1

HINDUSTHAN COLLEGE OF ENGINEERING & TECHENOLOGY

COIMBATORE-641032
MASTER OF BUSINESS ADMINISTRATION
MARKETING MANAGEMENT
16BA2203

Unit 2

One mark questions

1. What is market segmentation?

Market segmentation is the process of dividing an entire market up into different
customer segments. Targeting or target marketing then entails deciding which potential
customer segments the company will focus on .Market segmentation and targeting are
equally important for ensuring the overall success of a company.
Ref:www pearsoned.co.in/marketingmanagementindia.
2. What is Niche marketing?
A niche is a more narrowly defined customer group seeking a distinctive mix of benefits.
Marketers usually identify niches by dividing a segment into sub segments. The niche is
fairly small but has size, profit, and growth potential and is unlikely to attract many other
competitors; and the niche gains certain economies through specialization.
Ref:www pearsoned.co.in/marketingmanagementindia.
3. What is targeting?
Targeting in business and marketing is the process of selecting your product or service’s
target market , and effectively directing your marketing efforts at them. This means
picking the right people who want to buy your product, and making sure that your ads
reach and resonate with them.

Ref: http://www.businessdictionary.com/definition/targeting-strategy.html

4. Define positioning?
Positioning is a marketing strategy that aims to make a brand occupy a distinct position,
relating to competing brands, in the mind of the customer. Once a brand is positioned, it
is very difficult to reposition it without destroying its credibility. Also called product
positioning.
 2

Ref: http://www.businessdictionary.com/definition/targeting-strategy.html

5. Expand USP.
USP is Unique Selling Proposition. Its something about a product that makes it unique
i.e, not similar to any other products.

Ref: http://whatis.techtarget.com/definition/unique-selling-point-USP

6. What is Penetration Pricing? (lower to higher price)

Penetration pricing: This type of pricing is designed to capture market share by entering
the market with a low price as compared to the competition. The main target group is the
sensitive customers. Once a market share is captured, the prices are increased by the
company.

Ref: http://www.marketing91.com/types-of-pricing/

7. What is Skimming Pricing? (higher to lower price)

Skimming pricing: It is used by companies that have a significant competitive advantage
and which can gain maximum revenue advantage before other competitors begin offering
similar products or substitutes. It can be the case for innovative electronics entering the
marketing before the products are copied by close competitors. After being copied the
products loses its premium value and hence there is price drop.Such companies initially
increase their price and later prices are decreased to accommodate all customer segments.

Ref: http://www.marketing91.com/types-of-pricing/

8. What is Going Rate Pricing?

Going rate pricing: Under this type of pricing strategy companies adopt the same price
offered by the market leader so as to avoid a price war. In case of small companies they
follow the commonly accepted pricing as they are not sure of the implications of
adopting a different price.

Ref: http://www.marketing91.com/types-of-pricing/

9. What is psychological Pricing?

 3

Psychological pricing: This is a type of pricing which can be translated into a small
incentive that can make a huge impact psychologically on customers. Customers are
more willing to buy a product at 499 than 500.

Ref: http://www.marketing91.com/types-of-pricing/

Six mark questions

1 What is Hybrid and socio cultural segmentation?

Hybrid segmentation: (Demographic + Psychographic segmentation variables)
Hybrid segmentation (also referred to as multivariate segmentation) refers to
using multiple segmentation variables in the construction of market segments.
For example, using a demographic segmentation variable together with a
psychographic segmentation variable in order to determine the market segment.

Socio- cultural segmentation:

Culture, religion, race, region, language, education and economic class is a part
of socio-cultural factors which influence consumers needs and markets are
segmented on these basis. Family life cycle segmentation is based on the
hypothesis that most of the families pass through same cycle of formation
(marriage), growth ( birth of the children ), and financial dissolution ( after
settlement of children and death of one of the spouse). In each phase the needs of
many families are similar. Therefore, they are targeted in a similar manner.
Ref:www pearsoned.co.in/marketingmanagementindia.

2 What is psychographic and demographic segmentation?

Psychographic segmentation
Groups with higher resources
o Innovators
o Thinkers
o Achievers
o Experiencers
 4

Groups with lower resources

o Believers
o Strivers
o Survivors
o Makers
5
 6

It is the science of using psychology and demographics to better understand

consumers. In psychographic segmentation, buyers are divided into different
groups on the basis of psychological traits , lifestyle or values. People with the
same demographic group can exhibit very different psychographic profiles. One
of the most popular commercially available classification systems based on
psychographic measurements is SRI consulting business intelligence’s VALS
framework. The main dimension of VALS framework is consumer motivation.
Consumers are inspired by one of three primary motivators: ideals, achievement,
and self-expression. Those primarily motivated by ideals are guided by
knowledge and principles. Those motivated by achievement look for products
and services that demonstrate success. Consumers whose motivation is self-
expression desire social or physical activity , variety and risk. Different levels of
resources enhance or constrain a person’s expression of his primary motivation.
The four groups with higher resources are:
Innovators: successful, sophisticated, active, “take charge” people with high self
esteem.
Thinkers: Mature, satisfied and reflective people who are motivated by ideals
and who value order, knowledge and responsibility.
Achievers: successful goal oriented people who focus on career and family.
Experiencers: young enthusiastic, impulsive people who seek variety and
excitement
.Four groups with lower resources are:
Believers: conservative, conventional, and traditional people with concrete
beliefs.

Strivers: Trendy and fun loving people who are resource constrained.

Makers: practical, down to earth, self sufficient people who like to work with
their hands

Survivors: elderly passive people who are concerned about change.

Demographic segmentation:
 7

In demographic segmentation we divide the market into groups based on variables

such as age, family size, family life cycle, gender, income , occupation, education
, religion, race, generation, race, nationality and social class.

Age and life cycle stage:Consumer wants and abilities change with age thus age
and life cycle are important variables to define segments. While
Johnson&johnson’s baby products, rhymes and colouring books are aimed at
infants and children. Hindusthan uniliver products such as soaps and shampoos ,
Mtv Vtv may be aimed at adults.

Life stage: persons in the same part of the life cycle may differ in life stages.Life
stage defines a persons major concern such as getting married, deciding to buy a
home, sending children to school, taking care of old family members, marrying

off their children, planning retirement and so on..this gives marketers immense
opportunities for eg, at times of marriage they buy a lot of household equipments,
kitchen utensils etc, and for people wanting a retirement life there are a lot of life
insurance policies available in the market.

Gender: Men and women have different attitudes and behave differently. Gender
differentiation has been long applied to the product categories of hairstyling ,
cosmetics, clothing and magazines. Their purchasing habbits also differ while
men prefer motorcycles women prefer scooters. while park avenue is considered
to be a masculine brand . van heusen and allen solly, which primarily concerned
with men’s clothing have launched their products for women.

Income: It determines the ability of the consumers to participate in the market

exchange and hence this is a basic segmentation variable. Income doesnot predict
the best consumers for a given product. Consumer choice may differ based on
attitudes, lifestyle and values. For eg the launch of nirma washing powder had an
explosive growth in the detergent market as they maintained their middle class
focus on value of money proposition.
 8

Generation: Each generation is profoundly influenced by the times in which it

grows up the music, movies, politics and defining events of that period.
Demographers call these groups cohorts. Members share the same economic,
political and cultural experiences and have similar outlooks and values. The
younger generations play a significant role not only as consumers but also as
initiators and influencers of buying decisions.Different generation cohorts also
influence each other.

Social class: Social class has a strong influence on preferences in cars, clothing,
home furnishings, leisure activities, reading habits and many companies design
their products and services for specific social classes. Persons with higher

education and income levels have different purchase preferences as compared to

the other.

Ref:www pearsoned.co.in/marketingmanagementindia.
3 Write down targeting strategies.

 Customized marketing
 Differentiated marketing ( multi-segment targeting )
 Focus (concentrated targeting
 Undifferentiated marketing

Target market is the choice of which and how many market segments the company
will compete in.
Undifferentiated marketing: There may be no strong differences in consumer
characteristics. The company may use a targeting strategy of mass-market
philosophy which views the market as one with no individual segments. The
company uses one marketing mix and assumes that individual customers have similar
needs that can be met with common marketing mix.
Differentiated marketing ( multi-segment targeting ) : when market segments
reveal potential target segments that company can serve profitably, specific marketing
mix can be developed to appeal those segments. A company following this strategy
 9

adopts a distinct marketing mix for each one of the segment and separate brands are
developed to serve each of the segments.
Focus (concentrated targeting) : several segments may be identified but a company
may not serve all of them. Some may be unattractive or out of line with the
company’s business strengths. A company may target one segment with a single
marketing mix. It understands the needs, and motives of segments consumers and
designs a specialized marketing mix.
Customized marketing: in some markets, the requirements of individual customers
are unique and their purchasing power is sufficient to make designing a separate
marketing mix for each customer a viable option. This is used by various service
providers such as advertising, market research firms, architects etc.
Ref:http://study.com/academy/lesson/various-types-of-target-marketing-
strategies.html
4 What are the qualities of successful positioning?

 Clarity
 Consistency
 Credibility
 Competitivenes

The qualities of successful positioning include:

Clarity: the positioning idea must be clear in terms of both target market and
differential advantage. The target market should be clearly demarcated and
identifiable in terms of demographic or geographic parameters, or a combination of
both.
Consistency: confusion will arise if changes in positioning plans occur frequently .
consumers will not know what the company stands for .a company has to stick with
its new positioning plan for a considerable period of time so that the new image sinks
in with the consumers.
Credibility: the differential advantage must be credible to consumers. Credibility
means believability and trustworthiness. Positioning is a promise made to the
consumer. The customer must believe that the company will deliver what it promises.
 10

Competitiveness: the differential advantage should offer something of value to the

consumer which the competition is failing to supply. The company should be able to
develop or acquire distinct set of resources and processes.
Ref:www.pearsoned.co.in/philipkotler
5 State the positioning decisions.
 Identifying competitors
 Determining how the competitors are perceived and evaluated
 Determining the competitor’s position
 Monitoring the position
 Making the positioning decision

Identifying competitors: a first step is to identify the competition. This step is to

dentify competition. There are mainly two type of competitors primary i.e, those who
belong to the same product class and secondary competitors belonging to other
product category.
Determining how the competitors are perceived and evaluated: determining the
product positioning which is basically done so as to see, when the competitors
products are purchased by the customers.
Determining the competitor’s position: now the decisions are to be made about
how the different brands are positioned in the minds of the customers.
Analyzing the customer: now we consider the consumer behavior and habit in a
particular market segment
Making the positioning decision: the four steps above provide a useful background
for making any positioning decision. After the four steps the following guidelines
may be considered to reach a positioning decision.
1. An economic analysis should guide the decision.
2. Position usually implies a segmentation commitment.
3. If the advertising is working the advertiser should stick to it.
4. Do not try to be something you are not
5. In making a decision on positioning strategy symbols or sets of symbols may be
considered
 11

Monitoring the position: it is necessary to monitor the position over time for which
various techniques can be employed which will monitor any kind of change in the
image. Thus, the first four steps provide a useful background and the fifth one is used
to take the position decision. The final step is to evaluate measure and follow up.

Ref:www.pearsoned.co.in/philipkotler
6 What are the differentiation strategies?
The various differentiation strategies include:
 Personnel differentiation
 Channel differentiation
 Image differentiation

Personnel differentiation: companies can have better-trained employees. Singapore

airlines is well regarded in large part because of its flight attendants. similarly,
kingfisher airlines in India differentiated itself partly by the courteous behavior of
their smartly dressed flight attendants.

Channel differentiation: companies can move effectively and efficiently design their
distribution channel’s coverage, expertise, and performance. Eureka forbes,
marketers of vaccum cleaners and water purifiers in india, achieved differentiated
positioning through their direct to home channel.

Image differentiation: companies can craft powerful, compelling images. The

primary explanation for marlboro’s market share is its macho cowboy image which
struck much of cigarette-smoking crowd.Even a sellers physical space can be a
powerful image generator .Hyatt regency hotels developed a distinctive image
through its atrium lobbies.
Ref:www.pearsoned.co.in/philipkotler
7 Explain the institutional frame work in advertising?
Institutional advertising :Advertising made by public institutions in order to promote
and defend values and attitudes that consolidate democracy, welfare, publichealth and
security.
 12

- According to the law, institutional advertising shall comply with the following
requirements:The only object of this advertising shall be to provide information
on public services.
_ Advertising campaigns highlighting the performance or achievements of the public
authorities are not permitted.
_ Direct or indirect inducement of confusion regarding identifying features of
political parties or election campaigns is not permitted.
_ During election periods, the administration bodies of Catalonia may only run
institutional campaigns addressed to informing the public of the date on which the
election or referendum will take place, the voting procedure and the requirements and
steps involved in postal voting. Under no circumstances may these campaigns
suggest, directly or indirectly, voting options.
_ The prohibition on institutional advertising during election periods shall begin on
the day of publication of the announcement of elections
- Institutional advertising in the broadcasting media was subject to the prior consent
of the Catalan Broadcasting Council for the purpose of verifying compliance with the
provisions above. Now this has been substituted by an ex-post control.

Ref: http://www.businessdictionary.com/definition/institutional-advertising.html

8 What are the objectives of advertising?

1. To make attitudes more favourable to a particular product.
2. To build an image for the product.
3. To stop existing users turning to competitive products.
4. To get across the idea of a unique product.
5. To create a brand leader to help the launch of additional products at a future date.
6. To win back previous product users who have defected to a competitive product.
7. To expand the whole market.
8. To reduce existing negative attitudes
9. To keep building loyalty.
10. To establish the brand and position it in a particular way, e.g. as warm and
friendly.
11. To create a brand leader in a particular market.
 13

12. To increase sales among existing users.

13. To improve the frequency of purchase.
14. To keep new entrants out of the market.
15. To convey the idea that the product is ‘value for money’.
16. To say how much people like the product.
17. To improve market share compared with competitors.
18. To maintain brand distribution.
Ref:http://www.managementstudyguide.com/objectives-importance-of-
advertising.htm

9 Explain the types of pricing?

 Pre-emptive pricing
 Penetration Pricing
 Economy Pricing
 Price Skimming
 Psychological Pricing
 Prestige pricing
 Premium Pricing

Premium Pricing

Premium pricing strategy establishes a price higher than the competitors. It's a strategy
that can be effectively used when there is something unique about the product or when
the product is first to market and the business has a distinct competitive advantage.
Premium pricing can be a good strategy for companies entering the market with a new
market and hoping to maximize revenue during the early stages of the product life cycle.

Penetration Pricing

A penetration pricing strategy is designed to capture market share by entering the market
with a low price relative to the competition to attract buyers. The idea is that the business
will be able to raise awareness and get people to try the product. Even though penetration
 14

pricing may initially create a loss for the company, the hope is that it will help to generate
word-of-mouth and create awareness amid a crowded market category.

Economy Pricing

Economy pricing is a familiar pricing strategy for organizations that include Wal-Mart,
whose brand is based on this strategy. Aldi, a food store, is another example of economy
pricing strategy. Companies take a very basic, low-cost approach to marketing--nothing
fancy, just the bare minimum to keep prices low and attract a specific segment of the
market that is very price sensitive.

Price Skimming

Businesses that have a significant competitive advantage can enter the market with a
price skimming strategy designed to gain maximum revenue advantage before other
competitors begin offering similar products or product alternatives.

Psychological Pricing

Psychological pricing strategy is commonly used by marketers in the prices they establish
for their products. For instance, $99 is psychologically "less" in the minds of consumers
than $100. It's a minor distinction that can make a big difference.

Prestige pricing
Prestige pricing refers to the practice of setting a high price for an
product, throughout its entire life cycle - as opposed to the short
term ‘opportunistic’, high price of price ‘skimming’. This is done
in order to evoke perceptions of quality and prestige with the
product or service.
For products for which prestige pricing may apply, the high price
is itself an important motivation for consumers. As incomes rise
and consumers become less price sensitive, the concepts of
‘quality’ and ‘prestige’ can often assume greater importance as
purchasing motivators. Thus advertisements and promotional
strategies focus attention on these aspects of a product, and, not
only can a ‘prestige’ price be sustained, it also becomes selfsustaining.
 15

Pre-emptive pricing
Pre-emptive pricing is a strategy which involves setting low prices
in order to discourage or deter potential new entrants to the
suppliers market, and is especially suited to markets in which the
supplier does not hold a patent, or other market privilege and
entry to the market is relatively straightforward.
By deterring other entrants to the market, a supplier has time to:
●refine/develop the product.
●gain market share.
●reduce costs of production (through sales/ experienceeffects).
●acquire name/brand recognition, as the ‘original’supplier.

Ref: http://www.marketing91.com/types-of-pricing/

10 How will you set the price?

The factors that businesses must consider in determining pricing
policy can be summarised in four categories:
1) Costs
2) Competitors
3) Customers
4) Business Objectives

1) Costs
In order to make a profit, a business should ensure that its
products are priced above their total average cost. In the short-term,
it may be acceptable to price below total cost if this price exceeds
the marginal cost of production - so that the sale still produces a
positive contribution to fixed costs.
2) Competitors
If the business is a monopoly, it can set any price. At the other
extreme, if a firm operates under conditions of perfect
competition, it has no choice but to accept the market price. The
 16

reality is usually somewhere in between. In such cases, the chosen

price needs to be very carefully considered relative to those of
close competitors.
3) Customers
The consideration of customer expectations about price must be
addressed. Ideally, a business should attempt to quantify its
demand curve to estimate what volume of sales will be achieved at
given prices
4) Business Objectives
Possible pricing objectives include:
●to maximise profits.
●to achieve a target return on investment.
●to achieve a target sales figure.
●to achieve a target market share.
●to match the competition, rather than lead the market.
Ref: https://www.entrepreneur.com/encyclopedia/pricing-a-product
11 Select the pricing objectives?

Pricing objectives or goals give direction to the whole pricing process. Determining what your
objectives are is the first step in pricing. When deciding on pricing objectives you must consider:
1) the overall financial, marketing, and strategic objectives of the company;

2) the objectives of your product or brand;

3) consumer price elasticity and price points; and

4) the resources you have available.Some of the more common pricing objectives are:

 maximize long-run profit

 maximize short-run profit
 increase sales volume (quantity)
 increase monetary sales
 increase market share
 obtain a target rate of return on investment (ROI)
 17

 obtain a target rate of return on sales

 company growth
 maintain price leadership
 desensitize customers to price
 discourage new entrants into the industry
 match competitors prices
 encourage the exit of marginal firms from the industry
 survival
 avoid government investigation or intervention
 obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel
 enhance the image of the firm, brand, or product
 be perceived as “fair” by customers and potential customers
 create interest and excitement about a product
ref: https://en.wikipedia.org/wiki/Pricing_objectives

Fifteen mark questions

1 Explain the Bases of segmentation in detail.

 Psychographic segmentation
 Demographic segmentation:
 Geographic segmentation
 Behavioral segmentation
 18

Psychographic segmentation
It is the science of using psychology and demographics to better understand
consumers. In psychographic segmentation, buyers are divided into different
groups on the basis of psychological traits , lifestyle or values. People with the
same demographic group can exhibit very different psychographic profiles. One
of the most popular commercially available classification systems based on
psychographic measurements is SRI consulting business intelligence’s VALS
framework. The main dimension of VALS framework is consumer motivation.
Consumers are inspired by one of three primary motivators: ideals, achievement,
 19

and self-expression. Those primarily motivated by ideals are guided by

knowledge and principles. Those motivated by achievement look for products
and services that demonstrate success. Consumers whose motivation is self-
expression desire social or physical activity , variety and risk. Different levels of
resources enhance or constrain a person’s expression of his primary motivation.
 20

The four groups with higher resources are:

Innovators: successful, sophisticated, active, “take charge” people with high
self esteem.
Thinkers: Mature, satisfied and reflective people who are motivated by ideals
and who value order, knowledge and responsibility.
Achievers: successful goal oriented people who focus on career and family.
Experiencers: young enthusiastic, impulsive people who seek variety and
excitement.
Four groups with lower resources are:
Believers: conservative, conventional, and traditional people with concrete
beliefs.
Strivers: Trendy and fun loving people who are resource constrained.
Makers: practical, down to earth, self sufficient people who like to work with
their hands

Survivors: elderly passive people who are concerned about change.

Demographic segmentation:

In demographic segmentation we divide the market into groups based on variables

such as age, family size, family life cycle, gender, income , occupation, education
, religion, race, generation, race, nationality and social class.

Age and life cycle stage:Consumer wants and abilities change with age thus age
and life cycle are important variables to define segments. While
Johnson&johnson’s baby products, rhymes and colouring books are aimed at
infants and children. Hindusthan uniliver products such as soaps and shampoos ,
Mtv Vtv may be aimed at adults.

Life stage: persons in the same part of the life cycle may differ in life stages.Life
stage defines a persons major concern such as getting married, deciding to buy a
home, sending children to school, taking care of old family members, marrying
off their children, planning retirement and so on..this gives marketers immense
opportunities for eg, at times of marriage they buy a lot of household equipments,
 21

kitchen utensils etc, and for people wanting a retirement life there are a lot of life
insurance policies available in the market.

Gender: Men and women have different attitudes and behave differently. Gender
differentiation has been long applied to the product categories of hairstyling ,
cosmetics, clothing and magazines. Their purchasing habbits also differ while
men prefer motorcycles women prefer scooters. while park avenue is considered
to be a masculine brand . van heusen and allen solly, which primarily concerned
with men’s clothing have launched their products for women.

Income: It determines the ability of the consumers to participate in the market

exchange and hence this is a basic segmentation variable. Income doesnot predict
the best consumers for a given product. Consumer choice may differ based on
attitudes, lifestyle and values. For eg the launch of nirma washing powder had an
explosive growth in the detergent market as they maintained their middle class
focus on value of money proposition.

Generation: Each generation is profoundly influenced by the times in which it

grows up the music, movies, politics and defining events of that period.
Demographers call these groups cohorts. Members share the same economic,
political and cultural experiences and have similar outlooks and values. The
younger generations play a significant role not only as consumers but also as
initiators and influencers of buying decisions.Different generation cohorts also
influence each other.

Social class: Social class has a strong influence on preferences in cars, clothing,
home furnishings, leisure activities, reading habits and many companies design
their products and services for specific social classes. Persons with higher
education and income levels have different purchase preferences as compared to
the other.

Geographic segmentation: It calls for division of the market into different

geographical units such as nations, states, regions, countries, cities or
neighborhoods. It assumes importance due to variations in consumer preferences
 22

and purchase habits across different regions, across different countries, and across
different states in these countries.

Behavioral segmentation: Marketers divide buyers into groups on the baisis of

their knowledge of, attitudetoward, use of, or response to a product. Many
marketers believe behavioral variables-occasions, benefits, user status, usage rates,
buyer readiness stage, loyality status, and attitude- are the best starting points for
constructing market segments.
Occasions: greeting card brands such as archies and hallmark make cards for
different occasions such as birthdays, weddings, id, diwali, raksha bandhan.
Benefits: buyers are classified accourding to the benefits they seek.shampoos for
eg, offer benefits such as basic cleaning of hair , conditioning effects, medicinal
properties and suitability to all hair types.
User status: every product has its nonusers, ex-users, potential users, first time
users, and regular users. The key to attracting users are identifying why they are
not using the product. Market leaders try to attract potential customers and small
firms try to attract current users away from the market leader.
Usage rate: markets can be segmented into light , medium and heavy product
users heavy useres often small percentage of the market but account for a high
percentage of total consumption eg mobile phone service providers.
Buyer readiness stage: some people are unaware of the product some are
informed and some are interested , some desire the product and some intend to
buy.the relative number of customers at different stages makes a big difference in
designing the market programme. Loyality programs tend to reduce customers
propensity to switch brands.
Attitude: five attitudes about products are: enthusiastic, positive, indifferent,
negative, and hostile.
Combining different behavioral bases can help to provide a more comprehencive
and cohesive view of the market and its segments.
Ref:www pearsoned.co.in/marketingmanagementindia
 23

2 Elaborate on the classification of advertising.

1. Primary v. Selective Advertising

2. Product v. Institutional Advertising
3. Institutional Sports Sponsorship
4. Commercial v. Non commercial Advertising

(1)Primary v. Selective Advertising:

One way of classifying advertising is into primary as against selective demand
advertising. The objective of commercial advertising is generally to stimulate demand for
the goods or services of the company placing the advertisement.

Demands are of two types namely, primary demand and selective demand. The demand
for a generic product of a whole industry is described as primary demand such as the
demand for motor cars, television receivers, etc.

Selective demand refers to demand for a particular brand such as Fiat motor cars.
Generally, primary demand advertising is indulged in by trade associations to create a
general demand for the products of the industry concerned. Selective demand advertising
is loaned by the companies who are interested in selling their own products.

(2) Product v. Institutional Advertising:

The commonest type of advertising is product advertising, where the company tries to
sell its product or service through advertising. At times however, the objective of the
company is to create a good image or sell ideas.

This is referred to as institutional advertising to distinguish it from product advertising.

For example, institutional advertising may be of the “patronage institutional advertising”
type. Here the objective is to sell the idea to the reader to patronize particular producer or
shopkeeper or retailer for reasons mentioned such as wider selection, reliability, etc.

As against this, there is also “public relations institutional advertising” indulged in more
today to create a better image to the public. For example, when there is a strike which
affects the community both the employer and at times even the employees advertise in
the papers to justify their own stand.
 24

These are illustrations of public relations institutional advertising. A slight variation of

this is called the “public service institutional advertising”, where the company attempts to
create the image that it is conscious of social service and indicates how it helps the
community such as developing a village and so on.

(3) Institutional Sports Sponsorship:

Another form of Institutional Image Advertising is the modern trend of companies
sponsoring sports events. The two outstanding illustrations are (i) the “Charminar
Challenge” sponsorship by Vazir Sultan Tobacco Company and (ii) the “Reliance Cup”
sponsorship of the 1987 World Cup Cricket Championship by Reliance Industries Ltd.

Under the Charminar Challenge umbrella, VST sponsors a wide variety of events ranging
from cricket, badminton, table tennis and golf to car-rallying.VST sports sponsorship
budget is estimated at Rs.1.5 crores per annum.

The Ranji Trophy, the Deodhar Trophy and all one-day internationals for the period
1986-89 will be Charminar Challenge championship matches, which ties up the domestic
circuit pretty comprehensively. “Charminar” is the identity of the company.

The word “challenge” is inspiring, competitive and adventurous. This gives the way for a
suitable image for VST and is close to the identity of the company’s products.

This is therefore an “entertainment-related corporate image and brand advertising”

concept. Reliance Industries Ltd. paid a mammoth sum of Rs.4.8 crores. This sponsorship
was done to ensure that an Indian company sponsored the prestigious 1987 World Cup
Cricket event.

This “patriotism” certainly improved the company’s image. The Reliance Cup
extravaganza focused attention on the commercial and promotional potential inherent in
the corporate sponsorship of sports.

(4) Commercial v. Non commercial Advertising:

 25

Commercial advertising is concerned with selling a product or an idea to help a

commercial institution. It may consist of “consumer advertising” aimed at the ultimate
consumer or “business or industrial advertising” aimed at industrial producers inducing
them to purchase the product.

It may even include “professional advertising” directed at professionals such as doctors,

lawyers, etc. Non-commercial advertising is advertising indulged in by non-profit
organization such as the government or charitable institutions to support ideas, solicit
donations, etc.

The methods used for preparing the advertisements are however the same whether one is
concerned with commercial or non-commercial advertising.

(5) Classification by Media:

Advertising can also be classified in terms of the media used such as window dressing in
case of shops, press advertising, outdoor advertising and the use of advertising literature.

The several forms media will now be detailed in the subsequent chapters followed by
discussions on preparation of an advertisement as well as an advertising campaign.

Ref: https://en.wikipedia.org/wiki/Advertising
 26

3 Elaborate on the methods of pricing.

The two methods of pricing are as follows:

A. Cost-oriented Method

 Cost plus pricing

 Mark-up pricing
 Break-even pricing
 Target return pricing
 Early cash recovery pricing

B. Market-oriented Methods.

 Perceived value pricing

 Going-rate pricing
 Sealed-bid pricing
 Differentiated pricing

There are several methods of pricing products in the market. While selecting the method
of fixing prices, a marketer must consider the factors affecting pricing. The pricing
 27

methods can be broadly divided into two groups—cost-oriented method and market-
oriented method.

A. Cost-oriented Method:
Because cost provides the base for a possible price range, some firms may consider cost-
oriented methods to fix the price.

Cost-oriented methods or pricing are as follows:

1. Cost plus pricing:
Cost plus pricing involves adding a certain percentage to cost in order to fix the price. For
instance, if the cost of a product is Rs. 200 per unit and the marketer expects 10 per cent
profit on costs, then the selling price will be Rs. 220. The difference between the selling
price and the cost is the profit. This method is simpler as marketers can easily determine
the costs and add a certain percentage to arrive at the selling price.

2. Mark-up pricing:
Mark-up pricing is a variation of cost pricing. In this case, mark-ups are calculated as a
percentage of the selling price and not as a percentage of the cost price. Firms that use
cost-oriented methods use mark-up pricing.

Since only the cost and the desired percentage markup on the selling price are
known, the following formula is used to determine the selling price:
Average unit cost/Selling price

3. Break-even pricing:
In this case, the firm determines the level of sales needed to cover all the relevant fixed
and variable costs. The break-even price is the price at which the sales revenue is equal to
the cost of goods sold. In other words, there is neither profit nor loss.

For instance, if the fixed cost is Rs. 2, 00,000, the variable cost per unit is Rs. 10, and the
selling price is Rs. 15, then the firm needs to sell 40,000 units to break even. Therefore,
the firm will plan to sell more than 40,000 units to make a profit. If the firm is not in a
position to sell 40,000 limits, then it has to increase the selling price.
 28

The following formula is used to calculate the break-even point:

Contribution = Selling price – Variable cost per unit

4. Target return pricing:

In this case, the firm sets prices in order to achieve a particular level of return on
investment (ROI).

The target return price can be calculated by the following formula:

Target return price = Total costs + (Desired % ROI investment)/ Total sales in units

For instance, if the total investment is Rs. 10,000, the desired ROI is 20 per cent, the
total cost is Rs.5000, and total sales expected are 1,000 units, then the target return
price will be Rs. 7 per unit as shown below:
5000 + (20% X 10,000)/ 7000

Target return price = 7

The limitation of this method (like other cost-oriented methods) is that prices are derived
from costs without considering market factors such as competition, demand and
consumers’ perceived value. However, this method helps to ensure that prices exceed all
costs and therefore contribute to profit.

5. Early cash recovery pricing:

Some firms may fix a price to realize early recovery of investment involved, when
market forecasts suggest that the life of the market is likely to be short, such as in the
case of fashion-related products or technology-sensitive products.

Such pricing can also be used when a firm anticipates that a large firm may enter the
market in the near future with its lower prices, forcing existing firms to exit. In such
situations, firms may fix a price level, which would maximize short-term revenues and
reduce the firm’s medium-term risk.

B. Market-oriented Methods:
1. Perceived value pricing:
 29

A good number of firms fix the price of their goods and services on the basis of
customers’ perceived value. They consider customers’ perceived value as the primary
factor for fixing prices, and the firm’s costs as the secondary.

The customers’ perception can be influenced by several factors, such as advertising, sales
on techniques, effective sales force and after-sale-service staff. If customers perceive a
higher value, then the price fixed will be high and vice versa. Market research is needed
to establish the customers’ perceived value as a guide to effective pricing.

2. Going-rate pricing:
In this case, the benchmark for setting prices is the price set by major competitors. If a
major competitor changes its price, then the smaller firms may also change their price,
irrespective of their costs or demand.

The going-rate pricing can be further divided into three sub-methods:

a. Competitors ‘parity method:
A firm may set the same price as that of the major competitor.

b. Premium pricing:
A firm may charge a little higher if its products have some additional special features as
compared to major competitors.

c. Discount pricing:
A firm may charge a little lower price if its products lack certain features as compared to
major competitors.

The going-rate method is very popular because it tends to reduce the likelihood of price
wars emerging in the market. It also reflects the industry’s coactive wisdom relating to
the price that would generate a fair return.

3. Sealed-bid pricing:
 30

This pricing is adopted in the case of large orders or contracts, especially those of
industrial buyers or government departments. The firms submit sealed bids for jobs in
response to an advertisement.

In this case, the buyer expects the lowest possible price and the seller is expected to
provide the best possible quotation or tender. If a firm wants to win a contract, then it has
to submit a lower price bid. For this purpose, the firm has to anticipate the pricing policy
of the competitors and decide the price offer.

4. Differentiated pricing:
Firms may charge different prices for the same product or service.

The following are some the types of differentiated pricing:

a. Customer segment pricing:

Here different customer groups are charged different prices for the same product or
service depending on the size of the order, payment terms, and so on.

b. Time pricing:
Here different prices are charged for the same product or service at different timings or
season. It includes off-peak pricing, where low prices are charged during low-demand
tunings or season.

c. Area pricing:

Here different prices are charged for the same product in different market areas. For
instance, a firm may charge a lower price in a new market to attract customers.

d. Product form pricing:

Here different versions of the product are priced differently but not proportionately to
their respective costs. For instance, soft drinks of 200,300, 500 ml, etc., are priced
according to this strategy.
 31

Ref: http://www.managementstudyguide.com/retail-pricing.htm

4 Explain eleven pricing strategies.

1. Premium pricing
2. Penetration pricing
3. Economy pricing
4. Skimming price
5. Psychological pricing
6. Neutral strategy
7. Captive product pricing
8. Optional product pricing
9. Bundling price
10. Geographical pricing
11. Promotional pricing strategy

1. Premium pricing – It is a type of pricing which involves establishing a price higher than
your competitors to achieve a premium positioning. You can use this kind of pricing when
your product or service presents some unique features or core advantages, or when the
company has a unique competitive advantage compared to its rivals. For example, Audi
 32

and Mercedes are premium brands of cars because they are far above the rest in their
product design as well as in their marketing communications.
2. Penetration pricing – This type of pricing is designed to capture market share by entering
the market with a low price as compared to the competition. The penetation pricing
strategy is used in order to attract more customers and to make the customer switch from
current brands existing in the market. The main target group is price sensitive customers.
Once a market share is captured, the prices are increased by the company. However, this is
a sensitive strategy to apply as the market might be penetrated by yet another new entrant.
Or the margins are so low that the company does not survive. And finally, this strategy
never creates long term brand loyalty in the mind of customers. This strategy is used
mainly to increase brand awareness and start with a small market share.
3. Economy pricing – This type of pricing takes a very low cost approach. Just the bare
minimum to keep prices low and attract a specific segment of the market that is highly
price sensitive. Examples of companies focusing on this type of pricing include Walmart,
Lidl and Aldi.
4. Skimming price is used by companies that have a significant competitive advantage and
which can gain maximum revenue advantage before other competitors begin offering
similar products or substitutes. It can be the case for innovative electronics entering the
marketing before the products are copied by close competitors or Chinese manufacturers.
After being copied, the product loses its premium value and hence the price has to be
dropped immediately. Thus, to get maximum margins from their products, innovative
companies keep launching new variants so that customers are always in the discovery
phase and paying the required premium.
5. Psychological pricing- is a type of pricing which can be translated into a small incentive
that can make a huge impact psychologically on customers. Customers are more willing to
buy the necessary products at $4,99 than products costing $5. The difference in price is
actually completely irrelevant. However, it make a great difference in the mind of the
customers. This strategy can frequently be seen in the supermarkets and small shops.
6. Neutral strategy- focuses on keeping the prices at the same level for all four periods of the
product life cycle. However, with this type of strategy, there is no opportunity to make
higher profits and at the same time it doesn’t allow for increasing the market share. Also,
 33

when the product declines in turnover, keeping the same price effects the margins thereby
causing an early demise. This pricing is used very rarely.
7. Captive product pricing is a type of pricing which focuses on captive products
accompanying the core products. For example, the ink for a printer is a captive product
where the core product is the printer. When employing this strategy companies usually put
a higher price on the captive products resulting in increased revenue margins, than on the
core product.
8. Optional product pricing can be frequently observed in the case of airline companies. For
example, the basic product of KLM Airlines is offering or providing seats in the airplane
for different flights. However, once the customers start purchasing these seats, they are
offered optional features along with the seats. Examples may be extra seat space, more
drinks etc. Because of this optional product, there is more revenue generated from the main
product. Customers are willing to spend for the optional product as well.
9. Bundling price – Ever hear of the offer of 1 + 1 free? In the supermarket, when two
different products are combined together such as a razor and the lotion for shaving, and
they are offered as a deal, then we get to experience the bundling type of pricing first hand.
This strategy is mainly used to get rid of excess stocks.
10. Promotional pricing strategy is just like Bundling price. But here, the products are
bundled so as to make the customer use the bundled product for the first time. This type of
pricing focuses on buying one, and getting a new type of product for free. Promotional
pricing can also serve as a way to move old stock as well as to increase brand awareness.
11. Geographical pricing involves variations of prices depending on the location where the
product and service is being sold and is mostly influenced by the changes in the currencies
as well as inflation. An example of geographic pricing can also be the sales of heavy
machinery, which are sold after considering the transportation cost of different locations.

Depending on the goals and objectives of your company, and the strategies decided by your
company, you can use any of the 11 types of pricing mentioned above. One can identify what
strategy should be applied by analyzing the market and also the product / service life cycle they
are present in.

Ref: http://www.marketing91.com/types-of-pricing/
 34

CASE STUDY

 INDEX

 INTRODUCTION (REVIEW OF THE CASE)

 ANSWER THE PROBLEM ( USING MARKETING CONCEPTS SUCH

AS PRICING AND SEGMENTATION)

 DIAGRAM

 CONCLUSION (YOUR VIEW POINT OR BEST ADVICE TO THE

COMPANY)