Principles of Marketing e Book

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A.B. Ilano
RBS Principles of Marketing

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CONTENTS
Preface
Introduction
CHAPTER I
THE PRINCIPLES OF MARKETING
LESSON 1 A Framework for Marketing
What Is Marketing?
A Definition of Marketing
The Marketing System
Web Watch: 4 Principles of Marketing Strategy
Group Assignment
Self-Assessment
Exercises
LESSON 2 Needs, Wants, and Demands
Needs, Wants, and Demands
Web Watch: The Science of Persuasion
Group Assignment
Self-Assessment
Exercises
LESSON 3 Marketing Origins, Exchange, and Value
The Origins of Marketing
Exchange
Value
Web Reading: It Is the Little Things: Adding Value
without Lowering Prices
Group Assignment
Self-Assessment
Exercises
LESSON 4 Contemporary Approaches to Marketing
Marketing Strategy in Action: Story 1
Web Reading: C2 in the Philippines
Group Assignment
Self-Assessment
Exercises
CHAPTER 2
THE ENVIRONMENT AND ITS OPPORTUNITIES
LESSON 1Analyzing the Environment
The Marketing Environment
Web Reading: Post-Demographic Consumerism in Asia
Group Assignment
Self-Assessment
Exercises
LESSON 2 Market Research Methods
The Marketing Information System
Research Process
Research Methods
Bias
Web Reading: How Companies Learn Your Secrets
Group Assignment
Self-Assessment
Exercises
LESSON 3 Demand Forecasting
Measuring and Forecasting Demand
The Market
Forecasting Demand for an Existing Product
Forecasting Demand for a New Product
Incremental Growth
Web Reading: How to Forecast Demand
Group Assignment
Self-Assessment
Exercises
CHAPTER 3
MARKET SEGMENTS AND CONSUMER
BEHAVIOR
LESSON 1 Consumer Behavior
Factors That Affect Consumer Behavior
Income vs. Socio-Economic Class
Age vs. Lifecycle
Buying Roles
Types of Buying Behavior
Emotional vs. Logical Decisions
Web Reading: 7 Unconscious Errors We Make When
Buying Brands
Group Assignment
Self-Assessment
Exercises
LESSON 2 Consumer Market Segmentation
The Premise Behind Market Segmentation
Systematic Segmentation
Targeting
Web Reading: The VALS Segmentation Framework
Group Assignment
Self-Assessment
Exercises
LESSON 3 Organizational Market Segmentation
Dealing with Organizations
Characteristics of Organizational Markets
Minimizing the Risk of Purchase
Buying Situations
Roles in the Buying Process
The Buying Process
Locking in the Client
Web Reading: Understanding the Difference between
B2B and B2C Marketing
Group Assignment
Self-Assessment
Exercises
CHAPTER 4
POSITIONING
LESSON 1 Positioning
Positioning the Product
Points of Difference and Points of Parity
Category Membership
Mini-Case: Nestle Vita
Web Watch: Segmentation, Targeting,and Positioning at
McDonald’s
Group Assignment
Self-Assessment
Exercises
LESSON 2 Positioning Maps
The Positioning Map
Interpreting and Applying Positioning Maps
Web Reading: Mapping Your Competitive Position
Mini-Case: UCARE Milk
Group Assignment
Self-Assessment
Exercises
CHAPTER 5
PRODUCT STRATEGIES
LESSON 1 New Product Strategy
The New Product
Creating the Business Model
The Business Plan
Competitive Strategies
Web Reading: 6 Cool Examples of Successful Niche
Businesses
Mini-Case: Bibingkinitan
Group Assignment
Self-Assessment
Exercises
LESSON 2 Service Strategies
Goods vs. Services
Types of Service Processes
Building Up the Service Experience
Web Watch: Richard Branson Reveals His Customer
Service Secrets
Group Assignment
Self-Assessment
Exercises
LESSON 3 Branding
What Is in a Brand?
Origins of Branding
Elements of the Brand
Elements of Logo Design
Levels of Meaning
Brand Equity
Brand Valuation
Web Watch: What Is Branding?
Group Assignment
Self-Assessment
Exercises
LESSON 4 Developing the Brand
Developing a New Brand
Step 1. Develop the Brand Strategy
Step 2. Develop the Creative Theme
Step 3. Create the Name
Step 4. Test the Name
Step 5. Screen for Trademark Availability
Web Watch: Creating a Brand - Fundamental Elements
of Design
Group Assignment
Self-Assessment
Exercises
LESSON 5 Building Product Portfolios
Going beyond One Product
The Product Mix
Line Imaging and Line Featuring
Web Reading: How to Determine an Optimal Product
Mix
Mini-Case: Promil Pre-School and Its New Big Sister
Brand
Group Assignment
Self-Assessment
Exercises
CHAPTER 6
PRICING STRATEGIES
LESSON 1 Origins of Pricing
The Origins of Pricing
Emergence of the Suggested Retail Price
Where Does the Money Go?
Web Watch: Pricing Strategy—Positioning and How to
Price Your Product
Group Assignment
Self-Assessment
Exercises
LESSON 2 Price Elasticity and Inelasticity
Elasticity and Inelasticity
Web Watch: Price Elasticity of Demand
Group Assignment
Self-Assessment
Exercises
LESSON 3 Pricing Methods
Price High or Price Low
Price-Quality Strategies
What Is Your Pricing Objective?
Setting the Price
Web Reading: How to Price Your Products
Group Assignment
Self-Assessment
Exercises
LESSON 4 Pricing Strategies and Applications
Adapting the Price
Pricing a New Product
Psychological Pricing
Discriminatory Pricing
Product Mix Pricing
Trade Discounts, VAT, and Taxes
Mini-Case: The Strange Case of Mighty Cigarettes
Web Watch: Senior Citizen’s Law
Group Assignment
Self-Assessment
Exercises
CHAPTER 7
PLACE AND PLACEMENT
LESSON 1 Place: Distribution Design
The Purpose of Place
Terms and Responsibilities for Distributors
Functions of Distribution Channels
Considerations in Distribution Design
Mini-Case: The Gourmet Nachos
Web Reading: 10 Ideas in Retail Innovation That Will
Change the Way You Shop
Group Assignment
Self-Assessment
Exercises
LESSON 2 Types of Distribution Channels
Types of Distributorships
Types of Retailers
Web Reading: 5 Tech Trends That Will Hit Every Retail
Store by 2020
Group Assignment
Self-Assessment
Exercises
LESSON 3 Distribution Strategies
Sources of Channel Conflicts
Retail Is About Real Estate
Distributor Ploys
The Rise of Private Labels
Gray Markets
Regionalization and Localization
Online vs. Brick-And-Mortar
Web Reading: 7 Steps for Creating Disruptive Retail
Experiences
Mini-Case: Bio-Clear Air Purifiers
Group Assignment
Self-Assessment
Exercises
LESSON 4 Salesforce Management
The Sales Organization
Elements of the Salesforce Strategy
Managing the Salesforce
Challenges for the Sales Organization
Web Reading: Hypnotic Selling Techniques
Group Assignment
Self-Assessment
Exercises
CHAPTER 8
PROMOTION STRATEGIES
LESSON 1 The Promotions Mix
Elements of the Promotions Mix
Selecting the Media
Setting the Promotions Budget
Web Watch: How to Take Stunning Food Pictures
Group Assignment
Self-Assessment
Exercises
LESSON 2 Above-The-Line Strategies
The Nature of Advertising
Television
Radio
Print
Web Watch: Clio Awards 40th Anniversary Reel
Group Assignment
Self-Assessment
Exercises
LESSON 3 Below-The-Line Strategies
Targeted Communications
Promotional Programs
Public Relations
Social Media
Web Reading: What Lies below the Line?
Mini-Case: Nescafe Ups Its Facebook Game
Group Assignment
Self-Assessment
Exercises
CHAPTER 9
INTEGRATED MARKETING COMMUNICATIONS
LESSON 1 The Marketing Communications Plan
Putting All the Points of Communication Together
Web Reading: Sample Marketing Plan for Mobile News
Games
Group Assignment
Self-Assessment
Exercises
LESSON 2 Designing the Metrics and Targets
Metrics and Targets
KRAs, KPIs, and Targets
Web Reading: 10 Online Marketing Metrics You Need
to Be Measuring
Group Assignment
Self-Assessment
Exercises
LESSON 3 Marketing Plan Template
The Challenge
Situation Analysis
Communication Strategy
Metrics and Targets
Web Reading: Developing a Marketing Plan
Group Assignment
Self-Assessment
Exercises
References
Index
The Philippines needs more marketers.
While the country may have scores of retailers, salespeople,
advertisers, and public relations practitioners, there is still a need
to produce more marketing professionals: people who can
effectively and skillfully strategize, plan, and direct marketing
efforts from atop a business enterprise.
It is, after all, the marketing skills that will help build value for
a product, for a brand, and for a business. Marketing creates
empires—from the assorted brands of Jollibee Foods
Corporation, to the distribution powerhouse that is the SM
Supermalls, and to the continuing battles of the country's two
largest television networks. It also creates value for much smaller
enterprises, from neighborhood food carts and auto repair shops,
to entrepreneurial startups and app developers.
Every business can benefit from good marketing. This
textbook strives to provide that first step toward developing more
professional marketers which our country needs. It seeks to
encourage students to think like seasoned marketers, providing
them with marketing fundamentals in a highly readable format
that is accompanied by a number of compelling examples from
Philippine enterprises. After all, it is the author's belief that the
best way to explain marketing is through the use of highly
relevant, captivating, and, of course, true stories.
Each chapter begins with an engaging story that helps to
generate relevant insights for the lessons to come. Each lesson is
also brought to life through the generous use of vivid examples.
To further concretize the student's learning experience, eight
mini-cases are provided throughout the chapters, giving students
an opportunity to discover how the lessons are applied in the real
world.
This textbook also acknowledges the rich sources of
information that the Internet can provide for supplementary
learning. Each chapter comes with suggested links to online
videos (“Web Watch”) and articles (“Web Reading”) that can
help to further round out the student's understanding of the given
topics.
It is my fervent hope that this textbook can help to bring
marketing to life, making students realize how exciting and
valuable a discipline it is, and encouraging them to apply its
principles in their future endeavors.
A. B. Iano
Among the different business disciplines, marketing may have
the distinction of being the most nebulous because it seems to
have no distinct boundaries. Finance, for instance, easily
conjures images of spreadsheets and numbers, dealing primarily
in the realm of money management for the organization. Human
resource management seems to revolve primarily within the
realms of people, relationships, and human behavior. Operations
management seems to focus on ensuring that a firm's processes
run smoothly and predictably.
But marketing? Somehow, it seems to encroach too much on
the territories of other business disciplines. But this is out of
necessity. After all, marketing involves product development and
pricing strategy, and these are elements that intrude into the realm
of finance. Marketing also involves the handling of sales
organizations and service quality, so this also intrudes into the
realms of both human resources and operations management.
Marketing will also intrude into research and development,
corporate planning, business law, and a host of other disciplines.
The reason for this is that marketing, by its nature, should
ideally be understood and practiced by everyone in an enterprise,
regardless of their expertise, field of discipline, or occupation. It
may take a village to raise a child, but it takes an entire
organization to truly delight a customer these days. Only by
letting everyone in on the principles of marketing can a firm truly
get to the end goal of building lasting customer relationships with
minimal friction from within.
Hopefully, this book can serve as a stepping stone toward
building evermore Philippine enterprises that are truly market-
oriented.
Starbucks: Why It Is in the Real Estate Business
You can go to a Starbucks café and just sit down for the
entire day without ordering anything. Nobody will stop
you from doing that. But the surprising thing is practically
everybody who stops by a Starbucks does in fact order
something even if they are not required to.
Perhaps it is part of peer pressure—you will feel
embarrassed if you stay in Starbucks for a long while and
not have an order visible on your table. But it is also partly
due to our internal concept of fair exchange. Simply put,
a customer feels that it is only fair to pay for a cup of
coffee in exchange for the use of a Starbucks sitting area.
To this end, you get to realize that Starbucks is not only
in the business of making coffee. It is actually in the real
estate business too! They make most of their money by
relying on you to pay for the use of your own little space
in their shop, whether it is an “office space” that you can
work in, a “study space” where you can quietly read your
books, or a “meeting space” where you can meet with
clients or workmates.
Next time you are at a Starbucks, observe the crowd
and study what they buy. One thing you may notice is that
the longer they stay, the higher the value of what they
tend to buy (or the greater their urge becomes to buy
additional items), which is commensurate with the
premise that they are actually paying Starbucks “rent” for
the use of their space.
Customers benefit from having a pleasant atmosphere
to stay in, while Starbucks benefits from the profits it
generates through its operations.
Marketing is an art, a science, and a field of discipline.

Everything that goes on sale is marketed. But not
everything that goes on sale follows the principles of
marketing. This chapter covers the essential principles
behind marketing: what it is, what makes for a marketing-
oriented transaction, and how consumers stand to benefit
from it.
Lesson 1
A FRAMEWORK FOR
MARKETING
At the end of this topic, the student will:
1. have a clear definition of marketing; and
2. have a framework for comprehending the principles
of marketing.
1. Define marketing in your own words, based on what

you understand about it.
2. Give three examples of products that you regularly

see around you and describe how they are “marketed.”
a.
b.
c.
What Is Marketing?
Some of you may believe that you already have some
idea about what marketing is all about. That is good. Our
purpose here is to build up and work with what you know,
so that we can integrate everything into a clear and
cohesive framework that maps out what marketing is
really all about.
At this point, what is marketing to you? Perhaps some
(or all) of the following will come to mind:
• Advertising
• Selling
• Sales people
• Retail stores and merchants
• More selling
• Promos and giveaways
• Press releases
• Product development
• Still more selling
The good news is that, yes, all of the above do fall under
the realm of marketing. But it should also be pointed out
that marketing is actually a superset of all of the above and
more. By this, we mean that marketing is more than the
sum of all the above-mentioned elements.
To a layman, marketing will indeed be all about selling
a product. But to a marketing professional, marketing is a
process. It is a process that begins right at the moment
when an aspiring entrepreneur or business development
manager (or marketing manager) realizes that there is an
opportunity to build up a business.
You can think of marketing as a discipline or a field of
management, in much the same way that finance is a
management field and human resource development is a
management field. At the same time, it helps if marketing
is understood by the entire organization because marketing
is such an integrative field. Effective marketing needs the
involvement and support of all the other fields of
management—operations, finance, human resources,
information systems, and even corporate planning.
Marketing is also about communication. In fact, there is
a trend toward using the term “marketing
communications” rather than just “marketing.” This
reflects the fact that selling a product (i.e., the layman's
definition of marketing) is really all about properly
communicating that product to the market and to the world
at large. It will, therefore, help to keep this in mind as we
proceed throughout this course.
Peter Drucker once said that the aim ofmarketing is to
“make selling superfluous” (Drucker, 1973). In other
words, he believed that marketing is all about making
products somehow sell themselves, so that getting
products to move becomes easier. As subtext, however, it
may help to know that a whole lot of work will be involved
in order to reach that ideal. Marketing, in thisrespect, is a
bit like an iceberg: what we get to see—namely the selling
and the advertising—is only a small percentage of the
marketing process, and much of what needs to be done
should have already happened even before the product
gets out the door.
A Definition of Marketing
We begin with a definition of marketing as presented by
the American Marketing Association (n.d.):
“Marketing is the activity, set of institutions, and
processes for creating, communicating, delivering, and
exchanging offerings that have value for customers,
clients, partners, and society at large.”
Marketing is an organizational function because it is a
core task that is expected of a modern organization,
whether or not it operates for profit. While marketing is
now considered as an imperative for commercial
enterprises, even non-commercial sectors benefit from a
marketing orientation. For instance, when the Department
of Health tried to convince the public to avoid cigarette
smoking, it was actually engaging in a marketing
campaign. Except that instead of selling a tangible
product, it was selling a healthier lifestyle.
Marketing is also a set of processes because there are
essential tasks that have to be engaged in order to produce
a viable marketing strategy. These tasks shall be outlined
as we go along through this course.
There is also the delivering of value to customers. This
is an important element that we shall be taking some time
to discuss later in this chapter. For now, do take note of the
subtext here that marketing is not out to fool customers, to
cheat them of their money, or to sell them something that
they do not want. In fact, the building of customer
relationships is very important in marketing. So if a
company tries to fool a customer with a subpar experience,
then this is not a marketing-oriented company.
Finally, a key takeaway that we can infer from the above
definition is that there is a give- and-take relationship that
lies at the heart of marketing. Marketers seek to provide
valuable products and services to customers. In return,
they also need to benefit from it. Of course, this generally
happens through the revenues that companies receive from
customers (in the case of profit-oriented enterprises).
But there are other ways through which a marketing
exchange leads to mutually beneficial transactions:
• Politicians offer promises and hope to potential
voters in exchange for their votes that bring them
to office.
• TV stations broadcast soap operas to homes in
exchange for viewers (hopefully) watching the ads
that in turn would provide profit for the stations.
• Facebook offers its services to its millions of
users for free in return for the users allowing paid
ads to occasionally show up in their feeds.
These are all examples of exchange transactions that
seek to benefit the parties involved. Some transactions can
be complex (as in the case of TV stations and its tertiary
dealings with outside advertisers), but the typical
transaction that we are most familiar with is the common
everyday pay-for-product merchant transaction.
Every time you go to a convenience store to buy a snack,
it is actually the end result of a marketing process. It begins
with the snack manufacturer doing research in order to
identify what snacks are already in the market, what
customers are looking for, and spotting potential market
gaps that can still be filled. Next, the manufacturer profiles
the intended market, understanding their demographics,
economic class, lifestyle, and a whole slew of other data.
The manufacturer then conceptualizes the product, down
to elements such as package design and branding, as well
as its suggested retail price. Next, the manufacturer
identifies the most feasible channels through which the
product should be pushed in order to reach the
consumers—in this case, convenience stores being one.
Finally, the manufacturer may engage in communication
efforts in order to alert the market about the existence of
its product. All of that would have happened before you
finally get to buy the snack from your neighborhood store.
On a broader scale, marketing is all about changing
behavior through communications in order to achieve
objectives. Getting consumers to buy your products may
be the most obvious manifestation of a change in behavior,
but it is not the only possible marketing objective.
Marketing can also be about changing customer attitudes
and perceptions about your product, such as getting the
customers to actually like it in order to get them to
eventually buy it. It could be as simple as making the
market realize that your product actually exists— again, in
order to get them to eventually buy it.
If there is a way to describe what marketing is all about
in a very concise manner, then it can be this: Marketing is
about meeting needs profitably (Kotler & Keller, 2006).
You go into business so that you get to satisfy the needs of
the market and, in doing so, you also get to satisfy your
organization's own needs.
Throughout this textbook, we shall be using the word
“product” a lot. Just to be very clear, product in the context
of marketing does not just refer to tangible products such
as grocery items and automobiles. The word “product”
applies to anything that is being marketed, whether it is a
tangible product, an intangible good, a service, a place, or
even a person.
Here are some other examples of products:
• Amusement parks
• Applications (apps) on smartphones
• Banking services
• Coffee shop: the coffee, the food, and the place
itself
• Hotel accommodations
• Legal advice
• Musical bands
• Pet care
• Radio stations
• Social media sites
• Telecommunication services
• Television programs
The Marketing System
Generally speaking, the ecosystem for marketing may
be illustrated by the following model:
Figure 1. The Generalized Marketing System.

Figure 1 presents two key parties, namely the industry
(composed of businesses that seek to sell a particular kind
of good or service) and the market (composed of all
current or potential consumers for the given kind of good
or service). In the early days of marketing, only the two
central lines—goods/services and money—were the key
points for consideration. Today, however, two other
“lines” have joined the equation, namely communication
and information. These represent the value of transmitting
information both to and from the market and the industry.
All throughout these transactions, the environment also
serves as a significant influencer, affecting both the
industry and the market alike.
The marketing process can also be broken down into its
components, which are:
• Strategic Marketing
-Customer segmentation
-Target market selection
-Value positioning
• Tactical Marketing: Value Deployment
-Product design and development
-Product portfolio management
-Service development
-Pricing
-Distribution and logistics
• Tactical Marketing: Value Communication
-Sales force strategies
-Sales promotion strategies
-Advertising
Strategic marketing takes care of the more long-term,
timeless nature of the business proposition, while tactical
marketing takes care of the more short- and medium-term,
flexible aspects of the market strategy.
In the case of a consumer brand such as Colgate, the
strategic component is involved with managing,
preserving, and enhancing the value of the brand including
its brand propositions and promises, and its market
segments. Tactical considerations, on the other hand,
include options to stretch the product line through the
development of new variants, managing inevitable price
wars from competition, and pushing the product line to
even more distribution points.
4 Principles of Marketing Strategy

https://goo.gl/KC7FTm
This is a 25-minute talk by management guru Brian
Tracy about the principles of specialization,
differentiation, segmentation, and concentration and how
they help create marketing strategy.
Sell Your Money!

Present a paper bill from one of your group members. It
could be a 20 peso bill, a 50 peso bill, or higher. Your
group's objective is to try to convince your classmates that
this peso bill is worth more than its face value.
Brainstorm on ways to make this possible and then
present your “pitch” in front of the class. You will then
give a suggested retail price (SRP) based on how much
value you believe the bill actually holds.
Your group's objective: after your pitch, the class will
be asked for a show of hands on how many of them will
actually consider buying your peso bill for your SRP,
which should be higher than the face value. Presentation
time: an estimate of 5 to 10 minutes per group.
How did your group strive to create value for your peso
bill?
How well did you comprehend the topic? Yes No

1. Can you now give your own ☐ ☐
definition of marketing?
2. Do you now know why ☐ ☐
communication is essential in marketing?
3. Do you now know what a ☐ ☐
“product“ is?
Exercises
Name:__________
Section:__________
Date:___________
I. Discussion
1. Explain in your own words why marketing is
principally about communication.
2. Explain how a newspaper engages in marketing.
What is its market? What is it selling?II. Application
and Advancement
II. Application and Advancement
Knowing what you know by now…
1. What kinds of communications do a marketing
entity generate? For instance, imagine a Starbucks
coffee shop. What are the detailed elements that
communicate messages to the buyer and what are those
messages?
2. Consumers do not directly pay free TV stations,
such as ABS-CBN or GMA TV, in exchange for
viewing their programs. Describe how the marketing
system works for this industry.
3. Marketers charge consumers for the cost of their
goods plus a markup for profit and overhead.
Consumers are therefore paying more than the actual
cost of a good. How do you feel about this? Do you
think that there are any moral implications to this?
LESSON 2
NEEDS, WANTS, AND
DEMANDS
1. know the concepts of needs, wants, and demand;
2. understand the dynamics that drive consumer
demand; and
3. understand the need to prioritize particular expenses
when income is limited.
1. Explain in your own words what a “need” is.

Explain this using your own experience.
2. Give three examples of products that you want to

have and the reasons why you want to have them.
Expound on your reasons.
a.
b.
c.
Needs, Wants, and Demand (=!]
What made you buy that brand of bottled water?
We all have needs. We need food, clothing, and shelter.
We need to be educated. We need to be heard, to be loved,
and to be understood.
Take a quick glance at the paragraph above once again.
Notice the rapid progression from tangible needs to more
intangible, emotional ones. Keep this in mind because as
we progress through this course, you will discover themes
that will recur again and again. As it turns out, one of these
themes (you can consider this as a sneak preview!) is the
critical role our emotions play in everything that we buy.
Do you think that you are a very rational buyer who rarely
makes illogical or impractical purchases? By the end of
this book, you may have to rethink that assumption!
This is not to say that we should condemn illogical and
impractical purchases (if we did, tens of thousands of
companies might suddenly fold up!). Rather, our purpose
here is to build in you a level of self-awareness and
empathy about how consumers—including you—behave
and why we buy what we buy.
It all starts with what we need.
A need is a state of felt deprivation about something
that is deemed to be necessary.When you feel hungry,
for instance, your body feels deprived of nutrients and
therefore triggers a search for solutions.
At the most primal level, we go back once again to the
physical needs of food, clothing, and shelter which we
literally need to stay alive and fundamentally comfortable.
This incidentally includes the need for water. So let us
begin our discussion with this basic need for water.
In Metro Manila, the two biggest water utilities (Manila
Water and Maynilad) insist that for the majority of
households that they service, their tap water is potable. In
other words, you can drink the water straight from the
faucet.
So how many of us do actually drink straight from the
faucet? For low-income households, drinking straight
from the tap is something that they would not think twice
about. But as household incomes rise, tap water is quickly
replaced by alternate options of either bottled water or
filtered water. Bottled water can come in the form of either
neighborhood-supplied gallon containers or store-bought
water. Filtered water, on the other hand, can come from
any number of installed home filtration systems ranging in
price from a couple of thousand pesos to over a hundred
thousand pesos!
We all need water, but we have hundreds of options on
how to get it, each with its own pros and cons, and each
with its own particular price point.
Now think about this for a moment: Up to the 1980s, the
concept of buying drinking water, specifically for
households that had reliable tap water service, was
practically unthinkable. In Metro Manila, for instance,
households simply took it as a fact of life that water comes
from the tap. The only reason you should even consider
buying water is if your faucet was not working. Even then,
the idea of buying bottled water, at several pesos per
bottle, was considered preposterous. Why buy a bottle if
you had relatively cheap running water in your home? If
your tap water was of suspicious quality, you boil it and
that was that.
The turning point of this cultural mindset toward water
happened in the early 1990s when the city came into the
grip of a cholera epidemic. News reports of damaged pipes
that allowed tap water to mingle with raw sewage led to a
sense of paranoia about the water supply. This led to the
middle and upper classes migrating toward safer drinking
water options that resulted in the rapid growth of bottled
water companies and, eventually, home water filtration
systems.
We need water. That is a non-negotiable physiological
need. But, in particular, we need safe drinking water
because we also have a need for safety. If you had high
disposable income, you would probably pay a premium for
a higher priced water filtration system for your home that
can give you peace of mind about the water that you drink.
Even if your water service provider insists that tests show
your tap water is very safe to drink.
In the mid-2000s, a new health fad emerged: alkaline
water. Supporters of alkaline water claimed that the
alkalinity in this particular kind of drinking water made it
more compatible with the human digestive system, leading
to quicker absorption and better health. Sales teams
hawked alkaline water filtration systems at prices that
were astronomical compared to that of regular water
purifiers. As it turned out, those who did buy these alkaline
dispensers had not one, not two, but three needs: the
physiological, safety, and better health, which were part of
something called “self-actualization” or self-development.
Because these devices addressed three important needs,
the buyers felt that it was worth it.
The Hierarchy of Needs
In 1943, psychologist Abraham Maslow proposed a
hierarchy of human needs (Maslow, 1943) that eventually
and popularly came to be represented as a pyramid, with
the most basic needs set at the bottom.
Figure 2. Maslow's Hierarchy of Needs

The premise behind Maslow's Hierarchy of Needs
Theory was that the most basic needs represented as the
lower levels of the pyramid model) must first be met
before the individual can feel a strong desire for the
higher-level needs. Thus, before you can even think about
being respected by your peers (love/belonging), for
instance, you must first be assured of food, shelter, and
clothing (physiological), and that nothing untoward
happens to you as you go to, from, and around the school
(safety).
What does the model say about people who, for
instance, go on hunger strikes to protest an idea? The
model says that these people have gone way beyond
fulfilling their physiological needs for one thing, to the
point that they can stifle any hunger pangs through sheer
willpower. Safety, love, and esteem are also no longer
primary considerations—perhaps because they have
covered these long ago—and so they are now single-
minded in their purpose.
But while Maslow's hierarchy seems to make a lot of
sense, it is now considered a bit outdated especially when
human needs are viewed from an evolutionary context.
Seen from a more anthropological and sociological
perspective, needs are derived more from a complex mix
of social cues, peer behaviors, and cultural relics that we
experienced or are experiencing. In fact, our needs and
wants are often fueled more by what the products signify
or symbolize, rather than by their actual forms.
Wants and Demands
Consumers can have a multitude of needs. But what do
consumers want?
First, let us distinguish between a need and a want. You
need safe water, but you want ultraviolet technology that
would kill those pesky bacteria. You need to eat, but you
particularly want a double-patty cheeseburger.
Did you spot the difference?
Wants are the specific manifestations of needs. You
need comfort, and you crave for (or want) a scoop of
creamy ice cream and find it there. You need
transportation, but in particular you want a classic
Mustang convertible. You need a writing instrument for
communicating, but you want a Pelikan M640 Polar
Lights Special Edition fountain pen.
Admit it, you want a lot of things. It is the net result of
a consumerist culture. You want specific brands of
clothes, you aspire for particular high-end gadgets, and
perhaps you want to travel to a number of exotic
destinations. These are all wants because they are specific
manifestations of your various needs.
Now, if you want something and you actually have the
money to buy it, then this want now becomes a demand.
Demands are wants that are backed by purchasing
power. Without this purchasing power, a want is simply
something on someone's wish list.
A homemaker may aspire for an expensive home water
distillation system. But if the household does not have the
budget for it, then they may just settle for a more practical
and conventional carbon filtration system or maybe just
order jugs of filtered water from the neighborhood
supplier.
What does this tell us? Often, what the market buys is
not a reflection of what they really want, but rather it
reflects what they can afford at the moment.
This is quite evident in the sad reality that in many poor
households, proper nutrition is compromised when the
parents substitute low-cost instant noodle packs for more
nutritious fare. Thus, “beef bulalo” flavored instant
noodles, for instance, becomes the viand instead of an
actual beef bulalo. This allows the parents to stretch their
meager budgets, but it comes at the price of their children's
nutrition. They may want the real thing but due to limited
finances, they opt for the more “imaginary” fare and this
is where their demand goes to.
Your Wants vs. Your Budget
Our wants tend to be quite sophisticated (and expensive)
compared to our actual needs. We need food, but because
we need sustenance, safety, and social acceptance, we
want to eat at a pricier restaurant even if we could have
just as easily appeased our hunger with a cheap sandwich.
We need to communicate, but because we also need self-
expression, we want a highend smartphone rather than just
a basic cellphone.
However, there will always be a price to pay for the
choices that we make in our purchases. For instance,
wanting to buy a 20,000-peso phone instead of a 5,000-
peso model gives you a higher-end phone, but you also
lose 15,000 which you could have otherwise used for other
matters. That represents a loss of 15,000 from your
savings, for example, or 15,000 that could have been put
in a fund for the purchase of your future car.
This doesn't necessarily mean that you should not want
a higher-end phone. But it helps for you to know the
consequences of your purchase decisions. Money placed
into one thing means money lost from purchasing
something else. It helps to be very clear about your
priorities then. What do you prioritize the most in your
life? The sooner you know your priorities, the better off
you will be as you will tend to channel more of your
finances toward priority matters rather than spend them
now on possibly impulsive purchases.
So the next time you find yourself about to buy
something, stop for a moment and review your purchasing
process. You have the purchasing power to acquire that
something. But what are the needs that propelled you to
select this particular item in the first place? What would
you really have wanted if you had the budget? What needs
would that have satisfied, and what will you forego by
buying it now?
The Science of Persuasion
https://goo.gl/AzJBPW
Learn about the six shortcuts that guide human
behavior. This video gives terrific insights on what
motivates people to do what they do.
The New Beverage Project

Your group is to design a new beverage for the
consumer market. It can be anything— cola, tea, juice, or
alcoholic—but the most important element that you would
want to focus on is its ability to address the needs that
particular consumers may have. Present your product
proposal and explain what needs you seek to address.
Presentation time: an estimate of 5 to 10 minutes per
group.
How well did your group resolve a market need?

1. Can you now give your own ☐ ☐
definition of marketing?
2. Do you now know why ☐ ☐
communication is essential in marketing?
“product“ is?
Exercises
Name:_________
Section:________
Date:__________
I. Discussion
1. Give two examples each of popular brands across
these three different categories: (a) sneakers, (b)
automobiles, and (c) junk food. For each of the
identified brands, what emotional need does each seeks
to satisfy? Discuss, critique, and analyze.
Sneakers Need satisfied How/Why
2.
Automobiles Need satisfied How/Why
3. Think of a very expensive product that you aspire to

have. Assuming that you do not have the budget for
this, think of a cheaper alternative. Now, imagine
buying this cheaper alternative and having it with you
right now. Are you happy with it? Are you contented
with it?
Aspirational product
More economical alternative
How do you feel about having the more economical alternative? Explain your
feelings.
4. Imagine now finally having the budget for buying

the original expensive item that you wanted. Will you
still buy it even if you already have the cheaper
substitute? Go through your decision process point-by-
point.
Will you still buy the expensive item?
If yes, why?
If no, why not?
What needs are you actually satisfying

Knowing what you know by now
1. Explain why there is a multitude of different types of
shampoos in the market shelves, many of which are
from the same manufacturer.
2. Speculate on how specific products can

communicate their effectiveness in satisfying a
particular need. Use a popular brand of product as an
example.
3. Discuss how much a consumer must spend in order

to satisfy a particular need. Is a need ever satisfied, or
will the state of felt deprivation last for life? Simulate
this by using a hypothetical character who has
particular needs.
LESSON 3
MARKETING
ORIGINS,EXCHANGE,AND
VALUE
1. understand the evolution behind the principles of
marketing; and
2. know the difference between marketing and
nonmarketing-based sales techniques.
1. Using your own words, define evalue. Try to really

go as deep into its meaning as you can.
2. Give three examples of what you believe to be are
valuable products and explain why you think these are
valuable.
a.
b.
c.
The Origins of Marketing

There is a proper way to sell.
Marketing as we know it today (or as you will know it
through this course) is a fairly recent development in the
world of business. To fully appreciate how it came to
being, it will be useful to see how the stage in a market's
maturity affects how businesses can best sell to the market.
Stage 1. Supply <Demand
When the supply is less than the demand, manufacturers
generally have no problems selling whatever they
produce. This is what is typically called a sellers' market
and the sellers have the upper hand in these situations. The
market is hungry for the product and has the disposable
income to pay for it.
If your objective was to be the biggest and market
dominant force, then you would want to take advantage of
such situation by scaling up your production as quickly as
possible in order to take as much of the market as you can.
You will want an emphasis on capacity maximization,
whether it is through your own manufacturing or through
strategic partnerships, along with an emphasis on
expanding your distribution as swiftly as possible. The
mindset behind this is that the demand is there, so you just
have to produce as much of your product as you can in
order to meet it. This mindset is called production
orientation.
Brands like Lucky Me! Instant Noodles and CD-R King
began by aggressively rolling out affordable products as
widely as possible. Low price and wide availability were
seen to be the keys to dominating the market.
Stage 2. Supply <Demand, Competition Growing
The entry of competitors in a potentially huge market
space generally leads to innovations as challengers strive
to make their offerings different enough. Improved
quality, new and better features, better comfort, and better
design—all of which are undertaken with the hope that the
product will speak for itself and that consumers will
choose your products based on the merits of your wares.
This mindset is called product orientation and it is often
colloquially referred to as “building a better mousetrap."1
Many passionate entrepreneurs operate this way,
sincerely believing that if they can make the best product
out there, then the market will come storming into their
doors. It does not always work but when it does, it is often
driven by strong word-of-mouth. In today's climate of
pervasive social media utilization, well-thought-out
products that receive a lot of online endorsements can do
very well. It does not always happen though.
The phenomenon of Maginhawa Street, situated near
the University of the Philippines in Quezon City,
becoming an oasis of must-try food places was largely
built on a strong word-of-mouth.
It is mostly shared via social media sites such as
Facebook and Instagram. Food places here strive to be
interesting. In return, social media netizens get something
to share on their timelines when they visit.
Stage 3. Supply >Demand
When businesses begin to crowd into a limited market
space, then competition can get quite fierce, especially if
the businesses are not particularly savvy in either offering
least cost options or in differentiating their products. In
such cases, it is the sales force that may best come to the
rescue. The sales force becomes the front liners who take
matters into their hands and push the products directly to
the customers. Using sales organizations to push your
product is called sales orientation.
When it works, it can work for the benefit of all parties.
Insurance, for instance, is sold this way. Consumers do not
normally look for insurance (it is an example of what is
referred to as an unsought good, which is why the industry
behaves as if supply was greater than demand) and
typically avoid thinking about it. But a sales person who
can properly explain the advantages of a good insurance
policy can effectively make the life of the consumer better.
On the other hand, when it does not work, a sales
orientation can quickly turn into hard selling, which can
be annoying to customers.
With a glut of condominium developments in Metro
Manila, realtor firms have resorted to mobilizing sales
people in malls and other public places, handing out flyers
and begging passersby to consider their projects. It has
come to the point that many shoppers try to avoid these
sales people whenever they could.
Stage 4. Supply >Demand, Customer-centric
Strategies Emerge
As competition becomes fierce, firms soon realize that
a better way to compete would be by prioritizing customer
needs more than their own. When the mindset moves to
this sphere, then this is the starting point for a marketing
orientation.
The marketing orientation begins with identifying and
understanding a particular target market because, to put it
plainly, you cannot please everyone. Are you targeting
men or women? A particular age group? A particular
income segment? What are their interests, attitudes, and
lifestyles? What do they really need?
Products are then designed according to what could best
fit the needs of the target market, priced according to their
typical budgets, sold where it is most convenient for them,
and promoted in a way that best catches their attention.
A well-thought-out marketing strategy could
(hopefully) lead to products that delight customers,
leading them to become loyal patrons who will buy
products from your company again and again. Happy
customers are an asset because they will tell an average of
five people about their delightful experience (Gitomer &
Aun, 2011).
Take note then that this objective of making customers
loyal and getting them to be satisfied repeat buyers is the
end result that marketing seeks to accomplish. If a
customer buys from you just once, then you may attain
your short-term sales targets, but then youstill have the
problem of searching for (and fighting for) your next
customer. On the other hand, if you focus your efforts on
building a loyal customer base, then you will have a
market that practically assures you of regular sales for the
long term. This leads to a more predictable sales and less
anxiety about achieving sales goals in the future.
However, it is a two-way street. In return for their
loyalty, customers expect your product quality to be
consistent, predictable, and reliable. They need to be
assured that you will always provide them with the same
(or better) level of experience as they have come to expect
from the start.
Apple is a case study in successful marketing. It has
built up a near fanatic “fan base” of customers who eagerly
anticipate each and every new product offering. Never
mind that most of its products are made in China or that its
prices are set at a very high premium compared to
competing products. What is important is that they
maintain their products' levels of design excellence,
engineering quality, and legendary ease of use.
This textbook, of course, focuses on the marketing
orientation. Marketing, as it turns out, offers many
strategic advantages for its serious practitioners. These
include the opportunities for building loyal markets,
creating relevant products that directly address customer
needs, and potentially making a difference in the world
through products and services that truly delight the market.
Exchange
If you and your seatmates both have identical-looking
apples, would it make sense for you to swap these with one
another? Probably not, mainly because neither of you
would gain anything out of such a move. Both of you will
neither be better off nor worse off after such a swap and
you would only have exerted effort for naught.
But think about it. What this implies is that the only
reason you would want to exchange one thing for another
is if that the other thing offers more value to you than the
item that you currently have.
The same principle lies at the heart of marketing
transactions. Let us say that you have one hundred pesos
in your pocket. Then you find out that the canteen, that is
a few steps away, is offering food for one hundred pesos.
If you are not hungry, then you will not even consider
exchanging your one-hundred-peso bill for their food. But
as the day goes on and as you grow hungrier, the canteen
food also gradually increases its perceived value.
Eventually, you may become so hungry that in your mind
the canteen food will already be worth more than one
hundred pesos. At that point, it finally makes sense for you
to hand over your one-hundred-peso bill in exchange for
the food.
Because you receive something that in your mind (and
we always emphasize this point) is worth more than what
you handed out in exchange, then in principle you are
better off after the exchange. Meanwhile, the canteen too
is better off after the exchange because they were able to
move their food and make a profit out of it.
Marketing is all about fostering such positive
exchanges. It is imperative that the customers feel better
off after a transaction because otherwise they may feel that
they should have spent their money elsewhere—a feeling
which will prevent them from becoming loyal customers.
What can make customers feel like they are not getting
their money's worth? Consider this example:
You are asked to sell tickets to your organization's
upcoming event. You approach your friend Emma and beg
her to buy a 200-peso ticket from you, even if she does not
really feel like going. After a lot of cajoling and pleading,
she finally buys the ticket. But she is not happy because
you simply took advantage of your friendship to coerce her
into buying.
But wait! Did we not just say that exchanges will not
happen unless a person feels better off after the exchange?
Well, let us view the above transaction using hypothetical
values.
Imagine that Emma refuses to buy the 200-peso ticket
because in her mind it is only worth about 40 pesos
(because she is indifferent to it, but would be interested
only at this price or lower). However, you nag, beg, and
cajole her into buying from you. Because of this,
something else is brewing inside Emma's mind: she wants
to get you to stop bothering her and is now willing to pay
to get you to leave her alone. The longer you bother her,
the higher she begins to value her peace of mind. Soon,
getting rid of you becomes more valuable than 160 pesos
(which is the balance between the 200 peso ticket price
and her perceived value of it). When that happens, she will
throw the two hundred pesos to your face, take the ticket,
and tell you to leave her alone.
The exchange did happen and she did get more than
what she paid for. But it was not about the ticket per se. It
was about her peace of mind. So, the unfortunate effect of
such transaction is now this: she feels shortchanged
because she spent 200 pesos for something which to her is
worth just 40 pesos.
In case it still was not clear, this was certainly not a
marketing-oriented transaction.
To successfully make such marketing-oriented
exchanges happen, it is essential that companies know
what the market really needs. Knowing what the market
truly needs will come from gaining useful insights into
what consumers are really looking for.
For the longest time, wearing tsinelasor flip-flops in
public was considered socially unacceptable. Flip-flop
wearers were in fact ostracized from upscale
establishments, often through signs saying, “No slippers
or sandals allowed.” But this bias was turned on its head
when TSA Inc. brought the Havaianas brand of flip-flops
from Brazil into the local market. The key insight that they
had was that the market was hungry for stylish, high
quality flip-flops that can give them both comfort and
respectability. Suddenly, flip-flops became a viable status
symbol, especially as TSA Inc. wisely priced the brand at
a very high price point which clearly sent the message that
these were no ordinary flip-flops.
Value
What is value? There is of course the literal value that
refers to, say, the suggested retail price of goods and
services in the market. But as you would have seen from
our example earlier, value is also a very personal thing. It
can be very subjective or a function of your personal
condition (such as hunger), experiences, personal history,
social interactions, perceptions, education, and so much
more.
So what gives value to a product?
Consumers generally value a product or service when it
provides them with utility. There are five kinds of
economic utility that can be offered by products and
services:
1. Form Utility. A product, by its very form, saves the
consumer from the effort of having to make the product
himself. A person will value vegetables sold in a market
because it saves her the effort of having to grow the
vegetables herself.
2. Place Utility. The convenience offered by making a
product available around the proximity of the customer
is also valued. Between buying Product X from Store
Y, that is located 1 kilometer away, and from Store Z,
that is located just next door, a customer will perceive
more value in the service of Store Z and will be willing
to pay a little bit more for this convenience.
3. Time Utility. If a firm can offer a product or service
far quicker than alternative providers, the customer will
also value this speed of service. This is why express
couriers such as DHL or Federal Express are able to
charge delivery rates that are several times more
expensive than regular mail.
4. Possession Utility. For some products, mere
ownership is already valued by the customer. This is
especially true for branded items that command a
premium over commodity substitutes. This is also most
evident in auctions where bids are raised based on how
valuable ownership is deemed to be by the respective
bidders.
5. Information Utility. Knowing certain things about
the product can already imbue it with value. For
instance, a recognized brand can instantly generate trust
while advertising helps build the assurance of the
product. On the other hand, quality packaging can also
generate information or inferences among consumers
about the quality of the product inside.
Figure 3. Sources of Value as Product Arrives at Your

Home
When you buy a tube of toothpaste, you may be paying
for the values of (a) someone having to put together the
cleaning agents in a convenient and time-saving package
for your consumption, (b) the convenience of buying it in
a nearby store, (c) the convenience of its easy- to-open
flip-top cover, (d) the fact that it is just there on your
bathroom shelf when you need it, and (e) the peace of mind
from the trustworthiness that you associate with its brand.
Of course, you would only buy this tube of toothpaste if
in your mind its total value to you is worth more than the
actual cash that you shell out for it.
It Is the Little Things: Adding Value without

Lowering Prices
tiny.cc/nb4h6y
Even the tiniest of things can affect a customer's
experience. This in turn can affect the customer's
perception of value. This article from Beyond Philosophy
explains how it is that the little details often drive value in
products and services.
Build a Better Product

Let us go product-centric! Each group shall select a
particular functional nonelectronic or nonelectrical
consumer product. It should be a simple everyday product,
such as a comb, scissors, vegetable peeler, shoes, etc. Then
brainstorm on how to create a better product that will
hopefully revolutionize its product category. Each group
should give their product a catchy brand name as well!
(Can you add electronics to it? Yes, you can but it is not
necessary. Generally, if you can innovate through pure
design alone, it is more impressive than relying on
electronic add-ons!)
group.
How compelling is your new product design?

1. Do you now understand the ☐ ☐
premises behind a marketing orientation?
1. Do you now understand how and ☐ ☐
why exchanges happen?
concept of value in marketing?
Exercises
Name:__________
Section:__________
Date:_____________
I. Discussion
1. Identify a brand, product, or service that currently
operates under the production orientation. Describe the
average buyer of this product as well as his or her
typical profile.
Brand/Product's production orientation
Who do you think the typical buyer is?

Why?
2. Recall a time when you were not happy with a

purchase. Analyze exactly what made you unhappy
about it. Was it the price? The quality? The reality
versus the expectations? Frame your analysis using the
concepts explained in this section.
Product that you were not happy with
Reason/s for this
Why?
3. Explain the concept of sentimental value. What type

of utility is at play here?
1. Assess what it takes for a product or service to
become worthy of a word-of-mouth promotion. What
does it take for you to share something to your peers?
List down the requirements.
2. If you are a condominium developer, can you think

of a better way of selling your developments other than
just fielding sales teams to try searching for potential
buyers?
3. Give an example of a popular product that you
believe is marketing oriented. Explain why you believe
this to be so and note down all the indicators that seem
to prove your point.
Lesson 4
CONTEMPORARY
APPROACHES TO MARKETING
1. have a better understanding on how marketing is
applied in business; and
2. have gathered insights about how to use the
principles of marketing.
1. How does a television network make money?

Describe what you imagine the process to be. Who
should a TV station be negotiating with and what do
you think is most important in such a negotiation
process?
2. What makes a soft drink or similar beverage
attractive to you? List down four attributes that you
would consider and then rank them (with 1 being the
most important).
BEVERAGE ATTRIBUTE RANK
a.___________ __________
b.___________ __________
c.___________ __________
d.___________ __________
The following are two success stories in Philippine

businesses that will help illustrate what the marketing
process is all about. As you read these two stories, take
note how these companies apply marketing strategy to
eventually resolve their respective challenges.
The case of ABS-CBN network.
ABS-CBN is a dominant player among the Philippine
television networks today. But it was not always this way.
In fact, once upon a time, it started life as the least watched
television network in the country!
This is a brief account on how the least-popular
television network transformed into a media powerhouse
and how they used marketing strategy to get there.
In 1986, after the People Power Revolution, ABS-CBN
was practically a reborn TV network having finally been
freed from nearly 14 years of government control under
Martial Law. Immediately, they put together a pool of
local and international television shows and began
broadcasting.
But by the end of 1986, ABS-CBN was the last placer
among the five TV networks back then. It was a severe
blow to the company's pride and they vowed to turn the
tables from then on. In fact, they wanted nothing less than
to be the number one network in the country.
To better understand their circumstances back in 1986,
it would help to understand the environment then. For one
thing, cable TV was nearly unheard of. It would be years
before the advent of VCDs, much less DVD players. There
were no mobile phones and home computers were a rarity.
Everybody went to the movies if they wanted a treat (and
air conditioning). Home video was a luxury that was only
available to the upper-income earners (via videotape
players). For much of the country, home entertainment
options were limited to TV, radio, and reading materials.
It will also help to know who the key players were in the
television industry.
These were:
• GMA-7. This television network was the
acknowledged darling of the upper and middle
class. It provided them with quality TV shows
especially top-rated programs from Hollywood. By
all intents and purposes, GMA-7 was the market
leader for the middle- and upper-middle classes.
• RPN-9. This television network was the runner-
up for the middle-class viewership. They also
provided local and international programming that
was similar to that of GMA-7.
• PTV-4. The government network. People joke
that nobody watches its public service
programming and that it only gains viewers
whenever there is a basketball game or a boxing
match. It is because they have broadcast rights to
the games of the Philippine Basketball Association
and regularly bid for the rights to broadcast popular
boxing matches.
• IBC-13. The undisputed market leader. While
GMA-7 dominated the upper-class viewership,
IBC-13 dominated the mass market. It was the
popular channel among the so-called masa, thanks
to its predominantly local TV shows that featured
the most popular actors and actresses.
So ABS-CBN entered an industry that was essentially
dominated by two networks: GMA- 7 for the upper end
and IBC-13 for the broad market. The problem was that
ABS-CBN had no clear identity and no clear message to
tell TV viewers that could answer the question of “Why
should I watch you in the first place?” To get out of this
rut, the network needed to formulate a marketing strategy.
The first step for them was to do a SWOT Analysis.
SWOT stands for Strengths, Weaknesses, Opportunities,
and Threats. It is a way of cataloging the environment that
will allow you to spot potential avenues for strategy
formulation. ABS-CBN first drew up a list of their
strengths, which included:
• Nationwide reach
• Huge financial resources, courtesy of its parent
company
Of course they would also draw up a list of their
weaknesses, which included:
• Lack of clear position or identity in the market
• No loyal advertisers
The basic framework for any marketing strategy is
summarized by the mnemonic of STP: Segment,
Target, and Position. First, identify the available
market segments. Next, select or target the most
promising market segment among the available
options. Finally, position your product to best suit the
needs of the targeted market.
Because ABS-CBN wanted nothing less than
market leadership, they really had only two possible
courses of action: compete directly with GMA-7 for
the higher income class segments or compete directly
with IBC-13 for the broad market. This was the
segmentation phase.
A quick scan of the strengths and weaknesses of these
two competitors revealed that:
• GMA-7 was well managed and cash-rich, which
means that any attempt to compete with them
would be a long and arduous battle.
• On the other hand, while IBC-13 was very
popular with the viewing public, things were not so
good behind the scenes: artists were unhappy
because they were not being paid enough or even
on time, there were a lot of complaints versus the
management and the production quality, so the
shows were pathetic.
Therefore, in terms of which network to target, it
became clear that ABS-CBN would have a better
chance if it competed directly with IBC-13. This was
the targeting phase.
Finally, with a clear market segment to target, ABS-
CBN addressed the key question: What does the broad
market, the masa, want?
The answer came through market research which
quickly revealed a key insight: the broad market watched
IBC-13 simply because their favorite stars were all there.
In fact, this market did not even care whether or not the
TV shows were good or not, so long as their favorite stars
were there. It was a star-oriented behavior. This led to the
final peg in the marketing cycle, the position. ABS-CBN
realized that they had to position themselves as the
network of stars.
Now that the core marketing strategy was in place, it
was time to plan the details and the tactics that would flesh
it all out.
By matching their strengths with the opportunities that
the competitor scan revealed, ABS-CBN soon came up
with a strategy for competing against IBC-13:
• Use its key strength, namely its huge financial
resources, to lure the unhappy stars of IBC-13
toward its own camp with very attractive
compensation packages.
• Use its financial resources to build better quality
programming.
• Relaunch itself as “The Star Network,” the
network that you go to in order to see your favorite
stars.
The strategy worked. Through shrewd negotiations and
promises that they would become stars in their own shows,
ABS-CBN managed to practically siphon all of the most
important TV stars of IBC-13. Soon, almost literally, there
was nobody left in the once-popular network.
As the revamped channel rebuilt itself, it also took
advantage of an opportunity that it had: the ability to ride
on the success of its sister radio station, DZMM, which
was a popular medium for getting news. By turning its
popular radio newscasters into TV news personalities,
they transformed TV news—which used to be a stodgy
and droll affair among all the TV channels—into a popular
infotainment medium. Viewers finally got to see what
their favorite radio newscasters actually looked like. These
newscasters too became TV stars in their own right.
In 1986, ABS-CBN finished the year in last place. By
1987, they became the number two network in the country
and by 1988, they became the number one TV network.
From last place to number one in just two short years. This
was a truly amazing turnaround and it was made possible
through the shrewd use of the principles of marketing.
The case of C2 green tea bottled drink.
The year 2004 saw the rise of a new kind of beverage in
the consumer market. Produced by Universal Robina
Corporation (URC), C2 Green Tea drink was a product
that was unlike anything that the Philippine market, which
was weaned on cola drinks and fruit juice beverages, had
seen until then.
URC had wanted to penetrate the country's huge cola
drink market. However, it quickly realized that there was
no way they would be able to compete with mighty Coca-
Cola or Coke, which was the dominant consumer beverage
of the time. After all, so many others have tried to
challenge the market supremacy of Coke and nobody has
ever come close to even threatening their huge market
share.
The insight that the company came up with: instead of
trying to compete head-on versus Coke, why not build up
a different beverage category altogether? Essentially, they
would compete with Coke by not competing directly with
it. They quickly spotted an opportunity in the form of
bottled tea drinks, which were gaining popularity in China
at the time. While there were already ready-to-drink tea
products in the Philippine market, these were either in the
form of powdered beverages or expensive bottled teas.
URC positioned C2 to be a healthy alternative to cola
drinks. This was a timely message as consumers were
becoming more health conscious, particularly with what
they eat and drink. C2 was brewed from natural green tea
leaves that the company says contain antioxidants—
micronutrient that aids for better health. The beverage
came in 355ml, 500ml, and 1 liter plastic bottles. But what
was very important, C2 was initially priced lower than
Coca-Cola's beverages.
In its first month, URC quickly sold a hundred thousand
bottles of C2. It rapidly built up a loyal following,
especially among a surprisingly large market segment:
people who have stopped drinking cola beverages for
health reasons. What is more, cola drinkers who
discovered the health premise of C2 became eager to let
go of their cola habits, especially upon realizing that C2
also happened to be cheaper as well.
C2 rapidly became a success, often being sold out in
stores and much of this success could be attributed to its
key strategy points which could be summarized as
follows:
• deciding not to compete directly with Coke and
instead make competition irrelevant by producing a
totally different beverage concept;
• targeting a market that was already weary of
cola beverages, a market that turned out to be huge;
• building the product's position around the
message of better health; and
• offering a product that happened to be cheaper
than cola drinks, without necessarily
communicating that it was “cheap.”
C2's success was eventually responsible for giving Coke
its first real challenge in the country for years. In fact, the
impact of C2 on cola sales was so significant that it led
Coca-Cola to aggressively push a new product into the
market, Coke Zero, which was positioned to be a health-
oriented beverage. By then, however, C2 had already built
up the new product category of ready-to-drink green tea
beverages and dominated it with a 75 percent market
share.
C2 in the Philippines
https://goo.gl/VCtkWP
This is a more in-depth account of how C2 Ready to
Drink Tea transformed the Philippine market.
The Radio Station

FM Radio is still very much alive and well in the
Philippines, driven primarily by urban areas and a growing
interest by middle-class markets in talk shows and curated
music programming. It is no surprise that FM radio's
“primetime” happens to be during rush hours in the
morning and in the evening when people are trapped in
their vehicles as they brave the traffic.
Your group is hired to rebrand, relaunch, and to create a
concept for a new FM radio station that is meant to
compete with other stations in the market.
You are tasked to do the following:
1. Identify key competitors that you would be going
against.
2. Identify who your typical target audience will be.
3. Present your station concept, complete with station
ID (the radio slogan), and what will set it apart from
other stations.
group.
How well did your group resolve a market need?
How well did you comprehend the

Yes No
stories?
1. Do you now know why ABS-
CBN had to segment its possible ☐ ☐
markets?
2. Do you now know why it was
important for ABS-CBN to get an insight ☐ ☐
about its target market (i.e., what makes
them watch TV)?
3. Do you now understand how you
can compete by not directly competing as ☐ ☐
seen in the case of C2?
Exercises
Name:___________
Section:_________
Date:_____________
I. Discussion
1. From your understanding, why did ABS-CBN
choose to compete with IBC-13 rather than with GMA-
7?
2. If ABS-CBN did not have the rich financial backing

that allowed it to pirate stars and produce quality
programming, do you think it could still have become
successful? What would have been your alternate
strategy?
3. URC created a new product category instead of

competing directly with Coke. What are the advantages
and disadvantages of this strategy?
1. Discuss why ABS-CBN had to focus on just one
market. Why did it not try to appeal to both the upper
income markets and the broad market at the same time?
2. GMA-7 used to target the mid- to upper-income

markets. Analyze why the TV network eventually
decided to totally change its target market and instead
go head- to-head with ABS-CBN for its broad market.
What environmental change could have prompted this?
3. In 2010, TV5, another TV network, relaunched and

sought to challenge ABS-CBN for market supremacy. It
began by mimicking the old strategy of ABS-CBN
except that, this time, TV5 began pirating popular stars
from ABS-CBN and other networks. However, the
strategy did not translate into any significant success in
the way that ABS-CBN's original strategy did.
Explain what you think was different between the two
efforts.
Asia Brewery: Using Research to Alter a Hundred-
Year-Old Behavior
It was the 1980s and Asia Brewery had a problem. It
had launched its first product, a premium beer called
Beer Hausen and the market had not taken to it. Under
the assumption that the market was perhaps looking for
a more populist beer product, the company next
launched Manila Beer, a beverage with a low price and a
very blue-collar personality.
Still, the market did not bite.
It was time to truly figure out what was wrong. The
management decided to undertake field research. Except
that instead of doing surveys or interviews, they observed
how people bought beer. This was where they made a
stunning discovery.
Because the market leader, San Miguel beer, had been
in the country for a hundred years with hardly any
competition, a typical beer buyer would go to a store and
simply say, “Pabili ng beer” (“I'd like to have a beer”).
Automatically, the shopkeeper will hand over a bottle of
San Miguel beer with no questions asked. It had become
a habitual behavior for both buyer and seller. Nobody
ever bothered to ask for a beer by its brand.
Clearly, it was a behavior that Asia Brewery had to
change. It was a behavior that the company would not
have caught had it not been for its observation research.
You cannot just make a product and sell it in a vacuum.

As it turns out, the environment in which you will try to
sell your product can greatly affect your marketing
strategy. It includes factors such as the nature of your
market, the nature of your competition, the nature of the
playing field, what the up and coming trends are, and how
you can gather information about all of these.
LESSON 1
ANALYZING THE
ENVIRONMENT
1. know the different layers of the marketing
environment; and
2. be able to perform basic environmental analyses.
1. Give an example of a trend that you believe is
happening right now. How can an entrepreneur take
advantage of this trend?
2. Give three examples of promising products that

could have worked here if only the environment was
different. Explain each.
a.
b.
c.
The Marketing Environment

The elements that make up the world around you.
You cannot just launch a product without first knowing
anything about the world at large. In fact, you need quite
a bit of information before you can even begin to roll out
your product idea: information about competitors'
products and strategies, the market and its behaviors,
government regulations regarding your proposed product,
alternative options, economic trends, distributors and their
behaviors, and much, much more.
In short, the first thing that you must do in marketing is
your homework.
The problem, however, is that the world is pretty
complex—with so many things to scan and monitor. It
does take time and effort to analyze each and every
element in it. How would you know which aspects of the
environment are worthy of your attention? This lesson will
be all about how you can simplify the process of
environmental scanning by focusing on the most essential
areas for assessment.
We first begin with a breakdown of the primary
elements that make up our business environment:
Figure 4. The Components of the Business Environment

The internal environment refers to the business itself:
what you are selling, how your organization is set up, what
your organization's strengths and weaknesses are, what
your resources happen to be, what your company's core
values and mission are, and essentially anything about
your company that matters.
Why would you need to know all of these? It is because
you would want to determine what resources you will have
at your disposal in order to properly select a fitting strategy
for selling your products. For instance, if an assessment of
your company's internal environment yields the realization
that it has poor working relations with retail distributors
but happens to have a strong workforce, then you may
decide to simply sell your products directly to customers
rather than going through retail establishments.
Here is a checklist of things that you may want to assess
in your company's internal environment:
• Company cash flow. How much money does it
have and how much does it expect to flow in over
time?
• Organizational structure. What personnel are
available and who is accountable for marketing
initiatives?
• Assets and other resources. What property and
equipment would it have access to?
• Strategic alliances. Which entities
(organizations or influential individuals) do the
business currently have good working relations
with?
• Products and services. What products are
already being offered, if any?
The competitive environment, on the other hand,
refers to the immediate industry in which your company is
doing business. If you are running a bank, for instance,
then your competitive environment may consist of all the
competing bank branches in your territory and possibly
even substitutes such as pawnshops and even sketchy loan
sharks who lend money to small entrepreneurs in your
area.
Here is a checklist of what to look out for in your
competitive environment:
• Competitors. Who they are and what their
respective strengths and weaknesses may be.
• Competing products and services. What these
are, what their target markets are, and what their
respective strengths and weaknesses are.
• Substitutes. What alternative products or
services your markets might be considering rather
than your core product.
It should be noted that while competitors tend to get the
bulk of our attention, history shows that it is often the
substitutes that end up doing the most damage in an
industry. Here are some examples:
• It was not competition that decimated the
newspaper publishing business but the Internet
which became a preferred source of information.
• It was not competition that brought down the
demand for beer but rather the mass market's shift
toward cheaper hard liquors such as gin and
whisky.
• The local music publishing industry was
ravaged by the shift toward digital formats such as
MP3s and followed by music streaming services.
Michael Porter's classic 5 Forces Model (Porter, 1979)
is a popularly used framework for understanding the
competitive structure of an industry.
Figure 5. Porter's Five Forces Framework of

Competitive Forces
The above model implies that it is not just rivalry from
competitors that threatens a firm's existence, but even its
suppliers, buyers, new players, and product substitutes. In
fact, Porter notes that the buyers and the suppliers can be
potential entrants themselves.
The risk faced by a firm due to its competitors is the
most obvious form of operational risk. Competitors can
spend large sums of money to steal market share from the
firm or even alter the market's perceptions about the firm's
products.
A firm also faces risks from new entrants possibly
joining the industry, especially if the industry offers
attractive growth prospects.
A firm also faces risks due to substitutes that threaten
to steal market share from its industry.
The firm's own suppliers can pose a threat as well if the
firm is too dependent on these suppliers and the suppliers
know it. The suppliers can decide to increase their prices
or to even becomepotential entrants to the industry as
well.
If the firm is too dependent on its buyers, the buyers
may sense this. They might band together and threaten the
firm through additional demands. Buyers may also
become potential entrants into the industry if they feel that
entering the industry is a simple matter after all.
The internal and the competitive environments form
what is often referred to as the microenvironment of a
business. But looming even larger would be the macro
environment, which is composed of environmental
variables that are typically beyond the control of any
organization.
There are far too many elements in the macro
environment. That is why there are mnemonics which can
help break down this complexity into more digestible
parts. One of the most popular mnemonics is PEST, which
stands for:
• Political. What are the different pieces of
legislation, including tax rates, that affect the
business? How likely is it for the government to
intervene in the industry? How stable is the
working environment in terms of political stability
and overall predictability?
• Economic. Is the market growing or shrinking?
What is the savings rate of the population, and how
is the employment situation? Is consumer spending
increasing or decreasing? Do people feel that their
quality of life is improving? How volatile is the
exchange rate, inflation, interest rate, and other
essential indicators?
• Social. Is the population growing or shrinking?
Is it aging or is the broad demographic getting
younger? What are their interests? What are the
lifestyles that they lead? How do the markets
behave, especially in terms of assessing and
consuming your industry's products?
• Technological. What are the new technologies
that are changing the business landscape? What
new ideas are gaining momentum? What new
products and practices could threaten to make your
current business obsolete?
Going through the different elements above is what is
called a PEST analysis. It manages to cover quite a lot of
what is essential to monitor in the macro environment.
In the end, environmental scanning is all about
identifying important trends in the environment. Why
trends? It is because trends become the reality of the near
future. Since it also takes time to mobilize a new product
concept, you would want your product concept to be
viable in the near future where it belongs.
Sample trends:
• The continuing growth of smartphone
penetration.
• The continuing growth in credit card usage.
• The movement toward a higher value
information-oriented jobs.
• The growing presence of multinational
franchises even in nonfood industries.
When the do-it-yourself home improvement craze hits
the United States, Armstrong World Industries, a
manufacturer of tiles, decided to take advantage of the
trend. From simply manufacturing tiles and shipping these
to hardware shops and installers, it created a more retail-
friendly product in the form of boxed tiles that came with
friendly instructions and all-in installation kits.
Of course, certain trends may be irrelevant to certain
industries. For instance, smartphone ownership may not
mean much to tree farmers, but it will be a pretty
significant indicator for the banking industry that is
concerned with ramping up mobile access to its services.
Knowledge of relevant trends can lead to insights into
possible opportunities and threats to a firm's operations.
What are the trends that your business can take advantage
of? What are the trends that can eventually threaten its
operations?
Trends versus Fads: What is the Difference?
Is there a difference between a trend and a fad?
In their book The 22 Immutable Laws of Marketing, Al
Ries and Jack Trout (1994) explain it this way:
“A fad is a short-term phenomenon that might be
profitable, but a fad does not last long enough to do a
company much good. Furthermore, a company often tends
to gear up as if a fad were a trend. As a result, the company
is often stuck with a lot of staff, expensive manufacturing
facilities, and distribution networks… When the fad
disappears, a company often goes into a deep financial
shock.” (p. 143)
You would want to ride on trends and not just on fads
because fads do not last. Trends, on the other hand, are all
about momentum: it is where the market is going for the
long haul. That is what is worth investing in.
The external environment, however, includes the matter
of cultural and socio-cultural factors that play a key part in
determining the tastes and preferences of consumers and
to which companies need to cater to.
Why has not mouthwash taken off in India? Mouthwash
manufacturers, including big brands such as Listerine,
have tried to penetrate the Indian market but to little avail.
It turns out that Indians perceive mouthwash to be a
therapeutic product rather than a preventive one—if you
used a mouthwash, then maybe it was because you had
some oral health problem. This perception was so
pervasive that most sales for mouthwash were via doctors'
prescriptions while over-the-counter sales languished. To
make matters worse, gel toothpastes and mint candies
already owned the “fresh breath” benefit category, thereby
making mouthwash further irrelevant to the average Indian
consumer.
This is an example ofhow a macro environmental factor,
like perceptions about mouthwash and oral care in general,
can severely constrain the workings of an entire industry.
Post-Demographic Consumerism in Asia

https://goo.gl/3byVWh
This report by the FBIC Group lays out the consumer
attitudes, opinions, and lifestyles that are now becoming
the norm in Asian countries for the years to come.
Apply the Five Forces

Your group is to describe the competitive environment
of the local magazine industry using the elements of
Porter's Five Forces model. Who are the competitors?
What are the substitutes? Say something about their
suppliers (think of their operations and raw materials) and
buyers (think about subscribers and casual buyers). The
biggest points go to those who can derive deep and eye-
opening insights about the industry through their analysis.
group.
How well did your group assess the industry?

YES NO
topic?
1. Do you now understand the
elements of the so called ☐ ☐
microenvironment?
2. Do you now know how to assess
the macro environment using PEST ☐ ☐
analysis?
3. Do you now understand why
environment analysis is done in the first ☐ ☐
place?
Exercises
Name:_____
Section:_____
Date:_____
I. Discussion
1. What other elements of a company's internal
environment could you think of that would be important
to analyze?
2. What are the environmental variables that a small
corner barbecue stand should be most interested in?
Environmental Variables Why
3. Why should a company be concerned about
substitutes and potential substitutes?
4. Give examples of products and their potential
substitutes.
Product Potential Substitutes

1. Describe the kinds of firms that may survive even
without having to do much environmental scanning.
2. What is the difference between an opportunity and a
threat? Cite examples of these for a particular industry.
3. Now turn the tables around: can you cite examples
where the opportunities you mentioned above can
become threats, and the threats you mentioned above
can become opportunities? What does this tell you
about the nature of opportunities and threats?
LESSON 2
MARKET RESEARCH METHODS
1. know the components of a marketing information
system; and
2. be able to put together a market research plan.
1. State an observation about how people behave when

they are buying or using a particular product. Ideally, it
should be something that you think not too many people
have noticed.
Product:
Observation:
2. You are assigned to gather information about how

much total sales your competitor (let us say a
manufacturer of beauty soaps that is sold in
supermarkets) is making per month. The problem is that
there are no published materials available on this. Come
up with three creative ways by which you may be able
to estimate your competitor's total sales figures.
a.
b.
c.
The Marketing Information System

How do you keep track of your environment on a regular
basis?
In the previous section, we discussed why it is important
for a business to scan its environment. Now we shall see
how we can set about doing it.
If you are a micro-sized enterprise, such as a single
proprietor who runs a corner barbecue stand with just one
or two employees, then you may not quite have a budget
to spare for assessing the environment around you. You
cannot, for instance, afford to hire professional
researchers. So how do you set about assessing, for
instance, the performance of a competing barbecue stand
across the street? You may have to do it yourself, perhaps
via personally gathering information through observing
the store or even through buying from them to try out their
product yourself.
While those are valid methods for gathering
information, you may want to avail more sophisticated
methods as your organization becomes larger and more
formal. In fact, you will want to institutionalize the
information gathering process so that it becomes a regular
duty, responsibility, and protocol for the business. This is
where having a more formal system comes in.
Figure 6. A Company's Market Information System

The Market Information System (MIS) is the people,
equipment, and procedures used to gather, sort, analyze,
evaluate, and distribute needed, timely, and accurate
information to marketing decision-makers. The
components of a market information system are:
• Internal Records. This refers to documents in the
company's Order-to-Payments cycle, such as invoices,
shipping orders, etc. It also avails documents and
resources that comprise the sales information system, such
as sales forecasts, information from sales personnel, and
information culled from automated sales system.
Many businesses are sitting on gold mines of
information without even knowing it. Client records, for
instance, may contain purchase histories that, if properly
analyzed, can produce patterns which can be useful for
determining seasonality in buying behavior. In fact, a lot
of customer insights can be generated by analyzing
customer records in bulk using computer programs to
extract these patterns.
How can you gather a lot of data from your clients? By
encouraging them to provide as much information as
possible. The SM chain of department stores, for instance,
offers the SM Advantage Card that is packaged as a
loyalty card for its clients, but is actually a means of
gathering information for data analysis. SM knows the
customers' age, address, and socio-economic class based
on the application forms submitted. The department store
then tracks the customers' buying histories (because
customers are encouraged to hand the card over during
purchases), with records of what they buy, when, and how
much.
In sophisticated data analytics systems, the buying
behaviors of huge numbers of people are processed so that
the systems can “learn” new insights about how customers
behave. In a celebrated case, US retailer Target actually
knew that a customer was pregnant even before her own
family did based only on the items that she recently
bought, none of which were obvious indicators. Their
system was able to study patterns of behavior from its
databank of hundreds of thousands of customers. By
comparing her purchases with theirs, the system was able
to infer that she just discovered that she was pregnant!
(Hill, 2012)
However, such systems can be very expensive and
beyond the reach of small enterprises. But the next best
thing could be simple computer-based systems that are
sensibly set up such as spreadsheets that record as much
customer information as possible, along with their buying
histories. As a rule, it pays to record as much information
as possible—the processing can follow later on.
• Marketing Intelligence. The set of procedures and
sources used by managers to obtain everyday information
about developments in the marketing environment. This
includes newspapers, intermediaries, social networks,
trade conferences, suppliers, ad agencies, the reverse
engineering of competitor products, published reports,
purchased information, etc.
In layman's terms, intelligence is gathered by simply
“putting yourself out there.” Having a network of people
and sources of information in the right places, in general,
is the easiest way to get potentially useful knowledge.
Being part of the right social network of friends or groups
on Facebook, for instance, can lead to getting a potential
useful insider tips faster than your competitors can.
Encouraging your sales team to do small talk with clients
is often a quick way to gather insights about what their
future needs are.
More extreme cases of intelligence involve going
through a competitor's garbage to piece together a picture
of what they are working on (because once the garbage is
outside their premises, it is no longer considered as private
property) or pirating employees from one's competitor in
order to have a direct access to first-hand knowledge of
how they work.
Because of its nature, however, the value of intelligence
cannot be predicted. Sometimes your network can deliver
and produce valuable information, but oftentimes it is
more likely to provide information of questionable value
that is more akin to gossip. Nevertheless, you will likely
still be better off having the network in place than not. The
only way to manage intelligence, in order to maximize the
probability of getting useful information, is by increasing
the reach of your network as much as you reasonably
can.If your sales force has very good relationships with
their distribution partners (supermarkets, groceries, etc.),
then these partners may go so far as to inform them
whenever a competitor is about to do something new—
such as a new product or a new promotional gimmick.
When Unilever's Vaseline 2-in-1 soap was launched in
the market with a “three- pid,” three-soaps discount pack,
they were surprised by the immediate appearance of a
similar three-pid pack from chief competitor Safeguard.
Clearly, Safeguard was able to get wind of the Vaseline
product launch from its own extensive intelligence
network!
• Market Research. The systematic design, collection,
analysis, and reporting of data and findings relevant to a
specific marketing situation facing the company. This
includes taking surveys or conducting exploratory studies
of a market.
Market research is scientific in nature, utilizing the
scientific method to gain insights on how to solve real
world problems. In this case, problems usually involve
resolving questions about how to best provide value to
customers or about understanding how consumers behave.
Research Process
Market research is primarily concerned with
understanding the nature of a market. Some of the
questions that a market research typically seeks to answer
are:
• Who are our typical buyers?
• Where do our buyers come from?
• How big is our market?
• What are our customers' aspirations?
• How do our customers shop and with whom?
• What do our customers buy?
• Why do customers refuse to buy our products?
Figure 7. The Market Research Process

The processes involved in conducting market research can
be outlined as follows:
• Define the Problem and Research Objectives.
The problem should not be defined too broadly nor
too narrowly. In fact, great care should be taken
when defining the problem as this will determine
the very nature and direction of the research.
• Develop the Research Plan. The Research plan
is composed of the following components:
1. - Data Sources. Secondary data involves the
gathering of prior and related research works since
it is possible that other parties have already
developed useful findings on the matter being
studied.
2. - Primary data involves actually undertaking the
research itself in order to get first-hand knowledge
on the matter.
3. - Research Approaches. Research can be
conducted through observation, focus groups,
survey research, behavioral data, and experimental
research.
4. - Research Instruments. These include
questionnaires or mechanical instruments such as
video recorders.
5. - Sampling Plan. This addresses (1) sampling
unit (Who is to be surveyed?), (2) sampling size
(How many people should be surveyed?), and (3)
sampling procedure (How should they be chosen?).
6. - Contact Methods. Contact with the survey
sample could be done via personal or impersonal
means. Methods include the use of mail
questionnaires, telephone surveys, personal
interviews, or the internet.
• Collect the information. This involves the
actual gathering of the data. For surveys, for
instance, this would involve mobilizing a suitable
number of field workers who will then find
respondents according to the sampling plan. For a
research that involves the conduct of interviews,
field workers will have to be trained first to be
responsive enough to properly interact with
respondents.
• Analyze the data. Once all the data have come
in (whether in the form of surveys, interviews,
group discussions, or through electronic means
such as online ballots), the next step involves the
actual processing of the data. Quantitative data can
be processed through software such as statistical
packages, while qualitative data (such as
interviews) can be processed through data
reduction or summarization techniques.
• Present the findings. Once processed, the data
can now become useful information. However, its
usefulness will still be a function ofhow well it is
presented. Quantitative information, for instance,
may best be digested in the form of graphs and
charts so that trends can be more easily seen.
Qualitative data, on the other hand, may best be
presented in the form of clear examples and case
studies.
Research Methods
As a rule, it is generally expensive to collect primary
data. That is why firms with smaller budgets generally
resort to accessing secondary data and extrapolating
conclusions from them.
Observation is best to use when trying to answer
questions involving how a market behaves. Thus,
observation works for situations such as the following:
• identifying which section of a supermarket a
shopper typically visits first;
• finding out how much toothpaste a consumer
applies to his toothbrush per use; and
• determining how long a type of customer
typically stays in a quick-service food outlet.
When questions are pertaining to how consumers
actually behave, direct observation can offer deeper
insights about finer behavioral details that the consumers
themselves may not be aware of or may not be able to
properly elucidate if they were being subjected to more
popular research methods such as in-depth interviews or
surveys.
Market research firm Mustard (2010) has put online a
number of videos that document its observation research
into shopper behavior. Their method involves having a
camera follow a shopper as he or she does grocery
shopping, after which the shoppers then sit down to view
the footage and to directly explain what was going on in
their minds. Among the findings (that would otherwise not
be discoverable via other research methods): shoppers
consider loose-leaf vegetables as “fresher” while those in
plastic shrink-wrap are not as fresh, shoppers do not even
look at the prices when they are set on purchasing a
particular brand, and that colors of packaging can
influence the choice of what products to get.
Survey research is best to use when trying to determine
a market's opinions, perceptions, and basic demographic
data. Surveys are best for situations such as the following:
• identifying discrete factual data such as the
person's age, gender, level of education, place of
residence, occupation, hobbies, etc.;
• knowing a person's opinions about a particular
product; and
• determining a person's likes and dislikes.
Note that while it is also possible to use a survey to ask
questions such as “Which section of a supermarket do you
visit first?"; “How much toothpaste do you apply per
use?"; or “How long do you typically stay in a fast-food
outlet?” consumers themselves may not really know the
actual answers to these questions and may simply resort to
guessing. Therefore, the proof is in their actual behavior.
In other words, observation is still best for these types of
issues.
Surveys are the principal vehicle for conducting
quantitative studies. In other words, if you are after
statistically significant findings, then a well-designed
survey with answers that lend themselves well to data
processing (such as via the use of multiple choice
responses or numerical responses) may be the most
practical recourse.
A word of caution: when asking consumers about what
their preferences are, take their responses with a grain of
salt. This is because consumers do not often really know
what they want or are prone to respond with the answers
that they feel are acceptable rather than how they really
feel.
A major ketchup maker kept getting complaints about
its bottle, so it made a survey. Most of the people
interviewed said they would prefer another type that the
company was considering. When the company went to the
expense of bringing out this other bottle in test markets, it
was overwhelmingly rejected in favor of the old bottle,
even by people who had favored it in interviews. (Packard
2007)
Focus groups are useful for gathering strong opinions
and beliefs from a given target market. Focus groups are
actually a subset of survey research except that, unlike
surveys which tend to be composed of individual opinions,
focus groups are composed of a set of people (belonging
to the same target market) who are placed together in a
closed, controlled environment to discuss a product or
issue with a moderator. The idea here is that by getting the
group to discuss and critique their own opinions, the
resulting answers to questions would more reliably reflect
their reality as compared to answers obtained via surveys
or interviews.
The downside, however, is that focus groups tend to
reinforce any commonalities in the group's opinions,
leading to “sensationalized” findings. Moderators of focus
groups should therefore be skilled in analyzing the entire
process in order to weed out questionable findings and
extract information properly. To this extent, a key critique
about focus group studies is that its output and quality is
too dependent on the skills of the moderator.
Experimental research is a means of answering a
hypothesis through the use of an experiment. While the
bulk of Philippine market research efforts typically
gravitates toward the use of surveys and field interviews,
experiments are an under-appreciated method for
validating issues of causality.
Example
Situation: In the 1950s, Nescafé was struggling to sell
instant coffee because the American market refused to
buy and instead preferred to brew their coffee.
Hypothesis: Housewives were afraid that they would
be perceived differently if they bought instant coffee.
Experiment: A sampling of housewives was shown two
almost identical shopping lists. Among the items on list
#1 was brewed coffee (Control).
But on list #2, it was instant coffee (Experiment). The
respondents were then asked to describe the type of
person who made each list.
Result: The person who made list #1 was perceived by
the respondents to be a typical industrious, loving
housewife. But the person who made list #2 was
perceived to be lazy.
Interpretation: Women resisted buying instant coffee
because they were afraid that they would be perceived
as being lazy if they did so. This was a particularly
poignant insight given that, back in the 1950s,
American women were expected to be dutiful and
industrious housewives (Steinman, 2009).
Solution: Nestlé launched an ad campaign emphasizing
that housewives should buy instant coffee because the
time saved by not having to brew coffee means more
quality time for their family. The subtext of this
message was that it was perfectly acceptable to buy
instant coffee because you love your family. It worked.
Instant coffee sales zoomed from then on.
Bias
An important issue to address in market research is the
matter of bias. Bias is the tendency of data to skew toward
a particular direction. It is normal for any research to have
a certain amount of bias, but it is the job of researchers to
minimize bias to the best of their abilities.
Bias is normal for researches because, by definition, a
sample is a small portion of a population that tries to
explain the entire population but this sample may not
perfectly represent the population. Aside from this, the
process of research itself can introduce biases as well.
Example
A survey is conducted and the question is “Do you
actually think that Brand X is better than Brand Y?” In
such a question, the word “actually” becomes a loaded
word that may bias or influence respondents toward saying
“No” due to its subtle intimidation.
Other examples of biases:
• Phone or online interviews. Respondents may
not take these interviews too seriously because of
the lack of actual contact.
• Mail or email surveys. Only a particular kind
of respondent may be motivated to actually mail
the surveys back.
• Questions regarding income. Respondents
may either not actually know what their incomes
are or post a different figure due to fear of
divulging such a personal bit of information.
How Companies Learn Your Secrets

http://goo.gl/aAzZgF
A fascinating look at how companies are using
statistical methods to figure out things about their
customers that the customers may not even know about
themselves!
The Observation Exercise

Each group shall identify a retail establishment and seek
to answer the question of “How do people buy ___?” Each
group will determine what product or service they will
want as the subject of their observation.
The group will then observe the way that customers
shop, taking note of interesting behaviors and observable
patterns. Possible questions to resolve include: How old is
the typical shopper? Who do they tend to shop with? How
do they typically shop and select? How do they pay? What
is their mood based on their facial expressions?
Best grades go to those who manage to uncover
interesting insights about the observed customers.
group.
How well did your group discover new behaviors?

YES NO
topic?
1. Do you now know the elements ☐ ☐
of marketing information system?
2. Do you now know the difference
between market research and market ☐ ☐
intelligence?
nature of research bias?
Do you now understand the nature of research bias?

Exercises
Name:_______
Section:_______
Date:_______
I. Discussion
1. What can a survey do that an in-depth interview
cannot?
2. Conversely, what can an in-depth interview do that a
survey cannot?
3. What are the possible biases that a focus group
discussion can be prone to?
1. Assess what may be the best research methodology
for identifying the likes and dislikes of an individual
consumer. Survey, interview, or others? Explain.
2. Design a research plan to identify how teenagers
typically spend their weekday evenings. Identify as
many possible biases as possible that you feel your
research plan can become prone to.
3. Design a cost-effective plan for observing how
people shop for groceries. You need to observe at least
1,000 shoppers and it should be done throughout a day.
Remember that cost is a primary concern.
Define your shoppers (i.e., male and/or female, socio-economic class, general
location, when do they shop, etc.)
Based on the above, define and/ or identify the groceries that you will observe in.
Make sure that there will be no bias in your selection process.
Describe how you would determine your observation strategy. Will you observe
anyone and everyone in the selected stores? How would you minimize bias in your
observation process?
LESSON 3
DEMAND FORECASTING
1. know the different market categories; and
2. have essential skills for estimating market demand
both for existing and new products.
1. Discuss a product that you thought would do well

but did not. What made you think that it would do well?
What do you think happened?
Product:
Why did you think that it would do well?
What do you think happened?

2. Give your best estimate on how big the market size
might be for the following products and state your
reasons why. You can look up potentially useful data
(such as population figures).
1. Total viewership of GMA News TV
nationwide:
2. Percentage of people who read Philippine Daily
Inquirer newspapers every day in Metro Manila:
3. Number of people who eat at Chowking almost
every day in Cebu City:
Measuring and Forecasting Demand
The difference between a guess and an educated guess is…
If you have a new product idea in mind and you are
intent on putting together a business to bring it to the
market, then one of the first things that you need to know
is how big your potential market would be. If you over
estimate the market size, then you may end up investing
far too much into your production and inventory capacity,
leading you to lose money on your investment.
On the other hand, if you underestimate the market size,
then you may end up being stuck with a limited capacity
that will not service the volume of demand, leading you to
lose out on the growth opportunity and, at worst, having
some other business steal potential market away from you.
This is why a careful estimate of the potential market size
can be crucial for ensuring success.
But let us start with the bad news. There is no way for
us to predict the future with 100 percent accuracy (and if
ever you do, then that is just pure luck!). Nobody can truly
predict the future, especially for products that are yet to be
launched.
Below are some examples of predictions that were not
accurate.
• The horse is here to stay but the automobile is
only a novelty,” said an investment banker in 1903
when asked about the viability of investing in the
Ford Motor Company.
• Television won't last. It's a flash in the pan,”
said Mary Somerville, a pioneer of radio
broadcasting, in 1948.
• There is no reason anyone would want a
computer in their home,” said Ken Olsen, head of
business computer firm Digital Equipment
Corporation, in 1977. In that same year, the Apple
II computer was launched, heralding the
phenomenal rise of home computing (Lutz, 2012).
The fact is, predicting the future is purely an exercise in
guesswork. Therefore, properly forecasting demand for a
new product will actually be a matter of making one's
guess as objective, as educated, and as scientific as
possible. Before we get to how to do proper predictions
though, some terms are to be defined first.
The Market
The market for a product can be categorized as follows:
• Potential market. These are those who express
some level of interest in a product. For example,
this can be determined from a survey where, for
instance, 30 percent of respondents say they are
interested in your product. Extrapolating forward,
you may conclude that 30 percent of the population
is a potential market.
• Available market. Just because someone is
interested does not mean that the person will
actually buy or can even afford to. So, the available
market is the subset of the potential market which
has interest, income, and access to the product.
• Qualified available market. This is a further
refinement of the available market since it may be
possible that those who have interest, income, and
access, nevertheless cannot get the product due to
technical issues such as laws (e.g., minimum age
requirements for liquor) or distribution constraints
(e.g., remoteness of their location).
• Served market. Also known as the serviceable
available market. This is the market that the
company can actually service with its current state
of logistics.
• Penetrated market. This is the subset of the
market that is already actively using the product.
Figure 8. Illustrative Sizes of Market Categories

The market demand for a product or service, on the
other hand, is the total volume of the sales that is generated
by a defined customer group in a defined geographical
area, time period, and marketing environment under a
defined marketing program. It is a factual number,
meaning that market demand by definition is something
that has already happened.
Forecasting Demand for an Existing Product
If the firm already has an existing product in the market,
then estimating what the future demand for the product
would be will be a matter of assessing the following:
• Listening to what people say. This includes
salesforce opinions, expert opinion, and buyers'
opinions.
• Assessing what people have done. This
generally involves the statistical analysis of past-
sales data or related data.
Salestorce opinion generally involves getting a
composite or what each sales person, sales team, or sales
unit estimates to be its possible sales volume for the
upcoming period based on past history. For this to work,
the company sales force should be relatively attuned to
their respective clients' needs. If not, then the opinions will
be driven more by blind guesswork than by educated
indicators.
Expert opinions regarding the potential market size and
the acceptability of the proposed product can be taken
from industry watchers or people with experience in the
industry. This can include technical resource people from
the Department of Trade and Industry, industry veterans,
observers, and insiders.
A word of caution about expert opinion: just because a
person is an expert does not mean that this person has the
ability to make reliable predictions about the future. At
worst, this person's guess will only be as good as yours. At
best, using an expert's opinion is mostly a convenient way
of passing on the blame to someone else in case a forecast
goes wrong!
But what makes an “expert” an expert in the first place?
The underlying assumption here is that an expert truly
understands the potential market of a new product, most
likely due to years of experience and exposure to the
market (i.e., the expert understands how the market thinks
and behaves). Perhaps the expert is someone who has done
extensive research on the potential market or has spent
years selling related products to them.
In the end, however, the expert who is asked for an
opinion regarding the potential sales of a new product is
still giving a guess. The only difference is that, because of
the expert's experience, the guess may be a little more
grounded than that of a nonexpert's.
Asking people about their opinions is a form of
qualitative forecasting. More quantitative forecasting
methods, on the other hand, would involve tools such as
time series analysis and regression analysis.
In 2007, it was estimated that 47 million 9-liter cases of
dark spirits (whisky, rum, and brandy) were consumed
nationwide. One million of these cases were of imported
brands. These figures were extrapolated from retail
surveys as there is no industry organization that monitors
total sales.
Furthermore, by calculating the average price of
imported dark spirits versus the average price of local
ones, it was deduced that imported dark spirits accounted
for 11.85 percent of the market in terms of peso revenues.
Time series analysis uses data from previous periods to
forecast the following period's sales. The simplest
example of this is the use of a status quo assumption: if
sales last year were 1,000 units, then expected sales this
year could also be 1,000. More likely, however, some form
of trending analysis would be factored in: if data shows an
average growth rate of 5 percent per annum over the past
three years, then the forecast would be last year's sales
multiplied by a factor of 1.05. More statistically-based
analyses can be performed using statistical software
packages.
Regression analysis is a more sophisticated statistical
method for predicting an outcome based on multiple
possible factors. A regression model works by using
statistical models to determine the correlation between a
hypothetical cause and the effect (in this case, level of
sales), again based on historical data. If a factor is deemed
to have a strong correlation with the effect, then a
regression model—a formula—can be constructed that
hopes to determine sales based on highly correlated
factors. Factors could include economic indicators such as
gross domestic product, the performance of related
industries, and leading indicators (economic indicators
that tend to precede or affect performance in the target
industry).
Forecasting Demand for a New Product
Predicting the demand for a new product is far more
challenging than predicting demand for an existing or
established product. In fact, to be very candid, there is no
clear way to predict the demand for a product that has
never yet seen the light of the market day.
To be even more forthright, forecasting demand for a
new product can be seen by skeptics as an exercise in
futility. There simply is no way to predict the future, so
this is where educated guess-work becomes stretched to its
limits. A common technique for predicting demand for a
new product is through the use of the chain ratio method.
It is a method with a very simple operational logic and
requires simple math abilities. The premise here is that if
you define your target market well enough, then you can
calculate how big this market can be.
Example:
Estimate the demand for a new toothpaste, Powerglow.
Powerglow is initially targeted to appeal to males aged 13
to 18, residing in Metro Manila, and who want to feel like
they are already real men.
A = Number of teenagers aged 13 to 18 in the
Philippines (based on Census)
x B = Percentage of population residing in Metro Manila
(based on Census)
x C = Percentage of males in the population (based on
Census)
x D = Percentage of teenagers who want to feel like
adults (this one is tricky and will have to be based on a
survey research)
Multiply A x B x C x D to produce an estimate of the
potential market.
As seen in the example, the chain ratio method relies on
simple multiplication to fine-tune a market size based on
available data.
Generally, the best way to predict demand for a new
product is to first set up a test market for it—launching
the product in a smaller location and conducting an exact
but smaller-scale market strategy in order to assess the
actual sales that will occur. These figures can then be
extrapolated toward the larger market as a whole.
However, not all firms can afford test marketing.
Will expert opinion work for predicting new product
demand? Again, experts will offer the added advantage of
experience into their analysis, but even then they are not
necessarily reliable.
“There is no chance that the [Apple] iPhone is going to
get any significant market share. No chance,” said
Microsoft CEO Steve Ballmer in 2007. Microsoft was
competing with Apple on several product categories. The
iPhone went on to become the best-selling smartphone in
history.
There are many reasons why expert opinion cannot be
reliable, two of which are:
• The expert is already emotionally invested in an
outcome that he or she wishes for. Therefore, even
when all indicators show otherwise, the expert will
refuse to believe these and instead make a
prediction based on what was hoped for.
• The expert is unaware of shifting industry or
market trends. The expert may base all analyses on
a status quo perspective when, in fact, the
environment has been shifting and changing all
along, rendering the expert's experiences irrelevant
for the prediction.
So, if predicting future demand is such an impossible
task, why even bother doing so in the first place?
The answer: you need to justify the product's existence.
Most likely, you will need to justify why the product can
be a good business to invest in, so that you can raise
sufficient financing from potential investors. The dark side
of this approach, of course, is that product proponents may
zealously seek to overestimate the size of the potential
demand (on purpose), seeking experts who agree with
them (and ignoring those who do not), and “fudging” the
data in order to make it appear as if the product has a huge
potential demand.
There is an alternative approach to relying on forecasted
market demand. It is an approach that is best summed up
by the following slogan: “Start small, scale fast, think
big.” It can also be referred to as the strategy of
incremental growth.
Incremental Growth
Entrepreneurs want to have an idea about how big the
demand could be for their product so that they can plan
how much to invest for their operations, logistics, and
working capital requirements. But if the entrepreneur only
has a limited pool of capital to invest, then a practical
alternative will be to simply start small initially and then
build up capacity as needed.
The process can be outlined as follows:
1. Start small, producing small quantities of the product
at first.
2. Test the market's reaction and if the demand has the
potential to grow.
3. If a favorable market response is detected, scale fast
by immediately investing in additional production
capacity in incremental and manageable steps.
The advantage of the above strategy is that financial
risks are minimized since a failed product would mean
minimal capital exposure. The disadvantage, however, is
that if the product turns out to be a huge success, the firm
may not be quick enough to generate a capacity size that
can maximize cost advantages or, worse, the firm may be
crippled by an innate inability to satisfy demand (which is
an opening for competitors to come in).
In the end, regardless of what the forecasts say, an
effective marketing manager is someone who manages
demand proactively: if plant capacity is too big, then the
marketer's job is to find ways to increase the demand for
the product.
How to Forecast Demand

http://goo.gl/nM5tRs
This is a compact, easy to read presentation about the five
different methods for forecasting demand.
Estimate Demand
Identify a food place that is very close to your school. It
could be a food cart, a small takeout stall, a diner, a quick
service food place, or a fine dining restaurant. Do a site
visit so that you get to see the place in action—what the
menu items are, who tend to visit, etc.
Your group will now try to estimate how much sales it
generates per month without asking the personnel at the
food place. Construct a methodology for estimating
demand, which will likely involve using the chain ratio
approach, observations, and some calculation. Discuss
your methodology then produce an estimate of the
monthly revenues for the site.
Bonus: After doing the above and having your own
estimate, approach the food place and ask them if your
figure comes close!
group.
How well did your group estimate the demand?

YES NO
topic?
challenges in forecasting demand?
2. Can you now forecast demand ☐ ☐
using the chain ratio method?
limitations of relying on expert opinion?
Exercises
Name:_______
Section:_____
Date:_____
I. Discussion
1. What are the reasons why experts may fail at making
predictions?
2. What problems do you see with using the chain ratio
method for predicting demand?
3. What are the possible limitations of the incremental
growth strategy?
1. Explain why you cannot exactly rely on statistical
methods to predict long-term sales for your products.
2. If you were to be proactive, what are some ways by
which you can increase the market's demand for your
product?
3. How would you use the chain ratio method if your
market was defined in very abstract terms, such as by
lifestyle or opinion, terms which are not available via
census data?
Clear Scalp Shampoo: Powering Up an Underserved
Market Segment
In what was to become a case study for effective
product launches, Unilever's Clear became a successful
shampoo product almost immediately upon its launch
(Capell, 2008). It was accomplished by focusing primarily
on what was then a relatively quiet and complacent
market segment: dandruff control for men. In an industry
where nearly all the brands focused on women, this
became a strategic opportunity for significant growth. It
was not the first brand of shampoo to target this segment
(P&G's Head & Shoulders was a dominant brand here),
but the segment was relatively stagnant at the time with
Head & Shoulders simply running on momentum.
Clear was launched with an aggressive marketing
campaign that caught P&G by surprise. The product
suddenly rekindled interest in the segment, reenergizing
it, and giving men the kind of “masculine” shampoo that
they had been searching for.
While Clear would eventually expand to women's hair
care as well, it was still predominantly associated with
men's hair care, which was a substantially less crowded
market versus the very saturated women's hair care
market.
Perhaps if you are the only product in the market, then

everyone in the market will accept you. But sooner or
later, some other product will arise that will satisfy better
the needs of certain segments of your market based on
their distinct tastes and preferences. This chapter covers
the matter of market segmentation and how consumers
behave, whether they may be individual consumers or
institutions that are looking for industry partners.
Lesson 1
CONSUMER BEHAVIOR
1. know the factors that affect consumer behavior;
2. understand how socio-economic class affects
purchase behavior;
3. understand the different buying roles; and
4. know the different kinds of buying behavior.
1. Describe the process involved in a recent purchase
that required a lot of deliberation (such as a mobile
phone, a book, shoes, etc.).
What led you to consider purchasing the product?
Who were involved in the decision-making and how?
Did you shop around? If so, how many shops did you go
to? List down their names.
What factors led you to select the product that you bought?
2. Give three examples of products that you would buy

without much thinking.
a
b
c
Is there anything that the above three products have in
common? What is it?
Factors That Affect Consumer Behavior
We are all black boxes that process environmental inputs
to make our decisions.
The way that we perceive, react, or are affected by
products and services is a function of a host of factors. The
following are factors that tend to have an effect on
consumer behavior:
1. Culture — culture, sub-cultures, and social
classes. This refers to the general or overall culture of a
group of people. For instance, there is a thing called as
Filipino culture, but there are also distinct cultural
behaviors within and among sub-cultures of the Filipino
culture. Ilocanos or those from the Ilocos region have
slightly different priorities, core values, shared
histories, and even language compared to, say,
Cebuanos or people from Cebu. These differences,
however, lead to distinct market segments that may
even manifest distinct tastes and preferences for
products and services.
2. Social factors — reference groups, family, roles,
and status. This is all about the norms of behavior
among even smaller groups, namely the social groups
where a consumer belongs to. People tend to want to
behave in the same manner that their peers do so that
there is an established (albeit likely unwritten) code of
conformity among them. The market may also look up
to certain aspirational groups whose behaviors they
seek to emulate and may even look down on certain
groups that they want to dissociate from. All of these
affect the market's behavior in terms of deciding on
what they should wear, what they should eat, who to
aspire to be like, where to go, and more.
3. Personal factors—age, life cycle stage,
occupation, and economic circumstances. Aside from
external social factors, the demographics of the
individual also affect the manner by which products and
services are viewed and treated. The taste and
preferences of younger people will be different from
that of more senior individuals. Men and women tend to
look for different things on many types of products.
Disposable income defines what people can and cannot
buy, while physical location limits access to services.
4. Psychological factors — motivation, perception,
learning, beliefs, and attitudes.This is how an
individual behaves and behavior is a very intimate
thing. It is the result of how we are raised, who we
interact with, what our histories are, and much more.
This includes our personal preferences (Crunchy cereals
or soft? Classical music or rock?), opinions, and overall
behavior.
Culture, for one, can heavily affect product design and
marketing. Often, because we believe so strongly in the
wisdom of our “crowd,” we do not even bother to step
back to assess whether or not our beliefs are in fact sound.
In South Korea, there is a very pervasive belief that
leaving an electric fan running with the windows all shut
can cause serious physical harm or even death. Even with
the absence of scientific proof to verify this and with the
rest of the world not believing this, South Koreans are so
convinced of this fact that electric fans must have auto
shut-off timers on them or else they will not be sellable.
(McRaney, 2013)
In all, there are quite a huge number of factors that affect
consumer behavior.
To discuss all of these will be far too comprehensive,
but two sets of factors in particular bear more in-depth
discussions.
Income vs. Socio-Economic Class
First of all, there is income, which is a personal
demographic factor, and then there is socio-economic
class, which is a social factor. While these two may seem
to refer to the same thing, they are quite different. Income
is a factual number. It answers the question of “How much
do you earn?” or more commonly among researchers,
“How much is your household family income?”
On the other hand, socio-economic class or SEC is an
indicator of the kind of group that a consumer feels he or
she belongs to. It is a social factor in the sense that it
reflects the consumption reality that the individual
strongly believes in. For instance, those who belong to the
country's upper socio-economic classes may firmly
believe that having a car is a nonnegotiable necessity. But
to those who belong to lower income classes, this is not
the reality that they see. Instead, a car is perceived to be a
luxury.
Researchers refer to SECs as expenditure-based clusters
because people belonging to the same SEC group tend to
spend on the same things. This is why SEC then proves to
be a better indicator of what a consumer may tend to buy.
For the longest time, socio-economic classes have been
typically defined as follows:
A Prime the wealthiest class (“elite”)
AB upper income class (“upscale”)
Upper C upper middle class (“upscale”)
Broad C broad middle class (“middle class”)
Lower C lower middle class (“middle class”)
DE lower classes (“masa”)
In order to understand how SEC reflects relative reality,

here are some examples of how the different socio-
economic classes typically behave and how products and
services adapt to them:
• The wealthier the SEC class, the greater the
need for personal space. Larger houses, less
crowds, and greater appreciation of open spaces
and “negative space” (empty areas) characterize
the more premium clients. Malls are therefore
designed according to their target SEC market.
Malls that attract upscale shoppers offer
spaciousness and lots of walking space. Malls that
attract lower income groups, on the other hand,
encourage very high traffic because they make
money through volume rather than through high
profit margins.
• Products that target the broad market are
typically advertised in the vernacular, while
products that cater to the more upscale markets are
in English. Among other reasons, this is because
upscale markets typically include consumers that
have studied abroad or in exclusive schools, as
well as expats.
• For fast moving convenience goods to reach the
mass market, distribution channels have to be
extensive and neighborhood-driven, as well as
focusing on public markets and convenience stores.
To reach the higher income markets, however,
large supermarket chains are preferred. This is
because the mass market prefers convenience and
the ability to buy in small quantities, whereas
upscale markets buy in bulk and appreciate the
larger shopping carts and wider aisles that large
grocers provide.
In 2012, the Marketing and Opinion Research Society
of the Philippines (MORES) endorsed the migration from
the previously mentioned letter-based classifications for
SECs (that has been very commonly used in industry) in
favor of a new model that classifies Philippine consumers
into nine classes, from 1 (lowest spenders) to 9 (highest
spenders). The model reveals the Philippine population
distribution by spending class as follows: (Bersales et al.,
2013)
Figure 9. Distribution of Philippine households by SEC
clusters
Under this new classification, E will approximately
correspond to class 1, while D will approximately
correspond to classes 2 and 3. The middle classes take up
the bulk of the scale, with Upper C being approximately
class 8 while class 9 approximately corresponds to the
traditional AB market.
This new scaling, however, does have its limits. For one
thing, it does not (yet) segregate the “ultra rich” from the
“rich” in class 9, whereas the behaviors of these two
groups are very different.
Financial Implications of Socio-Economic
Class
Your socio-economic class exerts tremendous pressure
on your spending behavior. For example, if most of the
people in your social circles have a premium, expensive
smartphone, then you may feel pressured to acquire one as
well. And if your peers prefer particular brands, then you
may feel pressured to acquire these brands as well in order
to fit in—even if you cannot afford these. In fact, socio-
economic class pressures are perhaps the biggest source of
financial problems for many consumers. Whether it's
the pressure to throw a party to feed one's neighbors in a
barangay, or the pressure to spend vast sums of money for
a lavish wedding, or even just buying a new car.
These purchases per se are not bad. But they become a
critical issue when consumers forego their future welfare
in return for purchases that only offer immediate
gratification. When new parents spend lavishly on their
child's baptism, for example, they are allocating money
that could otherwise have been used for the child's future
education. If that future education—as well as other
essentials—have already been budgeted for, then there
may be no issue with spending lavishly on the baptism.
However, if essential future needs end up being
compromised—including one's future financial security—
then lavish spending becomes a problem.
It therefore pays to be aware about what you are really
spending for. Is it really a necessity? Or are you simply
trying to satisfy your need for socio-economic conformity,
or even status, among your peers? Before splurging on
something that will require a significant outlay, always
remember that this is money that could have otherwise
been used for essential future needs.
Age vs. Lifecycle
In the same token that income is a number while SEC is
a way of life, the same can be said for age as compared to
one's lifecycle stage. Age is just a number, whereas where
consumers currently are in their lifecycles pretty much
determine what products and services they will likely
spend on.
The following are the generally accepted lifecycle
stages:
Bachelor Stage young, single, and independent
Newly Married young, no children, also known as DINKs (double income, no

Couples kids)
Full Nest I families with children, with youngest child below six years
Full Nest II families with children, youngest child six years or older
Full Nest III families with dependent children
Empty Nest I older married couples, no children living with them
older married couples, retired, and no children living with

Empty Nest II
them
Solitary Survivor I older, no family, and supporting self
Solitary Survivor II older, no family, and retired
For instance, Bachelors will likely spend a lot on

personal effects such as portable electronic devices and
clothes. Newly Married Couples will tend to spend a lot
on furnishing their homes, dining out, and for travel. But
once they evolve into a Full Nest, they will tend to
prioritize spending for the children, such as clothing,
education, and cut spending on items that they used to buy.
Meanwhile, the Empty Nest stage typically sees the couple
suddenly flush with newly disposable income because
they are no longer supporting their children and this leads
to a resurgence in personal spending, including sports cars
(for the men) and personal pampering (for the women).
Planning for Financial Independence
The sad reality is that most Filipinos will retire without
sufficient financial resources, and they will end up being
financially dependent on their children and other relatives
in order to survive. If one happens to have excellent
relations with one's family members, then this should not
be a problem. But what about those whose own relatives
are struggling financially, or what if one has no relatives
to depend on?
Financial independence simply means having sufficient
financial resources to allow you to live a comfortable life
even when you no longer can or want to work. There are
two ways to attain financial independence: either by
having sufficient savings to finance you for the rest of your
life, or through sources of passive income, such as
investments and businesses that pay dividends. Without
these, you may have to face the sad probability that you
may have to work until the day you die, if only to have
enough money to get by!
As an exercise, ask yourself: how much monthly income
would you want, without having to work, when you get to
age 60? How do you imagine earning this much passive
income? How much money, for instance, should you have
saved by then such that it can cover this amount regularly
at, say, an interest rate of 10 percent per annum? Knowing
this is the first step to understanding just how much you
will need to save up, and estimating how long it will take
for you to get there.
Buying Roles
You buy products for yourself. But you also buy
products for other people, in which case you are merely
functioning as the buyer while someone else ends up using
it. In fact, there are five generally identified roles in the
buying process.
These are:
1. Initiator. This is the person who first suggests the
idea of buying a particular product or service.
2. Influencers. These people's views or advice can
influence the eventual selection of what to buy.
3. Decider. The person (or persons) who ultimately has
the final say on what to buy.
4. Buyer. The person who makes the actual purchase.
5. Users. The person or persons who end up actually
using the product.
Applying the above breakdown to your own buying
processes, you may quickly conclude that the roles break
down when you are buying something simple such as, say,
a piece of candy. Nobody suggested that you should buy
one or influenced what brand you should buy (or so you
think), and you basically buy it for your own consumption.
In these cases, yes, you are your own initiator, decider,
buyer, and user. Influencers? It is likely you made the
purchase based on advertisements that you have seen or
perhaps the candy display itself.
The roles, however, become more pronounced as
purchases become more complex or risky. In this context
riskiness means expensive and/or degree of object
permanence. A newspaper, for instance, is a cheap and
disposable purchase so it represents minimal risk (and
therefore you may tend to fill out all the roles yourself).
But a car is a relatively expensive item and once you buy
it, your family may be stuck with it for quite a while.
Therefore, there is bound to be more defined roles in this
situation.
Types of Buying Behavior
The act and process of purchase is, in itself, the function
of a goal. The consumer felt a state of deprivation and
needed to address it. So what we now have is a motivated
consumer. Motivated consumers can now proceed to
engage in a number of behaviors that they may deem
necessary in order to achieve their goal. This includes
information gathering, information processing, and
generating conclusions about products. The level of
motivation, however, will vary depending on how the
consumer relates with the object of involvement or the
product being sought.
Clearly, buying a stick of gum is going to be a different
purchase process compared to buying a refrigerator. In
order to understand these differences, we need to further
classify buying behaviors based on (1) the consumer's
perception of the product category and (2) the consumer's
attitudes toward the product category.
First, a consumer can perceive a product category to be
simple, complex, or somewhere in between. As an
example, if a student was to shop for a laptop and was very
knowledgeable about the relevant technical terms such as
RAM, storage capacity, processor type, memory, and the
like, then this student would likely appreciate the
differences between the various brands and offerings of
laptops in the market. On the other hand, imagine the same
buying situation, but this time with a senior citizen who is
averse to technology and has little knowledge about the
technical specs involved in buying a computer. Chances
are, to this person, all computers seem alike.
So how does this distinction affect the buying behavior?
A more sophisticated buyer who understands the
differences between the products will be willing to shop
around, gather brochures or data, check for specs online,
and generally take time studying and comparing the
products in the market. On the other hand, what will be the
typical buying behavior of a non- savvy consumer? Likely
this consumer will (a) ask an acknowledged expert for
advice on what to buy, (b) choose a brand that seems most
familiar compared to all the others, or (c) choose the most
attractive-looking product among the options.
Second, the consumer's attitude toward the product can
affect the buying relationship as well. Is this a product that
is considered expensive, very important, or durable in
nature? In this case, the consumer will spend more time
and attention with the decision-making process. It will
require a lot of involvement—something known as high-
effort behavior. On the other hand, if the consumer does
not have much at stake with the purchase, if it is
considered inexpensive or non-durable in nature (i.e., it
will not be a permanent part of the household), then the
consumer will tend to have less of an involvement in the
buying process—also known as low-effort behavior.
Putting these together, Figure 10 illustrates four
different types of buying behavior (Assael, 1995):
Figure 10. Types of Buying Behavior

Complex buying behavior arises for important
purchases where there are so many different features and
attributes with each brand having different manifestations
of each feature. The consumer is cognizant of these
differences. Houses, cars, and durable goods are some
examples of products that tend to be met with complex
buying behavior. A consumer undertakes a lot of searching
and analyzing before any purchase happens.
Dissonance reducing behavior occurs when a
consumer wants to keep life simple, and yet the risks faced
with the buying decision for an important purchase are
perceived to be high. The consumer may therefore resort
to decisions that simplify life, such as buying the brand
that most people choose, relying on the decision of a
trusted friend, or relying on the word of the salesperson.
This is why appliances and consumer electronics, for
instance, benefit greatly from having popular brands.
Many household appliances tend to be bought this way.
Variety-seeking behavior occurs when the product
involves minimal risk, but there are so many choices, each
with its own features and attributes. The consumer may
opt to try each product at least once, leading to the trying
of a wide variety of the products. This is how consumers
may likely respond when faced by the huge breadth of
offerings like for instance, snack foods in groceries. This
is also what leads “foodies” to try different restaurants on
different dates.
Habitual buying behavior happens when consumers
feel that learning about the different competing products
is not worth it, so they would rather select the product that
they are most comfortable with. This is the outcome that
is hoped for by many fast-moving consumer goods, such
as personal care products, that seek to make consumers
buy their products out of habit.
Perhaps one of the more disturbing (or admirable,
depending on your point of view) examples of habit-
formation comes from Kopiko. The brand first entered the
Philippine market by selling Kopiko coffee-flavored
candies and offering these to gynecologists so that they
can give these for free to expecting mothers. A year later,
Kopiko then launches its line of instant coffees. Lo and
behold, moms soon realized that when their kids were
agitated, they can give them Kopiko coffee and they
instantly calmed down. Apparently, the babies became
familiar and comfortable with the taste of Kopiko from
when they were still in the womb! (Lindstrom, 2011)
Emotional vs. Logical Decisions
We would like to think that all our purchases are the
result of rational and logical decisions on our part. But this
is not necessarily true.
We have two brains. One is an emotion-driven brain that
we have inherited from our ancestors and it is highly
attuned to our sensory experiences. The other is our logical
brain which is rational, very objective, and with which we
hope and assume manages to control all of our decision-
making.
When you see a new gadget in a beautifully laid out
display counter, glistening under proper halogen
spotlights, this triggers a positive emotional affinity for the
product. Your emotional brain is stimulated by the
attractive display. It therefore decides that it likes this. In
fact, it may have already decided that you should buy this
product. This fuels what you feel are “inexplicable” urges
to purchase this item.
But the interesting part is this: your logical brain will
next kick in. However, your logical brain is not there to
calmly assess the pros and cons of acquiring this product.
Instead, your logical brain would more likely be utilized
in order to rationalize your potential purchase decision. “I
should buy this because it is about time that I replaced my
old phone.” “I need the faster speed. My phone is not as
responsive as it used to be.” “I have sufficient savings
anyway and I have not really bought anything for myself
lately. I deserve it.”
In short, you are likely using your brainpower to justify
what your emotional brain has been wanting all along! As
psychologist Douglas Van Praet puts it, “We are not
rational; we are rationalizers” (Praet, 2014).
7 Unconscious Errors We Make When Buying

Brands
https://goo.gl/WGcpmI
This article will change the way you think about why
you buy what you buy.
Breaking the Soap Habit

Your group is tasked with trying to convince a market
to switch from their favorite family health soap to using
your brand of liquid soap. This is a pretty tall order as most
consumers are so used to bar soaps and view liquid soap
wearily as they perceive this to be an expensive
alternative.
Identify a market that you believe would be most
receptive of your message and then come up with a
proposal on how you plan to make them switch to your
brand of liquid soap. Present this in the form of
promotional stills (posters) or mockups of ads that will
clearly present your message to this market.
Notes:
• Assume that a large bar of family soap costs
2.50 to produce, while 250ml of your liquid soap in
pump dispenser costs 15.00 to produce.
• Thus, you cannot compete through price.
• Ignore all other liquid soaps in the market for
now.
group.
How well did your group communicate the need to
switch?

1. Do you now know the key factors ☐ ☐
that affect consumer behavior?
between income and socio-economic ☐ ☐
class?
3. Do you now know the different ☐ ☐
types of buying behavior?
Exercises
Name:________________________________
Section:________________________________
Date:________________________________
I. Discussion
1. Identify a product that you and many of your peers
aspire to have.
Discuss what makes this product particularly appealing to
you. Assess how much of this involves cultural and socio-
cultural factors.
Product:
Reasons:
2. Recall the last time you bought something

expensive. Identify the different buyingroles and who
filled these roles.
Product
Buying role Person who fille this role How a person affected the purchase decision
3. What are some brands that you buy out of habit?

What will make you decide to try a different brand?
Brand you buy habitually What will make you choose something else?

1. Explain under what circumstances will a consumer
most likely be insensitive to a product's price?
2. Can you surmise what products and services the
different socio-economic classes typically purchase?
What would the A Prime market, for instance, have that
the AB market may not? What may the AB market have
that the C markets will not?
3. Why do buying behaviors become more pronounced

as products become more complex or risky?
4. Why is social class a better indicator than income in

assessing a person's possible product purchases?
Lesson 2
CONSUMER MARKET
SEGMENTATION
1. understand the key premises behind market
segmentation;
2. know how to define market segments; and
3. be able to select viable target markets.
1. In your own opinion, describe who you think the
market is for the following products:
ABS-CBN Noontime TV shows:
Kopiko 3-in-1 Brown Coffee:
Bank of Commerce:
2. Give an example of a popular brand that caters to

two different markets. Describe these markets in detail.
Brand:
Market 1:
Market 2:
The Premise Behind Market Segmentation

Why split up the market in the first place?
Many optimistic entrepreneurs assume that if they make
their product good enough, it can attract anybody and
everybody—regardless of age, gender, income, and a
whole lot of other factors. Sometimes it does work. Take,
for instance, the phenomenal success of Coca-Cola which
manages to have a very broad appeal, becoming the
favorite beverage of young or old, rich or poor alike.
But universally successful products such as Coke are
few and far between. More often, the typical new product
launches into a market that is already saturated with
competition and with each business fighting to get a share
of the available market.
If you are planning to launch a product into an already
competitive industry, then focusing on a specific market
segment may prove to be more effective than simply
appealing to all tastes and preferences.
• In the US market, Pepsi had been struggling to
compete with Coke since the 1930s but barely
gained any traction. For the longest time, it tried to
wrestle market share from the leading beverage by
being much cheaper—at one point even promising
to be twice the size of a bottle of Coke for half the
price! It was not until the 1960s when Pepsi finally
decided to just focus on the youth with a campaign
that called them “The Pepsi Generation.” Sales
finally took off then.
• Colgate has been a strong market leader in the
Philippines for decades. A lot of competitors
emerged, promising to offer the same benefits and
quality at a lower price. None, however, managed
to get as far, competition-wise, as Unilever's Close-
Up did. Close-Up succeeded because instead of
going head-on with Colgate, which appealed to the
family market, Close-Up instead decided to, much
like Pepsi in the US, focus just on the youth. In
doing so, it effectively broke up the toothpaste
market: Colgate was bought by parents for their
families, while Close-Up was bought by teenagers
for themselves.
• Apple succeeded phenomenally by focusing on
satisfying the needs of more upscale buyers who
had enough disposable income to spare for well-
engineered and well- designed products. The
company does not sell low-priced devices and it
does not seek to appeal to a broad market. In doing
so, it is able to command high profit margins while
still affording to build products at premium quality.
To understand the foundation behind market
segmentation, it is best to revisit the stages of market
maturity as presented in Chapter 1.
In Stage 1, where supply is far less than demand, there
really is not any pressing need to segment the market just
yet. New producers can enter the market and this would
not bother existing players so much because there is more
than enough of a market to spare for everyone. While
demand is greater than supply, the tendency would be to
offer a generic product that will appeal to as wide market
as possible.
Here is a little thought experiment:
You are a business person who has landed in a remote
island where everyone is barefoot. You believe this is a
terrific opportunity to offer sandals. You set up a
manufacturing plant there and begin producing sandals.
Only, since demand is so high, you decide to simplify
production as much as possible. How do you do this?
Perhaps you come out with a one-size-fits-all kind of
design so that the sandals are easily adjustable, allowing
them to fit big feet and small feet alike or both men's and
women's feet. (You may even opt to no longer distinguish
between left feet and right feet and just produce a single
sandal design!) But in the end, because the inhabitants
urgently want sandals, they do not even care. The basic
product is better than nothing.
As competition grows, however (which is at Stage 2 and
up), rivalry begins to heat up. In order to differentiate, a
strategic move would be to differentiate your product by
increasing the product quality. If the quality is sufficiently
and perceptively better than the existing products in the
market, then you would have successfully managed to
segment the market between the price-conscious buyers
and the quality-seekers, with you likely being able to
attract the latter.
Over time, competitors will eventually manage to match
your level of quality. When this happens, the market may
once again be at a stalemate. Competition will now have
to evolve into further specialization toward the needs of
particular sub-groups. The question then becomes that of
identifying what sub-groups (i.e., market segments) to
focus on.
Traditionally, markets were segmented according to the
following variables:
Demographic. This refers to quantifiable and factual
statistics of the population, such as age, sex, income,
occupation, and basically any piece of information that is
gathered by the National Statistical Office. Lamoiyan
Corporation's Hapee Toothpaste began by appealing to
kids using bright toothpastes with fruity flavors and
cartoon imagery.
Firms that seek to use demographic segmentation
would typically look up statistics about their selected
demographic criteria to get an idea about how big this
segment might be.
Psychographic. This refers to how consumers see and
feel about themselves—hence psycho or “of the mind.”
It includes elements such as social class, lifestyle, and
personality. If you are segmenting the market by
whether or not they are adventurous, idealistic, how
they feel about a particular issue, or who they aspire to
be, then these are all factors that reside primarily in the
people's minds. Nike has used psychographics in
designing its communications, appealing primarily to
people with competitive self-identities.
Psychographic data is not captured by the National
Statistics Office, so the way to determine how many
people fit into a particular psychographic profile is
generally through primary research methods such as
surveys.
Behavioral. Whereas psychographics are about how we
think about ourselves, behavioral refers to how we
behave when buying a product, whether these actions
may be conscious or unconscious in nature. This includes
issues such as when do we typically buy a product, what
we look for when buying a product, how loyal we tend
to be to a brand, how often and how much do we buy,
what price point we are comfortable with, how ready we
are to buy the product in the first place, and to whom
we typically buy the product for.
Jollibee originally differentiated its burgers by
proclaiming them to be “langhap-sarap,” appealing to a
typical Filipino behavior of smelling food to fully
appreciate it before eating it.
To get insights about consumer behaviors, observation
and qualitative research methods are most useful. To
determine how many people behave in a particular way,
surveys may still be the best tool.
Geographic. The physical location of a market, including
the general characteristics of the location. This includes
factors such as climate (e.g., Baguio City offers a cooler
overall climate), traffic conditions, cultural
characteristics that are inherent in a geographic area,
livelihood opportunities, and population density. A
typical strategy employed by smaller firms, when faced
with tough competition in highly urbanized cities such as
Metro Manila, is to bring their products to less densely
populated cities so that they have a better chance of
dominating these geographically segregated markets
because larger firms tend to ignore these. Jaz Cola, for
instance, began by focusing primarily in the Visayas,
building up popularity there among teenagers in the
1990s. They were effectively competing with Coca-Cola
through low price and a localized strategy (at least until
Coca-Cola eventually bought it).
Systematic Segmentation
You cannot always rely on the standard market segments
as presented before.
Sometimes, you will need to find ways of identifying
distinctive segments among a large population. Rather
than dictate the terms of your segmentation strategy, you
would want the facts to speak for themselves. This is
where a statistically-based method of segmenting the
market can be utilized, something that large organizations
use.
Step 1. Conduct a wide survey. Using a survey
methodology, have a large group of respondents (in the
thousands) identify the different product attributes and
their importance ratings for a selected industry; brand
awareness and brand ratings; product usage patterns;
attitudes toward the product category; and demographic,
psychographic, and mediagraphic (i.e., media, such as
television or newspapers, that respondents most
commonly view or avail of) profiles of the market.
Step 2. Process the data. Using the statistical tool of
cluster analysis, where respondents are grouped together
based on similarities of their answers, the respondents are
grouped into a given number of clusters. This is done
automatically by the statistical software. The researcher
only needs to specify how many clusters to sort the
respondents into. This is the easy part.
Step 3. Profiling. This is the hard part. While the
software can classify and categorize respondents into
clusters, it generally cannot describe what each cluster is
composed of or why respondents were clustered together
the way they were. This is where the analytical skills of
the researcher come in. By scanning the list of respondents
who were placed under a particular cluster and by
scanning their answers, the researcher can make
qualitative conclusions as to what the commonalities are
among the respondents in this cluster and then gives it a
name. For instance, upon realizing that a significant
number of the respondents in the cluster happen tolisten to
talk radio while driving to work and that most of them are
in middle management, the researcher might name this
cluster the “Talky Managers” (note: you probably can do
a better job of naming this group!). The clusters, as
profiled, officially become market segments.
For smaller firms, a segmentation study such as the
above may be too expensive to undertake. In that case, the
traditional segmentation variables become useful,
particularly if they are mixed and matched. For example,
a firm can look into the two variables of lifecycle stage and
social class to establish the possible segments of “young
mass market,” “young AB,” “teen mass market,” and so
on.
A popular way of segmenting the market is through
benefit segmentation, which is how many fast-moving
consumer goods are segmented. In benefit segmentation,
attention is focused on the needs that people may have for
a particular product rather than the types of people who
may be targeted. For example, for toothpastes, certain
people may have a need for cavity prevention while others
need fresher breath and still others have a need for great
taste. Thus, segmentation becomes focused on the benefit
rather than on the consumers' demographic (and other)
profiles. The advantage here is that benefits may appeal to
people of different ages, social classes, etc., thereby giving
the product the potential to have a larger market base than
otherwise.
Targeting
Once different possible market segments have been
identified for a particular industry, the next step is to select
the segment that can be most sensibly targeted.
There is no concrete science to the selection process. In
the end, it is primarily the result of informed assessment
and analysis. Some tips that come into play are:
• Always consider a firm's size and growth
objectives when selecting a market for it to target.
If there is a need for high growth, then there is a
need to select a market that offers such a capacity
for growth. On the other hand, if the firm chooses
to grow gradually in order to minimize the strain
on limited resources and working capital, then a
small market may prove to be more practical. If the
firm chooses a market that is larger than it can
handle, this could be counter-productive because it
may end up attracting powerful competitors into its
identified market.
• Assess the structural attractiveness of the
potential market. Is it easy for anybody to enter this
segment? Will it attract competitors? Will the
market have tremendous bargaining power over the
firm (like in the case when the segment can
actually band together and become a pressure
group)?
• Identify the firm's objectives and resources.
Make sure that targeting a particular segment
would be in line with the firm's objectives and will
not drain its resources too much.
• When planning for long-term growth,
immediately assess the segment's potential for
economies of scope. For instance, if you are a shoe
manufacturer and targeting the children's school
shoes market but have a long-term dream of
providing shoes across different age groups, will
the machinery and resources required for making
school shoes be the same machinery needed for
making adult shoes? If not, then you may not have
economies of scope when starting with this
segment.
• By the same token, there is also the issue of
segment-by-segment invasion. Certain segment
movements are acceptable, while others are not. In
fact, a brand that is best known for children's shoes
may find it far more difficult to penetrate the adult
market than it would be for adult shoes to penetrate
the children's market. The acceptability of
movements tends to be cultural in nature, so it
helps to have empathy toward the opinions of the
target markets.
By keeping the above pointers in mind, strategic
business plans can be developed around the spotting of
opportunities in underserved and under-marketed
segments in the industry.
Can you target multiple markets? The answer is yes,
provided that the brand targets these discrete markets with
distinct strategies. In his book The Tipping Point, Malcolm
Gladwell notes the case of the highly popular Airwalk
shoes. The shoes targeted both trendsetters (which is a
small segment of the population) and a bigger mainstream
market. It did so by offering cutting- edge shoes to
specialty stores that the trendsetters went to while offering
more “homogenized” shoes for the mainstream market. In
doing so, Airwalk kept both markets happy.
Unfortunately, the company eventually decided to
simplify its operations by offering the same kinds of shoes
to everyone. At this point, sales began to plummet as the
trendsetters (who served as powerful influencers) realized
that they were no longer getting special shoes and
therefore lost interest in the brand. (Gladwell, 2002)
The VALS Segmentation Framework

http://goo.gl/6yfhyr
This article by Strategic Business Insights explains the
proprietary VALS framework for segmenting markets.
VALS is a consumer segmentation method that has
become popular among advertising agencies. It
differentiates consumers by classifying them according to
their motivations and their resources.
Spot the Segments

Personal care products are a huge industry. Gaining
even just a few percentage points of any personal care
category can reap great rewards for small market players.
You are to assess the personal soap market and do the
following:
1. Identify and define the different markets that are
being targeted by the major brands (hint: most of these
brands segment the market via benefits). Identify at
least half a dozen market segments.
2. Identify a segment that you feel is yet to be tapped
and describe this market segment.
3. Propose a concept or mock-up for the kind of soap
product that you think would attract this identified
market segment.
Presentation time: an estimated 5 to 10 minutes per
group.
How well did your group identify the different markets?

1. Do you now know how the ☐ ☐
different traditional market segments?
2. Do you now know how bigger ☐ ☐
firms segment their markets
3. Do you now know how to choose ☐ ☐
the right marketsegment to target?
Exercises
Name:________________________________
Section:________________________________
Date:________________________________
I. Discussion
1. Why is it necessary to focus only on a particular
segment of the market rather than try to sell to
everyone?
2. Why do we say that it is more efficient not to

compete directly with existing products? What exactly
are the expenses that may be incurred when we do try to
compete with them?
3. What are the advantages and disadvantages of

segmenting according to traditional variables such as
demographics, psychographics, behavioral, and
geographic?

1. Explain why certain products, such as Coca-Cola,
manage to appeal to a wide range of market segments
while other products cannot seem to.
2. What kinds of products do you think tend to benefit

the most by targeting markets based on benefits sought?
3. Give three examples of segment-by-segment
invasions that may not work and explain why you think
so.
LESSON 3
ORGANIZATIONAL MARKET
SEGMENTATION
1. understand the differences between selling to retail
consumers and selling to organizations;
2. understand the characteristics of organizational
markets; and
3. understand the concept of locking clients to a
supplier.
1. You are running a canning facility and currently

have producers of canned foods such as tuna and corned
beef as your clients. You need to go beyond these
clients in order to grow your business. Can you think of
other businesses that you can tap to be your clients?
2. In your opinion, what are possibly the three big
differences between selling to consumers and selling to
businesses?
a
Dealing with Organizations

Are businesses like people too?
The previous lesson was focused primarily on the
consumer market, which involves selling retail to
individual consumers (hopefully, a lot of them).
But a reality check is in order: selling to the retail market
is a difficult proposition. It is, after all, a numbers game
where, more often than not, you need to invest heavily in
promotions, distribution, merchandise management,
customer service systems, and a host of other factors.
Meanwhile, selling directly to organizations—
businesses, institutions, government units, and other
groups—allows you to have an operation with potentially
lower overhead. There are generally fewer factors to worry
about when dealing with enterprise buyers as these
generally buy in bulk and are mostly concerned about
product quality, competitive prices, and service quality.
Examples of organizational markets:
• Manufacturers
• Restaurants and quick-service food chains
• Wholesalers and retail chains
• Marketing and distribution companies
• Local government units (LGUs)
• Government-owned and controlled corporations
(GOCCs)
• Non-profit organizations
• Hospitals and health centers
This is not to say that selling to organizations is easy
(obviously, it is not). But the one thing that organizational
selling has going for it is that it allows you to deal with
fewer, larger clients as compared to competing in a highly
unpredictable retail market. With fewer clients come
better opportunities for building true and long-lasting
business relationships.
Characteristics of Organizational Markets
While there are a number of similarities between
consumer markets and organizational markets, here are
some of the features that differentiate organizational
selling from direct consumer sales:
• Fewer and larger buyers. You will be dealing
with private or public institutions and these tend to
be few in number for any given industry. But when
they do purchase items, they tend to do so in bulk.
If you are selling stationery, for instance, you will
probably only sell one notebook to each individual
retail customer. But if you sell to a wholesaler, a
retailer, or to the purchasing office of a big
company, then you will likely be selling notebooks
by the hundreds to just this one client.
• Close customer relationships. Your
salespeople tend to be a valuable resource when
dealing with organizational clients. They try to
build lasting relations with organizational
customers, which generally includes the scheduling
of regular client calls to always be attuned to the
clients' needs.
• Geographic concentration. Industries tend to
locate in the same area as this allows for
economies of industrial scale. Suppliers and buyers
alike will locate at the same area to minimize
transport, coordination, and other logistical costs.
An example would be the Marikina shoe and
leather manufacturing sector.
• Derived and fluctuating demand. When
dealing with organizations, the demand for your
product will actually be a function of the demand
for their products. This is especially true when you
supply materials for their production, but this is
also likely true for the sales of non-component
goods. It is because when business is good for your
client, then chances are, their budgets for purchases
go up as well. This also means, however, that
demand can be unpredictable and inconsistent
because your sales will depend on the particular
industries' performances.
• Potential for inelastic demand. Inelasticity
refers to a relative insensitivity of the sales of your
product to any increase or decrease in its price. For
example, you may raise your price and your
customers may have no choice but to accept it—
provided that your product is considered to be an
invaluable input to your customer's own products.
An example would be if you are offering a superior
building material to the construction industry and it
has no competitive substitutes.
• Professional purchasing. While consumer
markets are often characterized by emotionally
triggered purchasing, well-run organizations
typically set up purchasing offices that seek to
maximize the impartiality of their purchase
decisions.
Typically, when selling to a small company, the
decision-maker is bound to be the CEO, who is perhaps
aided by a technical expert. But when selling to larger
firms, decision-making quickly becomes more and more
bureaucratic (James, 2011).
The key difference between business markets and
consumer markets is that the goal of business markets is to
professionalize their purchasing procedures. This is
because organizations seek to minimize possible
opportunistic behaviors by its own buying officers. At the
same time, they need to institutionalize effective buying
processes in order to maintain consistency over the long
run. This of course means that the less professional an
organization is in how it conducts business, the closer it
appears to approximate the behavior of an individual
consumer.
Minimizing the Risk of Purchase
An organization that practices professional purchasing
seeks to minimize its risks by implementing a set of
procedures that are designed to (1) ensure access to
sufficient information about potential suppliers and their
products; (2) maximize the impersonality of the buying
process; and (3) ensure a fair and competitive assessment
of potential suppliers and their products. This complex
process is equivalent to complex buying behavior in the
case of consumer markets.
On the other hand, a less professional organization may
opt to place a lot of leeway on the decision-making
abilities ofjust one or a few key people in the organization.
This is especially true with family businesses or firms that
have a very centralized decision-making structure. There
may be no efforts to professionalize purchasing, so
decisions on which supplier to select may either be
arbitrary or dependent on who the decision-maker likes
more on a personal basis (which is precisely what a
professional purchasing organization seeks to avoid).
Thus, in such nonprofessional buying setups, it is common
for buyers to choose relatives, friends, or people who offer
the most “gifts” as their supplier of choice.
Buying Situations
• Straight Rebuy. This refers to routinized
purchases. This is ideal for suppliers who, for
obvious reasons, hope to make purchases oftheir
products a habit. Smart suppliers therefore seek to
“lock” their markets to their products. The biggest
challenge to suppliers would be professional
buyers who institute a policy of reinitiating
supplier searches every year or so. This is
especially true when the act of switching suppliers
does not take much cost on the part of the buyer.
• Modified Rebuy. Here, a firm has already
purchased the product in the past, so it is now
familiar with the suppliers and basic data about
their wares. However, the firm's specifications
have changed from the last time, necessitating a
new round of searching. At this stage, however, the
firm has experienced working with at least one of
the suppliers and therefore may have existing
opinions about some suppliers already. It should be
noted that being the existing supplier for a firm
provides the supplier with a significant opportunity
to prove that it is far better than other suppliers in
the market. Such a precious opportunity should not
be wasted!
• New Task. At this point, a firm still has no
experience with the different suppliers in the
market. Also, at this point, suppliers who have
some brand recognition will have an advantage
over the others, especially if the buyer is not
equipped to assess technical differences among the
products.
Roles in the Buying Process
The following are the typical buying roles in
organizational markets. Note some similarities between
these roles and those in consumer markets:
• Initiators - identify problems.
• Influencers - affect buying decisions.
• Buyers - have formal authority to select
suppliers and arrange terms.
• Deciders - have formal or informal power to
select or approve final suppliers.
• Gatekeepers - control the flow of information to
others.
One difference would be the existence of the
gatekeepers. Gatekeepers are people with authority or
power to limit or filter the information that penetrates the
organization. They can beas powerful as an executive
secretary who refuses to allow a sales personnel to see a
decision- maker or as trifling as a security guard who
refuses to let a salesperson into the building.
Smart sales strategists minimize their arrogance and
befriend gatekeepers of business markets, even possibly
going as far as to give them gifts (note that even in a
government contract bidding, there are no laws against
giving gifts to gatekeepers because, technically, they are
not part of the bidding committees). Not only can
gatekeepers get suppliers in, but they can even supply
valuable intelligence information at times.
In fact, building good customer relations is just the first
step in getting one's foot into the company's door. The next
step involves convincing key buyers that your product
offers maximum return on their investment and that the
risks involved in selecting you as their supplier are
acceptable. The third step involves building further on the
relationship with the client by actively collaborating with
them so that you become part of their reason for success
(Doerr, 2014).
The Buying Process
The buying process can be summarized as follows:
• Problem Recognition. The client organization
acknowledges the need for a particular product or
service.
• General Need Description. This is the start of
a formal buying process where forms are filled out
that justify the need for the purchase.
• Product Specification. Technical personnel are
engaged in this process in order to provide the
specific technical details for the needed product or
service.
• Supplier Search and/or Proposal Solicitation.
Possible suppliers are sought out or ads are placed
in order to invite potential bidders.
• Supplier Selection. A formal selection process
is consummated based on pre- established
guidelines, leading to the determination of the
supplying enterprise.
• Order-Routine Specification. The purchase
order is made out. If this will be a recurring
purchase, then it is possible that this will become a
long-term and therefore, routine transaction.
• Performance Review. Both the product and the
relationship with the supplier are evaluated in order
to establish if there may be a need to look for
alternative suppliers on the next round.
Generally, professional buying processes are designed
to minimize the risks of purchase (as discussed earlier)
while unfortunately maximizing bureaucracy in the
process.
Sales guru Jill Konrath recommends taking advantage
of “trigger events” in a company's operations in order for
sales people to more easily penetrate the company. These
are events that can drastically change the company's
priorities, such as poor quarterly earnings, new strategies,
new products, rapid growth, changes in ownership, or new
geographical expansions. These events often signal
moments when the company's guard goes down and their
needs
become urgent. Under these conditions, purchasing
opportunities can come about (Konrath, 2010). For
instance, if you are selling automobiles and you learn that
a company is expanding its management, then this can be
an opportunity to sell them car plans.
Locking in the Client
It is important for a supplier to learn how to “lock in”
the client to its products and services. In other words, there
must be something that the supplier can offer that would
make it invaluable to the market. In order for this to
happen, however, the supplier must first be strategically
differentiated versus other possible suppliers.
A lack of differentiation among suppliers typically leads
to a situation where each time a buyer needs an item, the
buyer can easily initiate a modified rebuy situation rather
than go for a straight rebuy. This is because the lack of
differentiation among suppliers means that the buyers are
looking at a commodity market: with one supplier being
the same as any other, the buyer will be better off just
making the suppliers fight it out over his account, possibly
leading to a price war which will be to the buyer's benefit.
The trick is for the supplier to create tremendous
“switching costs.” These are the costs that will be incurred
by a buyer if it decides to switch to a different supplier.
Switching costs can come from the supplier making
himself so indispensable to the operations of the buyer that
the buyer will think twice before changing suppliers. In
small businesses, switching costs can be as simple as the
supplier becoming a “Ninongg' (godfather) to the buyer's
child. In more professionalized circles, however, typical
switching costs are more structural. In Japan, for instance,
setting up a Just-In-Time manufacturing arrangement
between a supplier and a firm, where the supplier is made
the exclusive partner for a particular product or service in
exchange for its strict adherence to the buyer's operational
requirements, locks in the relationship practically for life
because they become indispensable to one another.
A supplier that is sufficiently differentiated and offers
highly invaluable goods and services can have a strategic
advantage. Even a firm that has a tight buying bureaucracy
in place may go as far as to decide to override this
bureaucracy if there is no other supplier who can offer
what a particular supplier can.
Understanding the Difference between B2B

and B2C Marketing
http://goo.gl/t4mTVO
B2C is short for Business-to-Consumer and it is how
products typically reach you. B2B is short for Business-
to-Business. This article explains the differences in market
strategy between the two.
Organizational Buying
Each group shall identify a business, an institution, or a
government unit. Ask them about their purchasing
processes along with possible problems or pros/cons of the
process. Groups then map out the steps in the process,
preferably using actual examples when possible.
How well did your group assess your selected

organization?

group.
difference between consumer and ☐ ☐
organizational markets?
2. Do you now know the steps in ☐ ☐
typical organizational buying process?
3. Do you now know the importance ☐ ☐
and various means to lock in a client?
Exercises
Name:________________________________
Section:________________________________
Date:________________________________
I. Discussion
1. Give examples of firms that sell to organizations.
Identify what distinguishes their offerings versus that of
their competitors.
Firm Distinguishing factors
2. What are some of the differences between

organizational markets and consumer markets?
3. Identify up to three firms that basically sell to

organizational markets and yet are well known by the
consumer markets as well. What are the advantages of
generating such familiarity?
Firm 1:
Firm 2:
Firm 3:
Advantages:
1. What are some ways by which a firm that supplies to
the business markets can get to become indispensable to
its buyers?
2. Study the professional buying process. Can you find
ways by which you may override the process and gain
certain advantages for a particular supplier? How?
3. Put yourself in the shoes of a buyer. What are some

ways by which you can strengthen the professional
buying process in order to minimize bias toward any
particular supplier?
Colgate has been (and probably always will be) known
as a brand for oral care. In fact, this is its core strength.
Colgate brand of toothpaste is the leader in many
markets globally while the Colgate brands of
toothbrushes and mouthwash- es can always be relied
upon to be either number one or number two in their
respective categories. But if you were an ambitious
marketer, you would be seeing this success from a
different perspective: you would think that Colgate is
such a powerful brand that it deserves to be on more
products. By not doing this, it would be a waste of brand
potential.
So, in 1982, the company launched Colgate Kitchen
Entrees that was a line of frozen foods which hoped to
capitalize on the growing demand for microwave- able
meals. Furthermore, the idea here was that after eating a
Colgate meal, the happy consumers would move on to
brush their teeth with Colgate products.
Result: Not only did the product turn out to be a
horrendous flop but it also dragged the entire Colgate
oral care line down with it as sales for Colgate toothpaste
and related products fell.
The lesson here was that if your brand is heavily
associated with a particular product category, trying to
stretch it toward other categories may only end up
hurting your flagship products as the association of the
brand with the original category gets diluted.
Postscript: This did not stop Colgate from trying again
and again. They will eventually experiment with Colgate
shaving cream, Colgate deodorant, and even Colgate foot
powder—none of which succeeded in the market
(thankfully).The brand is the repository of a product's
market value. It is the marketer 's primary duty to protect
the brand.
There are traditionally four “Ps” that are used for
communicating the essence of a product and its brand—
product, price, place, and promotions. Together, these
form what is known as the marketing mix, or the mix of
Ps that makes up the communication strategy. This chapter
covers the first of these four “Ps,” Product, and includes
issues such as new product development, brand
management, and product mix management.
LESSON 1
NEW PRODUCT STRATEGY
1. be able to formulate viable business models for
product concepts; and
2. know the basics for constructing a business plan.
Do you have an idea for a possible product or service?

1. Describe your idea here:
2. What would make your product idea different from

competing or substitute products in the market?
3. How do you think should your product's distinct

advantages be communicated to the market?
The New Product

How do you make something truly marketable?
Have you ever had a seemingly brilliant idea for a new
product at one time or another? Here is a harsh truth that
we will have to swallow: anybody can have a great product
idea. But unless you do something about it, then it will
always remain as just an idea. Pretty soon, someone will
come along who will think up the same idea but this time
will do something about it. Then, that idea will no longer
be yours.
The new product development certainly begins with the
idea, but that is just the tiniest bit of the iceberg. Most of
the work involves the hardy task of building the real
business around the idea. This includes the preparation of
the business plan, market studies, demand estimation, and
marketing strategy. This is where the real value of the idea
gets created.
Creating the Business Model
Business model refers to the mode by which the product
concept seeks to make money so that it can have a
sustainable operation. You can think of a business as a
machine that generates revenues. In order for it to continue
going, it should be generating enough revenues to cover
both its costs of operations, as well as providing a decent
return on its investment. If the business cannot accomplish
this, then it will not survive.
The business model should therefore involve a way of
making money that best fits the nature of the product idea.
The following are some examples of alternative business
models:
• Facebook began its first years purely as a social
media site with no clear business model in place.
But eventually the model became clear: claim as
many users as possible (now over a billion
worldwide) and then utilize them as a massive pool
of captive viewers for attracting advertising
revenues.
• Newspapers and magazines have always been
funded by advertising placements. But as fewer
and fewer people read the papers (because of TV
and the Internet), advertising here has become less
and less attractive. Print publishers are therefore
struggling to find a suitable business model for
going online, leading to some hits and a lot of
misses. Newsweek, which was formerly a weekly
news magazine, has completely shut down its
historical ad-based print business model. Instead, it
has been retooled into an aesthetically pleasing
online magazine that hopes to draw loyal readers
through well researched long-form articles—
something that is uncommon on the Internet—and
going for less obtrusive sponsorships rather than
advertising (which can be eyesores).
• Buffets have become very popular as
alternatives to à la carte fare in restaurants. Places
such as Vikings and Buffet 101 use a business
model that is based on a bit of statistics: their
gamble is that, even on their “eat all you can”
spreads, the average person will not be able to
consume an amount of food that costs more than
what was paid for. While some people with big
appetites will be able to, most people will not. The
trick is to find the proper balance of attractive food
choices and a price point that still allows the
business to make a decent profit.
Businesses do not need to be dependent on actual
consumer purchases for their business models. Here are
some alternative forms of revenue generation that may be
considered:
• Advertising. You get to consume the product
with no cash outlay and with the costs of providing
the product being covered for by a number of third
party advertisers. This has always been the
business model for much of print, radio, and
television enterprises.
• Sponsorship. Alternately, instead of constantly
finding a number of small advertisers to support
ad-based businesses, you may opt to focus on a few
big sponsors instead. This leads to less “clutter” in
the media (as there are fewer advertisers) and more
focused messages from the sponsors.
• Donations. This is often the business model of
choice for nonprofit organizations but also the
model that fuels a number of online and mobile
products such as games and productivity apps.
These organizations and developers hope that
while their products or services are being offered
for free, enough people will be grateful and
provide a sufficient pool of funding to keep the
services going on.
• Rent or lease. For expensive assets, such as
machinery or vehicles, they sometimes become
more attractive for the market to consider through
renting rather than outright ownership. This is
because ownership represents significantly large
cash outlays while rent or lease options allow to
space out payments in predictable and manageable
regular amounts. This works best when dealing
with established businesses because long-term
relationships can be built.
• Subscription. Certain products and services
lend well to a subscription model. Instead of
consumers buying the product at stores, a
subscription business sends the products regularly
to their door in exchange for a fixed monthly fee.
This has proven to be successful for some specialty
coffee retailers, for instance, that ship coffee beans
to the homes of self-styled coffee connoisseurs and
even for providers of products such as shaving
products like Harry's in the U.S. The advantage of
subscription? Your clients are locked in for a long
term and the businesses will be looking at
predictable cash flows.
But even if your business model relies on simple
purchase transactions, there are still issues that need to be
made clear. Would you be selling to individual
consumers? If so, are you selling single packages or
services, or are you selling in bulk? Would you rather sell
to organizational and bulk buyers as these assure you of
greater volumes of sales per transaction?
The critical part of the business modeling would be the
balancing act between the target number of consumers, the
profit margin goal per unit sold, and the acceptability of
the resulting price. This is where the proper selection of a
target market comes in.
If you are selling high quality spa services with highly
paid attendants and plush amenities, then there will be a
need for high prices in order to cover the high overhead.
Therefore, it may be best to focus all sales efforts toward
an upscale clientele. Otherwise, average consumers may
find the prices too prohibitive. Part of the business
modeling then includes the development of strategies for
reaching out and attracting an upscale market.
Also, you will need to balance sales volume with profit
margins. As a rule, if you are selling in low volumes, then
you will need high margins. If you are selling high
volumes of your product, then you can afford to have low
margins. Of course, if you can somehow manage to have
high volume and high margin, then this is the sweet spot
that you would want to always be in (though it is
uncommon). If you have low volume and low margin, then
your business is unlikely to survive.
The Business Plan
Plans rarely come to fruition exactly as conceptualized
but this is not a reason to not plan everything out. The
business plan serves as the road map for bringing the
product idea to life and it specifies the details that would
help to make the selected business model work.
There is no single standard for preparing a business
plan. Some of the most successful businesses began as
plans scribbled on a few pieces of paper. Others are more
comprehensive and could even be the result of detailed
doctoral dissertations. However these are written, a
business plan would best contain the following at the very
least:
• Statement of opportunity. This refers to the
identified market opportunity that the proposed
business seeks to address. It could be in the form of
an untapped market, growing demand for an
existing product category, or even a potential
market for an untried product offering.
• Environmental analysis. Key issues and trends
in the environment, both macro and micro, that
should be noted when assessing the business
proposal.
• Market estimates and market segments.
Estimated size of the total potential market along
with descriptions of the different possible market
segments and their estimated sizes.
• Competitive analysis. A roundup of the
existing competition along with existing substitutes
and potential substitutes together with their
strengths and weaknesses. An analysis of the ease
or difficulty of entry into the industry would also
help.
• Business strategy. Details of the proposed
business including the product concept, the
logistics required for its mobilization, the
organization structure needed, and the methods for
product distribution among other things. The
details are often what will have to be adjusted,
refined, or even drastically modified moving
forward. But at the very least, this will serve as a
draft blueprint on how to bring the idea to life.
• Risk analysis. Informally speaking, this is a list
of things that could go wrong along with a
corresponding list of safeguards and contingency
actions to address these. The sooner these are
anticipated, the more airtight the plan becomes.
• Financial forecasts. Estimates of financing
required for initial capitalization, asset acquisition,
working capital, overhead, and inventory. The
forecasts could be for the first three to five years of
operations and should include cash flow forecasts.
Ideally, cash flows should become positive within
that period, indicating a self-sustaining venture.
For proof of viability, the venture should
eventually become profitable and yield an
acceptable return on investment.
Competitive Strategies
Much of your business development plans will center
around the question of “How can I compete effectively in
the market?” Even if you manage to create a new product
or service idea that is very unique and with no pre-existing
competition, this question will still be relevant because
you still will have to determine how you can compete over
the long term, especially once competition does come in.
There are generic competitive strategies that you can
consider when developing your business idea. These are
(1) least cost, (2) differentiation, and (3) niche strategies
(Wright, 1986).
Least cost. This strategy involves producing goods or
services at the least possible cost, and then passing these
to consumers through low-priced, affordable products.
This strategy requires an obsessive attention to operational
efficiency—finding the cheapest ways to produce a
product or service, investing in the most economical
production methods and technologies, and constantly
doing research on even more economical ways of offering
the products in order to sustain this low-cost leadership for
the long run. A recognized low-cost leader such as CD-R
King, for instance, has invested in building supply-chain
relationships with economical gadget manufacturers in
China.
Differentiation. This strategy involves a lot of brand-
building, with an effort to get the market to associate the
brand with particular benefits that, hopefully, will be
distinctly associated with the brand. The classic example
of a differentiator is Coca-Cola. It invests a substantial
percentage of its revenues to marketing and promotions in
order to constantly build its brand image. Coca-Cola may
not be the “best” beverage in the market today but in the
minds of countless consumers, it is the best because they
have learned to associate a number of attributes and
benefits with the product.
Niche. A niche strategist is one that focuses on the needs
of a very specific target market, usually a market that is
small enough or specialized enough that it requires
particular expertise. For instance, a company can focus on
the production of tools for architects or a textbook
publisher can focus on the needs of surgeons. Small
markets do not draw as much attention and therefore tend
to not be as competitive as large markets are. Therefore, if
you are a small enterprise, finding a niche market to serve
that is sized just about right for your own enterprise's size
can make for an effective match.
6 Cool Examples of Successful Niche

Businesses
http://goo.gl/2edu95
How specialized can niche needs be? Here are six
examples of niche strategists in action.
Mini-Case: Bibingkinitan
Bibingkinitan is a chain of over 200 stores across the
Philippines that specializes on offering personal-sized
bibingka.
When owner Richard Sanz first set out to start a food
business, he began by setting up kiosks at Market! Market!
in Bonifacio Global City and in the fast food area of the
Glorietta Mall in Makati. His kiosks offered standard fare,
such as iced teas, but he soon realized that food kiosks
were not as lucrative as he first thought they would be.
He soon realized that the problem was not the kiosks,
but the products that he was offering—they were not
compelling enough and did not stand out from what other
food kiosks were also offering. So he decided to regroup
and rethink his product strategy. Discussing and
brainstorming the matter with his family, it was soon
decided that he should go for selling a long-time family
favorite: bibingka. But it was not enough that they just sell
bibingka. They had to build the product around an insight
that the market would appreciate.
The insight that they came upon, which became central
to the product proposition, was that the size of traditional
bibingkas that were typically sold in the market was
simply too big for a single person to consume. Figuring
out what to do with the leftovers was actually a dissatisfier
that could make the potential buyer reconsider the buying
decision. So, Sanz became a pioneer in offering bibingka
in smaller, personal-sized pieces. He called his new idea
Bibingkinitan.
The idea quickly became a hit, to the point that long
lines would be seen at Bibingkinitan's early branches.
It was not long before Sanz converted the business
model into one of franchising and years later,
Bibingkinitan has grown to become a successful chain of
over 200 stores nationwide. All thanks to a simple insight
about the product and the market that he was able to take
advantage of.
Bringing a New Product Idea to Life
Surely you must have had a good enough idea for a
product at one time or another? Have your group choose
an idea with business potential.
1. Describe the market opportunity that you seek to
address.
2. Summarize the business model that you believe
works best for your idea.
3. Describe your target market and the positioning for
your product that you hope will be most attractive to the
target market.
group.
How well did your group flesh out your new product
idea?

1. Do you now know the elements of ☐ ☐
a business plan?
2. Do you now understand how to ☐ ☐
make a viable business model?
Exercises
Name:: ________________________________
Section:: ________________________________
Date:: _________________________________
I. Discussion
1. Give three examples of great ideas that nevertheless
failed in the market.
Example product Why you think it failed
2. Give two examples of products or services that use

unconventional business models (i.e., they do not
follow industry practices for generating revenues).
Example product What makes it unconventional
3. Is it possible to launch a successful product without

having to make a business plan for it?
☐ Yes ☐ No
Explain why or why not:

1. Identify a failed or failing product and identify the
possible reasons as to why it is not performing well.
What do you think should have been done in order to
make its business model work?
Product:
Reasons for failure:
Possible solutions:
2. Apple is often cited as an example of a company that

offers high margin goods that nevertheless sells in high
volumes. Assess what it is about their business model
that allows the company to do this.
3. Aside from Apple, identify two other businesses that

also offer high margin goods and sell at high volumes.
Analyze what they have in common and come up with
possible conclusions about what it takes to offer high
margin-high volume goods.
Business 1: Business 2:
What makes these businesses viable providers of high

margin goods?
LESSON 2
SERVICE STRATEGIES
1. know the characteristics of service-oriented
businesses; and
2. be armed with key strategies for improving service
quality.
1. What was the best service experience that you have

ever had? Share it here, and state some of the reasons
why you felt this way about it.
2. When you think of a great service for a restaurant,
what are some of the things that you expect?
a.
b.
c.
d.
e.
Goods vs. Services

What makes selling services different from selling
tangible goods?
We have noted how, for our purposes, the term
“product” applies to anything that is offered to satisfy the
needs and wants of consumers, whether these are tangible
goods or intangible services. Nevertheless, we do need to
step back momentarily, at least for this lesson, in order to
discuss the critical differences between goods and
services.
Goods refer to tangible products that consumers can
actually observe with their senses. Goods are objects with
physical manifestations and attributes that can be detected
by our senses.
Services, on the other hand, refer to intangible offerings
that are abstract in nature and cannot be observed with our
senses. In fact, a key characteristic of services is that the
act of delivery itself is the product.
Here are some examples of services as products:
• Banking, investments, and insurance
• Hotel accommodations
• Restaurants, bars, and catering
• News and entertainment
• Transport and freight
• Education
• Health care
• Wholesaling and retailing
• Professional consultations
But wait, you may ask, does not banking involve
tangible banks with tangible tellers and tangible papers?
Does not hotel accommodation involves tangible hotel
rooms and grand lobbies? Does not restaurants offer
tangible food on tangible tables and tangible chairs?
The answer is yes, but although banks do feature
tangible furnishings, banks are not selling these per se.
Banks sell financial packages (intangible) and financial
advice (intangible). Everything else simply helps to
support these primary business offerings.
While hotels do offer hotel rooms with luxurious beds,
again these amenities per se are not being sold. Instead,
their use for a given period of time is what is being sold
and this too is an intangible offering.
Restaurants offer a mix of both the tangible and the
intangible. This explains why food critics, for example,
rate both the food (tangible) and the quality of service
(intangible).
So aside from tangibility, what else differentiate
services from goods? Here are some distinctions:
• While customers get to own goods, they do not
gain ownership of a service. This is because,
obviously, there really is not anything to own.
• The customer is typically an active participant
in the production of the service. Legal consultation,
for instance, involves heavy interaction between
the lawyer and the client. On the other hand,
ordering food at a diner involves the waiters taking
orders from the customer.
• The product experience is typically a composite
of a number of factors. Your experience of a hotel
is often the sum total of the quality of the
furnishings, the efficiency of the wait staff, the
courteousness of the reception, lighting, food
choices, facilities, and a whole lot of other
elements.
• There is a greater variability in the inputs and
the outputs of a service. Medical care, for instance,
depends on how much information a client is
willing to offer along with the actual skills of the
attending physician. Therefore, it is far more
difficult to control the quality of the product (the
service).
• It is typically difficult for customers to evaluate
the quality of the service itself. Clients are
generally not experts in assessing service quality
on a technical level. Therefore, they rely on other
indicators that become proxies for quality,
including amiability and pleasing personalities of
the service providers.
• Time is a significant factor for assessing service
quality. This could go either of two ways:
consumers are either procuring the service because
of its promise of speed and efficiency, such as in
the case with over-the-counter banking services, or
they are getting the service for pampering and
indulgence, in which case they are looking for as
long a service offering as possible.
Because customers have difficulty assessing the
technical quality of service delivery, the average consumer
will tend to evaluate a service based on the person-to-
person experience.
A study was conducted in the U.S. to determine the
kinds of doctors that typically get sued by their patients.
Surprisingly, the study discovered that there were doctors
who did everything right and still got sued. At the same
time, there were doctors who made mistakes that seriously
affected their patients' health and yet they did not get sued.
The study discovered that the common denominator of
doctors who do not get sued was that they typically have
very cordial relationships with their patients, with great
bedside manner and good social skills. Meanwhile, the
doctors who did everything right and yet still got sued
typically had more questionable social skills and did not
engage their patients on a person-to-person level,
preferring to be strictly business when dealing with them.
Clearly, it was not the success or failure of the service that
mattered but rather their rapport with their patients.
Types of Service Processes
Services can be enacted through the use of tangible
objects (i.e., the service is still intangible, but it is served
via tangible tools) or it can be purely intangible. Services
can also either be directed toward the “processing” of
people or services can be applied to the processing of
people's possessions.
Table 1. Types of Service Processes
Directed at People Directed at Possessions
People Processing Possession Processing

Tangible Acts Airlines, hospitals, hotels, Freight, repair, cleaning,
restaurants landscaping, retail
Mental Stimulus Processing Information Processing

Intangible
Broadcasting, consulting, Accounting, banking, insurance,
Acts
education, therapy legal, research
Airlines, for instance, primarily involve the delivery of

people to different destinations, in effect “processing”
them. Again, the act of delivery is the product itself. When
applied to their possessions rather than to the people
themselves, the service is now considered as freight
handling and it is a service that is now directed toward the
processing of what people own. In the same way,
appliance repair is a service that is directed toward the
processing of tangible objects.
Services can also be applied to the processing of
information. Accounting services, for instance, involve
the generation of reports based on transactions—all of
which involve the processing of data rather than of actual
objects. When that information is transmitted directly to
customers, then this is considered to be mental stimulus,
as is the case with education.
Building Up the Service Experience
Since consumers will have difficulty in assessing the
technical quality of a service, good customer engagement
matters. Again, this is because customers will tend to
evaluate services based on the quality of their interaction
rather than the merits of the actual service itself.
Why do Jollibee and its affiliate stores (Chowking
and Greenwich) offer a level of service quality for the
mass market that is superior to that of lesser quick-
service stores? The answer lies in training, training,
and training. The benchmark has been McDonald's
that has its very well regimented training program for
its service crew. Jollibee early on sought to emulate
the McDonald's model, standardizing crew service
quality and ensuring that everyone serves with a smile.
It is not always perfect, especially when dealing with
crews of franchise branches, but mechanisms are also
in place so that if ever there is indeed an unsatisfactory
customer experience with the service, the customer
can report the branch to Jollibee's head office.
Branches that do not follow the strict customer service
satisfaction protocols could go so far as lose their
franchise!
The following are service elements that should be taken
into consideration in order to build an excellent overall
customer experience:
• Personnel Selection and Training
For services that are delivered through personnel,
great attention should be given to the selection and
training of sales and front-liners as they serve as the
primary conduits between the business and the
clients. A retail store, for instance, will often be
evaluated based on the quality of the interaction
between the sales personnel and the customers.
Personnel must be trained to converse confidently
with the target market and to speak their language
as best they can. A business that targets an upscale
clientele, for instance, may have to hire service
personnel who are also from a high socioeconomic
class in order for them to be able to engage
comfortably with the clients.
Personality will also have to be taken into
account. Does the service require effervescent kinds
of personalities, for instance? This will be difficult
to attain via training alone. Therefore, the selection
of service crew will be of primary importance.
Personnel may in fact have to be put through
exercises that evaluate how well they can perform
under duress or under performance-level situations.
• User Interface
For services that are delivered through automated
means, such as ATMs and online services, the
quality of the service will be assessed based on the
ease of use of the service. This is why online
services need to have excellent user interfaces (UIs),
making it easy for consumers to navigate websites
and being intuitive enough to be used with little or
no assistance.
• Points of Contact
As services are evaluated based on a composite of
factors, all points of contact or avenues for
interacting with customers should be managed and
controlled. This includes the atmosphere of the
service venue, the quality of the seating in waiting
areas, the type of music played, and perhaps even
the scent in the air.
-Many utility firms use third-party contractors
when handling home servicing issues. Problems,
however, arise when these contractors are simply
hired with little or no training or brand management
as per the usual standards of the utility firm. The
result is that a contractor may do a house call while
driving a beaten- up truck, for instance, and this
instantly affects the customer's perception of the
utility firm itself—even if the contractor is not
exactly employed by the firm.
-Banks may do their best in making the service
experience as excellent as possible inside their
premises. But they may forget all about the security
guard who happens to be provided by a security
agency. At worst, the guard may exhibit an
intimidating personality that immediately puts off
an incoming customer which effectively destroys
their perceptions about the quality of the bank's
services.
- A restaurant may strive to offer the best possible
food and customer experience.But if parking space
is hard to find or if it poses a great difficulty to
customers, then this can affect their overall
experience as well.
• Tangible Mementos
When you buy a tangible good, you come home
with the item itself as a token of your transaction.
But when you buy a service, chances are that you
only have the experience, but have no physical
memento to remind you of the transaction itself.
If you have ever been to a memorable concert or
play, you may be able to understand the need of
many consumers to hold on to a tangible memento
that will remind them of the experience and this is
often in the form of the tickets or even the souvenir
program.
The same principle can be applied to all other
services, as this can help to stimulate recollection
among consumers and better yet, remind them about
coming back for more. Mementos can be in the form
of thank you cards, small giveaways, gift bags with
the branding of the service, or even complementary
low-cost items (again, preferably with branding).
Loyalty cards are also a viable option as this
stimulates return visits.
Richard Branson Reveals His Customer Service

Secrets
https://goo.gl/fMQNtx
Forbes interviews Richard Branson of the Virgin Group
of Companies who reveals his seven lessons on how to get
employees to offer excellent customer service.
A Better Gift-Wrapping Service

Your group is to design a gift-wrapping business. It will
be a chain of shops that will offer to wrap gifts for
consumers, whether they are for birthdays, holidays, or for
any other occasion.
1. Identify all the points of contact between the
business and the customer. How you will want these to
be experienced by customers?
2. Identify ways to make your service truly exceptional
in terms of service quality. Hint: choosing a target
market may be key in making this possible.
group.
How well did your group design your service?

1. Do you now know the difference ☐ ☐
between goods and services?
2. Do you now know the types of ☐ ☐
service processes?
3. Do you now have ideas on how to ☐ ☐
improve service quality?
Exercises
Name:________________________________
Section:________________________________
Date:________________________________
I. Discussion
1. What makes a service different from a physical
good?
2. Give three examples of products that combine both

the tangible (goods) with the intangible (services). List
down what they have of each.
Example 1
Example 2
Example 3
3. Can you offer service components to just any
tangible product that is being sold in the market? What
limitations can you foresee regarding this?

1. Identify a service business that you are familiar with.
Discuss ways by which you can make this an even
better service experience for its customers. What are
required in order to achieve this?
2. Find a local merchant website and identify ways by

which, from a user's perspective, you would make it
easier to navigate and use. List down your suggestions.
3. Many retail shops get their personnel through the use

of third-party agencies. If you have an upscale store,
how would you strive to ensure that your sales
personnel can provide a highly satisfactory experience
to your target customers even if you get your personnel
from an agency
LESSON 3
BRANDING
1. understand the nature of the brand;
2. understand the concept of brand equity; and
3. know the fundamentals for estimating brand value.
1. Give an example of a local brand that has managed

to impress you. Give your reasons why.
Brand:
Reasons:
2. Identify three brands that you feel seem to fit your

own personality very well. State these brands and
describe their “personalities.”
a
What Is in a Brand?
The social contract that lies behind every brand.
You say that modern marketing is pretty much obsessed
about the brand. Brands are developed, nurtured, grown,
expanded, and generally managed in order to maximize
their value both to the business and to their consumers at
large. Well-managed brands reward their owners with
generous business valuations and popular brands can even
become cultural movers and shakers.
Seeing that it is the symbol, the shortcut, and the
cerebral device that best connects customers with a
manufacturer's products, a brand has to be managed with
utmost fervor.
A brand is a mark of distinction that can be sensed
usually in the form of names or terms, signs or symbols,
design elements, or even a combination of these, and is
utilized for the purpose of identifying and distinguishing
the goods or services of one provider from another.
Most people tend to think of a brand as being simply a
label. But the truth is, brands go beyond just being quick
references for labeling goods and services. A brand, in
fact, represents a concise and imputed contract between
the producer and the consumer. It consists of everything
that comes to the customer or potential customer's mind
when they see or hear the name or logo (Drew, 2013).
Here is how it works: a consumer has a need that has to
be addressed. The consumer searches for possible
solutions (competing products) and tries your product. The
consumer really likes your product. The consumer then
remembers your product's brand so that in the future, the
consumer will know to just pick your product.
This scenario has two implications: first, it implies that
a key purpose of a brand is to serve as a mnemonic device
that facilitates the reconnection of a customer with a
particular experience that has proven to be satisfying.
Second, it also implies that there will be consistency in the
experience—that if the customer buys the product again,
there is implied assurance from the producer that the
experience will still be the same.
Consistency is a significant factor in brand
management. Consistency, in fact, is what makes the
imputed contract between producer and consumer
possible. The following are the functions of a brand:
• It identifies the product or service, enabling
consumers to accept, reject, or communicate their
opinions about it to others.
• It communicates messages to the markets and to
the public at large, whether the messages are
intentionally or unintentionally generated.
• It functions as a legal property, allowing its
owners to invest in building up the value of the
brand.
Origins of Branding
The etymology of the word brand itself provides
glimpses into the origins of branding. Back in the days of
Medieval Europe, it was a common practice to claim
ownership of cattle and other chattel by branding or
marking them with a hot iron (brand = burn in German).
Since literacy was rare, brands were generally in the form
of visual symbols. This also held true for heraldry, which
was the complex system of coats of arms and heraldic
badges that were used to signify membership to a
particular family, location, or organization.
While branding in that respect reflected issues of
ownership and belonging, visual signifiers were also
eventually used to distinguish the products of specific
artisans, such as on tools by blacksmiths and
metalworkers. Visual signifiers also made it easy for
people to identify specific commercial establishments,
such as market stalls, butchers, and taverns.
Branding as we know it today, however, was a
necessary outcome of industrialization. As products were
produced in bulk for wide distribution, there came the
need to identify the source of the product in order to
properly trace their origins. Before products became
individually packaged, manufacturer logos were typically
branded onto the crates and barrels that were used for
shipping.
The brand activist book No Logo explains the origin of
branding this way:
“The first task of branding was to bestow proper
names on generic goods, such as sugar, flour, soap and
cereal, which had previously been scooped out of
barrels by local shopkeepers. In the 1880s, corporate
logos were introduced to mass-produced products like
Campbell's Soup, HJ. Heinz pickles and Quaker Oats
cereal. As design historians and theorists Ellen Lupton
and J. Abbott Miller note, logos were tailored to evoke
familiarity and folksiness … in an effort to counteract
the new and unsettling anonymity of packaged goods”
(Klein. 2009).
As products expanded their reach toward territories that
were new grounds, there came a need for products to
“explain themselves” or else face difficulty competing
with the existing local competition. This, along with
increasing literacy, led to the development of packaging
that both sought to attract customers on an aesthetic level
while seeking to also explain the product's benefits.
Elements of the Brand
A brand is not just a name. Today's brands are
composites of various elements including:
• Trade name: the trademarked name by which
the product is to be known as, such as Coca-Cola,
Google, and Jollibee. Trade names are registered
through the Intellectual Property Office.
• Generic category: the category in which the
brand would fall under, such as beverage, search
engine, or quick service restaurant. The Intellectual
Property Office requires that brands explicitly
specify the categories that they would fall under.
• Logo: the visual symbol or image that will
identify the product, such as the distinctive
partially bitten apple image for Apple, the stylized
script letters of Coca-Cola, or the three-point star
of Mercedes-Benz. Logos are also registered
alongside the trade name.
• Tagline: an optional catchphrase, such as BDO's
“We find ways.”
• Visual cues: aside from the actual logo, brands
can also be represented with distinctive visual
identifiers, such as the red and green bands that
wrap around the outside of a Seven-Eleven store.
• Shapes: the actual shape or form of the product
or packaging, such as the pinched contour of a
bottle of Yakult.
• Colors: a Yellow Cab store is quickly
distinguishable from afar thanks to its bold yellow
signs with black letterings.
• Sounds: such as advertising jingles, or even
very short intro sounds such as those heard upon
starting up a computer.
• Scents: establishments such as Rustan's and the
Shangri-La Hotel have signature fragrances made
that help to create distinctive atmospheres in their
premises.
• Tastes: this includes special recipes or secret
ingredients, such as Max's distinctive fried chicken
formulation.
Figure 16. Elements of Brand Identity on a Package
Anything that can be sensed can be an opportunity for
branding, as these could help to establish both recall and
expectations.
Why pay so much attention to brands? The answer is
that consumers peg a lot of value on the brand itself.
Studies show that when people were unaware of the brands
of the products that they were sampling, their preference
levels and neurological responses to these items tended to
be similar. But once they were made aware of the brand of
the product that they were about to sample, they suddenly
had a greater preference for it (Praet, 2014). In other
words, our historical experiences with particular brands
immediately give even greater value to the products on
which they are applied to.
Elements of Logo Design
Graphic design guide Logo Design Love gives important
tips on what makes for a great brand logo (Airey, 2010):
• Keep it simple. Simplicity gives the logo design
versatility, allowing it to be used in a wide range of
media—from business cards to billboards.
• Make it relevant. The design should be
appropriate to the business it is identifying— to the
industry, to the market, and to the audience it is
addressing.
• Incorporate tradition. Logos should not strive to
be trendy but rather contain the symbolic elements
that are timeless as far as the nature of the business
is concerned.
• Aim for distinction. The logo should easily
stand out versus the competition. Prioritize shape
and form over color. A tip is to work first in just
black and white so that distinct form is emphasized
over anything else.
• Commit to memory. Great logos should be
memorable even after just one quick glance. This is
useful given the rapidly moving nature of the world
that we live in— with people flipping through
magazines, clicking through web pages, and
driving past billboards at high speed.
• Think small. Logos may look great on a
billboard but they should also be recognizable in
small executions, which will be useful when
placing the logo on small items such as zippers and
coffee stirrers. A tip is that the design should still
be easily recognizable even at a minimum size of
just one inch, which means that simplicity is key.
• Focus on one thing. The most iconic logos have
just one feature that helps them to stand out.
Incorporating more than one key element will only
clutter the mark and make it less memorable.
Levels of Meaning
A brand is just a signifier. But as a signifier, it can
manage to have several layers of meanings. The following
are six levels of meanings that a brand can have:
1. Attributes. Characteristics of the product itself, such
as softness, engine power, physical size, friendliness
(for services), locations, design, and colors.
2. Benefits. What consumers stand to gain from
patronizing the brand, such as shinier hair, peace of
mind, comfort, time savings, and happiness.
3. Values. The core values that the brand is identified
with, such as family ties, independence, creativity,
innovation, and risk-taking.
4. Culture. The culture or sub-culture that a brand is
identified with. Culture and values have a lot of
interdependencies but culture can refer to regional
identities, such as Bacolod Chicken Inasal being
expressly associated with its titular province.
5. Personality. If the brand was a person, it could have
a personality such as being adventurous, youthful,
energetic, formal and proper, brutally candid, or fun.
The underlying premise here is that like attracts like.
Consumers who aspire to have a particular kind of
personality become attracted to products with similar
personalities.
6. User. The specific target market or aspirational
group that the brand becomes associated with, such as
romantic youth for Close-Up toothpastes or concerned
mothers for Safeguard soaps.
Brand Equity
If there is one end goal for all of a marketer's duties and
responsibilities, it would be the building up of brand
equity.
Brand equity refers to the value of the brand. Ideally,
this value would be expressed in the form of peso values.
Unfortunately, figuring out the peso value of a brand is not
quite that simple to do. This is because brand equity is, for
the most part, intangible and near-speculative. That is to
say, there is really no way to figure out the exact value of
a brand in real time.
The only way to get a valuation for brand equity,
including its long-term potential, is by gauging how much
others are willing to pay for it. Here are two possible
scenarios:
1. There is an offer to buy the brand. In this case, the
valuation for the brand would have been set by the
potential buyer. The underlying assumption here,
however, is that the buyer has somehow figured out the
market value of the brand's potential. But then we have
just established that there is no way to figure this out, so
this offer is likely purely speculative as well on the part
of the buyer. To get a fair estimate, there will have to be
multiple potential buyers, each of whom will bid for
acquisition of the brand. When this happens, then the
market value of the brand may be approximated
through the “wisdom of the crowd.”
2. The brand happens to be owned by a publicly traded
firm. Considering that the firm is publicly traded, a
quick way to estimate the brand value is by checking
the current market value of the company (based on
share price). From this, subtract the company's book
value (i.e., the value of its tangible assets). The result
should be an approximation of the brand value. The
problem with this approach, however, is that (1) it
assumes that the company only has one principal
brand—if it manages multiple brands, then this
technique fails because there is no way to properly allot
the surplus value among the brands, and (2) it assumes
that all of the surplus value is explained by the brand—
this fails when the company's intangible assets turn out
to rely heavily on intangible factors such as research,
intellectual property, and people skills.
Brand Valuation
Since there is no clear way to estimate brand equity in
terms of monetary value, marketers have resorted to
utilizing nonmonetary measures of brand value. An
example of this is the BrandAsset(r) Valuator from Young
& Rubicam (Young & Rubicam, n.d.). These brand
valuators can be a number of metrics that are deemed to
be important for gauging how much consumers appreciate
a brand, such as the number of times a customer patronizes
the product per annum, how customers rate the brand
versus competitors on key attributes, and how much
customers say they “like” the brand on a scale of 1 to 10.
Marketers will have to construct their own brand asset
value by creating an index out of all these disparate
metrics. An index is a single number that summarizes the
quantifications of essential brand elements that have to be
monitored. It could be something like:
Brand Value Index = (Number of Patrons) x .15 +
(Number of Facebook Likes) x .05 + (Average satisfaction
rating for brand) x .30 …
Once the index value is calculated, a marketer can
compare this with previous periods' performance in order
to determine if the brand asset value is improving or not.
Note that there is no single standard, or even industry
standards, for the construction of brand value indices.
These indices are purely for internal use and are not meant
to compare industry competitors— unless an industry
association emerges and dictates an index formula for
industry use.
Brand asset valuation can also be helped along by
knowing the progressive levels of brand equity:
• Brand awareness "I am familiar with this brand"
• Brand "I like this brand."

acceptability
• Brand "I prefer this brand."
preference
"I will die if I do not get this
• Brand loyalty brand!"
Therefore, knowing that brand loyalty trumps brand

preference, which in turn trumps acceptability, then
metrics and questionnaires can be designed to determine
how consumers feel about the brand.
What Is Branding?
https://goo.gl/UjpYTg
This short promotional video by the Norwich Business
School manages to present the origins of and the essentials
of branding in a very concise manner.
What Matters Most

Choose a branded product (it could be tangible or
intangible) and recommend a method for estimating its
brand asset value. To do this, you will have to:
1. identify what are the most important elements that
will build the brand's value;
2. find ways of measuring the elements that you have
identified; and
3. propose an “index” for summarizing all the above
measures into just one value.
group.
How well did your group formulate a brand
measurement index?

1. Do you now know the elements of ☐ ☐
a brand?
2. Do you now know the meaning of ☐ ☐
brand equity?
3. Do you now know ways of ☐ ☐
measuring brand equity?
Exercises
Name:________________________________
Section:________________________________
Date:________________________________
I.Discussion
1. Give an example of a brand that has a wide range of
branding elements. Enumerate and describe these
elements as utilized by the brand.
Brand:
Elements:
2. In your own words, explain the concept of brand
equity. Is brand equity an asset? Why or why not?
Define brand equity:
Explain why it is difficult to measure brand equity.

1. Is it possible to create a brand that has no name and
instead relies primarily on its logo? What are the
possible advantages and disadvantages of this scheme?
2. Identify a popular non-international brand. As a

mental exercise, estimate how much you are willing to
pay to buy ownership of this brand. How did you go
about figuring out the value that you have in mind?
Brand:
Elements:
Valuation method:
3. Design a brand asset valuation index for the

Philippines as a whole for the purpose of pushing the
country as an investment destination. List down the
essential ingredients for this index, taking into account
the needs of global investors.
LESSON 4
DEVELOPING THE BRAND
1. know the steps involved in developing a brand; and
2. be able to construct viable brand concepts.
1. Come up with what you think can be a good brand

and slogan for a new energy drink. This drink is colored
blue, has a lightning motif, and promises to boost
energy and sharpen one's eyesight.
BRAND:
SLOGAN:
2. How did you come up with your brand and slogan

above? Retrace your steps and write down exactly how
your thinking process led to your selected brand and
slogan above.
Developing a New Brand

What are the things that you need to do in order to come
up with a powerful brand?
A well-designed brand strategy can help to enhance a
product's chances of being accepted by the market and of
surviving for the long term. But you cannot just plug in the
first words that come to mind and scribble an ad hoc logo
to go with it. The following is a recommended process for
building up a new brand.
First of all, the brand is a trade name. It is not
(necessarily) the business name. When a new business is
being set up, the Department of Trade and Industry (for
single proprietorships) or the Securities and Exchange
Commission (for partnerships and corporations) will ask
that the new entity be registered under a new business
name. The DTI has strict rules about what names are
acceptable, while both the DTI and the SEC require that
the business name be reflective of the type of business that
will be pursued.
This, however, is just for the business name. Again, it is
not (necessarily) the name by which consumers will know
the products and services of the business. That would be
the trade name. Consumers, for instance, may be very
familiar with Clear Shampoo (trade name), but most
consumers will probably not even know that the company
which makes this is Unilever (business name). For most
intents and purposes, they may not even need to know this
unless they need to contact the business for product issues.
Trade names are registered via the Intellectual Property
Office (IPO) of the Department of Trade and Industry. The
business needs to identify the industry categories for
which the proposed trade name shall be filed according to
the International Classification of Goods and Services
(NICE Classification) and check if the proposed trade
name has not yet been taken. If it is still available, then the
trade name along with its proposed logo can be registered.
The trade name will then be legally owned by the
company, at least under the classifications in which it has
been filed. Other companies, however, can still use the
trade name for other industry classes (e.g., you may legally
own the Thundercat brand of cosmetics, even if there
already exists a Thundercat brand of cat food).
But even before you proceed to the trade name
registration, quite a few things must first be done
(Joachimsthaler, 2000).
Step 1. Develop the Brand Strategy
Before you even contemplate on what the brand name
should be, you must first have a good understanding of the
business and of the business model that the brand will be
representing. So the first step is really all about setting up
the groundwork and the foundations for the development
of the brand proper.
Product information. What are the products or services
that the brand shall be representing? A detailed discussion
of the proposed product lineup, even future products, is in
order. This is a good time to create a product road map that
would lay out the proposed products and variants over the
next five to ten years. Knowing this information will help
in the selection of viable brand names and imagery,
ensuring that the selections will still be a good fit even for
future products.
• Market information. Who are the target markets
that the brand will be catering to? What are their
age ranges, lifecycle stages, socio-economic
classes, behaviors, likes and dislikes, occupations
and recreational activities, personalities, and
aspirations? Knowing this will help in the
formulation of brand communications along with
the building of the brand personality.
• Trademark criteria. Should the name be short or
should it be expository? Should it have a
distinctively Filipino flair or should it be more
global in nature? These are questions that address
the nature of the potential trademark itself before
the trade name has even been settled. Knowing
these details will help in narrowing down the
search process for viable trademarks. This is also
where you list down target geographical areas for
the brand—will it just be a local market, ASEAN,
or global?
• Brand name objectives. What should the brand
name accomplish in the minds of consumers?
Should it excite the market? Focus on
memorability? Elicit a sense of quirkiness or fun?
Should it connote luxury, formality, and
pampering? Knowing what must be accomplished
in the minds of the markets will help in the
development of the brand's creative aspects.
Step 2. Develop the Creative Theme
While the first step was all about laying the groundwork,
this step is all about building up the look and feel of the
brand. Take note: the actual brand itself has yet to be
decided upon but this step is necessary in order to build up
the “house” of standards in which the eventual brand will
reside in.
The elements in this step will take off from the
groundwork of the first step, so issues such as brand name
objectives and market information will be applied to the
points of this step.
• Brand personality. If the brand was a person,
what would be its personality? Again, this takes off
from the information that has been gathered about
the target market.
• Inferences and connotations. What imagery,
words, and meanings should the brand connote or
refer to? These can be best addressed by asking the
right questions: “If this product is a car, what brand
will it be?” “If this product is a celebrity, who will
it be?” “What kind of scenery should the brand
connote?” Executed properly, these inferences
would be part and parcel of the brand identity.
• Color palette and style sheets. For this part of
the process, you will need the services of a trained
graphic designer. A graphic artist can help in
selecting the proper color palettes that can best
represent the brand's personality, inferences,
objectives, market, and product lineup. You may
try doing brand designs yourself, but it is not
advisable as today's markets have become
increasingly sophisticated and expect a certain
level of polish from brand presentations.
• Font. Fonts are the letters to be used for your
brand name. You can use existing publicly
available fonts, such as those available on word
processors or design programs (such as Arial or
Comic Sans), or you could buy commercial fonts.
Thosewith even bigger budgets can actually
commission the creation of custom fonts. This will
ensure that your brand would look really
distinctive. Today, as more and more people rely
on mobile devices for commercial transactions, it
pays to choose a font that shows well and clearly
even on small screens.
• Visual cues. Symbols, icons, shapes, and other
images that you want to associate with the brand,
such as the swirling red and white bands that are
associated with Coca-Cola for instance. This helps
in generating brand recall across different media
and materials.
• Acceptable uses and materials. Each medium
and material has its own particular characteristic
and can have an effect on the overall response to
branding efforts. This is why you will not, for
instance, see McDonald's and Jollibee signs on
wooden signboards. When producing stationery,
for instance, this includes the types of paper to use.
• Retail placement. If you are producing a
consumer good, where do you plan to have it sold?
Specify locations and ideal shelf placement at retail
areas (via a “plan- o-gram” or diagram of shelf
location vis-à-vis other products). This will help in
properly communicating key points about or the
branding of the product.
Step 3. Create the Name
Finally, after all the groundwork has been laid, it is now
time to create the actual brand name. Note how the name
comes much later in the process. The fact is that for as long
as the selected name fits all the parameters as laid out in
the first two steps, it should be acceptable.
• Keep it short. Notice how the most memorable
brand names are only up to three syllables long—
even Coca-Cola became just Coke. This is no
accident. It turns out that the human mind can most
easily remember up to three syllables. Beyond that,
it gets harder to recall a brand name.
• Make it easy to pronounce and remember. It
will not pay to have a brand name that is hard to
spell, remember, or pronounce as this will only
dilute its potential for transmission particularly
when promoted through media such as the radio.
The only exception to this rule is if you are trying
to preselect your target market on purpose—for
instance, by having a difficult-to-pronounce French
phrase as a fine dining establishment's name which
will effectively intimidate people who do not know
how to pronounce it.
• It should translate well in target markets.
Especially if you plan on selling your product to
the international market, your brand name should
not connote anything negative in those territories.
You will have to get some research done then. The
worst thing that can happen is that your brand turns
out to have offensive meanings in countries that
you plan to sell in.
Brand names can be:
• Eponyms or names of people such as the
founders or even historical people. McDonald's, for
instance, refers to the name of the original brothers
who put up the first McDonald's diners.
• Descriptive, connoting something about the
product itself or its benefits, such as Head &
Shoulders for an anti-dandruff shampoo or
Chowking for Chinese quick service food.
• Abbreviations or portmanteaus, the latter
referring to the combination of words to make a
new word, such as the Papemelroti brand which is
a portmanteau of the names of the founding family
members, or Adidas which stands for founder
Adolf “Adi” Dassler. Abbreviations, such as CNN
(Cable News Network) or IBM (International
Business Machines), are no longer advisable as
these are difficult to recall and have no inherent
personality on their own.
• Symbolic or image-driven, such as Hidden
Springs brand of mineral water which connotes
images of nature, or Apple with its highly
recognizable stylized bitten apple logo.
• Synthetic, which means that the brand name is
not a dictionary word but is instead an invented
one, such as Lexus (there is no such word—at least
for now) or Neutrogena which again is an invented
word. Note that even when you invent your own
brand, it helps to be aware of the connotations that
you would want it to reference to. Lexus, for
instance, was selected primarily because even if it
is a made-up word, it still somehow manages to
connote luxury.
Today, the way to go is to create synthetic brands. First,
since you simply invented the name, then there is a good
chance that you can still get the web URL for it (because
all the dictionary words have already been taken as
websites). Second, you have a better chance that it will be
available as a trade name (again, since all the good
dictionary names have already been taken). Lastly, there
is a good chance that your synthetic brand will also be
available in foreign countries and hopefully, have no
negative connotations there as well.
Step 4. Test the Name
Our very first step involves the listing of brand
objectives. So this step is all about testing your selected
brand name and its impact and signifiers to your target
market.
Apply your proposed brand name to your creative theme
(from Step 2), incorporating the selected font, color
scheme, and imagery to it. Next, create a mockup of your
product, applying your proposed branding to its label or
signage (if your product happens to be a service location,
then you can use computer-generated mockups of how the
store would look like).
Find a few people who are representatives of your target
market and test your brand imagery with them. If you are
selling a tangible product, have them look and touch your
properly packaged product. Do they like it? Do they have
any opinions on what the brand and
the branding connote or imply? What are the things that
come to their minds? These are the key pieces of
information that you will need in order to test whether
your proposed brand does in fact hit your original
objectives.
Step 5. Screen for Trademark Availability
Finally, if your proposed brand passes the test
marketing, you will need to make sure that it is actually
available at the Intellectual Property Office. If it is, then
congratulations! If not, then you will have to try a different
name (and test it as well).
If you are going global, you will also have to find a way
to ensure that your trademark is also still available in the
countries that you are targeting. What if you want to keep
your selected brand name but it is already taken in a
foreign market? There are two possible recourses. One is
that, if your business has sufficient resources, you can try
to buy out the foreign brand owner. This could be
expensive, however, so it is a recourse that is only
available for the largest potential multinational firms.
The second option is that you can simply register a
different brand name in those markets. Do not worry, this
should not have a significant effect on your global
strategy. Choose a different brand name in that foreign
market while still applying the same creative theme to it.
This is where having truly distinctive creative themes
comes in handy, as the themes will help assure the market
that this brand name, even if it is different from the name
in other markets, is the same brand after all.
Creating a Brand - Fundamental Elements of
Design
https://goo.gl/twYtGZ
This short but snappy video by Erica Gorochow zips
through the various considerations that graphic designers
keep in mind when creating a compelling and iconic
brand.
Build a Brand Experience

Writing pens are a dime a dozen and so many brands are
fighting for attention in bookstores and office supply
shelves. But what if you can create a totally captivating
brand experience for a new brand of writing pens?
Use the steps outlined in this section to create a new
brand for writing instruments— defining the range of
products that you want the brand to eventually venture
into, the target
market or markets, and the brand objectives. Identify its
personality, the inferences, and connotations that you want
it to project. Design as well its branding and logo. Of
course you should come up with a proposed brand name.
Present this to the class and see if the class reaction
achieves the intended brand objectives. Presentation time:
an estimate of 10 minutes per group.
How well did your group formulate a brand strategy?

1. Do you now know the steps ☐ ☐
involved in developing a brand?
2. Do you now know what makes ☐ ☐
for an effective brand name?
3. Do you now know why synthetic ☐ ☐
brands are recommended?
Exercises
Name:________________________________
Section:________________________________
Date:________________________________
I. Discussion
1. Give an example of a successful synthetic brand.
List down the messages that the brand manages to
communicate to you.
Brand:
Messages communicated:
2. Give an example of a brand that you are totally not

familiar with (i.e., you have heard of it but do not know
what it is all about). What inferences or messages are .
you getting from the brand alone? What does this say
about brand communications?
Brand:
Inferences from the brand alone:
Your insight on brand communication:
3. Give an example of a brand that you do not like.

What is it about the brand that affects you? Discuss
how this could be resolved so that you can gain positive
feelings for the brand.
Brand:
How it affects you:

Possible solutions:

1. At the time that a brand concept is being created, it
still has little or no brand equity. Do you believe that
having a well thought-out branding process will already
give it some equity even before the first sale?
2. You have a brand name that is registered under a

particular NICE Class. Another company registers the
same brand name, but under a different NICE Class.
Will this affect your brand's equity? What factors do
you think would be important to consider in this
situation?
3. Is service experience a part of the brand identity? If

so, where will this fall under the brand development
steps? If not, how do you link or ensure that service
quality is tied closely to the brand objectives?
LESSON 5
BUILDING PRODUCT
PORTFOLIOS
1. understand the framework behind the product mix;
and
2. understand the principles behind product portfolio
management.
1. Datu Puti is a popular brand for vinegars and soy

sauces. Besides condiments, what other products will
you feel comfortable seeing this brand on?
Products:
Given your identified products, what conclusions can you

draw about the Datu Puti brand?
2. Ligo is a brand that became very popular for canned

sardines. Years ago, it tried to expand into the growing
mineral water market by launching Ligo Mineral Water.
The product did not take off and was soon removed
from the market.
a. How do you feel about Ligo Mineral Water?
b. How would you make Ligo Mineral Water

acceptable to the market?
Going beyond One Product

Sooner or later you have got to expand your product
mix.
Small enterprises would likely begin with just one
product, effectively behaving just like a single business
unit. Sooner or later, however, the business will likely
need to expand its product line. For most businesses, this
is an inevitability.
Why should firms expand their offerings? Mostly, it will
be about economies of scope. Whereas economies of scale
pertains to the reduction in costs of goods when production
is ramped up, economies of scope pertains to the reduction
in overhead costs that is possible when the enterprise
produces more than one good.
Imagine Company K, with a full complement of
management—President, four Vice Presidents, and
middle management—along with an office space and
monthly utilities, among other expenses. While Company
K is producing just one product, Product A, all of the
monthly overhead will have to be shouldered by that one
product. This leads to a lot of pressure for the product,
necessitating possible higher markups or higher sales
targets, just to recover all the overhead expenses.
Now imagine Company K adding another product,
Product B, using practically the same overhead
infrastructure to produce it. Company K can now split the
overhead—management expenses, office space, utilities,
etc.—between Products A and B. A simple splitting, for
instance, would effectively cut in half the overhead
expenses that are apportioned to Product A, thereby
allowing the company to lower the pressure for the
product.
Magazine publishers typically cannot survive with
just one magazine title alone because the lone title will
have to support the high cost of maintaining a sales
force and distribution arrangements. Typically, a
magazine publisher will have to have at least four or
five titles so that the overhead costs could be
apportioned among these. Sales people will now be
able to carry multiple titles when dealing with
distribution points, rather than furnishing just one title.
The simplest way to expand a product portfolio is by
stretching the product line.
From one single mid-priced pen, for instance, a
fledgling stationery manufacturer can build a product line
by launching a high-priced pen or perhaps a low-priced
one.
Stretching the line refers to offering new variants that
would appeal to different target markets. Typically,
product lines are stretched upward (by offering more
expensive variants) or downward (by offering cheaper
variants).
Price points, however, are not the only way to stretch
product lines. Since a product line is composed of variants
that target different segments, the segments can be
categorized by benefits sought. This is the most popular
manner of segmentation for large convenience goods
manufacturers.
Example: The skin care line of P&G is composed of:
• Safeguard - a germ-fighting family of soaps and
anti-bacterial liquids
• Ivory - a brand that emphasizes mildness
Olay - a brand portfolio that is positioned for anti-aging
properties Camay - a beauty soap
Old Spice - a portfolio of skin care products that focus
on manly fragrance
The Product Mix
The product mix is the set of all products that a business
offers for sale and is categorized along the following
dimensions:
Length - the length of the product line
Width - the number of different product lines carried
Depth - the number of variants per product in a line
These dimensions can be illustrated as follows:
Figure 17. Product Mix Dimensions
Length pertains to the number of products offered in a
product line. As mentioned earlier, this typically involves
having each product in the line targets a distinct market.
This is actually an important point because what you do
not want is to have two different products in the line that
inadvertently target the same target market. If this
happens, then cannibalization is the result, with one
product simply stealing market share from the other.
Ideally, each product will have its own market, with just
minimal overlap so that the total market penetration of the
entire line grows with every new product introduced.
As always, there are exceptions to this rule. For
instance, certain firms would launch product variants that
still target the same market or threaten to cannibalize their
own products. Their rationale: having another variant
allows them to get even more shelf space in a grocery
store, hopefully allowing them to squeeze out competing
brands. It is a case of “instead of others eating into our
market share, let us eat it ourselves."
Coca-Cola offers three variants of Coke, namely
Coca-Cola, Coca-Cola Light, and Coca-Cola Zero.
There is arguably a high risk of cannibalization
between Coke Light and Coke Zero as both brands
target essentially the same health-conscious market.
However, there is a nuanced difference between the
two in that, at least in principle, Coke Light tends to
appeal more to women while Coke Zero has a greater
masculine appeal. Nevertheless, this differentiation
may be too subtle and cannibalization will be
expected. But this will not matter as Coca-Cola
primarily benefits from the greater shelf coverage by
having three Coke brands to offer.
It should be noted that the way by which the phrase
“product line” is defined may vary depending on the scope
of the products that are offered by any one firm. A small
firm, for instance, may talk about its line of toothbrushes
and its line of toothpastes, segregating each into separate
lines. A larger firm may simply talk about its line of oral
hygiene products, in which toothbrushes and toothpastes
are pooled together under the same line category.
Strictly speaking, however, the product line should
involve products belonging to only one particular kind of
category.
Width refers to the number of product lines that a
marketing entity may have. Below is an example showing
a partial map of the length and width of P&G's product
mix, featuring four distinct product lines:
Table 2. P&G Product Mix
A company can start out with a single product line and

then eventually expand its width by introducing a new
product category. Whereas new products within a line
have to target different markets, an expansion through
width offers a different opportunity. It is a chance to sell
other products to the same target markets that have already
been targeted by existing products.
Thus, if a large market segment is already patronizing
your soap, you can still get this same segment to spend
more for your products by offering them a new product
category to spend on.
Finally, there is depth. Depth pertains to variety, which
is typically manifested as flavors, colors, sizes, or
formulations for a particular product. An example would
be ice cream coming in different flavors such as vanilla
and chocolate, with each new flavor expanding the depth
of the product even further.
As it pertains to variety, products that increase depth
actually target the same market. But if this is the case,
would not product variants cannibalize existing variants?
Would not launching a new ice cream flavor simply eat
into the sales of existing flavors?
The answer is actually rather elementary: it will all boil
down to trial-and-error. As an example, assume that you
are selling ice cream that currently comes in three flavors:
chocolate, vanilla, and ube. So now you plan on launching
a new flavor, mango. The rationale for doing this is that
maybe, just maybe, your product's market penetration is
limited at the moment because not everybody likes
chocolate, vanilla, or ube. But maybe if you offer mango,
this flavor would appeal to people in your existing target
market who would not normally be interested in your
previous flavors. The result would be seen in an increase
in your product's total market share upon the release of
your new flavor.
This is where the trial-and-error part comes in: you
launch a new variant (depth) and then you check the total
sales figures for all your variants afterward. If your total
sales figures grow significantly, then this is a sign that
your new variant is not cannibalizing your other flavors
and is attracting new customers. But if your sales figures
barely grow, then it is a sign that your new variant is
simply cannibalizing existing flavors, in which case you
may have to drop it or whatever flavor it has managed to
cannibalize.
Done properly, the offering of product variety produces
another potential advantage: consumers can perceive the
brand to have greater “category expertise,” especially if
the variants are remarkably compelling rather than near-
similar (Berger et al., 2007).
Food for thought: studies show that between offering
just six and offering up to thirty variants of a product, the
former is more likely to result in a sale because, when
faced with so much variety, consumers actually become
demotivated to make a specific selection. Other studies,
meanwhile, seem to indicate that offering too much variety
can lead to post-purchase dissatisfaction as consumers
have a greater chance of regretting their particular choice
(Lepper & Iyengar, 2000).
Table 3. Red Ribbon's Product Mix
Red Ribbon bake shops classify their foods into four
product lines: cakes, pastries, meals, and hot and cold
beverage blends. In this case, the products in the lines
represent a mix of price points and variety—a hybrid of
length and depth. Buyers, for instance, can choose
between having a mango cake or an ube cake, so this is
about variety rather than offerings for different target
markets.
Line Imaging and Line Featuring
Firms that have popular upscale products may decide to
introduce medium-priced variants in order to gain wider
market share while, at the same time, hoping that the
reputation of its higher-end products seeps down the line.
Makers of expensive audio equipment, for instance, will
launch a very pricey flagship model which they hope to
win rave reviews from technical journals, and then launch
lower priced models under the same brand, hoping that
whatever credibility was generated at the high end
becomes known by the wider market as well.
Having a flagship product among the products in a line
is called line imaging. Promotions can focus on this
product (usually the most technically impressive model in
the line) and the brand recognition may be imbued onto
the other products in the line as well. At an extreme
example, a super-premium product variant may be
produced which the company does not even intend to sell
but is simply used as a showcase item or a proof of what
the company is capable of accomplishing. This is the
thinking behind the presentation of so-called “concept
cars” by automobile manufacturers.
A different approach would be to aggressively promote
a product that offer great value. This is known as line
featuring and it hopes to communicate that the entire line,
as a whole, is composed of good value products.
How to Determine an Optimal Product Mix
http://goo.gl/glHe2q
How can you tell whether or not you can or should still
add yet another product to your offerings, or conversely,
when to trim your offerings down? This reading from
Chron.com provides some key insights.
Mini-Case: Promil Pre-School and Its New
Big Sister Brand
Wyeth Nutrition manages some of the most recognized
brands for infant formulas in the country, including the
brands S-26, Promil, Progress, and Bonna. In 1986,
Executive Order 51 or the “Milk Code” was passed in
order to regulate the advertising of infant formulas so as to
encourage breastfeeding. This could have crippled Wyeth
to a significant degree but instead, it responded by
launching a new category of products: follow-on formulas
or formulas for children of ages three and up. It was a
previously untapped category and it led to the
development of the Promil Pre-School brand. This new
product was an immediate success.
Having a follow-on formula also offered a marketing
opportunity for Wyeth: while their infant formula brands
Promil (for infants of ages 6 to 12 months) and Promil Kid
(for ages 1 to 3 years) could not be directly advertised to
consumers, there was nothing wrong with also bringing
these products along during field campaigns for Promil
Pre-School thereby effectively piggybacking on Pre-
School's publicity.
All was well until formidable competitor Nestlé,
through its Nido brand, came up with its own follow-on
formulas in the form of Nido 3+ and Nido 5+. Prior to
Nido's entry into the follow-on market, Wyeth follow-on
products enjoyed a 50 percent share of the market. By
2008, Wyeth's share of the follow-on market dropped to
just 42 percent, primarily due to Nido's entry.
Nevertheless, Wyeth still enjoyed a relatively healthy
market share just the same.
The big twist, however, came in 2013 when Nestlé
acquired Wyeth's infant formula division. This meant that
both Nido and Promil would be competing for exactly the
same markets, but under one roof!
Since both brands had built up tremendous brand equity
over time, it became a quandary as to which brand should
give in to the other (at most), or how best to segment the
market between them.
Possibilities include “upscaling” one brand over the
other so that one brand, for instance, takes care of targeting
the AB market while the other focuses on the Upper C.
Perhaps a more psychographic approach can be found, in
which Nido focuses on the emotional bond between
parents and their kids while Promil focuses more on the
rational benefits of nutrition. Maybe there is even a more
out-of-the-box solution out there.
The bottom line: two powerful brands under the same
roof, competing for the same target market is not a good
problem to have. The first order of business is to clearly
define which markets belong to which brand.
Stretch the Width

Identify a brand that is very much associated with just
one kind of product category. Your job is to determine
what product categories this brand can safely be stretched
toward in order to extend its product width. Present at least
three new categories that you would believe this brand can
be stretched toward. Present mockups of the proposed
products in order to properly illustrate these new items.
group.
How far did your group stretch your brand?

YES NO
topic?
of a product mix?
2. Do you now know why
companies want to offer multiple ☐ ☐
products?
3. Do you now know why
cannibalization happens in product ☐ ☐
mixes?
Exercises
Name:___________________
Section:___________________
Date:___________________
I. Discussion
1. Select a brand and present the members of its
product line, identifying the markets that each product
targets. Do the products together form a strategic fit
(i.e., there are minimal prospects for cannibalization)?
2. When a carmaker offers different types of models

under a particular brand, such as the Mitsubishi
Montero Sport utility vehicle that is offered as GLX
(around 1.2 million pesos), GLS (around 1.4 million),
and GTV (around 1.7 million) variants, is this an
example of product length or of product depth? Explain.
3. A brand of soap offers both bar soaps and liquid

soaps. Will these be classified as being under the same
product line, are these considered as different categories
(width), or are these considered as product variants
(depth)? Explain.

1. Can a producer of popular low-cost or budget items
effectively penetrate the highend market? Give an
example of a popular low-cost brand. What will it take
for this to successfully move toward the high-end
market?
2. Conversely, identify a well-known premium-only

brand. Identify the price point at which its products sell.
Assume that you are to offer new mid-priced products
under this brand. What will it take to successfully move
this brand toward the mid-point of the market?
3. Is it possible to have depth (variety) that actually

targets different markets thereby behaving much more
like product length in the process? Explain and give
examples.
Honda: Entering the Market via the People's Car
Program
Up until the end of the Martial Law era, there were only
three car brands in the country: Toyota, Mitsubishi, and
Nissan. But by the early 1990s, the People's Car Program,
a government initiative to introduce low-cost automobiles
to the market, led to the entry of a host of new automobile
brands.
The program, however, had a fairly challenging entry
requirement. In order for a new automaker to enter the
Philippine market, it must introduce a “People's Car”
which at that time was classified as a vehicle that would
be on sale for less than 200,000 pesos only. Kia, in
particular, became an early entrant into the market with its
highly successful model, the Kia Pride.
To Honda Motors, however, which was intent on
entering the local market, this was going to be a serious
challenge. Honda was a producer of cars that were at a
slight premium compared to other mid-priced vehicles and
there was no way that they could produce a vehicle that
could be sold for less than 200,000 pesos.
The company eventually got around the entry
requirement through the skin of its teeth. For its People's
Car entry, Honda chose to bring in the two-door Honda
Civic—a car which normally would be sold at a loss if
priced below 200,000 pesos. The company then proceeded
to strip the car of all its luxuries—air conditioning,
upholstery, sound system, power options—and declare the
stripped vehicle to be its People's Car. If any buyer wanted
to trick out their Civic with these amenities, then they will
have to pay for all the extras, bringing the total price of the
package well over 200,000 pesos.
The two-door Civic went on to become a bestseller.
Although even at its stripped down state, Honda did not
make any real money from this model. But that did not
matter because the car allowed the company to enter the
Philippine market. It was with its more premium vehicles
such as the Accord and later, the CR-V that it was finally
able to have profitable operations.
This chapter covers the second of our four marketing

P's, Price. The primary takeaway that you should have
after going through this chapter is that price is not just a
means for generating profit. In fact, of equal or perhaps
arguably even greater importance is how price can be used
to help communicate the nature of your product to the
market.
LESSON 1
ORIGINS OF PRICING
• understand the evolution of pricing practices;
• gain insights into the subjective nature of
pricing;
• be introduced to the complex dynamics between
suppliers and sellers, particularly with regard to
pricing; and
• understand that prices can be flexible and,
therefore, can be negotiated.
1. Give an example of a brand that you find to be very

expensive.
Brand:
What makes you believe that it is expensive and beyond

the actual price?
2. An inferior good is a product that you will only buy

if you have a limited budget but would otherwise not
even consider. Give three examples of what you feel are
inferior goods and explain why you believe them to be
so.
a.
b.
c.
The Origins of Pricing

Suggested Retail Price is not that just a suggestion?
Chances are, you would have already heard of the term
“SRP,” short for “Suggested Retail Price.” It denotes the
price that a consumer product is expected to be sold at over
the counter and in stores.
But once upon a time, there was no such thing as a
suggested retail price.
Prices were always the subject of negotiation.
In fact, you would still see this pricing mindset
whenever you go to tiangge (market stalls) orpalengke
(wet markets). In these places, consumers are actually
expected to haggle with the vendors. At an extreme case,
vendors may even harbor a modicum of contempt for
shoppers who do not bother to haggle!
The above situation, however, is borne out of a time-
honored “dance” between buyer and seller. It is a socio-
cultural phenomenon that both parties are expected to
respect and abide by. Because the seller knows that the
buyer is going to ask for a discount (tawad), a generous
level of price padding is factored into the initial offer price.
The buyer, meanwhile, is expected to understand that the
seller does actually put in a generous margin on the
merchandise and, therefore, is entitled to ask for a
“tawad.”
This is why merchandisers can go so far as to look at
non-haggling shopper with contempt: these shoppers do
not understand the “dance” and allow the merchandiser to
get away with more than what is reasonable. Because of
this, the merchandiser may feel a sense of guilt for getting
away with the huge margin and therefore redirects this
guilt into blaming the shopper for being gullible!
The lesson of this story? Haggle whenever you can!
Actually, there are two more lessons that can be
extracted from the above scenario and these are of
significance for understanding the nature of pricing:
1. consumers do not really know what the real price of
a product should be; and
2. sellers can have a pretty wide leeway on how to
price their products.
Here is something to think about: How can you tell if
something is cheap or expensive?
Answer: By comparing.
You can tell if a new brand of soap is cheap or expensive
by comparing it with similar soaps in the supermarket.
You can also tell if the vegetables that you are buying are
cheaper or more expensive now by comparing them with
the price that was offered to you during your last visit to
the wet market.
But what this also means is that if you have no frame of
reference or if you have nothing to compare an item with,
then you may have no way of telling whether it is cheap or
expensive.
This is why tourists in foreign lands tend to be prone to
price gouging by locals. Being in an alien landscape,
tourists have no clear frames of reference for prices and
therefore tend to accept the possibility that the prices that
are being offered to them are the local reality. Tourists can
be quoted prices that are three times what is normal and
they will still accept it because they probably would not
shop around and therefore would not know any better!
(The lesson here for you, if you plan to visit a foreign land,
always shop around first before buying anything!)
For centuries, price negotiations between buyers and
sellers or the haggling process has been the norm. But that
would change with the advent of the industrial revolution.
Emergence of the Suggested Retail Price
The industrial revolution led to a number of
developments that become critical transformers for the
marketing process.
Two elements in particular seriously altered
merchandisers' approach to pricing. The first element is
mass production, which led to wider access to cheap goods
that are sold in bulk, as made possible by factory-based
processes.
The second element is transportation. The emergence of
long range mechanical transportation systems would
provide merchants with access to a far wider variety of
goods than was ever before possible.
This led to an evolution in merchandising, with
shopkeepers evolving from product specialists who only
sold a few specialty items at generally high margins, to
mass merchandisers who stocked a wide variety of goods
and who hoped to make money by moving their inventory
as quickly as possible.
Imagine trying to run a supermarket by having cashiers
who haggled prices with customers for each and every
small item that they bought! This would not do. For one
thing, the cashiers would not be expected to memorize the
cost of each and every item, that is near impossible for
modern supermarkets which can easily have thousands of
kinds of items in stock.
This then led to the development of fixed price policies,
where each store item would have a price that has been set
beforehand. Because price has already been preset (either
through price tags or through price lists), shoppers are free
to simply accept or reject each item on their own volition
without having to go through a painstaking haggling
process with the seller. For large merchandisers, this
development has been a blessing as it allows for faster
movement of goods and a more efficient use of the
storekeepers' time.
This development, however, still puts the power of
pricing in the hands of the shopkeepers. But what if the
manufacturers or suppliers themselves want to control the
end-user price of their products? Then this is where the
concept of a suggested retail price (SRP) comes in.
Before anything else, however, let us first acknowledge
that “suggested retail price” has become a much-abused
term. After all, does not the very phrase imply that it is
merely meant to be a suggestion? Yet there are instances
when non-compliance with a “suggested” retail price can
lead to sanctions or penalties from either the suppliers or
even from other parties. The government's Department of
Trade and Industry, for instance, controls the prices of
essentialcommodities by managing a list of wet market
and supermarket prices for a critical basket of goods that
includes canned sardines, rice, coffee, and cooking oil,
among others. Retailers that do not follow these SRPs can
be penalized. Yet, DTI spokespeople are often caught
referring to this list as a list of “suggested” retail prices!
At any rate, SRPs are intended to be pricing tools for
suppliers so that they can somehow control the list price
of their products at the store level. Without an SRP,
retailers may arbitrarily set prices for these products that,
at worst would see them priced out of the market's reach.
At the opposite side of the spectrum, retailers may
inadvertently set their prices so low that they barely make
money on these items, thereby making them lose their
interest in stocking these items in the future.
(Almost) Everything Is Negotiable
Most consumers have learned to take Suggested Retail
Prices (SRPs) for granted. Whether it's buying groceries,
appliances, cars, or even homes.
However, the shrewdest consumers believe that
everything is negotiable. They believe that sellers know
that consumers are not really aware of how much a product
actually costs, and so sellers have a tendency to try to
maximize their margins. Shrewd consumers therefore
insist on haggling and demanding for discounts or else
they won't buy.
Haggling is often associated with tiangges (street
hawkers) and thepalengke (wet market). But really shrewd
consumers will haggle over nearly everything—cars,
homes, insurance, clothes and accessories. Their secret?
They know that salespeople have limits on how much they
can offer to consumers, so shrewd consumers demand to
speak to someone higher up the organization. People
higher up are often empowered to give even bigger
discounts and incentives!
Where Does the Money Go?
Depending on the type of product or service that is being
offered, the difference between the product's actual cost
and the eventual SRP can be very lean or very large. Below
is a table that shows the typical breakdown of an
automobile's suggested retail price in the United States
(Vyas, 2000):
Table 4. Contributors to a Car Manufacturer's Suggested
Retail Price (MSRP)
The table shows that in the US automobile market, the
cost of a vehicle represents just half of what the MSRP
(manufacturer's suggested retail price) is, so that the SRP
is typically twice that of the cost of building the car and
only 2.5 percent of SRP goes back to the manufacturer as
profit. Much of the margin (around 45% of SRP) goes to
necessary expenses such as the cost of selling (23.5%),
company overhead (7%), and even warranty expenses
(5%).
What all this means is that, before setting the final retail
price for a product, proper due diligence should be done in
order to ensure that all possible costs are accounted for.
What you do not want to happen is that you would already
set your SRP in stone and only then will you realize that
your costs will actually turn out to be higher than you
originally anticipated!
Pricing Strategy—Positioning and How to
Price Your Product
https://goo.gl/eMxC2f
This video by Marketing Pathfinders explains how
positioning can lead to different potential valuations for a
product, and why a marketer should first spot the best way
to position the product before pricing it.
The Beverage Project

Your group is to develop a new beverage idea,
something that is not yet being offered in the market.
Ensure that the following elements are made very clear:
1. Product proposition - What does the brand promise
for potential consumers?
2. Brand - Develop the brand, including the name,
symbols, and any other necessary visual elements.
3. Category and competitors - Identify the type of
beverage as well as its closest competitors.
4. Price - Select an SRP for your product.
Your group will have to do fieldwork to gather the prices
of competing products in any popular supermarket. Only
then will you decide on an SRP for your product, making
sure you will be able to properly defend your selected
SRP. Groups are to present their product proposals in
class.
group. Make sure to present the gathered competitor prices
before presenting your product's SRP.
How well did your group formulate your pricing?

YES NO
topic?
1. Do you now understand why ☐ ☐
pricing is subjective in nature?
2. Do you now know the reason for ☐ ☐
products having fixed prices?
3. Do you now get the feeling that
suppliers do not always have full ☐ ☐
control over the retail price of their
products at the store level?
Exercises
Name:________________________________
Section:__________
Date:__________
I. Discussion
1. “Home Shopping” TV channels normally offer
products that viewers will not get to see anywhere else.
Discuss the implication of this on their product prices.
2. Convenience store prices are generally higher than

supermarket prices.
Discuss why convenience store patrons are willing to
pay the price premiums here rather than go to
supermarkets instead.
3. Discuss other reasons why a supplier would want to

control the end-user price of its products.

1. Explain why a retailer, such as a grocer, may feel
entitled to decide on the retail prices for the products
that it sells rather than obey a supplier's SRPs.
2. What are the ways by which a supplier can hope to

convince a retailer to sell products at its SRP price?
3. How will you explain the differences in prices for
the same product from one store to another?
LESSON 2
PRICE ELASTICITY AND
INELASTICITY
1. understand the nature of price elasticity and
inelasticity; and
2. gather insights into the effect of the marketing mix
on the market's reactivity to price.
1. Give three examples of products that you will still

buy even if their prices increase by twenty percent.
a.
b.
c.
2. Describe what the three products that you listed
above have in common, if any. If they have nothing in
common, then explain the reasons why you would still
buy these products despite steep price increases.
Elasticity and Inelasticity
Will the market flinch if I price my products too high?
In 2000, when the Metro Rail Transit (MRT-3) line
along EDSA highway in Metro Manila first came into
operation, hardly anybody rode the trains. This was partly
due to the novelty but also due to initial trip prices that
were deemed to be too high for the commuting public.
“Why take MRT when I could take a bus at a third of the
price?” seemed to be a common argument.
It was not until the government stepped in and mandated
lower ticket prices that the MRT-3 railway eventually took
off and finally became an indispensable transport option
for thousands of commuters. In classical economics,
elasticity refers to the degree of sensitivity of a market to
changes in a product's price. It could therefore be argued
that this is a clear-cut example of just how elastic or
sensitive the market is to MRT ticket prices.
Yet, once the public has gotten used to the MRT line as
a staple transport option, all signs pointed to the likelihood
that the public has eventually lost much of its sensitivity
to price changes. In economics, inelasticity refers to a
market's reluctance to let go of a product even if its price
goes up or, contrariwise, inertia against buying more of a
product just because its price goes down. In the case of the
MRT-3, inelasticity would refer to the likelihood that even
if the line increases its route prices, most of its commuters
would bite the figurative bullet and still ride the train
despite the higher prices.
Price elasticity of demand is typically explained as the
market's sensitivity to changes in price. Formula-wise, it
is reflected by the following equation:
where the elasticity coefficient equals the change in

quantity of demand (9Q) over total quantity Q, over
change in price (SP) over total price P. We will be looking
at its absolute value though because we will not be
concerned with the direction of the relationship—we
simply need to know how big or how little the impact of a
change in price would be to the quantity bought.
So how do you interpret this coefficient? If the change
in price leads to a proportionately equal or greater change
in quantity bought (>= 1), then the demand for the product
is said to be elastic. In other words, the market tends to be
sensitive to price changes. The higher the coefficient, the
more sensitive the market is. The market is sensitive to
price increases—but it is also sensitive to price decreases.
In a highly elastic market, a producer may be better off
finding ways to reduce price because the corresponding
increase in market size may more than make up for the loss
in gross margins.
On the other hand, if a change in price leads to a
proportionately smaller change in quantity bought (< 1),
then the demand for the product is said to be inelastic. In
other words, the market tends to not be sensitive to price
changes. In these cases, it may actually be beneficial for
the producer to raise prices whenever possible because
doing so will produce a gain in total margin that will be
more than what will be lost from the reduction in the
market share.
There are, however, a couple of exceptions to this
general rule of demand that are inversely reacting to price
(and henceforth having negative coefficients). These are:
1. Veblen goods - goods that become more sought after
the higher their prices become, often in the case of
high-end luxury goods (Veblen, 1934); and more rarely
2. Giffen goods - goods that end up being preferred
despite its price increase because substitute goods'
prices are also rising as well, to the point that the
former becomes more attractive than the substitutes
(Marshall, 2006).
Here is a classic case of a Veblen good:
Fleischmann's Gin was not selling well at US$ 4.50 a
bottle.
Frustrated, the company decided to raise its price by
fifty cents, if only to recuperate via higher margins.
Surprisingly, sales rose. The company then raised the price
further by another fifty cents and improved the packaging,
its sales skyrocketed.
It does seem counter-intuitive to have sales for a product
as its price increases. Yet, when the price of a product is
set too low (as may have been the case with the above gin),
the market can perceive it to be an inferior good, which
leads to negative opinions about it. Therefore, when its
price is raised higher enough, it may actually be perceived
as being no longer inferior; thus, leading to an increase in
sales.
The market is said to be price elastic if the rate of change
in quantity Q is greater than the rate of change in price P.
If this is the case, then lowering the price of a product can
lead to greater total revenues for a seller because the
market turns out to be very responsive to price changes.
Raising the price, on the other hand, leads to a
disproportionately larger decrease in demand, so it is
generally not in the seller's interest to raise prices.
Nonessential commodities, such as vegetables like bell
peppers and broccoli, tend to fall into this category. When
prices fall, the market suddenly feels like whipping up all
sorts of dishes for these. But when prices rise, they can
forego these items altogether in favor of cheaper
substitutes.
The market is said to be price inelastic if the rate of
change in quantity Q tends to be less than the rate of
change in price P. This is usually the case for essential
goods and staples, such as bread and gasoline. As these
tend to be essential for everyday living, the market
practically has no choice but to buy these regardless of
price increases, thereby explaining the insensitivity of Q
to changes in P. Under these conditions, raising prices
actually works to the seller's favor as it increases total
revenues.
Here is another liquor story that illustrates this point:
Popov Vodka was sold at $4.10 per 200ml bottle. The
manufacturers decided to raise the price by 8%, with no
other change in the product. Sales did go down but only
by 1%. Result: profits rose by 30%.
Let us go back to the case of the MRT-3. It may have
begun as a price elastic utility but this was back when the
market was still unsure about how useful the service would
be to their lives. As more and more commuters came to
rely on the MRT line for their daily commute, thereby
building their lives around it, the MRT line became more
and more of an essential way of life. Because of this, the
market has become price inelastic. Any increase in price P
that may potentially be put in place will lead to a
disproportionately small impact to utilization Q. This
means that it is in fact in the interest of the MRT
administration to raise prices. Then again, other factors
have to also be taken into account—factors such as
consumer reaction, possible protests, and government
regulation.
Price Elasticity of Demand

https://goo.gl/Et5RQb
This 13-minute video from the Khan Academy clearly
explains the concept of price elasticity for a market's
demand. If you want to fully comprehend how price
elasticity is calculated, then this video is essential viewing.
Upgrade an Inferior Good

Estimated time: 30 minutes
Your group is to identify a brand in the market that you
believe is perceived to be an inferior good. Your task is to
“upgrade” this product so that it will no longer be deemed
as being inferior. Aside from raising the price, determine
what else should be done to transform customer
perceptions and expectations from the product which, in
turn, would justify the higher price.
Your group's output would be the following:
1. Your selected product brand. What is its current
target market? What is its brand promise? Where is it
typically sold?
2. Your remarketing strategy. What is the new target
market, if you do choose to change it? What is the
brand promise, if revised? What indicators of improved
quality would you put in place on the packaging,
messaging, and any other communication elements of
the product?
Presentation time: an estimate of 5 minutes per group.
How well did your group upscale your product?

YES NO
topic?
difference between price elasticity and ☐ ☐
price inelasticity?
Veblen good is?
3. Do you now have some insights
as to what makes a product price ☐ ☐
inelastic?
Exercises
Name: _____________
Section:__________
Date:__________
I. Discussion
1. What are the pros and cons of the MRT
administration when reducing the price of their train
tickets?
Pros
Cons
2. Identify examples of possible Giffen goods among

commodities that you see in the market and explain
why you believe them to be so.
Example 1
Example 2
Example 3
3. Identify some current brands and key models of

mobile phones. For each identified brand and model,
determine whether or not any price changes will
possibly lead to elastic or inelastic market responses
and explain why.
Brand Elastic/Inelastic Why

1. Make generalizations about what kinds of products
tend to be price inelastic across different product
categories such as foods, services, personal items, and
utilities.
2. You are a marketing manager for a farm. How

would you transform its price elastic products, such as
carrots and potatoes, into price inelastic products in
order to gain more profit margins?
3. Your company makes a product, Widgex, that has no

direct substitutes, currently popular, and very price
inelastic. Identify possible reasons that will keep you
from raising its prices to very high levels.
LESSON 3
PRICING METHODS
1. be familiar with the different price-quality points;
2. have alternative methods for setting a product's
price; and
3. have a greater understanding of using price as a
communication tool.
Game: The Price Is About Right

Split the class into two groups or several pairs or groups.
Preparation phase (to be done before the day of the game):
Each group will bring a dozen of different household or
personal items with them. They will then research the
current SRP (retail price) of these items.
For each item, the group will prepare a show card (such
as a 5x7 index card or simply a piece of paper) where they
can do any of the following:
• Write down the actual price of the item.
• Write down a price that is half of the actual
price of the item.
• Write down a price that is twice the actual price
of the item.
Game time:
Each group (or each group in a pair) takes turns in
showing the other group an item from their pile, along with
its show card. The other group then has to guess whether
the price on the show card is the real price, just half the
price, or is double the price. Every correct answer gives
them one point. Winning group is the group with the most
points.
Pro moves:
Groups can try to trick the other groups by finding ways
to make their products appear to be either more expensive
than it really is or cheaper than it really is. However, they
are not allowed to alter the product in any way and can
only affect how it is presented to the other group.
Price High or Price Low
It does not always pay to be the most affordable in the
market.
There is a widespread misconception that prices for your
products should be made as low as possible because
pegging a high markup on your products would lead to low
sales. But as we have seen in earlier sections, particularly
with reference to Veblen goods, this is not always true. We
cannot generalize and say that high markups (and high
prices) always lead to low sales:
• In highly competitive markets, having higher
prices can indeed lead to lower sales, thereby
putting your business at risk as you have probably
priced yourself out of the market. This is especially
true if your brand is not differentiated from the
competition.
• If your product has no substitutes and no
competition, then high markups can be sustained
and the market may learn to accept the set prices as
givens. This gives you a great opportunity to
generate extraordinary profits.
While offering low prices can indeed be a tool for
attracting the market to your products, what you do not
want is a situation where you offer low prices and attract
a lot of buyers yet without realizing that your low margins
actually do not even cover your total costs.
A popular food franchise chain quickly attracted a lot of
hopeful investors to get franchises of their branches after
the investors saw how long the lines of people were. To
their horror, the investors soon realized during the course
of operations that the low prices that attracted throngs of
people would not even give them enough of a margin to
pay for their overhead.
Price is a very sensitive element because, unique among
the components of the marketing mix, it actually can make
or break your product's profitability. If the price is too low,
you could lose money and at worst be driven out of
business. If the price is too high, you could price your
product out of the market and you could lose buyers (and
your business) too.
As it turns out, communication plays a vital role in this
balancing act. A higher price helps to communicate higher
quality, while a lower price (if done right) can
communicate good value.
In the end, pricing is not just about recovering your
investment. It is also all about communication.
Price-Quality Strategies
A useful little secret to remember in marketing is this:
everything is relative.
If there is only one brand that offers products in a
particular industry, the market really cannot say whether
or not its price is cheap or expensive. The price simply is
taken at face value.
What exactly is a “high” price? What is a “low” price?
What is a “medium” price? (We can ask the same
questions about quality as well.) The fact is, you really
cannot tell if a price is high or low until you get to compare
it with a point of reference.
For most cases, the point of reference will be the market
leader because, by definition, it is the most popular
product in the category. The market leader gets to dictate
the going rate for the product. From here on, the prices of
other contenders are gauged based on how they compare
to the price of the market leader. Only then can the market
assess whether they are “more expensive” or “cheaper.”
The following is a matrix of the general price-quality
points that a firm can position its products into (Kotler,
2003):
Figure 18. Price-Quality Positions
Again, there will have to be points of reference in order
for the market to even ascertain whether a product is “high
priced” or otherwise. But once these categories are clear,
each of the areas in the above matrix becomes a distinct
point of strategy.
A premium strategist, for instance, will have to be
committed in offering the best quality so that the market
accepts that its price will also be at a premium as a result.
But the challenge for a premium strategist is to always
make sure that its quality is never reached by competing
products, especially those that are supposed to be in lower
quality rungs.
On the other hand, a good-value strategist has to work
to ensure that it will always have acceptable product
quality at very low prices. This is already hard work and
more so for firms that are pushing for super-value
strategies.
A rare case of a super-value strategist can be found in
Chinese tech firm Xiaomi whose products regularly sell at
staggeringly low prices even for quality that is practically
at par with that of high-end smartphones and other
devices. It manages to do this through a bold strategy of
selling its products at a price that just barely covers its
costs. Xiaomi only begins to make money once the costs
of manufacturing the product go down—typically a year
or so after a particular model was first sold.
Of course, it goes without saying that the “Rip-off,”
“Overcharging,” and “False Economy” strategies are
definitely not marketing-oriented!
What Is Your Pricing Objective?
Prices should be set in order to enable profitable
operations. But this is not the only objective that prices can
help to achieve.
• Prices can be set low enough so as to discourage
potential competitors from entering the market.
• Prices can be discounted for a limited time in
order to encourage immediate purchase.
• Prices can be set high in order to communicate a
premium feel for the product.
So, profit per se is just one possible objective in pricing.
There may be other strategic issues that pricing can
become useful for. For instance, a product can be priced
primarily for the purpose of survival, such as during a
period of market consolidation where small players are
being pushed out of the market and only large firms are
expected to survive. In this case, price may be dropped
temporarily just to ride out the attrition, assuming that the
firm is strong enough to sustain itself during this lean
period.
Most firms tend to price for the sake of current profit
maximization, especially if the management is being
evaluated on an annual basis. The risk with this strategy is
that sometimes, the long term is compromised for the sake
of boosting current profits.
Time Magazine once decided to offer subscriptions at
just half-price in an attempt to increase its readership. It
worked. People who would otherwise not bother to
subscribe did. Unfortunately, the effect of this drive was
that the market profile of a typical Time reader was
compromised. Whereas before the typical Time readership
was composed of well-educated professionals, it was then
diluted by students, etc. who could not care less about the
products being advertised. Advertisers complained and
threatened to pull out especially as the new base threatened
to compromise the valuable “exclusivity” of the magazine.
So Time had to let go of the new subscriber base through
attrition by placing the subscription rates back to normal.
If the objective is market share leadership, then the price
is set in such a way as to appeal to the mass market.
However, if the objective is product quality leadership,
then a premium price may be set in order to best
communicate this attribute to the market.
Setting the Price
A typical approach in determining price is by using
markup pricing. Here, the cost of producing the product is
first estimated, with cost often being primarily defined as
the variable costs of a product or the costs of its direct
components. Thus, if a bakeshop's pie uses 40 pesos worth
of fruit, 5 pesos worth of crackers, and 10 pesos in
miscellaneous other ingredients, then the cost is computed
as 55 pesos. On the other hand, it is not unusual for
service-based industries to also factor in the cost of all the
physical activities involved (an accounting procedure
known as activity-based costing). In this case, the labor
involved in making that one pie—perhaps a cost
equivalent to one hour of the baker's wage—is added into
the computation as well, along with the cost of electricity
(calculated for that one pie), and perhaps even down to the
depreciation cost for the oven.
Once the cost is estimated, a standard markup
percentage is pegged on. Thus, if the cost of producing the
pie is 55 pesos and the standard markup of the firm is 100
percent, then the markup price becomes 110 pesos.
Markup pricing is possibly the simplest form of pricing
that can be used. How to determine the standard markup?
There is admittedly a lot of discretion in determining this.
Why use a standard markup in the first place? The
answer is because it makes the pricing process easier.
Imagine if you have a bakeshop that produces half a dozen
of new items every week. Having a standard markup
simplifies the determination of the selling price for each
new product that is developed.
Target return pricing is similar to markup pricing,
except that it is based on the Return on Investment
requirements of the firm. The formula for this is:
There is, however, one possible flaw in the logic of this

model: it assumes that unit sales can be predicted, even
before the price is set. This, however, goes against the
economic premise that sales are supposed to be a function
of price and not vice versa!
Firms which use target return pricing therefore tend to
resort to the implementation of sales quotas. The firm's
sales personnel must achieve the target unit sales or else
the planned ROI will not materialize at all.
Perceived value pricing is a proactive and marketing-
based (rather than accounting-based) pricing method
whereby the value of the product to the market becomes
the basis for the price. This will require some market
research in order to determine just how much the target
market believes the product is worth to them.
What if the market undervalues a product, stating that
they will only pay an amount that will not even cover the
product's costs? Then the marketers will have their work
cut out for them. The next step would then involve the
marketers' revamping the product—packaging, quality,
and other communication points—in order to convince the
market that it is actually worth far more. Here, marketers
will use all the other elements of the marketing mix,
namely product, place, and promotions, to build up the
perceived value of the product.
Going-rate pricing is another relatively simple pricing
technique, this time basing price on industry rates rather
than on either costs or market perceptions.
If you are producing Brand B which intends to challenge
long-standing leader Brand A and you know that Brand A
is priced at 98 pesos per unit, then you may price your
product at 95 pesos per unit, just to communicate that your
product is a better value. Note how this price is derived
purely based on the price point of Brand A, rather than on
your actual costs or customer perceptions.
In a way, going-rate pricing is proactive because it uses
price as a communication tool to inform the market about
the value of the product. In fact, this pricing technique can
be used to aggressively send messages about your product
vis-à-vis the competition.
Assume that the market leader K's price is 20 pesos per
bottle of a beverage. Because it is the market leader, K
becomes the reference price by which all other products
are compared.
If you are selling the challenger product L, you may
choose to:
• Price slightly lower than K at 19.95. There is
hardly any difference in price here, and yet it helps
to communicate that product L is a better value
than K. Hopefully, because of its proximity to K's
price, it also manages to communicate that it is “as
good as” K.
• Price much lower than K at, say, 17 pesos. This
communicates good value, but only if the product
quality is as good as K in the first place. Otherwise,
this lower price presents a high risk of
communicating that L is actually an inferior
product.
• Price at a very low price point of, say, 14 pesos.
Because of its remote proximity to K's price, this
may already be classified as a different product
category altogether. This could be good or bad for
L. Good because it will may no longer be
perceived as being direct competition to K and
perhaps build up its own budget-seeking market
that could be huge. Bad because the product may
not be taken that seriously and there may be a need
to create a different selling strategy in order to
survive having a narrower profit margin as
compared to K.
• Price slightly higher than K at 21 pesos. This is
a move that very few are historically willing to
take (because it seems counter-intuitive to compete
with a leader by having a higher price), and yet the
communication opportunities for doing so are
promising. For one thing, pricing slightly higher
can both communicate that product L is in the
same league as K (thereby building trust in the
product) but the higher price provides the added
message that L may in fact be superior to K.
Because the price difference is negligible, this may
help to convince quality-prioritizing consumers to
switch from K to L.
• Price very much higher than K at 24 pesos. This
communicates that L is in fact at a class of its own
and that it should not be compared to K because it
is superior in some way. This will only work,
however, if L does manage to communicate
superiority, such as with better packaging or
through its advertising.
• Price at a very high price point of, say, 28
pesos. This can build up a premium category that
did not exist before, informing the market that L is
the premium brand and should not be compared
with K. Done properly, this may help build up a
market of premium consumers, effectively creating
an upward stretch in the category's product line.
But this may also require the development of a
totally different market strategy as the product may
appeal to a totally different market segment and
may require special executions in order to properly
communicate and justify its premium nature.
How to Price Your Products
http://goo.gl/KY0Hpb
This in-depth article from Inc. Magazine serves as a
guide to business owners on what to look out for when
setting prices for their products.
Repositioning a Low-End Product

Choose a product that is generally perceived to be an
economy strategist (i.e., low price, low quality). Your job
is to use pricing to reposition it into a medium-value or
even a high-value product—without altering the product's
quality! Is it possible? What will you do to make this
acceptable?
(Hint: while you cannot change the product itself, you can
alter packaging, distribution, presentation, and other
factors).
Identify the principal products in your selected category
as well as their prices. Identify their respective price-
quality points.
Identify your selected product's price. Make sure that it
falls under the economy strategy price point.
Present your strategy for lifting the market's perception
of this product from being an economy strategist to being
of medium- or high-value. What price do you recommend
for it and how do you justify this without changing the
product itself? Explain.
group.
How well did your group reposition your product?

YES NO
topic?
price and quality positions?
ways for setting a product's price?
3. Do you now understand how ☐ ☐
price can be used for communications?
Exercises
Name: ________________________________
Section:__________
Date:__________
I. Discussion
1. Markup pricing is typically used by building or
industrial contractors. Give an explanation as to why
this would be their preferred pricing method.
2. Give an example of a product that has a price that

you find difficult to classify as being high or low.
Explain why.
3. Give an example of a product that challenges the

market leader by offering a slightly lower price. If you
were to raise its price higher than the market leader's,
what price would you recommend and what do you
think would its implication be?
Product: Market leader:
Recommended price: Market leader's price:
Implication:

1. Why do we say that the “Rip-off,” “False
Economy,” and “Overcharging” strategies are not
market-oriented strategies? Are there instances when
any of these price positions may be justifiable? Explain.
2. Why do many firms try to steal market share from

market leaders by offering low prices? Try to explain
the rationale for this behavior. In your opinion, does it
really work?
3. What are the possible problems that will be

encountered if a firm uses perceived- value pricing and
lets the market determine the price of its products?
LESSON 4
PRICING STRATEGIES AND
APPLICATIONS
1. know the essentials for adapting the price;
2. know the different price strategies for handling
product mixes; and
3. understand the implications of discounts, senior
citizen discounts, and VAT to the end price.
1. In your opinion, should wealthier people pay more

for the exact same products that less fortunate people
buy? Explain why or why not.
2. How sensitive are you to discounts? For instance, for

clothes, shoes, or bags:
a. will a 25 percent discount attract your attention?
b. will a 20 percent discount attract your attention?
c. will a 15 percent discount attract your attention?
d. will a 10 percent discount attract your attention?
e. will a 5 percent discount attract your attention?
f. will a 2 percent discount attract your attention?
What is the minimum discount that is required in order
to get you to go out of your way and go to a sale?
Adapting the Price

Price is still adjusted depending on the objectives.
We have already learned the basics on how to set the
price for a product. But that is not the end of it because
there are still quite a few things that may have to be
tweaked in order to maximize the utility of a product's
price.
After the process of determining the suggested retail
price as presented in the previous section, firms may still
have to make adjustments based on a number of
circumstances that their product will have to navigate
through.
Pricing a New Product
If it is a new product that is being sold, then the business
can either skim the market or penetrate the market. Market
skimming involves setting the price high in order to milk
the segments with higher disposable incomes, with the
price gradually being reduced over time to milk the next
income tiers, and so on. This works particularly well for
products that have built up a lot of anticipation from the
market which do not have any clear substitutes at the
moment.
Market penetration, on the other hand, involves setting
the price even lower than planned, if only to attract as
much of the market into trying it and hopefully becoming
loyal to it. Eventually the price will be increased, but it is
hoped that by that time, the consumers would have already
made the product part of their lifestyles so there is less
resistance to the increases in price. This strategy works
best for products that have the potential to be staples if
only they manage to evoke market trial.
Psychological Pricing
Much of pricing's communication, particularly with
regard to referencing other products' prices, is inherently
psychological in nature. Here are a few more
psychological tactics that are often utilized when setting
end prices for products:
• Odd-number pricing. Prices that end in non-
rounded odd numbers, such as 9.95 or 99.50, are
said to give the consumers the perception that the
prices are not as expensive as they actually are.
This is because consumers tend to read prices from
left to right and so a 9 is seen to be not as
intimidating as a 10 would be, nor would a 99 be as
imposing as a 100. The presence of the centavos
also somehow communicates to the consumer that
the price is already set to its lowest possible
amount. Lastly, the odd-end numbers are seen to be
“friendlier” or more palatable than even numbers.
• Free pricing. Assume that you are selling two
complementary products such as a tube of
toothpaste for 80 pesos and a cheap toothbrush for
20 pesos. You are going to gain far greater
leverage by bundling these two products together,
selling the bundle for 100 pesos and proclaiming
the toothbrush as free. You will effectively be
selling your toothpaste for 100 pesos, which is
higher than you normally would have. Butstudies
have shown that “free” items have such compelling
power that you will likely be able to sell more
using this bundling than if you simply were selling
your toothpaste alone at 80 pesos.
Discriminatory Pricing
Discrimination is defined as the treating of different
groups of people in different ways, which is technically
unjust because all humans should be treated alike as a
matter of principle.
In marketing, however, market segmentation is a way of
life. Market segmentation often translates to opportunities
for discriminatory pricing—offering different prices to
different market segments.
• Customer-segment pricing. If your product is
being offered in both an upscale distribution point
as well as a retailer for a broader consumer market,
then you may be able to offer a different price to
each. This takes advantage of the likelihood that
the upscale market takes the higher price for
granted while the broader market expects a more
mainstream price point. You get to benefit from the
higher margins with the former while maximizing
volume with the latter. Another example involves
the practice of student pricing. Students get
discounted rates to cultural centers. In this case, it
is non-students who are being “discriminated”
against.
• Product-form pricing. What is the difference
between business and economy class on a plane?
The food and the legroom. But in terms of actual
costs incurred, the costs involved for providing
business class amenities are not commensurate
with the far greater margins that the airline charges
for it. In other words, much of the price premium
that is being charged for business class (or first
class for that matter) is simply discrimination
between the passengers for these different classes.
It is the airline's job, however, to make business
class and first-class flyers feel that there really is a
big difference between these sections or else they
may no longer feel the price to be worth it.
• Image pricing. Upscale products practically
demand higher prices, otherwise their credibility
may be ruined. A high-end luxury vehicle, for
instance, may have a sticker price that is
tremendously high compared to its actual costs of
production. This extra-high margin is there in order
to preserve the upscale image of the product more
than anything else. The result is that premium
product buyers are “taxed” for their need for
premium products, whereas average consumers
will be buying the more mainstream products at
prices that reflect their costs much more closely.
• Location pricing. Many Metro Manila-based
manufacturers have a Metro Manila price and a
provincial price. This is a form of discrimination
that is based on the physical location of the buyers.
The rationale for this kind of discrimination is that,
as a rule of thumb, it may cost more to ship the
products to provincial markets versus shipping
within Metro Manila. But this is not always the
case and the end result is a discrimination against
provincial markets.
• Time pricing. A bakeshop makes it a point to
sell all of its remaining stock at 50 percent off once
the clock hits 8 p.m. This is a form of
discrimination—it is not as if the breads magically
become inferior at exactly 8pm! It is a form of
discrimination because it discriminates between
buyers who show up before 8pm and those who
show up after. Plays offer another example:
matinee showings are often offered at a cheaper
price compared to evening shows. But it's exactly
the same play either way. So, evening audiences
are discriminated upon since they have to pay
more.
While the word “discriminatory” seems negative, such
discriminatory pricing in marketing is acceptable, for as
long as the customer segments do accept the pricing
rationales.
Product Mix Pricing
We have discussed the product mix in an earlier section.
Now, let us take up price considerations in managing a
portfolio of products.
• Product line pricing. If you have a line of
products, chances are that many of these try to
target distinct markets by being placed at different
price points. The flagship product in the line, for
instance, will likely have a popular price point as it
seeks to attract a wide audience. The premium
product gets a premium price while a populist
offering will have a low price point. P&G, for
instance, has Tide as its high-value flagship brand,
while Ariel has (ideally) a slightly more premium
priced-quality point because of its more effective
cleaning power, and Bonux is the low priced good-
value offering that goes against cheap detergents.
• Optional feature pricing. It is difficult to sell
complete packages to consumers. It may be easier
to sell them a basic stripped-down model first, then
everything else becoming optional add-ons. This is
how a number of automobiles are sold—the base
model is stripped of most luxuries, and can
therefore be offered at an attractive price point.
However, once the buyer chooses to add on the
options—leather seat covers, audio system,
navigation—the total amount rises precipitously.
But the original intent has been achieved, which
was to make the base price as attractive as possible,
especially as compared to the competition.
• Captive product pricing. You buy a printer for
a very low outlay, but when it is time to get new
ink cartridges, the inks turn out to be expensive.
Companies that are in the business of selling
supplies tend to work this way, to the point that
they are willing to sell the product (such as a
printer) at a loss because they end up having the
customer as a captive market for the consumables
on which they really make their money.
• By-product pricing. In case the production of
your product generates by-products and you
manage to find a way to make money out of these
by-products, then this becomes an opportunity for
realigning the price of your primary product. Here
is how it works: Imagine you are producing beer
and have had no use for the spent grains that are a
by-product of the brewing process. But then one
day you learn how to process the spent grains and
turn them into animal feeds, so now you cancreate
another business unit that will focus on feeds. But
will this business unit simply get the spent grains
for free? No, it will have to buy the spent grains
from the brewing business (because nothing comes
free). Suddenly, the beer business is getting
additional revenue from what used to be a waste
matter, effectively lowering its cost of goods which
will allow to lower its beer prices.
• Product bundle pricing. If you have a portfolio
of products to sell, chances are that not all of them
would be fast-moving goods. Some may be
laggards or simply be items that the market is not
that aware of. In cases like these, bundling the
slower moving products together with star
performers can be a strategic option. The bundle
will be offered at a discount, making the package
attractive to consumers. The tricky part, however,
comes in determining how much goes to which
product in the bundle. On one extreme, the star
performer ends up subsidizing the laggard in order
to keep it alive, while on the other extreme, the
laggard is sold at a loss just to get rid of inventory.
Product mixes also give you an opportunity to “guide”
consumers into buying the products that you want them to
buy. In his book Predictably Irrational, behavioral
economist Dan Ariely notes that people often take the
middle choice out of three given price points. Therefore,
the trick is to use the higher priced and the lower priced
products as “runway lights” to guide consumers toward
the middle- priced product. This is why the presence of
high-priced foods in restaurants often boost their revenues
even if people do not buy them. People often buy the
second most expensive dishes, so restaurants can actually
put out high-profit dishes and position them as their
second most expensive dishes simply with the addition of
an even more pricey dish (Ariely, 2010)!
Trade Discounts, VAT, and Taxes
There is still one more factor to consider when setting
the final price and it is an important one. Before rolling out
your suggested retail prices, you will still first need to map
out all the possible discounts, incentives, and even taxes
that you would want to and have them plug into your price
schema.
Trade discounts are the incentives that you offer to
resellers or participants in your selling process. This can
include commissions for sales personnel. Plan out how
much you intend to give each party and consider mapping
out bulk discounts that are higher with greater levels of
sales.
In order to properly set sufficient margins that can be
given as trade discounts and incentives, begin by laying
out your incentive scheme rather than by determining the
suggested retail price.
You are selling Widgets and the cost per Widget is 10
pesos. You want a scheme where your distributor gets 20
percent of the suggested retail price (SRP) as standard
margin. But this will increase to 22 percent if the
distributor buys six Widgets, and then to 24 percent if the
distributor will buy ten Widgets.
This tells you that the SRP should support up to 24
percent trade margin for your distributors, along with
sufficient margin for your firm. If you want at least 20
percent margin for yourself, then the minimum
SRP would be computed as:
SRP = 10.00 + 24%SRP + 20%SRP
SRP - 24%SRP - 20%SRP = 10.00
0.56SRP = 10.00
SRP = 10.00 / 0.56
SRP = 17.86
This, however, still does not factor in VAT or other
possible add-ons.
VAT or value-added tax is a form of input tax where the
tax is earmarked onto the added value that your firm
produces. The current rate of VAT is 12 percent, this
means that an additional 12 percent of your suggested
retail price should be earmarked for the payment of VAT.
However, since the 12 percent only applies to your own
inputs, you are not expected to pay VAT for the part of
your price that pays for the inputs that you bought (i.e., the
cost of goods).
Example:
You want to sell your set meal at an end price of 1,000
pesos, with cost of goods at 300 pesos. The customer pays
you 1,000 pesos. How much of this goes for the payment
of VAT?
Solution:
Since VAT was added on, we should take it off.
Knowing that VAT is 12 percent of the retail price, the
formula would be:
PRICE BEFORE TAX = PRICE / 1.12 = 1,000/1.12 =
892.86
VAT COMPONENT = 1,000 - 892.86 = 107.14
But this is not all. We should still deduct the part of the
VAT that is pegged onto the cost of goods sold (COGS).
COGS VAT = 300 - 300/1.12 = 300 - 267.86 = 32.14
Therefore, the total VAT bill for the product sold would
be 107.14 - 32.14 = 75 pesos.
Senior citizen discount is yet another factor to consider.
Assuming you are selling a product that falls under R.A.
9994 or the Expanded Senior Citizens Act, which includes
restaurants and medications. If your products are subject
to senior citizen discounts, then note that (a) seniors are
exempted from VAT, and (b) 20 percent of your net-of-
VAT price is removed as their discount.
Example:
Continuing from the example above, if your meal costs
1,000 pesos, then how much will a senior citizen be billed?
Solution:
First, remove the VAT from the meal price. So
1,000/1.12 = 892.86. Next, remove 20 percent from this
net-of-VAT price. So, 892.86 x (1-.20) = 892.86 x .80 =
714.29 Therefore, the senior citizen's bill shall be 714.29.
Make sure that your markup is robust enough to still
give you sufficient margins, even after removing all of
these discounts and trade allowances.
Mini-Case: The Strange Case of Mighty
Cigarettes
In January of 2013, the government's revised “sin tax”
law came into effect. With this came the stipulation that
cigarette makers were to begin paying 12 pesos per pack
as a “sin tax,” which was a staggering rise over the
previous sin tax ofjust less than three pesos per pack.
It was in this new regulatory environment that, almost
miraculously, Mighty Corporation of Bulacan came
practically out of nowhere to take over a substantial share
of the country's cigarette market (Magno, 2013).
Mighty Corporation manufactures Mighty cigarettes.
Before the revised sin tax, Mighty cigarettes had a near-
insignificant presence in the market. But with the revised
sin tax in place, Mighty sales suddenly exploded. The
reason: the brand's impossibly low price.
All other cigarette manufacturers had been forced to
raise their prices astronomically because of the revised tax
scheme. Aside from the additional sin tax per pack, there
was also the value added tax of 1.58 pesos per pack. In all,
taxes alone should account for over 13.50 pesos per pack.
Yet Mighty cigarettes were being sold at wholesale for
just 14.70 pesos per pack. That is just a little over a peso
per pack to pay for the cost of producing the pack, for
profits, and even for collateral costs such as shipping and
handling. One peso compared to the typical prices of other
low-cost cigarettes that were already hovering at the 30-
peso mark. One can see why Mighty cigarettes can
suddenly capture market leadership, especially for the
cost-conscious market.
As far as the Department of Finance was concerned, the
only possible reason for this was that the company was
misdeclaring the total number of cigarettes that it was
producing. It is effectively “smuggling” manufactured
cigarettes to wholesalers without paying taxes on them—
based on AC Nielsen studies of nationwide cigarette sales
which showed Mighty to be the leading brand in provincial
markets.
Mighty Corporation insisted that they were doing
everything above board and the reason for their very low
price was that they were super-efficient in their
production, so that they can in fact produce a pack of
cigarettes at less than a peso per pack.
What do you think? Is it in fact possible for the Mighty
Corporation to produce cigarettes at less than one peso per
pack?
Senior Citizen's Law

https://goo.gl/JxMZTm
This 37-minute video by Kumpletos Recados featuring
Atty. Mark Tolentino explains nuances of the Senior
Citizen's Law, how it is computed, and what transactions
are affected by it.
Super Premium Hotel Rooms

Choose a hotel and research (online or otherwise) on its
room rates as well as the amenities that it offers for the
price. Identify the most expensive room that it is currently
offering.
You are to propose an even more premium-priced room,
with a price point that is very much higher than the current
premium rates which the hotel offers. Identify the
amenities that you feel would justify the high price point
you are proposing, and then see if the rest of the class
agrees that it truly is worth the price you are asking for.
group.
How well did your group justify your more premium

room?

YES NO
topic?
considerations for finalizing your price?
2. Do you now know how to ☐ ☐
calculate senior citizen discounts?
3. Do you now know what ☐ ☐
discriminatory pricing is?
Exercises
Name:________________________________
Section:__________
Date:__________
I. Discussion
1. Give an example of a company or brand that
practices market skimming. Define or profile the early
adopters who are willing to pay the premium for getting
the product earlier than most.
2. Identify a product that practices optional product

pricing. Discuss the nature of the base product and its
add-ons—how basic is the base product and how varied
are the add-ons?
3. Identify a product that practices captive product

pricing. Spot the ways by which the company seeks to
lock in the consumer, ensuring that buyers are held
“captive” by the product.

1. Inkjet printers are among the most notorious
examples of captive product pricers. Because of the
high price of ink cartridges, an unauthorized industry
exploded around the refilling of these. Should printer
firms also venture into the refilling business then? Why
or why not?
2. Explain why fine dining establishments must have

very high markups over the cost of their foods. Is it
possible to be a low-priced fine dining establishment?
3. If an airline takes off with hardly any passengers in

business class, can it simply fill it up with lucky
passengers from economy class? What do you think
stops the airline from doing so?
Selling Automobiles in Malls
How does the typical Filipino middle-class family go
about buying a family car?
Studies show that for this class of market, car-buying is
a family venture. In fact, when the time comes to check
out the likely car models for consideration, the entire
family wants to come along so that they can check out the
vehicle for themselves, sit inside, appreciate the interiors,
and even slam the car doors shut a few times to “test for
quality.” In many instances, seeing the family being happy
with a car already seals the deal for the parents, and the
car gets sold right there and then.
Yet for the longest time, car showrooms kept regular
office hours—opening from 8 a.m. or later, closing by 5 or
6 p.m., and being closed on Sundays. With this kind of
schedule, how often can an interested family gets to
check out a promising vehicle as a group?
It was not until the 2000s when car dealers finally saw
the wisdom of going where their market was and this was
in the malls. Dealers began exhibiting their latest vehicles
in mall lobbies, especially on weekends when entire
families were likely to visit. Coupled with aggressive
installment payment plans, this resulted in a dramatically
increased awareness for the exhibited vehicles along with
increased sales as deals became easier to close on the
spot.
It can even be argued that malls have become a
primary reason for the explosive growth of car sales in
recent years.
The third P in the marketing mix, Place, is covered in

this chapter. Place refers to distribution logistics as well as
to the literal location of where you sell your products. It
covers issues such as types of distribution channels,
possible conflicts that can arise, and how to motivate the
channels that help bring your products closer to your
market.
LESSON 1
PLACE: DISTRIBUTION DESIGN
1. understand the dynamics between a firm and its
distribution system;
2. know the functions of distribution channels; and
3. know key factors to consider when setting up a
distribution system.
1. What is your favorite store? Explain in detail why it

has become your favorite, and what other stores can
learn from it.
Store:
Reasons:
2. Many products are now being sold online. Name

three products that you believe should never be bought
online but only in a real store. Explain why.
a.
b.
c.
The Purpose of Place

Why invest in a distribution system in the first place?
If you are a new producer of goods, getting your
products to your market, wherever they may be, can pose
quite a challenge. If you have just opened a new service
establishment, choosing your location could also be a
brain-stumper as well.
The third P of the marketing mix, Place (a.k.a.
distribution channels), is all about efficiency. It seeks to
answer the question of how best to move products from
the producer to the consumers. What is the best way to
place your products into your consumers' hands? Where is
the best place to set up a shop?
Distribution has three key objectives, namely:
• to effectively reach your target market;
• to minimize costs of dissemination; and
• to maintain consistency.
You will want your products to reach your intended
market and not (necessarily) other parties. You also want
to do this as cheaply and as speedily as possible. Finally,
you want your products to reach your markets in exactly
the way you want them to be experienced.
Distribution channels are the set of interdependent
organizations that are involved in the process of making a
product or service available for use or for consumption by
the consumer or individual user. These can include
wholesalers, sales personnel and territory managers,
authorized distributors, and retail stores. It also involves
the contractual relationships between these entities, if any,
as well as the selection of actual points of distribution.
Decisions involving distribution systems can be among
the most challenging in marketing. The reason is that,
more often than not, it involves having to deal with third
parties which therefore quickly becomes matters involving
relationships and even politics.
Distribution decisions include questions of where it is
best to sell your products. For example, if you are selling
sugar-free ice cream, should you sell it through: (a)
supermarkets just like regular ice creams; (b) small health
stores that are frequented by upscale clients; (c) drugstores
and pharmacies; (d) door-to-door via sales people; or (e)
special food carts? All of these distribution points have
their own pros and cons, and each has its own set of target
markets.
Diageo Philippines distributes imported liquor
throughout the country. It does this through three
identified distribution channels:
1. On-trade channels. These are places where the
products are directly consumed, such as bars and
restaurants.
2. Off-trade channels. These are stores where the
products are bought for later consumption, such as
supermarkets, wine shops, and liquor stores.
3. Duty-free channels. Because Duty-free malls
represent a significant bulk of sales of imported liquors,
Diageo has segregated these as special off-trade
channels, with consumers being limited to Balikbayan
or returning overseas workers.
Terms and Responsibilities for Distributors
Handling distribution channels is really all about the
clear and proper delegation of distribution responsibilities.
Before distribution can commence, the following issues
need to be ironed out and be made very clear in order to
minimize future problems.
• Price policies. Ideally, a firm will want to have
control over how its products are priced down the
line, all the way to the retail level. The way to do
this is through a well-mapped price list that gives
the suggested retail price (SRP) at the retail level,
along with distributor prices and even a schedule of
volume incentives and discounts. Distributors are
expected to follow these prices. On the other hand,
there are firms that are okay with allowing their
distributors to set their prices down the line. While
this gives distributors further incentive to carry the
products, it also implies that the firm should be
willing to completely detach itself from managing
retail prices.
• Conditions of sale. This involves key
transactional details between the firm and the
distributor pertaining to the transfer of goods, such
as terms of payment for goods received, credit
terms (e.g., number of weeks before payment), and
guarantees for matters such as defective products.
These are contractual matters and the clearer these
are laid out, the better as it will minimize the
possibility of ambiguities that may prove costly
over the long term.
• Territorial rights. As with the conditions of
sale, the scope of coverage for sales by the
distributor needs to be made as clear as possible in
order to minimize the possibility of territorial
disputes between fellow distributors. Territories
can be specified in terms of geography (cities,
provinces, etc.) or markets (private sector,
government institutions, etc.).
• Services and responsibilities. This specifies
the duties and responsibilities of both the firm and
its distributor. Firms, for example, may be held
responsible for ensuring that proper levels of
stocks are always made available to the distributor
with penalties to be imposed to the firm should
stocks fall below required levels. Distributors, on
the other hand, may be made responsible for
matters such as meeting sales targets and
submitting sales reports with penalties to be
imposed for non-compliance.
Functions of Distribution Channels
Distributors are not just points for selling goods or
executing services. They can actually take on quite a
number of roles, many of which can be negotiated
depending on how much bargaining power a producer has.
• Gather information about customers.
Distributors are the intermediaries between
producer and consumers. Therefore, they can be
given the responsibility of gathering information
about the market. Distributors can do this directly
through forms and questions or more subtly
through automated methods such as loyalty cards
that are linked to customer databases.
• Communicate and promote products.
Distributors who are points of retail can either take
care of the task of promoting the products or at
least serve as platforms for presenting the product's
communications. Examples would be spotlights
that accentuate the product from the shelves or
having “promodizers"—merchandizers who
personally try to convince shoppers to try the
product.
• Reach the proper market. The point of sale
should either be a regular destination point of the
target market or it should be designed to attract
them.
• Negotiate with buyers. Certain products, like
automobiles and real estate, may require some
modifications in terms, such as discounts,
additional features, or freebies, before a customer
agrees to buy. Distribution channels (e.g., brokers
and dealerships) can take care of this.
• Take orders. The actual order-taking is a
function that may be too complicated for a
producer to take on. Online sites such as Zalora,
for instance, specialize in closing deals and
offering convenient online payment options.
• Finance inventory-keeping. Producers of
tangible goods need to convert their goods into
cash as quickly as possible in order to have a
continuous flow of working capital for continued
operations. The longer the goods lie in the
producer's hold as inventory, the longer their cash
flow will be tied up. Distributors can offer to buy
their goods up front, often at a steep discount, to
provide the producer with rapid liquidity.
• Finance consumer purchases. Certain
products can be offered through deferred payment
schemes, lease arrangements, or installments.
These kinds of arrangements will be difficult for a
producer to take on, but may be easy for
distributors particularly those having tie-ups with
financial institutions.
• Assume risks of channel work. Once a
distributor gains ownership of goods from a
producer, the distributor is now responsible for any
outcome of those goods. If the goods remain
unsold, then the distributor has to find ways to sell
them. If those goods are lost through accidents or
spoilage, then it is the distributor's problem as well.
This is a valuable service from the producer's
perspective since it will no longer be worrying
about these risks.
• Move physical products. Shipping, trucking,
and point-to-point distribution—all of these can be
taken care of by the right kinds of distributors. It
thereby frees the producer from having to worry
about the logistics of shipping goods to the hands
of consumers.
• Provide payment facilities. More and more
consumers are choosing to use alternatives in
paying cash for their purchases, such as through
credit or debit cards. These payment methods
require bank-furnished infrastructure, such as card
readers, which the distributors can avail of.
• Oversee transfer of ownership. For certain
products, the signing of contracts or the details for
closing a sale can be a tedious and lengthy process.
Producers maynot have the patience for overseeing
all of these. Distributors can take on this role,
freeing producers to focus on their core
competence of actual production.
Considerations in Distribution Design
Firms can opt to sell their products themselves, with no
channels to avail of which is called a zero-level or direct
distribution system. This may be possible if (a) the firm
only expects low volumes of transactions and has no
ambition to sell to a wider market, or (b) it is ready to
invest in the technical skills and logistics required to set
up a widely-spanning distribution system.
If a firm deals directly with retailers, then there is one
layer of distributors between the firm and the customers.
This is a case of single-level distribution system. If a firm
assigns regional wholesalers who in turn deal with
retailers, then there are now two layers between the firm
and the customers which is now a case of two-level
distribution system. There can be any number of levels
between the firm and the end consumers, it depends on the
design of the distribution system.
Should a business set up its own distribution system or
should it just rely on other parties to take care of the
distribution functions for them? There are pros and cons
to either option, as presented in the following table:
Table 5. Advantages and Disadvantages of In-house vs.
Outsourced Distribution
Pros Cons
Expensive to set up, requiring new skills and

In-house Full control over
investments. A distribution system is practically
distribution distribution
an entirely different business in itself, giving
system process
management something else to worry about.
Outsourced May not have full control over the results

Ease and speed
distribution Margins and payment periods are subject to
of mobilization
system negotiations
Setting up your own distribution system can be

expensive and complex, but it also means having as much
control as possible over the logistics and even your
customers' experience.
In many countries, Apple offers official Apple Stores or
retail stores that are company- owned. Here, the customer
experience is fully managed; down to how each product is
showcased and how the service personnel interact with
customers. By contrast, device manufacturers— such as
Samsung which rely on electronics store chains—cannot
offer the same level of special attention and customer
satisfaction that an Apple Store could. This is because
electronic storesare third-party entities that are not under
Samsung's employ. Besides, these stores are also selling
brands other than Samsung.
The simplest distribution system that a firm can set up
is a sales force that will make direct sales calls with
potential clients. More complex systems would, for
example, involve having nationwide networks that have
strategically located warehousing points and retail chains
that report to these. If you are concerned about offering a
very particular kind of experience for your customers at
the point of purchase, then you may be better off owning
and controlling your own distribution network.
Outsourced distribution systems, on the other hand,
mean relying on professional distribution services to take
care of physically pushing your products to the consumers.
This includes marketing companies, sales organizations,
and partnerships with retail chains or simply dealing
directly with large retailers. Letting the professionals
handle distribution matters can be a big relief for
companies that want to focus on production, but a number
of things can go wrong. For one thing, if the distributors
are untried and you are not familiar with their track record,
they may do an unsatisfactory job of selling your products
for you. They may already have too many other products
in their hands and so cannot put sufficient attention to your
products.
Bargaining power is a very important factor when
considering whether or not to deal with third party entities
for distribution. If you happen to have a very strong and
very “powerful” brand (i.e., your products have a lot of
brand equity), then it may be easy to convince distributors
to abide by your terms. This includes the suggested retail
price, payment terms, and instructions for proper selling.
Unfortunately, if you do not have brand recognition or a
reputation of note with the distributors, then the tables may
be turned and you will have to abide by their terms. This
could include having to suffer through very long payment
terms— over three months before they process your
payment—which could squeeze your working capital.
If you do not have sufficient bargaining power with your
distributors, then you may have to offer incentives such as
higher distributor margins, longer terms of payment, or
bonuses and other extras. At the very least, you may have
to develop very good personal relationships with them in
order to get better terms.
Perhaps the lowest form of distributor arrangement
would be consignment. Here, you simply ask a distributor
to stock your goods for you. There is no transfer of
ownership, which means that you still carry the risks
should the goods not sell sufficiently and your working
capital will be tied up until such time the goods actually
sell. The distributors may also not have much of a
compelling reason to actively push your products—unless
they are given a very generous profit margin. But for
startups with no brand equity, sometimes consignment is
the easiest way to get their feet into visible retail areas.
Phantom stockouts is the phenomenon where a
customer looks for an item in a store but could not find it
and yet it is supposed to be available. Phantom stockouts
typically happen when items are misplaced around the
store, ending up in the wrong aisle or the wrong category
(such as the apocryphal tale of how the fiction book Love
in the Time of Cholera by Gabriel Garcia Márquez ended
up in the Medical Books section of National Bookstore).
While semi- amusing, phantom stockouts can actually
cause serious losses in sales for stores (Ton & Raman
2004).
Service issues will affect the design of a distribution
system. These include:
• Lot size. How big is the typical volume of
purchase that a customer is likely to make? If your
market is expected to buy in bulk (e.g., you are
selling to resellers), then you will need a
distribution point that can carry bulk-sized
inventory. But if your market is expected to buy in
small quantities, then you need distribution points
that are designed to buy in bulk and sell per piece.
• Waiting time. Do customers expect to have the
product in their hands immediately or do they
accept a bit of waiting time to occur? The ability of
distributors to ship your goods to your customers
may be a vital consideration. Furniture showrooms,
for instance, may take several days to deliver large
items as they first have to commit logistics from
distant production areas.
• Location. Is the distribution network located
conveniently close to your target market's regularly
visited areas? The old saying that it is all about
“location, location, location” remains very true for
many industries. Quite a number of otherwise
promising businesses have closed down simply
because there is not enough foot traffic where they
set up their shop.
• Variety. Is your target market expecting to shop
through a wide variety of different products before
choosing an item, or are they expected to come to
the store already committed to buying a particular
brand? If you are dealing with variety seekers, then
you may need to produce a variety of goods. You
will also need distributors that are in fact open to
presenting a wide variety of stocks.
• Add-on services. Do you plan to offer on-site
services to your buyers, such as customization,
alteration, or personalization? If so, then you will
need to choose distributors that have personnel
who are willing to be trained and who have
sufficient floor area to carry out your intended
services.
The nature of your product will also affect your choice of
distribution system.
Among these are:
• Product size. If you are selling a large object,
then you will need distributors that are capable of
handling and even showing it to your clients.
• Perishability. If you are selling perishable
goods, then you will need distributors that have
cold storage facilities possibly throughout multiple
points along the distribution network.
• Technical complexity. If you are selling a
product that requires special knowledge (special
skills or special training in order to be properly
presented or explained to customers), then you will
need distributors that have competent people on
board who have the time and the willingness to be
trained. You will also need to provide incentives in
order to get them to undertake the requisite
training.
Mini-Case: The Gourmet Nachos
In 1993, friends Marty Aquino and Jon Perez sought to
set up a food cart business in the country. Based on their
travel experiences, they decided that nachos—crispy chips
that were typically dipped in a salsa—would be a viable
product to offer as these were becoming increasingly
available across the United States. These are often being
offered in places such as convenience stores,
supermarkets, skating rinks, ski lodges, airports, and pubs.
The question that their product will have to answer is, will
Filipinos be as interested in nachos the same way that
Americans have been growing increasingly fond of it?
Adapting the flavors of their nachos to suit Filipino
tastes, they soon created a food cart concept along with
branding, packaging, and cart design. Their first cart was
set up at SM City North Edsa in Quezon City, where it was
located next to the movie theaters. Regular sized nachos
were servings of 100 grams, topped with hot melted
cheese. Additional toppings such as salsa, ground beef,
and chili con carne were also available at a small add-on
price for each topping.
Their first cart became a success. Duly inspired, Marty
and Jon proceeded to open a second branch at the theater
area of SM Megamall in Mandaluyong City. Soon, the
new business was opening even more branches.
Not all branches were doing well though. A cart at
Robinson's Galleria mall in Pasig City, situated on the
ground floor alongside other food carts, gave middling
revenues. A cart at the Shangri-La Mall (right next to SM
Megamall) that was also situated next to other food carts
on the ground floor delivered average performance. The
same was observed with their cart in V-Mall at the
Greenhills Commercial Center in Mandaluyong that was
also situated on the ground floor alongside other food
carts.
Then there were the problematic carts. At Ever Gotesco
Mall in Quezon City, their cart was located next to the
supermarket checkout. It was a mall that catered to the
broad market, so there was a lot of foot traffic. However,
few people paid attention to the nacho cart. The same was
observed in their cart at the Tutuban Mall, a very populist
mall in old Manila. Despite the very heavy foot traffic,
their cart that was at the entrance of a supermarket was
hardly patronized.
What was the common denominator here? Why were
some branches successful while others were not?
The key to success was apparently the context of the
location. At least for Filipinos, the form factor of nachos
makes it perceived to be a snack for moments of
entertainment, such as while watching movies. So when
the nacho cart is placed next to a supermarket or next to
other food carts, it will not fare as well because its location
positions it as trying to compete against regular foods—
where it will be seen as being inferior. But when it is
situated next to a theater, then it becomes a worthy choice
versus the likes of popcorn and other snacks. This also
means that high traffic areas per se, such as in populist
malls, will not be viable because the average person will
not consider nachos as a “food” choice.
10 Ideas in Retail Innovation That Will Change the

Way You Shop
http://goo.gl/XYmYC6
This fascinating article from Forbes.com gives ten
examples of technological innovations that have been
applied to the retail experience in order to improve the way
people shop.c
Revenue Sharing with Distributors

Wonderbar is a chocolate bar that costs you 10 pesos to
manufacture, its distinguishing trait is being made from
the finest chocolate from Davao.
You want to make at least 100 percent margin over your
cost and you want to motivate distributors to sell it for you.
How would you propose to sell Wonderbars, assuming
that your objective is to maximize your sales volume as
quickly as possible?
Through what distribution channels would you want your
customers to get these?
How much would you set as your suggested retail price
(SRP)? With this SRP, how much will you offer to your
distributor/s? Explain.
group.
How well did your group put together your distribution

strategy?
YES NO
topic?
1. Do you now know the pros and
cons of setting up your own distribution ☐ ☐
system?
functions of a distribution system?
3. Do you now know the key
factors to consider when setting up a ☐ ☐
distribution system?
Exercise
Name:_________
Section:_______
Date:_________
I. Discussion
1. Give three examples of tangible products that you
believe have to be sold directly by a producer rather
than through distributors. Explain why.
Product 1.
Product 2.
Product 3.
2. Give three examples of tangible products that you

believe require many levels of distributors. Explain
why.
Product 1.
Product 2.
Product 3.
3. Much of the distribution involves selling of tangible

goods. Do service businesses also deal with third-party
distributors? What examples can you think of?

1. Appliance chains such as Abenson's or Automatic
Centre handle a number of brands. If you are a
relatively unknown appliance brand that is in their
stores, what are the ways by which you can make your
brand stand out?
2. As a follow-up to the above question, how can you
ensure that the appliance store will comply and
implement your suggested tactics for making your
brand stand out?
3. Should a distributor get a higher margin on a

product's sale than the manufacturer? How do you feel
about this?
LESSON 2
TYPES OF DISTRIBUTION
CHANNELS
1. know the key types of distributorships; and
2. know the different types of retail stores.
Three diffierent kinds of stores are presented below.

Identify what you believe makes each one diffierent from
the other.
Types of Distributorships
Different ways to set up distribution networks.
As mentioned in the previous section, each type of
distribution channel will have its own advantages and
disadvantages. The following are different types of
distributorship arrangements along with some of their
corresponding issues:
• Online resellers. Companies like Lazada exist
to serve as Internet-based distribution points for a
number of manufacturers and dealers especially as
online buying is steadily growing in the local
market. In theory, it should be easy for any
business to set up its own online store. In actual
practice, it may make better sense to avail the
service of online resellers because these can take
care of the marketing, are already well entrenched,
have a large base of users, and would likely have
well-tested online payment options that would be
difficult for smaller enterprises to set up on their
own. The downside? Online resellers may demand
for quite a bit of margin from the suppliers.
• Wholesalers. These buy your products in bulk,
typically taking ownership and therefore
transferring the risks involved with ownership into
their hands. In exchange, wholesalers ask for
territorial exclusivity and long credit terms,
allowing them to practically make money without
having to have an initial outlay.
• Company sales force. In-house sales teams
may be manageable when lean, such as when a
firm is just starting up. But complexity can escalate
quickly as the team grows in number. A sales force
works best when there is order and discipline
among the ranks. There should be clear roles and
mission orders for everyone along with its
corresponding incentives and penalties that is
stated clearly. Otherwise, it is easy for the team to
devolve into idle individuals with no motivation to
pursue their targets.
• Value-added Resellers (VARs). These are
firms that put together products from different
suppliers in order to come up with systems or
solutions that appeal to markets with specific
needs. A VAR serves as a sort of one-stop shop
and firms that supply to VARs hope to become
exclusive suppliers for particular system
components. VARs are very common in the
technology industries where solutions to complex
problems often require mix-and-match
methodologies.
• Professional sales agencies. If you cannot set
up your own sales team, then perhaps you can get a
sales team that is for hire. Professional sales
organizations take on the selling of products in
exchange for commission schemes. These
organizations ask for, at the least, 20% of SRP as
their revenue share. The advantage of these
agencies is that their sales organizations are
already in place so it is just nearly a matter of plug-
and-play for the firm.
• Specialty dealers. These are distributors that
specialize in either particular product categories or
in the specialized needs of very distinct target
markets. The more specialized the store, the higher
the margins that it can charge. But it is also
expected to have highly trained and highly
educated staff who can easily answer customer
queries.
Distribution systems can be exclusive, intensive, or
selective. Exclusive distribution means giving
exclusivity to appointed distributors. This promise of
exclusivity is a very valuable intangible asset and it can
motivate distributors to work toward achieving the goals
of the supplier. If the distributors are given master
distribution rights, then they become responsible for
developing the network and effectively becoming multi-
level distribution systems as they directly deal with dealers
and retailers.
Intensive distribution, on the other hand, means that
the supplier will push its products to as many different
points of distribution as possible. There is no promises of
exclusivity as the supplier seeks to sign up as many
distributors as it can. This approach is useful for firms that
are trying to aggressively saturate the market.
Selective distribution is a mix of exclusive and
intensive distribution systems, often involving the
assignment of exclusivity to distributors in limited areas.
For example, a firm can assign a company to be the
exclusive master distributor for the Luzon regions while
another company is appointed for the Visayas regions and
another for Mindanao. These companies then set about
developing intensive systems within their respective
domains.
Types of Retailers
The end point of distribution systems—at least for
consumer-oriented products—would be the points of
retail. There are different types of retailers, but the key
retailers are:
• Specialty stores. These stores have very narrow
width in terms of product mix (i.e., few product
lines) but each of the product lines that they do
offer have extensive length and depth. In other
words, there is a very wide variety of products
within the lines that they offer. These stores appeal
to shoppers who like seeing a wide variety of
goods when they are shopping for something in
particular. For instance, shops that specialize in
mobile phones will offer a wide range of brands
and even specific models will come in different
colors and options.
• Department stores. These stores are typically
large because they offer a broad width of product
categories, such as shoes, clothes, fashion
accessories, home furnishings, snacks, etc. Each
product line will be showcased under its own
department, hence the need for the store to have a
lot of floor area.
• Supermarkets. These stores have an extensive
variety of low margin, high volume goods that
mostly consist of food staples. Typical margins
hover at just around 15 percent but it is through
volume that supermarkets earn.
• Convenience stores. These can be sari-sari
stores or store chains such as 7-Eleven and
Ministop. These stores offer a very shallow depth
in their product mix mainly because shelf space is
limited, so there is no room for offering variety.
These stores stock only the essentials and it is not
unusual for these to stock just one brand for each
item. In fact, for store chains, the brand selected
would likely have to win a bidding war over
competing brands.
• Discount stores. Shops that offer big discounts
for everyday items. Some stores offer “false
discounts,” relying on psychological pricing
techniques to make it appear as if their items are
cheap (even if they are actually not). But the more
serious discounters manage to provide steeply
discounted prices through creative deals with
manufacturers, such as by offering to buy
nonmoving inventory straight from manufacturers
for cash in exchange for steep discounts that are
then passed on to shoppers. This arrangement
benefits manufacturers too since they get to
convert non-moving goods back into usable
working capital.
• Superstores. These stores, such as S&R, are
characterized by gigantic selling spaces as well as
bulk selling. The idea is for the store to get deep
discounts from manufacturers by buying and
selling in bulk, with part of the discounts being
offered to consumers.
• Showrooms. For high-markup durable goods,
such as automobiles or even condominium units,
that command premium prices due to prestige
factors. These products require highly controlled
selling environments in order to preserve their
premium feel. This is what showrooms provide.
Companies often classify distribution channels
under further categories such as modern retail,
major accounts, or traditional trade. For instance,
“modern retail” may include large store chains
such as SM Supermalls, Robinsons Malls, and
Mercury Drug Stores. “Major accounts” may refer
to smaller-scale but still large- volume retailers,
such as Tropical Hut (supermarkets) and Cherry
Foodarama. “Traditional trade,” on the other hand,
typically refers to smaller groceries and sari-sari
stores.
5 Tech Trends That Will Hit Every Retail Store by
2020
http://goo.gl/vPX364
Technology is changing the way that retail sales works.
Here, Forbes presents five of the innovations that will
most likely become pervasive within the near future.
Distribution Interview
Your group will interview a business that relies on third-
party distribution networks. Map out its distribution
system. What channels are their products being distributed
through and who the target markets are? Assess whether
or not this system fits the products being sold. Bonus
points for learning what margins go to each channel.
How informative was your group's interview?

YES NO
topic?
kinds of possible distributorships?
between intensive, exclusive, and ☐ ☐
selective distribution systems?
types of retail stores?
Exercises
Name: ______
Section:______
Date:______
I. Discussion
1. What is your favorite shopping destination? Explain
why it is your destination of choice. What does the
place provide?
2. Have you ever been disappointed by a store? Discuss

what happened and what made you feel this way.
3. What advantages can a convenience store chain,

such as 7-Eleven, have over traditional sari-sari stores?

1. Supermarkets charge a “placement fee” before they
agree to stock your products on their shelves. This fee
can be in the five-digit range. Analyze why this is now
an industry norm. Why can supermarkets get away with
this practice?
2. If you were to sell a highly perishable low-priced
product, such as ice cream sticks for a broad market,
what would be your considerations for your distribution
system? What would be your likely recommended
distribution points?
3. What could be the biggest cost components in

operating superstores such as S&R or SM
Hypermarket? Can you think of ways by which a
superstore can cut these key costs and therefore pass on
the savings to its consumers?
LESSON 3
DISTRIBUTION STRATEGIES
1. learn about possible sources of channel conflicts;
and
2. be familiar with key issues that arise in distribution
systems.
Imagine that you are selling your old mobile phone for
5,000 pesos. Your friend offers to sell it for you, which
makes you happy, and your friend even gives you the
5,000 pesos on the spot, which makes you even happier.
Later on, you discovered that your friend was actually

able to sell your phone for 12,000 pesos. How would you
feel about this?
Sources of Channel Conflicts
Conflicts can be up-down or lateral.
Handling distribution systems can be a challenge
particularly when it comes to dealing with conflicts that
can quite easily erupt. These conflicts can take the form of
vertical conflicts or horizontal conflicts.
Figure 19. Potential Conflict Points Along a Distribution

System
• Vertical conflicts. These refer to issues that
may arise between different levels along the
distribution system. Because these involve
different distribution levels, these usually mean
that the conflicts are contractual in nature and may
involve matters of accountability. For instance, a
supplier might have stipulated verbally that the
distributor (who is the level directly below the
supplier) be responsible for promoting the
products. But later on, the distributor might insist
that this was never its responsibility. This is why
contractual obligations by and between parties
should always be clearly documented and never
rely on verbal agreements only, especially when
dealing with untried entities.
• Horizontal conflicts. These refer to issues that
may arise between distributors along the same
distribution level. Often, these involve territorial
conflicts, where one distributor claims that another
is infringing into what is supposed to be its rightful
territory. Similar with vertical issues, horizontal
conflicts can be minimized if territories are very
clearly delineated and with all possible ambiguities
ironed out. For instance, Distributor X may be
given exclusive rights to service the needs of
government units, while Distributor Y may be
given rights to service corporate entities. However,
this delineation, which seems to be very clear at
first glance, breaks down when a distributor
services government corporation—does this fall
under X or Y's domain?
Even when a company decides to handle its distribution
system on its own, conflicts may still arise, mainly because
distribution will often have to become a business unit that
is separate from the manufacturing arm of the enterprise.
Conflicts can then erupt between Production and Sales
(which is usually the classification for in-house
distribution units).
A manufacturer may experience infighting when
accountability for weak sales gets discussed: it is not
uncommon for the operations group to blame the sales
team for ineptness in pushing the product while the sales
team blames operations for producing “unsellable” goods.
Retail Is About Real Estate
At the retail level, where wars between competing
brands can be won or lost through sheer visibility alone,
firms vie for as much prime real estate as possible. This is
no surprise because retailers are actually in the real estate
business. The key difference, however, is that unlike real
estate developers that offer habitable space, retailers deal
with shelf space and maximizing their returns on these
limited spaces.
Shelf space allotments are measured in terms of facings
or the number of instances of the product along a shelf.
Figure 20. Facings Refers to the Quantity of Visible

Items of a Product on a Shelf
In the early days of mass merchandising, retailers would
have been happy to sell nearly any product that was
brought to their attention. Today, however, with highly
crowded product categories and fierce competition
between multiple brands, retailers have learned to take
advantage of brand wars by transforming their shelves into
prime real estate. Before a product can find shelf space in
supermarket chains, companies are likely going to be
required to pay a substantial placement fee. This is
supposed to pay for stock-keeping and for encoding the
new product into the retailer's point-of-sale system, but the
truth is that it is simply there because retailers can afford
to demand for it.
Over time, powerful brands end up with wider shelf
space, which in turn further enhances the salability of the
brand—consumers tend to equate large shelf space
allotments with popularity. Lesser known brands, on the
other hand, tend to languish with just one or two facings.
These become vicious circles as consumers equate limited
facings with unpopularity and may therefore tend to avoid
these products.
What should a brand do if it finds itself with limited
facings on shelves? One option is to aggressively buy its
way back, by renting module spaces for instance (special
shelves that feature just the brand itself). The other is
through aggressive promotions that may hopefully
convince retailers to increase its facings in order to service
increasing demand.
Distributor Ploys
When dealing with independent distributors, know that
these are business entities that may be motivated to do
whatever it takes to maximize profitability, even if it may
be at the expense of the supplier.
In the US market, it is quite common for suppliers such
as P&G and Unilever to give aggressive price discounts—
such as offering their detergents for 25 percent off for one
week only—in order to attract the market to switch to their
respective brands. The way to push a price promo toward
the consumers is by dropping the price for its distributors
(mostly consisting of national supermarket chains) with
instructions to pass on a substantial part of the price drop
to consumers via promotional suggested retail prices.
Distributors, however, quickly learned to take
advantage of these promotions. When a deal happens, they
could stock up on these lower-priced products, hoarding
these and storing the items, and to be sold at regular price
once the promo period ends. This practice is called
forwarding and the distributors benefit by taking
advantage of the unusually large margins that they would
end up having. This, however, would be at the expense of
the suppliers whose total sales after the promo period ends
would plummet.
Nationwide distributors could also resort to a practice
that is called diverting where they would buy heavily in
regions where products go on sale, only to ship these
products to regions where the product is not on sale. In this
way, it maximizes its profit margins, but at the expense of
the regional units of the suppliers. (“Control of P&Gxc,”
1994)
The Rise of Private Labels
Private label goods, also known as house brands, refer
to brands that are owned by the distributors themselves.
Examples include the Bonus brand that can be found in
SM supermarkets, Supersavers in Robinson's
supermarkets, and Lady Rustan leather products that can
be found at Rustan's department stores. Distributors do not
manufacture their own products because manufacturing is
not normally their distinctive competence. Instead, they
rely on white label producers or factories that produce
goods for rebranding of other firms. Private labels are
typically positioned at the low price end of the product
line.
Conflicts can arise when these private labels end up
competing directly with the same products that are stocked
on the distributor's shelves. For one thing, distributors
have an incentive to pay special attention to their own
house brands. This then will be to the detriment of low-
price strategists, which will have to struggle against the
temptation of the distributor to offer wider shelf space to
its own low-priced house brand. In fact, house brands have
unfair advantages over other products because these
benefit from potentially wide shelf space allotments,
thereby potentially prospering even without having to
spend on promotions and advertising.
The irony is that many of the white label manufacturers
that supply these house brands happen to be the same
companies that produce the branded products that the
private labels end up competing with!
Gray Markets
Gray market goods refer to products that somehow
make it to the market without going through official
distribution channels. For instance, a popular fashion
brand such as Giordano will have official retail stores in
malls. At the same time, however, Giordano shirts are
often sold in tiangge stalls. These are not fake shirts.
Rather, these are legitimate shirts that are brought in
directly from Hong Kong, often by travelers who chance
upon sale prices and deep discount promos and bypassing
the local exclusive distributor network.
These products are often called gray goods because they
typically exist along the gray area of the law: legally,
people can sell any product that they buy, so there is no
criminal liability for selling a shirt that was legally bought
elsewhere. But in doing so, the seller is competing with
official resellers.
What is the best way to compete with gray marketers?
By providing a better overall customer experience. The
key strength of official channels is (hopefully) that they
invest in the proper sales environment, in sales training,
and in the proper presentation of the products. Also,
official channels can offer services that gray marketers
may not be able to provide such as legitimate warranty
services.
Regionalization and Localization
As global markets open up—as in the case with the
ASEAN free trade zone—manufacturing may tend to
become concentrated so that local manufacturers become
displaced in favor of having single manufacturers that
service multiple countries. This provides economies of
scale for multinational firms as they take advantage of free
trade to ship goods from a central location. Local offices
of multinational firms therefore effectively become
national distributors and marketers for the goods upon
receipt as opposed to previous organization structures that
also included manufacturing and logistical units.
This would work for as long as the products in question
hold international appeal. On the other hand, there are
products that fare better if they are localized or customized
according to local tastes and preferences. In these cases, it
may still be best to hold a local manufacturing presence
rather than centralizing it in order to react more swiftly to
customer needs.
This is also true for services. International food
franchises often find it necessary to offer products that are
uniquely tailored to local tastes, such as the breakfast rice
meals at McDonald's.
Online vs. Brick-And-Mortar
Brick-and-mortar refers to actual physical stores. As
more and more consumers become enabled and educated
in buying products online, a threat looms over the
sustainability of physical stores. It is not uncommon for
technologically savvy consumers to visit physical shops to
check on the prices of products there, and then
immediately do online price comparisons on their
smartphones to see how the prices compare with that of
online retailers. This dissipates any possible price
premiums that shops hope to have.
But a more pressing problem involves consumers who
visit brick-and-mortar stores just to see what products are
available and then resort to buying online when it is time
to do the actual purchase. Many online sellers manage to
undercut official SRPs on a regular basis. Sadly,
oftentimes this is because these online sellers evade
paying taxes as well as other legitimate costs of doing
business.
How can brick-and-mortar stores compete with online
vendors? Shopping experience may be a key. Customers
may have to feel delighted with their real-store experience,
to the point that they want to close the deals right there and
then regardless of cheaper online alternatives.
7 Steps for Creating Disruptive Retail Experiences

http://goo.gl/fvxEpL
This short article from Fast Company Design lays out
the steps required in order to create a retail store
experience that actually engages one's customers.
Mini-Case: Bio-Clear Air Purifiers
The Bio-Clear brand of air purifiers was introduced into
the country by RW & Company, Inc. in 1995. Back then,
there were no air purifiers in the Philippine market so the
company felt that this could be a promising new appliance
category. It was deemed to be especially promising in light
of increasing public awareness about the dangers of air
pollution. Air purifiers were essentially electric air filters
that were about the size of a big box-type electric fan.
These devices were meant to handle areas that were about
the size of a regular bedroom and served to filter out dust,
pollen, and other particulates from the air.
The air purifiers were priced at about 70 percent of the
price of a small air conditioner, and were distributed
through popular appliance chains both in Metro Manila
and in selected provincial markets. Limited promotional
funds, however, kept the company from aggressively
advertising the new device. Instead, the company agreed
to the inclusion of the product in the summer discount
promotion of SM Appliance Center, which was one of the
biggest appliance chains in the country. The summer
discount promo also included electric fans, air
conditioners, and humidifiers.
A year later, however, the company struggled with
unsold inventory especially in provincial areas. Sales in
Metro Manila never really took off. What went wrong?
Distribution had a lot to do with the problem, along with
the fact that people simply were not aware about the
benefits that an air purifier could provide them.
Because air purifiers were distributed through appliance

stores, these would be placed alongside other “air
conditioning” appliances such as air conditioners and
electric fans. Unfortunately for Bio-Clear, since its price
was nearly the same as an air conditioner, the customers
tend to categorize it as being similar to air conditioners.
This was a problematic category to fall under: customers
assume that air conditioners also “purify” the air. So
between buying a Bio-Clear, which does not cool the air,
and an air conditioner, which (at least in their minds)
purifies the air and cools it, then they would rather buy the
air conditioner.
A better strategy would be to clearly communicate to the
market that air purifiers are not meant to be inferior
substitutes to air conditioners. If anything, they should co-
exist with air conditioners for the optimum home
environment. But to make this communication possible, it
may be better to sell the air purifiers not in appliance
centers but in distribution outlets that are more associated
with health especially pulmonary health. Thus, stores that
sell medical products such as nebulizers (for people with
asthma) may be a better fit. This way, the target market is
narrowed precisely to those who can easily understand the
need for air purifiers.
Market Share and Market Strategy

Over time, the number of shelf facings becomes an
indicator of market share. Go to a popular supermarket and
count the number of shelf facings for all the brands in a
particular product category. From these numbers, identify
the most likely top three market leaders in this category.
How many facings do the lesser known brands have?
Analyze your findings and come up with one or two
conclusions about the market, the retailer, or the brands.
group.
How well did your group estimate market shares?

YES NO
topic?
1. Do you now know the sources of ☐ ☐
vertical and horizontal conflicts?
2. Do you now know why retailers ☐ ☐
are said to be in the real estate business?
3. Do you now know what gray ☐ ☐
marketers are?
Exercises
Name:______
Section:_____
Date:_______
I. Discussion
1. Shop around in supermarkets and you are likely to
find products with wordings in regional languages, such
as Bahasa Indonesia or Malaysian. What does this tell
you about the distribution strategy for these brands?
2. Give an example of a brand that is most likely being

hurt by a big retailer's private label brand. Give
suggestions on how this brand can survive the
competition.
Brand:
Suggestions:
3. Give an example of a locally made product that you

believe will have a good chance of competing in a
regional market. Explain why.
Brand:
Suggestions:
1. Music stores have been a principal victim of the
wide availability of online music. Come up with a
strategy on how a traditional seller of CDs can revive
its business even in the era of MP3s, YouTube, and
Spotify.
2. Because of the Internet, local retailers now also find

themselves competing with international retailers such
as Amazon and Alibaba despite these international
stores having to add shipping costs and duties. Assess
what will make a consumer decide to choose a local
distributor rather than an international one. Is it all
about the price? Explain.
3. Apple is unusual because it has both a legitimate

Philippine online store as well as brick-and-mortar
distributors with prices being about the same. In your
opinion, what kind of market would shop online and
what kind would prefer to shop in their actual stores?
LESSON 4
SALESFORCE MANAGEMENT
1. know the elements of a salesforce strategy; and
2. learn the fundamentals of managing a salesforce.
You plan to sell a new line of candies across the entire

country. How many salespeople would you need? Explain
your reasoning and how you arrived at the number.
Number of salespeople you need to hire:
Reason for the number:

The Sales Organization
Salespeople are more diverse than you may think.
We often associate a sales person with someone who
personally pushes for the purchase of a product, perhaps
even through the use of “hard selling” techniques. But
sales positions are not only about people who do actual
selling: anyone who is responsible for bringing buyers and
sellers closer together for a potential sale is essentially in
a sales position. This includes the driver of a delivery
vehicle or even the order taker in a restaurant for instance.
Selling, in this context, is therefore all about direct
marketing to consumers through the use of a well-trained
sales team. Sales positions go beyond just actual selling to
include personnel with the following responsibilities:
• Delivery of the product. This includes delivery
service personnel and installation crew.
• Order-taking. This includes waiters at
restaurants and reception personnel.
• Building up of goodwill for the product. This
includes spokespersons, product endorsers, and
potentially even bloggers who write about the
product.
• Education of buyers and potential buyers. This
includes product demonstrators and trade
exhibitors.
• Provision of technical knowledge. This includes
account engineers, customer assistance hotlines,
and warranty repair crew.
• Creative selling. This includes sales people with
ready-made spiels, telemarketers, and door-to-door
salespeople.
In effect, almost anybody who does personal interaction
with customers on behalf of a brand is technically a sales
person. This premise fits in very well with the ideal
marketing mindset wherein everybody in an organization
should be a marketer.
Elements of the Salesforce Strategy
For many startups, getting a sales team in place may
simply involve hiring one or two people who claim to have
sales experience and seeing how things go from there.
Unfortunately, this is a hit-or-miss approach that leaves far
too many things to chance. The secret to having an
effective salesforce lies in properly managing the elements
of a salesforce strategy. These elements are sales structure,
salesforce size, and salesforce compensation.
Sales structure. At the start, when sales volumes are
still minimal, there probably is still no compelling reason
to put some order into the organization structure. Mainly
this is because there still are not enough sales personnel to
build a structure with in the first place. But as the
salesforce grows, it becomes imperative to establish a
clear structure to manage them with. The standard
salesforce structures are:
• Territorial salesforce structure. Sales people are
assigned to specific territories. This is useful when
selling products that are not that complex and when
the priority is tosaturate a wide market as possible.
Territories can be as small as districts or as large as
island groups (Luzon, Visayas, and Mindanao),
depending on how much ground each sales person
can realistically cover regularly. Consumer goods
normally utilize this structure as wide distribution
gives them economies of scale while the products
are relatively simple and need minimal special
skills to sell.
• Product salesforce structure. This is used when
selling products that are complex or which require
a lot of training and development to master. Each
sales person specializes on one product or a group
of products but is given free rein on where and to
whom to sell these products. Technical products,
such as machinery and institutional electronics,
often use this type of structure as the products
require training and regular updates in order to be
sold effectively.
• Customer salesforce structure. This is used
when the most important element is the
relationship between the customer and the firm.
Each sales person is therefore given a short list of
clients that the sales person thoroughly becomes
familiar with and nurtures and handles on a regular
basis, offering whatever product or service may be
needed to solve their problems. Service-oriented
businesses often use this structure as exemplified
by account officers in ad agencies.
• Complex salesforce structure. This often
involves either a product salesforce structure or a
customer salesforce structure but this time
incorporated into a territorial network. For
instance, there could be a Luzon sales manager
who then supervises product specialists who take
care of selling specific product lines within the
Luzon territory.
Figure 21. Complex Salesforce Structure with Regional

Offices and Product-Based Sales Units
Size of salesforce. How many sales people would you
need to cover your markets or territories? This is actually
a simple math problem, but it requires knowledge of two
things: (1) how long a typical sales call lasts, and (2) how
many client calls each client would require per month.
Assuming that the typical sales call lasts for four hours,
inclusive of travel time. Then you can conclude that on a
daily basis, a sales person can service two clients—one in
the morning and one in the afternoon. Knowing this, you
now know that each sales person can do around 44 client
calls a month, assuming 22 working days per month.
Now, assuming that you want each client to be visited
at least four times per month, then you now know that each
sales person can only handle 11 clients per month (44
clients / 4 calls per month).
Knowing this, you now know that for as long as your
business only has up to 11 clients, then you only need one
sales person in your organization. On the other hand, once
you build up more clients, then you simply forecast the
number of clients and divide that by 11 to determine your
required number of sales people.
Compensation and incentives. How much should you
give to your sales people, and what should their incentives
be in order to inspire them to sell?
Compensation can be composed of the following tools:
salary, commissions, bonuses, and benefits. First, there is
salary. The rule of thumb is that the greater the investment
in the training that is required in order to hone a sales
person into proper form of selling your products, then the
salary should commensurately be higher as well. The
reason is that you would want to retain this person. If this
person leaves for better opportunities, then all the
investment in this person's training would have gone to
waste. On the other hand, if it takes little training or skill
to sell your product, then you may go so far as to forego
salaries and simply hire sales personnel on a pure
commission basis.
Commissions are given as a percentage of sales
generated. How big a percentage should commissions be?
This really depends on the product that is being sold, as
well as the profit margins involved. It could be as low as
two percent for high-value products (such as institutional
real estate, where even two percent represents a large
amount), to as high as thirty percent for very high margin
specialty goods that have profit margins of at least a
hundred percent.
The best way to assess how big a percentage should be
given is through simulations. Suppose that a sales person
manages to sell X amount in a month, how much take-
home pay would this person deserve in order to encourage
this person to continue or exceed the performance for the
following sales period?
Bonuses are extras. These are given in order to inspire
and to motivate. Bonuses include the offering of trips
abroad for superior performers or a new car for the top
performing sales person for the year. The idea here is that
the rest of the sales people will become inspired upon
learning of what a fellow sales person can gain from
performing well. How much to allot for bonuses depends
on the firm's marketing budget.
Benefits are perks that sales personnel can gain for their
loyalty to the company which includes health plans, car
plans, and housing plans. These are designed as measures
to retain consistent and reliable performers. Again, the
greater the investment in time and training required to
bring a sales person into peak performance, the more
useful these benefits can be in order to keep them with the
organization.
Managing the Salesforce
A common mistake among small enterprises that strive
to handle a salesforce is they would hire sales people under
the assumption that, as professionals, they need no further
sales training and can be unleashed into a sales
environment with minimal supervision.
In reality, sales people would require quite a bit of
direction, especially at the start. This includes guidelines
on where and how best to find potential clients,
explanations as to the unique selling points of the
products, and how best to address client concerns and
questions. Unfortunately, if the enterprise itself is unclear
about any of these points, then no transfer of knowledge
can happen at all.
In order to build a proper sales climate and culture,
regular sales meetings are practically a necessity. Set aside
a particular day and time every week for weekly sales
meetings that all the sales personnel should participate in.
Sales meetings are useful for diagnosing the previous
week's performance, so that any problem areas can be
attended to immediately and addressed. These meetings
are also useful for setting the week's targets and rallying
the team toward accomplishing these.
Sales meetings are also an opportunity for sharing. One
of the biggest challenges in handling sales personnel is that
while there will be some high performers, there will also
be those who want to perform better but do not quite know
how to. Instituting a sharing session, where each sales
person is encouraged to share success stories with the
group, is an informal yet effective tool for educating the
others on best practices in the field. Top performers get to
bask in the glory of sharing their war stories, while the
others gain by learning from these recounted experiences.
Even better would be the institution of documentation
protocols. Sales people should be made responsible for
documenting each and every sales call by using sales call
reports. These reports strive to capture the most important
information that can be extracted from sales calls such as
contact persons, outcomes, products that clients showed
interest in, products that did not interest the client, reasons
for interest and disinterest, potential sales, and what sales
strategies worked and did not work.
With sufficient documentation, it is possible for the
sales organization to build up ample recorded information
that will facilitate the training of future sales personnel,
using the documented experiences of the many sales
people who came before them.
One of the most successful sales organizations in the
world belongs to NCR Corporation (formerly National
Cash Register). In its possession is a “living” sales
document that is over a hundred years old. It is called a
living document because it is always being updated with
the latest sales techniques and sales experiences of the
sales personnel themselves, thereby containing up-to-date
and timely information about how best to engage modern-
day clients while still benefiting from the collected
wisdom of many generations. Having this living document
greatly facilitates the training of new sales personnel who,
by just going through this manual, can already get a
detailed picture of what to do and what not to do as NCR
sales personnel.
Challenges for the Sales Organization
Ram Charan outlines some key challenges that sales
organizations today face (Charan, 2007):
• Interacting mostly with customers ' purchasing
departments. The problem is that the purchasing
department is just the “order executor” for the
client's real decisionmakers. This means that the
salesforce will not be speaking to the people who
really matter.
• Discussions revolve mostly around price.
Customers often deal with sales people by talking
price with them more than anything else. As sales
people drop prices and margins, the company
suffers.
• Sales training is mostly about not taking no for
an answer. Training programs often revolve
around tactics that get the sales person around the
client's “No.” But this comes at the expense of
teaching sales people how to truly address actual
customer concerns.
• Management is constantly changing the sales
team's incentives. This puts pressure on the sales
team to perform but for the wrong reasons as they
focus on quotas rather than adding value for the
customer.
• Sales people are encouraged to spend more
time per client, but this only leads to more
inefficiency. Just because a sales person spends
more time with a client does not necessarily mean
that sales will increase. This is mainly because root
issues in the client relationship may still not be
being addressed all along.
• Sales people are not included in the product
design phase. Sales people can have a tremendous
store of insights about the customers. Yet these
insights are not being taken advantage of if the
sales team is not part of the product design process.
• Little thought is being given to the customers '
customers. Especially in business- to-business
markets, sales teams may be too focused on closing
a sale with their clients and are missing out on
opportunities in offering them solutions for their
own customers—a shame since these could have
helped cement their sales relationship with their
clients.
• Sales people are too swamped with paperwork.
Sales people are action people and they will tell
you that a key frustration lies in having to be tied
up in a desk filling out imposed paperwork when
they could be out there selling.
• The sales organization thinks that it is actually
doing a good job. It is possible that the entire sales
infrastructure, the training, and the metrics all
indicate that everything is good—except that the
entire structure has been set up wrong after all.
This becomes evident if the customers' needs are
not exactly being addressed as this will lead to
long-term erosion of relationships.
Hypnotic Selling Techniques

http://goo.gl/mQxZpr
NLP stands for neuro-linguistic programming. It is an
approach to communications that is based on neurological
processes, choice of words, and behavior. It can be used
for enhancing one's persuasiveness in sales. This article
gives NLP-based tips that can help enhance one's powers
of persuasion.
Design a Sales Call Report

If you are a sales manager, what are the most important
things that you would want to know when a sales person
visits a client? Identify these essential bits of information
and design a sales call report that you believe would be
very useful for preserving critical information. Important:
you will need to strike a balance between thoroughness
and the difficulty in accomplishing the form. If the form
takes too much time to complete, chances are that sales
people will choose to evade filling it up.
group.
How good is your group's report design?

YES NO
topic?
possible kinds of sales positions?
of a salesforce strategy?
3. Do you now know the basics in ☐ ☐
managing a salesforce?
Exercises
Name:______
Date:______
Section:______
I. Discussion
1. Give an example of a supermarket item that may not
be doing so well. What sales strategies can you suggest
in order to revive its sales?
2. Give an example of an instance when you were

convinced by a salesperson to buy a product. What
exactly was it that made you decide to buy? Dissect the
transaction.
3. Social networks are now a common channel for

engaging with customers. Give an example of a
business that has a good record for customer
engagement and explain what their success factors are.

1. Is it possible to have too many salespeople in an
organization? When can it be an advantage and when is
it a disadvantage?
2. Give an instance when a customer care person gave
you unsatisfactory service. What was the reason and
why do you think it happened? How would you address
this situation in order to prevent it from happening
again?
3. If you were a salesperson, what do you think would
be the biggest incentive that will motivate you into
selling products aggressively? Discuss the implications
of this.
Sales incentive:
Reasons:
Bayan Sells a New Product with Minimal Advertising
In 2007, Bayan Communications faced the challenge of
having to sell a wireless phone.
What made the product extra challenging was that the
market has already by then embraced SMS text
messaging as a primary means of communication and
voice calls were declining. The product that Bayan was
about to offer was primarily for voice—it looked like a
traditional telephone except that it was wireless so it
could be brought anywhere.
Bayan also wanted to zero in on an environmental
opportunity: the Philippines had one of the most
expensive voice call rates in Asia for mobile (hence the
shift to text messaging). Bayan was to offer its wireless
phone, to be called Bayan Wireless, at rates at par with
landline phones which allowed unlimited voice calls.
Bayan knew that simply explaining the unlimited calls
feature of the product was different from having the
market experience it for themselves. So instead of doing
a mass media launch which was the common practice,
Bayan went door-to- door— getting people to try the
phone and lent the phones to key influencers such as the
media. In fact, a political crisis turned into an opportunity
for Bayan when during a military rebellion that led to a
siege of the Manila Peninsula Hotel in Makati City, a
reporter for radio station DZMM kept listeners updated
for hours on end via his Bayan Wireless unit.
When the company finally aired ads on TV, it used the
siege anecdote to prove the value of having a “wireless
landline” unit.
Through its astute use of environmental opportunities,
Bayan was able to hit its first year target of 100,000
subscribers ahead of schedule.
Marketing is often equated with advertising.But as you

hopefully know by now, advertising and promotions in
general are just part of the marketing mix. In fact,
promotions is the fourth and final P of the marketing mix,
and covers matters such as advertising, sales promotions,
public relations, and personal selling strategies. In short,
these are the most direct communication elements
available to a marketer
LESSON 1
THE PROMOTIONS MIX
1. know the components of the promotions mix;
2. have an understanding of the limitations of various
media; and
3. understand the different methods for deriving a
promotions budget.
1. Discuss how you feel about advertising. Is it good?

Is it bad? Explain why.
2. In your opinion, what is the best way to promote a

product, for instance a new burger outlet, without
having to resort to expensive advertising? Explain your
answer.
Elements of the Promotions Mix

Tools for communicating your product.
Advertising and promotions constitute the overt forms
of communication for a product that involve the use of
various media to deliver messages to the market in order
to achieve business objectives. Because different kinds of
media may be employed in order to push a message to
consumers, the portfolio of media is referred to as the
promotions mix.
Traditionally, the promotions mix was composed of
advertising, sales promotions, public relations, and
personal selling. Today, however, the promotions mix has
been updated in order to reflect new realities in the
communications environment.
Today's promotions mix consists of above-the-line
communications, which refer to the traditional mass media
vehicles of print, radio and television, and below-the-line
communications, which refer to more targeted, smaller
scale executions including the use of social media.
Increasingly, many campaigns now combine the two in
what is called through- the-line communications, often
involving the use of mass media to encourage consumers
to visit below-the-line channels.
The purpose of promotions is to elicit a change in
behavior. Of course, getting people to buy your product,
when previously they did not, constitutes a change in
behavior. But the behavioral objective need not be this
abrupt. Often, consumers first need to be primed in order
to allow them to collect positive feelings toward the
product, before finally getting them to actually purchase
it.
The Hierarchy of Effects model states that consumers
need to go through six stages before finally buying a
product (Steiner, 1961). These are:
1. Awareness. The realization that your product exists.
2. Knowledge. Comprehension about your product's
features and benefits.
3. Liking. Gaining positive feelings toward your
product.
4. Preference. Deciding that your product is better than
others.
5. Conviction. The belief that your product is worth
buying.
6. Purchase. The actual buying of your product.
Promotions are often designed to guide consumers
through these stages. In fact, just the first stage alone,
generating awareness about a product's existence, can
already be considered as a major accomplishment
considering that there are far too many brands that are
jostling for a consumer's attention. In a way, generating
awareness already considerably builds up a product's
brand equity.
Selecting the Media
Each kind of medium has its particular characteristics
and idiosyncrasies. That is why out of necessity, the
message that is created needs to be tailored to fit the
strengths of each medium.
Personal communications refer to person-to-person
communications. It could be one-to- one, as in the case of
using sales personnel to pitch a product to individual
clients. It could be one-to-many, as in the case of
conferences and informational lectures. Personal
communication has the advantage of offering direct lines
of communication between the buyers and the seller,
allowing for instant feedback and interaction. However,
because these require a personal presence, there is limited
economies of scale in each communication opportunity. It
can only reach one person at the least and a few hundred
people at most.
Personal communication vehicles include
telemarketing, product demonstrations, trade show talks,
and sales pitches.
Non-personal communication refers to one-is-to-many
communication media. Because these kinds of media tend
to be impersonal to a significant degree (i.e., there is no
direct feedback from the receivers of the message), there
may be difficulty in determining their efficacy in
achieving desired objectives. On the other hand, non-
personal media can easily attain economies of scale, with
the potential to reach hundreds, thousands, and even
millions of people.
Non-personal communications include the following
media:
• Print. This includes newspapers, magazines,
and similar publications. While print has seen a
drastic decline in readership due to the Internet,
there are still holdouts. Print is especially good at
providing depth of information and detail
particularly for people who already have the
interest in the products being presented and so will
have the patience to read all about it.
• Television. This is still the most efficient way to
reach a very wide audience considering that over
90 percent of Philippine homes have access to TV
sets, whether in their own homes or within their
communities. However, as typical ad spots are only
thirty seconds long, TV ads need to sacrifice depth
and detail in favor of a single compelling argument
or an emotional appeal.
• Radio. This is a strong second to television in
terms of capacity to reach broad markets, with over
60 percent of Philippine households claiming to
tune in regularly. Radio ad spots have the same
thirty second constraint that TV has but with the
added handicap of being purely audio. This means
that radio ads need to have clarity and a compelling
presentation in order to engage listeners within a
short span of time.
• Displays. These include billboards, banners, and
posters. While these do not have as broad reach as
TV or radio, their capacity to reach hundred or
even thousands of “eyeballs” (an informal term for
viewers) gives them some of the powers of TV but
on a smaller scale. Billboards, for instance, reach
thousands of traffic eyeballs every day. The key
limitation of displays, however, is that these tend to
offer only static images and people tend to view
them for only a split second if at all, so these
should be compelling enough to attract attention
while presenting severely truncatedmessages. Even
modern “moving billboards"—billboards with
video—can only be seen for a few seconds as
vehicles rapidly pass them by, so these video
billboards have to complete a message cycle within
just three to five seconds.
• Internet. This includes online banner ads, the
use of bloggers to promote products, and the use of
social media to engage customers. In fact, social
media represents a gray area between non-personal
and personal communications, as social media
allows firms to actually engage in conversations
with its buyers even as the media itself is generally
impersonal in nature. The key to an effective
online campaign is to constantly update and
present new content so that visitors remain
engaged.
Setting the Promotions Budget
How much should a marketer spend for promoting a
product? This is always a tough question and there really
is not any easy answer to this.
There are, however, four general methods for setting a
workable promotions budget. The first three are easy to
derive but suffer serious flaws. Their manner of deriving
the budget may not be commensurate with what needs to
be accomplished for the brand. The fourth method,
however, directly addresses what needs to be
accomplished, but will be difficult to derive.
1. The Affordability Method. Here, the budget is
simply dictated by what the organization can afford to
shell out for promotions. It means that the promotions
budget is practically in the hands of the finance head
rather than the marketing head. The marketing
department may not be able to plan long term
promotion strategies because its plans will be at the
mercy of what future budgets can be sent its way.
2. Percentage of Sales. Here, the promotions budget is
derived as a percentage of revenues. This is the
technique that is often favored by large firms in mature
industries, such as Pepsi, as it is easy to compute and
has a clear basis. The only problem is, this is a basis
that is not grounded in what needs to be done. For
instance, if sales fall, then the budget falls as well—
when ideally, this is precisely the time when the budget
should be raised in order to boost sales.
3. Competitive Parity. Here, the promotions budget is
derived based on what others in the industry are
spending, especially the competitors. This will
hopefully keep the business at par with the industry.
However, the trouble, is by definition, a budget that is
derived on parity will not give the business a chance to
launch innovative campaigns that may require heavier
investments.
4. Objective and Task. Finally, this is a budget that is
derived based on what truly needs to be done for the
business. There is no simple way to do this: marketing
department needs to first discuss the objectives that
need to be accomplished for the brand, come up with a
communication plan that seeks to achieve these
objectives, and finally set the budget based on the plan's
tasks list. This is a very straightforward way of getting
the right kind of budget for the right kind of activities.
However, the downsides are: (a) preparing the proposal
will take time and effort, and (b) thereis not necessarily
any guarantee that the requested budget will be
approved by top management.
Much of the budget may be utilized for specific kinds of
media ads. But how would you know which media is the
best and would offer the highest “bang for the buck”
returns per peso? The answer, again, falls on the number
and quality of the audience that can be reached by the
media.
TV stations, for instance, will give estimated viewership
numbers per program, while magazines would give
circulation figures. The job of the marketer is to assess the
per head cost of each type of media ad. For instance, a
magazine that charges 50,000 for a full page ad and
promises a circulation of 10,000 will have a per head rate
of 5 pesos. On the other hand, a TV show that demands
500,000 pesos for a 30 second ad may sound expensive,
but if it promises a viewership of 5 million, for instance,
then this amounts to just 10 centavos per head, which now
looks like a very good deal.
Then again, per head cost needs to be tempered with the
quality of the audience. If a TV show promises a
viewership of 5 million, but by your assessment you
realize that only one percent actually belongs to your
target market, then the per head cost is not just 10 centavos
but more like ten pesos per head—500,000 pesos divided
by 50,000 viewers.
At the same time, considering the cost of TV
advertising, it may be prudent to ensure that there really is
a message in your ad. Mark Tungate recounts the heady
days of the years 1999 and early 2000, before the Internet
bubble collapsed, when numerous startup tech companies
that were flush on investors' cash spent furiously on
advertising:
Dozens of dotcoms blew millions of dollars on
dizzyingly expensive and mostly dreadful 30-second
spots. Top prize for hubris went to E-Trade.com, which
ran a loony ad featuring a dancing monkey. The endline
said: “We just wasted US $2 million. What are you doing
with your money?” (Tungate, 2013).
How to Take Stunning Food Pictures

https://goo.gl/nbevSr
This picture is worth a thousand words. When you are
in the food business, having great-looking photos of your
products is a must as this is the best way to spread the word
about how appetizing your food can be. This video from
SGNL features useful shooting tips from a professional
food photographer that can help you make even your own
food shots look so much better.
Media Research
Your group shall do a quick survey of the media
consumption habits of your batchmates. Using a sample
size of at least 30, identify what kinds of media your
batchmates typically consume, and what channels,
programs, stations, titles, etc. in particular. Based on your
findings, make conclusions about how an interested
advertiser can best reach your batchmates.
group.
How much did you learn about your batch's media

habits?

YES NO
topic?
elements of the promotions mix?
2. Do you now know how to set a ☐ ☐
promotions budget?
3. Do you now know how to assess ☐ ☐
the efficiency of an ad medium?
Exercises
Name:___________
Section:__________
Date:____________
I. Discussion
1. Give an example of an effective TV ad. From what
you remember, what made it memorable for you?
2. Banner ads on the Internet have gained notoriety as

eyesores and inconveniences. What do you think would
make a banner ad compelling enough for a viewer to
actually click on it? Give examples.
3. Give an example of a product or brand that not too

many people are aware of. How would you raise
awareness for this product? What media would you
use?

1. There is a growing trend for what is known as
“multiple screen” viewing. These are people who watch
TV while browsing their tablets and scanning their
smartphones, all at the same time. Think of ways to
take advantage of this habit from an advertising
perspective.
2. TV advertisers have always had to contend with
viewers who switch channels during ad breaks. Think
of ways by which you can minimize the impact of
channel switching when your ad is about to come up. '
3. Media need not be limited to the big three—print,
radio, and television. Identify a medium that is very
nontraditional, nobody has thought of using, that you
can use to target a very specific market. (An example
would be in Japan, cigarette cartons have become
spaces for advertising.)
LESSON 2
OVE-THE-LINE STRATEGIES
1. know the distinct characteristics of above-the-line
media; and
2. be able to recommend general ad strategies for each
kind of medium.
Recall what you believe is one of the most memorable

TV advertisements that you have seen.
Product that the ad was about: Describe the ad:
What were the elements that made it memorable for

you?
The Nature of Advertising

Mass communication is all about reach and volume.
Advertising perhaps constitutes the most visible
communication tool in a marketer's arsenal.
Unfortunately, it can also be very expensive so only bigger
companies can fully engage in it.
The term advertising is generally associated with one-
to-many, one-way communications. In ancient times,
examples of advertising would include visual signages for
shops, wall paintings, and even printed posters in ancient
China. With the advent of the printing press, ads first
started appearing in English newspapers in the 18th
century.
Broadcast ads have their origins in the early days of live
radio, when radio shows first sought sponsorship from
large companies. Sponsorship was in the form of five
minute blocks of time in which a company spokesperson
pitched products. Five minutes was a lot of time and this
allowed the spokesperson to talk about products in depth
and with great flourish. This tradition can still be heard
today whenever radio commentators take time out to talk
and ad lib, over live radio, about products that pay to be
endorsed.
The modern 30 second ad traces its roots to Pepsi-Cola.
In the 1930s, Pepsi was a struggling company and could
not afford to pay for five minutes of air time. Instead, it
negotiated to buy just 30 second chunks of ad time
distributed around the clock. With just 30 seconds to work
with, Pepsi came up with the first recorded “jingle” or
musical ad. The ad was a song about how Pepsi offered
“twice the size for half the price” (versus Coca-Cola). It
became a memorable and hummable hit which propelled
sales of Pepsi (Gershman, 1990).
Today, the three biggest traditional media channels for
advertising are print, radio, and television, which are
known as the tri-media. These are also known as above-
the-line communications, a term that has its roots in a time
when promotions budgets placed tri-media expenses
“above the line” of the proposed budget because these
were the major expense items. Everything else “below the
line” of the budget plan was considered to be corollary
expenses.
Does Advertising Simply Add to Product
Costs?
There is a widespread belief that advertising is
unnecessary and just serves to raise product prices, and if
only firms got rid of advertising, then prices will drop and
thereby stimulate greater demand. However, a study was
done in a US town that was being served by a number of
optical shops, none of which advertised. One of the shops
decided to advertise and the study tracked the results.
What happened was, advertising raised the store's sales.
The increased sales, in turn, allowed the store to buy from
its supplier at volume discounts. The discounts were then
passed on to buyers in the form of lower retail prices.
Result: advertising actually reduced retail prices.
Television
In developed countries, television viewing has been
declining year-on-year. Nevertheless, it still remains a
formidable force for mass communications and is still one
of the most efficient ways to reach a very wide audience.
For instance, the Super Bowl, which is the annual National
Football League championship game in the US, reached
an audience of 111 million viewers in 2014. So while a 30-
second ad would cost US$ 4 million, this still comes down
to just 3 US cents per viewer reached.
TV remains as the most powerful tool for reaching a
national audience with reasonable cost efficiency. Over 90
percent of Filipinos regularly watch television. In
urbanized towns and municipalities, 94 percent of homes
had TV sets as of 2010. Cable TV subscription has also
been steadily growing, driven by increasing channel
variety and engaging programming.
TV networks apportion their broadcasts in order to have
both regional and nationwide programming. Regional
programming is designed to attract regional advertising
from local businesses, while nationwide programming is
designed to appeal to large-scale advertisers that seek
national audiences.
The top two networks in the country typically each get
30 to 40 percent of the free TV (the term for publicly aired
broadcasts) audience share, while the remainder of the
networks typically fight for the balance of 10 to 15
percent.
How much does it cost to advertise on TV? Regional
rates would be much cheaper, but rate cards (which is the
equivalent of the suggested retail price for media) for
national TV shows, particularly for the top two networks,
would range from 120,000 to 200,000 pesos per 30-second
ad for weekday mornings to half a million pesos for a
single ad in a popular weekday primetime (the hours with
the highest viewership) show.
Table 6 shows the different TV card rates per 30-second
ads. WD refers to weekdays, WE refers to weekends,
while nego refers to negotiated rates—heavily discounted
rates given to bulk buyers such as ad agencies.
Table 6. Card Rates for 30-second TV Ads from
Different Networks (circa 2010)
Note that advertisers almost never buy at retail prices—

ad agencies negotiate bulk buying which brings down ad
rates to nearly half or sometimes even up to just a third of
the rate card prices.
Because television ads are ephemeral, lasting just 30
seconds before vanishing from view, it is highly probable
that many ads will not even be seen by target viewers.
Noise can come in the form of distractions, bathroom
breaks (because blocks of ad times during and in between
programs have already been construed by viewers as being
intermissions), and even “channel surfing” or the
switching to different channels.
Besides, studies show that it generally takes some nine
viewings of an ad before its information finally sinks in to
viewers' minds! Therefore, assuming a cost of 500,000
pesos per ad, a company will have to spend some 4.5
million pesos in ad rates before its message finally gets
delivered fully to its target viewers.
TV ads are best at appealing to viewer emotions. Some
of the best loved ads, for example, were ones that dealt
with family ties, playing on the strong Filipino value of
celebrating family bonds. Emotions are a perfect approach
for TV ads because 30 seconds is not enough to convey in-
depth information, but it may be enough (with smart
editing) to elicit an emotional response especially as it can
appeal to dual senses of sight and sound. Other emotions
that can be triggered through television are desire (food
shots are especially good triggers) and aspiration (product
endorsers command a high price for endorsing goods
because they can easily generate product interest).
TV ads are not good at providing in-depth knowledge
about a product, so do not even try. Viewers tend to tune
out from overly complex messages, thereby rendering any
such ad is useless. But TV is good for generating
awareness and building a liking for a product.
Radio
With the exception of a few large radio networks, radio
is primarily regional in nature that caters to local markets.
It is the most popular media next to TV, with over 60
percent of the population listening regularly. In fact, radio
has seen moderately revived interest in recent years thanks
to the increased interest in talk shows and new
programming formats.
AM radio is associated with news and information
(mostly due to its lower fidelity) while FM radio is
generally associated with music (due to its higher audio
quality). However, exceptions have been becoming more
frequent and there have emerged a number of popular talk
shows on FM and music stations on AM. Primetime for
radio is defined as morning or evening rush hour, when
commuters are stuck in traffic and are listening to their car
radios or to the radios in public transport on their way to
or from work.
Radio ad spots range from 15 second quips to 60 second
extended ads. There are also special executions that can be
in the form of full 3-minute songs. Typical 30-second ad
rates can range from 850 pesos for sparsely populated
provincial areas to 9,000 pesos for popular Metro Manila
stations. A 15-second ad will range from 500 pesos in
remote areas to 5,400 pesos in Metro Manila.
The following table shows card rates for one of the popular
radio networks in the country:
Table 7. Ad Rates for a Popular Radio Station and Its
Affiliates (circa 2010)
Aside from being short-lived, radio ads are limited to a

purely aural (audio) experience, thereby severely limiting
the range of objectives that can be achieved here.
Compared to TV, which has a visual dimension, it is much
more difficult to engage audience emotions in just 30
seconds. Therefore, the best strategy for radio ads would
be to focus on purely informational but very concise
messages.
There is a long-standing assumption that radio ads
should be in the form of musical jingles. This need not
necessarily be the norm, since the downside to jingles is
that the musical element may distract from the actual
information that is being conveyed. At worst, the music
makes it difficult to understand the lyrics which contain
the message. On the other hand, humorous ads tend to
work on radio, particularly those with memorable
punchlines, as these catch the listener's attention.
Print
Print media generally refers to printed publications such
as newspapers and magazines. Sadly, the country as a
whole is not a reading population and this can be seen in
the fact that only around 15 percent of the population still
regularly reads newspapers (whether broadsheets or
tabloids), while an even smaller group of about 9 percent
reads magazines.
Nevertheless, readers of broadsheets in particular are
heavily skewed toward educated and higher-income
groups, a fact which keeps it attractive as a medium for
advertising regardless of its shrinking readership figures.
Readers also tend to be older, being skewed toward the 30-
something and up groups.
Magazines, on the other hand, have now evolved into
highly niched reading materials, with the exception of
“gossip” and “showbiz” publications that still attract a
broad readership. Being niched means specializing in
particular interests, such as running, golf, badminton,
automobiles, and even weddings.
Being niched publications offer advantages because
readers tend to be highly interested and motivated buyers.
A buyer of a wedding magazine is likely to be flipping
through the pages because she is already planning her
upcoming wedding. It means that advertisers here have a
good chance of garnering reader interest and closing sales,
but only if the ads are for products that are directly related
to the field of interest. A sports shoe ad in a wedding
publication, for instance, will likely not garner any interest
unless it somehow tweaks its message to relate to
weddings.
How much does it cost to advertise in a magazine? Ad
rates vary and the diminishing numbers of magazine
subscribers means that it is fast becoming a buyer's market
for ads. But typical card rates can be about 60,000 pesos
for a full-page ad for a magazine with a claimed print run
of 40,000 copies and a claimed circulation of 500,000
people (which translates to a per person cost ofjust 12
centavos).
However, here is a quick warning about circulation
figures. Most magazine publishers are tempted to
overstate not just their circulation numbers but even their
print runs! It is easy for a small publisher to claim that it
has a print run of 40,000 copies when in fact it actually
printed only 5,000 copies (printing is the biggest cost
component for publishers). With no regulatory agency
tasked with auditing print runs, it is up to the advertiser to
either take the publisher's word at face value or to demand
for proof of the large claimed print run.
Circulation is also overstated using something called
“pass-on readership.” This refers to the number of times
that a magazine gets passed on to another person. For
instance, in a doctor's lounge or in a coffee shop, how
many people get to read the same complimentary
magazine? This number is estimated and then multiplied
by the print run to derive the circulation number. However,
there is no guideline for setting the pass-on multiplier, so
publishers are tempted to pump this up to boost the figures
that they can claim. While a pass-on multiplier of 4 or 5 is
reasonable, it is not unusual for publishers to claim pass-
on readerships of 10 or more. Worse, they multiply this
against the total print run, even if much of the print run is
actually just lying in the publisher's storage—assuming
that the print run figure was legitimate in the first place.
The key advantage of print is that it allows for detail,
information, and knowledge transfer. If your
communication objective is to inform and to educate, then
print is practically an essential medium in your arsenal.
That is, if your target market happens to be reading in the
first place. On the other hand, glossy magazines, with their
capacity to print high quality and vivid images, are also
good for eliciting desire. This explains the highly visual
approach of fashion magazine ads.
Only do print ads if you are certain that your product fits
perfectly with a particular publication's theme. Also, only
if its target market is a perfect fit with yours. If so, then
take their circulation figures with a grain of salt and do
your own estimates of their actual circulation. Divide the
ad placement cost by your own estimate to come up with
a per head cost and see if it
makes sense. Note, however, that since a niched
publication represents a highly motivated base of readers,
it is not unusual to expect a premium for its per head price.
Clio Awards 40th Anniversary Reel
https://goo.gl/EU5J0R
The Clio Awards is often called the “Oscars” of the
advertising world. For its 40th anniversary, Clio released
a reel of 121 award-winning ads from across its long
history. Often funny, frequently poignant, and all
possessing insightful creativity, these ads help raise the bar
on what makes for good advertising.
Media Selection and Strategy

Select a widely available product that you believe is not
doing so well in the market. Your objective is to revive
interest in the product, all while maximizing exposure and
minimizing cost. Which tri-media vehicle will you choose
(select only one) and why? Create a mockup of your
message, and explain what reactions (communication
objectives) you want to elicit from your audience.
group.
How well will your groups media strategy work for your
product?

YES NO
topic?
of above-the-line communications?
2. Do you now know the
advantages of each element of tri- ☐ ☐
media?
3. Do you now know why tri- ☐ ☐
media is characterized as one-to-many?
Exercises
Name:___________
Section:__________
Date:____________
I. Discussion
1. Identify a popular TV program that airs on
primetime. Describe what its target market is likely to
be and what products are therefore a fit for this
program.
Program:
Possible target market/s:
Fit for the following products:
2. Aside from cost, what advantages might radio ads

have over TV ads?
3. What can print ads do that broadcast ads cannot?

1. Unlike free TV, cable TV is a paid subscription
service that is typically prevalent ' among middle to
upper classes. Which cable-based TV channels do you
think would be worth advertising in?
2. With ASEAN integration, do you think that there
would be a market for regional publications, such as
magazines or broadsheets? Why or why not? Explain.
3. Think of ways by which you can validate the print
run and even the circulation of a magazine publisher.
LESSON 3
LOW-THE-LINE STRATEGIES
1. be familiar with key tools for below-the-line
communications; and
2. know what it takes to engage in successful
promotions and public relations programs.
Imagine that you are about to go to an interview for your

dream job. To get it, you must fill out the form below. Fill
this out with points about yourself, keeping in mind that
you really want to put forward a good impression!
Who I am:
My strong points:
My weak points:
My biggest accomplishments:
Targeted Communications
Below-the-line tools are all about pinpoint
communications.
If there is a key difference between above-the-line and
below-the-line communications, it may be about how the
former tends to be very impersonal while the latter can be
intimate and personal.
Compared to tri-media, below-the-line communications
are about brand activation or, in other words, getting the
consumers to actually act and do something with one's
product— whether it is learning to use it, discussing the
product with other users, or actually buying it. Tri- media
is effective for generating wide awareness about one's
product, but it is not necessarily the best way to get people
to actually buy them. The latter, however, is one of the
strengths of below-the-line tools. Incidentally, this is also
why a common characteristic of below-the-line campaigns
is that they tend to go where the target market happens to
be.
Below-the-line or BTL campaigns have been gaining
momentum in recent years as more and more firms,
especially smaller firms, see the value of well-targeted
communications.
A real estate marketer may opt to spend for tri-media
exposure for a condominium development or it may spend
instead on setting up a sales module in an area that is
regularly visited by its target market such as an upscale
mall. The latter allows the developer to actually engage
with its target market—fielding questions, providing
materials, and possibly gathering useful contact
information in return.
Three communication tools, in particular, factor heavily
into BTL campaigns. These are promotional programs,
public relations, and, increasingly, social media.
Point-of-sale displays can also factor heavily into BTL
strategies. One cannot emphasize enough the power of a
compelling display to attract consumer attention.
Compaq (now HP) once hired a marketer to design
attractive store displays for their computers. The company
spent $240,000 dollars on eye-catching glossy, multi-
colored cardboard “hoods” that were placed over their
computer monitors and that showed that information about
their computers' features. Sales shot up by 11 percent just
because of these pieces of cardboard! (“Display boosts
sales at Compaq,” 1994)
Promotional Programs
Sales promotions or consumer promotions are tools best
used for compelling the market into immediate action. It
is one thing to get a potential client to like your product
and perhaps even be convinced that it is worth purchasing.
It is another thing altogether to actually get the client to
move and buy the product already.
The following are the most common types of consumer
promotion tools:
Product samples. These include handouts, trial
packages, taste tests, and the like. The purpose of product
sampling is to get consumers to actually try out your
product at no risk. The hope here is that once the market
tries out your product, it will develop a preference for it
and buy your brand from here on.
The actual success rate of product samples, however, is
mixed. Samples work best if your product is really
significantly good or revolutionary, such as in the case of
Post-It Notes which were promoted via aggressive sample
distribution. Otherwise, you may be spending a fortune on
distributing samples that the market may be indifferent to,
as in the case of mature product categories such as
detergents. Consumers may try your sample but still
remain loyal to their current brand because they do not
perceive any significant difference anyway.
Coupons. These give consumers the sense that they
have been entitled to a special discount. Often practiced
by quick service chains such as McDonald's, discount
coupons give consumers a sense of being privy to an
impending bargain and, more importantly, obligates them
to visit the store in order to use the coupon. Coupons are
best coupled with highly trained staff that know how to
upsell to customers so that they end up buying more
products while they are at the store premises.
Price Packs. These pertain to the offering of multiple
goods (product bundles) for a discounted price. Price
packs are often used to push nonmoving goods by
bundling them along with more popular items, hopefully
to get the market to sample the other products at a reduced
outlay.
Premiums. These are free items that are bundled with
products, such as toys that come free with breakfast
cereals. Premiums can be in-pack, out-pack, or off-pack.
In-pack items are the easiest to implement logistically
since the free items are inserted into the box of the item
itself. Out-pack items are free items that are taped to or
attached to the container itself. It increases the logistical
difficulty as stacking the items for shipping and storage
becomes difficult to accomplish. Off-pack items are items
that can be claimed from a separate location upon purchase
of the product. The logistics here mainly involves getting
a salesperson to service the distribution of the items upon
the product's purchase (getting them to do this requires
some bargaining power).
Advertising Specialties. These are promotional items
that are given as tokens of appreciation, usually to third-
party distributors. Examples include calendars, wall
clocks, pens, and the like with the brand or the company
name engraved. Advertising specialties are designed to
(hopefully) bolster loyalty to the firm and its products.
Patronage Rewards. These include frequent flyer
miles on airlines and reward points for credit cards. The
purpose of these rewards is to encourage the consumer into
becoming a habitual user through the collection of these
points which can be exchanged for items or other rewards.
Again, the objective here is to generate loyalty through the
repeated use of the product.
Point of Purchase Promotions. These include point-
of-sale displays and on-site personnel (“promodizers”)
whose job is to convince people to purchase the product
on the spot.
Contests and Games. These include raffles, games, and
spot features in TV variety shows (such as sponsorship of
noontime variety show contests). The hope is that
consumers will buy the products to be able to join the
games as these games usually require the submission of
proofs of purchase.
There are three basic requirements for a sales promotion
campaign to succeed: limited time frame, high stakes, and
ease of participation.
• Limited time frame. A deadline should always
be given for any sales promotion program. For
instance, store sales are most effective if they come
with signs proclaiming “One Day Only!". The
success of mall Midnight Madness sales can be
explained by the fact that they are only happening
for a particular weekend. Raffles also work best
when there is a clear deadline for the submission of
entries. Without such deadline, consumers simply
may not be compelled to participate or avail of the
item immediately and may eventually end up
forgetting about the promotion program altogether.
How long should a promotion program last? A
good rule of thumb is that promotion programs
should last about two months. Shorter than that,
there may not be enough time to mobilize
communications and rally people to join. Longer
than that, however, people may begin to take it for
granted.
• High stakes. The prize or the promotional
dangle that is being brought to the consumers'
attention should be compelling enough to elicit
excitement. Today, for instance, the promise of a
new car in a raffle is no longer considered as
compelling as it used to—consumers have become
jaded. While banks that offer the chance to win a
million pesos just for opening a new account used
to be a very attractive draw twenty or thirty years
ago, today it no longer excites the market as
depositors have already become cynical about their
chances of winning. On the other hand, unusual
rewards or payoffs can still generate excitement,
such as the prospect of winning a date with a
movie star for instance.
Marketers can strike gold by discovering
payoffs that do not cost much to procure but
which generate a lot of attention from the target
market.
• Ease of participation. It should be easy for the
consumers to join the sales promotion program.
Requirements should be kept as simple as possible
and any required efforts should be kept at a
minimum especially when dealing with the mass
market. Traditionally, the simplest way to join a
promo, for instance, was by getting people to write
their names and contact details onto raffle coupons.
But more and more people are finding this to be a
bother, and young people are no longer interested
in filling out forms or coupons.
For a time in the early 2000s, text messaging was
hoped to be the solution to the search for a way to
get consumers to join promo programs with minimal
effort. Contests would require consumers to sign up
by sending formatted text messages to specified
numbers. The problem, however, was that even this
was eventually deemed to be too complicated for the
mass market—many people forget what number to
send their messages to and even more people had
difficulty simply following the text message
templates.
Public Relations
Public relations programs are concerned with, as its
name implies, public opinion. PR campaigns do not
necessarily target customers, but in all probability they are
a part of the audience just the same. The premise behind
public relations is that positive opinions about the firm and
its products eventually translate to easier sales because of
the positive emotional associations with the brand.
On a broader scale, PR is also about ensuring that
influence groups have positive feelings about the company
so that the firm can survive potentially hostile political
environments. For instance, a study by Cone
Communications says that between two products of equal
price and quality, 78 percent of the consumers say that
they would buy from the company that contributes to
medical research, education, and other societal benefits.
Two-thirds of the respondents would even switch brands
to the company that supports worthy causes. A third of the
study's respondents even claim that they are influenced
more by a company's social activism rather than by their
ads alone. (“The Benefits of Being a Good Corporate
Citizen,” 1994)
The following are some of the basic tools for public
relations:
• Press relations. Establishing good relations
with the press is an important step for many firms.
Good relations may mean having an easier time
releasing press releases to the media. Years ago,
press relations were attained through the press
conference—a gathering at a posh venue where
members of the press get invited for a special
announcement. This is still a standard practice for
show business, but it is now becoming increasingly
difficult to implement for corporate affairs
especially for smaller firms. The reason for that is
with so many firms jostling for media attention for
their products, media people find themselves
having to participate in so many conferences. They
can now afford to shut off certain events or even
just “eat and run” with no intention of even posting
about the event.
• Product publicity events. These are typically
events that help launch a new product. Similar to
press relations, product publicity events seek to
garner attention to the products through the
newsworthiness of the launch event itself. To pull
off a newsworthy event, it pays to invite glitterati
and celebrities. It also pays to tie the event to a
worthy cause.
• Corporate communications. These are
materials that hope to further the image of the firm
as a good corporate citizen. Tools for corporate
communications include promotional videos,
handouts, and even well-written annual reports.
• Creative executions. These are specially
designed and made installations that seek to draw
attention to the company, its products, or key
messages. An example of this is a successful
campaign where a sanitary napkin brand outfitted a
certain number of buses with extra-soft seats, on
which were printed messages implying that this
could be how comfortable their napkins would feel
like.
• Public service activities. These include
outreach programs and civic activities, again
furthering the good corporate image of the firm by
associating it with a worthy cause.
• Special events. These are public events that can
help communicate images of what the firm or the
brand is about or what it believes in. An example
would be the Milo Marathon, an annual event that
brings runners together while at the same time
helping to boost the image of Milo as a brand that
is synonymous with fitness.
• Atmospherics. These are nonverbal tools that
communicate something about the nature of the
firm. Atmospherics include the choice of lighting,
colors, building and interior layout, and even the
choice of stationery.
Public relations can also be very opportunity-driven.
Whenever there is a newsworthy matter that is emerging,
this may be a good opportunity to generate nearly-free
publicity for one's product. An example of this would be
during the attempted military coup in Russia in 1991. With
President Boris Yeltsin trapped in the Russian White
House with his staff for days, news media from around the
world congregated at the site to report on what would
happen next. Pizza Hut's Moscow branch decided to take
advantage of this situation by delivering hundreds of
boxes of free pizza and Pepsi to the trapped leaders. So
while the siege of the White House was being shown live
around the world, also highly visible were the constant
comings and goings of Pizza Hut delivery people! (“11
years ago stories,” 2001)
Another example: In 2011, Coca-Cola partnered with
the World Wide Fund for Nature to construct a 3,600
square foot billboard in Makati City with an image that
was made out of 3,600 potted Fukien tea plants. The plants
were able to absorb as much as 46,800 pounds of carbon
dioxide per year, while the materials, such as the pots,
were made from discarded bottles of Coca-Cola products.
In doing so, Coca-Cola managed to create an ad that in
itself was also publicity-worthy: newspapers promptly
reported about how Coke had created a billboard that
actually reduced pollution (Goldmark, 2011).
Social Media
Social media refers to online communities, led primarily
by key social media sites such as Facebook, Instagram,
and Twitter. Social media has quickly exploded in
popularity, with over 30 million Facebook users in the
country and growing.
Do websites count as social media? The answer is no,
unless the website has a community component built in
such as a discussion board where consumers can exchange
information and interact regarding the product. Otherwise,
static websites do not count as social media.
Do bloggers count as social media? Bloggers are not
technically social media by themselves but they certainly
can help stimulate social media buzz. But not all bloggers
are created equally.
A blogger is akin to an online feature writer. While there
are bloggers who write with a genuine intent to inform in
a fair and unbiased manner, there is the fact that most
bloggers write with the hope of either being paid or being
given material remuneration, such as free shoes from
sponsoring brands if the blogger writes about footwear or
free meals if the blogger writes about restaurants. Not all
bloggers can or will be useful to communication efforts.
In fact, many of them will simply hope to get free items
out of you so be prudent with your invitations. Good
bloggers are influencers who have a lot of pull with a very
specific community. For
instance, there are tech bloggers who are avidly
followed by technology hobbyists, and there are so-called
“mommy bloggers” who have young mothers as ardent
followers. If you want to stimulate social media buzz from
any such group, then it helps to identify their key
influencer (who likely will turn out to be a blogger).
The current social media triumvirate that works well for
many enterprises (for now) is Facebook, Instagram, and
Twitter.
• Facebook can now serve as the home site for
many brands. In fact in the past, it was considered
an imperative for businesses to have a website. But
many firms today are foregoing websites in favor
of just having a page on Facebook which is easier
to maintain and to set up. They are doing pretty
well even without having to have a website.
Facebook serves to host news items and
announcements.
• Instagram serves as the site for visual
communications, such as product shots. Instagram
has a greater appeal to a younger audience that
prefers visuals to text (whereas Facebook tends to
have an older crowd). The Instagram account
meanwhile is linked to the Facebook account.
• Twitter serves as the announcement channel,
serving out teasers about new developments, new
products, and breaking news. More importantly, it
serves links that direct followers toward the
company's Facebook page.
Because social media is about engagement, it is
imperative that businesses assign someone—a social
media specialist—who will constantly monitor the firm's
portfolio of social media accounts in order to address
possible questions and concerns in a prompt manner. This
person will also have to be properly trained in order to
fully understand the nature of the product. The person is
representing the brand, rather than himself or herself, so
he or she should not manifest individual personality but
the personality of the brand. Training would also involve
the construction of the “character” that the social media
specialist should embody, which is suitably appropriate
for the brand, so that social media responses are always
done in character.
Lastly, the social media specialist's role is also to engage
the brand's followers by posting entries that can stimulate
likes, shares, and comments. Creative use of hashtags can
also stimulate sharing across social media platforms.
Eventually, when evaluating the performance of the firm's
social media portfolio, these likes, comments, and other
interactions play a role in quantifying the success of the
initiatives.
What Lies Below the Line?

https://goo.gl/JjlUzF
This short reading from The Smart CEO uses consumer
goods giant J&J as an example and explains what makes
below-the-line executions different from those above-the-
line.
Mini-Case: Nescafé Ups Its Facebook Game
Many businesses have Facebook pages. In fact, a
Facebook page these days is no longer remarkable by
itself. But it can still be a potent marketing tool when used
properly in coordination with other elements of a
marketing campaign.
Nescafé is one of the most popular consumer brands in
the Philippines, its instant coffee being a staple in a large
number of households. But even then, the brand has been
facing ever increasing competition from other categories
such as teas and juices, as well as from aggressive and
cheaper instant coffee brands.
Faced with an increasingly competitive environment,
Nescafé sought to gain greater loyalty from its consumers
of ages 18 to 24, with the knowledge that securing their
loyalty at this early age would pay off in the future as their
coffee consumption grows (Campaign Asia- Pacific,
2012).
Nescafé tied up with a digital marketing group, MRM
Worldwide, and set to work boosting customer
engagement in its various social media. Immediately, they
noted how the Nescafé Facebook page, while having
350,000 “likes” on it, was essentially an inert page with
hardly any new content or activities on it. MRM decided
that these 350,000 likers could in fact be the first line of
potential brand loyalists that the brand could eventually
rely on.
MRM's insight was that Facebook engagement begins
in a consumer's own feed and not on the brand's page
itself—there was no reason to visit the brand page unless
something was afoot. MRM therefore created a content
plan, with attention-getting status messages, that could be
pushed into the feeds of the brand's hundreds of thousands
of fans.
Once the fans clicked toward the Nescafé page, they
would be greeted by a number of applications that
encouraged them to participate in social activities, such as
online contests and other promotions. These activities
were also fueled by rewards mechanism which allowed
fans to earn points as they engaged with the page apps
through active participation and even through their
comments.
Eventually, the Nescafé Facebook page became a virtual
café—a place for fans to hang out in, meet new friends
(with similar interest in Nescafé), and even earn points.
The result: thanks to the campaign, 97 percent of the
surveyed fans claimed that they were more willing to drink
Nescafé than ever before. The number of followers also
exploded to 1.6 million—which was even more than that
of the international Nescafé fan page itself! As far as the
bottom line was concerned, the campaign also helped
Nescafé gain a nine percent increase in market share in the
country.
Build a Social Media Campaign

Identify a small food place or diner that currently has no
presence in social media. Propose a social media strategy
that this business can actually implement to its advantage
(with clear objectives), making sure that the strategy
would entail just a minimal cost to implement.
How promising is your group's social media campaign?

group.
YES NO
topic?
1. Do you now know the premises ☐ ☐
behind below-the-line strategies?
2. Do you now know the key ☐ ☐
elements of below-the-line strategies?
3. Do you now know the key
considerations for a promotional ☐ ☐
program?
Exercises
Name:___________
Section:__________
Date:____________
I. Discussion
1. What are some possible reasons for a firm to
overextend a sales promotion program? What are the
possible adverse effects of such an extension?
Reasons to extend program:
Possible adverse effects of extension:
2. Give an example ofa product that gained your

interest purely from its communications on social
media. What made it compelling for you? Analyze this
and come up with your own generalizations about what
makes social media communications compelling.
Product:
How it caught your attention on social media:
Your conclusion/s about what social media can do:
3. Give examples of public relations efforts that a small

business, such as a neighborhood hair salon, can
undertake with a minimal budget.
1. What advantages does a small business with a lively
social media presence have over a similar business that
does not have it? What does a social media presence
provide for the business?
2. If you were selling a product, such as life insurance,

that you hope would appeal to call center workers, how
do you plan to reach them using below-the-line
techniques?
3. Do you think that below-the-line strategies can

completely replace communications that are normally
done via above-the-line tools? Explain why or why not.
Pizza Hut: “Hate Late?” and Its Successfully Efficient
Campaign
Pizza Hut has been the first-mover for home deliveries,
having launched the first wide-scale home delivery food
service in 1989. It even pioneered in the one- number
express delivery service, as well as the offering of “hot
pouch” delivery bags that kept pizzas hot upon delivery.
But competitors have been catching up, with primary
competitors Shakey's and Greenwich also offering one-
number delivery, hot pouches, and even aggressive
advertising. Pizza Hut needed a communication campaign
that would preserve its leadership status for delivered
quick-service foods.
The target markets were young adults as well as young
families that were looking for bonding rituals (home
delivery as a mini celebration). Pizza Hut decided to focus
on the need for wanting food to be delivered on time and
the communication objective was to remind the market
that Pizza Hut was about timeliness and quality. This led
to the “Hate Late?” campaign.
Foregoing too much reliance on expensive tri-media,
Pizza Hut decided to strike where its target market was
particularly during times of waiting. This way, the market
will associate their hate of waiting with a wish for Pizza
Hut timeliness.
It was a 360 degree campaign that aimed to be where
the target audience was. Delivery bikes were all
emblazoned with the “Hate Late?” banner and colors. Bus
stops and other waiting areas were plastered with Hate
Late posters. The company even did text blasts of
Christmas greetings in January (ending with the “Hate
Late?” message). By being where the market was rather
than spending on tri-media, “Hate Late?” became a huge
success even with a low total outlay. The success was
validated by consumer brand image gap surveys that
showed Pizza Hut increasing the perceived quality gap
between its brand and its main competitors' by a
significant factor after the campaign.
Pizza Hut sought to increase its quality lead versus its
competitors and, in the end, managed to do so with
minimal expense.
In this chapter, we put together what we have learned

thus far to construct a viable marketing communications
plan. Also provided is a template that can help you come
up with a marketing plan in as easy manner as possible.
Lesson 1
THE MARKETING
COMMUNICATIONS PLAN
1. be familiar with the essential contents of a marketing
communications plan; and
2. be able to put together a basic marketing plan for a
proposed product.
1. Give an example of an instance when you put

together a plan. Was it useful? Do you think you would
have been as effective without the plan?
2. If you were to be asked to create a marketing plan

for any brand or product in the world, what would you
choose? Why?
Putting All the Points of Communication

Together.
As we have noted repeatedly throughout this textbook,
marketing is all about communications. All the elements
that have thus far been discussed are actually elements that
help send messages to the market. From the brand, to the
price, the choice of distribution points, and the actual
promotions, everything helps to build a construct of what
the product should be perceived by the market.
Of course, if the messages are not coordinated, then the
communications can easily fail. For instance, your
product's price may be at a premium and yet the packaging
appears to be flimsy and cheap. The advertising may
appeal to an upscale clientele, but the service personnel
turns out to be intimidated by the prospect of speaking
with educated buyers.
This is why the marketing communications plan (or
simply the marketing plan) is an essential management
tool. It is a document that can aid in ensuring that all points
of communication are coordinated and not contradictory.
The way to do this is via a top-down approach where
communication objectives are clearly laid down at the start
so that everything can fall into place.
Marketing plans can be put together for new products or
for existing products—so long as it is a product that
requires a communication intervention, then a marketing
plan can be put together for it.
It should be noted that a marketing plan is not any of the
following:
• Business plan. A business plan is a road map for
a business. It is involved more with analyzing a
current business model and proposing strategies for
making it achieve critical objectives. It is not
necessarily about resolving market communication
issues, so business plans do not always address
market issues. Business plans may tackle issues
such as operational challenges, human resource
problems, or financial challenges. With that said, if
a business plan does in fact focus on market issues,
then it is practically a marketing plan.
• Feasibility study. A feasibility study is a
proposal for a new business. Here, everything is
still in a conceptual phase, down to the market
opportunities that seek to be addressed. A
feasibility study may include a section that behaves
like a marketing plan as it outlines market
communication strategies for the proposed
business. But as a whole, a feasibility study is all
about whether or not a business idea can fly—
mapping out all the tasks that have to be
accomplished, the investment that needs to be
poured into the enterprise, and the expected return
on investment.
The marketing plan is a more focused document. It is all
about using the communication tools that are available to
a business in order to alter the behavior of the market so
that business goals can be achieved.
The basic framework for a marketing communications
plan would look like the following:
I. Executive Summary
Brief description of the challenge that has been selected,
along with an overview of the proposed product strategy
and what it seeks to accomplish.
II. The Challenge
Details of the challenge that is to be undertaken. What
is the situation that led to it? What compelled you to take
up this challenge?
Possible challenges:
• New product offering
• Product repositioning and relaunch
• Taking advantage of a new market opportunity
III. Situation Analysis
a. Environmental Analysis
o Political, economic, socio-cultural, and
technological. What are the relevant trends that
should be noted?
b. Company analysis (if applicable)
o Description of the company behind the product,
its resources, other products, and strengths and
weaknesses.
c. Market Analysis
o The market segments available: their
characteristics, preferences, and buying behavior,
and the market size for each identified segment.
d. Competitor Analysis
o List of competitors: their strengths and
weaknesses, market shares, and product positions.
e. SWOT Analysis
o An integrative summary of the environmental
factors previously listed, hinting at the potential
strategies that could be taken.
IV. Communication Strategy
a. Positioning strategy for the product
o Market position, unique selling point, and how
it will compete with competitors and substitutes.
o What is your main message?
b. Market segment that is targeted
o Description of market segment: how it is
different from other markets, behaviors, and
preferences.
o How the proposed product plans to appeal to
them.
c. Product strategy
o Brand, packaging, message, and benefit offered.
d. Price strategy
o SRP, promo pricing, comparisons with
competitors, and product line pricing.
e. Place strategy
o Distribution methods, locations, and logistics.
f. Promotions strategy
o Communication challenge.
o Communication plan and objectives.
o Selected media and message strategies.
V. Metrics and Targets
A list of metrics that would help in assessing the
progress, performance, and eventual success of the
marketing plan. This can include revenues earned, sales
growth, number of stores, and other measurable and
quantifiable figures.
The key parts of the plan are detailed below:
The Challenge. This is an encapsulation of the situation
that is triggering the creation of the marketing plan in the
first place: Is there a problem that needs to be addressed?
Is there a market behavior that needs to be modified? This
section should be able to clearly explain to a reader why
the marketing plan needs to be undertaken in the first
place, along with an elaboration of key insights that can be
availed of, such as environmental opportunities and
market observations.
Possible challenges include:
• A new product is to be launched in the market
and requires a buildup of brand awareness. This
section should describe the new product, its
intended markets, and along with insights on the
market or environmental opportunities that the new
product seeks to take advantage of.
• A product that is already in the market but is not
selling well. This section should briefly describe
the product, its current sales performance, the ideal
or target sales performance, and key background,
insights, or hypotheses that could explain why it is
not selling as much as originally expected.
• An environmental opportunity has opened up
and the product has to be retrofitted and
repositioned in order to take advantage of it. This
section should briefly state the current positioning
of the product as well as the positioning that it will
have to undertake in order to appeal to the new
market.
Remember that this section is all about describing the
situation that would require a communication
intervention.
Situation Analysis. This section is all about providing a
clear picture of the environment that the product is or will
be in. Trends play a very important role here so identify
all possible trends that may be worth noting. While the
current situation may change by the time
thecommunication plan rolls out, trends may represent the
potential state of the environment by the time the plan is
being implemented.
The end objective of this section is the construction of a
SWOT analysis that can help in strategy formulation by
presenting the most critical strengths, the likely
weaknesses, market opportunities, and environmental
threats that the communications should navigate through.
Communication Strategy. This section is all about the
recommended communication plan that seeks to address
the presented challenge in particular by availing of the
environmental circumstances as filtered through the
SWOT analysis.
In order to immediately and clearly present the strategic
direction of the communication plan, it is highly
recommended that this section immediately begin with the
proposed positioning statement for the product involved.
The basic template for this positioning statement would
be:
<Product name> will be the < position> for the <target
market>, <elaboration>.
Examples:
1. Intelligence Bank will be the intelligent choice for
the executive class, providing sophisticated financial
instruments not found in other banks.
2. Cream Nation ice creams will be the creamiest,
milkiest frozen treats for children of up to 12 years old,
with superior mouth feel that cannot be matched by
other frozen treats.
3. The Rotisseria will be the destination of choice for
thick, premium barbecued pork ribs in a delightfully
luxurious setting for the more sophisticated fine diners
of Cebu City, offering prime Australian pork ribs that
are meatier and juicier than what are usually available
in other restaurants. Properly constructed, the
positioning statement should easily embody the unique
selling point of the product. Considering that the
promise of a marketing plan is integrated
communications, the positioning statement should be
able to set the tone by zeroing in on precisely what the
product seeks to communicate.
Everything else that follows in the marketing plan
should be aligned with and supportive of the proposed
positioning.
This also means that the positioning statement should
already address the challenge that has been presented.
Example:
The Challenge: Bechamel Heights was once a popular
hotel destination for travelers to Batangas. But as more
hotels and resorts opened over the past five years, sales
have declined to critical levels. Customer interviews
reveal that tourists now find Bechamel Heights too “old
fashioned” and “outdated” as compared to the amenities
of the newer hotels.
SWOT strength: Bechamel Heights is the only hotel in
the area that features a spacious, Old World atmosphere
that may appeal to sophisticated seniors.
Positioning: Bechamel Heights shall be recognized as
the sophisticated, luxurious alternative among all other
resorts, favored by retirees, empty-nesters, and seniors
with higher disposable incomes. It provides the most
spacious rooms, marbled elegance, and impeccable
service that can be compared with that of five-star hotels.
If possible, the positioning can be further concretized
and visualized through the use of positioning maps.
The target market will then be discussed in detail,
covering its attitudes, preferences, and behaviors as well
as (hopefully) revealing insights about the market that can
be taken advantage of to further the plan's objectives. Are
there inconveniences that the market currently puts up
with that can be addressed? Are there expectations that are
not being met by any brand in the product category?
Finally, the four Ps (product, price, place, and
promotions) of the communication strategy need to deliver
on the promise of the positioning statement. Each of the
four Ps needs to be calibrated or recalibrated in order to tie
in with the planned positioning of the product. If it is an
upscale product that needs to be down-marketed in order
to appeal to a broader audience, then the price may have
to be set lower and the product's distribution made
broader. For instance, formerly English ads reworked into
Filipino to appeal to the mass market.
Metrics and Targets. These are the tools for evaluating
the performance of the marketing plan upon
implementation. It provides a clear basis for determining
whether or not the plan becomes a success. The
formulation of metrics and targets will be discussed in the
next lesson.
Sample Marketing Plan for Mobile News
Games
http://goo.gl/3J1ifa
This is a sample marketing plan that is provided by
morebusiness.com. It presents a hypothetical example of a
marketing plan for a tech business that seeks to produce
games that are related to current events. The format may
be slightly different from what is presented in our lesson
but all the elements are nevertheless there.
A Mini Marketing Plan

Your group is to create a new line of snack foods that
should appeal to your classmates. You are to build up a
mini marketing plan around your product concept that
would answer the following points:
1. Identify an opportunity in the market or an insight
about what kind of snack might appeal to students but
which has yet to be seen in the market.
2. Create a positioning statement that sums up the
positioning of your proposed product.
3. Briefly describe how the 4Ps are to be set up in order
to build up your product's positioning.
How promising is your group's marketing plan?

YES NO
topic?
of a marketing communications plan?
2. Do you now know how to ☐ ☐
identify a marketing challenge?
3. Do you now know how to write ☐ ☐
a positioning statement?
Exercises
Name:____________
Section:__________
Date:__________
I. Discussion
1. Name a product or service that you may consider
making a marketing plan about. ' What is its unique
selling point and what do you think is the best way to
communicate this selling point?
2. Imagine that you had a restaurant. What are some
ways by which you could communicate its existence, its
foods, and its services without having to directly spend
anything?
3. Think of a product that is not doing well. Write
down the marketing challenge that it faces. What is the
reason why it is not doing well and what should be done
to correct
1. Would a very small enterprise, such as a
neighborhood barbecue stand, benefit from having a
marketing plan? Why or why not?
2. If you were to choose, what do you think would be

the most important section of a marketing plan?
Explain.
3. How long do you think would it take to make a

marketing plan? What do you think would be the
elements that would require the most effort to put
together?
LESSON 2
DESIGNING THE METRICS AND
TARGETS
1. understand why performance monitoring is an
essential part of the marketing plan; and
2. be able to design sensible key result areas, key
performance indicators, and targets for marketing
programs.
1. Explain, in your own words, your understanding of

what a target is as applied to business performance.
2. What do you think would happen if you execute a

plan but do not have clear ways of defining what
“success” for it means?
Metrics and Targets
How do we know if the marketing plan is in fact a
success? This section lays out the monitoring guidelines
of how the marketers seek to evaluate the performance of
the marketing plan as it is implemented, as well as laying
out the key indicators for success.
In order to determine whether or not a plan is
performing up to par, the marketing plan's objectives must
first be set up to be quantifiable in the first place.
Objectives should therefore follow the SMART
mnemonic:
The objective must pertain to a
• Specific specific area of improvement.
The objective should lend to being
• Measurable monitored in a numerical manner.
The objective is modular enough to
• Assignable be delegated to a group or
individual.
Time-bound The objective has a
• Realistic deadline.
An objective that is not specific enough will be difficult

to evaluate. For instance, an objective of “Improving the
store” is vague and therefore difficult to translate into
actions or even observable performance. A better
objective would be “Improving the store visibility” as this
zeroes in on a specific actionable area.
An objective that is not measurable cannot be
monitored. For instance, an objective of “Enhancing the
customer's thinking power” may be useful as a tagline, but
it is difficult to measure without resorting to highly
intrusive psychological research tools. Without this ability
to measure it, the objective becomes all but useless.
Objectives should not be too ambitious in their attempt to
monitor product performance. Instead, the objective may
focus on a much simpler “Customer satisfaction”
objective, that is easier to monitor via a simple customer
feedback form. The underlying premise here is that if the
customer is satisfied with the product, then perhaps the
customer perceives it to, in fact, be working as an
improver of his or her thinking powers.
As an example, food service expert Douglas R. Brown
(2007) writes that restaurant customers have certain
expectations when they dine out:
From order to delivery, guests expect their drinks within
two minutes, appetizers in five to ten, entrees in 15 to 25,
and dessert in three to five minutes. Check turnaround
should take no more than two minutes. At the beginning
and end of a meal guests are the least tolerant of delays.
Make sure your staff does not keep customers waiting after
they have been seated or when they are ready to leave.
Therefore, if the above expectations are set as restaurant
goals, the metrics should revolve around ensuring that
these are actually performed. The restaurant can hire
mystery shoppers, for instance, to occasionally check on
actual service performance at random intervals.
An objective that is not assignable cannot be executed
with efficiency. Objectives should be easy to assign to
specific groups or individuals so that there is clear
responsibility for itsaccomplishment. If someone cannot
be put in charge of a particular objective, then it cannot be
viably used.
An objective that is not realistic will only serve as noise.
For instance, an objective of doubling last year's sales
when historically sales have only been growing by 5
percent per annum, may only be met with derision and
incredulity particularly by the sales organization.
Objectives need to be challenging enough to stretch and
challenge the organization, but not impossible.
Finally, objectives must be time-bound or given a set
deadline for its accomplishment. If an objective is not
time-bound, then there is no sense of urgency and the
organization may not take the objective seriously enough,
resulting in the objective never being accomplished.
KRAs, KPIs, and Targets
Objectives can be broken up into intended outcomes,
measurable indicators, and actual numbers to hit. These
correspond to the key result areas, key performance
indicators, and targets.
At the heart of metrics and targets would be the Key
Result Areas (KRAs). These are the objectives that, taken
together, lead toward the desired outcome in terms that can
eventually be quantified. The method for quantification, in
turn, is spelled out via the Key Performance Indicators
(KPIs). There should be at least one KPI per KRA. It is not
advisable to have more than three KPIs per KRA because
too many KPIs can only lead to confusion and a greater
likelihood for inconsistencies to emerge.
Finally, Targets present the actual targets that should be
reached for each KPI. A target should be both quantifiable
and time-bound. In other words, the target is a definite
numerical figure and there is a definite deadline that is
given for its accomplishment.
The following table gives examples of KRAs, along
with sample corresponding KPIs and targets.
Table 8. Sample Performance Metrics
Key Result Area Key Performance Indicator
Target
(KRA) (KPI)
Increased Number of affiliate stores 50 new affiliate stores opened

geographical reach Number of regions with by year-end 3 new regions
for the product product availability penetrated by year-end
20 percent increase in
Improved service Improved customer
customer satisfaction survey
quality satisfaction scores
rating by the 3rd quarter
15 percent increase in
Improved speed of
number of customers served
service delivery
per day by mid-year
10,000 Facebook likes by the

Number of Facebook likes
Increased customer second month
on home page
engagement 25,000 Twitter followers by
Number of Twitter followers
the third month
10 Online Marketing Metrics You Need to
Be Measuring
http://goo.gl/egCaee
So your company has a website. What now? Well, you
will need to evaluate its performance on a regular basis.
This article from Forbes gives key metrics that online
marketers need to monitor in order to gauge their customer
engagement and web performance.
Evaluate Your Cafeteria or Food Place

Your group is to establish metrics in order to properly
assess your school's cafeteria or one of the students' most
popular food destinations.
1. Identify what the most important criteria should be
for evaluating the place and list them in order of
importance.
2. Translate your identified criteria into Key Result
Areas (KRAs).
3. Define Key Performance Indicators (KPIs) for each
identified KRA.
Presentation time: an estimate of 10 minutes per group
How sensible is your group's evaluation design?
How sensible is your groups evaluation design?

YES NO
topic?
1. Do you now know why metrics ☐ ☐
are needed in a marketing plan?
2. Do you now know how to craft ☐ ☐
Key Result Areas?
3. Do you now know how to craft ☐ ☐
Key Performance Indicators?
Exercises
Name:______________
Section:__________
Date:__________
I. Discussion
1. You are rolling out a new healthy fruit juice and you
want it to be available in as much of the Philippines as
possible. Give three KRAs that can help you monitor its
distribution performance.
KRA 1.
KRA 2.
KRA 3.
2. An app development company has just released a

new game for smartphones and is hoping to make it go
viral in order to become a bestselling app for the
Philippine market. Give three KRAs that can help it
achieve its goal.
KRA 1.
KRA 2.
KRA 3.
3. You have a KRA of increasing social media

attention to your brand. What KPIs would you
recommend to monitor this KRA? Give three possible
KPIs.
KPI 1.
KPI 2.
KPI 3.

Knowing what you know by now...
1. Will a tiny neighborhood food stall benefit from
designing its own KRAs and KPIs? Would these be
truly useful or would these simply be a bother for the
owner to maintain?
2. If a company fails to meet its designated KPIs, such

as if a restaurant does not meet its target number of
customers, what should it do?
3. Under what circumstances do you think should

KRAs and KPIs be modified (thereby altering what was
in the original marketing plan)?
LESSON 3
MARKETING PLAN TEMPLATE
1. produce a complete and reasonably detailed
marketing plan; and
2. understand what is involved in producing an
integrated communications strategy for a product.
1. Decide on a product that you want to create a

marketing plan about. Explain why you chose this and
what you feel your innovation here could be.
2. For your identified product, summarize your planned

positioning using the following template: <my product>
shall be the <positioning> for the <target market>.
Explain.
In this section, you shall finally be putting together a

reasonably comprehensive marketing plan. Before
anything else, you will first have to do some pre-planning:
what product do you really want to work on and what is
your key insight about the market that you would want to
take advantage of?
To inspire you into discovering key insights about your
market, here are a few examples of market insights:
• Filipinos want their food not just to taste good
but also to smell good. (Jollibee)
• Most people do not eat the pizza crust. So, let us
make the crust interesting by stuffing it with
exciting ingredients. (Pizza Hut)
• Electricity is not just a utility but an opportunity
to create a lifestyle. (Meralco)
• The following is the template for constructing
your marketing communications plan.
The Challenge
The marketing situation: problem to be resolved or
opportunity to be availed of. Include product or market
insights whenever possible.
Situation Analysis
Environmental Analysis
Assessment of critical areas regarding the external
environment whenever applicable. Keep an eye out for
significant and relevant trends, opportunities, and threats
in any of these areas.
Political
Economic
Socio-cultural
Technological
Company Analysis
Assessment of the company's capabilities as well as the
brand or product's competencies whenever applicable.
Company resources; strengths and weaknesses
Product/brand resources; strengths and weaknesses
Market Analysis
Enumerate all viable market segments along with their
respective characteristics, profiles, estimated market size
(if possible), key behaviors, current products available,
and needs and demands. Note down key insights and
opportunities per market.
Market A
Market B (if applicable)
Market C (if applicable)
Competitor Analysis
Enumerate the principal competitors or even critical
substitutes that represent the key players in the product's
battlefield. Identify strengths, weaknesses, market shares
(if possible), and product positioning for each.
Competitor A
Competitor B
Competitor C
Current Positioning Maps

Identify relevant axes for the map and plot the
competitive arena here. Identify the key players and how
they relate to one another in a spatial context.
Positioning Map 1:
Positioning Map 2:
SWOT Analysis
An integrative summary of the company and product's
strengths and weaknesses versus the environmental
opportunities and threats.
Strengths Weaknesses
Opportunities Threats
Communication Strategy
Positioning Statement
Concise statement of the positioning that needs to be
accomplished, in this format: <brand/ product> will be
<product position> for the <target market>. Follow this
with an elaboration or explanation of the positioning.
Positioning statement
Elaborate on the positioning statement
Target Market
Specify the selected target market. What makes it
different from other markets, key behaviors and key
insights about this market, and what products they likely
patronize (if any). Emphasize what it is about your
proposed product position that should appeal to them.
Target market
Product Strategy
Discuss the brand, the product benefits and features, and
its packaging and product mix issues, if any. How does the
product design help achieve the proposed position?
Price Strategy
Discuss the overall price strategy for the product, its
SRP, comparison with price points of your competitors or
your product mix, and discounting schemes (if any). How
does it help achieve the proposed position?
Place Strategy
Discuss how you plan to distribute your product,
recommended locations, how you plan to motivate the
distribution system, and what roles and responsibilities the
distribution points should play. How do all of these help
achieve the proposed position?
Promotions Strategy
Discuss the promotions tools that will be utilized in
order to communicate the proper message about the
product. Discuss how these will help achieve the proposed
position.
Communication Objectives
Above-the-Line Strategies (if any)
What media will be utilized and what are the specific
communication strategies per media type?
Below-the-Line Strategies (if any)
What other media or communication tools will be
availed of (e.g., raffles and taste tests) and what are the
specific communication strategies per communication
tool?
Metrics and Targets
List down the KRAs, KPIs, and targets that you believe
will have to be monitored in order to properly manase the
plan toward the achievement of the challenge.
Key Result Areas Key Performance Indicators Targets
Developing a Marketing Plan
https://goo.gl/X4QavH
This guide from the US Small Business Administration
gives a useful summary of what should be considered in
order to make a more effective marketing plan.
Insight Generation
Your group is to choose a product and a corresponding
target market (it could be from one of your group
members' marketing plans).
1. Describe this target market in detail by creating a
hypothetical person who is a member of this market.
What does this person do, how does this person relate to
the product, how does this person spend free time, etc.
2. Brainstorm among your groupmates in order to
generate possible insights about this selected target
market.
3. Come up with possible ways to transform these
insights into product features.
How promising is your group's marketing plan?

YES NO
topic?
1. Do you now know how to put ☐ ☐
together a marketing plan?
2. Do you now know how the
elements of a marketing strategy work ☐ ☐
together to create an integrated plan?
3. Do you now appreciate the value ☐ ☐
of the market insight?
Exercises
Name:_____________
Section:__________
Date:__________
I. Discussion
1. Discuss what was the most difficult part of creating
the marketing plan for you.
2. What part of the marketing plan excited you the

most or gave you a chance to exercise your creativity?
Did it show in your output?
3. As you went through the process of putting together

your marketing plan, did you experience any new
discoveries or insights about the product, the market, or
the environment? If so, explain.

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Marketing is an art, a science, and a field of discipline.

1. Define marketing in your own words, based on what

2. Give three examples of products that you regularly

Figure 1. The Generalized Marketing System.

4 Principles of Marketing Strategy

Sell Your Money!

How well did you comprehend the topic? Yes No

1. Explain in your own words what a “need” is.

2. Give three examples of products that you want to

Figure 2. Maslow's Hierarchy of Needs

The New Beverage Project

How well did your group resolve a market need?

How well did you comprehend the topic? Yes No

3. Think of a very expensive product that you aspire to

More economical alternative

4. Imagine now finally having the budget for buying

If no, why not?

What needs are you actually satisfying

II. Application and Advancement

2. Speculate on how specific products can

3. Discuss how much a consumer must spend in order

1. Using your own words, define evalue. Try to really

The Origins of Marketing

Figure 3. Sources of Value as Product Arrives at Your

It Is the Little Things: Adding Value without

Build a Better Product

How well did you comprehend the topic? Yes No

Who do you think the typical buyer is?

2. Recall a time when you were not happy with a

Reason/s for this

3. Explain the concept of sentimental value. What type

2. If you are a condominium developer, can you think

1. How does a television network make money?

The following are two success stories in Philippine

The Radio Station

How well did your group resolve a market need?

How well did you comprehend the

2. If ABS-CBN did not have the rich financial backing

3. URC created a new product category instead of

2. GMA-7 used to target the mid- to upper-income

3. In 2010, TV5, another TV network, relaunched and

You cannot just make a product and sell it in a vacuum.

2. Give three examples of promising products that

The Marketing Environment

Figure 4. The Components of the Business Environment

Figure 5. Porter's Five Forces Framework of

Post-Demographic Consumerism in Asia

Apply the Five Forces

How well did you comprehend the

II. Application and Advancement

1. State an observation about how people behave when

2. You are assigned to gather information about how

The Marketing Information System

Figure 6. A Company's Market Information System

Figure 7. The Market Research Process

How Companies Learn Your Secrets

The Observation Exercise

How well did your group discover new behaviors?