Marketing

Chapter 1



Fundamentals of Marketing



This chapter covers the basic concepts of marketing, provides details of the main

philosophies of a marketer, and discusses the major components of strategic marketing. It

aims at equipping the student with a conceptual framework to understand modern

marketing.



Markets, Marketing and Marketability have gained in importance as the capabilities of

mankind in converting raw material into finished goods and services has improved. Led

by the technological revolution and helped by revolution in the political, social and

economic arena, the entrepreneurs and the organisations that they lead have always

aspired to create ever newer products and services as well as design ever newer methods

to make these reach those who want them, in the quantities that they want them and at

times that they want them. The people and organisations who supply products and

services have also found it worthwhile to guide people who buy or use these products and

services to find new uses, use occasions or usage methods for the same.



The formal discipline of marketing is required because there is physical, mental and

social distance between those who produce goods and services and those who consume

them. It is because of marketing that those who produce, sell, advertise can establish a

connection with the consumers. It is to the credit of marketing that a two-way dialogue is

possible instead a conflict of monologues by the sellers. The fact that the buyers and

sellers both feel that they will gain form transactions is to a large part due the use of

marketing techniques.





1.0 What is Marketing?

1.01 Definitions of Marketing.



There are many definitions of marketing. The better definitions are focused upon

customer orientation and satisfaction of customer needs.



Marketing is the social process by which individuals and groups obtain what they need

and want through creating and exchanging products and value with others

-Dr. Philip Kotler



Marketing is the management process that identifies, anticipates and satisfies customer

requirements profitably

- The Chartered Institute of Marketing (CIM)









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The CIM definition looks not only at identifying customer needs, but also satisfying them

(short-term) and anticipating them in the future (long-term retention of customers).



The right product, in the right place, at the right time, at the right price

- Adcock



Marketing is essentially about marshalling the resources of an organization so that they

meet the changing needs of the customer on whom the organization depends

-Palmer



This is a more recent and very realistic definition that looks at matching capabilities with

needs.



Marketing is the process whereby society, to supply its consumption needs, evolves

distributive systems composed of participants, who, interacting under constraints -

technical (economic) and ethical (social) - create the transactions or flows which resolve

market separations and result in exchange and consumption

- Bartles

This definition considers the economic and social aspects of marketing.



1.02 The Philosophy of Marketing and the Marketing Concept.



The marketing concept is a philosophy. It makes the customer, and the satisfaction of his

or her needs, the focal point of all business activities. It is driven by senior managers,

passionate about delighting their customers.



Marketing is not only much broader than selling, it is not a specialized activity at all It

encompasses the entire business. It is the whole business seen from the point of view of

the final result, that is, from the customer's point of view. Concern and responsibility for

marketing must therefore permeate all areas of the enterprise.

- Dr. Peter F Drucker

-

This customer focused philosophy is known as the 'marketing concept'. The marketing

concept is a philosophy, not a system of marketing or an organizational structure. It is

founded on the belief that profitable sales and satisfactory returns on investment can only

be achieved by identifying, anticipating and satisfying customer needs and desires.

- Barwell



The achievement of corporate goals through meeting and exceeding customer needs

better than the competition.

- Jobber



Implementation of the marketing concept requires attention to three basic elements of the

marketing concept. These are: Customer orientation; an organization to implement a

customer orientation; Long-range customer and societal welfare.

- Cohen







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Now that you have been introduced to some definitions of marketing and the marketing

concept, remember the important elements contained as follows:





1. Marketing focuses on the satisfaction of customer needs, wants and

requirements



2. The philosophy of marketing needs to be owned by everyone from within the

organization.



3. Future needs have to be identified and anticipated.



4. There is normally a focus upon profitability, especially in the corporate sector.

However, as public sector organizations and not-for-profit organizations adopt

the concept of marketing, this need not always be the case.



5. More recent definitions recognize the influence of marketing upon society.







1.1 Marketing Mix.

1.11 What is the marketing mix?



The marketing mix is probably the most famous marketing term. Its elements are the

basic, tactical components of a marketing plan. Also known as the Four Ps, the

marketing mix elements are price, place, product, and promotion.



The concept is simple. Think about another common mix – a fertilizer mix

(composite/compound fertilizer), all mix of fertilizers will contain Nitrogen, Phosphorus

and Potassium along with various micro nutrients. However depending on the crop, the

soil condition and the stage of the crop, one can alter the final composition of the mix by

altering the amounts of mix elements contained in it. For soils deficient in potassium, add

more of potash based fertilizer.









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It is the same with the marketing mix. The offer you make to you customer can be altered

by varying the mix elements. So for a high profile brand, increase the focus on promotion

and reduce the weight given to price.



Some commentators will increase the marketing mix to the Five Ps, to include people.

Others will increase the mix to Seven Ps, to include physical evidence (such as

uniforms, facilities, office/branch ambience and printed cheque book, etc.) and process

(i.e. the whole customer experience e.g. a visit to the modern retail store). The term was

coined by Neil H. Borden in his article The Concept of the Marketing Mix in 1965.



1.111 Price



Price acts as a primary cue for the customer. It helps the customer to evaluate the worth

of the offer that the marketer is making. There are many ways to price a product

depending on the situation faced by the marketer vis-à-vis his customer or the

competition.



1.112 Place



Another element of Neil H.Borden's Marketing Mix is Place. Place is also known as

channel, distribution, or intermediary. It is the mechanism through which goods and/or

services are moved from the manufacturer/ service provider to the user or consumer.



1.113 Product



For many people, a product simply means the tangible, physical entity that they may be

buying or selling. A farmer buys a new tractor and that's the product - simple!



In formal marketing, the product may not be as simple as it may appear at first. For

example, when a farmer buys a tractor, the product is more complex than he first

thought? Like an onion, the „Product‟ has many levels. A tractor comes bundled with

spares and accessories, after-sales service warranty and a network of support and

supplementary services. Without all of that, the tractor ownership would be such a

difficult task.



1.114 Promotion



Another one of the 4Ps is promotion. This includes all of the tools available to the

marketer for 'marketing communication'. As with Neil H.Borden's marketing mix,

marketing communications has its own 'promotions mix.' Think of it like the mix of

fertilizers, the basic ingredients are always the same. However if you vary the amounts of

one of the ingredients, the final outcome is different.



The different elements of promotion mix are: Advertisement, Sales promotion, Events

and Public Relations, Direct Marketing, Personal Selling and Internet marketing.









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1.115 Physical Evidence



Physical Evidence is the tangible (what can be sensed with sensory organs viz. eyes,

nose, tongue, ear and skin) part of a service. Strictly speaking there are no physical

attributes to a service, so a consumer tends to rely on tangible cues. There are many

examples of physical evidence, including some of the following:



1. Interiors and furniture of the waiting area in hospitals and banks

2. Cheque books pre-printed with account holder‟s name

3. Uniform of staff in retails outlet/ hotels/ airlines, etc.

4. The posters, banners and other publicity material at the fertilizer and agri-

input shop

5. The milko-tester in a dairy cooperative society



1.116 People



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. The „Salesman‟ of the

seeds company, the „Mechanic‟ of the tractor workshop or „Manager‟ of the bank are all

examples of the „people‟ component of a service offering.



1.117 Process



Process is another element of the extended marketing mix, or 7Ps.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.



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.



Let us take the case of Ramlal, a farmer who has decided to purchase a new motorcycle

for himself and who goes to the market of the nearest town after seeking due opinion

from his friends and relatives. He enters a motor cycle dealer‟s showroom. From the

moment he enters, the dealer and his sales team come into action. Right from asking him

for water to taking him around to let him see different models to letting him test drive to

making him aware about the features of different bikes, each step is a part of the process

meant to enrich Ramlal‟s buying experience.



This is all part of the marketing process.









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Like all processes, the marketing process also has many stages. 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 services or products are extended and marketed

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. In the section on Value Chain Analysis in Chapter 9, we will

consider a series of processes at work.



1.2 Marketing Plans



Successful performance of organisations, whether in Private or in the Government or

Non-Profit sector critically depends on impressing and retaining their target audience

(customers or beneficieries, as the case may be) by providing better value than the

competing offers or options available to the target audience? The choice of which kind of

target audience to serve and how to create value for them in an ever changing

environment needs to be ascertained. This involves choice of technologies/methodologies

(in a broad sense) and performance (competitive) strategies



As the environment changes, the organisations (including business organisations) must

adapt to maintain strategic fit between their capabilities and the marketplace. The process

by which the organisations (especially business organisations) analyse the environment,

decide upon a course of action and implement those decisions is called marketing

planning and the document that contains the essence of the marketing planning process is

called the marketing plan.



Marketing plans are vital to marketing success. They help to focus the mind of

companies and marketing teams on the process of marketing i.e. what is going to be

achieved and how we intend to do it. There are many approaches to marketing plans. The

key stages of the plan are covered under the popular acronym AOSTC.



ANALYSIS

OBJECTIVES

STRATEGIES

TACTICS

CONTROLS









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1.21 Stage One - Situation Analysis (and Marketing Audit).



 Marketing environment

 Laws and regulations

 Politics

 The current state of technology

 Economic conditions

 Sociocultural aspects

 Demand trends

 Media availability

 Stakeholder interests

 Marketing plans and campaigns of competitors

 Internal factors such as your own experience and resource availability



The tools for internal/external audit (covered later in the course):



 SWOT

 PEST

 Porter's Five Forces

 Marketing Environment



1.22 Stage Two - Set marketing objectives



Objectives should seek to answer the question 'Where do we want to go?'. The purposes

of objectives include:



 To enable a company to control its marketing plan.

 To help to motivate individuals and teams to reach a common goal.

 To provide an agreed, consistent focus for all functions of an organization.



All objectives should be SMART i.e. Specific, Measurable, Achievable, Realistic, and

Timed.



SMART objectives:



 Specific - Be precise about what you are going to achieve.

 Measurable - Quantify you objectives.

 Achievable - Are you attempting too much?

 Realistic - Do you have the resource to make the objective happen (men, money,

machines, materials, and minutes)?

 Timed - State when you will achieve the objective (within a month? By February

2010?).







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If you don't make your objective SMART, it will be too vague and will not be realized.

Remember that the rest of the plan hinges on the objective(s). If it is not correct, the plan

may fail.



Some examples of SMART objectives follow:



1. Profitability Objectives

To achieve a 20% return on capital employed by March 2008

2. Market Share Objectives

To gain 25% of the market for wrist watches by September 2009

3. Promotional Objectives

To increase awareness of the Genetically Modified (GM) Crop in farmers of Gujarat

from 12% to 25% by June 2009.

To increase trial of Brand X soap from 2% to 5% of our target group by January

2008.

4. Objectives for Survival

To survive the current phase of anti-GM crop phase.

5. Objectives for Growth

To increase the size of our Indian operation from US$20 billion in 2007 to US$40

billion in 2010.

6. Objectives for Branding

To make Coca Cola as the preferred brand of 21-28 year olds in India by February

2008.

There are many examples of objectives. Be careful not to confuse objectives with goals

and aims. Goals and aims tend to be more vague and focus on the longer-term. They will

not be SMART. However, many objectives start off as aims or goals and therefore they

are of equal importance.



1.23 Stage Three - Describe your target market





Which segment? How will we target the segment? How should we position within the

segment?



Why this segment and not a different one? (This will focus the mind).







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Define the segment in terms of demographics and lifestyle. Show how you intend to

'position' your product or service within that segment. Use other tools to assist in strategic

marketing decisions such as Boston Matrix, Ansoff's Matrix, Bowman‟s Strategy Clock,

Porter's Competitive Strategies, etc.



1.24 Stage Four - Marketing Tactics



Convert the strategy into the marketing mix (also known as the 4Ps). These are your

marketing tactics.



 Price: Will you cost plus, skim, match the competition or penetrate the market?

 Place: Will you market direct, use agents or distributors, etc?

 Product: Sold individually, as part of a bundle, in bulk, etc?

 Promotion: Which media will you use? E.g. sponsorship, radio advertising, sales

force, point-of-sale, etc? Think of the mix elements as the ingredients of a 'fertilizer

mix'. You have nitrogenous, potassic, phosphoric along with micronutrient based

elements. However, if you alter the amount of each ingredient, you will influence

the type of mix that you finish with.



1.25 Stage Five - Marketing Controls



Remember that there is no planning without control. Control is vital.



 Start-up costs

 Monthly budgets

 Sales figure

 Market share data

 Consider the cycle of control



Finally, write a short summary (or synopsis) which is placed at the front of the plan. This

will help others to get acquainted with the plan without having to spend time reading it

all. Place all supporting information into an appendix at the back of the plan.



1.3 Marketing Audit: How to conduct a marketing audit



The marketing audit is a fundamental part of the marketing planning process. It is

conducted not only at the beginning of the process, but also at a series of points during

the implementation of the plan. The marketing audit considers both internal and external

influences on marketing planning, as well as a review of the plan itself.



There are a number of tools and audits that can be used, for example SWOT analysis for

the internal environment, as well as the external environment. Other examples include

PEST and Five Forces Analysis, which focus solely on the external environment.



In many ways the marketing audit clarifies opportunities and threats, and allows the

marketing manager to make alterations to the plan if necessary.







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We will cover the basics of the marketing audit, and introduce a marketing audit

checklist. The checklist is designed to answer the question, what is the current marketing

situation? Let‟s consider the marketing audit under three key headings:



 The Internal Marketing Environment

 The External Marketing Environment

 A Review of Our Current Marketing Plan



1.31 The Internal Marketing Environment.



What resources do we have at hand? (i.e. The FIVE 'M's):



 MEN (Labor/Labour)

 MONEY (Finances)

 MACHINERY (Equipment)

 MINUTES (Time)

 MATERIALS (Factors of Production)



 How is our marketing team organised?

 How efficient is our marketing team?

 How effective is our marketing team?

 How does our marketing team interface with other organisations and internal

functions?

 How effective are we at Customer Relationship Management (CRM)?

 What is the state of our marketing planning process?

 Is our marketing planning information current and accurate?

 What is the current state of New Product Development? (Product)

 How profitable is our product portfolio? (Product)

 Are we pricing in the right way? (Price)

 How effective and efficient is distribution? (Place)

 Are we getting our marketing communications right? (Promotion)

 Do we have the right people facing our customers? (People)

 How effective are our customer facing processes? (Process)

 What is the state of our business's physical evidence? (Physical Evidence)





1.32 The External Marketing Environment.



As a market orientated organisation, we must start by asking - What is the nature of our

'customer?' Such as:



 Their needs and how we satisfy them

 Their buyer decision process and consumer behaviour

 Their perception of our brand, and loyalty to it

 The nature of segmentation, targeting and positioning in our markets







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 What customers 'value' and how we provide that 'value?'



What is the nature of competition in our target markets?



 Our competitors' level of profitability

 Their number/concentration

 The relative strengths and weaknesses of competition

 The marketing plans and strategies of our competition



What is the cultural nature of the environment(s)?



 Beliefs and religions.

 The standards and average levels of education.

 The evolving lifestyles of our target consumers.

 The nature of consumerism in our target markets.



What is the demography of our consumers? Such as average age, levels of population,

gender make up, and so on. How does technology play a part?



 The level of adoption of mobile and Internet technologies.

 The way in which goods are manufactured.

 Information systems.

 Marketing communications uses of technology and media.



What is the economic condition of our markets?



 Levels of average disposable income.

 Taxation policy in the target market.

 Economic indicators such as inflation levels, interest rates, exchange rates and

unemployment.



Is the political and legal landscape changing in any way?



 Laws, for example, copyright and patents.

 Levels of regulation such as quotas or tariffs.

 Labour/labor laws such as minimum wage legislation.



1.33 A Review of Our Current Marketing Plan



 What are our current objectives for marketing?

 What are our current marketing strategies?

 How do we apply the marketing mix? (Including factors covered above in (a))

 Is the marketing process being controlled effectively?

 Are we achieving our marketing budget?

 Are we realising our SMART objectives?

 Is our marketing team implementing the marketing plan effectively?





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 Levels of staffing.

 Staff training and development.

 Experience and learning.



What is our market share? (Total sales/trends/sales by product or customer or channel)

Are we achieving financial targets? (Profit and margins/ liquidity and cash flow/ debt:

equity ratio/ using financial ratio analysis)



1.4 Marketing Control



Measuring and monitoring the marketing planning process



There is no planning without control. Marketing control is the process of monitoring the

proposed plans as they proceed and adjusting where necessary. If an objective states

where you want to be and the plan sets out a road map to your destination, then control

tells you if you are on the right route or if you have arrived at your destination.



Figure 1.2: The marketing control process









Control involves measurement, evaluation, and monitoring. Resources are scarce and

costly so it is important to control marketing plans. Control involves setting standards.

The marketing manager will than compare actual progress against the standards.

Corrective action (if any) is then taken. If corrective action is taken, an investigation will

also need to be undertaken to establish precisely why the difference occurred.





There are many approaches to control:



 Market share analysis

 Sales analysis





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 Quality controls

 Budgets

 Ratio analysis

 Marketing research

 Marketing information systems (MkIS)

 Feedback from customers satisfaction surveys

 Cash flow statements

 Customer Relationship Management (CRM) systems

 Sales per thousand customers, per factory, by segment.

 Location of buyers and potential buyers

 Activities of competitors to aspects of your plan

 Distributor support

 Performance of any promotional activities

 Market reaction/acceptance to pricing polices

 Service levels



. . . . And many other methods of monitoring and measurement.





1.5 Internal Marketing



Internal marketing is an important 'implementation' tool. It aids communication and helps

us to overcome any resistance to change. It informs and involves all staff in new

initiatives and strategies. It is simple to construct, especially if you are familiar with

traditional principles of marketing.



If not, it would be valuable to spend some time considering marketing plans. Internal

marketing obeys the same rules as, and has a similar structure to, external marketing. The

main differences are that your customers are staff and colleagues from your own

organization.

Figure 1.3: Internal marketing process









1.51 Managing the implementation of internal marketing







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 You have seen that the process of marketing follows a familiar pattern for which

we use the acronym AOSTC - Analysis, Objectives, Strategies, Tactics, and

Control.

Let's have a look a closer look at the practicalities of internal marketing.





Figure 1.3: Detailed Internal marketing process









At this stage internal marketing meets traditional 'change management.' Firstly you

should identify your internal customers. As with your external customers, they will have

their own buyer behavior, or way of 'buying into' the changes which you are charged to

implement. The similarities in differing groups of internal customers allow you to

segment them. As Jobber (1995) explains, you can target three different segments namely

'supporters,' neutral,' and finally 'opposers.' Each group requires a slightly different

internal marketing mix in order that your internal marketing objectives can be achieved.



For example, if the change was that a seeds marketing company was to relocate closer to

its market, you could target 'supporters within the organisation' with a tailor-made

relocation video explaining about the advantages (personal as well as professional) in the

new location; 'neutral' internal customers could be targeted with incentives such as pay

increases; and 'opposers' could be coerced, or forced to accept the change regardless.



1.52 How do we plan for a change program?



 Always make sure that you have thought through your approach before starting

the implementation.

 Make sure that you have created a cultural climate that is willing to accept

change.

 Appoint a change agent, or champion for change that will help to ease your

changes through.

 Audit the skills and capabilities of your team. Train and develop as necessary.





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 Your team must be built around you with the objective as the focus for all of you.

 The change must be correctly marketed to your target audience as per the

approach illustrated above.

 Decide what the change will be. Give it boundaries.

 Decide upon the plan.

 Work out a realistic budget and stick to it.

 Try to anticipate the arguments against change, and decide how to counteract

them positively.









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Chapter 2

The Marketing Environment and Marketing Research

2.0 What is marketing environment?









A marketing oriented company has to constantly look outside of itself in order to take

advantage of small and big opportunities that keep emerging, in addition, the

organisations have to monitor and minimize the likely threats that may spoil its business.





The marketing environment surrounds and impacts upon the organization. It consists of

various forces that affect the company‟s ability to deliver products and services to its

customers. The organisation‟s environment can affect it in many ways. The company can

have the best of technologies, the best set of employees and the best group of suppliers

but still it may not succeed because of other factors like exchange rate, government

policies, or changing preferences of its customers. On the other hand, a company that

does not have too many apparent things going for it can actually succeed because the

environmental factors support it. There are three key perspectives on the marketing

environment, namely the 'macro-environment,' the 'micro-environment' and the

'internal environment'.







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2.01 The micro-environment





This environment influences the organization directly. It includes suppliers that deal

directly or indirectly, consumers and customers, and other local stakeholders. Micro tends

to suggest small, but this can be misleading. In this context, micro describes the

relationship between firms and the driving forces that control this relationship. It is a

more local relationship, and the firm may exercise a degree of influence.





For example- A company like Pepsi may decide to offer higher than contracted

price for the potatoes it procures from farmers in Punjab. They may do so to

prevent the farmers switching over to Reliance retail, its aggressive competitor in

the agribusiness space. This may contribute towards shrinkage in short term profits

for Pepsi but may be necessary to protect long-term sources of supply and its profits

relative to its existing and emerging competition from big-box retailers.





2.02 The macro-environment





This includes all factors that can influence an organization, but that are out of their direct

control. A company does not generally influence any laws (although it is accepted that

they could lobby or be part of a trade organization). It is continuously changing, and the

company needs to be flexible to adapt. There may be aggressive competition and rivalry

in a market. Globalization means that there is always the threat of substitute products and

new entrants. The wider environment is also ever changing, and the marketer needs to

compensate for changes in culture, politics, economics and technology.





For example :- Exchange rate can become a very important determinant of

business performance for a company like ITC Ltd., whose International Business

Division relies a lot on international trade of agri-produce. If rupee becomes

stronger against foreign currencies, Indian products become costlier in world









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markets and exports suffer, on the other hand, it becomes cheaper to import leading

to flood of imported products.





2.03 The internal environment.





All factors that are internal to the organization are known as the 'internal environment'.

They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery,

Materials and Markets. The internal environment is as important for managing change as

the external. As marketers we call the process of managing internal change 'internal

marketing.' You may recall that we have discussed this topic in much detail in section 1.5

of Chapter 1. You may also remember that essentially we use marketing approaches to

aid communication and change management within organisations.





There are special techniques available for auditing the external environment in more

detail. Some of these are, PEST Analysis, Michael Porter's Five Forces Analysis, and

SWOT Analysis.





2.1 Methods of Analysing an organisation’s environment





2.11 PEST Analysis





It is very important that an organization considers its environment before beginning the

marketing process. In fact, environmental analysis should be continuous and feed all

aspects of planning. The organization's marketing environment is made up of:





1. The internal environment e.g. staff (or internal customers), office technology, wages

and finance, etc.





2. The micro-environment e.g. our external customers, agents and distributors,

suppliers, our competitors, etc.









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3. The macro-environment e.g. Political (and legal) forces, Economic forces,

Sociocultural forces, and Technological forces. These are known as PEST factors.









Political Factors

The political arena has a huge influence upon the regulation of businesses, and the

spending power of consumers and other businesses. You must consider issues such as:





1. How stable is the political environment?

2. Will government policy influence laws that regulate agriculture, food processing

and agri-business?

3. What is the government's position on practices of seed and agro-chemical

companies?

4. What is the government's policy on the employment generation in rural areas?

5. Does the government have a view on cultural and religious issues?

6. Is the government involved in trading agreements such as SAARC, WTO or

others?





Economic Factors

Marketers need to consider the state of a trading economy in the short and long-terms.

This is especially true when planning for international marketing. You need to look at:

1. Interest rates on agricultural and non-agricultural loans

2. The level of inflation, employment levels in different countries

3. Long-term prospects for the economy, Gross Domestic Product (GDP) per capita,

and so on





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Sociocultural Factors

The social and cultural influences on business vary from country to country. It is very

important that such factors are considered. Factors include:

1. What is the dominant religion?

2. What are attitudes to foreign products and services? What are the attitudes

towards big businesses?

3. To what extent does the diversity in languages impact upon the diffusion of

products in the markets?

4. How much time do consumers have for leisure? What are the leisure activities?

5. What are the roles of men and women within society?

6. What is the life expectancy of the population? How has the situation changed in

recent years? Are morbidity rates high? Which illnesses dominate?

7. Do the population have a strong/weak opinion on environmental issues?





Technological Factors

Technology is vital for competitive advantage, and is a major driver of globalization.

Consider the following points:

1. Does technology allow for products and services to be made more cheaply and to

a better standard of quality?

2. Do the technologies offer consumers and businesses more innovative products

and services such as Internet & ATM banking, new generation mobile telephones,

etc.?

3. How is distribution changed by new technologies e.g. the Internet, on-line

auctions, modern formats of retailing etc.?

4. Does technology offer companies a new way to communicate with consumers e.g.

websites, e-banners, Customer Relationship Management (CRM), etc?





2.12 Five Forces Analysis

2.121 Analyzing the environment - Five Forces Analysis









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Five Forces Analysis helps the marketer to contrast a competitive environment. It has

similarities with other tools for environmental audit, such as PEST analysis, but tends to

focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a

single product or range of products. For example, a company like Mahindra & Mahindra

would analyse the market for tractors which is one of its SBUs.

Five forces analysis looks at five key areas namely the threat of entry, the power of

buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.





The threat of entry



 Economies of scale e.g. the benefits associated with bulk purchasing.

 The high or low cost of entry e.g. how much will it cost for the latest technology?

 Ease of access to distribution channels e.g. Do our competitors have the

distribution channels sewn up?









21

 Cost advantages not related to the size of the company e.g. personal contacts or

knowledge that larger companies do not own or effects of being there earlier than

the competition (learning curve effects).

 Will competitors retaliate?

 Government action e.g. will new laws be introduced that will weaken our

competitive position?

 How important is differentiation? e.g. „Darjeeling‟ Tea or „Basmati‟ rice cannot

be copied in any other part of the world.



The power of buyers



 This is high where there a few, large players in a market e.g. the large grocery

chains.

 If there are a large number of undifferentiated, small suppliers e.g. small farming

businesses supplying the large grocery chains?

 The cost of switching between suppliers is low e.g. from one fleet supplier of

trucks to another.



The power of suppliers

The power of suppliers tends to be a reversal of the power of buyers. The power of

suppliers is high when:



 Where the switching costs are high e.g. switching from one agri-input dealer to

another will entail a reworking of informal credit arrangements for the farmer.

 Power is high where the brand is powerful e.g. Sriram Urea, Ford Tractors,

Monsanto Seeds, Amul Butter

 There is a possibility of the supplier integrating forward e.g. Dairy Farmers

Cooperative establishing Dairy Processing Plant and Marketing organisation as in

the case of „Amul‟.

 Customers are fragmented (not in clusters) so that they have little bargaining

power e.g. farmers scattered in remote places.









22

The threat of substitutes



 Where there is product-for-product substitution e.g. telephone for letters by post

or where there is substitution of need e.g. better quality of diesel and engine oil in

the farm machinery reduces the need for mechanics.

 Where there is generic substitution (competing for the currency in your pocket)

e.g. Cinema Halls compete with Restaurants? Malls for anyone visiting a city

from the village as both of these cater to the need for entertainment.

 Where we could always do without e.g. bidis (traditional Indian rolled tobacco)

and cigarettes.



Competitive Rivalry



 This is most likely to be high where entry is easy, there is the threat of substitute

products, and suppliers and buyers in the market attempt to control. This is why it

is always seen in the center of the diagram.



2.13 SWOT Analysis





Strengths, Weaknesses, Opportunities and Threats (SWOT)





SWOT analysis is a tool for auditing an organization and its environment. It is the first

stage of planning and helps marketers to focus on key issues. SWOT stands for strengths,

weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors.

Opportunities and threats are external factors.









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In SWOT, strengths and weaknesses are internal factors. For example: strength could be:



 Your specialist marketing expertise.

 A new, innovative product or service.

 Location of your business.

 Quality processes and procedures.

 Any other aspect of your business that adds value to your product or service.



A weakness could be:



 Lack of marketing expertise.

 Undifferentiated products or services (i.e. in relation to your competitors).

 Location of your business.

 Poor quality goods or services.

 Damaged reputation.



In SWOT, opportunities and threats are external factors. For example: An opportunity

could be:



 A developing market such as the Internet.

 Mergers, joint ventures or strategic alliances.

 Moving into new market segments that offer improved profits.

 A new international market.

 A market vacated by an ineffective competitor.



A threat could be:



 A new competitor in your home market.

 Price wars with competitors.

 A competitor has a new, innovative product or service.

 Competitors have superior access to channels of distribution.

 Taxation is introduced on your product or service.







24

A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too

much. Two people rarely come-up with the same final version of SWOT. TOWS analysis

is extremely similar. It simply looks at the negative factors first in order to turn them into

positive factors. So use SWOT as guide and not a prescription.





Simple rules for successful SWOT analysis

 Be realistic about the strengths and weaknesses of your organization when conducting

SWOT analysis.

 SWOT analysis should distinguish between where your organization is today, and where

it could be in the future.

 SWOT should always be specific. Avoid grey areas.

 Always apply SWOT in relation to your competition i.e. better than or worse than your

competition.

 Keep your SWOT short and simple. Avoid complexity and over analysis.

 SWOT is subjective.





Once key issues have been identified with your SWOT analysis, they feed into marketing

objectives. SWOT can be used in conjunction with other tools for audit and analysis,

such as PEST analysis and Porter's Five-Forces analysis. So SWOT is a very popular tool

with marketing students because it is quick and easy to learn. During the SWOT exercise,

list factors in the relevant boxes. It's that simple.





Do you need a more advanced SWOT Analysis?





Some of the problems that you may encounter with SWOT are as a result of one of its

key benefits i.e. its flexibility. Since SWOT analysis can be used in a variety of scenarios,

it has to be flexible. However this can lead to a number of anomalies. Problems with

basic SWOT analysis can be addressed using a more critical POWER SWOT.





SWOT Analysis Examples

A few SWOT analyses case studies are outlined as follows:







25

Example 1 - Wal-Mart SWOT Analysis.

- Strengths - Wal-Mart is a powerful retail brand. It has a reputation for

value for money, convenience and a wide range of products all in one

store.

- Weaknesses - Wal-Mart is the World's largest grocery retailer and control

of its empire, despite its IT advantages, could leave it weak in some areas

due to the huge span of control.

- Opportunities - To take over, merge with, or form strategic alliances with

other global retailers, focusing on specific markets such as Europe or the

Greater China Region.

- Threats - Being number one means that you are the target of competition,

locally and globally.





Example 2 – „GCMMF (Amul)’ SWOT Analysis.

- Strengths - Amul is a powerful dairy brand. It has a reputation for value

for money, high quality and easy availability of all its products, right from

liquid milk to ilk powder to chocolates.

- Weaknesses - GCMMF is India‟s largest dairy products marketer and is

aspiring to make Amul a mega „food‟ brand. This will require further

expansion of its reach and access to expertise and production technology

that could make it vulnerable in some areas.

- Opportunities - To take over, or form strategic alliances with other players

in the food industry, increasing health consciousness prompting people to

abandon junk food and colas in favour of healthier choices including those

available with milk base.

- Threats - Being number one means that you are the target of competition,

locally and globally.





2.2 Introduction to Marketing Research

Market research and marketing research are often confused. 'Market' research is

simply research into a specific market. It is a very narrow concept. 'Marketing' research is





26

much broader. It not only includes 'market' research, but also areas such as research into

new products, or modes of distribution such as via the Internet. Here are a couple of

definitions:





"Marketing research is the function that links the consumer, customer, and public to the

marketer through information - information used to identify and define marketing

opportunities and problems; generate, refine, and evaluate marketing actions; monitor

marketing performance; and improve understanding of marketing as a process.

Marketing research specifies the information required to address these issues, designs

the methods for collecting information, manages and implements the data collection

process, analyzes, and communicates the findings and their implications."

- American Marketing association - Official Definition of Marketing Research





Obviously, this is a very long and involved definition of marketing research.





"Marketing research is about researching the whole of a company's marketing process."

- Palmer (2000)





This explanation is far more straightforward i.e. marketing research into the elements of

the marketing mix, competitors, markets, and everything to do with the customers.





2.21 The Marketing research Process.





Marketing research is gathered using a systematic approach. An example of one follows:





1. Define the problem: Never conduct research for things that you would 'like' to

know. Make sure that you really 'need' to know something. The problem then

becomes the focus of the research. For example, why are the sales of life

insurance products from your company not picking up among the Indian farmers?









27

2. Data Collection: How will you collect the data that you will analyze to solve your

problem? Do we conduct a telephone survey, or do we arrange a focus group?

The methods of data collection will be discussed in more detail later.

3. Sampling: Select a sampling method. Do we us a random sample, stratified

sample, or cluster sample?

4. Data Analysis methods: How will we analyze any data collected? What software

will we use? What degree of accuracy is required?

5. Budget and time frame: Decide upon a budget and a timeframe.

6. Agreement with the client department/organisation: Go back and speak to the

managers or clients requesting the research. Make sure that you agree on the

problem! If you gain approval, then move on to step seven.

7. Execution of research: Go ahead and collect the data.

8. Data Analysis: Conduct the analysis of the data.

9. Error check: Check for errors. It is not uncommon to find errors in sampling, data

collection method, or analytical mistakes.

10. Report Writing: Write your final report. This will contain charts, tables, and

diagrams that will communicate the results of the research, and hopefully lead to a

solution to your problem. Watch out for errors in interpretation.





2.22 Sources of Data - Primary and Secondary





There are two main sources of data - primary and secondary. Primary research is

conducted from scratch. It is original and collected to solve the problem in hand.

Secondary research, also known as desk research, already exists since it has been

collected for other purposes.





2.23 Primary Marketing Research

Primary marketing research is collected for the first time. It is original and collected

for a specific purpose, or to solve a specific problem. It is expensive, and time

consuming, but is more focused than secondary research. There are many ways to

conduct primary research. We consider some of them:







28

1. Interviews

2. Mystery shopping

3. Focus groups

4. Projective techniques

5. Product tests

6. Diaries

7. Omnibus Studies





2.231 Interviews





This is the technique most associated with marketing research. Interviews can be

telephone, face-to-face, or over the Internet.





2.232 Telephone Interview





Telephone ownership is very common in developed countries. It is ideal for collecting

data from a geographically dispersed sample. The interviews tend to be very structured

and tend to lack depth. Telephone interviews are cheaper to conduct than face-to-face

interviews (on a per person basis).

Advantages of telephone interviews



 Can be geographically spread out

 Can be set up and conducted relatively cheaply

 Random samples can be selected

 Cheaper than face-to-face interviews



Disadvantages of telephone interviews



 Respondents can simply hang up

 Interviews tend to be a lot shorter

 Visual aids cannot be used

 Researchers cannot behavior or body language







29

However, in less developed countries, the penetration of telephone services is less than

adequate, especially in rural and remote areas This reduces the possibility of relying n

telephones for conduct of interviews.



2.233 Face-to-face Interviews

Face-to face interviews are conducted between a market researcher and a respondent.

Data is collected on a survey. Some surveys are very rigid or 'structured' and use closed

questions. Data is easily compared. Other face-to-face interviews are more 'in depth,' and

depend upon more open forms of questioning. The research will probe and develop points

of interest.





Advantages of face-to-face interviews



 They allow more 'depth'

 Physical prompts such as products and pictures can be used

 Body language can emphasize responses

 Respondents can be 'observed' at the same time



Disadvantages of face-to-face interviews



 Interviews can be expensive

 It can take a long period of time to arrange and conduct.

 Some respondents will give biased responses when face-to-face with a researcher.



2.234 The Internet

The Internet can be used in a number of ways to collect primary data. Visitors to sites can

be asked to complete electronic questionnaires. However responses will increase if an

incentive is offered such as a free newsletter, or free membership. Other important data is

collected when visitors sign up for membership.

Advantages of the Internet



 Relatively inexpensive

 Uses graphics and visual aids





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 Random samples can be selected

 Visitors tend to be loyal to particular sites and are willing to give up time to

complete the forms



Disadvantages of the Internet



 Only surveys current, not potential customers.

 Needs knowledge of software to set up questionnaires and methods of processing

data

 May restrict visitors from your website.



2.235 Mail Survey





In many countries, the mail survey is the most appropriate way to gather primary data.

Lists are collated, or purchased, and a predesigned questionnaire is mailed to a sample of

respondents. Mail surveys do not tend to generate more than a 5-10% response rate.

However, a second mailing to prompt or remind respondents tends to improve response

rates. Mail surveys are less popular with the advent of technologies such as the Internet

and telephones, especially call centers.





2.235 Mystery Shopping

Companies will set up mystery shopping campaigns on an organizations behalf. Often

used in banking, retailing and many other customer focused organizations, mystery

shoppers will enter, posing as real customers. They collect data on customer service and

the customer experience. Findings are reported back to the commissioning organization.

There are many issues surrounding the ethics of such an approach to research.





2.236 Focus Groups

Focus groups are made up from a number of selected respondents based together in the

same room. Highly experienced researchers work with the focus group to gather in depth

qualitative feedback. Groups tend to be made up from 10 to 18 participants. Discussion,









31

opinion, and beliefs are encouraged, and the research will probe into specific areas that

are of interest to the company commissioning the research.





Advantages of focus groups



 Commissioning marketers often observe the group from behind a one-way screen

 Visual aids and tangible products can be circulated and opinions taken

 All participants and the research interact

 Areas of specific interest can be covered in greater depth



Disadvantages of focus groups



 Highly experienced researchers are needed. They are rare.

 Complex to organize

 Can be very expensive in comparison to other methods



2.237 Projective techniques

Projective techniques are borrowed from the field of psychology. They will generate

highly subjective qualitative data. There are many examples of such approaches

including: Inkblot tests - look for images in a series of inkblots Cartoons - complete the

'bubbles' on a cartoon series Sentence or story completion Word association - depends on

very quick (subconscious) responses to words Psychodrama - Imagine that you are a

product and describe what it is like to be operated, warn, or used.





2.238 Product tests

Product tests are often completed as part of the 'test' marketing process. Products are

displayed in a mall of shopping center. Potential customers are asked to visit the store and

their purchase behavior is observed. Observers will contemplate how the product is

handled, how the packing is read, how much time the consumer spends with the product,

and so on.









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2.239 Diaries & Omnibus studies

Diaries are used by a number of specially recruited consumers. They are asked to

complete a diary that lists and records their purchasing behavior of a period of time

(weeks, months, or years). It demands a substantial commitment on the part of the

respondent. However, by collecting a series of diaries with a number of entries, the

researcher has a reasonable picture of purchasing behavior.





An omnibus study is where an organisation purchases a single or a few questions on a

'hybrid' interview (either face-to-face or by telephone). The organisation will be one of

many that simply want to get a straightforward answer to a simple question. An omnibus

survey could include questions from companies in sectors as diverse as health care and

tobacco. The research is far cheaper, and commit less time and effort than conducting

your own research.





2.24 Secondary - Marketing Research





Secondary marketing research, or desk research, already exist in one form or another.

It is relatively cheap, and can be conducted quite quickly .However, it tends to have been

collected for reasons other than for the problem or objective at hand. So it may be

untargeted, and difficult to use to make comparisons (e.g. bank services data gathered for

the rural areas of Australia will be different from the data about the same set of banking

services in rural areas of India). There are a number of such sources available to the

marketer, and the following list is by no means conclusive:



 Trade associations

 National and local press Industry magazines

 National/international governments

 Websites

 Informal contacts

 Trade directories

 Published company accounts







33

 Business libraries

 Professional institutes and organisations

 Omnibus surveys

 Previously gathered marketing research

 Census data

 Public records

 National Sample Survey

 Countrywide Retail Audit

 NCAER‟s MISH survey etc.



We have given a general introduction to marketing research. Marketing research is a huge

topic area and has many processes, procedures, and terminologies that build upon the

points above.









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Chapter 3



Consumer Behaviour

3.0 Introduction



If a marketer can identify consumer buyer behaviour, he or she will be in a better

position to target products and services at them. Buyer behaviour is focused upon the

needs of individuals, groups and organisations. This chapter explains the model of

consumer behaviour, which consists of several variables like marketing offer,

environment, buyer characteristics, and purchase process which influence pre-purchase,

purchase and cause post-purchase experiences. It also covers the patterns of behaviour

exhibited by the buyers as well as the criteria and methods that they use to evaluate

purchase and consumption choices.

To understand human behaviour and its causes is extremely challenging. The sheer

variety of variables and their respective intensities is mind-boggling. The world-views

and backgrounds are different and so are the religions and traditions. The nationalities are

different and so are the communities. The professions are different and so are the

education levels. All these and more contribute towards making the understanding of

behaviour a real uphill task.



Once upon a time, four blind man keen to know how an elephant looks like went to a zoo

and requested the zoo keeper to take them close to an elephant. They were on different

sides of the elephant, each happy in his arrogance that he knew more than the others. By

virtue of their location relative to the elephant, each could touch a different part of

elephant’s huge body. Then one who was close to the trunk said that elephant must be like

a huge snake (just imagine!). Then, there was one who could feel elephant’s legs. He said

that elephant must be like a tree (way off...don’t you think), the third one touched

elephant’s stomach and said that elephant’s appearance must be like a huge sack. The

blind man who touched elephant’s ears was sure that elephant must surely be resembling

a fan.









35

3.1 Models of Consumer Behaviour

The basic model of behaviour that is used for analysing a consumer‟s

Marketing offer behaviour is as follows:



Product, Place,

Price, Promotion

Stimuli Organism Behaviour Consequences





Environment Internal & Buyer Decision Satisfaction or

Socio-cultural, External Characteristics making, Cognitive

Technological, action Dissonance

Economic,

Political







Understanding the nature of the stimuli the consumer receives from the environment and

from the marketers is important. The nature of influence that each of these stimuli exerts

on the thinking and decision making process is an important determinant of what he

buys? Where from he buys? When he buys? and what he buys?





3.2 The Stimuli

The stimuli are of two types, the internal and the external. The origin of internal stimuli

is the „self‟. Hunger, Thirst or to dress up properly, etc are examples of internal stimuli.

External Stimuli are caused by the marketing mix or by environment.





The marketing mix which acts as a stimulus consists of four Ps: Product, Price,

Promotion and Place. A combination of these activates a consumer to search, negotiate or

to buy a product or a service.





(a) Socio-Cultural factors

The socio-cultural factors that affect an individual‟s behaviour are: Culture, Social

Class, groups, family role, status and sociability





i) Culture: The traditions, the customs, the language, the beliefs, and the norms,

each one of these affects the way a person behaves.

ii) Social Class: The income, the occupation, the education level, the means of

leisure, the way of speaking and dressing, each one of these defines the class one







36

belongs to. The class plays an important role in governing the shopping and

consumption choices of individuals.

iii) Group: Whether it is the primary groups, such as family and kinship groups, the

friends circle and the neighbourhood group or it is a secondary group such as

office colleagues, political parties or clubs, etc. Each membership or lack of it

influences the way a person behaves in a consumption situation.

iv) Family: Family is one of the most important and basic economic unit. The

structure of the family and the statuses and the roles each member plays in it is a

significant determinant of the purchase decisions.



v) Role and Status: The rights (Status) and the obligations (roles) affect the way a

person perceives oneself. The conduct of each individual is shaped by the Role

set and status set that he views as acceptable and identifiable. Purchase behaviour

is no exception. A person either identifies with certain brands or aspires for

certain brands. In no case will a person like to get associated with something that

he perceives as of lower status than him.

vi) Sociability: The extent to which the group is bonded together decides the

influence that it has on the individuals comprising it. The strength and

attractiveness that each group member feels for the group that he belongs to is a

major cause of the behaviour of each one of the group members.

(b) Economic factors

The income and the occupations that one follows makes one behave in certain

manner.

(c) Political factors

The dynamics of the group and the power equations within the groups, the changes

happening in the political environment, the forces shaping the political economy all

influence the behaviour of the individuals. In rural India, the strengthening of

panchayati raj system has placed more money in the hands of villagers due to better

utilisation of funds. It has also made the villagers more confident about their

decisions.









37

(d) Technological factors

Technology has an impact on the lives of rural people. All the occupations including

those of agriculture, dairying, poultry and animal husbandry have become more

productive. New technology riding n the back of telecom and internet revolution has

boosted incomes, increased information availability and contributed towards

reduction in wastage of resources. The speed of activities has increased. All these

developments have led to change in behaviour making us conclude that the

technology that a consumer uses is a firm decider of what he would consume.





3.3 The Consumer’s Characteristics

Some of the characteristics of buyers that affect the buying process include:

1. Age

2. Life-Cycle stage

3. Economic Situation

4. Education

5. Occupation

6. Life-style

7. Personality

8. Self-Concept

9. Psychological factors

The first eight points mentioned above are self evident. However, the ninth point i.e.

Psychological factors needs explanation. The psychological factors that have an

important impact on a person‟s decisions are:

 Perception: The process by which people select, organise and interpret

information to form meaningful picture of the object. This makes the task

of communicating with different sets of people very challenging for a

marketer.

 Cognition: The information gathering and processing style and the way

people „learn‟ is different. Therefore, the marketer has to tailor make his

offering including the communication according to the cognitive system

prevailing amongst his target audience.





38

 Motivation: A motive is defined as the inner urge that propels a person to

action. The process of creating motives is called motivation.





3.31 Maslow’s Hierarchy of human needs

It is important to understand the relevance of human needs to buyer behaviour

(remember, marketing is about satisfying needs). The role of a human being as a

consumer is a subset of his behaviour as a human being. It is reasonable to assume that

the motives that drive a human being‟s conduct in non-shopping, non-buyer role are no

different from what guide him when he acts as a buyer.









Let's look at human motivations as introduced by Abraham Maslow by

his hierarchy of needs: The hierarchy is triangular. This is because as

you move up it, fewer and fewer people satisfy higher level needs. We

begin at the bottom level.









39

Physiological needs such as food, air, water, heat, and the basic

necessities of survival need to be satisfied. At the level of safety, man

has a place to live that protects him from the elements and predators. At

the third level we meet our social and belongingness needs i.e. we marry,

or join groups of friends, etc.





The final two levels are esteem and self-actualisation. Fewer people

satisfy the higher level needs. Esteem means that you achieve something

that makes you recognised and gives personal satisfaction, for example

writing a book. Self-actualisation is achieved by few. Here a person is

one of a small number to actually do something. For example, Neil

Armstrong self-actualised as the first person to reach the Moon.





3.4 Buying decision process

There are various models of explaining how a buyer takes a decision. One of the

preliminary models is the one shown below:



Need Information Evaluation of Purchase Post-Purchase

recognition search alternatives decision behaviour









1. Need recognition: When the buyer feels the absence, the lack, the paucity,

the scarcity of something, he senses a gap between his desired state and the

actual state. This realization of a gap is the trigger for the commencement

of buying process. The trigger can be supplied by environment, the

marketer or may be internally devised by the buyer. For example, a feeling

of hunger while passing through the market triggers the search for an eating

joint.

2. Information Search: Depending on the availability of time, of resources and

the degree of importance one attaches to the purchase, the amount of

information that would be gathered is decided. If adequate time is available

and if the purchase is for an important product or service, more and

relevant information will be gathered. Opposite is the case for low







40

importance activity or when tie that is available is short. Different sources

of information like family, friends, opinion leaders, radio, Television and

newspapers etc have different degrees of credibility associated with them.

Depending on the buyer‟s analysis of his purchase situation, the buyer

decides what he must do in the information search stage. The intention of

the buyer is to reduce his risk by obtaining correct information.

3. Evaluation of Alternatives: The evaluation of purchase alternatives (to buy

or not to buy, to buy immediately or to defer it, to buy brand A or brand B)

takes place in various small steps. The buyer has to have certain set of

criteria based on which he would assesses the worthiness of each option.

The criteria may be economic or social or emotional or even a combination

of two or many. The intention is to better one‟s situation through the

purchase decision the betterment could be in socio-economic domain or in

the emotional domain. Once the set of criteria is developed alternative is

subjected to these criteria. Depending on the merits of each option, a buyer

keeps moving on and taking decisions.

4. Purchase decision: All the existing brands of a product in the market make

a total set (e.g. Ford, Massey Ferguson, Eicher, Escorts, PTL and Swaraj

would form the total set for tractors). Based on the information search, the

consumer becomes aware of the presence of certain brands (e.g. Eicher,

Ford and Escorts). They form the Awareness Set. The brands which meet

the initial buying criteria. These are considered for further evaluation. They

comprise the Consideration Set. By applying all the criteria including the

final criteria, the farmer may arrive at all almost equally valid choices.

These are called the choice set. Finally only one brand is chosen for

purchase. The factors which affect any final choice are:

 Attitude of others

 Unanticipated situational factors

 Perceived Risk

The final purchase decision covers the following:

1. Which brand?





41

2. Which dealer?

3. How much quantity?

4. When purchased?

5. What payment method?





5. Post-Purchase Behaviour: The purchase decision marks a certain event

in the life of a buyer. Depending on its seriousness, the buyer develops

his feelings and behaviour towards the purchase once it has been made.

These can be positive (happy, satisfied, delighted) or can be negative

(anxious, disappointed, disgusted, dissatisfied). Typically, a marketer

would be interested in the following answers:

 What are the feelings of the buyer after buying and using the

product?

 What are his reactions when satisfied? When dissatisfied?

 How does he dispose of the product after use?

The satisfaction, delight or otherwise is dependent on whether the expectations are met

by the product purchase or not.

The marketers would do well to manage the expectations of their customers as well as

make sure that once formed, the expectations are exceeded by the marketing offer.





There are other buying process models like AIDA (Awareness Intention

DesireAction) or the one proposed by Cohen. The model is a little simplistic but

introduces the concept of different consumer needs quite well.









42

To understand consumer buyer behaviour is to understand how the person

interacts with the marketing mix. As described by Cohen (1991), the marketing

mix inputs (or the four Ps of price, place, promotion, and product) are adapted

and focused upon the consumer.





The psychology of each individual considers the product or service on offer in

relation to their own culture, attitude, previous learning, and personal

perception. The consumer then decides whether or not to purchase, where to

purchase, the brand that he or she prefers, and other choices.





Marketers would do well to understand the dynamics of buying process and

consumer behaviour. Therein would lie the likelihood of business success.









Chapter 4





Segmentation, Targeting and Positioning



4.0 Introduction to segmentation, targeting and positioning









43

The organisations of today and of the future will have to identify, select, attract,

nurture and retain their market. They may have to do whatever it takes to keep their

target audience/customers hooked on to their offerings. Different pack sizes,

different formulations, different colours and perfumes, each aimed at catering to a

sharply defined category of people in the market. No longer are the companies

depending on the philosophy that consumers are human beings with little or no

differences in aspirations, preferences, actions and consequences. In reality they

are dividing the markets into attractive segments to reach them efficiently, serve

them effectively and achieve results economically. Selecting and attracting markets

involves three key decisions viz., segmenting, targeting and positioning.





To get a product or service to the right person or company, a marketer would

firstly segment the market, then target a single segment or series of segments,

and finally position within the segment(s).





4.1 Segmentation





Segmentation is essentially the identification of subsets of buyers within a

market who share similar needs and who demonstrate similar buyer behavior.

The world is made up of billions of buyers with their own sets of needs and

behaviour. Segmentation aims to match groups of purchasers with the same set

of needs and buyer behaviour. Such a group is known as a 'segment'. Think of

your market as an orange, with a series of connected but distinctive segments,

each with their own profile.









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Segmentation is a form of critical evaluation rather than a prescribed process

or system, and hence no two markets are defined and segmented in the same

way. However there are a number of underpinning criteria that assist us with

segmentation:



 Is the segment viable? Can we make a profit from it?

 Is the segment accessible? How easy is it for us to get into the segment?

 Is the segment measurable? Can we obtain realistic data to consider its potential?



The are many ways that a segment can be considered. For example, the auto

market could be segmented by: driver age, engine size, model type, cost, and

so on. However the more general bases include:



Geograpical Segmentation:



The variables considered while segmenting a market geographically include

zones/regions, states, districts, cities/towns/villages by size, density, climate and culture.



Demographic Segmentation:



In this case the markets are divided based on the variables such as age, life cycle, gender,

family size, income, occupation, education, religion and nationality, etc.









Psychographic Segmentation:





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While geographic and demographic basis of segmentation offer an operational view of

the markets, the actual dynamics of the purchase can be assessed and marketing offer can

be designed only on the basis of psychographics of the people. Social class, lifestyle and

personality are the psychographic variables that can be used for segmentation.





In many parts of Punjab, the farmers have gone in for their second or even third tractor

and that too of large capacity even when their plot sizes warrant an ownership of a single,

small capacity tractor. The more than required multiplicity and the bigness of the tractors

is due to the tendency of emulating their neighbours or of reading a positive word about

their economic stature in the community.





A company will evaluate each segment based upon potential business success.

Opportunities will depend upon factors such as: the potential growth of the segment the

state of competitive rivalry within the segment, how much profit the segment will deliver,

how big the segment is, how the segment fits with the current direction of the company

and its vision.





4.2 Targeting





Targeting is the second stage of the SEGMENT-"Target"-POSITION (STP)

process. After the market has been separated into its segments, the marketer

will select a segment or series of segments and 'target' it/them. Resources and

effort will be targeted at the segment.





4.21 Evaluation of Segments

The organisation can use the following criteria for evaluating segments:

1. Profitability

The company needs to collect relevant information about sales volume,

distribution costs promotion costs, sales revenues and profit margins. This

data would help the calculation of profits obtainable from each segment.





2. Attractiveness





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Marketers must know whether there is a need to design skill development

programmes for its employees to serve its markets. The most attractive

segment for a company is the one having the closest fit with the size and

the nature of the organisation.





3. Growth Rate

It is not only important to have current profitability for determining

attractiveness of a segment but it is also important that the segment has

high profit potential and is growing rapidly towards achieving its potential.





4. Company Objectives

The segments selected by the company to target must be in close alignment

with the objectives of the company.





5. Limitations and Constraints

A company must examine the boundaries within which it has to operate

especially with reference to the social and cultural norms and mores, the

regulatory framework, Government policies, the general quality and

quantity of human resources in its location, etc. The segments chosen must

be accessible within the given limitations.





4.22 Segment Coverage

Organisations can have any of the three alternative strategies to suit their

segmentation approaches.





1. Concentrated Strategy

This involves catering to a single segment with a single product. In other word,

the marketer targets a single product offering at a single segment in a market

with many segments. For example, Rolls Royce Car is a high value product

aimed specifically at very rich people who also have fine taste and are

respected in the society.







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Concentrated Strategy









2. Undifferentiated Strategy

The marketer could ignore the differences in the segments, and choose to aim a

single product at all segments i.e. the whole market. This is typical in 'mass

marketing' or where differentiation is less important than cost. An example of

this is the approach taken by budget airlines such as Air Deccan in India, Air

Asia in South East Asia, Easyjet in Europe etc.





Undifferentiated Strategy









2. Differentiated Strategy









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Finally, there is a multi-segment approach. Here a marketer will target a

variety of different segments with a series of differentiated products. This is

typical in the automobile industry. Here there are a variety of products such as

diesel, four-wheel-drive, sports saloons, and so on.





4.3 Positioning





The third and final part of the SEGMENT - TARGET - POSITION (STP)

process is 'positioning.' Positioning is undoubtedly one of the simplest and

most useful tools to marketers. After segmenting a market and then targeting a

consumer, you would proceed to position a product within that market.





Remember this important point. Positioning is all about 'perception'. As

perception differs from person to person, so do the results of the positioning

map e.g what you perceive as quality, value for money, etc, is different to my

perception. However, there will be similarities.

Positioning involves three tasks:

 Identifying the differences of the offer vis-à-vis competitors‟ offers.

 Selecting the differences that have greater competitive advantage

 Communicating such advantages effectively to the target audience.





The marketing offer may be differentiated along the following lines:

 Product

 Services

 People, or

 Image





Products or services are 'mapped' together on a 'positioning map'. This allows

them to be compared and contrasted in relation to each other. This is the main

strength of this tool. Marketers decide upon a competitive position which









49

enables them to distinguish their own products from the offerings of their

competition (hence the term positioning strategy).





Take a look at the basic positioning map template below:









The marketer would draw out the map and decide upon a label for each axis.

They could be price (variable one) and quality (variable two), or Comfort

(variable one) and price (variable two). The individual products are then

mapped out next to each other. Any gaps could be regarded as possible areas

for new products.

The term 'positioning' refers to the consumer's perception of a product or

service in relation to its competitors. You need to ask yourself, what is the

position of the product in the mind of the consumer?

Trout and Ries suggest a six-step question framework for successful

positioning:





1. What position do you currently own?

2. What position do you want to own?

3. Whom do you have to defeat to own the position you want?

4. Do you have the resources to do it?





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5. Can you persist until you get there?

6. Are your tactics supporting the positioning objective you set?





Look at the example below using the auto market.

Product: Skoda Octavia, Hyundai Sonata, Maruti Baleno, Honda City, Hyundai

Santro, Maruti Wagon R and Maruti 800.









Positioning Map for Cars





The seven products are plotted upon the positioning map. It can be concluded

that products tend to bunch in the high price/low economy(fast) sector and also

in the low price/high economy sector. There is an opportunity in the low price/

low economy (fast) sector. Maybe Hyundai or Maruti could consider

introducing a low cost sport saloon. However, remember that it is all down to

the perception of the individual.







51

Chapter 5





52

Product, Brand and Innovation Management





5.0 Introduction to Product Management

The most common decisions that Marketing Manager has to take pertain to product

strategy. The multi-product firms are faced with challenges and they do exercise

choices in the product arena to gain a competitive advantage. It is through

continuous re-jigging of product mixes that a company improves its performance in

the marketplace.





5.1 Three Levels of a Product





For many people, a product is simply the tangible, physical entity that they

may be buying or selling. You buy a new tractor and that's the product -

simple! In marketing, we do not consider it so simple. When one buys a

tractor, is the product more complex than one first thought? In order to actively

explore the nature of a product further, let‟s consider it as three different

products - the CORE product, the ACTUAL product, and finally the

AUGMENTED product.





These are known as the 'Three Levels of a Product.' Let us see what is the

difference between the three products, or more precisely 'levels?'









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The CORE product is NOT the tangible, physical product. You can't touch it.

That's because the core product is the BENEFIT of the product that makes it

valuable to you. So with the tractor example, the benefit is productivity i.e. the

ease with which the farming operations can be performed. Another core benefit

is the transportation since you can carry farm produce and construction

material around relatively quickly.









The ACTUAL product is the tangible, physical product. You can get some use

out of it. Again with the tractor example, it is the vehicle that you test drive,

buy and then collect.





The AUGMENTED product is the non-physical part of the product. It usually

consists of lots of added value, for which you may or may not pay a premium.

So when you buy a tractor, part of the augmented product would be the







54

warranty, the customer service support offered by the tractor manufacture, and

any after-sales service.

Another marketing tool for evaluating PRODUCT is the Product Life Cycle

(PLC).





5.2 The Product Life Cycle (PLC)





The Product Life Cycle (PLC) is based upon the biological life cycle. For

example, a seed is planted (introduction); it begins to sprout (growth); it shoots

out leaves and puts down roots as it becomes an adult (maturity); after a long

period as an adult the plant begins to shrink and die out (decline).





In theory it is the same for a product. After a period of development it is

introduced or launched into the market; it gains more and more customers as it

grows; eventually the market stabilises and the product becomes mature; then

after a period of time the product is overtaken by development and the

introduction of superior competitors, it goes into decline and is eventually

withdrawn.

However, most products fail in the introduction phase. Others have very

cyclical maturity phases where declines see the product promoted to regain

customers.









5.11 Strategies for the differing stages of the Product Life Cycle.







55

Introduction

The need for immediate profit is not a pressure. The product is promoted to

create awareness. If the product has no or few competitors, a skimming price

strategy is employed. Limited numbers of product are available in few

channels of distribution.





Growth

Competitors are attracted into the market with very similar offerings. Products

become more profitable and companies form alliances, joint ventures and take

each other over. Advertising spend is high and focuses upon building brand.

Market share tends to stabilise.





Maturity

Those products that survive the earlier stages tend to spend longest in this

phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to

differentiate products and brands are key to this. Price wars and intense

competition occur. At this point the market reaches saturation. Producers begin

to leave the market due to poor margins. Promotion becomes more widespread

and uses a greater variety of media.





Decline

At this point there is a downturn in the market. For example more innovative

products are introduced or consumer tastes have changed. There is intense

price-cutting and many more products are withdrawn from the market. Profits

can be improved by reducing marketing spend and cost cutting.





5.12 Problems with Product Life Cycle.





In reality very few products follow such a prescriptive cycle. The length of

each stage varies enormously. The decisions of marketers can change the stage,

for example from maturity to decline by price-cutting. Not all products go







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through each stage. Some go from introduction to decline. It is not easy to tell

which stage the product is in. Remember that PLC is like all other tools. Use it

to inform your gut feeling.





5.2 Diffusion of Innovation

In modern businesses, innovation is the name of the game. Whether it is products

or distribution channels or advertising, the field of marketing is agog with

innovation.





As new products are placed in the market, buyers show different degrees of

readiness to adopt them.





5.21 The Adoption Process





The Adoption Process (also known as the Diffusion of Innovation) is more

than forty years old. It was first described by Bourne (1959), so it has stood the

test of time and remained an important marketing tool ever since. It describes

the behaviour of consumers as they purchase new products and services. The

individual categories of innovator, early adopters, early majority, late

majority and laggards are described below.









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Innovators are the first to adopt and display behaviour that demonstrates that

they likely to want to be ahead, and to be the first to own new products, well

before the average consumer. They are often not taken seriously by their peers.

The often buy products that do not make it through the early stages of the

Product Life Cycle (PLC).

Early adoptors are also quick to buy new products and services, and so are

key opinion leaders with their neighbours and friends as they tend to be

amongst the first to get hold of items or services.

The early majority looks to the innovators and early majority to see if a new

product or idea works and begins to stand the test of time. They stand back and

watch the experiences of others. Then there is a surge of mass purchases.

The late majority tends to purchase the product later than the average person.

They are slower to catch on to the popularity of new products, services, ideas,

or solutions. There is still mass consumption, but it begins to end.

Finally, laggards tend to very late to take on board new products and include

those that never actually adopt at all. Here there is little to be made from these

consumers.

There are a number of examples of products that have gone through the

adoption process. They include wrist watches, chemical fertilisers, chemical

pesticides, formal banking, crop insurance, kisan credit card and now

modern-day retail format. Initially only a small group of younger or

informed, well off people bought into these products. Opinion leaders or the

early adoptors then buy the product and tend to be a target for marketing

companies wishing to gain an early foot hold. The early majority is slightly

ahead of the average, and follow. Then the late majority buys into the product,

followed by any laggards. New adoption process or curves begin all the time.

Who knows what will happen with solid state technology or Internet purchases

of media?









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5.3 Product Strategy

Product strategy helps in achievement of marketing goals by facilitating improved

decisions with respect to products, product line and product mix.

Product strategy covers within its scope, decisions at three levels:

 Product Mix

 Product line and

 Product item

The typologies of decisions that are taken with respect to each level are mentioned

as follows:

Level Product strategy typology

Product Mix Width extension- New Product lines

Length extension- New Product items

Depth extension- New Product variants

Product Line Stretching- Upward, downward, both ways

Line pruning, line modernisation

Product Item Quality, features, design, brand and package

Augmentations





5.4 Introduction to Brands





5.41 Brands and Branding.





Branding is a strategy that is used by marketers. „Pickton and Broderick‟

describe branding as Strategy to differentiate products and companies, and to

build economic value for both the consumer and the brand owner. Brand

occupies space in the perception of the consumer, and is what results from the

totality of what the consumer takes into consideration before making a

purchase decision.

So branding is a strategy, and brand is what has meaning to the consumer.

There are some other terms used in branding. Brand Equity is the addition of

the brand's attributes including reputation, symbols, associations and names.





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Then the financial expression of the elements of brand equity is called Brand

Value.

There are a number of interpretations of the term brand. They are

summarized as follows:



 A brand is simply a logo e.g. McDonald's Golden Arches.

 A brand is a legal instrument, existing in a similar way to a patent or copyright.

 A brand is a company e.g. Coca-Cola.

 A brand is shorthand - not as straightforward. Here a brand that is perceived as

having benefits in the mind of the consumer is recognised and acts as a shortcut to

circumvent large chunks of information. So when searching for a product or

service in less familiar surroundings you will conduct an information search. A

recognised brand will help you reach a decision more conveniently.

 A brand is a risk reducer. The brand reassures you when in unfamiliar territory.

 A brand is positioning. It is situated in relation to other brands in the mind of the

consumer as better, worse, quicker, slower, etc.

 A brand is a personality, beyond function e.g. Apple's iPod versus just any MP3

player.

 A brand is a cluster of values e.g. Google is reliable, ethical, invaluable,

innovative and so on.

 A brand is a vision. Here managers aspire to see a brand with a cluster of values.

In this context vision is similar to goal or mission.

 A brand is added value, where the consumer sees value in a brand over and above

its competition e.g. ICICI over Dena Bank, and Maruti over „Ambassador‟ -

despite similarities.

 A brand is an identity that includes all sorts of components; depending on the

brand e.g. „TATA‟ encapsulates ethics, environmentalism and political beliefs.

 A brand is an image where the consumer perceives a brand as representing a

particular reality e.g. MRF Tyres are tough.

 A brand is a relationship where the consumer reflects upon him or herself through

the experience of consuming a product or service.







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5.42 Four Branding Alternatives



5.421 A Branding Strategy Based upon Brand Franchise Extension



A marketing tool that a marketer can employ for branding decision-making is the Four

Branding Alternatives (Tauber 1981). Four Branding Alternatives is a strategic marketing

communications technique. It is a fun and creative approach for all those who would like

to understand brands and how they could be innovatively developed. It is used when an

organization considers adding a product to its portfolio and its associated brand name.

The two variables for this matrix are Product Category (Existing or New) and Brand

Category (Existing or New).









 New Product - a new product is developed with a series of new brand ideas and

meanings to the consumer.

 Flanker Brand - a new brand is introduced into a category where the

organization already has established products.

 Line Extension - a current brand name is introduced into a category where the

organization already has established products.

 Franchise Extension - a familiar brand is taken to a product category where it is

unknown.









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Here's an example. Firstly let's recall that Four Branding Alternatives is a strategic tool,

so you need to base it upon a very large organisation which is likely to own a number of

brands.



Examples would include car manufacturers, large IT companies, and conglomerates. You

get the idea.



5.5 The Loyalty Ladder





5.51 Turning a prospect into an advocate





The loyalty ladder is a tool for marketing communicators. The idea is that

consumers can be moved along a continuum of loyalty using a number of

integrated marketing communications techniques (it is also referred to as a

branding ladder). Essentially, consumers become loyal to a brand which has

meaning to them in relation to a product, service, solution or experience.









As with continuums of behaviour such as UACCA - Unawareness, Awareness,

Comprehension, Conviction, Action, or AIDA - Awareness, Interest, Desire,

Action, the loyalty ladder begins from a point where the consumer has Not Yet





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Purchased, then he or she buys the product for the first time (Trialist), if the

trial has been a success he or she returns to buy again and again (Repeat

Purchaser) and finally the consumer buys no other brand (Brand Insistent).

At the Not Yet Purchased Stage the consumer is merely a Prospect. As he or

she trials they become a Customer. The Repeat Purchaser is a Client since he

or she is becoming loyal. Finally, the consumer becomes an Advocate (i.e.

activist or campaigner) since he or she is Brand Insistent. At this point the

brand is difficult to dislodge since it has so much meaning to the consumer.

Great brands such as M&M, ITC, TATA, Birla, and Phillips are in this highly

desirable position.





The marketing manager needs to decide or select integrated marketing

communications that move the consumer from Not Yet purchased to Brand

Insistent (i.e. from Prospect to Advocate). Once at Brand Insistent, the

marketing manager should attempt to keep the level of customer loyalty at this

point, again by using integrated marketing communications.









References



Edward M. Tauber, 'Brand Franchise Extension: New Product Benefits from Existing

Brand Names,' Business Horizons, vol. 24 (March-April 1981), p37.









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Chapter 6





Pricing Strategy



6.0 Introduction



Price is the most obvious representation of the value that the marketer wants the

consumer to perceive. To a significant extent, a high price does convey a „premium‟

image and a low price does communicate an image of brand for „mass consumption‟. The

significance of pricing has increased with the technology of manufacturing and marketing

becoming easily available at almost the same price to the competitors and also, the

information of competitors‟ offerings becoming easily available to the consumers. The

segments becoming more numerous and smaller and markets becoming saturated have all

contributed to make the price competition extremely intense. The lack of pace at which

new ideas of value-addition are implemented by the marketers has led to heightened

degree of price competition.



A price can be expressed in monetary and non-monetary terms. Many words are used as

surrogates of price: Commission, fee, rate, charges, salary, rent, wages, dividend, and

interest. A price contains all the terms of purchase: discounts, packing, handling and

shipping charges, credit charges and other forms of interest and late payment penalties.



Prices are quantitative, unambiguous and unidimensional, whereas other characteristics

like quality, image, customer service, promotion and similar factors are qualitative,

ambiguous and multi-dimensional. It provides a basis of not only economic comparison

but also social comparison.



6.1 Pricing Objectives

(i) Profit as objective



Two major types of profit objectives may be observed:









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1. Profit maximisation, and

2. Target return



„Maximisation of profit‟ as an objective assumes that the breakup of entire

cost and revenue details is available to the organisation. This may not be true

in most cases. Therefore, most companies settle for the objective of a „target

rate of return‟ for their shareholders. This is mostly represented as target

„Return on Investment (ROI)‟ which actually is indicative of what is

considered to be a „satisfactory‟ profitability rather than maximum

profitability.



(ii) Sales-objectives





The pricing objectives can also be looked at from the perspective of sales.

Typically this would be represented as:

a. Growth in sales volume/revenue

b. Growth in market share- due to growth in market or due to growth in sales

of the firm

c. Survival-minimum sales necessary to survive

d. Maintenance of a sales volume or market share





(iii) Competition Objectives





Some firms set pricing objectives in relationship to the actions of their

competitors. These may be:





a. To meet the challenge from competition

b. To block the entry of the competition

c. To destroy competition





When the market has several competitors and their relative strengths are

similar, the nature of the market is very close to being a „free‟ competition. In





65

such cases, the price wars seem to be the order of the day with each

competitor trying to outbid the other for getting a higher market share. When

there is an oligopoly, the pricing is relatively rigid and joint pricing by the

industry is common, e.g. Indian tyre market. When there is one or few major

big players and rest a re small competitors, the pricing is such that the big

players lead the price-pack with the rest following suit (unwillingly at times).

The intention of under-pricing by the large players is to finish off the smaller

competition by making their businesses unviable. Such a pricing strategy is

called „predatory‟ pricing.





(iv) Market development objectives

The markets do have a tendency of getting saturated as the competitors pump

in products at lower and lower prices. In such situations, the marketer has to

pursue market development objectives.





a. Finding new users or increasing usage quantity of the product among the

existing users

b. Entering new markets. The two strategies available while entering new

markets are- „Penetration‟ (i.e. price low to grab as many new users as is

possible) and „Skimming‟ (i.e. price high to create a premium image

among those users who pride themselves as „pioneers‟ and „early

adopters‟.





6.2 Pricing decision framework

The pricing decision requires consideration of at least four factors:

1. Pricing situations- identification of situations that require pricing decisions

2. Influences that govern a pricing decision

3. Choice of the appropriate approach to pricing- cost plus, what the market

can bear and competition driven

4. Selecting the method of price determination









66

(i) Pricing Situations

a. Product- Stages of Product Life Cycle (PLC)

b. Competition levels- high and low

c. Stage of evolution of Consumer

d. Stage of evolution of Consumer

e. Type of customer

f. Product portfolio- one, many or few products

g. Target location

h. Types of channels and profile of channel members





(ii) Pricing Influences

The internal influences on pricing decision are cost architecture, product portfolio and

marketing strategy. The external influences are- demand (price elasticity of demand),

competition, channels, politico-legal system.





(iii) Pricing Approaches

The marketers overcome the pricing dilemmas by relying on

cost, competition and demand as the basis for formulation of their pricing approaches.





(iv) Pricing Methods

Finally, the marketer has to settle for a pricing method from among

a. Cost based- Cost plus or Mark Up, Marginal Cost or contribution, Target

return, Payback method and/or learning curve

b. Demand based- Differential pricing, perceived value pricing,

psychological pricing and value based pricing

c. Competition based- Leader pricing, Competitive pricing, Follow the

leader, Sealed bid pricing.



The pricing method finally followed can be a combination of the above. Let's have a look

at some of them and try to understand the best policy/strategy in various situations.









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1. Premium Pricing



Use a high price where there is uniqueness about the product or service. This approach is

used where a substantial competitive advantage exists. Such high prices are charged for

luxuries such as big premium cars, high-end television sets, feature laden mobile handsets

or even a pesticide which claims to kill a pest causing widespread destruction in a

particular season, the high yielding and disease resistant GM Crop seeds also have

premium pricing.



2. Penetration Pricing



The price charged for products and services is set artificially low in order to gain market

share. Once this is achieved, the price is increased. This approach is used by many

FMCG product marketers like those in the toothpaste, bathing soap, detergent powder/

soaps and shampoo categories.



3. Economy Pricing



This is a no frills low price. The cost of marketing and manufacture are kept at a

minimum. Departmental Stores and showrooms often have economy brands for soaps,

motorcycles, cars, toothpaste, etc.









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4. Price Skimming



One can charge a high price because one has a substantial competitive advantage.

However, the advantage is not sustainable. The high price tends to attract new

competitors into the market, and the price inevitably falls due to increased supply.

Manufacturers of digital watches and computers used a skimming approach in the 1980s.

Once other manufacturers were tempted into the market and the watches were produced

at a lower unit cost, other marketing strategies and pricing approaches are implemented.



5. Psychological Pricing.



This approach is used when the marketer wants the consumer to respond on an emotional,

rather than rational basis. For example, 'price point perspective' of the kind, the footwear

marketer „Bata‟ practices wherein the merchandise is priced at X rupees and 95 paise.

This gives a feeling that it is cheaper though the difference with respect to next rupee is

just five paise. The satchets being priced at Re. 1 or Fast foods joints pricing full meal at

Rs. 20, etc.. The intention is to make the price cheaper.



6. Product Line Pricing.



Where there is a range of product or services the pricing reflect the benefits of parts of

the range. For example, tractor servicing X Rs., Tractor washing Y Rs. and minor repair

labour charges Z Rs. However, if the entire package is taken, the customer is charged at a

rate less than X+Y+Z Rupees.



7. Optional Product Pricing.



Companies will attempt to increase the amount customer spend once they start to buy.

Optional 'extras' increase the overall price of the product or service. For example, The

accessories that one gets installed in the car or on the motor cycle are charged extra.









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8. Captive Product Pricing



Where products have complements, companies will charge a premium price where the

consumer is captured. For example a razor manufacturer will charge a low price and

recoup its margin (and more) from the sale of the only design of blades which fit the

razor.



9. Product Bundle Pricing.



Here sellers combine several products in the same package. This also serves to move old

stock. Consumer durable manufacturers have been bundling Television and DVD Players

along with DVDs at attractive prices. The food retailers have bundled the related indian

spices in one bundle and selling it at an attractive price. Restaurants offer meal combos,

which is again a form of bundled pricing.



10. Promotional Pricing.



Pricing to promote a product is a very common application. There are many examples of

promotional pricing including approaches such as BOGOF (Buy One Get One Free).



11. Geographical Pricing.



Geographical pricing is evident where there are variations in price in different parts of the

world. For example rarity value, or where shipping costs increase price. The biscuit

makers like Britannia and Parle or the Newspaper Publishers like industan Times and

Times of India price their offerings according to the place where these are sold.



12. Value Pricing.



This approach is used where external factors such as recession or increased competition

force companies to provide 'value' products and services to retain sales e.g. Happy Price

Menu at McDonalds.









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6.3 Pricing Sensitivity

Price sensitivity of customers determines the extent of freedom that the companies will

have in changing the price of its offering. An organization must know the price

sensitivity of its customers and the factors that influence the prices. The thumb rules

related to the price sensitivity are as follows:





1. A customer‟s price sensitivity is high if it is he who is individually bearing the

cost.

2. A customer is less price sensitive when he buys on credit/instalment rather than

cash payment.

3. A customer is more price sensitive when the item that he is buying consumes a

significant percentage of his expenditure/income/available money.

4. A customer is more price sensitive when he has to resell the product in a

competitive market.

5. The customer is likely to be more price sensitive if he is knowledgeable about the

product category or the brand in question.

6. The customer is likely to be more price sensitive if he can easily shop around and

gather information about alternatives and competing brands.

7. The customer is likely to be more price sensitive if he has enough time to make

the purchase.

8. The customer is likely to be more price sensitive if he can change brands/

suppliers easily without incurring an additional cost.





6.4 Concluding thoughts





 Initial prices of any product must be established after analysing the cost structure

of the company, gauging the costs of the competitors, and understanding the value

propositions desired by the customers in the intended market. Pricing is a

dynamic decision and must undergo changes as the business situation changes.

 Pricing is a strategic decision and can be used to signal many things to the

customers and the competitors. However, in real life, the pricing is done by





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almost anyone, right from accounts clerk in some companies to the CEO in

others. Formal pricing department has not emerged for companies cutting across

sectors and industries.

 Each business development has an implication for the pricing strategy of the firm.

For example, technological advancement of a product or packaging, promotional

expenditure, distribution coverage, etc. impact the final prices at which the

products are sold to the consumers. Therefore, the pricing should never be done in

an ad-hoc manner but flow from strategic decisions of the company.









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Chapter 7

Distribution and Retailing

7.0 Introduction

The chapter on distribution and retailing covers the approaches followed, the

problems faced and the emerging alternatives in the vital area of distribution and

retailing. This refers to one of the major Ps of marketing, viz. Place.





Product and service distribution and retailing has developed into a highly

specialised activity. However, with the changing dynamics of availability of new

technologies as well as need to be available timely even in ever new places has

resulted in a virtual revolution in distribution channel design and management.





7.1 Place, distribution, channel, or intermediary.





A channel of distribution comprises a set of institutions which perform all of

the activities utilised to move a product and its title from production to

consumption.

- Bucklin - Theory of Distribution Channel Structure (1966)





Channel, distribution, or intermediary is the mechanism through which goods

and/or services are moved from the manufacturer/service provider to the user

or consumer.



7.2 Functions of channel intermediaries



1. Satisfying the needs of producers and consumers at the same time: Channel

intermediaries perform several specialised functions that enable manufacturers to

make their goods available to their consumers at the right place and at the right

time. Manufacturers produce a large quantity (for capturing economies of scale)

of limited range of products whereas customers usually want only a limited

quantity of wide range of goods. Channel members reconcile these conflicting







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situations. A related function is breaking bulk. A wholesaler buys large quantities

from a manufacturer and then sells smaller quantities to retailers.



2. Improve efficiency of the marketing transactions: The channel members improve

the efficiency of the entire chain by reducing the number of transactions and by

creating a bulk for transportation.



3. Improved Accessibility: The physical distances and the gap between the time of

production and time of purchase is bridged by the channel intermediary.



4. Providing Specialist Services: Channel intermediaries have expertise in areas such

as selling, servicing and installation. Producers can specialise in manufacturing

and allow distributors to these functions.



7.3 Six basic 'channel' decisions



1. Do we use direct or indirect channels? (e.g. 'direct' to a consumer, 'indirect' via a

wholesaler)?

2. Do we use Single or multiple channels?

3. What should be the cumulative length of the multiple channels?

4. Which types of intermediary (see later) should we use?

5. What should be the number of intermediaries at each level in a geographical area

(e.g. how many retailers in Southern India)?

6. Who should we choose as intermediaries to avoid 'intrachannel conflict' (i.e.

infighting between local distributors)?



7.4 Types of Channel Intermediaries





There are many types of intermediaries such as wholesalers, agents, retailers, the Internet,

overseas distributors, direct marketing (from manufacturer to user without an

intermediary), and many others. The main modes of distribution are looked at in more

detail in the following paragraphs:









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1. Wholesalers



Wholesalers break down 'bulk' into smaller packages for resale by a retailer. They buy

from producers and resell to retailers. They take ownership or 'title' to goods whereas

agents do not take the title. They provide storage facilities. For example, mango farmers

sell their produce even before it is fully ripe to a wholesaler who stores it, lets it ripen and

eventually resells to a retailer. Wholesalers often reduce the physical contact cost

between the producer and consumer e.g. customer service costs, or sales force costs. A

wholesaler often takes on some of the marketing responsibilities. Many produce their

own brochures and use their own telesales operations.



2. Agents





Agents are used in international as well as domestic markets. An agent typically secures an order

for a producer and takes a commission. They do not tend to take title to the goods. This means

that capital is not tied up in goods. However, a 'stockist agent' holds consignment stock (i.e. will

store the stock, but the title will remain with the producer. This approach is used where goods

need to get into a market soon after the order is placed e.g. foodstuffs). Agents can be very

expensive to train. They are difficult to keep control of due to the physical distances

involved. They are difficult to motivate.





3. Retailers



Retailers have a much stronger personal relationship with the consumer. The retailer will

hold several other brands and products. A consumer will expect to be exposed to many

products. Retailers will often offer credit to the customer e.g. travel agents, the local

grocer, etc. Products and services are promoted and merchandised by the retailer. The

retailer will give the final selling price to the product. Retailers often have a strong 'brand'

themselves e.g. McDonald and WalMart in the USA, and Big Bazar and Reliance Retail

in India. The retailer is a primary point of contact with the end-customer. By virtue of

their position in the distribution chain, they are a source of credibility and trust, their

views about products and brands are believed to be true by customers especially in

markets where product/brand awareness levels are low. Traditionally, the retailers were





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relationship marketers. He caters to a set of buyers with whom his relationship may

extend for several years and even through generations. Retailer is the main source of

point of sale information and opinion. He can be used to bring about change in tastes and

preferences of the customers.



4. Weekly markets, Bazaars, Haats and Shandies



The haats or the weekly markets are the oldest outlets to purchase household goods and

for trade. The shopkeepers have pre-assigned places to sell their wares in these markets.

A typical markets are usually in a large open space (or on the roadside pavements) with

adequate space for product display. These markets offer convenience of a on-stop

shopping option. These markets are also attractive whether in Bangalore or in Bangkok in

the sense that besides shopping, these also offer entertainment. It is a place to find all

kinds of bargains mostly in a vast array of product categories.



5. Melas and Fairs



Melas and Fairs offer are mostly associated with religio-cultural occasions and in that

sense they have a very long past. Their historical moorings and the consequent familiarity

of the customers makes them a happy huning grund for marketers of all kinds. The

participation in melas varies from a few thousand to many lakhs of people. The large

melas in India, e.g. the Kumbh do actually attract some of the largest number of people n

the world at a single place. These melas offer a large number of opportunities to sell, both

for manufactured goods as well as agricultural produce. The melas need little pre-

publicity because their regularity over large number of years has ensured for them a

permanent place in the calendar of different places. The timing of most of the fairs is

around the time when the target population is in a mood to celebrate and indulge in. It can

be Christmas, Diwali, Baisakhi or Pongal. In India, most fairs are held around the harvest

time. The mood is festive and the pocket is full, a ripe combination to make a sale.





Some of the famous melas and fairs in India are Kumbh (Allahabad, Ujjain, Nasik and

Haridwar), Pushkar (near Ajmer), Dussehra (Kullu), Cattle fair (Sonepur-Bihar), Makar







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Villaku (Kerala), Great Carnival (Goa), etc. According to IMRB, there are more than 800

melas of more than a reasonable size that are held every year in India. The number of

melas of smaller size may run into thousands.



6. Unofficial Channels



The un-served or under-served areas, certain unofficial channels develop. For example, in

the Indian villages, one has seen the mechanics doubling up as retailers for two-wheeler

automobiles like motorcycles. The local grocer performing the role of a chemist by

stocking and selling certain Over-the-counter drugs.



7. Petrol Pumps and Convenios



The petrol, diesel and gas dispensing (petrol pumps or petrol bunks) stations have

become multi-purpose outlets. The Kisan Seva Kendras (Indian Oil Corporation Ltd.) or

the convenios (of other petrol marketing companies) are serving as outlets for a wide

variety of products ranging from packaged food to frozen food to snacks to magazines

and books to music and movie CDs to agricultural inputs. This is a new channel and is

frequented by people who are passing through the petrol/diesel dispensing station.



8. NGOs



NGOs and other civil society organisations have emerged as a possible channels of

distribution specially for products or markets that otherwise have certain diffiuties

associated with them. NGOs command a certain degree of respect and influence among

the target audience and the targeted beneficieries. Companies and NGOs have been able

to forge win-win relationships wherein the companies take advantage of the grassroots

level infrastructure of the NGOs as well as the positive image that they carry. NGOs on

the other hand have been able to make a variety of products reach their targted

beneficieries and have also used the expertise as well as exposure to the markets to sell

the produce of their beneficieries into distant markets. In this process, employment has

got generated for local residents.









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9. Modern format retailers



In the recent years the retailers have grown in size. Growth in retailer size means that it

has become economic for manufacturers to supply directly to retailers rather than through

wholesalers. Supermarket chains and corporate retailers exercise considerable power over

manufacturers because of their enormous buying capabilities. Wal Mart uses its

enormous retail sales to pressurize manufacturers to supply products at frequent intervals

directly to their store at concessional prices.



There are many types of retail formats like discount stores, supermarkets, convenience

stores and department stores, etc. These retail store formats vary from each other on the

basis of their product assortment (product depth and width), price and location. Retail

store formats can be classified on the basis of the number of products sold by the retailer

and the range of products in each category. Speciality Stores, Category Killers,

Departmental Stores and Hypermarkets are some such divisions.



What is common to all the modern store formats is that they emphasize on improving the

„Total Customer Experience‟ and for this the deploy modern methods of customer

tracking, supply chain management, merchandise planning, etc. The modern retail

formats are challenging the dominance of traditional channels and in many developing

countries this conflict has assumed violent proportions.





10. Internet



Internet marketing is also referred to as cyber-marketing. It is the latest in the series of

direct retailing innovations like catalogue marketing, special-interest mail order,

telemarketing and television shopping. Internet is becoming and important channel much

faster than any other channel. The Internet has a geographically dispersed market. The

main benefit of the Internet is that niche products reach a wider audience. There are low

barriers to entry as set up costs are low. Use e-commerce technology (for payment,

shopping software, etc). There is a paradigm shift in commerce and consumption which

benefits distribution via the Internet. However, certain problems remain in shopping via







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the internet- the areas of low internet penetration are insulated from any internet

marketing effort, there are very few codified rules for shopping in cyberspace-this leads

to problems in enforcing commitments, the delivery systems for goods bought over the

internet still remains a major issue, logistics have to improve if internet marketing has to

dominate, many a times the customers may like to touch, feel and experience a product

before buying it, internet marketing presupposes familiarity with working on the

computers- it may not be true in certain geographies. However, the world of business

seems to believe that internet marketing will keep growing at a rapid rate in the coming

years. Rediff shopping, Indiatimes shopping, e-bay, Amazon, etc. are some of the major

players in the internet marketing space.



7.5 Channel Integration

There is no standard rule for the degree or the extent of integration that is

appropriate for a channel. It varies widely, depending on industries and

geographies. The manufacturer can own the channel as part of forward integration,

e.g. LG‟s company showrooms or Bata‟s company owned outlets. On the other

hand the channel might be comprising of members who are quite independent and

totally beyond the control of the manufacturer.





7.51 Conventional Marketing Channels



The independence of channel intermediaries means that the manufacturer has little or no

control over them. The traditional marketing channels occasionally witness hard

bargaining and channel conflicts, e.g. the retailer may want to display brand A on the

shop front counter whereas the manufacturer of brand B may want him to display brand

B at the same place and with increased prominence. Though the channel intermediary

may want to appropriate the role of customer-contact to itself, the manufacturer has to

ensure that he stays in touch with customers. The relationship between the manufacturer

and the intermediaries is governed by the balance of power between the two parties. A

manufacturer who dominates the market through its size and strong brands may exercise

considerable power over intermediaries though they are independent. However, with the

emergence of retail chains the balance has shifted. Now, retail chains like Big Bazar,





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Reliance Fresh, Spencer‟s, etc. enjoy enormous powers because of their ability to buy in

large quantities and to attract large number of customer footfalls.



7.52 Franchising

A franchise is a legal contract in which the manufacturer or the producer and the

intermediary agree to each member‟s rights and obligations. The intermediary

receives marketing, managerial, technical and financial services from the producer

in return for a fee. Franchise operations give the manufacturer a certain degree of

control because the agreement provide for a certain level of formal coordination

and integration of marketing and distribution activities between the manufacturer

and intermediaries. Franchising occurs at four levels:

i. Manufacturer and retailer- Car Showrooms

ii. Manufacturer and wholesaler- Coca Cola and Pepsi

iii. Wholesaler and retailer- Computer Hardware, Share issues

market, insurance

iv. Retailer and retailer- Benneton, McDonald‟s, Insurance

products



In franchising, it is important that the profit and responsibility sharing is equitable for a

long-term sustainable relationship.



7.53 Channel Ownership

Total control over distributor activities comes with channel ownership by the

manufacturer or an intermediary. The forward integration by owning the sales

outlets lets the channel leader control the purchasing, production and marketing

activities of these outlets. In particular, control over purchasing means a captive

outlet for your products. However, the advantage of control has to be weighed

against the high price of acquisition and the danger that the move into retailing will

spread their managerial resources too thinly.









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7.6 Selection of a distributor



 Market segment - the distributor must be familiar with your target consumer and

segment.

 Changes during the product life cycle - different channels can be exploited at

different points in the Product Life Cycle (PLC).

 Producer - distributor fit - Is there a match between their policies, strategies, image,

and yours? Look for 'synergy'.

 Qualification assessment - establish the experience and track record of your

intermediary.

 How much training and support will your distributor require?



7.7 Managing Channel Conflict



Various members of the distribution channel have different goals. These goals may be at

variance with each other and may be divergent. The goal divergence becomes a source of

conflict when one member of the distribution channel perceives that some other member

is preventing the first member from achieving its goals. The intensity of conflict can vary

from minor disagreements to major disputes leading to severance of relationships.



The sources of channel conflict can be differences in goals, differences in desired product

lines, existence of multiple distribution channels and inadequacies in performance from

any quarter. Some methods of avoiding the channel conflicts are- developing a

partnership approach, training your staff in effective negotiations and conflict handling,

proper division of territories among channel members, occasional coercion and lastly and

most importantly, improving individual performance.









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Chapter 8

Integrated Marketing Communication



8.0 Introduction to Marketing Communication





Marketing communications is a subset of the overall subject area known as marketing.

Marketing has a marketing mix that is made of price, place, promotion, product (know as

the four Ps), that includes people, processes and physical evidence, when marketing

services (known as the seven Ps).

How does marketing communications fit in? Marketing communications is 'promotion'

from the marketing mix.





Why are marketing communications 'integrated?' Integrated means combined or

amalgamate, or put simply the jigsaw pieces that together make a complete picture. This

is so that a single message is conveyed by all marketing communications. Different

messages confuse your customers and damage brands. So if a TV advertisement carries a

particular logo, images and message, then all newspaper advertisements and point-of-sale

materials should carry the same logo, images or message, or one that fits the same theme.

Coca-Cola uses its familiar red and white logos and retains themes of togetherness and

enjoyment throughout its marketing communications.





Marketing communications has a mix. Elements of the mix are blended in different

quantities in a campaign. The marketing communications mix includes many different

elements, and the following list is by no means conclusive. It is recognised that there is

some cross over between individual elements (e.g. Is donating books and school bags to

children in a village school, by asking shoppers to purchase a particular brand of

detergent, public relations or sales promotion?)









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Here are the key of the marketing communications mix.



1. Personal Selling

2. Sales Promotion

3. Public Relations (and publicity)

4. Direct Marketing

5. Trade Fairs and Exhibitions

6. Advertising (above and below the line)

7. Sponsorship

8. Packaging

9. Merchandising (and point-of-sale)

10. E-Marketing (and Internet promotions)



Integrated marketing communications means that the elements of the communications

mix are 'integrated' into a coherent whole. This is known as the marketing

communications mix, and forms the basis of a marketing communications campaign.









The elements of the marketing communication mix are integrated to form a coherent

campaign. As with all forms of communication, the message from the marketer follows







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the 'communications process' as illustrated above. For example, a radio advertisement is

made for a tractor manufacturer. The tractor manufacturer (sender) pays for a specific

advertisement which contains a message specific to a target audience (encoding). It is

transmitted during a set of commercials from a radio station (Message / media).





The message is decoded by a radio (decoding) and the target consumer interprets the

message (receiver). He or she might visit a dealership or seek further information from a

web site (Response). The consumer might buy a tractor or express an interest or dislike

(feedback). This information will inform future elements of an integrated promotional

campaign. Perhaps a direct mail campaign would push the consumer to the point of

purchase. Noise represents the thousands of marketing communications that a consumer

is exposed to everyday, all competing for attention.





8.1 Components of the Promotion (Marketing Communication) Mix

Let us look at the individual components of the promotions mix in more detail.

Remember all of the elements are 'integrated' to form a specific communications

campaign.





8.11 Personal Selling.

Personal Selling is an effective way to manage personal customer relationships. The sales

person acts on behalf of the organization. They tend to be well trained in the approaches

and techniques of personal selling. However sales people are very expensive and should

only be used where there is a genuine return on investment. For example, salesmen are

often used to sell those models of motorcycles or brand of pesticides where the margin is

high.





8.12 Sales Promotion

Sales promotion tends to be thought of as being all promotions apart from advertising,

personal selling, and public relations. For example, the BOGOF promotion, or „Buy One

Get One Free‟ is very common. Others include couponing, money-off promotions,

competitions, free accessories (such as free blades with a new razor), introductory offers







84

(such as buy digital TV and get free installation), and so on. The cost of sales promotion

should be carefully estimated and compared with the next best alternative.





8.13 Public Relations (PR)

Public Relations is defined as 'the deliberate, planned and sustained effort to establish

and maintain mutual understanding between an organization and its publics' (Institute of

Public Relations). It is relatively an inexpensive way of reaching out. Successful

strategies tend to be long-term and plan for all eventualities. Most companies exploit PR;

just watch what happens when there is a controversy regarding their products or business

practices. The pre-planned PR machine clicks in very quickly with a very effective

rehearsed plan.





8.14 Direct Mail

Direct mail is very highly focussed upon targeting consumers based upon a database. As

with all marketing, the potential consumer is 'defined' based upon a series of attributes

and similarities. Creative agencies work with marketers to design a highly focussed

communication in the form of a mailing. The mail is sent out to the potential consumers

and responses are carefully monitored. For example, if you are marketing fertilisers, you

would use a database of progressive farmers as the basis of your mail shot.





8.15 Trade Fairs and Exhibitions

Such approaches are very good for making new contacts and renewing old ones.

Companies will seldom sell much at such events. The purpose is to increase awareness

and to encourage trial. They offer the opportunity for companies to meet with both the

trade and the consumer. Kisan Melas, Gram-Shilp Melas, and even the religious and

seasonal fairs have a permanent place in the lives of villagers. These occasions are

excellent opportunities for marketers to establish a connection with the target customers

in rural areas.





8.16 Advertising

There are many advertising 'media' such as newspapers (local, national, free, trade),







85

magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor

advertising (such as posters, bus sides).





8.17 Sponsorship





Sponsorship is where an organization pays to be associated with a particular event, cause

or image. Companies will sponsor sports events such as local sports competition in

villages, Bullock Cart or bicycle race or even Olympics. The attributes of the event are

then associated with the sponsoring organization.





The elements of the promotional mix are then integrated to form a unique, but coherent

campaign





8.18 The fundamentals of 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 advertisement 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.









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Table 8.1





Advertising Media

New Media Internet -

Outdoor (Posters or New Media Mobile

websites and search

transport) devices

engines

Newspapers (Local and

Television Magazines

National)

Radio Cinema Others . . .





8.19 Planning for advertising





Advertising agencies and their clients plan for advertising. Any plan should address the

following stages:



 Who is the potential TARGET AUDIENCE of the advertisement?

 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?



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 billboards and hoardings at different locations within the city is 'below-the-line,'







87

because hoarding space owners 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.





8.20 Working of an advertising agency?

The Client Agency Relationship

An advertising agency handles part or all marketing communications activities on behalf

of a client organization. The agencies themselves tend to vary in size from small, perhaps

a handful of people, to vast - where many thousands of employees make up the company.

A commission is generally taken by the agency which tends to be taken from the media

purchases of the client organisation.

The agency may also take payment from the media owners (i.e. sometimes take a

discount and do not pass it on to the client). More transparent means of payment are

becoming more popular, with some agencies being paid-by-results.

There are many types of agency, but it is generally accepted that the main ones are

include full-service agency, a la carte agency, or specialist agency. A full-service agency

will take on the whole project or campaign. An a la carte agency will offer some aspects

of a campaign such as media buying, rather like buying items from a menu. A specialist

agency tends to be small and more focused on a specific aspect of marketing

communications and/or a specific market such as Internet Marketing.





A Full-Service Agency will offer:



 Account management

 Creative Services

 Media planning, booking and management

 Traffic and production related services

 Account planning

 Account management



Account managers work for an agency with the client (an agency's customers are called

'clients'). Very often they will spend a lot of time with the client working as part of their





88

marketing team. This is one way in which an agency works closely with its client and

why the 'chemistry' between a client and its agency needs to be right. The account

manager makes sure that the correct information is passed from the client to the other

members of the agency. He or she is a co-ordinator and time manager. The account

planner will work on a brief that is fed back to the agency team.





8.221 Creative Team

The first internal agency team members to see the brief tend to be the creatives and the

media planners. The brief contains a 'proposition' that the client wishes to communicate

to the target audience. The creative team will transform the proposition into something

exciting and attractive to the target audience. The creative team decide upon the 'creative

concept.' This will be a motivational idea. The words used to express the creative concept

are called 'copy.' The images, pictures and diagrams are created i.e. the 'design' or

'layout.' This is done by 'designers' and 'copywriters.' Beware some creatives! Creatives

tend to be artistic and innovative. Hence their advice should be highly regarded and any

criticism should be constructive.





8.222 Traffic and Production Team

The traffic and media team are in charge of the production of the physical and artistic

output, i.e. the marketing communication. In the case of a TV advertisement, they would

commission scripts, recruit actors, film crews and supporting activities (such as costumes

and catering). All ads are different and so the specifics will vary. In the case of print

advertising, the traffic and production team would commission and sign-off all printed

advertising material such as direct marketing materials, magazine ads or posters.





8.223 Account Planning Team

The account planning team work on the 'customer's' perspective, and take an outward

look at the world. They support the creative teams by supplying data and opinion on what

I actually occurring in the marketing in which advertising is to be placed. They tend to

use secondary data to support decisions, and would rarely commission original research.









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However, with material supplied my organisations such as IMRB, AC Nielsen, etc. - the

account planning team can build an image of segments to help the creatives.





8.224 Media Team

The media team will organise the timing and scheduling of the marketing

communications campaign. They will look at the range of media to be exploited, and then

look at the best slots in which to run advertising. They will help a client to decide upon

the duration of and individual slot, and how many of them to run. Here the expense and

return to the client are key factors that influence decision-making. The two main skills of

the media team are media planning and media buying. Today there is a wealth of data on

which media buying can be based. There is software for planning and simulation.





8.30 Fundamentals of Sales Promotion

As stated earlier, Sales promotion is any initiative undertaken by an organisation to

promote an increase in sales, usage or trial of a product or service (i.e. initiatives that are

not covered by the other elements of the marketing communications or promotions mix).

Sales promotions are varied. Often they are original and creative, and hence a

comprehensive list of all available techniques is virtually impossible (since original sales

promotions are launched daily!). Here are some examples of popular sales promotions

activities:





(a) Buy-One-Get-One-Free (BOGOF) - which is an example of a self-liquidating

promotion. For example if a loaf of bread is priced at Rs. 10, and costs Rs. 2 to

manufacture, if you sell two for Rs. 10, you are still in profit - especially if there is a

corresponding increase in sales. This is known as a PREMIUM sales promotion tactic.





(b) Customer Relationship Management (CRM) incentives such as bonus points or

money-off coupons. There are many examples of CRM, from banks to petroleum and

diesel marketing companies as well as restaurants.





(c) New media - Websites and mobile phones that support a sales promotion.







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(d) Merchandising additions such as dump bins, point-of-sale materials and product

demonstrations.

(e) Free gifts e.g. many tea companies give a glass or cup-saucers with packets of tea.

(f) Discounted prices e.g. Budget airline such as SpiceJet and GoAir, e-mail their

customers with the latest low-price deals once new flights are released, or additional

destinations are announced.

(g) Joint promotions between brands owned by a company, or with another company's

brands. For example fast food restaurants like McDonalds often run sales promotions

where toys, relating to a specific movie release, are given away with promoted meals.

(h) Free samples (also known as sampling) e.g. tasting of food and drink at sampling

points in supermarkets. For example, Amul routinely puts up kiosks and stalls to enable

the customers to taste their new flavours of flavoured milk, sweets as well as milk

beverages like Cold Coffee.

(i) Vouchers and coupons, often seen in newspapers and magazines, on packs.

(j) Competitions and prize draws, in newspapers, magazines, on the TV and radio, on

The Internet, and on packs.

(k) Cause-related and fair-trade products that raise money for charities, and the less

well off farmers and producers, are becoming more popular.

(l) Finance deals - for example, 0% finance over 3 years on selected vehicles.

Many of the examples above are focused upon consumers. Don't forget that promotions

can be aimed at wholesales and distributors as well. These are known as Trade Sales

Promotions. Examples here might include joint promotions between a manufacturer and

a distributor, sales promotion leaflets and other materials (such as T-shirts), and

incentives for distributor sales people and their retail clients.





8.40 Fundamentals of Direct Marketing

Direct marketing is a channel-free approach to distribution and/or marketing

communications. So a company may have a strategy of dealing with its customers

'directly,' for example banks (such as State Bank of India) have no channel intermediaries

i.e. distributors, retailers or wholesalers. Therefore - 'direct' in the sense that the deal is

done directly between the manufacturer/ service provider and the customer.







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As mentioned above, 'direct' also in the sense that marketing communications are targeted

at consumers by the manufacturers. For example, a brand that uses channels of

distribution would target marketing communications at wholesalers/distributors, retailers,

and consumers, or a blend of all three. On the other hand, a direct marketing company

could focus upon communicating directly with its customers. Direct marketing and direct

mail are often confused - although direct mail is a direct marketing tool.

There are a number of direct marketing media other than direct mail. These include (and

are by no means limited to):



 Inserts in newspapers and magazines

 Customer care lines (telemarketing)

 Catalogues

 Coupons

 Door drops

 TV and radio advertisements with free phone numbers or per-minute-charging.

 . . . and finally - and most importantly - The Internet and New Media.

 SMS marketing



The Internet and New Media (e.g. mobile phones or PDAs) are perfect for direct

marketing. Consumers have never had so many sources of supply, and suppliers have

never had access to so many markets. There is even room for even niche marketers.





Many companies use direct marketing, and a current example of its use, as part of a

business model, is the way in which it is used by low-cost airlines. There is no

intermediary or agent, customers book tickets directly with the airlines over The Internet.

Airlines capture data that can be used for marketing research or a loyalty scheme.

Information can be processed quickly, and then categorise it into complex relational

databases.





Then, for example, special offers or new flights destinations can be communicated

directly to customers using e-mail campaigns. Data is not only collected on markets and





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segments, but also on individuals and their individual buyer behaviour. Companies such

as Amazon are wholesalers of books (i.e. they do not write or publish them) - so they use

Customer Relationship Management and marketing communications targeted directly at

individual customers - which is another, slightly different example of direct marketing.





8.50 Fundamentals of Public Relations(PR)

Public Relations (PR) is a single, broad concept that includes any purposeful

communications between an organisation and its publics that aim to generate goodwill.

Publics, put simply, are its stakeholders. PR is proactive and future orientated, and has

the goal of building and maintaining a positive perception of an organisation in the mind

of its publics. This is often referred to as goodwill.









Even though it is difficult to see the difference between marketing communications and

PR since there is a lot of crossover. This makes it a tricky concept to learn. Added to this

is the fact that PR is often expensive, and not free, as some definitions would have you

believe. PR agencies are not cheap. Below are some of the approaches that are often

considered under the PR banner.





1. Interviews and photo-calls

It is important that company executives are available to generate goodwill for their

organisation. Many undertake training in how to deal with the media, and how to behave







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in front of a camera. There are many key industrial figures that proactively deal with the

media in a positive way for example, Sunil Mittal of Bharati Telecom Group or Anil

Ambani of Anil Dhirubhai Ambani group.





Interviews with the business or mass media often allow a company to put its own

perspective on matters that could be misleading if simply left to dwell untended in the

public domain.





2. Speeches, presentations and speech writing

Key figures from within an organisation will write speeches to be delivered at corporate

events, public awards and industry gatherings. PR company officials in liaison with

company managers often write speeches and design corporate presentations. They are

part of the planned and coherent strategy to build goodwill with publics. Presentations

can be designed and pre-prepared by PR companies, ultimately to be delivered by

company executives.





3. Corporate literature e.g. financial reports

Corporate literature includes financial reports, in-house magazines, brochures,

catalogues, price lists and any other piece of corporate derived literature. They

communicate with a variety of publics. For example, financial reports will be of great

interest to investors and the stock market, since they give all sorts of indicators of the

health of a business. A company Chief Executive Officer CEO will often write the

forward to an annual financial report where he or she has the opportunity to put a

business case to the reader. This is all part of Public Relations.





8.60 Fundamentals of Personal Selling

Personal selling occurs where an individual salesperson sells a product, service or

solution to a client. Salespeople match the benefits of their offering to the specific needs

of a client. Today, personal selling involves the development of longstanding client

relationships. In comparison to other marketing communications tools such as

advertising, personal selling tends to:







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 Use fewer resources, pricing is often negotiated.

 Products tend to be fairly complex (e.g. financial services or new cars).

 There is some contact between buyer and seller after the sale so that an ongoing

relationship is built.

 Client/prospects need specific information.

 The purchase tends to involve large sums of money.



There are exceptions of course, but most personal selling takes place in this way.

Personal selling involves a selling process that is summarised in the following Five Stage

Personal Selling Process. The five stages are:





1. Prospecting,

2. Making first contact,

3. The sales call,

4. Objection handling,

5. Closing the sale





8.61 A Five Stage Personal Selling Process.

8.611 Stage One - Prospecting.

Prospecting is all about finding potential new customers. Prospects should be 'qualified,'

which means that they need to be assessed to see if there is business potential, otherwise

you could be wasting your time. In order to qualify your prospects, one needs to:



 Plan a sales approach focused upon the needs of the customer.

 Determine which products or services best meet their needs.

 In order to save time, rank the prospects and leave out those that are least likely to

buy.



8.612 Stage Two - Making First Contact.

This is the preparation that a salesperson goes through before they meet with the client,

for example via e-mail, telephone or letter. Preparation will make a call more focused.









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 Make sure that you are on time.

 Before meeting with the client, set some objectives for the sales call. What is the

purpose of the call? What outcome is desirable before you leave?

 Make sure that you've done some homework before meeting your prospect. This

will show that you are committed in the eyes of your customer.

 To save time, send some information before you visit. This will wet the prospect's

appetite.

 Keep a set of samples at hand, and make sure that they are in very good condition.

 Within the first minute or two, state the purpose of your call so that time with the

client is maximised, and also to demonstrate to the client that your are not wasting

his or her time.

 Humour is fine, but try to be sincere and friendly.



8.613 Stage Three - The Sales Call (or Sales Presentation)

 It is best to be enthusiastic about your product or service. If you are not excited

about it, don't expect your prospect to be excited.

 Focus on the real benefits of the product or service to the specific needs of your

client, rather than listing endless lists of features.

 Try to be relaxed during the call, and put your client at ease.

 Let the client do at least 80% of the talking. This will give you invaluable

information on your client's needs.

 Remember to ask plenty of questions. Use open questions, and avoid closed

questions i.e. questions that will only give the answer 'yes' or the answer 'no.' This

way you can dictate the direction of the conversation.

 Never be too afraid to ask for the business straight off.





8.614 Stage Four - Objection Handling.

Objection handling is the way in which salespeople tackle obstacles put in their way by

clients. Some objections may prove too difficult to handle, and sometimes the client may

just take a dislike to you (also known as the hidden objection). Here are some approaches

for overcoming objections:







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 Firstly, try to anticipate them before they arise.

 'Yes but' technique allows you to accept the objection and then to divert it. For

example, a client may say that they do not like a particular colour, to which the

salesperson counters 'Yes but X is also available in many other colours.'

 Ask 'why' the client feels the way that they do.

 'Restate' the objection, and put it back into the client's lap. For example, the client

may say, 'I don't like the taste of X,' to which the salesperson responds, 'You don't

like the taste of X,' generating the response 'since I do not like garlic' from the

client. The salesperson could suggest that X is no longer made with garlic to meet

the client's needs.

 The sales person could also tactfully and respectfully contradict the client.



8.615 Stage Five - Closing the Sale.

This is a very important stage. Often salespeople will leave without ever successfully

closing a deal. Therefore it is vital to learn the skills of closing.



 Just ask for the business! - 'Please may I take an order?' This really works well.

 Look for buying signals (i.e. body language or comments made by the client that

they want to place an order). For example, asking about availability, asking for

details such as discounts, or asking for you to go over something again to clarify.

 Just stop talking, and let the client say 'yes.' Again, this really works.

 The 'summary close' allows the salesperson to summarise everything that the

client needs, based upon the discussions during the call. For example, 'You need

product X in blue, by Friday, packaged accordingly, and delivered to your wife's

office.' Then ask for the order.

 The 'alternative close' does not give the client the opportunity to say no, but forces

them towards a yes. For example 'Do you want product X in blue or red?' Cheeky,

but effective.



So this is the Five Stage Personal Selling Process.









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Chapter 9

Competitive Marketing Strategy





9.0 Introduction

Satisfying customers may not guarantee success. Customer preference will depend

on creating more value than competition. This extra value is brought about by

establishing a competitive advantage. Corporate performance is a function of how

well the customer has been satisfied. How much more value has been created as

compared to the competition. By understanding competitors, a firm can better

predict their reaction to any marketing initiative that the firm might make and

exploit any weakness that they might possess.





There are various models to understand and hone competitive strategy. A few of

these are described below:





9.1 The Arthur D Little (ADL) Strategic Condition Matrix

Although now slightly dated at first glance, The Arthur D Little (ADL) Strategic

Condition Matrix offers a different perspective on strategy formulation. ADL has two

main dimensions - competitive position and industry maturity.





Competitive position is driven by the sectors or segments in which a Strategic Business

Unit (SBU) operates. The product or service which it markets, and the accesses it has to a

range of geographically dispersed markets that are what makes up an organization's

competitive position i.e. product and place.





Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be

renamed an 'industry life cycle.' Of course not only industries could be considered here

but also segments.









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It is a combination of the two aforementioned dimensions that helps us to use ADL for

marketing decision-making. Now let's consider options in more detail. Competitive

position has five main categories:



1. Dominant - This is a particularly extraordinary position. Often this is associated with

some form of monopoly position or customer lock-in e.g. LIC of India is a dominant

player in the Indian life insurance market.



2. Strong - Here companies have a lot of freedom since position in an industry is

comparatively powerful e.g. Maruti Suzuki Ltd. is a strong player in the Indian car

market.



3. Favourable - Companies with a favourable position tend to have competitive strengths

in segments of a fragmented market place. No single global player controls all

segments. Here product strengths and geographical advantages come into play.



4. Tenable - Here companies may face erosion by stronger competitors that have a

favourable, strong or competitive position. It is difficult for them to compete since

they do not have a sustainable competitive advantage.



5. Weak - As the term suggests companies in this undesirable space are in an unenviable

position. Of course there are opportunities to change and improve, and therefore to

take an organization to a more favourable, strong or even dominant position.





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From here the strategic position of an organisation can be established. Managers then

need to decide upon the best strategic direction for the business. For example they might

use a Gap Analysis. According to ADL, there are six generic categories of strategy that

could be employed by individual SBUs:



 Market strategies.

 Product strategies.

 Management and systems strategies.

 Technology strategies.

 Retrenchment strategies.

 Operations strategies.



9.2 Ansoff's Matrix - Planning for Growth

This well known marketing tool was first published in the Harvard Business

Review (1957) in an article called 'Strategies for Diversification'. It is used by

marketers who have objectives for growth. Ansoff's matrix offers strategic

choices to achieve the objectives. There are four main categories for selection.

Ansoff's Product/Market Matrix









9.21 Market Penetration

Here we market our existing products to our existing customers. This means increasing

our revenue by, for example, promoting the product, repositioning the brand, and so on.

However, the product is not altered and we do not seek any new customers.









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9.22 Market Development

Here we market our existing product range in a new market. This means that the product

remains the same, but it is marketed to a new audience. Exporting the product, or

marketing it in a new region, are examples of market development.





9.23 Product Development

This is a new product to be marketed to our existing customers. Here we develop and

innovate new product offerings to replace existing ones. Such products are then marketed

to our existing customers. This often happens with the auto markets where existing

models are updated or replaced and then marketed to existing customers.





9.24 Diversification

This is where we market completely new products to new customers. There are two types

of diversification, namely related and unrelated diversification. Related diversification

means that we remain in a market or industry with which we are familiar. For example, a

soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated

diversification is where we have no previous industry nor market experience. For

example a soup manufacturer invests in the rail b usiness.





Ansoff's matrix is one of the most well known frameworks for deciding upon strategies

for growth.





9.3 The Boston Consulting Group's Product Portfolio Matrix

Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager.

It was developed by the large US consulting group and is an approach to product

portfolio planning. It has two controlling aspect namely „Relative Market Share (meaning

relative to your competition)‟ and Market Growth‟.





You would look at each individual product in your range (or portfolio) and place it onto

the matrix. You would do this for every product in the range. You can then plot the

products of your rivals to give relative market share.







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This is simplistic in many ways and the matrix has some understandable limitations that

will be considered later. Each cell has its own name as follows.





9.31 Dogs.

These are products with a low share of a low growth market. These are the canine version

of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get

rid of these products.





9.32 Cash Cows

These are products with a high share of a slow growth market. Cash Cows generate more

more than is invested in them. So keep them in your portfolio of products for the time

being.





9.33 Problem Children

These are products with a low share of a high growth market. They consume resources

and generate little in return. They absorb most money as you attempt to increase market

share.





9.34 Stars

These are products that are in high growth markets with a relatively high share of that

market. Stars tend to generate high amounts of income. Keep and build your stars.









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Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash

Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds

generated by your Cash Cows is used to turn problem children into Stars, which may

eventually become Cash Cows. Some of the Problem Children will become Dogs, and

this means that you will need a larger contribution from the successful products to

compensate for the failures.

9.35 Problems with The Boston Matrix



 There is an assumption that higher rates of profit are directly related to high rates

of market share. This may not always be the case. When TAFE launches a new

tractor in India, it may gain a high market share quickly but it still has to cover very

high development costs

 It is normally applied to Strategic Business Units (SBUs). These are areas of the

business rather than products. For example, Mahindra‟s tractor division is an SBU

not a single product.

 There is another assumption that SBUs will cooperate. This is not always the case.

The main problem is that it oversimplifies a complex set of decision. Be careful.

Use the Matrix as a planning tool and always rely on your gut feeling.



9.4 The General Electric Business Screen

The General Electric Business Screen was originally developed to help

marketing managers overcome the problems that are commonly associated

with the Boston Matrix (BCG), such as the problems with the lack of credible

business information, the fact that BCG deals primarily with commodities not

brands or Strategic Business Units (SBU's), and that cashflow if often a more

reliable indicator of position as opposed to market growth/share.





The GE Business Screen introduces a three by three matrix, which now

includes a medium category. It utilizes industry attractiveness as a more

inclusive measure than BCG's market growth and substitutes competitive

position for the original's market share.









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So in come Strategic Business Units (SBUs). A large corporation may have

many SBU's, which essentially operate under the same strategic umbrella, but

are distinctive and individual. A loose example would refer to Mahindra‟s

tractor division, Teelecom division (MBT), automotive division, Hotels and

leisure division, etc.





Growth/share are replaced by competitive position and market attractiveness.

The point is that successful SBUs will go and do well in attractive markets

because they add value that customers will pay for. So weak companies do

badly for the opposite reasons. To help break down decision-making further,

you then consider a number of sub-criteria:





For market attractiveness:



 Size of market

 Market rate of growth

 The nature of competition and its diversity

 Profit margin

 Impact of technology, the law, and energy efficiency

 Environmental impact









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. . . and for competitive position:



 Market share

 Management profile

 R&D

 Quality of products and services

 Branding and promotions success

 Place (or distribution)

 Efficiency

 Cost reduction



At this stage the marketing manager adapts the list above to the needs of his

strategy. The GE matrix has 5 steps:



1. Identify your products, brands, experiences, solutions, or SBU's.

2. Answer the question, What makes this market so attractive?

3. Decide on the factors that position the business on the GE matrix.

4. Determine the best ways to measure attractiveness and business position.

5. Finally rank each SBU as either low, medium or high for business strength, and

low, medium and high in relation to market attractiveness.



Now follow the usual words of caution that go with all boxes, models and matrices. Yes

the GE matrix is superior to the Boston Matrix since it uses several dimensions, as

opposed to BCG's two. However, problems or limitations include:



 There is no research to prove that there is a relationship between market

attractiveness and business position.

 The interrelationships between SBUs, products, brands, experiences or solutions is

not taken into account.

 This approach does require extensive data gathering.

 Scoring is personal and subjective.

 There is no hard and fast rule on how to allocate weights to different elements.









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 The GE matrix offers a broad strategy and does not indicate how best to implement

it.



Generic Strategies - Michael Porter (1980)

Generic strategies were used initially in the early 1980s, and seem to be

even more popular today. They outline the three main strategic options

open to organization that wish to achieve a sustainable competitive

advantage. Each of the three options are considered within the context of

two aspects of the competitive environment:

Sources of competitive advantage - are the products differentiated in any

way, or are they the lowest cost producer in an industry? Competitive

scope of the market - does the company target a wide market, or does it

focus on a very narrow, niche market?









The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.





9.51 Cost Leadership

The low cost leader in any market gains competitive advantage from being able to many

to produce at the lowest cost. Factories are built and maintained; labour is recruited and

trained to deliver the lowest possible costs of production. 'cost advantage' is the focus.

Costs are shaved off every element of the value chain. Products tend to be 'no frills.'







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However, low cost does not always lead to low price. Producers could price at

competitive parity, exploiting the benefits of a bigger margin than competitors. Some

organizations, such as Maruti, are very good not only at producing high quality

automobiles at a low price, but have the brand and marketing skills to use a premium

pricing policy.





9.52. Differentiation

Differentiated goods and services satisfy the needs of customers through a sustainable

competitive advantage. This allows companies to desensitize prices and focus on value

that generates a comparatively higher price and a better margin. The benefits of

differentiation require producers to segment markets in order to target goods and services

at specific segments, generating a higher than average price. For example, fertilizer

companies differentiate their offerings.





The differentiating organization will incur additional costs in creating their competitive

advantage. These costs must be offset by the increase in revenue generated by sales.

Costs must be recovered. There is also the chance that any differentiation could be copied

by competitors. Therefore there is always an incentive to be innovative and continuously

improve.





9.53 Focus or Niche strategy

The focus strategy is also known as a 'niche' strategy. Where an organization can afford

neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche

strategy could be more suitable. Here an organization focuses effort and resources on a

narrow, defined segment of a market. Competitive advantage is generated specifically for

the niche. A niche strategy is often used by smaller firms. A company could use either a

cost focus or a differentiation focus.

With a cost focus a firm aims at being the lowest cost producer in that niche or segment.

With a differentiation focus a firm creates competitive advantage through differentiation

within the niche or segment. There are potentially problems with the niche approach.









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Small, specialist niches could disappear in the long term. Cost focus is unachievable with

an industry depending upon economies of scale e.g. telecommunications.





The danger of being 'stuck in the middle.'

Make sure that you select one generic strategy. It is argued that if you select one or more

approaches, and then fail to achieve them, that your organization gets stuck in the middle

without a competitive advantage.

9.6 Gap Analysis

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. There is a

straightforward structure to follow. The first step is to decide upon how you are going to

judge the gap over time. For example, by market share, by profit, by sales and so on.

This will help you to write SMART objectives. Then you simply ask two questions –\

1. where are we now? and

2. 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 diagramme 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?









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Your 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:









You 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 is how you close the gap by deciding upon strategies and tactics - and that's gap

analysis.









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9.7 Balanced Scorecard (Kaplan and Norton, 1992)

The Balanced Scorecard is an approach that can be used by strategic marketing managers

to control, and keep track of, key performance indicators. In fact the scorecard itself is

designed to be wholly strategic since it contains long-term outcomes and drivers of

success. There are four zones in a balanced scorecard namely financial, customers,

business processes (or simply processes), and learning and growth. Each measure is part

of a longer chain of cause and effect, and all of the measures eventually lead to outcomes.

So the scorecard is 'balanced' in that outcomes are in balance with each other.





The benefit of the scorecard is that it overcomes short-term quick fixes, and gives the

strategic marketing manager a straightforward overview of the organisation. In fact, a

scorecard should ideally fit onto a single sheet of paper. In fact Kaplan and Norton

(1992), the originators of Balanced Scorecard, describe it as the dials in an airplane

cockpit.









9.71 Learning and Growth

Learning and Growth deals with measures of corporate success in relation to how it

learns as it develops over time. So if the company makes mistakes in any way, then it







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must learn from them and there must be mechanisms in place to make sure that happens.

Growth also includes the way in which it generates leaders for the future and equips

employees with the necessary skills that will ultimately sustain its business. Examples

include skills sets, employee relations and satisfaction, and staff competences.





9.72 Internal Business Processes

Internal business processes include all operations within the organisation. The measures

would cover whether or not value is being delivered to target segments, and the value

chain is tracked. Innovation and new product development would also be measured.

Examples of internal business processes include Information Technology, manufacturing,

marketing operations such as customer service, procurement and quality processes.





9.73 Customers

As marketers we are very concerned with our customers. We need to make sure that they

are satisfied with every aspect of their experience with our organisation. We need to

make sure that we not only recruit more new customers, but that we also retain them and

extend new products and services to them. We also need to make sure that we are

meeting the needs of our target segments. So here, examples of customer measures

include customer retention and recruitment, their satisfaction and so on.





9.74 Financial

Financial measures are vitally important for any business. A note of caution here, since

traditional measures of financial success such as Return On Investment (ROI), and made

secondary to 'shareholder value.' Shareholder value is the natural measure of success, and

so it is prioritised. Information on customers, markets and technology is far more widely

available today, so don't bogged down with old fashioned financial measures.





Resources, individuals and teams within a business are then aligned with the scorecard

objectives, measures, targets and initiatives for each of the four areas of measurement.









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9.8 Core Competencies

A core competence is the result of a specific unique set of skills or production techniques

that deliver value to the customer. Such competences give an organization access to a

wide variety of markets.





Core competencies are interesting from a traditional marketing point of view since it

could be argued that they take a product or production orientation rather than a market

orientation. If you focus on production techniques and skills then aren't you looking at

your business from an internal point of view? The answer is yes. However, the core

competences give a business a competitive advantage in a number of markets, markets

where customers perceive a benefit from the product. So if needs are being met better

than the competition, there is an argument that core competences are indeed market-

oriented. There are at least three tests of a core competence.





9.81 Three tests of core competence:-



1. Provides potential access to a wide variety of markets.

2. Should make a significant contribution to the perceived customer benefits of the

end product.

3. Should be difficult for competitors to imitate.



For example, Bayer has expertise in many agrochemicals. Customers perceive many

benefits in relation to different kinds of products from Bayer. For a variety of reasons,

including unique skills, it is difficult for competitors to imitate Bayer‟s core

competencies.









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When trying to identify a core competence, it is often easy to mistake them for scarce or

unique resources i.e. resources rather than skills or production technologies. Also often

skills and production technologies do not amount to a core competence or resource

because they do not comply with one or more of the three tests. They are the thresholds

that the organization must achieve to remain competitive. Threshold competences and

scarce resources may not provide access to a variety of markets, may not be so

significant to customers and may be less difficult to imitate.





In summary there are core competences and scarce resources, and threshold

competences and threshold resources.









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In order to be competitive an organization needs material resources such as premises, a

factory or offices - depending on the nature of business of course. Material resources tend

to be the most straightforward to achieve. Then an organization needs to achieve the right

balance between Human Resources, training and recruitment. This state is more difficult

to achieve. Intangible resources, including core competences are the most difficult and

challenging to achieve. This is depicted in the diagram above. In fact they drive

competitive advantage.





9.9 Value Chain Analysis

The value chain is a systematic approach to examining the development of competitive

advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980).

The chain consists of a series of activities that create and build value. They culminate in

the total value delivered by an organisation. The 'margin' depicted in the diagram is the

same as added value. The organisation is split into 'primary activities' and 'support

activities.'









9.91 Primary Activities

9.911 Inbound Logistics

Here goods are received from a company's suppliers. They are stored until they are

needed on the production/assembly line. Goods are moved around the organisation.









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9.912 Operations

This is where goods are manufactured or assembled. Individual operations could include

room service in an hotel, packing of books/videos/games by an online retailer, or the final

tune for a new car's engine.





9.913 Outbound Logistics

The goods are now finished, and they need to be sent along the supply chain to

wholesalers, retailers or the final consumer.





9.914 Marketing and Sales

In true customer orientated fashion, at this stage the organisation prepares the offering to

meet the needs of targeted customers. This area focuses strongly upon marketing

communications and the promotions mix.





9.915 Service

This includes all areas of service such as installation, after-sales service, complaints

handling, training and so on.





9.92 Support Activities





9.921 Procurement

This function is responsible for all purchasing of goods, services and materials. The aim

is to secure the lowest possible price for purchases of the highest possible quality. They

will be responsible for outsourcing (components or operations that would normally be

done in-house are done by other organisations), and ePurchasing (using IT and web-

based technologies to achieve procurement aims).





9.922 Technology Development

Technology is an important source of competitive advantage. Companies need to

innovate to reduce costs and to protect and sustain competitive advantage. This could

include production technology, Internet marketing activities, lean manufacturing,







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Customer Relationship Management (CRM), and many other technological

developments.





9.923 Human Resource Management (HRM)

Employees are an expensive and vital resource. An organisation would manage

recruitment and selection, training and development, and rewards and remuneration. The

mission and objectives of the organisation would be driving force behind the HRM

strategy.





9.924 Firm Infrastructure

This activity includes and is driven by corporate or strategic planning. It includes the

Management Information System (MIS), and other mechanisms for planning and control

such as the accounting department.









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Chapter 10

Special Topics in Marketing



10.0 Introduction

Marketing is an evolving field. The sheer dynamism of the discipline makes it fascinating

and at the same time ever changing. The practicing mangers have to be constantly

updated about emerging areas and concepts as the society and technologies change

around them. The marketing practice will be effective only when it takes into account the

latest developments in the field and is based on sound theoretical concepts. It is with this

in view that this chapter tries to capture the essence of some important topics in

marketing which will make the knowledge base of the managers contemporary.





10.1 Services Marketing and the Extended Marketing Mix (7Ps).

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 it quickly perishes. A person could go to a

restaurant one day and have excellent service, and then return the next day and have a

poor experience. So often marketers talk about the nature of a service as:





1. Inseparable - from the point where it is consumed, and from the provider of the

service. For example, you cannot take the live performance of a folk dancer home

to consume it (a DVD of the same performance would be a product, not a

service).





2. Intangible - and cannot have a real, physical presence as does a product. For

example, life insurance policy may have a certificate, but the financial service

itself cannot be touched i.e. it is intangible.









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3. Perishable - in that once it has occured it cannot be repeated in exactly the same

way. For example, once an on-farm training programme for farmers has been

conducted, there will be not other for some time to come and even then it may be

held in a different place.





4. Variability- since the human involvement of service provision means that no two

services will be completely identical. For example, returning to the same

mechanic time and time again for a service on your tractor might see different

levels of customer satisfaction, or speediness of work.





5. Right of ownership - is not taken to the service, since you merely experience it.

For example, an engineer may service your agricultural pump set, 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.





Service sector is dominating the economies around the world. Therefore the four Ps (born

in the manufacturing era) based marketing mix has seen an extension and adaptation into

the extended marketing mix for services, also known as the 7Ps - physical evidence,

process and people.



Lets now look at the remaining 3 Ps:



a. People



An essential ingredient to any service provision is the use of appropriate staff and people.

Recruiting the right staff and training them appropriately in the delivery of their service is

essential if the organisation wants to obtain a form of competitive advantage. Consumers

make judgements and deliver perceptions of the service based on the employees they

interact with. Staff should have the appropriate interpersonal skills, aptitude, and service

knowledge to provide the service that consumers are paying for.









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b. Process



Refers to the systems used to assist the organisation in delivering the service. Imagine

you walk into a tractor mechanics shop and he takes out the entire history of past repairs

on your tractor. What was the process that allowed you to obtain this kind of service

delivery?



c. Physical Evidence



Where is the service being delivered? Physical Evidence is the element of the service mix

which allows the consumer again to make judgements on the organisation. If you walk

into a restaurant your expectations are of a clean, friendly environment. Physical

evidence is an essential ingredient of the service mix, consumers will make perceptions

based on their sight of the service provision which will have an impact on the

organisations perceptual plan of the service.



To certain extent managing services are more complicated then managing products,

products can be standardised, to standardise a service is far more difficult as there are

more input factors i.e. people, physical evidence, process to manage then with a product.



10.2 Customer Relationship Marketing (CRM)



CRM is about the systems (IT and non – IT systems) that are employed that help an

organisation manage its relationships with it customers.



CRM employed systems can help an organisation in a number of ways:



 By using simple databases CRM can help the organisation in segmenting their

most profitable customers.

 Help the organisation in targeting specific products at certain customers groups by

looking at their past purchase patterns.

 Help identify light and medium users, and employing strategies to try and convert

them into heavy users.









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 CRM can provide employees with all the necessary information that they need to

know about the customer they are dealing with, ensuring that the customer is dealt

with in an efficient manner and ensuring personlisation for the customer.



Customer Relationship Marketing tries to ensure that customer information can be

accessed at any point within the organisation. A truly marketing oriented organisation

would make sure that this would happen and that this system will put the customer first.



10.3 International Marketing



The world is becoming a smaller place because of technology (the internet) and social

mobility, that is, people are travelling more and are seeing familiar brands around the

world. Competition within the individual national markets are becoming too intense so

marketers decide to push sales in overseas markets.



10.31 Entering global markets



There are a number of steps that need to be taken before you decide to enter international

markets. Analyze the international marketing environment. A PEST/STEP analysis needs

to be conducted on the market you enter, to assess whether it is worthwhile or not. Some

factors that may influence an international decision are Political factors, Economical

Factors, Social Factors and Technological factors.



10.32 Market entry methods



Prior to you entering an overseas market there are six factors that need to be considered:



1. Speed – How quickly do you wish to enter your selected market?

2. Costs- What is the cost of entering that market?

3. Flexibility – How easy is it to enter/leave your chosen market?

4. Risk Factor – What is the political risk of entering the market? What are the

competitive risk? How competitive is the market?

5. Payback period – When do you wish to obtain a return from entering the market?

Are there pressures to break even and return a profit within a certain period?





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6. Long- term objectives- What does the organisation wish to achieve in the long

term by operating in the foreign market? Will they establish a presence in that

market and then move onto others?



1. Direct export



The organisation produces their product in their home market and then sells them to

customers overseas.



2. Indirect export



The organizations sells their product to a third party who then sells it on within the

foreign market.



3. Licensing



Another less risky market entry method is licensing. Here the Licensor will grant an

organisation in the foreign market a license to produce the product, use the brand name

etc in return that they will receive a royalty payment.



4. Franchising



Franchising is another form of licensing. Here the organisation puts together a package of

the „successful‟ ingredients that made them a success in their home market and then

franchise this package to overseas investors. The Franchise holder may help out by

providing training and marketing the services or product. McDonalds is a popular

example of a Franchising option for expanding in international markets.



5. Contracting



Another of form on market entry in an overseas market which involves the exchange of

ideas is contracting. The manufacturer of the product will contract out the production of

the product to another organisation to produce the product on their behalf. Clearly

contracting out saves the organisation exporting to the foreign market.







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6. Manufacturing abroad



The ultimate decision to sell abroad is the decision to establish a manufacturing plant in

the host country. The government of the host country may give the organisation some

form of tax advantage because they wish to attract inward investment to help create

employment for their economy.



7. Joint Venture



To share the risk of market entry into a foreign market, two organisations may come

together to form a company to operate in the host country. The two companies may share

knowledge and expertise to assist them in the development of company, of course profits

will have to be shared out also.



The International Marketing Mix- When launching a product into foreign markets

should we standardise or adapt your marketing mix to the foreign market? A company

can adopt to use a standardised marketing mix around the world or an adapted marketing

mix in each country. International Marketing Strategy decision is mainly between

Standardisation Vs Adaption. In international markets ,we have to take into consideration

consumers cultural background, buying habits, levels of personal disposable income etc

in order to deliver a tailored marketing mix programme to suit their needs. The arguments

however for standardisation suggest that if you go through the process of adapting the

product to local markets it does little but add to the overall cost of producing the product

and weakens the brand on the global scale. In today‟s global world, where consumers

travel more, watch satellite television, communicate and shop internationally over the

internet, the world now is becoming a lot smaller. Because of this there is no need to

adapt products to local markets. Brands such as Coca-Cola, MTV, Nike, Levis are all

successful global brands where they have a standardised approach to their marketing mix,

all these products are targeted at similar groups globally.



We can argue that standardisation is better for the organisation because it reduces cost,

however many organisations will have to ‘think global, but act local’ if they are to

successfully establish them selves in foreign markets. The same applies to International





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Promotion Strategy, we can either adapt or standardise their promotional strategy and

message. The use of certain colours may also need to be thought about. In India red is the

colour worn by the bride in weddings, white is the colour for mourning in Japan. The

level of media development has to also be taken into account. What is the level of

television penetration? How much control does the government have over advertising on

TV and radio? Is print media more popular then TV?



Pricing on an international scale is difficult. It has to take into account traditional price

considerations. The organisation needs to consider the costs of transport, any tariffs or

import duties that may be levied on their product(s) when they are sold on the

international scale. Also what currency do you expect to be paid in? Will it be home or

international currency? Exchange rate fluctuation will also impact profitability and

influence pricing decisions. The internet is now making pricing more transparent for

consumers. Goods can be purchased online from any overseas organisations at local

currency prices.



In an overseas market there may well be more intermediaries involved. In your

international market, is it dominated by major retailers or is the retail sector made up of

small independent retailers? Is internet distribution common for your product.



10.4 eMarketing

eMarketing is essentially part of marketing. Therefore eMarketing by its very nature is

one aspect of an organizational function and a set of processes for creating,

communicating and delivering value to customers and for managing customer

relationships in ways that benefit the organization and its stakeholders. This also helps us

to differentiate between eMarketing and E-commerce, since E-Commerce is simply

buying and selling online.





10.41 What is the difference between eMarketing and Internet Marketing?

There is no real difference between eMarketing and Internet Marketing. However, with

the arrival of mobile technologies such as PDA's and 3G mobile phones, as well as









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Interactive Television, both terms tend to be stretched to include these new media

technologies.





10.42 What are the eMarketing tools?

The Internet has a number of tools to offer to the marketer.



 A company can distribute via the Internet e.g. rediffshopping.com.

 A company can use the Internet as a way of building and maintaining a customer

relationship.

 The money collection part of a transaction could be done online e.g. electricity

and telephone bills.

 Leads can be generated by attracting potential customers to sign-up for short

periods of time, before signing up for the long-term.

 The Internet could be used for advertising e.g. Google.

 Finally, the web can be used as a way of collecting direct responses e.g. as part of

a voting system for a game show.



10.43 Internet Advertising

External sources of Internet Advertising

Pay-Per-Click Advertising, e.g. Google Adwords.Google Adwords is a cost-per-

click (CPC) online advertising programme. Essentially that means that you

decide upon a keyword that relates closely to your product or service. Using

Google's tools, you price how much it would cost your per-click for your chosen

keyword - this could be 10 cents, $1.50 or more, depending on the popularity of

the keyword. So the keyword - 'marketing' - would be more expensive than the

keyword - 'marketing cheese china' - because of its level of popularity. You then

allocate a budget, and pay Google by credit card. You can control the length of

your campaign, or end it as soon as the money runs out.





Advertisements appear alongside Google search results - so go to Google

and search for 'marketing.' The advertisements appearing along side the main







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search results are CPC. You only pay for advertisements that get clicked -

not for page views - so you pay nothing if your advert is simply viewed.

There is also an opportunity for 'Smart Pricing' whereby you pay more for

the advert if a sale is guaranteed. Adwords text ad running on the 'same

page,' then clicks on it - and buys from the advertiser.





Search Marketing, Overture and Yahoo!- Overture is the Yahoo equivalent of

Google's Adwords. Now known as Yahoo! Search Marketing, Overture has a

series of sub-products that make up its Internet marketing programme. Here are

some examples:

(a) Sponsored search - displays your advert at the top of the search engine

results. So your potential customers search for a 'keyword' and your advert

appears at the top of the results page (this is very similar to Adwords).





Again, as with Adwords, the advertisers bid against each other to obtain the

position that will generate the most convertible traffic to their site. Popular

keywords will cost more - obviously.





Local Advertising - gets your business listed in Yahoo's business directory.

So if you wish to promote products in specific regions next to specific search

keywords, this is a very targeted geographical service.





Affiliate Marketing- Affiliate Marketing is where an organization offers and

incentive to other web-based organizations to market the products or services

that it offers. Put simply - affiliate marketing is a basic agency arrangement.

There is rarely any pay-per-click cash, but affiliates tend to take a commission

on any goods sold as a result of the click. What does it look like? Affiliate

marketing sees a banners advert or a text advert placed upon an affiliate's

website. When the advert attracts a click, the visitor is taken through to the site

that originated the affiliate programme. No cash changes hands until there is a

sale, but affiliate rewards tend to be higher than regular pay-per-click.







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10.5 Network Marketing or Multi Level Marketing (MLM)

Network Marketing is a subset of direct selling and is also known as “multilevel

marketing”, “structure marketing” or “multilevel direct selling”. Network marketing can

best be described as a direct selling channel that focuses heavily on its compensation plan

because the distributors (members of the network) may receive compensation in two

fundamental ways. First, sales people (distributor) may earn compensation from their

personal sales of goods and services to the consumers (non-member of the network).

Second, they may earn compensation from sales to or purchase from those persons whom

they have personally sponsored or recruited into the network (down lines), these down

lines continue sponsoring or recruiting to the network sharing the benefits with their

sponsors or recruiters (up lines). Hence, the network marketing organization can be

defined as “those organisations that depend heavily or exclusively on personal selling,

and that reward sales agents for (a) buying products, (b) selling products, and (c) finding

other agents to buy and sell products”.





Network marketing distributors purchase products at wholesale prices, and may either use

discounted products themselves or retail the products to others for a profit. Suggested

mark up usually ranges from 20% to 50%. In addition, distributors receive a monthly

commission for their „personal volume‟, which is the value of every product they

personally buy or sell. Further, the distributors receive a net commission on the sales of

those they recruit into the network.





The sales developed from network marketing are not developed solely from sales created

by retailing, but also developed through recruiting or sponsoring independent distributors.

Thus, as distributors continue to recruit or sponsor new distributors to expand their

network, the new distributors will contribute new sales to the network and gain

commission in return. The multiplying effect on network marketing will expand

when these distributors continue their recruiting or sponsoring efforts. This multiplying

effect, an important element in the recruiting or sponsoring function, makes the network

marketing quite different from other types of direct selling involving paid sales persons.







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10.6 Experiential Marketing (XM)

Experiential marketing defined as "a fusion of non-traditional modern marketing

practices integrated to enhance a consumer's personal and emotional association with a

brand". "Experiential marketing" is the antonym of "product centric marketing," which

makes "customer centric marketing" somewhat synonymous with "experiential

marketing." .The idea of experiential marketing reflects a right brain bias because it is

about fulfilling consumers‟ aspirations to experience certain feelings – comfort and

pleasure on one hand, and avoidance of discomfort and displeasure on the other.

In contrast, traditional product centric marketing reflects a left brain bias because it

generally seeks to persuade consumers by invoking rational factors that position the

advertised brand as better than competing brands. Product centric marketing presumes a

degree of rationality in consumers‟ decision-making that contemporary brain science

refutes. Consumers‟ decisions are much more influenced by emotionally generated

feelings than by their rationally derived thoughts.



Some myths of XM:



 Companies that send instant messages with games or music promoting their

brands are doing experiential marketing.



 Experiential marketing is made up solely of events, mobile tours, and sports or

entertainment marketing programmes.



 Experiential marketing can include advertising copy that is written to connect

with the senses.



 Experiential marketing consists of product sampling, bar and nightclub

promotions, street teams, and diversity marketing (not sure why they threw that

in there!).



It is a mindset. A focus on creating fresh connections between brands and consumers out

in the world where things happen. Connections in the form of experiences that are

personally relevant, memorable, interactive and emotional. Connections that lead to

increased sales and brand loyalty.





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Experiential marketing is about interacting in person and bringing your brand alive. It's

important to point out that simply creating a live encounter between a person and a brand

does not mean you've succeeded at being an experiential marketer. Good experiences

take time, money, good information and clear objectives to develop.



10.7 Viral Marketing



Before we understand the reasons for effectiveness of viral marketing, we have to learn to

admire the virus. He has a way of living in secrecy until he is so numerous that he wins

by sheer weight of numbers. He piggybacks on other hosts and uses their resources to

increase his tribe. And in the right environment, he grows exponentially. A virus don't

even have to mate -- he just replicates, again and again with geometrically increasing

power, doubling with each iteration:



1

11

1111

11111111

1111111111111111

11111111111111111111111111111111

1111111111111111111111111111111111111111111111111111111111111111



In a few short generations, a virus population can explode.



Viral marketing describes any strategy that encourages individuals to pass on a marketing

message to others, creating the potential for exponential growth in the message's

exposure and influence. Like viruses, such strategies take advantage of rapid

multiplication to explode the message to thousands, to millions.



Off the Internet, viral marketing has been referred to as "word-of-mouth," "creating a

buzz," "leveraging the media," "network marketing." But on the Internet, for better

or worse, it's called "viral marketing."









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The classic example of viral marketing is Hotmail.com, one of the first free Web-based e-

mail services. The strategy is simple:



1. Give away free e-mail addresses and services,

2. Attach a simple tag at the bottom of every free message sent out: "Get your

private, free email at http://www.hotmail.com" and,

3. Then stand back while people e-mail to their own network of friends and

associates,

4. Who see the message,

5. Sign up for their own free e-mail service, and then

6. Propel the message still wider to their own ever-increasing circles of friends and

associates.



Like tiny waves spreading ever farther from a single pebble dropped into a pond, a

carefully designed viral marketing strategy ripples outward extremely rapidly.



Some viral marketing strategies work better than others, and few work as well as the

simple Hotmail.com strategy. But below are the six basic elements you hope to include in

your strategy. A viral marketing strategy need not contain ALL these elements, but the

more elements it embraces, the more powerful the results are likely to be. An effective

viral marketing strategy:



1. Gives away products or services

2. Provides for effortless transfer to others

3. Scales easily from small to very large

4. Exploits common motivations and behaviors

5. Utilizes existing communication networks

6. Takes advantage of others' resources



10.8 Cause-related Marketing



Cause-related marketing is defined as the public association of a for-profit company with

a nonprofit organization, intended to promote the company's product or service and to





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raise money for the nonprofit. Cause-related marketing is generally considered to be

distinct from corporate philanthropy because the corporate dollars involved in Cause-related



marketing are not outright gifts to a nonprofit organization, hence not tax-deductible.





The phrase "cause-related marketing" was first used by American Express in 1983 to

describe its campaign to raise money for the restoration of the Statue of Liberty.

American Express made a one-cent donation to the Statue of Liberty every time someone

used its charge card; the number of new card holders soon grew by 45%, and card usage

increased by 28%.



In their efforts to diversify and enhance their funding base nonprofits have embraced

Cause-related marketing. The practice has evolved to include a wide range of activities

from simple agreements to donate a percentage of the purchase price for a particular item

or items to a charity for a specific project, to longer, more complex arrangements.

Corporations too have been drawn to Cause-related marketing due to the competition of the

expanding global marketplace and the need to develop brand loyalty. A number of recent

studies have documented that consumers carefully consider a company's reputation when

making purchasing decisions and that a company's community involvement boosts

employee morale and loyalty.









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