, firms normally charge the same price. It is a popular pricing method. When demand elasticity is hard to measure, firms feel the going price represents the collective wisdom of the industry concerning the price that will yield a fair return. Competition- based pricing is also used when firms bid for jobs. Using sealed-bid pricing, a firm bases its price on how it thinks competitors will price rather than on its own costs or on the demand. The firm wants to win a contract and winning the contract requires pricing lower than other firms. Yet, the firm cannot set its price below a certain level. It cannot price below cost without hurting its position. In contrast, the higher the firm sets its price above its costs, the less its chance of getting the contract.

transportation firm does not take title or is actively involved in the facilitating function. It merely involves in transporting physical products

In case of the Information flow, we can see that the transportation function has reappeared and all the arrows are two-directional. All the parties participate in the exchange of information. For example Coke may obtain information from the transportation company about its shipping schedules and the rates, while the transportation firm may seek information regarding when and in what quantities it plans to ship its products. Some times the information bypasses the transportation company directly to the wholesaler or the retailer when the information does not concern the transportation firm. If there is an offer, or a price reduction these information are not needed by the transportation firms.

Finally the Promotion flow refers to the persuasive communication in the form of advertising, personal selling, publicity. There is a new component that is added to the flow and that is the advertising agency and this actively provides and maintains the information flow. The organizations work closely with the promotional organizations so we find a two-directional arrow.

From the management view, the concept of channel flows provides a useful framework for understanding the scope and complexity of channel management. Changing scenario does make the role of the firms’ complex, as a result of which innovative channel strategies and effective channel management are needed to make this happen.

CHANNEL STRUCTURE

Channel structure is distinguished on the basis of the number of intermediaries. There are different levels in a channel structure. The common levels are zero-level, one-level, two- level, three-level. Each level presents both opportunities and challenges for the marketer. Exhibit 4.6 gives a picture of the different levels

Zero-level structure is one of the simplest forms of the channel structure. Here organizations like Avon, Eureka Forbes use direct selling mode to take the products from their production houses to the consumers directly. A lot of money has to be spent in order to make this channel structure effective, as there is no third party to take your product to the consumer. Even a bakery can come as a firm, which bakes cakes and sells it directly to the consumers. Marketers who use the mailing services, toll-free numbers are also using this service.

One-level structure is one in which we have one intermediary acting as a link  between the manufacturer and the consumer. Here the retailers procure goods directly from the manufacturer and supply it to the consumers. Retailers like Viveks, Wal-Mart deal directly with the manufacturer. In some cases in order to retain profitable and reputed retailers the manufacturers act as wholesalers. One of the advantages for the intermediaries is the customization and the discounts they receive.

Two-level channel has two people interceding before the product reaches the consumer. Here there would be a wholesaler and a retailer who takes the efforts for a speedy delivery and this is one of the most commonly used structures for consumer goods. In the case of Metro, most of the small retail and Kirana stores buy all the merchandise from Metro and in urn sell them to the consumer. One of the advantages of the four-level structure is the benefit of using the wholesaler in the distribution of services.

Three-level channel happens predominantly when the firms plans to go global. When a manufacturer enters another country, it always holds good when he uses the help of agents to operate in that environment. The agents are people who know the legal procedures and who can negotiate with the host country in case of a problem. Most of the airline firms that operate in different countries take the help of agents to penetrate the market