Introduction to Marketing

Module 1

Unit 1

Structure: 1.1 Objectives 1.2 Introduction 1.3 Definitions of market and marketing 1.4 Concept of Marketing 1.5 The Exchange Process 1.6 Elements of Marketing Concept 1.6.1 The marketing Strategy 1.6.2 The Marketing Mix 1.7 Functions of Marketing 1.8 Importance of Marketing 1.8.1. Importance of marketing to the society

1.8.2. Importance of marketing to the company

1.8.3. Importance of marketing in developed economy 1.8.4. Importance of marketing in underdeveloped or Developing economy 1.8.5. Importance of marketing in Indian economy 1.9 Perspectives of Marketing 1.10 Old Concept or Product- oriented Concept 1.11 New or Modern or Customer- oriented Concept 1.12 Difference between Old & New Concepts of Marketing 1.13 Summary 1.14 Keywords 1.15 Exercise

1.1 Objectives After studying this unit, you will be able to:  Compare alternative definitions of marketing.  Explain the functions of marketing  Explain the various elements of the marketing concept.  Identify and assess the benefits and costs of a marketing approach.  Distinguish between ‘product- oriented concept’ and ‘customer- oriented concept’.

1.2 Introduction Marketing Management is one of the key areas of management. The marketing philosophy of business assumes that an organization can best service, prosper and profit by identifying and satisfying the needs of its customers. Organizations today strongly believe that profit goals will be reached through satisfied customers. The twenty-first-century marketing professional will need to have the analytical capacity to handle increasing amounts of data, possess creative talents to define products and develop strategies to compete in global markets. This unit deals with meaning, importance and functions of marketing. The old and modern concepts of marketing are dealt with in detail. 1.3 The Definition Of Market And Marketing What is market? The term ‘market’ is derived from the Latin word ‘mercatus’, which means ‘to trade’ (i.e. to purchase and sell goods). It also means merchandise, ware traffic and place of business.

Types of Markets: There are many bases of classification of markets. They are: (a) Classification on the bases of geographical area: On the basis of the geographical area, markets can be classified into four types. They are: 1. Local Market: When the purchase and sale of goods involve buyers and sellers of a small local area, say, a village or a town, there is said to be a local market. Local market is common in the case of perishable commodities like vegetables, fruits, milk, fish etc., and in the case of bulky and cheap articles, such as stones, sand, bricks, etc. 2. Regional Market: When the purchase and sale of goods involve buyers and sellers of a region, say, a few villagers or a few towns, there is said to be a regional market. Such a market is common in the case of food grains such as rice, wheat, etc. 3. National Market: When the purchase and sale of goods involve buyers and sellers of the entire nation, there is said to be a national market. This type of market is common in the case of commodities such as cotton, jute, tea, textiles, paper, cement, iron and steel goods, etc. 4. International or World Market: When the purchase and sale of goods involve buyers and sellers of many nations, there is said to be an international or world market. World market is common in the case of commodities such as gold, silver, precious stones, tea, spices, etc.

(b) Classification on the basis of the position of sellers in the market: On the basis of the position of seller in the markets, the following classification is made: 1. Primary Market: Primary market is the market where the primary producers of farm products sell their products to the wholesalers or their agents. 2. Secondary Market: Secondary market is the market where the wholesalers sell their products to the retails for sale to the consumers. 3. Terminal Market: Terminal market is the market where the retailers sell the goods to the final consumers.

(c) Classification on the basis of time: On the basis of time, markets may be classified into three types. They are: 1. Very short period Market: A very short period market is a market where no attention is paid to the adjustment of the supply of the product according to the demand. This type of market exists for a very short period, say, a day, and at a particular place. It is generally concerned with perishable goods like fruits, vegetables, milk, etc. 2. Short period Market: Where some consideration is paid for the supply to meet the demand, but sufficient time is not available for the adjustment of the supply of goods to the demand for it, there is said to be a short period market. This type of market exists for a short period, say, a week. 3. Long period Market: When sufficient time is available for the adjustment of the supply of goods in accordance with the demand for the same, there is said to be a long period market. Such a market is concerned with durable goods, and so, the sellers hold the goods for a long period.

(d) Classification on the basis of the volume of business transacted: On the basis of the volume of business transacted, markets may be classified into two types. They are: 1. Wholesale Market: Wholesale market is the market where goods are sold in bulk to dealers for resale. In this market, generally, wholesalers sell goods to retailers. 2. Retails Market: Retail market is the market where goods are sold in small quantities to the ultimate consumers. In this market, generally retailers sell goods directly to the final consumers.

(e) Classification on the basis of the nature of goods sold: On the basis of the nature of goods sold, markets may be classified into two types. They are: 1. Consumer Goods Market: Consumer goods market is the market for consumer goods (i.e. goods needed for use or consumption by final consumers). 2. Industrial Goods Market: Industrial goods market is the market for industrial goods (i.e. goods meant for use by producers in the process of production).

(f) Classification on the basis of the subject matter of sale: On the basis of subject matter of sale, markets may be classified into four categories. They are:

1. Commodities Market: Commodities market is the market where different types of commodities. Such as raw material, semi- finished goods, capital goods and consumer goods are bought and sold. 2. Capital Market: Capital market is the market where capital is bought and sold. This includes: 1.Capital market proper – where banks and other financial agencies provide long-term capital or finance to the needy borrowers, 2. Money market – where banks and other financial agencies provide short-term capital or finance to the needy, 3. Stock market – where stocks, shares, bonds debentures and other securities are bought and sold, 4. Foreign exchange market – where foreign exchanges, i.e. Currencies of different countries are bought and sold. 4. Service Market: Service market is the market where services such as transport and communication, insurance etc, are marketed or provided. 5. Labour Market: Labour market is the market where labour is marketed.

(g) Classification on the basis of the nature and mode of business transactions: On the basis of the nature and mode of business transactions, markets may be classified into two categories. They are: 1. Spot Market or Cash Market: Spot market is the market where goods are physically transferred from the sellers to the buyers and the buyers make payments to the sellers immediately after the sales are effected. 2. Futures Market or Forward Market: Futures market is the market where no physical delivery of goods and payment for the purchases take place, but only future contracts are entered into.

(h) Classification on the basis of regulation: On the basis of regulation of the market, markets may be classified into two types. They are: 1. Regulated Markets: Regulated markets are markets that are regulated by statutory measures. Regulated markets for agricultural goods, produce exchanges, stock exchanges etc. are the examples of regulated markets. 2. Unregulated or Free Markets: Unregulated markets are markets which are unregulated or not controlled by the statutory measures. They mostly operate freely on the basis of market forces, viz., demand and supply. (i) On Economic basis: On economic basis, market may be classified into three types. They are:

1. Perfect Market: It refers to a market or market situation where there is perfect competition. Competition is said to be perfect when the sellers and buyers of a particular commodity are so numerous that none of the sellers or buyers have to sell or buy at a single uniform price. Price is determined by the market forces of supply and demand. 2. Imperfect Market: Imperfect market refers to a market or market situation where there is imperfect competition. Competition is said to be imperfect when any of the essentials of perfect competition is absent. In other words, competition is said to be imperfect when it has the features of both competition and monopoly. 3. Monopoly Market: Monopoly market refers to a market or a market situation where a single seller controls the entire supply of a commodity which has no close substitutes. What is marketing? Many definitions exist with different emphasis on the functional process & activities that constitute marketing. Some important definitions are discussed here.

The Chartered Institute of Marketing defines marketing as follows: “ Marketing is the management process for identifying, anticipating & satisfying consumer’s requirements profitably.”

The focus of this definition is on the need of balancing customer satisfaction with the overall objective of an organization, that is, profit. It is based on the belief that these two concepts are inter-related and no organization can survive and grow without creating a balance between these two. Another definition of marketing proposed by American Management Association is as follows: “Marketing is the process of planning and executing the conception, pricing, promotion & distribution of ideas, goods & services to create exchanges that satisfy individual and organizational objectives.”

Many experts feel that this definition presents marketing as a functional process conducted by marketing department. It’s also felt that marketing in recent times, has grown to become an organizational philosophy of ‘an approach to doing business’ and the AMA definition does not focus on strategic aspects of marketing. This has led to some recent definitions of marketing mooted by strategists, such as the following:

“Marketing is a management process whereby the resources of the whole organization are utilized to satisfy the needs of selected customer groups in order to achieve the objectives of both parties. Marketing, then, is first & foremost an attitude of mind than services or functional activities.”- McDonald. “Marketing is so basic that it cannot be considered a separate function at par with other functions such as manufacturing or personnel. It’s first a central dimension of the entire business. It’s the whole business seen from the point of view of its final result, that is, the customer’s point of view...”. Drucker.

1.4 Concept of Marketing The Marketing philosophy of business assumes that an organization can best service, prosper and profit by identifying and satisfying the needs of its customers. This however is a recent thinking. Various definitions of Marketing have been given from different perspectives, exchange and utility being the two important ones.

The Marketing Concept, a philosophy of early 1950s gave marketing a much more important role in business. To apply this concept, an organization must meet three basic needs.

First, it must truly believe in the customer’s importance. Most of the companies give lip service to this idea; no manager wants to be caught saying that customers are not important. By contrast, a genuine customer orientation demands a fervent commitment of people, time, and monetary resources to implement this orientation.

Second, marketing efforts must be integrated. Specific and measurable goals should be set; all marketing activities should be co-ordinated. If various departments follow their own private agendas in conducting marketing activities, the organization may lose sight of customer’s needs.

Finally, management must accept the assumption that profit goals will be reached through satisfied customers. Clearly, the path to profit is not a simple one; all business firms compete within a complex environment that demands astute management of organizational resources and efforts. Nevertheless, managers must have confidence that if their material needs by offering quality products at fair prices are fulfilled, their companies will make money. Similarly, not-for-profit organizations will achieve their financial and other goals if they satisfy their customers and members. Figure 1.1 illustrates these three pillars of the marketing concept, which are necessary conditions in creating satisfactory exchange and in making marketing a true philosophy of business.

The Marketing Concept (Achieve goals by meeting customer’s needs)

Customer Orientation Integrated marketing Profit follow customer All marketing satisfaction activities are focused All marketing Profit aims will be met when on providing activities the needs and wants of the satisfaction market-place are are coordinated successfully served Fig. 1.1: Key Assumptions of the Marketing Concept

1.5 The Exchange Process A central part of any definition of marketing is the exchange, which is giving something of value in return for something of value. A product is anything customers will exchange something of value for, usually because it satisfies a need or a want. Marketers divide products into three categories: (1) goods, or physical items; (2) services, or activities that provide some value to the recipient; and (3) ideas, or concepts that provide intellectual or spiritual benefits to the customer.

Regardless of the nature of the exchange, certain conditions must exist before the exchange can occur. At the minimum, the following five conditions are necessary for successful exchange:  At least two parties must be involved.

 Each party must have something that interests the other party.

 Each party must be able to communicate and deliver.

 Each party must be free to accept or reject any offer from the other party.  Each party must consider it desirable, or at least acceptable, to deal with the other party.

The absence of even one of these conditions can cause the best strategies and plans to fail.

The Production Era The Industrial Revolution of the eighteenth century was the beginning of the production era, which lasted until the late 1920s. During this period, companies focused on the manufacturing process. They looked for ways to produce their goods faster and more efficiently. The production era had sellers’ markets in many industries, meaning that demand for products exceeded supply.

Production Sales Era Marketing Era Era Industrial 1930 195 Present TheRevolution Sales Era 0

Fig. 1.2: The Evolution of Marketing: Manufacturers began to make marketing

a priority in the 1950s and are still learning to put customers first The period from approximately 1930s to 1950, during which companies focused on promoting and distributing their products.

The Marketing Era The period that began in the 1950s and continues today, during which companies formed marketing departments, began to pay attention to customer wants and needs, and started implementing the marketing concept.

Marketing Concept The idea of maximizing long-term profitability by integrating marketing with other parts of the company and meeting customer needs and wants.

1.6 Elements Of The Marketing Concept To apply the marketing concept, marketers must do three things; meet customer needs and wants, achieve and maintain long-term profitability, and integrate marketing with the other functions in the company, as shown in Figure 1.3. These companies believe in customer orientation. This is essentially a managerial philosophy in which the customer is central to everything the company does.

Marketing in the Future The twenty-first-century marketing professional will need to have the analytical capacity to handle increasing amounts of data, the creative talents to define products and develop messages for a crowded marketplace, and the social awareness to navigate in complex global markets. Add a strong dose of technological knowledge and ethical sensitivity, and you’ll have a pretty good idea of what the marketing challenge will look like in the next century. Financ Marketing Technical e Research Support

Driver: Objective: Customer FUNCTIONAL Long term Need and INTEGRATION Profitability Wants

Material Administrati Handlin on Servic Manufacturi g e ng

Fig. 1.3: The Marketing Concept: The marketing concept combines functional Reintegration with customer satisfaction and long-term profitability.

The Marketing Strategy It is the overall plan for marketing a product that includes selecting and analyzing a target market and creating and maintaining a marketing mix.

The Marketing Mix Once you’ve identified your target market, the next step is to create the marketing mix, which is a set of four elements: product, price, distribution, and promotion (see Figure 1.4). You have a lot of control over the elements in your marketing mix, but you have very little control over the environment in which you’re operating. For example, Daewoo can decide which cars it will make but it can not decide what the pollution control laws will be in India three years from now. Because of the amount of influence these external forces have, marketers think about the marketing mix in the context of their overall business environment External Forces Competition Economics Regulation Nature Technology Politics Society Product Promotion

Distribution MARKETER CUSTOMER Price

The Marketing Mix

Fig. 1.4: The Marketing Mix: The marketing mix is a combination of product, price, distribution, and promotion; remember that external forces play a role in the definition and management of your marketing mix.

Product Products are integral to the exchange process; without them, there is no marketing. As pointed out earlier, a product can be a good, service, or an idea. Astute marketers realize that a product is actually a “bundle of value” that meets customers’ expectations. For example, when you buy a pair of Action shoes endorsed by cricket star Kapil Dev, you get more than leather, rubber, and laces. You buy a little piece of Kapil Dev’s image.

Price It is the value, usually in monetary terms that sellers ask for in exchange for the products they are offering.

Pricing and product image are closely related. If the grape juice of similar quality were packaged in two bottles, one with a generic label and one with the Lever’s label, the latter could command a higher price. Customers will pay a higher price for a well-known, well-regarded product, partly because of the image created through advertising and other promotions. High prices can help create a top-of-the-line image. Some marketers opt; luxury products even advertise their high prices.

Distribution It is the process of moving products from the producer to the consumer, which may involve several steps and the participation of multiple.

Promotion It includes a variety of techniques, including advertising, sales promotion, public relations, and personal selling, that are used to communicate with customers.

Industrial marketers also rely heavily on promotion. A machine tool marketer can use magazine advertising; a dealer can organise sales-incentive contest, trade shows, and make press releases to promote products. IBM, Apple, Compaq, and other computer suppliers combine extensive personal selling with advertising and public relations. For expensive, complex products and systems, close interaction between-buyer and seller is often required, which leads to a lot of personal selling in such markets. Marketers’ selection of advertising media reflects their overall promotional strategy for a product.

Manufacturer Wholesaler Retailer Customer

Manufacture Customer

Fig. 1.5: Marketing Channels: Marketing channels, also called distribution channels, move products from producers to consumers; two examples are shown here.

Industrial marketers may also advertise in a range of specialized and general-interest business magazines to reach potential buyers. 1.7 Functions Of Marketing The delivery of goods and services from producers to their ultimate consumers or users include many different activities. These different activities are known as marketing functions. Different scholars have described different functions of marketing. Some of the eminent scholars have described the functions of marketing as under:

G.B. Giles described seven functions of marketing: (1) Marketing Research, (2) Marketing planning, (3) Product development, (4) Advertisement and sales promotion, (5) Selling and distribution, (6) After sale services and (7) Public relations.

Tousley, Clark and Clark, have described eight functions of marketing: (1) Purchasing, (2) Standardization, (3) Collection, (4) Transportation, (5) Finance, (6) Risk bearing, (7) Marketing promotion and (8) Sales. Cundiff and Still have divided the functions of marketing into three categories as follows:

Table 1.1 Functions of Marketing

(i) Merchandizing Functions (ii) Physical Distribution (iii) Auxiliary Functions Functions 1. Product Planning and 1. Storage 1. Arrangement Developments of Finance 2. Standardization and 2. Transportation 2. Risk-Bearing Gradation 3. Purchases and Collection 3. Collection of Information Market

4. Sales In brief, the functions of marketing can be explained as under:

1. Merchandizing Functions Merchandizing functions of marketing include all those functions of marketing which are performed in relation to create a demand of a product and to make it available in a specific-market having some specific needs. Following are the functions included in this group: i) Product planning and development: It is the time when every activity of a producer clusters around the needs and wants of consumers. Today, a producer produces only those goods and services which are required by his customers. A producer has to produce the goods and services according to the needs of his customers so that the object of customer satisfaction may be achieved. He has to make the design, size, weight, price and packing of his product according to the changing needs and tastes of his customers. Therefore, the very first function of marketing is to plan a product and to develop it so that it may satisfy the expectations of customers.

ii) Standardizing and grading: Standardizing and grading—are two very important aspects of marketing of today, because with the help of these two aspects, marketing functions become easy, production becomes uniform, prices become equal and marketing becomes extensive. iii) Buying and assembling: For the purpose of functions of marketing, buying means the acquisition of goods and services by the seller or industrial user for the purpose of resale. Though ultimate consumers also purchase the goods and services for the satisfaction of their needs, such purchases are not included within the purview of the functions of marketing. Assembling, for the purpose of functions of marketing, means the collection of different types of goods and services by mediators for the purpose of resale. iv) Selling: Selling is the object around which all the activities of marketing cluster because no activity in the world of marketing is completed unless and until the real sale of goods and services bought or acquired by the seller or intermediary has been effected. Broadly speaking, marketing does not mean to sell the goods and services only. It includes the discovery of tastes and wants of the customers, production of goods and services according to their tastes, creation of demand, real sale, and after-sale services. For the achievement of this purpose, it becomes essential for the marketing personnel to establish effective co-ordination among the activities of advertisement, personnel selling, sales promotion and after-sale service.

2. Physical Distribution Functions Physical distribution functions of marketing are the activities performed for the purpose of distributing the goods and services to their real-consumer. These functions include all the functions related to the transportation of goods and services from the place of producer or seller to the place of buyer. It includes following two functions: i) Storage: Storage is considered to be main activity of marketing these days. Whenever and wherever the production is seasonal and consumption is parental or whenever and wherever the consumption is seasonal but the production is parental, the goods are to be stored in good condition from the time of production till the time of consumption. Storage aims at meeting different objects such as – reading the time between production and consumption, to get the expected appreciation in prices, to capture the market etc. ii) Transportation: Transportation refers to the real distribution of goods from the place of production to the place of consumption.

3. Auxiliary Functions Auxiliary functions are the functions which make the process of marketing easy and convenient. It includes the following functions: i) Marketing finance: Marketing finance means the arrangement of adequate finance for the distributing the goods and services to their real consumers. ii) Risk bearing: Marketing involves many large risks. Some of the risks can be insured, e.g. flood, fire, theft, robbery, loot, etc. On the other hand, some of the risks cannot be insured, e.g. fall in the prices, changes in the demand, changes in the fashion, changes in the tastes of consumers etc. These risks can never be eliminated, however, these can be minimized through effective system of sales forecasting, market research, advertisement, sales promotion, product diversification etc. iii) Market information: Market information plays a vital role in the success of an enterprise. A businessman has to collect different types of market information so that he can chalk out his market programme and policy according to the information gathered. Market information includes the collection of data regarding trend of market, government policy, price policy of different business enterprises, tastes of consumers, change in fashion, scientific development, channels of distribution, media of advertisement etc. No business effort can be successful in the absence of this information. These informations are collected by different business enterprises, specialized agencies, government, and research scholars at different times. iv) Pricing: Pricing is perhaps the most important decision taken by a businessman. It is the decision upon which the success or failure of an enterprise depends to a large extent. Therefore, price must be determined only after taking all the relevant factors into consideration. While determining pricing policy, the factors to be considered are – cost of production, severity of competition, prices of competitors, marketing policy, government policy, the buying capacity of consumers etc.

An analytical study of all the functions of marketing discussed above makes it clear that marketing is a very wide term including all the activities ranging from the discovery of needs and wants of consumers to their satisfaction.

1.8 Importance Of Marketing Marketing has acquired an important place for the economic development of the whole country. It has also become a necessity for attaining the object of social welfare. As a result of it, marketing is considered to be the most important activity in a business enterprise while at the early stage of development it was considered to be the last activity. For convenience, the importance of marketing may be explained as under: 1. Importance of marketing to the society Importance of marketing to the society can be explained as under: i) Delivery of standard of living to the society: Main liability of marketing is to produce goods and services for the society according to their needs and tastes at reasonable price. Marketing discovers needs and wants of the society, produces the goods and services according to these needs, creates demand for these goods and services, encourages customers to use them, and thus, improves the standard of living of the society. ii) Decrease in distribution cost: Second important liability of marketing is to control the cost of distribution. Decrease in cost of distribution directly affects the prices of products because the cost of distribution constitutes to be an important part of the total cost of distribution. iii) Increasing employment opportunities: Employment opportunities are directly affected by the development of marketing. Successful operation of marketing activities requires the services of different enterprises and organization such as wholesalers, retailers, transportation, storage, finance, insurance and advertising. These services provide employment to a large number of persons. iv) Protection against business slump: Business slump causes unemployment, slackness in the success of business and great loss to the economy. Marketing helps in protecting society against all these problems. v) Increase in national income: Successful operation of marketing activities creates, maintains and increases the demand for goods and services in the society. It results in the increased level of production and it increases the scope and area of marketing. This increase, in turn, increases the national income which is beneficial to the whole society.

2. Importance of marketing to the company Marketing is considered to be the most important activity of all the business activities. It has become a necessity for the successful operation of all other business activities. Peter F. Drucker has rightly said, “Marketing is the business.” All the business activities are directed on the basis of marketing decisions. The success of an enterprise depends to a large extent upon the success of its marketing activities. i) Helpful in business planning and decision making: It is very risky to take the decision in respect of production only on the basis of production capacity of an enterprise, especially in the light of increasing competition and changing circumstances. Therefore, it becomes necessary to decide what can be sold before deciding what can be produced. It is necessary to decide what quantity of a particular product can be sold in the market and what measures would be applied for getting loyalty of customers to the product. Unless and until these key decisions are taken, it is not practical to take the decision regarding production, purchase, finance, type of product and quantity of production. Marketing is very helpful in taking such decisions. ii) Increase in the profit: The main objective of every company is to earn the maximum profits by successful operation of its activities. Maximization of profits can be possible only through the successful operation of the activities of the marketing department and not through the production or finance department. iii) Helpful in communication between society and business: Marketing is an effective media of communication between society and company.

3. Importance of marketing in developed economy In all the developed countries of the world, marketing is considered to be the key of economic activity for industrial growth and expansion. Really speaking, developed countries are in a greater need of efficient marketing than underdeveloped countries because in a developed country, generally, the production is carried on at very large scale through the use of latest technology and equipments. In these countries, the production is much more than the demands. Therefore, product diversification takes place and a stiff competition is found in the market. It requires the marketing system to be much more effective so that the produced goods and services can be sold. 4. Importance of marketing in underdeveloped or developing economy Marketing has a vital role to play in the development of an underdeveloped country. A rapid development of an underdeveloped country is possible only through the modern techniques of marketing. Importance of marketing goes on increasing in these countries with every increase in industrialization and urbanization because marketing is an important tool for producing the goods and services at large scale and for selling this production successfully in the market.

5. Importance of marketing in Indian economy Indian economy is a developing economy. During recent years, the functions of marketing in India have undergone tremendous changes. It is being recognized as a profession based on a systematic part of knowledge. These changes have increased the liabilities of marketing managers these days. This all has resulted in many important achievements in India such as: (i) Increases in employment opportunities; (ii) Balanced growth of the country; (iii) Increase in per capita income; (iv) Increase in the sale of goods; (v) Increase in profits; (vi) Development of the means of communication; (vii) Development of the means of transportation; (viii) Development of the means of warehousing; (ix) Development of new media of advertisement and sales promotion; (x) Development of banking and insurance industries; (xi) Development of packing industries; (xii) Development of new means of finance; (xiii) Expansion in the scope and area of marketing; (xiv) Improvement in the standard of living; (xv) Industrial progress; (xvi) Maximum utilizations of available resources; (xvii) Increase in exports; and (xviii) Increase in the national income of the country.

1.9 PERSPECTIVES OF MARKETING Studies have revealed that different organizations have different perceptions of marketing. And these differing perceptions have led to the formation of different concepts of marketing such as the following: 1. The Exchange Concept 2. The Production Concept 3. The Product Concept 4. The Selling Concept 5. The Marketing Concept 6. The Societal Marketing Concept 1. The Exchange Concept: The exchange concept of marketing, as the very name indicates, holds that the exchange of a product between the seller and the buyer is the central idea of marketing. While exchange does form a significant part of marketing, to view marketing as a mere exchange process would amount to a gross undermining of the essence of marketing. A proper scrutiny of the marketing process would readily reveal that marketing is much broader than exchange. Exchange covers the distribution aspect and the price mechanism involved in marketing. The other important aspects of marketing, such as concern for the customer, generation of value satisfactions, creative selling and integrated action for serving the customer, get completely overshadowed in the exchange concept of marketing.

2. The Production Concept: This philosophy holds that customers favor those products with low offer price and easy availability. Thus this concept holds that high production efficiency and wide distribution coverage would sell the product offered to the market.

Organizations voting for this concept are impelled by a drive to produce all that they can. Naturally, they get focussed on production and put all their efforts toward that aspect of the organization. They do achieve efficiency in production. But their thinking is guided by the assumption that the steep decline in unit costs arising from the maximization of output would automatically bring them all the customers and all the profits that they need. But, they do not get the best of customer patronage. Customers, after all, are motivated by a variety of considerations in their purchases. As a result, the production concept fails to serve as the right marketing philosophy for the enterprise.

Production concept is applicable in situations where demand exceeds supply. 3. The Product Concept: This philosophy holds that customer favors quality, performance, innovative features etc. The buyer will admire such products. Therefore firms following this philosophy believe that by making superior products and improving their quality overtime, they will be able to attract customers.

The product concept is somewhat different from the production concept. Whereas the production concept seeks to win markets and profits via high volume of production and low unit costs, the product concept seeks to achieve the same result via product excellence - improved products, new products and ideally designed and engineered products. It also places the emphasis on quality assurance. They spend considerable energy, time and money on research and development and bring in a variety of new products.

Organizations which follow this concept concentrate on achieving product excellence. They do not bother to study the market and the consumer in depth. They get totally engrossed with the product and almost forget the consumer for whom the product is actually made. They fail to find out what the consumers actually need and what they would gladly accept. When organizations fall in love with the product, it leads to marketing Myopia because the focus is on the product rather than on the customer needs.

Marketing Myopia The term ‘Marketing Myopia’ is coined by Prof. Theodore Levitt. A coloured or crooked perception of marketing and a short-sightedness about business executive’s attention to production or product or selling aspect at the cost of the customer and his actual needs, creates myopia. It leads to a wrong or inadequate understanding of the market and hence failure in the market place. The myopia even leads to wrong or inadequate understanding of the very nature of the business in which a given organization is engaged and thereby affects the future of the business as well. Levitt explained further that while business that maintains itself through the changing times, there is some fundamental characteristic in each business. And this fundamental characteristic invariably relates to the basic human need which the business seeks to serve and satisfy through its products. A wise entrepreneur or marketing man would understand this important fact and define his business in terms of this fundamental characteristic of the business rather than in terms of the products and services manufactured and marketed by him at a given point of time. For example, The Railways should define their business as transportation, the movie makers should define business as entertainment and the beverage marketers should define their business as nutrition.

4. The Selling Concept: This philosophy holds that customer, if left alone, would not buy enough of the company’s products. The organization must, therefore undertake an aggressive selling and promotion effort.

As more and more markets became buyers markets and the entrepreneurial problem became one of solving the shortage of customers rather than that of goods, the sales concept became the dominant idea guiding marketing. Most firms practice this concept when they have overcapacity. This concept maintains that a company cannot expect its product to get picked up automatically by the customers. The company has to consciously push its products. Aggressive advertising, high-power personal selling, large scale sales promotion, heavy price discounts and strong publicity and public relations are the tools used by organizations that rely on this concept. As a result, the public often identifies marketing with hard selling and advertising.

But marketing based on hard selling carries high risks. It assumes that customers who are coaxed into buying a product will like it and if they don’t, they won’t badmouth about it or complain to consumer organizations, and will forget their disappointment soon and buy it again. These assumptions do not have base. One study showed that dissatisfied customers may badmouth the product to 10 or more acquaintances and bad news travels fast.

Selling concept is practiced more aggressively with unsought goods, goods that buyers normally do not think of buying such as insurance, encyclopedias etc. These industries have perfected various sales techniques to locate prospects and hard sell them on their product’s benefits. It is also practiced in the non-profit area by fund raisers and political parties. 5. The Marketing Concept: The marketing concept holds that the key to achieving its organizational goals consists of the company being more effective than competitors in creating, delivering and communicating customer value to its chosen target markets.

This concept was born out of the awareness that marketing starts with the determination of consumer wants and ends with the satisfaction of those wants. The concept puts the customer both at the beginning and at the end. It says that any business should be organized around the marketing function, anticipating, stimulating and meeting customer’s requirements. The customer has to be the centre of the business universe and not the organization. A business cannot succeed by supplying products and services that are not properly designed to serve the needs of customers.

The marketing concept rests on four pillars. They are: a) Target market b) Customer needs c) Integrated marketing d) Profitability.

This can be illustrated with the help of the following figure which differentiates it from selling concept.

Starting point Focus Means Objectives

Selling Factory Product Selling & Profits through Concept Promotion sale volume

Marketing Target Customer Integrated Profit through

Concept market needs marketing customer

satisfaction

Selling Vs Marketing a) Target market: A marketer has to define the market to which it will direct its efforts. The specification and identification of market would enable the marketer to design specific marketing strategies. A target market is defined as a set of actual and potential buyers of a product, service or idea. A buyer, who has interest in the product, income and willingness to buy can broadly be called as potential buyer. However, it might not be possible for the marketer to target all of them. There might be geographical barriers, unsuitability of product to certain climatic conditions or inability of the marketer to reach certain hilly or remote areas. Thus, a small portion of potential market might become part of the target market.

The following figure clarifies the target market and penetrated market.

No. of prospectus Potential Market Available Market Qualified available Target/Servedmarket Market

Buyer Penetrated Market

The penetration of product is difficult even if the potential market is large. b) Customer needs: A company can define its target market but fail to correctly understand the customers’ needs. Understanding customer needs and wants is not always simple. Some customers have needs of which they are not fully conscious or they cannot articulate their needs or they use words that require some interpretation.

There are five types of needs. They are stated needs, real needs, unstated needs, delight needs and secret needs. Responding only to the stated need may shortchange the customer. A responsive marketer finds a stated need and fills it. He is going to lose the customer in the near future. An anticipative marketer looks ahead into what needs customers may have in the near future. A creative marketer discovers and produces solutions customers did not ask for but to which they enthusiastically respond. Therefore companies must go beyond just asking consumers what they want. This is necessary because a company’s sales come from two groups, new customers and repeat customers. One estimate shows that attracting a new customer can cost five times as much as pleasing an existing one and it might cost sixteen times as much to bring the new customer to the same level of profitability as the lost customer. Customer retention is thus more important than customer attraction. c) Integrated marketing: When all the company’s departments work together for serving the customers, the result is integrated marketing.

Integrated marketing takes place on two levels; first, the various marketing functions – sales force, advertising, customer service, product management, Marketing Research must work together. Second, marketing must be embraced by the other departments, they must also think of the customer. According to David Packard of Hewlet-Packard, “Marketing is far too important to be left only to the marketing department.”

To foster team-work among all departments, the company carries out internal marketing as well as external marketing. Internal marketing is the task of hiring, training and motivating able employees who want to serve customers well. External marketing is marketing directed at people outside the company. The following figure illustrates the relevance of integrated marketing.

c i t a

e c g u e n d L Customer o r P Integrated Marketing Marketing

Purchase d) Profitability: The ultimate purpose of the marketing concept is to help organizations achieve their objectives. In the case of private firms, the major objective is profit. In the case of non-profit and public organizations, it is surviving and attracting enough funds to perform useful work. Private firms should not aim for profits as such but to achieve profits as a consequence of creating superior consumer value. A company makes money by satisfying customer needs better than its competitors.

6. The Societal Marketing Concept: This concept holds that the organization’s task is to determine the needs, wants and interests of target markets and do deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and the society’s well-being.

The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices. They must balance the often conflicting criteria of company profits, consumer want, satisfaction and public interest.

The following diagram shows the features of various concepts.

Marketing Management Process in the Marketing Philosophies

Concepts or Stage 1 Stage 2 Stage 3 Result of Stage Profits Philosophies 1-3 Production Vague idea Mass Mass Product Profit through Concept about Production Production availability at a mass customer low price standardization wants Product Vague idea Superior Distribution Superior Profit through Concept about product by without performance marketing customer R & D proper product myopia needs marketing availability mix Selling Vague idea Mass Maximum Product Profit through Concept about production use of availability hard-sell customer and selling buyer inertia needs distribution technique Marketing Analyze Know what Integrated Product as per Profit through Concept target market customer marketing customer customer needs requirements satisfaction Social Analyses Study Integrated Product as per Profit through Marketing target market customer market with customer human Concept and know needs in ecological requirements satisfaction customer the light of constraints and ecological needs ecological constraints impurities

1.10 Old Concept Or Product-Oriented Concept This is the classical concept of marketing which says that marketing is a part of production process. Look at some definitions:

American Marketing Associations: “Marketing is the performance of business activities that direct the flow of goods and services from the producer to consumer or user.”

“Marketing comprises both buying and selling activities.”- Prof. J.F. Pyle Above two definitions of marketing confine the marketing to sale and purchase only. These definitions do not include any allied activity of marketing such as transportation, storage, financing, insurance, risk-bearing etc.

According to Tousley, Clark and Clark, “Marketing consists of those efforts which affect transfers in the ownership of goods and services and provide for their physical distribution.” This definition of marketing includes the factor of physical distribution also along with sale and purchase of goods and commodities. Thus, this definition is wider than earlier definitions.

Characteristics of old product-oriented concept of marketing: Main characteristics of this concept of marketing are as follows: 1. It stresses upon production. 2. It assumes that marketing is only the physical distribution of goods and services from producer to consumer. 3. It assumes that marketing starts after the goods have been produced and it ends after the goods have been sold. 4. It does not provide for any allied activity of marketing such as, transportation, warehousing, insurance, financing etc. 5. According to this concept, the ultimate object of marketing is to maximize the profits by maximizing the sales.

1.11 New Or Modern Or Customer-Oriented Concept Modern concept of marketing is a customer-oriented concept. This concept is based on the assumption that a business and industrial enterprise can achieve its object of maximizing the profits only when it considers the needs and wants of its consumers and it tries for the satisfaction of these needs and wants. Look at some definitions:

“ Marketing is a total system of interacting business activities designed to plans price, promote and distribute want – satisfying products and services to the present and potential customers.”- William J. Stanton

“Marketing is the delivery of standard of living to the society.”- Prof. Paul Manure

“ Marketing is the process of discovering and translating consumer needs and wants into product and service specifications, creating demand for these products and services and then in turn expanding this.”- Prof. Malcolm, McNair

“Marketing is the business process by which products are matched with the market and through which the transfers of ownership are effected.’’- Cundiff and Still

Thus, new concept of marketing emphasizes the satisfaction of consumers. This concept believes that marketing begins and ends with the customers. It stresses that a business and industrial enterprise stands only for the customers. Satisfaction of consumer needs is the only way of success. This concept is based on earning profits through the satisfaction of consumers. According to this concept, a producer must produce what his consumers need; price must be fixed what his consumers can afford; production must be in the quantity what is consumers require and the goods must be distributed through the channels which are most suited to his consumers. Modern concept of marketing has some specific characteristics as follows: 1. The consumer is the king and therefore, the satisfaction of consumer must be the prime object of an enterprise. 2. The functions of marketing must be recognized as the most important functions of an enterprise. 3. Needs and wants of the customers must be identified properly and deeply before starting production. 4. Production must be in accordance with these needs and wants. 5. All the resources of production must be utilized to their best extent so that the cost of production may be minimized. 6. Profits must be increased only by reducing the cost of production or by reducing the cost of sales and not by increasing the selling price. Every activity of an enterprise must start with the consumer and end with the satisfaction of consumer. 1.12 Difference Between Old And New Concepts Of Marketing

Old Goods and Sales Profit through Sales Concept Services

Modern Discovery of Production of Goods consumer needs and Services Concepts

Creation of Sales Demand

After Sales Service Profit through customers satisfaction

Fig. 1.6: Graphic representation of old and new concepts of marketing

The difference between old and new concepts of marketing can be easily understood on the following basis:

Table 1.2

Basis of Difference Old Concept of Marketing New Concept of Marketing

1 2 3 1. Orientation This concept is product This concept is consumer oriented. oriented. 2. Target The target of this concept is The object of this concept is to to earn the maximum profits maximize the profits through by maximizing the sales. satisfaction of consumer needs. 3. Contribution This concept is no way According to this concept. in Standard related with the marketing is the creation and of Living standard of living delivery of standard of living to of society. the society. 4. Starting According to this concept According to this concept Point marketing starts only after marketing starts with the the goods have been discovery of consumer needs. produced. 5. Satisfaction This concept does not According to this concept every of Consumer consider the needs and business activity clusters around Needs and wants of consumers. the needs and wants of consumers wants 6. End of According to this concept According to this concept Process marketing ends with the marketing ends with the physical distribution of goods satisfaction of consumer needs. and services. 7. Marketing It does not provide for It stresses upon intensive Research Marketing Research. Marketing Research. 8. Allied This concept does not This concept considers allied Activities consider any allied activities of marketing to be its of Marketing activity of marketing. important part.

1.13 Summary Dear Students, in this unit we have introduced the concept of marketing, elements of marketing, marketing mix like product, price, promotion and distribution etc. different functions of marketing, difference between old and new marketing concept etc.

1.14 Keywords Local Market Regional Market

National Market International or World Market

Primary Market Secondary Market

Terminal Market Very short period Market

Short period Market Long period Market

Wholesale Market Retails Market

Consumer Goods Market Industrial Goods Market

Commodities Market Capital Market

Stock market Service Market

Labour Market Spot Market or Cash Market

Futures Market or Forward Market Regulated Markets

Unregulated or Free Markets Perfect Market

Imperfect Market Monopoly Market

Exchange Process Production Era

Sales Era Marketing Era

Purchasing Standardization Collection Transportation Finance Risk bearing Marketing promotion Sales Merchandizing Functions Product planning and development Standardizing and grading Buying and assembling Selling Physical Distribution Functions Auxiliary Functions Marketing Finance Risk bearing Market information Pricing Exchange Concept Production Concept Product Concept Marketing Myopia Selling Concept Marketing Concept Societal Marketing Concept Target Marketing Integrated Marketing

1.15 Exercise

1. Define marketing. Explain the various functions of marketing 2. Differentiate old and new/modern concept of marketing. 3. What do you understand by selling concept? 4. Differentiate selling vs marketing. 5. Why marketing is an important for economic development? Unit 2

Modern Concept Marketing

Structure: 2.1 Objectives 2.2 Introduction 2.3 Impact of Modern Concept of Marketing

2.3.1 Helpful in product development

2.3.2 More social satisfaction

2.3.3 Impact towards national economy 2.4 The Strategic Process 2.5 Environmental Considerations 2.6 Marketing Process – An Overview 2.7 Marketing Audit 2.8 Marketing Environment 2.9 Characteristics of Marketing Environment 2.10 Summary 2.11 Exercises

2.1. Objectives After studying this unit you will be able to know - Impact of modern concept of marketing - The marketing environment in which the organization has to put all its effort to satisfy the customer. - The characteristic of marketing environment. - Marketing process - The process of Marketing Audit

2.2. Introduction In the previous unit we have discussed about modern/new concept of marketing. Modern concept in marketing focused on consumer and consumer satisfaction. Operating is present IT era, the customer satisfaction is challenging job for any organization. In this unit we will discuss about the impact of modern concept of marketing, marketing environment and the necessity of knowing marketing environment.

2.3. Impact of Modern Concept of Marketing The impact of modern concept of marketing may be described as under:

1. Helpful in product development Modern concept of marketing is very helpful in the discovery and development of new products because this concept is based on intensive research regarding needs, wants and behaviour of consumers.

2. More social satisfaction Modern concept of marketing stresses upon the satisfaction of needs and wants of consumers. Thus, this concept provides for greater social satisfaction. In fact, it creates and delivers the standard of living to the society.

3. Impact towards national economy Modern concept of marketing is important not only from the consumers and producers point of view but also from the point of view of the country as a whole. This concept provides more employment, makes maximum exploitation of the resources of the quantity, restricts the wastages to the minimum and upgrades the industrial production. It provides more and new goods and services to the society and increases the standard of living. Thus, this concept of marketing is very helpful in the overall growth and development of the country.

On the above discussion, it can be concluded that the importance of new concept of marketing is increasing day by day and it is meeting the objectives.

2.4. The Strategic Process Before penetrating too deeply into the details of strategic management, it is useful to study the overall process. The Basic Strategic Management Process Model is illustrated in Figure 2.1. Fig. 2.1: The Basic Strategic Management Process Model

Figure 2.1 illustrates that strategic management is designed to effectively relate the organization to its environment. The environment includes political, social, technological, economic elements. 2.5. Environmental Considerations

The Context of Strategic Management The outermost part of the model represents the environment in which the strategic management process takes place. The environment can be viewed as consisting of four elements: the social, political, technological and economic facets. The social facet of the environment consists of the human relationships of the organization and strategists to individuals, to groups, and to society in general. This facet involve ethical and moral considerations and the responsibilities strategic managers have over check individuals because of their humanity and not because of any legal, economic, political forces they may bring to bear.

The political facet of the environment consists of the laws and regulations applicable to the enterprise and the courts and government officials who interpret and enforce them, along with other groups and institutions in society which wield power. The increasing burden of laws and regulations is of concern to every manager.

In addition to government, there are many other groups and institutions in society which hold power. Organizational strategists are influenced and seek to influence these groups and institutions.

Technology is defined as “the science of the application of knowledge to practical purposes . . . the totality of the means employed by people to provide itself with the objects of material culture.” So the technological facet of the environment is the sum total of machines, materials, and knowledge which go into the production of goods and services. The technological facet should not be confused with ‘“high-tech,’’ which is the advanced, mostly electronic, technology involved in computers, robotics, space travel, and so forth. The technological facet includes these elements, of course, but it also includes all kinds of machines and systems for accomplishing practical purposes.

The economic facet of the environment consists of financial markets, sources of capital, product and service markets, demand for goods and services, and opportunities for profits along with changes and trends in the economy The economic facet of the organizational environment is considered by many to be the most important. 2.6. Marketing Process – An Overview The entire process of strategic marketing is characterized by different stages of planning, decision-making also control. The marketing process of organization revolves around these questions. – Where are we at present? – Where do we want to go? – How can we reach there? – Which is the best way to reach? – How can we ensure the success?

These questions are inter-related with different phase of marketing process and a set of time dimensions are identified as past. From this phase we learn about our strengths, weaknesses and potential pitfalls.

Future is an inspirational key, where we want to reach through our strategic planning.

The planning Process The starting point of process involves the various stages of exploring organization & environment. Identifying where the organization is and the long & short term goals, is the first step towards planning. An analysis of the environment, the controlling factors i.e. market, computers and stockholders is also instrumental for planning. The different elements of a marketing analysis are: – Marketing Audit – Environment analysis – SWOT analysis – Establishing objectives 2.7. Marketing Audit An organization’s performance in market place is largely implemented & governed by three factors:  The current market position.

 Nature of environmental threats & opportunities.

 The organization’s ability to cope with strengths & weaknesses.

Purpose of marketing audit: Marketing audit is designed to provide an understanding on the above three issues and build foundation for development of overall marketing strategy.

Expressed in simple form, an audit answers the following questions: Where is the company? Where does it want to go? How, should the company organize its resources to reach there?

Definition: An audit is a systematic, critical & vanished review and appraisal of the organization, its operations & systems and the whole environment in which it operates. A marketing audit is a part of the larger corporate analysis and is chiefly concerned with the marketing environment, marketing functions, objectives, policies and operations.

This audit is a starting point for a strategic marketing planning process and gives a clear picture of environmental threats & opportunities and marketing capabilities.

The audit is also seen as a means by which an organization can identify its strengths and the weaknesses as they relate to external opportunities & threats.

On the whole, major elements & benefits of a marketing audit are:  The analysis of external environment & internal capabilities.  The evaluation of past performance and present activities.  The identification of future opportunities & threats.

Structure of the marketing audit The structure of the audit consists of mainly three elements:

 The organization’s environment.  Its marketing system.  Its marketing activities.

The first stage of audit is designed to establish the different dimensions of environment, the way it changes and how these changes may have a direct impact on business. The second stage is concerned with assessing the capabilities of internal systems i.e. to what extent these systems can handle the changes and demands of environment. The third stage deals with individual component of marketing mix and review of the present activities. 2.8. The Marketing Environment Environmental scanning is an essential part of marketing management. This unit underscores the importance of understanding environmental change in order to make good marketing decisions. First, the growing importance of the environment is discussed. Then, the characteristics of the environment are defined and an overview is provided of the social, technological, economic, governmental, and natural environments as they relate to marketing.

Environmental Importance The marketing environment is more important to management today than ever before. This is both because the rate of environmental change has increased and because there are more teases of important environmental changes.

First, consider the rate of environmental change. It should be remembered that all of the development experienced by humankind has occurred within a mere moment of history. If we were to equate the earth’s history to the distance around the world, the last 50 years, the period of most-rapid development, would equal only one foot. Yet an unprecedented acceleration in environmental change occurred during that brief period and people today are experiencing a unique chapter in human history.

In addition, new types of environmental change have come to the forefront. Economic factors go to the core of business activity, and historically, they have always been important to marketing management. Until around 1900, such factors effectively represented the firm’s entire macro-environment. At the turn of the century, however, governmental and legal forces became more significant, as evidenced by anti-trust legislation. The significance of government has grown greatly over the past few decades. Even the recent deregulation of selected industries has meant turbulent times for the companies involved.

During the 1930s, the growth of labour organizations further affected the decision realm of management. More recently, consumer groups have used tactics similar to those of labour. Labour and consumer groups highlight a movement toward a pluralistic and interdependent society of interest groups, with business no longer the dominant element. Demands on businesses also arise from their stockholders and from citizens in the communities where they are located. The net result of these developments is several more types of important external changes than existed a few decades ago. This has forced management to invest more time and energy in monitoring the environment.

What implications do such changes have for strategic marketing planning? And how should line marketers cope with the environment? These questions reflect a growing recognition by both corporate strategic planners and line marketers that ignoring the threats and opportunities posed by uncontrollable environmental change is nothing short of folly. Although environmental analysis by itself is no panacea, the penalty for not monitoring the environment can be severe, if not fatal. Consistent with this theme, a study concluded that corporate strategic planning had become more closely geared to marketing. 2.9. Characteristics of the Marketing Environment The environment of anything is as large or small, and as simple or complex, as one’s definition of it. Changing consumer incomes, technological innovation, changing government agencies and shifting consumer values are examples of the marketing environment. This environment includes those things that are external, largely uncontrollable, changing, constraining, and potentially relevant. The marketing environment includes non-marketing departments within the firm, as well as markets, competitors, and the macro environment.

Marketers are primarily adapters. They adapt their products, prices, promotion, and distribution to fit the marketplace, as was true for the auto industry during the energy crisis. Certain environmental forces are partially controllable, but most are largely uncontrollable. Some changes in environmental factors, such as shifting population characteristics, represent a key source of uncertainty.

A snapshot of the environment surrounding most organizations is shown in Exhibit 2.2. It is the view of a marketing vice president looking outward from the home turf. The first visible part of the environment comprises surrounding offices and personnel within the company, the intra- organizational environment. Within each company, there may be environmental forces that must be dealt with. Exhibit 2.2: The Marketing Environment Exhibit 2.2 also shows the environment outside the corporation in layers representing both the immediacy of the factors to marketing management (the closer, the more-immediate) as well as the frequency with which management has to deal with such factors. However, to focus only on the inner layer, or task environment, is to ignore changes in the macro environment that cause the task environment to change. It is critical to understand these macro changes to better anticipate changes in markets and competitive relationships.

Looking just beyond the corporate wall, marketers work with independent parties that require constant attention; these include such marketing intermediaries as distributors, advertising agencies, and marketing research firms. This task environment includes markets and competitors. The task environment should be thought of as mediating between the macro environment and management; changes in markets and competitors often result from macro-environmental changes.

2.10. Summary In this unit we have understood the importance of business environment factors like, political, social, technology, economic environment etc. and the characteristics of marketing environment.

2.11. Keywords

Product development Social satisfaction National economy Strategic Process Marketing Audit Environment analysis SWOT analysis Establishing objectives Marketing environment

2.12. Exercises 1. Explain the strategic management process model. 2. Discuss the various environmental issues 3. Explain the different elements of marketing analysis 4. Explain marketing environment from the point of view of marketing management.

Unit 3

Consumer Behavior Analysis

Structure: 3.1. Objectives 3.2. Introduction 3.3. Meaning and characteristics of Consumer behavior 3.4. Importance of the study of Consumer Behaviour 3.5. Factors Influencing Consumer Behavior 3.7.1. Internal or Psychological factors 3.7.2. Social factors 3.7.3. Cultural factors 3.7.4. Economic factors 3.7.5. Personal factors 3.7.6. Other factors 3.6. Buying Roles 3.7. Types of Buying Behaviour 3.8. Types of Buying Behavior Purchase Decision Process 3.7.1. Complex Buying Behaviour 3.7.2. Dissonance-Reducing Buying Behaviour 3.7.3. Habitual Buying Behaviour 3.7.4. Variety –Seeking Buying Behaviour 3.9. What Buying Decision do Business Buyers Make? 3.10. Who Participates in the Business Buying Process? 3.11. What are the Major Influences of Business Buyers? 3.12. How do Business Buyers Make their Buying Decisions? 3.13. Summary 3.14. Keywords 3.15. Exercise

3.1. Objectives After studying this unit, you will be able to:  Describe the characteristics of consumer behaviour.

 Explain the factors influencing consumer behaviour.

 Mention the types of buying behaviour.

 Describe the consumer purchase decision process.

 Explain buyer behaviour models.

3.2. Introduction The aim of marketing is to meet and satisfy target customers' needs and wants. The modern marketing concept makes customer the central point of organization efforts. The focus, within the marketing concept to reach the target customer, sets the ball rolling for analyzing each of the conditions of the target market. The presence of buyers' markets for many products, the growth of consumerism and the enactment of Consumer Legislation in 1960 have also created special interest in consumer behaviour or buyer behaviour.

3.3. Meaning and Characteristics of Consumer Behaviour The field of consumer behaviour studies how individuals, groups and organizations select, buy, use and dispose of goods, services, ideas or experiences to satisfy their needs and desires.

Definition of Consumer Behaviour: According to Walters & Paul, "Consumer behaviour is the process whereby individuals decide what, when, where, how and from whom to purchase goods and services." According to Webster, "Buyer behaviour is all psychological, social and physical behaviour of potential customers as they become aware of, evaluate, purchase, consume and tell other people about products and services.”

Characteristics of Consumer Behaviour: 1. Consumer behaviour or buyer behaviour is the process by which individuals decide whether, what, when, from whom, where and how much to buy.

2. Consumer behaviour comprises both mental and physical activities of a consumer.

3. It covers both visible and invisible activities of a buyer.

4. Buyer behaviour is very complex.

5. Buyer behaviour is very dynamic.

6. An individual's behaviour is influenced by internal and external factors.

7. It is an integral part of human behaviour.

8. In many cases, it is the sum total of the behaviour of a number of persons.

9. It is influenced by a number of marketing stimuli offered by the marketer.

10. It involves both psychological and social process.

11. Consumer behaviour is basically social in nature.

3.4. Importance of the study of Consumer Behaviour What motivates the buyer? What induces him to buy? Why does he buy a specific brand from a particular shop? Why does he shift his preferences from one shop to another or from one brand or another? How does he react to a new product introduced in the market or a piece of information addressed to him? What are the stages he travels through before he makes the decision to buy? These are some of the questions that are of perennial interest to the marketing man, as product and promotion strategies revolve around these questions. In all his marketing strategies and plans, he makes assumptions as to how the buyers would behave and respond to his marketing programmes. Knowledge of the buyer and his buying motives and buying habits, is thus a fundamental necessity for the marketing man.

The study of consumer behaviour is of vital importance for the following purposes: 1. Production Policies: A study of consumer behaviour gives an insight into the various factors or attributes in a particular product which prompt a consumer to purchase that product. Such knowledge will help the producer to pay special attention to those attributes in his product to attract the customers. Thus it helps in formulating the production policies.

2. Price Policies: The study of consumer behaviour enables the marketer to know why a customer purchases the product, because of low cost or social status. This information can be utilized for deciding the price of such products. Thus it helps in deciding pricing policies.

3. Distribution Policies: Knowledge of consumer behaviour is helpful in taking decisions regarding the channels of distribution as it depends on the characteristics of buyer.

4. Sales Promotion Policies: It helps the marketers to know the buying motives of the consumers to make purchases and to use the information gathered about buying motives in advertising media to awaken the consumers' desire to purchase. Thus, it helps in formulating sales promotion policies.

5. Exploiting Marketing Opportunities: A study of consumer behaviour helps the marketers to understand the consumers' needs, aspirations, expectations, problems etc. This knowledge will be useful to the marketers in exploiting marketing opportunities and meeting the challenges of the market.

6. Consumers do not always act or react as the theory would suggest: For example, consumer of the past reacted to price levels as if price and quality had positive relation. Today, consumers seek value for money, less price but with superior features. The consumers’ response indicates that the shift has occurred.

7. Consumer preferences are changing and becoming highly diversified: This shift has occurred due to availability of more choice now. Thus study of consumer behaviour is important to understand the changes.

8. Rapid introduction of new products: Rapid introduction of new products with technological advancement has made the job of studying consumer behaviour more imperative. For e.g., the information technology is changing rapidly in personal computer industry.

9. Implementing the “Marketing Concept”: This calls for studying the consumer behaviour, as customers need to be given priority. Thus identification of target market before production becomes essential to deliver the desired customer satisfaction and delight.

3.5. Factors influencing Consumer Behaviour The consumer behaviour or buyer behaviour is influenced by several factors or forces. They are: 1. Internal or Psychological factors

2. Social factors

3. Cultural factors

4. Economic factors

5. Personal factors

6. Other factors

The following diagram shows the influence of various factors on consumer behaviour: Exhibit 3.1: Factors influencing the consumer behaviour

3.5.1 Internal or psychological factors: The buying behaviour of consumers is influenced by a number of internal or psychological factors. They are a) Motivation b) Perception c) Learning d) Beliefs and Attitudes e) Personality.

a) Motivation : In the words of William J Stanton: “A motive can be defined as a drive or an urge for which an individual seeks satisfaction. It becomes a buying motive when the individual seeks satisfaction through the purchase of something”. From this definition, it is clear that a motive is an inner urge that moves a person to some action.

Motivation is the force that activates goal-oriented behaviour.

Motivation acts as a driving force that impels an individual to take action

to satisfy his needs. So it becomes one of the internal factors influencing

consumer behaviour.

Man is a perpetual wanting animal. Therefore, when one need is

satisfied, a new need at a higher level emerges. These needs have

been classified by Abraham H. Maslow, who called it ‘Hierarchy of

Needs’. The following diagram shows that:

Self actualization

Esteemneeds needs

Socio-cultural needs

Safety or security needs

Physiological needs Exhibit 3.2: Maslow’s Five-level Hierarchy of Needs

As man has hierarchy of needs, marketing managers must try to stimulate the concerned needs of the human beings and convert them into motives. b) Perception: A motivated person is ready to act. How the person acts is influenced by his perception of the situation. According to Bernand Berelson and Gary A. Steiner, “Perception is the process by which an individual selects, organizes and interprets information inputs to create a meaningful picture of the world.” People form different perceptions of the same stimulus because of three perceptional processes viz. selective exposure, selective distortion and selective retention.

Selective exposure: A person may be exposed to a number of stimuli every day. But it is not possible for him to give attention to all these stimuli. He will pay attention only to a few selected stimuli after screening. It is found out by research that people are likely to notice only those stimuli which relate to their current needs. So, marketers must try to find out which stimuli will the people notice.

Selective distortion: People who notice the same stimuli may not interpret them in the same way as intended by the marketers. They may interpret them to fit their own beliefs or attitudes, which differ from person to person. It explains the tendency of the people to adopt information in a way that will support what they already believe. It suggests that the marketers must try to understand the mind-set of the consumers and how they will affect interpretation of stimuli i.e. advertisements and sales information. Selective retention: People tend to forget a number of stimuli or information to which they are exposed. They will retain only those information which support their beliefs and attitudes. They remember only that information in which they are interested and have strong buying motives. Therefore, the marketers must make an appeal to the buyers’ strong motives. c) Learning: It is defined as the changes in the behaviour of an individual arising from the past practice or previous experience. The buying behaviour is critically affected by their learning experience. The learning process occurs through the interplay of drives, stimuli, cues responses and reinforcement. A drive is a strong internal stimulus which calls for action. This becomes a motive when it is directed towards a particular stimulus object. It motivates a person to act towards the satisfaction of the needs. The objects are stimuli which satisfy the drives. Cues are minor stimuli which determine when, where and how the buyer responds. It may be seeing the object in the television every day, hearing about discount in price etc. This puts him into action. The response of satisfaction or dissatisfaction is reinforced. This learning process results in habits, attitudes and beliefs. A marketing manager can build a demand for their products by associating it with strong drives, using motivating cues & providing positive reinforcement. d) Beliefs & Attitudes: People through acting and learning, develop their beliefs and attitudes, which, in turn, influence their buying behaviour. Beliefs refer to a descriptive thought which a person has about something. Marketing managers are generally interested in the beliefs that the people formulate about specific products and services. An attitude is a state of mind or feeling. It may be described as a person’s emotional feelings, action, tendencies towards some idea or object. It explains a person’s relatively consistent evaluations, feelings and tendencies towards an object or idea. Attitudes cannot be changed easily, because a person’s attitudes settle into a consistent pattern. So the marketing managers should usually try to fit firm’s products into existing attitudes rather than trying to change the attitudes themselves.

e) Personality: It refers to the personal traits & qualities that determine an individual’s behaviour such as dominance, adventurousness, sociability, friendliness, responsibility etc. The primary features of personality are self-concept, roles to be played levels of consciousness.The self-concept or self image indicates how a person sees himself and how he believes others to see him at a particular time.

3.5.2. Social factors: The social factors influencing consumer behaviour are: a) Family, b) Reference Groups, c) Roles and status.

a) Family: There are two types of families in the buyer’s life viz. Nuclear family and Joint family. Family members can strongly influence the buyer behaviour, particularly in the Indian contest. The tastes, likes, dislikes, life styles etc. of the members are rooted in the family buying behaviour.

The family influence on the buying behaviour of a member may be found in two ways i) the family influence on the individual personality, characteristics, attitudes and evaluation criteria, ii) the influence on the decision-making process involved in the purchase of goods and services. In India, the head of the family may alone or jointly with his wife decide upon a purchase. So marketers should study the role and the relative influence of the husband, wife and children in the purchase of goods and services. b) Reference group: A reference group is a group of people with whom an individual associates. It is a group of people who influence a person’s attitudes, values and behaviour directly or indirectly. The various reference groups are:

i) Membership groups: They are those groups to which the person belongs and interacts. These groups have a direct influence on their member’s behaviour.

ii) Primary groups: They refer to groups of friends, family members, neighbours, co-workers etc. In this case, there is fairly continuous or regular, but informal interaction.

iii) Secondary groups: They include religious groups, professional groups etc. Here, there is less continuous interaction.

iv) Aspirational groups: These are groups to which a person would like to join as member. People are also influenced by these groups.

v) Dissociative groups: These are groups whose value an individual rejects.

The reference group exerts strong influence on one’s behaviour. Therefore knowledge of reference groups is quite essential for marketers for successful marketing. This makes it easier for the marketers to know why consumers behave in a particular way. In a reference group, there may be a group leader who acts as an opinion leader and whose life style is most likely to be adopted by others in the group. So marketers must try to contact and impress upon the opinion leader to popularise their products.

c) Roles and status: A person participates in many groups – family, clubs, organisations etc. The person’s position in each group can be defined in terms of role and status. A role consists of the activities that a person is expected to perform. Each role carries a status. People choose products that communicate their role and status in society. Marketers must be aware of the status symbol potential of products and brands.

3.5.3 Cultural factors: Cultural factors consist of a) Culture, b) Sub culture c) Social class.

a) Culture : Culture is the most fundamental determinant of a person’s wants and behaviour. The growing child acquires a set of values, perceptions, preferences and behaviours through his or her family and other key institutions. Culture influences considerably the pattern of consumption and the pattern of decision-making. Marketers have to explore the cultural forces and have to frame marketing strategies for each category of culture separately to push up the sales of their products or services.

b) Sub-culture: Each culture consists of smaller sub-cultures that provide more specific identification and socialization for their members, sub-cultures include nationalities, religions, racial groups and geographic regions. Many sub-cultures make up important market segments and marketers have to design products and marketing programs tailored to their needs.

c) Social class: Consumer behaviour is determined by the social class to which they belong. Social class is relatively a permanent and ordered division in a society whose members share similar value, interest and behaviour.

Social class is not determined by a single factor, such as income but it is

measured as a combination of various factors, such as income, occupation, education, authority, power, property, ownership, life styles,

consumption pattern etc.

There are three different social classes in our society. They are upper class, middle class and lower class. These three social classes differ in their buying behaviour. Upper class consumers want high class goods to maintain their status in the society. Middle class consumers purchase carefully and collect information to compare different producers in the same line and lower class consumers buy on impulse. Therefore marketing managers are required to study carefully the relationship between social classes and their consumption pattern and take appropriate measures to appeal to the people of those social classes for whom their products are meant.

3.5.4 Economic Factors

Consumer behaviour is influenced largely by economic factors. The various economic factors that influence consumer behaviour are a) Personal Income

b) Family income

c) Income expectations

d) Savings

e) Liquid assets of the Consumer

f) Consumer credit

g) Other economic factors a) Personal Income: The personal income of a person is an important determinant of his buying behaviour.

The gross personal income of a person consists of disposable income and discretionary income.

The disposable personal income refers to the actual income (i.e. money balance) remaining at the disposal of a person after deducting taxes and compulsorily deductible items from the gross income. An increase in the disposable income leads to an increase in the expenditure on various items. A fall in the disposable income, on the other hand, leads to a fall in the expenditure on various items.

The discretionary personal income refers to the balance remaining after meeting basic necessaries of life. This income is available for the purchase of shopping goods, durable goods and luxuries. An increase in the discretionary income leads to an increase in the expenditure on shopping goods, luxuries etc. which improves the standard of living of a person. b) Family income: Family income refers to the aggregate income of all the members of a family.

Family income influences the buying behaviour of the family. The surplus family income, remaining after the expenditure on the basic needs of the family, is made available for buying shopping goods, durables and luxuries. c) Income Expectations: Income expectations are one of the important determinants of the buying behaviour of an individual. If he expects any increase in his income, he is tempted to spend more on shopping goods, durable goods and luxuries. On the other hand, if he expects any fall in his future income, he will curtail his expenditure on comforts and luxuries and restrict his expenditure to bare necessities. d) Savings: Savings also influence the buying behaviour of an individual. A change in the amount of savings leads to a change in the expenditure of an individual. If a person decides to save more out of his present income, he will spend less on comforts and luxuries. e) Liquid assets: Liquid assets refer to those assets which can be converted into cash quickly without any loss. Liquid assets include cash in hand, bank balance, marketable securities, etc. If an individual has more liquid assets, he goes in for buying comforts and luxuries. On the other hand, if he has less liquid assets, he cannot spend more on buying comforts and luxuries. f) Consumer credit: Consumer credit refers to the credit facility available to the consumers desirous of purchasing durable comforts and luxuries. It is made available by the sellers, either directly or indirectly through banks and other financial institutions. Hire purchase, installment purchase, direct bank loans etc. are the ways by which credit is made available to the consumers.

Consumer credit influences consumer behaviour. If more consumer credit is available on liberal terms, expenditure on comforts and luxuries increases, as it induces consumers to purchase these goods, and raise their living standards. g) Other economic factors: Other economic factors like business cycles, inflation, etc. also influence the consumer behavour. 3.5.5 Personal Factors: Personal factors also influence buyer behaviour. The important personal factors which influence buyer behaviour are:

a) Age b) Occupation c) Income d) Life Style a) Age: Age of a person is one of the important personal factors influencing buyer behaviour. People buy different products at their different stages of life cycle. Their taste, preference, etc also change with change in life cycle.

b) Occupation: Occupation or profession of a person influences his buying behaviour. The life styles and buying considerations and decisions differ widely according to the nature of the occupation. For instance, the buying of a doctor can be easily differentiated from that of a lawyer, teacher, clerk, businessman, landlord, etc. So, the marketing managers have to design different marketing strategies to suit the buying motives of different occupational groups.

c) Income: Income level of people is another factor which can exert influence in shaping the consumption pattern. Income is an important source of purchasing power. So, buying pattern of people differs with different levels of income.

d) Life Style: Life style to a person’s pattern or way of living as expressed in his activities, interests and opinions.

Life style of a person determines his interaction with the society in which he lives. Marketing managers have to design different marketing strategies to suit the life styles of the consumers.

3.5.6. Other Factors

Other factors include factors, such as political factors, legal factors, technological factors and ethical factors which influence the buying behaviour of consumers. a) Political Factors: Political factors have an important impact on the pattern of consumption. In a controlled economy, the consumption pattern is determined by the Government. But in a free capitalistic economy, consumers have economic freedom and wider choice and are free to spend their income in any way they like. b) Legal Factors: In every country, consumer expenditure is governed by legal factors like taxes, tax laws, etc. If the taxes are low and legal restrictions are less, consumer expenditure will be more. On the other hand, if taxes are high and restrictions on the purchases are more, consumer expenditure will be less. c) Technology: Consumers, usually, prefer more up-to-date and sophisticated goods. Technological advances contribute to the production and availability of modern goods. As more and more modern goods are released to the market, the more will be the consumer expenditure on those goods. So, technological advances also influence the buying behaviour of consumers. d) Ethical Considerations: Ethical considerations (i.e. the sense of morality) have an important effect on the buying behaviour of the consumers. For instance, if people are religious and spiritual-minded, they spend less on modern comforts and luxuries. On the other hand, if people are educated, civilised and advanced, they spend more on comforts, and luxuries. 3.6. Buying Roles For many products, it is easy to identify the buyer. Men normally choose their shaving equipment and women choose their pantyhose. Other products involve a decision-making unit consisting of more than one person. Consider the selection of a family automobile. The teenage son may have suggested buying a new car. A friend might advise the family on the kind of car to buy. The husband might choose the make. The wife might have definite desires regarding the car’s size and interior. The husband might make the financial offer. The wife might use the car more often than her husband.

Thus we can distinguish five roles people might play in a buying decision:

 Initiator: A person who first suggests the idea of buying the particular product or service.

 Influencer: A person whose view or advice influences the decision.

 Decider: A person who decides on any component of a buying decision: whether to buy, what to buy, how to buy, or where to buy.

 Buyer: The person who makes the actual purchase.

 User: A person who consumes or uses the product or service.

A company needs to identify these roles because they have implications for designing the product, determining messages, and allocating the promotional budget. If the husband decides on the car make, then the auto company will direct advertising to reach husbands. The auto company might design certain car features to please the wife. Knowing the main participants and their roles helps the marketer fine-tune the marketing program. 3.7. Types of Buying Behaviour Consumer decision-making varies with the type of buying decision. There are great differences between buying toothpaste, a tennis racket, a personal computer, and a new car. Complex and expensive purchases are likely to involve more buyer deliberation and more participants. Assael distinguished four types of consumer buying behaviour based on the degree of buyer involvement and the degree of differences among brands.

Four types of buying behaviour:

High involvement Low involvement

Significant differences Complex buying Variety-seeking Between brands behaviour buying behaviour Few differences between Dissonance-reducing Habitual buying Brands buying behaviour behaviour

3.7.1 Complex Buying Behaviour: Consumers go through complex buying behaviour when they are highly involved in a purchase and aware of significant differences among brands. Consumers are highly involved when the product is expensive, bought infrequently, risky and highly self- expressive. Typically the consumer does not know much about the product category and has much to learn. For example, a person buying a personal computer may not know what attributes to look for. Many of the product features carry no meaning: “16K memory”, “disc storage”, “screen resolution” and so on.

This buyer will pass through a learning process characterized by first developing beliefs about the product, then attitudes, and then making a thoughtful purchase choice. The marketer of a high-involvement product must understand the information-gathering and evaluation behaviour of high-involvement consumers. The marketer needs to develop strategies that assist the buyer in learning about the attributes of the product class, their relative importance, and the high standing of the company’s brand on the more important attributes. The marketer needs to differentiate the brand’s features, use mainly print media and long copy to describe the brand’s benefits, and motivate store sales personnel and the buyer’s acquaintances to influence the final brand choice.

3.7.2 Dissonance-Reducing Buying Behavior: Sometimes the consumer is highly involved in a purchase but sees little difference in the brands. The high involvement is again based on the fact that the purchase is expensive, infrequent, and risky. In this case, the buyer will shop around to learn what is available but will buy fairly quickly because brand differences are not pronounced. The buyer may respond primarily to a good price or to purchase convenience.

After the purchase, the consumer might experience dissonance that stems from noticing certain disquieting features of the product or hearing favorable things about other brands. The consumer will be alert to information that might justify his or her decision. The consumer will first act, then acquire new beliefs, and end up with a set of attitudes. Here, marketing communications should aim to supply beliefs and evaluations that help the consumer feel good about his or her brand choice.

3.7.3 Habitual Buying Behavior: Many products are bought under conditions of low consumer involvement and the absence of significant brand differences. Consider the purchase of salt. Consumers have little involvement in this product category. They go to the store and reach for the brand. If they keep reaching for the same brand, it is out of habit, not strong brand loyalty. There is good evidence that consumers have low involvement with most low-cost, frequently purchased products. Consumer behaviour in these cases does not pass through the normal belief/attitude/behaviour sequence. Consumers do not search extensively for information about the brands, evaluate their characteristics, and make a weighty decision on which brand to buy. Instead, they are passive recipients of information as they watch television or see print ads. Ad repetition creates brand familiarity rather than brand conviction. Consumers do not form a strong attitude towards a brand but select it because it is familiar. After purchase, they may not even evaluate the choice because they are not highly involved with the product. So the buying process is brand beliefs formed by passive learning, followed by purchase behaviour, which may be followed by evaluation.

Marketers of low-involvement products with few brand differences find it effective to use price and sales promotions to stimulate product trial, since buyers are not highly committed to any brand. In advertising, a low- involvement product, a number of things should be observed. The ad copy should stress only a few key points. Visual symbols and imagery are important because they can easily be remembered and associated with the brand. The ad campaigns should go for high repetition with short-duration messages. Television is more effective than print media because it is a low- involvement medium that is suitable for passive learning. Advertising planning should be based on classical conditioning theory where the buyer learns to identify a certain product by a symbol that is repeatedly attached to it.

Marketers can try to convert the low-involvement product into one of higher involvement. This can be accomplished by linking the product to some involving issue, as when Crest toothpaste is linked to avoiding cavities. Or the product can be linked to some involving personal situation, for instance, by advertising a coffee brand early in the morning when the consumer wants to shake off sleepiness. Or the advertising might seek to trigger strong emotions related to personal values or ego defense. Or an important product feature might be added to a low-involvement product, such as by fortifying a plain drink with vitamins. These strategies at best raise consumer involvement from a low to a moderate level; they do not propel the consumer into highly involved buying behaviour.

3.7.4 Variety-Seeking Buying Behaviour: Some buying situations are characterized by low consumer involvement but significant brand differences. Here consumers are often observed to do a lot of brand switching. An example occurs in purchasing cookies. The consumer has some beliefs, chooses a brand of cookies without much evaluation, and evaluates it during consumption. But next time, the consumer may reach for another brand out of boredom or a wish for a different taste. Brand switching occurs for the sake of variety rather than dissatisfaction.

The marketing strategy is different for the market leader and the minor brands in this product category. The market leader will try to encourage habitual buying behavior by dominating the shelf space, avoiding out-of- stock conditions, and sponsoring frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, deals, coupons, free samples, and advertising that presents reasons for trying something new.

3.8. Consumer Purchase Decision Process 1) Problem Recognition: The buying process starts when the buyer recognises a problem or need. The need can be triggered by internal stimuli such as hunger, thirst etc. or external stimuli such as looking at items in the shop, neighbour’s purchase etc. Marketers need to identify the circumstances that trigger a particular need. By gathering information from a number of consumers, marketers can identify the most frequent stimuli that spark an interest in a product category.

Problem Information Evaluation of Purchase Post- search alternatives decision purchase Recognition behaviour

Exhibit 3.3: Consumer Purchase Decision Process

2) Information Search: An aroused consumer will be inclined to search for more information. An individual passes through two stages of information search. In the first stage i.e., Heightened attention stage is a milder search where the person simply becomes more receptive to information about a product. In the second stage i.e., an active information search he looks for reading material, phoning friends and visiting stores to learn about the product.

An individual gets information from the following four sources: a) Personal Sources: Family, friends, neighbours, acquaintances. b) Commercial Sources: Advertising, sales persons, dealers, packaging, displays. c) Public Sources: Mass media, consumer-rating organisations. d) Experiential Sources: Handling, examining, using the product.

The relative amount and influence of these information sources vary with the product category and the buyer’s characteristics. The consumer receives most information from commercial sources, as this source performs the informing function. Personal sources perform the evaluation function and is the most effective source. Through gathering information an individual comes to know about competing brands and their features. The following figure shows the successive sets in the consumer decision process.

Exhibit 3.4: Successive Sets in the Consumer Decision Process

The total set shows the brands available to the consumer, awareness set shows the brands out of total set known by the consumer, consideration set shows the brands which meet the initial buying criteria and choice set includes a few brands which remain as strong contenders. Then the person makes a final choice from this set.

Therefore a company must strategize to get its brand into the prospects awareness set, consideration set and choice set. It must also be aware of the other brands in the consumers’ choice set so that it can plan strong competitive appeals. In addition, a company should identify the consumer’s information sources and evaluate their relative importance. Consumers should be asked how they first heard about the brand, what information came in later and the relative importance of the different information sources. The answer will help the company prepare effective communications for the target market.

3) Evaluation of Alternatives: How does the consumer process the competitive brand information and make a final judgement of value? It turns out that there is no simple and single evaluation process used by all consumers or even by one consumer in all buying situations. There are several decision evaluation processes. Most current models of the consumer evaluation process are cognitively oriented-that is, they see the consumer as forming product judgements largely on a conscious and rational basis.

Certain basic concepts will help us understand consumer evaluation processes. We see the consumer as trying to satisfy a need. The consumer is looking for certain benefits from the product solution. The consumer sees each product as a bundle of attributes with varying capabilities of delivering the sought benefits and satisfying this need. The attributes of interest to buyers vary by product:  Cameras: Picture sharpness, camera speeds, camera size, price.  Hotels: Location, cleanliness, atmosphere, cost.  Mouthwash: Color, effectiveness, germ-killing capacity, price, taste/flavor.  Tires: Safety, tread life, ride quality, price.

Consumers differ as to which product attributes they see as relevant or salient. They will pay the most attention to the ones that will deliver the sought benefits. The market for a product can often be segmented according to the attributes that are salient to different consumer groups.

The most salient attributes may not be the most important ones. Marketers should be more concerned with the importance of attributes than with their salience. They should measure the importance weights that consumers attach to the various attributes.

The consumer is likely to develop a set of brand beliefs about where each brand stands on each attribute. The brand beliefs make up the brand image. The consumer’s brand beliefs will vary with his or her experiences and the effect of selective perception, selective distortion and selective retention. Purchase Decision: In the evaluation stage, the consumer forms preferences among the brands in the choice set. The consumer may also form a purchase intention to buy the most preferred brand. However, two factors can intervene between the purchase intention and the purchase decision.

Exhibit 3.5: Steps between evaluation of alternatives and purchase decision

The first factor is the attitudes of others. The extent to which another person’s attitude reduces one’s preferred alternative depends upon two things: (1) the intensity of the other person’s negative attitude towards the consumer’s preferred alternative and (2) the consumer’s motivation to comply with the other person’s wishes. The more intense the other person’s negativism and the closer the other person is to the consumer, the more will the consumer adjust his or her purchase intention. The converse is also true: A buyer’s preference for a brand will increase if someone he or she likes favors the same brand. The influence of others becomes complex when several people close to the buyer hold contradictory opinions and the buyer would like to please them all.

Purchase intention is also influenced by unanticipated situational factors. The consumer forms a purchase intention on the basis of such factors as expected family income, expected price and expected product benefits. When the consumer is about to act, unanticipated situational factors may erupt to change the purchase intention. Thus preferences and even purchase intentions are not completely reliable predictors of purchase behaviour.

A consumer’s decision to modify, postpone or avoid a purchase decision is heavily influenced by perceived risk. Expensive purchases involve some risk taking. Consumers cannot be certain about the purchase outcome. This produces anxiety. The amount of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty and the amount of consumer self-confidence. A consumer develops certain routines for reducing risk, such as decision avoidance, information gathering from friends, and preference for national brand names and warranties. The marketer must understand the factors that provoke a feeling of risk in consumers and provide information and support that will reduce the perceived risk.

Post-Purchase Behaviour: After purchasing the product, the consumer will experience some level of satisfaction or dissatisfaction. The consumer will also engage in post-purchase actions and product uses of interest to the marketer. The marketer’s job does not end when the product is bought but continues into the post-purchase period.

Post-purchase Satisfaction: After purchasing a product, a consumer may detect a flaw. Some buyers will not want the flawed product, others will be indifferent to the flaw and some may even see the flaw as enhancing the value of the product. Some flaws can be dangerous to consumers. Companies making automobiles, toys and pharmaceuticals must quickly recall any product that has the slightest chance of injuring users. What determines whether the buyer will be highly satisfied, somewhat satisfied or dissatisfied with a purchase? The buyer’s satisfaction is a function of the closeness between the buyer’s product expectations and the product’s perceived performance. If the product’s performance falls short of customer expectations, the customer is disappointed; if it meets expectations, the customer is satisfied; if it exceeds expectations, the customer is delighted. These feelings make a difference in whether the customer buys the product again and talks favourably or unfavourably about the product to others.

Post-purchase Actions: The consumer’s satisfaction or dissatisfaction with the product will influence subsequent behaviour. If the consumer is satisfied, he or she will exhibit a higher probability of purchasing the product again.

The satisfied customer will also tend to say good things about the brand to others. Marketers say: “Our best advertisement is a satisfied customer.”

A dissatisfied consumer responds differently. The dissatisfied consumer will try to reduce the dissonance because a human being strives “to establish internal harmony, consistency or congruity among his opinions, knowledge and values.” Dissonant consumers will resort to one of two courses of action. They may try to reduce the dissonance by abandoning or returning the product or they may try to reduce the dissonance by seeking information that might confirm its high value (or avoiding information that might confirm its low value). Exhibit 3.6: How Customers Handle Dissatisfaction

They can send owners a magazine containing articles describing new features of product. Post-purchase communications to buyers have been shown to result in fewer product returns and order cancellations. In addition, they can provide good channels for customer complaints and for speedy redressal of customer grievances. In general, companies should provide consumers with maximum channels for venting complaints to the company. Smart companies will welcome customer feedback as a way to continually improve their offer and performance.

Post-purchase Use and Disposal: Marketers should also monitor how the buyers use and dispose of the product. If consumers find new uses for the product, these should interest the marketer because these uses can be advertised. If consumers store the product in their closet, this indicates that the product is not very satisfying and word-of-mouth would not be strong. If they sell or trade the product, new-product sales will be depressed. If they throw the product away, the marketer needs to know how they dispose of it, especially if it can hurt the environment, as is the case with beverage containers and disposable diapers. All said, the marketer needs to study product use and disposal for clues to possible problems and opportunities.

Exhibit 3.7: How Customers Use or Dispose of Products

Understanding consumer needs and buying processes is essential to building effective marketing strategies. By understanding how buyers go through need recognition, information search, evaluation of alternatives, the purchase decision and post-purchase behaviour, marketers can pick up clues as to how to meet buyer needs. By understanding the various participants in the buying process and the major influences on their buying behaviour, marketers can design effective marketing programs for their target markets. 3.9. What Buying Decisions Do Business Buyers Make? The business buyer faces many decisions in making a purchase. The number of decisions depends on the type of buying situation.

Major Types of Buying Situations: Robinson and others distinguish three types of buying situations, which they call buy classes. They are the straight rebuy, modified rebuy and new task.

Straight Rebuy: The straight rebuy describes a buying situation where the purchasing department reorders on a routine basis (e.g., office supplies, bulk chemicals). The buyer chooses from suppliers on its “approved list,” giving weight to its past-buying satisfaction with the various suppliers. The “In-suppliers” make an effort to maintain product and service quality. They often propose automatic re-ordering systems so that the purchasing agent will save re-ordering time. The “out-suppliers” attempt to offer something new or to exploit dissatisfaction so that the business buyer will consider buying some amount from them. Out-suppliers try to get a small order and then enlarge their “purchase share” over time.

Modified Rebuy: The modified rebuy describes a situation where the buyer wants to modify product specifications, prices, delivery requirements or other terms. The modified rebuy usually involves additional decision participants on both the buyer and seller sides. The in-suppliers become nervous and have to protect the account. The out-suppliers see an opportunity to propose a “better offer” to gain some business.

New Task: The new task describes a purchaser buying a product or service for the first time (e.g., office building, new weapon system). The greater the cost and / or risk, the larger the number of decision participants, the greater their information gathering, therefore the longer the time to decision completion. The new-task situation is the marketer’s greatest opportunity and challenge. The marketer tries to reach as many key buying influences as possible and provide helpful information and assistance. Because the complicated selling involved in the new task, many companies use a missionary sales force consisting of their best sales people.

New-task buying passes through several stages. Ozanne and Churchill identified the stages as awareness, interest, evaluation, trial and adoption. They found that communication tools varied in effectiveness at each stage. Mass media were most important during the initial awareness stage; sales people had their greatest impact at the interest stage and technical sources were the most important during the evaluation stage. Marketers needed to employ different tools at each stage of the new task buying process. 3.10. Who Participates in the Business Buying Process ? Who does the buying of the trillions of dollars’ worth of goods and services needed by business organizations? Purchasing agents are influential in straight-rebuy and modified-rebuy situations, whereas other department personnel are more influential in new-buy situations. Engineering personnel usually have major influence in selecting product components and purchasing agents dominate in selecting suppliers. Thus in new-buy situations, the business marketer must first direct product information to the engineering personnel. In rebuy situations and at supplier selection time, communications should be directed primarily to the purchasing agent.

Webster and Wind call the decision-making unit of a buying organization the buying centre, defined as “all those individuals and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions.” The buying center includes all members of the organisation who play any of six roles in the purchase decision process.  Users: Users are those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product specifications.  Influencers: Influencers are persons who influence the buying decision. They often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important as influencers.  Deciders: Deciders are persons who decide on product requirements and / or on suppliers.  Approvers: Approvers are persons who authorise the proposed actions of deciders or buyers.  Buyers: Buyers are persons who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, the buyers might include high-level managers participating in the negotiations.

Gatekeepers: Gatekeepers are persons who have the power to prevent sellers or information from reaching members of the buying centre. For example, purchasing agents, receptionists and telephone operators may prevent sales persons from contacting users or deciders.

Within any organisation, the buying centre will vary in the number and type of participants for different classes of products. More decision participants will be involved in buying a computer than in buying paper clips. The business marketer has to figure out: Who are the major decision participants? What decisions do they influence? What is their level of influence? What evaluation criteria do they use? 3.11. What are the Major Influence of Business Buyers ? Business buyers are subject to many influences when they make their buying decisions. Some marketers assume that the most important influences are economic. They see the buyers as favouring the supplier who offers the lowest price, or best product, or most service. This view suggests that business marketers should concentrate on offering strong economic benefits to buyers. Other marketers see buyers responding to personal factors such as favours, attention, or risk avoidance. A study of buyers in ten large companies concluded that…corporate decision-makers remain human after they enter the office. They respond to “image”; they buy from companies to which they feel “close”; they favour suppliers who show them respect and personal consideration, and who do extra things “for them”; they “over-react” to real or imagined slights, tending to reject companies which fail to respond or delay in submitting requested bids. Business buyers actually respond to both economic and personal factors. Where there is substantial similarity in supplier offers, business buyers have little basis for rational choice. Since they can satisfy the purchasing requirements with any supplier, these buyers will place more weight on the personal treatment they receive. Where competing offers differ substantially, business buyers are more accountable for their choice and pay more attention to economic factors.

Webster and Wind have classified the various influences on business buyers into four main groups: environmental, organizational, interpersonal, and individual. These groups are described next. Environmental Factors: Business buyers are heavily influenced by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook and the cost of money. In a recession economy, business buyers reduce their investment in plant, equipment and inventories. Business marketers can do little to stimulate total demand in this environment. They can only fight harder to increase or maintain their share of demand.

Companies that fear a shortage of key materials are willing to buy and hold large inventories. They will sign long-term contracts with suppliers to ensure a steady flow of materials. Du Pont, Ford, Chrysler and several other major companies regard supply planning as a major responsibility of their purchasing managers.

Business buyers are also affected by technological, political and competitive developments in the environment. The business marketer has to monitor all of these forces, determine how they will affect buyers and try to turn problems into opportunities.

Organizational Factors: Each buying organization has specific objectives, policies, procedures, organizational structures and systems. The business marketer has to be familiar with them. Such questions arise as: How many people are involved in the buying decision? Who are they? What are their evaluation criteria? What are the company’s policies and constraints on the buyers?

Exhibit 3.8: Factors influencing business buyer behaviour Interpersonal Factors: The buying centre usually includes several participants with differing interests, authority and persuasiveness. The business marketer is not likely to know what kind of group dynamics will take place during the buying decision process, although whatever information he or she can discover about the personalities and interpersonal factors would be useful. Individual Factors: Each participant in buying process has personal motivations, perceptions and preferences. These are influenced by the participant’s age, income, education, professional identification, personality, attitudes toward risk and culture. Buyers definitely exhibit different buying styles. These are “keep-it-simple” buyers, “own expert” buyers, “want-the- best” buyers and “want-everything-done” buyers. Some younger, highly educated buyers are “computer whizzes” and make rigorous analyses of competitive proposals before choosing a supplier. Other buyers are “tough guys” from the “old school” and play off the sellers. Business marketers must know their customers and adapt their tactics to known environmental, organizational, interpersonal and individual influences on the buying situation. 3.12. How do Business Buyers Make their Buying Decisions? Business buyers do not buy goods and services for personal consumption or utility. They buy goods and services to make money or to reduce operating costs or to satisfy a social or legal obligation. A steel company will add another furnace if it sees a chance to make more money. It will computerise its accounting system to reduce the costs of doing business. It will add pollution-control equipment to meet legal requirements. To buy the needed goods, business buyers move through a purchasing or procurement process. Robinson et. al, have identified eight stages of the industrial buying process and called them buy phase. These stages are shown in Table 8-1. All eight phases apply to a new-task buying situation and some of them to the other two types of buying situations. This model is called the buy grid framework. We will describe the eight steps for the typical new-task buying situation. Problem Recognition: The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or a service. Problem recognition can occur as a result of internal or external stimuli. Internally, the most common events leading to problem recognition are the following: The company decides to develop a new product and needs new equipment and materials to produce this product. A machine breaks down and requires replacement or new parts. Purchased material turns out to be unsatisfactory and the company searches for another supplier. A purchasing manager senses an opportunity to obtain lower prices or better quality. Externally, the buyer may get new ideas at a trade show, or see an ad, or receive a call from a sales representative who offers a better product or a lower price.

Major Stages (Buy phases) of the Industrial Buying Process in Relation to Major Buying Situations (Buy classes) BUY CLASES New Task Modified Rebuy Straight Rebuy 1. Problem recognition Yes Maybe No 2. General need Yes Maybe No description 3. Product specification Yes Yes Yes 4. Suppliers search Yes Maybe No Buy phases 5. Proposal solicitation Yes Maybe No 6. Supplier selection Yes Maybe No 7. Order-routine specification Yes Maybe No 8. Performance review Yes Yes Yes

General Need Description: Having recognised a need, the buyer proceeds to determine the general characteristics and quantity of the needed item. For standard items, this is not much of a problem. For complex items, the buyer will work with others-engineers, users and so on-to define the general characteristics. They want to establish the importance of reliability, durability, price and other attributes desired in the item. The business marketer can render assistance to the buyer in this phase by describing the various criteria to be considered in meeting this need. Product Specifications: The buying organization next develops the item’s technical specifications. A product-value-analysis engineering team is assigned to the project. Product value analysis is an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized or made by cheaper methods of production. The team will examine the high-cost components in a given product-usually 20% of the parts account for 80% of the costs. The team will also identify over-designed product components that last longer than the product itself. The team will decide on the optimal product characteristics. Tightly written specifications will allow the buyer to refuse merchandise that fails to meet the specified standards. Suppliers, too, can use product-value analysis as a tool for positioning themselves to win an account. By getting in early and influencing buyer specifications, the supplier has a good chance of being chosen in the supplier selection stage. Supplier Search: The buyer now tries to identify the most appropriate suppliers. The buyer can examine trade directories, do a computer search, phone other companies for recommendations, watch trade advertisements, and attend trade shows. The supplier’s task is to get listed in major directories, develop a strong advertising and promotion program, and build a good reputation in the marketplace. Suppliers who lack the required production capacity or suffer from a poor reputation will be rejected. Those who qualify may be visited to examine their manufacturing facilities and meet their personnel. The buyer will end up with a short list of qualified suppliers. Proposal Solicitation: The buyer will now invite qualified suppliers to submit proposals. Some suppliers will send only a catalog or a sales representative. Where the item is complex or expensive, the buyer will require a detailed written proposal from each qualified supplier. The buyer will eliminate some and invite the remaining suppliers to make formal presentations. Thus business marketers must be skilled in researching, writing and presenting proposals. Their proposals should be marketing documents, not just technical documents. Their oral presentations should inspire confidence. They should position their company’s capabilities and resources so that they stand but from the competition. Supplier Selection: Campbell’s program represents the approach that business customers will increasingly use in selecting suppliers. Marketers will have to understand and manage this process if they are to succeed in becoming suppliers to major business customers. The buying center will specify desired supplier attributes and indicate their relative importance. The buying centre will rate suppliers against these attributes and identify the most attractive suppliers. The buying centre may attempt to negotiate with the preferred suppliers for better prices and terms before making the final selection. The marketer can counter the request for a lower price in a number of ways. The marketer can cite the value of the services the buyer now receives, especially where these services are superior to those offered by competitors. The marketer may be able to show that the “life-cycle cost” of using its product is lower than that of competitors, even if its purchase price is higher. Other more innovative ways may also be used to counter- intense price pressure. Buying centers must also decide how many suppliers to use. Many businesses prefer multiple suppliers so that they will not be totally dependent on one supplier and also to be able to compare the prices and performances of competing suppliers. The buyer will normally place most of the orders with a prime supplier. For example, a buyer may buy 60% from the prime supplier and 30% and 10% respectively, from two other suppliers. The prime supplier will make an effort to protect his prime position, while the secondary suppliers will try to expand their supplier share. In the meantime, out-suppliers will seek to get their foot in the door by offering an especially low price and then work hard to increase their share of the customer’s business. Order Routine Specification: The buyer now negotiates the final order with the chosen supplier(s), listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties and so on. In the case of MRO items (Maintenance, Repair and Operating items), buyers are increasingly moving towards blanket contracts rather than periodic purchase orders. Writing a new purchase order each time stock is needed, is expensive. Nor does the buyer want to write fewer and larger purchase orders because that means carrying more inventory. A blanket contract establishes a long-term relationship where the supplier promises to re-supply the buyer as needed on agreed price terms over a specified period of time. The stock is held by the seller, hence the name stockless purchase plan. The buyer’s computer automatically sends an order to the seller when stock is needed. Blanket contracting leads to more single- source buying and ordering of more items from that single source. This locks the supplier with the buyer and makes it difficult for out-suppliers to break in unless the buyer becomes dissatisfied with the in-supplier’s prices, quality or service. Performance Review: In this stage, the buyer reviews the performance of the particular supplier(s). Three methods are used. The buyer may contact the end users and ask for their evaluations. Or the buyer may rate the supplier on several criteria using a weighted score method. Or the buyer might aggregate the cost of poor performance to come up with adjusted costs of purchase, including price. The performance review may lead the buyer to continue, modify or drop the supplier. The supplier should monitor the same variables that are used by the buyers and end users of the product. We have described the buying stages that would operate in a new-task buying situation. In the modified-rebuy or straight-rebuy situation, some of these stages would be compressed or bypassed. For example, in a straight- rebuy situation, the buyer normally has a favourite supplier or a ranked list of suppliers. Each stage represents a narrowing of the number of supplier alternatives. Cardozo has used the buying stages to come up with a mode to yield the probability that a particular supplier will get the order for a particular product from a particular buyer. The eight-stage buy phase model represents the major steps in the business buying process. 3.13. Summary

In this unit we have understood what is consumer behaviour,

- importance of understanding consumer behaviour. - factors that influence consumer behaviour such as : psychological, social, cultural, economic and personal etc., - the role of people play while buying a product. - buying behaviour of the customer. - Consumer purchase decision process and the phase of purchase decision process. - Finally the business buyers and their buying decision process.

3.14. Keywords Consumer Behaviour Production Policies Price Policies Distribution Policies Sales Promotion Policies Exploiting Marketing Opportunities Motivation Perception Selective exposure Selective distortion Selective retention Learning Beliefs & attitudes Personality Family Reference group Membership groups Primary groups Secondary groups Aspirational groups Dissociative groups Culture Sub-culture Social class Personal Income Family income

Income expectations Savings

Liquid assets of the Consumer Consumer credit

Age Occupation

Income Life Style

Political Factors Legal Factors

Technology Ethical Considerations

Problem Recognition Information Search

Evaluation of Alternatives Purchase Decision

Post-Purchase Behaviour Post-purchase Satisfaction

Post-purchase Actions Post-purchase Use and Disposal

Straight Rebuy Modified Rebuy

New Task Users

Influencers Deciders

Approvers Buyers

Gatekeepers 3.15. Exercise

1. Define consumer behaviour. Explain the characteristic of consumer behaviour. 2. What are the purpose of learning consumer behaviour? 3. Explain the different factors that influence the consumer behaviour. 4. What are the four types of buying behaviour? 5. Explain the different stages of purchase decision process. 6. What factors influence the business buyer? 7. How do business buyers make their buying decisions? Unit 4

Buying Motives

Structure: 4.1 Objectives 4.2 Introduction 4.3 Buying Motives

4.3.1 Product Buying Motives

4.3.2 Patronage Buying Motives 4.4 Buyer Behavior Models

4.4.1. The Economic Model 4.4.2. The Learning Model 4.4.3. The Psychoanalytical Model 4.4.4. The Sociological Model 4.4.5. The Nicosia Model 4.5 Summary 4.6 Keywords 4.7 Exercises

4.1 Objectives

The major objective of this unit is to make one understand the concept of buying motive, types of buying motives, and application of buying behaviors models.

4.2 Introduction

According to W.J. Stanton “A motive can be defined as a drive or an urge for which an individual seeks satisfaction. It becomes a buying motive when the individual seeks satisfaction through the purchase of either a product or service. The primary buying motives include Food and Drink, Comfort, To attract opposite sex, Welfare of beloved ones, Freedom from fear and danger, To be superior, Social approval and to live longer. The secondary motives could be Bargains, Information, Cleanliness, Efficiency, Convenience, Dependability, quality, Style beauty, Economy, profit, and Curiosity. Etc. One can understand the buying motives of a customer using different models explained in this unit. 4.3 Buying Motives

A sale is usually made in the minds of the buyers, but not in the minds of the salesman. He is motivated or induced by some reason. Therefore it is essential for the salesman to know what induces the buyer to buy and how he can be induced.

Meaning: Buying motive is the urge or motive to satisfy a desire that makes people buy goods or services. Behind every purchase, there is a buying motive. It refers to the thoughts, feelings, emotions and instincts which arouse in the buyers a desire to buy an article. A buyer does not buy because he has been persuaded by the salesman but he buys because of the desire aroused in him.

Definition: According to Prof. D. J. Duncan, “Buying motives are those influences or considerations which provide the impulse to buy, induce action and determine choice in the purchase of goods and services.”

Thus every action of an individual has a motive behind it. Motives are present in the minds of the buyer but not in the product. The study of buying motives would help the salesmen to arouse favourable attention of the consumers and finally sell the product.

Buying motives are broadly divided into product motives and patronage motives. Further, motives can be sub-divided into (a) emotional buying motives and (b) rational buying motives. Similarly, the patronage buying motives also may be sub-divided into (a) emotional buying motives and (b) rational buying motives.

4.3.1 Product Buying Motives: Product buying motives refer to those influences and reasons which prompt (i.e., induce) a buyer to choose a particular product in preference to other products. They include the physical attraction of the product (i.e., the design, shape, dimension, size, colour, package, performance, price, etc., of the product) or the psychological attraction of the product (i.e., the enhancement of the social prestige or status of the purchaser through its possession), desire to remove or reduce the danger or damage to the life or body of the possessor, etc. In short, they refer to all those characteristics of a product which induce a buyer to buy it in preference to other products.

Product buying motives may be sub-divided into two groups, viz.,

(1) Emotional product buying motives and (2) Rational product buying motives.

4.3.1.1 Emotional Product Buying Motives: When a buyer decides to purchase a product without thinking over the matter logically and carefully (i.e., without much reasoning), he is said to have been influenced by emotional product buying motives. Emotional product buying motives include the following:

1. Pride or Prestige: Pride is the most common and strongest emotional buying motive. Many buyers are proud of possessing some product (i.e., they feel that the possession of the product increases their social prestige or status). In fact, many products are sold by the sellers by appealing to the pride or prestige of the buyers. For instance, diamond merchants sell their products by suggesting to the buyers that the possession of diamonds increases their prestige or social status. 2. Emulation or Imitation: Emulation, i.e., the desire to imitate others, is one of the important emotional buying motives. For instance, a housewife may like to have a silk saree for the simple reason that all the neighbouring housewives have silk sarees. 3. Affection: Affection or love for others is one of the stronger emotional buying motives influencing the purchasing decisions of the buyers. Many goods are purchased by the buyers because of their affection or love for others. For instance, a husband may buy a costly silk saree for his wife or a father may buy a costly watch for his son or daughter out of his affection and love. 4. Comfort or desire for comfort: Desire for comfort (i.e., comfortable living) is one of the important emotional buying motives. In fact, many products are bought because of the desire for comfort. For instance fans, refrigerators, washing machines, cushion beds, etc., are bought by the people because of their desire for comfort. 5. Sex appeal or sex attraction: Sex appeal is one of the important emotional buying motives of the buyers. Buyers buy and use certain things, as they want to be attractive to the members of the opposite sex. Men and women buy cosmetics, costly dresses, etc., because of this emotional motive, i.e., sex appeal. 6. Ambition: Ambition is one of the emotional buying motives. Ambition refers to the desire to achieve a definite goal. It is because of this buying motive that, sometimes, customers buy certain things. For instance, it is the ambition that makes many people, who do not have the facilities to pursue their college education through regular colleges, to pursue the same through correspondence courses. 7. Desire for distinctiveness or individuality: Desire for distinctiveness, i.e., desire to be distinct from others, is one of the important emotional buying motives. Sometimes, customers buy certain things, because they want to be in possession of things which are not possessed by others. Purchasing and wearing a particular type of dress by some people is because of their desire for distinctiveness or individuality. 8. Desire for recreation or pleasure: Desire for recreation or pleasure is also one of the emotional buying motives. For instance, radios, musical instruments, etc., are bought by people because of their desire for recreation or pleasure. 9. Hunger and thirst: Hunger and thirst are also one of the important emotional buying motives. Food stuffs, drinks, etc., are bought by the people because of this motive. 10. Habit: Habit is one of the emotional considerations influencing the purchasing decision of the customers. Many customers buy a particular thing because of habit, (i.e., because they are used to the consumption of the product). For instance, many people purchase cigarettes, liquors, etc., because of sheer habit.

4.3.1.2 Rational Product Buying Motives: When a buyer decides to buy a certain thing after careful consideration (i. e., after thinking over the matter consciously and logically), he is said to have been influenced by rational product buying motives. Rational product buying motives include the following:

1. Safety or Security: Desire for safety or security is an important rational buying motive influencing many purchases. For instance, iron safes or safety lockers are bought by the people because of this motive, i.e., because they want to safeguard their cash, jewels, etc., against theft. Similarly, vitamin tablets, tonics, medicines, etc., are bought by the people because of this motive, i.e., they want to safeguard their health and protect themselves against diseases.

2. Economy: Economy, i.e., saving in operating costs, is one of the important rational buying motives. For instance, Hero Honda bikes are preferred by the people because of the economy or saving in the operating cost, i.e., petrol costs. 3. Relatively low price: Relatively low price is one of the rational buying motives. Most of the buyers compare the prices of competing products and buy things which are relatively cheaper.

4. Suitability: Suitability of the products for the needs is one of the rational buying motives. Intelligent buyers consider the suitability of the products before buying them. For instance, a buyer, who has a small dining room, naturally, goes in for a small dining table that is suitable, i.e., that fits well in the small dining room.

5. Utility or versatility: Versatility or the utility of a product refers to that quality of the product which makes it suitable for a variety of uses. Utility of the product is one of the important rational buying motives. People often purchase things which have utility, i.e., which can be put to varied uses.

6. Durability of the product: Durability of the product is one of the most important rational buying motives. Many products are bought by the people only on the basis of their durability. For instance, buyers of wooden furniture go in for teak or rosewood table, though they are costlier, as they are more durable than ordinary wooden furniture.

7. Convenience of the product: The convenience of the product (i.e., the convenience the product offers to the buyers) is one of the important rational product buying motives. Many products are bought by the people because they are more convenient to them. For instance, automatic watches, gas stoves, etc., are bought by the people because of the convenience provided by them.

4.3.2 Patronage Buying Motives: Patronage buying motives refer to those considerations or reasons which prompt a buyer to buy the product wanted by him from a particular shop in preference to other shops. In other words, they are those considerations or reasons which make a buyer patronise a particular shop in preference to other shops while buying a product.

Patronage buying motives also may be sub-divided into two groups. They are: a) Emotional patronage buying motives. b) Rational patronage buying motives.

4.3.2.1 Emotional Patronage Buying Motives: When a buyer patronises a shop (i.e., purchases the things required by him from a particular shop) without applying his mind or without reasoning, he is said to have been influenced by emotional patronage buying motives. Emotional patronage buying motives include the following:

1. Appearance of the shop: Appearance of the shop is one of the important emotional patronage buying motives. Some people make their purchases from a particular shop because of good or attractive appearance of the shop.

2. Display of goods in the shop: Attractive display of goods in the shop also makes the buyers patronize a particular shop.

3. Recommendation of others: Recommendation of others also constitutes one of the important emotional patronage buying motives. Some people purchase their requirements from a particular shop because that shop has been recommended to them by others, i.e., by their friends and relatives.

4. Imitation: Imitation also is one of the emotional patronage buying motives influencing the purchases of buyers. Some people make their purchases from a particular shop just because other people make their purchases from that shop.

5. Prestige: Prestige is one of the emotional patronage buying motives of the buyers. For instance, some people deem it a prestige to drink coffee in a five-star hotel.

6. Habit: Habit is also one of the important emotional patronage buying motives. Some people make their purchases from a particular shop for the simple reason that they have been habitually making their purchases from that shop.

4.3.2.2 Rational Patronage Buying Motives: When a buyer patronizes a shop after careful consideration (i.e., after much logical reasoning and careful thinking), he is said to have been influenced by rational patronage buying motives. Rational patronage buying motives include the following:

1. Convenience: Convenient location of a shop is one of the considerations influencing the purchases of many buyers from a particular shop. Many buyers, usually, buy their requirements from a nearby shop, as it is convenient to them to make their purchases. Similarly, convenient working hours of the shop also influence the purchases of good many buyers. For instance, if a shop works for a longer period of time every day and even on Sundays, it will be very convenient to the buyers. As such, many buyers may make their purchases from such a shop.

2. Low price charged by the shop: Price charged by the shop also influences the buyers to patronize a particular shop. If the price charged by a shop for a particular product is relatively cheaper, naturally, many people will make their purchases from that shop. 3. Credit facilities offered: The credit facilities offered by a store also influence the buying of some people from a particular shop. People who do not have enough money to make cash purchases every time prefer to make their purchases from a shop which offers credit facilities.

4. Services offered: The various sales and after-sale services, such as acceptance of orders through phone, home delivery of goods, repair service, etc., offered by a shop also induce the buyers to buy their requirements from that shop. Rational buyers are, often, influenced by the various services or facilities offered by the shop.

5. Efficiency of salesmen: The efficiency of the salesmen employed by a shop also influences the people in patronizing a particular shop. If the employees are efficient and are capable of helping the buyers in making their purchases, people, naturally, would flock to such a shop.

6. Wide choice: Wide choice of goods offered by a shop is one of the rational considerations making the buyers patronize a particular shop. People, generally, prefer to make their purchases from a shop which offers wide choice (i.e., wide varieties of goods).

7. Treatment: The treatment meted out by a shop to the customers is one of the rational considerations influencing the buyers to patronize a particular shop. Usually, people would like to purchase their requirements from a shop where they get courteous treatment.

8. Reputation of the shop: Reputation of the shop for honest dealings is also one of the rational patronage buying motives. Usually, people would like to make their purchases from a store having reputation for fair dealings. 4.4 Buyer Behavior Models The influence of social sciences on buyer behaviour has prompted marketing experts to propound certain models for explaining buyer behaviour. Broadly, they include the economic model, the learning model, the psychoanalytical model and the sociological model.

4.4.1. The Economic Model: According to the economic model of buyer behaviour, the buyer is a rational man and his buying decisions are totally governed by the concept of utility. If he has a certain amount of purchasing power, a set of needs to be met and a set of products to choose from, he will allocate the amount over the set of products in a very rational manner with the intention of maximising the utility or benefits.

4.4.2. The Learning Model: According to the learning model which takes its cue from the Pavlovian stimulus response theory, buyer behaviour can be influenced by manipulating the drives, stimuli and responses of the buyer. The model rests on man’s ability at learning, forgetting and discriminating. The stimulus response learning theory states that there develops a bond between behaviour producing stimulus and a behaviour response (S. R. Bond) on account of the conditioning of behaviour and formation of habits. This theory may be traced to Pavlov and his experiments on salivating dogs. Pavlov’s experiments brought out associations by conditioning.

In his well known research with dogs, a bell was rung every time food

was served to a dog. Eventually, the dog started salivating each time

upon hearing the bell though no food was served. The dog’s behaviour

is conditioned; it is related to behaviour-producing stimulus (bell ringing)

and behaviour response (salivation). The S.R. bond so established causes a set pattern of behaviour learnt by the object – dog. In terms of consumer behaviour, an advertisement would be a stimulus whereas purchase would be a response.

Learning Process: According to the stimulus-response theory, learning is dependent on drive, cue (stimulus), response and reinforcement.

Drive: Drive may be defined as any strong stimulus that impels action. It arouses an individual and keeps him prepared to respond. The drives may be classified as primary drives and secondary drives. Primary drives are based upon innate physiological needs such as thirst, hunger, pain avoidance, and sex. The secondary drives are based upon learning. They are not innate and are derived from the primary drives.

These include the desire for money, fear, pride, rivalry, etc.

Cue: Cue or stimulus may be defined as any object in the environment perceived by the individual. The aim of the marketing man is to find out or create the cue of sufficient importance that it becomes the drive stimulus or elicits other responses appropriate to his objective. Here, the objective is to find out those conditions under which a stimulus will enhance the chances of eliciting a particular kind of response.

Response: Response is an answer to a given drive or cue. When a man feels thirsty, he attempts to get water at any cost. Here attempt to get water is a response to the primary drive of thirst. “Response also includes attitudes, familiarity, perception and other complex phenomena.”10 Responses may be generalized or discriminatory.

Generalized response refers to a uniform response to similar though not identical stimuli. Discriminatory response refers to the selective response to similar stimuli. Undifferentiated products such as cigarettes and detergents normally elicit generalized consumer responses but by huge advertising outlays companies try to induce consumers to perceive differences in brands and to make discriminatory responses.

Reinforcement: Reinforcement or reward means reduction in drive and stimulus. It has been defined as “environmental events exhibiting the property of increasing the probability of occurrence of responses they accompany.” Thus, when consumption of a product or a brand of product leads to satisfaction of the initiating need (drive/stimulus) there is reinforcement. If at some later date the same needs are aroused, the individual will tend to repeat the process of selecting and getting the same product or brand of product. Each succeeding time that product or brand brings satisfaction, further reinforcement takes place, thus, further increasing the possibility that in future also, the same product or brand will be bought. This type of behavioural change, increasing possibility that an act will be repeated, is called learning; reinforcement increases the rapidity and vigour of learning. 4.4.3. The Psychoanalytical Model: The psychoanalytical model draws from Freudian Psychology. According to this model, the individual consumer has a complex set of deep-seated motives which drive him towards certain buying decisions. The buyer has a private world with all his hidden fears, suppressed desires and totally subjective longings. His buying action can be influenced by appealing to these desires and longings. The psychoanalytical theory is attributed to the work of eminent psychologist Sigmund Freud. Freud introduced personality as a motivating force in human behaviour. According to this theory, the mental framework of a human being is composed of three elements, namely,

1. The id or The instinctive, pleasure-seeking element. It is the reservoir of the instinctive impulses that a man is born with and whose processes are entirely subconscious. It includes the aggressive, destructive and sexual impulses of man.

2. The superego or the internal filter that presents to the individual the behavioural expectations of society. It develops out of the id, dominates the ego and represents the inhibitions of instinct which is characteristic of man. It represents the moral and ethical elements, the conscience.

3. The ego or the control device that maintains a balance between the id and the superego. It is the most superficial portion of the id. It is modified by the influence of the outside world. Its processes are entirely conscious because it is concerned with the perception of the outside world.

The basic theme of the theory is the belief that a person is unable to satisfy all his needs within the bounds of society. Consequently, such unsatisfied needs create tension within an individual which have to be repressed. Such repressed tension is always said to exist in the sub-conscious and continues to influence consumer behaviour.

The above formulations of the psychoanalytical theory may be explained by an example of consumer behaviour.

A young business executive, Mr. Ghosh, on his way home from office, stops at a store dealing in readymade garments. He needs a necktie to match his recently bought shirt. He gets an appropriate match and buys one necktie. While getting out of the shop, a woolen suit catches his attention. He stops to examine it.

Mr. Ghosh examines the suit and finds that the colour, style and texture of the suit matches his needs and tastes. He takes a trial and finds that the suit fits him perfectly and also makes him look very elegant and impressive. He believes that the suit would impress his wife, friends and colleagues (the id is aroused). But at this time, he is reminded that his wife needs a sari and his son has been asking for a tricycle. Besides, his disposable income is also limited. His instinct says that the purchase of the suit would deprive his wife and son of their requirements (superego intervenes). Thus, his conscience restrains him from buying the suit because in his opinion it is not the right thing to do.

Here, the id and the superego are in conflict. As such, the ego intervenes and helps to resolve this conflict and provide the appropriate solution. The ego may offer two alternative solutions.

One alternative may be to purchase the suit so that he can impress his boss and be more confident of himself while dealing with people. This may result in an early promotion or a raise. Moreover, the needs of his wife and son may still be met by buying their requirements on credit. Alternatively, he may abstain from purchasing the suit on account of budgetary constraints. The process of id-superego conflict and ego-conflict resolution as described above explains human behaviour. Behaviour depends upon the relative strength of each of the three elements in the personality and the specific ways in which they combine to produce solutions to consumer problems.

From the theory’s formulations, it is obvious that it is impulse that motivates people to act or behave in the manner as they do. However, this motivation is not (only) for the reasons ascribed to it but is attributable to the subconscious drives that are unknown to people themselves. Some of the interesting examples of consumer behaviour as motivated by the subconscious include the following: 1. Many businesses do not fly because of a fear of posthumous guilt – if he crashed, his wife would think of him as stupid for not taking a train. 2. Men want their cigars to be odoriferous in order to prove that they (the men) are masculine. 3. A woman is very serious when she bakes a cake because unconsciously she is going through the symbolic act of giving birth. 4. A man buys a convertible as a substitute mistress. 5. Consumers prefer vegetable shortening because animal fats stimulate a sense of sin. 6. Men who wear suspenders are reacting to an unresolved castration

complex.

4.4.4. The Sociological Model: According to the sociological model, the individual buyer is influenced by society by intimate groups as well as social classes. His buying decisions are not totally governed by utility; he has a desire to emulate, follow and fit in with his immediate environment. And several of his buying decisions may be governed by societal compulsions. 4.4.5. The Nicosia Model: In recent years, some efforts have been made by marketing scholars to build buyer behaviour models totally from the marketing man’s standpoint. The Nicosia model and the Howard and Sheth model are two important models in this category. Both of them belong to the category called the systems model, where the human being is analyzed as a system with stimuli as the input to the system and behaviour as the output of the system.

Francesco Nicosia, an expert in consumer motivation and behaviour put

forward his model of buyer behaviour in 1966. The model tries to

establish the linkages between a firm and its consumer – how the

activities of the firm influence the consumer and result in his decision to

buy. The messages from the firm first influence the pre-disposition of the

consumer towards the product. Depending on the situation, he develops

a certain attitude towards the product. It may lead to a search for the

product or an evaluation of the product. If these steps have a positive

impact on him, it may result in a decision to buy. This is the sum and

substance of the ‘activity explanations’ in the Nicosia Model. The Nicosia

Model groups these activities into four basic fields.

Field one has two sub-fields the firm’s attributes and the consumer’s

attributes. An advertising message from the firm reaches the consumer’s

attributes. Depending on the way the message is received by the

consumer, a certain attribute may develop, and this becomes the input

for Field Two. Field Two is the area of search and evaluation of the advertised product and other alternatives. If this process results in a

motivation to buy, it becomes the input for Field Three. Field Three

consists of the act of purchase. And Field Four consists of the use of the

purchased item. There is an output from Field Four – feedback of sales

results to the firm.

4.5 Summary

 A study of consumer behaviour gives an insight into the various factors or attributes in a particular product which prompt a consumer to purchase that product.  A study of consumer behaviour helps the marketers to understand the consumers' needs, aspirations, expectations, problems etc.

 The buying behaviour of consumers is influenced by a number of internal or psychological factors. They are: Motivation; Perception; Learning; Beliefs and Attitudes; Personality.  The social factors influencing consumer behaviour are: Family;Reference Groups; Roles and Status.  The Cultural factors influencing consumer behaviour are: Culture; Sub- culture; Social class.  The various economic factors that influence consumer behaviour are: 1. Personal Income 2. Family income 3. Income expectations 4. Savings 5. Liquid assets of the Consumer 6. Consumer credit  The important personal factors which influence buyer behaviour are: 1. Age 2. Occupation 3. Income 4. Life Style  A consumer’s decision to modify, postpone or avoid a purchase decision is heavily influenced by perceived risk. Expensive purchases involve some risk- taking.  Webster and Wind have classified the various influences on business buyers into four main groups: environmental, organizational, interpersonal, and individual.

4.6 Keywords Buying Motives Emotional product buying motives

Rational product buying motives Pride or Prestige

Emulation or Imitation Affection

Comfort or desire for comfort Sex appeal or sex attraction

Ambition Desire for distinctiveness or individuality

Desire for recreation or pleasure Hunger and thirst

Habit Safety or Security

Economy Relatively low price

Suitability Utility or versatility

Durability of the product Convenience of the product

Patronage Buying Motives Emotional Patronage Buying Motives

Rational Patronage Buying Motives 4.7 Exercises 1) Explain the factors influencing consumer behaviour. 2) Describe the consumer purchase decision process. 3) How do business buyers make their buying decisions? 4) Explain different types of buying behaviour.

5) Write briefly about the following: a) Buying motives b) Buying roles

MODULE 2 Unit 1 Product Strategy

Structure: 1.1 Objectives

1.2 Introduction

1.3 Developing Marketing Strategies

1.4 Product Strategy

1.5 Product Mix and Product Line

1.6 Importance of Sound Product

1.7 The Product Life Cycle 1.8 Branding

1.8.1 Categories of Brand

1.8.2 Branding Strategies

1.9 Packaging

1.9.1. Functions of Packaging

1.9.2 Labeling

1.10 New Product Development

1.11 Determining Pricing Objectives

1.12 Factors to be Considered in the Pricing Decision

1.13 Summary

1.14 Keywords

1.15 Exercise

1.1 Objectives

After studying this unit, you will be able to:

 Explain different concepts and classification of a product.

 Define product mix and product line.  Explain the product life cycle.

 Explain the importance of branding and packaging.

 Determine the factors influencing the pricing.

 Explain distribution strategy and channels of distribution.

 Explain the concept of promotion and promotion mix.

1.2 Introduction

A marketing strategy is a plan for selecting and analyzing a target market and developing and maintaining a marketing mix that will satisfy target market. A target market is a group of consumers at whom an organization directs its marketing efforts. In the previous model 1 unit1 we have introduced the concept of marketing mix. In this unit we will discuss in detail about product strategy.

1.3 Developing Marketing Strategies

A marketing strategy involves selecting and analyzing a target market. Once a firm selects a target market, it must develop a marketing mix that satisfies the needs of this target. The marketing mix consists of four elements: product, price, promotion and place.

Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. Marketing Mix

Product Target

Product variety Market Place Quality Price Promotion Design Channels Features Coverage List price Sales promotion Brand name Discounts Packaging Advertising Assortments Sizes Allowances Services Sales force Locations Warranties Payment Returns Public relations period

A Product is anything that satisfies a need or want and can be offered in an exchange. A product can be a good, service or idea.

Price is the value placed on the ‘something of value’ in an exchange. Consumers exchange something of value normally purchasing power (money) for the satisfaction or ability they expect a product to provide.

Promotion refers to marketing activities used to communicate positive, persuasive information about an organization, its products and activities to directly or indirectly expedite exchanges in a target market.

Place refers to marketing activities that make products available to consumers at the right time and in a convenient location. 1.4 Product Strategy

Product Classification: Products are generally classified into two broad categories on the basis of consumers’ intentions. i) Consumer Product: A product purchased for personal and family consumption is a consumer product. ii) Industrial Product: A product bought for use in the production of other products or in organisational operations is an industrial product.

Both consumers and industrial products are broken down into additional classifications:

Consumer Products: a) Convenience Products: A convenience product is a frequently purchased, inexpensive item that buyers spend little effort to find and purchase. Bread, milk, newspapers, soft drinks etc. are examples. Consumers do not spend much time planning the purchase of a convenience item. A consumer who prefers a specific brand of a convenience product will willingly accept a substitute if the preferred brand is not conveniently available. b) Shopping products: Consumers are willing to spend more effort to plan for and purchase a shopping product, such as an appliance, furniture, clothing, a bicycle or a stereo. Buyers spend considerable time comparing brands and sellers with respect to price, product features, quality, service and warranty. c) Speciality products: A speciality product is a product with one or more unique characteristics that a group of buyers is willing to spend considerable time and effort to purchase. Consumers carefully plan the purchase of a speciality product because they know exactly what they want and will not accept a substitute. Consumers do not evaluate alternatives when searching for speciality products. They are extremely brand loyal and are concerned primarily with finding an outlet that has the pre-selected product availability. d) Unsought products: An unsought product is purchased as a result of the sudden occurrence of a problem or in response to aggressive selling tactics that result in a sale that otherwise would not take place. Consumers generally do not think of buying unsought products on a regular basis. Some classic examples of these products include emergency automobile repairs, replacement appliances etc. Marketers should stress advertising and personal selling in marketing unsought products. b) Industrial Products a) Raw Materials: A raw material is a basic good that actually becomes part of a physical product. Examples include minerals, plastics, fabrics, chemicals and agricultural products. b) Capital Equipment: Capital equipment refers to the large tools and machines used in a production process. Capital equipment is normally expensive and is intended to be used for a long period of time. Examples, machineries, lathe, cranes etc. c) Accessory Equipment: Accessory equipment is used in production or office activities but does not become part of the final physical product being manufactured. Examples: motors, hand tools, meters, word processors, calculators etc. d) Component Parts: A component part is a finished item or an item that needs little processing before becoming part of the physical product. Although component parts are used in the manufacture of larger products, they are easily distinguishable from those products. e) Process Materials: Like a component part, a process material is used directly in the production of another product; however, it is not readily distinguishable from the finished product. Example, a company that manufactures cosmetics might purchase alcohol for use in make-up or perfume. f) Supplies: A supply does not become part of the finished product, but it does expedite production and operations. Paints, fuses, cleaning materials, paper, pens and pencils etc. are examples. g) Industrial Services: An industrial service is an intangible product that many organisations require in their operations. Financial, legal, marketing etc., are examples.

1.5 Product Mix and Product Line

Marketers must determine the assortment of products they are going to offer consumers. Some firms sell a single product; others sell a variety of products. A product item refers to a unique version of a product that is distinct from an organization’s other products.

An organization’s product line is a group of closely related products that are considered a unit because of marketing, technical or end-use considerations.

A product mix is the total group of products offered by a firm or all of its product lines. Product mix width is the number of product lines offered by a firm. Product line depth is the number of products offered in a given product line.

The social aspect of new product opportunities: The pleasing products are pan masala, cigarettes etc., which give high immediate satisfaction. However, they cause harm to consumers in the long run.

There are deficient products which have neither immediate appeal nor long run benefits. Firms are not interested in such products as there is no chance to make any profit at all.

The salutary products are those which have long run advantages but have no immediate appeal to consumers. For example, eco-friendly goods, detergents with low phosphates etc.. Hence, firms are not primarily interested in such products. But they can be taken as a challenge and they can be made initially attractive without losing long run consumer benefits.

There are desirable products which have a happy combination of high immediate satisfaction and high long-run consumer welfare. Tasty, nutritious, ready-made food products are the examples of such desirable products. Socially responsible firms would attempt to find opportunities to produce desirable products.

1.6 Importance of Sound Product

There are two essentials of successful marketing: 1) Product and 2) Market If marketing can bring together products and markets in such a way that products and consumer demand are perfectly correlated, there is no reason why marketing cannot be successful. Both are equally important. If the product is sound and easily acceptable to the market, if it satisfies reseller’s needs and consumer preferences and is carefully filled to the needs and desires of the customers, sales success is assured. A right product is bound to reduce considerably the problems of pricing, promotion and distribution.

1.7 The Product Life Cycle

A product has a life cycle in much the same way a living organism does. A new product is introduced to consumers, it grows, and when it loses appeal, it declines and eventually is taken off the market. Product life cycles can be modified and extended by marketers.

A product life cycle has four stages: (1) Introduction (2) Growth (3) Maturity and (4) Decline. Understanding the typical life cycle pattern helps business to manage profitable products and to know when it is time to terminate unprofitable ones. As a product moves through its life cycle, the strategies for promotion, pricing, distribution and competition must be regularly evaluated and adjusted. Perceptive marketing managers try to ensure that the introduction, modification and termination of a product are timed and executed properly.

Four Stages of Product Life Cycle: d n a

s t s i Sales f e l o a r S P

Profit

Growth Maturity Decline Introduction Time Introduction Stage: In the introduction stage of the life cycle, the product is first presented to consumers. It is marked by a period of slow sales growth. Profits are non-existent in this stage because of heavy expenses incurred with product introduction.

In the introduction stage, the company must communicate the products features, uses, and advantages to potential buyers, often through advertisements.

Growth Stage: Sales rise rapidly during the growth stage, while profits peak and then start to decline. Competitors’ reactions to the products success in this stage will affect its life expectancy. Profits decline late in the growth stage as other firms enter the market, forcing the company to lower prices and spend heavily on promotion. At this point, the typical marketing strategy focuses on encouraging strong brand loyalty and competing with aggressive imitators of the product. The company tries to develop a competitive niche in the growth stage by emphasizing the products benefits.

Organizations typically resort the aggressive promotional pricing, including price reductions, during the growth stage.

Maturity Stage: The sales curve peaks and begins to decline during the maturity stage, and profits continue to decline. Competition is fierce at this stage as many brands enter the market. Each competitor highlights differences and improvements in its versions of the product and weaker firms are squeezed out or forced to lose interest in the product.

A product in the maturity phase begins to lose its distinctiveness. Organizations with mature products must therefore develop new promotional and distribution efforts. A fresh advertising campaign, new packaging or incentives directed at channel members are often employed.

Decline Stage: Sales fall rapidly during the decline stage. New technology or new social trends may cause product sales to decline dramatically. At this time, the producer considers eliminating items from the product line that are not earning a profit. The business may eliminate distributors with poor sales, cut promotion efforts and ultimately plan to phase out the product. Most of the organizations have more than one product in their product mix, the decline of one product does not cause a company to fail. Various products in an organisation’s mix are at different stages in the product life cycle. Thus, as one product declines, other products are in the introduction, growth or maturity stage. Therefore, business must simultaneously handle new product introductions and manage existing products in their various life cycle stages.

Product Differentiation: The strategy of market aggregation typically is accompanied by the strategy of product differentiation in a company’s marketing programme. Product differentiation occurs when, in the eyes of customers, one firm distinguishes its product from competitive brands offered in the same aggregate market. Through differentiation an organisation creates the perception that its product is better than the competitor’s brands. A seller differentiates his product either i) by changing some appearance feature of the product the package or colour or ii) by using a promotional appeal that features a differentiating claims.

1.8 Branding

Branding refers to decisions about names, including brands, brand names, brand marks and trademarks. A brand is a name, term, design, symbol or any other feature that identifies one seller’s good or service as distinct from those of other sellers. A brand may identify one item, a family of items or all items of the seller. If used for the firm as a whole, the preferred name is trade name. A brand name is the part of a brand that can be verbalized; it includes letters, words and numbers. A brand name is sometimes a product’s only distinguishing characteristic. It helps a product, develop an identity, simplifies shopping and connotes quality to consumers.

The brand mark is a symbol, design or other element of a brand that cannot be spoken.

Reasons for Branding: Branding helps consumers identify the specific products they like or dislike so that they can purchase the products that satisfy their needs. Branding also helps consumers evaluate the quality of products, especially when they cannot judge a product’s characteristics. In addition, a brand that symbolizes status can provide a psychological reward to consumers.

Branding also benefits sellers because brands identify their products, which encourages repeat purchases by consumers. When consumers become loyal to a specific brand, the producer’s share of that product market achieves a certain level of stability. Moreover, brands that have some degree of customer loyalty can command premium prices.

Branding can facilitate the introduction of a new product that carries the name of an organization’s existing products because buyers are already familiar with the firm’s existing brands. Finally, branding expedites promotional efforts because the promotion of each branded product indirectly promotes all other products with a similar brand name. Selecting an Effective Brand: Because the brand effects, customers’ perceptions of and attitudes towards a product and sometimes towards the firm, it ultimately affects purchase decisions. Consequently, selection of an appropriate brand is a critical decision for organizations.

In selecting a brand name, marketers should consider a number of issues. A brand name should be easy for consumers to say, spell and remember. This includes foreign customers if the product is to be marketed in other countries. A short, one-syllable name such as Ponds, is easy to say, spell and recall. The brand name should also suggest a product’s uses and special characteristics in a positive way. A perfume’s name, for example, might suggest fragrance and magnetism.

An effective brand must be compatible with other products in the line. The manufacturer of kitchen aid appliances, for example, might have some doubts about putting the kitchen aid name on a household drill or vacuum cleaner. Finally, a brand should be designed so that it can be used and recognized in newspapers, magazines and billboards and a television and radio.

A brand name should also convey the derived product image. For instance, ‘A-1 Steak Sauce’ suggests a high quality product. Sporting goods made by ‘Everlast’ have an image of strength and durability. On the other hand, a bank named ‘Fifth Bank’ may convey an image of an unsuccessful bank or a bank that is not the leader.

1.8.1 Categories of Brand

Brands fall into three categories, manufacturer, private distributor and generic brands. A manufacturer brand is developed and owned by its producer, who is usually involved with distribution, promotion and to some extent pricing decisions for the brand. IBM, Sony, Tata, Bajaj etc. are manufacturer brands. Manufacturer brands make it possible for consumers to identify products with their manufacturers at the point of purchase.

A Private Distributor Brand is developed and owned by re-seller, such as wholesaler or retailer. The manufacturer of a private brand is not identified on the product. Re-sellers employ private distributor brands to develop more efficient promotion, generate higher gross margins and improve store image.

A Generic Brand does not list the manufacturer or any other distinguishing information on its label; only the product type (such as peanut butter, tomato sauce, cigarettes, papertowel) is identified. Because generic brands are rarely advertised, many grocery stores sell them at lower prices than they sell comparable branded items. Much of the growth in generic grocery brand sales has been at the expense of private distributor brands.

1.8.2 Branding Strategies

(i) Individual branding: Individual branding is a strategy of using a different brand name for each product. This strategy allows an organisation to develop products for different segments of the same product market. Each product is gives a separate, unrelated name and can be aimed at a specific segment. (ii) Overall family branding: A strategy of giving all of a company’s products the same name or part of the name is called overall family branding. With overall family branding, the promotion of one item with family brand promotes the firm’s other products. (iii) Line family branding: Line family branding occurs when an organisation uses family branding only for products within a particular line rather than for all its products, that is, the same brand is used for all products within a line but not for products in different lines. (iv) Brand-extension branding: Brand-extension branding is a strategy of using an existing brand name as part of a brand for an improved or new product that is usually in the same product category or the existing brand. (v) Brand Licensing: A company allows approved manufacturer to use its trademark on other products for a licensing fee. The licensor – the company permitting the use of its trademark - generally charges a royalty fee ranging from 2 to 10% of wholesale revenues.

1.9 Packaging

Packaging is the development of a container and a graphic design for a

product. Packaging can make a product easier to use, safer and more

versatile. It can also affect consumer’s attitudes toward a product, which

in turn affect their purchase decisions.

Because consumers’ impressions of a product are significantly

influenced by its packaging, marketers try to develop innovative

packages that satisfy the needs of the target market. 1.9.1 Functions of Packaging

Packaging serves a number of purposes. First, it protects the product and maintains its functional form. Another function of packaging is convenience. The size or shape of a package may affect the products’ storage, convenience of use, or replacement rate. Yet, another function of packaging is promotion-communicating a product’s features, uses, benefits and image.

1.9.2 Labeling

Labeling is the display of important information on a product package.

Marketers can use labels to promote other products or to encourage proper use of products and therefore greater satisfaction with them.

Labeling is an important marketing division for legal reasons as well.

Other product related issues:

i) Product Quality: Quality is becoming an important issue. Without durability, conformance to customers’ satisfaction and on-time delivery, a firm cannot survive in today’s environment. The future focus must be on more and better product features, flexible factories that can respond quickly to customer preferences, expanded customer service and new product introductions. ii) Supportive Services: Supportive product related services such as warranties, repairs and replacements and credit help fulfill premises of satisfaction.

1.10 New Product Development

i) Idea Generation: Search for new product ideas from both inside and outside the firm. ii) Idea Screening: Select the idea with the greatest potential. Reject ideas that have limited potential. Analyze the needs and wants of buyers, the environment and competitors. iii) Concept Testing: Describe or show product concepts and their benefits to potential customers to determine their reactions. Identify and eliminate poor product concepts. Obtain useful information for product development and marketing personnel. iv) Business Analysis: Assess the new product’s potential profitability and compatibility with the market place. Examine the organisation’s research, development and production capabilities. Ensure that financial requirements for development and commercialization are available. Project economic returns. v) Product Development: Determine whether it is technically and economically feasible to produce the product. Convert the product idea into a working model. Develop and test various elements of the marketing mix. vi) Test Marketing: Launch the product in small regions. Determine the reactions of consumers in the target market. Measure the new products sales performance. Identify weaknesses in the product or the marketing mix. vii) Commercialization: Make the necessary cash outlays for productions facilities. Manufacture and market the product in the entire target market. Communicate the products benefits.

1.11 Summary

In this unit we have highlighted the various issues that are associated

with ‘product’ which is one of the market mix element. We have dealt

with type of product like common product and industrial product.

Further we have understood product mix and product line. Product mix

is the total group of products offered by a firm or all of its product lines.

Product line is a group of closely related products that are considered .

In this unit we have discussed product life cycle which includes different

stages. We also have discussed the need for branding, packaging of a

product and branding strategies.

1.12 Keywords Marketing Strategy Marketing Mix Product Price Promotion Place Consumer Product Industrial Product Convenience Products Shopping Products Speciality Products Unsought Products Raw Materials Capital Equipment Accessory Equipment Component Parts Process Materials Supplies Industrial Services Product Mix Product Line Product Life Cycle Branding Private Distributor Brand Packaging Generic Brand New Product Development Labeling

1.13 Exercise

1. Explain different stages of ‘product life cycle’. 2. Define ‘Product’. What do you understand by product strategy. 3. Differentiate product mix and product line. 4. Define branding. Explain the benefits of branding. 5. What are branding strategies? 6. Explain the process of New Product Development. Unit 2

Place (Distribution Strategy)

Structure: 2.1 Objectives 2.2 Introduction 2.3 The Nature and Structure of Marketing Channels 2.4 Function of Marketing Channels 2.5 Coordinating Marketing Channels 2.6 Managing Channel Relationships 2.7 Physical Distribution 2.8 Summary 2.9 Keywords 2.10 Exercise

2.1 Objectives The major objectives of this unit is to nature and structure of marketing channels and how does place influences the buying behaviour.

2.2 Introduction

Place or distribution strategy of marketing mix refers to how an organization will distribute the product or service they are offering to the end user. The organization must distribute the product to the user at the right place at the right time. Efficient and effective distribution is important if the organization is to meet its overall marketing objectives. If an organization under estimate a demand and customers cannot purchase products because of it, profitability will be affected. In this unit we explain the issues associated with place/distribution strategy of marketing mix.

2.3 The Nature and Structure of Marketing Channels

A marketing channel (sometimes called a channel of distribution) is a group of inter-related individuals or organisations that direct the flow of products to consumers. Such a group or organisation is called a marketing intermediary because it facilitates exchanges between producers, other intermediaries and the final consumers of products. Because consumers are the focus of all marketing channel activities, satisfying their needs and desires is the most important concern of channel members or marketing intermediaries. Wholesalers and retailers are classified as marketing intermediaries.

Marketing Intermediaries can be divided into two major classifications:

1) Merchants

2) Agents or brokers

A merchant assumes ownership of products and resells them for a profit. Agents and brokers do not purchase products outright but instead negotiate and expedite exchanges between buyers and sellers. Marketing channel members are critical to the success of any marketing endeavor because they specialize in facilitating exchanges. Marketing intermediaries reduce the number of sales contacts required for an exchange, thereby reducing the cost of distribution.

Because distribution is often the least flexible element of the marketing mix, marketing channel decisions are a key component of the marketing mix. In other words, once a marketing channel is established, it is difficult and costly to change it. Therefore, it is important to recognize the different types of marketing channels and the number of marketing intermediaries needed to serve various target markets.

Types of Channels: Products can be distributed directly from producer to consumer or indirectly through one or more marketing intermediaries.

Factors Influencing the Selection of a Marketing Channel:

Factor Less Reliance on More Reliance on intermediaries intermediaries Consumer

Size of purchase Large Small

Location Concentrated Spread out

Number Many Few

Special needs Frequent Infrequent Producer’s resources Extensive Limited

Product

Perishability High Low

Cost or value High Low

Physical size Large Small

Technology Complex Simple

Competition Weak Strong

Alternative channels None Many

Laws Relaxed Strict

Selection of an appropriate channel depends on the consumer, the producer’s resources, the product, the competition, the alternative channels available, and in some cases, the laws governing channel relationships.

Recently, there has been a trend toward a greater presence of intermediaries in marketing channels. That is, we are seeing fewer direct channels. Several factors account for this trend. First, the cost of selling directly to customers has risen very rapidly, making it even more economical to sell through resellers. For instance, retailers can sell the product lines of many manufactures and thus reach a large number of customers more economically than can manufacturers. Second, many industries have concentrated on lowering inventory carrying costs by placing inventory when and where it is needed. Intermediaries such as wholesalers are able to react to demand better than producers can. Third, large distribution chains have grown in size in many industries, taking market share from smaller “mom and pop” distributors.

A marketing channel that is used for one product may not be suitable for another. For example, the same channel which is used to distribute cosmetics can not be used to distribute televisions. Likewise, one organisation may select a different channel than the one used by competitors. A number of different channels are available for consumer and organisational products, as well as for products marketed in foreign countries.

Channels for Consumer Products: Several typical marketing channels for consumer products are shown below. In channel 1, the product moves directly from producer to consumers. Customers who purchase fruits and vegetables from a farmer’s “truck stand” or pick their own fruits or vegetables are utilizing a direct marketing channel. Similarly, wineries that sell their wines directly to consumers (often visitors touring the winery) provide a direct marketing channel to consumers, although they may sell their wines through other channels as well. Most services are distributed through a direct channel because they are produced and consumed at the same time.

By contrast, channels 2, 3, and 4 represent indirect movement of goods or services from manufacturer to consumer. In channel 2, the product flows from the producer to retailers to consumers. 3 1 2 4

Producer Producer Producer Producer

Agents or

Brokers

Wholesalers Wholesalers

Retailers Retailers Retailers

Consumers Consumers Consumers Consumers

Fig.3.1 The Flow of product from the producer to retailers and then to consumers.

This channel is often used for automobiles; most consumers do not wish to go to a factory in Michigan to purchase new Chevrolets; instead, they buy them from authorized Chevrolet dealers that purchase the automobiles from General Motors. Using such a channel structure, large retailers like Kmart and Sears sell many products such as telephones and tires, which they buy directly from producers. In channel 3, a product flows from the producer to wholesalers to retailers to consumers. This channel is used frequently for consumer products that are sold to large numbers of consumers through many retailers. A producer finds it easier to deal directly with a limited number of wholesalers rather than with thousands of retailers. For example, William Grant & Sons distributes its Scotch whiskey products globally through wholesalers and retailers.

Channel 4-in which the product flows from the producer to agents or brokers to wholesalers or retailers to consumers – is generally used for products with mass market distribution. Producers such as Lowa Beef Processors, Inc., often sell to wholesalers through agents or brokers. The wholesalers then supply the beef to retailers (supermarkets or restaurants) that sell the product to ultimate consumers.

Dual Distribution: Dual distribution is the use of two or more marketing channels to distribute the same product to the same target market. By using dual distribution a firm can increase its products’ availability to consumers. For instance, many companies like Neiman Marcus, General Nutrition Inc., Talbots and Sundance sell their products through retail outlets as well as mail-order catalogues.

International Channels of Distribution: All Products, including those sold across national boundaries, must be physically moved from the domestic producer to the consumer or organizational buyer. A firm marketing its products in other nations may decide to distribute products through existing marketing channels or to develop new international channels. The decision depends on the availability of both domestic and foreign channels that satisfy the distribution requirements. Japan has developed a complex called the Asia and Pacific Trade Center to facilitate direct access to retailers’ purchasing agents by foreign suppliers. Retailers go directly to the centre to make purchases from non-Japanese companies, which reduces costs and makes it easier for foreign firms to crack the Japanese market.

Distribution Intensity: When selecting a marketing channel, a firm must also determine the number of intermediaries needed to provide the best target market coverage. Distribution intensity is the number of marketing intermediaries at each level of the marketing channel. At the retail level, distribution intensity refers to the number of outlets that sell a particular product to consumers. Newspapers can be purchased from street vendors and at newspaper stands, convenience stores, grocery stores, and other outlets, but a stereo or computer can be purchased from only a few selected dealers. The product and the target market served often determine the distribution intensity. The three major levels of distribution intensity are intensive, selective and exclusive distribution.

Intensive distribution means that all available outlets are used at each level of the channel to distribute a product. Convenience products such as bread, milk, canned goods, chewing gum, soft drinks and newspapers receive intensive distribution. Some products, such as soft drinks and cigarettes, are available virtually everywhere through vending machines. Most consumer packaged products, such as detergents, soaps, and personal-care products, also rely on intensive distribution. These are generally less expensive products that are purchased frequently by a large number of consumers and require little shopping effort.

Selective distribution uses only some available outlets to distribute a product. Shopping products and durable goods such as automobiles, stereos and large household appliances usually fall into this category. Because such products are more expensive than convenience goods, consumers spend more time visiting several retail outlets to compare prices, designs, styles and other features.

In exclusive distribution, a product is offered in only one or very few outlets within a relatively large geographic area. Organizations use exclusive distribution for products that are purchased rather infrequently, consumed over a long period of time, or require service or information to fit them to buyers’ needs. Private and business jets like the Gulfstream and Starship are sold on an exclusive basis. Some consumer products like luxury cars and custom-made jewelry are also distributed in this way.

2.4. Functions of Marketing Channels In our modern economy, we cannot produce everything required to satisfy our needs. One individual may have a vegetable garden in the back yard, and another person may make clothes. But unlike in primitive cultures, most of the things we need are produced by someone else and obtained through exchanges. As you recall, marketing activities are aimed at facilitating such exchanges and distribution is critical because it enables firms to match their production capabilities to the needs of customers.

Sorting is the process through which the supply of goods and services produced by the manufacturer is matched with the assortment demanded by the consumer. An assortment is a combination of products created by the manufacturer or held by the consumer. Sorting is necessary because manufactures generally produce a large quantity of a narrow assortment of products, whereas consumers typically demand a limited quantity of a broad assortment of products.

The sorting function consists of several activities, including sorting out, accumulation, allocation and assorting. Sorting out involves classifying heterogeneous supplies into relatively homogeneous groups. Produces are classified by grade, color or size. This function is especially common for raw materials and agricultural products. For instance, beef is graded as prime or choice. Accumulation is combining small groups of similar produces into large groups of homogenous products. Wholesalers accumulate a stock of goods for retailers and retailers accumulate a stock of goods for consumers. Allocation is breaking down large, homogenous stocks into smaller groups. A truckload of televisions is sold to retailers in smaller lots, who in turn sell single units to consumers. Assorting is combining products into collections or assortments that satisfy customer demand. Wholesalers develop product assortments for retailers and retailers develop product assortments for consumers.

Marketing channel members perform many other functions: buying, carrying inventory, selling, transporting, financing, promoting, negotiating, conducting marketing research and servicing. Channels also facilitate the flow of information and payments from consumers to producers. All of these functions must be performed through the marketing channel, although all channel members may not perform each function. For instance, General Motors may provide transportation, marketing research and national advertising. Automobile dealers that sell GM cars carry inventory and perform buying, selling, financing and servicing functions. Marketing functions are never eliminated, but are shifted backward or forward to reduce cost and improve efficiency. Veritias is a company that sells life insurance directly to consumers through the mail or by telephone, thus reducing distribution costs and eliminating the sales commission. The demand for fee- only life insurance is increasing and has many insurance companies scrambling to create their own no-commission policies.

Marketing channels play a critical role in total quality programs. Quality expert Philip Crossly introduced a concept called zero defects, a performance standard that attempts to build quality into a product and eliminate costly errors. ‘Zero defects’ cannot be accomplished unless the right products get to the right customers when they want them. Channels also link firms with the customer, the key to quality. Close to the Customer explores this link more closely.

Function of Marketing Channel Members

Function Description Buying Purchasing a broad assortment of goods from producers or other channel members.

Carrying Inventory Assuming the risks associated with purchasing and holding an inventory. Performing activities required to sell goods to Selling consumers or other channel members.

Arranging for the shipment of goods. Transporting Providing funds required to cover the cost of Financing channel activities. Promoting Contributing to national and local advertising and engaging in personal selling efforts. Attempting to determine the final price of goods.

Negotiating Providing information regarding the needs of customers. Providing a variety of services, such as credit, Marketing Research delivery and returns. Servicing

2.5 Co-ordinating Marketing Channels

The functions and efforts of channel members must be co-ordinated for the mutual benefit and efficient interaction of all parties involved, including the customer. This co-ordination is sometimes accomplished through the consensus of all channel members, in which case they voluntarily agree to perform those functions that are most beneficial to the entire channel. However, reaching a consensus of channel members, each with its own set of goals, is often quite difficult. For this reason, some marketing channels are organized and controlled by a single channel leader, which may be a producer, wholesaler or retailer. The channel leader is responsible for guiding other channel members and co-ordinating their efforts to achieve channel objectives. The channel leader may establish channel policies and co-ordinate the development of the marketing mix. General Foods, for example, is a channel leader for some of the many products that it sells. Frequently, the channel member with the most financial resources and power is the channel leader.

Under the management of a channel leader, the various links or stages of the channel may be integrated either horizontally or vertically. Integration can stabilize supply, reduce costs and increase co-ordination of channel members.

Vertical Integration Vertical integration occurs when one channel member acquires control of one or more other members of its marketing channel, usually by purchasing them. For instance, Willamette Industries generates plywood, wood products and wood chips for its paper mills from the 1.2 million acres of timberland it owns in Oregon, Tennessee, the Carolinas, Louisiana, Arkansas and Texas. Recently, movie production companies like Twentieth Century – Fox Film Corp. began purchasing television stations to gain increased control over the outlets available for its products, movies and television programs. Vertical integration eliminates the need for a marketing channel member to act as an independent organisation.

Total vertical integration occurs when one organisation controls all marketing channel functions, from manufacturing to providing service to the final consumer. One company that uses this type of arrangement is Shell Oil, which owns oil wells, refineries, pipelines, terminals and service stations.

A Marketing channel that is professionally managed and centrally controlled by a single marketing channel member is a Vertical Marketing System (VMS). Vertical marketing systems improve distribution efficiency by combining the efforts of individual channel members. As organisations have recognised their practicality, vertical marketing systems have gained popularity.

In a CORPORATE VMS, successive stages of a marketing channel are united under a single ownership. Singer, for example, owns the retail outlets that sell its sewing machines and Tandy owns the Radio Shack outlets that sell its products. Channel members in an ADMINISTERED VMS remain independent, but informal co-ordination allows for effective inter- organizational management. Kellogg Co., Campbell Soup Company and Kraft General Foods use administered channels. Channel members in a CONTRACTUAL VMS are also independent, but their inter-organisational relationships are formalized through contracts or other legal agreements. Such legal agreements spell out the rights and obligations of each channel member.

Horizontal Integration Horizontal integration occurs when a channel member purchases firms at the same level of the marketing channel or expands the number of units (such as retail stores) at one level. Horizontal integration allows the combined organisations to achieve efficiencies and economies of scale in promotion, marketing research, purchasing and the employment of specialists.

Horizontal integration is not always effective in improving distribution because organisations sometimes experience difficulty in co-ordinating the increased number of units. As a result, further marketing research and planning may be needed to manage large-scale operations. In addition, horizontal integration decreases organisational flexibility. Finally, the government has found some of these mergers to be in violation of the Sherman Act.

2.6. Managing Channel Relationships Each member of a marketing channel has a position with rights, obligations, and rewards; and each is subject to penalties for non-conformance. Moreover, each channel member has certain expectations of every other channel member. Retailers expect wholesalers to keep sufficient inventories on hand and to deliver goods on time. Wholesalers expect retailers to abide by the terms of payment contracts and to keep them informed about inventory levels. If the marketing channel is to operate effectively, channel members must co-operate with each other and keep conflict in check.

Channel Co-operation: Channel co-operation occurs when channel members work together for their mutual benefit. Marketing channels cannot function without sustained co-operation. Co-operation is necessary if each channel member is to gain something from other members. The realization of overall channel objectives and individual member objectives depends on co- operation. Unless a channel member can be replaced, the misconduct of one member can destroy the entire channel. Thus it is vital that policies be developed to ensure the welfare and survival of all indispensable channel members.

2.7. Physical Distribution Physical distribution is the set of activities used to manage the flow of products from manufacturers to consumers and end users. Physical distribution activities can be conducted by any member of the channel. For instance, raw materials must be moved from their origin to the production facility; raw materials, parts, semi-finished products, and finished products must be moved within the plant or to and from warehouses; and finished products must be moved to marketing intermediaries and on to the final consumer.

Physical distribution is becoming increasingly important as firms attempt to reduce costs and increase service. An organisation can gain a competitive advantage through a well-designed physical distribution system. By getting products to the target market on a timely basis and in proper condition, a company can satisfy its customers and outsell its competitors. Also, a well- designed physical distribution system can decrease the total cost of distribution, although trade-offs must be made to ensure efficient use of resources and customer satisfaction.

Total Distribution Cost: The major objective of physical distribution is to minimise costs and maximise service. Physical distribution managers attempt to reduce costs in all areas, including transportation, order processing and warehousing. However, reducing costs in one area may increase costs in another. For instance, it is sometimes less expensive to lease warehouse facilities than to own them. However, leasing could increase the cost of transportation because products would have to be transported from the factory to the leased warehouse instead of to an on-site warehouse. Many manufacturing firms develop partnerships or alliances with organisations that specialise in some physical distribution activity, such as transportation or warehousing. These partnerships dramatically improve the quality of customer service and reduce costs, because each organisation is doing what it does best and most efficiently.

By using a total cost approach, a firm views the physical distribution system as a whole, not as a series of unrelated activities. The firm tries to reduce the total distribution cost through an integrated approach to physical distribution. Instead of looking for the lowest possible transportation rates or warehousing costs, the organisation balances the total costs of all activities against the level of service it wants to offer. The organization then adopts the combination of physical distribution activities that yields the lowest total cost but meets its customer service objectives. Cost Tradeoffs: To provide a specific level of service at the lowest possible cost, an organization must make cost trade-offs in its distribution system to resolve conflicts about resource allocation. In other words, the higher costs of one activity must be offset by lower costs of another. For instance, catalogue retailers such as Spiegel, Inc. may wish to minimise the amount of time a customer has to wait to receive an order. This service objective, which requires carrying a large inventory, may conflict with the objective of minimizing inventory carrying costs. The company must then decide whether to trade higher inventory costs for better customer service to gain a competitive edge.

Physical Distribution Activities : These activities include developing customer service standards, selecting transportation modes, designing and operating warehouse facilities, designing an order processing system, physically handling the products and establishing an inventory management and control system.

Developing Customer Service Standards: In accordance with the marketing concept, the design of a physical distribution system begins with consideration of customer needs. One survey found that improving customer service is a major priority in the distribution industry. To this end, an organization must develop a set of service specifications. Each specification, called a customer service standard, identifies a specific and measurable goal appropriate to physical distribution. An example is “to process all customer orders within 72 hours.” These standards influence other physical distribution activities such as transportation and warehousing. Customer service standards should be communicated to both customers and employees and enforced by management. Service standards are critical in attracting and maintaining satisfied customers and should therefore be tailored to customers’ needs.

Customers may require many different services before, during and after an exchange. Before an exchange, a company needs to establish a good climate for service by offering fair prices and high-quality products. Additionally, a written statement that outlines the firm’s service policy should be provided to customers. During the transaction of exchanges, reliable deliveries, sizable inventories, efficient order-processing and availability of emergency shipments may be desired by customers seeking a high level of service. After the transaction, installation, repairs and parts, warranties, answering customer complaints and product packaging are critical elements of customer service. Failure to provide services may result in the loss of customers and possible legal action.

Selecting Transportation Modes: Marketers consider many important factors in selecting a transportation mode. Obviously, cost is very important. Transit time (the total time a carrier possesses goods), reliability (dependability and consistency of service), capability (the ability to move specific kinds of products) and accessibility (the ability to move goods over a specific route) are also important. Although a truck can carry a replacement part for a computer system at a low cost, air freight may provide more reliable delivery. Other important considerations are security (safety) and traceability (the case with which a shipment can be located).

Railways: Railways are used to carry relatively low value, bulky items for long distances. Products typically transported by rail include coal, sand, lumber, grain and steel. Railways serve a fairly large number of locations at a reasonable cost and delivery speed is generally adequate for the type of products that are transported.

Motor Vehicles: Motor vehicles account for nearly one-fourth of all transportation and continue to gain a greater share of the transportation market. They are the most flexible of all transportation modes because they can go nearly anywhere at any time and are fast and dependable. They are generally used to transport smaller shipments over shorter distances. Products shipped by motor vehicles include clothing, paper goods, livestock, food and practically any other item. The major drawbacks of motor vehicles are that they are somewhat high in cost and low in fuel efficiency and losses and damages can be significant. Increased hijacking in inner cities has also a cause of concern. Because of their flexibility, trucks are often used along with some other mode of transportation such as railways or waterways.

Inland Waterways: They are used to transport low-value, bulky products like coal, petroleum and grain. Waterways represent the cheapest mode of transportation, are fuel-efficient and involve low losses and damages. However, waterways are slow, less dependable than other modes, and limited in the number of locations served. They are often supplemented with motor or rail transportation.

Pipelines: Petroleum products and chemicals are most commonly transported via pipelines. Pipelines are generally owned by the firm or firms shipping the product. They offer uninterrupted movement at a relatively low cost, they are dependable and fuel-efficient, and they involve low losses and damages. Because pipelines are the slowest mode of transportation and very limited in the number of locations served, their use is limited. Airways: Although airways account for less than 1 percent of all transportation, the importance of this transportation mode is growing. Perishable products, overnight packages, and emergency parts and supplies are frequently transported by air. As more and more firms conduct business in foreign countries, air transportation will be in greater demand. Airways offer the fastest delivery available (next to FAX) and are relatively dependable. Some type of pickup by motor vehicle at the airport is usually required, which reduces the speed of delivery and increases the cost. The high cost of air transportation will continue to limit the range of products that can be shipped in this manner.

2.8 Summary In this unit we have learnt importance of place as one of the facet of marketing mix. This unit has dealt with marketing channels structure and nature of marketing channels, functions of marketing channels, marketing intermediaries like merchants and agents, factors that influence on the strategies of marketing channel. Further a brief explanation is given about international channel of distribution. At the end, we have learnt about how to manage the channel relationship.

2.9 Keywords

Distribution Strategy Marketing Channel

Dual Distribution Distribution Intensity

Intensive Distribution Selective Distribution

Exclusive Distribution Buying Carrying Inventory Selling Transporting Financing Promoting Negotiating Vertical Integration Horizontal Integration Channel Co-Operation Physical Distribution Cost Tradeoffs

2.10 Exercise

1. Explain the functions of Marketing Channels. 2. Explain the nature and structure of marketing channels. 3. What are factors influencing the selection of a Marketing Channels? Unit 3 Promotion Strategy

Structure: 3.1 Objectives

3.2 Introduction

3.3 The Promotion Mix

3.4 Promotion Mix Elements

3.4.1 Advertising

3.4.2 Personal Selling

3.4.3 Sales Promotion

3.4.4 Publicity

3.5 Factors Affecting the Composition of a Promotion Mix

3.6 Promotional Budget

3.7 Target Market Characteristics

3.8 Cost and Availability of Promotional Methods

3.9 Summary

3.10 Keywords 3.11 Exercises

3.1 Objectives

The major objective of this unit is to discuss about the promotion facet of marketing mix and the various factors that influence the promotion strategy. 3.2 Introduction Promotion refers to any communication activity used to inform, persuade, and remind the target market about an organization, its products and its activities. Promotion can directly facilitate exchanges by communicating information about an organization’s goods, services, and ideas to its target markets. For instance, Associated Air Freight, a mid-sized company that competes with larger express air services like Federal Express, directly promotes its services by having sales representatives personally call on executives of firms that rely on overnight shipping to convince them to give Associated Air Freight a try. Some companies use a flashier method, such as hot air balloons shaped like their products, to facilitate exchanges directly. Car dealers have used videotapes about their brands of cars to deliver personalized messages to prospects.

Promotion can indirectly facilitate exchanges by communicating information about company activities and products to interest groups (such as environmental and consumer groups), current and potential investors, regulatory agencies, and society in general. Promotional activities can help a company justify its existence and maintain positive, healthy relationships with various groups in the marketing environment. To make promotional efforts effective in communicating with consumers and the public, a firm must properly plan, implement, co-ordinate and control all communications. First, the firm must obtain and use information from the marketing environment. The extent to which an organization can use promotion to maintain positive relationships with environmental forces depends largely on the quantity and quality of the information it acquires. To illustrate, to effectively communicate information to consumers that will persuade them to buy a particular product, marketers need data about these consumers and about the types of information they use when making purchase decisions for that type of product. Thus the collection (through marketing research) and use of data are critical in successfully communicating with selected markets.

To ensure effective communications with consumers and other groups, marketing managers must first understand the communication process.

3.3 The Promotion Mix Organizations use various promotional methods to communicate with individuals, groups and organizations. Just as product, price, distribution, and promotion make up the marketing mix, so four components make up the promotion mix. The promotion mix is the specific combination of these four promotional methods –-advertising, personal selling, sales promotion, and publicity – that an organization uses for a specific product.

The following sections present some general characteristics of each element of the promotion mix, investigate the primary factors that influence a company to use the various elements, and examine how promotion must be adapted for global markets. Recently, marketing firms have emphasized the need to co-ordinate various forms of persuasive communications. Integrated marketing communications is the application of various communication methods including advertising, sales promotion, public relations, direct marketing, and personal selling, to accomplish marketing objectives.

3.4 Promotion Mix Elements The four major elements of the promotion mix are advertising, personal selling, sales promotion and publicity. All four elements may be used to promote some products, but only two or three may be used for others.

3.4.1 Advertising: Advertising is a paid form of non-personal communication about an organization, its products, or its activities that is transmitted through a mass medium to a target audience. The mass medium could be television, radio, newspapers, magazines, direct mail, signs on mass transit vehicles, outdoor displays, handbills, catalogues or directories.

Advertising gives marketers the flexibility to reach an extremely large target audience or to focus on a smaller, precisely defined segment of the population.

Advertising is an extremely cost-efficient promotional method because it can reach a large number of people at a low cost per person. Advertising enables the user to transmit a message a number of times. In addition, the visibility that an organization gains from advertising can be used to enhance its public image.

Advertising has several drawbacks. Even though the cost per person reached may be low, the absolute dollar outlay can be extremely high. Organizations like Procter & Gamble, Coca-Cola, 3M and IBM may spend millions of dollars to advertise a single product. These high costs can limit, and sometimes eliminate, advertising as an element of the promotion mix. Feedback from advertising is generally slow, if it occurs at all, and measurement of the effect of advertising on sales is difficult. Finally, advertising normally has less persuasive power over customers than other forms of promotion, such as personal selling.

3.4.2 Personal Selling: Face-to-face communication with potential buyers to inform them about and persuade them to buy an organization’s product is called personal selling. A real estate agent uses personal selling when he or she shows a house and tries to persuade the prospective home owner to purchase it. Because of its one-on-one nature, personal-selling can be much more persuasive than advertising. In addition, personal-selling can be much more persuasive than advertising. In addition, personal-selling efforts generate immediate feedback, enabling the salesperson to adjust the message in response to customers’ needs for information. However, because personal selling is communication with only one or a few individuals, it costs considerably more than advertising, which reaches a much larger audience.

Virtually everyone in the organization is involved in varying degrees in personal selling. From the president of a bank to the tellers, or from the CEO of a large manufacturing organization to the assembly-line workers, members of the organization must sell others both inside and outside on the organization’s mission, people and products. Although a sales person may be responsible for making the actual calls on customers, other members of the organization must also be committed to sales.

3.4.3 Sales Promotion: Sales promotion is an activity or material that offers consumers, salespersons, or resellers a direct inducement for purchasing a product. This inducement, which adds value to or incentive for the product, might take the form of a coupon, sweepstakes, refund, demonstration or display. Some firms even give away free samples as an inducement to purchase a product. The term sales promotion should not be confused with promotion; sales promotion is only one aspect of the larger area of promotion, which also includes advertising, personal selling and publicity

Sales promotion techniques are gaining popularity among consumers. Organizations often make use of sales promotions to reinforce the effectiveness of other ingredients of the promotion mix, especially advertising and personal selling. Sales promotion can be used as the primary promotion vehicle, although such use is unusual. In contrast to advertising and personal selling, which are generally used on a continuous or cyclical basis, sales promotion devices get more irregular use. Often they are designed to produce immediate, short-term increases.

3.4.4 Publicity: Publicity is a non-paid form of non-personal communication about an organization or its products that is transmitted through a mass medium in the form of a news story. Examples of publicity include magazine, newspaper, radio and TV News stories about new retail stores or products, a firm’s personnel changes or special activities. Publicity differs from the other elements of the promotion mix in that it does not directly facilitate exchanges instead, its purpose is to provide information to the general public and to create and maintain a favourable public image of the organization.

Although an organization does not pay for the transmission of publicity messages, publicity should not be viewed as free communication. Companies spend millions of dollars each year preparing news releases and encouraging media personnel to broadcast or print them.

3.5. Factors Affecting the Composition of a Promotion Mix Many factors affect the composition of the promotion mix, including the organization’s promotional objective and policies, the organization promotional budget, the characteristics of the target market, the characteristics of the product and the cost and availability of promotional methods.

When dividing on the composition of a promotion mix, marketing managers must also decide whether to use PUSH POLICY or PULL POLICY. With a Push Policy, the marketer promotes the product only to the next member down in the marketing channel. In a consumer marketing channel with wholesalers and retailers, the producer focuses its promotion efforts on the wholesaler, who is the member below the producer in the marketing channel. Each channel member, in turn, promotes or pushes the product down through the marketing channel. Marketers employing a push policy generally focus on personal-selling efforts, although sales promotion and advertising may be used in conjunction with personal selling to push the products down through the channel.

By contrast, a business using a pull policy promotes its product directly to consumers to stimulate strong consumer demand for the product. When consumers learn, through promotional activities, about a product that they believe will satisfy their needs and wants, they ask for the product in retail stores. To satisfy customers’ demand, retailers in turn try to purchase the product from the producer or wholesalers. A pull policy is therefore intended to ‘pull’ products down through the marketing channel by stimulating demand at the consumer level. To stimulate strong consumer demand, a marketer focuses promotional efforts on intensive advertising and sometimes, on sales promotion. Many pharmaceutical companies use a pull policy, advertising directly to consumers and encouraging them to ask their doctors about certain prescription drugs.

Some producers attempt to balance push and pull strategies. In other words, they use promotion to encourage retailers to stock the product (push strategy) and to induce customers to purchase the product (pull strategy). Today, a greater proportion of promotional dollars is spent on incentives aimed at wholesalers and retailers.

3.6 Promotional Budget: The resources available limit how much an organization can spend on promotion. A company with a very small promotional budget will probably rely on personal selling because it is easier to measure a sales person’s contribution to sales than to measure the contribution of advertising or publicity. To implement regional or national advertising and sales promotion activities, a business must have a considerable promotional budget.

Several methods are used to establish the promotional budget. Some firms, especially small firms with limited resources, simply use all available funds. This practice often results in an inadequate budget, because firms set the promotional budget only after meeting all other obligations and the budget is not related to the firm’s promotional objectives. Many firms use the percentage of sales method; the promotional budget is based on a percentage of the previous year’s sales or the next year’s forecast sales. This method is somewhat rigid and can lead to over-spending when sales are high and understanding when sales fall. The competition-matching approach involves following the action of major competitors in establishing the promotional budget. This approach assumes that competitors are correct and that their decisions are also good for a firm.

Another method for determining the promotional budget is the objective and task approach. This involves determining the tasks required to achieve the promotional objective and allocating the budget needed to perform these tasks. The objective and task approach is very effective because managers can accurately identify the tasks needed to accomplish the objectives. Because the budgeting decision is so difficult, some managers use an arbitrary approach and spend what they think is needed. However, setting a budget arbitrarily can be very dangerous, even for experienced managers.

Some organizations, especially having small business, have a limited promotional budget. There are several inexpensive techniques these organizations can use and still stay within budget constraints, including networking with civic, business and trade associations; co-sponsoring a contest or event with another firm to share promotional costs; showcasing a business by sponsoring a Chamber of Commerce meeting at the place of business, such as a restaurant; making an employee who is an expert in a field write a newspaper column or give talks or organize workshops in his area of expertise; or, if the business is unique, persuading the local news media to do a feature story. Even though promotion is expensive, small organizations as well as larger ones can take advantage of low-cost promotion activities by being aggressive and creative.

3.7 Target Market Characteristics: Other factors which help to determine the composition of a promotion mix are the characteristics of an organization’s target market, such as size, geographic distribution and demographics. If an organization’s target market is quite small, its promotion mix will emphasise personal selling because this is an efficient means of communicating with small numbers of people. Conversely, when a target market includes millions of consumers, the promotion mix will probably stress advertising and sales promotion because these methods can reach large numbers of people at a low cost per person.

When a company’s customers are concentrated in a small area, personal selling is more practical than when customers are dispersed across a vast geographic region. In the latter case, advertising may be a more efficient means of reaching numerous and widely dispersed customers.

Product Characteristics: The characteristics of the product affect the blend of elements in the promotion mix. Personal selling plays a major role in promoting organizational products, but advertising is used heavily to promote consumer goods, consumer convenience products are generally promoted through national advertising and sales promotion; personal selling is used extensively for consumer durables such as home appliances automobiles and houses. Publicity is a component of promotion mix for both organizational and consumer goods.

Manufacturers of highly seasonal products, such as Toys, Christmas Thanksgiving and Valentine’s Day cards, Gifts etc. generally rely on advertising and perhaps, sales promotion because off-season sales of these products are not sufficient to support an extensive year-round sales force. Toy producers have sales forces to sell to resellers, yet most depend heavily on advertisements to promote their products.

Service firms also rely heavily on advertising and personal selling to promote their products. As we mentioned earlier, personal selling is critical for services, because many times the sales people represent the service. Sales promotion is somewhat more difficult to implement for services because of their intangible nature; however, premiums such as calendars and coffee mugs can be used to promote service providers like hospitals, dry cleaners, funeral homes and so on. Service firms often rely more heavily on publicity than do firms marketing goods. Non-profit organizations also rely heavily on publicity, as well as on advertising and personal selling and not so much on sales promotion.

The price of a product also has an impact on the composition of the promotion mix. High-priced products like automobiles and major appliances require personal-selling efforts, as well as advertising, because consumers associate greater risk with the purchase of an expensive product and therefore expect information and advice from a knowledgeable sales person. For this reason, most consumers would be reluctant to purchase an expensive refrigerator from a self-service establishment. On the other hand, advertising is more practical than personal selling at the retail level for low-priced convenience goods such as milk, flour, soft drinks and newspapers. The profit margins on many of these items are too low to justify the use of sales people and most customers do not need, or even want, advice from sales personnel when making such routine purchases.

3.8 Cost and Availability of Promotional Methods: The costs of promotional methods are certainly important considerations when developing a promotion mix. National advertising and sales promotion efforts require large expenditure even though the cost per individual reached may be quite low. Because of budget constraints, many small organizations restrict their promotion mix to advertising through local newspapers, magazines, radio and television stations and outdoor displays.

Availability of promotional techniques is another factor that marketers must explore when formulating a promotion mix. A company may discover that no available advertising media are effective in reaching a certain market. Finding an appropriate medium may be especially difficult when marketers try to advertise in foreign countries. Some media, such as television, are simply not available or not in widespread use. Other media that are available may be restricted in the types of advertisements they can run. For example, in Spain, marketers cannot advertise tobacco and alcohol products (with the exception of beer and wine) on television; in Germany, marketers are prohibited from appealing to children in advertisements. In the United States, some state laws prohibit the use of certain types of sales promotion activities such as contests.

3.9 Summary  Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market.  The marketing mix consists of four elements: product, price, promotion and place.  There are two essentials of successful marketing: Product and Market  A product life cycle has four stages: Introduction; Growth; Maturity; Decline.

 Product differentiation occurs when, in the eyes of customers, one firm distinguishes its product from competitive brands offered in the same aggregate market.  Branding refers to decisions about names, including brands, brand names, brand marks and trademarks.

 Packaging is the development of a container and a graphic design for a product.

 Of all the marketing mix variables, price is probably the most flexible.  Organizations can adjust prices much more easily than they can modify the product, change the promotional program or redesign the distribution systems.  Marketers must consider a few factors in making their pricing decision. They are: 1. Buyers’ expectations 2. Marketing mix variables 3. Competitive Structure 4. Costs

3.10 Keywords

Promotion Promotion Mix Advertising Personal-Selling Sales Promotion Publicity Pull Policy Promotional Budget

3.11 Exercises 1. What do you mean by promotion mix? Explain. 2. What are the factors affecting the composition of a promotion mix? 3. Explain different elements of Promotion Mix. Unit 4

Pricing Strategy

Unit 4

4.1 Objectives

4.2 Introduction

4.3 Pricing

4.4 The Price/Quality Relationship

4.5 Pricing Strategy

4.6 Factors to be considered in the pricing decision

4.6.1 Buyers’ Expectation

4.6.2 Marketing Mix Variables

4.6.3 Competitive Structure

4.6.7 Costs

4.7 Pricing Policy

4.8 Summary 4.9 Keywords

4.10 Exercise

4.1 Objectives

In this unit we deal with

 Pricing Product Mix Of Marketing Mix  Marketing Strategy  Pricing Policy

4.2 Introduction

Pricing is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place. It is also a key variable in microeconomic price allocation theory. Price is the only revenue generating element amongst the 4ps, the rest being cost centers. Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors.

4.3 Pricing

Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, Quality of product. The effective price is the price the company receives after accounting for discounts, promotions, and other incentives.

Price lining is the use of a limited number of prices for all your product offerings. This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. It has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices. A loss leader is a product that has a price set below the operating margin. This results in a loss to the enterprise on that particular item, but this is done in the hope that it will draw customers into the store and that some of those customers will buy other, higher margin items. Promotional pricing refers to an instance where pricing is the key element of the marketing mix.

4.4 The price/quality relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. The belief in this relationship is most important with complex products that are hard to test, and experiential products that cannot be tested until used (such as most services). The greater the uncertainty surrounding a product, the more consumers depend on the price/quality hypothesis and the more of a premium they are prepared to pay. The classic example of this is the pricing of the snack cake Twinkies, which were perceived as low quality when the price was lowered. Note, however, that excessive reliance on the price/quantity relationship by consumers may lead to the raising of prices on all products and services, even those of low quality, which in turn causes the price/quality relationship to no longer apply.

Premium pricing (also called prestige pricing) is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. A few examples of companies which partake in premium pricing in the marketplace include Rolex and Bentley. People will buy a premium priced product because:

1. They believe the high price is an indication of good quality; 2. They believe it to be a sign of self worth - "They are worth it" - It authenticates their success and status - It is a signal to others that they are a member of an exclusive group; 3. They require flawless performance in this application - The cost of product malfunction is too high to buy anything but the best - example: heart pacemaker.

The term Goldilocks pricing is commonly used to describe the practice of providing a "gold-plated" version of a product at a premium price in order to make the next-lower priced option look more reasonably priced; for example, encouraging customers to see business-class airline seats as good value for money by offering an even higher priced first-class option. Similarly, third-class railway carriages in Victorian England are said to have been built without windows, not so much to punish third-class customers (for which there was no economic incentive), as to motivate those who could afford second-class seats to pay for them instead of taking the cheaper option. This is also known as a potential result of price discrimination.

The name derives from the Goldilocks story, in which Goldilocks chose neither the hottest nor the coldest porridge, but instead the one that was "just right". More technically, this form of pricing exploits the general cognitive bias of aversion to extremes. This practice is known academically as "framing". By providing three options (i.e. small, medium, and large; first, business, and coach classes) you can manipulate the consumer into choosing the middle choice and thus, the middle choice should yield the most profit to the seller, since it is the most chosen option.

Demand-based pricing is any pricing method that uses consumer demand - based on perceived value - as the central element. These include : price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value- based pricing, and premium pricing. Pricing factors are manufacturing cost, market place, competition, market condition, quality of product. Multidimensional pricing is the pricing of a product or service using multiple numbers. In this practice, price no longer consists of a single monetary amount (e.g., sticker price of a car), but rather consists of various dimensions (e.g., monthly payments, number of payments, and a downpayment). Research has shown that this practice can significantly influence consumers' ability to understand and process price information.

4.5 Pricing Strategy The meaning and importance of price: From a buyer’s perspective, price is the something of value that a buyer gives up in an exchange. If the value received is not worth the value given up, consumers may purchase a substitute product or decide not to purchase the product at all.

Consumers exchange something of value, normally buying power, for the satisfaction or ability they expect from a product.

Of all the marketing mix variables, price is probably the most flexible.

Organizations can adjust prices much more easily than they can modify the product change the promotional program or redesign the distribution systems. Price is also the marketing mix variable that relates most directly to revenue. Whereas product, promotion and distribution efforts require expenditure by a firm, the price of a product determines how much money comes into an organization. Thus prices affect organization’s profits, which are vital for long-term survival. Price versus Non-price Competition:

Price competition: An organization that uses price competition focuses on price as a means of differentiating its products from others and attempts to match or beat its competitor’s prices. A company using price competition must be willing and able to change prices frequently and should be the low-cost producer of the product. To make this strategy work, the firm must respond quickly and aggressively to competitors price changes.

Non-price competition:

Non-price competition occurs when a seller focuses on aspects other than price-such as distinctive product features, service or product quality, promotion and packaging, to differentiate its products from competing brands. When using non-price competition

Determining Pricing Objectives Before a firm can determine the right price for a product, it must determine the role of price in the marketing mix. A pricing objective is a general goal that describes what an organization hopes to achieve through its pricing activities. Pricing objectives should be measurable so that they can be evaluated. Since they effect decisions in other functional areas, such as finance and production, they must be consistent with the organizational mission and objectives. For example, if an organization wants to provide the highest quality product in the industry, its pricing objectives must be consistent with this objective.

Survival is the broadest and most fundamental pricing objective.

Organizations can endure short-run losses, internal restructuring and other difficulties if they are necessary for survival. Because price is flexible and relatively easy to adjust, companies sometimes cut prices in order to increase sales volumes to levels that match the organization’s expenses. For example, several years ago, Continental Airlines discounted its airfares to a level lower than competitor’s fares rather than go out of business.

Beyond the obvious objective of survival, there are three major categories of pricing objectives: Status quo, project and sales. Some firms use a combination of these objectives when determining the role of price in the marketing program. Regardless of the pricing objectives pursued, the objectives must reflect the overall organizational objectives.

Status quo objectives: Some organizations are satisfied with their current market position and sales. In such cases, status quo objectives can focus on several dimensions-meeting, competitor’s prices, achieving price stability or maintaining a favorable public image.

By pursuing status quo objectives, a firm can help stabilize demand for its products. This reduces the firm’s risk. Conversely, when status objectives are not pursued, a climate of price competition can develop in an industry. For example, when several airlines drastically lowered fares in 1992, other carriers fares cut focus a step further; most competitors then matched the lower prices. The lack of price stability resulted in reverse price competition and lost revenues for all the airlines. Status quo pricing objectives can also diminish the chances of government intervention because stable prices result in a more favorable public image.

Profit Objectives:

Many firms establish the profit objective of maximizing profits. The major problem with this specific objective is that it is difficult to measure whether profit maximization has been achieved and almost impossible to determine the maximum possible profit. Because of this difficulty, profit objectives are generally set at levels that owners and top level decision makers view as “satisfactory”. Project objectives may be stated in terms of actual amounts or in terms of the percentage of change relative to the profits of a previous period. Another profit objective used by industry leaders is the attainment of a specific rate of return on the firm’s investment. Because large firms establish their pricing objectives more independently of competition than do smaller firms, they are in a better position to set target returns. Most pricing objectives that are based on return on investment (ROI) are achieved by trial and error because all cost and revenue data required to forecast the return on investment may not be available at the time prices are set. A major disadvantage of ROI objectives is that they do not reflect prices of competitive products or customer perceptions of price.

Some organizations set prices to recover cash as quickly as possible to keep cash flouring throughout the organization. Understandably, financial managers want to quickly recover money spent on product development.

Sales objectives: The pricing objective of some companies is to increase sales volume. This objective is typically expressed as a percentage of sales over a specified time period. For example, a firm’s pricing objective might be to boost sales by 10 percent over a one year period.

Another sales objective relates the market share, which are firm’s sales in relation to total industry sales. Many organizations establish pricing objectives to maintain or increase market share.

4.6 Factors to be Considered in the Pricing Decision Marketers must consider many factors in making their pricing decision. They are: 4.6.1 Buyers’ expectations: When setting prices, an organisation should consider consumers’ expectations and concerns. Some consumers are more concerned about the price of a product than are other consumers. For most products, consumers have a range of acceptable prices. In some cases, the range is fairly narrow, but for other product categories there is a wider range. A marketing manager should try to determine the acceptable range of prices in the relevant product category and set prices accordingly.

4.6.2 Marketing mix variables: Because the marketing mix variables are highly inter-related pricing decisions must be made in conjunction with product, promotion and distribution decisions.

a) Product Activities: A products price generally influences consumer demand for it. A high price for instance, may result in low sales, which in turn may lead to higher production costs per unit. Conversely low prices may generate higher demand and result in lower per unit production costs.

b) Promotion Activities: Promotion is also affected price. Advertisements often display bargain prices, where as premium prices are less likely to appear in advertising messages.

c) Distribution Activities: The price of a product is also related to its distribution. Premium priced products are often sold in a limited number of stores, where as lower-priced products in the same or similar product categories may be sold in numerous stores.

4.6.3 Competitive Structure: The competitive structure that characterizes a particular industry affects a firm’s flexibility in selling prices. Knowledge of the competitive structure does not suggest what price an organization should charge for a product, but it does provide a feasible range of prices that might be established. Firms must also recognize that too high a price may encourage other firms to enter the market.

4.6.4 Costs: Costs are certainly a key concern when establishing prices. A Company may sell its products below cost for a short period of time to match competition, to improve cash flow or even to increase market share, but in the long run no organization can survive by selling products below cost. Some other factors that might add value to the pricing factors are:  Determine primary and secondary market segments: This helps you better understand the offering's value to consumers. Segments are important for positioning and merchandising the offering to ensure maximized sales at the established price point.

 Assess the product's availability and near substitutes: Under pricing hurts product as much as overpricing does. If the price is too low, potential customers will think it can't be that good. This is particularly true for high-end, prestige brands. One client under priced its subscription product, yielding depressed response and lower sales. The firm underestimated the uniqueness of its offering, the number of close substitutes, and the strength of the consumer's bond with the product. As a result, the client could increase the price with only limited risk to its customer base. In fact, the initial increase resulted in more subscribers as the new price was more in line with its consumer-perceived value.  Survey the market for competitive and similar products: Consider whether new products, new uses for existing products or new technologies can compete with or, worse, leapfrog your offering. Examine all possible ways consumers can acquire your product. I've worked with companies that only take into account direct competitors selling through identical channels. Don't limit your analysis to online distribution channels. Competitors may define your price range. In this case, you can price higher if consumers perceive your product and/or brand is significantly better; price on parity if your product has better features; or price lower if your product has relatively similar features to existing products. An information client faced this situation with a premium product. Its direct competitors established the price for a similar offering. As the third player in this segment, its choices were price parity with an enhanced offering or a lower price with similar features.

 Examine market pricing and economics: A paid, ad-free site should generate more revenue than a free ad-supported one, for example. In considering this option, remember to incorporate the cost of forgone revenue, especially as advertisers find paying customers more attractive.  To gain additional insight from this analysis, observe consumers interacting with your product to better understand their connection to it. This can yield insights into how to package and promote the offering that can affect on pricing, features, and incentives.

 Calculate the internal cost structure and understand how pricing interacts with the offering: A content client was recommended to promote its advertising-supported free e-zones to increase readers to register. The client believed the e-zones had no value as the content was repurposed from another product, so it didn't advertise them. Yet the repurposed content was exactly what readers viewed as a benefit. By undervaluing its offering, the client missed an opportunity to increase registrations and, hence, advertising revenues with a product that effectively had no development costs.

 Test different price points if possible: This is important if you enter a new or untapped market, or enhance an offering with consumer- oriented benefits. To determine price, MarketingExperiments.com tested three different price points for a book. It found the highest price yielded the greatest product revenue. Interestingly, the middle price yielded greater revenue over time, as it generated more customers to whom other related products could be marketed.

 Monitor the market and your competition continually to reassess pricing: Market dynamics and new products can influence and change consumer needs. Pricing is tricky, as "The Apprentice" contestants learned. Optimally, one should test to determine the best price and understand long-term goals. Determine price based on a number of factors. Most important is what potential customers are willing to pay and their value to your company over time. You don't want to hear, "You're fired," when it comes to pricing policies.

4.7 Pricing policy

Crucial to a good marketing is good pricing policy. For the prices you charge for your products and services will greatly effect your sales volume, profit levels and among other things the business image. To establish an effective pricing policy:

1. Define the pricing objectives: pricing objectives should be closely tied in with the overall objective and goals of business and marketing as a result take into consideration what impact your prices will have on your sales volume, sales revenue, market share, competitive position, company image and profitability. 2. Establish a simple yet effective pricing structure taking into consideration all the business costs. 3. Choose a pricing strategy to establish a market presence: 4. Fine tune and adapt your general pricing policy in response to trends, industry practices and new innovative pricing strategies to help solidify your competitive the competitive position within your market place. The following figure illustrates the factors that influence pricing and factors that are influenced by the price.

Keeping the above factors in consideration while making fixing the price for the product or service would enable the organization to have an effective pricing policy.

4.7 Summary In this unit we have discussed the concept of pricing and the factors that influence the pricing of a product or service, price quality relationship, types of pricing like premium pricing, demand based pricing, multi-dimensional pricing, pricing strategies, the factors that need to be considered for determining the pricing of a product and pricing policy. We have seen that cost demand, competitions, customer perception, profit goals influence the price factor and price influence the issues like sales volume and revenue, market share, competitive position, company image and profitability etc.

4.8 Keywords

Pricing Price lining price/quality relationship Premium pricing Goldilocks pricing Demand-based pricing Multidimensional pricing Pricing Strategy

Price competition Non-price competition Status quo objectives Buyers’ expectations Marketing mix variables Product Activities Promotion Activities Distribution Activities Competitive Structure Costs Pricing policy

4.9 Exercise 1. Define Pricing and Explain Price Lining. 2. Differentiate premium pricing and demand based pricing. 3. What is pricing strategy? 4. How you will develop pricing strategy? 5. What are the factors to be considered in the pricing decision? 6. What is a pricing policy? What factors influence pricing policy? 7. What are areas that will be affected by pricing policy? Module 3

Unit 1

Marketing Strategy

Structure

1.1 Objectives

1.2 Introduction

1.3 Porters five force Model

1.3.1 Rivalry

1.3.2 Threat of Substitutes

1.3.3 Buyer Power

1.3.4 Supplier Power

1.3.5 Barriers to Entry/Threat of Entry

1.3.6 Dynamic Nature of Industry Rivalry

1.4 Generic Strategies to Counter the Five Forces 1.5 Criticisms of the Five Force Model

1.6 Value chain Model

1.6.1 The primary value chain activities

1.7 Differentiation and the Value Chain

1.8 Technology and the Value Chain

1.9 Linkages Between Value Chain Activities

1.10 The Value Chain System

1.11 Implication of FFM and VCM on Marketing Strategy

1.12 Summary

1.13 Keywords

1.14 Exercises

1.1 Objectives

After learning this unit you will be able to understand the following:

-Porter’s five force model and value chain model

-The different force and its impact on framing the market strategy

-Factors that form the five forces

-factors that form the VCM

-GAP analysis -Strategies to counter the Five Forces

1.2 Introduction

Marketing strategy serves as the foundation of a marketing plan. A marketing plan contains a list of specific actions required to successfully implement a specific marketing strategy. An example of marketing strategy is as follows: "Use a low cost product to attract consumers. Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service."

A strategy is different than a tactic. While it is possible to write a tactical marketing plan without a sound, well-considered strategy, it is not recommended. Without a sound marketing strategy, a marketing plan has no foundation. Marketing strategies serve as the fundamental underpinning of marketing plans designed to reach marketing objectives. It is important that these objectives have measurable results. A good marketing strategy should integrate an organization's marketing goals, policies, and action sequences

(tactics) into a cohesive whole. The objective of a marketing strategy is to provide a foundation from which a tactical plan is developed. This allows the organization to carry out its mission effectively and efficiently.

To frame an effective marketing strategy the organization has to analyse the strength, Weakness, Opportunities and Threat (SWOT ) factors and how it can add value to the business process. Here we adopt Michel Porter’s Five

Force Model and Value Chain Model to analyse the above factors.

1.3 FIVE FORCE MODEL

Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard

Business School in 1979. It uses concepts developed in Industrial

Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition".

Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit.

A change in any of the forces normally requires a company to re-assess the marketplace. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competences, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models have been able to make a return in excess of the industry average.

Porter's five force include three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers, bargaining power of customers.

According to Porter, the five forces model should be used at the industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers. Firms that compete in a single industry should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the first fundamental issue in corporate strategy is the selection of industries (lines of business) in which the company should compete; and each line of business should develop its own, industry-specific, five forces analysis. The average Global 1,000 company competes in approximately 52 industries (lines of business).

This five forces analysis is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies

The model is presented as below. 1.3.1 Rivalry

In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.

Economists measure rivalry by indicators of industry concentration. The

Concentration Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for major Standard Industrial Classifications

(SIC's). The CR indicates the percent of market share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry also are available). A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is less competitive (closer to a monopoly). A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.

If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry's history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct. Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market. When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage.

In pursuing an advantage over its rivals, a firm can choose from several competitive moves:

 Changing prices - raising or lowering prices to gain a temporary

advantage.

 Improving product differentiation - improving features, implementing

innovations in the manufacturing process and in the product itself.

 Creatively using channels of distribution - using vertical integration

or using a distribution channel that is novel to the industry. For

example, with high-end jewelry stores reluctant to carry its watches,

Timex moved into drugstores and other non-traditional outlets and

cornered the low to mid-price watch market.

 Exploiting relationships with suppliers - for example, from the 1950's

to the 1970's Sears, Roebuck and Co. dominated the retail household

appliance market. Sears set high quality standards and required

suppliers to meet its demands for product specifications and price. The intensity of rivalry is influenced by the following industry characteristics:

1. A larger number of firms increases rivalry because more firms must

compete for the same customers and resources. The rivalry intensifies

if the firms have similar market share, leading to a struggle for

market leadership.

2. Slow market growth causes firms to fight for market share. In a

growing market, firms are able to improve revenues simply because

of the expanding market.

3. High fixed costs result in an economy of scale effect that increases

rivalry. When total costs are mostly fixed costs, the firm must

produce near capacity to attain the lowest unit costs. Since the firm

must sell this large quantity of product, high levels of production lead

to a fight for market share and results in increased rivalry.

4. High storage costs or highly perishable products cause a producer

to sell goods as soon as possible. If other producers are attempting to

unload at the same time, competition for customers intensifies.

5. Low switching costs increases rivalry. When a customer can freely

switch from one product to another there is a greater struggle to

capture customers. 6. Low levels of product differentiation is associated with higher

levels of rivalry. Brand identification, on the other hand, tends to

constrain rivalry.

7. Strategic stakes are high when a firm is losing market position or

has potential for great gains. This intensifies rivalry.

8. High exit barriers place a high cost on abandoning the product. The

firm must compete. High exit barriers cause a firm to remain in an

industry, even when the venture is not profitable. A common exit

barrier is asset specificity. When the plant and equipment required for

manufacturing a product is highly specialized, these assets cannot

easily be sold to other buyers in another industry. Litton Industries'

acquisition of Ingalls Shipbuilding facilities illustrates this concept.

Litton was successful in the 1960's with its contracts to build Navy

ships. But when the Vietnam war ended, defense spending declined

and Litton saw a sudden decline in its earnings. As the firm

restructured, divesting from the shipbuilding plant was not feasible

since such a large and highly specialized investment could not be

sold easily, and Litton was forced to stay in a declining shipbuilding

market. 9. A diversity of rivals with different cultures, histories, and

philosophies make an industry unstable. There is greater possibility

for mavericks and for misjudging rival's moves. Rivalry is volatile

and can be intense. The hospital industry, for example, is populated

by hospitals that historically are community or charitable institutions,

by hospitals that are associated with religious organizations or

universities, and by hospitals that are for-profit enterprises. This mix

of philosophies about mission has lead occasionally to fierce local

struggles by hospitals over who will get expensive diagnostic and

therapeutic services. At other times, local hospitals are highly

cooperative with one another on issues such as community disaster

planning.

10. Industry Shakeout: A growing market and the potential for high

profits induces new firms to enter a market and incumbent firms to

increase production. A point is reached where the industry becomes

crowded with competitors, and demand cannot support the new

entrants and the resulting increased supply. The industry may become

crowded if its growth rate slows and the market becomes saturated,

creating a situation of excess capacity with too many goods chasing too few buyers. A shakeout ensues, with intense competition, price wars, and company failures.

BCG founder Bruce Henderson generalized this observation as the

Rule of Three and Four: a stable market will not have more than three significant competitors, and the largest competitor will have no more than four times the market share of the smallest. If this rule is true, it implies that:

o If there is a larger number of competitors, a shakeout is

inevitable

o Surviving rivals will have to grow faster than the market

o Eventual losers will have a negative cash flow if they attempt

to grow

o All except the two largest rivals will be losers

o The definition of what constitutes the "market" is

strategically important.

Whatever the merits of this rule for stable markets, it is clear that market stability and changes in supply and demand affect rivalry.

Cyclical demand tends to create cutthroat competition. This is true in the disposable diaper industry in which demand fluctuates with birth

rates, and in the greeting card industry in which there are more

predictable business cycles.

1.3.2 Threat Of Substitutes

In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminum can industry. To the manufacturer of automobile tires, tire retreads are a substitute. Today, new tires are not so expensive that car owners give much consideration to rethreading old tires. But in the trucking industry new tires are expensive and tires must be replaced often. In the truck tire market, retreading remains a viable substitute industry. In the disposable diaper industry, cloth diapers are a substitute and their prices constrain the price of disposables.

While the threat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes. Consider the substitutability of different types of TV transmission: local station transmission to home TV antennas via the airways versus transmission via cable, satellite, and telephone lines. The new technologies available and the changing structure of the entertainment media are contributing to competition among these substitute means of connecting the home to entertainment. Except in remote areas it is unlikely that cable

TV could compete with free TV from an aerial without the greater diversity of entertainment that it affords the customer.

1.3.3 Buyer Power

The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist,

but frequently there is some asymmetry between a producing industry and

buyers. The following tables outline some factors that determine buyer

power.

Buyers are Powerful if: Example

Buyers are concentrated - there are a DOD purchases from defense few buyers with significant market contractors share

Buyers purchase a significant Circuit City and Sears' large retail proportion of output - distribution of market provides power over appliance purchases or if the product is manufacturers standardized

Buyers possess a credible backward Large auto manufacturers' purchases integration threat - can threaten to of tires buy producing firm or rival

Buyers are Weak if: Example

Producers threaten forward Movie-producing companies have integration - producer can take over integrated forward to acquire theaters own distribution/retailing

Significant buyer switching costs - products not standardized and buyer IBM's 360 system strategy in the cannot easily switch to another 1960's product

Buyers are fragmented (many, different) - no buyer has any Most consumer products particular influence on product or price

Producers supply critical portions of Intel's relationship with PC buyers' input - distribution of manufacturers purchases

1.3.4 Supplier Power

A producing industry requires raw materials - labor, components, and other

supplies. This requirement leads to buyer-supplier relationships between the

industry and the firms that provide it the raw materials used to create

products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the

industry's profits. The following tables outline some factors that determine

supplier power.

Suppliers are Powerful if: Example

Baxter International, manufacturer of Credible forward integration threat by hospital supplies, acquired American suppliers Hospital Supply, a distributor

Drug industry's relationship to Suppliers concentrated hospitals

Microsoft's relationship with PC Significant cost to switch suppliers manufacturers

Boycott of grocery stores selling non- Customers Powerful union picked grapes

Suppliers are Weak if: Example Many competitive suppliers - product Tire industry relationship to is standardized automobile manufacturers

Purchase commodity products Grocery store brand label products

Credible backward integration threat Timber producers relationship to by purchasers paper companies

Garment industry relationship to Concentrated purchasers major department stores

Customers Weak Travel agents' relationship to airlines

1.3.5 Barriers to Entry / Threat of Entry

It is not only incumbent rivals that pose a threat to firms in an industry; the

possibility that new firms may enter the industry also affects competition. In

theory, any firm should be able to enter and exit a market, and if free entry

and exit exists, then profits always should be nominal. In reality, however,

industries possess characteristics that protect the high profit levels of firms in

the market and inhibit additional rivals from entering the market. These are

barriers to entry. Barriers to entry are more than the normal equilibrium adjustments that markets typically make. For example, when industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry.

When profits decrease, we would expect some firms to exit the market thus restoring a market equilibrium. Falling prices, or the expectation that future prices will fall, deters rivals from entering a market. Firms also may be reluctant to enter markets that are extremely uncertain, especially if entering involves expensive start-up costs. These are normal accommodations to market conditions. But if firms individually (collective action would be illegal collusion) keep prices artificially low as a strategy to prevent potential entrants from entering the market, such entry-deterring pricing establishes a barrier.

Barriers to entry are unique industry characteristics that define the industry.

Barriers reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry. From a strategic perspective, barriers can be created or exploited to enhance a firm's competitive advantage.

Barriers to entry arise from several sources: 1. Government creates barriers: Although the principal role of the

government in a market is to preserve competition through anti-trust

actions, government also restricts competition through the granting of

monopolies and through regulation. Industries such as utilities are

considered natural monopolies because it has been more efficient to

have one electric company provide power to a locality than to permit

many electric companies to compete in a local market. To restrain

utilities from exploiting this advantage, government permits a

monopoly, but regulates the industry. Illustrative of this kind of

barrier to entry is the local cable company. The franchise to a cable

provider may be granted by competitive bidding, but once the

franchise is awarded by a community a monopoly is created. Local

governments were not effective in monitoring price gouging by cable

operators, so the federal government has enacted legislation to review

and restrict prices.

The regulatory authority of the government in restricting competition

is historically evident in the banking industry. Until the 1970's, the

markets that banks could enter were limited by state governments. As

a result, most banks were local commercial and retail banking

facilities. Banks competed through strategies that emphasized simple marketing devices such as awarding toasters to new customers for

opening a checking account. When banks were deregulated, banks

were permitted to cross state boundaries and expand their markets.

Deregulation of banks intensified rivalry and created uncertainty for

banks as they attempted to maintain market share. In the late 1970's,

the strategy of banks shifted from simple marketing tactics to mergers

and geographic expansion as rivals attempted to expand markets.

2. Patents and proprietary knowledge serve to restrict entry into an

industry: Ideas and knowledge that provide competitive advantages

are treated as private property when patented, preventing others from

using the knowledge and thus creating a barrier to entry. Edwin Land

introduced the Polaroid camera in 1947 and held a monopoly in the

instant photography industry. In 1975, Kodak attempted to enter the

instant camera market and sold a comparable camera. Polaroid sued

for patent infringement and won, keeping Kodak out of the instant

camera industry.

3. Asset specificity inhibits entry into an industry: Asset specificity

is the extent to which the firm's assets can be utilized to produce a

different product. When an industry requires highly specialized

technology or plants and equipment, potential entrants are reluctant to commit to acquiring specialized assets that cannot be sold or

converted into other uses if the venture fails. Asset specificity

provides a barrier to entry for two reasons: First, when firms already

hold specialized assets they fiercely resist efforts by others from

taking their market share. New entrants can anticipate aggressive

rivalry. For example, Kodak had much capital invested in its

photographic equipment business and aggressively resisted efforts by

Fuji to intrude in its market. These assets are both large and industry

specific. The second reason is that potential entrants are reluctant to

make investments in highly specialized assets.

4. Organizational (Internal) Economies of Scale: The most cost

efficient level of production is termed Minimum Efficient Scale

(MES). This is the point at which unit costs for production are at

minimum - i.e., the most cost efficient level of production. If MES

for firms in an industry is known, then we can determine the amount

of market share necessary for low cost entry or cost parity with rivals.

For example, in long distance communications roughly 10% of the

market is necessary for MES. If sales for a long distance operator fail

to reach 10% of the market, the firm is not competitive. The existence of such an economy of scale creates a barrier to entry.

The greater the difference between industry MES and entry unit

costs, the greater the barrier to entry. So industries with high MES

deter entry of small, start-up businesses. To operate at less than MES

there must be a consideration that permits the firm to sell at a

premium price - such as product differentiation or local monopoly.

Barriers to exit work similarly to barriers to entry. Exit barriers limit the

ability of a firm to leave the market and can exacerbate rivalry - unable to

leave the industry, a firm must compete. Some of an industry's entry and exit

barriers can be summarized as follows:

Easy to Enter if there is: Difficult to Enter if there is:

 Common technology  Patented or proprietary know-

 Little brand franchise how

 Access to distribution  Difficulty in brand switching

channels  Restricted distribution channels

 Low scale threshold  High scale threshold Easy to Exit if there are: Difficult to Exit if there are:

 Salable assets  Specialized assets

 Low exit costs  High exit costs

 Independent businesses  Interrelated businesses 1.3.6 Dynamic Nature Of Industry Rivalry

Our descriptive and analytic models of industry tend to examine the industry

at a given state. The nature and fascination of business is that it is not static.

While we are prone to generalize, for example, list GM, Ford, and Chrysler

as the "Big 3" and assume their dominance, we also have seen the

automobile industry change. Currently, the entertainment and

communications industries are in flux. Phone companies, computer firms,

and entertainment are merging and forming strategic alliances that re-map

the information terrain. Schumpeter and, more recently, Porter have

attempted to move the understanding of industry competition from a static

economic or industry organization model to an emphasis on the

interdependence of forces as dynamic, or punctuated equilibrium, as Porter

terms it. In Schumpeter's and Porter's view the dynamism of markets is driven by innovation. We can envision these forces at work as we examine the following changes:

1.4 Generic Strategies To Counter The Five Forces

Strategy can be formulated on three levels:

 corporate level

 business unit level

 functional or departmental level.

The business unit level is the primary context of industry rivalry. Michael

Porter identified three generic strategies (cost leadership, differentiation, and focus) that can be implemented at the business unit level to create a competitive advantage. The proper generic strategy will position the firm to leverage its strengths and defend against the adverse effects of the five forces.

1.5 Criticisms of the 5 Force model

Porter's framework has been challenged by other academics and strategists such as Stewart Neill, also the likes of Kevin P. Coyne and Somu Subramanian have stated that three dubious assumptions underlie the five forces:

 That buyers, competitors, and suppliers are unrelated and do not

interact and collude.

 That the source of value is structural advantage (creating barriers to

entry).

 That uncertainty is low, allowing participants in a market to plan for

and respond to competitive behavior.

1.6 Value Chain Model

To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:

Porter's Generic Value Chain

Inbound > Operations > Outbound > Marketing > Service > M A R & Logistics Logistics G Sales I N

Firm Infrastructure HR Management

Technology Development Procurement

The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin.

1.6.1 The primary value chain activities are:

 Inbound Logistics: the receiving and warehousing of raw materials,

and their distribution to manufacturing as they are required.

 Operations: the processes of transforming inputs into finished

products and services.

 Outbound Logistics: the warehousing and distribution of finished

goods.

 Marketing & Sales: the identification of customer needs and the

generation of sales.

 Service: the support of customers after the products and services are

sold to them. These primary activities are supported by:

 The infrastructure of the firm: organizational structure, control

systems, company culture, etc.

 Human resource management: employee recruiting, hiring, training,

development, and compensation.

 Technology development: technologies to support value-creating

activities.

 Procurement: purchasing inputs such as materials, supplies, and

equipment.

The firm's margin or profit then depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value.

A competitive advantage may be achieved by reconfiguring the value chain to provide lower cost or better differentiation.

The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows:  Cost advantage: by better understanding costs and squeezing them

out of the value-adding activities.

 Differentiation: by focusing on those activities associated with core

competencies and capabilities in order to perform them better than do

competitors.

Cost Advantage and the Value Chain

A firm may create a cost advantage either by reducing the cost of individual value chain activities or by reconfiguring the value chain.

Once the value chain is defined, a cost analysis can be performed by assigning costs to the value chain activities. The costs obtained from the accounting report may need to be modified in order to allocate them properly to the value creating activities.

Porter identified 10 cost drivers related to value chain activities:

 Economies of scale

 Learning

 Capacity utilization

 Linkages among activities  Interrelationships among business units

 Degree of vertical integration

 Timing of market entry

 Firm's policy of cost or differentiation

 Geographic location

 Institutional factors (regulation, union activity, taxes, etc.)

A firm develops a cost advantage by controlling these drivers better than do the competitors.

A cost advantage also can be pursued by reconfiguring the value chain.

Reconfiguration means structural changes such a new production process, new distribution channels, or a different sales approach. For example, FedEx structurally redefined express freight service by acquiring its own planes and implementing a hub and spoke system.

1.7 Differentiation and the Value Chain

A differentiation advantage can arise from any part of the value chain. For example, procurement of inputs that are unique and not widely available to competitors can create differentiation, as can distribution channels that offer high service levels. Differentiation stems from uniqueness. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or by reconfiguring the value chain.

Porter identified several drivers of uniqueness:

 Policies and decisions

 Linkages among activities

 Timing

 Location

 Interrelationships

 Learning

 Integration

 Scale (e.g. better service as a result of large scale)

 Institutional factors

Many of these also serve as cost drivers. Differentiation often results in greater costs, resulting in tradeoffs between cost and differentiation.

There are several ways in which a firm can reconfigure its value chain in order to create uniqueness. It can forward integrate in order to perform functions that once were performed by its customers. It can backward integrate in order to have more control over its inputs. It may implement new process technologies or utilize new distribution channels. Ultimately, the firm may need to be creative in order to develop a novel value chain configuration that increases product differentiation.

1.8 Technology and the Value Chain

Because technology is employed to some degree in every value creating activity, changes in technology can impact competitive advantage by incrementally changing the activities themselves or by making possible new configurations of the value chain.

Various technologies are used in both primary value activities and support activities:

 Inbound Logistics Technologies

o Transportation

o Material handling

o Material storage

o Communications o Testing

o Information systems

 Operations Technologies

o Process

o Materials

o Machine tools

o Material handling

o Packaging

o Maintenance

o Testing

o Building design & operation

 Outbound Logistics Technologies

o Transportation

o Material handling

o Packaging

o Communications

o Information systems  Marketing & Sales Technologies

o Media

o Audio/video

o Communications

 Service Technologies

o Testing

o Communications

Note that many of these technologies are used across the value chain. For example, information systems are seen in every activity. Similar technologies are used in support activities. In addition, technologies related to training, computer-aided design, and software development frequently are employed in support activities.

To the extent that these technologies affect cost drivers or uniqueness, they can lead to a competitive advantage. 1.9 Linkages Between Value Chain Activities

Value chain activities are not isolated from one another. Rather, one value chain activity often affects the cost or performance of other ones. Linkages may exist between primary activities and also between primary and support activities.

Consider the case in which the design of a product is changed in order to reduce manufacturing costs. Suppose that inadvertently the new product design results in increased service costs; the cost reduction could be less than anticipated and even worse, there could be a net cost increase.

Sometimes however, the firm may be able to reduce cost in one activity and consequently enjoy a cost reduction in another, such as when a design change simultaneously reduces manufacturing costs and improves reliability so that the service costs also are reduced. Through such improvements the firm has the potential to develop a competitive advantage.

Analyzing Business Unit Interrelationships

Interrelationships among business units form the basis for a horizontal strategy. Such business unit interrelationships can be identified by a value chain analysis. Tangible interrelationships offer direct opportunities to create a synergy among business units. For example, if multiple business units require a particular raw material, the procurement of that material can be shared among the business units. This sharing of the procurement activity can result in cost reduction. Such interrelationships may exist simultaneously in multiple value chain activities.

Unfortunately, attempts to achieve synergy from the interrelationships among different business units often fall short of expectations due to unanticipated drawbacks. The cost of coordination, the cost of reduced flexibility, and organizational practicalities should be analyzed when devising a strategy to reap the benefits of the synergies.

Outsourcing Value Chain Activities

A firm may specialize in one or more value chain activities and outsource the rest. The extent to which a firm performs upstream and downstream activities is described by its degree of vertical integration.

A thorough value chain analysis can illuminate the business system to facilitate outsourcing decisions. To decide which activities to outsource, managers must understand the firm's strengths and weaknesses in each activity, both in terms of cost and ability to differentiate. Managers may consider the following when selecting activities to outsource:

 Whether the activity can be performed cheaper or better by suppliers.

 Whether the activity is one of the firm's core competencies from

which stems a cost advantage or product differentiation.

 The risk of performing the activity in-house. If the activity relies on

fast-changing technology or the product is sold in a rapidly-changing

market, it may be advantageous to outsource the activity in order to

maintain flexibility and avoid the risk of investing in specialized

assets.

 Whether the outsourcing of an activity can result in business process

improvements such as reduced lead time, higher flexibility, reduced

inventory, etc.

1.10The Value Chain System

A firm's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. Porter calls this series of value chains the value system, shown conceptually below: The Value System

Supplier Firm Channel Buyer ... > > > > Value Chain Value Chain Value Chain Value Chain

Linkages exist not only in a firm's value chain, but also between value chains. While a firm exhibiting a high degree of vertical integration is poised to better coordinate upstream and downstream activities, a firm having a lesser degree of vertical integration nonetheless can forge agreements with suppliers and channel partners to achieve better coordination. For example, an auto manufacturer may have its suppliers set up facilities in close proximity in order to minimize transport costs and reduce parts inventories.

Clearly, a firm's success in developing and sustaining a competitive advantage depends not only on its own value chain, but on its ability to manage the value system of which it is a part.

1.11Implication Of FFM And VCM

Both the models facilitate the organization to analyze its internal and external business environment and fill the gaps identified to frame the appropriate strategy. Gap analysis is a very useful tool for helping marketing managers to decide upon marketing strategies and tactics. Again, the simple tools are the most effective. The two models helps a manager to know - where are we now? and where do we want to be? The difference between the two is the GAP - this is how you are going to get there. Take a look at the diagram below. The lower line is where you'll be if you do nothing. The upper line is where you want to be.

What is Gap Analysis?

The next step is to close the gap. Firstly decide whether you view from a strategic or an operational/tactical perspective. If you are writing strategy, you will go on to write tactics - see the lesson on marketing plans. The diagram below uses Ansoff's matrix to bridge the gap using strategies:

Strategic Gap Analysis.

We can close the gap by using tactical approaches. The marketing mix is ideal for this. So effectively, you modify the mix so that you get to where you want to be. That is to say you change price or promotion to move from where you are today (or in fact any or all of the elements of the marketing mix). This we have discussed in our earlier modules. Tactical Gap Analysis.

This is how you close the gap by deciding upon strategies and tactics.

1.12Summary

In this unit we have made an attempt to highlight the importance of Porter’s model in faming the strategic marketing plan. We have dealt with five force model which competitive rivalry, threat of new entrant, threat of substitutes, buyer power of customer, bargaining power of supplier and strategy one can adopt to counter the five forces. The value chain model of Porter’s to provide value added services and exceed the customer expectation. At the end we have also discussed the implication of Porter’s Model and how does it helps to fill the Gap called

Gap Analysis.

1.13Keywords

Rivalry Threat Of Substitutes

Slow market growth High fixed costs

High storage costs Low switching costs

High exit barriers diversity of rivals

Industry Shakeout Buyer Power

Gap Analysis Strategic Gap

Tactical Gap value chain

Supplier Power

1.14Exercise

1. Explain the importance of

a. Five Force Model

b. Value Chain Model

2. Explain in details the five forces that influence the market strategy 3. Explain the value chain model and how does it helps to meet the

customer expectation and exceed the customer expectation?

4. What are the implication of FFM and VCM?

5. What is Gap Analysis?

6. How the Porter’s Model helps to fill the Gap?

7. What can create entry barriers? Differentiate entry barriers and

substitute threats. Unit 2

Market Segmentation

Structure:

2.1 Objectives

2.2 Introduction

2.3 Concept of Market Segmentation

2.4 Benefits of Market Segmentation

2.5 Requisites of Effective Segmentation

2.6 Philosophies of Market Segmentation

2.7 Bases for Segmenting Consumer Markets

2.8 Market Segment Selection

2.8.1 Single Segment concentration

2.8.2 Selective Segment Specialisation

2.8.3 Market Specialisation

2.8.4 Product Specialisation 2.8.5 Full Coverage

2.9 Market Segmentation Strategies

2.9.1 Undifferentiated Marketing

2.9.2 Differentiated Marketing

2.9.3 Concentrated Marketing

2.9.4 Market Coverage Strategy

2.10 Market Positioning

2.11 Summary

2.12 Keywords

2.13 Exercises

2.1 Objectives

 Explain the concepts of market segmentation.

 Mention the requisites of effective segmentation.

 Explain the benefits of market segmentation.  Describe the market segmentation strategies and positioning.

2.2 Introduction

Market segmentation is the starting step in applying the marketing strategy.

It helps the marketer to fully understand the needs, behaviour and expectations of the consumers of different segments so that precise and clear decisions can be taken. It also helps to discover the habits, tastes, preferences and nature of consumers of different markets in order to harness marketing opportunities. On the basis of segmentation, the manufacturer can prepare and follow different marketing programmes for different segments to ensure effectiveness. This unit deals with the philosophies of market segmentation and various segmentation strategies in detail.

2.3 Concept of Market Segmentation

Market Segmentation is the process of dividing a potential market into distinct sub-markets of consumers with common needs and characteristics.

Once segmentation takes place, the marketer targets the identified customer groups with proper marketing mix so as to position the product/brand/company as perceived by the target segments. Market segments are large identifiable groups like customers interested in printers – Dot-Matrix, Dot-Matrix with LQ, Ink jets, Desk jets and Laser jets.

It is possible that a market creates a niche. Niche is a narrowly defined group of customers that have a distinct and complex set of needs. Foe example, in a cycle industry, there might be segments like cycles designed for regular users, kids, girls and for the purpose of sports, adventure, racing etc. Niche is created when cycle is required for physique clubs, physically handicapped with left and right hand working etc. In the niches, there are few or no competitors and the product might command a premium price.

2.4 Benefits of Market Segmentation

Market segmentation reflects reality in marketing situation. There may be different demand curves in different market segments. There may be certain customer needs which are not met. This analysis can yield profits and prospects for growth. Segmentation ensures higher customer satisfaction and improves effectiveness of the marketing programme. It offers the following specific benefits:

1) Understanding the needs of Consumers: It helps the marketer to fully

understand the needs, behaviour and expectations of the consumers of

different segments so that precise and clear decisions can be taken. 2) Better Position to spot marketing opportunities: It helps the marketer

in knowing the habits, tastes, nature etc. of consumers of different

markets to harness marketing opportunities.

3) Allocation of marketing budget: On the basis of segmentation, the

marketing budget is allocated for a particular region or locality. In

regions where the sales opportunities are limited, a huge budget is of no

use and so, budget allocation will be limited and vice versa.

4) Meeting the competition effectively: It helps the producer to face the

competition of his rivals effectively by making a deep study of the

products, policies and strategies of competitors in all the segments,

which helps in adopting different policies, programmes and strategies for

different markets based on rivals strategies, policies and programmes.

5) Effective marketing programmes: On the basis of segmentation, the

manufacturer can prepare and follow different marketing programmes for

different segments to ensure effectiveness.

6) Choosing of advertising media: Segmentation helps in choosing

different media, message and timings for different segments based on the

characteristics of the segments.

7) Increasing sales volume: Segmentation helps the producer to know the

demand pattern of each segment and satisfy it by preparing desired products. This leads to an increase in overall sales volume of the product.

8) Benefits to the customers: It benefits the customers as producer

produces and supplies goods which serve customers’ interest and satisfy

their needs and wants.

9) Better utilisation of marketing resources: More resources can be

allocated to segments in which there are more possibilities of selling the

products and fewer resources may be allocated to the segments in which

there are fewer possibilities.

10) Specialised marketing: Marketing can be more specialised when there

is segmentation as the elements of marketing mix are specially designed

to suit the characteristics of particular segments.

11) Minimises aggregation risk: By dividing the market and designing

specific marketing mix to each segment, segmentation reduces the risk of

aggregation i.e. the risk of not being able to satisfy customer needs with

one marketing mix to all segments.

12) Provides opportunities to expand market: By segmenting the market,

a marketer is able to create new markets for their products.

13) Encourages innovations: Marketers get benefits in focussing the

relevant segment more closely and look for changes in the market

requirements. 2.5 Requisites of Effective Segmentation

To be useful, segmentation of market must exhibit some characteristics that are as follows:

1. Measurable and Obtainable: The size, profile and other relevant

characteristics of the segment must be measurable and obtainable in

terms of data. If the information is not obtainable, no segmentation can

be carried out. For example, customers can be segmented on the basis of

their life styles. Though the information is measurable through AIOD

framework, it might not be obtainable because of time limits or

budgetary constraints.

2. Substantial: The segment should be large enough to be profitable. For

consumer markets, the small segment might disproportionably increase

the cost and hence products might be priced too high. This might make

the segment non-profitable. However, for business markets even a single

customer might mean big business. For example, house construction

takes several months. But due to advancement of Information

Technology, CAD and CAM have made it possible to take on even

smaller segments from consumer markets.

3. Accessible: The segment should be accessible through existing network

of people at a cost that is affordable. For example, targeting rural population could be through Television, Radio, and by opening outlets

locally. It might not be easy to access hilly terrains for actual distribution

of products.

4. Differentiable: The basis of segmentation should be such that it leads to

different segments. For example, if young and old people would not

behave in almost the same way when tempted to eat chips, Ruffle’s Lays

would not have tried the two targets as one by combining the segments.

5. Actionable: The segments which a company wishes to pursue must be

actionable in the sense that there should be sufficient finance, personnel,

and capability to take them all. Hence, depending upon the reach of the

company, the segments should be selected.

6. General Considerations: Apart from the above requisites, the segment

must have growth potential, be profitable, carry no unusual risk, and has

competitors who do not fight directly with the product or brand.

2.6 Philosophies of Market Segmentation

The marketers adopt several approaches to segmenting a market. Fig.2.1. gives an overview of the approaches:

Personalised Marketing Mass Target Customised Marketing Marketing Marketing Product-Variety Marketing Micro Marketing

Fig. 2.1 The Two Extremes of Segmentation

Based on their capacity (through SWOT Analysis) to compete in the market where the company can sell its product, segmentation points out the potential strengths and opportunities for better understanding of the marketers. Rather than fight against all the competitors, a company might decide to fight a few or avoid confrontation by creating niches. Everything depends upon the philosophies of the marketers.

Table 2.1: Approaches to Marketing

1. Mass Marketing

2. Product-Variety Marketing

3. Target Marketing

4. Micro Marketing

5. Customised Marketing

6. Personalised Marketing.

1. Mass Marketing: Before the onset of the marketing age, there was

wide-spread adoption of mass marketing, mass production, distribution and promotion. That is, offering the same product and applying the same

marketing-mix to all consumers assuming that there is no significant

difference amongst consumers in terms of their needs and wants. The

marketers felt that the consumer differences in education, income,

experience, life-style, etc. did not call for different treatment of

consumers by offering them standardised product without suitable

modifications. The Coca-Cola Company follows this approach. It designs

its marketing program to appeal to all buyers. The Company feels that no

segmentation is necessary. This is undifferentiated marketing strategy.

But if a toothpaste of standard size is offered to a student (living in a

hostel), a nuclear family (having three-to-four persons) and a joint family

(having more than 4 persons), the offered toothpaste might last many

months for a student, some months for a nuclear family, and about a

month for a joint family. There seems to be a need to demassify the

marketing efforts. This type of marketing is well-suited for fruits,

vegetables, Over-The-Counter (OTC) drugs, chocolates, bakery items,

stationery items etc.

2. Product-Variety Marketing: Once it is learnt that consumers would not

accept standard products, the marketer might try to provide different

sizes, colours, shapes, features and qualities to attract them. The product variety approach satisfies a customer more than standardized model

products. For example, when Maruti 800 was introduced into Indian

roads, it was a variety product (variety compared to Premier Padmini)

because it used two versions Standard and Deluxe with different colours.

This type of philosophy might satisfy a customer for the moment, soon

the customer discovers that the offered product does not fit into different

needs- for sports, family, commercial purposes, long travel and for drive

in hilly areas. The product-variety approach does not call for proper

segmentation of the market. This is carried by the target marketing.

3. Target Marketing: The modern marketing concept starts with the

definition of target markets. The target marketing has its roots in the

marketing age. Target marketing helps the marketer to correctly identify

the markets – the group of customers for whom the product is designed.

Here two alternative approaches can be followed despite the fact that

different customers have different needs: One, to treat the target market

as a single unit – one aggregate market and draft one marketing-mix for

them. This approach is known as the ‘shotgun’ approach. Today, the

shotgun approach works only if different products satisfying different

needs, so far, are combined into one product. Two, the total market is

viewed as consisting of small segments and the consumer differences necessitate different marketing-mixes for each of them. Based on the

capabilities of a company, the selection of the segments takes place. This

is known as the ‘rifle’ approach – separate marketing programs with

specific targets.

Thus, there might be no market segmentation or complete-market

segmentation depending upon whether short gun approach or rifle approach

is followed.

(See Fig. 2.2)

5 a5 b5 c5 d5 e5 f5 ………………………… a b c d e f 4 4 4 4 4 4 4 ………………………… Product a b c d e f ………………………… 3 3 3 3 3 3 Qualities 3 ………………………… a2 b2 c2 d2 e2 f2 ………………………… 2 a1 b1 c1 d1 e1 f1

(a) a Need Variety f 1 No Market Segmentation Complete Market

Segmentation

(b) Fig 2.2: Segmentation or No Segmentation

When there is segmentation, different product qualities are available each

satisfying different segment a1 or c3 or f5. The sizes of the potential targets

might be different. For example, in the small car segment, Maruti 800 is being focused as a ‘family car’, while Fiat Uno is presented as ‘a compact and complete car’.

An example of Soft Drinks Market suggests wide variations in the segments:

For Health (Limca, Cola Lite), Youthfulness (Campa Orange, Crush, Thums- up, Pepsi, 7-Up), Refreshness (Coke, Mirinda), Fashionable (Gold Spot,

Campa Cola), Exclusivity (Thums-up, Sprint, Canada Dry). Thirst-Quencher

(Citra, Limca, Teem). The target marketing is being changed to micro- marketing.

4. Micro-Marketing: Micro-marketing occurs when target market is

further bifurcated and the needs of the small customer groups are

addressed on a local basis. Thus, even though target customer has been

identified in the target marketing some specific modern styles/features

products are made available at select places on a local basis. For

example, Liberty shoes are available in Delhi Metropolitan Area in

different variety depending upon the type of customer, status, and

economic background. The range, style, colour, and design which are

available in Connaught Place showroom or South Extension showroom

are hardly available in Tilak Nagar or Shahdara areas. Similar is the case

with Shyam Garments, Snow White and Haldiram. 5. Customized Marketing: The focus of the target marketing is further

shifting from local basis to individual customer basis. With the

advancement in manufacturing because of breakthrough in information

technology, for example, use of computer-aided design and computer

aided manufacturing, it has now become possible to manufacture a

product as per the individual customer needs or of a buying organization.

Tailors and drapers (for men), boutiques (for females and child), and

beauty parlours all customize products. The Aircraft Industry, the

Building Construction Industry, the Software Industry, the Book

Publishing Industry, and the administration of departments in Delhi

University mostly use customized marketing by promising customer-

specific products. Even specialized institutions have been opened up.

ICSI (Company Secretaries). ICWAI (Cost, Accountants), ICAI

(Auditing and Accounting), ICFAI (Financial Accountants), etc. have

taken a serious look at the marketing of their products on the basis of

customer-specific requirements.

6. Personalized Marketing: Mass production, mass production with

product varieties, and target marketing for segments, which are further

divided into customers on a local basis or on individual customer needs,

the focus of the company is shifting more minutely. In case of customized marketing even if the requirements for a customer are met by

a custom-made product, the customer might not be willing to retain his

loyalty with the company because of competition. For example, one gets

shirts made from a tailor as per personal fitting. Still, tailors find their

customers shifting their loyalty to others. This is because one is taken as

a customer not as a person-customer. This requires philosophy of one-

size-fits-one.

Heil, Parker and Stepens provide ten rules for building relationships

with customers:

i) The average customer does not exist.

ii) Make customer’s experience special. Give customer something to

talk about.

iii) If something goes wrong, fix it quickly.

iv) Guarantee customer satisfaction.

v) Trust customer and customer will trust the company.

vi) Customer’s time is as important as company’s.

vii) Don’t take customer for granted. viii) The details are important to customer, as they should be to the

company.

ix) Employ people who are ready and willing to serve customer. x) Customer cares to find out whether company is a responsible

corporate citizen.

The customized marketing is likely to be assigned to computers in the years to come. It is personalized marketing which would find its way in the corporate marketing philosophy. Thus, the position can be summarized as follows (See Fig.2 3).

Mass Target Micro Customized Marketing Product-Variety Personalized Marketing Marketing Marketing Marketing Marketing

Total Makret Mass Marketing Total Market Serve one

Serve individual Serve the

As one segment with product different segment on

customer needs person-

Varieties segments local basis customer

2.7 Bases for Segmenting Consumer Markets The following figure shows the bases used for segmenting consumer markets. Bases for segmenting consumer markets

Consumer characteristics Consumer response

Geographic Demographic Psychographic Occasions Benefits Loyal Status Buyer readiness User status usage rate Attitude stage

Two broad groups of variables are used to segment consumer markets. They are consumer characteristics and consumer response or behaviour.

Under consumer characteristics there are three main bases for segmentation.

They are:

1) Geographic: This calls for dividing the market into different

geographical units such as nations, states, regions, countries, cities or

neighborhoods. The company can operate in one or a few Geographic

areas or operate in all but pay attention to local variations.

2) Demographic Segmentation: In demographic segmentation the market

is divided into groups on the basis of variable such as age, family size,

family life-cycle, gender, income, occupation, education, religion, race,

generation, nationality and social class. Demographic variables are the most popular bases for distinguishing customer groups. One reason is that consumers’ wants, preferences and usage rates are often associated with demographic variables. Another is that demographic variables are easier to measure. Even when the target market is described in non- demographic terms, the link back to demographic characteristics is needed in order to estimate the size of the target market and the media that should be used to reach it efficiently. Some of the demographic variables used are : a) Age and Life-Cycle Stage: Consumers’ wants and abilities change

with age. On the basis of age, a market can be divided into four parts

viz., children, young, adults and old. For consumers of different age

groups, different types of products are produced. For instance,

different types of ready-made garments are produced for consumers

of different age groups. A successful marketing manager should

understand the age group for which the product would be most suited

and determine his marketing policy, pricing policy, advertising policy

etc., accordingly. b) Gender: Gender segmentation has long been applied in clothing,

hair-styling, cosmetics and magazines. Occasionally, other marketers

notice an opportunity for gender segmentation. c) Income: Income segmentation is a long-standing practice in such

product and service categories as automobiles, clothing, cosmetics

and travel. However, income does not always predict the best

customers for a given product.

d) Generation: Many researchers are now turning to generation

segmentation. Each generation is profoundly influenced by the times

in which it grows up – the music, movies, politics and events of that

period.

e) Social Class: It has a strong influence on preference in cars, clothing,

home furnishings, leisure activities, reading habits etc. Many

companies design products and services for specific social classes.

3) Psychographic Segmentation: In Psychographic segmentation, buyers

are classified into different groups on the basis of life-style or personality

and values. People within the same demographic group can exhibit very

different psychographic profiles.

a) Life-style: People exhibit different life-styles and goods they

consume express their life-styles. Many companies seek opportunities

in life-style segmentation. But life-style segmentation does not

always work. b) Personality: Marketers have used personality variables to segment

markets. They endow their products with brand personality that

corresponds to consumer personalities.

c) Values: Some marketers segment by core values, i.e. belief systems

that underlie consumer attitudes and behaviour. Core values go much

deeper than behaviour or attitude and determine, at a basic level,

people’s choices and desires over the long term. Marketers who

segment by values believe that by appealing to people’s inner selves,

it is possible to influence their outer-selves-their purchase behaviour.

Behavioural Segmentation or Consumer Response Segmentation:

In behavioural segmentation, buyers are divided into groups on the basis of their knowledge or attitude towards the use of, or response to a product.

Some marketers believe that behavioural variables are the best starting points for constructing market segments. a) Occasions: According to the occasions, buyers develop a need, purchase

a product or use a product. It can help firms expand product usage. A

company can consider critical life events to see whether they are

accompanied by certain needs. b) Benefits: Buyers can be classified according to the benefits they seek. c) User Status: Markets can be segmented into non-users, potential users,

first time users and regular users of a product. Each market segment

requires a different marketing strategy. The company’s market position

will also influence its focus. Market-share leaders will focus on attracting

potential users, whereas smaller firms will try to attract current users

away from the market leader. d) Usage Rate: Markets can be segmented into light, medium and heavy

product users. Heavy users are often a small percentage of the market but

account for a high percentage of total consumption. Marketers prefer to

attract one heavy user rather than several light users and they vary their

promotional efforts accordingly. e) Loyal Status: Consumers have varying degrees of loyalty to specific

brands, stores and other entities. Buyers can be divided into four groups

according to brand loyalty status.

a) Hard-core Loyals: Consumers who buy one brand all the time.

b) Split Loyals: Consumers who are loyal to two or three brands.

c) Shifting Loyals: Consumers who shift from one brand to another.

d) Switchers: Consumers who show no loyalty to any brand.

Each market consists of different number of the four types of buyers.

Companies selling in a Brand Loyal market have a hard time, gaining more market share, while the companies that enter such a market have a hard time getting in.

A company can identify its product’s strengths by studying its Hard-core

Loyals. By studying its Split Loyals, the company can pinpoint which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and attempt to correct them.

(f) Buyer-Readiness Stage: A market consists of people in different stages

of readiness to buy a product. Some are unaware of the product, some are

aware, some are informed, some are interested, some desire the product

and some intend to buy. The relative number makes a big difference in

designing a marketing program.

(g) Attitude: Five attitude groups can be found in a market. They are

enthusiastic, positive, indifferent, negative and hostile.

2.8 Market Segment Selection

Once a marketer has evaluated the different segments for their size, growth, and attractiveness and found that they are compatible with the company’s objectives and resources, the obvious step is to go far selecting the market segments. Kotler has suggested five patterns of target market selection as shown in Fig. 2.4

Market Market Market Market Market t c t u t c d c u o t t u r d c c d P o u u

o P r P P

r 1 P d 1 d 1

P 1 o P o r r P P P P P P 2 M1 M2 M3 M1 M2 M3 2 M1 M2 M2 3 M1 M2 2 M3 M1

P P P 3 3 P 3 M2 M3 3

Single Segment Selective Market Product Full

Concentration Specialization Specialization Specialization Coverage

Fig. 2.4: Market Segment Selection

2.8.1. Single Segment Concentration: The marketer prefers to go for

single segment like Pioneer Publications and Allahabad Law Agency for

law books and BPB publications for Computer books. The company can

have strong market position, greater knowledge about segment-specific-

needs, specified reputation and probable leadership position. The

concentrated marketing strategy normally provides higher returns and

therefore it is possible that competitors might be attracted to find their

place in segment. For example, Reebok concentrated itself in the sport

shoes market at the premium and in October 1995, there were Nike, Poum and Adidas in that segment. Within 15 months of its operations,

Reebok had to go for price-cuts of up to 50%. In January 1997, it

officially and permanently slashed prices of footwear by 25-30%. Thus,

concentrated marketing could not help Reebok to gain the market

because of intense competition in the miniscule segment of Rs. 550

crores out of total sports segment of Rs. 1,200 crores branded shoe

market.

2.8.2. Selective Segment Specialisation: This is known as multistage

coverage because different segments are sought to be captured by the

company. For example, Bata shoes were mostly in the popular segment

until beginning of 1990s. Then, it turned itself into premium segment

while still retaining the appeal of popular segment. The taking of select

segments of shoe market could not help Bata to gain full control of

market. After 1995, it has come back again to the popular segment.

2.8.3. Market Specialisation: Here the company takes up a particular

market segment for supplying all relevant products to the target group. For

example, Dhanpat Rai and Co. publishes and sells books covering all

types of customer needs – competition books and text books for schools,

colleges and universities. 2.8.4. Product Specialisation: Product specialisation occurs when a

company sells certain products to several potential customers wherever

they are located. Thus, Super Precision Components supply small nuts and

screws for use in military, industry and daily use. Bajaj Auto has almost

product specialisation in two-wheeler market – Mopeds, Scooterettes,

Scooters, and Motor Cycles. Product specialisation promises strong

recognition of customer within the product areas.

2.8.5. Full Coverage: It is very difficult to serve all segments of the

market. Big companies can go for full market coverage. For example,

Castrol for lubricants, and Coca-Cola for soft drink market follow full

market coverage approach to their product-market matrix. However, Coca-

Cola follows undifferentiated marketing strategy while Castrol follows

differentiated marketing strategy.

2.9 Market Segmentation Strategies

Depending upon the emerging patterns of market segmentation, homogeneous preference (showing no natural segments) as in case of soft drinks sale by Pepsi and Coca-Cola), diffused preference (showing clear preferences as in case of automobile market), and clustered preference

(market showing natural segments as in case of occupation having impact on the types of clothes worn), a company chooses its market segmentation strategy.

2.9.1. Undifferentiated Marketing: It is a market coverage strategy in

which the company treats the target market as one and does not consider

that there are market segments that exhibit uncommon needs. The

company focuses on the centre of the target market to get maximum

advantage. The feature of ‘one product-all segments’ calls for presenting

one marketing-mix for the target market. For example, the Coca-Cola

Company sells Coke, Limca, Thums-up etc., and does not distinguish the

target audience.

2.9.2. Differentiated Marketing: It is a market coverage strategy in

which the company goes for proper market segmentation as depicted by

its analysis of the total market. The company, therefore, goes for several

products or several segment approach which calls for preparing different

marketing mixes for each of the market segment. This strategy is

followed by Hindustan Lever Limited which sells different soaps (Life

Buoy, Lux, Rexona, Liril, Pears etc.) and each of them has its own

market. Thus, the company creates segments in the soap market and not

in toiletries market (including soaps, detergents, toothpaste, etc.) 2.9.3. Concentrated Marketing: It is a market coverage strategy in

which company follows ‘one product-one segment’ principle. The

company tries to position its product in the middle of the segment to

attract maximum clientele. For example, Ashok Leyland produces large

chassis of machine which can be used for buses and trucks. The

manufacturer gets maximum knowledge about the segment’s needs and

therefore acquires special reputation. This strategy can also help the

small company to stand against a large corporation because the small

company can create niches in its one-product one-segment approach by

providing maximum varieties.

2.9.4. Choosing a Market Coverage Strategy: An overview of the three

market coverage strategies will help to choose one for a particular

company. Table 2 provides a snap-shot view.

Table 2. 2: Comparison of Market Coverage Strategies

Focus Undifferentiated Differentiating Concentrated

Marketing Marketing Marketing

Product One/Few Many One/Few

Segment All Many One/Few

Marketing-Mix One Many One/Few Given the comparison of different coverage strategies, it is easy to locate the relevant strategies as shown in Table 2.3

Table 2.3: Choosing a Market Coverage Strategy

Undifferentiated Differentiating Concentrated

Marketing Marketing Marketing

Constrained More suitable Least suitable Most suitable

Firm Resources

Common usage Most suitable More suitable Least suitable

Products

Different need Least suitable Most suitable More suitable

Satisfying products

Given the above table, the firm’s resources and the product’s requirement in its present form (by all or few) would decide the choice of a particular market- coverage strategy. Finally, the competitor’s adaptation of a particular strategy should be considered for deciding company’s own strategy. For example, Coca-Cola starts segmenting soft drinks market and targets family, Pepsi cannot ignore it because it would be suicidal for them

(segmentation would provide differentiation of products more easily).

2.10 Market Positioning Each firm needs to develop a distinctive positioning for its market offering.

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target market’s mind. The end result of positioning is the successful creation of a market-focused value proposition, a cogent reason why the target market should buy the product.

Each company must decide how many differences to promote to its target customers. Many marketers advocate promoting only one central benefit and

Rosser Reeves called it as “a unique selling proposition”. Number one positioning includes “best quality”, “best service”, “Lowest price”, “best value”, “safest”, “more advanced technology” etc. If a company hammers away at one of these positioning and delivers on it, it will probably be best known and recalled for this strengths.

Not everyone agrees that single-benefit positioning is always best. Double- benefit positioning may be necessary if two or more firms claim to be best on the same attribute. There are even cases of successful triple-benefit positioning.

As the companies increase the number of claims for their brand, they risk disbelief and a loss of clear positioning. In general, a company must avoid four major positioning errors. 1) Under positioning: Some companies discover that buyers have only a

vague idea of the brand. The brand is seen as just another entry in a

crowded marketplace.

2) Over-positioning: Buyers may have too narrow image of the brand.

3) Confused Positioning: Buyers might have a confused image of the

brand resulting from the company’s making too many claims or changing

the brand’s positioning too frequently.

4) Doubtful Positioning: Buyers may find it hard to believe the brand

claims in view of the product’s features, price or manufacturer.

Solving the positioning problem enables the company to solve the marketing-mix problem. Thus seizing the “high-quality position” requires the firm to produce high quality products, charge a high price, distribute through high-class dealers and advertise in high-quality magazines.

The different positioning strategies that are available are:

1) Attribute Positioning: A company positions itself on an attribute such

as size or number of years in existence.

2) Benefit Positioning: The product is positioned as the leader in a certain

benefit. 3) Use or Application Positioning: Positioning the product as best for

some use and application.

4) User Positioning: Positioning the product as best for some user group.

5) Competitor Positioning: The product claims to be better in some way

than a named competitor.

6) Product Category Positioning: The product is positioned as the leader

in a certain product category.

7) Quality or Price Positioning: The product is positioned as offering the

best value.

2.11 Summary

 Market Segmentation is the process of dividing a potential market into

distinct sub-markets of consumers with common needs and

characteristics.

 The size, profile and other relevant characteristics of the segment must

be measurable and obtainable in terms of data.

 Before the onset of the marketing age, there was wide-spread adoption of mass marketing, mass production, distribution and promotion.

 Target marketing helps the marketer to correctly identify the markets –

the group of customers for whom the product is designed.

 Micro-marketing occurs when target market is further bifurcated and

the needs of the small customer groups are addressed on a local basis.

 Buyers can be classified into four groups based on brand loyalty status:

a) ‘Hard-core Loyals’ are those consumers who buy one brand all the

b) ‘ Split Loyals’ are those consumers who are loyal to two or three

brands.

c) ‘Shifting Loyals’ are those consumers who shift from one brand to

another.

d) ‘Switchers’ are those consumers who show no loyalty to any brand.

 Positioning is the act of designing the company’s offering and image to

occupy a distinctive place in the target market’s mind.

2.12 Keywords

Market Segmentation Mass Marketing

Product-Variety Marketing Target Marketing Micro-Marketing Customized Marketing

Personalized Marketing Geographic

Demographic Segmentation Age and Life-Cycle Stage

Psychographic Segmentation Behavioral Segmentation

Selective Segment Specialization Market Specialization

Product Specialization Full Coverage

Market Segmentation Strategies Undifferentiated Marketing

Differentiated Marketing Concentrated Marketing

Market Coverage Strategy Market Positioning

Over-positioning Under positioning

Doubtful Positioning Confused Positioning

2.13 Exercises

1) What do you mean by segmentation? What are its benefits?

2) Discuss the various bases for segmenting consumer markets.

3) Write briefly about the following:

a) Market Positioning

b) Market segmentation strategies

c) Requisites for segmentation

4) On What base, the consumer market can be segmented? 5) Explain the philosophy of ‘one size fits one’.

6) Explain behavioral segmentation or consumer response segmentation.

7) How you will choose the market coverage strategy?

Force Management

Unit 3

Sales Force Management

Structure:

3.1 Objectives

3.2 Introduction 3.3 Need for Good Salesmen

3.4 Sales Force Decision

3.5 Sales Force Size

3.6 Recruitment and Selection

3.7 Selection Process

3.8 Training

3.9 Advantages of Training to Salesman

3.10 Training Programme

3.11 Training Methods

3.11.1 Group Training

3.11.2 Individual Training

3.12 Summary

3.13 Keywords

3.14 Exercises

3.1. Objectives

After studying this unit you will be able to:  Justify the need for efficient salesmen.

 Mention various kinds of tests commonly used in the selection of

salesmen.

 Enumerate the advantages of arranging training facilities for salesmen.

 State the types of training required for the salesmen of a company.

 Explain the procedure involved in the recruitment and selection of

salesmen.

 Explain different methods of training.

3.2. Introduction

The word ‘salesmen’ applies to all persons who are engaged in the field of selling. Formerly, the job of salesman was confined only to selling of products. But today, the scope of his functions has been widened.

Development, profitability and prosperity of a company greatly depend upon the salesmen’s function. A successful salesman can satisfy both the customers and sales management. It is often said, “A good salesman is born, but not made.” It may be true to a certain extent. There are some qualities which are inherent. However, one might become a good salesman through training and experience. This unit deals with recruitment, selection and training of salesmen who play a key in marketing.

3.3. Need for Good Salesmen

Personal selling effort is important in pushing the product manufactured.

There are many ways, by which the goods can be pushed into the hands of consumers-personal selling, advertising, sales promotions, promotional tools etc. Of these, personal selling has many advantages in reaching the desired goal. Personal selling is regarded as a key-man. It is an active striking power. In the modern corporate world, a salesman has to carry out the following duties:

1. He must acquire the knowledge of the basic needs to be satisfied

through products or services.

2. Prospecting i.e., searching for customers.

3. He provides information to the producer and consumers.

4. He must hold enough stocks to resell.

5. He must arrange for the display of products.

6. He has to maintain the purchase and sales account.

7. He must prepare sales slips.

8. He takes periodic stock inventories. 9. He assists customers in the selection of products.

10. He handles complaints.

In modern marketing, a new type of salesman has come up. He reflects the market trend by providing feedback to the producer about the customer’s choice; and to the customers, about the product or changes made in the product, in accordance with their need, or the suitability of the product.

Thus, it is the main job of the sales management to recruit effective and efficient personnel to serve the customers and the firm. A salesman must be prospect-minded and also sales- minded. A born salesman may not possess all the qualities, which are expected in the salesman of today.

There are doctors, engineers, actors, musicians etc., who are qualified to excel in their respective field work only after getting trained. In the same way, even an ordinary salesman can excel himself by acquiring skills through training. That is to say, both recruits and born men, will improve further their performance through appropriate training. For instance, when we visit shops, we may come across sign boards, such as ‘welcome’, ‘please visit again, ‘thank you’, etc. Salesman may think he has done his duty by displaying the sign boards or telling the same words. These words become effective only when they are expressed in the appropriate time and tone. Otherwise the meaning will be different. When a buyer leaves the firm, if the salesman says ‘welcome’, it is meaningless. In the same way, if the salesman says, “Please come again” when a buyer enters into the firm, it is foolishness. Therefore, the sales management must choose right persons to attain the objectives-generating sales volume and developing salesman power. Carelessness in the process of selection will certainly invite failure.

Sound recruitment policy and procedures are essential for a marvellous selling efficiency. A selected salesman must have all the qualities through which a firm can attain all business goals-more turnover and more profit and the progress of the firm.

The management of sales force is concerned with the following:

1. Sales Force Decision

2. Sales Force Size

3. Recruitment and Selection

4. Training

5. Controlling

6. Compensation

7. Fixing Sales Territories 8. Evaluation

3.4. Sales Force Decision

Sales objectives have to be fixed by the sales manager in respect of total sales force and for each sales-man, in terms of volume, market share or profit for the firm. If the objectives are once decided, then the size of sales force has to be determined and this necessitates the following studies.

Job Analysis: Job analysis is a detailed study of a given job and reveals the job details, duties, abilities, responsibilities, working conditions, skill and knowledge needed to perform the job. This will help the sales manager to recruit the right man for the right job. This is further divided into:

Job Description: It is a brief statement describing the job and not the worker. It includes:

1. Name of the job

2. Nature of the job

3. Brief summary of the job

4. Duties to be performed

5. Relation to and with other jobs 6. Job responsibility

7. Working conditions for the jobs

8. Machines and tools to be handled

9. Criteria for each job

10. Evaluation standard aimed

Job Specification (Man Specification): The job description is followed by specification. The job specification indicates the exact requirements in performing a job. In brief they are:

1. Educational qualification needed.

2. Experience needed.

3. Physical qualities expected.

4. Skill needed to perform the job

5. Attitude needed for the job

6. Self-decision ability

7. Responsibility to firm and customers

8. Emotional characters.

3.5. Sales Force Size After having fixed the sales force decision, the sales force size has to be taken into account. More salesmen do not mean more sales. An existing firm possesses a sales force, and the question is whether to increase the number of salesman. It is only the sales and profit objectives, both derived from sales forecast that should establish the optimum size of the sales force.

3.6. Recruitment and Selection

Recruitment is a process of finding out candidates, who are encouraged to apply. Selection is process of choosing some out of many candidates.

Therefore, we can say that selection is recruitment, but recruitment is not selection. Selection is a process of rejection of unfits. Recruitment precedes the selection process.

After deciding the number of salesman and the objectives, the sales manager must select personnel. The usual sources of recruitment may be either internal or external.

Internal Sources: Many firms feel that the best policy to fill the vacancies of salesmen is from out of the existing employees of the same organization. It may also be termed as promotion. This can well be adopted by analyzing the ability and promising character of the staff on the basis of seniority i.e., length of services.

Merits:

1. Much co-operation can be expected.

2. They are loyal.

3. Since it is a promotion, sincere and honest performance can be

expected.

4. They may not need training as there exists familiarity.

5. They may not need high salary.

Demerits:

1. There is limited scope for selection.

2. Favoritism plays its role.

3. The person may not adjust himself to the new job as the nature of work is different. Apart from the internal selection, ex-employees of the company can also be appointed if they are willing to accept a job. This policy is better and can profitably be adopted.

External Sources: We have the following sources:

1. Employment Exchange

2. Competitors’ organization

3. Salesman of non-competing firms

4. Educational Institutions

5. Recommended cases

6. Advertisement

7. Unsolicited applications etc.

1) Employment Exchange: Private and public employment exchanges are

the best source of personnel. They maintain proper registers with

names and other full details of persons, such as job referred by those

who seek jobs. The sales manager can call persons from exchange, by

giving job specification to the officer concerned. In almost all cases the candidates may be untrained; and inexperienced hands requiring

further training.

2) Competitors’ Organization: The salesmen employed in other competing

firms can also be chosen. But this method is not morally accepted. He

may be trained and may be developing his firm. Such a person can be

drawn by temptation by giving more facilities and a higher salary. But it

must be verified how far he is able to meet the sales objectives,

considering his sincerity, loyalty, habits etc Such a man, when he gets

some additional benefits from some other firms, will follow the same

tactics i.e., leave the firm.

3) Salesman of Non-competing Firms: Salesman can also be chosen from

non-competing firms. Such persons may have experience in the line, if

not touch with the particular product. They may need training to come

up to the level of aimed sales objectives.

4) Educational Institutions: Advanced countries like America, England etc.,

select students directly from specialized institutions, where theoretical

and practical knowledge is gained by them. The Institutional Heads

maintain complete records of students but as far as India is concerned, the chances are rare. It has been neglected with the feeling, ‘just from

egg’ i.e., inexperienced.

5) Recommended cases: The employees of the firm-managers,

superintendents, section heads etc., may recommend candidates from

their friend circles. They have a moral responsibility when such persons

are recruited. The employee who recommends personnel will be

blamed, if the person is found unit.

6) Advertisement: This is a system generally accepted by firms in recruiting

salesmen. Advertisements are displayed in newspapers, trade journals

specifying the job and the required qualifications, experience and skill.

There is the possibility of a wider scope of selection, as the news

spreads over a wide geographical area.

3.7. Selection Process

Selection procedure differs from firm to firm. Each firm has got its own method in choosing men for employment. The qualities that the recruiters seek in men to be appointed, depends on the job description. Similarly the selection method also depends upon the sales management. Generally, the following steps are followed: 1. Application blank

2. Screening

3. Reference

4. Personal interview

5. Test

6. Medical examination

7. Final interview (appointment) a) Application Blank: Necessary information about the applicant is

required to be considered for appointment. Generally, the candidates

are asked to apply on company’s application form, sent directly to

applicants against a requisition or an application is known as application

blank given in the advertisement itself. This is with a view to gather

only the necessary details of the applicants. It contains a number of

questions, when filled in, gives a clear idea about the candidate.

Generally, it may contain the name, sex, qualification, age, experience,

health, social activities, references etc. b) Screening: All applications will not be considered. Screening is a

process by which applications are to be screened out (rejected) from

further consideration, on the basis of unsuitability. The remaining applications are formally considered for appointment, subject to further

formalities. By rejecting the applications of unqualified applicants,

much time and energy can be saved in further processing. c) Reference: Generally, it is a common practice to ask the applicant to

mention the names of two references or referees, to whom the sales

manager can make enquiries about the integrity, general character and

ability of the applicant concerned. The qualities are checked with care

and caution by the sales manager, by contacting the referees. If the

opinions are favourable, the applications pass on to the next stage; and

in case the referee gives unfavourable comment, the application is

rejected at this stage.

Personal contact is necessary and it is better, because people are straight

forward in tongue better than in pen. This is one-sided, but the

effectiveness of such opinion is doubted, as there may be chances of

telling only the good qualities of applicants. Moreover, only the names

of such favourable persons are mentioned in reference, with pre-

intimation. To overcome this, personal interview is essential. d) Personal Interview: This is an important step in the process of selection.

Only the screened applications are considered for selection and the firm sends out interview letters. Personal interview is a must. By this

interview, the sales manager can understand the positive and negative

qualities of the applicant, with reference to the job duties. A good

interviewer must be unbiased, able to discover facts and be a keen

observer of the interviewee.

Interviews are also of two types: (a) Patterned and non-patterned. Under

patterned interview, questions are designed and the same questions are

asked to all, which is easy for comparison purposes. (b) In non-

patterned interview, no standardized questions are asked. The applicant

is allowed to talk freely. A few direct questions are asked. By this type

of interview, the applicant gets a chance of speaking about his attitude

and interest freely. The interviewer must be able to make an easy

evaluation of the interview. e) Tests: Test is an additional tool, with which the applicants are further

tested to determine their suitability to the job. Generally, following are

the important types of psychological tests conducted:

(i) Ability Test: This test is devised to ascertain the capacity to grasp

things, and is a measure to know how well a person performs a

particular task with motivation. This can also be called a mental ability or intelligence test. Such tests determine the suitability of a

candidate for a particular job.

(ii) Habitual Characteristic Test: A man may be intelligent but may

hesitate to take a decision. This test is aimed to know one’s

aptitude and interest on normal, daily work, irrespective of the

best behaviour occasionally.

(iii) Achievement Test: This test is designed to know what knowledge

a man has gained from his education or training.

By all these psychological tests, the ability and suitability of a

candidate can be verified. One can aim to evaluate the honesty,

cheerfulness, leadership quality, assertiveness, co-operation,

supervision capacity, emotional stability, determination, ability etc.,

of the personnel. The effectiveness and reliability of these tests are

questionable, as the qualities cannot be measured exactly and the

circumstances to be faced by salesman are also different. f) Medical Examination: The important thing about any person, apart

from all qualities and eligibility, is that he must be physically fit for the

job. Diseases and physical deficiencies of the salesmen will affect the business. As such, selected applicants have to undergo medical

examination. g) Final Interview and Appointment: The selected applicant is probably,

called for a final interview and his suitability is measured through

different tests, physical reports etc. The job must be explained to him

along with all relevant details, which are required to perform the duties

efficiently.

If everything is in favour of the applicant, an agreement must be

executed by him. Generally, the agreement contains duties and

authorities, sales quota, sales territory allotted, salary and conditions

of resigning. It is followed by an appointment order, which contains

designation, jobs to be performed, salary and other financial benefits

3.8 Training

Training is a continuation of selection. Having selected the salesmen, there are two options. They can be sent to the field directly with samples, order books etc., (born salesman) and/or they can be sent for training programme. Some people think that salesmanship is born in man, but there are only born salesmen, like born doctors, lawyer, engineers, teachers etc. However all these people need training to call them qualified, and so also is the case with salesman. A man may have interest in the profession.

The interest can be fully developed, through proper training. One attains perfection, self-development etc., through training.

Training means it is the process of perfecting the salesmen for their work.

Training programme are organized procedure or methods through which knowledge as well as skill, for a definite purpose, is acquired. By training, one can increase knowledge in a particular field. The salesmanship is not born but can be made effective through training.

Significance of Training: The present era of marketing world is full of stiff and cut-throat competition. The world is dynamic and not static.

Customers are more benefit-oriented. Producers, in order to meet the ever-changing demands of the consumers, produce new products, new devices, products with multiple uses and so on. Thus, training or repeated training is essential to keep the salesmen, with up-to-date knowledge, in respect of new or developed goods. Training gives scope for improvement.

Objectives of Training: The objectives are summed up below:

1. To facilitate the salesmen to acquire the technique and principles of

salesmanship, process of sales, canvassing etc.

2. To bring down the labour turnover in the sales force.

3. To facilitate better sales performance.

4. To improve the relations with the customers.

5. To increase the efficiency of sales personnel.

6. To keep the salesman informed of the knowledge of products,

market, competitors etc., to face all situations.

7. To lower the selling expense so as to increase the profits.

8. To maintain sound relation between employer and employee.

9. To develop better knowledge, and the ways and means to resist all

situations.

10. To motivate the consumers more effectively. 3.9 Advantages of Training to Salesman

1) A trained salesman always wins customers by systematic approach.

2) Salesman acquires better understanding of the firm, as to its past

history, policies and procedures and this helps the salesman for

effective dealings.

3) A trained salesman takes less time in concluding a sale-early selling

maturity.

4) A trained salesman brings increased volume of sales, in turn, more

profit to the firm and himself.

5) A trained salesman is able to meet consumer’s demand and help in

solving problems.

6) Increased volume of sales facilitates reduction in cost of production

i.e., sales rise faster than expected. The cost per unit of order or per

prospect can be minimized.

7) A better relation is created among the customers through reducing

customer’s complaint, increasing brand loyalty etc. Customer’s

satisfaction is gained.

8) The ability of the salesman is increased by expert knowledge. 9) Controlling of salesman becomes easy.

10) Training facilitates better demonstrations, selling the products which

have high profit margin, better methods of canvassing etc. Sales

training helps to increase the sales volume. Supervision cost is

reduced as trained salesman needs less supervision.

3.10 Training Programme: A firm should chalk out a programme for sales training. The training is based on the nature of the job and the products to be sold. A planned training programme should function with the following ideas or principles, often referred to as ACMEE.

A: Aim of Training

C: Content of Training

D: Method of Training

E: Execution of Training

E: Evaluation.

1. Aim of Training: The whole idea behind the training is to make a recruit a good salesman. It is true that some of the qualities of a good salesman may be inherent in him, but not all qualities. It is the training which makes him to have all qualities required of a salesman. It must aim to make him a guide to the buyer taking into account his needs, problems etc. and to make him a salesman of effective power by which an interest in the product may be aroused and a desire to purchase may be created.

2. Content of Training: No hard and fast rules can be laid down as to the contents of training. The content of the training programme relates to the subject-matter of training. A training programme varies from firm to firm, because of the differences in products, markets, policies of the company, trainee’s ability etc. In general terms, sales training is the teaching of salesman and prospective salesmen how to do their jobs better. A good training programme facilitates the trainee-salesman to learn and understand the following contents:

(a) The knowledge of his job

(b) The products

(c) The company

(d) The markets and consumers

(e) The competitors (f) The sales techniques

(g) The routine reports etc.

(a) The Knowledge of his Job: The job of a salesman is not complete, as soon as the transfer of goods takes place. The salesman of today carries more weight than the salesman who merely takes orders. He must understand what the firm expects of him; what power he possesses and how to convince the buyers about the company’s product and image. The company assigns responsibilities and powers, with which he works as a guide to buyers by projecting the merits of the products and on the other hand with profit to the firm. He is expected to do services to both the firm and the customers. He must have concrete plans as to his sales planning, meeting customers, sales talks, demonstration, presenting the goods, concluding sales, securing order, collecting dues, handling objections and complaints etc. Apart from these, he must be a keen observer of market conditions, competition, consumers’ likes and dislikes etc. He should co- operate with his senior fellows. Thus, he is trained with a purpose, the aim of his appointment being to know what the firm eagerly expects from him. (b) The Products: A good understanding of the product is essential. The firm must give or ensure that the salesman has a thorough knowledge of the products, to be dealt with. In brief, they are:

1. Raw materials used in the product.

2. Manufacturing methods in brief.

3. Research and development undertaken.

4. Improvement brought out.

5. Its suitability to the consumers.

6. Its trade mark, brand, characteristics.

7. Its colour, weight, packaging, quality control etc.

8. Selling points of the products.

9. Product merits and uses to consumers.

10. Limitation of the product performance.

11. Its price and discounts offered.

12. Service after sales and guarantee period.

13. Demonstration of its actual working.

14. Availability of the products.

15. Cost of operation and maintenance.

16. Comparative study of similar products. 17. Strength and weakness of competitors’ products.

18. The position of the product in the product line.

The above-said knowledge of the products is essential for a salesman so as to emerge as a creative salesman. When the salesman has a sound knowledge, he meets the public and converts them as buyers, in a better and more efficient way.

(c) The Company: A salesman should be well-informed about the following:

1) Brief history of the firm.

2) Its marketing policies.

3) Objectives and purposes of the firm.

4) Economic and social objectives.

5) Its position in the market field.

6) Credit policies, sales policies, personnel policies.

7) Capacity of the plant.

8) Personnel of the firm-directors, stock-holders.

9) Execution and handling of orders, sales accounting and collection

methods.

10) Salary, commission computation, traveling and daily allowances etc.

and their payment procedures. 11) Method of exercising control over the salesman.

12) Allocation of quotas and territories.

13) Marketing policies, pricing policies.

14) Handling of complaints and their adjustment. A clear-cut knowledge

about the company is essential to the salesman to enable himself to

work accordingly.

(d) The Markets and Consumers: Information about the market is an important and essential part of the training programme. The salesman must have a thorough knowledge of the size of the market, demand for the products and the area under the competitor’s side. Besides the knowledge of the market, salesman should know about the type of customers, buying motives, likes and dislikes of the products. Different types of customers need different types of approaches. People differ widely from person to person, sex to sex, age to age, place to place etc. Persons of different types require specialized way of persuasion. The salesman must adjust himself according to the nature of the customers. A blanket policy to all classes of people is not advisable.

(e) The Competition: Salesman must be given a good knowledge or comparative study of the selling activities of rivals. Study relating to comparison with the rivals as to the merits and demerits of the product is important i.e., strong as well as weak points. The salesman should know the rival firm’s policies, method of approaching the customers, how they are paid, the customers’ opinion, how their product is, how they fulfill their duties, the area they like or dislike, their selling-points etc.

(f) The Sales Technique: The sales techniques are the essential part in sales training. After the training, the salesman has to be sent to the field, where he has to sell the company’s product. He must be given exhaustive training in “Sales Process”. The selling points must be correlated and sales talk be applied at the appropriate situation. A born salesman has to be instructed with the various selling techniques in detail. In short, training on the following items must be imparted.

(a) Selling process.

(b) Method of gaining interview from consumers.

(c) Method of approach to consumers.

(d) Demonstration and presentation.

(e) Method of handling objections of consumers. (f) Why salesman fails in the field etc.

(g) Routine Reports: Salesmen should be trained to know their routine works and submit their reports to the firm. The report may include:

(a) Amount of sales made.

(b) List of new customers.

(c) Credit outstanding of customers.

(d) Collection of Outstanding dues.

(e) Competitor’s position in the market.

(f) Maintenance of Accounts of expenses.

(g) Demonstration and display of products.

(h) Action taken on complaints, grievances etc.

(i) The attitude of market in respect of competitors.

(j) Consumers’ suggestion if any.

The reports may be sent to the firm, daily, weekly or monthly etc. as directed. The salesmen are eyes and ears of the selling firm. The salesman must be aware of the method of reporting and its importance. Training Needs of Salesmen at Different Times:

New Salesmen Need:

1. Facts about the company-history, policies etc.

2. Product details

3. Company’s system and procedures

4. Fundamentals of selling their specific products

5. Moral training

Regular Salesmen need

1. The above five items

2. Changes in policies and procedures

3. Facts about new products

4. Future plans of the company

5. Knowledge to supervise others

6. Know-how to discharge responsibility

7. Attitude or moral training Supervisors Need:

1. Skill needed by others in discharging duties

2. Ability to train others

3. Ability to organize

4. Ability to analyze and plan

5. Ability to evaluate and follow up

3.11 Training Methods

For imparting training to the salesman, different methods are being used.

Broadly, these methods may be divided into two:

3.11.1 Group Training

(a) Lecture Method: An expert or a lecturer speaks to trainee-salesmen

about the various aspects of selling. It consists of oral talk in a

classroom. This system is widely used. The trainees listen to the

lectures. The instructor invites questions and answers from them. To

make the lecture more interesting, visual aids, demonstration, suitable

examples may be added. This system is more economical, and is the easiest and quickest in imparting theoretical training to a group of

salesman. But it is difficult to evaluate the effectiveness of lecture

method. This method can be used more effectively in continuing sales

training programme to provide new information or changes in the

policies of the firm. This may include seminars, demonstration etc., by

expert salesmen.

(b) Audio-Visual Method: In order to supplement the lecturing (telling)

method, training programmes include the use of visual aids, such as

films, slides, posters etc., and are capable of making, them more

interesting.

(c) Discussion Method: This is a good method. Here an actual case or an

imaginary case is given as a problem to be solved, to the different

groups. The case or the problem may be typed or printed. Each group

is asked to understand the problem and draw a conclusion. After this,

the different conclusions or suggestions are analyzed collectively, under

the leadership of the instructor, in drawing generalizations from each

case or problem. This type of training enables the salesmen in correcting their own views. It is suitable for a small group. It is slow and

costly.

(d) Conference Method: Sales conferences and sales meeting are a kind of

‘get together’ of all the concerned staff, either weekly, fortnightly or

monthly. The thoughts of various persons are pooled in the conference.

Meetings or conferences have motivating effects as the participants are

given chances for creative thinking and to express their views. To make

the conference more interesting, dramas, demonstrations etc., are

included. Topics like, sales policies, facing competition, publicity ideas,

dealings with complaints etc., are dealt with. And these will facilitate

the participants in broadening their outlook and ideas. But this type of

meetings or conferences is not suitable for new recruits.

(e) Role Playing Method: Role playing is a newly developed method. The

sales trainees are made to act out roles in contrived problems. The

trainer explains the situation of the problem and assigns the role of

salesman and customers of different characters to the sales trainees.

Each one has to act the assigned role. The trainer watches the role

played by each and discusses their weaknesses and strong points. A few may be selected to act the play, while others may watch it. Thus, the

salesman have chance to see and understand the ideas in different

situations. It is not suitable for new recruits.

(f) Panel Method: Members in the panel group may be permanent. The

members, who are experts in the panel, discuss the problems, and

solutions are passed to the sales-trainee groups, who may have further

discussion. This system is ineffective.

(g) Round Table method: It is similar to the discussion method. It consists

of few members. The salesmen sit around a table along with a good

discussion leader. They deal with the problems of actual cases. Every

participant takes part freely in discussing the problems and solutions.

Exchanges of new ideas take place advantageously.

(h) Brain Storming Method: Under this method, more or less, similar to

round table conference, persons sit around the table. The leader

presents the problems for discussion. The sales trainees have to

understand the problems and find the solutions. The solutions are

analyzed by the leader or tested by the panel of experts. This method

practically fetches no value. 3.11.2 Individual Training

(a) On-the-job Training: Under this method, a new salesman is placed

under an experienced or senior salesman who trains him. First the

coach explains the sales techniques under different situations. He also

takes the trainee along with him on his rounds and gives him chances to

observe the dealings with the customers. Doubts of the trainee are also

clarified. Then the coach along with the trainee calls on customers; the

sales trainee is allowed to deal with the customer and the coach

observes the performance. If any weak point or short-coming is found

in the sales trainee, they discuss how to overcome them. After some

time, the sales trainee becomes a trained and independent salesman.

This system is good for traveling salesman.

(b) Sales Manual: It is a complied textbook. It contains details of the firm

and products, job description, sales policies, opinions or reports

required for reference purposes etc. Generally, it contains many

problems with suggestive solutions. A copy of the book is given to a

salesman to go through it and understand the ideas. It works as a

ready-reckoner. (c) Initial or Break-in Training: New recruits are given an orientation

training so as to know about the company and its products. He may be

allowed to work for some time in the firm itself to gain sufficient

information about the products. After that he is sent to work in his

field.

Apart from the above, salesman can also be sent to specialized educational institutions. The training cost is borne by the firm. There are many institutions in India which impart theoretical training along with practical work. Doors are open and firms can send their new recruits for training.

Correspondence courses are also available for initial training. In certain cases, one can undergo training while one is fully employed. This is suitable for salesmen who are widely scattered. There are many firms which have permanent training departments like colleges.

It is important to note that even the trained or experienced salesmen need periodic training, called refresher training or follow up training. This is because of the changes in products, sales policies, changes in consumers and market, government policies, new developments, new ideas etc.

Evaluation of Training: Having trained the salesmen, the marketing manager must evaluate the usefulness or effectiveness of training, individually and collectively on the basis of the performance of the sales personnel. Money, effort and time have been spent on training. Therefore, it is natural to expect returns. Evaluation can be made on the basis of performance in terms of sales volume, sales profitability, order-size, expenses etc., between, before and after training periods.

3.12 Summary

 The word ‘salesmen’ applies to all persons who are engaged in the field

of selling.

 Sales objectives have to be fixed by the sales manager in respect of total

sales force and for each sales-man, in terms of volume, market share or

profit for the firm.

 Job analysis is a detailed study of a given job and reveals the job details,

duties, abilities, responsibilities, working conditions, skill and knowledge

needed to perform the job.

 The salesman must have a thorough knowledge of the size of the

market, demand for the products and the area under the competitor’s

side.  Even the trained or experienced salesmen need periodic training, called

refresher training or follow up training. This is because of the changes

in products, sales policies, changes in consumers and market,

government policies, new developments, new ideas etc.

 Having trained the salesmen, the marketing manager must evaluate the

usefulness or effectiveness of training, individually and collectively on

the basis of the performance of the sales personnel.

3.13 Keywords

Sales Force Decision Job Analysis

Job Description Job Specification

Sales Force Size Recruitment and Selection

Internal Sources Employment Exchange

Competitors’ Organization Selection Process

Training Group Training

Individual Training Lecture Method On-the-job Training Audio-Visual Method

Sales Manual Discussion Method

Initial-Break-in Training Conference Method

Role Playing Method

Panel Method

Round Table Method

Brain Storming Method

3.14 Exercises

1. What are the various kinds of tests commonly used in the selection of

salesmen? What are the advantages of using tests? Are there any

dangers?

2. Enumerate the advantages of arranging training facilities for salesmen

and state the types of training you would recommend for salesmen of a

company manufacturing medicines.

3. Explain the procedure involved in the recruitment and selection of

salesman. 4. What is the necessity of training salesmen? Explain different methods of

training.

5. What are different types of group training?

6. According to you what should form the content of the training program.

7. What criteria can be considered for evaluation of training program?

Unit 4

Services marketing Structure

4.1 Objectives

4.2 Introduction

4.3 Characteristics of services marketing

4.4 Types of services

4.5 Service marketing mix

4.5.1 People and Service Marketing

4.5.2 Process and Services Marketing

4.5.3 Physical Evidence – Part of the marketing MIX

4.6 Summary

4.7 Keywords

4.8 Exercise

4.1 Objectives

After learning this unit you will be able to understand the following:

- Service marketing

- The major Characteristic of service marketing and its types

- Service marketing MIX

- Process and Service Marketing, Physical evidence 4.2 Introduction

A service is the action of doing something for someone or something. It is largely intangible (i.e. not material). A product is tangible (i.e. material) since you can touch it and own it. A service tends to be an experience that is consumed at the point where it is purchased, and cannot be owned since is quickly perishes. A person could go to a café one day and have excellent service, and then return the next day and have a poor experience. With the above expectation we can say that service is nothing but making promises to customers.

4.3 Characteristics Of Service Marketing

Following are the characteristics of service marketing.

Inseparable - from the point where it is consumed, and from the provider of the service. For example, you cannot take a live theatre performance home to consume it (a DVD of the same performance would be a product, not a service). Intangible - and cannot have a real, physical presence as does a product.

For example, motor insurance may have a certificate, but the financial service itself cannot be touched i.e. it is intangible.

Perishable - in that once it has occurred it cannot be repeated in exactly the same way. For example, once a 100 metres Olympic final has been run, there will be not other for 4 more years, and even then it will be staged in a different place with many different finalists.

Variability- since the human involvement of service provision means that no two services will be completely identical. For example, returning to the same garage time and time again for a service on your car might see different levels of customer satisfaction, or speediness of work.

Right of ownership - is not taken to the service, since you merely experience it. For example, an engineer may service your air-conditioning, but you do not own the service, the engineer or his equipment. You cannot sell it on once it has been consumed, and do not take ownership of it.

4.4 Service Types

Service Sector in India today accounts for more than half of India's GDP.

According to data for the financial year 2006-2007, the share of services, industry, and agriculture in India's GDP is 55.1 per cent, 26.4 per cent, and 18.5 per cent respectively. The fact that the service sector now accounts for more than half the GDP marks a watershed in the evolution of the Indian economy and takes it closer to the fundamentals of a developed economy.

Services or the "tertiary sector" of the economy covers a wide gamut of activities like trading, banking & finance, infotainment, real estate, transportation, security, management & technical consultancy among several others. The various sectors that combine together to constitute service industry in India are:

 Trade

 Hotels and Restaurants

 Railways

 Other Transport & Storage

 Communication (Post, Telecom)

 Banking

 Insurance

 Dwellings,

 Real Estate

 Business Services

 Public Administration;  Defence

 Personal Services

 Community Services

 Other Services

There was marked acceleration in services sector growth in the eighties and nineties, especially in the nineties. While the share of services in India's GDP increased by 21 per cent points in the 50 years between 1950 and 2000, nearly 40 per cent of that increase was concentrated in the nineties. While almost all service sectors participated in this boom, growth was fastest in communications, banking, hotels and restaurants, community services, trade and business services. One of the reasons for the sudden growth in the services sector in India in the nineties was the liberalization in the regulatory framework that gave rise to innovation and higher exports from the services sector.

The boom in the services sector has been relatively "jobless". The rise in services share in GDP has not accompanied by proportionate increase in the sector's share of national employment. Some economists have also cautioned that service sector growth must be supported by proportionate growth of the industrial sector, otherwise the service sector grown will not be sustainable. In the current economic scenario it looks that the boom in the services sector is here to stay as India is fast emerging as global services hub.

4.5 Service Markeing Mix

Western economies have seen deterioration in their traditional manufacturing industries, and a growth in their service economies.

Therefore the marketing mix has seen an extension and adaptation into the extended marketing mix for services, also known as the 7P's - physical evidence, process and people.

We have discusses four marketing mix factors in our earlier modules. In the

context of services marketing there are three more factors which form

the part of marketing mix. They are people, process and physical

evidence. Here we only discuss about these three factors.

1.6 People and Services Marketing

People are the most important element of any service or experience.

Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the 'individual needs' of the person consuming it. Most of us can think of a situation where the personal service offered by individuals has made or tainted a tour, vacation or restaurant meal. Remember, people buy from people that they like, so the attitude, skills and appearance of all staff need to be first class.

Here are some ways in which people add value to an experience, as part of the marketing mix - training, personal selling and customer service.

Training

All customer facing personnel need to be trained and developed to maintain a high quality of personal service. Training should begin as soon as the individual starts working for an organization during an induction. The induction will involve the person in the organization's culture for the first time, as well as briefing him or her on day-to-day policies and procedures.

At this very early stage the training needs of the individual are identified. A training and development plan is constructed for the individual which sets out personal goals that can be linked into future appraisals. In practice most training is either 'on-the-job' or 'off-the-job.' On-the-job training involves training whilst the job is being performed e.g. training of bar staff. Off-the-job training sees learning taking place at a college, training centre or conference facility. Attention needs to be paid to Continuing Professional Development

(CPD) where employees see their professional learning as a lifelong process of training and development. Personal Selling

There are different kinds of salesperson. There is the product delivery salesperson. His or her main task is to deliver the product, and selling is of less importance e.g. fast food, or mail. The second type is the order taker, and these may be either 'internal' or 'external.' The internal sales person would take an order by telephone, e-mail or over a counter. The external sales person would be working in the field. In both cases little selling is done. The next sort of sales person is the missionary.

Here, as with those missionaries that promote faith, the salesperson builds goodwill with customers with the longer-term aim of generating orders.

Again, actually closing the sale is not of great importance at this early stage.

The forth type is the technical salesperson, e.g. a technical sales engineer.

Their in-depth knowledge supports them as they advise customers on the best purchase for their needs. Finally, there are creative sellers. Creative sellers work to persuade buyers to give them an order. This is tough selling, and tends to o ffer the biggest incentives. The skill is identifying the needs of a customer and persuading them that they need to satisfy their previously unidentified need by giving an order. Customer Service

Many products, services and experiences are supported by customer services teams. Customer services provided expertise (e.g. on the selection of financial services), technical support(e.g. offering advice on IT and software) and coordinate the customer interface (e.g. controlling service engineers, or communicating with a salesman). The disposition and attitude of such people is vitally important to a company. The way in which a complaint is handled can mean the difference between retaining or losing a customer, or improving or ruining a company's reputation. Today, customer service can be face-to-face, over the telephone or using the Internet. People tend to buy from people that they like, and so effective customer service is vital. Customer services can add value by offering customers technical support and expertise and advice.

2.6 Process and Services Marketing

Process is another element of the extended marketing mix, or 7P's.There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example - to achieve a 30% market share a company implements a marketing planning process. Another view is that marketing has a number of processes that integrate together to create an overall marketing process, for example - telemarketing and Internet marketing can be integrated. A further view is that marketing processes are used to control the marketing mix, i.e. processes that measure the achievement marketing objectives. All views are understandable, but not particularly customer focused.

For the purposes of the marketing mix, process is an element of service that sees the customer experiencing an organisation's offering. It's best viewed as something that your customer participates in at different points in time.

Here are some examples to help your build a picture of marketing process, from the customer's point of view.

Going on a cruise - from the moment that you arrive at the dockside, you are greeted; your baggage is taken to your room. You have two weeks of services from restaurants and evening entertainment, to casinos and shopping. Finally, you arrive at your destination, and your baggage is delivered to you. This is a highly focused marketing process.

Booking a flight on the Internet - the process begins with you visiting an airline's website. You enter details of your flights and book them. Your ticket/booking reference arrive by e-mail or post. You catch your flight on time, and arrive refreshed at your destination. This is all part of the marketing process.

At each stage of the process, markets:

 Deliver value through all elements of the marketing mix. Process,

physical evidence and people enhance services.

 Feedback can be taken and the mix can be altered.

 Customers are retained, and other serves or products are extended

and marked to them.

 The process itself can be tailored to the needs of different

individuals, experiencing a similar service at the same time.

Processes essentially have inputs, throughputs and outputs (or outcomes).

Marketing adds value to each of the stages. Take a look at the lesson on value chain analysis to consider a series of processes at work.

3.6 Physical Evidence - Part of the Marketing Mix.

Physical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including some of the following:

 Packaging.  Internet/web pages.

 Paperwork (such as invoices, tickets and despatch notes).

 Brochures.

 Furnishings.

 Signage (such as those on aircraft and vehicles).

 Uniforms.

 Business cards.

 The building itself (such as prestigious offices or scenic

headquarters).

 Mailboxes and many others ......

A sporting event is packed full of physical evidence. Your tickets have your team's logos printed on them, and players are wearing uniforms. The stadium itself could be impressive and have an electrifying atmosphere. You travelled there and parked quickly nearby, and your seats are comfortable and close to restrooms and store.

Some organisations depend heavily upon physical evidence as a means of marketing communications, for example tourism attractions and resorts (e.g.

Disney World), parcel and mail services (e.g. UPS trucks), and large banks and insurance companies (e.g. Lloyds of London).

4.6 Summary In this unit we have introduced the concept of services marketing and its characteristics. Service marketing is different from product marketing. The major characteristics of service marketing are inseparable, intangible, perishable, and variable in nature. The service marketing mix includes seven factors. The common being product, price, place/distribution, promotion. The new three Ps added in the context of services marketing are people, process and physical evidence. Today, service marketing has become a separate domain of study in itself.

4.7 Keywords

Service Marketing Inseparable

Intangible Perishable

Variability Right of ownership

Service Types Service Markeing Mix

Training People and Services Marketing

Personal Selling Physical Evidence

Customer Service 4.8 Exercises

1. Define Service Marketing

2. What are the characteristics of service marketing?

3. How do service marketing different from product marketing?

4. Explain Service Marketing MIX.

MODULE 4

Unit 1 Advertising Structure:

1.1. Objectives 1.2. Introduction 1.3. Definition 1.4. Issues Of Concern To Advertising 1.5. Categories of Advertising 1.6. Standardization and customization in advertising 1.7. Laws and Regulations on Advertising 1.8. Types of Advertising 1.8.1 Print Advertising – Newspapers, Magazines, Brochures, Fliers 1.8.2 Outdoor Advertising – Billboards, Kiosks, Tradeshows and Events 1.8.3 Broadcast advertising – Television, Radio and the Internet 1.8.4 Covert Advertising – Advertising in Movies 1.8.5 Surrogate Advertising – Advertising Indirectly 1.8.6 Public Service Advertising – Advertising for Social Causes 1.8.7 Celebrity Advertising 1.8.8 Inserts advertising 1.8.9 Sponsorship 1.8.10 Display advertising 1.9. Direct Marketing 1.10. Relationship Marketing 1.11. Markets as Networks 1.12. International Sales promotions 1.13. Summary 1.14. Keyword 1.15. Exercise

1.1. Objectives

After learning this unit you will able to understand :

- What is advertising - Importance of advertising. - Types of advertising - Rules that govern advertising - Concept of direct marketing - Marketing and advertisement at global context

1.2. Introduction to Advertising

Advertising is an important element of the marketing communications mix. Put simply, advertising directs a message at large numbers of people with a single communication. It is a mass medium.

Advertising has a number of benefits for the advertiser. The advertiser has control over the message. The advert and its message, to an extent, would be designed to the specifications of the advertiser. So the advertiser can focus its message at a huge number of potential consumers in a single hit, at a relatively low cost per head. Advertising is quick relative to other elements of the marketing communications mix (for example personal selling, where an entire sales force would need to be briefed - or even recruited). Therefore an advertiser has the opportunity to communicate with all (or many of) its target audience simultaneously. 1.3. Definition

Business.com defines ADVERTISING as ‘advertising is a paid form of communicating a message by the use of various media. It is persuasive, informative, and designed to influence purchasing behavior or thought patterns’.

Enerpreneur.com defines advertising as ‘To call the public's attention to your business, usually for the purpose of selling products or services, through the use of various forms of media, such as print or broadcast notices”. Advertising provides a direct line of communication to your existing and prospective customers about your product or service. The purpose of advertising is to:

 Make customers aware of your product or service

 Convince customers that your company's product or service is right

for their needs

 Create a desire for your product or service

 Enhance the image of your company

 Announce new products or services

 Reinforce salespeople's messages  Make customers take the next step (ask for more information,

request a sample, place an order, and so on); and

 Draw customers to your business.

Your advertising goals should be established in your business plan. For example, you may want to obtain a certain percentage of growth in sales, generate more inquiries for sales, or build in-store traffic. The desired result can simply be increasing name recognition or modifying the image you're projecting. Objectives vary depending on the industry and market you're in.

Dictionary of business defines advertising as a ‘communication that is paid for by an identified sponsor with the object of promoting ideas, goods, or services. It is intended to persuade and sometimes to inform. The two basic aspects of advertising are the message and the medium. The media that carry advertising range from the press, television, cinema, radio, and posters to company logos on apparel. Advertising creates awareness of a product, extensive advertising creates confidence in the product, and good advertising creates a desire to buy the product. Advertising is a part of an organization's total marketing communications programme (i.e. its promotion mix).

1.4. Issues Of Concern To Advertising

Advertising agencies and their clients plan for advertising. Any plan should address the following stages:  Who is the potential TARGET AUDIENCE of the advert?  WHAT do I wish to communicate to this target audience?  Why is this message so IMPORTANT to them?  What is the BEST MEDIUM for this message to take (see some of the possible media above)?  What would be the most appropriate TIMING?  What RESOURCES will the advertising campaign need?  How do we CONTROL our advertising and monitor success? 1.5. Categories of Advertising

There are two key categories of advertising, namely 'above-the-line' and 'below-the-line.' The definitions owe a lot to the historical development of advertising agencies and how they charge for their services. In a nutshell, 'above-the-line' is any work done involving media where a commission is taken by an advertising agency, and 'below-the-line' is work done for a client where a standard charge replaces commission. So TV advertising is 'above- the-line' since an agency would book commercial time on behalf of a client, but placing an advert in a series of local newspapers is 'below-the-line,' because newspapers tend to apply their own costing approach where no commission is taken by the agency i.e. instead the agency charges the client a transparent fee.

1.6. Standardization and customized to advertising The key issue in advertising is whether the firm should standardise its advertising messages or adapt them to meet the requirements of particular foreign markets. Some advertising messages are applicable to several countries, others are relevant to only one. Much depends on the degree of homogeneity of target consumers in various countries, their lifestyles, interests, incomes and tastes.

The advantages of uniformity are that it:  Requires less marketing research in individual countries.  Is relatively cheap and convenient to administer.  Demands less creative time to devise advertisements; a single message is constructed and used in all markets. Customization, conversely, might be necessary in consequence of:  Cultural differences between countries and/or market segments.  Translation difficulties between different languages.  Differences in the educational backgrounds of target groups in various countries.  Non-availability of certain media (specialist magazines, for instance) in some regions.  Differences in national attitudes towards advertising. To the extent that alterations are needed, they may take one or more of the following forms: (a) Different media, for instance. Listeners to commercial radio in different countries might typically belong to different socio-economic groups. (b) Changes in symbols, e.g., using a male rather than a female model as the dominant figure in an advertisement. This might be necessary if males are the primary purchasers of the product in one market and females in another. (c) Changes in advertisement headlines and body copy. (d) Changes in the fundamental selling proposition. For example, presenting a bicycle as a leisure item in one market, a fashion accessory in another, and as a commuting vehicle elsewhere.

1.7. Laws and Regulations on Advertising These vary from country to country. Comparative advertising, for example, is unlawful in many nations, (Comparative advertising involves the comparison of an advertised item with competing products and/or mention of rival firms.) The use of superlatives in advertising copy is allowed in the UK, Belgium and Italy, but not in Germany or France (at least not on television). In the Netherlands, superlatives have to be baked up by factual evidence. There are severe constraints on the use of pornography and/or sexual innuendo in advertisements in a number of countries: advertising in foreign languages is sometimes banned. Other legally sensitive areas in the international advertising field include the use of children as models; the creative approaches that may be employed (for example, it is illegal in many countries to instill fear in consumers’ minds in order to advertise products); the media permitted to carry advertisements; and the amounts of advertising allowed in each medium (e.g., the number of minutes of advertising permitted in each hour of television broadcasts). The advertising of ‘health’ goods, pharmaceuticals, war toys, alcohol and tobacco are subject to stringent control in the great majority of nations.

1.8. Types of Advertising Advertising is the promotion of a company’s products and services carried out primarily to drive sales of the products and services but also to build a brand identity and communicate changes or new product /services to the customers. Advertising has become an essential element of the corporate world and hence the companies allot a considerable amount of revenues as their advertising budget. There are several reasons for advertising some of which are as follows:

 Increasing the sales of the product/service  Creating and maintaining a brand identity or brand image.  Communicating a change in the existing product line.  Introduction of a new product or service.  Increasing the buzz-value of the brand or the company.  Thus, several reasons for advertising and similarly there exist various media which can be effectively used for advertising. Based on these criteria there can be several branches of advertising. Mentioned below are the various categories or types of advertising:

1.8.1 Print Advertising – Newspapers, Magazines, Brochures, Fliers

The print media have always been a popular advertising medium. Advertising products via newspapers or magazines is a common practice. In addition to this, the print media also offers options like promotional brochures and fliers for advertising purposes. Often the newspapers and the magazines sell the advertising space according to the area occupied by the advertisement, the position of the advertisement (front page/middle page), as well as the readership of the publications. For instance an advertisement in a relatively new and less popular newspaper would cost far less than placing an advertisement in a popular newspaper with a high readership. The price of print ads also depend on the supplement in which they appear, for example an advertisement in the glossy supplement costs way higher than that in the newspaper supplement which uses a mediocre quality paper.

1.8.2 Outdoor Advertising – Billboards, Kiosks, Tradeshows and Events

Outdoor advertising is also a very popular form of advertising, which makes use of several tools and techniques to attract the customers outdoors. The most common examples of outdoor advertising are billboards, kiosks, and also several events and tradeshows organized by the company. The billboard advertising is very popular however has to be really terse and catchy in order to grab the attention of the passers by. The kiosks not only provide an easy outlet for the company products but also make for an effective advertising tool to promote the company’s products. Organizing several events or sponsoring them makes for an excellent advertising opportunity. The company can organize trade fairs, or even exhibitions for advertising their products. If not this, the company can organize several events that are closely associated with their field. For instance a company that manufactures sports utilities can sponsor a sports tournament to advertise its products.

1.8.3 Broadcast advertising – Television, Radio and the Internet

Broadcast advertising is a very popular advertising medium that constitutes of several branches like television, radio or the Internet. Television advertisements have been very popular ever since they have been introduced. The cost of television advertising often depends on the duration of the advertisement, the time of broadcast (prime time/peak time), and of course the popularity of the television channel on which the advertisement is going to be broadcasted. The radio might have lost its charm owing to the new age media however the radio remains to be the choice of small-scale advertisers. The radio jingles have been very popular advertising media and have a large impact on the audience, which is evident in the fact that many people still remember and enjoy the popular radio jingles.

1.8.4 Covert Advertising – Advertising in Movies

Covert advertising is a unique kind of advertising in which a product or a particular brand is incorporated in some entertainment and media channels like movies, television shows or even sports. There is no commercial in the entertainment but the brand or the product is subtly( or sometimes evidently) showcased in the entertainment show. Some of the famous examples for this sort of advertising have to be the appearance of brand Nokia which is displayed on Tom Cruise’s phone in the movie Minority Report, or the use of Cadillac cars in the movie Matrix Reloaded.

1.8.5 Surrogate Advertising – Advertising Indirectly

Surrogate advertising is prominently seen in cases where advertising a particular product is banned by law. Advertisement for products like cigarettes or alcohol which are injurious to heath are prohibited by law in several countries and hence these companies have to come up with several other products that might have the same brand name and indirectly remind people of the cigarettes or beer bottles of the same brand. Common examples include Fosters and Kingfisher beer brands, which are often seen to promote their brand with the help of surrogate advertising.

1.8.6 Public Service Advertising – Advertising for Social Causes Public service advertising is a technique that makes use of advertising as an effective communication medium to convey socially relevant messaged about important matters and social welfare causes like AIDS, energy conservation, political integrity, deforestation, illiteracy, poverty and so on. David Oglivy who is considered to be one of the pioneers of advertising and marketing concepts had reportedly encouraged the use of advertising field for a social cause. Oglivy once said, "Advertising justifies its existence when used in the public interest - it is much too powerful a tool to use solely for commercial purposes.". Today public service advertising has been increasingly used in a non-commercial fashion in several countries across the world in order to promote various social causes. In USA, the radio and television stations are granted on the basis of a fixed amount of Public service advertisements aired by the channel.

1.8.7 Celebrity Advertising

Although the audience is getting smarter and smarter and the modern day consumer getting immune to the exaggerated claims made in a majority of advertisements, there exist a section of advertisers that still bank upon celebrities and their popularity for advertising their products. Using celebrities for advertising involves signing up celebrities for advertising campaigns, which consist of all sorts of advertising including, television ads or even print advertisements.

1.8.8 Inserts advertising

Insert advertising is brand, product or service advertising that, rather than appearing on the page of the newspaper, takes the form of loose inserts, bound-in inserts, tip-ons, product inserts such as chocolate bars, or sponsored polybags containing an onsert such as CD, DVD or special booklet.

1.8.9 Sponsorship

Sponsorship is advertising that seeks to establish a deeper association and integration between an advertiser and a publisher. The most common forms of sponsorship are content sponsorship, such as sponsored supplements, columns, microsites, and event sponsorship.

1.8.10 Display advertising Display advertising is brand, product or service advertising that appears in various sizes and positions throughout all sections of the newspapers and on all channels of the website.

1.9 Direct Marketing Direct marketing covers direct mail, telephone selling, catalogues, and ‘off- the-page’ selling via cut-outs in newspaper and magazine advertisements. Direct marketing is the USA’s third largest advertising medium, after newspapers and TV. In Western Europe, direct marketing accounts (according to the European Commission) for about a quarter of all commercial communication expenditure.

Direct mail is the dominant force of direct marketing, and is buoyant throughout the world. It offers a flexible, selective and potentially highly cost-effective means for reaching foreign consumers. Advertising budgets may be concentrated on the most promising market segments; and it will be sometime before competitors realise that the firm has launched a campaign. Also the size, content, timing and geographical coverage of mail shots can be varied to suit national circumstances, and there is no media space or airtime restrictions and no copy or insertion deadlines to be met. All aspects of the direct mail process are subject to the company’s immediate control, and it can experiment by varying the approach used in different countries. A number of factors have contributed to the increasing use of direct marketing for international campaigns, as follows:

(a) The widespread availability of free-one telephone facilities in most nations, so that it is possible to quote an international 0800 free-one telephone number to enable customers to ring free of charge in response to direct mail (and other) advertising campaigns.

(b) The growing number of independent households in many countries resulting from falling birth rates, higher divorce rates and increasing longevity.

(c) Increasing levels of female employment throughout the world. This has stimulated the use of direct mail as a primary means of selling to women who now go to work rather than spend large amounts of time shopping.

(d) New possibilities for the identification of distinct market segments among various types of family group.

(e) Vast improvements in availability of mailing lists both for households and for business-to business customers. Lists can be purchased or rented from commercial list brokers who now operate in all major trading nations.

(f) Greater competition among the providers of international mail dispatch services. 1.10 Relationship Marketing This is an approach to marketing that seeks to establish long-term relationships with customers based on trust and mutual co-operation. It involves the establishment (where possible) of personal contacts and bonds between the customer and the firm’s representatives; the eventual emergence of feelings within each party of mutual obligation, of having common goals, and of involvement with and empathy for the other side; and the integration of all the firm’s activities (not just those of a marketing department) concerned with customer care. Relationship marketing (RM) contracts with conventional ‘transactional’ marketing, which has short time horizons and focuses on securing a single sale. With transactional marketing there is limited customer contact and little emphasis on customer service. Quality is seen as a matter to be dealt with by the firm’s production department rather than something that should concern the entire organization.

Techniques of relationship marketing include the extensive provision of information on the firm and its products, personalization of communications with customers, free gifts and samples, attractive premium offers, and the careful monitoring of the relationships formed with particular customers. More fundamentally, RM is characterized by total commitment to customer care, openness, genuine concern for the delivery of high quality goods and services, responsiveness to customer suggestions, fair dealing, and (crucially) the willingness to sacrifice short-term advantage for long-term gain. Suppliers attempt to create and strengthen lasting bonds with their customers; they shift from attempting to maximize profits on each individual transaction towards the establishment of solid, dependable and above all, permanent relationships with the people they serve. Customers are seen as partners in the marketing process, not as individuals to be influenced simply in order to make a one-time sale. Note (importantly) how repeat orders from existing clientele are much more profitable to the firm than new business, because there is no need to spend money on advertising, visits by sales-people, etc. The practical implementation of RM has been greatly facilitated by recent developments in Information Technology that enable firms to hold large databases containing extensive personalized details of individual consumers. This had enabled suppliers to customize and target their promotions more precisely using differentiated messages based on known individuals in their own right. Technological breakthroughs have occurred vis-à-vis database capacity, interconnectivity, enquiry language and operational efficiency. Further reasons for the current high level of interest in RM include:

 The expansion of the Internet and the possibilities for direct interaction with geographically remote foreign customers that it provides.  The huge expansion of international direct marketing that has occurred in recent years.  Higher customer expectations in relation to levels of service.  The example of the successes achieved by large Japanese companies that place great emphasis on long-term commitment to customers and suppliers, on total quality management, and which pay meticulous attention to customer care.  More extensive consumer protection legislation (e.g., on product liability, unfair contract terms, etc.) throughout the world.

1.7 Markets as Networks Closer relations between suppliers and customers (especially business customers, as opposed to end consumers) has led to the proposition that many marketing situations can be analysed in terms of the theory of networks. A marketing network comprises a supplying company and other firms with which it has built solid, reliable, long-term business relationships. The latter businesses may be customers; further organisations with which it has established links to provide mutual assistance and support (e.g., venture for distributing several firms’ products); the company’s own suppliers; licensees or sub-contractors; or partners in new product research and development. Within networks, flows of information occur as well as exchange of money and goods. Social interactions among the various parties can also influence outcomes.

1.8 Sales Promotions Sales promotion covers the issue of coupons, the design of competitions, special offers, distribution of free samples etc. The objectives of sales promotion campaign include:  stimulation of impulse purchasing  Encouraging customer loyalty  Attracting customers to the firm’s premises  Penetration of new markets  Increasing the rate at which customers repeat their purchases. Promotional techniques need to relate to the specified aims of the exercise (free samples to enter new markets, reduced-price offers to encourage repeat purchase, money-off coupons to attract customers to the premises, etc). The use of sales promotions as a marketing weapon has expanded rapidly throughout the world. Unfortunately, however, international businesses wishing to employ sales promotions for cross-border campaigns face a number of serious practical difficulties, because in many nations the use of certain sales promotions techniques is regarded as unfair competition, and as such is subject to stringent legal control. Indeed, conflicting laws sometimes apply to these matters in various countries. Money-off vouchers example, are legal in Spain but not in Germany; ‘lower price for the next purchase’ offers are legal in Belgium, illegal in Denmark and could be illegal in Italy depending on the circumstances of the offer. Cross-product offers (buy one item and get a big price reduction on something else) are illegal in Luxembourg; while free draws are illegal in Netherlands. In Germany and certain other countries free gifts are forbidden if they constitute a genuine incentive to buy.

The justification for the latter is that the distribution of free gifts can be interpreted as a form of ‘dumping’, undertaken merely to force rival companies out of business. Other criticisms of the use of sales promotions suggested by the governments that severely restrict or ban them are that the true value of the promoted item is concealed since consumers are improperly influenced (arguably misled) by the special offer accompanying the sale, and that consumers cannot meaningfully compare the prices of similar competing goods because of the distortions and distractions that sales promotions introduce. Some governments allege moreover that large firms which possess the resources necessary to plan and implement extensive sales promotion campaigns enjoy an inequitable advantage over smaller rivals.

1.9 Summary

In this unit we have introduced the concept of advertising and its importance in marketing domain. Advertising is an important element of marketing. Through advertising the organization tries to reach the target audience. The key issues of adverting are customizing advertising or standardized advertising.

The different types of advertising range from Print, Outdoor, Broadcast, Covert, Surrogate, Public Service, Celebrity, Insert, Sponsorship, Display etc. The two other concept introduced in this unit are relationship marketing and direct marketing.

1.10 Keywords

Advertising Print Advertising Outdoor Advertising Broadcast advertising

Covert Advertising Surrogate Advertising

Public Service Advertising Celebrity Advertising

Inserts advertising Sponsorship

Display advertising Direct Marketing

Relationship Marketing Sales Promotions

Direct marketing relationship marketing

1.11 Exercise 1. Define advertising . Differentiate definitions provided by various sources. 2. What are the types of advertising? 3. Explain the laws and regulation pertaining to advertising. 4. What are the recent trend in advertising? 5. Differentiate the following: a. Print vs Broadcast advertising b. Celebrity vs sponsorship 6. Explain the concept of direct marketing in context of advertising. Unit 2 Branding in Marketing Structure:

2.1. Objectives 2.2. Introduction 2.3. Nature of Branding 2.4. Choice of Brand Name 2.5. Brand Positioning 2.6. Valuation of Brands 2.7. Country of origin effects 2.8. Determinants of Selling Prices 2.9. Pricing Strategies 2.10. Transfer Pricing 2.11. Summary 2.12. Keywords 2.13. Exercise 2.14. References

2.1. Objectives After learning this unit you will be able to understand the following issues related to Branding in marketing. - Branding and its importance - Nature of branding - Brand name and its choice - Brand positioning - Brand valuation - Brand and country - Pricing strategies

2.2. Introduction Branding is a complex process, but its goal is simple: It is the creation and development of a specific identity for a company, product, commodity, group, or person. It is carefully designed to present qualities that its creators believe will be attractive to the public, and it is meant to be developed and perpetuated for the long haul. An ad campaign launches a product. Branding, when it’s done right, creates an institution. Branding brings about so many benefits it reminds me of the saying, “You can count the number of seeds in an apple, but you can’t count the number of apples in a seed.”

There’s a difference between Coca-Cola and Pepsi. All of these are successful brand names, and they each have a distinctive personality, which may defy definition, but is easily understood by the public at large. Examine the decades-long competition between Coca-Cola and Pepsi: On the surface, these two companies’ products seem interchangeable. But more effort and money have gone into creating differences between the personalities of the brands than into differences in the products themselves.

What is Branding?

There are many different definitions of a brand, the most effective description however, is that a brand is a name or symbol that is commonly known to identify a company or it’s products and separate them from the competition.

A well-known brand is generally regarded as one that people will recognize, often even if they do not know about the company or its products/services. These are usually the businesses name or the name of a product, although it can also include the name of a feature or style of a product.

2.3. Nature of Branding A product is anything a business has to sell, whether this be a physical good or a service. ‘New’ products could be completely fresh innovations, or modifications of existing products, or copies of other firms’ products. Branding a product means giving it a trade name and/or logo and then seeking via advertising and other sales promotion to associate certain attractive characteristics with the branded item. Customers then, recognize the product and, having once been satisfied by it, need not subsequently re- evaluate its worth. Thus, little fresh information about the product has to be provided to the customer after it has been branded. Note that failure to brand a product convincingly can result in the waste of much of the firm’s advertising, since advertisements will promote the generic product category (including competitor’s versions) to which the item belongs rather than the output of the firm in question.

Brand images encapsulate whole collections of product attributes and special features. Consumers come to know what the brand represents and may thus satisfy their requirements without careful thought or research. Also they can avoid repurchasing unsatisfactory branded items. If the firm sells several products in the same foreign country it must choose whether to allocate separate brand names to individual products or establish a generic ‘family’ brand covering all versions of its output. The latter approach can be highly cost effective, especially if the various products are closely related through associated usage (toiletries for example) or a common channel or distribution, a common customer group or similarity of prices. This is because the entire product range may then be advertise under a single brand name, thus cutting the cost of advertising individual brands separately. Moreover, additions to product lines are introduced easily and inexpensively since no extra adverting or promotions need be incurred. The new product is simply incorporated into existing advertising literature – the firm does not have to establish a completely new individual brand image. Separate brands are essential, nevertheless, if the firm wishes to appeal to different market segments (e.g. in consequence of cultural differences) or where products are markedly dissimilar.

2.4. Choice of brand name Brand names used in foreign markets need to be internationally acceptable, distinct and easily recognizable, culture free, legally available and not subject to local restrictions. A brand name is far more than a device to identify supplier of a product; it is an advertisement in its own right and a means for arousing in consumers a set of emotions and mental images conducive to selling the item. Short, simple, easily read and easy-to- pronounce brand names are usually best for foreign markets. Such names can be used in several countries simultaneously, for family branding, and may be supported within advertisements by a wide variety of pictorial illustrations.

2.5. Brand Positioning Market positioning involves finding out how customers think about firm’s products in relation to competing products, with a view either to modifying the product (plus associated advertising and other publicity) to make it fit in with these perceptions, or to changing the product’s position in consumers’ minds. Positions depend on nature of the product, competing products and on how consumers see themselves (the lifestyles to which they aspire, role models, etc.) The essential issue is whether to attempt to position a brand similarly in all the nations in which the firm wishes to sell is outputs or to attempt different positions for the item in each country. A number of factors that influence the decision whether to opt for a single or different position in various countries are as follows:

(a) The degree of direct and immediate substitutability between the advertised output and locally supplied brands (if this is high the appropriate position for the product should be self-evident).

(b) The scope of the product’s appeal: Whether it sells to a broad cross- section of consumers (in relation to their age, sex, income level, lifestyle, etc.) or only within small market niches.

(c) The extent to which a product’s selling points are perceived similarly in different nations.

(d) Whether the item fulfils the same consumer needs in each market.

(e) Whether the brand name and/or product features need to be altered for use in disparate markets.

Positioning a brand in the same location in all foreign markets has a number of practical advantages, as follows:

(a) The firm can concentrate all its creative efforts on a handful of variables equally relevant to all markets.

(b) Standardization of advertising is facilitated, leading to many cost savings. (c) A similar price can be charged in each market, so that common price lists, catalogues and other price-sensitive promotional materials can be printed. Also the firm is not open to accusations of unfairly charging too high in certain markets.

(d) Similar demographic and life style variables will be researched in each country.

Hence, the firm only needs to monitor a few key statistics in the nations in which the product is sold.

Sound reasons for seeking different brand positions in various countries include: a. The existence of numerous possibilities for national stereo-typing (e.g., precision and reliability in Germany, flair and elegance in France, style in Italy and so on). Stereo typing enables the advertisers instantly (and cheaply) to associate desirable national images with certain brands. Consumers’ perceptions of a brand may be significantly influenced by the image of the country with which it is associated. b. The availability of extensive creative possibilities when drafting advertisements with nationalistic themes (windmills in The Netherlands). c. Local customers’ possible perception that locally produced goods are superior in quality (Belgian, French and German consumers are known to exhibit this characteristic for certain products).

2.6. Valuation of Brands Brand names are valuable assets in their own right. They can be sold, mortgaged, assigned to others or licensed in return for a royalty or lump sum payment. Increasingly, firms prefer to acquire local firms that already possess strong brand images in foreign countries rather than incur the expense of introducing and developing their own brands in unfamiliar markets. Also, brand values often appear as intangible assets in company balance sheets, and the amounts stated have significant implications for the borrowing powers of the firm. Ultimately, the only way to value a brand is to sell it to the highest bidder in the open market. Unfortunately, there is typically no genuine competitive market when a brand comes up for sale: bilateral haggling between the brand owner and a single possible buyer normally applies. The vendor will probably begin the negotiation from a brand valuation based on the worth of the brand when used in the vendor’s own business, which will depend on factors such as:

 The amount that has been spent on introducing and developing the brand (market research and advertising costs, agency fees, sales promotions expenses, etc.)  The competitive situation and the risk of new brands entering the market.  Whether the brand is a market leader or a market follower.  The number of countries in which the brand can be used without significant adaptation.  Trends in consumer fashion likely to affect brand performance.  An estimate of the difference between the retail price made possible by selling the firm’s output under the existing brand name and the price at which it would have to be sold if unbranded.  The long-term stability of demand (and hence of output and the use of productive capacity) created by consumer loyalty towards the brand.  Relations between the brand image and the firm’s overall corporate image. A firm considering purchasing an existing brand, conversely, will be concerned with:

 Fluctuations in annual sales and the expected life of the brand.  The brand’s ability to stand alone and create good profits without having to rely on the sales of other goods, brands or services.  The brand’s market position.  Consumer brand awareness and brand loyalty, independent of the company owing the brand.  The magnitude of the flow of income expected to be generated by the brand in comparison with the return to be had from investing in some other form of assets.

2.7. Country-of-origin Effects A consumer’s overall evaluation of a product can be influenced by his/her stereotypical image of the country from which it came. Hence, for example, certain consumers may use country of origin (COO) as a surrogate indicator of product quality, i.e, they assume that just because an item comes from a certain country it will probably be of a high (or low) standard. This is especially likely in situations where consumers have no other knowledge about a product. Whether country-of-origin effects really matter is an issue that has attracted much controversy. It has been argued that COO is used when other product information is missing, but that its use decreases as more information becomes available. Note how stereotyping can result from lags in consumer awareness of the developments occurring in particular countries, and may therefore operate unfairly against nations.

The extent to which a consumer is likely to be influenced by a product’s country of origin may depend on the following: (a) Whether a person is ethnocentric in outlook. Note that ethnocentrism has been found to be more prevalent among the less well-educated and within lower income groups.

(b) The individual consumer’s familiarity with the brand. (Country of origin will probably not be important if a person is already well-acquainted with a particular brand or product).

(c) Whether a person has traveled to other countries.

(d) The extent of an individual’s belief that local jobs depend on local people purchasing locally produced items.

(e) Whether a person pre-assumes that domestic products are innately superior to imports.

Patriotism and nationalism could also be factors. Such feelings derive from a sentimental sense of loyalty to a country or other social group and involve the idea that the country or group will be harmed by buying foreign products. Research has generally concluded that individuals who are well-educated are more favourably inclined towards imported items. The reasons for education level causing people to rate foreign products relatively more highly may be that:

 Better educated people tend to be more open-minded and less dogmatic.  Education is usually positively correlated with income, and higher income consumers buy higher priced imports thus creating a connection between (esteemed) luxury imports and education level.  The well-educated are typically more informed of current affairs in their countries and hence are more interested in items possessing a foreign image.  Better educated individuals might be more likely to be status seekers and purchase foreign goods in order to enhance their social status. Other (contentious) arguments are that:

 The more expensive the purchase the less critical is country of origin.  As consumers become increasingly familiar with a type of product the less they are influenced by COO considerations.  COO is not important if there is strong local competition in the supply of the product.

Otherwise the outcomes to research studies have been equivocal. Some investigations have concluded that women evaluate foreign products more favourably than men, and that the inclination to buy foreign products decreases as people get older. Other research has found that these variables do not exert any influence.

2.7 Determination of selling prices

The price a firm may charge for its output depends on many factors, including the following:

(a) Consumers’ perceptions of the attributes and quality of the product.

(b) Total demand for the good (which depends on consumer’s income, size of the market and seasonal and demographic factors).

(c) The degree of competition in the market.

(d) Price elasticity of demand for the product (i.e., the extent to which a price change

leads to an alteration in sales).

(e) Competitor’s likely reactions to a price cut.

(f) Consumers knowledge of the availability of substitute products.

(g) The product’s brand image and the degree of consumer loyalty.

(h) Costs of production and distribution.

Special problems apply to International (as opposed to purely domestic) pricing, particularly in relation to lack of information, uncertain consumer responses, foreign exchange rate influences and the difficulty of estimating all the extra costs (including overheads) associated with foreign sales. These extra costs might include translating and interpreting fees, export packaging and documentation costs, insurance payments, clearing agents’ fees, pre-shipment inspection and wharf age costs, and many other items. Credit periods are very long in some countries. Government price controls apply in certain states.

2.8 Pricing strategies A number of pricing strategies are available:

(a) Penetration pricing – whereby a low price is combined with aggressive advertising aimed at capturing a large percentage of the market. The firm hopes that unit production costs will fall as output is expanded. The strategy will fail, however, if competitors simultaneously reduce their prices. This long-term strategy intended to build market share. It is expensive normally involves substantial expenditures on promoting the product. Pricing at low levels in certain foreign markets might also be necessary in consequence of lower income levels of local consumers; intense local competition from rival companies; or weak demand for the product.

(b) Skimming - which is a high-price policy suitable for top-quality versions of established products. The firm must convince high-income consumers that the expensive model offers distinct improvements over the standard version. This policy requires the existence in the local market of significant numbers of high income consumer prepared to pay top prices. Products should be designed to appeal to affluent consumers, offering extra features, greater comfort, versatility or ease of operation. The firm trades off a low market share against high margin. A foreign image can help a product sustain a premium price, provided the image involves special qualities or features not available in home-supplied competing goods.

(c) Cost-plus pricing whereby the supplying firm pre-determines the length of a production run, adds up all its anticipated costs – fixed and variable – and divides estimated total cost by planned output. Some percentage mark-up is then added to get a unit price. Cost-plus pricing is problematic for firms producing several different products. Allocations of overheads to various items will be arbitrary to some extent, so that individual products may be over or under-priced. Also not all of a production run will necessarily be sold. Some units may have to be put into stock or scrapped, hence altering the unit production costs of the remaining items. And how should an international firm serving many foreign markets relate its overheads to particular markets? For example, what proportion of senior management time should be assumed to be taken up by the firm’s foreign operations? Should the business seek to cover all its costs including overheads (‘full-cost’ pricing) or merely the variable costs of foreign sales, regarding the latter as a bonus that contributes to total revenue but need not absorb overhead expenditure. (d) Product life-cycle pricing - Here the price is varied according to the stage in the product’s life cycle. Initially, a high price may be set to cover development and advertising costs. The price might then be systematically lowered to broaden the product’s appeal.

2.9 Transfer pricing Transfer pricing means the determination of the ‘prices’ at which an MNC moves goods between its subsidiaries in various countries. A crucial feature of large centralized MNCs is their ability to engage in transfer pricing at artificially high or low prices. To illustrate, consider an MNC which extracts raw materials in one country, uses them as production inputs in another, assembles the partly finished goods in a third, and finishes and sells them in a fourth. The governments of the extraction, production and assembly countries will have sales or value added taxes; while the production, assembly and finished goods countries will impose tariffs on imports of goods. Suppose the MNC values its goods at zero prior to their final sale at high prices. The government of the extraction country receives no revenue from sales taxes because the MNC’s subsidiary in that country is selling its output to the same MNC’s subsidiary in the production country at a price of zero. Equally the production country raises no income from import tariffs on this transaction because the raw materials are imported at zero price! The only tax the MNC pays is a sales tax in the last country in the chain. Transfer pricing at unacceptably low values has been a major problem for many developing nations. Sometimes, therefore, the government of the country in which an MNC operated the government officially shall decide the price at which the MNC exports its output, not an employee of the MNC itself. Thus the government of host country will ensure that it receives an appropriate amount of sales tax. Similarly importing countries might impose quantity-based instead of price-based import duties to ensure reasonable revenue from taxes on imports of an MNC’s goods.

Tax considerations aside, transfer prices need to be realistic in order that the profitability of various international operations may be assessed. Possible criteria for setting the transfer price include:  The price at which the item could be sold on the open market (known as ‘arms length’ transfer pricing).  Cost of production or acquisition.  Acquisition/production cost plus a profit markup (note the problem here of deciding what constitutes an appropriate profit markup).  Senior management’s perceptions of the value of the item to the overall international operations.  Political negotiations between the units involved (a high or low transfer price can drastically affect the observed profitability of a subsidiary). Note the problems that arise if the ‘buyer’ happens to be the head of the firm.

Normally the solution adopted is at which (seemingly) maximises profits for the company taken as a whole and which best facilitates the parent control over subsidiary operations. Arm’s length pricing is the method generally preferred by national governments and is recommended in a 1983 Code of Practice on the subject drafted by the Organisation for Economic Co- operation and Development (OECD). Note how a subsidiary that charges a high transfer price will accumulate cash, which might be invested more profitably in the selling country than elsewhere. Problems with setting a realistic transfer price are as follows: (a) Differences in the accounting systems used by subsidiaries in different countries. (b) Executives in operating units deliberately manipulating the transfer price to enhance the book value of a subsidiary’s profits. (c) Disparate tax rates and investment subsidy levels in various countries. (d) Possible absence of competition in local markets at various stages in the supply chain. Thus a ‘market price’ in such an area may be artificially high in consequences of the lack of local competition. (e) There might not be any other product directly comparable to the item in question, again making it difficult to establish a market price. (f) If a price is set at too high a level the ‘selling’ unit will be able to attain its profit targets too easily (at the expense of the ‘buyer’) and lead perhaps to idleness and inefficiency in the selling subsidiary. Special problem arises when goods are being transferred among the partners of joint venture. Should the various members of the venture be regarded as subsidiaries or as independent business required to pay the market price?

2.10 Summary  Marketing is the process of planning and executing the conception, pricing promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives.

 Domestic marketing involves one set of uncontrollable variables derived from the domestic market. International marketing is much more complex because a marketer faces two or more sets of uncontrollable variables originating from various countries.

 Differentiated international marketing strategies involve the modification of products and promotional messages to take account of cultural, linguistic, legal and other national characteristics.

 An undifferentiated marketing strategy means the application of an identical marketing mix in all countries, and is normally cheaper to implement than the differentiated approach.

 Concentrated marketing involves focusing the entire firm’s attention on a handful of markets and applying a different marketing mix to each market.

2.11 Keywords Branding Nature of Branding

Brand images Brand Positioning

Valuation of Brands Pricing strategies Penetration pricing Transfer pricing

Skimming Cost-plus pricing

Product life-cycle pricing

2.12 Exercise

1. Write the importance of Branding? 2. Write briefly about the following: a. Pricing Strategies b. Transfer Pricing 3. Why do firms brand their products? 4. List the main pricing strategies available to an international firm.

Unit 3 Marketing Information System

Structure:

3.1 Objectives 3.2 Introduction 3.3 Characteristics of MIS 3.4 Benefits of MIS 3.5 Types of Marketing Information 3.6 Components of MIS 3.6.1 Internal reporting systems 3.6.2 Marketing research systems 3.6.3 Marketing intelligence systems 3.6.4 Marketing Models 3.7 Decision making using IS 3.7.1 Strategic decision making 3.7.2 Management control decisions 3.7.3 Operational control decisions 3.8 Summary 3.9 Keywords 3.10 Exercise 3.1 Objectives The major objective of this unit is to make the student to understand the importance of marketing information system in marketing and decision making in the context of marketing and sales management.

3.2 Introduction The marketing environment is fast changing. As companies expand their geographical market coverage, their managers need more information more quickly. Similarly, as income improves, buyers become more selective in their choice of goods. To predict buyers’ response to different features, styles and other attributes of goods, sellers must turn to marketing research. Again, as sellers increase their reliance on branding, product differentiation, advertising and sales promotion, they require more information on these marketing tools and techniques. Given the above-mentioned changes, the need for marketing information is greater now than it had been at any other point of time earlier. This unit looks at Marketing Information System from various angles.

3.3 Characteristics of MIS Philip Koller defined MIS as “a system that consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers.” Characteristics of MIS are as follows: 1. MIS is a consciously-developed master plan for information flow. It is an on- going process. It operates continuously. 2. We have best integration and co-ordination among the functional departments, executives and specialists such as system analysts, programmers and computer expert. 3. MIS is future-oriented. It anticipates, prevents and solves marketing problems. It is a preventative as well as curative process in marketing. 4. Management gets a sturdy flow of information on a regular basis. MIS provides the right information to the right people at the right time and cost.

3.4 Benefits of MIS The various benefits that flow from marketing information are listed below: 1. It helps marketing planning by making available reliable information on the external environment and the internal realities of the company. 2. It ensures effective tapping of marketing opportunities and provides effective defense against emerging marketing threats. 3. It helps early spotting of changing trends; it provides market intelligence to the firm. 4. It facilitates the development of action programmes for achieving goals. 5. It helps the firm adjust its products and services to the needs and tastes of the customers. 6. It helps the firm in gaining control over its marketing activities. 7. The quality of marketing decisions is decided to a great extent by the quality of marketing information available to the decision-maker. 3.5 Types of Marketing Information I. Classification based on end use. a) Information for marketing planning. b b) Information for marketing operation. c) Information for key decisions in marketing. d) Information for marketing control.

II.Classification based on subject matter. a) Product b) Consumer c) Pricing d) Distribution channels e) Promotion f) Sales force g) Competition h) Sales methods i) Internal operations of the firm. j) External environment of the firm.

3.6 Components of a marketing information system

A marketing information system (MIS) is intended to bring together disparate items of data into a coherent body of information. An MIS is, as will shortly be seen, more than raw data or information suitable for the purposes of decision making. An MIS also provides methods for interpreting the information the MIS provides. Moreover, as Kotler's1 definition says, an MIS is more than a system of data collection or a set of information technologies: "A marketing information system is a continuing and interacting structure of people, equipment and procedures to gather, sort, analyse, evaluate, and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their marketing planning, implementation, and control".

The following figure illustrates the major components of an MIS, the environmental factors monitored by the system and the types of marketing decision which the MIS seeks to underpin.

Fig 3.1 : The marketing information systems and its subsystems

The explanation of this model of an MIS begins with a description of each of its four main constituent parts: the internal reporting systems, marketing research system, marketing intelligence system and marketing models. It is suggested that whilst the MIS varies in its degree of sophistication - with many in the industrialised countries being computerised and few in the developing countries being so - a fully fledged MIS should have these components, the methods (and technologies) of collection, storing, retrieving and processing data notwithstanding.

3.6.1 Internal reporting systems: All enterprises which have been in operation for any period of time nave a wealth of information. However, this information often remains under-utilized because it is compartmentalized, either in the form of an individual entrepreneur or in the functional departments of larger businesses. That is, information is usually categorised according to its nature so that there are, for example, financial, production, manpower, marketing, stockholding and logistical data. Often the manager, or various personnel working in the functional departments holding these pieces of data, do not see how it could help decision makers in other functional areas. Similarly, decision makers can fail to appreciate how information from other functional areas might help them and therefore do not request it.

The internal records that are of immediate value to marketing decisions are: orders received, stockholdings and sales invoices. These are but a few of the internal records that can be used by marketing managers, but even this small set of records is capable of generating a great deal of information. Below, is a list of some of the information that can be derived from sales invoices.

- Product type, size and pack type by territory - Product type, size and pack type by type of account - Product type, size and pack type by industry - Product type, size and pack type by customer - Average value and/or volume of sale by territory - Average value and/or volume of sale by type of account - Average value and/or volume of sale by industry - Average value and/or volume of sale by sales person

By comparing orders received with invoices an enterprise can establish the extent to which it is providing an acceptable level of customer service. In the same way, comparing stockholding records with orders received helps an enterprise ascertain whether its stocks are in line with current demand patterns.

3.6.2 Marketing research systems: The general topic of marketing research has been the prime ' subject of the textbook and only a little more needs to be added here. Marketing research is a proactive search for information. That is, the enterprise which commissions these studies does so to solve a perceived marketing problem. In many cases, data is collected in a purposeful way to address a well-defined problem (or a problem which can be defined and solved within the course of the study). The other form of marketing research centers not around a specific marketing problem but is an attempt to continuously monitor the marketing environment. These monitoring or tracking exercises are continuous marketing research studies, often involving panels of farmers, consumers or distributors from which the same data is collected at regular intervals. Whilst the ad hoc study and continuous marketing research differs in the orientation, yet they are both proactive.

3.6.3 Marketing intelligence systems: Whereas marketing research is focused, market intelligence is not. A marketing intelligence system is a set of procedures and data sources used by marketing managers to sift information from the environment that they can use in their decision making. This scanning of the economic and business environment can be undertaken in a variety of ways, including2

Unfocused The manager, by virtue of what he/she reads, hears and watches scanning exposes him/herself to information that may prove useful. Whilst the behaviour is unfocused and the manager has no specific purpose in mind, it is not unintentional

Semi- Again, the manager is not in search of particular pieces of focused information that he/she is actively searching but does narrow the scanning range of media that is scanned. For instance, the manager may focus more on economic and business publications, broadcasts etc. and pay less attention to political, scientific or technological media.

Informal This describes the situation where a fairly limited and search unstructured attempt is made to obtain information for a specific purpose. For example, the marketing manager of a firm considering entering the business of importing frozen fish from a neighbouring country may make informal inquiries as to prices and demand levels of frozen and fresh fish. There would be little structure to this search with the manager making inquiries with traders he/she happens to encounter as well as with other ad hoc contacts in ministries, international aid agencies, with trade associations, importers/exporters etc.

Formal This is a purposeful search after information in some systematic search way. The information will be required to address a specific issue. Whilst this sort of activity may seem to share the characteristics of marketing research it is carried out by the manager him/herself rather than a professional researcher. Moreover, the scope of the search is likely to be narrow in scope and far less intensive than marketing research

Marketing intelligence is the province of entrepreneurs and senior managers within an agribusiness. It involves them in scanning newspaper trade magazines, business journals and reports, economic forecasts and other media. In addition it involves management in talking to producers, suppliers and customers, as well as to competitors. Nonetheless, it is a largely informal process of observing and conversing.

Some enterprises will approach marketing intelligence gathering in a more deliberate fashion and will train its sales force, after-sales personnel and district/area managers to take cognisance of competitors' actions, customer complaints and requests and distributor problems. Enterprises with vision will also encourage intermediaries, such as collectors, retailers, traders and other middlemen to be proactive in conveying market intelligence back to them.

3.6.4 Marketing models: Within the MIS there has to be the means of interpreting information in order to give direction to decision. These models may be computerised or may not. Typical tools are:

- Time series sales modes - Brand switching models - Linear programming - Elasticity models (price, incomes, demand, supply, etc.) - Regression and correlation models - Analysis of Variance (ANOVA) models - Sensitivity analysis - Discounted cash flow - Spreadsheet 'what if models

These and similar mathematical, statistical, econometric and financial models are the analytical subsystem of the MIS. A relatively modest investment in a desktop computer is enough to allow an enterprise to automate the analysis of its data. Some of the models used are stochastic, i.e. those containing a probabilistic element whereas others are deterministic models where chance plays no part. Brand switching models are stochastic since these express brand choices in probabilities whereas linear programming is deterministic in that the relationships between variables are expressed in exact mathematical terms.

3.7 Decision making using IS

A decision maker in an enterprise is expected to make decision which have a positive effect on its future. Information systems should support their activities. Today, databases and web-based resources, accessed through effective communications, make information about the past rapidly available. To project the future the decision maker either has to use intuition or employ other tools, and initialize them with information obtained from an information system to such tools. An effective information system should also support forecasting the future. Since choices are to be made, including the case of not doing anything, such a system must also support the comparative assessment of the effects of alternate decisions.

Marketing information system enables a marketing manger to take decision on various aspects of marketing and sales.

Decision making is often seen as the centre of what managers do, something that engages most of a managers time. It is one of the areas that information systems have sought most of all to affect (with mixed success). Decision making can be divided into 3 types: strategic, management control and operations control.

3.7.1 Strategic decision making: This level of decision making is concerned with deciding on the objectives, resources and policies of the organization. A major problem at this level of decision making is predicting the future of the organization and its environment, and matching the characteristics of the organization to the environment. This process generally involves a small group of high-level managers who deal with very complex, non-routine problems.

For example, some years ago, a medium-sized food manufacturer in an East African country faced strategic decisions concerning its range of pasta products. These products constituted a sizeable proportion of the company's sales turnover. However, the company was suffering recurrent problems with the poor quality of durum wheat it was able to obtain resulting in a finished product that was too brittle. Moreover, unit costs were shooting up due to increasingly frequent breakdowns in the ageing equipment used in pasta production. The company faced the decision whether to make a very large investment in new machinery or to accept the offer of another manufacturer of pasta products, in a neighbouring country, that it should supply the various pasta products and the local company put its own brand name on the packs. The decision is strategic since the decision has implications for the resource base of the enterprise, i.e. its capital equipment, its work force, its technological base etc. The implications of strategic decisions extend over many years, often as much as ten to fifteen years.

3.7.2 Management control decisions: Such decisions are concerned with how efficiently and effectively resources are utilised and how well operational units are performing. Management control involves close interaction with those who are carrying out the tasks of the organisation; it takes place within the context of broad policies and objectives set out by strategic planners.

An example might be where a transporter of agricultural products observes that his/her profits are declining due to a decline in the capacity utilisation of his/her two trucks. The manager (in this case the owner) has to decide between several alternative courses of action, including: selling of trucks, increasing promotional activity in an attempt to sell the spare carrying capacity, increasing unit carrying charges to cover the deficit, or seeking to switch to carrying products or produce with a higher unit value where the returns to transport costs may be correspondingly higher. Management control decisions are more tactical than strategic.

3.7.3 Operational control decisions: These involve making decisions about carrying out the " specific tasks set forth by strategic planners and management. Determining which units or individuals in the organisation will carry out the task, establishing criteria of completion and resource utilisation, evaluating outputs - all of these tasks involve decisions about operational control.

The focus here is on how the enterprises should respond to day-to-day changes in the business environment. In particular, this type of decision making focuses on adaptation of the marketing mix, e.g. how should the firm respond to an increase in the size of a competitor's sales force? should the product line be extended? should distributors who sell below a given sales volume be serviced through wholesalers rather than directly, and so on.

Within each of these levels, decision making can be classified as either structured or unstructured. Unstructured decisions are those in which the decision maker must provide insights into the problem definition. They are novel, important, and non-routine, and there is no well-understood procedure for making them. In contrast, structured decisions are repetitive, routine, and involve a definite procedure for handling them so that they do not have to be treated each time as if they were new.

Structured and unstructured problem solving occurs at all levels of management. In the past, most of the success in most information systems came in dealing with structured, operational, and management control decisions. However, in more recent times, exciting applications are occurring in the management and strategic planning areas, where problems are either semi-structured or are totally unstructured. Making decisions is not a single event but a series of activities taking place over time. Suppose, for example, that the Operations Manager for the National Milling Corporation is faced with a decision as to whether to establish buying points in rural locations for the grain crop. It soon becomes apparent that the decisions are likely to be made over a period of time, have several influences, use many sources of information and have to go through several stages. It is worth considering the question of how, if at all, information systems could assist in making such a decision. To arrive at some answer, it is helpful to break down decision making into its component parts.

There are four stages in decision making: intelligence, design, choice and implementation. That is, problems have to be perceived and understood; once perceived solutions must be designed; once solutions are designed, choices have to be made about a particular solution; finally, the solution has to be implemented.

Intelligence involves identifying the problems in the organisation: why and where they occur with what effects. This broad set of information gathering activities is required to inform managers how well the organisation is performing and where problems exist. Management information systems that deliver a wide variety of detailed information can be useful, especially if they are designed to report exceptions. For instance, consider a commercial organisation marketing a large number of different products and product variations. Management will want to know, at frequent intervals, whether sales targets are being achieved. Ideally, the information system will report only those products/product variations which are performing substantially above or below target.

Designing many possible solutions to the problems is the second phase of decision making. This phase may require more intelligence to decide if a particular solution is appropriate. Here, more carefully specified and directed information activities and capabilities focused on specific designs are required.

Choosing among alternative solutions is the third step in the decision making process. Here a manager needs an information system which can estimate the costs, opportunities and consequences of each alternative problem solution. The information system required at this stage is likely to be fairly complex, possibly also fairly large, because of the detailed analytic models required to calculate the outcomes of the various alternatives. Of course, human beings are used to making such calculations for themselves, but without the aid of a formal information system, we rely upon generalisation and/or intuition.

Implementing is the final stage in the decision making process. Here, managers can install a reporting system that delivers routine reports on the progress of a specific solution, some of the difficulties that arise, resource constraints, and possible remedial actions.

In practice, the stages of decision making do not necessarily follow a linear path from intelligence to design, choice and implementation. Consider again the problem of balancing the costs and benefits of establishing local buying points for the National Milling Corporation. At any point in the decision making process it may be necessary to loop back to a previous stage. For example, one may have reached stage 3 and all but decided that having considered the alternatives of setting up no local buying points, local buying points in all regions, districts or villages, the government decides to increase the amounts held in the strategic grain reserve. This could cause the decision maker to return to stage 2 and reassess the alternatives. Another scenario would be that having implemented a decision one quickly receives feedback indicating that it is not proving effective. Again, the decision maker may have to repeat the design and/or choice stage(s). Thus, it can be seen that information system designers have to take into account the needs of managers at each stage of the decision making process. Each stage has its own requirements.

The various models described earlier section helps the manager to make effective decision at the right time.

3.7. Summary

In this unit we have explained the importance of marketing information system and how it does helps the decision maker in decision making. Further we have made an attempt to illustrate the various phases of decision making and how a manager can make use of the decision making phases effectively using the models. This unit also briefs about different marketing models that can be used in decision making. We have also brought in the concept of marketing intelligence and how it can be used in decision making.

3.8 Keywords Internal reporting systems Marketing research systems

Marketing intelligence systems Marketing models Strategic decision making Management control decisions

Operational control decisions 3.9 Exercise

1. What is marketing information system?

2. Explain the different characteristic of MIS and benefits of MIS.

3. Explain different types of marketing information with an example.

4. What are the components of MIS?

5. Differentiate market research and market intelligence.

6. Name the different marketing models which used in MIS.

7. Differentiate Management control decisions and operational control decisions.

8. What are the different types of decision making? Unit 4

Customer Relationship Management

Structure: 4.1 Objectives 4.2 Introduction 4.3 Relationship Marketing vs Relationship Management 4.4 Definitions Customer Relationship Management 4.5 Forms of Relationship Management 4.6 Managing Customer Loyalty and Development 4.7 Reasons behind Losing Customers by Organisations 4.7.1 Price related reasons 4.7.2 Product related reasons 4.7.3 Services related reasons 4.7.4 Benefit related reasons 4.7.5 Competitor related reasons 4.7.6 Personal reasons 4.8 Significance of Customer Relationship Management 4.9 Broadening the concept of Relation 4.10 Integration of Soft and Hard Versions of Relationship Marketing 4.11 Social Actions Affecting Buyer-Seller Relationships 4.12 Summary 4.13 Keywords 4.14 Exercises 4.15 References

4.1 Objectives The major objectives are to

- explain the meaning, need and relevance of customer relationship management - know the price, product, service etc. - reasons for losing customers by organizations - to know the concept of customer loyalty - other issues affecting CRM

4.2 Introduction A customer is the most important person in this office…in person or by mail. A customer is not dependent on us … we are dependent on him. A customer is not an interruption of our work… he is the purpose of it. We are not doing him a favour by serving him… he is doing us a favour by giving us the opportunity to do so. A customer is not someone to argue or match wits with. Nobody ever won an argument with a customer. A customer is a person who brings us his wants. It is our job to handle them profitably to him and to ourselves.

The above lines speak volumes about the value of a customer to an organization. As we cross the threshold of the new millennium- the age of

“never satisfied” customer, leading enterprises are identifying the need to change from a product-centric business to a customer-centric one.

Organizations are slowly waking up to the benefits as well as the challenge of changing processes that are necessary in modern times. Today, the customer is the sovereign. If the companies would like to retain their customers, the golden path is to make the customers loyal to their products/services. This is where CRM comes into picture. Building loyalty into customers involves understanding the various ways that they are different and using that knowledge to tailor appropriate behaviour towards those customers. To do so, the company must know the details of who the customers are, not just as group or segments of customers, but each and every individual customer. Details of whether the customer is profitable, or whether the customer does business with the competitors etc., should be found out. This understanding will lead to a successful implementation of CRM.

This unit throws light on the ways of building good customer relationship.

4.3 Relationship Marketing Vs. Relationship Management The relationship marketing approach considers customers as insiders to the business and aims at building a long term and never-ending relationship with them. The focus of relationship marketing approach centers around developing ‘hard core loyal’ customers with the idea of retaining them forever. A high degree of customers’ contact, commitment and services are maintained.

The relationship marketing approach has gradually taken the shape of customer relationship management. Relationship marketing has a narrow focus on the customers and focuses only on the marketing function of the organization concerned. On the other hand, customer relationship management focuses more widely on customers and on the entire functions connected with value creation and delivery chain of the organization concerned. The customer relationship management is a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches. The process invites total commitment on the part of entire organization in evolving and implementing relationship strategies that would be rewarding to all concerned.

Organisations have preferred the usage of the term ‘Customer Relationship Management’ rather than ‘Customer Relationship Marketing’. However, in practice, both these terms are used interchangeably.

4.4 Definitions of Customer Relationship Management Berry defines CRMS as “attracting, maintaining and-- in multi-service organizations--- enhancing customer relationships.”

Berry and Parasuraman define CRMS as “attracting, developing and retaining customer relationships.”

In industrial marketing, Jackson defines CRMS as “marketing oriented toward strong, lasting relationships with individual accounts.”

Doyle and Roth define CRMS as “the goal of relationship selling is to earn the position of preferred supplier by developing trust in key accounts over a period of time.”

The sequence of activities for performing relationship marketing would include developing core services to build customer relationship, customization of relationship, augmenting core services with extra benefits, and enhancing customer loyalty and fine-tuning internal marketing to promote external marketing success.

Christopher considers relationship marketing as “ a tool to turn current and new customers into regularly purchasing clients and then progressively moving them through being strong supporters of the company and its products to finally being active and vocal advocates for the company.”

Relationship marketing is in essence “selling by using psychological rather than economic inducements to attract and retain customers. It seeks to personalize and appeal to the hearts, minds and purses of the mass consumers.”- James J. Lynch

Thus, “Customer Relationship Management is about acquiring, developing and retaining satisfied loyal customer; achieving profitable growth, and creating economic value in company’s brand,”

From the above definitions, it could be concluded that Customer Relationship Management refers to all marketing activities directed towards establishing, developing, and sustaining long lasting, trusting, win-win, beneficial and successful relational exchanges between the focal firm and all its supporting key stakeholders.

CRM is not a new concept but an age-old practice, which is on the rise because of the benefits it offers, especially in the present marketing scenario. So, CRM today is a discipline as well as a set of discrete software and technology which focuses on automating and improving the business process associated with managing customer relationships in the area of sales, marketing, customer service and support. CRM helps companies understand, establish and nurture long-term relationships with clients as well as help in retaining current customers. The most important step that an organization has to take in the direction of CRM is to create an interdisciplinary team to review how the organization interacts with each customer and determine how to improve and extend the relationship.

4.5 Forms of Relationship Management An extensive review of literature reveals ten different but interrelated forms of relationship marketing as mentioned below:

1. The partnering involved in relational exchanges between manufacturers and their external goods suppliers.

2. Relational exchanges involving service providers, as between advertising or marketing research agencies and their respective clients.

3. Strategic alliances between firms and their competitors, as in technology alliances; co-marketing alliances and global strategic alliance.

4. Alliances between a firm and non-profit organizations, as in public- purpose partnerships.

5. Partnerships for joint research and development, as between firms and local, state, or national governments. 6. Long-term exchanges between firms and ultimate customers, as particularly recommended in the services marketing area.

7. Relational exchanges of working partnerships as in channels of distribution.

8. Exchanges involving functional departments within a firm.

9. Exchanges between a firm and its employees, as in internal marketing.

10. Within firm relational exchanges involving such business units as subsidiaries, divisions or strategic business units. These different forms of relationship marketing both jointly and severally

influence the emergence and growth of enduring long-term dyadic, triadic

network, and web of relationships between the focal firm and its supporting

key stakeholders.

4.6 Managing Customer Loyalty and Development Managing customer-development process is one of the critical dimensions of

relationship marketing. Basically it involves a twin focus-customer catching,

and customer keeping. ‘Customer catching’ is the process of attracting new

customers (inviting new blood), while the customer keeping aims at the

process of retaining the existing ones (encouraging old blood). The

dynamics of managing customer loyalty and development are shown in the

following figures 4.1. Customer – Development Process:

Customer catching focus Customer keeping focus

Zero customer defection Suspects (preventive & proactive)

Prospects First-time Repeat Client Advocate Partner customer Customer (Awareness) (Expansion) ( Commitment ) (Exploration)

Disqualified inactive prospects ex-customers

(Dissolution)

Win them back (curative and reactive)

Fig. 4.1 : Customer – Development Process To understand customer relationship management, we must first examine the process involved in attracting and keeping the customers. The starting point is suspects. Suspect is everyone who might conceivably buy the product or service. The company looks hard at the suspects to determine who the most likely prospects are. The prospects are those people who have a strong potential interest in the product and the ability to pay for it. Disqualified prospects are those whom the company rejects because they have poor credit or would be unprofitable. The company hopes to convert many of its qualified prospects into first- time customers, and to then convert those satisfied first-time customers into repeat customers. Both first - time and repeat customers may continue to buy from competitors as well. The company then acts to convert repeat customers into clients. Clients are those people who buy only from the company in the relevant product categories. The next challenge is to turn the clients into advocates. Advocates are those people who praise the company and encourage others who buy from it. Ultimate challenge is to turn advocates into partners, where the customer and the company work actively together. At the same time, it must be recognized that some customers will inevitably become inactive or drop out for various reasons causing relationships to dissolve. The company’s challenge is to reactivate the dissatisfied customers through customer win-back strategies. It is often easier to re-attract ex-customers than to find new ones. Unfortunately, the traditional marketing approach with its emphasis on making sales rather than building relationships fails to achieve this.

4.7 Reasons behind Losing Customers by Organisations It is said that cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy. It requires a great deal of effort to induce satisfied customers to switch away from their current suppliers. Unfortunately, most marketing theory and practice center on the art of attracting new customers rather than retaining existing ones. The emphasis traditionally has been on making sales rather than building relationships. The focus has been on pre-selling and selling rather than on caring for the customer afterwards. Today, however, more companies are recognizing the importance of satisfying and retaining the current customers. Today’s companies must pay closer attention to their defection rate and take steps to reduce it. The possible reasons for customer defection would include:

4.7.1 Price related reasons: A customer tries to match the price to pay for acquiring a brand and the value the brand could generate. If the customer perceives a mismatch between the price and the value, he would opt for a competitor’s brand. Also, if the price of brand for any reason goes beyond his reach, he would switch over to a low priced brand. Thus, the role of price in customer retention is very significant.

4.7.2 Product related reasons: In view of technological advancement, the new brand which makes market entry would be capable of offering better performance as compared to the already existing brand. This would induce the customers to make a brand switch over.

4.7.3 Services related reasons: The customer’s concentration is not only on the brand, but also on the accompanying services offered at three different stages--pre-sales, during sales and after sales. Any dissatisfaction as regards to services would cause the customer to move away from the brand.

4.7.4 Benefit related reasons: The customers may be attracted by various augmented benefits offered by the competitors. Such benefits may be more appealing and induce customers towards brand changes.

4.7.5 Competitor related reasons: Technological advancement, attractive offers, value added services, etc., offered by competitors would also draw the attention and induce customers towards brand switching.

4.7.6 Personal reasons: On the personal front, a customer would become a brand defector due to the following reasons:  Moved away from the market area where the brand is sold.  Role changes in life cycle and consequently leading changes in brand preference.  Anger, disgust, distress developed within the process of product delivery.  Sentimental reasons.  Influence of other members of the family.

The organization must periodically analyze the reasons behind losing customers and accordingly develop a customer retention plan that would serve as the basic tool towards building a strong and long lasting relationship with customers.

4.8 Significance of Customer Relationship Management  Reduction in customer recruitment cost.  Generation of more and more loyal customers.  Expansion of customer base.  Reduction in advertisement and other sales promotion expenses.  Increase in the number of profitable customers.  Easy introduction of new products.  Easy business expansion possibilities.  Increase in customer partnering. The customers are also benefited by relationship marketing in terms of improved service quality, personalized care, reduction of customer stress, increased value for money, customer empowerment, etc.

In today’s highly competitive business world, CRM is becoming the ultimate solution for both, customers as well as organizations. Any organization must have a clear idea as to why it loses its customers. This would help informing proactive and reactive measures to minimize or avoid the same. This chapter mainly focuses on the causes responsible for losing customers and deals at length, the various strategies that can be employed to build and maintain long term relationship with customers, enabling a reader to consolidate relevant strategies suitable to his business context.

Traditional Organizational Chart Vs Modern Customer – Oriented Company

Organization Chart Fig. 4.2 : Traditional Organizational Chart Vs Modern Customer – Oriented

Company Organization Chart

Many managers who believe that the customer is the key to profitability considered the traditional organization chart as in fig. (a) – a pyramid with the president at the top, management in the middle, and front-line people

(sales and service people, telephone operators, receptionists) and customers at the bottom – to be obsolete. Master marketing companies know better; they invert the chart, as shown in fig. (b) above. At the top of the organization are the customers. Next in importance are the front-line people who meet, serve, and satisfy the customers. Under them are the middle managers, whose job is to support the front-line people so they can serve the customers well. Finally, at the base is top management whose job is to support the middle managers. We have added customers along the sides of

Fig. (b) to indicate that all the company’s managers are personally involved

in knowing, meeting, and serving customers.

4.9 Broadening the concept of Relationship Marketing

Companies should realise that there are multiple constituencies important to

organizational success other than customers. The stakeholders of an

organization would include: investors, the financial community, vendors and

suppliers, employees, competitors, the media, neighbours and community

leaders, special interest groups, and government agencies. These

stakeholders can affect and be affected by a company’s marketing

programme. Adopting an integrated view of multiple constituencies has

bottom-line implications. Kotter and Heskett (1992) found that firms that

emphasised the interests of three constituencies--customers, employees and Employees External goods Investors and

suppliers stakeholders – outperformed those that emphasisedFinancial only one or two.

Ultimate CommunityService provider Figure Showing Integrated View of Multiple Corporate Constituencies Customers (ad and marketing Functional departments Subsidiaries,research divisions, (interfunctional co- agencies ordination Strategic business units (SBU’s) among production, finance, marketing, R & FOCAL FIRM ChannelD, of HRM) distribution Completions (strategic aliances: technology, co- (distribution and dealers) marketing and global)

Neighbours and Government agencies Community leaders Government-local Special interest

State, and central Groups in the society (joint R & D projects) Government-local

State, and central

(joint R & D projects)

Fig.4.3: Integrated View of Multiple Corporate Constituencies

4.10 Integration of Soft and Hard Versions of Relationship Marketing

At this juncture, it is necessary to clarify and elaborate the ‘soft’ and ‘hard’ versions of relationship marketing. Soft version of relationship marketing is more reminiscent of ‘humanistic relationship development’, whereas the hard version reflects a ‘utilitarian instrumentalism’. The soft version lays stress on the term ‘relatinoship’, thus conjuring up echoes of the relationship management. Because it strongly advocates that all management is basically relationship management and all managers are relationship managers. It invariably focusses on ‘developmental humanism’ as a foundation to build and nurture enduring relationships in marketing exchanges. On the other hand, the hard version puts the stress on the idea of ‘marketing’, that is something to be used dispassionately and in a formally rational manner.

Various elements constituting both the versions of relationship marketing are shown in the following table.

Table 1: Integration of soft and hard versions of relationship marketing

Soft version Hard version Integrated Version R  Relational exchanges M  Measure and manage R with role clarity and economic and service E relationship performance. E  commitment L Analysis, planning, Empathy, A  implementation, and A empowering, control of marketing L  envisioning, ethics & programmes T A  excellence Reversal of cycle of failure I T  Leadership. R  Kill a culture of O K I  Accommodating spirit.  complacency and N arrogance. Trust and team spirit. S E External marketing O  Involvement and  effectiveness. H inspiration. T Targeting, segmenting, and I N Ownership of mistakes   positioning. and ideas. P External and interactive Negotiation and I S marketing.  nurturing spirit.  M Networks. Satisfaction beyond N H  expectations.  A

I Hopes of becoming G Goal attainment. R P  better.  K

 Integrity. E

Pride, purpose and T perseverance I

4.11 Social Actions Affecting Buyer-Seller Relationships

Good Things Bad Things

Initiate positive phone calls. Make only callbacks.

Make recommendations. Make justifications.

Candor in language. Accommodative language.

Use phone. Use correspondence.

Show appreciation. Wait for misunderstandings.

Make service suggestions. Wait for service requests.

Use “we” problem-solving language. Use “owe-us” legal language.

Get to problems. Only respond to problems.

Use jargon or shorthand. Use long-winded communications. Personality problems aired. Personality problems hidden.

Talk of “our future together”. Talk about making good on the past.

Routinize responses. Fire drill and emergency responsiveness. Accept responsibility. Shift blame.

Plan the future. Rehash the past.

Source: Thedone Levitt, The Marketing Imagination (New York: Free Press, 1983) p. 119. Reprinted by permission of the Harvard Business Review. An exhibit from Theodore Levitt, “After the Sale is Over”, Harvard Business Review (September-October 1983, p. 119). Copyright @ 1983 by the President and Fellows of Harvard College.

4.12 Summary  The focus of relationship marketing approach centers around developing ‘hard core loyal’ customers with the idea of retaining them forever.  The customer relationship management is a process of acquiring customers by understanding their requirements, retaining customers by fulfilling their requirements more than their expectations and attracting new customers through customer specific strategic marketing approaches.  Customer Relationship Management is about acquiring, developing and retaining satisfied loyal customer; achieving profitable growth, and creating economic value in company’s brand,”  CRM is becoming the ultimate solution for both, customers as well as organizations.

4.13 Keywords Customer Relationship Management Forms of Relationship Management

Managing Customer Loyalty and Customer – Development Process Development

Soft and Hard Versions of Relationship

4.14 Exercise 1. Define customer relationship marketing. 2. State the various forms of customer relationship marketing. 3. What are the various reasons for losing customers by organisations? 4. State the significance of customer relationship management.

MODULE 5 Unit 1

Introduction to marketing research

Structure:

3.7 Objectives

3.8 Introduction

3.9 Features of Marketing Research

3.10 Scope of Marketing Research

3.11 Types of Marketing Research

1.5.1 Market Measurement Research

1.5.2 Marketing MIX Research

1.5.3 Researches of Uncontrollable Factors

1.6 Marketing Research Process

1.6.1 Defining the problem

1.6.2 Research Design

1.6.3 Collection of information

1.6.4 Analyze the information

1.6.5 Presentation of Report 1.7 Need and Objectives of Marketing Research

1.8 Importance and Advantages of Marketing Research

1.9 Limitations of Marketing Research

1.10 Summary

1.11 Keywords

1.12 Exercise

1.13 References

1.1 Objectives

In this unit we are able to understand the following :

– Marketing Research

– Features of Marketing Research

– Scope and types of Marketing Research

– Need and objectives of Marketing Research

– Importance Advantages and limitations of Marketing Research

1.2 Introduction The marketing decision process has become complex and needs an effective marketing information system. This is because:

1) Consumer interest and market considerations are the kingpins of

marketing decisions.

2) The market tends to show both variety and complexity.

3) There are multifarious factors guiding consumer behaviour.

Along with these, the changing character of markets, increasing environmental impacts, emergence of consumerism, unknown competition, volatility of international political relationship, changing production function and development of technology, have created great difficulties in making efficient marketing decisions. Marketing decision- making is both a problem and a challenge. To meet this challenge effectively, much information is needed by the manager. This task of collecting, recording and analysing relevant data is done by marketing research. As a result, it has emerged as one of the important components of marketing information system.

Definition:

AMA defines Marketing Research as “systematic gathering, recording and analysing of data about problems relating to marketing of goods and services.” A.G.R. Delens defines MR as “systematic study and evaluation of all factors bearing on any business operation which involves transfer of goods from a producer to a consumer.”

1.3 Features of Marketing Research

Search for data: It is a search for data which are relevant to marketing

problems- problems in different functional areas of marketing such as

consumer behaviour, product, sales, distribution channel, pricing,

advertising and physical distribution.

It is systematic: It has to be carried out in a systematic manner rather than

haphazard way. The whole process should be planned with a clear

objective.

It should be objective: Objectivity is more important in any result. It means

that the research is neither carried on to establish an opinion nor is

intentionally slanted towards pre-determined results.

It is a process: It involves various steps for gathering, recording and

analysing of data.

1.4 Scope of Marketing Research The need for marketing research is felt by the marketing manager for different purposes which decide the scope of marketing research. It is undertaken to guide managers in their analysis, planning, implementation and control of programmes to satisfy consumers and organisational goals.

Therefore the scope of marketing research stretches from the identification of consumer wants and needs, to evaluation of consumer satisfaction. It includes.

1) Consumer research

2) Product research

3) Sales research

4) Market research

5) Distribution channel research

6) Advertising research

7) Pricing research

8) Physical distribution research

9) Post transaction research

These researches can be classified as follows:

1.5 Types of Marketing Research Market Measurement Marketing Mix Competition Research of

Research Research Research Uncontrollable

Factors

Demand research Product research

Market performance Price research

research Promotion research

Motivation research Distribution channel research

Policy research

Method and effect research

1.5.1 Market Measurement Research: Carried on to obtain information

on potential demand and market performance.

a) Demand Research: Carried on to find out how much a particular

product can be sold in a given market. It includes:

– Determination of market potential.

– Measurement of market potential.

– Short-run and long-run sales potential.

b) Market Performance Research: Carried on to measure the existing

market. It includes:

– Study of market size. – Study of market profits.

– Market share analysis.

– Determining market characteristics.

– Study on market segments.

– Sales forecasting and study of trends.

c) Motivation Research: It studies the buyer behaviour and attitude to

expand the market in a particular place. It includes:

– Study of consumer profile.

– Study of consumer tastes, preferences and reaction.

– Study of shifts in consumption pattern.

– Study of consumer dissatisfaction and sources of dissatisfaction.

1.5.2 Marketing Mix Research: It includes the following:

a) Product Research: Carried on to study new product acceptances and

competitive position. It involves:

– Studying product line, product quality, features, design and

rationalisation of product lines.

– Studying the actual uses of a given product.

– Studying the new uses of a given product.

– Studying the related products and nature of relationship.

– Studying about packaging, packing design, material size etc. – Study the servicing requirements. b) Price Research: Carried on to study effective demands at various

prices and corresponding costs of supplying product. It involves:

– Evaluating the pricing strategy of the firm.

– Assessing the general pattern of pricing followed by the industry.

– Measuring price elasticity of demand.

– Competitors’ reactions to the price strategy of the firm. c) Promotion Research: Carried on to solve various questions such as

what should be the promotion budget etc. It includes:

– Advertising research.

– Advertising cost benefit research.

– Media research.

– Advertising effectiveness research.

– Personal selling research.

– Efficacy of sales promotion research. d) Distribution Channel Research: Carried on to reveal the precise

area of weaknesses in the flow of goods and services.

– Measuring relative effectiveness of different types of distribution

intermediaries. – Measuring dealer reactions to company’s price, product and

services.

– Dealer’s percentage of competitive brand.

– Measuring the relative effectiveness of different modes of

transportation.

– Distribution cost analysis. e) Policy Research: Carried on to decide marketing policy and

inventory policy. It provides necessary data and information to

predict future marketing conditions and decides suitable policies in

every area of marketing management. f) Method and Effect Research:

– Testing new sales programmes.

– Analysing problems of selling.

– Analysing of salesmen territories.

– Study on compensation to salesmen. g) Competition Research: Carried on to reveal the competitive

position of the company as well as to know the strengths and

weaknesses.

– Study of competitors’ product improvement. – Measuring the impact of competitors’ price, advertising channels

and sales method.

1.5.3 Researches of Uncontrollable Factors: It reveals the parameter

within which manager has to adopt various policies and procedures.

Factors which affect marketing manager are sometimes not under the

control. These factors have to be intensively studied to find out

workable premises to take appropriate marketing decision.

The scope of marketing research indicates the span of research operation,

which the marketing people may be called upon to perform. However, it

is not exhaustive. New problems may be faced which increase the scope

of marketing research. Therefore the actual scope depends upon the

specific needs of the company and compulsions in marketing situation to

which the company is exposed.

1.6 Marketing Research Process

It refers to a set of sequential steps to be followed to complete the task of research. Each step is independent but is closely related to other steps. It is independent in the sense that each step has a unique and decisive role. It is inter-dependent because the result of the preceding step is the basis for the succeeding step. The steps involved in most marketing research tasks are as follows:

I. Identifying the Problem:

a) Identifying and defining the problem.

b) Setting up specific research objectives.

II. Developing the Research Plan and Research Design:

a) Decision on the data sources.

b) Decision on research approaches.

c) Decision on research instruments.

d) Decision on sample plan.

e) Decision on contact methods.

III. Collection of Information:

a) Designing data collection forms.

b) Field work.

IV. Analysing the Information:

a) Editing

b) Coding

c) Tabulating

d) Analysing

e) Drawing conclusions V. Presenting the Findings:

a) Preparation of report

b) Recommendations and follow up.

1.6.1 Defining the Problem

a) Identifying and defining the problem: Problem well-defined is half

solved. Therefore defining correctly the problem is the most

important part of any marketing research. Researchers have to

identify, define and conceptualise the real problem. Real issues may

not be apparent and apparent issues may be deceptive. Care has to

be taken while defining the problem.

b) Setting up specific research objectives: Once the problem has been

defined, the researcher has to frame the specific research objectives.

They are a broad frame within which research has to be conducted.

To this, the researchers have to address themselves to the ‘why’

aspect of the study.

1.6.2 Research Design It the blue print of the research project and when implemented must bring out the information required for solving the identified marketing problem. It calls for the following decisions.

a) Decision on Data Sources: The researcher has to decide which data

sources to use. There are two data sources available. They are:

i)Primary data or data collected for specific purpose.

ii)Secondary data which are collected for some other purpose.

Secondary data has an advantage over primary data in terms of cost,

availability and time. It has the drawback of relevance to specific

situation. The decision regarding data sources depends upon the

usefulness of the data and its cost.

b) Decision on Research approaches: There are 5 types of research

approaches. They are:

i) Observational research: Fresh data is being collected by

observing the situation and the people in the situation.

ii) Focus group research: Collecting information from few

people who are invited to discuss the matters.

iii) Survey research: Collecting information by conducting

elaborate survey regarding people knowledge, beliefs, tastes

and preferences. iv) Behavioural research: Information collected by learning the

behaviour of the consumer.

v) Experimental research: Collecting information by conducting

experiment in a controlled environment where one or two

elements are left to operate and other factors are being

controlled. c) Decision regarding research instruments: There are mainly two

types of research instruments. They are:

i) Questionnaire: A set of questions logically arranged presented

to the respondents to answer.

ii)Mechanical devices: Mechanical devices such as galvanometer

to measure interest and emotions, eye cameras to study eye

movement etc., can be used. d) Decision on sampling plan: The preparation of the sampling plan

calls for the following decisions:

i) Sampling unit: The researcher has to define the universe in

which he is conducting research. He has to answer who is to be

surveyed. ii) Sample size: He has to decide what should be the size of the

sample or answer the question how many people need to be

surveyed.

iii) Sampling procedure: Further, he has to decide what should be

the method for selecting the samples. There are two methods of

sampling. They are:

Probability sampling – which is further classified into simple

random sampling, stratified random sampling and cluster

sampling, non-probability sampling – which is further classified

into convenience sampling, quota sampling, judgement sampling.

e) Decision on contact methods: Lastly, the researcher has to take a

decision regarding the contact methods. The respondent can be

contacted personally or through mail, telephone, or on-line

interviews.

1.6.3 Collection of information

a) Designing the form: For eliciting the required information, the

researcher has to prepare the form which contains questions to be

asked to the respondents. The form should be designed in such a

way that the information can be collected with speed and accuracy.

The form of the questionnaire depends upon the nature of the information sought, the kind of respondents and data collection

methods.

b) Field Work: The researchers have to appoint well-trained people to

collect the information from samples selected for the research. They

must be properly trained, directed and motivated.

1.6.4 Analyze the information

a) Editing: It is done in two stages. The first stage is the field-editing

which is done to detect the glaring omissions and inaccuracies,

immediately after collection because the interviewers have fresh

memory about the lapses and wrong statements. The second stage

editing is office-editing to evaluate completed return. This is done

by a complete thorough scrutiny of the questionnaire.

b) Coding: It consists of assigning symbols and numericals to each

answer. It is a technical procedure for categorizing the data. It

transforms the raw data into symbols and numerals.

c) Tabulation: It is the process of arrangement of data in rows and

columns to identify what is the number of cases in each category.

d) Data analysis: The tabulated data has to be analyzed. Appropriate

technique of analysis should be utilized to analyze the data. It is a

process of converting the data into information which helps in decision-making by eliminating useless data and making the useful

data comparable.

e) Drawing conclusion: It is converting data into information. This

requires a high interpretation skill. There are two methods of

drawing conclusions. They are:

Induction method- In this method, a statement is drawn from

observed data to specific conclusions. It is from observation.

Deduction method – It starts from general to particular. It is towards

observation.

1.6.5 Presentation of Report

The effectiveness of the report depends upon the methods of

communication and presentation of the research report. A very useful

research, if not presented properly, may not serve the purpose.

a) Preparation of the report: The user of the data is not the researcher

himself. The managers use those findings which are properly

understood. Therefore the report has to be prepared in such a

manner which helps the manger in understanding data and the

conclusions drawn. It should be simple to implement and easy to understand. It should contain the title page, table of contents,

executive synopsis, methodology, objectives, limitations, findings,

conclusions and recommendations, appendix and bibliography.

b) Recommendations and follow up: Recommendations given in the

report should be practicable and implementable. The efficacy of the

research report can be maintained by follow up activities. The

principal researcher has to take a careful review of the facts found in

the research report. He must try to find out the inefficiencies in the

report and make it a clear report. This process includes control,

quality, appropriateness and acceptability.

1.7 Need and Objectives of Marketing Research

Marketing research may be conducted for different purposes. The main objectives or purposes of marketing research are:

i) To estimate the potential market for a new product to be introduced in

the market.

ii) To know the reactions of the consumers to a product already existing

in the market.

iii) To find out the general market conditions and tendencies.

iv) To know the reasons for failure of a product already in the market. v) To find out the better methods of distributing the products to the final

consumers.

vi) To know the types of consumers buying a product and their buying

motives, to know their opinions about the product and to get their

suggestions for the improvement of a product. vii) To assess the strength and weakness of the competitors. viii) To know the dimensions of the marketing problems.

ix) To ascertain the distribution methods suited to the product and the

market.

x) To estimate the market share of a firm.

xi) To assess the probable sales volume of a firm. xii) To assess the reaction of the consumers to the packaging of the firm

and to make packaging as attractive as possible.

1.8 Importance and Advantages of Marketing Research

Marketing research has become a very important tool today. The success of a business enterprise depends upon the ability of its marketing managers to make correct and sound marketing decisions and marketing research is the basis for making sound marketing decisions.

Marketing research has several advantages. They are: 1. Marketing research helps the management of a firm in planning its

product line by providing accurate and up-to-date information about

the customers’ demands, their changing tastes, attitudes, preferences,

buying habits, etc.

2. It helps the manufacturer to adjust his production according to the

conditions of demand.

3. It helps to establish correlative relationship between the product brand

and consumers’ needs and preferences.

4. It helps the manufacturer to secure economies in the distribution of his

products.

5. It makes the marketing of goods efficient and economical by eliminating

all type of wastage.

6. It helps the manufacturer and dealers to find out the best way of

approaching the potential buyers.

7. It helps the manufacturer to find out the defects in the existing product

and take the required corrective steps to improve the product.

8. It helps the manufacturer in finding out the effectiveness of the existing

channels of distribution and in finding out the best way of distributing

the goods to the ultimate consumers. 9. It guides the manufacturer in planning his advertising and sales

promotion efforts.

10. It is helpful in assessing the effectiveness of advertising programmes.

11. It is helpful in evaluating the relative efficiency of the different

advertising media.

12. It is helpful in evaluating selling methods.

13. It reveals the causes of consumer resistance.

14. It minimizes the risks of uncertainties and helps in taking sound

decisions.

15. It reveals the nature of demand for the firm’s product. i.e. it indicates

whether the demand for the product is constant or seasonal.

16. It is helpful in ascertaining the reputation of the firm and its products.

17. It helps the firm in determining the range within which its products are

to be offered to the consumers. That is, it is helpful in determining the

sizes, colours, designs, prices, etc., of the products of the firm.

18. It would help the management to know how patents, licensing

agreements and other legal restrictions affect the manufacture and sale

of the firm’s products. 19. It is helpful to the management in determining the actual prices and the

price ranges.

20. It is helpful to the management in determining the discount rates.

21. It is helpful to the management in ascertaining the price elasticity of

demand for its products.

22. It helps the firm in knowing the marketing and pricing strategies of the

competitors.

23. It is helpful in knowing the general conditions prevailing in the markets.

24. It is helpful to the management in finding out the size of the market for

its products.

25. It helps the firm in knowing its market share over various time periods.

26. It is quite helpful to a firm in launching a new product.

27. It helps the firm in knowing the transportation, storage and supply

requirements of its products.

28. It helps the firm in exploring new uses for its existing products and

thereby increases the demand for its products.

29. It is helpful to a firm in making sales forecasts for its products and

thereby, establishes harmonious adjustment between demand and

supply of its products. 30. It helps the firm in exploring new markets for its products.

1.9 Limitations of Marketing Research

1. It is not a Panacea: Marketing research does not provide solutions to

all marketing problems. But offers accurate information, which can be

used to arrive at suitable decisions to solve problem.

2. Not an exact science: It deals with human behaviour and as such

cannot be examined in a controlled environment. There are various

controllable and uncontrollable factors which influence marketing

forces. This gives scope for wrong conclusions.

3. Limitation of time: Its process is lengthy and needs long time to

complete it. During the period between starting the research and

implementation of decisions, the situation and assumptions may have

changed drastically which reduces the utility of the research report.

Decisions based on such report prove to be obsolete and result in false

conclusions.

4. Erroneous findings: The complicated problems may not have been

comprehensively studied and their impact may not be properly

analyzed by the researcher on account of insufficient fund, time and technique. This leads to erroneous findings which disappoint the

management.

5. Not an exact tool of forecasting: It cannot be used as a fool-proof tool

of forecasting because there are a number of intervening factors

between the findings of the research and marketing complex. The

forces act, react and interact to give a complex state, which is difficult

to be studied.

6. Inexperienced research staff: It needs great expertise and well-

trained and experienced researcher, interviewer and investigator.

7. Narrow Conception of Marketing Research: Marketing research is a

fact-finding exercise. It is not problem-oriented. It is of low and

questionable validity.

8. Involves high cost: It is considered as a luxury for the management as

it involves high cost.

9. Limitations of tools and techniques: The validity of marketing research

is also limited by the limitation of tools and techniques involved.

10. It is passive: Its use and effectiveness largely depends upon the ability

of executives to get the most value out of it.

1.10 Summary  Marketing Research is the systematic gathering, recording and analysing

of data about problems relating to marketing of goods and services.

 The changing character of markets, increasing environmental impacts,

emergence of consumerism, unknown competition, volatility of

international political relationship, changing production function and

development of technology, have created great difficulties in making

efficient marketing decisions.

 To predict buyers’ response to different features, styles and other

attributes of goods, sellers must turn to Marketing Research.

 Internal record system supplies result data whereas marketing

intelligence system supplies happenings data.

 Marketing research may be conducted by the employees of the

organisation or companies can hire the services of marketing research

 The task of collecting, recording and analysing relevant data is done by

Marketing Research.

 Marketing Research Process refers to a set of sequential steps to be

followed to complete the task of research.

 Features of Marketing Research:  Search for data

 It is systematic

 It should be objective

 It is a process

 The scope of marketing research indicates the span of research

operation, which the marketing people may be called upon to perform.

 The research report should contain the title page, table of contents,

executive synopsis, methodology, objectives, limitations, findings,

conclusions and recommendations, appendix and bibliography.

1.11Keywords

1.12Exercises

Marketing Research Market Measurement Research

Demand Research Market Performance Research

Motivation Research Marketing Mix Research

Product Research Price Research

Promotion Research Distribution Channel Research

Policy Research Method and Effect Research

Competition Research Marketing Research Process

Research Design 1) Explain the benefits of MIS. 2) Define Marketing Research. Explain its advantages.

3) Explain the process of Marketing Research.

4) What are the different types of Marketing Research?

5) Discuss the scope of Marketing Research.

6) Write a note on limitations of Marketing Research.

Unit 2

Market Research Data Analysis

Structure:

2.1 Objectives

2.2 Introduction

2.3 Tools and techniques Marketing Research

2.3.1 Survey Research Design

2.3.2 Questionnaires 2.3.3 Interviews

2.4 Tabulation and Analysis

2.5 Statistical Tools in data analysis and interpretation

2.6 Types of Data and Levels of Measurement

2.7 Tools of Data Analysis

2.8 Summary

2.9 Keywords

2.10 Exercise

2.1. Objectives

After learning this unit you will be able to understand :

– The different methods of data collection

– Importance of tabulation and collection of data

– Analysis of the data – Statistical Tools in Research data analysis

2.2. Introduction

In the previous unit we have learnt the concept of market research. In this unit we shall discuss about the methods one can adopt to collect the market research data. Data collected by any method is row in nature and cannot be used for decision making. To make it usable, the data collected need to be tabulated and then analyzed. In this unit we present the tools, methods of data collection, tabulation, and analysis of data using statistical tools.

2.3. Tools and techniques of market research

In market research, generally survey and interview methods are adopted by the market researchers.

2.3.1 Survey Research Design The basic idea behind survey methodology is to measure variables by asking people questions and then to examine relationships among the variables. In most instances, surveys attempt to capture attitude or patterns of past behavior. About the only options are whether to ask people questions once or over time. The most commonly seen survey uses the cross-sectional design, which asks questions of people at one point in time. These kind of surveys are highly fallible because the researcher may or may not be able to analyze the direction of causal relationships. Adding retrospective (past behavior) and prospective (future propensities) items to a cross-sectional survey may help, but generally it's more useful to have a longitudinal design, which asks the same questions at two or more points in time. The three subtypes of longitudinal design are: the trend study, which is basically a repeated cross-sectional design, asking the same questions to different samples of the target population at different points in time; the cohort study, which is a trend study that tracks changes in cohorts (people belonging to an organization or location who experience the same life events) over time; and the panel study, which asks the same questions to the same people time after time. Trend studies essentially look at how concepts change over time; cohort studies at how historical periods change over time; and panel studies at how people change over time. Surveys vary widely in sample size and sampling design. A distinction can be made between large-scale, small-scale, and cross-cultural studies. Large- scale probability surveys are the ideal, and the target population is a whole country, like the India. Typical large-scale surveys of a national population use a sample size of 1500-3000 respondents, but can run much larger. Small- scale surveys sometimes involve non probability sampling, and a typical sample size of 200-300 respondents, although students on tight budgets often use smaller samples. Comparative or cross-cultural surveys usually involve

3-6 nations, and sample sizes that typically involve 1000 people per nation.

The term "survey" actually refers to one, or some combination of two, procedure(s): questionnaires; and interviews. A questionnaire almost always is self-administered, allowing respondents to fill them out themselves. All the researcher has to do is arrange delivery and collection. An interview typically occurs whenever a researcher and respondent are face-to-face or communicating via some technology like telephone or computer. There are three subtypes of interviews: unstructured, which allows spontaneous communication in the course of the interview or questionnaire administration; structured, where the researcher is highly restricted on what can be said; and semi structured, which restricts certain kinds of communication but allows freedom on discussion of certain topics. Survey research design suffers from inherent weaknesses. The greatest weakness is probably due to the fact that all surveys are basically exploratory. You can make inferences, but not at the level of cause-and effect and ruling out rival hypotheses, like you can with experimental or quasi-experimental research. Other survey weaknesses include:

 Reactivity -- respondents tend to give socially desirable responses

that make them look good or seem to be what the researcher is

looking for

 Sampling Frame -- it's difficult to access the proper number and type

of people who are needed for a representative sample of the target

population

 Non-response Rate -- a lot of people won't participate in surveys, or

drop out

 Measurement Error -- surveys are often full of systematic biases,

and/or loaded questions

Either survey or interview, during survey, we use questionnaire as a tool to collect the data. Questionnaire is a set of questions having both open ended and closed ended questions on the stated market research and its objectives.

2.3.2 Questionnaires Researchers who plan to use questionnaires usually start by writing the questions themselves. After a rough draft is created, the researcher then analyzes their questions to see which ones are related to their variables list.

The variables list contains the key concepts or theoretical constructs that are contained in the research question and/or hypotheses. Care is taken to ensure that questions cover every concept, and there is no duplication or excessive coverage of any one concept. Terminology is important at this point, and some researchers try to mix jargon with the operational definitions of their concepts. Generally, the less intelligent or more highly specialized your respondents, the more the researcher uses jargon, or plain, everyday language. A questionnaire, of course, can contain scales and indexes from the extant literature.

The ways to increase response rate involve timing and remuneration. Timing is the name for a variety of techniques involving pre-survey phone calls or postcards telling respondents that a survey is coming their way soon. After the survey has been mailed or delivered, timing also involves a follow-up

"friendly" reminder to complete the survey. Sometimes, respondents will admit to things in completing the survey just to make the reminders stop.

Remuneration takes many forms "In the name of science" and "help me out with my class research project while in college" appeals do not usually tend to increase response rates. Some respondents also take you up on any offer to receive a copy of your finished research report, when done. The best incentive is cash money, attached to the questionnaire, so that respondents feel guilty about keeping the money and not answering the survey.

Personalization also increases response rate. Handwritten P.S. messages, along with anything personal about the researcher's qualifications and previous publications, are the kinds of things that respondents like to read.

Other personal touches include endorsements from prominent individuals.

The order of questions is an important consideration. Although it's commonplace, demographic information, like age, sex, race, etc. is best located in the middle or end of the questionnaire. People tire of seeing surveys asking for basic information up front. You should begin with some question that immediately captures public interest.

You get the idea -- you surround your key question with build-up questions, fillers, filters, and distracters. The craft of questionnaire design is to do all this mixing up, and still maintain what looks like a usable and consistent set of questions. In fact, you ought to provide readers with short, transition paragraphs when you switch gears, as in "Now you're going to be asked about a completely different topic...." There's much, much more to the art of questionnaire design, and you should avail yourself of a complete college course on the Logic of Survey Design.

2.3.3 Interviews

The general rule for interviewing is to record responses verbatim. This usually means you should use some type of recording device, or write down word-for-word what the respondent says. To get at incriminating information, you can shut down the recording device, and try to write down what they said later. Structured interviews, of course, use precoded response categories (SA, A, D, SD) which you can tailor to more sophisticated responses depending upon feedback from your pretest (Strongly agree, agree, disagree, strongly disagree). This requires you to be familiar with the terminology and jargon used in the population.

Unstructured or semi-structured interviews allow you to explore various issues in depth with respondents. If you start getting into life history, you're probably doing depth interviewing, which is something completely different.

It is all right, however, for you, the interviewer to talk about how you would answer a question, as long as this is to clarify the purpose of the question or set up an instructional pattern. Self-disclosure should be avoided if it seems like it's leading to interviewer bias. Interviews are wonderful opportunities to impress the importance of confidentiality on respondents.

A somewhat important issue with interviewing is time of day. Some people are diurnal and others are nocturnal, which means they talk more during the day or at night. Many criminal justice populations are nocturnal, so you get the best information at night. However, safety issues must be kept in mind.

Interviewers should not be overdressed nor underdressed. Some time should be spent at the beginning to build up a rapport with the respondent.

Be prepared to use probes. Probes, or probing questions are whatever's necessary when you get responses like "Hmm" or "I guess so", and your probe should be "What did you mean by that?" Don't be satisfied with monosyllabic answers. Simple yes or no answers usually call for probing, unless the protocol suggests otherwise. Always exit the interview diplomatically. That way, you haven't ruined it for others who might follow you.

Telephone interviews usually are better than computer interviews, although neither substitutes for the good observational skills of face-to-face interviewing. The most common sampling procedure with telephones is random digit dialing. The most common computer method is a web-based series of questions allowing for chat or bulletin board posting. Various software programs exist that can be loaded onto laptops and used to guide face-to-face interviews. Other technology exists to content analyze keywords captured by recording or computer devices.

2.4. Tabulation and Analysis

This is the phase where the collected data is coded for the tabulation purpose. The tabulated data becomes easy to analyze and becomes useful to apply any statistical tools. Tabulation is the primary function of Data

Analysis. The data is validated and analyzed to generate tables in a organization-specified format that helps the researcher to interpret the results of the survey and present it to the organization.

For the purpose of tabulation, Data are often recorded manually on data sheets. Unless the numbers of observations and variables are small the data must be analyzed on a computer. The data will then go through three stages:

Coding: the data are transferred, if necessary to coded sheets.

Typing: the coded data are typed and stored in the application packages that are used for analysis such as SPSS and MS EXCEL. Editing: the data are checked by comparing the two independent typed data.

The standard practice for key-entering data from paper questionnaires is to key in all the data twice. Ideally, the second time should be done by a different key entry operator whose job specifically includes verifying mismatches between the original and second entries. It is believed that this

"double-key/verification" method produces a 99.8% accuracy rate for total keystrokes.

Types of error: Recording error, typing error, transcription error (incorrect copying), Inversion (e.g., 123.45 is typed as 123.54), Repetition (when a number is repeated), Deliberate error.

2.5. Statistical Tools in Research data analysis

Developments in the field of statistical data analysis often parallel or follow advancements in other fields to which statistical methods are fruitfully applied. Because practitioners of the statistical analysis often address particular applied decision problems, methods developments is consequently motivated by the search to a better decision making under uncertainties. Decision making process under uncertainty is largely based on application of statistical data analysis for probabilistic risk assessment of your decision.

Managers need to understand variation for two key reasons.

First, so that they can lead others to apply statistical thinking in day to day activities and secondly, to apply the concept for the purpose of continuous improvement. Statistical models are currently used in various fields of business and science.

2.6. Type of Data and Levels of Measurement

Information can be collected in statistics using qualitative or quantitative data.

Qualitative data, such as eye color of a group of individuals, is not computable by arithmetic relations. They are labels that advise in which category or class an individual, object, or process fall. They are called categorical variables.

Quantitative data sets consist of measures that take numerical values for which descriptions such as means and standard deviations are meaningful.

They can be put into an order and further divided into two groups: discrete data or continuous data. Discrete data are countable data, for example, the number of defective items produced during a day's production. Continuous data, when the parameters (variables) are measurable, are expressed on a continuous scale. For example, measuring the height of a person.

The first activity in statistics is to measure or count. Measurement/counting theory is concerned with the connection between data and reality. A set of data is a representation (i.e., a model) of the reality based on a numerical and measurable scales. Data are called "primary type" data if the analyst has been involved in collecting the data relevant to his/her investigation. Otherwise, it is called "secondary type" data.

Data come in the forms of Nominal, Ordinal, Interval and Ratio (remember the French word NOIR for color black). Data can be either continuous or discrete. The following table details about the data types. Table 2.1 : Measurement Scales

Both zero and unit of measurements are arbitrary in the Interval scale. While the unit of measurement is arbitrary in Ratio scale, its zero point is a natural attribute. The categorical variable is measured on an ordinal or nominal scale. Measurement theory is concerned with the connection between data and reality. Both statistical theory and measurement theory are necessary to make inferences about reality. Since statisticians live for precision, they prefer Interval/Ratio levels of measurement.

2.7. Tools Of Data Analysis

The domain of statistics provides various tools to analyze the data. The tools include different types of parametric and non parametric tests. The tests include z test, f test, t test, Chi Square test, variance analysis (single variance and multi variance), correlation and regression analysis, factor analysis and ratio analysis etc. The detailed description of this domain is dealt in research methods and statistics in elective stream.

2.8. Summary

In this unit we have briefly described the methods of market related data collection, tabulation of collected data and analysis of the same using various tools. However, we have not discussed the tools used in analysis as it is out side the purview of the unit.

2.9. Keywords

Survey Research Design Questionnaires

Interviews Tabulation and Analysis 2.10. Exercise

1. What are different types of data? Give example.

2. Explain the survey of market research method.

3. Explain the interview method of research.

4. Differentiate survey and questionnaire method of research

5. Name some of the statistical tools that the market research

experts use for analysis.

6. What are types of errors one might encounter in market

research data analysis? Unit 3

International Marketing

Structure:

3.1 Objectives

3.2 Introduction

3.3 Nature of International Marketing

3.4 Benefits of International Marketing

3.5 The International Marketing concept

3.6 The Marketing MIX

3.7 Approaches to International Marketing

3.8 International Product Policy

3.9 Summary 3.10Keywords

3.11Exercise

3.1 Objectives

 Explain the nature of International Marketing.

 Comment on International product policy.

 Explain International advertising.

3.2 Introduction

International marketing is the application of marketing orientation and marketing techniques to international business. The essential principles of marketing apply to international operations as much as they do to domestic trade, although a global outlook is required and the problems of international marketing are more extensive than for internal trade.

International marketing requires multilingual communications. In addition, numerous cultural factors too have to be taken into account. This unit deals with the concept of International Marketing in detail. 3.3 Nature of International Marketing

L.S. Walsh defines international marketing as:

(a) The marketing of goods and services across national frontiers; and

(b) The marketing operations of an organisation that sells and/or produces

within a given country when:

(i) That organisation is a part of, or associated with, an enterprise which

also operates in other countries; and

(ii) There is some degree of influence on or control of that

organisation’s marketing activities from outside the country in

which it sells and/or produces.

According to American Marketing Association, international marketing is the multinational process of planning and executing the conception, pricing promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives.

Information on foreign markets will often be in foreign languages; may be hard to obtain; and is frequently difficult to interpret. Further, problems that arise in the course of international (as opposed to domestic) marketing are as follows:

(a) Products and promotional methods may have to be modified to suit the

needs of specific countries.

(b) Foreign market environments might be turbulent and unpredictable.

(c) Distribution channels are sometimes very long and involve many

intermediaries.

(d) International marketing managers require a wide range of marketing

skills.

(e) Diverse national laws on advertising, consumer protection, sales

promotion, direct marketing, etc., need to be taken into consideration.

(f) Pricing decisions have to take account of currency exchange rate

fluctuations.

(g) Market research is more expensive than for domestic marketing, and

can be extremely problematic.

(h) Competitors’ behaviour may be difficult to observe.

(i) Special packaging and labeling might be required.

Domestic Marketing Vs. International Marketing: Domestic marketing involves one set of uncontrollable variables derived from the domestic market. International marketing is much more complex because a marketer faces two or more sets of uncontrollable variables originating from various countries. The marketers must cope with different cultural, legal, political and monetary systems.

3.4 Benefits of International Marketing:

1. Survival: Most countries lack market size, resources and opportunities

and hence they must trade with others to survive.

2. Growth of Overseas Markets: Developing countries in spite of economic

and marketing problems are excellent markets. The world market is four

times larger than the US market. Hence many US companies grow by

going international. For example, in case of Amway Corp., a privately

held US manufacturer of cosmetics, soaps and vitamins. Japan

represents a larger market than the United States.

3. Sales and Profits: Foreign markets constitute a larger share of the total

business of many firms that have wisely cultivated markets abroad. IBM

and Compaq sell more computers abroad than at home. In the case of Coca-Cola, international sales account for more than 80 percent of the

firm’s operating profits.

4. Diversification: Demand for most products is affected by such cyclical

factors as recession and such seasonal factors as climate. The

unfortunate consequence of these variables is sales fluctuations which

can frequently be substantial enough to cause layoffs of personnel. One

way to diversify a company’s risk is to consider foreign markets as a

solution for variable demand.

5. Inflation and Price Moderation: Imports can also be highly beneficial to

a country because they constitute reserve capacity for local economy.

Without imports, there is no incentive for domestic firms to moderate

their prices. The lack of imported product alternatives forces consumers

to pay more resulting in inflation and excessive profits for local firms.

6. Employment: Trade restrictions in US in 1930s contributed significantly

to the great depression and caused wide-spread unemployment.

Unrestricted trade, on the other hand, improves the word’s GNP and

enhances employment generally for all nations.

7. Standard of Living: Trade affords countries and their citizens’ higher

standard of living than otherwise possible. Without trade, products shortages force people to pay more for less. Trade also makes it easier

for industries to specialize and gain access to raw material, while at the

same time fostering competition and efficiency. A diffusion of

innovations across national boundaries is a useful by-product of

international trade.

3.5 The International Marketing Concept

The ‘marketing concept’ is the idea that a firm should seek to evaluate market opportunities before production, assess potential demand for good, determine the product characteristic desired by consumers, predict the prices consumers are willing to pay, and then supply goods corresponding to the needs and wants of target markets. Adherence to marketing concept means the firm conceives and develops products to satisfy consumer wants.

For international marketing, this means the integration of the international side of the company’s business with all aspects of its operations, and the willingness to create new products and adapt existing products to satisfy the needs of world markets. Products may have to be adapted to suit the tastes, needs and other characteristics of consumers in specific regions, rather than it being assumed that an item which sells well in one country will be equally successful elsewhere.

3.6 The Marketing Mix

Marketing is a collection of activities that includes selling, advertising public relations, sales promotions, research, new product development, package design, merchandising, the provision of after-sales service, and exporting.

The term marketing mix describes the combination of marketing elements used in a given situation. Appropriate mixtures vary depending on the firm and industry. Major elements of the marketing mix can be listed under four headings:

(a) Promotion: Including advertising, merchandising, public relations, and

the utilisation of sales people.

(b) Product: Design and quality of output, assessment of consumer needs,

choice of products to be offered for sale and after-sales service.

(c) Price: Choice of pricing strategy and prediction of competitor’s

responses.

(d) Place: Selection of distribution channels and transport arrangements. A firm’s marketing mix will normally (but not necessarily) have to be adapted for international (as opposed to purely domestic) marketing in consequence of the many national differences that exist in relation to stages of economic development (manifest in income levels and lifestyles), social systems, technological environments, legal frameworks, competitive situation, business practices and cultural perspectives. Promotion policy, for example, has to consider disparate laws and regulations on advertising and sales promotions, while pricing policies need to take into account wide variations in norms relating to credit and delivery terms in various states.

3.7 Approaches to International Marketing

Differentiated international marketing strategies involve the modification of products and promotional messages to take account of cultural, linguistic, legal and other national characteristics. An undifferentiated marketing strategy, conversely, means the application of an identical marketing mix in all countries, and is normally cheaper to implement than the differentiated approach. Here, the firm offers exactly the same product using identical promotional images and methods in a wide range of markets. Differences in market segments are ignored. Products are designed and advertised in order to appeal to the widest possible range of consumers. Concentrated marketing involves focusing the entire firm’s attention on a handful of markets and applying a different marketing mix to each market. The markets involved could be particular countries, or types of customer with common characteristics but resident in several different countries.

3.8 International Product Policy

A fundamental decision that has to be taken by companies operating internationally is whether to supply to foreign markets the firm’s existing product, or modify the product to suit the needs of each foreign country.

Product modification is appropriate where there exist:

 Significant differences in local consumer taste.

 Intense competition in foreign markets (creating the need to

differentiate a firm’s output from that foreign rivals).

 Special local requirements in relation to package size, technical

standards, consumer protection laws and customer care facilities.

Differences in local climate, living conditions, literacy and technical skill

level of users, customer buying habits, incomes (buyers in poor countries might need low quality products), and in the uses to which the

product might be put in various markets.

Hopefully, product modifications will increase worldwide sales of the firm’s core products through (i) the satisfaction of different customer needs in various regions, (ii) retention of existing customers by keeping the product up-to-date, and (iii) matching the product attributes offered by competing firms. Complementary products might be introduced to stimulate sales of existing lines, e.g. by improving the usefulness of currently produced items

(gardening tools or DIY power accessories for example). The need for extensive product modification is a common impetus for firms to establish local manufacturing or assembly facilities in foreign countries, as it could well be cheaper to set up a new establishment to produce what is essentially a new product near to end consumers rather than make major changes to exiting production lines and procedures at home.

3.9 Summary

 International Marketing is the multinational process of planning and

executing the conception, pricing promotion and distribution of ideas,

goods and services to create exchanges that satisfy individual and

organizational objectives.  Domestic marketing involves one set of uncontrollable variables derived

from the domestic market. International marketing is much more

complex because a marketer faces two or more sets of uncontrollable

variables originating from various countries.

 Differentiated international marketing strategies involve the

modification of products and promotional messages to take account of

cultural, linguistic, legal and other national characteristics.

 An undifferentiated marketing strategy means the application of an

identical marketing mix in all countries, and is normally cheaper to

implement than the differentiated approach.

 Concentrated marketing involves focusing the entire firm’s attention on

a handful of markets and applying a different marketing mix to each

market.

3.10Keywords

International marketing Domestic Marketing marketing concept Marketing Mix

International Product Policy 3.11 Exercises

1. Define international marketing.

2. Explain the Marketing Mix.

3. What do you mean by international product policy? Unit 4

Marketing Policy

Structure: 4.1. Objectives

4.2. Introduction

4.3. EXIM Policy

4.4. Objectives and strategy of EXIM Policy

4.5. GATS

4.6. Key features of the GATS

4.7. GATS Commitments

4.8. World Trade Organization

4.9. Principles of Trading System

4.9.1 Most-favoured-nation

4.9.2 National Treatment

4.9.3 Freer trade

4.9.4 Predictability

4.10. The North American Free Trade Agreement (NAFTA)

4.11. Summary

4.12. Keywords

4.13. Exercise

4.1.Objectives After learning this unit you will be able to know:

– Importance of marketing policy

– Different policy like WTO, NAFTA, GATS etc that are important from

the point of view marketing at the domestic level and international

– Principles of trading system

4.2.Introduction

Government policies are very important issues while considering the rate of economic, industry and business growth that influence marketing activities.

Favourable Government policies may result in increase in FDI, FII, new competition, merger and acquisitions, private investment and flexible credit terms by bankers to the business enterprises. It is essential for Government policymakers to assess and analyse the effect of Government policy and growth of the economy through enhanced business, hence, marketing activities. This can be effectively done by constant evaluation of the policies in terms of how these policies are influencing the marketing function by analysing various market forces that systematically affect it. Government policies that impact on the R&D and product development or innovation, pricing, positioning, promotions, distribution, customer relationship, labeling, packaging and competition have to be taken into consideration while designing marketing strategies for the company.

Government of any country can introduce new policies which can substantially change marketing activities of the company. This book highlights various Government policies that affect the marketing functions and allied activities. It points out the specific areas of marketing functions that are most affected. It suggests for developing a system within the organization to anticipate these policy implications.

4.3.EXIM Policy

The Govt. of India, Ministry of Commerce and Industry announces Export

Import Policy every five years. The current policy cover the period 2002-

2007. The Export Import Policy (EXIM Policy) is updated every year on the

31st of March and the modifications, improvements and new schemes are effective w.e.f. 1st April of every year. Similarly, Govt. of India also release the Hand Book of Procedures detailing the procedures to be followed in each of the schemes covered in the Exim Policy. (for detailed information please visit http://164.100.9.245/exim/2000/policy/plcontents2006.pdf).

4.4.The major objectives and strategy of EXIM policy

OBJECTIVES

Trade is not an end in itself, but a means to economic growth and national development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity. The Foreign

Trade Policy is rooted in this belief and built around two major objectives.

These are:

(i) To double our percentage share of global merchandise trade within the next five years; and

(ii) To act as an effective instrument of economic growth by giving a thrust to employment generation.

STRATEGY

These objectives are proposed to be achieved by adopting, among others, the following strategies: (i) Unshackling of controls and creating an atmosphere of trust and transparency to unleash the innate entrepreneurship of our businessmen, industrialists and traders.

(ii) Simplifying procedures and bringing down transaction costs.

(iii) Neutralizing incidence of all levies and duties on inputs used in export products, based on the fundamental principle that duties and levies should not be exported.

(iv) Facilitating development of India as a global hub for manufacturing, trading and services.

(v) Identifying and nurturing special focus areas which would generate additional employment opportunities, particularly in semi-urban and rural areas, and developing a series of ‘Initiatives’ for each of these.

(vi) Facilitating technological and infrastructural upgradation of all the sectors of the Indian economy, especially through import of capital goods and equipment, thereby increasing value addition and productivity, while attaining internationally accepted standards of quality. (vii) Avoiding inverted duty structures and ensuring that our domestic sectors are not disadvantaged in the Free Trade Agreements/Regional Trade

Agreements/Preferential Trade Agreements that we enter into in order to enhance our exports.

(viii) Upgrading our infrastructural network, both physical and virtual, related to the entire Foreign Trade chain, to international standards.

(ix) Revitalising the Board of Trade by redefining its role, giving it due recognition and inducting experts on Trade Policy.

(x) Activating our Embassies as key players in our export strategy and linking our Commercial Wings abroad through an electronic platform for real time trade intelligence and enquiry dissemination.

The new Policy envisages merchant exporters and manufacturer exporters, business and industry as partners of Government in the achievement of its stated objectives and goals. Prolonged and unnecessary litigation vitiates the premise of partnership. In order to obviate the need for litigation and nurture a constructive and conducive atmosphere, a suitable Grievance Redressal Mechanism will be established which, it is hoped, would substantially reduce litigation and further a relationship of partnership. The dynamics of a liberalized trading system sometimes results in injury caused to domestic industry on account of dumping. When this happens, effective measures to redress such injury will be taken.

4.5. GATS: An Overview

One of the most significant achievements of the Uruguay Round of negotiations from 1986-1993, was to broaden the scope of world trade rules to cover services. Services negotiations were conducted on a separate track from those on goods, under the aegis of the Group for Negotiations on Services (GNS). The resulting agreement, GATS, establishes multilateral rules and disciplines to govern international trade and investment in services.

4.6. Key features of the GATS

The GATS is a comprehensive legal framework of rules and disciplines covering 161 service activities across 12 classified sectors. These include activities as wide ranging as telecommunications, financial, maritime, energy, business, education, environmental, and distribution services. It excludes services supplied in the exercise of governmental functions.

The GATS has three main elements. The first is a set of general concepts, principles, and rules, which are applicable across the board to measures affecting trade in services. Some of the key provisions include obligations concerning transparency, domestic regulation, restrictive business practices, behavior of public monopolies, and Most Favoured Nation (MFN) treatment.

The second element is a set of sector-specific or cross-sectoral commitments on national treatment and market access which are applicable to those activities listed in a country’s schedule of commitments.

The third important element TS is a series of attachments including annexes to the agreement which pertain to sectoral specificities and Ministerial

Declarations regarding GATS’ implementation. This three tier structure reflects the need to have: 1. General principles applicable to all services to advance overall liberalization in services;

2. National schedules to enable countries to proceed at their own pace in liberalizing services; and

3. Sectoral agreements to ensure that trade liberalization in some sectors is supported by the establishment of compatible regulatory regimes or modification of existing ones.

The GATS defines services trade as occurring through four modes of supply, modes as discussed earlier. This modal breakdown addresses the complex nature of international transactions in services and the diverse forms in which services are embodied, in consumption, production, and distribution- related activities and in the form of goods, human capital, and information.

It also brings into the purview of GATS, regulatory issues concerning investment policies and immigration and labour market legislation, hitherto outside the domain of the multilateral trading system.

The GATS’ commitment structure and framework is distinct from that of other WTO agreements. Countries make commitments on market access and national treatment for specific sectors in sectoral schedules of commitments and across sectors in horizontal schedules of commitments.

The former are applicable to the particular sector at hand while the latter relate to all sectors and could compliment, override, or qualify the sectoral commitments. Countries are free to decide which service sectors they wish to schedule, i.e., table for negotiations, and thus subject to market access and national treatment disciplines. The latter has also been termed as a positive list approach to liberalization. These market access and national treatment commitments are made for each of the four modes of supply, i.e., there are in all eight commitments per subsector or activity in both the sectoral and the horizontal schedules. In addition, countries also specify in their schedules, the limitations and exceptions they wish to maintain which violate market access and national treatment, again by mode of supply. Limitations listed in the horizontal schedules typically include general laws and policies, which restrict the use of a mode of supply by foreign suppliers, independent of the sector concerned. Countries may also choose to inscribe additional limitations or qualifying conditions to their commitments. Under the market access obligation, a country must accord treatment to foreign service providers which is no less favourable than that provided for under the terms, limitations, and conditions specified in its commitment schedule.

These limitations take the form of restrictions on the number of foreign service suppliers, the value of transactions or assets, the total quantity of services output, the number of natural persons who may be employed, the type of legal entity, and the extent of foreign capital participation.

The national treatment obligation requires a country to accord treatment to foreign service suppliers which is no less favourable than that accorded to its domestic service providers, except as specified in its limitations and conditions under its national treatment commitments. Typical violations of national treatment include differential treatment of foreign service providers in the case of subsidies, taxes, government procurement policies, and provision of various benefits.

An entry of “none” in the above schedule means that a member binds himself not to have any measures, which violate market access and national treatment for a specific sector and mode of supply. These are also termed full commitments. Unbound implies that no commitment is made for a particular mode of supply. The rest of the entries, which include specification of some conditions and limitations are known as partial commitments. Thus, the GATS not only gives countries the discretion to choose sectors for negotiations but also gives them the flexibility to decide the degree of liberalization which they wish to commit in these tabled sectors.

4.7. GATS Commitments

Liberalization has been limited thus far under the GATS. Given the discretionary nature of the commitment process, countries have typically not scheduled the more sensitive and regulated service sectors. More commitments have been forthcoming in sectors like tourism and software which are relatively open and unregulated as opposed to services like education, health, distribution, and transport where there may be equity, employment, and government monopoly related considerations. Moreover, even in sectors that have been scheduled, often the coverage of subsectors and activities is quite limited. Commitments are mostly partial in nature and tend to bind less than the status quo, especially in the case of developing country commitments on commercial presence. Hence, existing policies have often not been locked in through commitments. Liberalization in mode 1 has also been limited as commitments in this mode are mostly unbound for reasons of technical infeasibility, indicating the uncertainty about telecom based delivery of services and e-commerce at the time of the Uruguay Round. However, the most strikingly limited liberalization has been in the case of mode 4 where countries have refrained from making sector specific commitments and have made broad horizontal commitments for select categories of service suppliers, namely those associated with commercial presence and at higher skill and professional levels. Moreover, even these horizontal commitments have been subject to a large number of restrictions relating to immigration and labour market policies, recognition requirements, nationality and residency conditions, and differential treatment in terms of taxes, subsidies, and procurement policies. Thus, the interest of developing countries in exporting labour based services, especially through cross border movement of semi-skilled and unskilled service providers, has been completely unmet.

India has made limited commitments in the Uruguay Round. It did not schedule major sectors like energy, distribution, accountancy, and legal services and even in sectors like financial services, which it did schedule, its commitments did not extend to subsectors like life insurance. India’s commitments are largely uniform across sectors and are more restrictive than existing policies, reflecting the fact that India did not try to address sector-specific interests and concerns and took a conservative approach to the negotiations.

Overall, India has not used the GATS negotiations to lock in its existing policies in various service sectors. It has also not benefited from greater market access in other countries given the limited liberalization in its key modes of interest

GATS 2000 Negotiations

Talks resumed in GATS 2000 as mandated during the Uruguay Round and are currently underway. The objective of this round is to deepen the existing commitments through a request-offer process, to strengthen and develop various provisions in the GATS, and to establish mechanisms for better implementation of these provisions. 4.8. World Trade Organzaition

World Trade Organization (WTO) deals with the rules of trade between nations at a global or near-global level. But there is more to it than that.

WTO is the only organization that deals with trade related issues between two countries. WTO was established on 1st Jan 1995.

It’s an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a system of trade rules.

Above all, it’s a negotiating forum … Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other. The first step is to talk. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO's current work comes from the 1986-94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on

Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the “Doha Development Agenda” launched in 2001.

Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to liberalize trade. But the WTO is not just about liberalizing trade, and in some circumstances its rules support maintaining trade barriers — for example to protect consumers or prevent the spread of disease.

It’s a set of rules … At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground-rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives.

The system’s overriding purpose is to help trade flow as freely as possible — so long as there are no undesirable side-effects — because this is important for economic development and well-being. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be “transparent” and predictable. And it helps to settle disputes … This is a third important side to the

WTO’s work. Trade relations often involve conflicting interests.

Agreements, including those painstakingly negotiated in the WTO system, often need interpreting. The most harmonious way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the purpose behind the dispute settlement process written into the WTO agreements.

‘ Multilateral’ trading system ... WTO is a system operated by the WTO.

Most nations — including almost all the main trading nations — are members of the system. But some are not, so “multilateral” is used to describe the system instead of “global” or “world”. In WTO affairs,

“multilateral” also contrasts with actions taken regionally or by other smaller groups of countries.

4.9. Principles of the trading system

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system.

Trade without discrimination

4.9.1. Most-favoured-nation (MFN)

Treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

This principle is known as most-favoured-nation (MFN) treatment.. It is so important that it is the first article of the General Agreement on Tariffs and

Trade (GATT), which governs trade in goods. MFN is also a priority in the

General Agreement on Trade in Services (GATS) (Article 2) and the

Agreement on Trade-Related Aspects of Intellectual Property Rights

(TRIPS) (Article 4), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO. Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.

4.9.2. National treatment

Treating foreigners and locals equally Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of

“national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

4.9.3. Freer trade: gradually, through negotiation

Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively.

From time to time other issues such as red tape and exchange rate policies have also been discussed.

Since GATT’s creation in 1947-48 there have been eight rounds of trade negotiations. A ninth round, under the Doha Development Agenda, is now underway. At first these focused on lowering tariffs (customs duties) on imported goods. As a result of the negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had fallen steadily to less than 4%. But by the 1980s, the negotiations had expanded to cover non-tariff barriers

on goods, and to the new areas such as services and intellectual property.

Opening markets can be beneficial, but it also requires adjustment. The

WTO agreements allow countries to introduce changes gradually, through

“progressive liberalization”. Developing countries are usually given longer

to fulfill their obligations.

4.9.4. Predictability: through binding and transparency

Sometimes, promising not to raise a trade barrier can be as important as

lowering one, because the promise gives businesses a clearer view of their

future opportunities. With stability and predictability, investment is

encouraged, jobs are created and consumers can fully enjoy the benefits of

competition — choice and lower prices. The multilateral trading system is an

attempt by governments to make the business environment stable and

predictable.

The Uruguay Round increased bindings

Percentages of tariffs bound before and after the 1986-94 talks

Before After

Developed countries 78 99 Developing countries 21 73 Transition economies 73 98

(These are tariff lines, so percentages are not weighted according to trade volume or value)

In the WTO, when countries agree to open their markets for goods or

services, they “bind” their commitments. For goods, these bindings amount

to ceilings on customs tariff rates. Sometimes countries tax imports at rates

that are lower than the bound rates. Frequently this is the case in developing

countries. In developed countries the rates actually charged and the bound

rates tend to be the same.

A country can change its bindings, but only after negotiating with its trading

partners, which could mean compensating them for loss of trade. One of the

achievements of the Uruguay Round of multilateral trade talks was to

increase the amount of trade under binding commitments (see table). In

agriculture, 100% of products now have bound tariffs. The result of all this: a

substantially higher degree of market security for traders and investors. The system tries to improve predictability and stability in other ways as well.

One way is to discourage the use of quotas and other measures used to set limits on quantities of imports — administering quotas can lead to more red- tape and accusations of unfair play. Another is to make countries’ trade rules as clear and public (“transparent”) as possible. Many WTO agreements require governments to disclose their policies and practices publicly within the country or by notifying the WTO. The regular surveillance of national trade policies through the Trade Policy Review Mechanism provides a further means of encouraging transparency both domestically and at the multilateral level.

Promoting fair competition

The WTO is sometimes described as a “free trade” institution, but that is not entirely accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a system of rules dedicated to open, fair and undistorted competition.

The rules on non-discrimination — MFN and national treatment — are designed to secure fair conditions of trade. So too are those on dumping

(exporting at below cost to gain market share) and subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.

Many of the other WTO agreements aim to support fair competition: in agriculture, intellectual property, services, for example. The agreement on government procurement (a “plurilateral” agreement because it is signed by only a few WTO members) extends competition rules to purchases by thousands of government entities in many countries. And so on.

Encouraging development and economic reform

The WTO system contributes to development. On the other hand, developing countries need flexibility in the time they take to implement the system’s agreements. And the agreements themselves inherit the earlier provisions of

GATT that allow for special assistance and trade concessions for developing countries.

Over three quarters of WTO members are developing countries and countries in transition to market economies. During the seven and a half years of the Uruguay Round, over 60 of these countries implemented trade liberalization programmes autonomously. At the same time, developing countries and transition economies were much more active and influential in the Uruguay

Round negotiations than in any previous round, and they are even more so in the current Doha Development Agenda.

At the end of the Uruguay Round, developing countries were prepared to take on most of the obligations that are required of developed countries. But the agreements did give them transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions — particularly so for the poorest, “least-developed” countries. A ministerial decision adopted at the end of the round says better-off countries should accelerate implementing market access commitments on goods exported by the least-developed countries, and it seeks increased technical assistance for them. More recently, developed countries have started to allow duty-free and quota-free imports for almost all products from least-developed countries. On all of this, the WTO and its members are still going through a learning process. The current Doha Development Agenda includes developing countries’ concerns about the difficulties they face in implementing the Uruguay Round agreements. The case for open trade

The economic case for an open trading system based on multilaterally agreed rules is simple enough and rests largely on commercial common sense. But it is also supported by evidence: the experience of world trade and economic growth since the Second World War. Tariffs on industrial products have fallen steeply and now average less than 5% in industrial countries. During the first 25 years after the war, world economic growth averaged about 5% per year, a high rate that was partly the result of lower trade barriers. World trade grew even faster, averaging about 8% during the period.

UNDERSTANDING THE WTO: The Uruguay Round

It took seven and a half years, almost twice the original schedule. By the end,

123 countries were taking part. It covered almost all trade, from toothbrushes to pleasure boats, from banking to telecommunications, from the genes of wild rice to AIDS treatments. It was quite simply the largest trade negotiation ever, and most probably the largest negotiation of any kind in history. The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes. They prescribe special treatment for developing countries. They require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted, and through regular reports by the secretariat on countries’ trade policies.

WTO has created tariffs for various types of goods, intellectual property rights, anti dumping rules etc.

4.10. North American Free Trade Agreement

(NAFTA)

The North American Free Trade Agreement (NAFTA) is a trade agreement among the United States, Canada, and Mexico that liberalizes restrictions on trade among the three countries. Some of the agreement's objectives include:  The elimination of tariff or duty rates (all qualifying products to

Canada are now duty-free, and virtually all qualifying products to

Mexico are now duty-free).

 Promoting conditions of free competition, and increasing market

access and investment opportunities within the free trade area.

Since implementation January 1, 1994, trade between the three countries has increased more than 200 percent.

In order for a product to be eligible for lower tariff rates when entering

Mexico or Canada, the product must be produced in the United States, entirely of NAFTA component parts, or if foreign components are used, the foreign component must undergo sufficient processing in the United States to meet NAFTA requirements. The Department of Commerce's Market Access and Compliance offices monitor this Agreement to ensure that Canada and

Mexico fully comply with their obligations. If you encounter problems under the NAFTA, please contact our Agreements Compliance office.

4.11. Summary

In this unit we have given a brief introduction to international trade related issues, polices, guidelines and procedures. Knowledge of these will facilitate a marketing manger to deal with the marketing related issues in a better way.

4.12. Keywords

EXIM Policy Strategy

GATS World Trade Organization trading system National treatment

North American Free Trade

Agreement 4.13. Exercises

1. What is marketing policy?

2. What are objectives and strategy of EXIM Policy?

3. Explain GATS and its key features.

4. Explain principles of Trading System.