Introduction to Marketing Management by umairsheikh2002

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									Introduction to Marketing Management
Adopted from Marketing; an Introduction by Armstrong & kotler
Compiled by Osman Safdar Sarwani

Marketing Profitable Customer Relationships

What Is Marketing? Marketing deals with customers. Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and growing current customers by delivering satisfaction. Sound marketing is critical to the success of every organization. Large profit based firms like Procter & Gamble, Toyota, Wal-Mart, IBM and Marriot use marketing. But so do non-profit based organizations such as colleges, hospitals, museums and even churches. Marketing Defined Many people think of marketing only as selling and advertising. But today, marketing must not be understood in the old sense of making a sale, that is “Telling and Selling”, rather marketing must be understood in the new sense of “Satisfying Customer Needs”. Marketing Mix is a set of marketing tools that work together to satisfy customer needs and build customer relationships. Marketing is a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging values with others. Marketing is the process by which companies create values for customers and build strong customer relationships in order to capture value from customers in return. The Marketing Process Below is a five-step model of the marketing process: 1. 2. 3. 4. 5. Understand the marketplace and customer needs and wants. Design a customer-driven marketing strategy. Construct a marketing program that delivers superior value. Build profitable relationships and create customer delight. Capture value from customers to create profits and customer quality.

In the first four steps, we create value for customers and build customer relationships. In the last fifth step, we capture value from customers in return. Customer Needs, Wants and Demands The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. Means that human needs are part of basic human nature like
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Physical Needs (food, clothing, warmth, safety) Social Needs (belonging, affection) Individual Needs (knowledge, self-expression

When human needs are affected by culture and individual personality, they become Wants. An American Needs food but Wants burger. Arabs also Needs food but Wants majboos. So basic human needs are the same as outlined above, wants keep on changing. When Wants are backed by buying power, they become Demand. Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants and demands. Market Offerings – Products, Services and Experiences Customer needs and wants are fulfilled through a marketing offering. Marketing offering is a combination of products, services, information or experiences offered to a market to satisfy a need or want. Marketing offerings are not limited to physical products. They also include services, activities or benefits. Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits produced by these products. These sellers suffer from Marketing Myopia. Marketing Myopia occurs when the seller focuses on customer wants and not needs. Because wants keep on changing, needs don’t. Smart marketers look beyond the attributes of the products, they create brand experiences of consumers. What customers really want are offers that dazzle their senses, touch their hearts, and stimulate their minds. Customer Value and Satisfaction Customers form expectations about the value and satisfaction that various market offering will deliver and buy accordingly. Marketer must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but will not attract enough buyers. If expectations are set too high, buyers might be disappointed. Customer satisfaction and Customer Value are key building blocks for developing and managing customer relationships. Exchanges and Relationships Marketing occurs when people decide to satisfy their needs and wants through exchange relationships. Exchange is the act of obtaining a desired object from someone by offering something in return. Beyond simply attracting new customers and creating transactions, the goal is retain customers and grow their business with the company.

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Markets A market is a set of actual and potential buyers of a product. These buyers share a particular need or want. Although we think that marketing is carried on by sellers, buyers also carry on marketing. Designing a Customer-Driven Marketing Strategy Marketing management is the art and science of choosing target markets and building profitable relationships with them. To design a winning marketing strategy, the marketing manager must answer two important questions: 1. What customers will we serve? That is, what’s our target market? 2. How can we serve these customer? That is, what’s our value proposition? Selecting Customers to Serve  The company must first decide who it will serve. This is done by dividing the market into segments of customer. This process is known as Market Segmentation. Then the company must decide which segment it will go after. This process is known as Target Marketing. The process of seeking fewer customers and reducing demands is known as demarketing. For example, power companies have trouble meeting demand during peak hours. So they might practice demarketing.

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Some people think of marketing management as finding as many customers as possible and increasing demand, but this is not true. For example, Nordstrom stores profitably targets affluent professionals where as Family Dollar profitably targets middle class families. Marketing Management Orientations Marketing management wants to design strategies that will build profitable relationships with target consumers. But which philosophy should be used in designing such strategies? Here are five such philosophies. Remember that all these philosophies or concepts are from the seller’s point of view: 1. The Production Concept: According to the production concept, consumers will favor products that are affordable and available. Therefore organizations should increase their production and distribution efficiency.

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2. The Product Concept: According to the product concept, consumers favor those products which offer high quality, performance and innovative features. Therefore, marketing strategy should focus on continuous product improvement. 3. The Selling Concept: According to selling concept, consumers will not buy the products unless the firm undertakes large-scale selling and promotion effort. Therefore, the aim is to sell what the company makes rather than what the market wants. 4. The Marketing Concept: According to this concept, achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than the competitors. Therefore, under this concept, customer focus and value are the paths to sales and profits. Instead of “make and sell” philosophy, here we focus on “sense and respond” tactics. Therefore this is a customer-centered concept. The job is not to find the right customers for your product but to find the right product for your customers. The Selling concept is an inside-out perspective where the focus is the company’s existing products. But the Marketing concept is an outside-in perspective where the focus is the customer needs. 5. The Social Marketing Concept: According to the Social marketing concept, the marketing strategy should deliver value to customers in a way that maintains or improves both the customer’s and the society’s well-being. Therefore its similar to the Marketing concept but adds the focusing on society’s well-fare. So there are three considerations underlying the social marketing concept: Consumers Satisfaction, Company’s Profit and Society’s Welfare.

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The Marketing Environment

Marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. The marketing environment offers both opportunities and threats. The environment continues to change rapidly. The marketing environment is made up of Micro-environment and Macro-environment. The Microenvironment consists of the actors close to the company that affect its ability to serve its customers. These actors are: the company, suppliers, marketing intermediaries, customer markets, competitors and publics. The Macroenvironment consists of the larger societal forces that affect the microenvironment. These forces are: demographic, economic, natural, technological, political and cultural forces. The Company’s Microenvironment The major actors or forces in the company’s microenvironment are: 1. The Company: In designing marketing plans, marketing management takes other company groups into account. These groups include the top management, finance, research and development, purchasing, operations and accounting departments, All these internal groups form the internal environment. Under the marketing concept, all of these functions must “think consumer”. They should work in harmony to provide superior customer value and satisfaction. 2. Suppliers: Suppliers provide the resources needed by the company to produce its goods and services. Marketing managers must watch supply availability for example, supply shortages and delays, labor strikes and other events that can cost sales in the short term and damage customer satisfaction in the long term. Raising supply costs may force price increases that can harm the company’s sales volume. 3. Marketing Intermediaries: Marketing intermediaries are firms that help the company to promote, sell and distribute its goods to final buyers. They include resellers, distribution firms, marketing services agencies and financial intermediaries.

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4. Customers: Customer markets are of five types:  Consumer Markets: They consist of individuals and households that buy goods for personal consumption.  Business Markets: They buy goods for further processing or for use in their production process.  Reseller Markets: They buy goods and services to resell at a profit.  Government Markets: They are made up of government agencies that buy goods to produce public services or transfer them to those who need.  International Markets: These consist of those buyers in other countries including consumers, producers, resellers and governments. 5. Competitors: According to the marketing concept, a company must provide customer value and satisfaction more than its competitor do. Therefore marketers must gain advantage by positioning their offerings strongly against the competitors’ offerings. 6. Publics: A public is any group that has an actual or potential interest or impact on an organization’s ability to achieve its objectives. In short, a group of people interested in an organization is public for that organization. There are seven types of public: 1) Financial Public: They influence the company’s ability to obtain funds. Include banks, stockholders etc. 2) Media Public: They carry news, features and editorial opinions. Includes newspapers, magazines, TV and Radio. 3) Government Public: They are government people. Management must take government developments into account and consult them regarding product safety, truth in advertisements etc. 4) Citizen-action Public: They are consumer and citizen groups who may question the marketing management’s decisions such as consumer groups, environmental groups, minority groups etc. 5) Local Public: They include neighborhood residents and community organizations. 6) General Public: A company needs to concerned about the general public’s attitude toward its products and activities.
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7) Internal Public: Includes workers, managers, volunteers and the board of directors.

The Company’s Macroenvironment A company’s Macroenvironment includes six major players: 1. Demographic Environment: Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation etc. The demographic environment is of major interest to marketers because it involves people and as a matter of fact, people make up markets. For example, the explosive world population growth has major implications on business. A growing population means growing human needs to satisfy. Thus, marketers keep close track of demographic trends. The 78 million people born during the baby boom following world war II and lasting till early 1960s is another great example. 2. Economic Environment: The economic environment consists of factors that affect consumer purchasing power and spending patterns. Countries with Subsistence economies consume most of their own agricultural and industrial output offering few market opportunities. Countries with Industrial economies constitute rich markets for different kinds of goods. Following changes in income were observed in these years:  1980s: High purchasing power. It was fashionable to say that you were ‘born to shop’  1990s: Decade of ‘squeezed consumer’. Increase financial burdens. Lower purchasing power.  2000s: Consumers spend carefully. Income distribution in USA can be classified as follows:  Upper Class: Those consumers whose spending patterns are not affected by current economic events. They are a major market for luxury goods.  Middle Class: They are comfortable and somewhat careful in spending but can afford the good life.  Working Class: They must stick to the basics of food, clothing and shelter.  Under Class: They are then ones on welfare and retirees. They must count their pennies when purchasing even the basic things.
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Most of the income is used up in food, housing and transportation. But different people with different incomes spend differently. It was found that as the income rises, percentage spent on food declines, on housing remains same and percentage of income saved increases. Engel’s Laws : Difference notes over a century ago by Ernst Engel in how people shift their spending across food, housing, health care and other goods and services categories as family income rises. 3. Natural Environment: Natural environment are the natural resources that are needed as inputs by the marketers or that which are affected by marketing activities. For example, air and water pollution. Marketers should be aware of the trends in the natural environment. Especially the following trends:  Shortages of raw materials.  Increased pollution.  Increased government intervention. Concern for the natural environment has spawned the so-called green movement. Today, enlightened companies go beyond what government regulations dictate and are developing environmentally sustainable strategies. 4. Technological Environment: The technological environment is perhaps the most dramatic force now shaping our destiny. It changes rapidly. New technologies create new markets and thus new opportunities. Therefore, marketer should watch technological environment very closely. For those that do not keep up with the technological change will soon find their products out of date. 5. Political Environment: The political environment consists of laws, government agencies and pressure groups that influence or limit various organizations and individuals in a given society. For example, the Legislation Regulating Business. Well-conceived regulations can encourage competition and ensure fair markets. Business legislation has been enacted for a number of reasons: 1) To protect companies from each other. 2) To protect consumers from unfair business practices. 3) To protect the interests of society. Enlightened companies encourage their managers to look beyond what the regulatory system allows and simply “do the right thing”. Many companies are
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now linking themselves to worthwhile causes. This is called Cause-Related Marketing. They do this to exercise their social responsibility and to build more positive images of themselves. 6. Cultural Environment: The cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences and behaviors. Some cultural characteristics that can affect marketing decision making are:  Core Values: Core beliefs and values are passed on from parents to children and then reinforced by school, church etc.  Secondary Beliefs: These beliefs and values are more open to change. For example, believing in marriage is core belief but believing that people should get married early in life is a secondary belief.

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Consumer and Business Buyer Behavior

Consumer Markets and Consumer Buyer Behavior: Consumer buyer behavior refers to the buying behavior of final customers. These final customers are individuals and households who buy goods and services for personal consumption. All of these final consumers combine to make up the consumer market. Consumers around the world vary tremendously in age, income, education level and tastes. Model of Consumer Behavior: Large companies conduct researches to answer these questions:      What consumers buy. Where they buy. How much they buy. When they buy. Why they buy.

Learning about the whys is not so easy! The central question for marketers is: How do consumers respond to various marketing efforts the company might use? The starting point is the stimulus-response mode of buyer behavior. Marketing stimuli consists of the four Ps:     Product Price Place Promotion

Other stimuli are: economic, technological, political and cultural. A set of observable buyers responses include: product choice, brand choice, dealer choice, purchase timing and purchase amount. Consider the consumer as a black box; the marketer wants to know how the stimuli changes into responses inside this black box. It has two parts:  The buyer’s characteristics that influence how he or she perceives and reacts to the stimuli.  The buyer’s decision process.

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Characteristics Affecting Consumer Behavior: 1. Cultural Factors: Culture is the most basic cause of a person’s wants and behavior. Every group or society has a culture. Marketers are always trying to spot cultural shifts in order to discover new products that might be wanted. For example the cultural shift towards great concern about health and fitness. Subculture is a group of people with shared value systems based on common life experiences and situations. They include nationalities, religions, racial and geographic regions. 2. Social Class: Social classes are relatively permanent and ordered divisions in a society whose members share similar values, interests and behaviors. They are not determined by a single factor rather they have many variables. In some social systems, members of different classes are reared for certain roles and cannot change their social positions. Social Classes show distinct product and brand preferences in areas such as clothing, home furnishings, leisure and automobiles 3. Social Factors: A consumer’s behavior is also influenced by social factors such as the consumer’s small groups, and social roles and status. 4. Groups: Two or more people who interact to accomplish individual or mutual goals comprise a group. Groups are following types:  Membership Groups: Direct influence. To which a person belongs.  Reference Group: They serve as points of reference or comparison in forming a person’s attitude and behavior. Influence of reference group in which a person doesn’t belong.  Aspirational Group: The group where an individual wishes to belong.

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Opinion Leader: A person within a reference group who, because of special skills, knowledge, personality and/or other characteristics, exerts influence on others. 5. Family 6. Roles and Status: A role consists of the activities people are expected to perform according to those around them. Each role carries a status reflecting the general esteem given to it by society. People usually choose products appropriate to their roles and status. 7. Personal Factors: Buyer’s decisions are also influenced by personal characteristics such as age, occupation, economic situation, lifestyle and personality & self-concept. 8. Age and Life-Cycle Stage: People change the goods and services they buy over their life time. Buying is also shaped by the stage of the family life cycle – the stages through which families might pass as they mature over time. Marketers often define their targets customers in terms of life-cycle stage and develop appropriate products and marketing plans for each stage. Traditional family life-cycle stages include young singles and married couples with children. There are also non-traditional stages such as unmarried couples and singles marrying later in life. 9. Occupation: A person’s occupation affects the goods and services he/she buys. Marketers try to identify the occupational groups that have an above-average interest in their products and services. 10. Economic Situation: A person’s economic situation will affect his product choice. Marketers watch trends in incomes, savings and interest rate. If economic indicators point to a
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recession, marketers can take steps to redesign, reposition and reprice their products. 11. Lifestyle: Lifestyle is a person’s pattern of living as expressed in his or her psychographics. It involves measuring consumer’s major AIO dimensions – Activities, Interests and Opinions. Several research firms have developed lifestyle classifications. They include SRI Consulting’s Values and Lifestyles typology. It classifies people according to how they spend their time and money. 12. Personality and Self-Concept: Personality refers to the unique psychological characteristics that lead to relatively consistent and lasting responses to one’s own environment. Personality can be useful in analyzing consumer behavior for certain product or brand choices. A brand personality is the specific mix of human traits that may be attributed to a particular brand. For example, Mountain Dew is attributed with thrill and ruggedness. Then there is a person’s self-concept or self-image. Its basic premise is that people’s possessions contribute to and reflect their identities, that is, “ We are what we have”. 13. Psychological Factors: A person’s buying behavior is also affected by psychological factors such as: a) Motivation: A motive is a need that is sufficiently pressing to direct the person to seek satisfaction. Two important theories of motivation were put forward by:  Sigmund Freud: He assumed that people are largely unconscious about the real psychological forces shaping their behavior. Freud’s theory suggests that a person’s buying decisions are affected by subconscious motives that even the buyer may not fully understand.  Abraham Maslow: He sought to explain why people are driven by particular needs at particular times. Maslow says that human needs are arranged in a hierarchy which include psychological
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needs, safety needs, social needs, esteem needs and selfactualization needs. These needs are arranged in order. The first one is the most important.  Perception: Perception is the process by which people select, organize and interpret information to form a meaningful picture of the world. People can form different perceptions of the same stimulus because of three perceptual processes: 1. Selective Attention (tendency of people to screen out most of the information to which they are exposed) 2. Selective Distortion (tendency of people to interpret the information in a way that will suit what they already believe 3. Selective Retention (tendency to retain information that supports their attitudes and beliefs)

 Learning: Learning describes changes in an individual’s behavior arising from experience. Learning occurs through the interplay of drives, stimuli, cues, responses and reinforcement. A drive is a strong internal stimuli that calls for action. A drive become motive if it is directed towards a stimulus object. Cues are minor stimuli that determines when, where and how a person responds.  Beliefs and Attitudes: A belief is a descriptive thought that a person has about something. Attitudes define a person’s relatively consistent evaluations, feelings and tendencies towards an object.

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Product, Services and Branding Strategy
What is a Product? Product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Products include more than just tangible goods. Broadly defined, products include physical objects, services, events, persons, places, organizations, ideas or mixes of these entities. Services are a form of product that consists of activities, benefits or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. Example banking, hotel and airline. Products, Services and Experiences: Today, companies are creating and managing customer experiences with their products. For example, Disney has manufactured memories through its movies and theme parks. Starbucks’s patrons are paying for more than just a coffee: customers can also poetry on their wallpapers! American Girl, Inc., has created a place (not a store) where girls can come and engage in experiences with dolls etc. Companies that market experiences realize that customers are really buying much more than just products and services. They are buying what those offers will do for them. Levels of Products and Services: Product Planners need to think on three levels: 1. Core Benefit: This addresses the question “What the buyer is really buying?”. At this level, marketers must define the core: problem-solving benefits or services that consumer seek. For example, buyers don’t buy Sony Handycam rather they are buying a way to capture moments and memories. 2. Actual Product: At this level, the core benefits must be turned into actual products. Product planners need to develop product and service features, design, quality level, brand name and packaging. 3. Augmented Product: Finally at this level, the product planners must bundle the products with services. They must build an augmented product by offering additional consumer services and benefits. For example, Sony must provide a warranty along with its Handycam.

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Product and Service Classifications: Products fall into two classes based on how consumers use them: 1. Consumer Products: Consumer products are the products bought by final consumers for personal consumption. They include:  Convenience Products: These are the products that customer buys frequently, immediately and with a minimum amount of comparison and buying effort. Example candy and soap.  Shopping Products: These are the products that customers compare carefully on suitability, quality, price and style. They are less frequently purchased products. Example, furniture, cars etc.  Specialty products: These are products with unique characteristics or brand identification for which buyers will make special purchase effort. For these products, buyers can even travel to great distances. They don’t compare such products. And they invest in only the time taken to reach the store because they already know what they will buy. Example designer clothes or specific types of cars.  Unsought Products: These are the products that either the customer does not know or does not think of buying. Example blood donations or life insurance.

2. Industrial Products: Industrial products are those products which are purchased for further processing for use in conducting business. They include:  Materials and Parts: Raw materials and manufactures materials and parts.  Capital Items: These products help the buyer in production or operation. Example installations and accessory equipments.  Supplies and Services: They include operating supplies and repair and maintenance items. Like lubricants, paper, pencils, paint, window cleaning, computer repair, legal consultation and advertising. Such services are usually supplied under contract.

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Organizations, Persons, Places and Ideas: 1. Organization Marketing: Organization Marketing consists of activities undertaken to create, maintain or change the attitudes and behaviors of target consumers toward an organization. Example churches, colleges and museums. 2. Person Marketing: Person Marketing consists of activities undertaken to create, maintain or change attitude towards particular persons. For example, presidents, actors etc. 3. Place Marketing: Place marketing consists of activities undertaken to create, maintain or change attitude or behavior towards particular places. For example, cities, states, countries etc. 4. Ideas Marketing: This is better known as Social Marketing. It is defined by the Social Marketing Institute as the use of commercial marketing concepts and tools in programs designed to influence individuals behavior to improve their well-being and that of society. Example health campaigns to reduce smoking.

Product and Service Decisions Marketers make decisions on three levels: Individual products decisions, products line decisions and product mix decisions.  Individual Product Decisions: Developing a product involves defining the benefits it will offer. These benefits are attributed by quality, features, style and design: o Quality: It is directly linked to customer value and satisfaction. Quality can be defined as ‘freedom from defects’. Product quality has two dimensions: level and consistency. In terms of quality level, quality means performance quality meaning the ability to perform its function. In terms

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of quality consistency, quality means conformance quality meaning freedom from defects and consistency in delivering performance. o Features: Features are a competitive tool for differentiating the company’s product from competitor’s product. o Style and Design: Style simply describes the appearance of a product. However, design is more than skin deep – it goes to the very heart of the product. Good design contributes to usefulness as well as looks. It begins with an understanding of customer needs. o Branding: A brand is a name, term, sign, symbol or design or a combination of these that identifies the maker of a product. Brand names helps consumers to identify products that might benefit them. The brand name provide legal protection for unique product features and help the seller to segment the market. o Packaging: Packaging involves designing and producing the container or wrapper for a product. It includes a primary container, a secondary package and a shipping container. For example, the Colgate tube is the primary container, its box is the secondary package and the container containing dozens of Colgates is the shipping container. o Labeling: The label identifies the product or brand. It can describe many things about the product like who made it, where and when it was made, its contents etc. For example, brand name Sheffer has a label “since 1986”. o Product Support Services: Customer service is another element of product strategy. A company’s offer usually includes some support services.  Product Line Decisions: A product line is a group of products that are closely related because they function in a similar way or because they are sold to the same customers or because they are marketed through same outlets or because they have same prices.

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o Product line length: Number of items in the product line. The line is too short if the manager can increase profits by adding items. The line is too long if profits can be increased by dropping items. A product line can be lengthened by line stretching or line filling. The line can be stretched downward, upward or both ways!  Product Mix Decisions Product mix is also known as Product Portfolio. It is the set of all product lines and items that a seller offers for sale. It has four important dimensions: o o o o Width: Number of different product lines. Length: Number of items within a product line. Depth: Number of versions for each product in a product line Consistency: Refers to how closely related the various product lines are.

A company can increase its business in four ways: o o o o By increasing product lines (increasing width) Producing more products of specific type (increasing length) Adding more versions of some specific products (increasing depth) Increase consistency

Thus the product mix dimensions provide the handles for defining the company’s product strategy.

Branding Strategy Brands are more than names and symbols. Brands represent consumer’s perceptions and feelings about a product and its performance. Brands are powerful assets that must be carefully developed and managed.  Brand Equity: Brand Equity is the positive differential effect that knowing the brand name has on customer response to the product. For example, one measure of brand’s equity is the extent to which customers are willing to pay more for the brand. Brand Valuation is the process of estimating the total financial value of a brand. For example, the brand value of Coca Cola is $67 billion! High brand equity has many advantages for a company:
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High level of consumer brand awareness and loyalty. More leverage in bargaining with customers. Easily launch line and brand extensions. Offers some defense against fierce price competition. Forms the basis for building strong and profitable customer relationships.

Brand Positioning: Marketers need to position their brands clearly in minds of their target customers. This can be done at three levels:  Product Attributes: Marketers of XYZ toothpaste can talk about the new ingredients and good taste of their toothpaste. However, this is the lowest level of brand positioning. Because attributes can be easily copied by competitors and moreover, customers are not interested in attributes. Product Benefits: Marketers can associate their brand with a benefit. So XYZ toothpaste can talk about cavity prevention and teeth whitening. Examples of such brand positioning are: Volvo (benefit: safety), Lexus (benefit: quality) etc. Beliefs and Values: This is the strongest brand positioning strategy. In this technique, brands are associated with certain universal beliefs and values. Therefore XYZ toothpaste can talk about giving customers “healthy, beautiful smiles for life”. Such brands engage customers on a deep, emotional level.

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Brand Name Selection: Finding the best brand name is not an easy task. Once established, it can greatly add to the product’s success. Some suggestions for a good brand name are: 1. It should suggest something about the products benefits and qualities. 2. It should be easy to recognize, remember and pronounce, 3. It should be distinctive. 4. It should be extendable. 5. The name should easily translate into foreign languages. 6. It should be capable of registration and legal protection.

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Brand Sponsorship: There are four options available to the manufacturer for the brand sponsorships: 1. Manufacturer’s Brand: The product may be launched as a manufacturer’s own brand. Such brands have long dominated the retail scene in the past. 2. Private Brands: The manufacturer may sell the brand to a reseller. These resellers give their own brand name. Such brands are called Private Brands, Store Brand or Distributor Brand. 3. Licensed Brands: Some companies license names or symbols previously created by other manufacturers, names of celebrities, books etc. Like Calvin Klein, Gucci, Armani etc. 4. Cobrands: Cobranding occurs when two established brand names of different companies are used on the same product. It has many advantages: 1) The combined brands create broader consumer appeal and greater brand equity. 2) Allows company to expand its existing brand into a category it might otherwise have difficulty entering alone. However, there are some limitations. They involve complex legal contracts and licenses. Cobranding companies must carefully coordinate in advertising, sales promotion etc. There has to be great amount of trust.

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Brand Development: A company has four choices when it comes to developing brands: 1) Line Extensions: Existing brand names extended to new forms, sizes and flavors of an existing product category. 2) Brand Extensions: Using a successful brand name to launch a new or modified product in a new category. 3) Multibrands: New brand names introduced in the same product category. 4) New Brands: New brand names in new product categories.

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Pricing: Understanding and Capturing Customer Value What is Price? Price is the amount of money charged for a product or service. It is the sum of all the values that customers give up in order to gain the benefits of having or using the product. Price is the only element in the marketing mix that produces revenue. They’ve had a deep impact on a firm’s bottom line. According to an expert, “A 1% price improvement generates a 12.5% profit improvement for most organizations”. Factors to Consider when Setting Prices Customer perceptions of the product’s value set the ceiling for prices. Product costs set the floor for the prices. In setting its price between these two extremes, the company must consider many factors. They are as follows:  Customer Perceptions of Value Pricing decisions must start with customer value. When customers buy a product, they exchange something of value (the price) to get something of value (the benefits). 1. Value-Based Pricing: Setting price based on buyer’s perceptions of value rather than the seller’s cost, is known as Value-Based pricing. So the price is considered before the marketing program is set. Pricing begins with analyzing consumer needs and value perceptions, and price is set to match these perceived values. However, remember that “good value” is not the same as “low price”. Some car buyers consider the luxurious Bentley Continental GT automobile a real value, even at an eye-popping price of $150,000. 2. Good-Value Pricing: Good-Value Pricing strategy means offering just the right combination of service and quality at a fair price. This might involve less expensive versions of established brand name products. An important type of good-value pricing is EDLP – Every Day Low Pricing. This involves charging low price every day, constantly. For example, Wal-Mart. Wal-Mart actually defined this concept.

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3. Value-Added Pricing: In many situations, there is a challenge to build pricing power – the power to escape price competition and justify their higher prices. This is done by adopting value-based pricing. Here, the company attaches valueadded features and services to differentiate their offers rather the cutting prices to match competitor’s prices.  Company and Product Costs We said earlier that the product’s cost set the floor for the prices. The price should be such that it covers all its product development cost and also generates profit. There are two types of costs: a. Fixed Costs: Also known as Overhead. These are the costs that do not vary with production or sales level. For example, monthly bills, rent, interest, salaries etc. b.Variable Costs: These are the costs that vary directly with the level of production. Example, a computer consists of chips, wires, plastic, packaging and many other units. These costs tend to be the same of each unit produced. They are called variable because their total varies with the number of units produced. c. Total Costs: Total costs are the sum of fixed and variable costs. One more thing to be understood is: Cost-Based Pricing The simplest cost-oriented pricing approach is Cost-Plus pricing which means adding a standard markup to the cost of the product. For example retailer pays $20 for a toaster and sells it at $30, that is a profit margin of $10. This is not the best way of pricing but a popular one. Because sellers don’t have to make frequent adjustments as the demand increases and price competition is minimized. Break-Even Pricing is another cost oriented approach towards pricing. Also known as Target Profit Pricing. Here the firm tries to determine the price at which it can achieve its target profit. However, this approach fails to consider the customer value and relationship.

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

Other Internal and External Considerations Customer perception sets the ceiling, product cost sets the floor. Between ceiling and floor, there are a number of internal and external factors which affect the pricing: 1. Overall Marketing Strategy, Objectives and Mix: Before setting the price, the company must decide on its marketing strategy of the product. For example, when Toyota developed Lexus as a luxury performance car, it required charging a high price. When Toyota developed Echo as an economical car, it required to charging at a lower price. Many companies use a strategy called Target Costing. Here, pricing starts with an ideal selling price, then targets costs that will ensure that the price is met. So it reverses the process of first designing a product and then setting the price. For example, P&G used target costing to price and develop its highly successful Crest SpinBrush electric toothbrush. 2. Organizational Considerations: Management must decide who within the company, sets the price. In small companies, prices are set by the top management. In industrial markets, sales people maybe allowed to negotiate with customers. In industries like airlines, oil, steel, roads; companies have pricing departments. 3. Pricing in Different Types of Markets: The seller’s pricing freedom depends on the type of market. Economists recognize the following market types: a. Pure Competition: Here the market consists of many sellers and buyers trading in uniform commodities like wheat, copper etc. A seller cannot charge more than the going price nor less. Therefore, sellers in this market do not spend much time in marketing strategy. b. Monopolistic Competition: Here the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. Sellers try to develop differentiated offers for different consumer segment in addition to freely use branding and advertising to set their offers apart. c. Oligopolistic Competition: This market consists of few sellers who are highly sensitive to others’ pricing and marketing strategies. There are few

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sellers because it is difficult for new sellers to enter the market. Example, the steel mills. d. Pure Monopoly: In such condition, the market consists of one seller.

4. Analyzing the Price-Demand Relationship: Each price leads to a different level of demand. Usually, higher the price  lower the demand. However, in case of prestige goods (like Gibson’s handmade guitar) the relationship is inversed; more price  more demand. 5. Price Elasticity of Demand: Price elasticity is the measure of the sensitivity of demand to changes in price. If demand hardly changes with a slight change in price  demand is inelastic. If demand changes greatly  demand is elastic. 6. Other External Factors: These include: Economic Conditions (like boom, recession, inflation, interest rates etc), Resellers, Government, Social Concerns etc.

New – Product Pricing Strategies Pricing strategies usually change as the product passes through its life cycle. Companies can choose between two strategies: 1) Market-Skimming Pricing: Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay higher price; the company makes fewer but more profitable sales. But it makes sense only if: the product’s quality supports its high price, the costs of producing a smaller volume is not so high that they cancel the advantage of charging more and competitors should not be able to enter the market easily. 2) Market-Penetration Pricing: Setting a low price for a new product in order to attract a large number of buyers and market share. So the companies set a low initial price to penetrate the market. However this strategy works only if: the market is highly price sensitive so that lower prices produce market growth, production and distribution costs decrease as the sales increase, low price helps to keep out the competition. Dell entered the market using penetration pricing.
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Product Mix Pricing Strategies When the product is a part of product-mix, there are five kinds of strategies involved: i. Product Line Pricing In product line pricing, management must decide on the price steps to set between various products in a line. This should take into account the differences in products features, customer evaluations, competitor’s prices etc. Optional-Product Pricing The pricing of optional or accessory products along with the main product. For example, a car buyer may choose to order a CD changer as an optional product. Captive-Product Pricing Setting a price for products which must be used along with the main product. For example, HP makes printers and cartridges. It makes very low margins on its printer (the main product) but very high margins on cartridges . By-Product Pricing Setting a price for the by-products. Like in processing meats, petroleum products, chemicals etc. Using by-product pricing, the manufacturer will find a market for the by-products and should accept any price that covers more than the cost of storing and delivering them. For example, at Alba, water is obtained as a by-product while manufacturing aluminum. This water can now be sold to the market. Product Bundle Pricing Combining several products and offering the bundle at a reduced price. For example, fast food restaurants bundle a burger, French fires and soft drink at a combo price.

ii.

iii.

iv.

v.

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Communicating Customer Value: Advertising, Sales Promotion and PR The Promotion Mix A company’s promotion mix – also known as Marketing Communications Mix – consists of Advertising, Sales Promotion, Public Relations, Personal Selling and Direct Marketing. Advertising: Any paid form of nonpersonal promotion of ideas or product by an identified sponsor. Advertising can reach masses of geographically dispersed buyers at a low price per exposure. Because of its nature, consumers tend to view advertised products as more legitimate. A disadvantage is that it is impersonal and not directly persuasive. Sales Promotion: Short-term incentives to encourage the sales or purchase of a product or service. These include coupons, raffles, contests, premiums et. They attract consumer attention and dramatize product offers. Advertisement says, “Buy our product” whereas sales promotion says, “Buy it now”. However, a disadvantage is that it is not as effective as personal selling. Public Relations: Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image and removing unfavorable stories, rumors and events. News stories, events and feature look more real to readers that advertisements and the message gets across like a “news” rather a salesdirected communication. Personal Selling: Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships. All allows all kinds of customer relationships to spring up. However it needs long-term commitment. Direct Marketing: Direct connections with carefully targeted individual consumers to obtain immediate response and cultivate lasting customer relations – through the use of mail, telephone, fax, internet etc. Direct Marketing is immediate, nonpublic, customized and interactive. Integrated Marketing Communications In the past few decades, marketers have perfected the art of mass-marketing. Large companies invest millions of dollars in television, newspapers etc to reach millions of customers with a single advert. However, scenarios are changing today!

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The New Marketing Communications Landscape Two major factors are changing the face of today’s marketing communications. First, markets are shifting away from mass marketing and developing focused marketing programs targeted at micromarkets to build closer customer relationships. Secondly, great improvements in information technology are speeding the movement towards segmented marketing. Because of this, today marketers can gather detailed customer information and keep a close track of their needs. The Shifting Marketing Communications Model The shift towards segmented & targeted marketing and the advancements in information technology have had a great impact on marketing communications. The dominance of television , magazines and radio is declining and a new marketing communications model is being born – the Integrated Marketing Communications. The Need for Integrated Marketing Communications (IMC) Today consumers are bombarded by commercial messages from a broad range of sources but in the consumer’s mind, all these message from different kinds of media are part of a single message about the company. However, different sources can project different messages which cause conflict in the consumer’s mind. IMC is the concept under which a company carefully integrates its communications channels to deliver a clear, consistent and compelling message about the organization and its products. Promotion-Mix Strategies Marketers can choose from two basic promotion mix strategies: 1. Push Strategy: A push strategy involves pushing a product through marketing channels to the final customers. 2. Pull Strategy: Pull strategy involves spending a lot on advertising and promotion to build up consumer demand that will pull the product through channels.

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Advertising Marketing management must make the following important decisions when developing an advertising program: 1. Setting Advertising Objectives: An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific period of time. Advertising objectives can be classified by their purpose: A. Informative advertising is used heavily when introducing a new product category. B. Persuasive advertising becomes important as competition increases. C. Comparative advertising is one in which a company directly or indirectly compares its brands with other brands. D. Reminder advertising is important for mature products which helps to maintain customer relationships. 2. Setting Advertising Budget: There are four methods used to set the total budget for advertising: A. Affordable Method: Setting the promotion budget at the level management thinks the company can afford. B. Percentage-of-Sales Method: Setting the promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales price. C. Competitive-Parity Method: Setting the promotion method to match competitor’s outlays. D. Objective & Task Method: Developing the promotion budget by defining specific objectives, determining the tasks that must be performed to achieve these objectives and estimating the costs of performing these tasks.

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Sales Promotion Sales promotion consists of short-term incentives to encourage sales or purchase. Like coupons, raffles, contests etc. Sales promotion includes a wide variety of promotion tools designed to stimulate earlier or stronger market response. Rapid Growth of Sales Promotion Sales promotion tools are used by most organizations. They are targeted towards final buyers, retailers, whole sellers etc. Today, sales promotion accounts for more than 74% of all marketing expenditures. Several factors contributed to the rapid growth of sales promotion: 1. 2. 3. 4. Greater pressures to increase sales face by product managers. More competition. Declining advertising efficiency. Consumers have become more deal oriented.

In developing a sales promotion program, company must develop some objectives: Sales Promotion Objectives Sales promotion objectives vary widely. Sellers may use consumer promotions or trade promotions. Sales promotions are usually used together with advertising, personal telling and other promotion mix tools. Sales promotion should help to reinforce the product’s position and build long-term customer relationships. Public Relations Public Relations means building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image and removing rumors, undesirable stories and events. The Public Relations department can use the following functions: press relations, product publicity, public affairs, lobbying, investor relations and development. The Role and Impact of Public Relations Public Relations can have strong impact on public awareness at a much lower cost than advertising. If the company develops an interesting story, it can picked up by the media, having the same effect as advertising without costing millions of dollars. The PR department is usually located at the corporate headquarters. Although PR still captures only a small portion of overall marketing budget, it is increasingly playing an important role in brand-building.
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Major PR Tools Public Relations use several tools like: 1. 2. 3. 4. 5. 6. 7. 8. 9. News Speeches Giving talks at trade associations Special events Written materials Audiovisual materials Corporate identity Buzz marketing Mobile marketing.

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Communicating Customer Value: Personal Selling & Direct Marketing Personal Selling Selling is one of the oldest professions in the world. Those who sell having many names: salespeople, sales representative, sales consultants, sales engineers etc. Salespeople are educated, well-trained professions who work to build customer relationships and keep them going. The term Salesperson covers a wide range of positions: salesperson is an individual who is prospecting, communicating, servicing and gathering information. Personal Selling is the interpersonal arm of the promotion mix. It involves two-way personal communication between salespeople and individuals. The sales force serves as a critical link between a company and its customer. They do two things: they represent the company to customers and also represent customers to the company. The old view was that the salespeople should worry about the sales and company should worry about profits. However, the current view is that salespeople should work with others in the company to produce customer value and company profit. Direct Marketing Many companies are adopting direct marketing. Direct marketing consists of direct connections with targeted individual consumers to obtain immediate response and cultivate lasting customer relationships. Del interacts directly with customers by telephone, website etc. There are many benefits of direct marketing to both buyers and sellers. Buyers can, from the comfort of their homes, browse websites at any time and access a wealth of information. For sellers, direct marketing is a powerful tool for building customer relations. These can be done using database marketing. Direct marketing also offers sellers a low-cost alternative for reaching markets. As a result, direct marketing has become the fastest growing form of marketing. A customer database is an organized collection of comprehensive data about individual customers including demographic, geographic, psychographic and behavioral data. Many companies confuse customer data with a customer mailing list. Companies use databases to locate good potential customers and generate sales leads. They mine their databases to learn about consumers in detail. For example, Yahoo! Records every click made by every visitor adding some 400 million bytes per day to the databases which is equal to 800,00 books.

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New Product Development and Product Life-Cycle Strategies New Product Development Strategy The development of original products, product improvements, modifications through the firm’s own R&D efforts. Idea Generation New product development starts with idea generation. Idea generation is the systematic search for new product ideas. According to one management consultant, companies “will run through 3000 ideas before they hit a winner”. Internal Idea Sources Using internal idea sources, the company can find new ideas through formal research and development by picking the brains of its executives, scientists, engineers, staff and salespeople. External Idea Sources New product ideas also come from watching and listening to customers. The company can analyze customer questions and complaints to find new products that better solve consumer problems. Idea Screening Idea generation creates large number of ideas. Idea screening reduces that number – by spotting good ideas and dropping poor ones. Concept Development and Testing A product idea is an idea for a possible product that the company can offer. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive a product. Concept Testing Concept testing calls for testing new-product concepts with groups of target customers to find out if the concepts have strong consumer appeal. Marketing Strategy Development The next step is marketing strategy development. The marketing strategy statement consists of three part: 1. The first part describes the target market, product positioning and sales, shares and profits goals. 2. The second part outlines the product’s planned price, distribution and marketing budget for the first year.
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3. The third part describes long-run sales, profit goals and marketing mix strategy. Business Analysis A review of sales, costs and profit projections for a new product to find out whether these factors satisfy the company’s objectives Product Development Developing a product concept into a physical product in order to ensure that the product idea can be turned into a workable product. Test Marketing The stage of new-product development in which the product and the marketing program are tested in more realistic market settings. Commercialization Introducing a new product into the market. Sequential Product Development A new-product development approach in which one company department works to complete its stage of the process before passing the new product along to the next department and stage Simultaneous Product Development An approach to developing new products in which various company departments work closely together. Product Life-Cycle Strategies After launching the product, management wants the product to enjoy and long and happy life. The course that a product’s sales and profits take over its lifetime is called Product Life Cycle (PLC). The PLC has five stages: 1) Product Development begins when the company finds and develops the idea of a new product. In this stage, sales are zero and investments costs are high. 2) Introduction is a period of slow sales growth and no profits as the product is introduced in the market. 3) Growth is a period of rapid market acceptance and increasing profits. 4) Maturity is a period of slow down in sales and profits decline. 5) Decline is a period when sales fall off and profits drop.

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The PLC concept can also be applied to style, fashions and fads.    A Style is a basic and distinctive mode of expression. Once invented, it lasts for generations. A Fashion is a currently accepted popular style. A Fads are fashions that enters quickly, is adopted with great zeal, peaks early and declines very quickly.

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